PASADENA, Calif., Aug. 1, 2016 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) announced financial and operating results for the second quarter ended June 30, 2016.
Total revenue of $226.1 million, up 11%, for 2Q16, compared to $204.2 million for 2Q15;
Executed leases for 816,512 RSF during 2Q16, even with minimal contractual lease expirations in 2016 and our highly leased value-creation pipeline;
Rental rate increases of 27.1% and 9.3% (cash basis) during 2Q16 for lease renewals and re-leasing of space aggregating 647,268 RSF (included in the 816,512 RSF above);
Same property NOI growth of 4.9% and 6.4% (cash basis) for 2Q16, compared to 2Q15; and
2Q16 key development projects placed into service:
295,609 RSF to Illumina, Inc. at 5200 Illumina Way
51,040 RSF to Dana-Farber Cancer Institute, Inc. at 360 Longwood Avenue
62,595 RSF, including 34,017 RSF of vacancy, at 430 East 29th Street; improvement of initial cash yield to 7.0% from originally disclosed yield of 6.6%.
Results
2Q16
2Q15
Change
1H16
1H15
Change
Net (loss) income attributable to Alexandria's common stockholders – diluted:
In Millions
$
(127.6)
$
31.3
N/A
$
(131.5)
$
49.1
N/A
Per Share
$
(1.72)
$
0.44
N/A
$
(1.79)
$
0.69
N/A
FFO attributable to Alexandria's common stockholders – diluted, as adjusted:
In Millions
$
101.1
$
93.6
8.0%
$
198.2
$
185.0
7.1%
Per Share
$
1.36
$
1.31
3.8%
$
2.70
$
2.59
4.2%
Key items impacting net (loss) income and EPS attributable to Alexandria's common stockholders
(amounts are shown after deducting any amounts attributable to noncontrolling interests):
(in millions, except per share amounts)
2Q16
2Q15
2Q16
2Q15
Amount
Per Share – Diluted
Impairment of real estate (1)
$
155.6
$
—
$
2.09
$
—
Preferred stock redemption charge
9.5
—
0.13
—
Total
$
165.1
$
—
$
2.22
$
—
Weighted avg. shares of common stock outstanding
74.3
71.4
(1) Primarily relates to impairments of real estate located in Asia. Refer to page 56 of our Supplemental Information for additional information.
Balance sheet management and disciplined allocation of capital
Repurchased 1.0 million shares of Series D cumulative convertible preferred stock for $33.7 million, or $33.69 per share;
$348.4 million gross proceeds from issuance of common stock under our ATM program; we anticipate filing another ATM program in the future;
Executed two separate joint ventures for sales of partial interests in two San Diego properties:
Aggregate proceeds of $256.3 million will be received primarily in 2016
Cash capitalization rate of 5.7% (reflects Eli Lilly and Company lease expiration and relocation)
One joint venture closed in June 2016 and one will close in 2H16;
Closed a $304.3 million secured construction loan for 100 Binney Street;
In July, we amended our unsecured senior line of credit and increased aggregate commitments available for borrowing to $1.65 billion, extended the maturity date to October 2021, and reduced the interest rate by 10 bps to LIBOR+1.00%; and
Disciplined allocation of capital to value-creation pipeline of highly leased Class A buildings in urban innovation clusters, representing 35% NOI growth over 2015:
Delivery Date
RSF
Leased %
Incremental Annual NOI
1H16
413,535
92%
$14 million
2H16
1,056,733
90%
$51 million to $56 million
2017-2018
1,987,948
74%
$130 million to $140 million
3,458,216
81%
$195 million to $210 million
Timely, fully funded strategic acquisition
In June 2016, we entered into a definitive agreement to acquire One Kendall Square, a 644,771 rentable square feet ("RSF"), seven-building collaborative science and technology campus in our key East Cambridge urban innovation cluster submarket. The purchase price is $725 million, including the assumption of a $203.0 million secured note payable. We expect to obtain approval by the lender for the loan assumption in the coming months and complete the acquisition soon thereafter.
In July 2016, we executed an offering, subject to forward sale agreements, to sell 7.5 million shares of common stock at a public offering price of $101.00 per share. The forward sale agreements allowed us to lock in the price of the shares (subject to certain adjustments) to fund the pending acquisition of One Kendall Square. We expect to settle the forward sale agreements after obtaining approval by the lender to assume the One Kendall Square loan and completing the acquisition of One Kendall Square (see "Subsequent Events" below).
Accelerated timing of lower leverage goal
Accelerated timing of net debt to adjusted EBITDA goal with 0.3x improvement by 4Q16 with a portion of proceeds from the forward sale agreements. Revised 4Q16 annualized target range is from 6.2x to 6.6x and was improved from range from 6.5x to 6.9x; and
In July, we completed the partial principal repayment of $200 million, and reduced the balance under our 2019 Unsecured Senior Bank Term Loan to $400 million.
Increased common stock dividend and earned second consecutive CARE award
Common stock dividend for 2Q16 of $0.80 per common share, up 3 cents, or 4%, over 2Q15; continuation of our strategy to share growth in cash flows from operating activities with our stockholders, while also retaining a portion for reinvestment; and
2016 recipient of the NAREIT Investor CARE (Communications and Reporting Excellence) Gold Award as a best-in-class REIT that delivers transparency, quality, and efficient communications and reporting to the investment community; our second consecutive (2016 and 2015) NAREIT Investor CARE Gold Award.
Core operating metrics
Percentage of annualized base rent ("ABR") from investment-grade tenants as of 2Q16:
All tenants: 53%
Top 20 tenants: 82%
Solid leasing activity, even with minimal contractual lease expiration in 2016 and our highly leased value-creation pipeline:
Renewals/Re-leasing
Rental Rate Growth
Period
Total RSF
RSF
GAAP
Cash
2Q16
816,512
647,268
27.1%
9.3%
YTD 2Q16
1,205,384
865,610
28.6%
11.0%
Same property NOI growth:
4.9% and 6.4% (cash basis) for 2Q16, compared to 2Q15
5.2% and 6.1% (cash basis) for YTD 2Q16, compared to YTD 2Q15
Occupancy for operating properties in North America of 97.0% as of 2Q16
Disciplined allocation of capital to value-creation pipeline of highly leased Class A buildings in urban innovation clusters, representing 35% NOI growth over 2015:
Delivery Date
RSF
Leased %
Incremental Annual NOI
1H16
413,535
92%
$14 million
2H16
1,056,733
90%
$51 million to $56 million
2017-2018
1,987,948
74%
$130 million to $140 million
3,458,216
81%
$195 million to $210 million
2Q16 key development projects placed into service:
295,609 RSF to Illumina, Inc. at 5200 Illumina Way, in our University Town Center submarket in San Diego
51,040 RSF to Dana-Farber Cancer Institute, Inc. at 360 Longwood Avenue in our Longwood Medical Area submarket in Greater Boston
62,595 RSF, including 34,017 RSF of vacancy, at 430 East 29th Street in our Manhattan submarket in New York City; improvement of initial cash yield to 7.0% from originally disclosed yield of 6.6%
2Q16 commencement of development projects:
Additional building, 100% leased to Vertex Pharmaceuticals, Inc., located at 3215 Merryfield Row, aggregating 170,523 RSF at our ARE Spectrum project in our Torrey Pines submarket
Parking structure, 100% leased to Illumina, Inc., located at 5200 Illumina Way in our University Town Center submarket
One Kendall Square Acquisition
In June 2016, we entered into a definitive agreement to acquire One Kendall Square, a 644,771 RSF, seven-building collaborative science and technology campus in our key East Cambridge urban innovation cluster submarket located in Greater Boston. The purchase price is $725 million, including the assumption of a $203.0 million secured note payable. We expect to obtain approval by the lender for the loan assumption in the coming months and complete the acquisition soon thereafter. See pages 5 - 7 for additional information.
Balance sheet
Sales of partial interests in properties located in our University Town Center submarket of San Diego
In June 2016, we entered into a joint venture agreement with TIAA Global Asset Management ("TIAA") to sell a 45% partial interest in 10290 Campus Point Drive, a 304,326 RSF redevelopment project in San Diego 100% leased to Eli Lilly and Company. Our partner is expected to fund substantially all of the remaining costs to complete the redevelopment. This sale of a partial interest closed in June 2016.
Additionally, in June 2016, we entered into a separate joint venture agreement with TIAA to sell a 45% partial interest in 10300 Campus Point Drive, consisting of 449,759 RSF, primarily leased to Celgene Corporation, Eli Lilly and Company, and The Regents of the University of California. This sale of a partial interest will close in 2H16.
Total gross estimated proceeds from these two sales of partial interests are $256.3 million, representing a 5.7% cash capitalization rate. The cash capitalization rate reflects the near-term contractual lease expiration by Eli Lilly and Company of 125,409 RSF as they expand into 304,326 RSF at 10290 Campus Point Drive. Proceeds from the joint venture that closed in June 2016 were $31.0 million. Estimated proceeds of $45 million, $165 million, and $15 million are expected to be received by us in 3Q16, 4Q16, and 1Q17, respectively.
Improvement in balance sheet leverage and liquidity
Net debt to adjusted EBITDA
2Q16 annualized: 6.8x
2Q16 trailing 12 months: 6.9x
4Q16 annualized target range: 6.2x to 6.6x
Goal: less than 6.0x;
3.5x fixed-charge coverage ratio for 2Q16 annualized and trailing 12 months;
$2.4 billion of liquidity;
Repurchased 1.0 million outstanding shares of our Series D cumulative convertible preferred stock at an aggregate price of $33.7 million, or $33.69 per share, and recognized a preferred stock redemption charge of $9.5 million in 2Q16;
Sold an aggregate of 3.7 million shares of common stock under our ATM program for gross proceeds of $348.4 million, or $95.31 per share, and net proceeds of $342.5 million in 2Q16;
In April 2016, we closed a secured construction loan for our development project at 100 Binney Street in our Cambridge submarket:
Commitments available for borrowing of $304.3 million
Outstanding borrowings bear interest at a rate of LIBOR+200 bps
Executed 2.00% LIBOR rate cap agreements for notional up to $150 million;
In June 2016, we executed the offering of $350.0 million of unsecured senior notes, due in 2027, at an interest rate of 3.95%. Net proceeds were used initially to reduce outstanding borrowings on our unsecured senior line of credit;
$12.4 billion total market capitalization as of 2Q16;
16% of gross investments in real estate in North America in value-creation pipeline as of 2Q16, with 4Q16 target range from 10% to 13%;
Limited debt maturities through 2018 and well-laddered maturity profile;
10% unhedged variable-rate debt as a percentage of total debt as of 2Q16; and
During 2Q16, we repaid two secured notes payable aggregating $173.8 million with a weighted average interest rate of 5.59%.
LEED certifications
57% of total ABR expected from LEED projects upon completion of in-process projects.
Subsequent events
In July 2016, we repurchased 1.1 million outstanding shares of our 7.0% Series D cumulative convertible preferred stock at an aggregate price of $39.3 million, or $36.31 per share.
In July 2016, we executed an offering, subject to forward sale agreements, to sell an aggregate of 7.5 million shares of common stock, including 975,000 shares sold pursuant to the exercise in full of the underwriters' option to purchase additional shares of our common stock, at a public offering price of $101.00 per share. Net proceeds, after issuance costs and underwriters' discount, of $724.0 million, will be further adjusted as provided in the forward sale agreements. The forward sale agreements allowed us to lock in the price of the shares (subject to certain adjustments) to fund the pending acquisition of One Kendall Square. We expect to settle the forward sale agreements by issuing the common stock after obtaining approval by the lender to assume the One Kendall Square loan and completing the acquisition of One Kendall Square.
In July 2016, we executed two interest rate swap agreements, with notional amounts aggregating $200 million at a fixed pay rate of 0.95%, effective on March 29, 2018.
On July 29, 2016, we amended our unsecured senior line of credit and recognized a loss on early extinguishment of debt of $2.4 million related to the write-off of unamortized loan fees. Key changes are summarized below:
As of July 29, 2016
Prior Agreement
Commitments available for borrowing
$1.65 billion
$1.5 billion
Interest rate
LIBOR+1.00%
LIBOR+1.10%
Maturity date
October 29, 2021
January 3, 2019
On July 29, 2016, we completed a partial principal repayment of $200 million of our 2019 Unsecured Senior Bank Term Loan and reduced the total outstanding balance from $600 million to $400 million and recognized a loss on early extinguishment of debt of $869 thousand related to the write-off of unamortized loan fees.
Incremental Annual NOI from Development and Redevelopment Projects June 30, 2016
(1) Represents incremental annual NOI upon stabilization of our development and redevelopment projects, including only our share of real estate joint venture projects. RSF and percentage leased represents 100% of each property.
(2) Incremental annual NOI for 2016 of $65 million to $70 million (including $14 million of incremental NOI for 1H16) decreased from a range of $75 million to $80 million previously disclosed primarily due to the sale in June 2016 of a 45% partial interest in 10290 Campus Point Drive.
(3) Incremental annual NOI for 2017-2018 of $130 million to $140 million increased from range of a $120 million to $130 million previously disclosed due to adding the development of a new parking structure, 100% leased to Illumina, Inc., located at 5200 Illumina Way in our University Town Center submarket.
One Kendall Square Acquisition: Expanding Our Presence and Our Urban Innovation Campus Strategy in Cambridge
Disciplined Allocation of Capital and Management of Value-Creation Pipeline June 30, 2016
2016 Disciplined Allocation of Capital (1)
North America Value-Creation Pipeline
In-Process
Value-Creation (2)
Future
Value-Creation
3.5M
5.6M
RSF
RSF
Pre-Leased Percentage (3) of Ground-Up Developments since January 1, 2009
Ground-Up Developments Commenced & Delivered since January 1, 2009
Single-Tenant
100% Pre-Leased 2.6M RSF
Multi-Tenant
38% Pre-Leased 2.5M RSF
Average Initial Stabilized Yield
8.0%
Average Initial Stabilized Yield (Cash Basis)
7.6%
(1)
Represents projected construction and acquisitions for the year ending December 31, 2016, including the acquisition of One Kendall Square, which we expect to close within the next several months. Refer to pages 5 - 7 of our Earnings Press Release for additional details.
(2)
Includes 0.4 million RSF of value-creation projects recently completed and placed into service in 1H16.
(3)
Represents average pre-leased percentage at the commencement of vertical above ground construction.
Dispositions June 30, 2016 (Dollars in thousands)
Classification
Property/Market/Submarket
Date of Sale
RSF/Acres
NOI (1)
Cash NOI (1)
Construction
Funding
Asset Sales (2)
16020 Industrial Drive/Maryland/Gaithersburg
4/21/16
71,000 RSF
$
1,022
$
896
$
—
$
6,400
14 Firstfield Road/Maryland/Gaithersburg
6/2/16
4.6 acres
N/A
N/A
—
3,500
Land parcel in Asia
5/2/16
5.0 acres
N/A
N/A
—
7,484
Two joint ventures – 45% partial interest sales:
10290 Campus Point Drive
6/29/16
304,326 RSF
$
15,930
(3)
$
(3)
106,263
(4)
—
10300 Campus Point Drive
2H16
449,759 RSF
14,733
—
150,008
(4)
106,263
167,392
306 Belmont Street and 350 Plantation Street/Greater Boston/Route 495/Worcester (5)
2H16
90,690 RSF
$
1,558
$
1,348
—
17,550
Operating properties and land parcels/Asia
2H16
1,200,683RSF
N/A
N/A
—
105,300
(6)
—
122,850
Completed and pending asset sales
$
106,263
$
290,242
(1)
NOI amounts represent the annualized amounts for the quarter ended prior to the date of sale, or 2Q16 annualized for the pending asset sales. For partial interest sales in process, NOI represents the partial interest portion expected to be sold. Cash NOI excludes straight-line rent and amortization of acquired below-market leases.
(2)
Represents gross sales proceeds.
(3)
Amount represents 45% partial interest share of the anticipated initial stabilized NOI and cash NOI upon completion of redevelopment of 10290 Campus Point Drive and NOI and cash NOI for 2Q16 annualized for 10300 Campus Point Drive.
(4)
Aggregate proceeds of $256.3 million, including gross proceeds of $31.0 million received in 2Q16, and additional future construction funding of $75 million to be received for 10290 Campus Point Drive.
(5)
Non-core properties located outside of our urban innovation clusters. These properties are Class B office buildings leased to non-credit tenants and represent our remaining investments in Worcester. The internal rate of return over our hold period, including the expected disposition of the asset, is expected to be 8.9%.
(6)
Represents 1.2 RSF million RSF of operating properties, plus land parcels aggregating 191.0 acres. Sales expected to be completed in multiple transactions over several quarters.
Guidance June 30, 2016 (Dollars in thousands, except per share amounts)
The following updated guidance is based on our current view of existing market conditions and other assumptions for the year ending December 31, 2016. There can be no assurance that actual amounts will be materially higher or lower than these expectations. See our discussion of "forward-looking statements" on page 11.
Summary of Key Changes in Guidance
Prior (1)
As of 8/1/16
Summary of Key Changes in Guidance (Continued)
Prior (1)
As of 8/1/16
EPS, FFO per share, and FFO per share, as adjusted
See below
See below
Interest expense
$108 to $118 million
$100 to $110 million (2)
Rental rate increases up 5%
14.0% to 17.0%
19.0% to 22.0%
Same property NOI increase up 0.5%
2.0% to 4.0%
2.5% to 4.5%
Rental rate increases (cash basis) up 1%
6.0% to 9.0%
7.0% to 10.0%
Same property NOI increase (cash basis) up 0.5%
3.5% to 5.5%
4.0% to 6.0%
EPS and FFO per Share Attributable to Alexandria's Common Stockholders – Diluted (3)
As of 7/6/16
As of 8/1/16
Earnings per share
$(1.08) to $(0.98)
$(1.19) to $(1.13)
Add: depreciation and amortization
4.00
4.00
Add: impairment of real estate – rental properties
1.14
1.15
Other
(0.02)
(0.02)
FFO per share
$4.04 to $4.14
$3.94 to $4.00
Less: investment income (4)
—
(0.06)
Add: impairment of real estate – land parcels
1.24
1.25
Add: loss on early extinguishment of debt
0.04
0.04
Add: preferred stock redemption charge
0.16
0.33
Other
(0.02)
(0.02)
FFO per share, as adjusted
$5.46 to $5.56
$5.48 to $5.54
2016 Guidance
Key Assumptions
Low
High
Occupancy percentage in North America as of December 31, 2016
96.5%
97.1%
Lease renewals and re-leasing of space:
Rental rate increases
19.0%
22.0%
Rental rate increases (cash basis)
7.0%
10.0%
Same property performance:
NOI increase
2.5%
4.5%
NOI increase (cash basis)
4.0%
6.0%
Straight-line rent revenue
$
51,000
$
56,000
General and administrative expenses
$
59,000
$
64,000
Capitalization of interest
$
45,000
$
55,000
Interest expense (2)
$
100,000
$
110,000
Key Credit Metrics
2016 Guidance
Net debt to Adjusted EBITDA – 4Q annualized
6.2x to 6.6x
Fixed charge coverage ratio – 4Q annualized
3.0x to 3.5x
Value-creation pipeline percentage of gross real estate as of 12/31/16
10% to 13%
2016 Guidance
As of 6/30/16 (unless stated otherwise)
Key Sources and Uses of Capital
Low
High
Mid-Point
Sources of capital:
Net cash provided by operating activities after dividends
$
115,000
$
135,000
$
125,000
$
81,000
Incremental debt
339,000
269,000
304,000
(30,000)
Asset sales
300,000
400,000
350,000
290,000
(5)
Common equity/sales of available-for-sale equity securities
1,180,000
1,280,000
1,230,000
1,092,000
(3)
Total sources of capital
$
1,934,000
$
2,084,000
$
2,009,000
$
1,433,000
Uses of capital:
Acquisitions
$
900,000
$
950,000
$
925,000
(6)
$
779,000
(7)
Improvement in leverage
175,000
175,000
175,000
(8)
175,000
(8)
Construction
760,000
860,000
810,000
380,000
Series D preferred stock repurchases
99,000
99,000
99,000
99,000
(9)
Total uses of capital
$
1,934,000
$
2,084,000
$
2,009,000
$
1,433,000
Incremental debt (included above):
Issuance of unsecured senior notes payable
$
350,000
$
350,000
$
350,000
$
350,000
Assumption of secured note payable
203,000
203,000
203,000
203,000
(7)
Borrowings – secured construction loans
250,000
300,000
275,000
149,000
Repayments of secured notes payable
(190,000)
(290,000)
(240,000)
(233,000)
Repayment of unsecured senior term loan
(200,000)
(200,000)
(200,000)
(200,000)
(10)
Unsecured senior line of credit/other
(74,000)
(94,000)
(84,000)
(299,000)
Incremental debt
$
339,000
$
269,000
$
304,000
$
(30,000)
(1)
Prior guidance for these items was provided on May 2, 2016, with the exception of EPS, FFO per share, and FFO per share, as adjusted, which were provided on July 6, 2016.
(2)
Our guidance range for interest expense for the year ending December 31, 2016 has been revised for the impact of the amount and/or timing of various transactions that we have completed and/or announced, including acquisitions, our forward sale of common stock, asset sales, and unsecured senior notes payable offering. In the prior quarter, our outlook assumed we would be in the bottom half of our interest expense range of $108 million to $118 million.
(3)
Includes net proceeds of $724.0 million from the forward sale agreements to sell an aggregate of 7.5 million shares of our common stock, and net proceeds of $367.8 million for sales of common stock under our ATM program for YTD 2016.
(4)
Represents investment gains of $4.4 million related to one investment in 2Q16.
(5)
Includes completed and pending asset sales discussed on page 9.
(6)
Includes acquisition price of $140 million for 88 Bluxome Street in our Mission Bay/SoMa submarket of San Francisco that may be deferred to 2017.
(7)
Includes the pending acquisition of One Kendall Square for $725 million; we expect to assume a non-recourse secured note payable of $203.0 million at closing.
(8)
We expect to use $175 million of the proceeds from the forward sale of common stock to reduce our projected net debt to adjusted EBITDA - 4Q16, annualized, from a range of 6.5x to 6.9x, to 6.2x to 6.6x.
(9)
Includes the repurchase of 1.1 million outstanding shares of our Series D cumulative convertible preferred stock in July 2016.
(10)
On July 29, 2016, we completed a partial principal repayment of $200 million of our 2019 Unsecured Senior Bank Term Loan.
Earnings Call Information and About the Company June 30, 2016
We will host a conference call on Tuesday, August 2, 2016, at noon Eastern Time ("ET")/9:00 a.m. Pacific Time ("PT"), which is open to the general public to discuss our financial and operating results for the second quarter ended June 30, 2016. To participate in this conference call, dial 877-548-7905 or 719-325-4929 and confirmation code 4797929 shortly before noon ET/9:00 a.m. PT. The audio webcast can be accessed at www.are.com, in the "For Investors" section. A replay of the call will be available for a limited time from 3:00 p.m. ET/noon PT on Tuesday, August 2, 2016. The replay number is 888-203-1112 or 719-457-0820, and the confirmation code is 4797929.
Additionally, a copy of this Earnings Press Release and Supplemental Information for the second quarter ended June 30, 2016, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2016q2.pdf.
About the Company
Alexandria Real Estate Equities, Inc. (NYSE:ARE) is a fully integrated, self-administered, and self-managed urban office real estate investment trust ("REIT") uniquely focused on world-class collaborative science and technology campuses in AAA innovation cluster locations, with a total market capitalization of $12.4 billion and an asset base in North America of 24.4 million square feet as of June 30, 2016. The asset base in North America includes 18.8 million RSF of operating properties and development and redevelopment projects (under construction or pre-construction) and 5.6 million square feet of future ground-up development projects. Alexandria pioneered this niche in 1994 and has since established a significant market presence in key locations, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle Park.
***********
This document includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding our 2016 earnings per share attributable to Alexandria's common stockholders – diluted, 2016 FFO per share attributable to Alexandria's common stockholders – diluted, NOI, and our projected sources and uses of capital. You can identify the forward-looking statements by their use of forward-looking words, such as "forecast," "guidance," "projects," "estimates," "anticipates," "believes," "expects," "intends," "may," "plans," "seeks," "should," or "will," or the negative of those words or similar words. These forward-looking statements are based on our current expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts, as well as a number of assumptions concerning future events. There can be no assurance that actual results will not be materially higher or lower than these expectations. These statements are subject to risks, uncertainties, assumptions, and other important factors that could cause actual results to differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, without limitation, our failure to obtain capital (debt, construction financing, and/or equity) or refinance debt maturities, increased interest rates and operating costs, adverse economic or real estate developments in our markets, our failure to successfully place into service and lease any properties undergoing development or redevelopment and our existing space held for future development or redevelopment (including new properties acquired for that purpose), our failure to successfully operate or lease acquired properties, decreased rental rates, increased vacancy rates or failure to renew or replace expiring leases, defaults on or non-renewal of leases by tenants, general and local economic conditions, a favorable capital market environment, leasing activity, lease renewals, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission ("SEC"). Accordingly, you are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements are made as of the date of this earnings press release, and unless otherwise stated, we assume no obligation to update this information and expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For more discussion relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements, and risks to our business in general, please refer to our SEC filings, including our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q.
Consolidated Statements of Income June 30, 2016 (Dollars in thousands, except per share amounts)
Three Months Ended
Six Months Ended
6/30/16
3/31/16
12/31/15
9/30/15
6/30/15
6/30/16
6/30/15
Revenues:
Rental
$
161,638
$
158,276
$
158,100
$
155,311
$
151,805
$
319,914
$
295,413
Tenant recoveries
54,107
52,597
54,956
56,119
49,594
106,704
97,988
Other income
10,331
5,216
10,899
7,180
2,757
15,547
7,508
Total revenues
226,076
216,089
(1)
223,955
218,610
204,156
442,165
400,909
Expenses:
Rental operations
67,325
65,837
68,913
68,846
62,250
133,162
123,473
General and administrative
15,384
15,188
15,102
15,143
14,989
30,572
29,376
Interest
25,025
24,855
28,230
27,679
26,668
49,880
49,904
Depreciation and amortization
70,169
70,866
72,245
67,953
62,171
141,035
121,091
Impairment of real estate
156,143
(2)
28,980
(2)
8,740
—
—
185,123
(2)
14,510
Loss on early extinguishment of debt
—
—
—
—
189
—
189
Total expenses
334,046
205,726
193,230
179,621
166,267
539,772
338,543
Equity in (losses) earnings of unconsolidated real estate joint ventures
(146)
(397)
(174)
710
541
(543)
1,115
Gain on sales of real estate – rental properties
—
—
12,426
—
—
—
—
(Loss) income from continuing operations
(108,116)
9,966
42,977
39,699
38,430
(98,150)
63,481
Loss from discontinued operations
—
—
—
—
—
—
(43)
Net (loss) income
(108,116)
9,966
42,977
39,699
38,430
(98,150)
63,438
Net income attributable to noncontrolling interests
(3,500)
(4,030)
(3)
(972)
(170)
(263)
(7,530)
(755)
Net (loss) income attributable to Alexandria Real Estate Equities, Inc.
(111,616)
5,936
42,005
39,529
38,167
(105,680)
62,683
Dividends on preferred stock
(5,474)
(5,907)
(6,246)
(6,247)
(6,246)
(11,381)
(12,493)
Preferred stock redemption charge
(9,473)
(3,046)
—
—
—
(12,519)
—
Net income attributable to unvested restricted stock awards
(1,085)
(801)
(628)
(623)
(630)
(1,886)
(1,113)
Net (loss) income attributable to Alexandria Real Estate Equities, Inc.'s common stockholders
$
(127,648)
(2)
$
(3,818)
(2)
$
35,131
$
32,659
$
31,291
$
(131,466)
(2)
$
49,077
Earnings per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholders – basic and diluted:
Continuing operations
$
(1.72)
(2)
$
(0.05)
(2)
$
0.49
$
0.46
$
0.44
$
(1.79)
(2)
$
0.69
Discontinued operations
—
—
—
—
—
—
—
Earnings per share – basic and diluted
$
(1.72)
$
(0.05)
$
0.49
$
0.46
$
0.44
$
(1.79)
$
0.69
Weighted-average shares of common stock outstanding for calculating earnings per share attributable to Alexandria's common stockholders – basic and diluted
74,319
72,584
71,833
71,500
71,412
73,452
71,389
Dividends declared per share of common stock
$
0.80
$
0.80
$
0.77
$
0.77
$
0.77
$
1.60
$
1.51
(1)
Decrease in total revenues during 1Q16 is primarily related to a $2.4 million reduction in tenant recoveries due to lower operating expenses and a $3.6 million decrease in investment gains during 1Q16.
(2)
See page 56 of our Supplemental Information for additional information.
(3)
Increase in net income attributable to noncontrolling interest is due to the sales of partial interest in three Class A assets in December 2015 for $453.1 million.
Consolidated Balance Sheets June 30, 2016 (In thousands)
6/30/16
3/31/16
12/31/15
9/30/15
6/30/15
Assets
Investments in real estate
$
7,774,608
$
7,741,466
$
7,629,922
$
7,527,738
$
7,321,820
Investments in unconsolidated real estate joint ventures
132,433
127,165
127,212
126,471
121,055
Cash and cash equivalents
256,000
146,197
125,098
76,383
68,617
Restricted cash
13,131
14,885
28,872
36,993
44,191
Tenant receivables
9,196
9,979
10,485
10,124
9,279
Deferred rent
303,379
293,144
280,570
267,954
257,427
Deferred leasing costs
191,619
192,418
192,081
184,798
169,466
Investments
360,050
316,163
353,465
330,570
360,614
Other assets
104,414
130,115
133,312
151,669
145,073
Total assets
$
9,144,830
$
8,971,532
$
8,881,017
$
8,712,700
$
8,497,542
Liabilities, Noncontrolling Interests, and Equity
Secured notes payable
$
722,794
$
816,578
$
809,818
$
767,874
$
763,844
Unsecured senior notes payable
2,376,713
2,031,284
2,030,631
1,734,857
1,734,310
Unsecured senior line of credit
72,000
299,000
151,000
843,000
624,000
Unsecured senior bank term loans
945,030
944,637
944,243
943,857
943,463
Accounts payable, accrued expenses, and tenant security deposits
593,628
628,467
589,356
586,594
531,612
Dividends payable
67,188
64,275
62,005
61,340
61,194
Total liabilities
4,777,353
4,784,241
4,587,053
4,937,522
4,658,423
Commitments and contingencies
Redeemable noncontrolling interests
9,218
14,218
14,218
14,218
14,248
Alexandria Real Estate Equities, Inc.'s stockholders' equity:
Series D cumulative convertible preferred stock
188,864
213,864
237,163
237,163
237,163
Series E cumulative redeemable preferred stock
130,000
130,000
130,000
130,000
130,000
Common stock
766
729
725
718
717
Additional paid-in capital
3,693,807
3,529,660
3,558,008
3,356,043
3,371,016
Accumulated other comprehensive income (loss)
8,272
(8,533)
49,191
35,238
83,980
Alexandria's stockholders' equity
4,021,709
3,865,720
3,975,087
3,759,162
3,822,876
Noncontrolling interests
336,550
307,353
304,659
1,798
1,995
Total equity
4,358,259
4,173,073
4,279,746
3,760,960
3,824,871
Total liabilities, noncontrolling interests, and equity
$
9,144,830
$
8,971,532
$
8,881,017
$
8,712,700
$
8,497,542
Funds From Operations and Adjusted Funds From Operations June 30, 2016 (In thousands)
The following table presents a reconciliation of net (loss) income attributable to Alexandria's common stockholders – basic, the most directly comparable financial measure presented in accordance with generally accepted accounting principles ("GAAP"), including our share of amounts from consolidated and unconsolidated real estate joint ventures, to FFO attributable to Alexandria's common stockholders – basic and diluted, FFO attributable to Alexandria's common stockholders – diluted, as adjusted, and adjusted funds from operations ("AFFO") attributable to Alexandria's common stockholders – diluted.
Three Months Ended
Six Months Ended
6/30/16
3/31/16
12/31/15
9/30/15
6/30/15
6/30/16
6/30/15
Net (loss) income attributable to Alexandria's common stockholders
$
(127,648)
$
(3,818)
$
35,131
$
32,659
$
31,291
$
(131,466)
$
49,077
Depreciation and amortization
68,594
69,308
72,528
68,398
62,523
137,902
121,725
Impairment of real estate – rental properties
88,395
—
8,740
—
—
88,395
14,510
Gain on sales of real estate – rental properties
—
—
(12,426)
—
—
—
—
Allocation to unvested restricted stock awards
—
(80)
(522)
(698)
(381)
—
(547)
FFO attributable to Alexandria's common stockholders – basic and diluted (1)
29,341
65,410
103,451
100,359
93,433
94,831
184,765
Investment income
(4,361)
(2)
—
(7,731)
(5,378)
—
(4,361)
—
Impairment of real estate – land parcels
67,162
28,980
—
—
—
96,142
—
Loss on early extinguishment of debt
—
—
—
—
189
—
189
Preferred stock redemption charge
9,473
3,046
—
—
—
12,519
—
Allocation to unvested restricted stock awards
(530)
(358)
85
67
(2)
(969)
(2)
FFO attributable to Alexandria's common stockholders – diluted, as adjusted
101,085
97,078
95,805
95,048
93,620
198,162
184,952
Non-revenue-enhancing capital expenditures:
Building improvements
(2,833)
(2,318)
(2,025)
(2,404)
(2,743)
(5,151)
(5,021)
Tenant improvements and leasing commissions
(9,041)
(2,475)
(4,436)
(5,499)
(6,429)
(11,516)
(12,204)
Straight-line rent revenue
(2,688)
(3)
(12,492)
(13,517)
(12,006)
(14,159)
(15,180)
(24,856)
Straight-line rent expense on ground leases
777
592
862
(1,245)
510
1,369
873
Amortization of acquired below-market leases
(966)
(974)
(997)
(3,182)
(1,006)
(1,940)
(1,939)
Amortization of loan fees
2,986
2,792
2,689
2,657
2,921
5,778
5,756
Amortization of debt premiums
(26)
(86)
(90)
(100)
(100)
(112)
(182)
Stock compensation expense
6,117
5,439
4,590
5,178
4,054
11,556
7,744
Allocation to unvested restricted stock awards
75
106
141
207
152
185
272
AFFO attributable to Alexandria's common stockholders – diluted
$
95,486
$
87,662
$
83,022
$
78,654
$
76,820
$
183,151
$
155,395
(1)
Calculated in accordance with standards established by the Advisory Board of Governors of the National Association of Real Estate Investment Trusts (the "NAREIT Board of Governors") in its April 2002 White Paper and related implementation guidance.
(2)
Represents investment gains of $4.4 million related to one investment recognized in 2Q16.
(3)
Decrease in 2Q16 due to the timing of a contractual lease payment of $9.6 million received from a tenant in our Route 128 submarket of Greater Boston. Straight-line rent revenue is expected to increase in 3Q16 to a quarterly run rate generally consistent with quarters prior to 2Q16.
Funds From Operations Per Share and Adjusted Funds From Operations Per Share June 30, 2016 (In thousands, except per share amounts)
The following table presents a reconciliation of earnings per share attributable to Alexandria's common stockholders – basic, the most directly comparable financial measure presented in accordance with GAAP, including our share of amounts from consolidated and unconsolidated real estate joint ventures, to FFO per share attributable to Alexandria's common stockholders – diluted, FFO per share attributable to Alexandria's common stockholders – diluted, as adjusted, and AFFO per share attributable to Alexandria's common stockholders – diluted. Amounts allocable to unvested restricted stock awards are not material and are not presented separately within the table below. Per share amounts may not add due to rounding.
Three Months Ended
Six Months Ended
6/30/16
3/31/16
12/31/15
9/30/15
6/30/15
6/30/16
6/30/15
EPS attributable to Alexandria's common stockholders – basic and diluted
$
(1.72)
$
(0.05)
$
0.49
$
0.46
$
0.44
$
(1.79)
$
0.69
Depreciation and amortization
0.92
0.95
1.00
0.95
0.87
1.88
1.70
Impairment of real estate – rental properties
1.19
—
0.12
—
—
1.20
0.20
Gain on sales of real estate – rental properties
—
—
(0.17)
—
—
—
—
FFO per share attributable to Alexandria's common stockholders – basic and diluted
0.39
0.90
1.44
1.40
1.31
1.29
2.59
Investment income
(0.06)
—
(0.11)
(0.08)
—
(0.06)
—
Impairment of real estate – land parcels
0.90
0.40
—
—
—
1.30
—
Preferred stock redemption charge
0.13
0.04
—
—
—
0.17
—
FFO per share attributable to Alexandria's common stockholders – diluted, as adjusted
1.36
1.34
1.33
1.33
1.31
2.70
2.59
Non-revenue-enhancing capital expenditures:
Building improvements
(0.04)
(0.03)
(0.03)
(0.03)
(0.04)
(0.07)
(0.07)
Tenant improvements and leasing commissions
(0.12)
(0.04)
(0.06)
(0.08)
(0.09)
(0.16)
(0.17)
Straight-line rent revenue
(0.04)
(0.17)
(0.19)
(0.17)
(0.20)
(0.21)
(0.35)
Straight-line rent expense on ground leases
0.01
0.01
0.01
(0.02)
0.01
0.02
0.01
Amortization of acquired below-market leases
(0.01)
(0.01)
(0.01)
(0.04)
(0.01)
(0.03)
(0.02)
Amortization of loan fees
0.04
0.04
0.04
0.04
0.04
0.08
0.08
Stock compensation expense
0.08
0.07
0.07
0.07
0.06
0.16
0.11
AFFO per share attributable to Alexandria's common stockholders – diluted
$
1.28
$
1.21
$
1.16
$
1.10
$
1.08
$
2.49
$
2.18
Weighted-average shares of common stock outstanding for calculating FFO, FFO, as adjusted, and AFFO per share attributable to Alexandria's common stockholders – basic and diluted
Share this article