Alexandria Real Estate Equities, Inc. Reports Third Quarter Ended September 30, 2015 Financial and Operating Results

PASADENA, Calif., Nov. 2, 2015 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE:ARE) today announced financial and operating results for the third quarter ended September 30, 2015.

Joel S. Marcus, chairman, chief executive officer and founder of Alexandria Real Estate Equities, Inc., stated, "Our best-in-class team delivered another strong quarter of financial and operating results," including the following key highlights:

• Executed agreement for the sales of partial interests in Class A facilities to TIAA-CREF with closings in 4Q15:
  • 4.8% cash cap rate on sale of 49.9% interest in 1500 Owens Street located in our Mission Bay submarket for a sale price of $73.4 million;
  • 4.5% cash cap rate on sale of 70% interest in 225 Binney Street located in our Cambridge submarket for a sale price of $190 million;
• Highly leased development and redevelopment projects:
  • 1.5 million rentable square feet ("RSF"), 89% leased, targeted for completion by 4Q16 (weighted toward 4Q16), will generate $75 to $80 million of incremental annual net operating income ("NOI") upon stabilization;
  • 1.8 million RSF, 71% leased, targeted for completion in 2017 and 2018, will generate $105 to $110 million of incremental annual NOI upon stabilization;
• Funds from operations ("FFO") per share – diluted, as adjusted, for 3Q15 of $1.33, up 9.9%, compared to $1.21 for 3Q14;
• Same property NOI growth of 1.1% and 4.8% (cash basis) for 3Q15, compared to 3Q14;
• Executed leases for 1,021,756 RSF and 3,959,804 RSF during 3Q15 and YTD 3Q15, respectively, highest nine-month leasing volume in the Company's 20-year history;
• Rental rate increases of 17.5% and 8.8% (cash basis) for 3Q15 lease renewals and re-leasing of space aggregating 456,602 RSF (included in the 1,021,756 RSF above); and
• Common stock dividend for 3Q15 of $0.77 per common share, up 5 cents, or 7%, over 3Q14; continuation of strategy to share growth in cash flows from operating activities with our shareholders while also importantly retaining capital for reinvestment.

Sales of partial interest in two core real estate assets at 4.5% and 4.8% cash cap rates:

• In July and October 2015, we executed agreements for the sales of partial interests in two Class A facilities to TIAA-CREF, with closings in 4Q15:

Refer to our dispositions section for information on additional asset sales expected in 4Q15.

Results

• FFO attributable to Alexandria Real Estate Equities, Inc.'s ("Alexandria's") common stockholders – diluted, as adjusted:
  • $1.33 per share for 3Q15, up 9.9%, compared to $1.21 per share for 3Q14
  • $3.91 per share for YTD 3Q15, up 9.5%, compared to $3.57 per share for YTD 3Q14
  • $95.0 million for 3Q15, up $9.0 million, or 10.4%, compared to $86.1 million for 3Q14
  • $280.0 million for YTD 3Q15, up $26.3 million, or 10.4%, compared to $253.7 million for YTD 3Q14
  • Investment income of $5.4 million, or $0.08 per share, included gross investment gains of $8.7 million, primarily from the sale of two publicly traded securities.
• Net income attributable to Alexandria's common stockholders – diluted:
  • $32.7 million, or $0.46 per share, for 3Q15, compared to $27.6 million, or $0.39 per share, for 3Q14
  • $81.7 million, or $1.14 per share, for YTD 3Q15, compared to $88.3 million, or $1.24 per share, for YTD 3Q14

Core operating metrics

• Total revenues:
  • $218.6 million for 3Q15, up $33.0 million, or 17.8%, compared to $185.6 million for 3Q14
  • $619.5 million for YTD 3Q15, up $81.3 million, or 15.1%, compared to $538.2 million for YTD 3Q14
• NOI, including our share of unconsolidated joint ventures:
  • $151.2 million for 3Q15, up $23.0 million, or 17.9%, compared to $128.2 million for 3Q14
  • $430.4 million for YTD 3Q15, up $54.5 million, or 14.5%, compared to $375.9 million for YTD 3Q14
• Occupancy for operating properties in North America of 96.2% as of 3Q15
• 53% of our total annualized base rent ("ABR") generated from investment-grade client tenants
• Same property NOI growth:
  • 1.1% and 4.8% (cash basis) increase for 3Q15, compared to 3Q14
  • 1.2% and 5.6% (cash basis) increase for YTD 3Q15, compared to YTD 3Q14
• Operating margins at 69% for 3Q15
• Adjusted EBITDA margins at 65% for 3Q15
• Executed leases for 1,021,756 RSF during 3Q15:
  • 253,108 RSF to bluebird bio, Inc., representing 99% of our 60 Binney Street development project under construction in our Cambridge submarket in Greater Boston
  • 150,000 RSF to Pinterest, Inc., representing 100% of phase one of the recently acquired near-term development project at 505 Brannan Street in our SoMa submarket in San Francisco
  • 78,916 RSF renewal with UMass Memorial Realty, Inc. at 306 Belmont Street in our Route 495/Worcester submarket in Greater Boston
  • 60,917 RSF renewal with Vertex Pharmaceuticals Incorporated at 245/275 Armand Frappier Boulevard in our Canadian submarket
  • 50,231 RSF leased and delivered to The Children's Hospital Corporation at 360 Longwood Avenue in our Longwood Medical Area submarket in Greater Boston
  • 17.5% and 8.8% (cash basis) rental rate increases on lease renewals and re-leasing of space aggregating 456,602 RSF
• Executed leases for 3,959,804 RSF for YTD 3Q15, highest nine-month leasing volume in the Company's 20-year history
  • 19.6% and 10.6% (cash basis) rental rate increases on lease renewals and re-leasing of space aggregating 1,729,239 RSF

External growth: development and redevelopment projects under construction and acquisitions

Highly leased development and redevelopment projects under construction

• Highly leased development and redevelopment projects:
  • 1.5 million RSF, 89% leased, targeted for completion by 4Q16 (weighted toward 4Q16), will generate $75 to $80 million of incremental annual NOI upon stabilization
  • 1.8 million RSF, 71% leased, targeted for completion in 2017 and 2018, will generate $105 to $110 million of incremental annual NOI upon stabilization
• 3Q15 key development projects placed into service include:
  • 62,490 RSF, including 30,408 RSF to Eli Lilly and Company and 30,408 RSF to Galderma Laboratories, L.P. (a wholly-owned subsidiary of Nestle S.A.), at our 430 East 29th Street development in our Manhattan submarket in New York City
  • 50,231 RSF to The Children's Hospital Corporation at our 360 Longwood Avenue development in our Longwood Medical Area submarket in Greater Boston
• 3Q15 commencements of development and redevelopment projects, including: 
  • 431,483 RSF development project at 100 Binney Street in our Cambridge submarket; 98% leased/negotiating, including 58% leased to Bristol-Myers Squibb Company
  • 304,326 RSF redevelopment project at 10290 Campus Point Drive in our University Town Center submarket, acquired in July 2015 for $105.0 million; 100% leased to Eli Lilly and Company
  • 300,000 RSF development project at 510 Townsend Street in our SoMa submarket; 100% leased to Stripe, Inc.
  • 162,156 RSF redevelopment project at 9625 Towne Centre Drive in our University Town Center submarket
  • 59,000 RSF redevelopment project at 11 Hurley Street, in our Cambridge submarket, acquired in September 2015 for $5.9 million; 100% under negotiation

Acquisitions

• In July and September 2015, we acquired 10290 Campus Point Drive and 11 Hurley Street, respectively. We commenced conversion of these buildings into office/laboratory space through redevelopment in 3Q15.

Balance sheet

• In October 2015, closed a secured construction loan with aggregate commitments available for borrowing aggregating $350.0 million, for our 98% leased development project at 50/60 Binney Street in our Cambridge submarket, which bears interest at a rate of LIBOR+150 bps
• $855 million of liquidity as of 3Q15; $1.2 billion of liquidity as of 3Q15 on a pro forma basis for the available borrowings under the construction loan noted immediately above
• $10.8 billion total market capitalization as of September 30, 2015
• 13% of gross investments in real estate in value-creation pipeline (74% of pipeline undergoing construction) as of 3Q15, with a target range from 10% to 15% as of 4Q16
• 7.4x net debt to adjusted EBITDA – 3Q15 annualized; with target of less than 7.0x by 4Q15
• 3.5x fixed charge coverage ratio – 3Q15 annualized
• Limited debt maturities through 2018; well-laddered maturity profile
• Executed additional interest rate swap agreements in 3Q15, with an aggregate notional amount of $750 million, to increase notional hedged variable-rate debt to a minimum of $1.1 billion and $650 million during 2016 and 2017, respectively
• 24% unhedged variable-rate debt as a percentage of total debt as of 3Q15, with a target of less than 15% by 4Q15

LEED statistics

• 56% of our total ABR will be generated from LEED projects upon completion of our in-process projects

Other subsequent events

• In October 2015, we repaid a $76 million secured note payable with an effective interest rate of 5.73%
• In October 2015, we executed an agreement for the sale of 75/125 Shoreway Road in our Palo Alto/Stanford Research Park submarket in San Francisco to a high-quality institutional investor at a sales price of $38.5 million and a cash capitalization rate of 5.8%; with closing in 4Q15

Guidance
September 30, 2015
(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, 2015. 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 6.

Key NAV Consideration
September 30, 2015

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Earnings Call Information and About the Company
September 30, 2015

We will host a conference call on Tuesday, November 3, 2015, at 3:00 p.m. Eastern Time ("ET")/ noon Pacific Time ("PT") that is open to the general public to discuss our financial and operating results for the third quarter ended September 30, 2015. To participate in this conference call, dial (877) 795-3648 or (719) 325-4783 and confirmation code 7276381 shortly before 3:00 p.m. ET/noon 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 6:00 p.m. ET/3:00 p.m. PT on Tuesday, November 3, 2015. The replay number is (888) 203-1112 or (719) 457-0820, and the confirmation code is 7276381.

Additionally, a copy of this Earnings Press Release and Supplemental Information for the third quarter ended September 30, 2015, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2015q3.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 collaborative science and technology campuses in AAA innovation cluster locations with a total market capitalization of $10.8 billion as of September 30, 2015, and an asset base of 31.5 million square feet, including 19.9 million RSF of operating properties and development and redevelopment projects under construction, as well as an additional 11.6 million square feet of near-term and future ground-up development projects. Alexandria pioneered this niche in 1994 and has since established a dominant 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 2015 earnings per share attributable to Alexandria's common stockholders – diluted, 2015 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 our existing space held for redevelopment and new properties acquired for that purpose and any properties undergoing development, 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 client tenants, general and local economic conditions, a favorable capital market environment, performance of our operations in areas such as current and future development and redevelopment projects being placed into service, 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.

Funds From Operations and Adjusted Funds From Operations
September 30, 2015
(In thousands)

The following table presents a reconciliation of net income (loss) attributable to Alexandria's common stockholders – basic, the most directly comparable financial measure presented in accordance with generally accepted accounting principles ("GAAP"), 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. The table below includes our share of consolidated and unconsolidated joint venture amounts.

Funds From Operations Per Share and Adjusted Funds From Operations Per Share
September 30, 2015
(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, 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. For the computation of the weighted-average shares used to compute the per share information, refer to the "Definitions and Reconciliations" section in our supplemental information. The table below includes our share of consolidated and unconsolidated joint venture amounts. Amounts allocable to unvested restricted stock awards of approximately one cent per share are not presented separately within the table below.