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Alexandria Real Estate Equities, Inc. Reports: 2Q22 and 1H22 Net Income per Share - Diluted of $1.67 and $0.74, respectively; and 2Q22 and 1H22 FFO per Share - Diluted, As Adjusted, of $2.10 and $4.15, respectively

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PASADENA, Calif., July 25, 2022 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE:ARE) announced financial and operating results for the second quarter ended June 30, 2022.

Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)
Alexandria Real Estate Equities, Inc. All Rights Reserved ©2022 (PRNewsfoto/Alexandria Real Estate Equities, Inc.)

 

Key highlights






Operating results

2Q22


2Q21


1H22


1H21

Total revenues:








In millions

$  643.8


$     509.6


$  1,258.8


$     989.5

Growth

26.3 %



27.2 %


Net income attributable to Alexandria's common stockholders – diluted

In millions

$  269.3


$     380.6


$     118.5


$     388.5

Per share

$    1.67


$       2.61


$       0.74


$       2.74

Funds from operations attributable to Alexandria's common stockholders – diluted, as adjusted

In millions

$  338.8


$     282.3


$     663.4


$     545.2

Per share

$    2.10


$       1.93


$       4.15


$       3.84

Ringing of the New York Stock Exchange Opening Bell to celebrate our 25th anniversary

In celebration of our 25th anniversary as a publicly traded company, we recently rang The Opening Bell® at the New York Stock Exchange to mark this momentous milestone. From our initial public offering on May 27, 1997 through May 27, 2022, we have generated a total stockholder return ("TSR") of 1,902%, assuming reinvestment of dividends, substantially outperforming the MSCI U.S. REIT Index TSR of 803% and the FTSE Nareit Equity Office Index TSR of 457%.

A REIT industry-leading high-quality roster of over 1,000 tenants with high-quality revenues and cash flows, strong margins, and operational excellence

Percentage of total annual rental revenue in effect from investment-grade or
     publicly traded large cap tenants


50 %








 Sustained strength in tenant collections:





     Tenant receivables as of June 30, 2022


$     7.1

million

     July tenant rent and receivables collected as of July 25, 2022


99.9 %








Occupancy of operating properties in North America


94.6 %



Occupancy of operating properties in North America (excluding vacancy at
     recently acquired properties)


98.4 %

(1)


Operating margin


70 %



Adjusted EBITDA margin


70 %








Weighted-average remaining lease term:





     All tenants


7.1

years

     Top 20 tenants


10.2

years





(1)

Excludes 1.6 million RSF, or 3.8%, of vacancy at recently acquired properties representing lease-up opportunities that are expected to provide incremental annual rental revenue. Refer to "Occupancy" in our Supplemental Information.

Record rental rate increases and continued historic high leasing volume

  • For 2Q22, rental rate increases of 45.4% and 33.9% (cash basis) represent the second- highest and the highest quarterly increases in Company history, respectively.

  • During 2Q22, we executed 2,279,758 RSF of leasing activity, representing the third-highest quarter of leasing volume in Company history; 87% of this leasing activity was generated from a roster of over 1,000 tenants and other relationships.



2Q22


1H22

Total leasing activity – RSF


2,279,758


4,743,196

Leasing of development and redevelopment space – RSF


916,436


2,356,132

Lease renewals and re-leasing of space:





RSF (included in total leasing activity above)


1,087,082


1,951,159

Rental rate increases


45.4 %


39.0 %

Rental rate increases (cash basis)


33.9 %


25.2 %

Continued strong net operating income and internal growth

  • Net operating income (cash basis) of $1.6 billion for 2Q22 annualized, up $315.5 million, or 24.3%, compared to 2Q21 annualized.

  • 97% of our leases contain contractual annual rent escalations approximating 3%.

  • Same property net operating income increases:

Strong valuations for partial interest sale and dispositions

During 2Q22, we completed a partial interest sale and dispositions aggregating $548.7 million, including:

  • Sale of a 70% interest in 300 Third Street in our Cambridge/Inner Suburbs submarket for a sales price of $166.5 million, or $1,802 per RSF, representing capitalization rates of 4.6% and 4.3% (cash basis).

  • Sale of 12 properties in our Route 128 and Route 495 suburban submarkets of Greater Boston for an aggregate sales price of $334.4 million, or $542 per RSF, representing a capitalization rate (cash basis) of 5.1%.

Strong and flexible balance sheet with significant liquidity as of June 30, 2022

  • Investment-grade credit ratings ranked in the top 10% among all publicly traded U.S. REITs.

  • Net debt and preferred stock to Adjusted EBITDA of 5.5x and fixed-charge coverage ratio of 5.1x for 2Q22 annualized.

  • Total debt and preferred stock to gross assets of 28%.

  • 98.3% of our debt has a fixed rate.

  • 13.6 years weighted-average remaining term of debt.

  • $5.5 billion of liquidity.

Continued high demand for Alexandria's brand drives visibility for future growth aggregating $665 million of incremental annual rental revenue

Our highly leased value-creation pipeline of current and key near-term projects that are under construction or that will commence construction in the next six quarters is expected to generate greater than $665 million of incremental annual rental revenue, primarily commencing from 3Q22 through 2Q25.

  • 7.8 million RSF of our value-creation projects, which are 78% leased/negotiating, are either under construction or expected to commence construction in the next six quarters.

Continued dividend strategy to share growth in cash flows with stockholders

Common stock dividend declared for 2Q22 of $1.18 per common share, aggregating $4.60 per common share for the twelve months ended June 30, 2022, up 24 cents, or 6%, over the twelve months ended June 30, 2021. Our FFO payout ratio of 56% for the three months ended June 30, 2022 allows us to continue to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.

Seventh overall Nareit Investor CARE Award winner

We received the 2022 Nareit Investor CARE (Communications and Reporting Excellence) Silver Award in the Large Cap Equity REIT category for superior shareholder communications and reporting. This represents our fifth consecutive and seventh overall Nareit Investor CARE Award since 2015, demonstrating consistency in delivering best-in-class transparency, quality, and efficiency in communications and reporting to the investment community.

Key items included in operating results

Key items included in net income attributable to Alexandria's common stockholders:











(In millions, except per share
     amounts)

Amount


Per Share –
Diluted


Amount


Per Share –
Diluted


2Q22


2Q21


2Q22


2Q21


1H22


1H21


1H22


1H21

Unrealized (losses) gains
  on non-real estate
  investments

$  (68.1)


$ 244.0


$  (0.42)


$   1.67


$  (331.6)


$ 197.8


$  (2.07)


$   1.39

Significant realized gains
  on non-real estate
  investments


34.8



0.24



57.7



0.41

Gain on sales of real estate

214.2



1.33



214.2


2.8


1.34


0.02

Impairment of real estate


(4.9)



(0.03)



(10.1)



(0.07)

Loss on early
  extinguishment of debt

(3.3)



(0.02)



(3.3)


(67.3)


(0.02)


(0.47)

Total

$ 142.8


$ 273.9


$   0.89


$   1.88


$  (120.7)


$ 180.9


$  (0.75)


$   1.28

External growth and investment in real estate

Delivery and commencement of value-creation projects

  • During 2Q22, we placed into service development and redevelopment projects aggregating 375,394 RSF across multiple submarkets.

  • 80% of construction costs related to active development and redevelopment projects aggregating 5.9 million RSF are under a guaranteed maximum price ("GMP") contract or other fixed contracts. Our budgets also include construction cost contingencies in GMP contracts plus additional landlord contingencies that generally range between 3% and 5%.

  • Annual net operating income (cash basis) is expected to increase by $39 million upon the burn-off of initial free rent from recently delivered projects.

  • During 2Q22, we commenced construction on six value-creation projects aggregating 917,599 RSF, including the following development projects:

  • As of 2Q22, our highly leased value-creation pipeline of current and key near-term projects that are under construction or that will commence construction in the next six quarters aggregates 7.8 million RSF and is 78% leased/negotiating.

Value-creation pipeline of new Class A development and redevelopment projects as
a percentage of gross assets


2Q22

Under construction projects 75% leased/negotiating


10 %

Pre-leased/negotiating near-term projects expected to commence construction in
    the next
six quarters 89% leased/negotiating


1 %

Income-producing/potential cash flows/covered land play(1)


8 %

Land


2 %




(1)

Includes projects that have existing buildings that are generating or can generate operating cash flows. Also includes development rights associated with existing operating campuses.

Alexandria is at the vanguard of innovation for a high-quality roster of over 1,000 tenants, with a focus on accommodating their current needs and providing them with a path for future growth

  • Reduced the upper end of our range of 2022 guidance for acquisitions by $750 million to a range from $2.6 billion to $2.8 billion.

  • During 2Q22, we completed acquisitions in our key life science cluster submarkets aggregating 1.1 million RSF of future development and redevelopment opportunities for an aggregate purchase price of $280.1 million.

Balance sheet management

Key metrics as of June 30, 2022

  • $33.7 billion in total market capitalization.

  • $23.4 billion in total equity capitalization, which ranks in the top 10% among all publicly traded U.S. REITs.

  • No debt maturities prior to 2025.

  • 13.6 years weighted-average remaining term of debt.



2Q22


Goal



Quarter


Trailing


4Q22



Annualized


12 Months


Annualized

Net debt and preferred stock to
    Adjusted EBITDA


5.5x



5.9x


Less than or equal to 5.1x

Fixed-charge coverage ratio


5.1x



5.1x


Greater than or equal to 5.1x


Key capital events

  • During 2Q22, we entered into new forward equity sales agreements aggregating $403.4 million to sell 2.4 million shares under our ATM program at an average price of $169.38 per share (before underwriting discounts). As of June 30, 2022, the remaining aggregate amount available under our ATM program for future sales of common stock was $246.6 million.

  • During 2Q22, we did not issue shares to settle our outstanding forward equity agreements. We expect to issue an aggregate of 9.0 million shares at an average price of $187.91 per share to settle all our outstanding forward equity sales agreements and receive net proceeds of approximately $1.7 billion in 2H22.

  • In April 2022, we repaid two secured notes payable aggregating $195.0 million due in 2024 with an effective interest rate of 3.40%. As a result, we recognized a loss on early extinguishment of debt of $3.3 million.

Investments

  • As of June 30, 2022:

Subsequent event

  • On July 1, 2022, Stephen A. Richardson, our Co-Chief Executive Officer, tendered his resignation from all of his positions with the Company and its subsidiaries, effective July 31, 2022, and notified the Company of his intent to retire from full-time employment and his professional career for family and personal reasons.

Industry and ESG leadership: catalyzing and leading the way for positive change to benefit human health and society

  • In June 2022, we released our 2021 ESG Report, which highlights our longstanding ESG leadership. The report details our efforts to advance our ESG impact, including by driving high-performance building design and operations to reduce carbon emissions, mitigating climate-related risk in our real estate portfolio, and investing in and providing essential infrastructure for sustainable agrifoodtech companies. It also showcases Alexandria's comprehensive efforts to catalyze the health, wellness, safety, and productivity of our employees, tenants, local communities, and the world through the built environment and beyond, including through our visionary social responsibility endeavors. Notable initiatives presented in the report that highlight our innovative approach include:

About Alexandria Real Estate Equities, Inc.

Alexandria Real Estate Equities, Inc. (NYSE:ARE), an S&P 500® urban office REIT, is the first, longest-tenured, and pioneering owner, operator, and developer uniquely focused on collaborative life science, agtech, and technology campuses in AAA innovation cluster locations, with a total market capitalization of $33.7 billion and an asset base in North America of 74.1 million SF as of June 30, 2022. The asset base in North America includes 41.1 million RSF of operating properties and 5.9 million RSF of Class A properties undergoing construction, 9.9 million RSF of near-term and intermediate-term development and redevelopment projects, and 17.2 million SF of future development projects. Founded in 1994, Alexandria pioneered this niche and has since established a significant market presence in key locations, including Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and Research Triangle. Alexandria has a longstanding and proven track record of developing Class A properties clustered in urban life science, agtech, and technology campuses that provide our innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. Alexandria also provides strategic capital to transformative life science, agtech, and technology companies through our venture capital platform. We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value. For additional information on Alexandria, please visit www.are.com.

Acquisitions
June 30, 2022
(Dollars in thousands)











Square Footage














Acquisitions With Development/Redevelopment Opportunities(1)








Property


Submarket/Market


Date of

Purchase


Number of
Properties


Operating

Occupancy


Future
Development


Operating With
Future Development/
Redevelopment


Operating(2)


Operating


Total(3)


Purchase Price


Completed in 1Q22






29


91 %


4,617,991


2,668,494


451,760



7,306,305


$

1,840,717


























Completed in 2Q22:
























 One Hampshire Street(4)


Cambridge/Inner Suburbs/

     Greater Boston


6/23/22


1


100 %



88,591




88,591



140,000


Other


Various


Various


2


76


869,000


109,557




978,557



140,146








3


87 %


869,000


198,148

(5)

(5)

(5)

1,067,148



280,146


























Completed in July 2022






















9,561
























2,130,424


Pending(6)


Various


3Q22


















275,000


Other






















244,576


2022 acquisitions (midpoint)





















$

2,650,000


2022 guidance range(7)



















$2,550,000 – $2,750,000



(1)

We expect to provide total estimated costs and related yields for development and redevelopment projects in the future, subsequent to the commencement of construction.

(2)

Represents the operating component of our value-creation acquisitions that is not expected to undergo future development or redevelopment.

(3)

Represents total square footage upon completion of development or redevelopment of a new Class A property. Square footage presented includes RSF of buildings currently in operation with future development or redevelopment opportunities. We intend to demolish and develop or to redevelop the existing properties upon expiration of the existing in-place leases. Refer to "Definitions and reconciliations" in our Supplemental Information for additional details on value-creation square feet currently included in rental properties.

(4)

Represents the acquisition of a condominium in two floors of a seven-story building.

(5)

We expect the acquisitions completed during the three months ended June 30, 2022 to generate initial annual net operating income of approximately $9 million for the twelve months following acquisition. These acquisitions included three operating properties with a weighted-average acquisition date of June 16, 2022 (weighted by initial annual net operating income).

(6)

Represents acquisitions of land parcels to expand our mega campuses in our Cambridge and University Town Center submarkets.

(7)

We reduced the upper end of our range of 2022 guidance for acquisitions by $750 million. Refer to "Guidance" on page 6 of this Earnings Press Release for additional information.




Dispositions and Sales of Partial Interest
June 30, 2022
(Dollars in thousands)















Capitalization
Rate

(Cash Basis)