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Alexandria Real Estate Equities, Inc. Reports: 3Q19 Revenues of $390.5 Million, Up 14.2% Over 3Q18; 3Q19 Net Loss per Share - Diluted of $(0.44); 3Q19 FFO per Share - Diluted, As Adjusted, of $1.75; and Operational Excellence and Growing Dividends

PASADENA, Calif., Oct. 28, 2019 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (ARE) announced financial and operating results for the third quarter ended September 30, 2019.

Key highlights





YTD

Operating results

3Q19


3Q18


3Q19


3Q18

Total revenues:








In millions

$

390.5


$

341.8


$

1,123.2


$

987.0

Growth

14.2%




13.8%











Net (loss) income attributable to Alexandria's common stockholders – diluted:

In millions

$

(49.8)


$

210.2


$

150.4


$

394.1

Per share

$

(0.44)


$

1.99


$

1.35


$

3.85









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

In millions

$

197.1


$

173.6


$

579.6


$

504.0

Per share

$

1.75


$

1.66


$

5.19


$

4.92













Net loss for 3Q19 relates primarily to the loss on early extinguishment of debt and unrealized losses on non-real estate investments. Refer to "Key Items Included in Operating Results" on the next page for additional information.

Mercer Mega Block in Seattle: 800,000 RSF premier multi-use campus in Lake Union

In September 2019, we were selected by the City of Seattle to develop an approximately 800,000 RSF premier multi-use campus at Mercer Mega Block in Seattle's Lake Union submarket. Along with our existing nearly 806,000 RSF in value-creation opportunities, the future development of this community-centric, amenity-driven, mixed-use innovation campus will strategically provide a pipeline of high quality buildings to address demand in the vibrant Lake Union submarket. We expect to complete this acquisition in 2020.

88 Bluxome Street is the first and only project to win full approval in Central SoMa

In July 2019, we, along with TMG Partners, won full project approval to develop a 1.1 million RSF mixed-use campus at 88 Bluxome Street in Central SoMa. Anchored by a 490,000 RSF lease with Pinterest, Inc., the future development, which is the first and only project in Central SoMa to receive full approval and 100% of its Prop M allocation from the San Francisco Planning Commission, is nearly 60% pre-leased. Construction is expected to commence in 2020.

A REIT industry-leading, high-quality tenant roster

  • 53% of annual rental revenue from investment-grade or publicly traded large cap tenants.
  • Weighted-average remaining lease term of 8.3 years.

Strong internal growth

  • Continued strong internal growth; vacancy in recently acquired properties provide opportunity to increase income from rentals and net operating income.
  • Net operating income (cash basis) of $963.5 million for 3Q19 annualized, up $96.4 million, or 11.1%, compared to 3Q18 annualized
  • Same property net operating income growth:
  • Continued strong leasing activity and rental rate growth over expiring rates on renewed and re-leased space:


3Q19


YTD 3Q19

Total leasing activity – RSF


1,241,677


3,310,598

Lease renewals and re-leasing of space:





RSF (included in total leasing activity above)


758,113


1,855,458

Rental rate increases


27.9%


30.6%

Rental rate increases (cash basis)


11.2%


16.2%

Strong external growth; disciplined allocation of capital to visible, highly leased value-creation pipeline

  • Since the beginning of 4Q18, we have placed into service 2.5 million RSF of development and redevelopment projects, including 1.3 million RSF in 3Q19.
  • Significant near-term growth of annual net operating income (cash basis), including our share of unconsolidated real estate joint ventures, of $70 million upon the burn-off of initial free rent on recently delivered projects.
  • We commenced development and redevelopment projects aggregating 1.8 million RSF during YTD 3Q19, including three projects aggregating 447,998 RSF in 3Q19.
  • During YTD 3Q19, we leased 1.2 million RSF of development and redevelopment space.

Opportunistic senior notes payable issuances and refinancing of near-term maturities

During 3Q19, we opportunistically issued $1.9 billion of unsecured senior notes payable, with a weighted-average interest rate of 3.52% and maturity of 18.5 years. Proceeds were used primarily  to refinance $1.7 billion of unsecured senior debt. As of September 30, 2019, our weighted average remaining term on outstanding debt is 10.7 years, with no debt maturing until 2023.

Sale of partial interests in three core Class A properties

During 3Q19, we completed the sales of partial interests in three properties for an aggregate sales price of $462.2 million and received aggregate consideration in excess of book value of approximately $180.2 million, representing a weighted-average cash capitalization rate of 4.6%. We retained control over each of these newly formed joint ventures, and therefore, we consolidate these properties. For consolidated joint ventures, we account for the difference between the consideration received and the book value of the interest sold as an equity transaction, with no gain or loss recognized in earnings.

Continued growth in common stock dividend

Common stock dividend declared for 3Q19 of $1.00 per common share, aggregating $3.94 per common share for the twelve months ended September 30, 2019, up 28 cents, or 8%, over the twelve months ended September 30, 2018; continuation of our strategy to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.

1165 Eastlake Avenue East fully leased long-term by Adaptive Biotechnologies Corporation

In August 2019, we signed a 12-year, full-building lease with Adaptive Biotechnologies Corporation at 1165 Eastlake Avenue East to be its new headquarters. This amenity-rich, sustainable 100,086 RSF office/laboratory development is located within the prominent Eastlake Life Science Campus in the heart of our Lake Union life science cluster in Seattle.

Key items included in operating results

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






YTD

(In millions, except per share 
   amounts)

3Q19


3Q18


3Q19


3Q18


3Q19


3Q18


3Q19


3Q18

Amount


Per Share –

Diluted


Amount


Per Share –

Diluted

(Losses) gains on non-real 
   estate investments(1):
















Unrealized

$

(70.0)


$

117.2


$

(0.62)


$

1.11


$

13.2


$

194.5


$

0.12


$

1.90

Realized






8.3



0.08

Gain on sales of real estate


35.7



0.34



35.7



0.35

Impairment of:
















Real estate






(6.3)



(0.06)

Non-real estate
    
investments(1)

(7.1)



(0.06)



(7.1)



(0.06)


Early extinguishment of debt:
















Loss

(40.2)


(1.1)


(0.36)


(0.01)


(47.6)


(1.1)


(0.43)


(0.01)

Our share of gain


0.8



0.01



0.8



0.01

Loss on early termination of
    interest rate hedge
    agreements

(1.7)



(0.02)



(1.7)



(0.02)


Preferred stock redemption
    charge





(2.6)



(0.02)


Allocation to unvested
    restricted stock awards


(2.4)



(0.02)



(3.4)



(0.03)

Total

$

(119.0)


$

150.2


$

(1.06)


$

1.43


$

(45.8)


$

228.5


$

(0.41)


$

2.23

















Weighted-average shares of common stock
  outstanding for calculation of earnings
 
per share – diluted

112.1


105.4






111.7


102.4


(1)  Refer to "Investments" on page 45 of our Supplemental Information for additional information


Completed acquisitions

During 3Q19, we completed the acquisitions of 11 properties for an aggregate purchase price of $459.2 million. These acquisitions include future development and redevelopment opportunities, aggregating 537,850 RSF, strategically located across multiple markets, and operating properties aggregating 546,389 RSF, of which 111,080 RSF are existing vacant space that we anticipate to lease-up in the future.

Core operating metrics as of or for the quarter ended September 30, 2019

High-quality revenues and cash flows, and operational excellence

Percentage of annual rental revenue in effect from:




Investment-grade or publicly traded large cap tenants


53 %


Class A properties in AAA locations


78 %


Occupancy of operating properties in North America


96.6 %

(1)

Operating margin


70 %


Adjusted EBITDA margin


68 %


Weighted-average remaining lease term:



All tenants


8.3   years

Top 20 tenants


11.8   years





(1)

Decline of 0.8% from 97.4% for our overall occupancy at 2Q19 reflects: (i) 111,080 RSF, or 0.4% of existing vacancy, at properties recently acquired in 3Q19 which we anticipate leasing up in the future; and (ii) 116,556 RSF, or 0.5% vacancy, that became vacant as expected during 3Q19 at 3545 Cray Court related to downtime for renovation of the property. During 3Q19, we executed a lease for 64,108 RSF at 3545 Cray Court, or 55% of the property, that is expected to commence in 3Q20, upon completion of the renovations.

 

Refer to the previous page for information on our total revenues, net operating income, same property net operating income growth, rental rate growth, and leasing activity.

Balance sheet management

Key metrics as of September 30, 2019

  • $17.5 billion of total equity capitalization
  • $24.3 billion of total market capitalization
  • $3.5 billion of liquidity
  • 95% of net operating income is unencumbered


3Q19


Goal



Quarter


Trailing 12


4Q19



Annualized


Months


Annualized

Net debt to Adjusted EBITDA


5.8x


6.1x


Less than or equal to 5.3x

Fixed-charge coverage ratio


3.9x


4.1x


Greater than 4.0x
















Value-creation pipeline as a percentage of gross investments
    in real estate


 

3Q19


Percentage Leased/
Negotiating

New Class A development and redevelopment projects:










Undergoing construction with initial occupancy targeted for
   4Q19 and 2020 and our pre-leased pre-construction
   project at 88 Bluxome Street


 

7%

 


64%

Undergoing pre-construction, marketing, and future value-
   creation projects


 

5%

 


N/A


 

Key capital events

  • During 3Q19, we had the following sales of partial interests in two core Class A properties:


Partial Interest




(Dollars in millions, except per RSF amounts)



Sales Price


Capitalization

Property


Submarket


RSF


Sold


Total


Per RSF


Rate (Cash)

5200 Illumina Way


University Town
    Center


792,687


49%


$

286.7


$

681

(1)


4.7%

500 Forbes

    Boulevard


South San
    Francisco


155,685


90%



139.5



996



4.4





948,372




$

426.2


$

733



4.6%















(1)  Represents $264.6 million, or $681 per RSF, for the operating buildings and $22.1 million, or $100 per 
      RSF, for the developable land parcel. This transaction values 100% of the campus at $585.2 million and
      represents a value in excess of book basis aggregating $269.1 million.

















 

  • During 3Q19, our issuances and repayments of debt included the following:

(Dollars in millions)

Date


Effective
Interest
Rate


Maturity
Date


Principal
Amount


Annual
Interest
Expense

Issuances










Unsecured senior notes payable

Sept


2.87 %


12/15/29


$

400


$

12

Unsecured senior notes payable

July


3.48 %


8/15/31


750


26

Unsecured senior notes payable

July


4.09 %


2/1/50


500


20

Unsecured senior notes payable

Sept


3.51 %


2/1/50


200


7

Weighted-average/total



3.52 %


18.5 years


1,850


65











Repayments of debt










Unsecured senior notes payable

July/Aug


2.96 %


1/15/20


400


12

Unsecured senior notes payable

July/Aug


4.75 %


4/1/22


550


26

Unsecured senior bank term loan

July/Sept


3.62 %


1/2/25


350


13

Unsecured senior line of credit

Sept


3.14 %


1/28/24


360


11

Weighted-average/total



3.73 %


2.9 years


1,660


$

62

Proceeds held in cash







$

190













  • As a result of our debt refinancing, we recognized losses on early extinguishment of debt and losses on early terminations of interest rate hedge agreements of $40.2 million and $1.7 million, respectively.
  • During 2019, equity issuances included 602,484 shares of common stock issued in 2Q19 under our ATM program for net proceeds of $86.1 million and 1.1 million shares issued during 3Q19 to settle forward equity sales agreements for net proceeds of $150.1 million. As of September 30, 2019, 7.0 million shares remain unsettled under forward equity sales agreements, for which we expect to receive proceeds of $979.2 million.
  • In September 2019, we established a commercial paper program that has the ability to issue up to $750.0 million of commercial notes with a maximum maturity of 397 days from the date of issue. Our commercial paper program is backed by our $2.2 billion unsecured senior line of credit, and any outstanding balance on our commercial paper program will reduce the borrowing capacity under our unsecured senior line of credit. Borrowings under the program will be used to fund short-term capital needs. As of September 30, 2019, we had no outstanding borrowings under our commercial paper program.

Investments

We carry our investments in publicly traded companies and certain privately held entities at fair value. During 3Q19, we had investment losses of $63.1 million, comprising $14.1 million in realized gains, $7.1 million in impairments related to three privately held non-real estate investments, and $70.0 million in unrealized losses.

Corporate responsibility, industry leadership, and strategic initiatives

  • In September 2019, we achieved the following in the 2019 Global Real Estate Sustainability Benchmark ("GRESB") Real Estate Assessment: (i) GRESB 5 Star Rating (out of 5 stars), (ii) our third consecutive "Green Star" designation, and (iii) our second consecutive "A" disclosure score.
  • In October 2019, we accepted the 2019 Developer of the Year Award from NAIOP, the Commercial Real Estate Development Association. This award annually honors the development company that best exemplifies leadership and innovation as demonstrated by the outstanding quality of projects and services, financial consistency and stability, ability to adapt to market conditions, and support for the local community.

Subsequent events

  • In October 2019, we elected to convert the remaining 2.3 million outstanding shares of our 7.00% Series D cumulative convertible preferred stock ("Series D Convertible Preferred Stock") into shares of our common stock. The Series D Convertible Preferred Stock became eligible for mandatory conversion at our discretion upon our common stock price exceeding $149.46 per share for the specified period of time required to cause the mandatory conversion. We converted the 7.00% Series D Convertible Preferred Stock into 578 thousand shares of common stock. This conversion was accounted for as an equity transaction, and we did not recognize a gain or loss.


Acquisitions
September 30, 2019
(Dollars in thousands)


Property


Submarket/Market


Date of

Purchase


Number of
Properties


Operating

Occupancy


Square Footage


Purchase Price






Future
Development


Active
Redevelopment


Operating With
Future
Development/
Redevelopment


Operating


































Completed 1H19


Various


1H19


13


98%



805,400



187,764


334,933


$

744,450

(1)

























Completed 3Q19:























945 Market Street (99.5% interest in
  consolidated JV)


Mission Bay/SoMa/San 
  Francisco


7/31/19


1


N/A




255,765





179,000

(2)


4224/4242 Campus Point Court and
  10210 Campus Point Drive
 
(55% interest in consolidated JV)


University Town Center/
  San Diego


7/9/19


3


83%

(3)





314,103



140,250



25, 35, and 45 West Watkins Mill Road


Gaithersburg/Maryland


8/21/19


3


87%






138,938



51,130



3160 Porter Drive


Greater Stanford/San
  Francisco


8/12/19


1


N/A




92,147





26,000

(2)


47-50 30th Street


New York City/
 
New York City


7/10/19



N/A



135,938






25,000

(2)


Other


Various


3Q19


3


37%



54,000



58,814


34,534



37,850

(2)


Completed YTD 3Q19






24


87%



995,338


347,912


246,578


822,508



1,203,680


























4Q19:























Pending


San Diego


4Q19


Various


76%



700,000




560,000



122,500

(2), (4)


Additional targeted acquisitions


Various


4Q19
















223,820



2019 acquisitions






24


83%



1,695,338


347,912


246,578


1,382,508


$

1,550,000

(5)

























Identified for 2020:























Pending


San Francisco
 
Bay Area


2020


1


100%






138,000


$

157,500

(4)


Pending


San Francisco
 
Bay Area


2020



N/A



700,000






120,000

(2)


Mercer Mega Block


Lake Union/Seattle


2020



N/A



800,000






143,000

(2)








1


100%



1,500,000




138,000


$

420,500















3,195,338


347,912


246,578


1,520,508








(1)

Refer to our second quarter ended June 30, 2019, Earnings Press Release and Supplemental Information filed on July 29, 2019, for transactions and related yield information.

(2)

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

(3)

The property is currently 83% occupied, and a lease for 32,537 RSF will commence in 4Q19 upon completion of renovations, which will increase occupancy to 94%. The remaining 6% of the property is under negotiation and expected to be
occupied by 4Q19. We expect to achieve unlevered yields of 6.9% and 6.0% on initial stabilized and initial stabilized (cash) bases, respectively.

(4)

We expect to provide yields for operating properties subsequent to closing the acquisition.

(5)

Represents midpoint of 2019 acquisitions guidance range of $1.5 billion to $1.6 billion.

 

 


Sales of Partial Interests in Core Class A Properties
September 30, 2019
(Dollars in thousands, except per RSF amounts)










Square Footage





Capitalization
Rate

(Cash Basis)(1)










Consideration
in Excess of
Book Value(2)

Property


Submarket/Market


Date of
Sale


Interest
Sold


Operating


Future
Development


Capitalization
Rate(1)



Sales Price


Sales Price
per RSF


Sales of noncontrolling partial interests in core Class A properties:














































 75/125 Binney Street


Cambridge/Greater
    Boston


2/13/19


60%


388,270


N/A


4.2%


4.3%


$

438,000


$

1,880


$

202,246


 10260 Campus Point Drive and
   
4161 Campus Point Court


University Town Center/
    San Diego


7/26/19


45%


(3)


(3)


(3)


(3)


36,000


N/A  


N/A  


 500 Forbes Boulevard


South San Francisco/
   
San Francisco


8/1/19


90%


155,685


N/A


4.2%


4.4%


139,500


$

996


$

48,385


 5200 Illumina Way


University Town Center/
    San Diego


8/21/19


49%


792,687


451,832


5.7%


4.7%


286,747


N/A  


$

131,864

(4)


















$

900,247






























2019 guidance

















$

925,000



























































(1)

Capitalization rates are calculated based upon net operating income and net operating income (cash basis), annualized for the quarter preceding the date on which the property is sold.

(2)

We retained control over each of these newly formed joint ventures, and therefore, we consolidate these properties. For consolidated joint ventures, we account for the difference between the consideration received and the book value of
the interest sold as an equity transaction, with no gain or loss recognized in earnings.

(3)

In December 2018, we acquired two buildings adjacent to our Campus Pointe by Alexandria campus aggregating 269,048 RSF, comprising 109,164 RSF at 10260 Campus Point Drive and 159,884 RSF at 4161 Campus Point Court for a
total purchase price of $80.0 million. Refer to our first quarter ended March 31, 2019, Earnings Press Release and Supplemental Information filed on April 29, 2019, for more information. In July 2019, as had been contemplated at the time
of the original acquisition, we completed the formation of this joint venture through the sale of a 45% noncontrolling interest to an institutional investor.

(4)

This transaction values 100% of the campus at $585.2 million and represents a value in excess of book basis aggregating $269.1 million.

 

 

 

Guidance
September 30, 2019
(Dollars in milions, except per share amounts)


     The following updated guidance is based on our current view of existing market conditions and assumptions for the year ending December 31, 2019. There can be no assurance that actual amounts will not be materially higher or lower than these expectations. Refer to our discussion of "forward-looking statements" on page 7 of this Earnings Press Release for additional information.




Summary of Key Changes in Guidance


Guidance



Summary of Key Changes in Key Credit Metric and Key Sources

    and Uses of Capital Guidance



Guidance/Guidance Midpoint






As of 10/28/19


As of 7/29/19





As of 10/28/19


     As of 7/29/19






EPS, FFO per share, and FFO per share, as adjusted


See updates below



Net debt and preferred stock to Adjusted EBITDA – 4Q19 annualized



Less than or equal to 5.3x


     Less than or equal to 5.4x





Occupancy percentage in North America as of December 31, 2019


96.7% to 97.3%


97.2% to 97.8%












Rental rate increases on lease renewals and re-leasing of space


28.0% to 31.0%


27.0% to 30.0%



Real estate dispositions and partial interest sales



$

925



$

870







Same property net operating income increases


1.5% to 3.5%


1.0% to 3.0%



Issuance of unsecured senior notes payable



$

2,700



$

2,100







Straight-line rent revenue


$99 to $109


$95 to $105



Repayments of unsecured senior bank term loan



$

(350)



$

(175)







Interest expense


$172 to $182


$167 to $177



Debt capital proceeds held in cash



$

190



$




























Projected Earnings per Share and Funds From Operations per Share Attributable to Alexandria's
    Common Stockholders – Diluted, as Adjusted



Key Credit Metrics




               2019 Guidance








As of 10/28/19


As of 7/29/19














Earnings per share(2)


$1.83 to $1.85


$2.39 to $2.47



Net debt to Adjusted EBITDA – 4Q19 annualized






Less than or equal to 5.3x







  Depreciation and amortization



4.75


4.85



Net debt and preferred stock to Adjusted EBITDA – 4Q19 annualized(1)






Less than or equal to 5.3x







  Allocation to unvested restricted stock awards


(0.05)


(0.05)



Fixed-charge coverage ratio – 4Q19 annualized






Greater than 4.0x







Funds from operations per share(3)


$6.53 to $6.55


$7.19 to $7.27



Value-creation pipeline as a percentage of gross real estate as of

    December 31, 2019






Less than 15%







  Unrealized gains on non-real estate investment(2)



(0.12)


(0.75)





















  Impairment of non-real estate investments



0.06






















  Loss on early extinguishment of debt(4)



0.43


0.45



Key Sources and Uses of Capital (in millions)


Range


Midpoint


Certain
Completed
Items

  Loss on early termination of interest rate hedge agreements(4)



0.02





Sources of capital:











  Preferred stock redemption charge



0.02



0.02



  Net cash provided by operating activities after
    dividends


$

170



$

210



$

190





  Allocation to unvested restricted stock awards


0.01


0.01



  Incremental debt


695



755




725



See below

Funds from operations per share, as adjusted(5)


$6.95 to $6.97


$6.92 to $7.00



  Real estate dispositions and partial interest sales


925



925




925



$

900

(4)

Midpoint


$6.96


$6.96



  Common equity


1,150



1,250




1,200



$

1,215

(6)








Total sources of capital


$

2,940



$

3,140



$

3,040





Key Assumptions


Low


High



Uses of capital:











Occupancy percentage in North America as of December 31, 2019(7)


96.7%


97.3%



  Construction


$

1,250



$

1,350



$

1,300





Lease renewals and re-leasing of space:





  Acquisitions


1,500



1,600




1,550



(4)


  Rental rate increases(5)


28.0%


31.0%



  Debt capital proceeds held in cash


190



190




190





  Rental rate increases (cash basis)


14.0%


17.0%



Total uses of capital


$

2,940



$

3,140



$

3,040





Same property performance:





Incremental debt (included above):











  Net operating income increase(5)


1.5%


3.5%



  Issuance of unsecured senior notes payable


$

2,700



$

2,700



$

2,700



$

2,700

(4)

  Net operating income increase (cash basis)


6.0%


8.0%



  Assumption of secured note payable


28



28




28



$

28


Straight-line rent revenue(5)


$

99



$

109


(8)


  Repayments of unsecured senior notes payable


(950)



(950)




(950)



$

(950)

(4)

General and administrative expenses


$

108



$

113



  Repayments of secured notes payable


(310)



(320)




(315)



$

(300)


Capitalization of interest


$

79



$

89



  Repayments of unsecured senior bank term loan


(350)



(350)




(350)



$

(350)

(4)

Interest expense(4)(9)


$

172



$

182



  $2.2 billion unsecured senior line of credit/other


(423)



(353)




(388)












Incremental debt


$

695



$

755



$

725






 

(1)

In October 2019, we completed the conversion of all 2.3 million outstanding shares of our Series D Convertible Preferred Stock into shares of our common stock.

(2)

Excludes future unrealized gains or losses after September 30, 2019, that are required to be recognized in earnings and are excluded from funds from operations per share, as adjusted.

(3)

Refer to the "Funds From Operations and Funds From Operations, As Adjusted, Attributable to Alexandria's Common Stockholders" section in "Definitions and Reconciliations" of our Supplemental Information for additional information.

(4)

Refer to this Earnings Press Release for additional information.

(5)

The midpoint for rental rate increases was up 1% in 3Q19, and up 3% in aggregate since our initial guidance on November 28, 2018. These cumulative adjustments resulted in upward pressure on the midpoints for same property net operating
income and straight-line rent revenue, resulting in increases to both midpoints by 0.5% and $4 million, respectively. Additionally, since our initial guidance for 2019, the midpoint for FFO per share, as adjusted, increased by one cent.

(6)

Includes 602,484 shares of common stock issued in 2Q19 under our ATM program for net proceeds of $86.1 million and 1.1 million shares issued during 3Q19 to settle forward equity sales agreements for net proceeds of $150.1 million. As
of September 30, 2019, 7.0 million shares remain unsettled under forward equity sales agreements, for which we expect to receive proceeds of $979.2 million.

(7)

The 1.0% reduction in occupancy guidance is attributable to vacancy aggregating 253,077 RSF representing lease-up opportunities at two acquisitions completed in 3Q19 and one pending acquisition expected to close in 4Q19.

(8)

Approximately 45% of straight-line rent revenue represents initial free rent on recently delivered and expected 2019 deliveries of new Class A properties from our development and redevelopment pipeline.

(9)

Increase in interest expense guidance by $5M primarily due to the $190M in excess proceeds from our issuances of unsecured senior notes payable in 3Q19, and the $1.7 million loss on early termination of interest rate hedge agreements.

 

We will host a conference call on Tuesday, October 29, 2019, at 3:00 p.m. Eastern Time ("ET")/noon Pacific Time ("PT"), which is open to the general public to discuss our financial and operating results for the third quarter ended September 30, 2019. To participate in this conference call, dial (833) 366-1125 or (412) 902-6738 shortly before 3:00 p.m. ET/noon PT and ask the operator to join the call for Alexandria Real Estate Equities, Inc. 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 5:00 p.m. ET/2:00 p.m. PT on Tuesday, October 29, 2019. The replay number is (877) 344-7529 or (412) 317-0088, and the access code is 10134312.

Additionally, a copy of this Earnings Press Release and Supplemental Information for the third quarter ended September 30, 2019, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2019q3.pdf.

For any questions, please contact Joel S. Marcus, executive chairman and founder; Stephen A. Richardson, co-chief executive officer; Peter M. Moglia, co-chief executive officer and co-chief investment officer; Dean A. Shigenaga, co-president and chief financial officer; Sara M. Kabakoff, assistant vice president – corporate communications, at (626) 578-0777, or Paula Schwartz, managing director – Rx Communications Group, at (917) 322-2216.

About the Company

Alexandria Real Estate Equities, Inc. (ARE), an S&P 500® urban office real estate investment trust ("REIT"), is the first and longest-tenured owner, operator, and developer uniquely focused on collaborative life science, technology, and agtech campuses in AAA innovation cluster locations, with a total market capitalization of $24.3 billion as of September 30, 2019, and an asset base in North America of 38.5 million square feet ("SF") as of October 28, 2019, including pending acquisitions. The asset base in North America includes 26.1 million RSF of operating properties and 2.5 million RSF of Class A properties undergoing construction or pre-construction, with projected initial occupancy in 4Q19-2020, 4.9 million RSF of intermediate-term Class A properties undergoing or nearing pre-construction, and 5.0 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, San Francisco, 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, technology, and agtech 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, technology, and agtech companies through our venture capital arm. 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.

***********

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 2019 earnings per share attributable to Alexandria's common stockholders – diluted, 2019 funds from operations per share attributable to Alexandria's common stockholders – diluted, net operating income, 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," "goals," "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, adverse general and local economic conditions, an unfavorable capital market environment, decreased leasing activity or 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.

Alexandria®, Lighthouse Design® logo, Building the Future of Life-Changing Innovation™, LaunchLabs®, Alexandria Center®, Alexandria Technology Square®, Alexandria Summit®, Alexandria Technology Center®, Alexandria Innovation Center®, and GradLabs™ are trademarks of Alexandria Real Estate Equities, Inc. All other company names, trademarks, and logos referenced herein are the property of their respective owners.

 


Consolidated Statements of Operations
September 30, 2019
(Dollars in thousands, except per share amounts)




Three Months Ended


Nine Months Ended



9/30/19


6/30/19


3/31/19


12/31/18


9/30/18


9/30/19


9/30/18

Revenues:















Income from rentals(1)


$

385,776



$

371,618



$

354,749



$

337,785



$

336,547



$

1,112,143



$

976,996


Other income


4,708



2,238



4,093



2,678



5,276



11,039



10,000


Total revenues


390,484



373,856



358,842



340,463



341,823



1,123,182



986,996

















Expenses:















Rental operations


116,450



105,689



101,501



97,682



99,759



323,640



283,438


General and administrative


27,930



26,434



24,677



22,385



22,660



79,041



68,020


Interest


46,203


(2)

42,879



39,100



40,239



42,244



128,182



117,256


Depreciation and amortization


135,570



134,437



134,087



124,990



119,600



404,094



352,671


Impairment of real estate














6,311


Loss on early extinguishment of debt


40,209


(3)



7,361





1,122



47,570



1,122


Total expenses


366,362



309,439



306,726



285,296



285,385



982,527



828,818

















Equity in earnings of unconsolidated real estate joint ventures


2,951



1,262



1,146



1,029



40,718



5,359



42,952


Investment (loss) income


(63,076)


(4)

21,500



83,556



(83,531)



122,203



41,980



220,294


Gain on sales of real estate








8,704








Net (loss) income


(36,003)



87,179



136,818



(18,631)



219,359



187,994



421,424


Net income attributable to noncontrolling interests


(11,199)



(8,412)



(7,659)



(6,053)



(5,723)



(27,270)



(17,428)


Net (loss) income attributable to Alexandria Real Estate Equities, Inc.'s 
    stockholders


(47,202)



78,767



129,159



(24,684)



213,636



160,724



403,996


Dividends on preferred stock


(1,173)



(1,005)



(1,026)



(1,155)



(1,301)



(3,204)



(3,905)


Preferred stock redemption charge






(2,580)



(4,240)





(2,580)




Net income attributable to unvested restricted stock awards


(1,398)



(1,432)



(1,955)



(1,661)



(3,395)



(4,532)



(6,010)


Net (loss) income attributable to Alexandria Real Estate Equities, Inc.'s
    common stockholders


$

(49,773)



$

76,330



$

123,598



$

(31,740)



$

208,940



$

150,408



$

394,081

















Net (loss) income per share attributable to Alexandria Real Estate
    Equities, Inc.'s common stockholders:















Basic


$

(0.44)



$

0.68



$

1.11



$

(0.30)



$

2.01



$

1.35



$

3.86


Diluted


$

(0.44)



$

0.68



$

1.11



$

(0.30)



$

1.99



$

1.35



$

3.85

















Weighted-average shares of common stock outstanding:















Basic


112,120



111,433



111,054



106,033



104,179



111,540



101,991


Diluted


112,120



111,501



111,054



106,033



105,385



111,712



102,354

















Dividends declared per share of common stock


$

1.00



$

1.00



$

0.97



$

0.97



$

0.93



$

2.97



$

2.76




(1)

Upon the adoption of new lease accounting standards on January 1, 2019, rental revenues and tenant recoveries are aggregated within income from rentals. Prior periods have been reclassified to conform to new standards. Refer to
"Financial and Asset Base Highlights" and the "Lease Accounting" and "Tenant Recoveries" sections in "Definitions and Reconciliations" of our Supplemental Information for additional information.

(2)

Includes $1.7 million related to the early termination of our interest rate hedge agreements, recognized in conjunction with the early repayment of our unsecured senior bank term loan.

(3)

Related to the opportunistic refinancing of our unsecured senior notes payable due 2020 and 2022 and the early repayment of our unsecured senior bank term loan. Refer to page 3 in this Earnings Press Release for additional information.

(4)

Refer to "Investments" of our Supplemental Information for additional information.

 

 


Consolidated Balance Sheets
September 30, 2019
(In thousands)




9/30/19


6/30/19


3/31/19


12/31/18


9/30/18

Assets











Investments in real estate


$

13,618,280



$

12,872,824



$

12,410,350



$

11,913,693



$

11,587,312


Investments in unconsolidated real estate joint ventures


340,190



334,162



290,405



237,507



197,970


Cash and cash equivalents


410,675



198,909



261,372



234,181



204,181


Restricted cash


42,295



39,316



54,433



37,949



29,699


Tenant receivables


10,668



9,228



9,645



9,798



11,041


Deferred rent


615,817



585,082



558,103



530,237



511,680


Deferred leasing costs


252,772



247,468



241,268



239,070



238,295


Investments


990,454



1,057,854



1,000,904



892,264



957,356


Other assets


777,003



694,627



653,726



370,257



368,032


Total assets


$

17,058,154



$

16,039,470



$

15,480,206



$

14,464,956



$

14,105,566













Liabilities, Noncontrolling Interests, and Equity











Secured notes payable


$

351,852



$

354,186



$

356,461



$

630,547



$

632,792


Unsecured senior notes payable


6,042,831



5,140,914



5,139,500



4,292,293



4,290,906


Unsecured senior line of credit


343,000



514,000





208,000



413,000


Unsecured senior bank term loan




347,105



347,542



347,415



347,306


Accounts payable, accrued expenses, and other liabilities


1,241,276



1,157,417



1,171,377



981,707



907,094


Dividends payable


115,575



114,379



110,412



110,280



101,084


Total liabilities


8,094,534



7,628,001



7,125,292



6,570,242



6,692,182













Commitments and contingencies






















Redeemable noncontrolling interests


12,099



10,994



10,889



10,786



10,771













Alexandria Real Estate Equities, Inc.'s stockholders' equity:











7.00% Series D cumulative convertible preferred stock


57,461



57,461



57,461



64,336



74,386


Common stock


1,132



1,120



1,112



1,110



1,058


Additional paid-in capital


7,743,188



7,581,573



7,518,716



7,286,954



6,801,150


Accumulated other comprehensive loss


(11,549)



(11,134)



(10,712)



(10,435)



(3,811)


Alexandria Real Estate Equities, Inc.'s stockholders' equity


7,790,232



7,629,020



7,566,577



7,341,965



6,872,783


Noncontrolling interests


1,161,289



771,455



777,448



541,963



529,830


Total equity


8,951,521



8,400,475



8,344,025



7,883,928



7,402,613


Total liabilities, noncontrolling interests, and equity


$

17,058,154



$

16,039,470



$

15,480,206



$

14,464,956



$

14,105,566


 


 

Funds From Operations and Funds From Operations per Share
September 30, 2019
(In thousands)


     The following table presents a reconciliation of net (loss) income attributable to Alexandria's common stockholders, 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 funds from operations attributable to Alexandria's common stockholders – diluted, and funds from operations attributable to Alexandria's common stockholders – diluted, as adjusted, for the periods below:




Three Months Ended


Nine Months Ended



9/30/19


6/30/19


3/31/19


12/31/18


9/30/18


9/30/19


9/30/18

Net (loss) income attributable to Alexandria's common stockholders – basic


$

(49,773)



$

76,330



$

123,598



$

(31,740)



$

208,940



$

150,408



$

394,081


Assumed conversion of 7.00% Series D cumulative convertible preferred stock(1)










1,301






Net (loss) income attributable to Alexandria's common stockholders – diluted


(49,773)



76,330



123,598



(31,740)



210,241



150,408



394,081


Depreciation and amortization


135,570



134,437



134,087



124,990



119,600



404,094



352,671


Noncontrolling share of depreciation and amortization from consolidated real
  estate JVs


(8,621)



(6,744)



(5,419)



(4,252)



(4,044)



(20,784)



(11,825)


Our share of depreciation and amortization from unconsolidated real estate JVs


1,845



973



846



719



1,011



3,664



2,462


Gain on sales of real estate








(8,704)








Our share of gain on sales of real estate from unconsolidated real estate JVs










(35,678)





(35,678)


Assumed conversion of 7.00% Series D cumulative convertible preferred stock(1)




1,005



1,026









3,905


Allocation to unvested restricted stock awards




(1,445)



(2,054)





(1,312)



(2,929)



(4,595)


Funds from operations attributable to Alexandria's common stockholders –
  diluted(2)


79,021



204,556



252,084



81,013



289,818



534,453



701,021


Unrealized losses (gains) on non-real estate investments


70,043



(11,058)



(72,206)



94,850



(117,188)



(13,221)



(194,484)


Realized gains on non-real estate investments








(6,428)







(8,252)


Impairment of real estate – land parcels














6,311


Impairment of non-real estate investments


7,133


(3)





5,483





7,133




Loss on early extinguishment of debt


40,209


(4)



7,361





1,122



47,570



1,122


Loss on early termination of interest rate hedge agreements


1,702


(5)









1,702




Our share of gain on early extinguishment of debt from unconsolidated real estate
  JVs










(761)





(761)


Preferred stock redemption charge






2,580



4,240





2,580




Removal of assumed conversion of 7.00% Series D cumulative convertible
  preferred stock(1)




(1,005)



(1,026)





(1,301)





(3,905)


Allocation to unvested restricted stock awards


(1,002)



179



990



(1,138)



1,889



(657)



2,938


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


$

197,106



$

192,672



$

189,783



$

178,020



$

173,579



$

579,560



$

503,990




(1)

Refer to the "Weighted-Average Shares of Common Stock Outstanding – Diluted" section in "Definitions and Reconciliations" of our Supplemental Information for additional information regarding our 7.00% Series D cumulative
convertible preferred stock.

(2)

Calculated in accordance with standards established by the Nareit Board of Governors. Refer to the "Funds From Operations and Funds From Operations, As Adjusted, Attributable to Alexandria's Common Stockholders" section in
"Definitions and Reconciliations" of our Supplemental Information for additional information.

(3)

Relates to three privately held non-real estate investments.

(4)

Refer to page 3 for additional information.

(5)

Represents loss on the termination of our interest rate hedge agreements. The loss is included within interest expense in our consolidated statements of operations.

 

 

Funds From Operations and Funds From Operations per Share (continued)
September 30, 2019
(In thousands, except per share amounts)


     The following table presents a reconciliation of net (loss) income per share attributable to Alexandria's common stockholders, 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 funds from operations per share attributable to Alexandria's common stockholders – diluted, and funds from operations per share attributable to Alexandria's common stockholders – diluted, as adjusted, for the periods below. Per share amounts may not add due to rounding.




Three Months Ended


Nine Months Ended



9/30/19


6/30/19


3/31/19


12/31/18


9/30/18


9/30/19


9/30/18

Net (loss) income per share attributable to Alexandria's common
  stockholders – diluted


$

(0.44)



$

0.68



$

1.11



$

(0.30)



$

1.99



$

1.35



$

3.85


Depreciation and amortization


1.14



1.15



1.17



1.14



1.11



3.46



3.35


Gain on sale of real estate








(0.08)








Our share of gain on sales of real estate from unconsolidated real estate JVs










(0.34)





(0.35)


Assumed conversion of 7.00% Series D cumulative convertible preferred stock(1)














(0.01)


Allocation to unvested restricted stock awards






(0.02)





(0.01)



(0.03)



(0.04)


Funds from operations per share attributable to Alexandria's common
  stockholders – diluted(1)


0.70



1.83



2.26



0.76



2.75



4.78



6.80


Unrealized losses (gains) on non-real estate investments


0.62



(0.10)



(0.65)



0.89



(1.11)



(0.12)



(1.90)


Realized gains on non-real estate investments








(0.06)







(0.08)


Impairment of real estate – land parcels














0.06


Impairment of non-real estate investments


0.06







0.05





0.06




Loss on early extinguishment of debt


0.36





0.07





0.01



0.43



0.01


Loss on early termination of interest rate hedge agreements


0.02


(1)









0.02




Our share of gain on early extinguishment of debt from unconsolidated real 
  estate JVs










(0.01)





(0.01)


Preferred stock redemption charge






0.02



0.04





0.02




Removal of assumed conversion of 7.00% Series D cumulative convertible
  preferred stock(1)














0.01


Allocation to unvested restricted stock awards


(0.01)





0.01





0.02





0.03


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


$

1.75



$

1.73



$

1.71



$

1.68



$

1.66



$

5.19



$

4.92

















Weighted-average shares of common stock outstanding(1) for calculations of:















Earnings per share – diluted


112,120



111,501



111,054



106,033



105,385



111,712



102,354


Funds from operations – diluted, per share


112,562



112,077



111,635



106,244



105,385



111,712



103,097


Funds from operations – diluted, as adjusted, per share


112,562



111,501



111,054



106,244



104,641



111,712



102,354



(1)    Refer to footnotes on the previous page for additional information.

 

 

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