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Alexandria Real Estate Equities, Inc. Reports: 1Q20 Revenues of $439.9 million, Up 22.6% Over 1Q19; 1Q20 Net Income per Share - Diluted of $0.14; 1Q20 FFO per Share - Diluted, As Adjusted, of $1.82; and Operational Excellence and Strong and Flexible Balance Sheet With Significant Liquidity

PASADENA, Calif. , April 27, 2020 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) announced financial and operating results for the first quarter ended March 31, 2020.

Key highlights

Operating results (in millions, except per share amounts)

Amount


Per Share


1Q20


1Q19


1Q20


1Q19

Total revenues up 22.6%

$

439.9


$

358.8






Net income attributable to Alexandria's common
   stockholders diluted

$

16.8


$

123.6


$

0.14


$

1.11

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

$

221.4


$

189.8


$

1.82


$

1.71

Alexandria and its tenants at the forefront of fighting COVID-19

Effective diagnostics, therapies, and vaccines are desperately needed to test for, treat, and ultimately prevent COVID-19. Over 60 of our life science tenants are at the forefront of increasing testing capacity, advancing new and repurposed therapies, and developing preventative vaccines for COVID-19. Our ground-up development projects include mission-critical research space focused on COVID-19. Refer to " Alexandria and Its Tenants Are at the Forefront of Fighting COVID-19" of this Earnings Press Release for further information.

Strong and flexible balance sheet with significant liquidity

  • $4.0 billion of liquidity as of March 31, 2020 , proforma for our additional $750.0 million unsecured senior line of credit completed in April 2020 .
  • Zero debt maturing until 2023.
  • 10.3 years weighted-average remaining term of debt as of March 31, 2020 .
  • $1.0 billion issuance of forward equity sales agreements, executed in January 2020 , at a public offering price of $155.00 per share, before underwriting discounts, with $500.0 million settled in March 2020 .
  • Investment-grade credit rating ranking in the top 10% among all publicly traded REITs, Baa1/Stable from Moody's Investors Service and BBB+/Stable from S&P Global Ratings, both as of March 31, 2020 .

Continued dividend strategy to share cash flows with stockholders

Common stock dividend declared for 1Q20 of $1.03 per common share, aggregating $4.06 per common share for the twelve months ended March 31, 2020, up 26 cents , or 7%, over the twelve months ended March 31, 2019. Our FFO payout ratio of 58% for the three months ended March 31, 2020, allows us to share cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.

A REIT industry-leading, high-quality tenant roster

  • 51% of annual rental revenue from investment-grade or publicly traded large cap tenants.
  • Weighted-average remaining lease term of 7.8 years.

Record-low accounts receivable balance

  • As of April 24, 2020 :

High-quality revenues and cash flows, strong Adjusted EBITDA margin, and operational excellence

Percentage of annual rental revenue in effect from:





Investment-grade or publicly traded large cap tenants


51%



Class A properties in AAA locations


74%



Occupancy of operating properties in North America


95.1%

(1)


Operating margin


71%



Adjusted EBITDA margin


68%



Weighted-average remaining lease term:





All tenants


7.8     years


Top 20 tenants


11.4    years









(1)

Includes 686,988 RSF, or 2.4%, of vacancy in our North America markets, representing lease-up opportunities at properties recently acquired, primarily at our SD Tech by Alexandria campus (joint venture), 601, 611, and 651 Gateway Boulevard (joint venture), and 5505 Morehouse Drive. Excluding these vacancies, occupancy of operating properties in North America was 97.5% as of March 31, 2020. Refer to "Occupancy" in this Supplemental Information for addition details regarding vacancy from recently acquired properties.

Net operating income and internal growth

  • Net operating income (cash basis) of $1.1 billion for 1Q20 annualized, up $204.1 million , or 22.9%, compared to 1Q19 annualized.
  • 95% of our leases contain contractual annual rent escalations approximating 3%.
  • 2.4% and 6.1% (cash basis) same property net operating income growth for 1Q20 over 1Q19.
  • Minimal 2020 contractual lease expirations aggregating 4.0% of annual rental revenue.
  • Strong rental rate increases of 46.3% for 1Q20, representing our highest quarterly rental rate increase over the past 10 years.


1Q20

Total leasing activity RSF


703,355

Lease renewals and re-leasing of space:



RSF (included in total leasing activity above)


557,367

Rental rate increases


46.3%

Rental rate increases (cash basis)


22.3%




2020 guidance update and significant reductions in construction spend, acquisitions, and equity-type capital

Refer to next page for specific details.

Key items included in operating results

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


Amount


Per Share Diluted

(In millions, except per share amounts)

1Q20


1Q19


1Q20


1Q19

Unrealized (losses) gains on non-real estate investments (1)

$

(17.1)


$

72.2


$

(0.14)


$

0.65

Impairment of real estate (2)

(9.6)



(0.08)


Impairment of non-real estate investments (1)

(19.8)



(0.16)


Loss on early extinguishment of debt


(7.4)



(0.07)

Preferred stock redemption charge


(2.6)



(0.02)

Total

$

(46.5)


$

62.2


$

(0.38)


$

0.56


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

(2)  Includes a $7.6 million impairment on our investment in a recently developed retail property held by our unconsolidated real estate joint venture.

Certain items impacting 2020 guidance

See "Guidance" on pages 9 and 10 for detailed assumptions for our updated 2020 guidance.





Per Share Impact


Reduction in retail and transient/short-term parking revenue 2Q20-4Q20

8 cents


Issuance of unsecured senior notes payable and updated timing of
   development and redevelopment deliveries, offset by improvement in
   EBITDA from our core operations

cents


Total

8 cents



Significant reductions in 2020 construction spend, acquisitions, and equity-type capital

A significant portion of our historical annual construction spend forecast included amounts related to future development projects with no aboveground vertical construction and was not committed to a specific tenant. Due to the current dislocation of capital and other markets caused by COVID-19, we have reduced our construction spend forecast to focus primarily on projects that are partially or fully leased. We also expect to continue certain future pipeline expenditures to minimize the impact of a temporary pause. As a result, we have reduced our construction spend forecast for 2020 from $1 .6 billion to $960 million (at the midpoint of guidance). We also reduced our forecasted acquisitions for 2020 from $950 million to $650 million . The aggregate $940 million reduction in uses of capital in 2020 reduced our remaining forecast of sources of capital from real estate dispositions, partial interest sales, and common equity from $925 million to zero dollars.

Importantly, upon improvement of market conditions, we have the option, on a project-by-project basis, to address demand for our development and redevelopment projects.

Highly leased value-creation pipeline, including COVID-19-focused R&D space

  • Current projects aggregating 2.9 million RSF, including COVID-19-focused R&D spaces, are highly leased at 61% and will generate significant revenue and cash flows.
  • Annual net operating income (cash basis), including our share of unconsolidated real estate joint ventures, is expected to increase $37 million upon the burn-off of initial free rent on recently delivered projects.
  • In March 2020 , we successfully upzoned the square footage available for the ground-up development of office/laboratory space at 325 Binney Street in our Cambridge submarket to 402,000 SF from 164,000 SF.

Completion of acquisitions with significant value-creation opportunities in key submarkets

  • During 1Q20, we completed the acquisition of eight properties for an aggregate purchase price of $484.6 million . The acquisitions comprise 1.1 million RSF, including 106,021 RSF of current and future value-creation opportunities.
  • In addition to the completed acquisitions above, we also formed a real estate joint venture with subsidiaries of Boston Properties, Inc., in which we are targeting a 51% ownership interest over time. We are the managing member and have consolidated this joint venture. As of March 31, 2020 , our ownership interest in the real estate joint venture was 44.8%.

Balance sheet management

Key metrics as of March 31, 2020

  • $24.3 billion of total market capitalization.
  • $17.0 billion of total equity capitalization.
  • $4.0 billion of liquidity as of March 31, 2020 , proforma for our additional $750.0 million unsecured senior line of credit completed in April 2020 .


1Q20


Goal



Quarter


Trailing


4Q20



Annualized


12 Months


Annualized

Net debt and preferred stock to
   Adjusted EBITDA


5.5x



6.0x


Less than or equal to 5.3x

Fixed-charge coverage ratio


4.5x



4.2x


Greater than or equal to 4.4x









Value-creation pipeline of new Class A development and redevelopment projects
   as a percentage of gross investments in real estate


 

1Q20

Current projects 68% leased/negotiating


6%

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


5%

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.

Key capital events

  • In January 2020 , we completed $1.0 billion of forward equity sales agreements to sell an aggregate of 6.9 million shares of our common stock (including the exercise of an underwriters' option) at a public offering price of $155.00 per share, before underwriting discounts. In March 2020 , we settled 3.4 million shares from our forward equity sales agreements and received proceeds of $500.0 million . As of April 27, 2020 , 3.5 million shares of our common stock remain outstanding under forward equity sales agreements, for which we expect to receive proceeds of $524.3 million to be further adjusted as provided in the sales agreements. We expect to settle the remaining outstanding forward equity sales agreements in 2020.
  • Over the trailing five quarters, we have completed the issuances of $3.4 billion in unsecured senior notes, with a weighted-average interest rate of 3.95% and a weighted-average maturity as of March 31, 2020 , of 15.4 years, including our March 2020 offering of $700.0 million of unsecured senior notes payable at an interest rate of 4.90%, due in 2030, for net proceeds of $691.6 million .
  • In February 2020 , we entered into a new "at-the-market" common stock offering program ("ATM program"), which allows us to sell up to an aggregate of $850.0 million of our common stock. As of March 31, 2020 , we have available $843.7 million remaining under our ATM program.
  • In March 2020 , our unconsolidated joint venture at 1655 and 1725 Third Street, in which we own a 10% interest, located in Mission Bay/SoMa, refinanced an existing variable-rate secured construction loan with a fixed-rate loan with terms as follows:



100% at Joint Venture Level


Amended Agreement


Change




Aggregate commitments


$600.0 million


Increase of $225.0 million




Maturity date


March 2025


Extended by 45 months




Interest rate


Fixed at 4.50%


Previously LIBOR + 3.70%









  • In April 2020 , we closed an additional unsecured senior line of credit with $750.0 million of available commitments. The new unsecured senior line of credit matures on April 14, 2022 , and bears interest at LIBOR + 1.05%. Pursuant to the terms of the agreement, we are required to repay the facility, if applicable, and reduce commitments available upon receiving the net proceeds from certain qualifying events, including new corporate debt and 50% of proceeds from the issuance of common stock, as provided in the credit agreement. Including our existing $2.2 billion unsecured senior line of credit, commitments available under our unsecured credit facilities aggregate $2.95 billion .

Investments

  • Our investments in publicly traded companies and privately held entities aggregate a carrying amount of $1.1 billion , including an adjusted cost basis of $739.0 million and unrealized gains of $384.5 million , as of March 31, 2020 .
  • We recognized an investment loss during 1Q20 of $21.8 million , comprising $15.1 million in realized gains, $19.8 million in impairments related to privately held non-real estate investments, and $17.1 million in unrealized losses.

Industry leadership, strategic initiatives, and corporate responsibility

  • In March 2020 , the Navy SEAL Foundation honored Joel S. Marcus , our executive chairman and founder, and the company with the 2020 Navy SEAL Foundation Patriot Award, which highlights our contributions and unwavering support for the Naval Special Warfare community. We have proudly supported the Navy SEAL Foundation in its mission to provide immediate and ongoing support and assistance to the Naval Special Warfare community and their families since 2010.
  • In January 2020 , Alexandria Venture Investments, our strategic venture capital arm, was recognized for a third consecutive year as the most active biopharma investor by new deal volume by Silicon Valley Bank in its "2020 Healthcare Investments and Exits Report." Alexandria's venture activity provides us with, among other things, mission-critical data and knowledge on innovations and trends.
  • In January 2020 , we announced our first national $100,000 AgTech Innovation Prize competition to recognize startup and early-stage agtech and foodtech companies that demonstrate innovative approaches to addressing challenges related to agriculture, food, and nutrition.
  • In February 2020 , Alexandria LaunchLabs ® at the Alexandria Center ® at One Kendall Square earned the Fitwel Impact Award for the highest Fitwel certification of all time, as well as the highest score in 2019 for a commercial interior space, in the Fitwel 2020 Best in Building Health awards program. This marks the second consecutive year Alexandria LaunchLabs Cambridge has held the record for Fitwel's top certification score. The award recognizes our commitment to supporting high levels of health, wellness, and productivity through the design, construction, and operation of our best-in-class buildings and spaces.

Subsequent events

  • In April 2020 , we completed the sale of a partial interest in properties at 9808 and 9868 Scranton Road in our Sorrento Mesa submarket, aggregating 219,628 RSF, to the existing SD Tech by Alexandria consolidated real estate joint venture, of which we own 50.0%. We received proceeds of $51.1 million for the 50% interest in the properties that our joint venture partner acquired through the joint venture. We continue to control and consolidate this joint venture; therefore, we accounted for this sale as an equity transaction with no gain or loss recognized in earnings.
  • We had a pending acquisition of an operating tech office property for which our revised economic projections declined from our initial underwriting. In April 2020 , we recognized an impairment charge of $10 million to reduce the carrying amount of this pre-acquisition deposit to zero dollars, concurrently with submission of our notice to terminate the transaction.

(1)

Represents an illustrative subset of our over 60 tenants focused on COVID-19-related efforts, with some of these companies working on multiple efforts that span testing, treatment, and/or vaccine development.

Alexandria Fighting COVID-19 on Multiple Fronts
March 31, 2020

Alexandria and its tenants are at the forefront of fighting COVID-19

Effective diagnostics, therapies, and vaccines are desperately needed to combat the global COVID-19 pandemic. By maintaining essential business operations across our campuses, Alexandria has enabled several of our life science tenants to continue mission-critical COVID-related research and development. The heroic work being done by so many of our tenants and campus community members to help test for, treat, and prevent COVID-19, as well as provide medical supplies and protective equipment to neighboring hospitals, is profound and inspiring. We are currently tracking over 60 tenants across our cluster markets focused on COVID programs.

Improving testing quality and capacity

Abbott Laboratories , Color Genomics, Laboratory Corporation of America Holdings , Quest Diagnostics, Roche , Thermo Fisher Scientific Inc. , and others are working tirelessly to expand the capacity to determine who actively has COVID-19, who has been exposed to, and who has developed immunity against the virus. The availability of widespread screening and serological testing of this nature is critical for a safe and healthy return to society.

Advancing new and repurposed therapies

Over 140 experimental drug treatments and vaccines are being studied in over 250 clinical trials around the world, a substantial number of which are sponsored by our tenants and investment portfolio companies.

Headlining efforts across our tenant base include:

  • Gilead Sciences, Inc. 's remdesivir is in late-stage studies for the treatment of moderate and severe COVID-19 patients. Though variable outcomes have been reported, additional Phase III study results are expected in mid- to late May, which, if positive, will likely form the basis for FDA approval.
  • Adaptive Biotechnologies Corporation is partnered with Amgen to identify and develop therapeutic antibodies from the blood of patients who are actively fighting or have recently recovered from COVID-19.
  • Vir Biotechnology, Inc. , in collaboration with GlaxoSmithKline , is utilizing its neutralizing antibody platform to identify antibodies that could be used as therapeutic or preventative options to combat COVID-19.
  • Applied Therapeutics, Inc. 's lead clinical-stage asset is now being studied in COVID-19 patients with acute lung inflammation and cardiomyopathy, two of the predominant causes of COVID-19-associated mortality.

Many other Alexandria tenants and investments, including AbbVie Inc. , Amgen Inc. , Eli Lilly and Company , Novartis AG , Pfizer Inc. , are similarly endeavoring to develop novel therapies and repurpose existing and investigational drugs to provide near-term treatments for moderate and severe COVID-19 patients and those at highest risk.

Developing preventative vaccines

A prophylactic vaccine represents the effective end of this global COVID-19 pandemic. Our tenant Moderna, Inc. , in collaboration with the National Institute of Allergy and Infectious Diseases , has fast-tracked its mRNA-based vaccine into the clinic. The U.S. Biomedical Advanced Research and Development Authority (BARDA) has committed up to $483 million to support the clinical development and manufacturing scale-up of Moderna's mRNA vaccine candidate, mRNA-1273, to help expedite FDA approval over the next nine to twelve months and facilitate the supply of tens of millions of doses per month thereafter.

Other tenants, including Arcturus Therapeutics , GlaxoSmithKline , Johnson & Johnson , Medicago Inc. , Novavax, Inc. , Pfizer Inc. , and Sanofi , are leveraging their vaccine development expertise and technology platforms to similarly bring vaccine candidates into clinical trials, with the goal of expediting the delivery of a safe and effective vaccine to the public in 2021.

Alexandria's strategic initiatives and philanthropic efforts to fight COVID-19

Through industry thought leadership, impactful strategic initiatives, and philanthropic efforts, Alexandria's best-in-class team has made significant and meaningful contributions to help mitigate the impact of, and ultimately end, the global COVID-19 pandemic.

Alexandria Summit

In March 2020 , the Alexandria Summit ® , in collaboration with Mark McClellan , MD, PhD, and the Duke-Margolis Center for Health Policy, hosted a virtual Policy Forum webinar aimed at driving strategies and policies for achieving the widespread availability of rapid, efficient COVID-19 diagnostic testing capabilities necessary to reduce social distancing and physical isolation measures and mitigate the associated impact on the overall well-being of Americans and on the economic health of the nation.

Mission-critical personal protective equipment

Working hand in hand with key partners across our global life science network, the Alexandria team sourced and donated over 35,000 pieces of personal protective equipment to 12 hospitals and others in communities in need, including New York City , Boston , Seattle , San Diego , Dayton, and Los Angeles , for medical professionals working on the front lines in the fight against COVID-19.

Philanthropic giving

Through strategic philanthropic giving and the Company's matching gift programs, Alexandria donated, in aggregate, over $700,000 to several highly impactful national organizations performing important work to support a myriad of efforts in communities affected by this global public health emergency, including the following:

  • Feeding America COVID-19 Response Fund : the fund from the nation's largest hunger-relief organization with a network of 200 member food banks, is supporting the food banks that help people facing hunger during the school closures, job disruptions, and health risks, during the COVID-19 pandemic.
  • First Responders Children's Foundation COVID-19 Emergency Response Fund : providing support to first responders on the front lines of the COVID-19 pandemic, and their families who are enduring financial hardship due to the outbreak.

Additionally, Alexandria provided mission-critical support to several non-profit organizations in some of the nation's COVID-19 hot spots, including the following:

  • Robin Hood's COVID-19 Relief Fund from New York City's largest poverty-fighting organization, is providing immediate, short-term grants to support non-profits that are on the front lines in the fight against COVID-19 so they can move swiftly to serve affected communities.
  • Relief Opportunities for All Restaurants (ROAR) is providing financial relief directly to employees of restaurants who have lost their jobs as a result of the COVID-19 pandemic.
  • City of Cambridge Disaster Fund for COVID-19 is providing emergency assistance in partnership with non-profit organizations to individuals and families in Cambridge who are experiencing extreme financial hardship caused by the COVID-19 crisis.


...

Acquisitions
March 31, 2020
(Dollars in thousands)












Square Footage


Unlevered Yields




Property


Submarket/Market


Date of

Purchase


Number of
Properties


Operating

Occupancy


Future
Development


Operating With
Future
Development/
Redevelopment


Operating


Initial
Stabilized


Initial
Stabilized
(Cash)


Purchase Price


























Completed 1Q20:
























275 Grove Street


Route 128/
  
Greater Boston


1/10/20


1


99%




509,702


8.0%


6.7%


$

226,512


601, 611, and 651 Gateway
  Boulevard (51% interest in
  consolidated JV) (1)


South San Francisco/
  
San Francisco


1/28/20


3


73 % (2)


260,000


300,010


475,993


(1)


(1)



(1)


3330 and 3412 Hillview Avenue


Greater Stanford/
  
San Francisco


2/5/20


2


100%




106,316


7.6%


4.2%



105,000


9808 and 9868 Scranton Road (3)


Sorrento Mesa/
  
San Diego


1/10/20


2


88%




219,628


7.3%


6.8%



102,250

(3)

Other


Various




3


38%


35,000


71,021


180,960


N/A


N/A



50,817








11


79%


295,000


371,031


1,492,599









484,579


























Subsequent to 1Q20:
























975-1075 Commercial Street and
  915-1063 Old County Road


Greater Stanford/

  San Francisco


4/14/20



N/A


700,000


26,738



(4)


(4)



113,250


Pending acquisitions


Various




1




510,188


42,300



N/A


N/A



52,171


2020 acquisitions






12




1,505,188


440,069


1,492,599








$

650,000


2020 guidance range



















$600,000 - $700,000