Alexandria Real Estate Equities, Inc. Reports Fourth Quarter and Year Ended December 31, 2014 Financial and Operating Results

PASADENA, Calif., Feb. 2, 2015 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. ARE today announced financial and operating results for the fourth quarter and year ended December 31, 2014.

"As we report our results for the fourth quarter and year ended December 31, 2014, we are very pleased with the execution of our strategic business plan resulting in our 2014 total return performance of 44.7%.  In 2014, we celebrated the 20th anniversary of the founding of Alexandria.  We began the year with confidence in our business, driven by continued strong performance in the core asset base, positive factors resulting in accelerating demand for our Class A science and technology properties in our urban innovation cluster campuses, a valuable near-term development pipeline primed to deliver continued growth, and a disciplined approach to allocation of capital.  At the end of 2014, occupancy of our operating properties was 97%.  Our growth for both cash rental rates from lease renewals/re-leasing of space and cash same property NOI were greater than 5% for 2014.  Additionally, our current value-creation pipeline aggregating 2.3 million rentable square feet was 90% leased or under negotiation as of December 31, 2014.

Transitioning into 2015, we continue to remain focused on allocating our precious capital into markets with strong fundamentals, accelerating demand, and limited supply.  With overlapping demand from both the science and technology sectors in markets such as Mission Bay/SoMA and Cambridge, as well as strong rental rate growth across many of our key urban markets, we remain confident in our ability to deliver consistent and solid growth in FFO per share and NAV in 2015," said Joel S. Marcus, Chairman, Chief Executive Officer, and Founder of Alexandria Real Estate Equities, Inc.

Results

• Funds from operations ("FFO") attributable to Alexandria Real Estate Equities, Inc.'s ("Alexandria's") common stockholders – diluted, as adjusted:
  • $1.23 per share for 4Q14, up 6.0%, compared to $1.16 per share for 4Q13
  • $4.80 per share for 2014, up 9.1%, compared to $4.40 per share for 2013
  • $87.9 million for 4Q14, up $5.4 million, or 6.5%, compared to $82.5 million for 4Q13
  • $341.6 million for 2014, up $42.4 million, or 14.2%, compared to $299.1 million for 2013
• Net (loss) income attributable to Alexandria's common stockholders – diluted:
  • $(16.2) million, or $(0.23) per share, for 4Q14 compared to $36.2 million, or $0.51 per share, for 4Q13
  • $72.1 million, or $1.01 per share, for 2014 compared to $108.8 million, or $1.60 per share, for 2013
  • Results for 4Q14 and 2014 include an aggregate $46.2 million net loss and $45.9 million net loss, respectively, or $0.65 per share for each period, related to impairments of real estate assets held for sale, loss on early extinguishment of debt, and a preferred stock redemption charge, offset slightly by gains on sales of real estate

Core operating metrics

• Total revenues:
  • $188.7 million for 4Q14, up $19.9 million, or 11.8%, compared to $168.8 million for 4Q13
  • $726.9 million for 2014, up $95.7 million, or 15.2%, compared to $631.2 million for 2013
• Net operating income ("NOI"), including our share of unconsolidated joint ventures:
  • $132.7 million for 4Q14, up $13.8 million, or 11.6%, compared to $118.9 million for 4Q13
  • $508.6 million for 2014, up $66.5 million, or 15.0%, compared to $442.1 million for 2013
• Same property NOI growth:
  • Up 3.6% and 6.7% (cash basis) for 4Q14, compared to 4Q13
  • Up 4.5% and 5.5% (cash basis) for 2014, compared to 2013
• Leasing activity during 4Q14:
  • Executed leases for 581,660 rentable square feet ("RSF")
  • 10.1% and 2.4% (cash basis) rental rate growth on lease renewals and re-leasing of space
• Leasing activity during 2014:
  • Executed leases for 2,768,833 RSF
  • 13.3% and 5.4% (cash basis) rental rate growth on lease renewals and re-leasing of space
• Occupancy for properties in North America, as of 4Q14:
  • 97.0% occupancy for operating properties, up 110 basis points ("bps") from 4Q13
  • 96.1% occupancy for operating and redevelopment properties, up 60 bps from 4Q13
• Operating margins solid at 70% for 4Q14 and 2014
• Adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") margins solid at 65% for 4Q14 and 2014
• 56% of total annualized base rent ("ABR") from investment-grade client tenants

Recent transactions impacting net (loss) income attributable to
Alexandria's common stockholders (in thousands, except per share amounts)

External growth: value-creation projects and acquisitions

Value-creation projects

• Development and redevelopment value-creation projects were on average 90% leased or under negotiation
• 4Q14 key deliveries of value-creation projects:
  • 61,941 RSF to Illumina, Inc., Medivation, Inc., and Clovis Oncology, Inc. at 499 Illinois Street in our Mission Bay submarket
  • 42,047 RSF to Receptos, Inc. at 3033 Science Park Road in our Torrey Pines submarket
• 4Q14 key commencements of value-creation development projects:
  • Expanded our value-creation development project at 5200 Illumina Way – Building 6 from 149,663 RSF (leased) to 295,837 RSF to reflect negotiations for the expansion of Building 6 by 146,174 RSF.
  • Commenced a 61,547 RSF value-creation development project at 6040 George Watts Hill Drive, located in our Research Triangle Park submarket; and 100% pre-leased to Fuji Diosynth Biotechnologies U.S.A., Inc.
• During 4Q14, our value-creation pipeline increased by 416,230 developable SF related to our development opportunities at the following high-quality urban innovative cluster campus locations: 5200 Illumina Way, 10300 Campus Point, and Executive Drive in University Town Center, and Alexandria Center™ at Kendall Square – 50 Rogers Street (residential) in Cambridge.
• Non-income-producing assets (CIP and land) are expected to decrease from 16% of gross real estate at the end of 4Q14 to 13% by the end of 1Q15.

Acquisitions

• In November 2014, we acquired a property aggregating 133,731 RSF at 9625 Towne Centre Drive in our University Town Center submarket for $22.3 million.  The property is 100% leased until August 31, 2015, after which we plan to commence conversion of this building into tech office through redevelopment.
• In January 2015, we acquired 640 Memorial Drive in the Cambridge submarket for $176.5 million.  This property is a 225,504 RSF Class A, LEED Gold Certified, office/laboratory building in Mid-Cambridge and near the MIT campus, 100% leased to two high-quality life science tenants pursuant to long-term leases.  In connection with the acquisition, we assumed a secured note payable of $82.0 million with an interest rate of 3.93% and a maturity date in 2023.  The property is subject to a long-term ground lease.  We estimate initial unlevered stabilized yields of 7.5% and 6.4% (cash), respectively, and unlevered average cash yield of 6.8%.
• In January 2015, we executed an agreement to purchase the outstanding 10% noncontrolling interest in our flagship campus at Alexandria Technology Square^® for $108.3 million.  The purchase price will be paid in equal installments of $54 million each on April 1, 2015, and April 1, 2016.  Alexandria has owned 90% of this 1.2 million RSF urban innovation campus since its purchase from MIT in 2006, and has since doubled its NOI from $30 million in 2006 to $64 million in 2014 with a current unlevered stabilized yield on our existing 90% interest of 8.1% and 7.3% (cash).  We estimate initial unlevered stabilized yields of 6.1% and 5.4% (cash) on the purchase of the remaining 10% noncontrolling interest.  We believe there is further upside in our projected returns as we are poised to capture significant rent growth from 81% of the leases contractually ending in the next five years.  Additionally, we believe we can increase our 1.2 million RSF campus by an additional 100,000 RSF and further increase NOI.  The campus is currently 99.5% occupied and subject to a long-term ground lease.  After considering the $108.3 million purchase of the outstanding 10% noncontrolling interest in this flagship campus and the anticipated near and medium-term upside in NOI from rental rate growth and campus expansion, we estimate that we can enhance our unlevered yields on our aggregate investment in the campus over the next five years to 8.5% and 8.1% (cash).

Balance sheet

• $10.4 billion total market capitalization as of December 31, 2014
• 5.6 years weighted average remaining maturity of outstanding debt as of December 31, 2014
• 7.2x net debt to adjusted EBITDA – 4Q14 annualized, 2015 target range is 6.5x to 7.5x
• 3.3x fixed charge cover ratio – 4Q14 annualized, 2015 target range is 3.0x to 3.5x
• In December 2014, we purchased 513,500 outstanding shares of our 7.0% Series D cumulative convertible preferred stock ("7.0% Series D Convertible Preferred Stock") at an aggregate price of $14.4 million, or $27.975 per share

LEED statistics and other awards

• As of December 31, 2014, 30 LEED certified projects aggregating 4.6 million RSF were complete and 25 additional LEED projects aggregating 4.4 million square feet were in process
• In November 2014, both our East and West towers at the Alexandria Center^® for Life Science in New York City, at 430 and 450 East 29th Street in our Manhattan submarket, earned Platinum-level Wired Certification

Dispositions

Our capital plan to fund our value-creation projects continues to include (i) cash provided by operating activities after dividends, (ii) unsecured debt funding supported by growth in EBITDA, and (iii) sales of land, high-value "core-like" operating assets, and non-core operating assets.  In 4Q14 and January 2015, we completed $113.4 million in asset sales and had an additional $122.0 million of assets held for sale.  The net proceeds from these sales will be invested into our highly-leased value-creation development projects.  See the next page for key NAV considerations for dispositions and assets held for sale.

Key NAV Considerations for Dispositions and Assets Held for Sale: Net Positive / Increase to NAV

 

 

Guidance

The following updated guidance is based on our current view of existing market conditions and other assumptions for the year ended December 31, 2015.  There can be no assurance that actual amounts will be materially higher or lower than these expectations.  See our discussion of "forward-looking statements" on the following page.

 

 

 

Earnings Call Information

We will host a conference call on Tuesday, February 3, 2015, at 3:00 p.m. Eastern Time ("ET")/12:00 p.m. noon Pacific Time ("PT") that is open to the general public to discuss our financial and operating results for the fourth quarter and year ended December 31, 2014.  To participate in this conference call, dial (800) 723-6498 or (785) 830-7989 and confirmation code 1191912 shortly before 3:00 p.m. ET/12:00 p.m. noon PT.  The audio webcast can be accessed at: www.are.com, in the "For Investors" section.  A replay of the call will be available for a limited time from 6:00 p.m. ET/3:00 p.m. PT on Tuesday, February 3, 2015.  The replay number is (888) 203-1112 or (719) 457-0820 and the confirmation code is 1191912.

Additionally, a copy of this Earnings Press Release and Supplemental Information for the fourth quarter and year ended December 31, 2014, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2014q4.pdf. 

About the Company

Alexandria Real Estate Equities, Inc. ARE is a fully integrated, self-administered, and self-managed real estate investment trust ("REIT") uniquely focused on Class A collaborative science and technology campuses in urban innovation clusters including Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and Research Triangle Park.  Alexandria is the largest and leading owner, operator, and developer in its niche with a total market capitalization of $10.4 billion as of December 31, 2014, and an asset base of 31.5 million RSF, including 18.7 million RSF of operating and current value-creation projects, as well as an additional 12.8 million RSF in future ground-up development projects.

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This document includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Such forward-looking statements include, without limitation, statements regarding our 2015 earnings per share attributable to Alexandria's common stockholders – diluted, 2015 FFO per share attributable to Alexandria's common stockholders – diluted, NOI, and our projected sources and uses of capital.  You can identify the forward-looking statements by their use of forward-looking words, such as "forecast," "guidance," "projects," "estimates," "anticipates," "believes," "expects," "intends," "may," "plans," "seeks," "should," or "will," or the negative of those words or similar words.  These forward-looking statements are based on our current expectations, beliefs, projections, future plans and strategies, anticipated events, or trends and similar expressions concerning matters that are not historical facts, as well as a number of assumptions concerning future events.  There can be no assurance that actual results will not be materially higher or lower than these expectations.  These statements are subject to risks, uncertainties, assumptions, and other important factors that could cause actual results to differ materially from the results discussed in the forward-looking statements.  Factors that might cause such a difference include, without limitation, our failure to obtain capital (debt, construction financing, and/or equity) or refinance debt maturities, increased interest rates and operating costs, adverse economic or real estate developments in our markets, our failure to successfully complete and lease our existing space held for redevelopment and new properties acquired for that purpose and any properties undergoing development, our failure to successfully operate or lease acquired properties, decreased rental rates, increased vacancy rates or failure to renew or replace expiring leases, defaults on, or non-renewal of, leases by client tenants, general and local economic conditions, a favorable capital market environment, performance of our core operations in areas such as delivery of current and future development and redevelopment projects, leasing activity, lease renewals, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission ("SEC").  Accordingly, you are cautioned not to place undue reliance on such forward-looking statements.  All forward-looking statements are made as of the date of this earnings press release, and unless otherwise stated, we assume no obligation to update this information and expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.  For more discussion relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements, and risks to our business in general, please refer to our SEC filings, including our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q.

Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)

Consolidated Balance Sheets
(In thousands)
(Unaudited)

Funds From Operations and Adjusted Funds From Operations
(In thousands)
(Unaudited)

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

Funds From Operations Per Share and Adjusted Funds From Operations Per Share
(Unaudited)

The following table presents a reconciliation of (loss) earnings per share attributable to Alexandria's common stockholders – basic, the most directly comparable financial measure presented in accordance with GAAP, to FFO per share attributable to Alexandria's common stockholders – diluted, FFO per share attributable to Alexandria's common stockholders – diluted, as adjusted, and AFFO per share attributable to Alexandria's common stockholders – diluted.  For the computation of the weighted average shares used to compute the per share information, refer to the "Definitions and Reconciliations" section in our supplemental information.  The table below includes our share of consolidated and unconsolidated joint venture amounts.

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SOURCE Alexandria Real Estate Equities, Inc.