Alexandria Real Estate Equities, Inc. Reports First Quarter Ended March 31, 2017, Financial and Operating Results Strong Internal and External Growth

PASADENA, Calif., May 1, 2017 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. ARE announced financial and operating results for the first quarter ended March 31, 2017.

Key highlights

Addition to S&P 500 Index

We achieved another significant milestone with the announcement that the S&P Dow Jones Indices added Alexandria to the S&P 500^® Index. This significant and important recognition reflects our best-in-class team's ability to successfully execute our differentiated business strategy, which drives our successful operating and financial performance.

Credit rating upgrade

S&P Global Ratings upgraded our corporate credit rating to BBB/Stable from BBB-/Positive.

Strong internal growth

• Total revenues of $270.9 million, up 25.4%, for 1Q17, compared to $216.1 million for 1Q16;
• Substantial leasing activity and strong rental rate growth, in light of minimal contractual lease expirations at the beginning of 2017 and a highly leased value-creation pipeline:

 

 

 

• Executed key leases at average rental rate increases of 25.9% and 17.4% (cash basis) during 1Q17, included in the statistics above:
• 302,626 RSF, leased to Novartis AG at 100 and 200 Technology Square in our Cambridge submarket;
• 155,685 RSF, leased to Genentech, Inc., a subsidiary of Roche, at 500 Forbes Boulevard in our South San Francisco submarket; and
• 43,625 RSF, leased to Vir Biotechnology, Inc. at 499 Illinois Street in our Mission Bay/SoMa submarket.
• Same property net operating income growth:
• 2.6% and 5.5% (cash basis) for 1Q17, compared to 1Q16.

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

• Current and recent deliveries of Class A properties in our urban innovation clusters from our value-creation pipeline is expected to significantly increase net operating income:

• 1Q17 key development project placed into service: 241,276 RSF, leased to Juno Therapeutics, Inc. at 400 Dexter Avenue North in our Lake Union submarket; and
• Incremental contractual cash rents of $10 million per quarter, or $40 million annually, commenced in April 2017 primarily from our recently developed buildings at 75/125 Binney Street and 50 and 60 Binney Street in our Cambridge submarket.

Increased common stock dividend

Common stock dividend for 1Q17 of $0.83 per common share, up 3 cents, or 4%, over 1Q16; continuation of our strategy to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.

Operating results

 

Core operating metrics and internal growth

• Percentage of annual rental revenue in effect from investment-grade tenants as of 1Q17: 51%;
• Percentage of annual rental revenue in effect from Class A properties in AAA locations as of 1Q17: 79%;
• Occupancy for operating properties in North America as of 1Q17: 95.5%; a decline of 1.1% from 4Q16 primarily relating to 125,409 RSF vacated in 1Q17 by Eli Lilly and Company at 10300 Campus Point Drive located in our University Town Center submarket as they relocated and expanded into 305,006 RSF at 10290 Campus Point Drive in December 2016;
• Operating margin for 1Q17: 72%;
• Adjusted EBITDA margin for 1Q17: 67%;
• See "Strong internal growth" in the Key highlights section on page 1 of this Earnings Press Release for information on our leasing activity, rental rate growth, and same property net operating income growth.

External growth

Disciplined allocation of capital to visible, multiyear, highly leased value-creation pipeline

• See page 1 of this Earnings Press Release for key highlights

Disciplined management of development pipeline

• Solid pre-leasing of 5.2 million RSF of ground-up developments that commenced since January 1, 2009:
• 100% pre-leasing on 2.7 million RSF for 16 single-tenant buildings; and
• 38% pre-leasing on 2.5 million RSF for nine multi-tenant buildings.

Strategic acquisitions

• We completed or entered into several agreements to acquire real estate consisting primarily of land parcels and a redevelopment property aggregating 3.2 million SF across our AAA urban innovation cluster locations for an aggregate purchase price of $412.2 million; and
• See page 4 of this Earnings Press Release for additional information on our completed and pending strategic acquisitions.

Balance sheet management

• In February 2017, S&P Global Ratings upgraded our corporate credit rating to BBB/Stable from BBB-/Positive;
• $14.5 billion total market capitalization as of 1Q17;
• $2.2 billion of liquidity as of 1Q17;
• Net debt to Adjusted EBITDA:
• 1Q17 annualized: 5.9x; 1Q17 trailing 12 months: 6.6x; and
• 4Q17 annualized target range: 5.3x to 5.8x;
• Fixed-charge coverage ratio:
• 1Q17 annualized: 4.1x; 1Q17 trailing 12 months: 3.8x; and
• 4Q17 annualized target: greater than 4.0x;
• Current and future value-creation pipeline was 11% of gross investments in real estate in North America as of 1Q17, with a 4Q17 target of less than 10%; and
• 5% unhedged variable-rate debt as a percentage of total debt as of 1Q17.

Key capital events

• In March 2017, we completed the offering of $425.0 million of unsecured senior notes, due in 2028, at an interest rate of 3.95% for net proceeds of $420.5 million;
• In March 2017, we entered into an offering to sell an aggregate 6.9 million shares of our common stock, at a public offering price of $108.55 per share. Approximately 60% of the proceeds will fund value-creation acquisitions and construction and 40% will fund balance sheet improvements, including reduction in our projected net debt to Adjusted EBITDA – 4Q17 annualized by 0.2x, and redemption of our Series E Redeemable Preferred Stock. Aggregate net proceeds from the sale, after underwriters' discount and issuance costs, of $713.3 million consisted of the following:
• 2.1 million shares issued at closing with net proceeds of $217.8 million; and
• 4.8 million shares subject to forward equity sales agreements expiring no later than March 2018 with net proceeds of $495.5 million, which will be further adjusted as provided in the sales agreements.
• In March 2017, we announced the redemption of all 5.2 million outstanding shares of our Series E Redeemable Preferred Stock at a redemption price of $25.00 per share plus accrued dividends. As a result of this announcement, we reclassified the $130.0 million par value outstanding to a preferred stock redemption liability and recognized a preferred stock redemption charge of $5.5 million related to the write-off of original issuance costs. We completed the redemption on April 14, 2017;
• Repurchased, in privately negotiated transactions, 501,115 shares of our 7.00% Series D cumulative convertible preferred stock for $17.9 million, or $35.79 per share, and recognized a preferred stock redemption charge of $5.8 million in 1Q17; and
• In March 2017, we repaid $200 million of our 2019 Unsecured Senior Bank Term Loan, reducing the total outstanding balance from $400 million to $200 million, and recognized a loss of $670 thousand related to the write-off of unamortized loan fees.

Corporate social responsibility/thought leadership

• 50% of total annual rental revenue expected from Leadership in Energy and Environmental Design ("LEED") certified projects upon completion of in-process projects;
• In January 2017, 75/125 Binney Street at Alexandria Center^® at Kendall Square achieved LEED GOLD certification from the U.S. Green Building Council;
• In March 2017, Alexandria and Joel S. Marcus were honored to chair the U.S. Navy SEAL Foundation's Ninth Annual Benefit Dinner in New York City. The event raised a record-breaking $12.8 million to support the Navy SEAL Foundation's mission-critical work providing vital services for U.S. Navy SEAL families and included support from 100% of Alexandria's employees;
• In February 2017, Alexandria convened the Alexandria Summit^® – Innovate Ag 2017 in New York City.

Subsequent events in April 2017

• Executed three interest rate swap agreements:
• $150 million notional amount at a fixed pay rate of 1.60% effective March 29, 2018; and
• $100 million notional amount at a fixed pay rate of 1.89% effective March 29, 2019.

Incremental Annual Net Operating Income from Development and Redevelopment of New Class A Properties
March 31, 2017

 

 

 

Acquisitions
March 31, 2017
(Dollars in thousands)

 

 

 

Guidance
March 31, 2017
(Dollars in millions, 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, 2017. There can be no assurance that actual amounts will be materially higher or lower than these expectations. See our discussion of "forward-looking statements" on page 7 of this Earnings Press Release.

 

 

 

 

We will host a conference call on Tuesday, May 2, 2017, 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 first quarter ended March 31, 2017. To participate in this conference call, dial (866) 524-3160 or (412) 317-6760 shortly before 3:00 p.m. ET/noon PT and ask the operator to join the Alexandria Real Estate Equities, Inc. call. 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, May 2, 2017. The replay number is (877) 344-7529 or (412) 317-0088, and the confirmation code is 10102394.

Additionally, a copy of this Earnings Press Release and Supplemental Information for the first quarter ended March 31, 2017, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2017q1.pdf.

For any questions, please contact Joel S. Marcus, chairman, chief executive officer, and founder, at (626) 578-9693 or Dean A. Shigenaga, executive vice president, chief financial officer, and treasurer, at (626) 578-0777.

About the Company

Alexandria Real Estate Equities, Inc. ARE, an S&P 500^® company, is an urban office real estate investment trust ("REIT") uniquely focused on collaborative life science and technology campuses in AAA innovation cluster locations, with a total market capitalization of $14.5 billion and an asset base in North America of 28.2 million square feet, as of March 31, 2017. The asset base in North America includes 20.1 million RSF of operating properties, including 1.6 million RSF of development and redevelopment of new Class A properties currently undergoing construction. Additionally, the asset base in North America includes 8.1 million SF of future development projects, including 1.5 million SF of near-term projects undergoing marketing for lease and preconstruction activities and 2.0 million SF of other near-term 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 Park. Alexandria has a longstanding and proven track record of developing Class A properties clustered in urban life science and technology campuses that provide its 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. We believe these advantages result 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.

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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 2017 earnings per share attributable to Alexandria's common stockholders – diluted, 2017 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," "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.

Consolidated Statements of Income
March 31, 2017
(In thousands, except per share amounts)

 

Consolidated Balance Sheets
March 31, 2017
(In thousands)

 

Funds From Operations and Funds From Operations per Share
March 31, 2017
(In thousands, except per share amounts)

The following tables present a reconciliation of net income (loss) attributable to Alexandria's common stockholders – basic, the most directly comparable financial measure presented in accordance with generally accepted accounting principles ("GAAP"), 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, and related per share amounts. Amounts allocable to unvested restricted stock awards are not material and are not presented separately within the per share table below. Per share amounts may not add due to rounding.

 

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SOURCE Alexandria Real Estate Equities, Inc.