Alexandria Real Estate Equities, Inc. Reports: 2Q23 and 1H23 Net Income per Share - Diluted of $0.51 and $0.95, respectively; and 2Q23 and 1H23 FFO per Share - Diluted, As Adjusted, of $2.24 and $4.43
Alexandria Real Estate Equities, Inc. Reports: 2Q23 and 1H23 Net Income per Share - Diluted of $0.51 and $0.95, respectively; and 2Q23 and 1H23 FFO per Share - Diluted, As Adjusted, of $2.24 and $4.43, respectively
PR Newswire
PASADENA, Calif., July 24, 2023
PASADENA, Calif., July 24, 2023 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) announced financial and operating results for the second quarter ended June 30, 2023.
Key highlights | ||||||||
Operating results | 2Q23 | 2Q22 | 1H23 | 1H22 | ||||
Total revenues: | ||||||||
In millions | $ 713.9 | $ 643.8 | $ 1,414.7 | $ 1,258.8 | ||||
Growth | 10.9 % | 12.4 % | ||||||
Net income attributable to Alexandria's common stockholders – diluted | ||||||||
In millions | $ 87.3 | $ 269.3 | $ 162.5 | $ 118.5 | ||||
Per share | $ 0.51 | $ 1.67 | $ 0.95 | $ 0.74 | ||||
Funds from operations attributable to Alexandria's common stockholders – diluted, as adjusted | ||||||||
In millions | $ 382.4 | $ 338.8 | $ 756.1 | $ 663.4 | ||||
Per share | $ 2.24 | $ 2.10 | $ 4.43 | $ 4.15 | ||||
An operationally excellent, industry-leading REIT with a high-quality/diverse client base of approximately 825 tenants to support growing revenues, stable cash flows, and strong margins
Percentage of total annual rental revenue in effect from investment-grade or | 49 % | |||
Sustained strength in tenant collections: | ||||
Tenant receivables as of June 30, 2023 | $ 7.0 | million | ||
July 2023 tenant rent and receivables collected as of July 24, 2023 | 99.7 % | |||
2Q23 tenant rent and receivables collected as of July 24, 2023 | 99.9 % | |||
Occupancy of operating properties in North America as of June 30, 2023 | 93.6 % | |||
Adjusted EBITDA margin | 70 % | |||
Weighted-average remaining lease term as of June 30, 2023: | ||||
Top 20 tenants | 9.4 | years | ||
All tenants | 7.2 | years | ||
Continued solid leasing volume and rental rate increases with weighted-average lease terms of 13.0 years and 9.5 years for 2Q23 and 1H23, respectively
- Solid leasing activity continued in 2Q23 with leasing volume aggregating 1.3 million RSF, 77% of which was generated from our client base of approximately 825 tenants.
- 1H23 annualized leasing volume of 5.1 million RSF in line with pre-COVID leasing volume.
2Q23 | 1H23 | |||||
Total leasing activity – RSF | 1,325,326 | 2,548,753 | ||||
Lease renewals and re-leasing of space: | ||||||
RSF (included in total leasing activity above) | 1,052,872 | 2,172,910 | ||||
Rental rate increase | 16.6 % | 35.1 % | ||||
Rental rate increase (cash basis) | 8.3 % | 17.9 % |
Continued strong net operating income and internal growth
- Net operating income (cash basis) of $1.8 billion for 2Q23 annualized, up $178.3 million, or 11.1%, compared to 2Q22 annualized.
- Same property net operating income growth of 3.0% and 4.9% (cash basis) for 2Q23 over 2Q22 and 3.4% and 6.5% (cash basis) for 1H23 over 1H22.
- 96% of our leases contain contractual annual rent escalations approximating 3%.
Alexandria's banking syndicate continues to support our world-class brand, differentiated business model, and laboratory space market dominance
- In June 2023, we increased the aggregate commitments available for borrowing under our unsecured senior line of credit to $5.0 billion from $4.0 billion. The increase was 1.7x oversubscribed, and we added one new banking relationship.
Continued strong and flexible balance sheet with 13.4 years of remaining term of debt and no debt maturities prior to 2025
- Investment-grade credit ratings ranked in the top 10% among all publicly traded U.S. REITs.
- $6.3 billion of liquidity.
- No debt maturities prior to 2025.
- 13.4 years weighted-average remaining term of debt.
- 99.2% of our debt has a fixed rate.
- Net debt and preferred stock to Adjusted EBITDA of 5.2x, matching our second-lowest level in Company history, and fixed-charge coverage ratio of 4.7x for 2Q23 annualized.
- Total debt and preferred stock to gross assets of 27%.
- $1.3 billion of expected capital contributions from existing real estate joint venture partners from 3Q23 through 2026 to fund construction.
Continued strong and increasing dividends with a focus on retaining significant net cash flows from operating activities after dividends for reinvestment
- Common stock dividend declared for 2Q23 of $1.24 per common share, aggregating $4.84 per common share for the twelve months ended June 30, 2023, up 24 cents, or 5%, over the twelve months ended June 30, 2022.
- Dividend yield of 4.4% as of June 30, 2023.
- Dividend payout ratio of 55% for the three months ended June 30, 2023.
- Average annual dividend per-share growth of 6% from 2019 to 2Q23 annualized.
Focused execution on harvesting value from our asset recycling program
Our $1.85 billion capital plan for 2023 is focused on the enhancement of our asset base through the sale of non-core properties and/or properties not integral to our mega campus strategy and comprises:
(in millions) | Completed | Expected Completion During 2H23 | ||
Dispositions of 100% interests in properties with strong capitalization rates | $ 603 | $ — | ||
Strategic partial interest sales | 98 | — | ||
Executed and pending transactions subject to signed letters of intent or | — | 175 | ||
Additional targeted non-core dispositions in process | — | 874 | ||
Proceeds of forward equity sales agreements entered into during 2022 | — | 100 | ||
Completed and pending transactions | $ 701 | $ 1,149 | ||
Total 2023 capital plan | $1,850 | |||
External growth and investments in real estate
Alexandria's highly leased value-creation pipeline delivers annual incremental net operating income of $58 million commencing during 2Q23 and drives future annual incremental net operating income aggregating $605 million
(dollars in millions) | Incremental Annual Net | RSF | Project Leased Percentage | |||||||
Placed into service(1): | ||||||||||
1Q23 | $ 23 | 453,511 | 100 | % | ||||||
2Q23 | 58 | 387,076 | 100 | |||||||
1H23 | $ 81 | 840,587 | 100 | % | ||||||
Expected to be placed into service and | ||||||||||
2H23 | $ 150 | 1,175,382 | 99 | % | ||||||
2024 | 127 | 1,842,713 | 90 | |||||||
2H23 through 4Q24 | 277 | 3,018,095 | 94 | |||||||
1Q25 through 2Q26 | 328 | 3,695,763 | 43 | |||||||
$ 605 | 6,713,858 | 70 | % | (3) | ||||||
(1) | Annual net operating income (cash basis) is expected to increase by $38 million upon the burn-off of initial free |
(2) | Refer to "New Class A/A+ Development and Redevelopment Properties: Current Projects" of our Supplemental |
(3) | 77% of the leased RSF of our value-creation projects was generated from our client base. |
Strong balance sheet management
Key metrics as of June 30, 2023
- $30.6 billion in total market capitalization.
- $19.4 billion in total equity capitalization, which ranks in the top 10% among all publicly traded U.S. REITs.
2Q23 | Goal | |||||
Quarter | Trailing | 4Q23 | ||||
Net debt and preferred stock to | 5.2x | 5.4x | Less than or equal to 5.1x | |||
Fixed-charge coverage ratio | 4.7x | 4.9x | 4.5x to 5.0x | |||
Key capital events
- In June 2023, we amended our unsecured senior line of credit to increase the aggregate commitments available for borrowing to $5.0 billion from $4.0 billion while maintaining the existing borrowing rate and maturity date.
- In July 2023, we increased the aggregate amount we may issue from time to time under our commercial paper program to $2.5 billion from $2.0 billion.
- As of 2Q23, we have outstanding forward equity agreements from 2022 aggregating 699 thousand shares of common stock with expected net proceeds of $102.8 million.
- As of June 30, 2023, the remaining aggregate amount available under our ATM program for future sales of common stock was $141.9 million.
Investments
- As of June 30, 2023:
- Our non-real estate investments aggregated $1.5 billion.
- Unrealized gains presented in our consolidated balance sheet were $251.3 million, comprising gross unrealized gains and losses aggregating $373.3 million and $122.0 million, respectively.
- Investment loss of $78.3 million for 2Q23, presented in our consolidated statements of operations, consisted of $77.9 million of unrealized losses and reclassifications, and $371 thousand of realized losses.
Other key highlights
Nareit Investor CARE Gold Award winner
We received the 2023 Nareit Investor CARE (Communications and Reporting Excellence) Gold Award in the Large Cap Equity REIT category for superior shareholder communications and reporting. Our most recent award contributes to an impressive milestone of our sixth consecutive Nareit Investor CARE Award, our seventh Gold award, and our eighth overall award since 2015, positioning us as the equity REIT with the most Gold awards. These recognitions are directly attributed to our world-class team's operational excellence in upholding the highest levels of transparency, integrity, and accountability to our stockholders.
Key items included in net income attributable to Alexandria's common stockholders: | |||||||||||||||
(In millions, except per share | Amount | Per Share – | Amount | Per Share – | |||||||||||
2Q23 | 2Q22 | 2Q23 | 2Q22 | 1H23 | 1H22 | 1H23 | 1H22 | ||||||||
Unrealized losses on non- | $ (77.9) | $ (68.1) | $ (0.46) | $ (0.42) | $ (143.8) | $ (331.6) | $ (0.84) | $ (2.07) | |||||||
Gain on sales of real estate | 214.8 | 214.2 | 1.26 | 1.33 | 214.8 | 214.2 | 1.26 | 1.34 | |||||||
Impairment of non-real | (23.0) | — | (0.13) | — | (23.0) | — | (0.13) | — | |||||||
Impairment of real estate | (168.6) | — | (0.99) | — | (168.6) | — | (0.99) | — | |||||||
Loss on early | — | (3.3) | — | (0.02) | — | (3.3) | — | (0.02) | |||||||
Total | $ (54.7) | $ 142.8 | $ (0.32) | $ 0.89 | $ (120.6) | $ (120.7) | $ (0.70) | $ (0.75) | |||||||
Refer to "Funds from operations and funds from operations per share" of this Earnings Press Release for additional details. | |||||||||||||||
Industry and ESG leadership: catalyzing and leading the way for positive change to benefit human health and society
- In June 2023, Alexandria released our 2022 ESG Report, which highlights our longstanding and continued leadership in ESG. The report details the advancement of our decarbonization strategy and our roadmap to climate resilience within our life science real estate asset base. It also showcases Alexandria's comprehensive efforts to catalyze the health, wellness, safety, and productivity of our employees, tenants, local communities, and the world through the built environment and beyond, including through our visionary social responsibility initiatives. Notable ESG initiatives and achievements include the following:
- We continue to further our approach to net zero by developing an innovative greenhouse gas emissions mitigation strategy that includes reducing emissions from the operation of our real estate assets through electrification, energy efficiency, and renewable electricity.
- We have proactively taken steps to incorporate electrification into some of our development projects, including at 230 Harriet Tubman Way on our Alexandria Center® for Life Science –Millbrae campus in our South San Francisco submarket.
- We look for opportunities to utilize alternative energy sources, such as geothermal energy. In our Greater Boston region, our 325 Binney Street development, Moderna's new HQ and core R&D operations, is designed to be the most sustainable laboratory building in Cambridge, and our 15 Necco Street development is a state-of-the-art low-carbon laboratory building for Eli Lilly. 325 Binney Street and 15 Necco Street are targeting a 92% and 74% reduction in fossil fuel use, respectively.
- We also continue to increase our consumption of renewable electricity. With our new solar power purchase agreement to take effect in our Greater Boston region in 2024, 100% of the electricity consumed by Greater Boston will be from renewable electricity, assuming 2022 levels of use for Alexandria-paid utility accounts.
- Pursuing Zero Energy certifications for two projects: 325 Binney Street, which is targeting LEED Zero Energy certification and is designed to be the most sustainable laboratory building in Cambridge, and 685 Gateway Boulevard in our South San Francisco submarket, which is designated as Zero Energy Ready and is on track to achieve ILFI Zero Energy certification.
- In our Lake Union submarket, Alexandria received the 2023 BOMA Pacific Northwest TOBY (The Outstanding Building of the Year) Award in the Corporate Facility category for 1165 Eastlake Avenue East on The Eastlake Life Science by Alexandria mega campus. The TOBY Awards honor and recognize quality in commercial buildings and reward excellence in building management.
About Alexandria Real Estate Equities, Inc.
Alexandria Real Estate Equities, Inc. (NYSE: ARE), an S&P 500® company, is a best-in-class, mission-driven life science REIT making a positive and lasting impact on the world. As the pioneer of the life science real estate niche since its founding in 1994, Alexandria is the preeminent and longest-tenured owner, operator, and developer of collaborative life science, agtech, and advanced technology campuses in AAA innovation cluster locations, including Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and Research Triangle. The trusted partner to approximately 825 tenants, Alexandria has a total market capitalization of $30.6 billion and an asset base in North America of 74.9 million SF as of June 30, 2023, which includes 41.1 million RSF of operating properties and 5.3 million RSF of Class A/A+ properties undergoing construction, 9.4 million RSF of near-term and intermediate-term development and redevelopment projects, and 19.1 million SF of future development projects. Alexandria has a longstanding and proven track record of developing Class A/A+ properties clustered in life science, agtech, and advanced technology campuses that provide our innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. Alexandria also provides strategic capital to transformative life science, agrifoodtech, climate innovation, and technology companies through our venture capital platform. We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value. For additional information on Alexandria, please visit www.are.com.
Guidance |
Guidance for 2023 has been updated to reflect our current view of existing market conditions and assumptions for the year ending December 31, 2023. There can be no assurance that actual |
• During the three months ended June 30, 2023, we pivoted our strategy toward harvesting value by selling 100% interests in non-core properties and/or properties not integral to our mega |
• This resulted in increases to (i) proceeds from dispositions and sales of partial interests by $225 million, and (ii) our share of construction spending by $210 million, as this amount |
• The revised midpoint to our 2023 guidance range for dispositions and sales of partial interests is $1.75 billion. |
• The revised midpoint to our 2023 guidance range for construction spending is $2.9 billion. Total 2023 construction spending before contributions from real estate joint venture partners |
Midpoint | As of 7/24/23 | |||||||||||||||
Key Sources and Uses of Capital | As of | Key | As of | Range | Midpoint | Certain | ||||||||||
Sources of capital: | ||||||||||||||||
Incremental debt | $ 650 | $ (15) | $ 635 | $ 560 | $ 710 | $ 635 | ||||||||||
Excess 2022 bond capital held as cash at December 31, 2022 | 300 | — | 300 | 300 | 300 | 300 | $ 300 | (1) | ||||||||
Net cash provided by operating activities after dividends | 375 | — | 375 | 350 | 400 | 375 | ||||||||||
Dispositions and sales of partial interests | 1,525 | 225 | 1,750 | 1,650 | 1,850 | 1,750 | $ 701 | (2) | ||||||||
Future settlement of forward equity sales agreements outstanding as of December 31, 2022 | 100 | — | 100 | 100 | 100 | 100 | $ 100 | (3) | ||||||||
Total sources of capital before excess cash expected to be held at December 31, 2023 | $ 2,950 | $ 210 | $ 3,160 | 2,960 | 3,360 | 3,160 | ||||||||||
Cash expected to be held at December 31, 2023(4) | $ 275 | $ — | $ 275 | 125 | 425 | 275 | ||||||||||
Total sources of capital | $ 3,085 | $ 3,785 | $ 3,435 | |||||||||||||
Uses of capital: | ||||||||||||||||
Construction | $ 2,725 | $ 210 | $ 2,935 | $ 2,785 | $ 3,085 | $ 2,935 | ||||||||||
Acquisitions | 225 | — | 225 | 175 | 275 | 225 | $ 235 | |||||||||
Total uses of capital | $ 2,950 | $ 210 | $ 3,160 | $ 2,960 | $ 3,360 | $ 3,160 | ||||||||||
Incremental debt (included above): | ||||||||||||||||
Issuance of unsecured senior notes payable | $ 1,000 | $ 1,000 | $ 1,000 | $ 1,000 | (5) | |||||||||||
Unsecured senior line of credit, commercial paper, and other | (440) | (290) | (365) | |||||||||||||
Net incremental debt | $ 560 | $ 710 | $ 635 | |||||||||||||
(1) | Represents $300.0 million of excess 2022 bond capital proceeds held as cash at December 31, 2022, which we used to reduce our 2023 debt capital needs. |
(2) | In addition to completed transactions, we have pending transactions subject to signed letters of intent or purchase and sale agreements aggregating $175.0 million as of July 24, 2023. |
(3) | Represents outstanding forward equity sales agreements to sell 699 thousand shares of common stock under our ATM program entered into during 2022 and expected to be settled during the second half of 2023. |
(4) | Represents estimated excess 2023 bond capital proceeds expected to be held as cash at December 31, 2023, which reduces our 2024 debt capital needs. |
(5) | Represents $1.0 billion of unsecured senior notes payable issued in February 2023. |
Projected 2023 Earnings per Share and Funds From Operations per Share Attributable to Alexandria's Common Stockholders – Diluted | |||||||||||
As of 7/24/23 | As of 4/24/23 | Key Changes | |||||||||
Earnings per share(1) | $2.72 to $2.78 | $2.21 to $2.31 | |||||||||
Depreciation and amortization of real estate assets | 5.55 | 5.55 | |||||||||
Gain on sales of real estate | (1.26) | — | (2) | ||||||||
Impairment of real estate – rental properties | 0.98 | 0.81 | (3) | ||||||||
Allocation to unvested restricted stock awards | (0.04) | (0.04) | |||||||||
Funds from operations per share(4) | $7.95 to $8.01 | $8.53 to $8.63 | |||||||||
Unrealized losses on non-real estate investments | 0.84 | 0.39 | (3) | ||||||||
Impairment of non-real estate investments | 0.13 | — | |||||||||
Impairment of real estate | 0.02 | — | |||||||||
Allocation to unvested restricted stock awards | (0.01) | (0.01) | |||||||||
Funds from operations per share, as adjusted(4) | $8.93 to $8.99 | $8.91 to $9.01 | No change to midpoint; range narrowed by 4 cents | ||||||||
Midpoint | $8.96 | $8.96 | |||||||||
As of 7/24/23 | As of 4/24/23 | ||||||||||
Key Assumptions | Low | High | Low | High | Key Changes | ||||||
Occupancy percentage in North America as of December 31, 2023 | 94.6 % | 95.6 % | 94.6 % | 95.6 % | No change | ||||||
Lease renewals and re-leasing of space: | |||||||||||
Rental rate increases | 28.0 % | 33.0 % | 28.0 % | 33.0 % | |||||||
Rental rate increases (cash basis) | 12.0 % | 17.0 % | 12.0 % | 17.0 % | |||||||
Same property performance: | |||||||||||
Net operating income increases | 2.0 % | 4.0 % | 2.0 % | 4.0 % | |||||||
Net operating income increases (cash basis) | 4.0 % | 6.0 % | 4.0 % | 6.0 % | |||||||
Straight-line rent revenue | $ 130 | $ 145 | $ 130 | $ 145 | |||||||
General and administrative expenses | $ 183 | $ 193 | $ 183 | $ 193 | |||||||
Capitalization of interest | $ 342 | $ 362 | $ 342 | $ 362 | |||||||
Interest expense | $ 74 | $ 94 | $ 74 | $ 94 | |||||||
Key Credit Metrics | As of 7/24/23 | As of 4/24/23 | Key Changes | |||
Net debt and preferred stock to Adjusted EBITDA – 4Q23 annualized | Less than or equal to 5.1x | Less than or equal to 5.1x | No change | |||
Fixed-charge coverage ratio – 4Q23 annualized | 4.5x to 5.0x | 4.5x to 5.0x |
(1) | Excludes unrealized gains or losses after June 30, 2023 that are required to be recognized in earnings and are excluded from funds from operations per share, as adjusted. |
(2) | Refer to "Dispositions and sales of partial interests" in this Earnings Press Release for additional information. |
(3) | Refer to "Funds from operations and funds from operations per share" in this Earnings Press Release for additional information. |
(4) | Refer to "Funds from operations and funds from operations, as adjusted, attributable to Alexandria's common stockholders" in the "Definitions and reconciliations" of our Supplemental Information for additional details. |
Acquisitions | ||||||||||||||||||||
Square Footage | ||||||||||||||||||||
Acquisitions With Development/Redevelopment Opportunities(1) | ||||||||||||||||||||
Property | Submarket/Market | Date of Purchase | Number of | Operating Occupancy | Future | Active | Operating With Future | Total(2) |
Purchase | |||||||||||
Completed in 1H23: | ||||||||||||||||||||
Canada | Canada | 1/30/23 | 1 | 100 % | — | — | 247,743 | 247,743 | $ | 100,837 | ||||||||||
Other | Various | 2 | 100 | 1,089,349 | 110,717 | 10,000 | 1,210,066 | 125,103 | ||||||||||||
3 | 100 % | 1,089,349 | 110,717 | 257,743 | 1,457,809 | 225,940 | ||||||||||||||
Completed in July 2023 | 9,495 | |||||||||||||||||||
2023 acquisitions completed as of July 24, 2023 | $ | 235,435 | ||||||||||||||||||
2023 guidance range | $175,000 – $275,000 | |||||||||||||||||||
(1) | We expect to provide total estimated costs and related yields for development and redevelopment projects in the future, subsequent to the commencement of construction. |
(2) | Represents total square footage upon completion of development or redevelopment of one or more new Class A/A+ properties. Square footage presented includes RSF of buildings currently in operation with future development or |
Dispositions and Sales of Partial Interests | ||||||||||||||||||||
Property | Submarket/Market | Date of | Interest | RSF | Capitalization | Capitalization (Cash Basis) | Sales Price | Sales Price | ||||||||||||
Completed in 1H23: | ||||||||||||||||||||
Value harvesting dispositions and recycling of assets not integral to our mega campus strategy | ||||||||||||||||||||
225, 266, and 275 Second Avenue and 780 and 790 | Route 128 and Cambridge/Inner | 6/13/23 | 100 % | 428,663 | 5.0 % | (1) | 5.2 % | (1) | $ 365,226 | $ 852 | ||||||||||
11119 North Torrey Pines Road(2) | Torrey Pines/San Diego | 5/4/23 | 100 % | 72,506 | 4.4 % | (2) | 4.6 % | (2) | 86,000 | $ 1,186 | ||||||||||
275 Grove Street(3) | Route 128/Greater Boston | 6/27/23 | 100 % | 509,702 | N/A | N/A | 109,349 | N/A | ||||||||||||
Other | 42,092 | |||||||||||||||||||
602,667 | (4) | |||||||||||||||||||
Strategic partial interest sales | ||||||||||||||||||||
15 Necco Street(5) | Seaport Innovation District/ Greater Boston | 4/11/23 | 18 % | (5) | 345,995 | 6.6 % | 5.4 % | 66,108 | $ 1,626 | |||||||||||
9625 Towne Centre Drive(6) | University Town Center/San Diego | 6/21/23 | 20.1 % | 163,648 | 4.2 % | 4.5 % | 32,261 | $ 981 | ||||||||||||
98,369 | ||||||||||||||||||||
701,036 | ||||||||||||||||||||
Pending as of July 24, 2023: | ||||||||||||||||||||
421 Park Drive(7) | Fenway/Greater Boston | (7) | (7) | 155,000 | ||||||||||||||||
Executed and pending transactions subject to signed letters | 20,000 | |||||||||||||||||||
Total pending and under executed letters of intent or | 175,000 | |||||||||||||||||||
876,036 | ||||||||||||||||||||
Additional targeted non-core dispositions in process | 873,964 | |||||||||||||||||||
2023 dispositions and sales of partial interests (midpoint) | $ 1,750,000 | |||||||||||||||||||
2023 guidance range | $1,650,000 – $1,850,000 | |||||||||||||||||||
(1) | We calculated capitalization rates based upon net operating income and net operating income (cash basis) for 2Q23 annualized that includes vacancy available for redevelopment. Upon completion of the sale, we recognized a gain on sale |
(2) | We calculated capitalization rates based upon net operating income and net operating income (cash basis) for 1Q23 annualized. Upon completion of the sale, we recognized a gain on sale of real estate aggregating $27.6 million and a |
(3) | During 2Q23, we recognized a real estate impairment charge of $145.4 million to reduce our investment to its current fair value less costs to sell. |
(4) | Dispositions completed during the three months ended June 30, 2023 had annual net operating income of $32.4 million with a weighted-average disposition date of June 13, 2023 (weighted by net operating income for 2Q23 annualized). |
(5) | Represents a development project under construction aggregating 345,995 RSF, 97% of which is leased to Eli Lilly and Company for the Lilly Institute for Genetic Medicine. In April 2023, an investor acquired a 20% interest in this joint |
(6) | An investor acquired a 70% interest in this consolidated real estate joint venture, which consisted of a 20.1% interest sold by us and a 49.9% interest held by our previous joint venture partner. Our portion of the sales price was |
(7) | Represents the disposition of 268,023 RSF of a 660,034 RSF near-term development at 421 Park Drive. The proceeds from this transaction will help fund our remaining 392,011 RSF of the project. The project is expected to commence |
Earnings Call Information and About the Company
June 30, 2023
We will host a conference call on Tuesday, July 25, 2023, 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 second quarter ended June 30, 2023. 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, July 25, 2023. The replay number is (877) 344-7529 or (412) 317-0088, and the access code is 6301307.
Additionally, a copy of this Earnings Press Release and Supplemental Information for the second quarter ended June 30, 2023 is available in the "For Investors" section of our website at www.are.com or by following this link: https://www.are.com/fs/2023q2.pdf.
For any questions, please contact Joel S. Marcus, executive chairman and founder; Peter M. Moglia, chief executive officer and co-chief investment officer; Dean A. Shigenaga, president and chief financial officer; Paula Schwartz, managing director of Rx Communications Group, at (917) 633-7790; or Sara M. Kabakoff, senior vice president – chief content officer.
About the Company
Alexandria Real Estate Equities, Inc. (NYSE: ARE), an S&P 500® company, is a best-in-class, mission-driven life science REIT making a positive and lasting impact on the world. As the pioneer of the life science real estate niche since its founding in 1994, Alexandria is the preeminent and longest-tenured owner, operator, and developer of collaborative life science, agtech, and advanced technology campuses in AAA innovation cluster locations, including Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and Research Triangle. The trusted partner to approximately 825 tenants, Alexandria has a total market capitalization of $30.6 billion and an asset base in North America of 74.9 million SF as of June 30, 2023, which includes 41.1 million RSF of operating properties and 5.3 million RSF of Class A/A+ properties undergoing construction, 9.4 million RSF of near-term and intermediate-term development and redevelopment projects, and 19.1 million SF of future development projects. Alexandria has a longstanding and proven track record of developing Class A/A+ properties clustered in life science, agtech, and advanced technology campuses that provide our innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. Alexandria also provides strategic capital to transformative life science, agrifoodtech, climate innovation, and technology companies through our venture capital platform. We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value. For additional information on Alexandria, please visit www.are.com.
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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 2023 earnings per share attributable to Alexandria's common stockholders – diluted, 2023 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," "targets," 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, lower than expected yields, 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, failure to obtain LEED and other healthy building certifications and efficiencies, 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 Supplemental Information, 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.
This document is not an offer to sell or a solicitation to buy securities of Alexandria Real Estate Equities, Inc. Any offers to sell or solicitations to buy our securities shall be made only by means of a prospectus approved for that purpose. Unless otherwise indicated, the "Company," "Alexandria," "ARE," "we," "us," and "our" refer to Alexandria Real Estate Equities, Inc. and our consolidated subsidiaries. Alexandria®, Lighthouse Design® logo, Building the Future of Life-Changing Innovation®, That's What's in Our DNA®, At the Vanguard and Heart of the Life Science Ecosystem™, Alexandria Center®, Alexandria Technology Square®, Alexandria Technology Center®, and Alexandria Innovation Center® are copyrights and 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 | ||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||
6/30/23 | 3/31/23 | 12/31/22 | 9/30/22 | 6/30/22 | 6/30/23 | 6/30/22 | ||||||||
Revenues: | ||||||||||||||
Income from rentals | $ 704,339 | $ 687,949 | $ 665,674 | $ 656,853 | $ 640,959 | $ 1,392,288 | $ 1,253,513 | |||||||
Other income | 9,561 | 12,846 | 4,607 | 2,999 | 2,805 | 22,407 | 5,316 | |||||||
Total revenues | 713,900 | 700,795 | 670,281 | 659,852 | 643,764 | 1,414,695 | 1,258,829 | |||||||
Expenses: | ||||||||||||||
Rental operations | 211,834 | 206,933 | 204,352 | 201,189 | 196,284 | 418,767 | 377,612 | |||||||
General and administrative | 45,882 | 48,196 | 42,992 | 49,958 | 43,397 | 94,078 | 84,328 | |||||||
Interest | 17,072 | 13,754 | 17,522 | 22,984 | 24,257 | 30,826 | 53,697 | |||||||
Depreciation and amortization | 273,555 | 265,302 | 264,480 | 254,929 | 242,078 | 538,857 | 482,737 | |||||||
Impairment of real estate | 168,575 | (1) | — | 26,186 | 38,783 | — | 168,575 | — | ||||||
Loss on early extinguishment of debt | — | — | — | — | 3,317 | — | 3,317 | |||||||
Total expenses | 716,918 | 534,185 | 555,532 | 567,843 | 509,333 | 1,251,103 | 1,001,691 | |||||||
Equity in earnings of unconsolidated real estate joint ventures | 181 | 194 | 172 | 40 | 213 | 375 | 433 | |||||||
Investment loss | (78,268) | (45,111) | (19,653) | (32,305) | (39,481) | (123,379) | (279,800) | |||||||
Gain on sales of real estate | 214,810 | — | — | 323,699 | 214,219 | 214,810 | 214,219 | |||||||
Net income | 133,705 | 121,693 | 95,268 | 383,443 | 309,382 | 255,398 | 191,990 | |||||||
Net income attributable to noncontrolling interests | (43,768) | (43,831) | (40,949) | (38,747) | (37,168) | (87,599) | (69,345) | |||||||
Net income attributable to Alexandria Real Estate Equities, Inc.'s | 89,937 | 77,862 | 54,319 | 344,696 | 272,214 | 167,799 | 122,645 | |||||||
Net income attributable to unvested restricted stock awards | (2,677) | (2,606) | (2,526) | (3,257) | (2,934) | (5,283) | (4,134) | |||||||
Net income attributable to Alexandria Real Estate Equities, Inc.'s common | $ 87,260 | $ 75,256 | $ 51,793 | $ 341,439 | $ 269,280 | $ 162,516 | $ 118,511 | |||||||
Net income per share attributable to Alexandria Real Estate Equities, Inc.'s | ||||||||||||||
Basic | $ 0.51 | $ 0.44 | $ 0.31 | $ 2.11 | $ 1.67 | $ 0.95 | $ 0.74 | |||||||
Diluted | $ 0.51 | $ 0.44 | $ 0.31 | $ 2.11 | $ 1.67 | $ 0.95 | $ 0.74 | |||||||
Weighted-average shares of common stock outstanding: | ||||||||||||||
Basic | 170,864 | 170,784 | 165,393 | 161,554 | 161,412 | 170,824 | 159,814 | |||||||
Diluted | 170,864 | 170,784 | 165,393 | 161,554 | 161,412 | 170,824 | 159,814 | |||||||
Dividends declared per share of common stock | $ 1.24 | $ 1.21 | $ 1.21 | $ 1.18 | $ 1.18 | $ 2.45 | $ 2.33 | |||||||
(1) Refer to "Funds from operations and funds from operations per share" of this Earnings Press Release for additional details. |
Consolidated Balance Sheets | ||||||||||
6/30/23 | 3/31/23 | 12/31/22 | 9/30/22 | 6/30/22 | ||||||
Assets | ||||||||||
Investments in real estate | $ 31,178,054 | $ 30,889,395 | $ 29,945,440 | $ 28,771,745 | $ 27,952,931 | |||||
Investments in unconsolidated real estate joint ventures | 37,801 | 38,355 | 38,435 | 38,285 | 37,587 | |||||
Cash and cash equivalents | 924,370 | 1,263,452 | 825,193 | 533,824 | 420,258 | |||||
Restricted cash | 35,920 | 34,932 | 32,782 | 332,344 | 97,404 | |||||
Tenant receivables | 6,951 | 8,197 | 7,614 | 7,759 | 7,069 | |||||
Deferred rent | 984,366 | 974,865 | 942,646 | 918,995 | 905,699 | |||||
Deferred leasing costs | 520,610 | 527,848 | 516,275 | 506,864 | 498,434 | |||||
Investments | 1,495,994 | 1,573,018 | 1,615,074 | 1,624,921 | 1,657,461 | |||||
Other assets | 1,475,191 | 1,602,403 | 1,599,940 | 1,633,877 | 1,667,210 | |||||
Total assets | $ 36,659,257 | $ 36,912,465 | $ 35,523,399 | $ 34,368,614 | $ 33,244,053 | |||||
Liabilities, Noncontrolling Interests, and Equity | ||||||||||
Secured notes payable | $ 91,939 | $ 73,645 | $ 59,045 | $ 40,594 | $ 24,986 | |||||
Unsecured senior notes payable | 11,091,424 | 11,089,124 | 10,100,717 | 10,098,588 | 10,096,462 | |||||
Unsecured senior line of credit and commercial paper | — | 374,536 | — | 386,666 | 149,958 | |||||
Accounts payable, accrued expenses, and other liabilities | 2,494,087 | 2,479,047 | 2,471,259 | 2,393,764 | 2,317,940 | |||||
Dividends payable | 214,555 | 209,346 | 209,131 | 193,623 | 192,571 | |||||
Total liabilities | 13,892,005 | 14,225,698 | 12,840,152 | 13,113,235 | 12,781,917 | |||||
Commitments and contingencies | ||||||||||
Redeemable noncontrolling interests | 52,628 | 44,862 | 9,612 | 9,612 | 9,612 | |||||
Alexandria Real Estate Equities, Inc.'s stockholders' equity: | ||||||||||
Common stock | 1,709 | 1,709 | 1,707 | 1,626 | 1,615 | |||||
Additional paid-in capital | 18,812,318 | 18,902,821 | 18,991,492 | 17,639,434 | 17,149,571 | |||||
Accumulated other comprehensive loss | (16,589) | (20,536) | (20,812) | (24,725) | (11,851) | |||||
Alexandria Real Estate Equities, Inc.'s stockholders' equity | 18,797,438 | 18,883,994 | 18,972,387 | 17,616,335 | 17,139,335 | |||||
Noncontrolling interests | 3,917,186 | 3,757,911 | 3,701,248 | 3,629,432 | 3,313,189 | |||||
Total equity | 22,714,624 | 22,641,905 | 22,673,635 | 21,245,767 | 20,452,524 | |||||
Total liabilities, noncontrolling interests, and equity | $ 36,659,257 | $ 36,912,465 | $ 35,523,399 | $ 34,368,614 | $ 33,244,053 | |||||
Funds From Operations and Funds From Operations per Share | ||||||||||||||
The following table presents a reconciliation of net income attributable to Alexandria's common stockholders, the most directly comparable financial measure presented in accordance with | ||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||
6/30/23 | 3/31/23 | 12/31/22 | 9/30/22 | 6/30/22 | 6/30/23 | 6/30/22 | ||||||||
Net income attributable to Alexandria's common stockholders | $ 87,260 | $ 75,256 | $ 51,793 | $ 341,439 | $ 269,280 | $ 162,516 | $ 118,511 | |||||||
Depreciation and amortization of real estate assets | 270,026 | 262,124 | 261,185 | 251,453 | 238,565 | 532,150 | 475,725 | |||||||
Noncontrolling share of depreciation and amortization from consolidated real estate | (28,220) | (28,178) | (29,702) | (27,790) | (26,418) | (56,398) | (50,099) | |||||||
Our share of depreciation and amortization from unconsolidated real estate JVs | 855 | 859 | 982 | 795 | 934 | 1,714 | 1,889 | |||||||
Gain on sales of real estate | (214,810) | — | — | (323,699) | (214,219) | (214,810) | (214,219) | |||||||
Impairment of real estate – rental properties | 166,602 | (1) | — | 20,899 | — | — | 166,602 | — | ||||||
Allocation to unvested restricted stock awards | (872) | (1,359) | (953) | 1,002 | — | (2,220) | — | |||||||
Funds from operations attributable to Alexandria's common stockholders – | ||||||||||||||
diluted(2) | 280,841 | 308,702 | 304,204 | 243,200 | 268,142 | 589,554 | 331,807 | |||||||
Unrealized losses on non-real estate investments | 77,897 | 65,855 | 24,117 | 56,515 | 68,128 | 143,752 | 331,561 | |||||||
Impairment of non-real estate investments | 22,953 | (3) | — | 20,512 | — | — | 22,953 | — | ||||||
Impairment of real estate | 1,973 | — | 5,287 | 38,783 | — | 1,973 | — | |||||||
Loss on early extinguishment of debt | — | — | — | — | 3,317 | — | 3,317 | |||||||
Acceleration of stock compensation expense due to executive officer resignation | — | — | — | 7,185 | — | — | — | |||||||
Allocation to unvested restricted stock awards | (1,285) | (867) | (482) | (1,033) | (778) | (2,164) | (3,264) | |||||||
Funds from operations attributable to Alexandria's common stockholders – | ||||||||||||||
diluted, as adjusted | $ 382,379 | $ 373,690 | $ 353,638 | $ 344,650 | $ 338,809 | $ 756,068 | $ 663,421 | |||||||
(1) | Primarily related to an impairment charge aggregating $145.4 million at an office campus located at 275 Grove Street in our Route 128 submarket to reduce our investment in this campus to fair value less costs to sell. |
(2) | Calculated in accordance with standards established by the Nareit Board of Governors. |
(3) | Primarily related to three non-real estate investments in privately held entities that do not report NAV. |
Funds From Operations and Funds From Operations per Share (continued) | ||||||||||||||
The following table presents a reconciliation of net income (loss) per share attributable to Alexandria's common stockholders, the most directly comparable financial measure presented in | ||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||
6/30/23 | 3/31/23 | 12/31/22 | 9/30/22 | 6/30/22 | 6/30/23 | 6/30/22 | ||||||||
Net income per share attributable to Alexandria's common stockholders – | ||||||||||||||
diluted | $ 0.51 | $ 0.44 | $ 0.31 | $ 2.11 | $ 1.67 | $ 0.95 | $ 0.74 | |||||||
Depreciation and amortization of real estate assets | 1.42 | 1.38 | 1.41 | 1.39 | 1.32 | 2.80 | 2.68 | |||||||
Gain on sales of real estate | (1.26) | — | — | (2.00) | (1.33) | (1.26) | (1.34) | |||||||
Impairment of real estate – rental properties | 0.98 | — | 0.13 | — | — | 0.98 | — | |||||||
Allocation to unvested restricted stock awards | (0.01) | (0.01) | (0.01) | 0.01 | — | (0.02) | — | |||||||
Funds from operations per share attributable to Alexandria's common | ||||||||||||||
stockholders – diluted | 1.64 | 1.81 | 1.84 | 1.51 | 1.66 | 3.45 | 2.08 | |||||||
Unrealized losses on non-real estate investments | 0.46 | 0.39 | 0.15 | 0.35 | 0.42 | 0.84 | 2.07 | |||||||
Impairment of non-real estate investments | 0.13 | — | 0.12 | — | — | 0.13 | — | |||||||
Impairment of real estate | 0.02 | — | 0.03 | 0.24 | — | 0.02 | — | |||||||
Loss on early extinguishment of debt | — | — | — | — | 0.02 | — | 0.02 | |||||||
Acceleration of stock compensation expense due to executive officer resignation | — | — | — | 0.04 | — | — | — | |||||||
Allocation to unvested restricted stock awards | (0.01) | (0.01) | — | (0.01) | — | (0.01) | (0.02) | |||||||
Funds from operations per share attributable to Alexandria's common | ||||||||||||||
stockholders – diluted, as adjusted | $ 2.24 | $ 2.19 | $ 2.14 | $ 2.13 | $ 2.10 | $ 4.43 | $ 4.15 | |||||||
Weighted-average shares of common stock outstanding – diluted | 170,864 | 170,784 | 165,393 | 161,554 | 161,412 | 170,824 | 159,814 | |||||||
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