Jon Cartu Reports Alexandria Real Estate Equities, Inc. Reports: 1Q20... - Jonathan Cartu Residential & Industrial Construction Services
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Jon Cartu Reports Alexandria Real Estate Equities, Inc. Reports: 1Q20…

(PRNewsfoto/Alexandria Real Estate Equities)

Jon Cartu Reports Alexandria Real Estate Equities, Inc. Reports: 1Q20…

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:
    • Our tenant receivables balance was $7.3 million, representing our lowest balance since 2012.
    • We have collected 98.4% of April 2020 rents and tenant recoveries.

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%.
    • Our partner contributed real estate assets with a total fair market value of $350.0 million, which comprise three office buildings, aggregating 776,003 RSF, at 601, 611, and 651 Gateway Boulevard, and land supporting 260,000 SF of future development.
    • We contributed real estate assets with a total fair market value of $281.9 million, which comprise three operating properties, aggregating 313,262 RSF, and land supporting 377,000 SF of future development.

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…

Jonathan Cartu