Alexandria Real Estate Equities, Inc. Reports Third Quarter Ended September 30, 2017, Financial and Operating Results Strong Internal and External Growth and Significant Near-Term Contractual Rent...

3Q17

YTD 3Q17

Total leasing activity – RSF

786,925

3,189,483

Lease renewals and re-leasing of space:

Rental rate increases

24.2%

25.2%

Rental rate increases (cash basis)

10.0%

13.3%

RSF (included in total leasing activity above)

448,472

1,931,477

Delivery Date

RSF

Percentage Leased

Incremental Annual Net Operating Income

YTD 3Q17

663,672

100%

$51 million

4Q17

651,738

95%

$38 million to $42 million

YTD

Operating results

3Q17

3Q16

Change

3Q17

3Q16

Change

Net income (loss) attributable to Alexandria's common stockholders – diluted:

In millions

$

51.3

$

5.5

N/A

$

108.6

$

(126.0)

N/A

Per share

$

0.55

$

0.07

N/A

$

1.20

$

(1.69)

N/A

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

In millions

$

140.8

$

107.6

30.8%

$

407.5

$

305.8

33.3%

Per share

$

1.51

$

1.39

8.6%

$

4.49

$

4.09

9.8%

Third Quarter Ended September 30, 2017, Financial and Operating Results (continued) 

September 30, 2017

Items included in net income (loss) attributable to Alexandria's common stockholders

(amounts are shown after deducting any amounts attributable to noncontrolling interests):

YTD

(In millions, except per share 
     amounts)

3Q17

3Q16

3Q17

3Q16

3Q17

3Q16

3Q17

3Q16

Amount

Per Share –
Diluted

Amount

Per Share –
Diluted

Gain on sales of real estate

$

14.1

$

0.1

$

0.15

$

—

$

14.5

$

0.1

$

0.15

$

—

Gain on sales of non-real estate
   investments

—

—

—

—

—

4.4

—

0.06

Impairment of:

Rental properties

—

(6.3)

—

(0.08)

(0.2)

(94.7)

—

(1.27)

Land parcels

—

(1.8)

—

(0.02)

—

(98.0)

—

(1.32)

Non-real estate investments

—

(3.1)

—

(0.04)

(4.5)

(3.1)

(0.05)

(0.04)

Loss on early extinguishment of
   debt

—

(3.2)

—

(0.04)

(0.7)

(3.2)

(0.01)

(0.04)

Preferred stock redemption
   charge

—

(13.1)

—

(0.17)

(11.3)

(25.6)

(0.12)

(0.34)

Total

$

14.1

$

(27.4)

$

0.15

$

(0.35)

$

(2.2)

$

(220.1)

$

(0.03)

$

(2.95)

Weighted-average shares of common
   stock outstanding – diluted

93.3

77.4

90.8

74.5

Key metrics

3Q17

Total market capitalization

$

16.1 billion

Liquidity

$

1.7 billion

Net debt to Adjusted EBITDA:

Quarter annualized

6.1x

Trailing 12 months

6.4x

Fixed-charge coverage ratio:

Quarter annualized

4.1x

Trailing 12 months

4.0x

Unhedged variable-rate debt as a percentage of total debt

12%

Current and future value-creation pipeline as a percentage of gross 
   investments in real estate in North America

12%

We expect to provide total estimated costs at completion and related yields of development and redevelopment projects in the future.

(1)

Technology office building, subject to a 51-year ground lease, located in Stanford Research Park, a collaborative business community that supports innovative companies in their research and development pursuits. This recently constructed building is 100% leased to Infosys Limited for 12 years, and we expect initial stabilized yields of 7.3% and 5.8% (cash basis).

(2)

Acquisition of the remaining 49% interest in our unconsolidated real estate joint venture with Uber Technologies, Inc. ("Uber") was completed in November 2016. A portion of the consideration is payable in three equal installments upon Uber's completion of construction milestones. The first installment of $18.9 million was paid in 2Q17. We expect the second and third installments to be paid in 4Q17 and 1Q18, respectively.

(1)

Represents annualized amounts for the quarter ended prior to the date of sale. Net operating income (cash basis) excludes straight-line rent and amortization of acquired below-market leases.

(2)

In May 2017, we completed the sale of a partial interest in our land parcels at 1401/1413 Research Boulevard, located in our Rockville submarket. The sale was executed with a distinguished retail real estate developer for the development of a 90,000 RSF retail shopping center. We contributed the land parcels at a fair value of $7.9 million into a new entity, our partner contributed $3.9 million, and we received a distribution of $0.7 million. In addition, the real estate joint venture obtained a non-recourse secured construction loan with aggregate commitments of $25.0 million, which is expected to fund the remaining construction costs to complete the project, and we do not expect to make additional equity contributions to the real estate joint venture.

(3)

Represents the sale of a condominium interest for 49% of the building RSF, or 203,090 RSF, in our unconsolidated real estate joint venture property. Net operating income, net operating income (cash basis), and contractual sales price represent our 27.5% share related to the sale of the condominium interest. In August 2017, the unconsolidated real estate joint venture entered into a mortgage loan agreement, secured by the remaining interest in the property. During the nine months ended September 30, 2017, we received a cash distribution of $38.8 million from the joint venture, primarily from the condominium sale and loan refinancing.

Key Assumptions

Low

High

Occupancy percentage in North America as of December 31, 2017

96.6%

97.2%

Lease renewals and re-leasing of space:

Rental rate increases

20.5%

23.5%

Rental rate increases (cash basis)

10.5%

13.5%

Same property performance:

Net operating income increase

2.0%

4.0%

Net operating income increase (cash basis)

5.5%

7.5%

Straight-line rent revenue

$

107

$

112

General and administrative expenses ⁽⁷⁾

$

68

$

73

Capitalization of interest ⁽⁷⁾

$

48

$

58

Interest expense ⁽⁷⁾

$

131

$

141

Key Credit Metrics

As of 10/30/17

Net debt to Adjusted EBITDA – 4Q17 annualized

5.3x to 5.8x

Net debt and preferred stock to Adjusted EBITDA – 4Q17 annualized

5.3x to 5.8x

Fixed-charge coverage ratio – 4Q17 annualized

Greater than 4.0x

Value-creation pipeline as a percentage of gross real estate as of
     December 31, 2017

Less than 10%

Key Sources and Uses of Capital

Range

Midpoint

Key Items
Remaining
after
9/30/17

Sources of capital:

Net cash provided by operating activities after
   dividends

$

115

$

135

$

125

Incremental debt

388

298

343

Real estate dispositions and common equity

1,080

1,350

1,215

⁽³⁾

Total sources of capital

$

1,583

$

1,783

$

1,683

Uses of capital:

Construction

$

815

$

915

$

865

$

243

Acquisitions

620

720

670

⁽⁴⁾

$

79

⁽⁵⁾

7.00% Series D preferred stock repurchases

18

18

18

⁽⁶⁾

6.45% Series E preferred stock redemption

130

130

130

Total uses of capital

$

1,583

$

1,783

$

1,683

Incremental debt (included above):

Issuance of unsecured senior notes payable

$

425

$

425

$

425

Borrowings – secured construction loans

200

250

225

Repayments of secured notes payable

(5)

(10)

(8)

Repayment of unsecured senior bank term loan

(200)

(200)

(200)

$1.65 billion unsecured senior line of credit/other

(32)

(167)

(99)

Incremental debt

$

388

$

298

$

343

(1)

Primarily related to two non-real estate investments in 2Q17.

(2)

Includes charges aggregating $5.8 million related to the repurchases of 501,115 outstanding shares of our Series D Convertible Preferred Stock in 1Q17. Additionally, in March 2017, we announced the redemption of our Series E Redeemable Preferred Stock and recognized a $5.5 million preferred stock redemption charge. We completed the redemption in April 2017. Excludes any charges related to future repurchases of our Series D Convertible Preferred Stock.

(3)

Includes 6.2 million shares of our common stock issued during YTD 3Q17 for net proceeds of $705.4 million, and 4.8 million shares of our common stock subject to forward equity sales agreements, with anticipated aggregate net proceeds of $495.5 million to be settled in 4Q17, subject to adjustments as provided in the forward equity sales agreements. Also includes dispositions completed during YTD 3Q17. See "Dispositions" on page 4 of this Earnings Press Release for additional information.

(4)

Acquisitions guidance increased by $80.0 million from $590.0 million in our July 31, 2017, forecast primarily for the completed acquisition of 201 Haskins Way in September 2017 and one pending acquisition. See "Acquisitions" on page 3 of this Earnings Press Release for additional information.

(5)

Includes the second construction milestone installment payment for the 2016 acquisition of the remaining 49% interest in our unconsolidated real estate joint venture with Uber at 1455 and 1515 Third Street in our Mission Bay/SoMa submarket and one pending acquisition.

(6)

Guidance for repurchases of our 7.00% Series D preferred stock decreased by $77.0 million to reflect actual redemptions through 3Q17.

(7)

We expect to be at the top end of our guidance ranges for general and administrative expenses and capitalization of interest, and the low end of our guidance range for interest expense.

Consolidated Statements of Income

September 30, 2017

(In thousands, except per share amounts)

Three Months Ended

Nine Months Ended

9/30/17

6/30/17

3/31/17

12/31/16

9/30/16

9/30/17

9/30/16

Revenues:

Rental

$

216,021

$

211,942

$

207,193

$

187,315

$

166,591

$

635,156

$

486,505

Tenant recoveries

67,058

60,470

61,346

58,270

58,681

188,874

165,385

Other income

2,291

647

2,338

3,577

5,107

5,276

20,654

Total revenues

285,370

273,059

270,877

249,162

230,379

829,306

672,544

Expenses:

Rental operations

83,469

76,980

77,087

73,244

72,002

237,536

205,164

General and administrative

17,636

19,234

19,229

17,458

15,854

56,099

46,426

Interest

31,031

31,748

29,784

31,223

25,850

92,563

75,730

Depreciation and amortization

107,788

104,098

97,183

95,222

77,133

309,069

218,168

Impairment of real estate

—

203

—

16,024

8,114

203

193,237

Loss on early extinguishment of debt

—

—

670

—

3,230

670

3,230

Total expenses

239,924

232,263

223,953

233,171

202,183

696,140

741,955

Equity in earnings (losses) of unconsolidated real estate joint ventures

14,100

589

361

86

273

15,050

(270)

Gain on sales of real estate – rental properties

—

—

270

3,715

—

270

—

Gain on sales of real estate – land parcels

—

111

—

—

90

111

90

Net income (loss)

59,546

41,496

47,555

19,792

28,559

148,597

(69,591)

Net income attributable to noncontrolling interests

(5,773)

(7,275)

(5,844)

(4,488)

(4,084)

(18,892)

(11,614)

Net income (loss) attributable to Alexandria Real Estate Equities, Inc.'s stockholders

53,773

34,221

41,711

15,304

24,475

129,705

(81,205)

Dividends on preferred stock

(1,302)

(1,278)

(3,784)

(3,835)

(5,007)

(6,364)

(16,388)

Preferred stock redemption charge

—

—

(11,279)

(35,653)

(13,095)

(11,279)

(25,614)

Net income attributable to unvested restricted stock awards

(1,198)

(1,313)

(987)

(943)

(921)

(3,498)

(2,807)

Net income (loss) attributable to Alexandria Real Estate Equities, Inc.'s common
  stockholders

$

51,273

$

31,630

$

25,661

$

(25,127)

$

5,452

$

108,564

$

(126,014)

Net income (loss) per share attributable to Alexandria Real Estate Equities, Inc.'s
  common stockholders – basic and diluted

$

0.55

$

0.35

$

0.29

$

(0.31)

$

0.07

$

1.20

$

(1.69)

Weighted-average shares of common stock outstanding:

Basic

92,598

90,215

88,147

80,800

76,651

90,336

74,526

Diluted

93,296

90,745

88,200

80,800

77,402

90,766

74,526

Dividends declared per share of common stock

$

0.86

$

0.86

$

0.83

$

0.83

$

0.80

$

2.55

$

2.40

Consolidated Balance Sheets

September 30, 2017

(In thousands)

9/30/17

6/30/17

3/31/17

12/31/16

9/30/16

Assets

Investments in real estate

$

10,046,521

$

9,819,413

$

9,470,667

$

9,077,972

$

7,939,179

Investments in unconsolidated real estate joint ventures

33,692

58,083

50,457

50,221

133,580

Cash and cash equivalents

118,562

124,877

151,209

125,032

157,928

Restricted cash

27,713

20,002

18,320

16,334

16,406

Tenant receivables

9,899

8,393

9,979

9,744

9,635

Deferred rent

402,353

383,062

364,348

335,974

318,286

Deferred leasing costs

208,265

201,908

202,613

195,937

191,765

Investments

485,262

424,920

394,471

342,477

320,989

Other assets

213,056

205,009

206,562

201,197

206,133

Total assets

$

11,545,323

$

11,245,667

$

10,868,626

$

10,354,888

$

9,293,901

Liabilities, Noncontrolling Interests, and Equity

Secured notes payable

$

1,153,890

$

1,127,348

$

1,083,758

$

1,011,292

$

789,450

Unsecured senior notes payable

2,801,290

2,800,398

2,799,508

2,378,262

2,377,482

Unsecured senior line of credit

314,000

300,000

—

28,000

416,000

Unsecured senior bank term loans

547,860

547,639

547,420

746,471

746,162

Accounts payable, accrued expenses, and tenant security deposits

740,070

734,189

782,637

731,671

605,181

Dividends payable

83,402

81,602

78,976

76,914

66,705

Preferred stock redemption liability

—

—

130,000

—

—

Total liabilities

5,640,512

5,591,176

5,422,299

4,972,610

5,000,980

Commitments and contingencies

Redeemable noncontrolling interests

11,418

11,410

11,320

11,307

9,012

Alexandria Real Estate Equities, Inc.'s stockholders' equity:

7.00% Series D cumulative convertible preferred stock

74,386

74,386

74,386

86,914

161,792

6.45% Series E cumulative redeemable preferred stock

—

—

—

130,000

130,000

Common stock

943

921

899

877

768

Additional paid-in capital

5,287,777

5,059,180

4,855,686

4,672,650

3,649,263

Accumulated other comprehensive income (loss)

43,864

22,677

21,460

5,355

(31,745)

Alexandria Real Estate Equities, Inc.'s stockholders' equity

5,406,970

5,157,164

4,952,431

4,895,796

3,910,078

Noncontrolling interests

486,423

485,917

482,576

475,175

373,831

Total equity

5,893,393

5,643,081

5,435,007

5,370,971

4,283,909

Total liabilities, noncontrolling interests, and equity

$

11,545,323

$

11,245,667

$

10,868,626

$

10,354,888

$

9,293,901

Funds From Operations and Funds From Operations per Share

September 30, 2017

(In thousands, except per share amounts)

The following tables present a reconciliation of net income (loss) attributable to Alexandria's common stockholders, 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.

Three Months Ended

Nine Months Ended

9/30/17

6/30/17

3/31/17

12/31/16

9/30/16

9/30/17

9/30/16

Net income (loss) attributable to Alexandria's common stockholders

$

51,273

$

31,630

$

25,661

$

(25,127)

$

5,452

$

108,564

$

(126,014)

Depreciation and amortization

107,788

104,098

97,183

95,222

77,133

309,069

218,168

Noncontrolling share of depreciation and amortization from consolidated real estate JVs

(3,608)

(3,735)

(3,642)

(2,598)

(2,224)

(10,985)

(6,751)

Our share of depreciation and amortization from unconsolidated real estate JVs

383

324

412

655

658

1,119

2,052

Gain on sales of real estate – rental properties

—

—

(270)

(3,715)

—

(270)

—

Our share of gain on sales of real estate from unconsolidated real estate JVs

(14,106)

—

—

—

—

(14,106)

—

Gain on sales of real estate – land parcels

—