PASADENA, Calif., Oct. 29, 2018 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) announced financial and operating results for the third quarter ended September 30, 2018.
Core asset sale
We expect to sell a partial joint venture interest in a Class A property located in our Cambridge submarket with proceeds of approximately $400 million or greater.
Key sale of unconsolidated real estate joint venture interest
In September 2018, we sold our remaining 27.5% ownership interest in our 360 Longwood Avenue unconsolidated real estate joint venture, located in our Longwood Medical Area submarket at a sales price of $1,659 per rentable square foot ("RSF"), with capitalization rates of 5.1% and 4.7% (cash basis). Our share of the contractual sales price, net of debt repaid, was $70.0 million, and our gain on sale was $35.7 million.
Credit rating upgrade
In September 2018, Moody's Investors Service upgraded our corporate issuer credit rating to Baa1/Stable from Baa2/Stable. The rating upgrade reflects the continued and significant improvement of Alexandria's credit profile resulting from a diversified portfolio of life science properties in key markets with consistently high occupancy and high-quality tenants, many of which are less sensitive to economic cyclicality.
A REIT Industry Leading Tenant Roster
52% of annual rental revenue from investment-grade or publicly traded large cap tenants.
Continuation of strong rental rate growth
Solid rental rate increases for 3Q18, of 35.4% and 16.9% (cash basis). Rental rate increase of 35.4% represents the highest increase during the past 10 years.
Increased common stock dividend
Common stock dividend for 3Q18 of $0.93 per common share, up 7 cents, or 8.1%, over 3Q17; continuation of our strategy to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.
Strong internal growth
- Total revenues:
- $341.8 million, up 19.8%, for 3Q18, compared to $285.4 million for 3Q17
- $987.0 million, up 19.0%, for YTD 3Q18, compared to $829.3 million for YTD 3Q17
- Net operating income (cash basis) of $867.1 million for 3Q18 annualized, up $48.4 million, or 5.9%, compared to 2Q18 annualized, and up $173.9 million, or 25.1%, compared to 4Q17 annualized
- Same property net operating income growth:
- 3.4% and 8.9% (cash basis) for 3Q18, compared to 3Q17
- 3.8% and 9.9% (cash basis) for YTD 3Q18, compared to YTD 3Q17
- Continued solid leasing activity and strong rental rate growth, in light of modest contractual lease expirations at the beginning of 2018 and a highly leased value-creation pipeline:
Strong external growth; disciplined allocation of capital to visible, multiyear, highly leased value-creation pipeline
- Highly leased value-creation pipeline with deliveries targeted for 2018 and 2019:
- We expect to present our value-creation pipeline with deliveries targeted for 2019, 2020, 2021, and 2022 at our annual Investor Day event on November 28, 2018.
Recent and future growth in net operating income (cash basis) driven by recently delivered projects
- Strong near-term contractual growth in annual cash rents of $29 million related to initial free rent granted on development and redevelopment projects recently placed into service (and no longer included in our value-creation pipeline) that are currently generating rental revenue.
Completed strategic acquisitions
- During 3Q18, we acquired two properties and one land parcel for an aggregate purchase price of $257.0 million in key submarkets. These acquisitions included 219 East 42nd Street, a 349,947 RSF building in New York City with an opportunity to either convert the existing office space into office/laboratory space through future redevelopment or to expand the building by an additional 230,000 RSF through ground-up development. The building is currently occupied by Pfizer Inc. with a remaining lease term of six years.
Core operating metrics as of or for the quarter ended September 30, 2018
High-quality revenues and cash flows and operational excellence
- Percentage of annual rental revenue in effect from:
- Investment-grade or publicly traded large cap tenants: 52%
- Class A properties in AAA locations: 77%
- Occupancy of operating properties in North America: 97.3%
- Operating margin: 71%
- Adjusted EBITDA margin: 69%
- Weighted-average remaining lease term:
- All tenants: 8.6 years
- Top 20 tenants: 12.3 years
- See "Strong Internal Growth" on the previous page for information on our total revenues, same property net operating income growth, leasing activity, and rental rate growth.
Balance sheet management
- $19.1 billion of total market capitalization
- $2.9 billion of liquidity
Key capital events
- During 3Q18, we amended our unsecured senior line of credit and unsecured senior bank term loan to extend the maturity date of each to January 28, 2024. We recognized a loss on early extinguishment of debt of $634 thousand related to the write-off of unamortized loan fees associated with these amendments. The key changes are summarized below:
- Debt repayments during 3Q18 consisted of the following (dollars in thousands):
- In September 2018, we settled 857,700 shares from our January 2018 forward equity sales agreements and received proceeds of $100.0 million, net of underwriting discounts and adjustments provided in the agreements. We expect to receive additional proceeds of $606.3 million upon settlement of the remaining outstanding forward equity sales agreements prior to the expiration in April 2019, to be further adjusted as provided in the sales agreements.
- In August 2018, we entered into a new "at the market" common stock offering program ("ATM program"), which allows us to sell up to an aggregate of $750.0 million of our common stock. During 3Q18, activities under our existing and new ATM programs were as follows:
Corporate responsibility and industry leadership
During 3Q18, we received the following awards and recognitions:
- Second consecutive "Green Star" designation and first "A" disclosure score by GRESB, and were recognized as the #1 real estate company in the world in GRESB's Health & Well-being Module.
- Two design awards related to our interior build-out at 505 Brannan Street in our Mission Bay/SoMa submarket:
- Architizer A+ Award for Commercial Office Interiors greater than 25,000 SF
- Award of Merit for Best Projects 2018 from ENR California
- First place in the High-Rise category of the City of Seattle's 2017 People's Choice Urban Design Awards for our 400 Dexter Avenue North building
- Sustainable Design Awards winner in the Sustainable Private Organization category from the San Diego Green Building Council
- Silver Tier recognition in SANDAG's Diamond Awards program for our commuting programs that encourage alternative transportation
- In October 2018, we initiated the development of the North Tower at the Alexandria Center® for Life Science – New York City, with the signing of an amendment to our long-term ground lease with the New York City Health and Hospitals Corporation and New York City Economic Corporation. The amendment enables us to begin due diligence, design and permitting on the North Tower, the campus's third tower, which has been increased from the originally planned 420,000 RSF to approximately 550,000 RSF. The Alexandria Center® for Life Science – New York City currently comprises 728,000 RSF in the East and West Towers, and upon completion of the North Tower, the campus will consist of nearly 1.3 million RSF.
- In October 2018, we completed the acquisition of a redevelopment building at 30-02 48th Avenue aggregating 176,759 RSF, in New York City, of which 140,098 RSF is undergoing conversion from existing office space to office/laboratory space. We also have the opportunity to convert the remaining space of 36,661 RSF, which is currently occupied, from existing office space to office/laboratory space through future redevelopment.
- In October 2018, we repurchased, in privately negotiated transactions, 214,000 shares of our 7.00% Series D cumulative convertible preferred stock for $7.5 million, or $35.00 per share, and recognized a preferred stock redemption charge of $2.3 million.
September 30, 2018
Earnings Call Information and About the Company
September 30, 2018
We will host a conference call on Tuesday, October 30, 2018, 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 third quarter ended September 30, 2018. 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 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, October 30, 2018. The replay number is (877) 344-7529 or (412) 317-0088, and the access code is 10123167.
Additionally, a copy of this Earnings Press Release and Supplemental Information for the third quarter ended September 30, 2018, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2018q3.pdf .
For any questions, please contact Joel S. Marcus, executive chairman and founder; Stephen A. Richardson, co-chief executive officer; Peter M. Moglia, co-chief executive officer and co-chief investment officer; Dean A. Shigenaga, co-president and chief financial officer; or Sara M. Kabakoff, assistant vice president – corporate communications, at (626) 578-0777.
About the Company
Alexandria Real Estate Equities, Inc. (NYSE: 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 $19.1 billion and an asset base in North America of 32.2 million square feet ("SF") as of September 30, 2018. The asset base in North America includes 21.6 million RSF of operating properties and 2.6 million RSF of development and redevelopment of new Class A properties currently undergoing construction and pre-construction activities with target delivery dates ranging from 2018 through 2019. Additionally, the asset base in North America includes 8.0 million SF of intermediate-term and future 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 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 and technology companies through our venture capital arm. 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 .
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 2018 earnings per share attributable to Alexandria's common stockholders – diluted, 2018 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," "goals," "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.
Alexandria®, Lighthouse Design® logo, Building the Future of Life-Changing Innovation™, LaunchLabs®, Alexandria Center®, Alexandria Technology Square®, Alexandria Summit®, Alexandria Technology Center®, and Alexandria Innovation Center® are trademarks of Alexandria Real Estate Equities, Inc. All other company names, trademarks, and logos referenced herein are the property of their respective owners.
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