Alexandria Real Estate Equities, Inc. Reports: 2Q24 and 1H24 Net Income per Share - Diluted of $0.25 and $1.22, respectively; and 2Q24 and 1H24 FFO per Share - Diluted, as Adjusted, of $2.36 and $4.71, respectively
PASADENA, Calif., July 22, 2024 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE:ARE) announced financial and operating results for the second quarter ended June 30, 2024.
Key highlights | ||||||||
Operating results | 2Q24 | 2Q23 | 1H24 | 1H23 | ||||
Total revenues: | ||||||||
In millions | $ 766.7 | $ 713.9 | $ 1,535.8 | $ 1,414.7 | ||||
Growth | 7.4 % | 8.6 % | ||||||
Net income attributable to Alexandria's common stockholders – diluted: | ||||||||
In millions | $ 42.9 | $ 87.3 | $ 209.8 | $ 162.5 | ||||
Per share | $ 0.25 | $ 0.51 | $ 1.22 | $ 0.95 | ||||
Funds from operations attributable to Alexandria's common stockholders – diluted, as adjusted: | ||||||||
In millions | $ 405.5 | $ 382.4 | $ 809.4 | $ 756.1 | ||||
Per share | $ 2.36 | $ 2.24 | $ 4.71 | $ 4.43 | ||||
An operationally excellent, industry-leading REIT with a high-quality, diverse client base to support growing revenues, stable cash flows, and strong margins
(As of June 30, 2024, unless stated otherwise) | ||||
Percentage of annual rental revenue in effect from mega campuses | 74 % | |||
Percentage of annual rental revenue in effect from investment-grade or publicly traded large cap tenants | 53 % | |||
Sustained strength in tenant collections: | ||||
Tenant receivables as a percentage of 2Q24 rental revenues | 0.9 % | |||
July 2024 tenant rents and receivables collected as of July 22, 2024 | 99.7 % | |||
2Q24 tenant rents and receivables collected as of July 22, 2024 | 99.9 % | |||
Occupancy of operating properties in North America | 94.6 % | |||
Operating margin | 72 % | |||
Adjusted EBITDA margin | 72 % | |||
Percentage of leases containing annual rent escalations | 96 % | |||
Weighted-average remaining lease term: | ||||
Top 20 tenants | 9.4 | years | ||
All tenants | 7.4 | years | ||
Strong leasing volume and solid rental rate increases
- Strong leasing volume aggregating 1.1 million RSF during 2Q24.
- Solid rental rate increases of 7.4% and 3.7% (cash basis) for 2Q24 and 26.2% and 15.0% (cash basis) for 1H24.
- 79% of our leasing activity during the last twelve months was generated from our existing tenant base.
2Q24 | 1H24 | ||||||||
Total leasing activity – RSF | 1,114,001 | 2,256,858 | |||||||
Leasing of development and redevelopment space – RSF | 340,989 | 441,221 | |||||||
Lease renewals and re-leasing of space: | |||||||||
RSF (included in total leasing activity above) | 589,650 | 1,584,420 | |||||||
Rental rate increase | 7.4 % | 26.2 % | |||||||
Rental rate increase (cash basis) | 3.7 % | 15.0 % | |||||||
Continued solid net operating income and internal growth
- Net operating income (cash basis) of $1.9 billion for 2Q24 annualized, up $122.7 million, or 6.9%, compared to 2Q23 annualized.
- Same property net operating income growth of 1.5% and 3.9% (cash basis) for 2Q24 over 2Q23 and 1.1% and 3.7% (cash basis) for 1H24 over 1H23.
- 96% of our leases contain contractual annual rent escalations approximating 3%.
Strong and flexible balance sheet with significant liquidity; top 10% credit rating ranking among all publicly traded U.S. REITs
- Net debt and preferred stock to Adjusted EBITDA of 5.4x and fixed-charge coverage ratio of 4.5x for 2Q24 annualized.
- Significant liquidity of $5.6 billion.
- 32% of our total debt matures in 2049 and beyond.
- 13.0 years weighted-average remaining term of debt.
- 97.3% of our debt has a fixed rate.
- Total debt and preferred stock to gross assets of 29%.
- $1.1 billion of expected capital contribution commitments from existing consolidated real estate joint venture partners to fund construction from 3Q24 through 2027.
Consistent dividend strategy with a focus on retaining significant net cash flows from operating activities after dividends for reinvestment
- Common stock dividend declared for 2Q24 of $1.30 per common share aggregating $5.08 per common share for the twelve months ended June 30, 2024, up 24 cents, or 5%, over the twelve months ended June 30, 2023.
- Dividend yield of 4.4% as of June 30, 2024.
- Dividend payout ratio of 55% for the three months ended June 30, 2024.
- Average annual dividend per-share growth of 5% from 2020 through 2Q24 annualized.
- Significant net cash flows from operating activities after dividends retained for reinvestment aggregating $2.1 billion for the years ended December 31, 2020 through 2023 and including the midpoint of our 2024 guidance range for net cash provided by operating activities after dividends.
Ongoing execution of Alexandria's 2024 capital strategy
We expect to continue pursuing our strategy to fund a significant portion of our capital requirements for the year ending December 31, 2024 with dispositions and sales of partial interests and are actively pursuing several dispositions and partial interest sale opportunities.
(in millions) | |||
Completed dispositions of 100% interest in properties not integral to our mega campus strategy | $ 77 | (1) | |
Pending transactions subject to letters of intent or purchase and sale agreement negotiations | 807 | ||
Forward equity sales agreements expected to be settled in 2024 | 27 | ||
911 | |||
Additional targeted dispositions, sales of partial interests, and common equity | 639 | ||
2024 guidance midpoint for dispositions, sales of partial interests, and common equity | $ 1,550 |
(1) | Refer to "Dispositions and sales of partial interests" in the Earnings Press Release for additional details. |
Alexandria's highly leased value-creation pipeline delivered incremental annual net operating income of $16 million commencing during 2Q24 and is expected to deliver incremental annual net operating income aggregating $480 million by 1Q28
- During 2Q24, we placed into service development and redevelopment projects aggregating 284,982 RSF that are 100% leased across multiple submarkets and delivered incremental annual net operating income of $16 million. 2Q24 deliveries included:
- 195,435 and 25,655 RSF at 9810 Darnestown Road and 9808 Medical Center Drive, respectively, located on the Alexandria Center® for Life Science – Shady Grove mega campus in our Rockville submarket.
- Annual net operating income (cash basis) is expected to increase by $80 million upon the burn-off of initial free rent, with a weighted-average burn-off period of approximately seven months, from recently delivered projects.
- 69% of the RSF in our total value-creation pipeline is within our mega campuses.
Development and Redevelopment Projects | Incremental Annual Net Operating Income | RSF | Leased/ Negotiating Percentage | |||||||||
(dollars in millions) | ||||||||||||
Placed into service: | ||||||||||||
1Q24 | $ 26 | 343,445 | 100 % | |||||||||
2Q24 | 16 | 284,982 | 100 | |||||||||
Placed into service in 1H24 | $ 42 | 628,427 | 100 % | |||||||||
Expected to be placed into service(1): | ||||||||||||
3Q24 through 4Q25 | $ 187 | (2) | 5,432,915 | |||||||||
1Q26 through 1Q28 | 293 | 61 % | (3) | |||||||||
$ 480 | ||||||||||||
(1) | Represents expected incremental annual net operating income to be placed into service from deliveries of projects undergoing construction and one committed near-term project expected to commence construction in the next two years. | |||
(2) | Includes 1.5 million RSF that is expected to stabilize through 2025 and is 87% leased, and partial deliveries through 4Q25 from projects expected to stabilize in 2026 and beyond. In addition to the projects represented, we are evaluating one priority anticipated development project that could commence active construction in 2H24 and may have initial delivery in 2025. Refer to the initial and stabilized occupancy years under "New Class A/A+ development and redevelopment properties: current projects" in the Supplemental Information for additional details. | |||
(3) | 71% of the leased RSF of our value-creation projects was generated from our existing tenant base. |
Strong balance sheet management
Key metrics as of or for the three months ended June 30, 2024
- $32.5 billion in total market capitalization.
- $20.1 billion in total equity capitalization, which ranks in the top 10% among all publicly traded U.S. REITs.
2Q24 | Target | |||||
Quarter Annualized | Trailing 12 Months | 4Q24 Annualized | ||||
Net debt and preferred stock to Adjusted EBITDA | 5.4x | 5.6x | Less than or equal to 5.1x | |||
Fixed-charge coverage ratio | 4.5x | 4.6x | Greater than or equal to 4.5x | |||
Key capital events
- In July 2024, we executed an agreement with the lender group to amend and restate our unsecured senior line of credit to, among other changes, extend the maturity date from January 22, 2028 to January 22, 2030, including extension options that we control. We expect that the amendment and restatement will become effective in September 2024 upon the satisfaction of certain conditions.
- During 2Q24, we entered into new forward equity sales agreements aggregating $27.8 million to sell 230 thousand shares of common stock under our ATM program at an average price of $122.32 (before underwriting discounts). We expect to settle these forward equity sales agreements in 2024. As of July 22, 2024, the remaining aggregate amount available under our ATM program for future sales of common stock was $1.47 billion.
Investments
- As of June 30, 2024:
- Our non-real estate investments aggregated $1.5 billion.
- Unrealized gains presented in our consolidated balance sheet were $159.8 million, comprising gross unrealized gains and losses aggregating $284.2 million and $124.4 million, respectively.
- Investment loss of $43.7 million for 2Q24 presented in our consolidated statement of operations consisted of $33.4 million of realized gains, partially offset by $12.8 million of impairment charges and $64.2 million of unrealized losses.
Other key highlights
- In June 2024, Alexandria was added to the Health Care REITs industry under the Global Industry Classification Standard (GICS®) by S&P Dow Jones Indices and MSCI, and to the FTSE NAREIT Equity Health Care Index.
Key items included in net income attributable to Alexandria's common stockholders: | ||||||||||||||||
2Q24 | 2Q23 | 2Q24 | 2Q23 | 1H24 | 1H23 | 1H24 | 1H23 | |||||||||
(in millions, except per share amounts) | Amount | Per Share – Diluted | Amount | Per Share – Diluted | ||||||||||||
Unrealized losses on non-real estate investments | $ (64.2) | $ (77.9) | $ (0.37) | $ (0.46) | $ (35.1) | $ (143.8) | $ (0.20) | $ (0.84) | ||||||||
Gain on sales of real estate | — | 214.8 | — | 1.26 | 0.4 | 214.8 | — | 1.26 | ||||||||
Impairment of non-real estate investments | (12.8) | (23.0) | (0.08) | (0.13) | (27.5) | (23.0) | (0.16) | (0.13) | ||||||||
Impairment of real estate | (30.8) | (168.6) | (0.18) | (0.99) | (30.8) | (168.6) | (0.18) | (0.99) | ||||||||
Total | $ (107.8) | $ (54.7) | $ (0.63) | $ (0.32) | $ (93.0) | $ (120.6) | $ (0.54) | $ (0.70) | ||||||||
Refer to "Funds from operations and funds from operations per share" in the Earnings Press Release for additional details. | ||||||||||||||||
Subsequent event
- In July 2024, we executed an amendment to our existing ground lease agreement at the Alexandria Technology Square® mega campus aggregating 1.2 million RSF in our Cambridge submarket to extend the term by 24 years from January 1, 2065 to December 31, 2088. The amendment requires that we prepay our entire rent obligation for the extended lease term aggregating $270.0 million in two equal installments during the fourth quarter of 2024 and the first quarter of 2025. This amount will be amortized on a straight-line basis over the remaining lease term from July 2024 through December 2088, and the amended operating lease will result in an incremental annual rent expense of approximately $3.6 million. Alexandria Technology Square® is a foundational mega campus in the heart of the global life science ecosystem in Cambridge and is the Greater Boston base of operations of key strategic long-tenured tenants such as Novartis AG, GlaxoSmithKline plc, Massachusetts Institute of Technology, and Mass General Brigham. Securing this ground lease through December 2088 significantly enhances the long-term value of our investment in this critical mega campus.
Industry and corporate responsibility leadership: catalyzing and leading the way for positive change to benefit human health and society
- In June 2024, we released our 2023 Corporate Responsibility Report, which reinforces our longstanding operational excellence across our differentiated Labspace® platform and highlights:
- Our new target to reduce operational greenhouse gas (GHG) emissions intensity by advancing our energy efficiency, electrification, alternative energy, and renewable electricity initiatives. As an example of our renewable electricity initiatives, a recent long-term power purchase agreement in our Greater Boston market is expected to enable us to meet 100% of the electricity needs for Alexandria-paid accounts in this market with renewable energy.
- Our pioneering corporate responsibility pillars, which aim to address the most pressing issues facing our nation, including the mental health and addiction crises.
- In April 2024, Alexandria earned several 2024 regional TOBY (The Outstanding Building of the Year) Awards from BOMA (Building Owners and Managers Association). The TOBY Awards are the commercial real estate industry's highest recognition honoring excellence in commercial building management and operations.
- In the BOMA Mid-Atlantic region, 60 Binney Street on the Alexandria Center® at Kendall Square mega campus won in the Life Science category and Building 1400 on the Alexandria Center® at One Kendall Square mega campus won in the Renovated Building category.
- In the BOMA Pacific Southwest region, the Alexandria Center® for Life Science – San Carlos mega campus won in the Life Science category.
- In the BOMA Pacific Northwest region, 1165 Eastlake Avenue East on the Alexandria Center® for Life Science – Eastlake mega campus won in the Life Science category.
- Additionally, our innovative energy district at the Alexandria Center® for Life Science – South Lake Union mega campus received the Seattle 2030 District's 2024 Vision Award for Energy, and 6040 George Watts Hill Drive, Phase II, in Research Triangle was recognized as the Best Development Project in the 2024 Triangle Commercial Real Estate Women's (TCREW) Champion Awards.
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 with our founding in 1994, Alexandria is the preeminent and longest-tenured owner, operator, and developer of collaborative life science mega campuses in AAA innovation cluster locations, including Greater Boston, the San Francisco Bay Area, San Diego, Seattle, Maryland, Research Triangle, and New York City. As of June 30, 2024, Alexandria has a total market capitalization of $32.5 billion and an asset base in North America that includes 42.1 million RSF of operating properties and 5.3 million RSF of Class A/A+ properties undergoing construction and one committed near-term project expected to commence construction in the next two years. Alexandria has a longstanding and proven track record of developing Class A/A+ properties clustered in life science mega 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 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
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The following guidance for 2024 has been updated to reflect our current view of existing market conditions and assumptions for the year ending December 31, 2024. There can be no assurance that actual results will not be materially higher or lower than these expectations. Also, refer to our discussion of "forward-looking statements" on page 7 of the Earnings Press Release for additional details.
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Changes to our guidance for 2024 key sources and uses of capital include a $150 million increase to the midpoint of our guidance range for dispositions, sales of partial interests, and common equity primarily to fund the first $135 million installment of the ground lease prepayment at our Alexandria Technology Square® mega campus aggregating 1.2 million RSF in our Cambridge submarket due in the fourth quarter of 2024 in connection with an amendment of our existing ground lease agreement to extend the term of the lease by 24 years from January 1, 2065 to December 31, 2088. Refer to "Subsequent event" in the Earnings Press Release for additional information. |
2024 Guidance Midpoint | ||||||||||
Summary of Key Changes in Guidance | As of 7/22/24 | As of 4/22/24 | Summary of Key Changes in Sources and Uses of Capital | As of 7/22/24 | As of 4/22/24 | |||||
EPS, FFO per share, and FFO per share, as adjusted | See updates below | Dispositions, sales of partial interests, and common equity | $1,550 | $1,400 | ||||||
Ground lease prepayment(1) | $135 | $— | ||||||||
Key Credit Metric Targets(2) | ||
Net debt and preferred stock to Adjusted EBITDA – 4Q24 annualized | Less than or equal to 5.1x | |
Fixed-charge coverage ratio – 4Q24 annualized | Greater than or equal to 4.5x | |
Projected 2024 Earnings per Share and Funds From Operations per Share Attributable to Alexandria's Common Stockholders – Diluted | |||||||||
As of 7/22/24 | As of 4/22/24 | ||||||||
Earnings per share(3) | $2.98 to $3.10 | $3.60 to $3.72 | |||||||
Depreciation and amortization of real estate assets | 5.95 | 5.95 | |||||||
Impairment of real estate – rental properties and land | 0.01 | — | |||||||
Allocation to unvested restricted stock awards | (0.05) | (0.06) | |||||||
Funds from operations per share(2) | $8.89 to $9.01 | $9.49 to $9.61 | |||||||
Unrealized losses (gains) on non-real estate investments | 0.20 | (0.17) | |||||||
Impairment of non-real estate investments | 0.16 | 0.09 | |||||||
Impairment of real estate | 0.17 | — | |||||||
Allocation to unvested restricted stock awards | (0.01) | — | |||||||
Funds from operations per share, as adjusted(2) | $9.41 to $9.53 | $9.41 to $9.53 | |||||||
Midpoint | $9.47 | $9.47 | |||||||
Certain Completed Items | |||||||||
Key Sources and Uses of Capital | Range | Midpoint | |||||||
Sources of capital: | |||||||||
Incremental debt | $ 885 | $ 885 | $ 885 | See below | |||||
Net cash provided by operating activities after dividends | 400 | 500 | 450 | ||||||
Dispositions, sales of partial interests, and common equity(4) (refer to page 6) | 1,050 | 2,050 | 1,550 | (4) | |||||
Total sources of capital | $ 2,335 | $ 3,435 | $ 2,885 | ||||||
Uses of capital: | |||||||||
Construction | $ 1,950 | $ 2,550 | $ 2,250 | ||||||
Acquisitions (refer to page 5) | 250 | 750 | 500 | $ 202 | |||||
Ground lease prepayment(1) | 135 | 135 | 135 | ||||||
Total uses of capital | $ 2,335 | $ 3,435 | $ 2,885 | ||||||
Incremental debt (included above): | |||||||||
Issuance of unsecured senior notes payable(5) | $ 1,000 | $ 1,000 | $ 1,000 | $ 1,000 | (5) | ||||
Unsecured senior line of credit, commercial paper, and other | (115) | (115) | (115) | ||||||
Net incremental debt | $ 885 | $ 885 | $ 885 | ||||||
Key Assumptions | Low | High | |||
Occupancy percentage in North America as of December 31, 2024 | 94.6 % | 95.6 % | |||
Lease renewals and re-leasing of space: | |||||
Rental rate increases | 11.0 % | 19.0 % | |||
Rental rate increases (cash basis) | 5.0 % | 13.0 % | |||
Same property performance: | |||||
Net operating income increases | 0.5 % | 2.5 % | |||
Net operating income increases (cash basis) | 3.0 % | 5.0 % | |||
Straight-line rent revenue | $ 169 | $ 184 | |||
General and administrative expenses | $ 181 | $ 191 | |||
Capitalization of interest | $ 325 | $ 355 | |||
Interest expense | $ 154 | $ 184 | |||
Realized gains on non-real estate investments(6) | $ 95 | $ 125 | |||
(1) | Refer to "Subsequent event" in the Earnings Press Release for additional details. |
(2) | Refer to "Definitions and reconciliations" in the Supplemental Information for additional details. |
(3) | Excludes unrealized gains or losses on non-real estate investments after June 30, 2024 that are required to be recognized in earnings and are excluded from funds from operations per share, as adjusted. |
(4) | We expect to continue pursuing our strategy to fund a significant portion of our capital requirements for the year ending December 31, 2024 with dispositions and sales of partial interests in properties not integral to our mega campus strategy and are actively pursuing several dispositions and partial interest sale opportunities. As of July 22, 2024, we completed dispositions aggregating $77.2 million, have additional pending transactions subject to letters of intent or purchase and sale agreement negotiations aggregating $806.7 million, and entered into new forward equity sales agreements aggregating $27.8 million, which, in aggregate, represents 59% of the $1.55 billion midpoint of our guidance range. |
(5) | Represents $1.0 billion of unsecured senior notes payable issued in February 2024. Subject to market conditions, we may seek additional opportunities in 2024 to fund the repayment of our $600.0 million of 3.45% unsecured senior notes payable due on April 30, 2025 through issuance of additional unsecured senior notes payable, which is not assumed in our current 2024 guidance. |
(6) | Represents realized gains and losses included in funds from operations per share – diluted, as adjusted, and excludes significant impairments realized on non-real estate investments, if any. Refer to "Investments" in the Supplemental Information for additional details. |
Acquisitions June 30, 2024 (Dollars in thousands) | |||||||||||||
Property | Submarket/Market | Date of Purchase | Operating Occupancy | Future Development RSF(1) | Purchase Price | ||||||||
Completed in 1Q24: | |||||||||||||
285, 299, 307, and 345 Dorchester Avenue (60% interest in consolidated JV) | Seaport Innovation District/Greater Boston | 1/30/24 | N/A | 1,040,000 | $ | 155,321 | |||||||
Other | 39,490 | ||||||||||||
194,811 | |||||||||||||
Completed in 2Q24: | |||||||||||||
Other | 7,000 | ||||||||||||
201,811 | |||||||||||||
Pending acquisitions subject to signed letters of intent or purchase and sale agreements | 47,600 | ||||||||||||
$ | 249,411 | ||||||||||||
2024 guidance range | $250,000 – $750,000 | ||||||||||||
(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. |
Dispositions and Sales of Partial Interests June 30, 2024 (Dollars in thousands) | ||||||||||||
Property | Submarket/Market | Date of Sale | Interest Sold | RSF | Sales Price | |||||||
Dispositions of 100% interest in properties not integral to our mega campus strategy | ||||||||||||
Completed in 1H24: | ||||||||||||
99 A Street(1) | Seaport Innovation District/Greater Boston | 3/8/24 | 100 % | 235,000 | $ 13,350 | |||||||
Other | 3,863 | |||||||||||
17,213 | ||||||||||||
Completed in July 2024: | ||||||||||||
Other(2) | 60,000 | |||||||||||
77,213 | ||||||||||||
Pending transactions subject to letters of intent or purchase and sale agreement negotiations | 806,728 | |||||||||||
Additional targeted dispositions and sales of partial interests | TBD | |||||||||||
$ 883,941 | ||||||||||||
2024 guidance range for dispositions, sales of partial interests, and common equity | $1,050,000 – $2,050,000 | |||||||||||
(1) | We completed the sale during the three months ended March 31, 2024 and recognized no gain or loss. |
(2) | The disposition completed in July 2024 was leased to a single tenant with a July 2024 lease expiration and had annual net operating income of $18.6 million based upon 2Q24 annualized. This asset was previously considered to be a potential development project upon expiration of an in-place non-laboratory space lease in July 2024. |
Earnings Call Information and About the Company
June 30, 2024
We will host a conference call on Tuesday, July 23, 2024, 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, 2024. 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 23, 2024. The replay number is (877) 344-7529 or (412) 317-0088, and the access code is 8478776.
Additionally, a copy of this Earnings Press Release and Supplemental Information for the second quarter ended June 30, 2024 is available in the "For Investors" section of our website at www.are.com or by following this link: https://www.are.com/fs/2024q2.pdf.
For any questions, please contact [email protected]; Joel S. Marcus, executive chairman and founder; Peter M. Moglia, chief executive officer and chief investment officer; Marc E. Binda, chief financial officer and treasurer; 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 with our founding in 1994, Alexandria is the preeminent and longest-tenured owner, operator, and developer of collaborative life science mega campuses in AAA innovation cluster locations, including Greater Boston, the San Francisco Bay Area, San Diego, Seattle, Maryland, Research Triangle, and New York City. As of June 30, 2024, Alexandria has a total market capitalization of $32.5 billion and an asset base in North America that includes 42.1 million RSF of operating properties and 5.3 million RSF of Class A/A+ properties undergoing construction and one committed near-term project expected to commence construction in the next two years. Alexandria has a longstanding and proven track record of developing Class A/A+ properties clustered in life science mega 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 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.
Forward-Looking Statements
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 2024 earnings per share, 2024 funds from operations per share, 2024 funds from operations per share, as adjusted, 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®, Labspace®, 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 June 30, 2024 (Dollars in thousands, except per share amounts)
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Three Months Ended | Six Months Ended | |||||||||||||
6/30/24 | 3/31/24 | 12/31/23 | 9/30/23 | 6/30/23 | 6/30/24 | 6/30/23 | ||||||||
Revenues: | ||||||||||||||
Income from rentals | $ 755,162 | $ 755,551 | $ 742,637 | $ 707,531 | $ 704,339 | $ 1,510,713 | $ 1,392,288 | |||||||
Other income | 11,572 | 13,557 | 14,579 | 6,257 | 9,561 | 25,129 | 22,407 | |||||||
Total revenues | 766,734 | 769,108 | 757,216 | 713,788 | 713,900 | 1,535,842 | 1,414,695 | |||||||
Expenses: | ||||||||||||||
Rental operations | 217,254 | 218,314 | 222,726 | 217,687 | 211,834 | 435,568 | 418,767 | |||||||
General and administrative | 44,629 | 47,055 | 59,289 | 45,987 | 45,882 | 91,684 | 94,078 | |||||||
Interest | 45,789 | 40,840 | 31,967 | 11,411 | 17,072 | 86,629 | 30,826 | |||||||
Depreciation and amortization | 290,720 | 287,554 | 285,246 | 269,370 | 273,555 | 578,274 | 538,857 | |||||||
Impairment of real estate | 30,763 | — | 271,890 | 20,649 | 168,575 | 30,763 | 168,575 | |||||||
Total expenses | 629,155 | 593,763 | 871,118 | 565,104 | 716,918 | 1,222,918 | 1,251,103 | |||||||
Equity in earnings of unconsolidated real estate joint ventures | 130 | 155 | 363 | 242 | 181 | 285 | 375 | |||||||
Investment (loss) income | (43,660) | 43,284 | 8,654 | (80,672) | (78,268) | (376) | (123,379) | |||||||
Gain on sales of real estate | — | 392 | 62,227 | — | 214,810 | 392 | 214,810 | |||||||
Net income (loss) | 94,049 | 219,176 | (42,658) | 68,254 | 133,705 | 313,225 | 255,398 | |||||||
Net income attributable to noncontrolling interests | (47,347) | (48,631) | (45,771) | (43,985) | (43,768) | (95,978) | (87,599) | |||||||
Net income (loss) attributable to Alexandria Real Estate Equities, Inc.'s stockholders | 46,702 | 170,545 | (88,429) | 24,269 | 89,937 | 217,247 | 167,799 | |||||||
Net income attributable to unvested restricted stock awards | (3,785) | (3,659) | (3,498) | (2,414) | (2,677) | (7,444) | (5,283) | |||||||
Net income (loss) attributable to Alexandria Real Estate Equities, Inc.'s common stockholders | $ 42,917 | $ 166,886 | $ (91,927) | $ 21,855 | $ 87,260 | $ 209,803 | $ 162,516 | |||||||
Net income (loss) per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholders: | ||||||||||||||
Basic | $ 0.25 | $ 0.97 | $ (0.54) | $ 0.13 | $ 0.51 | $ 1.22 | $ 0.95 | |||||||
Diluted | $ 0.25 | $ 0.97 | $ (0.54) | $ 0.13 | $ 0.51 | $ 1.22 | $ 0.95 | |||||||
Weighted-average shares of common stock outstanding: | ||||||||||||||
Basic | 172,013 | 171,949 | 171,096 | 170,890 | 170,864 | 171,981 | 170,824 | |||||||
Diluted | 172,013 | 171,949 | 171,096 | 170,890 | 170,864 | 171,981 | 170,824 | |||||||
Dividends declared per share of common stock | $ 1.30 | $ 1.27 | $ 1.27 | $ 1.24 | $ 1.24 | $ 2.57 | $ 2.45 | |||||||
Consolidated Balance Sheets June 30, 2024 (In thousands) | ||||||||||
6/30/24 | 3/31/24 | 12/31/23 | 9/30/23 | 6/30/23 | ||||||
Assets | ||||||||||
Investments in real estate | $ 32,673,839 | $ 32,323,138 | $ 31,633,511 | $ 31,712,731 | $ 31,178,054 | |||||
Investments in unconsolidated real estate joint ventures | 40,535 | 40,636 | 37,780 | 37,695 | 37,801 | |||||
Cash and cash equivalents | 561,021 | 722,176 | 618,190 | 532,390 | 924,370 | |||||
Restricted cash | 4,832 | 9,519 | 42,581 | 35,321 | 35,920 | |||||
Tenant receivables | 6,822 | 7,469 | 8,211 | 6,897 | 6,951 | |||||
Deferred rent | 1,190,336 | 1,138,936 | 1,050,319 | 1,012,666 | 984,366 | |||||
Deferred leasing costs | 519,629 | 520,616 | 509,398 | 512,216 | 520,610 | |||||
Investments | 1,494,348 | 1,511,588 | 1,449,518 | 1,431,766 | 1,495,994 | |||||
Other assets | 1,356,503 | 1,424,968 | 1,421,894 | 1,501,611 | 1,475,191 | |||||
Total assets | $ 37,847,865 | $ 37,699,046 | $ 36,771,402 | $ 36,783,293 | $ 36,659,257 | |||||
Liabilities, Noncontrolling Interests, and Equity | ||||||||||
Secured notes payable | $ 134,942 | $ 130,050 | $ 119,662 | $ 109,110 | $ 91,939 | |||||
Unsecured senior notes payable | 12,089,561 | 12,087,113 | 11,096,028 | 11,093,725 | 11,091,424 | |||||
Unsecured senior line of credit and commercial paper | 199,552 | — | 99,952 | — | — | |||||
Accounts payable, accrued expenses, and other liabilities | 2,529,535 | 2,503,831 | 2,610,943 | 2,653,126 | 2,494,087 | |||||
Dividends payable | 227,408 | 222,134 | 221,824 | 214,450 | 214,555 | |||||
Total liabilities | 15,180,998 | 14,943,128 | 14,148,409 | 14,070,411 | 13,892,005 | |||||
Commitments and contingencies | ||||||||||
Redeemable noncontrolling interests | 16,440 | 16,620 | 16,480 | 51,658 | 52,628 | |||||
Alexandria Real Estate Equities, Inc.'s stockholders' equity: | ||||||||||
Common stock | 1,720 | 1,720 | 1,719 | 1,710 | 1,709 | |||||
Additional paid-in capital | 18,284,611 | 18,434,690 | 18,485,352 | 18,651,185 | 18,812,318 | |||||
Accumulated other comprehensive loss | (27,710) | (23,815) | (15,896) | (24,984) | (16,589) | |||||
Alexandria Real Estate Equities, Inc.'s stockholders' equity | 18,258,621 | 18,412,595 | 18,471,175 | 18,627,911 | 18,797,438 | |||||
Noncontrolling interests | 4,391,806 | 4,326,703 | 4,135,338 | 4,033,313 | 3,917,186 | |||||
Total equity | 22,650,427 | 22,739,298 | 22,606,513 | 22,661,224 | 22,714,624 | |||||
Total liabilities, noncontrolling interests, and equity | $ 37,847,865 | $ 37,699,046 | $ 36,771,402 | $ 36,783,293 | $ 36,659,257 | |||||
Funds From Operations and Funds From Operations per Share June 30, 2024 (In thousands)
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The following table presents a reconciliation of net income (loss) attributable to Alexandria's common stockholders, the most directly comparable financial measure presented in accordance with U.S. 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, for the periods below:
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Three Months Ended | Six Months Ended | |||||||||||||
6/30/24 | 3/31/24 | 12/31/23 | 9/30/23 | 6/30/23 | 6/30/24 | 6/30/23 | ||||||||
Net income (loss) attributable to Alexandria's common stockholders – basic and diluted | $ 42,917 | $ 166,886 | $ (91,927) | $ 21,855 | $ 87,260 | $ 209,803 | $ 162,516 | |||||||
Depreciation and amortization of real estate assets | 288,118 | 284,950 | 281,939 | 266,440 | 270,026 | 573,068 | 532,150 | |||||||
Noncontrolling share of depreciation and amortization from consolidated real estate JVs | (31,364) | (30,904) | (30,137) | (28,814) | (28,220) | (62,268) | (56,398) | |||||||
Our share of depreciation and amortization from unconsolidated real estate JVs | 1,068 | 1,034 | 965 | 910 | 855 | 2,102 | 1,714 | |||||||
Gain on sales of real estate | — | (392) | (62,227) | — | (214,810) | (392) | (214,810) | |||||||
Impairment of real estate – rental properties and land | 2,182 | — | 263,982 | 19,844 | 166,602 | 2,182 | 166,602 | |||||||
Allocation to unvested restricted stock awards | (1,305) | (3,469) | (2,268) | (838) | (872) | (4,736) | (2,220) | |||||||
Funds from operations attributable to Alexandria's common stockholders – diluted(1) | 301,616 | 418,105 | 360,327 | 279,397 | 280,841 | 719,759 | 589,554 | |||||||
Unrealized losses (gains) on non-real estate investments | 64,238 | (29,158) | (19,479) | 77,202 | 77,897 | 35,080 | 143,752 | |||||||
Impairment of non-real estate investments | 12,788 | (2) | 14,698 | 23,094 | 28,503 | 22,953 | 27,486 | 22,953 | ||||||
Impairment of real estate | 28,581 | (3) | — | 7,908 | 805 | 1,973 | 28,581 | 1,973 | ||||||
Acceleration of stock compensation expense due to executive officer resignations | — | — | 18,436 | 1,859 | — | — | — | |||||||
Allocation to unvested restricted stock awards | (1,738) | 247 | (472) | (1,330) | (1,285) | (1,528) | (2,164) | |||||||
Funds from operations attributable to Alexandria's common stockholders – diluted, as adjusted | $ 405,485 | $ 403,892 | $ 389,814 | $ 386,436 | $ 382,379 | $ 809,378 | $ 756,068 | |||||||
Refer to "Definitions and reconciliations" in the Supplemental Information for additional details. | |
(1) | Calculated in accordance with standards established by the Nareit Board of Governors. |
(2) | Primarily related to two non-real estate investments in privately held entities that do not report NAV. |
(3) | Primarily related to two potential acquisitions in our Greater Boston market, which aggregated 1.4 million of future development RSF. We initially expected to close these acquisitions after 2024 for an aggregate purchase price of $366.8 million. Our intent for each site included the demolition of existing buildings upon expiration of the existing in-place leases and the development of life science properties. During the three months ended June 30, 2024, we decided to no longer proceed with these acquisitions as a result of the current macroeconomic environment that negatively impacted the financial outlooks for these projects, and recognized this impairment charge. |
Funds From Operations and Funds From Operations per Share (continued) June 30, 2024 (In thousands, except per share amounts)
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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 accordance with GAAP, including our share of amounts from consolidated and unconsolidated real estate joint ventures, to funds from operations per share attributable to Alexandria's common stockholders – diluted, and funds from operations per share attributable to Alexandria's common stockholders – diluted, as adjusted, for the periods below. Per share amounts may not add due to rounding.
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Three Months Ended | Six Months Ended | |||||||||||||
6/30/24 | 3/31/24 | 12/31/23 | 9/30/23 | 6/30/23 | 6/30/24 | 6/30/23 | ||||||||
Net income (loss) per share attributable to Alexandria's common stockholders – diluted | $ 0.25 | $ 0.97 | $ (0.54) | $ 0.13 | $ 0.51 | $ 1.22 | $ 0.95 | |||||||
Depreciation and amortization of real estate assets | 1.50 | 1.48 | 1.48 | 1.40 | 1.42 | 2.98 | 2.80 | |||||||
Gain on sales of real estate | — | — | (0.36) | — | (1.26) | — | (1.26) | |||||||
Impairment of real estate – rental properties and land | 0.01 | — | 1.54 | 0.12 | 0.98 | 0.01 | 0.98 | |||||||
Allocation to unvested restricted stock awards | (0.01) | (0.02) | (0.01) | (0.01) | (0.01) | (0.02) | (0.02) | |||||||
Funds from operations per share attributable to Alexandria's common stockholders – diluted | 1.75 | 2.43 | 2.11 | 1.64 | 1.64 | 4.19 | 3.45 | |||||||
Unrealized losses (gains) on non-real estate investments | 0.37 | (0.17) | (0.11) | 0.45 | 0.46 | 0.20 | 0.84 | |||||||
Impairment of non-real estate investments | 0.08 | 0.09 | 0.13 | 0.17 | 0.13 | 0.16 | 0.13 | |||||||
Impairment of real estate | 0.17 | — | 0.05 | — | 0.02 | 0.17 | 0.02 | |||||||
Acceleration of stock compensation expense due to executive officer resignations | — | — | 0.11 | 0.01 | — | — | — | |||||||
Allocation to unvested restricted stock awards | (0.01) | — | (0.01) | (0.01) | (0.01) | (0.01) | (0.01) | |||||||
Funds from operations per share attributable to Alexandria's common stockholders – diluted, as adjusted | $ 2.36 | $ 2.35 | $ 2.28 | $ 2.26 | $ 2.24 | $ 4.71 | $ 4.43 | |||||||
Weighted-average shares of common stock outstanding – diluted | 172,013 | 171,949 | 171,096 | 170,890 | 170,864 | 171,981 | 170,824 | |||||||
Refer to "Definitions and reconciliations" in the Supplemental Information for additional details. |
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