ARE
$165.04
Alexandria Real Estate Equities
($.37)
(.22%)
Earnings Details
1st Quarter March 2020
Monday, April 27, 2020 4:10:00 PM
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Summary

Alexandria Real Estate Lowers Guidance but Remains Above Estimates

Alexandria Real Estate Equities (ARE) reported 1st Quarter March 2020 earnings of $1.82 per share on revenue of $439.9 million. The consensus earnings estimate was $1.82 per share. Revenue grew 22.6% on a year-over-year basis.

The company said it expects 2020 funds from operations of $7.25 to $7.35 per share. The company's previous guidance was FFO of $7.28 to $7.48 per share and the current consensus FFO estimate is $7.15 per share for the year ending December 31, 2020.

Alexandria Real Estate Equities Inc is a real estate investment trust. The Company engages in science-driven cluster formation through ownership, operation, management & selective redevelopment & development of properties in office/laboratory space.

Results
Reported Earnings
$1.82
Earnings Whisper
-
Consensus Estimate
$1.82
Reported Revenue
$439.9 Mil
Revenue Estimate
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Alexandria Real Estate Equities, Inc. Reports: 1Q20 Revenues of $439.9 million, Up 22.6% Over 1Q19; 1Q20 Net Income per Share - Diluted of $0.14; 1Q20 FFO per Share - Diluted, As Adjusted, of $1.82; and Operational Excellence and Strong and Flexible Balan

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 equal to 4.4x









Value-creation pipeline of new Class A development and redevelopment projects
   as a percentage of gross investments in real estate


 

1Q20

Current projects 68% leased/negotiating


6%

Income-producing/potential cash flows/covered land play(1)


5%

Land


2%




(1)

Includes projects that have existing buildings that are generating or can generate operating cash flows. Also includes development rights associated with existing operating campuses.

Key capital events

  • In January 2020, we completed $1.0 billion of forward equity sales agreements to sell an aggregate of 6.9 million shares of our common stock (including the exercise of an underwriters' option) at a public offering price of $155.00 per share, before underwriting discounts. In March 2020, we settled 3.4 million shares from our forward equity sales agreements and received proceeds of $500.0 million. As of April 27, 2020, 3.5 million shares of our common stock remain outstanding under forward equity sales agreements, for which we expect to receive proceeds of $524.3 million to be further adjusted as provided in the sales agreements. We expect to settle the remaining outstanding forward equity sales agreements in 2020.
  • Over the trailing five quarters, we have completed the issuances of $3.4 billion in unsecured senior notes, with a weighted-average interest rate of 3.95% and a weighted-average maturity as of March 31, 2020, of 15.4 years, including our March 2020 offering of $700.0 million of unsecured senior notes payable at an interest rate of 4.90%, due in 2030, for net proceeds of $691.6 million.
  • In February 2020, we entered into a new "at-the-market" common stock offering program ("ATM program"), which allows us to sell up to an aggregate of $850.0 million of our common stock. As of March 31, 2020, we have available $843.7 million remaining under our ATM program.
  • In March 2020, our unconsolidated joint venture at 1655 and 1725 Third Street, in which we own a 10% interest, located in Mission Bay/SoMa, refinanced an existing variable-rate secured construction loan with a fixed-rate loan with terms as follows:



100% at Joint Venture Level


Amended Agreement


Change




Aggregate commitments


$600.0 million


Increase of $225.0 million




Maturity date


March 2025


Extended by 45 months




Interest rate


Fixed at 4.50%


Previously LIBOR + 3.70%









  • In April 2020, we closed an additional unsecured senior line of credit with $750.0 million of available commitments. The new unsecured senior line of credit matures on April 14, 2022, and bears interest at LIBOR + 1.05%. Pursuant to the terms of the agreement, we are required to repay the facility, if applicable, and reduce commitments available upon receiving the net proceeds from certain qualifying events, including new corporate debt and 50% of proceeds from the issuance of common stock, as provided in the credit agreement. Including our existing $2.2 billion unsecured senior line of credit, commitments available under our unsecured credit facilities aggregate $2.95 billion.

Investments

  • Our investments in publicly traded companies and privately held entities aggregate a carrying amount of $1.1 billion, including an adjusted cost basis of $739.0 million and unrealized gains of $384.5 million, as of March 31, 2020.
  • We recognized an investment loss during 1Q20 of $21.8 million, comprising $15.1 million in realized gains, $19.8 million in impairments related to privately held non-real estate investments, and $17.1 million in unrealized losses.

Industry leadership, strategic initiatives, and corporate responsibility

  • In March 2020, the Navy SEAL Foundation honored Joel S. Marcus, our executive chairman and founder, and the company with the 2020 Navy SEAL Foundation Patriot Award, which highlights our contributions and unwavering support for the Naval Special Warfare community. We have proudly supported the Navy SEAL Foundation in its mission to provide immediate and ongoing support and assistance to the Naval Special Warfare community and their families since 2010.
  • In January 2020, Alexandria Venture Investments, our strategic venture capital arm, was recognized for a third consecutive year as the most active biopharma investor by new deal volume by Silicon Valley Bank in its "2020 Healthcare Investments and Exits Report." Alexandria's venture activity provides us with, among other things, mission-critical data and knowledge on innovations and trends.
  • In January 2020, we announced our first national $100,000 AgTech Innovation Prize competition to recognize startup and early-stage agtech and foodtech companies that demonstrate innovative approaches to addressing challenges related to agriculture, food, and nutrition.
  • In February 2020, Alexandria LaunchLabs® at the Alexandria Center® at One Kendall Square earned the Fitwel Impact Award for the highest Fitwel certification of all time, as well as the highest score in 2019 for a commercial interior space, in the Fitwel 2020 Best in Building Health awards program. This marks the second consecutive year Alexandria LaunchLabs – Cambridge has held the record for Fitwel's top certification score. The award recognizes our commitment to supporting high levels of health, wellness, and productivity through the design, construction, and operation of our best-in-class buildings and spaces.

Subsequent events

  • In April 2020, we completed the sale of a partial interest in properties at 9808 and 9868 Scranton Road in our Sorrento Mesa submarket, aggregating 219,628 RSF, to the existing SD Tech by Alexandria consolidated real estate joint venture, of which we own 50.0%. We received proceeds of $51.1 million for the 50% interest in the properties that our joint venture partner acquired through the joint venture. We continue to control and consolidate this joint venture; therefore, we accounted for this sale as an equity transaction with no gain or loss recognized in earnings.
  • We had a pending acquisition of an operating tech office property for which our revised economic projections declined from our initial underwriting. In April 2020, we recognized an impairment charge of $10 million to reduce the carrying amount of this pre-acquisition deposit to zero dollars, concurrently with submission of our notice to terminate the transaction.

(1)

Represents an illustrative subset of our over 60 tenants focused on COVID-19-related efforts, with some of these companies working on multiple efforts that span testing, treatment, and/or vaccine development.

Alexandria Fighting COVID-19 on Multiple Fronts
March 31, 2020

Alexandria and its tenants are at the forefront of fighting COVID-19

Effective diagnostics, therapies, and vaccines are desperately needed to combat the global COVID-19 pandemic. By maintaining essential business operations across our campuses, Alexandria has enabled several of our life science tenants to continue mission-critical COVID-related research and development. The heroic work being done by so many of our tenants and campus community members to help test for, treat, and prevent COVID-19, as well as provide medical supplies and protective equipment to neighboring hospitals, is profound and inspiring. We are currently tracking over 60 tenants across our cluster markets focused on COVID programs.

Improving testing quality and capacity

Abbott Laboratories, Color Genomics, Laboratory Corporation of America Holdings, Quest Diagnostics, Roche, Thermo Fisher Scientific Inc., and others are working tirelessly to expand the capacity to determine who actively has COVID-19, who has been exposed to, and who has developed immunity against the virus. The availability of widespread screening and serological testing of this nature is critical for a safe and healthy return to society.

Advancing new and repurposed therapies

Over 140 experimental drug treatments and vaccines are being studied in over 250 clinical trials around the world, a substantial number of which are sponsored by our tenants and investment portfolio companies.

Headlining efforts across our tenant base include:

  • Gilead Sciences, Inc.'s remdesivir is in late-stage studies for the treatment of moderate and severe COVID-19 patients. Though variable outcomes have been reported, additional Phase III study results are expected in mid- to late May, which, if positive, will likely form the basis for FDA approval.
  • Adaptive Biotechnologies Corporation is partnered with Amgen to identify and develop therapeutic antibodies from the blood of patients who are actively fighting or have recently recovered from COVID-19.
  • Vir Biotechnology, Inc., in collaboration with GlaxoSmithKline, is utilizing its neutralizing antibody platform to identify antibodies that could be used as therapeutic or preventative options to combat COVID-19.
  • Applied Therapeutics, Inc.'s lead clinical-stage asset is now being studied in COVID-19 patients with acute lung inflammation and cardiomyopathy, two of the predominant causes of COVID-19-associated mortality.

Many other Alexandria tenants and investments, including AbbVie Inc., Amgen Inc., Eli Lilly and Company, Novartis AG, Pfizer Inc., are similarly endeavoring to develop novel therapies and repurpose existing and investigational drugs to provide near-term treatments for moderate and severe COVID-19 patients and those at highest risk.

Developing preventative vaccines

A prophylactic vaccine represents the effective end of this global COVID-19 pandemic. Our tenant Moderna, Inc., in collaboration with the National Institute of Allergy and Infectious Diseases, has fast-tracked its mRNA-based vaccine into the clinic. The U.S. Biomedical Advanced Research and Development Authority (BARDA) has committed up to $483 million to support the clinical development and manufacturing scale-up of Moderna's mRNA vaccine candidate, mRNA-1273, to help expedite FDA approval over the next nine to twelve months and facilitate the supply of tens of millions of doses per month thereafter.

Other tenants, including Arcturus Therapeutics, GlaxoSmithKline, Johnson & Johnson, Medicago Inc., Novavax, Inc., Pfizer Inc., and Sanofi, are leveraging their vaccine development expertise and technology platforms to similarly bring vaccine candidates into clinical trials, with the goal of expediting the delivery of a safe and effective vaccine to the public in 2021.

Alexandria's strategic initiatives and philanthropic efforts to fight COVID-19

Through industry thought leadership, impactful strategic initiatives, and philanthropic efforts, Alexandria's best-in-class team has made significant and meaningful contributions to help mitigate the impact of, and ultimately end, the global COVID-19 pandemic.

Alexandria Summit

In March 2020, the Alexandria Summit®, in collaboration with Mark McClellan, MD, PhD, and the Duke-Margolis Center for Health Policy, hosted a virtual Policy Forum webinar aimed at driving strategies and policies for achieving the widespread availability of rapid, efficient COVID-19 diagnostic testing capabilities necessary to reduce social distancing and physical isolation measures and mitigate the associated impact on the overall well-being of Americans and on the economic health of the nation.

Mission-critical personal protective equipment

Working hand in hand with key partners across our global life science network, the Alexandria team sourced and donated over 35,000 pieces of personal protective equipment to 12 hospitals and others in communities in need, including New York City, Boston, Seattle, San Diego, Dayton, and Los Angeles, for medical professionals working on the front lines in the fight against COVID-19.

Philanthropic giving

Through strategic philanthropic giving and the Company's matching gift programs, Alexandria donated, in aggregate, over $700,000 to several highly impactful national organizations performing important work to support a myriad of efforts in communities affected by this global public health emergency, including the following:

  • Feeding AmericaCOVID-19 Response Fund: the fund from the nation's largest hunger-relief organization with a network of 200 member food banks, is supporting the food banks that help people facing hunger during the school closures, job disruptions, and health risks, during the COVID-19 pandemic.
  • First Responders Children's Foundation COVID-19 Emergency Response Fund: providing support to first responders on the front lines of the COVID-19 pandemic, and their families who are enduring financial hardship due to the outbreak.

Additionally, Alexandria provided mission-critical support to several non-profit organizations in some of the nation's COVID-19 hot spots, including the following:

  • Robin Hood's COVID-19 Relief Fund from New York City's largest poverty-fighting organization, is providing immediate, short-term grants to support non-profits that are on the front lines in the fight against COVID-19 so they can move swiftly to serve affected communities.
  • Relief Opportunities for All Restaurants (ROAR) is providing financial relief directly to employees of restaurants who have lost their jobs as a result of the COVID-19 pandemic.
  • City of Cambridge Disaster Fund for COVID-19 is providing emergency assistance in partnership with non-profit organizations to individuals and families in Cambridge who are experiencing extreme financial hardship caused by the COVID-19 crisis.

Acquisitions
March 31, 2020
(Dollars in thousands)












Square Footage


Unlevered Yields




Property


Submarket/Market


Date of

Purchase


Number of
Properties


Operating

Occupancy


Future
Development


Operating With
Future
Development/
Redevelopment


Operating


Initial
Stabilized


Initial
Stabilized
(Cash)


Purchase Price


























Completed 1Q20:
























275 Grove Street


Route 128/
  
Greater Boston


1/10/20


1


99%




509,702


8.0%


6.7%


$

226,512


601, 611, and 651 Gateway
  Boulevard (51% interest in
  consolidated JV)(1)


South San Francisco/
  
San Francisco


1/28/20


3


73%(2)


260,000


300,010


475,993


(1)


(1)



(1)


3330 and 3412 Hillview Avenue


Greater Stanford/
  
San Francisco


2/5/20


2


100%




106,316


7.6%


4.2%



105,000


9808 and 9868 Scranton Road(3)


Sorrento Mesa/
  
San Diego


1/10/20


2


88%




219,628


7.3%


6.8%



102,250

(3)

Other


Various




3


38%


35,000


71,021


180,960


N/A


N/A



50,817








11


79%


295,000


371,031


1,492,599









484,579


























Subsequent to 1Q20:
























975-1075 Commercial Street and
  915-1063 Old County Road


Greater Stanford/

  San Francisco


4/14/20



N/A


700,000


26,738



(4)


(4)



113,250


Pending acquisitions


Various




1




510,188


42,300



N/A


N/A



52,171


2020 acquisitions






12




1,505,188


440,069


1,492,599








$

650,000


2020 guidance range



















$600,000 - $700,000


























Mercer Mega Block


Lake Union/Seattle


TBD(5)



N/A


800,000




(4)


(4)


$

143,500


























(1)

Refer to "Completion of Acquisitions with Significant Value-Creation Opportunities in Key Submarkets" in this Earnings Press Release for additional details on this transaction.

(2)

Includes 203,492 RSF of vacancy as of March 31, 2020. Refer to "Occupancy" in our Supplemental Information for additional details.

(3)

In April 2020, we completed the sale of a partial interest in properties at 9808 and 9868 Scranton Road to the existing SD Tech by Alexandria consolidated real estate joint venture, of which we own 50.0%. We received proceeds of $51.1 million for the 50% interest in the properties that our joint venture partner acquired through the joint venture. We continue to control and consolidate this joint venture; therefore, we accounted for this sale as an equity transaction with no gain or loss recognized in earnings.

(4)

We expect to provide total estimated costs and related yields for development and redevelopment projects in the future, subsequent to the commencement of construction.

(5)

We are diligently working through various long-lead time due diligence items, with certain deadlines extending into early 2021. We are working toward completion of all due diligence items as soon as possible.

Guidance
March 31, 2020
(Dollars in millions, except per share amounts)

Guidance for 2020 has been updated to reflect our current view of existing market conditions and assumptions for the year ending December 31, 2020, including the estimated impact stemming from the COVID-19 pandemic on our financial and operating results. Key updates to our 2020 guidance include the following:

  • A projected reduction in funds from operations, per share – diluted, as adjusted, primarily consisting of:
    • a reduction of eight cents, or one percent, in projected revenues from our retail tenancy and transient/short-term parking over the remaining three quarters of 2020, for which we expect the impact to be weighted toward 2Q20 (as of March 31, 2020, only 0.8% of our annual rental revenue was related to retail tenants); and
    • approximately net neutral impact related to (i) higher interest costs related to the issuance of our $700.0 million unsecured senior notes payable in March 2020 and (ii) updated timing of deliveries of our current development and redevelopment projects as a result COVID-19-related construction disruptions, including various executive orders restricting construction activities, offset by (iii) an improvement in EBITDA from our core operations, including early lease renewals and re-leasing of space; and
  • A reduction in our forecasted remaining required sources of capital from real estate dispositions, partial interest sales, and common equity from $925 million to zero dollars as a result of a reduction in construction and acquisitions by an aggregate $940 million at the midpoints of each respective guidance range. 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.

Refer to the following tables for complete details on our updated 2020 guidance assumptions compared to our prior 2020 guidance assumptions disclosed on February 3, 2020. There can be no assurance that actual amounts will not be materially higher or lower than these expectations. Also, refer to our discussion of "forward-looking statements" on page 11 of this Earnings Press Release for additional details.

Projected 2020 Earnings per Share and Funds From Operations per Share Attributable to Alexandria's Common Stockholders – Diluted




As of 4/27/20


As of 2/3/20


Earnings per share(1)


$1.69 to $1.79


$2.17 to $2.37


Depreciation and amortization of real estate assets



5.15




5.15



Impairment of real estate – rental properties(2)



0.06






Allocation to unvested restricted stock awards



(0.04)




(0.04)



Funds from operations per share


$6.86 to $6.96


$7.28 to $7.48


Unrealized losses on non-real estate investments



0.14






Impairment of non-real estate investments



0.16






Impairment of real estate(3)



0.10






Allocation to unvested restricted stock awards



(0.01)






Funds from operations per share, as adjusted(1)


$7.25 to $7.35


$7.28 to $7.48


Midpoint


$7.30


$7.38




As of 4/27/20


As of 2/3/20


Key Assumptions


Low


High


Low


High


Occupancy percentage in North America as of December 31, 2020(4)


94.8%


95.4%


95.4%


96.0%


Lease renewals and re-leasing of space:










Rental rate increases


28.0%


31.0%


28.0%


31.0%


Rental rate increases (cash basis)


14.0%


17.0%


14.0%


17.0%


Same property performance:










Net operating income increase


1.0%


3.0%


1.5%


3.5%


Net operating income increase (cash basis)


4.5%


6.5%


5.0%


7.0%


Straight-line rent revenue(5)


$

98


$

108


$

113


$

123


General and administrative expenses


$

121


$

126


$

121


$

126


Capitalization of interest


$

102


$

112


$

108


$

118


Interest expense


$

185


$

195


$

169


$

179




(1)

Excludes unrealized gains or losses after March 31, 2020, that are required to be recognized in earnings and are excluded from funds from operations per share, as adjusted.

(2)

Includes a $7.6 million impairment on our investment in a recently developed retail property held by our unconsolidated real estate joint venture.

(3)

Includes eight cents related to an impairment charge of $10 million recognized in April 2020, related to a pending acquisition of an operating tech office property for which our revised economic projections declined from our initial underwriting, and we reduced the carrying amount of this pre-acquisition deposit to zero dollars, concurrently with submission of our notice to terminate the transaction.

(4)

Occupancy guidance has been reduced by 60 bps at the midpoint of the range and includes approximately 50% of our RSF related to our leased retail space as of March 31, 2020.

(5)

The projected reduction in straight-line rent revenue comprises: (i) about half related to the updated timing of deliveries of our current development and redevelopment projects, as a result of COVID-19-related construction distruptions, including various executive orders restricting construction activities; (ii) roughly one-third from reductions to rental income (related to deferred rents) for specific tenants, including retail tenants, and a general allowance for a pool of deferred rent balances which we do not expect to collect in full; and (iii) the remaining change is related to a reduction in projected acquisitions, including the termination of an operating tech office property acquisition in April 2020.







2020 Guidance

Key Credit Metrics


As of 4/27/20


As of 2/3/20

Net debt and preferred stock to Adjusted EBITDA – 4Q20 annualized


Less than or equal to 5.3x


Less than or equal to 5.2x

Fixed-charge coverage ratio – 4Q20 annualized


Greater than or equal to 4.4x


Greater than 4.5x








As of 4/27/20


As of 2/3/20

Key Sources and Uses of Capital


Range


Midpoint


Certain

Completed Items


Range


Midpoint

Sources of capital:

















Net cash provided by operating activities after dividends


$

185


$

225


$

205





$

200


$

240


$

220

Incremental debt


355


315



335


see below


400


360


380

Real estate dispositions, partial interest sales, and common 
  equity (see pages 8 and 36 for additional information)(1)


970


1,170



1,070


$

1,076

(1)


1,850


2,050


1,950

Total sources of capital


$

1,510


$

1,710


$

1,610





$

2,450


$

2,650


$

2,550

Uses of capital:

















Construction (see page 43 for additional information)


$

910


$

1,010


$

960





$

1,550


$

1,650


$

1,600

Acquisitions (see page 8 for additional information)(2)


600


700



650


$

598



900


1,000


950

Total uses of capital


$

1,510


$

1,710


$

1,610





$

2,450


$

2,650


$

2,550

Incremental debt (included above):

















Issuance of unsecured senior notes payable


$

700


$

700


$

700


$

700



$

550


$

650


$

600

$3.0 billion unsecured senior lines of credit and other


(345)


(385)



(365)





(150)


(290)


(220)

Incremental debt


$

355


$

315


$

335





$

400


$

360


$

380




















(1)

In January 2020, we completed $1.0 billion of forward equity sales agreements to sell an aggregate of 6.9 million shares of our common stock (including the exercise of an underwriters' option) at a public offering price of $155.00 per share, before underwriting discounts. In March 2020, we settled 3.4 million shares from our forward equity sales agreements and received proceeds of $500.0 million. As of April 27, 2020, 3.5 million shares of our common stock remain outstanding under forward equity sales agreements, for which we expect to receive proceeds of $524.3 million to be further adjusted as provided in the sales agreements. We expect to settle the remaining outstanding forward equity sales agreements in 2020. In April 2020, we completed the sale of a partial interest in properties at 9808 and 9868 Scranton Road in our Sorrento Mesa submarket to the existing SD Tech by Alexandria consolidated real estate joint venture, of which we own 50.0%. We received proceeds of $51.1 million for the 50% interest in the properties that our joint venture partner acquired through the joint venture.

(2)

Excludes the formation of a consolidated joint venture with Boston Properties, Inc. through non-cash contributions of real estate. Refer to "2020 Acquisitions" in this Earnings Press Release for additional details.

 

Earnings Call Information and About the Company
March 31, 2020

We will host a conference call on Tuesday, April 28, 2020, 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 first quarter ended March 31, 2020. 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, April 28, 2020. The replay number is (877) 344-7529 or (412) 317-0088, and the access code is 10139230.

Additionally, a copy of this Earnings Press Release and Supplemental Information for the first quarter ended March 31, 2020, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2020q1.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, vice president – corporate communications, at (626) 578-0777; or Paula Schwartz, managing director of Rx Communications Group, at (917) 322-2216.

About the Company

Alexandria Real Estate Equities, Inc. (NYSE:ARE), an S&P 500® urban office real estate investment trust ("REIT"), is the first, longest-tenured, and pioneering owner, operator, and developer uniquely focused on collaborative life science, technology, and agtech campuses in AAA innovation cluster locations, with a total market capitalization of $24.3 billion as of March 31, 2020, and an asset base in North America of 41.5 million square feet ("SF"). The asset base in North America includes 28.8 million RSF of operating properties and 2.1 million RSF of Class A properties undergoing construction, 6.5 million RSF of near-term and intermediate-term development and redevelopment projects, and 4.1 million SF of 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. Alexandria has a longstanding and proven track record of developing Class A properties clustered in urban life science, technology, and agtech 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, technology, and agtech 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 2020 earnings per share attributable to Alexandria's common stockholders – diluted, 2020 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," 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 (including the impact of the ongoing COVID-19 pandemic), 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.

For additional discussion of the risks and other potential impacts posed by the outbreak of the COVID-19 pandemic and uncertainties we, our tenants, and the global and national economies face as a result, see the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our quarterly report on Form 10-Q filed with the SEC on April 27, 2020.

Alexandria®, Lighthouse Design® logo, Building the Future of Life-Changing Innovation™, Alexandria Center®, Alexandria Technology Square®, Alexandria Summit®, Alexandria Technology Center®, Alexandria Innovation Center®, LaunchLabs®, and GradLabs™ are 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
March 31, 2020
(Dollars in thousands, except per share amounts)




Three Months Ended



3/31/20


12/31/19


9/30/19


6/30/19


3/31/19

Revenues:











Income from rentals


$

437,605



$

404,721



$

385,776



$

371,618



$

354,749


Other income


2,314



3,393



4,708



2,238



4,093


Total revenues


439,919



408,114



390,484



373,856



358,842













Expenses:











Rental operations


129,103



121,852



116,450



105,689



101,501


General and administrative


31,963



29,782



27,930



26,434



24,677


Interest


45,739



45,493



46,203



42,879



39,100


Depreciation and amortization


175,496



140,518



135,570



134,437



134,087


Impairment of real estate


2,003



12,334








Loss on early extinguishment of debt






40,209





7,361


Total expenses


384,304



349,979



366,362



309,439



306,726













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


(3,116)

(1)


4,777



2,951



1,262



1,146


Investment (loss) income


(21,821)

(2)


152,667



(63,076)



21,500



83,556


Gain on sales of real estate




474








Net income (loss)


30,678



216,053



(36,003)



87,179



136,818


Net income attributable to noncontrolling interests


(11,913)



(13,612)



(11,199)



(8,412)



(7,659)


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


18,765



202,441



(47,202)



78,767



129,159


Dividends on preferred stock






(1,173)



(1,005)



(1,026)


Preferred stock redemption charge










(2,580)


Net income attributable to unvested restricted stock awards


(1,925)



(2,823)



(1,398)



(1,432)



(1,955)


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


$

16,840



$

199,618



$

(49,773)



$

76,330



$

123,598













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











Basic


$

0.14



$

1.75



$

(0.44)



$

0.68



$

1.11


Diluted


$

0.14



$

1.74



$

(0.44)



$

0.68



$

1.11













Weighted-average shares of common stock outstanding:











Basic


121,433



114,175



112,120



111,433



111,054


Diluted


121,785



114,974



112,120



111,501



111,054













Dividends declared per share of common stock


$

1.03



$

1.03



$

1.00



$

1.00



$

0.97



(1)    Includes a $7.6 million impairment on our investment in a recently developed retail property held by our unconsolidated real estate joint venture.

(2)    Refer to "Investments" of our Supplemental Information for additional details.

 

Consolidated Balance Sheets
March 31, 2020
(In thousands)




3/31/20


12/31/19


9/30/19


6/30/19


3/31/19

Assets











Investments in real estate


$

15,832,182



$

14,844,038



$

13,618,280



$

12,872,824



$

12,410,350


Investments in unconsolidated real estate joint ventures


325,665



346,890



340,190



334,162



290,405


Cash and cash equivalents


445,255



189,681



410,675



198,909



261,372


Restricted cash


43,116



53,008



42,295



39,316



54,433


Tenant receivables


14,976

(1)


10,691



10,668



9,228



9,645


Deferred rent


663,926



641,844



615,817



585,082



558,103


Deferred leasing costs


269,458



270,043



252,772



247,468



241,268


Investments


1,123,482



1,140,594



990,454



1,057,854



1,000,904


Other assets


983,875



893,714



777,003



694,627



653,726


Total assets


$

19,701,935



$

18,390,503



$

17,058,154



$

16,039,470



$

15,480,206













Liabilities, Noncontrolling Interests, and Equity











Secured notes payable


$

347,136



$

349,352



$

351,852



$

354,186



$

356,461


Unsecured senior notes payable


6,736,999



6,044,127



6,042,831



5,140,914



5,139,500


Unsecured senior line of credit


221,000



384,000



343,000



514,000




Unsecured senior bank term loan








347,105



347,542


Accounts payable, accrued expenses, and other liabilities


1,352,554



1,320,268



1,241,276



1,157,417



1,171,377


Dividends payable


129,981



126,278



115,575



114,379



110,412


Total liabilities


8,787,670



8,224,025



8,094,534



7,628,001



7,125,292













Commitments and contingencies






















Redeemable noncontrolling interests


12,013



12,300



12,099



10,994



10,889













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











7.00% Series D cumulative convertible preferred stock






57,461



57,461



57,461


Common stock


1,243



1,208



1,132



1,120



1,112


Additional paid-in capital


9,336,949



8,874,367



7,743,188



7,581,573



7,518,716


Accumulated other comprehensive loss


(15,606)



(9,749)



(11,549)



(11,134)



(10,712)


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


9,322,586



8,865,826



7,790,232



7,629,020



7,566,577


Noncontrolling interests


1,579,666



1,288,352



1,161,289



771,455



777,448


Total equity


10,902,252



10,154,178



8,951,521



8,400,475



8,344,025


Total liabilities, noncontrolling interests, and equity


$

19,701,935



$

18,390,503



$

17,058,154



$

16,039,470



$

15,480,206



(1)    As of April 24, 2020, our tenant receivables balance was $7.3 million, representing our lowest balance since 2012.

 

Funds From Operations and Funds From Operations per Share
March 31, 2020
(In thousands)


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 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:




Three Months Ended



3/31/20


12/31/19


9/30/19


6/30/19


3/31/19

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


$

16,840



$

199,618



$

(49,773)



$

76,330



$

123,598


Depreciation and amortization of real estate assets(1)


172,628



137,761



135,570



134,437



134,087


Noncontrolling share of depreciation and amortization from consolidated real estate JVs


(15,870)



(10,176)



(8,621)



(6,744)



(5,419)


Our share of depreciation and amortization from unconsolidated real estate JVs


2,643



2,702



1,845



973



846


Gain on sales of real estate




(474)








Impairment of real estate – rental properties


7,644

(2)


12,334








Assumed conversion of 7.00% Series D cumulative convertible preferred stock








1,005



1,026


Allocation to unvested restricted stock awards


(847)



(1,809)





(1,445)



(2,054)


Funds from operations attributable to Alexandria's common stockholders – diluted(1)


183,038



339,956



79,021



204,556



252,084


Unrealized losses (gains) on non-real estate investments


17,144



(148,268)



70,043



(11,058)



(72,206)


Impairment of non-real estate investments


19,780

(3)


9,991



7,133






Impairment of real estate


2,003










Loss on early extinguishment of debt






40,209





7,361


Loss on early termination of interest rate hedge agreements






1,702






Preferred stock redemption charge










2,580


Removal of assumed conversion of 7.00% Series D cumulative convertible preferred stock








(1,005)



(1,026)


Allocation to unvested restricted stock awards


(591)



1,760



(1,002)



179



990


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


$

221,374



$

203,439



$

197,106



$

192,672



$

189,783




(1)

Calculated in accordance with standards established by the Nareit Board of Governors. 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.

(2)

Relates to our investment in a recently developed retail property held by our unconsolidated real estate joint venture.

(3)

Primarily relates to two privately held non-real estate investments.

 

Funds From Operations and Funds From Operations per Share (continued)
March 31, 2020
(In thousands, except per share amounts)


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.




Three Months Ended



3/31/20


12/31/19


9/30/19


6/30/19


3/31/19

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


$

0.14



$

1.74



$

(0.44)



$

0.68



$

1.11


Depreciation and amortization of real estate assets


1.31



1.13



1.14



1.15



1.17


Impairment of real estate – rental properties


0.06

(1)


0.11








Allocation to unvested restricted stock awards


(0.01)



(0.02)







(0.02)


Funds from operations per share attributable to Alexandria's common stockholders – diluted(1)


1.50



2.96



0.70



1.83



2.26


Unrealized losses (gains) on non-real estate investments


0.14



(1.29)



0.62



(0.10)



(0.65)


Impairment of non-real estate investments


0.16

(1)


0.09



0.06






Impairment of real estate


0.02










Loss on early extinguishment of debt






0.36





0.07


Loss on early termination of interest rate hedge agreements






0.02






Preferred stock redemption charge










0.02


Allocation to unvested restricted stock awards




0.01



(0.01)





0.01


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


$

1.82



$

1.77



$

1.75



$

1.73



$

1.71













Weighted-average shares of common stock outstanding(2) for calculations of:











Earnings per share – diluted


121,785



114,974



112,120



111,501



111,054


Funds from operations – diluted, per share


121,785



114,974



112,562



112,077



111,635


Funds from operations – diluted, as adjusted, per share


121,785



114,974



112,562



111,501



111,054



(1)    Refer to footnotes on the previous page for additional details.

(2)    Refer to "Weighted-Average Shares of Common Stock Outstanding – Diluted" in the "Definitions and Reconciliations" of our Supplemental Information for additional details.

 

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