Alexandria Real Estate Equities, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited consolidated results; dollar amounts are in millions unless noted. Alexandria is a REIT focused on life science, agtech, and technology campuses in major U.S. innovation markets.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $547.8 | $545.0 | $1,537.2 | $1,421.9 |
| Net income attributable to common stockholders | $101.3 | $79.3 | $490.6 | $324.2 |
| Diluted EPS | $0.67 | $0.63 | $3.38 | $2.61 |
| FFO per share, as adjusted (non-GAAP) | $1.95 | $1.83 | $5.80 | $5.46 |
| Same-property NOI growth | 3.0% | — | 4.1% | — |
| Same-property NOI growth, cash basis | 7.1% | — | 7.3% | — |
Q3 operating margin was 70%; adjusted EBITDA margin was 68%. Same-property occupancy averaged 94.8% in Q3 and 96.5% year to date. Company-wide North American operating-property occupancy was 94.4% at quarter-end, or 98.5% excluding vacancy at recently acquired properties.
- Cash flow: Nine-month operating cash flow was $760.6, up from $708.9. Investing activities used $5,433.4, mainly reflecting property purchases and construction; financing activities provided $4,442.8. Cash, cash equivalents, and restricted cash ended at $368.1, down from $597.7 at year-end 2020.
- Debt and liquidity: Debt carrying amounts totaled approximately $9.26 billion, versus $7.56 billion at December 31, 2020. About 92% was fixed-rate; weighted-average debt interest rate was 3.27% and remaining term 11.9 years. Net debt and preferred stock to annualized adjusted EBITDA was 5.8x; fixed-charge coverage was 5.1x. Reported liquidity was approximately $4.05 billion.
- Balance sheet: Total assets were $28.56 billion, compared with $22.83 billion at year-end 2020. No preferred stock was outstanding. The quarterly common dividend declared was $1.12 per share.
Material changes and operating developments
- Revenue increased 0.5% in Q3 and 8.1% year to date. Comparisons include an $89.5 million termination fee in 2020; excluding it, management reported revenue growth of 20.2% for Q3 and 15.4% year to date.
- Q3 net income benefited from $67.1 million of investment income, comprising $81.5 million of realized gains and $14.4 million of unrealized losses. Nine-month investment income was $372.4 million, including $183.3 million of unrealized gains. These investment results are volatile and are not a direct measure of property operations.
- Rental revenue growth reflected acquisitions and projects placed in service, rent increases, and tenant recoveries. Same-property NOI growth was positive, while operating expenses increased, including property taxes, utilities, contract services, and insurance.
- Q3 real estate impairment charges were $42.6 million; nine-month charges were $52.7 million. The nine-month period also included a $67.3 million loss on early debt extinguishment, principally from refinancing $650 million of 4.00% notes due 2024.
- Leasing activity reached a reported record 5.4 million RSF for the first nine months. Renewals and re-leasing produced rental rate increases of 39.4% on a straight-line basis and 22.3% cash basis. The 462,100-RSF Moderna headquarters and R&D facility lease at 325 Binney Street was signed for 15 years.
- The company acquired 76 properties for an aggregate contractual purchase price of $3.9 billion during the nine months. It also completed selected property sales and partial-interest transactions. October 2021 events included acquisitions of two properties for $203.8 million and recapitalizations of two Mission Bay joint ventures.
Guidance, outlook, risks, and unusual items
- Updated 2021 guidance: Diluted EPS of $3.91–$3.93, raised from $3.46–$3.54. FFO per share, as adjusted, was $7.74–$7.76, with the midpoint unchanged at $7.75. Guidance is based on management assumptions and may differ materially from actual results.
- Year-end North American operating occupancy guidance is 93.3%–93.9%, including acquired vacancy; management expected approximately 100 basis points of occupancy growth versus year-end 2020 excluding acquired properties. 2021 same-property NOI growth guidance is 2%–4%, or 4.7%–6.7% cash basis.
- Management forecast 2021 construction spending of approximately $2.11 billion and acquisitions of approximately $4.96 billion at midpoint, funded through operating cash flow, debt, equity, asset sales, and joint-venture capital. Planned real estate dispositions and partial-interest sales were $1.7–$2.7 billion.
- The development pipeline included 4.3 million RSF under construction and 3.4 million RSF of key projects expected to commence construction in the next six quarters; management projected more than $615 million in incremental annual rental revenue from these projects. This outlook depends on leasing, delivery schedules, costs, and capital availability.
- Key risks include COVID-19 impacts, tenant credit and leasing conditions, competition, interest rates and refinancing access, construction cost inflation and supply-chain or labor disruption, development delays, environmental liabilities, cybersecurity, and maintaining REIT status. The filing reported no material change in risk factors other than the updates described, including construction and supply-chain risks.
- Other notable items: a $1.5 billion commercial-paper program had $750 million outstanding at quarter-end; remaining forward equity sales were expected to settle in Q4 2021. Management reported 99.6% of October billings collected as of the report date. S&P raised the corporate rating outlook to BBB+/Positive in October 2021.
Important facts for investors to verify
- Reconcile GAAP earnings growth with investment gains, impairments, debt-extinguishment costs, and the prior-year termination fee; assess the recurring property-level trend separately.
- Review the assumptions behind 2021 EPS and adjusted FFO guidance, including occupancy, same-property growth, leasing spreads, construction costs, and capital needs.
- Track acquired-property vacancy and lease-up against management’s estimate of more than $59 million in potential annual rental revenue when fully leased.
- Monitor debt and liquidity, including commercial-paper refinancing, equity settlements, planned asset sales, and the leverage target of no more than 5.2x net debt and preferred stock to adjusted EBITDA for Q4 annualized.
- Assess whether development commitments, cost escalation, supply availability, and project schedules affect expected yields and delivery dates.
FFO, adjusted FFO, NOI, adjusted EBITDA, and related ratios are non-GAAP measures as defined by the company and should be considered alongside GAAP results and cash flows.