Alexandria Real Estate Equities, Inc. — Q1 2021 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2021, compared with Q1 2020. Alexandria is a REIT focused on life science, agtech, and technology real estate in major innovation markets. At quarter-end it reported 360 North American operating properties, 33.9 million rentable square feet, and 94.5% occupancy; excluding vacancy at recently acquired properties, occupancy was 98.0%.
Key financial metrics
- Revenue: $479.8 million, up 9.1% year over year. Rental income was $478.7 million, up 9.4%.
- Profit: Net income was $25.5 million versus $30.7 million. Net income attributable to common stockholders was $6.1 million, or $0.04 per diluted share, versus $16.8 million, or $0.14.
- Operating performance: Net operating income was $342.0 million, up 10.0%; same-property NOI increased 4.4%, or 6.1% on a cash basis. Operating margin was 71%; Adjusted EBITDA was $349.7 million, with a 69% margin.
- REIT performance measures: Adjusted FFO was $263.0 million, or $1.91 per diluted share, versus $221.4 million, or $1.82, in Q1 2020. The FFO payout ratio was 60%.
- Cash flow: Operating activities provided $212.1 million versus $191.3 million. Investing activities used $2.44 billion, primarily for property acquisitions and real estate additions; financing activities provided $2.16 billion. Cash, cash equivalents, and restricted cash totaled $534.4 million at quarter-end.
- Debt and liquidity: Total debt was $8.54 billion; all debt was fixed-rate, with a 3.54% weighted-average interest rate and 13.0-year weighted-average remaining term. Cash net of debt was not reported as a headline measure; the company reported net debt and preferred stock to annualized quarterly Adjusted EBITDA of 5.8x. Liquidity was $4.32 billion. No debt matured before 2024, and there were no quarter-end borrowings under the credit line or commercial paper program.
- Dividends and equity: The company declared $1.09 per common share for the quarter. Common shares outstanding were 145.7 million at March 31, up from 136.7 million at year-end 2020.
Material changes versus Q1 2020
- Revenue growth reflected acquired properties and development projects placed into service, as well as rent increases. Same-property rental revenue rose 2.5%; lower retail-related and transient parking revenue continued to reflect pandemic effects.
- Common-stockholder net income fell despite higher revenue, mainly because Q1 2021 included a $67.3 million early debt-extinguishment loss and $46.3 million of unrealized investment losses. Q1 2020 included $19.8 million of non-real-estate investment impairment and $9.6 million of real-estate impairment.
- Adjusted FFO per share increased to $1.91 from $1.82. The company acquired 25 properties for an aggregate contractual purchase price of approximately $1.9 billion and placed three fully leased projects totaling 376,475 RSF into service.
- Net operating cash flow increased, while investing cash use rose substantially with the acquisition program. The company raised equity and issued long-term debt to fund growth and refinance debt.
Outlook, management commentary, risks, and unusual items
- Updated 2021 guidance: Diluted EPS of $1.58–$1.68 and adjusted diluted FFO per share of $7.68–$7.78. The prior guidance was $2.14–$2.34 EPS and $7.60–$7.80 adjusted FFO; the revised EPS range reflects, among other items, Q1 investment marks and the debt-refinancing charge. Management projected year-end North American operating occupancy of 95.3%–95.9%, same-property NOI growth of 1.5%–3.5% (4.3%–6.3% cash basis), and 2021 construction spending of approximately $1.74 billion.
- Management expected $210–$250 million of operating cash flow after dividends and distributions, and $1.3–$1.5 billion of real-estate dispositions and partial-interest sales in 2021. It targeted year-end annualized net debt leverage of no more than 5.2x and fixed-charge coverage of at least 4.8x.
- The company issued $1.75 billion of senior notes in February at a weighted-average rate of 2.49% and maturity of 20.4 years; it used proceeds in part to refinance $650 million of 4.00% notes due 2024, recording the $67.3 million extinguishment loss. Equity issuance generated $1.4 billion of proceeds during the quarter. Additional forward equity proceeds were expected in 2021.
- Management cited strong leasing and tenant collections: 1.68 million RSF of leasing activity, with reported rental-rate increases of 36.2% (17.4% cash basis) on renewed or re-leased space. It reported 99.4% of April billings collected as of the filing date. Recent acquisitions contributed 1.2 million RSF of vacancy, much of which management expected to lease up primarily over the next two quarters.
- Risks include continued or renewed COVID-19 disruption, tenant and industry conditions, construction delays and cost changes, access to capital and refinancing, real-estate and investment valuations, interest-rate and foreign-exchange exposure, and the ability to execute acquisitions, development, leasing, and asset sales. The filing also notes potential environmental obligations and the transition from LIBOR; management said its credit line was expected to transition to SOFR after June 30, 2023, absent an earlier amendment.
- Subsequent events included April acquisitions totaling $327.5 million and the sale of a 70% interest in 213 East Grand Avenue for $301 million. Alexandria retained control, so the transaction was recorded as an equity transaction rather than a gain on sale.
Important facts for investors to verify
- Whether recently acquired vacancy is leased on the expected timeline and occupancy reaches the updated year-end range.
- Whether development and redevelopment projects meet planned leasing, delivery, cost, yield, and construction-spending assumptions; remaining contracted construction costs were approximately $1.5 billion.
- Whether forecast asset sales, equity issuance, and other funding sources are completed as planned and leverage reaches management’s year-end targets.
- How investment portfolio fair-value changes and the debt-refinancing charge affect GAAP earnings versus adjusted FFO and other non-GAAP measures.
- Whether pandemic-related effects, tenant credit conditions, and market risks alter leasing, collections, cash flows, or guidance.