Alexandria Real Estate Equities, Inc. — Q1 2020 Form 10-Q
Business context and reporting period. Alexandria is a REIT focused on life science, technology, and agtech properties in major U.S. innovation markets. This unaudited report covers the three months ended March 31, 2020; comparisons are with Q1 2019 unless stated otherwise.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $439.9 million | $358.8 million | Up 22.6% |
| Net income | $30.7 million | $136.8 million | Down 77.6% |
| Net income attributable to common stockholders; diluted EPS | $16.8 million; $0.14 | $123.6 million; $1.11 | Lower, largely reflecting investment results |
| Adjusted FFO attributable to common stockholders; diluted per share | $221.4 million; $1.82 | $189.8 million; $1.71 | Up 16.7% and 6.4%, respectively |
| Net cash from operating activities | $191.3 million | $136.7 million | Up $54.5 million |
| Net cash used in investing activities | $833.6 million | $734.3 million | Greater investment in acquisitions and real estate additions |
| Net cash from financing activities | $889.7 million | $640.8 million | Up $248.9 million |
Revenue growth reflected acquired properties and development/redevelopment projects placed in service. Same-property NOI increased 2.4% (6.1% cash basis); total NOI rose 20.8%. The company reported a 71% operating margin and 68% adjusted EBITDA margin, compared with 72% and 70%, respectively, a year earlier.
GAAP earnings included a $21.8 million investment loss, including $19.8 million of impairments primarily on two private-company investments, and a $7.6 million impairment of an unconsolidated joint-venture investment. Q1 2019 included $83.6 million of investment income, including substantial unrealized gains. Q1 2020 also included $2.0 million of real estate deal-cost impairment. Interest expense was $45.7 million, versus $39.1 million.
Balance sheet, debt, and liquidity
- At March 31, 2020, total assets were $19.70 billion; real estate investments were $15.83 billion. Cash and cash equivalents were $445.3 million, with restricted cash of $43.1 million.
- Debt carrying amounts were $347.1 million secured notes, $6.737 billion unsecured senior notes, and $221.0 million drawn on the $2.2 billion unsecured credit line. Total debt was approximately $7.31 billion; 97% was fixed rate. Weighted-average debt maturity was 10.3 years, with no scheduled maturity until 2023.
- Liquidity was approximately $3.28 billion at quarter-end, including undrawn credit-line availability, cash, publicly traded investments, and remaining forward-equity proceeds. An additional $750 million credit facility closed in April, bringing reported liquidity to approximately $4.03 billion.
- Net debt to adjusted EBITDA was 5.5x on a quarter-annualized basis and 6.0x on a trailing-12-month basis. The common dividend declared was $1.03 per share for the quarter.
Material changes, outlook, and risks
- COVID-19 led to $5.0 million of rental-income reductions/allowances in Q1 where collection of future rents was considered not probable. By April 24, the company reported collecting 98.4% of April rent and recoveries and tenant receivables of $7.3 million; it cautioned that the pandemic’s ultimate effects remained difficult to predict.
- Management’s April 27, 2020 guidance projected diluted EPS of $1.69–$1.79 and adjusted diluted FFO per share of $7.25–$7.35 for 2020. The adjusted FFO midpoint was reduced from $7.38 to $7.30, primarily reflecting an expected eight-cent impact from retail and transient parking revenue declines. Retail was less than 1% of Q1 revenue, but construction disruption, tenant credit, and broader economic effects remained uncertainties.
- 2020 construction-spending guidance was cut from $1.6 billion to a $960 million midpoint; acquisition guidance fell from $950 million to $650 million. Management reduced planned uses of capital and said remaining 2020 dispositions, partial-interest sales, and equity issuance were no longer required in its revised capital plan midpoint.
- Development projects under construction totaled approximately 2.9 million RSF and were 61% leased and 68% leased/negotiating. Construction pauses and delays could affect completion and occupancy timing. Some leasing activity paused; April leasing volume was reported significantly lower through April 24.
- Subsequent events included a $10 million April impairment of a deposit on a terminated property acquisition, a $113.3 million land acquisition, and a $51.1 million partial-interest sale accounted for as equity financing with no gain or loss.
Most important facts for investors to verify
- Whether rent collections, tenant credit quality, and leasing recover as pandemic disruptions evolve.
- Whether revised occupancy, construction, acquisition, and adjusted FFO guidance is achieved, including any further project delays or impairments.
- How development spending, equity issuance, asset sales, and debt financing affect leverage, liquidity, and dividend coverage.
- Whether investment valuations and impairment charges materially affect GAAP earnings; adjusted FFO excludes specified investment and other items and is not a GAAP measure.
- Future occupancy and lease-up at recently acquired properties and the South San Francisco joint venture campus.