Alexandria Real Estate Equities, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. Although the request metadata refers to 2016 Q4, this filing is an annual report; selected fourth-quarter figures are noted separately below.
Business context
Alexandria is a REIT focused on office, laboratory, and technology campuses serving life science and technology tenants in major North American innovation clusters. At year-end, its North American portfolio included 199 properties and approximately 19.9 million rentable square feet of operating properties and development or redevelopment projects, plus 5.3 million square feet of future development capacity. Operating-property occupancy was 96.6%. Investment-grade tenants generated 49% of annual rental revenue; no individual tenant represented more than 4.1%.
Financial performance and key metrics
| Metric | 2016 | 2015 | Change or context |
|---|---|---|---|
| Total revenue | $921.7 million | $843.5 million | Up 9.3% |
| Net income (loss) attributable to common stockholders | $(151.1) million; $(1.99) per share | $116.9 million; $1.63 per share | Loss largely reflects impairments and preferred-stock redemption charge |
| Adjusted FFO attributable to common stockholders | $421.3 million; $5.51 per share | $375.8 million; $5.25 per share | Up 12.1% in total and 5.0% per share; non-GAAP measure |
| Net operating income | $643.3 million | $582.2 million | Up 10.5%; same-property NOI increased 4.7%, or 6.0% cash basis |
| Cash provided by operating activities | $392.5 million | $342.6 million | Up $49.9 million |
| Cash used in investing activities | $(1.497) billion | $(722.4) million | Higher acquisitions and development spending |
| Total debt | $4.164 billion | $3.936 billion | Year-end balance |
| Liquidity | $2.164 billion | Not stated here | Included $1.622 billion line-of-credit availability, remaining construction-loan commitments, securities, and cash/restricted cash |
Fourth-quarter 2016 revenue was $249.2 million; the net loss attributable to common stockholders was $25.1 million, or $0.31 per share. Year-end cash and cash equivalents were $125.0 million, with an additional $16.3 million of restricted cash. Net debt to Adjusted EBITDA was 6.1x on an annualized fourth-quarter basis and 6.6x for the trailing year; fourth-quarter annualized fixed-charge coverage was 3.8x. Approximately 96% of debt was fixed-rate or hedged. Common dividends declared were $3.23 per share for 2016, up 6% from 2015.
Changes versus the prior year and unusual items
- Revenue growth reflected acquisitions and newly delivered development and redevelopment properties, as well as higher same-property occupancy and rental rates. Year-end operating occupancy was 96.6%, versus 97.2% in 2015.
- GAAP results swung to a common-stockholder loss. The company recorded $209.3 million of real-estate impairments, including $194.3 million related to exiting Asia, along with impairments on North American assets and abandoned development costs. It also recorded a $61.3 million preferred-stock redemption charge and $3.2 million of debt-extinguishment losses.
- Adjusted FFO per share rose to $5.51 from $5.25. This non-GAAP measure excludes specified items, including impairments and the preferred-stock redemption charge; it should not be treated as a substitute for GAAP earnings or operating cash flow.
- Acquisitions included One Kendall Square for $725 million and Torrey Ridge Science Center for $182.5 million. The company also acquired the remaining 49% interest in the Uber-related San Francisco joint venture for $90.1 million.
- Capital raising was substantial: common-stock issuance generated $1.432 billion in financing cash flows, including settlement of forward equity sales. Alexandria repurchased 6.0 million Series D preferred shares for $206.8 million.
Outlook, management commentary, risks, and contingencies
Management described 2016 as a year of internal and external growth, citing leasing demand, rent increases, and a highly leased development pipeline. For 2017, guidance was diluted EPS of $1.49–$1.69 and diluted adjusted FFO per share of $5.90–$6.10. Assumptions included year-end operating occupancy of 96.6%–97.2%, same-property NOI growth of 1.5%–3.5% (5.5%–7.5% cash basis), and renewal/re-leasing rent increases of 18.5%–21.5% (6.5%–9.5% cash basis). These are forward-looking estimates, not guarantees.
Management targeted year-end 2017 net debt to Adjusted EBITDA of 5.5x–6.0x and fixed-charge coverage above 4.0x. Planned 2017 construction spending was $815–$915 million. The company expected to fund capital needs through operating cash flow, debt, asset sales, joint-venture capital, and potentially additional common equity. It also anticipated repurchasing $60–$130 million of Series D preferred stock, subject to market conditions.
Principal risks include tenant credit deterioration or reduced life-science and technology funding; concentration in a limited number of geographic clusters; development delays, cost overruns, and lease-up risk; interest-rate and refinancing exposure; reliance on capital markets and equity issuance; environmental liabilities associated with laboratory uses; and regulatory or tax changes affecting the company or its tenants. The filing reported no pending legal proceedings expected to have a material adverse effect. Management and the independent auditor concluded that internal control over financial reporting was effective; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Review the impairment details and valuation assumptions, especially the $194.3 million charge associated with the Asia exit and the remaining China assets held for sale.
- Track execution, leasing, costs, and delivery dates for the development pipeline, including the expected 2017 NOI contribution and projected construction spending.
- Assess leverage and funding plans against actual operating cash flow, planned dispositions and equity issuance, debt maturities, and the 2017 leverage targets.
- Monitor tenant credit quality, upcoming lease expirations, and continued demand and funding conditions in life science and technology markets.
- Compare reported GAAP earnings with adjusted FFO and verify the effects of impairments, preferred-stock transactions, acquisitions, and share issuance when assessing per-share performance.