Alexandria Real Estate Equities, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; unaudited. Alexandria is a REIT focused on life science, technology, and agtech properties in major innovation markets. Results reflect portfolio growth from acquisitions and completed development projects, alongside COVID-19 uncertainty.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $437.0 million | $373.9 million | $876.9 million | $732.7 million |
| Net income attributable to common stockholders | $226.6 million | $76.3 million | $244.8 million | $200.2 million |
| Diluted EPS | $1.82 | $0.68 | $1.99 | $1.80 |
| Adjusted diluted FFO per share | $1.81 | $1.73 | $3.63 | $3.44 |
| Operating margin | 72% | 72% | 71% | 72% |
| Adjusted EBITDA margin | 69% | 69% | 69% | 69% |
- Q2 net income included $171.7 million of unrealized gains on non-real-estate investments; investment income totaled $184.7 million. The gain was largely market-value driven and does not represent recurring property operations. Adjusted FFO excludes these investment gains.
- Same-property NOI increased 0.6% in Q2 and 1.6% for the first half; cash-basis growth was 2.5% and 4.5%, respectively. Q2 growth was affected by temporary vacancy and reduced parking, retail, and amenity activity.
- Six-month operating cash flow was $393.7 million, versus $308.3 million a year earlier. Investing cash outflow was $1.397 billion; financing cash inflow was $1.003 billion. Cash, cash equivalents, and restricted cash totaled $241.5 million at period end.
- At June 30, total debt was $7.523 billion, including $7.083 billion fixed-rate debt; weighted-average interest rate was 3.91% and remaining term 9.9 years. Net debt was $7.334 billion. Management reported no debt maturities until 2023, apart from scheduled amortization.
- Liquidity was $3.69 billion at June 30, including credit-line availability, cash and restricted cash, publicly traded investments, and remaining January forward-equity proceeds. Pro forma for July forward-equity agreements, management cited approximately $4.2 billion.
- Total assets were $20.069 billion; total liabilities were $9.000 billion. Common dividend declared for Q2 was $1.06 per share. The FFO payout ratio was 59% for the quarter.
Material changes versus the prior period
- Revenue rose 16.9% in Q2 and 19.7% in the first half, primarily from acquisitions and properties placed into service. Same-property Q2 rental revenue dipped 0.2%, while non-same-property revenue expanded substantially.
- Common-stockholder net income and EPS rose sharply, principally because of investment gains; adjusted FFO per share increased more modestly, up from $1.73 to $1.81 in Q2 and from $3.44 to $3.63 for the first half.
- Debt increased from $6.777 billion at year-end 2019 to $7.523 billion at June 30, reflecting additional notes and credit-line borrowing. The company issued $700 million of 2030 notes and added a $750 million unsecured credit line.
- Six-month real estate acquisitions totaled approximately $699.8 million across 15 properties. Real estate investments increased to $16.281 billion from $14.844 billion at year-end.
Outlook, commentary, risks, and unusual items
- Updated guidance issued July 27, 2020: diluted EPS of $3.00–$3.08 and adjusted FFO per share of $7.26–$7.34 for 2020. Guidance is subject to market and operating uncertainties and excludes future unrealized investment gains or losses from adjusted FFO.
- Updated 2020 capital plans included construction spending of $1.2–$1.5 billion, acquisitions of $1.6–$2.0 billion, and real estate dispositions and partial-interest sales of $1.0–$1.5 billion. Management said disposition proceeds would help fund construction and acquisitions. These are forward-looking expectations, not completed results.
- COVID-19 caused a $1.6 million specific rent-income adjustment and a $3.5 million general deferred-rent allowance in the first half; no further specific adjustment was needed in Q2. Management reported 99.4% of June rent and recoveries collected and 99% of July rent and recoveries collected as of July 24.
- COVID-19 risks include tenant payment or funding difficulties, reduced demand, construction or delivery delays, and adverse capital-market or property-value changes. Construction had resumed at active projects by the report date, but management warned that renewed restrictions and social-distancing measures could affect schedules.
- Unusual charges included $15.2 million of real-estate impairment expense, mainly a $10 million deposit write-off after terminating a pending acquisition; a separate $7.6 million impairment of an unconsolidated retail joint-venture investment; and $24.5 million of impairments on private-company investments for the first half.
- The company’s investment portfolio was $1.318 billion at June 30, with $556.2 million of unrealized gains over cost. Future investment valuations may be volatile. Other disclosed exposures include variable-rate debt, LIBOR transition, tenant and industry risks, and long-term construction and lease commitments.
Important facts for investors to verify
- How much reported earnings growth came from nonrecurring or market-sensitive investment gains, and how adjusted FFO reconciles to GAAP results.
- Whether collections, deferred-rent allowances, tenant credit quality, and occupancy remain consistent with management’s reported figures.
- Progress against 2020 EPS and adjusted FFO guidance, including the assumptions for acquisitions, dispositions, development spending, and leasing.
- Actual settlement and dilution from forward-equity agreements, and the resulting liquidity and debt levels.
- Development-project costs, pre-leasing, delivery schedules, and any renewed COVID-19-related disruptions or impairments.