Alexandria Real Estate Equities, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. Unaudited results for the quarter and six months ended June 30, 2022. Alexandria is a REIT focused on life science, agtech, and technology properties in major U.S. innovation markets. At quarter-end it reported 436 properties and 41.1 million rentable square feet of operating properties in North America.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $643.8 million | $509.6 million | $1.259 billion | $989.5 million |
| Net income attributable to common stockholders | $269.3 million | $380.6 million | $118.5 million | $388.5 million |
| Diluted EPS | $1.67 | $2.61 | $0.74 | $2.74 |
| Adjusted FFO per diluted share (non-GAAP) | $2.10 | $1.93 | $4.15 | $3.84 |
| Operating margin | 70% | 72% | 70% | 72% |
| Adjusted EBITDA margin (non-GAAP) | 70% | 73% | 70% | 73% |
Q2 rental income rose 26.1% year over year. Growth reflected acquisitions and development projects placed in service, as well as higher same-property rents and occupancy. Same-property NOI increased 7.5% (10.2% cash basis) for the quarter and 7.7% (8.6% cash basis) year to date. North American operating-property occupancy was 94.6%, or 98.4% excluding vacancy at recently acquired properties. Q2 leasing totaled 2.28 million square feet; rental-rate increases on renewed or re-leased space were 45.4% including straight-line rent and 33.9% cash basis.
GAAP earnings comparisons were affected by volatile investment valuations and property-sale gains. Q2 included a $39.5 million investment loss, versus $304.3 million of investment income in Q2 2021, and $214.2 million of real estate-sale gains. First-half 2022 included $279.8 million of investment losses and $214.2 million of real estate-sale gains; first-half 2021 included $305.3 million of investment income and a $67.3 million debt-extinguishment loss. Adjusted FFO excludes specified investment and financing items and is a non-GAAP measure, not a substitute for GAAP earnings or operating cash flow.
Cash flow, balance sheet, and capital
- Six-month operating cash flow was $530.1 million, compared with $451.8 million a year earlier. Investing cash outflow was $3.096 billion; financing cash inflow was $2.669 billion.
- Cash, cash equivalents, and restricted cash totaled $517.7 million at June 30, 2022. Total assets were $33.244 billion and total equity was $20.453 billion.
- Debt was approximately $10.27 billion net of deferred financing costs, including $10.10 billion of unsecured senior notes and $150.0 million of commercial paper. Alexandria reported 98.3% fixed-rate debt, a 13.6-year weighted-average remaining term, and no debt maturities before 2025. Net debt and preferred stock to Adjusted EBITDA was 5.5x on a quarter-annualized basis.
- Reported liquidity was $5.48 billion, including credit-facility availability, cash, publicly traded investments, construction-loan availability, and expected proceeds from unsettled forward equity sales. The company had $150 million of commercial paper outstanding and no borrowings on its $3.0 billion unsecured credit line.
- Alexandria issued $1.8 billion of senior notes in February and repaid $195 million of secured notes in April, recognizing a $3.3 million early-extinguishment loss. It expected to settle forward equity agreements representing 9.0 million shares for approximately $1.7 billion of net proceeds in the second half of 2022.
- The declared Q2 dividend was $1.18 per share. The twelve-month dividend through June 30 was $4.60 per share, up 6% year over year.
Outlook, risks, and unusual items
- Updated 2022 guidance, issued July 25, projected diluted EPS of $2.14–$2.20, FFO per share of $6.28–$6.34, and adjusted FFO per share of $8.38–$8.44. The EPS outlook includes the real estate-sale gain; adjusted FFO excludes specified non-operating items. Management’s key assumptions included year-end North American operating occupancy of 95.2%–95.8% and same-property NOI growth of 6%–8% (6.8%–8.8% cash basis).
- Management’s 2022 capital plan showed midpoint construction spending of $3.0 billion and acquisition spending of $2.65 billion; it reduced planned construction spending for the remainder of the year. The filing also describes a reduced acquisition outlook. Guidance depends on leasing, project delivery, capital markets, asset sales, and other assumptions, and actual results may differ materially.
- A 7.8-million-square-foot pipeline of current and near-term projects was 78% leased or negotiating. Management projected more than $665 million of incremental annual rental revenue, primarily from Q3 2022 through Q2 2025. Project timing, costs, and lease-up remain execution risks; remaining contracted construction costs were approximately $3.9 billion.
- Management identified inflation, rising interest rates, construction-cost and supply-chain pressure, tenant credit and retention, economic and geopolitical volatility, COVID-19 impacts, cyber risk, and real-estate valuation risk. Although many leases pass operating costs through to tenants, management cautioned that tenants may not be able to absorb cost increases; rent escalations may not fully offset inflation.
- On July 1, co-CEO Stephen A. Richardson tendered his resignation effective July 31. The filing anticipated approximately $7.2 million of accelerated stock-compensation expense in Q3 2022; updated guidance also reflected the executive departure.
- Alexandria sold 12 Greater Boston properties for $334.4 million and recognized a $202.3 million gain; it also sold land for $47.8 million and recognized an $11.9 million gain. Partial-interest sales at 100 Binney Street and 300 Third Street were accounted for as equity transactions, not earnings gains, because Alexandria retained control.
Important facts for investors to verify
- Whether occupancy and leasing at recently acquired properties improve as anticipated, and whether the development pipeline delivers on projected timing, costs, and rent.
- Whether the $1.7 billion expected forward-equity proceeds are received as forecast, including the share issuance and resulting dilution.
- How investment fair-value movements, asset dispositions, and non-GAAP adjustments affect reported earnings and adjusted FFO.
- Whether inflation, interest rates, construction commitments, and tenant cost pressures change liquidity, project returns, or the dividend outlook.
- Execution of management’s 2022 guidance and capital plan; the filing presents capital spending and acquisition outlook figures in multiple contexts, so investors should check the detailed guidance tables.