Alexandria Real Estate Equities, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited results. Alexandria is a REIT focused on life science, technology, and agtech properties and campuses in major innovation markets.
Financial and operating performance
- Revenue: Q3 total revenue was $545.0 million, up 39.6% year over year; nine-month revenue was $1.422 billion, up 26.6%. Growth primarily reflects acquisitions and projects placed in service. The Q3 figure includes an $86.2 million net lease-termination fee.
- Profit and per-share results: Q3 net income attributable to common stockholders was $79.3 million, or $0.63 diluted per share, compared with a $49.8 million loss, or $0.44 loss per share, in Q3 2019. Nine-month common-stockholder net income was $324.2 million, or $2.61 diluted per share, versus $150.4 million, or $1.35 per share.
- REIT performance measures: Adjusted FFO per diluted share was $1.83 for Q3 versus $1.75, and $5.46 for nine months versus $5.19. These are non-GAAP measures and should be considered alongside GAAP results. Q3 adjusted EBITDA was $318.1 million, with a 67% adjusted EBITDA margin, compared with $275.0 million and 68% a year earlier.
- Property operations: Same-property NOI increased 2.9% in Q3 and 2.3% for nine months; cash-basis growth was 4.9% and 4.8%, respectively. North American operating-property occupancy was 94.9%, or 97.7% excluding vacancy at recently acquired properties. Management reported 99.7% collection of rent and tenant recoveries for Q3.
- Cash flow and investment: Nine-month operating cash flow was $708.9 million, up from $505.6 million. Investing activities used $2.865 billion, including $1.990 billion of real estate purchases and $1.072 billion of property additions. Financing activities provided $2.399 billion. Cash, cash equivalents, and restricted cash totaled $485.0 million at quarter-end.
- Debt and liquidity: Debt totaled $7.823 billion, including $7.231 billion of unsecured senior notes and $250.0 million of commercial paper; 97% was fixed-rate. Net debt to adjusted EBITDA was 5.8x on a quarter-annualized basis and 6.0x on a trailing-12-month basis. Reported liquidity was $3.118 billion at quarter-end, or approximately $3.918 billion pro forma for the October 6 credit-line amendment. The line was increased to $3.0 billion and extended to January 2026.
- Balance sheet: Total assets were $21.911 billion and total equity was $12.324 billion at September 30, compared with $18.391 billion and $10.154 billion at December 31, 2019.
Changes versus the prior comparable period
- Revenue and NOI increased substantially, mainly due to acquisitions and new development and redevelopment properties entering service. Same-property growth was more moderate.
- Reported earnings benefited from a $166.2 million nine-month investment gain, largely unrealized; the comparable 2019 amount was $42.0 million. Q3 2020 investment income was only $3.3 million, including $17.4 million of realized gains offset by $14.0 million of unrealized losses.
- Nine-month depreciation and amortization rose to $520.4 million from $404.1 million, reflecting portfolio growth. Interest expense increased to $134.1 million from $128.2 million.
- Nine-month operating cash flow improved, while investing outflows increased by $514.1 million year over year, primarily from higher real estate purchases and additions.
Guidance, management commentary, and notable items
- Updated 2020 outlook: Management projected diluted EPS of $3.09–$3.11, FFO per diluted share of $8.30–$8.32, and adjusted FFO per diluted share of $7.29–$7.31. Adjusted FFO midpoint remained $7.30. Guidance assumes year-end operating occupancy of 94.8%–95.4% and same-property NOI growth of 1%–3% (4.5%–6.5% cash basis); actual results may differ materially.
- Capital and pipeline: Management forecast approximately $1.35 billion of 2020 construction spending and $1.0–$1.3 billion of real estate dispositions and partial-interest sales. Current and pre-leased near-term projects totaling 4.1 million RSF were 74% leased or in negotiation. The filing notes construction timing may be affected by COVID-19 precautions and disruptions.
- Unusual Q3 items: Termination of Pinterest’s planned lease at 88 Bluxome Street generated an $89.5 million fee, less $3.3 million of related costs, for $86.2 million net income from rentals. Alexandria also recorded $52.8 million of debt-extinguishment losses, $7.7 million of real-estate impairment, and $4.5 million of accelerated stock compensation following an executive officer’s resignation.
- Other impairments and financing: Nine-month real-estate impairment expense was $22.9 million, including a $10 million pre-acquisition deposit write-off after a transaction was terminated; a separate $7.6 million impairment was recorded on an unconsolidated joint-venture investment. The company also recorded $24.5 million of impairments on private-company investments. It issued $1.0 billion of notes due 2033 at 1.875% and used part of the proceeds to refinance $500 million of 3.90% notes due 2023.
- COVID-19 and other risks: Management described continued strong rent collections but cautioned that the pandemic could affect tenants’ ability to pay, leasing demand, capital access, and construction schedules. Risks also include volatility and valuation uncertainty in venture investments, tenant-specific life-science research, regulatory and funding risks, rising property costs, and potential foreign-exchange and interest-rate impacts. The filing reported no material changes to previously disclosed risks other than the COVID-19 update.
Important facts for investors to verify
- How much future operating performance depends on the one-time lease-termination fee and volatile investment gains, versus recurring property income.
- Whether reported occupancy, collections, and rent growth persist as acquired vacancy is leased and pandemic-related conditions evolve.
- Whether development, redevelopment, leasing, and disposition plans meet stated timing and cost assumptions.
- Debt leverage, refinancing access, liquidity after planned acquisitions and construction, and the effect of common-stock issuance and remaining forward equity settlements.
- Potential further losses or valuation changes in private investments, joint ventures, and properties subject to impairment estimates.