Alexandria Real Estate Equities, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Alexandria is a REIT focused on life science, agtech, and technology properties in North American innovation clusters.
Financial and operating results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $615.1 million | $479.8 million |
| Net income (loss) attributable to common stockholders | $(151.7) million; $(0.96) per diluted share | $6.1 million; $0.04 per diluted share |
| Net operating income (NOI) | $433.7 million | $342.0 million |
| NOI, cash basis | $377.8 million | $302.5 million |
| FFO per diluted share, as adjusted | $2.05 | $1.91 |
| Net cash provided by operating activities | $191.1 million | $212.1 million |
| Adjusted EBITDA margin | 71% | 73% |
- Revenue increased 28.2%. Management attributed growth primarily to acquisitions and development and redevelopment projects placed into service after Q1 2021. Same-property NOI rose 7.6% (7.3% cash basis).
- The GAAP loss was driven mainly by a $240.3 million investment loss, including $263.4 million in unrealized losses, largely from declines in publicly traded and NAV-reported investments. Adjusted FFO excludes these unrealized investment losses and other specified items; it is a non-GAAP measure.
- At March 31, total assets were $32.8 billion and total liabilities were $12.7 billion. Cash and cash equivalents were $775.1 million; restricted cash was $95.1 million. Debt carrying amounts were $10.3 billion: $208.9 million secured and $10.1 billion unsecured senior notes. No commercial paper or unsecured line borrowings were outstanding.
- Debt was predominantly fixed-rate, with a 3.51% weighted-average rate and 13.8-year weighted-average remaining term. Net debt and preferred stock to Adjusted EBITDA was 5.5x on a quarter-annualized basis and 5.9x on a trailing-12-month basis. Liquidity was reported at $5.7 billion.
- Investing activities used $2.49 billion, including $1.90 billion of real estate purchases and $666.4 million of additions to real estate. Financing activities provided $2.75 billion. Cash, cash equivalents, and restricted cash increased to $870.2 million from $415.2 million at year-end.
Material changes and business developments
- Alexandria acquired 29 properties for an aggregate contractual purchase price of approximately $1.84 billion. Acquisitions included significant future development and redevelopment opportunities.
- It sold a 70% interest in 100 Binney Street for $713.2 million, implying a roughly $1.02 billion valuation for the property. Alexandria retained control, accounted for the transaction as an equity transaction, and recognized no gain in earnings.
- Leasing volume was 2.46 million RSF. Rental rate increases on renewals and re-leasing were 32.2% including straight-line rent, or 16.5% cash basis; excluding specified short-term Bristol Myers Squibb renewals, increases were 39.8% and 23.2%, respectively.
- North American operating-property occupancy was 94.7%, or 98.6% excluding vacancy at recently acquired properties. The development pipeline under construction or expected to start within six quarters totaled 8.0 million RSF, was 77% leased or negotiating, and was expected to generate more than $665 million in incremental annual rental revenue, primarily from Q2 2022 through Q1 2025.
Outlook, risks, and unusual items
- Updated 2022 guidance, issued April 25, was diluted EPS of $1.08–$1.18, FFO per diluted share of $6.71–$6.81, and adjusted FFO per diluted share of $8.33–$8.43. Adjusted FFO guidance includes a $1.67-per-share adjustment for Q1 unrealized investment losses. The prior January guidance was EPS of $2.65–$2.85 and FFO of $8.26–$8.46; adjusted FFO was $8.26–$8.46.
- Other guidance included year-end operating occupancy of 95.2%–95.8%, same-property NOI growth of 5.9%–7.9% (6.5%–8.5% cash basis), and 2022 construction spending of approximately $2.7–$3.2 billion. Management targeted year-end quarter-annualized leverage of no more than 5.1x and fixed-charge coverage of at least 5.1x.
- Management expected 2022 capital sources and uses of $5.2–$6.7 billion each, including $1.3–$2.6 billion of property dispositions and partial-interest sales, $2.25–$3.25 billion of common equity, and $2.5–$3.5 billion of acquisitions. These plans depend on capital-market conditions, operating performance, project deliveries, and leasing.
- Inflation, rising interest rates, construction-cost escalation, labor and supply-chain constraints, and the Russia-Ukraine conflict were highlighted as risks. Although most leases have expense-recovery provisions and approximately 97% include rent escalations, management cautioned that tenant ability to absorb costs, rent increases below inflation, and higher construction or financing costs could adversely affect results. The filing also discusses COVID-19, tenant-industry conditions, cyber risk, and REIT qualification risks.
- Subsequent to quarter-end, Alexandria repaid $195.0 million of secured notes due 2024 and recorded a $3.3 million early-extinguishment loss. It also expected to sell five held-for-sale properties, with a gain expected on the sale of three Rockville ground-lease properties.
Important facts for investors to verify
- Whether the $263.4 million unrealized investment loss is a temporary valuation decline or signals further impairment risk; review investment mix, valuation methods, and future marks.
- Progress toward 2022 guidance, particularly leasing, occupancy, project costs and delivery schedules, and the targeted improvement in leverage and coverage.
- Execution of planned asset sales and forward-equity settlements, including their effect on funding needs, dilution, and capital deployment.
- Whether inflation, tenant cost pressures, interest-rate changes, or supply-chain constraints affect tenant credit, construction budgets, expected yields, and dividend capacity.
- The distinction between GAAP earnings, cash flows, and non-GAAP measures such as FFO, adjusted FFO, NOI, and Adjusted EBITDA when evaluating performance and liquidity.