Alexandria Real Estate Equities, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited consolidated results. Alexandria is a REIT focused on life science, agtech, and technology properties in major U.S. innovation markets.
Financial and operating highlights
| Metric | Q2 2021 | Six months 2021 | Prior-year comparison |
|---|---|---|---|
| Total revenue | $509.6 million | $989.5 million | Up 16.6% and 12.8%, respectively |
| Net income attributable to common stockholders | $380.6 million; diluted EPS $2.61 | $388.5 million; diluted EPS $2.74 | Q2: $226.6 million and $1.82 EPS; six months: $244.8 million and $1.99 EPS |
| Adjusted FFO attributable to common stockholders | $282.3 million; $1.93 per diluted share | $545.2 million; $3.84 per diluted share | Q2: $225.0 million and $1.81 per share; six months: $446.4 million and $3.63 per share |
| Net cash from operating activities | Not separately stated for the quarter | $451.8 million | Six-month 2020: $393.7 million |
| Cash used in investing activities | Not separately stated for the quarter | $4.14 billion | Six-month 2020: $1.40 billion |
| Debt and liquidity at June 30 | Debt carrying value approximately $8.84 billion; cash, cash equivalents, and restricted cash $357.6 million; reported liquidity $4.46 billion | Debt carrying value was approximately $7.56 billion and cash plus restricted cash $597.7 million at December 31, 2020 |
GAAP net income includes substantial investment gains: investment income was $304.3 million in Q2 and $305.3 million for the first half, including unrealized gains of $244.0 million and $197.8 million, respectively. Adjusted FFO excludes specified investment gains and other items, so it provides a different view of property operations. Q2 net operating income (NOI) was $365.7 million, up 16.8%; same-property NOI grew 3.7% (7.8% cash basis). Six-month same-property NOI rose 4.4% (7.4% cash basis). Q2 operating margin was 72% and adjusted EBITDA margin was 69%.
Material changes and capital position
- Growth in rent revenue reflected acquisitions and recently delivered development and redevelopment projects, as well as rent increases on renewals and re-leasing. Six-month rental revenue increased 12.9%; same-property rental revenue increased 3.3%.
- Leasing was strong: Q2 activity totaled 1.93 million rentable square feet (RSF), a company quarterly record. Renewed or re-leased space achieved rental-rate increases of 42.4% including straight-line rent, or 25.4% cash basis.
- North American operating-property occupancy was 94.3%; excluding vacancy at recently acquired properties, management reported 98.1%. Tenant collections remained strong, with 99.4% of July billings collected as of the report date.
- Investing outflows rose sharply with $2.95 billion of real estate purchases and $1.00 billion of additions to real estate in the first half. Financing cash flow included $2.27 billion of common-stock issuance proceeds.
- At June 30, debt was 97% fixed rate, with a 12.5-year weighted-average remaining term. Net debt and preferred stock to adjusted EBITDA was 5.8x on an annualized-quarter basis; fixed-charge coverage was 4.9x. There were no debt maturities before 2024, according to management.
- February issuance of $1.75 billion of senior notes funded, in part, refinancing of $650 million of 4.00% notes due 2024; the refinancing generated a $67.3 million early-extinguishment loss in the first half. The reported debt weighted-average interest rate was 3.43%.
Outlook, risks, and notable items
- 2021 guidance, updated July 26: diluted EPS of $3.46–$3.54; FFO per diluted share of $8.95–$9.03; adjusted FFO per diluted share of $7.71–$7.79. Guidance assumes same-property NOI growth of 2.0%–4.0% (4.7%–6.7% cash basis), and year-end operating occupancy of 94.3%–94.9%. Management targets year-end annualized net debt/adjusted EBITDA of no more than 5.2x and fixed-charge coverage of at least 5.0x. The filing cautions actual results may differ materially.
- Management forecast 2021 construction spending of approximately $1.91 billion and acquisitions of $4.46–$5.46 billion. Expected 2021 real estate dispositions and partial-interest sales were $1.7–$2.2 billion. The company expected $210–$250 million of operating cash flow after dividends and distributions.
- The development pipeline included 3.4 million RSF under construction and 7.7 million RSF of near- and intermediate-term projects; management projected more than $545 million of incremental annual rental revenue from projects under construction and expected to commence construction. These are projections, not realized results.
- Management expected to complete the $815 million One Rogers Street/One Charles Park acquisition in December 2021, with redevelopment into approximately 400,000 RSF. July subsequent events included $387.9 million of acquisitions and a 70% sale of 400 Dexter Avenue North for $254.8 million; Alexandria retained control of that property through a consolidated joint venture.
- First-half real estate impairment charges were $10.1 million, mainly additional write-downs on properties held for sale; five properties totaling 559,993 RSF were classified as held for sale at June 30. Management expected certain sales to close in Q3 2021.
- Key risks include COVID-19 and its effects on tenants and the economy; construction-material and labor cost inflation, supply constraints, and project delays; competition and leasing/occupancy outcomes; capital-market and refinancing conditions; volatility in equity-investment valuations; interest-rate and LIBOR-transition risks; and cybersecurity, environmental, and REIT-qualification risks. The filing identifies approximately $1.7 billion of remaining contracted construction costs and $339.3 million of investment funding commitments.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no material change to previously disclosed risk factors apart from the updates described in the filing.
Important facts for investors to verify
- How much of reported earnings growth came from recurring rental operations versus realized and unrealized investment gains, and whether adjusted FFO trends persist.
- Whether acquisition-related vacancy leases up as expected, and whether occupancy, rent growth, collections, and same-property cash NOI meet guidance.
- Whether development and redevelopment projects are completed on time and within budget amid disclosed construction-cost and supply risks, and whether projected yields and rent commencements materialize.
- Whether planned dispositions, acquisitions, equity settlements, construction spending, and liquidity assumptions are achieved without materially increasing leverage or share dilution.
- Progress toward the year-end leverage and coverage targets, and the implications of variable-rate borrowing, debt refinancing, and the LIBOR transition.