Alexandria Real Estate Equities, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; this is an annual filing, not a standalone fourth-quarter report. Alexandria is a REIT focused on life science, agtech, and technology properties in major North American innovation markets.
Business context and operating position
- Portfolio comprised 414 North American properties with 38.8 million operating rentable square feet (RSF); the broader asset base totaled 67.0 million square feet, including development pipeline and future projects.
- Operating-property occupancy was 94.0% at year-end, or 98.7% excluding 1.8 million RSF of vacancy at recently acquired properties. Occupancy excluding those vacancies increased from 97.7% a year earlier.
- Investment-grade or publicly traded large-cap tenants represented 51% of annual rental revenue. No single tenant accounted for more than 3.0%; the top 20 represented 33.1%.
- Approximately 91% of leases were triple net, 95% included annual rent escalations averaging about 3%, and 94% provided for recovery of certain capital expenditures.
Financial and operating results
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $2.114 billion, up 12.1% | $1.886 billion |
| Net income attributable to common stockholders | $563.4 million; diluted EPS $3.82 | $760.8 million; diluted EPS $6.01 |
| FFO, as adjusted, attributable to common stockholders | $1.145 billion; $7.76 per diluted share | $923.8 million; $7.30 per diluted share |
| Net operating income (NOI) | $1.491 billion, up 10.0% | $1.355 billion |
| NOI, cash basis | $1.321 billion, up 9.9% | $1.201 billion |
| Same-property NOI growth | 4.2%; 7.1% cash basis | 2.6%; 5.1% cash basis |
| Net cash provided by operating activities | $1.010 billion | $882.5 million |
Net income declined despite higher revenues and NOI, principally reflecting much lower non-real-estate investment gains: investment income was $259.5 million in 2021 versus $421.3 million in 2020. The 2020 figure included $374.0 million of unrealized gains; 2021 included $43.6 million of unrealized gains and $215.8 million of realized gains. Adjusted FFO is a non-GAAP measure and increased 6.4% per diluted share.
- Rental revenues rose 10.0%; excluding a $89.5 million lease termination fee recorded in 2020, rental revenues increased 17.1%, reflecting acquisitions and development/redevelopment deliveries as well as leasing gains.
- Renewed and re-leased space achieved rent increases of 37.9% on a straight-line basis and 22.6% cash basis across 4.6 million RSF. Total leasing was a record 9.5 million RSF.
- Operating margin was 71% for 2021; adjusted EBITDA was $1.518 billion, with a 72% margin. Fourth-quarter annualized net debt and preferred stock to adjusted EBITDA was 5.2x; fixed-charge coverage was 5.3x.
- Construction spending was $2.159 billion. Cash used in investing activities was $7.107 billion, driven chiefly by $5.435 billion of real estate purchases and $2.090 billion of additions to real estate. Financing activities provided $5.916 billion.
Debt, liquidity, and capital allocation
- Year-end debt totaled approximately $8.792 billion, including $8.317 billion of unsecured notes, $205.2 million of secured debt, and $270.0 million of commercial paper. Net debt and preferred stock was $8.442 billion; preferred stock outstanding was zero.
- Debt was 97% fixed rate, with a 3.44% weighted-average interest rate and 12.1-year weighted-average remaining term. Management reported no debt maturities before 2024. The $3.0 billion unsecured credit facility had no borrowings outstanding.
- Reported liquidity was $3.814 billion, including $2.730 billion of availability under the credit facility net of commercial paper, $185.3 million of remaining construction-loan commitments, and $415.2 million of cash and restricted cash. Including $1.621 billion of expected proceeds from forward equity agreements entered in January 2022, the filing presented total liquidity of $5.436 billion.
- 2021 capital raising included $3.5 billion net from common-stock issuances and forward equity settlements and $1.744 billion from unsecured-note issuance. The company also raised a record $2.6 billion from real-estate dispositions and partial-interest sales; some partial-interest proceeds were recorded as equity transactions rather than gains in earnings.
- Common dividends declared were $4.48 per share for 2021, up 6% from $4.24 in 2020; the fourth-quarter declared dividend was $1.15 per share.
Outlook, risks, and unusual items
- 2022 guidance: diluted EPS of $2.65–$2.85 and FFO per diluted share of $8.26–$8.46. Assumptions include year-end operating occupancy of 95.2%–95.8%, same-property NOI growth of 5.5%–7.5% (6.5%–8.5% cash basis), and renewal/re-leasing rent increases of 30%–35% (18%–23% cash basis).
- Management expected more than $610 million of incremental annual rental revenue from 7.4 million RSF of projects under construction or expected to start construction within six quarters; projects were 83% leased or negotiating. The 2022 construction-spending midpoint was $2.95 billion. Capital guidance also contemplated $3.0 billion of acquisitions and $1.7 billion of dispositions/partial-interest sales at the respective midpoints.
- Management cited strong demand for high-quality laboratory space and record leasing, while noting guidance depends on capital and real-estate markets, project delivery and lease-up, and other assumptions. Guidance is not assured.
- Key risks include construction-cost inflation and supply-chain or labor constraints; development execution and financing; tenant funding and credit exposure to life science, agtech, and technology industries; concentration in major coastal markets; interest rates and access to capital; climate, severe weather, earthquake, wildfire, and utility interruption; and cybersecurity. COVID-19 could affect tenant operations, construction, and capital markets.
- Unusual 2021 items included $67.3 million of debt-extinguishment loss from refinancing 4.00% notes due 2024; $52.7 million of real-estate impairments; $126.6 million of real-estate sale gains; and $110.1 million of significant realized gains on non-real-estate investments. These items affect comparisons of GAAP earnings and adjusted FFO differently.
- Construction commitments were approximately $2.8 billion, and funding commitments for non-real-estate investments were approximately $391 million. The filing reported no material pending legal proceedings. Auditors gave unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Reconcile the drivers of GAAP EPS decline with adjusted FFO growth, particularly investment gains, debt-refinancing costs, and share issuance.
- Track occupancy and lease-up at recently acquired properties, and confirm delivery timing, pre-leasing, project costs, and yields for the development pipeline.
- Assess whether 2022 acquisition and disposition plans, equity issuance, and construction funding support the stated leverage and liquidity targets.
- Review tenant and market concentration, lease expirations, and the sustainability of renewal rent increases and cash-basis same-property NOI growth.
- Monitor inflation, construction supply and labor, interest-rate exposure, climate and insurance costs, and the risks associated with tenant and venture-investment funding.