Alexandria Real Estate Equities, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also reports unaudited fourth-quarter results. Alexandria is a self-managed REIT focused on laboratory and office properties serving the life science industry.
Business context and portfolio
- At year-end, the portfolio comprised 180 properties and 17.46 million rentable square feet; operating-property occupancy was 94.4%.
- Investment-grade tenants represented 51% of annualized base rent (ABR). The three largest tenants accounted for 14.4% of ABR; Novartis was the largest at 6.7%.
- About 94% of leases were triple-net, and about 95% included annual rent escalations. The asset base also included land supporting an additional 13.4 million square feet of potential development.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Total revenue | $631.2 million | $574.5 million | +9.9% |
| Income from continuing operations | $134.5 million | $94.8 million | +41.8% |
| Net income attributable to common stockholders | $108.8 million | $67.6 million | — |
| Diluted EPS | $1.60 | $1.09 | — |
| NOI | $442.1 million | $401.7 million | +10.0% |
| Operating cash flow | $312.7 million | $305.5 million | +$7.2 million |
| Cash used in investing activities | $591.4 million | $558.1 million | — |
| Cash provided by financing activities | $197.6 million | $314.9 million | — |
Same-property NOI increased 5.4% on a cash basis and 1.8% on a GAAP basis. Non-same-property NOI rose 55.8%, primarily reflecting development deliveries, lease-up and acquisitions. Adjusted EBITDA margin was 65% for the year, versus 64% in 2012. FFO per diluted share, as adjusted, was $4.40 versus $4.38; AFFO per diluted share was $4.07 versus $4.15.
- Debt: Total debt was $3.06 billion at year-end, compared with $3.18 billion in 2012. Weighted-average interest rate was 3.76%, with 84% of debt fixed-rate or hedged. Net debt to annualized fourth-quarter Adjusted EBITDA was 6.6x; trailing-12-month ratio was 7.2x.
- Liquidity: Cash and equivalents were $57.7 million. Reported available liquidity was approximately $1.65 billion, including the unsecured credit line, construction-loan commitments and cash.
- Dividends and capital: Common dividends declared were $2.61 per share in 2013, versus $2.09 in 2012. The company issued about $534.5 million of common stock in 2013, increasing year-end common shares outstanding to 71.2 million from 63.2 million.
Material changes and fourth-quarter results
- Fourth-quarter revenue was $168.8 million, compared with $151.3 million in Q4 2012. Net income attributable to common stockholders was $36.2 million versus $21.0 million, and diluted EPS was $0.51 versus $0.33. Q4 2013 included a $4.1 million gain on a land sale.
- Leasing reached a company record: 212 leases covering 3.65 million square feet, with a weighted-average term of 7.6 years. Rents on renewed or re-leased space rose 4.0% on a cash basis and 16.2% on a GAAP basis.
- Seven income-producing assets were sold for $128.6 million and four land parcels for $73.3 million. The company said proceeds were directed toward higher-value development projects.
- Alexandria issued $500 million of 10-year unsecured notes at 3.90%, reduced variable-rate bank debt by approximately $612 million, and extended certain credit-facility maturities. These actions improved maturity profile and reduced variable-rate exposure, while management noted capital raising caused short-term per-share dilution.
Outlook, risks and contingencies
- 2014 guidance: Diluted EPS of $1.75–$1.95 and diluted FFO per share of $4.60–$4.80. Assumptions include North American operating occupancy of 96.5%–97.0%, same-property NOI growth of 4%–6% cash and 2%–4% GAAP, and interest expense of $77–$93 million.
- Management expected 2014 capital sources of $565–$775 million and uses of $565–$775 million, primarily for construction, with potential acquisition spending up to $150 million. Projected construction spending was $565–$625 million. These plans depend on capital-market conditions, leasing, project delivery and asset-sale or joint-venture proceeds.
- Key risks include concentration in life science tenants and major cluster markets; tenant funding, regulatory and product-development risks; lease rollover and re-leasing; construction cost, timing and lease-up risks; interest rates, refinancing and capital access; and environmental, natural-disaster, foreign-currency and REIT-qualification risks.
- Commitments included approximately $272 million of contracted construction costs, $46.7 million of investment funding and government-related development requirements for about 300,000 square feet by 2016. Management was working with relevant entities to fulfill or amend certain obligations.
- The company reported no pending material legal proceedings beyond routine matters. Management and the auditor concluded internal control over financial reporting was effective; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether 2014 guidance is achieved, particularly occupancy, rent growth, NOI and interest expense assumptions.
- Development spending, pre-leasing, completion schedules and realized yields versus management estimates.
- Debt maturities, covenant headroom, interest-rate hedging and the funding plan for projected construction and distributions.
- Tenant credit quality, upcoming lease expirations and concentration by tenant, market and life science subsector.
- How common-share issuance, preferred dividends and development funding affect per-share returns and cash available for distribution.