Alexandria Real Estate Equities, Inc. Reports Third Quarter Ended September 30, 2014 Financial and Operating Results

PASADENA, Calif., Nov. 3, 2014 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) today announced financial and operating results for the third quarter ended September 30, 2014.

"Our third quarter results highlight our disciplined approach to balance sheet management and capital allocation into our science and technology campuses in urban innovation clusters, combined with continued solid internal growth.  We are pleased with the execution of our very successful $700 million bond offering at a weighted average interest rate of 3.50% and a maturity of 9.6 years.  This bond offering strategically focused on laddering and extending debt maturities and provided growth capital for our significantly pre-leased value-creation development pipeline.  The announcement of our Mission Bay acquisition of the 1455/1515 Third Street land parcels and our strategic joint venture with Uber Technologies, Inc. in September 2014 reinforces Alexandria's strong emphasis on capital allocation in the core of one of the most desirable urban cluster submarkets.  This iconic campus environment, ideally situated within the cross-section of science and technology in the highly collaborative, innovative, and urban Mission Bay ecosystem and adjacent to the planned Golden State Warriors' new sports complex, provides our tenants a unique advantage for the recruitment and retention of world-class talent.  Our high-quality asset base continued to deliver accelerating growth in rental rates, occupancy, and significant earnings growth through the completion of pre-leased value-creation projects," said Joel S. Marcus, Chairman, Chief Executive Officer, and Founder of Alexandria Real Estate Equities, Inc.

Results

• Funds from operations ("FFO") attributable to Alexandria Real Estate Equities, Inc.'s ("Alexandria's") common stockholders – diluted, as adjusted:
  • $1.21 per share for 3Q14, up 14.2%, compared to $1.06 per share for 3Q13
  • $3.57 per share for YTD 3Q14, up 10.5%, compared to $3.23 per share for YTD 3Q13
  • $86.1 million for 3Q14, up $11.1 million, or 14.8%, compared to $75.0 million for 3Q13
  • $253.7 million for YTD 3Q14, up $37.0 million, or 17.1%, compared to $216.6 million for YTD 3Q13
• Net income attributable to Alexandria's common stockholders – diluted:
  • $27.6 million, or $0.39 per share, for 3Q14 compared to $24.6 million, or $0.35 per share, for 3Q13
  • $88.3 million, or $1.24 per share, for YTD 3Q14 compared to $72.5 million, or $1.08 per share, for YTD 3Q13

Core operating metrics

• Total revenues:
  • $185.6 million for 3Q14, up $27.3 million, or 17.2%, compared to $158.3 million for 3Q13
  • $538.2 million for YTD 3Q14, up $75.9 million, or 16.4%, compared to $462.3 million for YTD 3Q13
• Net operating income ("NOI"):
  • $128.2 million for 3Q14, up $17.6 million, or 15.9%, compared to $110.6 million for 3Q13
  • $375.9 million for YTD 3Q14, up $52.7 million, or 16.3%, compared to $323.2 million for YTD 3Q13
• Same property NOI growth:
  • Up 5.0% and 5.9% (cash basis) for 3Q14, compared to 3Q13
  • Up 4.5% and 5.2% (cash basis) for YTD 3Q14, compared to YTD 3Q13
• Leasing activity during 3Q14:
  • Executed leases for 871,416 rentable square feet ("RSF")
  • 18.6% and 5.6% (cash basis) rental rate growth on 3Q14 lease renewals and re-leasing of space
• Leasing activity during YTD 3Q14:
  • Executed leases for 2,187,173 RSF
  • 14.1% and 6.2% (cash basis) rental rate growth on YTD 3Q14 lease renewals and re-leasing of space
• Occupancy for properties in North America, as of 3Q14:
  • 97.3% occupancy for operating properties, up 230 basis points ("bps") from 3Q13
  • 96.3% occupancy for operating and redevelopment properties, up 180 bps from 3Q13
• Operating margins solid at 70% for YTD 3Q14
• 53% of total annualized base rent ("ABR") from investment-grade client tenants

External growth: value-creation projects and acquisitions

Value-creation projects

• Development and redevelopment value-creation projects were 85% leased or under lease negotiations
• 3Q14 key deliveries of value-creation projects:
  • 154,100 RSF to the Dana-Farber Cancer Institute, Inc., at 360 Longwood Avenue in our Longwood Medical Area submarket
  • 107,250 RSF to Amgen Inc. at 269 East Grand Avenue in our South San Francisco submarket
  • 85,417 RSF to The Regents of the University of California and Medivation, Inc., at 499 Illinois Street in our Mission Bay submarket
• 3Q14 key commencements of 100% pre-leased value-creation development projects:
  • 422,980 RSF at 1455/1515 Third Street, an unconsolidated joint venture ("JV") project with Uber Technologies, Inc. ("Uber") in our Mission Bay submarket; 100% pre-leased to Uber under a 15-year lease
  • 149,663 RSF at 5200 Illumina Way – Building 6 in our University Town Center submarket; 100% pre-leased to Illumina, Inc.
• Non-income-producing assets (CIP and land) are expected to decrease from 17% as of 3Q14 to 13% of our gross real estate by 1Q15, driven by the completion and delivery of high-value, pre-leased development and redevelopment projects

Acquisitions

• In September 2014, Alexandria and Uber formed a JV and acquired key land parcels at 1455/1515 Third Street in the Mission Bay submarket of San Francisco, for the ground-up development of two Class A buildings aggregating 422,980 RSF.  Alexandria holds a 51% interest in the JV.  Additionally, Alexandria executed a 15-year lease with Uber for 100% of the project.  The purchase price of the land parcels, including 423 parking structure spaces, foundation piles, plans and permits, was $125.0 million, with 49% funded by Uber.  The land parcels are fully entitled, including Proposition M office allocation approvals.  The timing of revenue recognition for this lease may begin from 3Q16 to 1Q17, subject to completion of the design and budget of the buildings.

Balance sheet

• In August 2014, Standard & Poor's Rating Services raised its credit outlook for the Company to Positive from Stable, reflecting continued and further expected improvement in key credit metrics and growth in cash flows.  The improvement in the outlook is driven primarily by the near-term completion and delivery of significant rentable square feet of pre-leased value-creation development projects, the lengthening of the weighted average remaining maturity of outstanding debt, and the reduction in unhedged variable-rate debt. As of September 30, 2014, the weighted average remaining maturity of outstanding debt was 5.9 years and our unhedged variable-rate debt as a percentage of total debt was 11%. The Company's credit profile has steadily improved since receipt of its initial credit rating in July 2011.
• We expect our earnings before interest, taxes, depreciation, and amortization ("EBITDA") to grow significantly in 2015. This growth in EBITDA, plus cash flows from operating activities, after dividends, is expected to allow us to borrow additional debt in 2015 on a leverage neutral basis and allocate $500 million to $600 million of capital to fund value-creation development projects.
• In July 2014, we completed an offering of $700 million unsecured senior notes payable, consisting of the following:
  • $400 million of 2.75% unsecured senior notes payable due in 2020
  • $300 million of 4.50% unsecured senior notes payable due in 2029
  • Weighted average interest rate of 3.50%
  • Average maturity of 9.6 years
  • Net proceeds of $694 million were used to reduce variable-rate debt, consisting of:
    • $569 million reduction of borrowings outstanding on our unsecured senior line of credit
    • $125 million partial repayment of our 2016 unsecured senior bank term loan ("2016 Unsecured Senior Bank Term Loan"); we recognized a loss on the early extinguishment of debt related to the write-off of unamortized loan fees totaling $0.5 million, or $0.01 per share.

LEED statistics and other awards

• As of September 30, 2014, 30 LEED certified projects aggregating 4.6 million RSF were complete and 29 additional LEED projects aggregating 5.0 million square feet were in process.
• In August 2014, our ground-up development of the West Tower at the Alexandria Center™ for Life Science in New York City, at 430 East 29th Street in our Manhattan submarket, achieved LEED Gold certification.
• In August 2014, our 225 Binney Street property at the Alexandria Center™ at Kendall Square, a recently certified LEED Gold development project, was awarded the 2014 Best Projects Award by the Engineering News-Record New England for the best office/retail/mixed-use development in the region.
• In August 2014, our Alexandria Center™ for Life Science at Campus Pointe in San Diego, a LEED Platinum property, was awarded an Orchid Award for Landscape Architecture by the San Diego Architectural Foundation, for its renovation of a commercial building into a suburban infill project.

Guidance

The following updated guidance is based on our current view of existing market conditions and other assumptions for the year ended December 31, 2014.  There can be no assurance that actual amounts will be materially higher or lower than these expectations.  See our discussion of "forward-looking statements" on the following page.

Earnings Call Information

We will host a conference call on Monday, November 3, 2014, at 3:00 p.m. Eastern Time ("ET")/12:00 p.m. noon Pacific Time ("PT") that is open to the general public to discuss our financial and operating results for the third quarter ended September 30, 2014.  To participate in this conference call, dial (877) 874-1563 or (719) 325-4769 and confirmation code 1901197 shortly before 3:00 p.m. ET/12:00 p.m. noon PT.  The audio webcast can be accessed at: www.are.com, in the "For Investors" section.  A replay of the call will be available for a limited time from 6:00 p.m. ET/3:00 p.m. PT on Monday, November 3, 2014.  The replay number is (888) 203-1112 or (719) 457-0820 and the confirmation code is 1901197.

Additionally, a copy of this Earnings Press Release and Supplemental Information for the third quarter ended September 30, 2014, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2014q3.pdf. 

About the Company

Alexandria Real Estate Equities, Inc. (NYSE: ARE) is a fully integrated, self-administered, and self-managed REIT uniquely focused on Class A collaborative science and technology campuses in urban innovation clusters including Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and Research Triangle Park.  Alexandria is the largest and leading owner, operator, and developer in its niche with a total market capitalization of $9.1 billion as of September 30, 2014, and an asset base of 31.6 million RSF, including 18.5 million RSF of operating and current value-creation projects, as well as an additional 13.1 million RSF in future ground-up development projects.

***********

This document includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Such forward-looking statements include, without limitation, statements regarding our 2014 earnings per share attributable to Alexandria's common stockholders – diluted, 2014 FFO per share attributable to Alexandria's common stockholders – diluted, NOI, and our projected sources and uses of capital.  You can identify the forward-looking statements by their use of forward-looking words, such as "forecast," "guidance," "projects," "estimates," "anticipates," "believes," "expects," "intends," "may," "plans," "seeks," "should," or "will," or the negative of those words or similar words.  These forward-looking statements are based on our current expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, as well as a number of assumptions concerning future events.  There can be no assurance that actual results will not be materially higher or lower than these expectations.  These statements are subject to risks, uncertainties, assumptions, and other important factors that could cause actual results to differ materially from the results discussed in the forward-looking statements.  Factors that might cause such a difference include, without limitation, our failure to obtain capital (debt, construction financing, and/or equity) or refinance debt maturities, increased interest rates and operating costs, adverse economic or real estate developments in our markets, our failure to successfully complete and lease our existing space held for redevelopment and new properties acquired for that purpose and any properties undergoing development, our failure to successfully operate or lease acquired properties, decreased rental rates, increased vacancy rates or failure to renew or replace expiring leases, defaults on, or non-renewal of, leases by client tenants, general and local economic conditions, a favorable capital market environment, performance of our core operations in areas such as delivery of current and future development and redevelopment projects, leasing activity, lease renewals, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission ("SEC").  Accordingly, you are cautioned not to place undue reliance on such forward-looking statements.  All forward-looking statements are made as of the date of this earnings press release, and unless otherwise stated, we assume no obligation to update this information and expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.  For more discussion relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements, and risks to our business in general, please refer to our SEC filings, including our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q.