Alexandria Real Estate Equities, Inc. Reports First Quarter Ended March 31, 2015 Financial and Operating Results

PASADENA, Calif., April 27, 2015 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) today announced financial and operating results for the first quarter ended March 31, 2015.

"Our results for the first quarter of 2015 highlight both the strength of our operating fundamentals and our unique real estate platform strategy focused on Class A assets in urban innovation cluster campuses located in Greater Boston, the San Francisco Bay Area, New York City, and San Diego.  Our growth in FFO and NAV continued into the first quarter of 2015, as we reported FFO per share of $1.28, up 9.4% over the first quarter of 2014.  Growth in FFO and cash flows for the quarter was again driven by strong internal growth, including 18.5% cash rental rate increases on lease renewals/re-leasing of space and a 7.8% cash same property NOI increase.  Our value-creation pipeline continued to deliver significant earnings and NAV growth with highly leased projects located in collaborative urban innovation campuses.  Furthermore, we delivered 494,477 RSF into service, including 388,270 RSF at 75/125 Binney Street in March 2015.  We also commenced the ground-up development at 50/60 Binney Street in our Cambridge submarket, with 98% of the project leased or under negotiation, including 251,234 RSF leased to Sanofi for 97% of 50 Binney Street.  Our value-creation deliveries during the quarter decreased our non-income producing assets as a percentage of total assets to 12%. 

"With our operating properties generating steady growth and our value-creation pipeline producing significant additional growth of NOI, EBITDA, and NAV, we remain confident in our ability to deliver strong results in 2015 while improving our net debt to adjusted EBITDA to <7.0x by year-end," 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:
  • $1.28 per share for 1Q15, up 9.4%, compared to $1.17 per share for 1Q14
  • $91.3 million for 1Q15, up $8.3 million, or 9.9%, compared to $83.1 million for 1Q14
• Net income attributable to Alexandria's common stockholders – diluted:
  • $17.8 million, or $0.25 per share, for 1Q15, compared to $32.7 million, or $0.46 per share, for 1Q14
  • Results for 1Q15, included an impairment of real estate of $14.5 million, or $0.20 per share
    

Core operating metrics

• Total revenues of $196.8 million for 1Q15, up $20.6 million, or 11.7%, compared to $176.2 million for 1Q14
• Net operating income ("NOI"), including our share of unconsolidated joint ventures, of $136.4 million for 1Q15, up $12.7 million, or 10.3%, compared to $123.7 million for 1Q14
• Same property NOI increase of 2.3% and 7.8% (cash basis) for 1Q15, compared to 1Q14
• Executed leases for 1,022,669 rentable square feet ("RSF") during 1Q15, including:
  • 251,234 RSF to Sanofi at 50 Binney Street in our Cambridge submarket
  • 145,946 RSF to Illumina, Inc. ("Illumina") at 5200 Illumina Way in our University Town Center submarket
  • 83,561 RSF to Massachusetts Institute of Technology ("MIT") at 600 Technology Square in our Cambridge submarket
  • 30.8% and 18.5% (cash basis) rental rate increase on lease renewals and re-leasing of space aggregating 489,286 RSF
• Occupancy for properties in North America, as of 1Q15:
  • 96.8% occupancy for operating properties, up 20 basis points ("bps") from 1Q14
  • 95.9% occupancy for operating and redevelopment properties, up 80 bps from 1Q14
• Operating margins steady at 69% for 1Q15
• Adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") margins solid at 64% for 1Q15
  

External growth: value-creation projects and acquisitions

Value-creation projects

• Development and redevelopment value-creation projects were on average 90% leased or under negotiation (71% leased and 19% under negotiation)
• 1Q15 key deliveries of value-creation projects:
  • 388,270 RSF, primarily to ARIAD Pharmaceuticals, Inc. at 75/125 Binney Street in our Cambridge submarket
  • 43,209 RSF to various client tenants at 430 East 29th Street in our Manhattan submarket
  • 60,891 RSF to Receptos, Inc. and The Medicines Company at 3013/3033 Science Park Road in our Torrey Pines submarket
• 1Q15 key commencements of value-creation development projects:
  • Commenced a 530,477 RSF value-creation development project at 50/60 Binney Street located in our Cambridge submarket; 98% leased or under negotiation, including 47% leased to Sanofi.

Acquisitions

• In January 2015, we completed the acquisition of 640 Memorial Drive in the Cambridge submarket for $176.5 million.  This property is a 225,504 RSF Class A, LEED^® Gold Certified, office/laboratory building in Mid-Cambridge, near the MIT campus, and it is 100% leased to two high-quality life science client tenants pursuant to long-term leases.  In connection with the acquisition, we assumed a secured note payable of $82.0 million with an interest rate of 3.93% and a maturity date in 2023.
• In January 2015, we executed an agreement to purchase the outstanding 10% noncontrolling interest in our flagship campus at Alexandria Technology Square^® in our Cambridge submarket for $108.3 million.  The first installment of $54.3 million was paid on April 1, 2015, and the second installment of $54.0 million is due on April 1, 2016.

Balance sheet

• $11.3 billion total market capitalization as of March 31, 2015
• 12% non-income-producing assets (percentage of gross investments in real estate)
• 7.5x net debt to adjusted EBITDA – 1Q15 annualized; 2015 target range from 6.5x to 7.5x, with goal of <7.0x by 4Q15
• 3.3x fixed charge coverage ratio – 1Q15 annualized; 2015 target range from 3.0x to 3.5x
• Executed additional interest rate swap agreements in March and April 2015, with an aggregate notional amount of $750 million to increase notional hedged variable-rate debt to $950 million during 2015 and a minimum of $800 million during 2016.
• 19% unhedged variable-rate debt as a percentage of total debt as of March 31, 2015

LEED statistics and other awards

• As of March 31, 2015, 53 LEED projects, including 32 LEED certified projects aggregating 4.8 million RSF and 21 additional LEED projects in process aggregating 4.0 million square feet.
• 54% of our total annualized base rent ("ABR") will be generated from LEED projects upon completion of our in-process projects.
• In March 2015, we were awarded the 2015 Owner of the Year Award by the Engineering News-Record New England for outstanding work developing dynamic campuses for our client tenants in our Greater Boston market.
• In March 2015, we were awarded the 2014 Land Deal of the Year Award by the San Francisco Business Times for our signature land acquisition of 1455/1515 Third Street in our Mission Bay submarket, 100% pre-leased to Uber Technologies, Inc.
• In March 2015, we were awarded the Deal of the Year Award by the San Diego Business Journal for our role in expanding Illumina's campus and supporting the company's growth in our University Town Center submarket.

Subsequent events

In April 2015:

• We amended the employment agreement with Joel S. Marcus to extend his term as our CEO through March 31, 2018.
• We leased 300,000 RSF, or 100%, to Stripe, Inc. at 510 Townsend Street in our SoMa submarket of the San Francisco Bay Area. We expect to commence ground-up development of this build-to-suit project in 2015, upon receipt of Prop M entitlement allocation.
• We leased 106,173 RSF, or 75%, to Eli Lilly and Company at our 10300 Campus Point Drive project in our University Town Center submarket in San Diego. We expect to commence ground-up development of our 142,034 RSF project in 2015, upon receipt of permits/approvals.
• We leased 80,000 RSF to Juno Therapeutics, Inc. at 400 Dexter Avenue North in our Lake Union submarket in Seattle. Juno Therapeutics, Inc. has an expansion option for 71,000 RSF. We expect to commence ground-up development of our 287,806 RSF project in 2015, upon receipt of master use plan approval.

Guidance
(Dollars in thousands, except per share amounts)

The following updated guidance is based on our current view of existing market conditions and other assumptions for the year ending December 31, 2015.  There can be no assurance that actual amounts will be materially higher or lower than these expectations.  See our discussion of "forward-looking statements" below.

Earnings Call Information

We will host a conference call on Tuesday, April 28, 2015, 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 first quarter ended March 31, 2015.  To participate in this conference call, dial (877) 856-1955 or (719) 325-4784 and confirmation code 2665879 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 Tuesday, April 28, 2015.  The replay number is (888) 203-1112 or (719) 457-0820 and the confirmation code is 2665879.

Additionally, a copy of this Earnings Press Release and Supplemental Information for the first quarter ended March 31, 2015, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2015q1.pdf.

About the Company

Alexandria Real Estate Equities, Inc. (NYSE: ARE) is a fully integrated, self-administered, and self-managed real estate investment trust ("REIT") focused on unique collaborative campuses in urban innovation clusters located in key coastal science and technology gateway cities, with a total market capitalization of $11.3 billion as of March 31, 2015, and an asset base of 30.7 million square feet, including 18.5 million RSF of operating and current value-creation projects, as well as an additional 2.2 million square feet of near-term and 10.0 million square feet of future ground-up development projects.  Alexandria pioneered this niche in 1994 and has since established a dominant market presence in AAA locations, including Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and Research Triangle Park.

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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 2015 earnings per share attributable to Alexandria's common stockholders – diluted, 2015 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 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.

Funds From Operations and Adjusted Funds From Operations
(In thousands)
(Unaudited)

The following table presents a reconciliation of net income (loss) attributable to Alexandria's common stockholders – basic, the most directly comparable financial measure presented in accordance with generally accepted accounting principles ("GAAP"), to FFO attributable to Alexandria's common stockholders – basic and diluted, FFO attributable to Alexandria's common stockholders – diluted, as adjusted, and adjusted funds from operations ("AFFO") attributable to Alexandria's common stockholders – diluted.  The table below includes our share of consolidated and unconsolidated joint venture amounts.

Funds From Operations Per Share and Adjusted Funds From Operations Per Share
(In thousands, except per share amounts)
(Unaudited)

The following table presents a reconciliation of earnings per share attributable to Alexandria's common stockholders – basic, the most directly comparable financial measure presented in accordance with GAAP, to FFO per share attributable to Alexandria's common stockholders – diluted, FFO per share attributable to Alexandria's common stockholders – diluted, as adjusted, and AFFO per share attributable to Alexandria's common stockholders – diluted.  For the computation of the weighted average shares used to compute the per share information, refer to the "Definitions and Reconciliations" section in our supplemental information.  The table below includes our share of consolidated and unconsolidated joint venture amounts.

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SOURCE Alexandria Real Estate Equities, Inc.