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ARE > SEC Filings for ARE > Form 10-Q on 7-Aug-2014All Recent SEC Filings

Show all filings for ALEXANDRIA REAL ESTATE EQUITIES INC

Form 10-Q for ALEXANDRIA REAL ESTATE EQUITIES INC


7-Aug-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain information and statements included in this quarterly report on Form 10-Q, including, without limitation, statements containing the words "forecast," "guidance," "projects," "estimates," "anticipates," "believes," "expects," "intends," "may," "plans," "seeks," "should," or "will," or the negative of these words or similar words, constitute "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. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, results of operations, and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by the forward-looking statements, including, but not limited to, the following:

         Operational factors such as a failure to operate our business
          successfully in comparison to market expectations or in comparison to
          our competitors, our inability to obtain capital when desired or
          refinance debt maturities when desired, and/or a failure to maintain
          our status as a REIT for federal tax purposes;


         Industrial factors such as adverse developments concerning the life
          science industry and/or our life science client tenants;


         Governmental factors such as any unfavorable effects resulting from
          U.S., state, local and/or foreign government policies, laws, and/or
          funding levels;


         Global factors such as negative economic, political, financial, credit
          market, and/or banking conditions; and


         Other factors such as climate change, cyber-intrusions, and/or changes
          in laws, regulations, and financial accounting standards.

This list of risks and uncertainties is not exhaustive. Additional information regarding risk factors that may affect us is included under "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K for the fiscal year ended December 31, 2013. Readers of this quarterly report on Form 10-Q should also read our other documents filed publicly with the SEC for further discussion regarding such factors.

Overview

We are a Maryland corporation formed in October 1994 that has elected to be taxed as a REIT for federal income tax purposes. We are the largest and leading REIT uniquely focused on Class A collaborative science and technology campuses in urban innovation clusters, with a total market capitalization of approximately $9.3 billion as of June 30, 2014, and an asset base of 31.4 million square feet, including 17.9 million RSF of operating and current value-creation projects, as well as an additional 13.5 million square feet in future ground-up development projects. We pioneered this niche in 1994 and have since established a dominant market presence in AAA locations including Greater Boston, the San Francisco Bay Area, San Diego, New York City, Maryland, Seattle, and Research Triangle Park. We are known for our high-quality and diverse client tenant base, and approximately 52% of our total ABR results from investment-grade client tenants (a REIT industry-leading percentage). We have a longstanding and proven track record of developing Class A assets clustered in urban science and technology campuses that provide client tenants with highly collaborative, 24/7, live/work/play ecosystems, as well as the critical ability to successfully recruit and retain best-in-class talent and enhance productivity. We believe these advantages result in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value.

Executive summary

We remain focused on our goal to provide stable and consistent funds from operations ("FFO") per share and net asset value growth driven by strong core performance and healthy demand for our active and near-term value-creation pipeline. Our performance thus far in 2014 has been solid and we anticipate solid results for the remainder of the year. We remain committed to our goal of funding our 2014 capital needs with earnings before interest, taxes, depreciation, and amortization ("EBITDA") growth and sales of land parcels. Cash flows from operating activities after dividends and a significant increase in EBITDA is forecasted to provide significant capacity in 2015 to fund our growth, including construction, while maintaining our target net debt to adjusted EBITDA of 6.5x in 2015.


Results

FFO attributable to Alexandria's common stockholders - diluted, as adjusted:

$1.19 per share for the three months ended June 30, 2014, up 11.2%, compared to

$1.07 per share for the three months ended June 30, 2013
$2.36 per share for the six months ended June 30, 2014, up 8.3%, compared to

$2.18 per share for the six months ended June 30, 2013
$84.5 million for the three months ended June 30, 2014, up $12.9 million, or 18.1%, compared to

$71.6 million for the three months ended June 30, 2013
$167.6 million for the six months ended June 30, 2014, up $26.0 million, or 18.3%, compared to

$141.6 million for the six months ended June 30, 2013
Net income attributable to Alexandria's common stockholders - diluted:

$27.9 million, or $0.39 per share, for the three months ended June 30, 2014, compared to

$25.5 million, or $0.38 per share, for the three months ended June 30, 2013
$60.6 million, or $0.85 per share, for the six months ended June 30, 2014, compared to

$47.9 million, or $0.74 per share, for the six months ended June 30, 2013

Core operating metrics

Total revenues:

$176.4 million for the three months ended June 30, 2014, up $22.5 million, or 14.6%, compared to

$153.9 million for the three months ended June 30, 2013
$352.6 million for the six months ended June 30, 2014, up $48.6 million, or 16.0%, compared to

$304.0 million for the six months ended June 30, 2013 NOI:

$124.0 million for the three months ended June 30, 2014, up $16.4 million, or 15.2%, compared to

$107.7 million for the three months ended June 30, 2013
$247.7 million for the six months ended June 30, 2014, up $35.2 million, or 16.6%, compared to

$212.6 million for the six months ended June 30, 2013
Same property NOI growth:

Up 5.3% and 5.7% (cash basis) for the three months ended June 30, 2014, compared to the

three months ended June 30, 2013
Up 4.5% and 5.0% (cash basis) for the six months ended June 30, 2014, compared to the

six months ended June 30, 2013
Leasing activity during the three months ended June 30, 2014:

Executed 62 leases for 752,364 RSF

9.9% and 3.0% (cash basis) rental rate increases on lease renewals and re-leasing of space

Leasing activity during the six months ended June 30, 2014:

Executed 107 leases for 1,315,757 RSF

13.6% and 6.3% (cash basis) rental rate increases on lease renewals and re-leasing of space

Occupancy for properties in North America, as of June 30, 2014:

               96.9% occupancy for operating properties, up 230 basis points
                ("bps") from June 30, 2013


               95.6% occupancy for operating and redevelopment properties, up
                270 bps from June 30, 2013

Operating margins steady at 70% for the three months ended June 30, 2014

52% of total ABR from investment-grade client tenants

External growth: value-creation projects and acquisitions

Value-creation projects

         79% of our development and redevelopment projects aggregating 1,934,431
          RSF in North America are leased or under lease negotiations


         Key deliveries during the three months ended June 30, 2014, from our
          value-creation projects included the following:


               72,216 RSF to Illumina, Inc. at 499 Illinois Street in our
                Mission Bay submarket


               37,943 RSF to several tenants at 430 East 29th Street, the
                Alexandria CenterTM for Life Science, in our Manhattan submarket


         During the three months ended June 30, 2014, we commenced development
          of 3013/3033 Science Park Road, a 165,938 RSF project in the Torrey
          Pines submarket of San Diego. This development project is currently 63%
          leased/under negotiation, including 25% pre-leased to a publicly traded
          life science company. Our ability to preserve the existing steel frame
          in a section of the project will allow us to reduce the time to deliver
          a portion of the project for initial occupancy in early 2015.


         Delivery of high value pre-leased development and redevelopment
          projects will drive significant increases in EBITDA, cash flows, net
          asset value, and per share earnings. Additionally, deliveries over the
          next few quarters will drive non-income-producing assets (CIP and land)
          to 12% of gross real estate by the first quarter of 2015.

Acquisitions

         In April 2014, we acquired a land parcel at 500 Townsend Street,
          supporting the ground-up development of approximately 300,000 gross
          square feet, in the SoMa submarket of the San Francisco Bay Area for a
          purchase price of $50.0 million. We are in the process of perfecting
          entitlements and marketing for lease. Subject to market conditions, we
          plan to commence construction as soon as possible in 2015.

Dispositions of land parcels

         In May 2014, we completed the sale of a land parcel at 810 Dexter
          Avenue North in the Seattle market for a sales price of $19.0 million
          and a gain of $797 thousand. The buyer is expected to reposition the
          property for multi-family residential use.


         In July 2014, we completed the sale of two land parcels in a
          non-cluster market for a sales price of $7.9 million and a gain of $207
          thousand. The buyer is expected to use the land for academic
          institution purposes.

Balance sheet

In July 2014, we completed an offering of $700 million aggregate principal amount of unsecured senior notes payable, consisting of the following:

$400 million of aggregate principal amount of our 2.75% Unsecured Senior Notes

$300 million of aggregate principal amount of our 4.50% Unsecured Senior Notes

Weighted average interest rate of 3.50% and maturity of 9.6 years

               Weighted average remaining term of outstanding debt extended from
                5.1 years to 6.3 years while prudently laddering debt maturities


               Net proceeds of $694 million were used to reduce variable-rate
                debt, consisting of the partial repayment of $125 million of our
                2016 Unsecured Senior Bank Term Loan and the reduction of $569
                million of borrowings outstanding on our unsecured senior line of
                credit.


               In connection with the partial repayment of $125 million of our
                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.


         Certain statistics as of June 30, 2014, on a pro forma basis for the
          $700 million unsecured senior notes payable offering completed in July

2014:

Liquidity of $1.8 billion

Unhedged variable-rate debt as a percentage of total debt of 7%

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