8-K
Alexandria Real Estate Equities, Inc. (ARE)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 25, 2011
ALEXANDRIA REAL ESTATE EQUITIES, INC.
(Exact name of registrant as specified in its charter)
| Maryland | 1-12993 | 95-4502084 |
|---|---|---|
| (State or other jurisdiction of<br> incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
| 385 East Colorado Boulevard, Suite 299 | ||
| Pasadena, California | 91101 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (626) 578-0777
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR 240.13e-4 (c))
Item 2.02. Results of Operations and Financial Condition.
On October 25, 2011, Alexandria Real Estate Equities, Inc. (the “Company”) issued a press release entitled “Alexandria Real Estate Equities, Inc. Reports Third Quarter Ended September 30, 2011 Financial and Operating Results” which sets forth the Company’s results of operations and financial condition for the third quarter ended September 30, 2011. That press release referred to certain supplemental information that is available on the Company’s website at www.are.com. Copies of the press release and supplemental information are attached hereto as Exhibits 99.1 and 99.2, respectively.
The information contained in this Item 2.02, including the exhibits referenced herein, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. Such information shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Item 5.02(c) Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Effective on October 25, 2011, the Company’s board of directors elected Stephen A. Richardson as Chief Operating Officer and Regional Market Director — San Francisco. Prior to this election, Mr. Richardson, age 50, served as the Company’s Executive Vice President/Regional Market Director — San Francisco Bay from January 2011, as Senior Vice President/Regional Market Director — San Francisco Bay from July 2005 until January 2011, and as Vice President from February 2000 until January 2011. Prior to joining the Company, Mr. Richardson served as Director of CellNet Data Systems from 1993 to 2000, where he was responsible for negotiating large-scale technology transactions and aggregating a national footprint of wireless spectrum. From 1983 to 1993, Mr. Richardson served as Director of Marketing and Leasing of Paragon Group, a national real estate development company and as real estate broker with Schneider Commercial Real Estate, serving the greater Silicon Valley market. He has also been an entrepreneur in the real estate and technology fields. Mr. Richardson is a board member of the BayBio, a non-profit trade association serving the life science industry in Northern California, a member of the California Healthcare Institute, public policy research and advocacy organization for California’s biomedical industry and a member of the Bay Area Council, a business-sponsored, public policy advocacy organization for the nine-county San Francisco Bay Area. Mr. Richardson received his MBA from Santa Clara University and a BA in economics and literature from Claremont McKenna College.
Effective on October 25, 2011, the Company also entered into an amended executive employment agreement with Mr. Richardson pursuant to his election as Chief Operating Officer and Regional Market Director — San Francisco. The agreement provides for at-will employment commencing on October 25, 2011 and ending on the date that the agreement is terminated by either party.
The agreement provides that Mr. Richardson’s base salary shall be $360,000 per year and increased annually by no less than a cost-of-living adjustment based on an index published by the United States Department of Labor. In connection with his election to his new position, Mr. Richardson will receive 15,000 shares of restricted stock, one third of which will vest on each anniversary of the effective date of the agreement, commencing on October 25, 2012 and ending on October 25, 2014. Mr. Richardson will continue to be eligible for an annual bonus and periodic equity awards as the board of directors of the Company may determine.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| 99.1 | Press Release dated October 25, 2011. |
|---|---|
| 99.2 | Alexandria Real Estate Equities, Inc.’s Supplemental Financial, Operating, & Property Information for the Third Quarter Ended September 30, 2011. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ALEXANDRIA REAL ESTATE EQUITIES, INC. | ||
|---|---|---|
| October 26, 2011 | By: | /s/ Joel S. Marcus |
| Joel S. Marcus | ||
| Chairman/Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Dean A. Shigenaga | |
| Dean A. Shigenaga | ||
| Chief Financial Officer | ||
| (Principal Financial and Chief Accounting Officer) |
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EXHIBIT INDEX
| Exhibit **** Number | Exhibit Title |
|---|---|
| 99.1 | Press Release dated October 25, 2011. |
| 99.2 | Alexandria Real Estate Equities, Inc.’s Supplemental Financial, Operating, & Property Information for the Third Quarter Ended September 30, 2011. |
4
Exhibit 99.1
| Contact: | Joel S. Marcus |
|---|---|
| **** | Chairman/Chief Executive Officer |
| **** | Alexandria Real Estate Equities, Inc. |
| **** | (626) 578-9693 |
ALEXANDRIA REAL ESTATE EQUITIES, INC.
REPORTS THIRD QUARTER ENDED SEPTEMBER 30, 2011
FINANCIAL AND OPERATING RESULTS
Highlights
Three Months Ended September 30, 2011:
| · | Received Baa2/BBB- Stable Outlook Investment Grade Issuer Rating from Two Major Rating Agencies |
|---|---|
| · | Three Months Ended September 30, 2011, Funds from Operations (“FFO”) Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $1.11 Before Loss on Early Extinguishment of Debt and Non-Cash Impairment Charge, Compared to Three Months Ended September 30, 2010, FFO Per Share (Diluted) of $1.11 Before Loss on Early Extinguishment of Debt |
| · | Three Months Ended September 30, 2011, Earnings Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $0.40, Compared to Three Months Ended September 30, 2010, Earnings Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $0.45 |
| · | Executed 56 Leases for 985,000 Rentable Square Feet, Including 458,000 Rentable Square Feet of Redevelopment and Development Space; Second Highest Single Quarter of Leasing Activity in Company History |
| · | Cash and GAAP Rental Rate Decrease of 3.0% and Increase of 2.8%, Respectively, on Renewed/Re-leased Space |
| · | Cash and GAAP Same Property Net Operating Income Increase of 4.8% and Decrease of 0.2%, Respectively |
| · | Occupancy of Operating Properties Increases to 94.6%; Occupancy of Operating and Redevelopment Properties Increases to 89.3% |
| · | Repurchased, in Privately Negotiated Transactions, $121.1 Million of 3.70% Unsecured Convertible Notes |
| · | Repaid Two Secured Loans Aggregating $11.2 Million |
| · | Sold Parcel of Land Located in the San Diego Market for $17.3 Million |
| · | Executed Long Term Lease for 307,000 Rentable Square Feet Single Tenant Ground-Up Development at Alexandria Center™ at Kendall Square Located in Cambridge, Massachusetts |
| · | Completed Ground-up Development of a 97,000 Rentable Square Feet Single Tenant Building Located in the Research Triangle Park Market; 100% Leased |
| · | Completed Redevelopment of 47,500 Rentable Square Feet Located in the Greater Boston Market; 100% Leased |
| · | Completed Ground Lease of Land and Improvements in Canada to Tenant for Construction of a 783,255 Rentable Square Foot Laboratory Building |
Nine Months Ended September 30, 2011:
| · | Nine Months Ended September 30, 2011, FFO Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $3.40 Before Loss on Early Extinguishment of Debt and Non-Cash Impairment Charge, Compared to Nine Months Ended September 30, 2010, FFO Per Share (Diluted) of $3.29 Before Loss on Early Extinguishment of Debt |
|---|---|
| · | Nine Months Ended September 30, 2011, Earnings Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $1.29, Compared to Nine Months Ended September 30, 2010, Earnings Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $0.49 |
| · | Executed 143 Leases for 2,265,000 Rentable Square Feet, Including 634,000 Rentable Square Feet of Redevelopment and Development Space |
| · | Cash and GAAP Rental Rate Decrease of 0.7% and Increase of 2.5%, Respectively, on Renewed/Re-leased Space |
| · | Cash and GAAP Same Property Net Operating Income Increases of 5.5% and 0.2%, Respectively |
| · | Repurchased, in Privately Negotiated Transactions, $217.1 Million of 3.70% Unsecured Convertible Notes |
| · | Closed $750 Million Unsecured Term Loan |
| · | Extended Maturity Date and Increased Commitments on Unsecured Line of Credit to $1.5 Billion |
| · | Acquired 4755 Nexus Center Drive, a Newly and Partially Completed 41,710 Rentable Square Foot Development Project Located in University Town Center in the San Diego Market |
| · | Acquired 409 and 499 Illinois Street, a Newly and Partially Completed 453,256 Rentable Square Foot Development Project Located in Mission Bay, San Francisco |
| · | Awarded LEED® Platinum Certification for 10300 Campus Pointe Drive, a Property Located in University Town Center in the San Diego Market |
| · | Awarded LEED® Gold Certifications for Alexandria Center™ for Life Science – New York City, 199 E. Blaine Street, a Property Located in the Seattle Market, and 455 Mission Bay Blvd., a Property Located in the San Francisco Market |
October 2011:
| · | Board of Directors Elects Stephen A. Richardson as Chief Operating Officer and Regional Market Director – San Francisco |
|---|---|
| · | Extended 2011 Maturity Date of $76 Million Secured Loan Into 2012 and in Discussions for an Additional 3-5 Year Extension |
| · | Sold a 30,000 Rentable Square Foot Property Located in the Suburbs of Boston, for $2.9 Million |
| · | Repaid Two Secured Loans Aggregating $32.7 Million |
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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS THIRD QUARTER ENDED SEPTEMBER 30, 2011 RESULTS
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PASADENA, CA. – October 25, 2011 – Alexandria Real Estate Equities, Inc. (NYSE: ARE) today announced financial and operating results for the third quarter ended September 30, 2011.
Financial Results
Revenue Trend – Past
For the three months ended September 30, 2011, we reported an increase in total revenues to $143,427,000 from $142,918,000 for the three months ended June 30, 2011. During the three months ended September 30, 2011, total rental revenue declined approximately $3 million. The decline in rental revenue was primarily due to the transition of three properties. Approximately $2 million of the decline in rental revenue related to 5200 Research Place, a property transitioning from a short term sale lease back with Biogen Idec Inc. to a 20 year triple net lease with Illumina, Inc. The original short-term lease with Biogen Idec Inc. was for an original term of 15 months. Upon execution of a lease with Illumina, Inc., we amended the short term lease with Biogen Idec Inc. in order to deliver space to Illumina, Inc. at an earlier date. The primary reason for the $2 million decline in rental revenue at this property was due to a $1.7 million decline in amortization of below market lease revenue. Annualized base rent per square foot at 5200 Research Place is expected to be approximately $38.26 per rentable square foot in the three months ended December 31, 2011, pursuant to a 20 year lease with Illumina, Inc. An additional $1 million decline in rental revenue from the three months ended June 30, 2011, to the three months ended September 30, 2011, was primarily due to 1) a decline in rental revenue for an office property located in Cambridge that will undergo a conversion into a laboratory building through redevelopment beginning in October 2011, and 2) another property located in the suburbs of Boston, in transition during the quarter from a prior tenant to a new tenant, resulting in a temporary decline in rental revenue. As of October 2011, the new tenant was in full occupancy of this property.
Revenue Trend – Future
Rental revenue and net operating income are projected to increase significantly quarter to quarter from the three months ended December 31, 2011, to the three months ended December 31, 2012. Annualized three months ended December 31, 2012, net operating income, when compared to annualized three months ended December 31, 2011, net operating income, is expected to increase by approximately $42 to $47 million primarily related to current and future redevelopment and development projects, a significant amount which is pre-leased. Additionally, the increase in net operating income is also due to annual contractual steps in cash rents, recent and anticipated leasing, and lease-up of vacant space.
Funds from Operations and Net Income Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders
For the three months ended September 30, 2011, we reported FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders of $67,972,000, or $1.11 per share (diluted), before loss on early extinguishment of debt and non-cash impairment charge, compared to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders of $55,151,000, or $1.11 per share (diluted), before loss on early extinguishment of debt, for the three months ended September 30, 2010. For the nine months ended September 30, 2011, we reported FFO attributed to Alexandria Real Estate Equities, Inc.’s common stockholders of $198,237,000, or $3.40 per share (diluted), before loss on early extinguishment of debt and non-cash impairment charge, compared to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders of $163,686,000, or $3.29 per share (diluted), before loss on early extinguishment of debt, for the nine months ended September 30, 2010. During the nine months ended September 30, 2011, we recognized an aggregate loss on early extinguishment of debt of approximately $6.5 million related to the repurchases, in privately negotiated transactions, of approximately $217.1 million of certain of our 3.70% unsecured convertible notes and the partial and early repayment of our unsecured term loan. In addition, we recognized a non-cash impairment charge of approximately $1.0 million related to one property during the nine months ended September 30, 2011. We sold this property to a user in October 2011 for approximately $2.9 million. Including the aggregate loss on early extinguishment of debt and non-cash impairment charge, FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the three and nine months ended September 30, 2011, was $64,274,000, or $1.05 per share (diluted), and 190,826,000, or $3.27 per share (diluted), respectively.
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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS THIRD QUARTER ENDED SEPTEMBER 30, 2011 RESULTS
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Financial Results (continued)
FFO is a non-GAAP measure widely used by real estate investment trusts. We compute FFO in accordance with standards established by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”) in its April 2002 White Paper and related implementation guidance. A reconciliation of net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders in accordance with United States generally accepted accounting principles (“GAAP”) to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders is included in the financial information accompanying this press release. The primary reconciling items between GAAP net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders and FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders are depreciation and amortization expense and gain on sales of property. Depreciation and amortization expense for the three months ended September 30, 2011 and 2010, was $39,990,000 and $32,009,000, respectively. Depreciation and amortization expense for the nine months ended September 30, 2011 and 2010, was $117,060,000 and $92,089,000, respectively. Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the three months ended September 30, 2011, was $24,662,000 or $0.40 per share (diluted), compared to net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders of $22,235,000, or $0.45 per share (diluted), for the three months ended September 30, 2010. Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the nine months ended September 30, 2011, was $75,013,000, or $1.29 per share (diluted), compared to net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders of $22,467,000, or $0.49 per share (diluted), for the nine months ended September 30, 2010.
The following table summarizes the significant items that impacted FFO (diluted) during each period presented (dollars in thousands, except per share amounts):
| **** | Three Months Ended | **** | Nine Months Ended | **** | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | **** | 6/30/11 | **** | 3/31/11 | **** | 12/31/10 | **** | 9/30/10 | **** | 9/30/11 | **** | 9/30/10 | **** | |||||||
| FFO attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders – numerator for FFO per share (diluted), as reported | $ | 64,274 | $ | 65,921 | $ | 60,636 | $ | 58,474 | $ | 53,862 | $ | 190,826 | $ | 121,292 | |||||||
| Loss on early extinguishment of debt | 2,742 | 1,248 | 2,495 | 2,372 | 1,300 | 6,485 | 42,796 | ||||||||||||||
| Non-cash impairment charge | 994 | – | – | – | – | 994 | – | ||||||||||||||
| Impact of unvested restricted stock awards | (38 | ) | (11 | ) | (21 | ) | (20 | ) | (11 | ) | (68 | ) | (402 | ) | |||||||
| FFO (diluted), as adjusted | $ | 67,972 | $ | 67,158 | $ | 63,110 | $ | 60,826 | $ | 55,151 | $ | 198,237 | $ | 163,686 | |||||||
| Weighted average shares of common stock outstanding for calculating FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – denominator for FFO per share (diluted), as reported | 61,310,016 | 58,519,169 | 54,973,802 | 54,893,410 | 49,864,225 | 58,290,792 | 49,745,649 | ||||||||||||||
| FFO per share (diluted), as adjusted | $ | 1.11 | $ | 1.15 | $ | 1.15 | $ | 1.11 | $ | 1.11 | $ | 3.40 | $ | 3.29 |
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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS THIRD QUARTER ENDED SEPTEMBER 30, 2011 RESULTS
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Leasing Activity
For the three months ended September 30, 2011, we executed a total of 56 leases for approximately 985,000 rentable square feet at 40 different properties (excluding month-to-month leases). Of this total, approximately 402,000 rentable square feet related to new or renewal leases of previously leased space (renewed/re-leased space) and approximately 583,000 rentable square feet related to developed, redeveloped, or previously vacant space. Of the 583,000 rentable square feet, approximately 458,000 rentable square feet were related to our development or redevelopment programs, with the remaining approximately 125,000 rentable square feet related to previously vacant space. Rental rates for these new or renewal leases (renewed/re-leased space) were on average approximately 2.8% higher on a GAAP basis than rental rates for the respective expiring leases.
For the nine months ended September 30, 2011, we executed a total of 143 leases for approximately 2,265,000 rentable square feet at 60 different properties (excluding month-to-month leases). Of this total, approximately 1,171,000 rentable square feet related to new or renewal leases of previously leased space (renewed/re-leased space) and approximately 1,094,000 rentable square feet related to developed, redeveloped, or previously vacant space. Of the 1,094,000 rentable square feet, approximately 634,000 rentable square feet were related to our development or redevelopment programs, and the remaining approximately 460,000 rentable square feet were related to previously vacant space. Rental rates for these new or renewal leases (renewed/re-leased space) were on average approximately 2.5% higher on a GAAP basis than rental rates for the respective expiring leases.
As of September 30, 2011, approximately 95% of our leases (on a rentable square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes, insurance, utilities, common area, and other operating expenses (including increases thereto) in addition to base rent. Additionally, approximately 92% of our leases (on a rentable square footage basis) provided for the recapture of certain capital expenditures, and approximately 94% of our leases (on a rentable square footage basis) contained effective annual rent escalations that were either fixed or indexed based on the consumer price index or another index.
Investment Grade Rating
In July 2011, we received a Baa2 (stable outlook) and a BBB- (stable outlook) investment grade rating from two major rating agencies. Key strengths of our balance sheet and business which highlight our investment grade credit profile include, among others, solid liquidity on balance sheet, diverse and credit worthy tenant base, well located properties proximate to leading research institutions, favorable lease terms, solid and stable occupancy and cash flows, and proven life science and real estate expertise. This significant milestone broadens our access to another key source of capital and allows us to continue to pursue our long-term capital, investment, and operating strategies. Issuance of unsecured bonds will allow us to transition bank related debt financing to unsecured bonds, variable rate debt to fixed rate debt, and short tenured debt to long tenured debt.
Unsecured Credit Facility
In January 2011, we entered into a third amendment (the “Third Amendment”) to our second amended and restated credit agreement dated October 31, 2006, as further amended on December 1, 2006 and May 2, 2007 (the “Prior Credit Agreement,” and as amended by the Third Amendment, the “Amended Credit Agreement”), with Bank of America, N.A., as administrative agent, and certain lenders. The Third Amendment amended the Prior Credit Agreement to, among other things, increase the maximum permitted borrowings under the unsecured line of credit from $1.15 billion to $1.5 billion, plus a $750 million unsecured term loan (the “2012 Unsecured Term Loan” and together with the unsecured line of credit, the “Unsecured Credit Facility”) and provided an accordion option to increase commitments under the Unsecured Credit Facility by up to an additional $300 million. Borrowings under the Unsecured Credit Facility bear interest at LIBOR or the specified base rate, plus in either case a margin specified in the Amended Credit Agreement (the “Applicable Margin”). The Applicable Margin for LIBOR borrowings outstanding under the revolving credit facility was 2.3% as of September 30, 2011. The Applicable Margin for the LIBOR borrowings under the 2012 Unsecured Term Loan was not amended in the Third Amendment.
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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS THIRD QUARTER ENDED SEPTEMBER 30, 2011 RESULTS
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Unsecured Credit Facility (continued)
Under the Third Amendment, the maturity date for the unsecured line of credit is January 2015, assuming we exercise our sole right under the amendment to extend this maturity date twice by an additional six months after each exercise. The maturity date of the 2012 Unsecured Term Loan is October 2012. The Third Amendment modified certain financial covenants with respect to the Unsecured Credit Facility, including the fixed charge coverage ratio, secured debt ratio, leverage ratio, and minimum book value, and added covenants relating to an unsecured leverage ratio and unsecured debt yield.
2016 Unsecured Term Loan
In February 2011, we entered into a $250 million unsecured term loan. In June 2011, we amended this $250 million unsecured term loan (as amended, the “2016 Unsecured Term Loan”) to, among other things, increase the borrowings from $250 million to $750 million and to extend the maturity from January 2015 to June 2016, assuming we exercise our sole right to extend the maturity date by one year. Borrowings under the 2016 Unsecured Term Loan bear interest at LIBOR or the specified base rate, plus in either case a margin specified in the amended unsecured term loan agreement. The applicable margin for the LIBOR borrowings under the 2016 Unsecured Term Loan as of September 30, 2011, was 1.65%. Under the 2016 Unsecured Term Loan agreement, the financial covenants were not amended and are identical to the financial covenants required under our existing Unsecured Credit Facility. The 2016 Unsecured Term Loan may be repaid at any date prior to maturity without a prepayment penalty. The net proceeds from this 2016 Unsecured Term Loan were used to reduce outstanding borrowings on the 2012 Unsecured Term Loan from $750 million to $250 million. As a result of this early repayment, in the three and six months ended June 30, 2011, we recognized a loss on early extinguishment of debt of approximately $1.2 million related to the write-off of unamortized loan fees.
3.70% Unsecured Convertible Notes
During the three months ended September 30, 2011, we repurchased, in privately negotiated transactions, approximately $121.1 million of certain of our 3.70% unsecured convertible notes at an aggregate cash price of approximately $122.8 million. As a result of these repurchases, we recognized an aggregate loss on early extinguishment of debt of approximately $2.7 million. As of September 30, 2011, approximately $84.3 million of our 3.70% unsecured convertible notes was outstanding, net of approximately $0.5 million of unamortized discount.
During the three months ended March 31, 2011, we repurchased, in privately negotiated transactions, approximately $96.1 million of certain of our 3.70% unsecured convertible notes at an aggregate cash price of approximately $98.6 million. As a result of these repurchases, we recognized an aggregate loss on early extinguishment of debt of approximately $2.5 million during the three months ended March 31, 2011.
Acquisitions
In June 2011, we acquired 285 Bear Hill Road, a 26,270 rentable square foot office property located in the Greater Boston market, for approximately $3.9 million. We plan to begin the redevelopment of this property into life science laboratory space in the three months ended December 31, 2011. Based on our view of existing market conditions and certain assumptions at the time of the acquisition, we expect to achieve a stabilized yield on a GAAP and cash basis for this property of approximately 8.6% and 8.0%, respectively. Stabilized yield on cost is calculated as the quotient of net operating income and our investment in the property at stabilization (“Stabilized Yield”).
In April 2011, we acquired 409 and 499 Illinois Street, a newly and partially completed world-class 453,256 rentable square foot laboratory/office development project located on a highly desirable waterfront location in Mission Bay, San Francisco, for approximately $293 million. 409 Illinois Street is a 241,659 rentable square foot tower that is 97% leased to a life science company through November 2023. 499 Illinois Street is a vacant 211,597 rentable square foot tower in shell condition for which we plan to complete the development. Based on our view of existing market conditions and certain assumptions at the time of the acquisition, we expect to achieve a Stabilized Yield on a GAAP and cash basis for this property in the range of 7.2% to 7.6% and 6.5% to 7.0%, respectively.
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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS THIRD QUARTER ENDED SEPTEMBER 30, 2011 RESULTS
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Dispositions
In August 2011, we sold a parcel of land located in San Diego, California for approximately $17.3 million at a gain of $46,000. The buyer is expected to construct a building with approximately 249,000 rentable square feet, representing a sale price of approximately $70 per rentable square foot.
During the three months ended September 30, 2011, 13-15 DeAngelo Drive, a vacant 30,000 rentable square foot property, located in the suburbs of Boston, Massachusetts, met the criteria for classification as “held for sale.” This property was occupied by a credit life science tenant through June 30, 2011. Upon move out, a user for the building presented an offer for the purchase of the building in the three months ended September 30, 2011. As a result, we recognized an impairment charge of approximately $1.0 million in the three months ended September 30, 2011, to adjust the carrying value to the estimated fair value less costs to sell. In October 2011, we sold 13-15 DeAngelo Drive to that user, for approximately $2.9 million, representing a sale price of approximately $97 per rentable square foot.
Development
In August 2011, we completed the ground-up development of 7 Triangle Drive, a 97,000 rentable square foot single-tenant building located in the Research Triangle Park market, which is currently 100% leased as of September 30, 2011. Our Stabilized Yield on a GAAP and cash basis for this property was approximately 9.3% and 8.3%, respectively.
In July 2011, we executed a new lease for a 307,000 rentable square feet ground-up development with Biogen Idec, Inc. at Alexandria CenterTM at Kendall Square. The ground breaking for this project will occur in late October 2011, and we will add the project to our disclosure of active ground-up development for the three months ended December 31, 2011.
ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS THIRD QUARTER ENDED SEPTEMBER 30, 2011 RESULTS
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Earnings Outlook
Based on our current view of existing market conditions and certain current assumptions, we expect our FFO per share (diluted) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders and earnings per share (diluted) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the years ended December 31, 2011 and 2012 will be as follows:
| **** | Year Ended December 31, | ||
|---|---|---|---|
| **** | 2011 | **** | 2012 |
| FFO per share (diluted) | $4.38 | (1) | $4.50 - $4.54 |
| Earnings per share (diluted) | $1.72 | (1) | $1.85 - $1.89 |
| (1) | Includes loss on early extinguishment of debt and non-cash impairment charge of approximately <br> $6.5 million and $1.0 million, respectively, or approximately $0.13 per share in aggregate, for the <br> nine months ended September 30, 2011. | ||
| --- | --- |
The following table provides a reconciliation of our prior FFO per share (diluted) guidance to our current guidance for year ended December 31, 2011:
| **** | As Disclosed in Second Quarter Earnings | Change | **** | As Disclosed in Third Quarter Earnings |
|---|---|---|---|---|
| Guidance range as reported on May 4, 2011, in connection with our first quarter 2011 earnings call | 4.52 - 4.57 | 4.52 - 4.57 | ||
| Loss on early extinguishment of debt in June 2011 | (0.02 | – | (0.02 | |
| Loss on early extinguishment of debt in July 2011 | (0.04 | – | (0.04 | |
| Loss on early extinguishment of debt in August and September 2011 | – | (0.01 | ) | (0.01 |
| Refinancing of 2012 Unsecured Term Loan | (0.02 | – | (0.02 | |
| Deferral of unsecured debt financing assumption (previously estimated in 2011) | (0.05 | 0.05 | – | |
| Decrease in estimated acquisitions | (0.01 | (0.01 | ) | (0.02 |
| Timing of repurchases of convertible notes and extension of secured notes | (0.01 | (0.01 | ) | (0.02 |
| Non-cash impairment charge | – | (0.02 | ) | (0.02 |
| Increase in general and administrative expenses | – | (0.01 | ) | (0.01 |
| Non-recoverable operating expenses | – | (0.01 | ) | (0.01 |
| (0.15 | (0.02 | ) | (0.17 | |
| Guidance, as reported | 4.37 - 4.42 | 4.38 |
All values are in US Dollars.
Rental revenue and net operating income are projected to increase significantly quarter to quarter from the three months ended December 31, 2011, to the three months ended December 31, 2012. Annualized three months ended December 31, 2012 net operating income, when compared to annualized three months ended December 31, 2011 net operating income, is expected to increase by approximately $42 to $47 million primarily related to current and future redevelopment and development projects, a significant amount which is pre-leased. Additionally, the increase in net operating income is also due to annual contractual steps in cash rents, recent and anticipated leasing, and lease-up of vacant space.
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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS THIRD QUARTER ENDED SEPTEMBER 30, 2011 RESULTS
Page 8
Sources and Uses of Capital
We expect that our principal liquidity needs for the three months ended December 31, 2011, through three months ended December 31, 2012, will be satisfied by the following multiple sources of capital as shown in the table below (amounts in millions). For the three months ended December 31, 2011, and for the year ended December 31, 2012, we expect to have significant capital requirements, including amounts shown in the table below. There can be no assurance that our sources and uses of capital will not be materially higher or lower than these expectations.
| Sources of Capital for Fourth Quarter 2011 Through Fourth Quarter 2012 | 4Q11 through 4Q12 | **** | ||||
|---|---|---|---|---|---|---|
| Cash and cash equivalents as of September 30, 2011 | $ | 73 | ||||
| Restricted cash as of September 30, 2011 | 28 | |||||
| Net cash provided by operating activities | 310 | (1) | ||||
| Asset sales | 112 | (2) | ||||
| Availability under our $1.5 billion unsecured line of credit as of September 30, 2011 | 686 | |||||
| Extended 2011 maturity date of secured loan into 2012 | 76 | (3) | ||||
| New unsecured term loan (see footnote (4) below) | 450 | |||||
| Unsecured senior notes | TBD | (5) | ||||
| Total | $ | 1,735 | ||||
| Three Months Ended December 31, | **** | Year Ended December 31, | **** | |||
| --- | --- | --- | --- | --- | --- | --- |
| Uses of Capital | 2011 | **** | 2012 | **** | ||
| Acquisitions | $ | 20 | $ | – | ||
| Construction: | ||||||
| Redevelopment projects | 62 | 148 | ||||
| Development projects | 20 | 147 | ||||
| Projects in India and China | 21 | 62 | ||||
| Preconstruction and other projects | 16 | 16 | ||||
| Secured notes payable principal repayments | 79 | (3) | 13 | |||
| Unsecured convertible note principal repayments | – | 85 | ||||
| 2012 Unsecured Term Loan principal repayment | – | 250 | (4) | |||
| Preferred stock dividends | 7 | 28 | ||||
| Common stock dividends | 29 | 116 | ||||
| Total | $ | 254 | (3) | $ | 865 | (4) |
| (1) | Represents net cash provided by operating activities for the nine months ended September 30, 2011, multiplied by 167.7% in order to estimate net cash provided by operating activities for the fourth quarter 2011 through fourth quarter 2012. | |||||
| --- | --- | |||||
| (2) | In light of current market conditions, we expect to implement a more aggressive asset disposition strategy, beyond estimated asset sales in this table, to provide capital for reinvestment into our business. | |||||
| (3) | Amount includes a $76 million secured bank loan. We extended the 2011 maturity date of this loan into 2012 and are in discussions for an additional 3-5 year extension. | |||||
| (4) | Our 2012 Unsecured Term Loan matures in October 2012. We are currently negotiating a new unsecured term loan with a target amount between $400 and $500 million. The proceeds of this new loan will be used initially to reduce outstanding balances on our unsecured line of credit. Ultimately, a portion of these proceeds will provide funds to repay our 2012 Unsecured Term Loan. | |||||
| (5) | Amount and timing of issuance of unsecured bonds will be subject to the debt capital market environment. |
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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS THIRD QUARTER ENDED SEPTEMBER 30, 2011 RESULTS
Page 9
Client Tenant Base
The quality, diversity, breadth, and depth of our significant relationships with our life science client tenants provide Alexandria Real Estate Equities, Inc. with solid cash flows. As of September 30, 2011, Alexandria’s multinational pharmaceutical client tenants represented approximately 25% of our annualized base rent, led by Novartis AG, Eli Lilly and Company, Roche Holding Ltd, Bristol-Myers Squibb Company, GlaxoSmithKline plc, and Pfizer Inc.; public biotechnology companies represented approximately 17% and included Amgen Inc., Gilead Sciences, Inc., Biogen Idec Inc., and Celgene Corporation; revenue-producing life science product and service companies represented approximately 22%, led by Illumina, Inc., Quest Diagnostics Incorporated, Qiagen N.V., Laboratory Corporation of America Holdings, and Monsanto Company; government agencies and renowned medical and research institutions represented approximately 16% and included Massachusetts Institute of Technology, The Scripps Research Institute, The Regents of the University of California, Fred Hutchinson Cancer Research Center, University of Washington, Sanford-Burnham Medical Research Institute, and the United States Government; private biotechnology companies represented approximately 15% and included high-quality, leading-edge companies with blue-chip venture and institutional investors, including FibroGen, Inc., Achaogen Inc., Intellikine, Inc., MacroGenics, Inc., and Forma Therapeutics, Inc.; and the remaining approximately 5% consisted of traditional office tenants. Alexandria’s strong life science underwriting skills, long-term life science industry relationships, and sophisticated management with both real estate and life science operating expertise set the Company apart from all other publicly traded REITs and real estate companies.
Earnings Call Information
We will host a conference call on Wednesday, October 26, 2011, 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 three months ended September 30, 2011. To participate in this conference call, dial (719) 457-2668 and confirmation code 7211433, shortly before 3:00 p.m. ET/12:00 p.m. noon PT. The audio web cast can be accessed at: www.are.com, in the Corporate Information 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 Wednesday, October 26, 2011. The replay number is (719) 457-0820 and the confirmation code is 7211433.
Additionally, a copy of Alexandria Real Estate Equities, Inc.’s Supplemental Financial, Operating, & Property Information for the three months ended September 30, 2011, and this press release are available in the Corporate Information section of our website at www.are.com.
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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS THIRD QUARTER ENDED SEPTEMBER 30, 2011 RESULTS
Page 10
About the Company
Alexandria Real Estate Equities, Inc., Landlord of Choice to the Life Science Industry®, is the largest owner and preeminent REIT focused principally on cluster development through the ownership, operation, management, and selective acquisition, redevelopment, and development of properties containing life science laboratory space. Alexandria is the leading provider of high-quality, environmentally sustainable real estate, technical infrastructure, and services to the broad and diverse life science industry. Client tenants include institutional (universities and independent non-profit institutions), pharmaceutical, biotechnology, medical device, product, and service entities, and government agencies. Alexandria’s primary business objective is to maximize stockholder value by providing its stockholders with the greatest possible total return based on a multifaceted platform of internal and external growth. Alexandria’s operating platform is based on the principle of “clustering” with assets and operations located adjacent to life science entities driving growth and technological advances within each cluster.
As of October 25, 2011, we had 171 properties aggregating 14.9 million rentable square feet comprised of approximately 13.6 million rentable square feet of operating properties, approximately 747,248 rentable square feet undergoing active redevelopment, and approximately 531,486 rentable square feet undergoing active development. Our asset base will enable us to grow to approximately 33.4 million rentable square feet through additional ground-up development and other projects of approximately 18.5 million rentable square feet.
***********
This press release 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 2011 earnings per share (diluted) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders and 2011 FFO per share (diluted) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders. Our actual results may differ materially from those projected in such 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 or increased vacancy rates or failure to renew or replace expiring leases, defaults on or non-renewal of leases by tenants, general and local economic conditions, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission (“SEC”). All forward-looking statements are made as of the date of this press release, and we assume no obligation to update this information. 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.
(Tables follow)
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
| **** | Three Months Ended | **** | Nine Months Ended | **** | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | **** | 9/30/10 | **** | 9/30/11 | **** | 9/30/10 | **** | ||||
| Revenues | ||||||||||||
| Rental | $ | 106,160 | $ | 89,567 | $ | 321,306 | $ | 266,349 | ||||
| Tenant recoveries | 34,792 | 29,179 | 100,262 | 81,655 | ||||||||
| Other income | 2,475 | 1,568 | 4,195 | 3,555 | ||||||||
| Total revenues | 143,427 | 120,314 | 425,763 | 351,559 | ||||||||
| Expenses | ||||||||||||
| Rental operations | 42,608 | 33,154 | 123,544 | 94,275 | ||||||||
| General and administrative | 10,297 | 8,042 | 30,552 | 25,777 | ||||||||
| Interest | 14,273 | 16,078 | 48,650 | 52,351 | ||||||||
| Depreciation and amortization | 39,652 | 31,758 | 116,189 | 91,334 | ||||||||
| Total expenses | 106,830 | 89,032 | 318,935 | 263,737 | ||||||||
| Income from continuing operations before loss on early extinguishment of debt | 36,597 | 31,282 | 106,828 | 87,822 | ||||||||
| Loss on early extinguishment of debt | (2,742 | ) | (1,300 | ) | (6,485 | ) | (42,796 | ) | ||||
| Income from continuing operations | 33,855 | 29,982 | 100,343 | 45,026 | ||||||||
| (Loss) income from discontinued operations, net | (906 | ) | 479 | (458 | ) | 1,996 | ||||||
| Gain on sales of land parcels | 46 | – | 46 | – | ||||||||
| Net income | 32,995 | 30,461 | 99,931 | 47,022 | ||||||||
| Net income attributable to noncontrolling interests | 966 | 920 | 2,833 | 2,785 | ||||||||
| Dividends on preferred stock | 7,089 | 7,089 | 21,267 | 21,268 | ||||||||
| Net income attributable to unvested restricted stock awards | 278 | 217 | 818 | 502 | ||||||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | $ | 24,662 | $ | 22,235 | $ | 75,013 | $ | 22,467 | ||||
| Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic | ||||||||||||
| Continuing operations | $ | 0.41 | $ | 0.44 | $ | 1.30 | $ | 0.45 | ||||
| Discontinued operations, net | (0.01 | ) | 0.01 | (0.01 | ) | 0.04 | ||||||
| Earnings per share – basic | $ | 0.40 | $ | 0.45 | $ | 1.29 | $ | 0.49 | ||||
| Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted | ||||||||||||
| Continuing operations | $ | 0.41 | $ | 0.44 | $ | 1.30 | $ | 0.45 | ||||
| Discontinued operations, net | (0.01 | ) | 0.01 | (0.01 | ) | 0.04 | ||||||
| Earnings per share – diluted | $ | 0.40 | $ | 0.45 | $ | 1.29 | $ | 0.49 |
11
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
| **** | September 30, | **** | December 31, | **** | ||
|---|---|---|---|---|---|---|
| **** | 2011 | **** | 2010 | **** | ||
| Assets | ||||||
| Investments in real estate | $ | 6,635,872 | $ | 6,060,821 | ||
| Less: accumulated depreciation | (710,580 | ) | (616,007 | ) | ||
| Investments in real estate, net | 5,925,292 | 5,444,814 | ||||
| Cash and cash equivalents | 73,056 | 91,232 | ||||
| Restricted cash | 27,929 | 28,354 | ||||
| Tenant receivables | 6,599 | 5,492 | ||||
| Deferred rent | 132,954 | 116,849 | ||||
| Investments | 88,777 | 83,899 | ||||
| Other assets | 200,949 | 135,221 | ||||
| Total assets | $ | 6,455,556 | $ | 5,905,861 | ||
| Liabilities, Noncontrolling Interests, and Equity | ||||||
| Secured notes payable | $ | 760,882 | $ | 790,869 | ||
| Unsecured line of credit | 814,000 | 748,000 | ||||
| Unsecured term loans | 1,000,000 | 750,000 | ||||
| Unsecured convertible notes | 84,484 | 295,293 | ||||
| Accounts payable, accrued expenses, and tenant security deposits | 330,044 | 304,257 | ||||
| Dividends payable | 35,287 | 31,114 | ||||
| Total liabilities | 3,024,697 | 2,919,533 | ||||
| Redeemable **** noncontrolling interests | 15,931 | 15,920 | ||||
| Alexandria Real Estate Equities, Inc.’s stockholders’ equity: | ||||||
| Series C preferred stock | 129,638 | 129,638 | ||||
| Series D cumulative convertible preferred stock | 250,000 | 250,000 | ||||
| Common stock | 614 | 550 | ||||
| Additional paid-in capital | 3,025,444 | 2,566,238 | ||||
| Retained earnings | – | 734 | ||||
| Accumulated other comprehensive loss | (32,202 | ) | (18,335 | ) | ||
| Alexandria Real Estate Equities, Inc.’s stockholders’ equity | 3,373,494 | 2,928,825 | ||||
| Noncontrolling interests | 41,434 | 41,583 | ||||
| Total equity | 3,414,928 | 2,970,408 | ||||
| Total **** liabilities, noncontrolling interests, and equity | $ | 6,455,556 | $ | 5,905,861 |
12
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Earnings per Share
(Dollars in thousands, except per share amounts)
(Unaudited)
Earnings per Share
| **** | Three Months Ended | Nine Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | 9/30/10 | 9/30/11 | 9/30/10 | ||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders – numerator for basic earnings per share | $ | 24,662 | $ | 22,235 | $ | 75,013 | $ | 22,467 |
| Effect of assumed conversion and dilutive securities: | ||||||||
| Assumed conversion of 8% unsecured convertible notes | – | – | – | – | ||||
| Amounts attributable to unvested restricted stock awards | – | – | – | – | ||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders – numerator for diluted earnings per share | $ | 24,662 | $ | 22,235 | $ | 75,013 | $ | 22,467 |
| Weighted average shares of common stock outstanding for calculating earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – denominator for basic earnings per share | 61,295,659 | 49,807,241 | 58,271,270 | 46,188,308 | ||||
| Effect of assumed conversion and dilutive securities: | ||||||||
| Assumed conversion of 8% unsecured convertible notes | – | – | – | – | ||||
| Dilutive effect of stock options | 8,310 | 23,098 | 13,475 | 31,813 | ||||
| Weighted average shares of common stock outstanding for calculating earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – denominator for diluted earnings per share | 61,303,969 | 49,830,339 | 58,284,745 | 46,220,121 | ||||
| Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | ||||||||
| Basic | $ | 0.40 | $ | 0.45 | $ | 1.29 | $ | 0.49 |
| Diluted | $ | 0.40 | $ | 0.45 | $ | 1.29 | $ | 0.49 |
13
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Funds from Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
Funds from Operations (“FFO”) (1)
The following table presents a reconciliation of net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders, the most directly comparable financial measure calculated and presented in accordance with United States generally accepted accounting principles (“GAAP”), to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the periods below:
| **** | Three Months Ended | **** | Nine Months Ended | **** | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 (2) | **** | 9/30/10 | **** | 9/30/11 (2) | **** | 9/30/10 | **** | ||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders | $ | 24,662 | $ | 22,235 | $ | 75,013 | $ | 22,467 | ||||
| Add: Depreciation and amortization | 39,990 | 32,009 | 117,060 | 92,089 | ||||||||
| Add: Net income attributable to noncontrolling interests | 966 | 920 | 2,833 | 2,785 | ||||||||
| Add: Net income attributable to unvested restricted stock awards | 278 | 217 | 818 | 502 | ||||||||
| Subtract: Gain on sales of property | (46 | ) | – | (46 | ) | (24 | ) | |||||
| Subtract: FFO attributable to noncontrolling interests | (933 | ) | (1,053 | ) | (3,031 | ) | (3,190 | ) | ||||
| Subtract: FFO attributable to unvested restricted stock awards | (647 | ) | (491 | ) | (1,837 | ) | (1,090 | ) | ||||
| FFO attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders – numerator for basic FFO per share | 64,270 | 53,837 | 190,810 | 113,539 | ||||||||
| Effect of assumed conversion and dilutive securities: | ||||||||||||
| Assumed conversion of 8% unsecured convertible notes | 4 | 25 | 16 | 7,779 | ||||||||
| Amounts attributable to unvested restricted stock awards | – | – | – | (26 | ) | |||||||
| FFO attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders – numerator for FFO per share (diluted) | $ | 64,274 | $ | 53,862 | $ | 190,826 | $ | 121,292 | ||||
| Weighted average shares of common stock outstanding for calculating FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – denominator for basic FFO per share | 61,295,659 | 49,807,241 | 58,271,270 | 46,188,308 | ||||||||
| Effect of assumed conversion and dilutive securities: | ||||||||||||
| Assumed conversion of 8% unsecured convertible notes | 6,047 | 33,886 | 6,047 | 3,525,528 | ||||||||
| Dilutive effect of stock options | 8,310 | 23,098 | 13,475 | 31,813 | ||||||||
| Weighted average shares of common stock outstanding for calculating FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – denominator for FFO per share (diluted) | 61,310,016 | 49,864,225 | 58,290,792 | 49,745,649 | ||||||||
| FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | ||||||||||||
| Basic | $ | 1.05 | $ | 1.08 | $ | 3.27 | $ | 2.46 | ||||
| Diluted | $ | 1.05 | $ | 1.08 | $ | 3.27 | $ | 2.44 |
(1) See note regarding FFO on the following page.
(2) See page 3 for additional information on significant items impacting comparability of funds from operations.
14
Note Regarding Funds from Operations
GAAP basis accounting for real estate assets utilizes historical cost accounting and assumes real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets, the Board of Governors of NAREIT established the measurement tool of Funds from Operations (“FFO”). Since its introduction, FFO has become a widely used non-GAAP financial measure among real estate investment trusts (“REITs”). We believe that FFO is helpful to investors as an additional measure of the performance of an equity REIT. We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its April 2002 White Paper (the “White Paper”) and related implementation guidance, which may differ from the methodology for calculating FFO utilized by other equity REITs, and, accordingly, may not be comparable to such other REITs. The White Paper defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.
15
Exhibit 99.2
 <br><br><br><br><br><br><br><br><br><br><br><br>SUPPLEMENTAL FINANCIAL, OPERATING, & <br> PROPERTY INFORMATION<br><br><br><br><br><br><br><br><br><br><br><br>Third Quarter Ended<br><br><br>September 30, 2011<br><br><br><br><br><br><br><br><br><br><br><br>Conference Call Information:<br><br><br>Wednesday, October 26, 2011<br><br><br>3:00PM Eastern Time/12:00PM Noon Pacific Time<br><br><br>Number: (719) 457-2668<br><br><br>Confirmation Code: 7211433<br><br><br><br><br><br><br><br><br><br><br><br>385 EAST COLORADO BOULEVARD, SUITE 299<br><br><br>PASADENA, CALIFORNIA 91101<br><br><br>(626) 578-9693<br><br><br>www.are.com |
|---|
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Table of Contents
September 30, 2011
(Unaudited)
| **** | Page |
|---|---|
| Company Profile | 3 |
| Investor Information | 4 |
| Equity Research Coverage and Rating Agencies | 5 |
| Third Quarter Ended September 30, 2011 Financial and Operating Results | 6 |
| Condensed Consolidated Statements of Income | 15 |
| Condensed Consolidated Balance Sheets | 16 |
| Earnings per Share | 17 |
| Funds from Operations | 18 |
| Adjusted Funds from Operations | 19 |
| Financial and Asset Base Highlights | 20 |
| Summary of Properties | 23 |
| Summary of Occupancy Percentage | 24 |
| Property Listing | 25 |
| Debt Information | 31 |
| Summary of Same Property Comparisons | 35 |
| Summary of Leasing Activity | 36 |
| Summary of Lease Expirations | 39 |
| 20 Largest Client Tenants | 40 |
| Client Tenant Mix | 41 |
| Summary of Additions and Dispositions of Properties | 42 |
| Real Estate and Value-Added Projects | 43 |
| Summary of Capital Expenditures | 52 |
| Definitions and Other Information | 53 |
This Supplemental Financial, Operating, & Property Information package 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. You can identify the forward-looking statements by their use of forward-looking words, such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates,” or the negative of those words or similar words. Our actual results may differ materially from those projected in such 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, lower rental rates or higher vacancy rates or failure to renew or replace expiring leases, defaults on or non-renewal of leases by tenants, general and local economic conditions, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission (“SEC”). All forward-looking statements are made as of October 25, 2011, the date this Supplemental Financial, Operating, & Property Information package was first made available on our website, and we assume no obligation to update this information. 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.
This Supplemental Financial, Operating, & Property Information package is not an offer to sell or solicitation to buy securities of Alexandria Real Estate Equities, Inc. Any offers to sell or solicitations to buy securities of Alexandria Real Estate Equities, Inc. shall be made only by means of a prospectus approved for that purpose. Unless otherwise indicated, the “Company,” “we,” “us,” and “our” refer to Alexandria Real Estate Equities, Inc. and its consolidated subsidiaries.
2
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Company Profile
September 30, 2011
The Company
Alexandria Real Estate Equities, Inc. (the “Company” or “Alexandria”), a self-administered and self-managed real estate investment trust (“REIT”), is the largest owner and preeminent REIT focused principally on science-driven cluster formation. Our operating platform is based on the principle of “clustering” with high-quality assets and operations located adjacent to life science research and innovation entities driving growth and technological advances. The Company has significant real estate assets adjacent to these key life science entities which we believe results in higher occupancy levels, longer lease terms, higher rental income, and higher returns. Our targeted locations are in the best submarkets within each of the top life science cluster destinations, including San Francisco and San Diego, California; Greater Boston; New York City, New Jersey, and Suburban Philadelphia; Research Triangle Park, North Carolina; Suburban Washington, D.C.; Seattle, Washington; and international locations. Client tenants include institutional (universities and independent non-profit institutions), pharmaceutical, biotechnology, medical device, product, and service entities, and government agencies. The Company was founded in 1994 by Jerry M. Sudarsky and Joel S. Marcus and the Company executed its initial public offering in 1997. Alexandria is the leading life science real estate company and is known for its very well located high-quality environmentally sustainable real estate, technical infrastructure, and its long term experience, and the unique expertise it provides to its broad and diverse high-quality life science industry client tenant base.
Management
Alexandria’s executive and senior management team is highly experienced in the REIT industry (uniquely with both real estate and life science experience and expertise) and is the most accomplished team focused on providing high-quality environmentally sustainable real estate, technical infrastructure, and unique expertise to the broad and diverse life science industry. Our deep and talented team has decades of real estate and life science industry experience. We believe that our expertise, experience, reputation, and key life science relationships provide Alexandria significant competitive advantages in attracting new business opportunities. Our management team also includes highly experienced regional market directors averaging over 20 years of real estate experience and almost 10 years with Alexandria. Our regional market directors have significant experience, expertise, as well as highly valuable relationships and networks that enable Alexandria to develop long-term relationships with preeminent life science entities.
Strategy
Alexandria’s primary business objective is to maximize stockholder value by providing its stockholders with the greatest possible total return based on a multifaceted platform of internal and external growth. The key elements to our strategy include our consistent focus on high-quality assets and operations in the top life science cluster destinations with our properties located adjacent to life science entities driving growth and technological advances within each cluster. These adjacency locations are characterized by high barriers to entry and exit, limited supply of available space, and represent highly desirable locations for tenancy by life science entities. Alexandria’s strategy also includes leveraging on its deep and broad life science and real estate relationships in order to attract new and leading life science client tenants and value-added real estate opportunities through acquisitions, redevelopment, and development.
Summary as of September 30, 2011
| Corporate headquarters | Pasadena, California |
|---|---|
| Markets | San Francisco, San Diego, Greater Boston, NYC/New Jersey/Suburban Philadelphia, Research Triangle Park, Suburban Washington, D.C., Seattle, and International |
| Fiscal year-end | December 31 |
| Total properties | 171 |
| Total rentable square feet | 14.9 million |
| Common shares outstanding | 61.5 million |
| Dividend – quarter/annualized | $0.47/$1.88 |
| Closing dividend yield – annualized | 3.1% |
| Total market capitalization | $6.8 billion |
3
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Investor Information
September 30, 2011
| Executive/Senior Management | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Joel S. Marcus | Chairman, Chief Executive Officer, & Founder | Thomas J. Andrews | EVP-Regional Market Director-Greater Boston | |||||||
| Dean A. Shigenaga | SVP, Chief Financial Officer, & Treasurer | John J. Cox | SVP-Regional Market Director-Seattle | |||||||
| Jennifer J. Pappas | SVP, General Counsel, & Corporate Secretary | John H. Cunningham | SVP-Regional Market Director-NY & Strategic Operations | |||||||
| Peter M. Moglia | Chief Investment Officer | Larry J. Diamond | SVP-Regional Market Director-Mid Atlantic | |||||||
| Vincent R. Ciruzzi | SVP-Construction and Development | Stephen A. Richardson | EVP-Regional Market Director-San Francisco | |||||||
| Daniel J. Ryan | SVP-Regional Market Director-San Diego & Strategic Operations | |||||||||
| Company Information | ||||||||||
| --- | --- | --- | ||||||||
| Corporate Headquarters | Trading Symbols | Information Requests | ||||||||
| 385 East Colorado Boulevard, Suite 299 | New York Stock Exchange (“NYSE”) | Phone: (626) 396-4828 | ||||||||
| Pasadena, California 91101 | Common stock: ARE | E-mail: [email protected] | ||||||||
| Series C preferred stock: ARE-C | Web: www.are.com | |||||||||
| Common Stock Data (NYSE: ARE) | ||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| **** | 3Q11 | 2Q11 | 1Q11 | 4Q10 | 3Q10 | |||||
| High trading price | $ | 85.33 | $ | 83.08 | $ | 80.72 | $ | 76.19 | $ | 73.89 |
| Low trading price | $ | 59.33 | $ | 75.09 | $ | 72.99 | $ | 65.60 | $ | 60.11 |
| Closing stock price, average for period | $ | 72.68 | $ | 78.31 | $ | 76.79 | $ | 71.25 | $ | 69.28 |
| Closing stock price, at the end of the quarter | $ | 61.39 | $ | 77.42 | $ | 77.97 | $ | 73.26 | $ | 70.00 |
| Dividends per share – annualized | $ | 1.88 | $ | 1.80 | $ | 1.80 | $ | 1.80 | $ | 1.40 |
| Closing dividend yield – annualized | 3.1% | 2.3% | 2.3% | 2.5% | 2.0% | |||||
| Common shares outstanding at the end of the quarter | 61,463,839 | 61,380,268 | 55,049,730 | 54,966,925 | 54,891,638 | |||||
| Closing market value of outstanding common shares (in thousands) | $ | 3,773,265 | $ | 4,752,060 | $ | 4,292,227 | $ | 4,026,877 | $ | 3,842,415 |
4
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Equity Research Coverage and Rating Agencies
September 30, 2011
| Equity Research Coverage | **** | **** | |||
|---|---|---|---|---|---|
| Argus Research | The Goldman Sachs Group, Inc. | Morningstar | |||
| William Eddleman, Jr. | (212) 425-7500 | Jonathan Habermann | (917) 343-4260 | Phillip Martin | (312) 286-9905 |
| **** | **** | Sloan Bohlen | (212) 902-2796 | Jason Ren | (312) 244-7008 |
| **** | **** | Conor Fennerty | (212) 902-4227 | **** | **** |
| Banc of America Securities-Merrill Lynch | Green Street Advisors | RBC Capital Markets | |||
| James Feldman | (646) 855-5808 | John Stewart | (949) 640-8780 | Dave Rodgers | (440) 715-2647 |
| Jeffrey Spector | (646) 855-1363 | Michael Knott | (949) 640-8780 | Michael Carroll | (440) 715-2649 |
| Ji Zhang | (646) 855-2926 | Lukas Hartwich | (949) 640-8780 | **** | **** |
| Barclays Capital | International Strategy & Investment Group Inc | RW Baird | **** | ||
| Ross Smotrich | (212) 526-2306 | Steve Sakwa | (212) 446-9462 | David AuBuchon | (314) 445-6520 |
| Matthew Rand | (212) 526-0248 | George Auerbach | (212) 446-9459 | Justin Webb | (314) 445-6515 |
| Gwen Clark | (212) 446-5611 | **** | **** | ||
| Citigroup Global Markets | JMP Securities | Standard & Poor’s | **** | ||
| Michael Bilerman | (212) 816-1383 | William Marks | (415) 835-8944 | Robert McMillan | (212) 438-9522 |
| Quentin Velleley | (212) 816-6981 | Rochan Raichura | (415) 835-3909 | ||
| David Shamis | (212) 816-5186 | **** | **** | ||
| Cowen and Company | JP Morgan Securities | UBS | **** | ||
| James Sullivan | (646) 562-1380 | Anthony Paolone | (212) 622-6682 | Ross Nussbaum | (212) 713-2484 |
| Michael Gorman | (646) 562-1381 | Joseph Dazio | (212) 622-6416 | Gabriel Hilmoe | (212) 713-3876 |
| Jeremy Woods | (212) 713-1102 | ||||
| Credit Suisse | Keefe, Bruyette & Woods | WJB Capital Group | |||
| Andrew Rosivach | (415) 249-7942 | Sheila McGrath | (212) 887-7793 | Jeffrey Langbaum | (646) 344-3310 |
| Kristin Brown | (212) 887-7738 | ||||
| Rating Agencies | **** | **** | |||
| Moody’s Investors Service | Standard & Poor’s | ||||
| Philip Kibel | (212) 553-4569 | Lisa Sarajian | (212) 438-2597 | ||
| Maria Maslovsky | (212) 553-4831 | George Skoufis | (212) 438-2608 |
Alexandria Real Estate Equities, Inc. is currently covered by the research analysts listed above. This list may not be complete and is subject to change as firms initiate or discontinue coverage of our company. Please note that any opinions, estimates, or forecasts regarding our historical or predicted performance made by these analysts are theirs alone and do not represent opinions, forecasts, or predictions of Alexandria Real Estate Equities, Inc. or its management. Alexandria Real Estate Equities, Inc. does not by its reference above or distribution imply its endorsement of or concurrence with such information, conclusions, or recommendations. Interested persons may obtain copies of analysts’ reports on their own as we do not distribute these reports. Several of these firms may from time-to-time own our stock and/or hold other long or short positions in our stock, and may provide compensated services to us.
5
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Third Quarter Ended September 30, 2011 Financial and Operating Results
Highlights
Three Months Ended September 30, 2011:
· Received Baa2/BBB- Stable Outlook Investment Grade Issuer Rating from Two Major Rating Agencies
· Three Months Ended September 30, 2011, Funds from Operations (“FFO”) Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $1.11 Before Loss on Early Extinguishment of Debt and Non-Cash Impairment Charge, Compared to Three Months Ended September 30, 2010, FFO Per Share (Diluted) of $1.11 Before Loss on Early Extinguishment of Debt
· Three Months Ended September 30, 2011, Earnings Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $0.40, Compared to Three Months Ended September 30, 2010, Earnings Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $0.45
· Executed 56 Leases for 985,000 Rentable Square Feet, Including 458,000 Rentable Square Feet of Redevelopment and Development Space; Second Highest Single Quarter of Leasing Activity in Company History
· Cash and GAAP Rental Rate Decrease of 3.0% and Increase of 2.8%, Respectively, on Renewed/Re-leased Space
· Cash and GAAP Same Property Net Operating Income Increase of 4.8% and Decrease of 0.2%, Respectively
· Occupancy of Operating Properties Increases to 94.6%; Occupancy of Operating and Redevelopment Properties Increases to 89.3%
· Repurchased, in Privately Negotiated Transactions, $121.1 Million of 3.70% Unsecured Convertible Notes
· Repaid Two Secured Loans Aggregating $11.2 Million
· Sold Parcel of Land Located in the San Diego Market for $17.3 Million
· Executed Long Term Lease for 307,000 Rentable Square Feet Single Tenant Ground-Up Development at Alexandria Center™ at Kendall Square Located in Cambridge, Massachusetts
· Completed Ground-up Development of a 97,000 Rentable Square Feet Single Tenant Building Located in the Research Triangle Park Market; 100% Leased
· Completed Redevelopment of 47,500 Rentable Square Feet Located in the Greater Boston Market; 100% Leased
· Completed Ground Lease of Land and Improvements in Canada to Tenant for Construction of a 783,255 Rentable Square Foot Laboratory Building
Nine Months Ended September 30, 2011:
· Nine Months Ended September 30, 2011, FFO Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $3.40 Before Loss on Early Extinguishment of Debt and Non-Cash Impairment Charge, Compared to Nine Months Ended September 30, 2010, FFO Per Share (Diluted) of $3.29 Before Loss on Early Extinguishment of Debt
· Nine Months Ended September 30, 2011, Earnings Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $1.29, Compared to Nine Months Ended September 30, 2010, Earnings Per Share (Diluted) Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders of $0.49
· Executed 143 Leases for 2,265,000 Rentable Square Feet, Including 634,000 Rentable Square Feet of Redevelopment and Development Space
· Cash and GAAP Rental Rate Decrease of 0.7% and Increase of 2.5%, Respectively, on Renewed/Re-leased Space
· Cash and GAAP Same Property Net Operating Income Increases of 5.5% and 0.2%, Respectively
· Repurchased, in Privately Negotiated Transactions, $217.1 Million of 3.70% Unsecured Convertible Notes
· Closed $750 Million Unsecured Term Loan
· Extended Maturity Date and Increased Commitments on Unsecured Line of Credit to $1.5 Billion
· Acquired 4755 Nexus Center Drive, a Newly and Partially Completed 41,710 Rentable Square Foot Development Project Located in University Town Center in the San Diego Market
· Acquired 409 and 499 Illinois Street, a Newly and Partially Completed 453,256 Rentable Square Foot Development Project Located in Mission Bay, San Francisco
· Awarded LEED® Platinum Certification for 10300 Campus Pointe Drive, a Property Located in University Town Center in the San Diego Market
· Awarded LEED® Gold Certifications for Alexandria Center™ for Life Science – New York City, 199 E. Blaine Street, a Property Located in the Seattle Market, and 455 Mission Bay Blvd., a Property Located in the San Francisco Market
October 2011:
· Board of Directors Elects Stephen A. Richardson as Chief Operating Officer and Regional Market Director – San Francisco
· Extended 2011 Maturity Date of $76 Million Secured Loan Into 2012 and in Discussions for an Additional 3-5 Year Extension
· Sold a 30,000 Rentable Square Foot Property Located in the Suburbs of Boston, for $2.9 Million
· Repaid Two Secured Loans Aggregating $32.7 Million
6
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Third Quarter Ended September 30, 2011 Financial and Operating Results
Financial Results
Revenue Trend – Past
For the three months ended September 30, 2011, we reported an increase in total revenues to $143,427,000 from $142,918,000 for the three months ended June 30, 2011. During the three months ended September 30, 2011, total rental revenue declined approximately $3 million. The decline in rental revenue was primarily due to the transition of three properties. Approximately $2 million of the decline in rental revenue related to 5200 Research Place, a property transitioning from a short term sale lease back with Biogen Idec Inc. to a 20 year triple net lease with Illumina, Inc. The original short-term lease with Biogen Idec Inc. was for an original term of 15 months. Upon execution of a lease with Illumina, Inc., we amended the short term lease with Biogen Idec Inc. in order to deliver space to Illumina, Inc. at an earlier date. The primary reason for the $2 million decline in rental revenue at this property was due to a $1.7 million decline in amortization of below market lease revenue. Annualized base rent per square foot at 5200 Research Place is expected to be approximately $38.26 per rentable square foot in the three months ended December 31, 2011, pursuant to a 20 year lease with Illumina, Inc. An additional $1 million decline in rental revenue from the three months ended June 30, 2011, to the three months ended September 30, 2011, was primarily due to 1) a decline in rental revenue for an office property located in Cambridge that will undergo a conversion into a laboratory building through redevelopment beginning in October 2011, and 2) another property located in the suburbs of Boston, in transition during the quarter from a prior tenant to a new tenant, resulting in a temporary decline in rental revenue. As of October 2011, the new tenant was in full occupancy of this property.
Revenue Trend – Future
Rental revenue and net operating income are projected to increase significantly quarter to quarter from the three months ended December 31, 2011, to the three months ended December 31, 2012. Annualized three months ended December 31, 2012, net operating income, when compared to annualized three months ended December 31, 2011, net operating income, is expected to increase by approximately $42 to $47 million primarily related to current and future redevelopment and development projects, a significant amount which is pre-leased. Additionally, the increase in net operating income is also due to annual contractual steps in cash rents, recent and anticipated leasing, and lease-up of vacant space.
Funds from Operations and Net Income Attributable to Alexandria Real Estate Equities, Inc.’s Common Stockholders
For the three months ended September 30, 2011, we reported FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders of $67,972,000, or $1.11 per share (diluted), before loss on early extinguishment of debt and non-cash impairment charge, compared to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders of $55,151,000, or $1.11 per share (diluted), before loss on early extinguishment of debt, for the three months ended September 30, 2010. For the nine months ended September 30, 2011, we reported FFO attributed to Alexandria Real Estate Equities, Inc.’s common stockholders of $198,237,000, or $3.40 per share (diluted), before loss on early extinguishment of debt and non-cash impairment charge, compared to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders of $163,686,000, or $3.29 per share (diluted), before loss on early extinguishment of debt, for the nine months ended September 30, 2010. During the nine months ended September 30, 2011, we recognized an aggregate loss on early extinguishment of debt of approximately $6.5 million related to the repurchases, in privately negotiated transactions, of approximately $217.1 million of certain of our 3.70% unsecured convertible notes and the partial and early repayment of our unsecured term loan. In addition, we recognized a non-cash impairment charge of approximately $1.0 million related to one property during the nine months ended September 30, 2011. We sold this property to a user in October 2011 for approximately $2.9 million. Including the aggregate loss on early extinguishment of debt and non-cash impairment charge, FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the three and nine months ended September 30, 2011, was $64,274,000, or $1.05 per share (diluted), and 190,826,000, or $3.27 per share (diluted), respectively.
7
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Third Quarter Ended September 30, 2011 Financial and Operating Results
Financial Results (continued)
FFO is a non-GAAP measure widely used by real estate investment trusts. We compute FFO in accordance with standards established by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”) in its April 2002 White Paper and related implementation guidance. A reconciliation of net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders in accordance with United States generally accepted accounting principles (“GAAP”) to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders is included in the financial information accompanying this press release. The primary reconciling items between GAAP net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders and FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders are depreciation and amortization expense and gain on sales of property. Depreciation and amortization expense for the three months ended September 30, 2011 and 2010, was $39,990,000 and $32,009,000, respectively. Depreciation and amortization expense for the nine months ended September 30, 2011 and 2010, was $117,060,000 and $92,089,000, respectively. Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the three months ended September 30, 2011, was $24,662,000 or $0.40 per share (diluted), compared to net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders of $22,235,000, or $0.45 per share (diluted), for the three months ended September 30, 2010. Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the nine months ended September 30, 2011, was $75,013,000, or $1.29 per share (diluted), compared to net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders of $22,467,000, or $0.49 per share (diluted), for the nine months ended September 30, 2010.
The following table summarizes the significant items that impacted FFO (diluted) during each period presented (dollars in thousands, except per share amounts):
| **** | Three Months Ended | Nine Months Ended | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | **** | 6/30/11 | **** | 3/31/11 | **** | 12/31/10 | **** | 9/30/10 | **** | 9/30/11 | **** | 9/30/10 | **** | |||||||
| FFO attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders – numerator for FFO per share (diluted), as reported | $ | 64,274 | $ | 65,921 | $ | 60,636 | $ | 58,474 | $ | 53,862 | $ | 190,826 | $ | 121,292 | |||||||
| Loss on early extinguishment of debt | 2,742 | 1,248 | 2,495 | 2,372 | 1,300 | 6,485 | 42,796 | ||||||||||||||
| Non-cash impairment charge | 994 | – | – | – | – | 994 | – | ||||||||||||||
| Impact of unvested restricted stock awards | (38 | ) | (11 | ) | (21 | ) | (20 | ) | (11 | ) | (68 | ) | (402 | ) | |||||||
| FFO (diluted), as adjusted | $ | 67,972 | $ | 67,158 | $ | 63,110 | $ | 60,826 | $ | 55,151 | $ | 198,237 | $ | 163,686 | |||||||
| Weighted average shares of common stock outstanding for calculating FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – denominator for FFO per share (diluted), as reported | 61,310,016 | 58,519,169 | 54,973,802 | 54,893,410 | 49,864,225 | 58,290,792 | 49,745,649 | ||||||||||||||
| FFO per share (diluted), as adjusted | $ | 1.11 | $ | 1.15 | $ | 1.15 | $ | 1.11 | $ | 1.11 | $ | 3.40 | $ | 3.29 |
8
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Third Quarter Ended September 30, 2011 Financial and Operating Results
Leasing Activity
For the three months ended September 30, 2011, we executed a total of 56 leases for approximately 985,000 rentable square feet at 40 different properties (excluding month-to-month leases). Of this total, approximately 402,000 rentable square feet related to new or renewal leases of previously leased space (renewed/re-leased space) and approximately 583,000 rentable square feet related to developed, redeveloped, or previously vacant space. Of the 583,000 rentable square feet, approximately 458,000 rentable square feet were related to our development or redevelopment programs, with the remaining approximately 125,000 rentable square feet related to previously vacant space. Rental rates for these new or renewal leases (renewed/re-leased space) were on average approximately 2.8% higher on a GAAP basis than rental rates for the respective expiring leases.
For the nine months ended September 30, 2011, we executed a total of 143 leases for approximately 2,265,000 rentable square feet at 60 different properties (excluding month-to-month leases). Of this total, approximately 1,171,000 rentable square feet related to new or renewal leases of previously leased space (renewed/re-leased space) and approximately 1,094,000 rentable square feet related to developed, redeveloped, or previously vacant space. Of the 1,094,000 rentable square feet, approximately 634,000 rentable square feet were related to our development or redevelopment programs, and the remaining approximately 460,000 rentable square feet were related to previously vacant space. Rental rates for these new or renewal leases (renewed/re-leased space) were on average approximately 2.5% higher on a GAAP basis than rental rates for the respective expiring leases.
As of September 30, 2011, approximately 95% of our leases (on a rentable square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes, insurance, utilities, common area, and other operating expenses (including increases thereto) in addition to base rent. Additionally, approximately 92% of our leases (on a rentable square footage basis) provided for the recapture of certain capital expenditures, and approximately 94% of our leases (on a rentable square footage basis) contained effective annual rent escalations that were either fixed or indexed based on the consumer price index or another index.
Investment Grade Rating
In July 2011, we received a Baa2 (stable outlook) and a BBB- (stable outlook) investment grade rating from two major rating agencies. Key strengths of our balance sheet and business which highlight our investment grade credit profile include, among others, solid liquidity on balance sheet, diverse and credit worthy tenant base, well located properties proximate to leading research institutions, favorable lease terms, solid and stable occupancy and cash flows, and proven life science and real estate expertise. This significant milestone broadens our access to another key source of capital and allows us to continue to pursue our long-term capital, investment, and operating strategies. Issuance of unsecured bonds will allow us to transition bank related debt financing to unsecured bonds, variable rate debt to fixed rate debt, and short tenured debt to long tenured debt.
Unsecured Credit Facility
In January 2011, we entered into a third amendment (the “Third Amendment”) to our second amended and restated credit agreement dated October 31, 2006, as further amended on December 1, 2006 and May 2, 2007 (the “Prior Credit Agreement,” and as amended by the Third Amendment, the “Amended Credit Agreement”), with Bank of America, N.A., as administrative agent, and certain lenders. The Third Amendment amended the Prior Credit Agreement to, among other things, increase the maximum permitted borrowings under the unsecured line of credit from $1.15 billion to $1.5 billion, plus a $750 million unsecured term loan (the “2012 Unsecured Term Loan” and together with the unsecured line of credit, the “Unsecured Credit Facility”) and provided an accordion option to increase commitments under the Unsecured Credit Facility by up to an additional $300 million. Borrowings under the Unsecured Credit Facility bear interest at LIBOR or the specified base rate, plus in either case a margin specified in the Amended Credit Agreement (the “Applicable Margin”). The Applicable Margin for LIBOR borrowings outstanding under the revolving credit facility was 2.3% as of September 30, 2011. The Applicable Margin for the LIBOR borrowings under the 2012 Unsecured Term Loan was not amended in the Third Amendment.
9
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Third Quarter Ended September 30, 2011 Financial and Operating Results
Unsecured Credit Facility (continued)
Under the Third Amendment, the maturity date for the unsecured line of credit is January 2015, assuming we exercise our sole right under the amendment to extend this maturity date twice by an additional six months after each exercise. The maturity date of the 2012 Unsecured Term Loan is October 2012. The Third Amendment modified certain financial covenants with respect to the Unsecured Credit Facility, including the fixed charge coverage ratio, secured debt ratio, leverage ratio, and minimum book value, and added covenants relating to an unsecured leverage ratio and unsecured debt yield.
2016 Unsecured Term Loan
In February 2011, we entered into a $250 million unsecured term loan. In June 2011, we amended this $250 million unsecured term loan (as amended, the “2016 Unsecured Term Loan”) to, among other things, increase the borrowings from $250 million to $750 million and to extend the maturity from January 2015 to June 2016, assuming we exercise our sole right to extend the maturity date by one year. Borrowings under the 2016 Unsecured Term Loan bear interest at LIBOR or the specified base rate, plus in either case a margin specified in the amended unsecured term loan agreement. The applicable margin for the LIBOR borrowings under the 2016 Unsecured Term Loan as of September 30, 2011, was 1.65%. Under the 2016 Unsecured Term Loan agreement, the financial covenants were not amended and are identical to the financial covenants required under our existing Unsecured Credit Facility. The 2016 Unsecured Term Loan may be repaid at any date prior to maturity without a prepayment penalty. The net proceeds from this 2016 Unsecured Term Loan were used to reduce outstanding borrowings on the 2012 Unsecured Term Loan from $750 million to $250 million. As a result of this early repayment, in the three and six months ended June 30, 2011, we recognized a loss on early extinguishment of debt of approximately $1.2 million related to the write-off of unamortized loan fees.
3.70% Unsecured Convertible Notes
During the three months ended September 30, 2011, we repurchased, in privately negotiated transactions, approximately $121.1 million of certain of our 3.70% unsecured convertible notes at an aggregate cash price of approximately $122.8 million. As a result of these repurchases, we recognized an aggregate loss on early extinguishment of debt of approximately $2.7 million. As of September 30, 2011, approximately $84.3 million of our 3.70% unsecured convertible notes was outstanding, net of approximately $0.5 million of unamortized discount.
During the three months ended March 31, 2011, we repurchased, in privately negotiated transactions, approximately $96.1 million of certain of our 3.70% unsecured convertible notes at an aggregate cash price of approximately $98.6 million. As a result of these repurchases, we recognized an aggregate loss on early extinguishment of debt of approximately $2.5 million during the three months ended March 31, 2011.
Acquisitions
In June 2011, we acquired 285 Bear Hill Road, a 26,270 rentable square foot office property located in the Greater Boston market, for approximately $3.9 million. We plan to begin the redevelopment of this property into life science laboratory space in the three months ended December 31, 2011. Based on our view of existing market conditions and certain assumptions at the time of the acquisition, we expect to achieve a stabilized yield on a GAAP and cash basis for this property of approximately 8.6% and 8.0%, respectively. Stabilized yield on cost is calculated as the quotient of net operating income and our investment in the property at stabilization (“Stabilized Yield”).
In April 2011, we acquired 409 and 499 Illinois Street, a newly and partially completed world-class 453,256 rentable square foot laboratory/office development project located on a highly desirable waterfront location in Mission Bay, San Francisco, for approximately $293 million. 409 Illinois Street is a 241,659 rentable square foot tower that is 97% leased to a life science company through November 2023. 499 Illinois Street is a vacant 211,597 rentable square foot tower in shell condition for which we plan to complete the development. Based on our view of existing market conditions and certain assumptions at the time of the acquisition, we expect to achieve a Stabilized Yield on a GAAP and cash basis for this property in the range of 7.2% to 7.6% and 6.5% to 7.0%, respectively.
10
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Third Quarter Ended September 30, 2011 Financial and Operating Results
Dispositions
In August 2011, we sold a parcel of land located in San Diego, California for approximately $17.3 million at a gain of $46,000. The buyer is expected to construct a building with approximately 249,000 rentable square feet, representing a sale price of approximately $70 per rentable square foot.
During the three months ended September 30, 2011, 13-15 DeAngelo Drive, a vacant 30,000 rentable square foot property, located in the suburbs of Boston, Massachusetts, met the criteria for classification as “held for sale.” This property was occupied by a credit life science tenant through June 30, 2011. Upon move out, a user for the building presented an offer for the purchase of the building in the three months ended September 30, 2011. As a result, we recognized an impairment charge of approximately $1.0 million in the three months ended September 30, 2011, to adjust the carrying value to the estimated fair value less costs to sell. In October 2011, we sold 13-15 DeAngelo Drive to that user, for approximately $2.9 million, representing a sale price of approximately $97 per rentable square foot.
Development
In August 2011, we completed the ground-up development of 7 Triangle Drive, a 97,000 rentable square foot single-tenant building located in the Research Triangle Park market, which is currently 100% leased as of September 30, 2011. Our Stabilized Yield on a GAAP and cash basis for this property was approximately 9.3% and 8.3%, respectively.
In July 2011, we executed a new lease for a 307,000 rentable square feet ground-up development with Biogen Idec, Inc. at Alexandria CenterTM at Kendall Square. The ground breaking for this project will occur in late October 2011, and we will add the project to our disclosure of active ground-up development for the three months ended December 31, 2011.
11
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Third Quarter Ended September 30, 2011 Financial and Operating Results
Earnings Outlook
Based on our current view of existing market conditions and certain current assumptions, we expect our FFO per share (diluted) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders and earnings per share (diluted) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the years ended December 31, 2011 and 2012 will be as follows:
| **** | Year Ended December 31, | ||
|---|---|---|---|
| **** | 2011 | **** | 2012 |
| FFO per share (diluted) | $4.38 | (1) | $4.50 - $4.54 |
| Earnings per share (diluted) | $1.72 | (1) | $1.85 - $1.89 |
(1) Includes loss on early extinguishment of debt and non-cash impairment charge of approximately $6.5 million and $1.0 million, respectively, or approximately $0.13 per share in aggregate, for the nine months ended September 30, 2011.
The following table provides a reconciliation of our prior FFO per share (diluted) guidance to our current guidance for year ended December 31, 2011:
| As Disclosed in Second Quarter Earnings | Change | **** | As Disclosed in Third Quarter Earnings | |
|---|---|---|---|---|
| Guidance range as reported on May 4, 2011, in connection with our first quarter 2011 earnings call | 4.52 - 4.57 | 4.52 - 4.57 | ||
| Loss on early extinguishment of debt in June 2011 | (0.02 | – | (0.02 | |
| Loss on early extinguishment of debt in July 2011 | (0.04 | – | (0.04 | |
| Loss on early extinguishment of debt in August and September 2011 | – | (0.01 | ) | (0.01 |
| Refinancing of 2012 Unsecured Term Loan | (0.02 | – | (0.02 | |
| Deferral of unsecured debt financing assumption (previously estimated in 2011) | (0.05 | 0.05 | – | |
| Decrease in estimated acquisitions | (0.01 | (0.01 | ) | (0.02 |
| Timing of repurchases of convertible notes and extension of secured notes | (0.01 | (0.01 | ) | (0.02 |
| Non-cash impairment charge | – | (0.02 | ) | (0.02 |
| Increase in general and administrative expenses | – | (0.01 | ) | (0.01 |
| Non-recoverable operating expenses | – | (0.01 | ) | (0.01 |
| (0.15 | (0.02 | ) | (0.17 | |
| Guidance, as reported | 4.37 - 4.42 | 4.38 |
All values are in US Dollars.
Rental revenue and net operating income are projected to increase significantly quarter to quarter from the three months ended December 31, 2011, to the three months ended December 31, 2012. Annualized three months ended December 31, 2012 net operating income, when compared to annualized three months ended December 31, 2011 net operating income, is expected to increase by approximately $42 to $47 million primarily related to current and future redevelopment and development projects, a significant amount which is pre-leased. Additionally, the increase in net operating income is also due to annual contractual steps in cash rents, recent and anticipated leasing, and lease-up of vacant space.
12
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Third Quarter Ended September 30, 2011 Financial and Operating Results
Sources and Uses of Capital
We expect that our principal liquidity needs for the three months ended December 31, 2011, through three months ended December 31, 2012, will be satisfied by the following multiple sources of capital as shown in the table below (amounts in millions). For the three months ended December 31, 2011, and for the year ended December 31, 2012, we expect to have significant capital requirements, including amounts shown in the table below. There can be no assurance that our sources and uses of capital will not be materially higher or lower than these expectations.
| Sources of Capital for Fourth Quarter 2011 Through Fourth Quarter 2012 | 4Q11 through 4Q12 | **** | ||||
|---|---|---|---|---|---|---|
| Cash and cash equivalents as of September 30, 2011 | $ | 73 | ||||
| Restricted cash as of September 30, 2011 | 28 | |||||
| Net cash provided by operating activities | 310 | (1) | ||||
| Asset sales | 112 | (2) | ||||
| Availability under our $1.5 billion unsecured line of credit as of September 30, 2011 | 686 | |||||
| Extended 2011 maturity date of secured loan into 2012 | 76 | (3) | ||||
| New unsecured term loan (see footnote (4) below) | 450 | |||||
| Unsecured senior notes | TBD | (5) | ||||
| Total | $ | 1,735 | ||||
| Three Months Ended December 31, | **** | Year Ended December 31, | **** | |||
| --- | --- | --- | --- | --- | --- | --- |
| Uses of Capital | 2011 | **** | 2012 | **** | ||
| Acquisitions | $ | 20 | $ | – | ||
| Construction: | ||||||
| Redevelopment projects | 62 | 148 | ||||
| Development projects | 20 | 147 | ||||
| Projects in India and China | 21 | 62 | ||||
| Preconstruction and other projects | 16 | 16 | ||||
| Secured notes payable principal repayments | 79 | (3) | 13 | |||
| Unsecured convertible note principal repayments | – | 85 | ||||
| 2012 Unsecured Term Loan principal repayment | – | 250 | (4) | |||
| Preferred stock dividends | 7 | 28 | ||||
| Common stock dividends | 29 | 116 | ||||
| Total | $ | 254 | (3) | $ | 865 | (4) |
(1) Represents net cash provided by operating activities for the nine months ended September 30, 2011, multiplied by 167.7% in order to estimate net cash provided by operating activities for the fourth quarter 2011 through fourth quarter 2012.
(2) In light of current market conditions, we expect to implement a more aggressive asset disposition strategy, beyond estimated asset sales in this table, to provide capital for reinvestment into our business.
(3) Amount includes a $76 million secured bank loan. We extended the 2011 maturity date of this loan into 2012 and are in discussions for an additional 3-5 year extension.
(4) Our 2012 Unsecured Term Loan matures in October 2012. We are currently negotiating a new unsecured term loan with a target amount between $400 and $500 million. The proceeds of this new loan will be used initially to reduce outstanding balances on our unsecured line of credit. Ultimately, a portion of these proceeds will provide funds to repay our 2012 Unsecured Term Loan.
(5) Amount and timing of issuance of unsecured bonds will be subject to the debt capital market environment.
13
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Third Quarter Ended September 30, 2011 Financial and Operating Results
Client Tenant Base
The quality, diversity, breadth, and depth of our significant relationships with our life science client tenants provide Alexandria Real Estate Equities, Inc. with solid cash flows. As of September 30, 2011, Alexandria’s multinational pharmaceutical client tenants represented approximately 25% of our annualized base rent, led by Novartis AG, Eli Lilly and Company, Roche Holding Ltd, Bristol-Myers Squibb Company, GlaxoSmithKline plc, and Pfizer Inc.; public biotechnology companies represented approximately 17% and included Amgen Inc., Gilead Sciences, Inc., Biogen Idec Inc., and Celgene Corporation; revenue-producing life science product and service companies represented approximately 22%, led by Illumina, Inc., Quest Diagnostics Incorporated, Qiagen N.V., Laboratory Corporation of America Holdings, and Monsanto Company; government agencies and renowned medical and research institutions represented approximately 16% and included Massachusetts Institute of Technology, The Scripps Research Institute, The Regents of the University of California, Fred Hutchinson Cancer Research Center, University of Washington, Sanford-Burnham Medical Research Institute, and the United States Government; private biotechnology companies represented approximately 15% and included high-quality, leading-edge companies with blue-chip venture and institutional investors, including FibroGen, Inc., Achaogen Inc., Intellikine, Inc., MacroGenics, Inc., and Forma Therapeutics, Inc.; and the remaining approximately 5% consisted of traditional office tenants. Alexandria’s strong life science underwriting skills, long-term life science industry relationships, and sophisticated management with both real estate and life science operating expertise set the Company apart from all other publicly traded REITs and real estate companies.
Earnings Call Information
We will host a conference call on Wednesday, October 26, 2011, 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 three months ended September 30, 2011. To participate in this conference call, dial (719) 457-2668 and confirmation code 7211433, shortly before 3:00 p.m. ET/12:00 p.m. noon PT. The audio web cast can be accessed at: www.are.com, in the Corporate Information 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 Wednesday, October 26, 2011. The replay number is (719) 457-0820 and the confirmation code is 7211433.
Additionally, a copy of Alexandria Real Estate Equities, Inc.’s Supplemental Financial, Operating, & Property Information for the three months ended September 30, 2011, and this press release are available in the Corporate Information section of our website at www.are.com.
About the Company
Alexandria Real Estate Equities, Inc., Landlord of Choice to the Life Science Industry®, is the largest owner and preeminent REIT focused principally on cluster development through the ownership, operation, management, and selective acquisition, redevelopment, and development of properties containing life science laboratory space. Alexandria is the leading provider of high-quality, environmentally sustainable real estate, technical infrastructure, and services to the broad and diverse life science industry. Client tenants include institutional (universities and independent non-profit institutions), pharmaceutical, biotechnology, medical device, product, and service entities, and government agencies. Alexandria’s primary business objective is to maximize stockholder value by providing its stockholders with the greatest possible total return based on a multifaceted platform of internal and external growth. Alexandria’s operating platform is based on the principle of “clustering” with assets and operations located adjacent to life science entities driving growth and technological advances within each cluster.
As of October 25, 2011, we had 171 properties aggregating 14.9 million rentable square feet comprised of approximately 13.6 million rentable square feet of operating properties, approximately 747,248 rentable square feet undergoing active redevelopment, and approximately 531,486 rentable square feet undergoing active development. Our asset base will enable us to grow to approximately 33.4 million rentable square feet through additional ground-up development and other projects of approximately 18.5 million rentable square feet.
14
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
| **** | Three Months Ended | Nine Months Ended | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | **** | 6/30/11 | **** | 3/31/11 | **** | 12/31/10 | **** | 9/30/10 | **** | 9/30/11 | **** | 9/30/10 | **** | |||||||
| Revenues | |||||||||||||||||||||
| Rental | $ | 106,160 | $ | 109,149 | $ | 105,997 | $ | 99,053 | $ | 89,567 | $ | 321,306 | $ | 266,349 | |||||||
| Tenant recoveries | 34,792 | 32,843 | 32,627 | 30,211 | 29,179 | 100,262 | 81,655 | ||||||||||||||
| Other income | 2,475 | 926 | 794 | 1,625 | 1,568 | 4,195 | 3,555 | ||||||||||||||
| Total revenues | 143,427 | 142,918 | 139,418 | 130,889 | 120,314 | 425,763 | 351,559 | ||||||||||||||
| Expenses | |||||||||||||||||||||
| Rental operations | 42,608 | 40,239 | 40,697 | 36,284 | 33,154 | 123,544 | 94,275 | ||||||||||||||
| General and administrative | 10,297 | 10,758 | 9,497 | 8,601 | 8,042 | 30,552 | 25,777 | ||||||||||||||
| Interest | 14,273 | 16,567 | 17,810 | 17,158 | 16,078 | 48,650 | 52,351 | ||||||||||||||
| Depreciation and amortization | 39,652 | 40,069 | 36,468 | 34,289 | 31,758 | 116,189 | 91,334 | ||||||||||||||
| Total expenses | 106,830 | 107,633 | 104,472 | 96,332 | 89,032 | 318,935 | 263,737 | ||||||||||||||
| Income from continuing operations before loss on early extinguishment of debt | 36,597 | 35,285 | 34,946 | 34,557 | 31,282 | 106,828 | 87,822 | ||||||||||||||
| Loss on early extinguishment of debt | (2,742 | ) | (1,248 | ) | (2,495 | ) | (2,372 | ) | (1,300 | ) | (6,485 | ) | (42,796 | ) | |||||||
| Income from continuing operations | 33,855 | 34,037 | 32,451 | 32,185 | 29,982 | 100,343 | 45,026 | ||||||||||||||
| (Loss) income from discontinued operations, net | (906 | ) | 274 | 174 | 373 | 479 | (458 | ) | 1,996 | ||||||||||||
| Gain on sales of land parcels | 46 | – | – | 59,442 | – | 46 | – | ||||||||||||||
| Net income | 32,995 | 34,311 | 32,625 | 92,000 | 30,461 | 99,931 | 47,022 | ||||||||||||||
| Net income attributable to noncontrolling interests | 966 | 938 | 929 | 944 | 920 | 2,833 | 2,785 | ||||||||||||||
| Dividends on preferred stock | 7,089 | 7,089 | 7,089 | 7,089 | 7,089 | 21,267 | 21,268 | ||||||||||||||
| Net income attributable to unvested restricted stock awards | 278 | 298 | 242 | 726 | 217 | 818 | 502 | ||||||||||||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | $ | 24,662 | $ | 25,986 | $ | 24,365 | $ | 83,241 | $ | 22,235 | $ | 75,013 | $ | 22,467 | |||||||
| Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common<br> stockholders – basic | |||||||||||||||||||||
| Continuing operations | $ | 0.41 | $ | 0.44 | $ | 0.44 | $ | 1.51 | $ | 0.44 | $ | 1.30 | $ | 0.45 | |||||||
| Discontinued operations, net | (0.01 | ) | – | – | 0.01 | 0.01 | (0.01 | ) | 0.04 | ||||||||||||
| Earnings per share – basic | $ | 0.40 | $ | 0.44 | $ | 0.44 | $ | 1.52 | $ | 0.45 | $ | 1.29 | $ | 0.49 | |||||||
| Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common<br> stockholders – diluted | |||||||||||||||||||||
| Continuing operations | $ | 0.41 | $ | 0.44 | $ | 0.44 | $ | 1.51 | $ | 0.44 | $ | 1.30 | $ | 0.45 | |||||||
| Discontinued operations, net | (0.01 | ) | – | – | 0.01 | 0.01 | (0.01 | ) | 0.04 | ||||||||||||
| Earnings per share – diluted | $ | 0.40 | $ | 0.44 | $ | 0.44 | $ | 1.52 | $ | 0.45 | $ | 1.29 | $ | 0.49 |
15
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
| **** | September 30, | **** | June 30, | **** | March 31, | **** | December 31, | **** | September 30, | **** | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 2011 | **** | 2011 | **** | 2011 | **** | 2010 | **** | 2010 | **** | |||||
| Assets | **** | ||||||||||||||
| Investments in real estate | $ | 6,635,872 | $ | 6,534,433 | $ | 6,145,499 | $ | 6,060,821 | $ | 5,861,816 | |||||
| Less: accumulated depreciation | (710,580 | ) | (679,081 | ) | (647,034 | ) | (616,007 | ) | (588,167 | ) | |||||
| Investments in real estate, net | 5,925,292 | 5,855,352 | 5,498,465 | 5,444,814 | 5,273,649 | ||||||||||
| Cash and cash equivalents | 73,056 | 60,925 | 78,196 | 91,232 | 110,811 | ||||||||||
| Restricted cash | 27,929 | 23,432 | 30,513 | 28,354 | 35,295 | ||||||||||
| Tenant receivables | 6,599 | 4,487 | 7,018 | 5,492 | 4,929 | ||||||||||
| Deferred rent | 132,954 | 125,867 | 123,091 | 116,849 | 108,303 | ||||||||||
| Investments | 88,777 | 88,862 | 88,694 | 83,899 | 80,941 | ||||||||||
| Other assets | 200,949 | 184,359 | 157,366 | 135,221 | 134,697 | ||||||||||
| Total assets | $ | 6,455,556 | $ | 6,343,284 | $ | 5,983,343 | $ | 5,905,861 | $ | 5,748,625 | |||||
| Liabilities, Noncontrolling Interests, and Equity | |||||||||||||||
| Secured notes payable | $ | 760,882 | $ | 774,691 | $ | 787,945 | $ | 790,869 | $ | 841,317 | |||||
| Unsecured line of credit | 814,000 | 575,000 | 679,000 | 748,000 | 554,000 | ||||||||||
| Unsecured term loans | 1,000,000 | 1,000,000 | 1,000,000 | 750,000 | 750,000 | ||||||||||
| Unsecured convertible notes | 84,484 | 203,638 | 202,521 | 295,293 | 374,146 | ||||||||||
| Accounts payable, accrued expenses, and tenant security deposits | 330,044 | 300,030 | 283,013 | 304,257 | 294,833 | ||||||||||
| Dividends payable | 35,287 | 34,068 | 31,172 | 31,114 | 25,554 | ||||||||||
| Total liabilities | 3,024,697 | 2,887,427 | 2,983,651 | 2,919,533 | 2,839,850 | ||||||||||
| Redeemable **** noncontrolling interests | 15,931 | 15,899 | 15,915 | 15,920 | 15,945 | ||||||||||
| Alexandria Real Estate Equities, Inc.’s stockholders’ equity: | |||||||||||||||
| Series C preferred stock | 129,638 | 129,638 | 129,638 | 129,638 | 129,638 | ||||||||||
| Series D cumulative convertible preferred stock | 250,000 | 250,000 | 250,000 | 250,000 | 250,000 | ||||||||||
| Common stock | 614 | 614 | 551 | 550 | 549 | ||||||||||
| Additional paid-in capital | 3,025,444 | 3,024,603 | 2,568,976 | 2,566,238 | 2,504,365 | ||||||||||
| Retained earnings | – | – | 360 | 734 | – | ||||||||||
| Accumulated other comprehensive loss | (32,202 | ) | (6,272 | ) | (7,193 | ) | (18,335 | ) | (33,348 | ) | |||||
| Alexandria Real Estate Equities, Inc.’s stockholders’ equity | 3,373,494 | 3,398,583 | 2,942,332 | 2,928,825 | 2,851,204 | ||||||||||
| Noncontrolling interests | 41,434 | 41,375 | 41,445 | 41,583 | 41,626 | ||||||||||
| Total equity | 3,414,928 | 3,439,958 | 2,983,777 | 2,970,408 | 2,892,830 | ||||||||||
| Total **** liabilities, noncontrolling interests, and equity | $ | 6,455,556 | $ | 6,343,284 | $ | 5,983,343 | $ | 5,905,861 | $ | 5,748,625 |
16
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Earnings per Share
(Dollars in thousands, except per share amounts)
(Unaudited)
Earnings per Share
| **** | Three Months Ended | Nine Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | 6/30/11 | 3/31/11 | 12/31/10 | 9/30/10 | 9/30/11 | 9/30/10 | |||||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders – numerator for basic earnings per share | $ | 24,662 | $ | 25,986 | $ | 24,365 | $ | 83,241 | $ | 22,235 | $ | 75,013 | $ | 22,467 |
| Effect of assumed conversion and dilutive securities: | ||||||||||||||
| Assumed conversion of 8% unsecured convertible notes | – | – | – | 2 | – | – | – | |||||||
| Amounts attributable to unvested restricted stock awards | – | – | – | – | – | – | – | |||||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders – numerator for diluted earnings per share | $ | 24,662 | $ | 25,986 | $ | 24,365 | $ | 83,243 | $ | 22,235 | $ | 75,013 | $ | 22,467 |
| Weighted average shares of common stock outstanding for calculating earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – denominator for basic earnings per share | 61,295,659 | 58,500,055 | 54,948,345 | 54,865,654 | 49,807,241 | 58,271,270 | 46,188,308 | |||||||
| Effect of assumed conversion and dilutive securities: | ||||||||||||||
| Assumed conversion of 8% unsecured convertible notes | – | – | – | 6,047 | – | – | – | |||||||
| Dilutive effect of stock options | 8,310 | 13,067 | 19,410 | 21,709 | 23,098 | 13,475 | 31,813 | |||||||
| Weighted average shares of common stock outstanding for calculating earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – denominator for diluted earnings per share | 61,303,969 | 58,513,122 | 54,967,755 | 54,893,410 | 49,830,339 | 58,284,745 | 46,220,121 | |||||||
| Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | ||||||||||||||
| Basic | $ | 0.40 | $ | 0.44 | $ | 0.44 | $ | 1.52 | $ | 0.45 | $ | 1.29 | $ | 0.49 |
| Diluted | $ | 0.40 | $ | 0.44 | $ | 0.44 | $ | 1.52 | $ | 0.45 | $ | 1.29 | $ | 0.49 |
17
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Funds from Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
Funds from Operations (“FFO”)
The following table presents a reconciliation of net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders, the most directly comparable financial measure calculated and presented in accordance with United States generally accepted accounting principles (“GAAP”), to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the periods below:
| **** | Three Months Ended (1) | **** | Nine Months Ended (1) | **** | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | **** | 6/30/11 | **** | 3/31/11 | **** | 12/31/10 | **** | 9/30/10 | **** | 9/30/11 | **** | 9/30/10 | **** | |||||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders | $ | 24,662 | $ | 25,986 | $ | 24,365 | $ | 83,241 | $ | 22,235 | $ | 75,013 | $ | 22,467 | |||||||
| Add: Depreciation and amortization | 39,990 | 40,363 | 36,707 | 34,551 | 32,009 | 117,060 | 92,089 | ||||||||||||||
| Add: Net income attributable to noncontrolling interests | 966 | 938 | 929 | 944 | 920 | 2,833 | 2,785 | ||||||||||||||
| Add: Net income attributable to unvested restricted stock awards | 278 | 298 | 242 | 726 | 217 | 818 | 502 | ||||||||||||||
| Subtract: Gain on sales of property | (46 | ) | – | – | (59,442 | ) | – | (46 | ) | (24 | ) | ||||||||||
| Subtract: FFO attributable to noncontrolling interests | (933 | ) | (1,033 | ) | (1,065 | ) | (1,036 | ) | (1,053 | ) | (3,031 | ) | (3,190 | ) | |||||||
| Subtract: FFO attributable to unvested restricted stock awards | (647 | ) | (638 | ) | (547 | ) | (512 | ) | (491 | ) | (1,837 | ) | (1,090 | ) | |||||||
| FFO attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders – numerator for basic FFO per share | 64,270 | 65,914 | 60,631 | 58,472 | 53,837 | 190,810 | 113,539 | ||||||||||||||
| Effect of assumed conversion and dilutive securities: | |||||||||||||||||||||
| Assumed conversion of 8% unsecured convertible notes | 4 | 7 | 5 | 2 | 25 | 16 | 7,779 | ||||||||||||||
| Amounts attributable to unvested restricted stock awards | – | – | – | – | – | – | (26 | ) | |||||||||||||
| FFO attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders – numerator for FFO per share (diluted) | $ | 64,274 | $ | 65,921 | $ | 60,636 | $ | 58,474 | $ | 53,862 | $ | 190,826 | $ | 121,292 | |||||||
| Weighted average shares of common stock outstanding for calculating FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – denominator for basic FFO per share | 61,295,659 | 58,500,055 | 54,948,345 | 54,865,654 | 49,807,241 | 58,271,270 | 46,188,308 | ||||||||||||||
| Effect of assumed conversion and dilutive securities: | |||||||||||||||||||||
| Assumed conversion of 8% unsecured convertible notes | 6,047 | 6,047 | 6,047 | 6,047 | 33,886 | 6,047 | 3,525,528 | ||||||||||||||
| Dilutive effect of stock options | 8,310 | 13,067 | 19,410 | 21,709 | 23,098 | 13,475 | 31,813 | ||||||||||||||
| Weighted average shares of common stock outstanding for calculating FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – denominator for FFO per share (diluted) | 61,310,016 | 58,519,169 | 54,973,802 | 54,893,410 | 49,864,225 | 58,290,792 | 49,745,649 | ||||||||||||||
| FFO per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | |||||||||||||||||||||
| Basic | $ | 1.05 | $ | 1.13 | $ | 1.10 | $ | 1.07 | $ | 1.08 | $ | 3.27 | $ | 2.46 | |||||||
| Diluted | $ | 1.05 | $ | 1.13 | $ | 1.10 | $ | 1.07 | $ | 1.08 | $ | 3.27 | $ | 2.44 |
(1) See page 8 for additional information on significant items impacting comparability of funds from operations.
18
ALEXANDRIA REAL ESTATE EQUITIES, INC. Adjusted Funds from Operations **** (Dollars in thousands)
(Unaudited)
Adjusted Funds from Operations
The following table presents a reconciliation of FFO attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders to adjusted funds from operations (“AFFO”) attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders:
| **** | Three Months Ended | **** | Nine Months Ended | **** | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | **** | 6/30/11 | **** | 3/31/11 | **** | 12/31/10 | **** | 9/30/10 | **** | 9/30/11 | **** | 9/30/10 | **** | |||||||
| FFO attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders | $ | 64,270 | $ | 65,914 | $ | 60,631 | $ | 58,472 | $ | 53,837 | $ | 190,810 | $ | 113,539 | |||||||
| Add/(deduct): | |||||||||||||||||||||
| Major and recurring capital expenditures (1) | (550 | ) | (698 | ) | (608 | ) | (260 | ) | (329 | ) | (1,856 | ) | (1,072 | ) | |||||||
| Tenant improvements and leasing costs (1) | (2,119 | ) | (1,595 | ) | (803 | ) | (2,583 | ) | (856 | ) | (4,517 | ) | (4,142 | ) | |||||||
| Amortization of loan fees | 2,144 | 2,327 | 2,278 | 1,999 | 1,795 | 6,749 | 5,893 | ||||||||||||||
| Amortization of debt premiums/discounts | 750 | 1,169 | 1,335 | 2,032 | 2,092 | 3,254 | 7,967 | ||||||||||||||
| Amortization of acquired above and below market leases | (940 | ) | (2,726 | ) | (4,854 | ) | (2,364 | ) | (1,927 | ) | (8,520 | ) | (5,504 | ) | |||||||
| Deferred rent/straight-line rent | (7,647 | ) | (2,885 | ) | (6,707 | ) | (9,092 | ) | (6,300 | ) | (17,239 | ) | (13,740 | ) | |||||||
| Stock compensation | 3,344 | 2,749 | 2,356 | 2,767 | 2,660 | 8,449 | 8,049 | ||||||||||||||
| Capitalized income from development projects | 930 | 1,078 | 1,428 | 1,486 | 1,544 | 3,436 | 4,202 | ||||||||||||||
| Deferred rent/straight-line rent on ground leases | 1,143 | 1,099 | 1,241 | 1,424 | 1,364 | 3,483 | 3,913 | ||||||||||||||
| Loss on early extinguishment of debt | 2,742 | 1,248 | 2,495 | 2,372 | 1,300 | 6,485 | 42,796 | ||||||||||||||
| Impairment of real estate | 994 | – | – | – | – | 994 | – | ||||||||||||||
| Allocation to unvested restricted stock awards | (7 | ) | (14 | ) | 16 | 19 | (11 | ) | (6 | ) | (457 | ) | |||||||||
| AFFO attributable to Alexandria Real Estate Equities, Inc.’s **** common stockholders | $ | 65,054 | $ | 67,666 | $ | 58,808 | $ | 56,272 | $ | 55,169 | $ | 191,522 | $ | 161,444 | |||||||
| Weighted average shares of common stock outstanding for calculating earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – denominator for basic earnings per share | 61,295,659 | 58,500,055 | 54,948,345 | 54,865,654 | 49,807,241 | 58,271,270 | 46,188,308 | ||||||||||||||
| Add: Dilutive effect of stock options | 8,310 | 13,067 | 19,410 | 21,709 | 23,098 | 13,475 | 31,813 | ||||||||||||||
| 61,303,969 | 58,513,122 | 54,967,755 | 54,887,363 | 49,830,339 | 58,284,745 | 46,220,121 |
(1) See page 52 for further information.
19
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Financial and Asset Base Highlights
(Dollars in thousands, except per share amounts)
(Unaudited)
| **** | 9/30/11 | **** | 6/30/11 | **** | 3/31/11 | **** | 12/31/10 | **** | 9/30/10 | **** | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance Sheet Data | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | |||||
| Investments in real estate | $ | 6,635,872 | $ | 6,534,433 | $ | 6,145,499 | $ | 6,060,821 | $ | 5,861,816 | |||||
| Accumulated depreciation | $ | (710,580 | ) | $ | (679,081 | ) | $ | (647,034 | ) | $ | (616,007 | ) | $ | (588,167 | ) |
| Investments in real estate, net | $ | 5,925,292 | $ | 5,855,352 | $ | 5,498,465 | $ | 5,444,814 | $ | 5,273,649 | |||||
| Tangible non-real estate assets | $ | 237,277 | $ | 210,113 | $ | 237,805 | $ | 240,873 | $ | 272,259 | |||||
| Total assets | $ | 6,455,556 | $ | 6,343,284 | $ | 5,983,343 | $ | 5,905,861 | $ | 5,748,625 | |||||
| Gross assets (excluding cash and restricted cash) | $ | 7,065,151 | $ | 6,938,008 | $ | 6,521,668 | $ | 6,402,282 | $ | 6,190,686 | |||||
| Secured notes payable | $ | 760,882 | $ | 774,691 | $ | 787,945 | $ | 790,869 | $ | 841,317 | |||||
| Unsecured line of credit | $ | 814,000 | $ | 575,000 | $ | 679,000 | $ | 748,000 | $ | 554,000 | |||||
| Unsecured term loans | $ | 1,000,000 | $ | 1,000,000 | $ | 1,000,000 | $ | 750,000 | $ | 750,000 | |||||
| 3.7% unsecured convertible notes | $ | 84,250 | $ | 203,405 | $ | 202,290 | $ | 295,063 | $ | 373,918 | |||||
| 8.0% unsecured convertible notes | $ | 234 | $ | 233 | $ | 231 | $ | 230 | $ | 228 | |||||
| Total unsecured debt | $ | 1,898,484 | $ | 1,778,638 | $ | 1,881,521 | $ | 1,793,293 | $ | 1,678,146 | |||||
| Total debt | $ | 2,659,366 | $ | 2,553,329 | $ | 2,669,466 | $ | 2,584,162 | $ | 2,519,463 | |||||
| Net debt | $ | 2,558,381 | $ | 2,468,972 | $ | 2,560,757 | $ | 2,464,576 | $ | 2,373,357 | |||||
| Total liabilities | $ | 3,024,697 | $ | 2,887,427 | $ | 2,983,651 | $ | 2,919,533 | $ | 2,839,850 | |||||
| Common shares outstanding | 61,463,839 | 61,380,268 | 55,049,730 | 54,966,925 | 54,891,638 | ||||||||||
| Total market capitalization | $ | 6,815,380 | $ | 7,689,383 | $ | 7,344,442 | $ | 6,994,306 | $ | 6,746,649 | |||||
| **** | Three Months Ended | ||||||||||||||
| **** | 9/30/11 | **** | 6/30/11 | **** | 3/31/11 | **** | 12/31/10 | **** | 9/30/10 | **** | |||||
| Operating Data | |||||||||||||||
| Total revenues | $ | 143,427 | $ | 142,918 | $ | 139,418 | $ | 130,889 | $ | 120,314 | |||||
| Deferred rent/straight-line rent | $ | 7,647 | $ | 2,885 | $ | 6,707 | $ | 9,092 | $ | 6,300 | |||||
| Amortization of acquired above and below market leases | $ | 940 | $ | 2,726 | $ | 4,854 | $ | 2,364 | $ | 1,927 | |||||
| Non-cash amortization of discount on unsecured convertible notes | $ | 675 | $ | 1,117 | $ | 1,268 | $ | 1,971 | $ | 2,000 | |||||
| Non-cash amortization of discounts (premiums) on secured notes payable | $ | 75 | $ | 52 | $ | 67 | $ | 61 | $ | 92 | |||||
| Scheduled debt principal payments | $ | 2,645 | $ | 2,886 | $ | 2,990 | $ | 2,902 | $ | 2,911 | |||||
| Loss on early extinguishment of debt | $ | 2,742 | $ | 1,248 | $ | 2,495 | $ | 2,372 | $ | 1,300 | |||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted | $ | 24,662 | $ | 25,986 | $ | 24,365 | $ | 83,241 | $ | 22,235 | |||||
| Earnings per share – diluted | $ | 0.40 | $ | 0.44 | $ | 0.44 | $ | 1.52 | $ | 0.45 | |||||
| FFO attributable to Alexandria Real Estate, Inc.’s **** common stockholders – diluted | $ | 64,274 | $ | 65,921 | $ | 60,636 | $ | 58,474 | $ | 53,862 | |||||
| FFO per share – diluted | $ | 1.05 | $ | 1.13 | $ | 1.10 | $ | 1.07 | $ | 1.08 | |||||
| Weighted average common shares outstanding – EPS – diluted | 61,303,969 | 58,513,122 | 54,967,755 | 54,893,410 | 49,830,339 | ||||||||||
| Weighted average common shares outstanding – FFO – diluted | 61,310,016 | 58,519,169 | 54,973,802 | 54,893,410 | 49,864,225 |
20
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Financial and Asset Base Highlights (continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
| **** | Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | 6/30/11 | 3/31/11 | 12/31/10 | 9/30/10 | |||||
| Financial, Debt, and Other Ratios | ||||||||||
| Unencumbered net operating income as a percentage of total net operating income | 67% | 64% | 65% | 60% | 58% | |||||
| Unencumbered assets gross book value | $ | 5,496,616 | $ | 5,342,433 | $ | 4,933,395 | $ | 4,825,963 | $ | 4,583,045 |
| Unencumbered assets gross book value as a percentage of gross assets | 77% | 76% | 74% | 74% | 72% | |||||
| Percentage outstanding on unsecured line of credit at end of period | 54% | 38% | 45% | 50% | 48% | |||||
| Operating margin | 70% | 72% | 71% | 72% | 72% | |||||
| Adjusted EBITDA margin | 66% | 67% | 66% | 68% | 69% | |||||
| General and administrative expense as a percentage of total revenues | 7.2% | 7.5% | 6.8% | 6.6% | 6.7% | |||||
| EBITDA – trailing 12 months | $ | 409,419 | $ | 400,742 | $ | 346,393 | $ | 335,304 | $ | 269,923 |
| Adjusted EBITDA – quarter annualized | $ | 377,168 | $ | 380,968 | $ | 368,100 | $ | 357,756 | $ | 330,164 |
| Adjusted EBITDA – trailing 12 months | $ | 370,998 | $ | 359,247 | $ | 345,055 | $ | 331,822 | $ | 323,545 |
| Capitalized interest | $ | 16,666 | $ | 15,046 | $ | 13,193 | $ | 14,629 | $ | 16,695 |
| Weighted average interest rate used for capitalization during period | 4.54% | 4.60% | 4.57% | 4.67% | 4.59% | |||||
| Net debt to Gross Assets (excluding cash and restricted cash) at end of period | 36% | 36% | 39% | 39% | 38% | |||||
| Secured debt as a percentage of gross assets at end of period | 11% | 11% | 12% | 12% | 13% | |||||
| Net debt to Adjusted EBITDA – quarter annualized | 6.8x | 6.5x | 7.0x | 6.9x | 7.2x | |||||
| Net debt to Adjusted EBITDA – trailing 12 months | 6.9x | 6.9x | 7.4x | 7.4x | 7.3x | |||||
| Fixed charge coverage ratio – quarter annualized | 2.7x | 2.7x | 2.7x | 2.6x | 2.3x | |||||
| Fixed charge coverage ratio – trailing 12 months | 2.7x | 2.6x | 2.4x | 2.2x | 2.1x | |||||
| Dividends per share on common stock | $ | 0.47 | $ | 0.45 | $ | 0.45 | $ | 0.45 | $ | 0.35 |
| Dividend payout ratio (common stock) | 43% | 41% | 40% | 41% | 35% | |||||
| **** | 3Q11 | 2Q11 | 1Q11 | 4Q10 | 3Q10 | |||||
| Asset Base Statistics | ||||||||||
| Number of properties at end of period | 171 | 171 | 168 | 167 | 165 | |||||
| Rentable square feet at end of period | 14,868,859 | 14,145,604 | 13,700,490 | 13,658,780 | 12,867,728 | |||||
| Occupancy of operating properties at end of period | 94.6% | 93.8% | 94.2% | 94.3% | 94.0% | |||||
| Occupancy including redevelopment properties at end of period | 89.3% | 88.3% | 88.6% | 88.9% | 89.3% | |||||
| Annualized base rent per leased rentable square foot | $ | 34.39 | $ | 34.06 | $ | 33.90 | $ | 33.95 | $ | 31.91 |
| Leasing activity – YTD rentable square feet | 2,265,421 | 1,280,084 | 551,622 | 2,744,239 | 1,670,004 | |||||
| Leasing activity – Qtr rentable square feet | 985,337 | 728,462 | 551,622 | 1,074,235 | 639,559 | |||||
| Leasing activity – YTD percentage change in rental rates – GAAP basis | 2.5% | 2.4% | 1.6% | 4.9% | 5.4% | |||||
| Leasing activity – Qtr percentage change in rental rates – GAAP basis | 2.8% | 3.1% | 1.6% | 4.3% | 8.1% | |||||
| Leasing activity – YTD percentage change in rental rates – cash basis | (0.7%) | 1.0% | 0.8% | 2.0% | 0.4% | |||||
| Leasing activity – Qtr percentage change in rental rates – cash basis | (3.0%) | 1.5% | 0.8% | 4.2% | 0.7% | |||||
| Same property YTD percentage change in net operating income – GAAP basis | 0.2% | 0.5% | 0.3% | 0.4% | 0.6% | |||||
| Same property Qtr percentage change in net operating income – GAAP basis | (0.2%) | 1.7% | 0.3% | 1.3% | 0.1% | |||||
| Same property YTD percentage change in net operating income – cash basis | 5.5% | 6.5% | 5.8% | 1.5% | 1.3% | |||||
| Same property Qtr percentage change in net operating income – cash basis | 4.8% | 9.4% | 5.8% | 2.0% | 2.3% |
21
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Financial and Asset Base Highlights (continued)
(Unaudited)
Summary of Occupancy Percentage at End of Period
| **** | **** | **** | December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | Average | 3Q11 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 |
| Operating properties | 95.2% | 94.6% | 94.3% | 94.1% | 94.8% | 93.8% | 93.1% | 93.2% | 95.2% | 93.9% | 96.3% | 99.0% | 98.4% | 95.7% | 96.2% |
| Operating and redevelopment properties | 89.3% | 89.3% | 88.9% | 89.4% | 90.0% | 87.8% | 88.0% | 87.7% | 87.0% | 88.4% | 89.2% | 88.6% | 90.8% | 91.5% | 92.9% |
Quarterly Percentage Change Same Property Net Operating Income
Summary of Percentage Change in Rental Rates on Renewed/Re-leased Space
22
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Summary of Properties
September 30, 2011
(Dollars in thousands)
(Unaudited)
| **** | Rentable Square Feet | Number of | **** | **** | ||||
|---|---|---|---|---|---|---|---|---|
| Markets | Operating | Redevelopment | Development | Total | Properties | Annualized Base Rent | ||
| California – San Diego | 2,035,798 | 422,803 | 165,140 | 2,623,741 | 37 | $ | 62,924 | 15% |
| California – San Francisco | 2,117,728 | – | 366,346 | 2,484,074 | 23 | 80,019 | 20 | |
| Greater Boston | 3,280,873 | 177,662 | – | 3,458,535 | 38 | 122,033 | 30 | |
| NYC/New Jersey/Suburban Philadelphia | 747,463 | – | – | 747,463 | 9 | 32,456 | 8 | |
| North Carolina – Research Triangle Park | 809,847 | 30,000 | – | 839,847 | 13 | 17,810 | 4 | |
| Suburban Washington, D.C. | 2,436,597 | 116,783 | – | 2,553,380 | 32 | 54,053 | 13 | |
| Washington – Seattle | 937,205 | – | – | 937,205 | 11 | 33,620 | 8 | |
| Domestic markets | 12,365,511 | 747,248 | 531,486 | 13,644,245 | 163 | 402,915 | 98 | |
| International (1) | 1,069,651 | – | – | 1,069,651 | 5 | 8,591 | 2 | |
| Subtotal | 13,435,162 | 747,248 | 531,486 | 14,713,896 | 168 | $ | 411,506 | 100% |
| Discontinued Operations/“Held for Sale” | 154,963 | – | – | 154,963 | 3 | |||
| Total | 13,590,125 | 747,248 | 531,486 | 14,868,859 | 171 |
(1) Includes land and improvements subject to a ground lease with a tenant.
23
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Summary of Occupancy Percentage
(Unaudited)
Summary of Occupancy Percentage at End of Period
| **** | **** | **** | December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | Average | 3Q11 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 |
| Operating properties | 95.2% | 94.6% | 94.3% | 94.1% | 94.8% | 93.8% | 93.1% | 93.2% | 95.2% | 93.9% | 96.3% | 99.0% | 98.4% | 95.7% | 96.2% |
| Operating and redevelopment properties | 89.3% | 89.3% | 88.9% | 89.4% | 90.0% | 87.8% | 88.0% | 87.7% | 87.0% | 88.4% | 89.2% | 88.6% | 90.8% | 91.5% | 92.9% |
| **** | Operating Properties | Operating and Redevelopment Properties | |||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||
| Markets | 9/30/11 | 6/30/11 | 3/31/11 | 9/30/11 | 6/30/11 | 3/31/11 | |||||||||
| California – San Diego | 93.4 | % | 92.8 | % | 92.6 | % | 77.4 | % | 76.5 | % | 76.7 | % | |||
| California – San Francisco | 95.9 | 94.5 | 96.0 | 95.9 | 94.5 | 96.0 | |||||||||
| Greater Boston | 94.2 | 91.3 | 92.5 | 89.3 | 86.1 | 86.9 | |||||||||
| NYC/New Jersey/Suburban Philadelphia | 87.7 | 88.2 | 85.2 | 87.7 | 88.2 | 85.2 | |||||||||
| North Carolina – Research Triangle Park | 95.7 | 96.6 | 94.3 | 92.3 | 92.7 | 90.5 | |||||||||
| Suburban Washington, D.C. | 96.0 | 96.5 | 96.3 | 91.6 | 92.0 | 91.8 | |||||||||
| Washington – Seattle | 97.1 | 99.1 | 99.1 | 97.1 | 99.1 | 99.1 | |||||||||
| Domestic markets | 94.6 | 93.9 | 94.0 | 89.2 | 88.3 | 88.3 | |||||||||
| International | 91.8 | 90.2 | 100.0 | 91.8 | 90.2 | 100.0 | |||||||||
| Total | 94.6 | % | 93.8 | % | 94.2 | % | 89.3 | % | 88.3 | % | 88.6 | % |
24
ALEXANDRIA REAL ESTATE EQUITIES, INC. Property Listing September 30, 2011 (Dollars in thousands)
(Unaudited)
| **** | **** | Rentable Square Feet | **** | **** | Occupancy Percentage | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Address | Submarket | Operating | Redevelopment | Development | Total | Number of Properties | Annualized Base Rent | Operating | Operating and Redevelopment | |||
| California – San Diego | **** | **** | **** | **** | **** | **** | **** | **** | **** | |||
| 10931/10933 North Torrey Pines Road | Torrey Pines | 96,641 | - | - | 96,641 | 1 | $ | 3,134 | 99.5 | % | 99.5 | % |
| 10975 North Torrey Pines Road | Torrey Pines | 44,733 | - | - | 44,733 | 1 | 1,700 | 100.0 | 100.0 | |||
| 11119 North Torrey Pines Road | Torrey Pines | - | 81,816 | - | 81,816 | 1 | - | N/A | - | |||
| 3010 Science Park Road | Torrey Pines | 74,557 | - | - | 74,557 | 1 | 3,215 | 100.0 | 100.0 | |||
| 3115/3215 Merryfield Row | Torrey Pines | 158,645 | - | - | 158,645 | 2 | 6,498 | 89.0 | 89.0 | |||
| 3530/3550 John Hopkins Court & <br> 3535/3565 General Atomics Court | Torrey Pines | 117,058 | 89,923 | - | 206,981 | 4 | 3,146 | 95.8 | 54.2 | |||
| 10300 Campus Point Drive | University Town Center | 169,353 | 203,717 | - | 373,070 | 1 | 6,267 | 100.0 | 45.4 | |||
| 4755/4757/4767 Nexus Center Drive | University Town Center | 132,330 | - | 41,710 | 174,040 | 3 | 4,914 | 100.0 | 100.0 | |||
| 5200 Research Place | University Town Center | 346,581 | - | 123,430 | 470,011 | 1 | 13,260 | 100.0 | 100.0 | |||
| 9363/9373/9393 Towne Center Drive | University Town Center | 138,578 | - | - | 138,578 | 3 | 3,408 | 82.2 | 82.2 | |||
| 9880 Campus Point Drive | University Town Center | 71,510 | - | - | 71,510 | 1 | 2,774 | 100.0 | 100.0 | |||
| 5810-5820 Nancy Ridge Drive | Sorrento Mesa | 87,298 | - | - | 87,298 | 1 | 1,726 | 100.0 | 100.0 | |||
| 5871 Oberlin Drive | Sorrento Mesa | 33,817 | - | - | 33,817 | 1 | 856 | 100.0 | 100.0 | |||
| 6138-6150 Nancy Ridge Drive | Sorrento Mesa | 56,698 | - | - | 56,698 | 1 | 1,586 | 100.0 | 100.0 | |||
| 6146/6166 Nancy Ridge Drive | Sorrento Mesa | 51,273 | - | - | 51,273 | 2 | 1,008 | 87.4 | 87.4 | |||
| 6175/6225/6275 Nancy Ridge Drive | Sorrento Mesa | 60,232 | 47,347 | - | 107,579 | 3 | 419 | 47.2 | 26.4 | |||
| 7330 Carroll Road | Sorrento Mesa | 66,244 | - | - | 66,244 | 1 | 2,141 | 89.4 | 89.4 | |||
| 10505 Roselle Street & 3770 Tansy Street | Sorrento Valley | 33,013 | - | - | 33,013 | 2 | 1,001 | 100.0 | 100.0 | |||
| 11025/11035/11045 Roselle Street | Sorrento Valley | 65,910 | - | - | 65,910 | 3 | 1,035 | 72.4 | 72.4 | |||
| 3985 Sorrento Valley Boulevard | Sorrento Valley | 60,545 | - | - | 60,545 | 1 | 1,557 | 100.0 | 100.0 | |||
| 13112 Evening Creek Drive | I-15 Corridor | 109,780 | - | - | 109,780 | 1 | 2,495 | 100.0 | 100.0 | |||
| 129/161/165 North Hill Avenue & 6 Thomas | LA Metro | 61,002 | - | - | 61,002 | 2 | 784 | 62.2 | 62.2 | |||
| California – San Diego | **** | 2,035,798 | 422,803 | 165,140 | 2,623,741 | 37 | $ | 62,924 | 93.4 | % | 77.4 | % |
25
ALEXANDRIA REAL ESTATE EQUITIES, INC. Property Listing September 30, 2011 (Dollars in thousands)
(Unaudited)
| **** | **** | Rentable Square Feet | **** | Occupancy Percentage | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Address | Submarket | Operating | Redevelopment | Development | Total | Number of Properties | Annualized Base Rent | Operating | Operating and Redevelopment | |||
| California – San Francisco | **** | **** | **** | **** | **** | **** | **** | **** | ||||
| 1500 Owens Street | Mission Bay | 158,267 | - | - | 158,267 | 1 | 6,721 | 93.8 | % | 93.8 | % | |
| 1700 Owens Street | Mission Bay | 157,340 | - | - | 157,340 | 1 | 6,803 | 95.4 | 95.4 | |||
| 455 Mission Bay Boulevard | Mission Bay | 170,058 | - | 39,942 | 210,000 | 1 | 7,787 | 100.0 | 100.0 | |||
| 409/499 Illinois Street | Mission Bay | 234,249 | - | 219,007 | 453,256 | 2 | 14,318 | 100.0 | 100.0 | |||
| 249 E. Grand Avenue | South San Francisco | 129,501 | - | - | 129,501 | 1 | 5,084 | 100.0 | 100.0 | |||
| 341/343 Oyster Point Blvd | South San Francisco | 107,960 | - | - | 107,960 | 2 | 1,956 | 100.0 | 100.0 | |||
| 400/450 East Jamie Court | South San Francisco | 54,603 | - | 107,397 | 162,000 | 2 | 1,538 | 100.0 | 100.0 | |||
| 500 Forbes Boulevard | South San Francisco | 155,685 | - | - | 155,685 | 1 | 5,540 | 100.0 | 100.0 | |||
| 600/630/650 Gateway Boulevard | South San Francisco | 150,960 | - | - | 150,960 | 3 | 3,490 | 82.6 | 82.6 | |||
| 681 Gateway Boulevard | South San Francisco | 126,971 | - | - | 126,971 | 1 | 6,161 | 100.0 | 100.0 | |||
| 7000 Shoreline Court | South San Francisco | 136,393 | - | - | 136,393 | 1 | 3,941 | 100.0 | 100.0 | |||
| 901/951 Gateway Boulevard | South San Francisco | 170,244 | - | - | 170,244 | 2 | 5,355 | 88.3 | 88.3 | |||
| 2425 Garcia Ave & 2400/2450 Bayshore Pky | Peninsula | 98,964 | - | - | 98,964 | 1 | 2,750 | 84.0 | 84.0 | |||
| 2625/2627/2631 Hanover Street | Peninsula | 32,074 | - | - | 32,074 | 1 | 1,335 | 100.0 | 100.0 | |||
| 3165 Porter Drive | Peninsula | 91,644 | - | - | 91,644 | 1 | 3,878 | 100.0 | 100.0 | |||
| 3350 W. Bayshore Road | Peninsula | 60,000 | - | - | 60,000 | 1 | 1,526 | 100.0 | 100.0 | |||
| 75 & 125 Shoreway Road | Peninsula | 82,815 | - | - | 82,815 | 1 | 1,836 | 91.2 | 91.2 | |||
| California – San Francisco | **** | 2,117,728 | - | 366,346 | 2,484,074 | 23 | 95.9 | % | 95.9 | % |
All values are in US Dollars.
26
ALEXANDRIA REAL ESTATE EQUITIES, INC. Property Listing September 30, 2011 (Dollars in thousands)
(Unaudited)
| **** | **** | Rentable Square Feet | **** | **** | Occupancy Percentage | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Address | Submarket | Operating | Redevelopment | Development | Total | Number of Properties | Annualized Base Rent | Operating | Operating and Redevelopment | |||
| Greater Boston | **** | **** | **** | **** | **** | **** | **** | **** | **** | |||
| 100 Technology Square | Cambridge/Inner Suburbs | 255,441 | - | - | 255,441 | 1 | $ | 17,302 | 100.0 | % | 100.0 | % |
| 200 Technology Square | Cambridge/Inner Suburbs | 177,101 | - | - | 177,101 | 1 | 10,263 | 100.0 | 100.0 | |||
| 300 Technology Square | Cambridge/Inner Suburbs | 175,609 | - | - | 175,609 | 1 | 10,640 | 99.4 | 99.4 | |||
| 400 Technology Square (1) | Cambridge/Inner Suburbs | 145,551 | 49,225 | - | 194,776 | 1 | 5,285 | 100.0 | 74.7 | |||
| 500 Technology Square | Cambridge/Inner Suburbs | 184,207 | - | - | 184,207 | 1 | 10,023 | 98.4 | 98.4 | |||
| 600 Technology Square | Cambridge/Inner Suburbs | 128,224 | - | - | 128,224 | 1 | 4,366 | 99.6 | 99.6 | |||
| 700 Technology Square | Cambridge/Inner Suburbs | 48,930 | - | - | 48,930 | 1 | 1,680 | 94.2 | 94.2 | |||
| 161 First Street | Cambridge/Inner Suburbs | 46,356 | - | - | 46,356 | 1 | 1,812 | 99.5 | 99.5 | |||
| 167 Sidney Street | Cambridge/Inner Suburbs | 26,589 | - | - | 26,589 | 1 | 1,392 | 100.0 | 100.0 | |||
| 215 First Street (2) | Cambridge/Inner Suburbs | 351,277 | 15,392 | - | 366,669 | 1 | 10,180 | 92.4 | 88.5 | |||
| 300 Third Street | Cambridge/Inner Suburbs | 131,639 | - | - | 131,639 | 1 | 7,100 | 98.3 | 98.3 | |||
| 480 Arsenal | Cambridge/Inner Suburbs | 140,744 | - | - | 140,744 | 1 | 4,503 | 100.0 | 100.0 | |||
| 500 Arsenal Street | Cambridge/Inner Suburbs | 93,516 | - | - | 93,516 | 1 | 3,960 | 100.0 | 100.0 | |||
| 780/790 Memorial Drive | Cambridge/Inner Suburbs | 98,497 | - | - | 98,497 | 2 | 6,023 | 94.2 | 94.2 | |||
| 79/96 Charlestown Navy Yard | Cambridge/Inner Suburbs | 24,940 | - | - | 24,940 | 1 | - | - | - | |||
| 99 Erie Street | Cambridge/Inner Suburbs | 27,960 | - | - | 27,960 | 1 | 594 | 42.3 | 42.3 | |||
| 100 Beaver Street | Rte 128 | 82,330 | - | - | 82,330 | 1 | 2,093 | 88.2 | 88.2 | |||
| 285 Bear Hill Road (3) | Rte 128 | 26,270 | - | - | 26,270 | 1 | 447 | 100.0 | 100.0 | |||
| 19 Presidential Way | Rte 128 | 128,325 | - | - | 128,325 | 1 | 3,398 | 100.0 | 100.0 | |||
| 29 Hartwell Avenue | Rte 128 | 59,000 | - | - | 59,000 | 1 | 1,902 | 100.0 | 100.0 | |||
| 3 Preston Court | Rte 128 | 30,000 | - | - | 30,000 | 1 | - | - | - | |||
| 35 Hartwell Avenue | Rte 128 | 46,700 | - | - | 46,700 | 1 | 1,650 | 100.0 | 100.0 | |||
| 35 Wiggins Avenue | Rte 128 | 48,640 | - | - | 48,640 | 1 | 724 | 100.0 | 100.0 | |||
| 44 Hartwell Avenue | Rte 128 | 26,828 | - | - | 26,828 | 1 | 1,105 | 100.0 | 100.0 | |||
| 45-47 Wiggins Avenue | Rte 128 | 38,000 | - | - | 38,000 | 1 | 1,114 | 100.0 | 100.0 | |||
| 60 Westview Street | Rte 128 | 40,200 | - | - | 40,200 | 1 | 1,257 | 100.0 | 100.0 | |||
| 6-8 Preston Court | Rte 128 | 54,391 | - | - | 54,391 | 1 | 553 | 84.0 | 84.0 | |||
| 111 Forbes Boulevard | Rte 495/Worcester | 58,280 | - | - | 58,280 | 1 | 261 | 28.6 | 28.6 | |||
| 130 Forbes Boulevard | Rte 495/Worcester | 97,566 | - | - | 97,566 | 1 | 871 | 100.0 | 100.0 | |||
| 155 Fortune Boulevard | Rte 495/Worcester | 36,000 | - | - | 36,000 | 1 | 806 | 100.0 | 100.0 | |||
| 20 Walkup Drive | Rte 495/Worcester | - | 113,045 | - | 113,045 | 1 | - | N/A | - | |||
| 30 Bearfoot Road | Rte 495/Worcester | 60,759 | - | - | 60,759 | 1 | 2,765 | 100.0 | 100.0 | |||
| 306 Belmont Street | Rte 495/Worcester | 78,916 | - | - | 78,916 | 1 | 1,139 | 100.0 | 100.0 | |||
| 350 Plantation Street | Rte 495/Worcester | 11,774 | - | - | 11,774 | 1 | 173 | 100.0 | 100.0 | |||
| 377 Plantation Street | Rte 495/Worcester | 92,711 | - | - | 92,711 | 1 | 2,082 | 85.1 | 85.1 | |||
| 381 Plantation Street | Rte 495/Worcester | 92,423 | - | - | 92,423 | 1 | 2,146 | 100.0 | 100.0 | |||
| One Innovation Drive | Rte 495/Worcester | 115,179 | - | - | 115,179 | 1 | 2,424 | 96.3 | 96.3 | |||
| Greater Boston | **** | 3,280,873 | 177,662 | - | 3,458,535 | 38 | $ | 122,033 | 94.2 | % | 89.3 | % |
(1) Represents an office building. The entire building will undergo conversion into laboratory space through redevelopment beginning in October 2011.
(2) Represents an office building that has undergone a partial conversion of office space into laboratory space through redevelopment. We expect to convert additional office space aggregating 31,812 rentable square feet into laboratory space in 2012.
(3) Represents an office building acquired in June 2011 subject to a lease expiring on November 30, 2011. The entire building will undergo conversion into laboratory space through redevelopment in December 2011.
27
ALEXANDRIA REAL ESTATE EQUITIES, INC. Property Listing September 30, 2011 (Dollars in thousands)
(Unaudited)
| **** | **** | Rentable Square Feet | **** | **** | Occupancy Percentage | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Address | Submarket | Operating | Redevelopment | Development | Total | Number of Properties | Annualized Base Rent | Operating | Operating and Redevelopment | |||
| NYC/New Jersey/Suburban Philadelphia | **** | **** | **** | **** | **** | **** | **** | **** | **** | |||
| 450 E. 29th Street | Midtown Manhattan | 308,388 | - | - | 308,388 | 1 | $ | 23,726 | 98.5 | % | 98.5 | % |
| 100 Phillips Parkway | Bergen County | 78,501 | - | - | 78,501 | 1 | 2,220 | 100.0 | 100.0 | |||
| 102 Witmer Road | Pennsylvania | 50,000 | - | - | 50,000 | 1 | 3,345 | 100.0 | 100.0 | |||
| 200 Lawrence Road | Pennsylvania | 111,451 | - | - | 111,451 | 1 | 1,246 | 100.0 | 100.0 | |||
| 210 Welsh Pool Road | Pennsylvania | 59,415 | - | - | 59,415 | 1 | 946 | 100.0 | 100.0 | |||
| 5100 Campus Drive | Pennsylvania | 21,782 | - | - | 21,782 | 1 | - | - | - | |||
| 701 Veterans Circle | Pennsylvania | 35,155 | - | - | 35,155 | 1 | 735 | 100.0 | 100.0 | |||
| 702 Electronic Drive | Pennsylvania | 40,171 | - | - | 40,171 | 1 | 238 | 42.5 | 42.5 | |||
| 279 Princeton Road | Princeton | 42,600 | - | - | 42,600 | 1 | - | - | - | |||
| NYC/New Jersey/Suburban Philadelphia | **** | 747,463 | - | - | 747,463 | 9 | $ | 32,456 | 87.7 | % | 87.7 | % |
| **** | **** | Rentable Square Feet | **** | **** | Occupancy Percentage | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Address | Submarket | Operating | Redevelopment | Development | Total | Number of Properties | Annualized Base Rent | Operating | Operating and Redevelopment | |||
| North Carolina – Research Triangle Park | **** | **** | **** | **** | **** | **** | **** | **** | **** | |||
| 100 Capitola Drive | Research Triangle Park | 65,992 | - | - | 65,992 | 1 | $ | 978 | 95.8 | % | 95.8 | % |
| 108/110/112/114 Alexander Road | Research Triangle Park | 158,417 | - | - | 158,417 | 1 | 4,954 | 100.0 | 100.0 | |||
| 2525 E. NC Highway 54 | Research Triangle Park | 81,580 | - | - | 81,580 | 1 | 1,655 | 100.0 | 100.0 | |||
| 5 Triangle Drive | Research Triangle Park | 32,120 | - | - | 32,120 | 1 | 824 | 100.0 | 100.0 | |||
| 601 Keystone Park Drive | Research Triangle Park | 77,395 | - | - | 77,395 | 1 | 1,306 | 100.0 | 100.0 | |||
| 6101 Quadrangle Drive | Research Triangle Park | - | 30,000 | - | 30,000 | 1 | - | N/A | - | |||
| 7 Triangle Drive | Research Triangle Park | 96,626 | - | - | 96,626 | 1 | 2,874 | 100.0 | 100.0 | |||
| 7010/7020/7030 Kit Creek | Research Triangle Park | 133,654 | - | - | 133,654 | 3 | 2,622 | 89.3 | 89.3 | |||
| 800/801 Capitola Drive | Research Triangle Park | 119,208 | - | - | 119,208 | 2 | 2,001 | 92.3 | 92.3 | |||
| 555 Heritage Drive | Palm Beach | 44,855 | - | - | 44,855 | 1 | 596 | 80.3 | 80.3 | |||
| North Carolina – Research Triangle Park | **** | 809,847 | 30,000 | - | 839,847 | 13 | $ | 17,810 | 95.7 | % | 92.3 | % |
28
ALEXANDRIA REAL ESTATE EQUITIES, INC. Property Listing September 30, 2011 (Dollars in thousands)
(Unaudited)
| **** | **** | Rentable Square Feet | **** | **** | Occupancy Percentage | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Address | Submarket | Operating | Redevelopment | Development | Total | Number of Properties | Annualized Base Rent | Operating | Operating and Redevelopment | |||
| Suburban Washington, D.C. | **** | **** | **** | **** | **** | **** | **** | **** | **** | |||
| 12301 Parklawn Drive | Rockville | 49,185 | - | - | 49,185 | 1 | $ | 1,024 | 100.0 | % | 100.0 | % |
| 1330 Piccard Drive | Rockville | 131,415 | - | - | 131,415 | 1 | 2,962 | 79.8 | 79.8 | |||
| 1405/1413 Research Boulevard | Rockville | 176,669 | - | - | 176,669 | 2 | 5,049 | 100.0 | 100.0 | |||
| 1500/1550 East Gude Drive | Rockville | 90,489 | - | - | 90,489 | 2 | 1,937 | 100.0 | 100.0 | |||
| 14920 Broschart Road | Rockville | 48,500 | - | - | 48,500 | 1 | 961 | 100.0 | 100.0 | |||
| 15010 Broschart Road | Rockville | 27,126 | 11,077 | - | 38,203 | 1 | 583 | 100.0 | 71.0 | |||
| 5 Research Court | Rockville | 54,906 | - | - | 54,906 | 1 | 1,564 | 100.0 | 100.0 | |||
| 5 Research Place | Rockville | 63,852 | - | - | 63,852 | 1 | 2,341 | 100.0 | 100.0 | |||
| 9800 Medical Center Drive | Rockville | 201,896 | 79,579 | - | 281,475 | 4 | 7,348 | 97.2 | 69.7 | |||
| 9920 Medical Center Drive | Rockville | 58,733 | - | - | 58,733 | 1 | 428 | 100.0 | 100.0 | |||
| 1201 Clopper Road | Gaithersburg | 143,585 | - | - | 143,585 | 1 | 3,480 | 100.0 | 100.0 | |||
| 1300 Quince Orchard Road | Gaithersburg | 54,874 | - | - | 54,874 | 1 | 812 | 100.0 | 100.0 | |||
| 16020 Industrial Drive | Gaithersburg | 83,541 | - | - | 83,541 | 1 | 1,316 | 100.0 | 100.0 | |||
| 19/20/22 Firstfield Road | Gaithersburg | 132,639 | - | - | 132,639 | 3 | 3,097 | 96.3 | 96.3 | |||
| 25/35/45 West Watkins Mill Road | Gaithersburg | 138,938 | - | - | 138,938 | 1 | 3,299 | 100.0 | 100.0 | |||
| 401 Professional Drive | Gaithersburg | 63,154 | - | - | 63,154 | 1 | 876 | 77.9 | 77.9 | |||
| 620 Professional Drive | Gaithersburg | - | 26,127 | - | 26,127 | 1 | - | N/A | - | |||
| 708 Quince Orchard Road | Gaithersburg | 49,624 | - | - | 49,624 | 1 | 1,133 | 99.3 | 99.3 | |||
| 9 W. Watkins Mill Road | Gaithersburg | 92,449 | - | - | 92,449 | 1 | 2,598 | 100.0 | 100.0 | |||
| 910 Clopper Road | Gaithersburg | 180,650 | - | - | 180,650 | 1 | 3,120 | 85.6 | 85.6 | |||
| 930/940 Clopper Road | Gaithersburg | 104,302 | - | - | 104,302 | 2 | 1,654 | 93.4 | 93.4 | |||
| 950 Wind River Lane | Gaithersburg | 50,000 | - | - | 50,000 | 1 | 1,082 | 100.0 | 100.0 | |||
| 8000/9000/10000 Virginia Manor Road (1) | Beltsville | 191,884 | - | - | 191,884 | 1 | 3,048 | 93.2 | 93.2 | |||
| 14225 Newbrook Drive | Northern Virginia | 248,186 | - | - | 248,186 | 1 | 4,341 | 100.0 | 100.0 | |||
| Suburban Washington, D.C. | **** | 2,436,597 | 116,783 | - | 2,553,380 | 32 | $ | 54,053 | 96.0 | % | 91.6 | % |
(1) In 2012, we expect to convert office space aggregating 35,031 rentable square feet through redevelopment into laboratory space.
29
ALEXANDRIA REAL ESTATE EQUITIES, INC. Property Listing September 30, 2011 (Dollars in thousands)
(Unaudited)
| **** | **** | Rentable Square Feet | **** | **** | Occupancy Percentage | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Address | Submarket | Operating | Redevelopment | Development | Total | Number of Properties | Annualized Base Rent | Operating | Operating and Redevelopment | |||
| Washington – Seattle | **** | **** | **** | **** | **** | **** | **** | **** | **** | |||
| 1201 & 1209 Mercer Street | Lake Union | 16,740 | - | - | 16,740 | 1 | $ | 267 | 100.0 | % | 100.0 | % |
| 1201/1208 Eastlake Avenue | Lake Union | 203,369 | - | - | 203,369 | 2 | 8,747 | 100.0 | 100.0 | |||
| 1551 Eastlake Avenue (1) | Lake Union | 121,790 | - | - | 121,790 | 1 | 3,105 | 100.0 | 100.0 | |||
| 1600 Fairview Avenue | Lake Union | 27,991 | - | - | 27,991 | 1 | 1,294 | 100.0 | 100.0 | |||
| 1616 Eastlake Avenue (2) | Lake Union | 165,493 | - | - | 165,493 | 1 | 5,096 | 94.7 | 94.7 | |||
| 199 E. Blaine Street | Lake Union | 115,084 | - | - | 115,084 | 1 | 6,089 | 100.0 | 100.0 | |||
| 1124 Columbia Street | First Hill | 203,817 | - | - | 203,817 | 1 | 6,433 | 96.3 | 96.3 | |||
| 3000/3018 Western Avenue | Elliott Bay | 47,746 | - | - | 47,746 | 1 | 1,795 | 100.0 | 100.0 | |||
| 410 W. Harrison/410 Elliott Avenue West | Elliott Bay | 35,175 | - | - | 35,175 | 2 | 794 | 67.4 | 67.4 | |||
| Washington – Seattle | **** | 937,205 | - | - | 937,205 | 11 | $ | 33,620 | 97.1 | % | 97.1 | % |
| Domestic Properties | **** | 12,365,511 | 747,248 | 531,486 | 13,644,245 | 163 | $ | 402,915 | 94.6 | % | 89.2 | % |
| **** | **** | Rentable Square Feet | **** | **** | Occupancy Percentage | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Country | Submarket | Operating | Redevelopment | Development | Total | Number of Properties | Annualized Base Rent | Operating | Operating and Redevelopment | |||
| International | **** | **** | **** | **** | **** | **** | **** | **** | **** | |||
| Canada | **** | 46,032 | - | - | 46,032 | 1 | $ | 1,911 | 100.0 | % | 100.0 | % |
| Canada | **** | 66,000 | - | - | 66,000 | 1 | 1,239 | 100.0 | **** | 100.0 | **** | |
| Canada | **** | 106,364 | - | - | 106,364 | 1 | 2,198 | 78.0 | **** | 78.0 | **** | |
| Canada | **** | 68,000 | - | - | 68,000 | 1 | 3,243 | 100.0 | 100.0 | |||
| Canada (3) | **** | 783,255 | 783,255 | 1 | N/A | N/A | N/A | |||||
| International | **** | 1,069,651 | - | - | 1,069,651 | 5 | $ | 8,591 | 91.8 | % | 91.8 | % |
| Subtotal | **** | 13,435,162 | 747,248 | 531,486 | 14,713,896 | 168 | $ | 411,506 | 94.6 | % | 89.3 | % |
| Properties “held for sale” | **** | 154,963 | - | - | 154,963 | 3 | **** | **** | **** | |||
| Total | **** | 13,590,125 | 747,248 | 531,486 | 14,868,859 | 171 | **** | **** | **** |
(1) Represents an office building that will undergo conversion into laboratory space through redevelopment starting in October 2011. This redevelopment project is currently 51% pre-leased.
(2) In 2012, we expect to convert 65,936 rentable square feet of office space through redevelopment into laboratory space.
(3) Represents land and improvements subject to a ground lease with a tenant.
30
ALEXANDRIA REAL ESTATE EQUITIES, INC. Summary of Debt September 30, 2011 (Dollars in thousands) (Unaudited)
Debt Maturities
| Secured Notes Payable | Unsecured Debt | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Our Share | Noncontrolling<br> Interests’ Share | Total<br> Consolidated Secured Notes Payable | Line of Credit and Term Loans | Unsecured Convertible Notes | |||||||||
| 2011 | $ | 78,678 | $ | 88 | $ | 78,766 | $ | – | $ | – | |||
| 2012 | 12,552 | 364 | 12,916 | 250,000 | (1) | 84,801 | |||||||
| 2013 | 52,599 | 384 | 52,983 | – | – | ||||||||
| 2014 | 209,508 | 20,868 | 230,376 | – | 250 | ||||||||
| 2015 | 8,004 | – | 8,004 | 814,000 | (2) | – | |||||||
| Thereafter | 378,748 | – | 378,748 | 750,000 | (3) | – | |||||||
| Subtotal | $ | 740,089 | $ | 21,704 | 761,793 | 1,814,000 | 85,051 | ||||||
| Unamortized discounts | (911 | ) | – | (567 | ) | ||||||||
| Total | $ | 760,882 | $ | 1,814,000 | $ | 84,484 |
Secured Notes Payable and Unsecured Debt Analysis
| **** | Outstanding<br> Balance | Percentage of<br> Outstanding<br> Balance | Weighted Average Interest Rate at<br> End of Period (4) | Weighted Average Remaining Term | **** | |||
|---|---|---|---|---|---|---|---|---|
| Secured Notes Payable | $ | 760,882 | 28.6 | % | 5.95 | % | 4.8 Years | |
| Unsecured Line of Credit | 814,000 | 30.6 | 2.52 | 3.3 Years | (2) | |||
| 2012 Unsecured Term Loan | 250,000 | 9.4 | 5.63 | 1.1 Years | (1) | |||
| 2016 Unsecured Term Loan | 750,000 | 28.2 | 3.11 | 4.8 Years | (3) | |||
| Unsecured Convertible Notes | 84,484 | 3.2 | 5.97 | 0.3 Years | ||||
| Total Debt | $ | 2,659,366 | 100.0 | % | 4.07 | % | 3.9 Years | |
| (1) | Our 2012 Unsecured Term Loan matures in October 2012. We are currently negotiating a new unsecured term loan with a target amount between $400 and $500 million. The proceeds of this new loan will be used initially to reduce outstanding balances on our unsecured line of credit. Ultimately, a portion of these proceeds will provide funds necessary to repay our 2012 Unsecured Term Loan. | |||||||
| --- | --- | |||||||
| (2) | Our unsecured line of credit matures in January 2015, assuming we exercise our sole right to extend the maturity twice by an additional six months after each exercise. | |||||||
| (3) | Our 2016 Unsecured Term Loan matures in June 2016, assuming we exercise our sole right to extend the maturity by one year. | |||||||
| (4) | Represents the contractual interest rate as of the end of the period plus the impact of debt premiums/discounts and our interest rate hedge agreements on our secured notes payable, unsecured line of credit, unsecured term loans, and unsecured convertible notes. The weighted average interest rate excludes bank fees and amortization of loan fees. See also the “Summary of Interest Rate Hedge Agreements” section of this report. |
31
ALEXANDRIA REAL ESTATE EQUITIES, INC. Summary of Secured Notes Payable Principal Maturities Through 2015 September 30, 2011
(Dollars in thousands)
(Unaudited)
| Description | Maturity Date | Type | Stated Rate | Effective Rate (1) | Amount | **** | |||
|---|---|---|---|---|---|---|---|---|---|
| Suburban Washington, D.C. | 12/22/11 | Bank | 3.57 | 3.57 | $ | 76,000 | (2) | ||
| Other scheduled principal repayments/amortization | 2,766 | ||||||||
| 2011 Total | $ | 78,766 | |||||||
| Greater Boston | 3/1/12 | Insurance Co. | 7.14 | % | 5.83 | % | $ | 1,357 | |
| Other scheduled principal repayments/amortization | 11,559 | ||||||||
| 2012 Total | $ | 12,916 | |||||||
| California – San Diego | 3/1/13 | Insurance Co. | 6.21 | % | 6.21 | % | $ | 7,940 | |
| Suburban Washington, D.C. | 9/1/13 | CMBS | 6.36 | 6.36 | 26,093 | ||||
| California – San Francisco | 11/16/13 | Other | 6.14 | 6.14 | 7,527 | ||||
| Other scheduled principal repayments/amortization | 11,423 | ||||||||
| 2013 Total | $ | 52,983 | |||||||
| Greater Boston | 4/1/14 | Insurance Co. | 5.26 | % | 5.59 | % | $ | 208,683 | |
| San Diego | 7/1/14 | Bank | 6.05 | 4.88 | 6,458 | ||||
| San Diego | 11/1/14 | Bank | 5.39 | 4.00 | 7,495 | ||||
| Washington – Seattle | 11/18/14 | Other | 5.90 | 5.90 | 240 | ||||
| Other scheduled principal repayments/amortization | 7,500 | ||||||||
| 2014 Total | $ | 230,376 | |||||||
| Other scheduled principal repayments/amortization | $ | 8,004 | |||||||
| 2015 Total | $ | 8,004 |
(1) Represents the contractual interest rate as of the end of the period plus the impact of debt premiums/discounts. The effective rate excludes bank fees and amortization of loan fees.
(2) We extended the 2011 maturity date of this loan into 2012 and are in discussions for an additional 3-5 year extension.
32
ALEXANDRIA REAL ESTATE EQUITIES, INC. Fixed/Floating Rate Debt Analysis and Leverage (Dollars in thousands) (Unaudited)
Fixed/Floating Rate Debt Analysis
| **** | September 30, 2011 | Percentage <br> of <br> Balance | Weighted Average Interest Rate at <br> End of Period (1) | Weighted <br> Average <br> Maturity | |||
|---|---|---|---|---|---|---|---|
| Fixed rate debt | $ | 844,586 | 31.8 | % | 5.96 | % | 4.4 Years |
| Floating rate debt – hedged | 450,000 | 16.9 | 6.00 | 2.7 Years | |||
| Floating rate debt – unhedged | 1,364,780 | 51.3 | 2.27 | 3.9 Years | |||
| Total Debt | $ | 2,659,366 | 100.0 | % | 4.07 | % | 3.9 Years |
Leverage
| 9/30/11 | **** | 6/30/11 | **** | 3/31/11 | **** | 12/31/10 | **** | 9/30/10 | **** | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total debt | $ | 2,659,366 | $ | 2,553,329 | $ | 2,669,466 | $ | 2,584,162 | $ | 2,519,463 | |||||
| Less: cash, cash equivalents, and restricted cash | (100,985 | ) | (84,357 | ) | (108,709 | ) | (119,586 | ) | (146,106 | ) | |||||
| Net debt | $ | 2,558,381 | $ | 2,468,972 | $ | 2,560,757 | $ | 2,464,576 | $ | 2,373,357 | |||||
| Adjusted EBITDA – quarter annualized | $ | 377,168 | $ | 380,968 | $ | 368,100 | $ | 357,756 | $ | 330,164 | |||||
| Adjusted EBITDA – trailing 12 months | $ | 370,998 | $ | 359,247 | $ | 345,055 | $ | 331,822 | $ | 323,545 | |||||
| Gross Assets (excluding cash and restricted cash) | $ | 7,065,151 | $ | 6,938,008 | $ | 6,521,668 | $ | 6,402,282 | $ | 6,190,686 | |||||
| Net debt to Adjusted EBITDA – quarter annualized | 6.8x | 6.5x | 7.0x | 6.9x | 7.2x | ||||||||||
| Net debt to Adjusted EBITDA – trailing 12 months | 6.9x | 6.9x | 7.4x | 7.4x | 7.3x | ||||||||||
| Net debt to Gross Assets (excluding cash and restricted cash) | 36% | 36% | 39% | 39% | 38% | ||||||||||
| Unencumbered net operating income as a percentage of total net operating income | 67% | 64% | 65% | 60% | 58% | ||||||||||
| Unencumbered assets gross book value as a percentage of gross assets | 77% | 76% | 74% | 74% | 72% |
| (1) | Represents the contractual interest rate as of the end of the period plus the impact of debt premiums/discounts and our interest rate hedge agreements on our secured notes payable, unsecured line of credit, unsecured term loans, and unsecured convertible notes. The weighted average interest rate excludes bank fees and amortization of loan fees. See also the “Summary of Interest Rate Hedge Agreements” section of this report. The weighted average interest rate related to outstanding borrowings for our unhedged floating rate debt is based upon one-month LIBOR. The interest rate resets periodically and will vary in future periods. |
|---|
33
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Summary of Interest Rate Hedge Agreements
September 30, 2011
(Dollars in thousands)
(Unaudited)
| Transaction Date | Effective Date | Termination Date | Interest Pay Rate (1) | Notional Amount | **** | ||
|---|---|---|---|---|---|---|---|
| December 2006 | December 29, 2006 | March 31, 2014 | 4.990 | % | $ | 50,000 | |
| October 2007 | October 31, 2007 | September 30, 2012 | 4.546 | 50,000 | |||
| October 2007 | October 31, 2007 | September 30, 2013 | 4.642 | 50,000 | |||
| October 2007 | July 1, 2008 | March 31, 2013 | 4.622 | 25,000 | |||
| October 2007 | July 1, 2008 | March 31, 2013 | 4.625 | 25,000 | |||
| December 2006 | November 30, 2009 | March 31, 2014 | 5.015 | 75,000 | |||
| December 2006 | November 30, 2009 | March 31, 2014 | 5.023 | 75,000 | |||
| December 2006 | December 31, 2010 | October 31, 2012 | 5.015 | 100,000 | |||
| Total | $ | 450,000 | (2) |
(1) Interest pay rate represents the interest rate we will pay for one month LIBOR under the applicable interest rate swap agreement. This rate does not include any spread in addition to one month LIBOR that is due monthly as interest expense.
(2) We are currently evaluating additional interest rate hedge and/or interest rate cap agreements and expect to further mitigate interest rate risk on LIBOR based debt.
34
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Summary of Same Property Comparisons
(Dollars in thousands)
(Unaudited)
Historical Same Property Performance
Quarterly Percentage Change Same Property Net Operating Income
Current Period Same Property Performance
| **** | Three Months Ended – GAAP Basis | Three Months Ended – Cash Basis | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | 9/30/10 | % Change | 9/30/11 | 9/30/10 | % Change | |||||||
| Revenues | $ | 101,141 | $ | 100,341 | 0.8 | % | $ | 100,140 | $ | 95,943 | 4.4 | % | |
| Operating expenses | 29,362 | 28,409 | 3.4 | 29,362 | 28,409 | 3.4 | |||||||
| Net Operating Income | $ | 71,779 | $ | 71,932 | (0.2 | %) | (1) | $ | 70,778 | $ | 67,534 | 4.8 | % |
| Nine Months Ended – GAAP Basis | Nine Months Ended – Cash Basis | ||||||||||||
| 9/30/11 | 9/30/10 | % Change | 9/30/11 | 9/30/10 | % Change | ||||||||
| Revenues | $ | 296,239 | $ | 291,441 | 1.6 | % | $ | 298,904 | $ | 283,316 | 5.5 | % | |
| Operating expenses | 84,106 | 79,793 | 5.4 | 84,106 | 79,793 | 5.4 | |||||||
| Net Operating Income | $ | 212,133 | $ | 211,648 | 0.2 | % | (1) | $ | 214,798 | $ | 203,523 | 5.5 | % |
| Same Property Data – September 30, 2011 | |||||||||||||
| --- | --- | --- | |||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||
| Number of properties | 130 | 128 | |||||||||||
| Rentable square footage | 9,683,228 | 9,523,315 | |||||||||||
| Occupancy | |||||||||||||
| September 30, 2011 | 93.4% | 93.7% | |||||||||||
| September 30, 2010 | 94.4% | 94.7% |
(1) During the three months ended September 30, 2011, a property located in the suburbs of Boston underwent a transition from a prior tenant to a new tenant, resulting in a gap in occupancy and a temporary decline in revenues less operating expenses. Excluding this property, the percentage increase in GAAP and cash same property net operating income would have been 0.5% and 5.7%, respectively, for the three months ended September 30, 2011.
35
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Summary of Leasing Activity
Three Months Ended September 30, 2011
(Unaudited)
| **** | **** | **** | **** | **** | **** | **** | TI’s/Lease | **** |
|---|---|---|---|---|---|---|---|---|
| **** | **** | Rentable | **** | **** | Rental | **** | Commissions | Average |
| **** | Number | Square | Expiring | New | Rate | **** | Per | Lease |
| **** | of Leases | Footage | Rates | Rates | Changes | **** | Square Foot | Terms |
| Leasing Activity | ||||||||
| Lease Expirations | ||||||||
| Cash Basis | 49 | 564,159 | $33.89 | – | – | – | – | |
| GAAP Basis | 49 | 564,159 | $31.07 | – | – | – | – | |
| Renewed/Re-leased Space Leased | ||||||||
| Cash Basis | 29 | 402,196 | $37.13 | $36.00 | (3.0% | ) | $5.30 | 3.6 years |
| GAAP Basis | 29 | 402,196 | $33.49 | $34.42 | 2.8% | $5.30 | 3.6 years | |
| Developed/Redeveloped/Vacant Space Leased | ||||||||
| Cash Basis | 27 | 583,141 | – | $34.54 | – | $13.23 | 10.2 years | |
| GAAP Basis | 27 | 583,141 | – | $36.11 | – | $13.23 | 10.2 years | |
| Month-to-Month Leases in Effect | ||||||||
| Cash Basis | 2 | 8,864 | $24.84 | $24.84 | – | – | – | |
| GAAP Basis | 2 | 8,864 | $24.84 | $24.84 | – | – | – | |
| Leasing Activity Summary | ||||||||
| Excluding Month-to-Month Leases | ||||||||
| Cash Basis | 56 | 985,337 | – | $35.14 | – | $9.99 | 7.5 years | |
| GAAP Basis | 56 | 985,337 | – | $35.42 | – | $9.99 | 7.5 years | |
| Including Month-to-Month Leases | ||||||||
| Cash Basis | 58 | 994,201 | – | $35.04 | – | – | – | |
| GAAP Basis | 58 | 994,201 | – | $35.33 | – | – | – |
During the three months ended September 30, 2011, we granted tenant concessions/free rent averaging approximately 1.5 months with respect to the 985,337 rentable square feet leased.
36
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Summary of Leasing Activity
Nine Months Ended September 30, 2011
(Unaudited)
| **** | **** | **** | **** | **** | **** | **** | TI’s/Lease | **** |
|---|---|---|---|---|---|---|---|---|
| **** | **** | Rentable | **** | **** | Rental | **** | Commissions | Average |
| **** | Number | Square | Expiring | New | Rate | **** | Per | Lease |
| **** | of Leases | Footage | Rates | Rates | Changes | **** | Square Foot | Terms |
| Leasing Activity | ||||||||
| Lease Expirations | ||||||||
| Cash Basis | 118 | 1,653,434 | $29.70 | – | – | – | – | |
| GAAP Basis | 118 | 1,653,434 | $28.88 | – | – | – | – | |
| Renewed/Re-leased Space Leased | ||||||||
| Cash Basis | 84 | 1,171,703 | $31.19 | $30.98 | (0.7% | ) | $3.86 | 3.9 years |
| GAAP Basis | 84 | 1,171,703 | $29.88 | $30.64 | 2.5% | $3.86 | 3.9 years | |
| Developed/Redeveloped/Vacant Space Leased | ||||||||
| Cash Basis | 59 | 1,093,718 | – | $33.81 | – | $10.97 | 8.8 years | |
| GAAP Basis | 59 | 1,093,718 | – | $35.61 | – | $10.97 | 8.8 years | |
| Month-to-Month Leases in Effect | ||||||||
| Cash Basis | 2 | 8,864 | $24.84 | $24.84 | – | – | – | |
| GAAP Basis | 2 | 8,864 | $24.84 | $24.84 | – | – | – | |
| Leasing Activity Summary | ||||||||
| Excluding Month-to-Month Leases | ||||||||
| Cash Basis | 143 | 2,265,421 | – | $32.35 | – | $7.29 | 6.2 years | |
| GAAP Basis | 143 | 2,265,421 | – | $33.04 | – | $7.29 | 6.2 years | |
| Including Month-to-Month Leases | ||||||||
| Cash Basis | 145 | 2,274,285 | – | $32.32 | – | – | – | |
| GAAP Basis | 145 | 2,274,285 | – | $33.01 | – | – | – |
During the nine months ended September 30, 2011, we granted tenant concessions/free rent averaging approximately 1.7 months with respect to the 2,265,421 rentable square feet leased.
37
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Summary of Leasing Activity
(Unaudited)
| **** | September 30, 2011 | Year Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | Quarter | Year-to-Date | 12/31/10 | 12/31/09 | 12/31/08 | 12/31/07 | ||||||
| **** | GAAP | Cash | GAAP | Cash | GAAP | Cash | GAAP | Cash | GAAP | Cash | GAAP | Cash |
| Lease Expirations | ||||||||||||
| Rentable Square Footage | 564,159 | 564,159 | 1,653,434 | 1,653,434 | 2,416,291 | 2,416,291 | 1,842,597 | 1,842,597 | 1,664,944 | 1,664,944 | 1,626,033 | 1,626,033 |
| Expiring Rates | $31.07 | $33.89 | $28.88 | $29.70 | $28.54 | $27.18 | $30.70 | $30.61 | $25.52 | $26.88 | $26.97 | $25.98 |
| Renewed/Re-leased Space | ||||||||||||
| Leased Rentable Square Footage | 402,196 | 402,196 | 1,171,703 | 1,171,703 | 1,777,966 | 1,777,966 | 1,188,184 | 1,188,184 | 1,254,285 | 1,254,285 | 895,894 | 895,894 |
| New Rates | $34.42 | $36.00 | $30.64 | $30.98 | $32.04 | $29.41 | $27.72 | $28.11 | $29.34 | $28.60 | $31.48 | $31.41 |
| Expiring Rates | $33.49 | $37.13 | $29.88 | $31.19 | $30.54 | $28.84 | $26.78 | $28.07 | $25.51 | $27.08 | $28.66 | $29.38 |
| Rental Rate Changes | 2.8% | (3.0%) | 2.5% | (0.7%) | 4.9% | 2.0% | 3.5% | 0.1% | 15.0% | 5.6% | 9.8% | 6.9% |
| Average Lease Terms | 3.6 years | 3.6 years | 3.9 years | 3.9 years | 8.1 years | 8.1 years | 3.3 years | 3.3 years | 4.3 years | 4.3 years | 4.0 years | 4.0 years |
| Developed/Redeveloped/Vacant Space Leased | ||||||||||||
| Rentable Square Footage | 583,141 | 583,141 | 1,093,718 | 1,093,718 | 966,273 | 966,273 | 676,163 | 676,163 | 906,859 | 906,859 | 686,856 | 686,856 |
| New Rates | $36.11 | $34.54 | $35.61 | $33.81 | $39.89 | $36.33 | $36.00 | $33.57 | $37.64 | $35.04 | $33.68 | $31.59 |
| Average Lease Terms | 10.2 years | 10.2 years | 8.8 years | 8.8 years | 9.7 years | 9.7 years | 6.6 years | 6.6 years | 7.2 years | 7.2 years | 6.5 years | 6.5 years |
| Totals | ||||||||||||
| Rentable Square Footage | 985,337 | 985,337 | 2,265,421 | 2,265,421 | 2,744,239 | 2,744,239 | 1,864,347 | 1,864,347 | 2,161,144 | 2,161,144 | 1,582,750 | 1,582,750 |
| New Rates | $35.42 | $35.14 | $33.04 | $32.35 | $34.80 | $31.84 | $30.73 | $30.09 | $32.82 | $31.30 | $32.44 | $31.49 |
| TI’s/Lease Commissions per Square Foot | $9.99 | $9.99 | $7.29 | $7.29 | $5.70 | $5.70 | $5.49 | $5.49 | $7.23 | $7.23 | $6.95 | $6.95 |
| Average Lease Terms | 7.5 years | 7.5 years | 6.2 years | 6.2 years | 8.7 years | 8.7 years | 4.5 years | 4.5 years | 5.5 years | 5.5 years | 5.1 years | 5.1 years |
38
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Summary of Lease Expirations
September 30, 2011
(Unaudited)
| Year of Lease <br> Expiration | Number of <br> Leases Expiring | Rentable Square <br> Footage (“RSF”) of <br> Expiring Leases | Percentage of <br> Aggregate <br> Total RSF | Annualized Base Rent of Expiring Leases (per RSF) | ||||
|---|---|---|---|---|---|---|---|---|
| 2011 | 23 | (1) | 572,337 | (1) | 4.3 | % | $31.18 | |
| 2012 | 87 | 1,327,545 | 9.9 | 28.94 | ||||
| 2013 | 77 | 1,302,557 | 9.7 | 29.02 | ||||
| 2014 | 72 | 1,349,301 | 10.1 | 28.69 | ||||
| 2015 | 53 | 1,173,173 | 8.8 | 32.96 | ||||
| 2016 | 41 | 1,319,780 | 9.8 | 31.29 | ||||
| 2017 | 21 | 873,749 | 6.5 | 34.20 | ||||
| 2018 | 19 | 1,097,318 | 8.2 | 36.49 | ||||
| 2019 | 8 | 399,205 | 3.0 | 35.60 | ||||
| 2020 | 14 | 703,675 | 5.3 | 40.64 | ||||
| **** | 2011 RSF of Expiring Leases | **** | Annualized Base Rent of | |||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Markets | Leased | Negotiating/ <br> Anticipating | Targeted for Redevelopment | **** | Remaining <br> Expiring Leases | Total | **** | Expiring Leases <br> (per RSF) |
| California – San Diego | 56,489 | – | – | 39,530 | 96,019 | $28.77 | ||
| California – San Francisco | – | – | – | – | – | – | ||
| Greater Boston | 45,750 | 23,434 | 171,821 | (2) | 39,513 | 280,518 | 37.25 | |
| NYC/New Jersey/Suburban Philadelphia | – | – | – | – | – | – | ||
| North Carolina – Research Triangle Park | – | 6,376 | – | 21,301 | 27,677 | 19.83 | ||
| Suburban Washington, D.C. | 2,006 | – | – | 23,852 | 25,858 | 12.74 | ||
| Washington – Seattle | 16,931 | – | 121,790 | (3) | 3,544 | 142,265 | 26.39 | |
| International | – | – | – | – | – | – | ||
| Total | 121,176 | 29,810 | 293,611 | 127,740 | 572,337 | (1) | $31.18 | |
| Percentage of expiring leases | 21% | 6% | 51% | 22% | 100% | |||
| **** | 2012 RSF of Expiring Leases | **** | Annualized Base Rent | |||||
| Markets | Leased | Negotiating/ <br> Anticipating | Targeted for Redevelopment | **** | Remaining <br> Expiring Leases | Total | **** | of Expiring Leases <br> (per RSF) |
| California – San Diego | 13,674 | 35,409 | – | 239,901 | 288,984 | $27.44 | ||
| California – San Francisco | 19,988 | 46,096 | – | 126,071 | 192,155 | 27.50 | ||
| Greater Boston | 77,893 | 73,713 | 31,812 | 134,946 | 318,364 | 39.41 | ||
| NYC/New Jersey/Suburban Philadelphia | – | – | – | 7,239 | 7,239 | 13.24 | ||
| North Carolina – Research Triangle Park | – | 15,897 | – | 27,540 | 43,437 | 13.24 | ||
| Suburban Washington, D.C. | – | 16,503 | 35,031 | 258,146 | 309,680 | 23.37 | ||
| Washington – Seattle | 2,468 | 28,849 | 65,936 | 63,597 | 160,850 | 28.38 | ||
| International | – | – | – | 6,836 | 6,836 | 26.35 | ||
| Total | 114,023 | 216,467 | 132,779 | 864,276 | 1,327,545 | $28.94 | ||
| Percentage of expiring leases | 9% | 16% | 10% | 65% | 100% | |||
| (1) | Excludes 2 month-to-month leases for approximately 9,000 rentable square feet. | |||||||
| --- | --- | |||||||
| (2) | Represents 145,551 rentable square feet of office space and a 26,270 rentable square foot office building which will undergo conversion into laboratory space through redevelopment starting in October 2011 and December 2011, respectively. | |||||||
| (3) | Represents a 121,790 rentable square foot office building. This building will undergo conversion into laboratory space through redevelopment starting in October 2011 and is currently 51% pre-leased. |
39
ALEXANDRIA REAL ESTATE EQUITIES, INC.
20 Largest Client Tenants
September 30, 2011
(Dollars in thousands)
(Unaudited)
| **** | **** | Remaining Lease | Approximate Aggregate | Percentage of Aggregate | **** | Percentage of Aggregate | Investment Grade Entities (3) | **** | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | Number | Term in Years | Rentable | Total Square | Annualized | Annualized | Fitch | Moody’s | S&P | Education/ | |||||||
| Tenant | of Leases | (1) | (2) | Square Feet | Feet | Base Rent | Base Rent | Rating | Rating | Rating | Research | ||||||
| 1 | Novartis AG | 7 | 5.0 | 5.3 | 453,000 | 3.4 | % | $ | 26,437 | 6.4 | % | AA | Aa2 | AA- | – | ||
| 2 | Eli Lilly and Company | 5 | 9.8 | 11.4 | 261,320 | 2.0 | 15,048 | 3.7 | A+ | A2 | AA- | – | |||||
| 3 | Roche Holding Ltd | 5 | 6.0 | 6.3 | 387,813 | 2.9 | 14,833 | 3.6 | AA- | A1 | AA- | – | |||||
| 4 | FibroGen, Inc. | 1 | 12.1 | 12.1 | 234,249 | 1.7 | 14,318 | 3.5 | – | – | – | – | |||||
| 5 | Illumina, Inc. | 1 | 20.1 | 20.1 | 346,581 | 2.6 | 13,260 | 3.2 | – | – | – | – | |||||
| 6 | United States Government | 8 | 3.3 | 3.4 | 378,526 | 2.8 | 11,641 | 2.8 | AAA | Aaa | AA+ | – | |||||
| 7 | Bristol-Myers Squibb Company | 3 | 7.2 | 7.3 | 250,454 | 1.9 | 10,086 | 2.5 | A+ | A2 | A+ | – | |||||
| 8 | GlaxoSmithKline plc | 4 | 7.1 | 7.3 | 199,318 | 1.5 | 10,068 | 2.4 | A+ | A1 | A+ | – | |||||
| 9 | Massachusetts Institute of Technology | 3 | 3.3 | 3.0 | 178,952 | 1.3 | 8,154 | 2.0 | – | Aaa | AAA | ü | |||||
| 10 | NYU-Neuroscience Translational Research Institute | 2 | 14.1 | 13.1 | 79,788 | 0.6 | 7,224 | 1.8 | – | Aa3 | AA- | – | |||||
| 11 | Alnylam Pharmaceuticals, Inc. (4) | 1 | 5.0 | 5.0 | 129,424 | 1.0 | 6,076 | 1.5 | – | – | – | – | |||||
| 12 | Gilead Sciences, Inc. | 1 | 8.8 | 8.8 | 109,969 | 0.8 | 5,824 | 1.4 | – | Baa1 | A- | – | |||||
| 13 | Amylin Pharmaceuticals, Inc. | 3 | 4.3 | 3.4 | 168,308 | 1.3 | 5,747 | 1.4 | – | – | – | – | |||||
| 14 | Pfizer Inc. | 2 | 11.2 | 5.7 | 115,765 | 0.9 | 5,451 | 1.3 | A+ | A1 | AA | – | |||||
| 15 | Theravance, Inc. (5) | 2 | 7.6 | 8.0 | 150,330 | 1.1 | 5,355 | 1.3 | – | – | – | – | |||||
| 16 | The Scripps Research Institute | 2 | 5.2 | 5.1 | 99,377 | 0.7 | 5,193 | 1.3 | AA- | Aa3 | – | ü | |||||
| 17 | Quest Diagnostics Incorporated | 2 | 5.3 | 5.3 | 280,113 | 2.1 | 4,989 | 1.2 | BBB+ | Baa2 | BBB+ | – | |||||
| 18 | Forrester Research, Inc. | 1 | – | (6) | – | (6) | 145,551 | 1.1 | 4,987 | 1.2 | – | – | – | – | |||
| 19 | Infinity Pharmaceuticals, Inc. | 2 | 3.3 | 3.3 | 67,167 | 0.5 | 4,382 | 1.1 | – | – | – | – | |||||
| 20 | The Regents of the University of California | 2 | 9.6 | 9.7 | 92,666 | 0.7 | 4,104 | 1.0 | AA+ | Aa1 | AA | ü | |||||
| Total/Weighted Average: | 57 | 7.4 | 7.9 | 4,128,671 | 30.9 | % | $ | 183,177 | 44.6 | % |
(1) Represents remaining lease term in years based on percentage of leased square feet.
(2) Represents remaining lease term in years based on percentage of annualized base rent in effect as of September 30, 2011.
(3) Ratings obtained from each of the following rating agencies: Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s.
(4) As of June 30, 2011, Novartis AG owned approximately 13% of the outstanding stock of Alnylam Pharmaceuticals, Inc.
(5) As of July 27, 2011, GlaxoSmithKline plc owned approximately 18% of the outstanding stock of Theravance, Inc.
(6) As of October 2011, this office building was undergoing conversion into life science laboratory space through redevelopment.
40
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Client Tenant Mix
September 30, 2011
(Unaudited)
| **** | Multinational Pharmaceutical | Institutional: Independent Non-Profit, University, and Government |
|---|---|---|
 |
· Abbott Laboratories | · Bill & Melinda Gates Foundation |
| · Astellas Pharma Inc. | · California Institute of Technology | |
| · AstraZeneca PLC | · Duke University | |
| · Baxter International Inc. | · Environmental Protection Agency | |
| · Bayer AG | · Fred Hutchinson Cancer Research Center | |
| · Bristol-Myers Squibb Company | · Massachusetts Institute of Technology | |
| · Eisai Co., Ltd. | · National Institutes of Health | |
| · Eli Lilly and Company | · NYU-Neuroscience Translational Research Institute | |
| · GlaxoSmithKline plc | · Sanford-Burham Medical Research Institute | |
| · Johnson & Johnson | · Stanford University | |
| · Merck & Co., Inc. | · The Scripps Research Institute | |
| · Novartis AG | · The Regents of the University of California | |
| · Pfizer Inc. | · UMass Memorial Health Care, Inc. | |
| · Roche Holding Ltd | · UNC Health Care System | |
| · Sanofi | · University of Washington | |
| · Shire plc | ||
| · The Genomics Institute of the Novartis Research Foundation | ||
| Biotechnology: Public & Private | Medical Device, Life Science<br><br><br>Product, Service, and Biofuels | |
| · Achaogen Inc. | · Canon U.S. Life Sciences, Inc. | |
| · Alnylam Pharmaceuticals, Inc. | · Illumina, Inc. | |
| · Amgen Inc. | · Laboratory Corporation of America Holdings | |
| · Amylin Pharmaceuticals, Inc. | · Life Technologies Corporation | |
| · Avila Therapeutics, Inc. | · LS9, Inc. | |
| · Biogen Idec Inc. | · Monsanto Company | |
| · Celgene Corporation | · Qiagen N.V. | |
| · Fate Therapeutics, Inc | · Quest Diagnostics Incorporated | |
| · FibroGen, Inc. | · Sapphire Energy, Inc. | |
| · Forma Therapeutics, Inc. | ||
| · Gilead Sciences, Inc. | ||
| Client tenant mix by annualized base rent | · Ikaria, Inc. | |
| · Intellikine, Inc. | ||
| · MacroGenics, Inc. | ||
| · Medicago Inc. | ||
| · NGM Biopharmaceuticals, Inc. | ||
| · Presidio Pharmaceuticals, Inc. | ||
| · Proteostasis Therapeutics, Inc. | ||
| · Theravance, Inc. |
41
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Summary of Additions and Dispositions of Properties
Three Months Ended September 30, 2011
(Dollars in thousands)
(Unaudited)
| **** | Acquisition | Month of | Rentable | |
|---|---|---|---|---|
| Market/Property | Amount | Acquisition | Square Feet | |
| Additions to Properties: | ||||
| None | ||||
| **** | Disposition | Month of | ||
| Market/Property | Amount | Disposition | ||
| Dispositions: | ||||
| California — San Diego | ||||
| Sorrento View | $ | 17,300,000 | August 2011 |
42
ALEXANDRIA REAL ESTATE EQUITIES, INC. Real Estate (Dollars in thousands, except per square foot amounts)
(Unaudited)
| **** | September 30, 2011 | June 30, 2011 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | Book Value | **** | Square Footage | Cost per Square Foot | Book Value | **** | Square Footage | Cost per Square Foot | ||||
| Rental properties | $ | 5,000,700 | 13,590,125 | $ | 368 | $ | 4,796,692 | 12,672,852 | $ | 379 | ||
| Less: accumulated depreciation | (710,580 | ) | (679,081 | ) | ||||||||
| Rental properties, net | 4,290,120 | 4,117,611 | ||||||||||
| Construction in progress (“CIP”)/current value-added projects: | ||||||||||||
| Active redevelopment | 300,398 | 747,248 | 402 | 296,225 | 782,258 | 379 | ||||||
| Active development | 190,427 | 531,486 | 358 | 238,433 | 690,139 | 345 | ||||||
| Projects in India and China | 113,136 | 916,000 | 124 | 107,934 | 916,000 | 118 | ||||||
| 603,961 | 2,194,734 | 275 | 642,592 | 2,388,397 | 269 | |||||||
| Land/future value-added projects (1): | ||||||||||||
| Land held for future development | 452,732 | 11,715,000 | 39 | 534,618 | 12,020,000 | 44 | ||||||
| Land undergoing preconstruction activities (additional CIP) (2) | 538,437 | 2,456,000 | 219 | 521,753 | 2,449,000 | 213 | ||||||
| 991,169 | 14,171,000 | 70 | 1,056,371 | 14,469,000 | 73 | |||||||
| Investment in unconsolidated real estate entity | 40,042 | 428,000 | 94 | 38,778 | 428,000 | 91 | ||||||
| Real estate, net | 5,925,292 | 30,383,859 | $ | 195 | 5,855,352 | 29,958,249 | $ | 195 | ||||
| Add: accumulated depreciation | 710,580 | 679,081 | ||||||||||
| Gross book value of real estate (1) | $ | 6,635,872 | 30,383,859 | $ | 6,534,433 | 29,958,249 |
(1) In addition to assets included in our gross book value of real estate, we also hold options/rights for parcels supporting approximately 3.0 million developable square feet. These parcels consist of: (a) a parcel supporting the future ground-up development of approximately 385,000 rentable square feet at Alexandria Center™ for Life Science – New York City related to an option under our ground lease; (b) right to acquire land parcels supporting ground-up development of 636,000 rentable square feet in Edinburgh, Scotland; and (c) an option to increase our land use rights by up to approximately 2.0 million additional developable square feet in China.
(2) We generally will not commence ground-up development of any parcels undergoing preconstruction activities without first securing significant pre-leasing for such space. If vertical aboveground construction is not initiated at completion of preconstruction activities, the land parcel will be classified as land held for future development. The two largest projects included in preconstruction consist of our 1.9 million developable square feet at Alexandria Center™ at Kendall Square in East Cambridge, Massachusetts and our 407,000 developable square foot site for the second tower at Alexandria Center™ for Life Science – New York City.
43
ALEXANDRIA REAL ESTATE EQUITIES, INC. Real Estate September 30, 2011
(Unaudited)
Construction in Progress (“CIP”)/Current Value-Added Projects
Active Redevelopment/Active Development Projects
A key component of our business model is our value-added redevelopment and development programs. These programs are focused on providing high-quality, generic, and reusable life science laboratory space to meet the real estate requirements of a wide range of clients in the life science industry. Upon completion, each value-added project is expected to generate significant revenues and cash flows. Our redevelopment and development projects are generally in locations that are highly desirable to life science entities, which we believe results in higher occupancy levels, longer lease terms, and higher rental income and returns. Redevelopment projects consist of the permanent change in use of office, warehouse, and shell space into generic life science laboratory space, including the conversion of single-tenancy space to multi-tenancy space or vice versa. Our incremental investment in redevelopment projects for the conversion of non-laboratory space to laboratory space generally ranges from $75 to $175 per square foot depending on the nature of the existing building improvements and laboratory design. Development projects consist of the ground-up development of generic and reusable life science laboratory facilities. We generally will not commence new development projects for aboveground vertical construction of new laboratory space without first securing significant pre-leasing for such space.
Projects in India and China
Projects in India and China primarily represent development opportunities and projects focused primarily on life science laboratory space for our current client tenants and other life science relationship entities. These projects focus on real estate investments with targeted returns on investment greater than returns expected in the United States.
Future Value-Added Projects
Land Held for Future Development
All preconstruction efforts have been advanced to appropriate stages and no further preconstruction activities are ongoing and therefore, interest, property taxes, and other costs related to these assets are expensed as incurred. We generally will not commence new development projects for aboveground vertical construction of new laboratory space without first securing significant pre-leasing for such space.
Land Undergoing Preconstruction Activities (additional CIP)
Preconstruction activities include Building Information Modeling (3-D virtual modeling), design development and construction drawings, sustainability and energy optimization review, budgeting, planning for future site and infrastructure work, and other activities prior to commencement of vertical construction of aboveground shell and core improvements. Our objective with preconstruction is to reduce the time it takes to deliver projects to prospective tenants. Project costs are capitalized as a cost of the project during periods activities necessary to prepare an asset for its intended use are in progress. We generally will not commence ground-up development of any parcels undergoing preconstruction activities without first securing significant pre-leasing for such space. If vertical aboveground construction is not initiated at completion of preconstruction activities, the land parcel will be classified as land held for future development. The two largest projects included in preconstruction consist of our 1.9 million developable square feet at Alexandria Center™ at Kendall Square in East Cambridge, Massachusetts and our 407,000 developable square foot site for the second tower at Alexandria Center™ for Life Science – New York City.
Investment in Unconsolidated Real Estate Entity
Our investment in unconsolidated real estate entity represents our equity investment in a real estate entity that owns a land parcel supporting the ground-up development of approximately 428,000 rentable square feet in the Longwood Medical Area of Boston.
Future Redevelopment
Our asset base also includes non-laboratory space (office, warehouse, and industrial space) identified for future conversion into life science laboratory space through redevelopment aggregating approximately 1.4 million rentable square feet. These spaces are currently classified in rental properties, net.
Capitalization Policy
In accordance with GAAP, we capitalize project costs clearly related to construction, redevelopment, and development as a cost of the project. Indirect project costs such as construction administration, legal fees, and office costs that clearly relate to projects under construction, redevelopment, and development are also capitalized as a cost of the project. We capitalize project costs only during periods in which activities necessary to prepare an asset for its intended use are in progress. We also capitalize interest cost as a cost of the project only during the period for which activities necessary to prepare an asset for its intended use are ongoing, provided that expenditures for the asset have been made and interest cost is being incurred. Additionally, should activities necessary to prepare an asset for its intended use cease, interest, taxes, insurance, and certain other indirect project costs related to these assets would be expensed as incurred. Expenditures for repair and maintenance are expensed as incurred and are not included in capital expenditures.
44
ALEXANDRIA REAL ESTATE EQUITIES, INC. Value-Added Projects September 30 , 2011
(Dollars in thousands)
(Unaudited)
The following table summarizes our estimated capital expenditures, excluding capitalized interest, for the three months ended December 31, 2011, and for the year ended December 31, 2012. Our actual capital expenditures will ultimately depend on many factors, including construction and infrastructure requirements for each tenant and final lease negotiations, and may materially differ from these estimates.
| **** | Three Months Ended | Year Ended | ||
|---|---|---|---|---|
| **** | December 31, 2011 | December 31, 2012 | ||
| Redevelopment | $ | 62,000 | $ | 148,000 |
| Development | 20,000 | 147,000 | ||
| Projects in India and China | 21,000 | 62,000 | ||
| Current Value-Added Projects | 103,000 | 357,000 | ||
| Future Value-Added Projects - Preconstruction | 7,000 | 7,000 | ||
| Other | 9,000 | 9,000 | ||
| 16,000 | 16,000 | |||
| Total | $ | 119,000 | $ | 373,000 |
Current Value-Added Projects
Redevelopment capital expenditures represent estimated capital expenditures related to the rentable square feet undergoing active redevelopment as well as capital expenditures related to future redevelopment projects.
Development capital expenditures primarily represent estimated capital expenditures related to rentable square feet undergoing active development as well as capital expenditures related to other development projects.
Capital expenditures related to projects in India and China represent estimated capital expenditures related to development opportunities and projects primarily focused on life science laboratory space for our current client tenants and other life science relationship entities in India and China.
Future Value-Added Projects – Preconstruction
We continue to advance various important preconstruction activities for development sites, including Building Information Modeling (3-D virtual modeling), design development and construction drawings (required for each of the five new buildings), sustainability and energy optimization review, budgeting, planning for future site and infrastructure work, and other activities prior to commencement of vertical construction of aboveground shell and core improvements. We generally will not commence ground-up development of any parcels undergoing preconstruction activities without first securing significant pre-leasing for such space. In July 2011, we executed a new lease for a 307,000 rentable square feet ground-up development to Biogen Idec, Inc. at Alexandria CenterTM at Kendall Square. We plan to commence ground-up development in October 2011.
Other
Other capital expenditures represent property-related tenant improvements, recurring capital expenditures, and other project costs (excluding costs related to the redevelopment and development of a property). These amounts include payments for property-related capital expenditures and tenant improvements that are recoverable from our tenants. As of September 30, 2011, approximately 92% of our leases (on a rentable square footage basis) provided for the recapture of certain capital expenditures (such as heavy-duty heating, ventilation, and air conditioning systems maintenance and/or replacement, roof replacement, and parking lot resurfacing). Capital expenditures fluctuate in any given period due to the nature, extent, and timing of improvements required and the extent to which they are recoverable from our tenants. In addition, we maintain an active preventive maintenance program at each of our properties to minimize capital expenditures.
45
ALEXANDRIA REAL ESTATE EQUITIES, INC. Current Value-Added Projects – Redevelopment September 30, 2011
(Unaudited)
The following table summarizes our properties undergoing redevelopment:
| **** | Redevelopment | Total **** Property | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| **** | **** | Percentage (1) | **** | **** | Estimated | **** | ||||
| **** | **** | **** | Negotiating/ | **** | **** | Placed into | In-Service | **** | ||
| Market/Property | RSF | Leased | Committed | Mktg | Status | Redevelopment | Dates | RSF (2) | ||
| San Diego – Torrey Pines | ||||||||||
| 11119 North Torrey Pines Road | 81,816 | 20 | % | – | 80 | % | Construction | 2010 | 2012 | 81,816 |
| 3530/3350 John Hopkins Court | 89,923 | 100 | % | – | – | Construction | 2010 | 2012 | 206,981 | |
| San Diego – University Town Center | ||||||||||
| 10300 Campus Point Drive | 203,717 | 43 | % | 47% | 10 | % | Design/Construction | 2011 | 2012/2013 | 373,070 |
| San Diego – Sorrento Mesa | ||||||||||
| 6275 Nancy Ridge Drive | 47,347 | 31 | % | 32% | 37 | % | Design | 2011 | 2012/2013 | 107,759 |
| Greater Boston – Cambridge/Inner Sub . | ||||||||||
| 400 Technology Square (3) | 49,225 | – | 100% | – | Design/Permitting | 2009 | 2012/2013 | 194,776 | ||
| 215 First Street (3) | 15,392 | 100 | % | – | – | Construction | (4) | 2011 | 366,669 | |
| Greater Boston – Rte 495/Worcester | ||||||||||
| 20 Walkup Drive | 113,045 | – | – | 100 | % | Construction | (5) | 2011 | 113,045 | |
| Research Triangle Park | ||||||||||
| 6101 Quadrangle Drive | 30,000 | 74 | % | – | 26 | % | Construction | 2010 | 2011 | 30,000 |
| Sub. Washington, D.C. – Rockville | ||||||||||
| 15010 Broschart Road | 11,077 | 37 | % | – | 63 | % | Construction | 2010 | 2011 | 38,203 |
| 9800 Medical Center Drive | 79,579 | – | 97% | 3 | % | Design/Permitting | 2009 | 2012 | 281,475 | |
| Sub. Washington, D.C. – Gaithersburg | ||||||||||
| 620 Professional Drive | 26,127 | – | – | 100 | % | Design | 2011 | 2012 | 26,127 | |
| Total | 747,248 | 33 | % | 32% | 35 | % | 1,819,921 |
(1) The leased percentages represent the percentages of redevelopment rentable square feet and exclude both the occupied and vacant rentable square feet related to the operating portion of each building.
(2) The operating portion of the properties aggregating 1,072,673 rentable square feet, including vacancy aggregating approximately 69,197 rentable square feet, is included in rental properties, net and occupancy statistics for our operating properties. See Summary of Properties on page 23.
(3) Represents redevelopment projects with projected total investment greater than the average total investment for our redevelopment projects. The higher total investment is primarily due to the contiguousness of a project to Alexandria Center™ at Kendall Square (part of the assemblage) as well as another mid-rise building and its structure.
(4) Represents historical office building acquired with parcel included in overall Alexandria Center™ at Kendall Square. Remaining rentable square footage is undergoing conversion from office space to laboratory space.
(5) Represents a former single-tenant building undergoing redevelopment and repositioning for multi-tenant research and development use.
As of September 30, 2011, our estimated cost to complete was approximately $187 per rentable square foot, or $139.4 million in aggregate, for the 747,248 rentable square feet undergoing a permanent change in use to life science laboratory space through redevelopment.
46
ALEXANDRIA REAL ESTATE EQUITIES, INC. Current Value-Added Projects – Development September 30, 2011
(Unaudited)
The following table summarizes our properties undergoing ground-up development:
| **** | Development | Operating | Total Property | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | **** | **** | Negotiating/ | **** | **** | **** | Estimated | Leased/ | **** | **** | |||
| **** | Total | Leased | Committed | Marketing | **** | Building | In-Service | Occupied | **** | **** | |||
| Market/Property | RSF | RSF | % | RSF | % | RSF | % | Leasing Status | Description | Dates | RSF | RSF | Leased |
| San Diego – University Town Center | |||||||||||||
| 4755 Nexus Center Drive | 41,710 | – | – | – | – | 41,710 | 100% | Marketing | Single or Multi-Tenant Bldg. | 2013 | – | 41,710 | –% |
| 5200 Research Place | 123,430 | 123,430 | 100% | – | – | – | – | 100% Leased to Illumina, Inc. | Single-Tenant Bldg. | 2012 | – | 123,430 | 100% |
| San Francisco – Mission Bay | |||||||||||||
| 455 Mission Bay Boulevard | 39,942 | – | – | 30,252 | 76% | 9,690 | 24% | Leased, Negotiating, and Marketing | Multi-Tenant Bldg. with 4% Retail | 2011 | 170,058 | 210,000 | 81% |
| 409/499 Illinois Street | 219,007 | – | – | – | – | 219,007 | 100% | Marketing | Multi-Tenant Bldg. with 4% Retail | 2012 | 234,249 | 453,256 | 52% |
| San Francisco – South SF | |||||||||||||
| 400/450 East Jamie Court | 107,397 | 17,358 | 16% | – | – | 90,039 | 84% | Leased/Marketing | Multi-Tenant Bldgs. | 2011 | 54,603 | 162,000 | 44% |
| Total | 531,486 | 140,788 | 26% | 30,252 | 6% | 360,446 | 68% | 458,910 | 990,396 | 61% |
As of September 30, 2011, our estimated cost to complete was approximately $170 per rentable square foot, or $90.3 million in aggregate, for the 531,486 rentable square feet undergoing ground-up development. We generally will not commence new development projects for aboveground vertical construction of new laboratory space without first securing significant pre-leasing for such space. In July 2011, we executed a new lease for a 307,000 rentable square feet ground-up development to Biogen Idec, Inc. at Alexandria CenterTM at Kendall Square. We plan to commence ground-up development in October 2011.
47
ALEXANDRIA REAL ESTATE EQUITIES, INC. Future Value-Added Projects September 30 , 2011
(Unaudited)
The following table summarizes the components of our future value-added square footage as of September 30, 2011:
| Markets | Land Held for Future Development | Land Undergoing Preconstruction Activities (additional CIP) | Total Land (1) | Investment in Unconsolidated Real Estate Entity | Future Redevelopment (2) |
|---|---|---|---|---|---|
| California – San Diego | 878,000 | – | 878,000 | – | 134,000 |
| California – San Francisco/Mission Bay | 290,000 | – | 290,000 | – | – |
| California – San Francisco/So. San Francisco | 1,195,000 | – | 1,195,000 | – | 65,000 |
| Greater Boston | 225,000 | 1,889,000 | 2,114,000 | 428,000 | 324,000 |
| New York City | – | 407,000 | 407,000 | – | – |
| Suburban Washington, D.C. | 1,096,000 | – | 1,096,000 | – | 466,000 |
| Washington – Seattle | 1,146,000 | 160,000 | 1,306,000 | – | 150,000 |
| International | 6,222,000 | – | 6,222,000 | – | – |
| Other | 663,000 | – | 663,000 | – | 258,000 |
| Total | 11,715,000 | 2,456,000 | 14,171,000 | 428,000 | 1,397,000 |
(1) In addition to assets included in our gross book value of real estate, we also hold options/rights for parcels supporting approximately 3.0 million developable square feet. These parcels consist of: (a) a parcel supporting the future ground-up development of approximately 385,000 rentable square feet in Alexandria Center™ for Life Science — New York City related to an option under our ground lease; (b) right to acquire land parcels supporting ground-up development of 636,000 rentable square feet in Edinburgh, Scotland; and (c) an option to increase our land use rights by up to approximately 2.0 million additional developable square feet in China.
(2) Our asset base also includes non-laboratory space (office, warehouse, and industrial space) identified for future conversion into life science laboratory space through redevelopment. These spaces are classified in rental properties, net.
48
ALEXANDRIA REAL ESTATE EQUITIES, INC. Value-Added Projects
Rendering of Alexandria Center TM at Kendall Square, East Cambridge Massachusetts September 30, 2011
(continued)
| Buildings in the white outline below represent renderings of five future ground-up life science laboratory developments aggregating 1.9 million rentable square feet. We continue to advance various important preconstruction activities for this development site, including Building Information Modeling (3-D virtual modeling), design development, construction drawings (required for each of the five new buildings), sustainability and energy optimization review, budgeting, planning for future site and infrastructure work, and other activities prior to commencement of vertical construction of aboveground shell and core improvements. Our objective is to advance preconstruction activities in order to reduce the time to deliver a new ground-up development to a prospective tenant. |
|---|
49
ALEXANDRIA REAL ESTATE EQUITIES, INC. Value-Added Projects
Site Plan of Alexandria Center TM for Life Science – New York City
September 30, 2011
(continued)
| The Alexandria CenterTM for Life Science – New York City (“ACNYC”) will consist of three buildings aggregating approximately 1.1 million rentable square feet. The east tower consists of 308,000 rentable square feet and is approximately 99% occupied as of September 30, 2011. The ACNYC campus also includes 407,000 developable square feet, site of the future west tower, as well as a parcel supporting the future ground-up development of approximately 385,000 rentable square feet on the north end of the campus. |
|---|
50
ALEXANDRIA REAL ESTATE EQUITIES, INC. Value-Added Projects
Map and Rendering of Mission Bay, San Francisco, California September 30, 2011
(continued)
| The Alexandria CenterTM for Science and Technology at Mission Bay will consist of up to seven high-quality facilities aggregating approximately 1,269,000 rentable square feet. We currently have five buildings aggregating approximately 720,000 rentable square feet leased to FibroGen, Inc., Merck & Co., Inc., Pfizer Inc., Bayer AG, and UCSF as well as other top tier life science entities, 259,000 square feet undergoing development, and future potential buildings aggregating approximately 290,000 rentable square feet. |
|---|
51
ALEXANDRIA REAL ESTATE EQUITIES, INC. Summary of Capital Expenditures
(Dollars in thousands, except for per square foot amounts)
(Unaudited)
| **** | Nine Months Ended September 30, | ||||
|---|---|---|---|---|---|
| **** | 2011 | 2010 | |||
| Capital expenditures (1): | |||||
| Major capital expenditures | $ | 461 | $ | 215 | |
| Recurring capital expenditures | $ | 1,395 | $ | 857 | |
| Square feet in asset base | 13,251,608 | 11,849,832 | |||
| Per square foot: | |||||
| Major capital expenditures | $ | 0.03 | $ | 0.02 | |
| Recurring capital expenditures | $ | 0.11 | $ | 0.07 | |
| Tenant improvements and leasing costs: | |||||
| Re-tenanted space (2) | |||||
| Tenant improvements and leasing costs | $ | 1,351 | $ | 1,346 | |
| Re-tenanted square feet | 299,430 | 251,955 | |||
| Per square foot | $ | 4.51 | $ | 5.34 | |
| Renewal space | |||||
| Tenant improvements and leasing costs | $ | 3,166 | $ | 2,796 | |
| Renewal square feet | 866,285 | 767,667 | |||
| Per square foot | $ | 3.66 | $ | 3.64 | |
| The table above shows the average per square foot property-related capital expenditures, tenant improvements, and leasing costs (excluding capital expenditures and tenant improvements that are recoverable from tenants, revenue-enhancing, or related to properties that have undergone redevelopment). | |||||
| (1) | Property-related capital expenditures include all major capital and recurring capital expenditures except capital expenditures that are recoverable from tenants, revenue-enhancing capital expenditures, or costs related to the redevelopment of a property. Major capital expenditures consist of roof replacements and heavy-duty heating, ventilation, and air conditioning systems that are typically identified and considered at the time a property is acquired. | ||||
| (2) | Excludes space that has undergone redevelopment before re-tenanting. |
52
ALEXANDRIA REAL ESTATE EQUITIES, INC. Definitions and Other Information
September 30, 2011
(Unaudited)
This section contains additional information for sections throughout this supplemental information package as well as explanations of certain non-GAAP financial measures in sections of this document and the reasons why management believes these measures provide useful information to investors about our financial condition, results of operations, or liquidity. Additional detail can be found in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, as well as other documents filed with or furnished to the SEC from time to time.
Adjusted EBITDA and Adjusted EBITDA Margin
EBITDA represents earnings before interest, taxes, depreciation and amortization (“EBITDA”), a non-GAAP financial measure, and is used as a supplemental measure of operating performance. Adjusted EBITDA is calculated as EBITDA excluding impairments, gains or losses from sales of real estate, gains or losses on early extinguishment of debt, and net stock compensation expenses. We use EBITDA and Adjusted EBITDA as a supplemental measure of our operating performance. We consider Adjusted EBITDA to provide investors relevant and useful information because it permits investors to view income from our operations on an unleveraged basis before the effects of taxes, non-cash depreciation and amortization, impairments, gains or losses from sales of real estate, gains or losses on early extinguishment of debt, and net stock compensation expenses. By excluding interest expense, EBITDA and Adjusted EBITDA allow investors to measure our operating performance independent of our capital structure and indebtedness and, therefore, allow for a more meaningful comparison of our operating performance to that of other companies, both in the real estate industry and in other industries. We believe investors should consider EBITDA and Adjusted EBITDA, in conjunction with net income (the primary measure of our performance) and the other required United States generally accepted accounting principles (“GAAP”) measures of our performance, to improve their understanding of our operating results, and to make more meaningful comparisons of our performance between periods and against other companies. EBITDA and Adjusted EBITDA have limitations as analytical tools and should be used in conjunction with our required GAAP presentations. EBITDA and Adjusted EBITDA do not reflect our historical cash expenditures or future cash requirements for capital expenditures or contractual commitments. While EBITDA and Adjusted EBITDA are relevant and widely used measures of operating performance, it does not represent net income or cash flow from operations as defined by GAAP, and it should not be considered as an alternative to those indicators in evaluating operating performance or liquidity. Further, our computation of EBITDA and Adjusted EBITDA may not be comparable to similar measures reported by other companies.
53
ALEXANDRIA REAL ESTATE EQUITIES, INC. Definitions and Other Information
September 30, 2011
(Unaudited)
Adjusted EBITDA and Adjusted EBITDA Margin (continued)
The following table reconciles net income to EBITDA and Adjusted EBITDA (dollars in thousands):
| **** | Three Months Ended | Nine Months Ended | **** | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | **** | 6/30/11 | 3/31/11 | 12/31/10 | **** | 9/30/10 | 9/30/11 | **** | 9/30/10 | **** | |||||||
| Net income | $ | 32,995 | $ | 34,311 | $ | 32,625 | $ | 92,000 | $ | 30,461 | $ | 99,931 | $ | 47,022 | ||||
| Interest expense (1) | 14,273 | 16,571 | 17,842 | 17,191 | 16,111 | 48,686 | 52,451 | |||||||||||
| Depreciation and amortization (2) | 39,990 | 40,363 | 36,707 | 34,551 | 32,009 | 117,060 | 92,089 | |||||||||||
| EBITDA | 87,258 | 91,245 | 87,174 | 143,742 | 78,581 | 265,677 | 191,562 | |||||||||||
| Stock compensation expense | 3,344 | 2,749 | 2,356 | 2,767 | 2,660 | 8,449 | 8,049 | |||||||||||
| Impairment of real estate | 994 | – | – | – | – | 994 | – | |||||||||||
| Gain on sales of property | (46 | ) | – | – | (59,442 | ) | – | (46 | ) | (24 | ) | |||||||
| Loss on early extinguishment of debt | 2,742 | 1,248 | 2,495 | 2,372 | 1,300 | 6,485 | 42,796 | |||||||||||
| Adjusted EBITDA | $ | 94,292 | $ | 95,242 | $ | 92,025 | $ | 89,439 | $ | 82,541 | $ | 281,559 | $ | 242,383 | ||||
| Total revenues | $ | 143,427 | $ | 142,918 | $ | 139,418 | $ | 130,889 | $ | 120,314 | $ | 425,763 | $ | 351,559 | ||||
| Adjusted EBITDA margin | 66% | 67% | 66% | 68% | 69% | 66% | 69% |
(1) Includes amount classified in discontinued operations and directly attributable to assets “held for sale.”
(2) Includes amount classified in discontinued operations related to assets “held for sale” (for the periods prior to when such assets were designated as “held for sale”).
Adjusted Funds from Operations
Adjusted Funds from Operations (“AFFO”) is a non-GAAP financial measure we believe is a useful supplemental measure of our performance. We compute AFFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders by adding to or deducting from FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders (1) recurring and non-recurring capital expenditures required to maintain and re-tenant our properties, (2) second generation tenant improvements and leasing costs on re-tenanted and renewal space (excludes redevelopment expenditures), (3) capitalized income from development projects, (4) gains or losses on early extinguishment of debt, (5) amortization of loan fees, debt premiums/discounts and acquired above and below market leases, (6) effects of deferred rent/straight-line rent and deferred rent/straight-line rent on ground leases, (7) non-cash compensation expense related to restricted stock awards, and (8) other non-cash income or charges, including impairment charges. AFFO is not intended to represent cash flow for the period, and is only intended to provide an additional measure of performance by adjusting the effect of certain items noted above included in FFO, as well as recurring capital expenditures and leasing costs. We believe that net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders is the most directly comparable GAAP financial measure to AFFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders. We also believe that AFFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders provides useful performance information to the investment community about our financial position as compared to other REITs since AFFO is a widely reported measure used by other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not be comparable to other REITs.
54
ALEXANDRIA REAL ESTATE EQUITIES, INC. Definitions and Other Information (continued)
September 30, 2011
(Unaudited)
Annualized Base Rent
Annualized base rent means the annualized fixed base rental amount in effect as of September 30, 2011 related to our operating rentable square feet (using rental revenue computed on a straight-line basis in accordance with GAAP).
Capitalized Interest
A key component of our business model is our value-added redevelopment and development programs. These programs are focused on providing high-quality generic life science laboratory space to meet the real estate requirements of and are reusable by various life science industry tenants. Upon completion, each value-added project is expected to generate significant revenues and cash flows. Our redevelopment and development projects are generally in locations that are highly desirable to life science entities which we believe results in higher occupancy levels, longer lease terms, and higher rental income and returns. Redevelopment projects consist of the permanent change in use of office, warehouse, and shell space into generic life science laboratory space, including the conversion of single-tenancy space to multi-tenancy space or multi-tenancy space to single-tenancy space. Development projects consist of the ground-up development of generic life science laboratory facilities. We also have certain significant value-added projects undergoing important and substantial preconstruction activities to bring these assets to their intended use. These critical activities add significant value and are required for the construction of buildings. The projects will provide high-quality facilities for the life science industry and will generate significant revenue and cash flows for the Company. In accordance with GAAP, we capitalize project costs clearly related to the construction, redevelopment, and development as a cost of the project. Indirect project costs such as construction administration, legal fees, and office costs that clearly relate to projects under construction, redevelopment, and development are also capitalized as a cost of the project. We capitalize project costs only during periods in which activities necessary to prepare an asset for its intended use are in progress. We also capitalize interest cost as a cost of the project only during the period for which activities necessary to prepare an asset for its intended use are ongoing, provided that expenditures for the asset have been made and interest cost is being incurred. Additionally, should activities necessary to prepare an asset for its intended use cease, interest, taxes, insurance, and certain other direct project costs related to these assets would be expensed as incurred.
55
ALEXANDRIA REAL ESTATE EQUITIES, INC. Definitions and Other Information (continued)
September 30, 2011
(Unaudited)
Dividend Payout Ratio
Dividend payout ratio (common stock) is the ratio of the absolute dollar amount of dividends on our common stock (shares of common stock outstanding on the respective record date multiplied by the related dividend per share) to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders on a diluted basis. The dividend payout ratios for the three months ended September 30, 2011, June 30, 2011, March 31, 2011, and December 31, 2010 are based upon FFO attributable to Alexandria Real Estate Equities, Inc’s common stockholders on a diluted basis, excluding loss on early extinguishment of debt.
Dividend Yield
Dividend yield for the quarter represents the annualized quarter dividend divided by the closing common stock price at the end of the quarter.
Earnings per Share
We use income from continuing operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders as the “control number” in determining whether potential common shares, including potential common shares issuable upon conversion of our 8% unsecured convertible notes, are dilutive or antidilutive to earnings per share. Pursuant to the presentation and disclosure literature on gains/losses on sales or disposals by REITs and earnings per share required by the SEC and the Financial Accounting Standards Board, gains or losses on sales or disposals by a REIT that do not qualify as discontinued operations are classified below income from discontinued operations in the income statement and included in the numerator for the computation of earnings per share for income from continuing operations. The land parcels we sold during the three months ended December 31, 2010, and three months ended September 30, 2011, did not meet the criteria for discontinued operations since these parcels did not have any significant operations prior to disposition. Accordingly, for the three months ended December 31, 2010, and three and nine months ended September 30, 2011, we classified the $59.4 million and $46,000, respectively, gain on sales of land parcels below income from discontinued operations, net in the consolidated income statements, and included the gain in income from continuing operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders, the “control number,” or numerator for the computation of earnings per share.
We account for unvested restricted stock awards which contain nonforfeitable rights to dividends as participating securities and include these securities in the computation of earnings per share using the two-class method. Under the two-class method, we allocate net income after preferred stock dividends and amounts attributable to noncontrolling interests to (1) common stockholders and (2) unvested restricted stock awards based on their respective participation rights to dividends declared (or accumulated) and undistributed earnings. Diluted earnings per share is computed using the weighted average shares of common stock outstanding determined for the basic earnings per share computation plus the effect of any dilutive securities, including the dilutive effect of stock options using the treasury stock method. For all periods except for the three months ended June 30, 2010, the effect of stock options using the treasury stock method was dilutive to income from continuing operations per share and as such, was included in the computation of diluted earnings per share.
We applied the if-converted method of accounting for our 8% unsecured senior convertible notes (“8% Unsecured Convertible Notes”). In applying the if-converted method of accounting, conversion is assumed for purposes of calculating diluted earnings per share if the effect would be dilutive to earnings per share. If the assumed conversion pursuant to the if-converted method is dilutive, diluted earnings per share would be calculated by adding back interest charges applicable to our 8% Unsecured Convertible Notes to the numerator and our 8% Unsecured Convertible Notes would be assumed to have been converted at the beginning of the period presented (or from the date of issuance, if occurring on a date later than the date that the period begins) and the resulting incremental shares associated with the assumed conversion would be included in the denominator. Furthermore, we assume that our 8% Unsecured Convertible Notes are converted for the period prior to any retirement or actual conversion if the effect of such assumed retirement or conversion would be dilutive, and any shares of common stock issued upon actual conversion are included in the denominator for the period after the date of retirement or conversion. For all periods except the three months ended December 31, 2010, potential common shares issuable upon conversion of our 8% unsecured convertible notes were antidilutive to income from continuing operations per share and as such, were excluded from the computation of diluted earnings per share.
56
ALEXANDRIA REAL ESTATE EQUITIES, INC. Definitions and Other Information (continued)
September 30, 2011
(Unaudited)
Earnings per Share (continued)
The table below is a reconciliation of the numerators and denominators of the basic and diluted per share computations for income from continuing operations (dollars in thousands, except per share amounts):
| **** | Three Months Ended **** September 30, | **** | Nine Months Ended **** September 30, | **** | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Earnings per share – basic | 2011 | **** | 2010 | **** | 2011 | **** | 2010 | **** | ||||
| Income from continuing operations | $ | 33,855 | $ | 29,982 | $ | 100,343 | $ | 45,026 | ||||
| Gain on sale of land parcels | 46 | – | 46 | – | ||||||||
| Net income attributable to noncontrolling interests | (966 | ) | (920 | ) | (2,833 | ) | (2,785 | ) | ||||
| Dividends on preferred stock | (7,089 | ) | (7,089 | ) | (21,267 | ) | (21,268 | ) | ||||
| Net income attributable to unvested restricted stock awards | (278 | ) | (217 | ) | (818 | ) | (502 | ) | ||||
| Income from continuing operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | 25,568 | 21,756 | 75,471 | 20,471 | ||||||||
| (Loss) income from discontinued operations | (906 | ) | 479 | (458 | ) | 1,996 | ||||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | $ | 24,662 | $ | 22,235 | $ | 75,013 | $ | 22,467 | ||||
| Weighted average common shares outstanding – basic | 61,295,659 | 49,807,241 | 58,271,270 | 46,188,308 | ||||||||
| Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic: | ||||||||||||
| Continuing operations | $ | 0.41 | $ | 0.44 | $ | 1.30 | $ | 0.45 | ||||
| Discontinued operations, net | (0.01 | ) | 0.01 | (0.01 | ) | 0.04 | ||||||
| Earnings per share – basic | $ | 0.40 | $ | 0.45 | $ | 1.29 | $ | 0.49 | ||||
| Earnings per share – diluted | **** | **** | **** | |||||||||
| Income from continuing operations | $ | 33,855 | $ | 29,982 | $ | 100,343 | $ | 45,026 | ||||
| Gain on sale of land parcels | 46 | – | 46 | – | ||||||||
| Net income attributable to noncontrolling interests | (966 | ) | (920 | ) | (2,833 | ) | (2,785 | ) | ||||
| Dividends on preferred stock | (7,089 | ) | (7,089 | ) | (21,267 | ) | (21,268 | ) | ||||
| Net income attributable to unvested restricted stock awards | (278 | ) | (217 | ) | (818 | ) | (502 | ) | ||||
| Effect of assumed conversion and dilutive securities: | **** | **** | **** | |||||||||
| Assumed conversion of 8.00% Unsecured Convertible Notes | – | – | – | – | ||||||||
| Amounts attributable to unvested restricted stock awards | – | – | – | – | ||||||||
| Income from continuing operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders - diluted | 25,568 | 21,756 | 75,471 | 20,471 | ||||||||
| (Loss) income from discontinued operations | (906 | ) | 479 | (458 | ) | 1,996 | ||||||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | $ | 24,662 | $ | 22,235 | $ | 75,013 | $ | 22,467 | ||||
| Weighted average common shares outstanding - basic | 61,295,659 | 49,807,241 | 58,271,270 | 46,188,308 | ||||||||
| Dilutive effect of stock options | 8,310 | 23,098 | 13,475 | 31,813 | ||||||||
| Weighted average shares of common stock outstanding – diluted | 61,303,969 | 49,830,339 | 58,284,745 | 46,220,121 | ||||||||
| Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted: | **** | **** | **** | |||||||||
| Continuing operations | $ | 0.41 | $ | 0.44 | $ | 1.30 | $ | 0.45 | ||||
| Discontinued operations, net | (0.01 | ) | 0.01 | (0.01 | ) | 0.04 | ||||||
| Earnings per share – diluted | $ | 0.40 | $ | 0.45 | $ | 1.29 | $ | 0.49 |
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ALEXANDRIA REAL ESTATE EQUITIES, INC. Definitions and Other Information (continued)
September 30, 2011
(Unaudited)
EBITDA
See Adjusted EBITDA.
Fixed Charge Coverage Ratio
The fixed charge coverage ratio is primarily used as a supplemental measure of the Company’s ability to satisfy fixed financing obligations. We calculate the fixed charge coverage ratio as our ability to satisfy current cash interest expense and preferred dividends from adjusted EBITDA. The following table outlines our calculation of our fixed charge coverage ratios (dollars in thousands):
| **** | Three Months Ended | **** | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 9/30/11 | **** | 6/30/11 | **** | 3/31/11 | **** | 12/31/10 | **** | 9/30/10 | **** | |||||
| Adjusted EBITDA | $ | 94,292 | $ | 95,242 | $ | 92,025 | $ | 89,439 | $ | 82,541 | |||||
| Interest expense (1) | $ | 14,273 | $ | 16,571 | $ | 17,842 | $ | 17,191 | $ | 16,111 | |||||
| Add: capitalized interest | 16,666 | 15,046 | 13,193 | 14,629 | 16,695 | ||||||||||
| Less: amortized loan fees | (2,144 | ) | (2,327 | ) | (2,278 | ) | (1,999 | ) | (1,795 | ) | |||||
| Less: amortization of debt premium/discounts | (750 | ) | (1,169 | ) | (1,335 | ) | (2,032 | ) | (2,092 | ) | |||||
| Cash interest | 28,045 | 28,121 | 27,422 | 27,789 | 28,919 | ||||||||||
| Preferred dividends | 7,089 | 7,089 | 7,089 | 7,089 | 7,089 | ||||||||||
| Fixed charges | $ | 35,134 | $ | 35,210 | $ | 34,511 | $ | 34,878 | $ | 36,008 | |||||
| Fixed charge coverage ratio – quarter annualized | 2.7x | 2.7x | 2.7x | 2.6x | 2.3x | ||||||||||
| Fixed charge coverage ratio – trailing 12 months | 2.7x | 2.6x | 2.4x | 2.2x | 2.1x |
(1) Includes amounts classified in discontinued operations and directly attributable to assets “held for sale.”
Funds from Operations
GAAP basis accounting for real estate assets utilizes historical cost accounting and assumes real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets, the Board of Governors of NAREIT established the measurement tool of Funds from Operations (“FFO”). Since its introduction, FFO has become a widely used non-GAAP financial measure among real estate investment trusts (“REITs”). We believe that FFO is helpful to investors as an additional measure of the performance of an equity REIT. We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its April 2002 White Paper (the “White Paper”) and related implementation guidance, which may differ from the methodology for calculating FFO utilized by other equity REITs, and, accordingly, may not be comparable to such other REITs. The White Paper defines FFO as net income (computed in accordance with GAAP), excluding gains from sales, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.
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ALEXANDRIA REAL ESTATE EQUITIES, INC. Definitions and Other Information (continued)
September 30, 2011
(Unaudited)
FFO per Share
FFO per share (diluted) is computed using the weighted average shares of common stock outstanding determined for the basic FFO per share computation plus the effect of any dilutive securities, including the dilutive effect of stock options using the treasury stock method. Additionally, we applied the if-converted method for our 8% Unsecured Convertible Notes for FFO per share separately from the if-converted analysis for earnings per share. In applying the if-converted method, conversion is assumed for purposes of calculating FFO per share (diluted) if the effect would be dilutive to FFO per share. If the assumed conversion pursuant to the if-converted method is dilutive, FFO per share (diluted) would be calculated by adding back interest charges applicable to our 8% Unsecured Convertible Notes to the numerator and our 8% Unsecured Convertible Notes would be assumed to have been converted at the beginning of the period presented (or from the date of issuance, if occurring on a date later than the date that the period begins) and the resulting incremental shares associated with the assumed conversion would be included in the denominator. Furthermore, we assume that our 8% Unsecured Convertible Notes are converted for the period prior to any retirement or actual conversion if the effect of such assumed retirement or conversion would be dilutive, and any shares of common stock issued upon actual retirement or conversion are included in the denominator for the period after the date of retirement or conversion. For purposes of calculating FFO per share (diluted), the if-converted method was dilutive to FFO per share (diluted) for all periods presented.
Gross Assets (Excluding Cash and Restricted Cash)
Gross assets (excluding cash and restricted cash) is equal to total assets plus accumulated depreciation, less cash, cash equivalents, and restricted cash.
Net Debt
Net debt is equal to the sum of secured notes payable, unsecured line of credit, unsecured term loans, and unsecured convertible notes, less cash, cash equivalents, and restricted cash.
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ALEXANDRIA REAL ESTATE EQUITIES, INC. Definitions and Other Information (continued)
September 30, 2011
(Unaudited)
Same Property Comparisons and Net Operating Income
As of September 30, 2011 and 2010, we owned 171 and 165 properties, respectively (the “Total Property Portfolio”). As a result of changes within our Total Property Portfolio, the financial data presented in the table on the following page shows significant changes in revenue and expenses from period to period. In order to supplement an evaluation of our results of operations over a given period, we analyze the operating performance for all properties that were fully operating for the entire periods presented for the quarter periods (herein referred to as “Same Properties”) separate from properties acquired subsequent to the first period presented, properties undergoing active redevelopment and active development, and corporate entities (legal entities performing general and administrative functions), which are excluded from same property results (herein referred to as “Non-Same Properties”). Additionally, rental revenues from lease termination fees, if any, are excluded from the results of the Same Properties.
Net operating income is a non-GAAP financial measure equal to income from continuing operations, the most directly comparable GAAP financial measure, plus loss from early extinguishment of debt, depreciation and amortization, interest expense, and general and administrative expense. We believe net operating income provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. Therefore, we believe net operating income is a useful measure for evaluating the operating performance of our real estate assets. Net operating income on a cash basis is net operating income on a GAAP basis, adjusted to exclude the effect of straight-line rent adjustments required by GAAP. We believe that net operating income on a cash basis is helpful to investors as an additional measure of operating performance because it eliminates straight-line rent adjustments to rental revenue.
Further, we believe net operating income is useful to investors as a performance measure because, when compared across periods, net operating income reflects the impact on operations from trends in occupancy rates, rental rates, and operating costs, providing perspective not immediately apparent from income from continuing operations. Net operating income excludes certain components from income from continuing operations in order to provide results that are more closely related to our results of operations from our properties. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level rather than at the property level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. Net operating income presented by us may not be comparable to net operating income reported by other REITs that define net operating income differently. We believe that in order to facilitate a clear understanding of our operating results, net operating income should be examined in conjunction with income from continuing operations as presented in our condensed consolidated statements of income. Net operating income should not be considered as an alternative to income from continuing operations as an indication of our performance or as an alternative to cash flows as a measure of liquidity or our ability to make distributions.
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ALEXANDRIA REAL ESTATE EQUITIES, INC. Definitions and Other Information (continued)
September 30, 2011
(Unaudited)
Same Property Comparisons and Net Operating Income (continued)
The following table presents a comparison of the components of same property and non-same property net operating income for the three and nine months ended September 30, 2011, compared to the three and nine months ended September 30, 2010, and a reconciliation of net operating income to income from continuing operations, the most directly comparable GAAP financial measure (dollars in thousands):
| **** | Three Months Ended September 30, | **** | Nine Months Ended, September 30, | **** | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues: | 2011 | 2010 | % Change | **** | 2011 | 2010 | % Change | **** | ||||
| Total revenues – Same Properties | $ | 101,141 | $ | 100,341 | 1 | % | $ | 296,239 | $ | 291,441 | 2 | % |
| Total revenues – Non-Same Properties | 42,286 | 19,973 | 112 | 129,524 | 60,118 | 115 | ||||||
| Total revenues | 143,427 | 120,314 | 19 | 425,763 | 351,559 | 21 | ||||||
| Expenses: | **** | **** | **** | **** | **** | |||||||
| Rental operations – Same Properties | 29,362 | 28,409 | 3 | 84,106 | 79,793 | 5 | ||||||
| Rental operations – Non-Same Properties | 13,246 | 4,745 | 179 | 39,438 | 14,482 | 172 | ||||||
| Total rental operations | 42,608 | 33,154 | 29 | 123,544 | 94,275 | 31 | ||||||
| Net operating income: | **** | **** | **** | **** | **** | |||||||
| Net operating income – Same Properties | 71,779 | 71,932 | – | 212,133 | 211,648 | – | ||||||
| Net operating income – Non-Same Properties | 29,040 | 15,228 | 91 | 90,086 | 45,636 | 97 | ||||||
| Total net operating income | 100,819 | 87,160 | 16 | 302,219 | 257,284 | 17 | ||||||
| Other expenses: | **** | **** | **** | **** | **** | |||||||
| General and administrative | 10,297 | 8,042 | 28 | 30,552 | 25,777 | 19 | ||||||
| Interest | 14,273 | 16,078 | (11 | ) | 48,650 | 52,351 | (7 | ) | ||||
| Depreciation and amortization | 39,652 | 31,758 | 25 | 116,189 | 91,334 | 27 | ||||||
| Loss on early extinguishment of debt | 2,742 | 1,300 | 111 | 6,485 | 42,796 | (85 | ) | |||||
| Total other expenses | 66,964 | 57,178 | 17 | 201,876 | 212,258 | (5 | ) | |||||
| Income from continuing operations | $ | 33,855 | $ | 29,982 | 13 | % | $ | 100,343 | $ | 45,026 | 123 | % |
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ALEXANDRIA REAL ESTATE EQUITIES, INC. Definitions and Other Information (continued)
September 30, 2011
(Unaudited)
Tangible Non-Real Estate Assets
Tangible non-real estate assets include the following as of each date presented (in thousands):
| **** | 9/30/11 | 6/30/11 | 3/31/11 | 12/31/10 | 9/30/10 | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 73,056 | $ | 60,925 | $ | 78,196 | $ | 91,232 | $ | 110,811 |
| Restricted cash | 27,929 | 23,432 | 30,513 | 28,354 | 35,295 | |||||
| Tenant receivables | 6,599 | 4,487 | 7,018 | 5,492 | 4,929 | |||||
| Investments | 88,777 | 88,862 | 88,694 | 83,899 | 80,941 | |||||
| Other tangible non-real estate assets | 40,916 | 32,407 | 33,384 | 31,896 | 40,283 | |||||
| Total tangible non-real estate assets | $ | 237,277 | $ | 210,113 | $ | 237,805 | $ | 240,873 | $ | 272,259 |
Total Market Capitalization
Total market capitalization is equal to the sum of outstanding shares of series C preferred stock and common stock multiplied by the related closing price at the end of each period presented, the liquidation value of the series D cumulative convertible preferred stock, and total debt (secured notes payable, unsecured line of credit, unsecured term loans, and unsecured convertible notes).
Weighted Average Interest Rate for Capitalization
The weighted average interest rate for calculating capitalization of interest required pursuant to GAAP represents a weighted average rate based on the rates applicable to borrowings outstanding during the period and includes the impact of our interest rate hedge agreements, amortization of debt discounts/premiums, and amortization of loan fees. A separate calculation is performed each month to determine our weighted average interest rate for capitalization for the month. The rate will vary each month due to changes in variable interest rates, the outstanding debt balances, the proportion of variable rate debt to fixed rate debt, the amount and terms of effective interest rate hedge agreements, and the amount of loan fee amortization.
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