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): February 7, 2012

 

ALEXANDRIA REAL ESTATE EQUITIES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

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 February 7, 2012, Alexandria Real Estate Equities, Inc. (the “Company”) issued a press release entitled “Alexandria Real Estate Equities, Inc. Reports Fourth Quarter and Year Ended December 31, 2011, Financial and Operating Results” which sets forth the Company’s results of operations and financial condition for the fourth quarter and year ended December 31, 2011.  The 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 9.01.  Financial Statements and Exhibits.

 

(d) Exhibits.

 

	99.1	Press Release dated February 7, 2012.
	99.2	Alexandria Real Estate Equities, Inc.’s Supplemental Financial, Operating, & Property Information for the Fourth Quarter and Year Ended December 31, 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.
February 8, 2012	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)

 

3

 

EXHIBIT INDEX

 

Exhibit Number		Exhibit Title
99.1		Press Release dated February 7, 2012.
99.2		Alexandria Real Estate Equities, Inc.’s Supplemental Financial, Operating, & Property Information for the Fourth Quarter and Year Ended December 31, 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

 

Fourth Quarter and Year Ended

December 31, 2011, Financial and

Operating Results

 

FFO Per Share Diluted of $1.10 for 4Q11 and $4.38 for 2011

EPS Diluted of $0.44 for 4Q11 and $1.73 for 2011

Highest Quarter and Year of Leasing Activity

 

PASADENA, CA. – February 7, 2012 – Alexandria Real Estate Equities, Inc. (NYSE: ARE) today announced financial and operating results for the fourth quarter and year ended December 31, 2011.

 

RESULTS

 

Funds from operations

 

FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the three months ended December 31, 2011, was $67.8 million, or $1.10 per share (diluted), compared to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders before loss on early extinguishment of debt for the three months ended December 31, 2010, of $60.8 million, or $1.11 per share (diluted). FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders before loss on early extinguishment of debt and non-cash impairment charge for the year ended December 31, 2011, was $266.0 million, or $4.50 per share (diluted), compared to FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders before loss on early extinguishment of debt for the year ended December 31, 2010, of $224.5 million, or $4.40 per share (diluted).

 

		Three Months Ended						Year Ended
		December 31, 2011			December 31, 2010			December 31, 2011			December 31, 2010
		(dollars in thousands, except per share amounts)
FFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted		$	67,804		$	58,474		$	258,635		$	179,764
Loss on early extinguishment of debt		–			2,372			6,485			45,168
Non-cash impairment charge		–			–			994			–
Impact of unvested restricted stock awards		–			(20		)	(69		)	(394		)
FFO (diluted), as adjusted		$	67,804		$	60,826		$	266,045		$	224,538
FFO per share (diluted), as adjusted		$	1.10		$	1.11		$	4.50		$	4.40
FFO per share (diluted)		$	1.10		$	1.07		$	4.38		$	3.52
Common dividends declared		$	0.49		$	0.45		$	1.86		$	1.50
Dividend payout ratio		45%			41%			42%			34%

 

Adjusted funds from operations

 

AFFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the three months ended December 31, 2011, was $55.4 million, or $0.90 per share (diluted), compared to AFFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the three months ended December 31, 2010, of $56.3 million, or $1.03 per share (diluted). AFFO attributed to Alexandria Real Estate Equities, Inc.’s common stockholders for the year ended December 31, 2011, was $246.9 million, or $4.18 per share (diluted), compared to AFFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the year ended December 31, 2010, of $217.7 million, or $4.50 per share (diluted).

 

		Three Months Ended						Year Ended
		December 31, 2011			December 31, 2010			December 31, 2011			December 31, 2010
		(dollars in thousands, except per share amounts)
AFFO attributable to Alexandria Real Estate Equities, Inc.’s common stockholders		$	58,930		$	56,272		$	250,458		$	217,724
AFFO per share (diluted)		$	0.96		$	1.03		$	4.24		$	4.50

 

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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS

FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2011 RESULTS

Page 2

(Tabular dollar amounts in thousands, except per share amounts)

 

Earnings per share

 

Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the three months ended December 31, 2011, was $27.0 million, or $0.44 per share (diluted), compared to net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the three months ended December 31, 2010, of $83.2 million, or $1.52 per share (diluted).  Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the year ended December 31, 2011, was $102.0 million, or $1.73 per share (diluted), compared to net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders for the year ended December 31, 2010, of $105.9 million, or $2.19 per share (diluted).

 

		Three Months Ended						Year Ended
		December 31, 2011			December 31, 2010			December 31, 2011			December 31, 2010
Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders
Basic		$	26,960		$	83,241		$	101,973		$	105,941
Diluted		$	26,960		$	83,243		$	101,973		$	105,941
Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders
Basic		$	0.44		$	1.52		$	1.73		$	2.19
Diluted		$	0.44		$	1.52		$	1.73		$	2.19

 

During the year ended December 31, 2011, we recognized an aggregate loss on early extinguishment of debt of approximately $6.5 million related to the repurchase, in privately negotiated transactions, of approximately $217.1 million of certain of our 3.70% unsecured senior convertible notes (the “3.70 Unsecured Convertible Notes”) and the partial and early repayment of our 2012 unsecured bank term loan (“2012 Unsecured Bank Term Loan”).  Additionally, in September 2011, we recognized a non-cash impairment charge of approximately $1.0 million related to one property.  We sold this property to a user in October 2011 for approximately $2.9 million.

 

During the three months and year ended December 31, 2010, we recognized an aggregate loss on early extinguishment of debt of approximately $2.4 million related to the repurchase, in privately negotiated transactions, of approximately $82.8 million of certain of our 3.70% Unsecured Convertible Notes.  In addition, during the year ended December 31, 2010, we recognized an aggregate loss on early extinguishment of debt of approximately $42.8 million related to the retirement of approximately $239.8 million of certain of our 8.00% unsecured convertible notes.

 

The following table highlights certain items noted above impacting comparability of results:

 

		Three Months Ended						Year Ended
		December 31, 2011			December 31, 2010			December 31, 2011			December 31, 2010
Income from continuing operations before loss on early extinguishment of debt		$	35,574		$	34,922		$	142,720		$	123,642
Loss on early extinguishment of debt		–			(2,372		)	(6,485		)	(45,168		)
Income from continuing operations		35,574			32,550			136,235			78,474
(Loss) income from discontinued operations before non-cash impairment charge and gain on sales of real estate		(112		)	8			106			1,082
Non-cash impairment charge		–			–			(994		)	–
Gain on sales of real estate		–			–			–			24
(Loss) income from discontinued operations, net		(112		)	8			(888		)	1,106
Gain on sales of land parcels		–			59,442			46			59,442
Net income		$	35,462		$	92,000		$	135,393		$	139,022

 

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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS

FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2011 RESULTS

Page 3

(Tabular dollar amounts in thousands)

 

BALANCE SHEET

 

Investment grade ratings and credit metrics

 

In July 2011, we received investment grade ratings from two major rating agencies.  Receipt of our investment grade ratings was a significant milestone for the Company that we believe will provide long-term value to our stockholders.  Key strengths of our balance sheet and business which highlight our investment grade credit profile include, among others, balance sheet liquidity, diverse and credit worthy tenant base, well located properties proximate to leading research institutions, favorable lease terms, stable occupancy and cash flows, and demonstrated life science and real estate expertise.  This significant milestone broadens our access to another key source of debt capital and allows us to continue to pursue our long-term capital, investment, and operating strategies.  Issuance of investment grade unsecured notes will allow us to transition from bank debt financing to unsecured notes, from variable rate debt to fixed rate debt, and from short-term debt to long-term debt.

 

		Three Months Ended (1)				Year Ended
Credit Metrics		December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
Net debt to Adjusted EBITDA		7.1x		6.9x		7.1x		7.4x
Net debt to Gross Assets at end of period		37%		39%		37%		39%
Fixed charge coverage ratio		2.7x		2.6x		2.7x		2.2x
Interest coverage ratio		3.4x		3.2x		3.4x		2.7x
Unencumbered net operating income as a percentage of total net operating income		70%		60%		69%		60%
Liquidity – unsecured line of credit availability and unrestricted cash		$1.2 billion		$0.5 billion		$1.2 billion		$0.5 billion
Non-income producing assets as a percentage of gross real estate		24%		24%		24%		24%

 

(1)    Represents annualized three months ended December 31, 2011 and 2010.

 

Unhedged variable rate debt

 

We expect to transition from short-term and medium-term bank debt to long-term fixed rate debt over the next several years. While this transition of bank debt is in process, we will utilize interest rate swap and/or cap agreements to reduce our interest rate risk.  In December 2011, we executed interest rate swap agreements and reduced our unhedged variable rate debt exposure from 51% as of September 30, 2011, to 21% as of December 31, 2011.  We expect to keep our unhedged variable rate debt at approximately 20% or less of our total debt.

 

		Year Ended
		December 31, 2011			December 31, 2010
Unhedged variable rate debt as a percentage of total debt		21%			37%
Unhedged variable rate debt		$	596,720		$	948,960

 

Debt financings

 

During 2011, we refinanced and extended debt maturities, significantly increasing our liquidity as of December 31, 2011.

 

				December 31, 2011
				Amount			Weighted Average		Date
Key Debt Financings		Maturity Date		Outstanding			Interest Rate (2)		of Loan
2017 Unsecured Bank Term Loan		1/31/2017		$	600,000		1.93%		December 2011
Refinancing of a secured loan		4/20/2014		76,000			2.29%		December 2011
2016 Unsecured Bank Term Loan		6/30/2016		750,000			3.28%		June 2011
Unsecured line of credit (1)		1/31/2015		370,000			2.59%		January 2011
				$	1,796,000		2.65%

 

(1)                  Total commitments available for borrowing aggregate $1.5 billion under our unsecured line of credit.  As of December 31, 2011, we had $1.1 billion available for borrowing under our unsecured line of credit.

(2)                  Represents the contractual interest rate as of the end of the period plus the impact of our interest rate hedge agreements.       

 

2017 unsecured bank term loan

 

In December 2011, we closed a $600 million unsecured bank term loan (the “2017 Unsecured Bank Term Loan”), which matures in January 2017, assuming we exercise our sole right to extend the maturity date by one year.  The applicable margin for LIBOR borrowings under the 2017 Unsecured Bank Term Loan as of December 31, 2011, was 1.50%.  Our 2017 Unsecured Bank Term Loan may be repaid at any date prior to maturity without a prepayment penalty.  Net proceeds from the 2017 Unsecured Bank Term Loan were used to reduce outstanding borrowings on our unsecured line of credit.

 

Refinancing of secured loan

 

In December 2011, we extended the maturity date of a $76 million secured loan to April 2014.  As of December 31, 2011, the interest rate for this secured loan was 2.29%.

 

2016 unsecured bank term loan

 

In February 2011, we entered into a $250 million unsecured bank term loan.  In June 2011, we amended this $250 million unsecured bank term loan (as amended, the “2016 Unsecured Bank 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.  The applicable margin for the LIBOR borrowings under the 2016 Unsecured Bank Term Loan as of December 31, 2011, was 1.65%.  The 2016 Unsecured Bank Term Loan may be repaid at any date prior to maturity without a prepayment penalty.  The net proceeds from this 2016 Unsecured Bank Term Loan were used to reduce outstanding borrowings on the 2012 Unsecured Bank Term Loan (defined below) from $750 million to $250 million.  As a result of this early repayment, in the three 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.

 

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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS

FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2011 RESULTS

Page 4

(Tabular dollar amounts in thousands, except per square foot amounts)

 

Debt financings (continued)

 

Unsecured line of credit

 

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 bank term loan (the “2012 Unsecured Bank 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.  The applicable margin for LIBOR borrowings outstanding under our unsecured line of credit as of December 31, 2011, was 2.30%.  The applicable margin for the LIBOR borrowings under the 2012 Unsecured Bank Term Loan was not amended in the Third Amendment and was 0.70% as of December 31, 2011.

 

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 Bank 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.

 

Debt repayments

 

During the year ended December 31, 2011, we reduced the outstanding balances of our 3.70% Unsecured Convertible Notes, 2012 Unsecured Bank Term Loan, and various secured loans.

 

		Three Months Ended December 31, 2011						Year Ended December 31, 2011
					Loss on Early						Loss on Early
		Debt			Extinguishment			Debt			Extinguishment
		Repayments			of Debt			Repayments			of Debt
Repurchase of 3.70% Unsecured Convertible Notes		$	–		$	–		$	217,133		$	5,237
Repayment of 2012 Unsecured Bank Term Loan (1)		–			–			500,000			1,248
Secured loan repayments		34,060			–			55,677			–
		$	34,060		$	–		$	772,810		$	6,485

 

(1)            See 2016 Unsecured Bank Term Loan discussion above.

 

At the beginning of 2011, our strategy was to reduce a portion of our outstanding balance of the 3.70% Unsecured Convertible Notes. We were also focused on the refinancing of certain near term bank debt maturities, prior to engaging in the rating assessment process with certain rating agencies.  During the year ended December 31, 2011, we repurchased, in privately negotiated transactions, approximately $217.1 million of certain of our 3.70% Unsecured Convertible Notes for an aggregate cash price of approximately $221.4 million.  As a result of these repurchases, we recognized an aggregate loss on early extinguishment of debt of approximately $5.2 million for the year ended December 31, 2011.  We did not repurchase any of our 3.70% Unsecured Convertible Notes during the three months ended December 31, 2011.  During January 2012, we repurchased approximately $83.8 million in principal amount of our 3.70% Unsecured Convertible Notes at par, pursuant to options exercised by holders thereof under the indenture governing the notes.  We do not expect to recognize any gain or loss as a result of this repurchase.  As of February 7, 2012, approximately $1.0 million of our 3.70% Unsecured Convertible Notes remained outstanding.

 

Asset sales

 

During the year ended December 31, 2011, we sold two properties.  The net proceeds from these sales were used to reduce outstanding borrowings under our unsecured line of credit.

 

		Date of Sale		Sale Price			Sale Price Per Rentable Square Foot			Gain on Sale
Land parcel in San Diego, California		August 2011		$	17,300		$	70		$	46
13-15 DeAngelo Drive, Suburbs of Boston, Massachusetts		October 2011		2,900			97			–
				$	20,200		$	72		$	46

 

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 had been occupied by a life science tenant through June 30, 2011.  Upon move out, a user of 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.

 

Follow-on common stock offering

 

In May 2011, we completed a follow-on common stock offering to fund the purchase of 409 and 499 Illinois Street and to fund construction activities among other uses. 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.

 

		Date of Offering		Net Proceeds			Shares
Follow-on common stock offering		May 2011		$	451,539		6,250,651

 

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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS

FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2011 RESULTS

Page 5

(Tabular dollar amounts in thousands)

 

CORE OPERATING METRICS

 

Total revenues, net operating income, and operating margin

 

Total revenues for the three months ended December 31, 2011, were $145.8 million, as compared to total revenues for the three months ended December 31, 2010, of $131.8 million.  Total revenues for the year ended December 31, 2011, were $573.4 million as compared to the total revenues for the year ended December 31, 2010, of $485.7 million.  Net operating income for the three months ended December 31, 2011, was $101.8 million, compared to net operating income for the three months ended December 31, 2010, of $95.1 million.  Net operating income for the year ended December 31, 2011, was $404.8 million, compared to net operating income for the year ended December 31, 2010 of $353.6 million.  Our operating margin for the three months ended December 31, 2011, was 70%, compared to operating margin for the three months ended December 31, 2010, of 72%.  Our operating margin for the year ended December 31, 2011, was 71%, compared to operating margin for the year ended December 31, 2010, of 73%.

 

Net operating income is projected to increase significantly quarter to quarter from the three months ended December 31, 2011, to the three months ended December 31, 2012, primarily related to the completion and delivery of current and future redevelopment and development projects, a significant amount of which is pre-leased.  Additionally, the increase in net operating income is also due to recent and anticipated leasing activity, and lease-up of vacant space.  See additional information related to projected net operating income for the three months ended December 31, 2012, in the guidance section of this report.  As we complete and deliver projects currently under construction, certain project costs, including interest, property taxes, and other project costs, will no longer qualify for capitalization and will be expensed as incurred.

 

		Three Months Ended						Year Ended
		December 31, 2011			December 31, 2010			December 31, 2011			December 31, 2010
Rental revenues		$	109,042		$	99,531		$	431,359		$	367,184
Tenant recoveries		35,153			30,614			136,322			113,351
Other income		1,584			1,633			5,762			5,213
Total revenues		145,779			131,778			573,443			485,748
Rental operations		43,959			36,688			168,627			132,181
Net operating income		$	101,820		$	95,090		$	404,816		$	353,567
Operating margin		70%			72%			71%			73%

 

Leasing activity

 

For the three months ended December 31, 2011, we executed a total of 58 leases for approximately 1,142,000 rentable square feet at 38 different properties (excluding month-to-month leases), representing the highest level of leasing activity in a single quarter in the history of the Company.  Of this total, approximately 650,000 rentable square feet related to new or renewal leases of previously leased space (renewed/re-leased space) and approximately 492,000 rentable square feet related to developed, redeveloped, or previously vacant space.  Of the 492,000 rentable square feet, approximately 356,000 rentable square feet were related to our development or redevelopment programs, with the remaining approximately 136,000 rentable square feet related to previously vacant space.  Rental rates for these new or renewal leases (renewed/re-leased space) were on average approximately 4.1% lower on a cash basis and approximately 7.6% higher on a GAAP basis than rental rates for the respective expiring leases.

 

For the year ended December 31, 2011, we executed a total of 190 leases for approximately 3,407,000 rentable square feet at 87 different properties (excluding month-to-month leases), representing the highest level of leasing activity in a single year in the history of the Company.  Of this total, approximately 1,822,000 rentable square feet related to new or renewal leases of previously leased space (renewed/re-leased space) and approximately 1,585,000 rentable square feet related to developed, redeveloped, or previously vacant space.  Of the 1,585,000 rentable square feet, approximately 993,000 rentable square feet were related to our development or redevelopment programs, and the remaining approximately 592,000 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 1.9% lower on a cash basis and approximately 4.2% higher on a GAAP basis than rental rates for the respective expiring leases.

 

		Three Months Ended				Year Ended
Leasing Activity		December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
New or renewal of previously leased space		650,163		758,344		1,821,866		1,777,966
Development/redevelopment space leased		355,641		274,696		993,655		711,622
Previously vacant space leased		136,251		41,195		591,955		254,651
Total leasing activity		1,142,055		1,074,235		3,407,476		2,744,239

 

		Three Months Ended				Year Ended
Leasing Activity – New or Renewal of Previously Leased Space		December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
Rental rate changes – cash basis		(4.1%	)	4.2%		(1.9%	)	2.0%
Rental rate changes – GAAP basis		7.6%		4.3%		4.2%		4.9%

 

Lease Structure		December 31, 2011		December 31, 2010
Percentage of triple net leases		95%		96%
Percentage of leases containing annual rent escalations		94%		91%
Percentage of leases providing for recapture of capital expenditures		92%		93%

 

Occupancy

 

		December 31, 2011		December 31, 2010
Operating		94.9%		94.3%
Operating and redevelopment		88.5%		88.9%

 

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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS

FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2011 RESULTS

Page 6

(Tabular dollar amounts in thousands)

 

Same property performance

 

		Three Months Ended				Year Ended
Percentage Change in Same Property NOI		December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
Cash basis		3.1%		2.0%		4.1%		1.5%
GAAP basis		(0.5%	)	1.3%		(0.6%	)	0.4%

 

 

		Three Months Ended				Year Ended
Same Property Information		December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
Number of properties		135		134		127		129
Rentable square feet		10,097,201		9,875,434		9,489,070		9,426,729
Occupancy at end of current period		93.9%		93.8%		93.7%		94.6%
Occupancy at end of same period prior year		93.9%		93.8%		94.5%		95.1%

 

As of December 31, 2011 and 2010, we owned 173 and 167 properties, respectively. As a result of changes within our total property portfolio, our financial results included 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 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.  Additionally, rental revenues from lease termination fees, if any, are excluded from the results of the same properties.

 

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 December 31, 2011, Alexandria’s multinational pharmaceutical client tenants represented approximately 26% 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 18% 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., and Forma Therapeutics, Inc.; and the remaining approximately 3% 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.

 

VALUE ADDED OPPORTUNITIES AND EXTERNAL GROWTH

 

Development and redevelopment

 

During the year ended December 31, 2011, we executed leases aggregating 542,120 and 451,535 rentable square feet related to our development and redevelopment projects, respectively.  The leases aggregating 542,120 rentable square feet related to our development projects include the recent lease up of 45,255 rentable square feet at 4755 Nexus Center Drive, a recently acquired property currently undergoing redevelopment.

 

During the year ended December 31, 2011, we delivered approximately 58,804 rentable square feet at 455 Mission Bay Boulevard, a 210,000 rentable square foot multi-tenant ground-up development project located in the San Francisco — Mission Bay market.  This property is currently 92.4% leased.  Our stabilized yields on a cash and GAAP basis for this property were approximately 8.5% and 8.4%, 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 August 2011, we completed the ground-up development of 7 Triangle Drive, a 96,626 rentable square foot single-tenant building located in the Research Triangle Park market, which is currently 100% leased as of December 31, 2011.  The Stabilized Yield on a cash and GAAP basis for this property was approximately 8.5% and 9.8%, respectively.

 

In October 2011, we commenced the ground up development of a 303,143 rentable square feet single tenant building for Biogen Idec, Inc. at Alexandria CenterTM at Kendall Square.  We expect to achieve a Stabilized Yield on a cash and GAAP basis for this property of 7.5% and 8.1%, respectively.

 

Key development and redevelopment projects completed in 2011 are as follows:

 

		Completion		RSF Delivered		Total Development/		Occupancy		Investment			Stabilized Yield (1)
Key Development Projects Completed in 2011		Date		In 2011		Redevelopment RSF (1)		as of 12/31/11 (2)		at Completion (1)			Cash		GAAP
455 Mission Bay Boulevard		12/2011		58,804		210,000		92.4%		$	109,950		8.5%		8.4%
7 Triangle Drive		8/2011		96,626		96,626		100%		$	32,511		8.5%		9.8%
400/450 East Jamie Court		9/2011		62,548		163,307		100%		$	108,490		4.2%		4.3%
Key Redevelopment Projects Completed in 2011
10300 Campus Point Drive		11/2011		89,576		279,138		100%		$	131,600		7.6%		7.7%
500 Arsenal Street		9/2011		48,516		48,516		100%		$	24,348		6.9%		7.4%

 

(1)                  Represents rentable square feet, investment at completion, and Stabilized Yield of the entire development or redevelopment project.  Portions of certain projects may still be under construction.

(2)                  Represents occupancy related operating rentable square feet.

 

(more)

 

 

ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS

FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2011 RESULTS

Page 7

(Tabular dollar amounts in thousands)

 

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 commenced the redevelopment of this property into life science laboratory space during the three months ended December 31, 2011.  Based on our view of existing market conditions and certain assumptions, we expect to achieve a Stabilized Yield on a cash and GAAP basis for this property of approximately 8.0% and 8.6%, respectively.

 

In April 2011, we acquired 409 and 499 Illinois Street, a newly and partially completed world-class 453,256 rentable square foot life science laboratory 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 cash and GAAP basis for this property in the range of 6.5% to 7.0% and 7.2% to 7.6%, respectively.

 

During the three months ended March 31, 2011, we acquired 4755 Nexus Center Drive, a newly and partially completed 45,255 rentable square foot development project located in University Town Center, San Diego for approximately $7.4 million.  During the three months ended December 31, 2011, we leased 100% of this building to a biopharmaceutical company.  We expect to achieve a Stabilized Yield on a cash and GAAP basis for this property of 7.0% and 7.7%, respectively.

 

		Acquisition				Occupancy		Purchase			Stabilized Yield
Property/Market		Date		RSF		at Acquisition		Price			Cash		GAAP
285 Bear Hill Road, Greater Boston		June 2011		26,270		N/A	(1)	$	3,900		8.0%		8.6%
409/499 Illinois Street, San Francisco		April 2011		453,256		100%	(2)	$	293,000		6.5% - 7.0%		7.2% - 7.6%
4755 Nexus Center Drive, San Diego		March 2011		45,255		N/A	(3)	$	7,400		7.0%		7.7%

 

(1)             Currently under redevelopment.

(2)             Approximately 234,249 rentable square feet is leased, occupied, and in service.  The remaining 219,007 rentable square feet is currently under development.

(3)             Currently under development and 100% leased.

 

Significant announcements

 

·             In October 2011, our Board of Directors elected Stephen A. Richardson as Chief Operating Officer and Regional Market Director – San Francisco.

·             In April 2011, we were awarded LEED® Platinum certification for 10300 Campus Point Drive, a property located in University Town Center in the San Diego market.

·             During the three months ended March 31, 2011, we were awarded LEED Gold certifications for four properties, 1) Alexandria Center™ for Life Science – New York City; 2) 199 E. Blaine Street, a property located in the Seattle market; 3) 1500 Owens Street, San Francisco/Mission Bay; and 4) 455 Mission Bay Blvd., San Francisco/Mission Bay.

 

(more)

 

 

ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS

FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2011 RESULTS

Page 8

 

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 year ended December 31, 2012, will be as follows:

 

		Guidance Reported on February 7, 2012		Guidance Reported on December 7, 2011
2012 guidance
FFO per share (diluted)		$4.50 - $4.54		$4.50 - $4.54
Earnings per share (diluted)		$1.73 - $1.77		$1.85
Key assumptions
Same property net operating income growth – cash basis		3% to 5%		3% to 5%
Same property net operating income growth – GAAP basis		0% to 2%		0% to 2%
Rental rate steps on lease renewals and re-leasing of space – cash basis		Slightly negative/positive		Slightly negative/positive
Rental rate steps on lease renewals and re-leasing of space – GAAP basis		Up to 5%		Up to 5%
Straight-line rents		$6.5 million/qtr		$6 million/qtr
Amortization of above and below market leases		$0.8 million/qtr		$0.8 million/qtr
General and administrative expenses in comparison to prior year		Up 5% to 8%		Up 5% to 8%
Capitalization of interest		$54 to $60 million		$54 to $60 million
Interest expense, net		$68 to $75 million

 

Net operating income, net income, and FFO for the three months ended December 31, 2011, and the three months ended December 31, 2012

 

Net operating income is projected to increase significantly quarter to quarter from the three months ended December 31, 2011, to the three months ended December 31, 2012, 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 due to recent and anticipated leasing and lease-up of vacant space.

 

		Actual		Projected
		Three Months Ended December 31, 2011		Three Months Ended December 31, 2012
		(in millions, except per share amounts)
Net operating income		$101.8		$111.0 - 113.0
General and administrative		$10.6		$10.0 - 11.0
Interest		$14.8		$20.1 - 23.1
Depreciation and amortization		$40.9		$42.6 - 47.7
Income from continuing operations		$35.6		$40.3 - 41.3
Preferred stock dividends		$7.1		$7.1
Other		$1.5		$1.0 - 1.4
Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders		$27.0		$28.1 - 32.1
FFO		$67.8		$71.7 - 74.1
FFO per share (diluted)		$1.10		$1.16 - 1.20

 

Sources and uses of capital

 

We expect that our principal liquidity needs for the year ended December 31, 2012, will be satisfied by the following multiple sources of capital as 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.

 

		Year Ended December 31, 2012
		(in millions)
Sources of capital
Net cash provided by operating activities less dividends		$	89
Asset and land sales		112		(1)
Unsecured senior notes		TBD		(2)
Debt, equity, and joint venture capital		698
Total sources of capital		$	899
Liquidity available under unsecured line of credit and cash and cash equivalents as of December 31, 2011		$	1,209
Uses of capital
Development, redevelopment, and construction		$	553
Acquisitions		–
Secured debt repayments		11
2012 Unsecured Bank Term Loan repayment		250
3.70% Unsecured Convertible Notes retirement		85
Total uses of capital		$	899

 

(1)             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.

(2)             Amount and timing of issuance of unsecured notes will be subject to the debt capital market environment.

 

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ALEXANDRIA REAL ESTATE EQUITIES, INC. REPORTS

FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2011 RESULTS

Page 9

 

Earnings call information

 

We will host a conference call on Wednesday, February 8, 2012, 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 and year ended December 31, 2011.  To participate in this conference call, dial (800) 510-0219 and confirmation code 46221155, 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, February 8, 2012.  The replay number is (888) 286-8010 and the confirmation code is 98479916.

 

Additionally, a copy of Alexandria Real Estate Equities, Inc.’s Supplemental Financial, Operating, & Property Information and this press release for the three months and year ended December 31, 2011, 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.

 

***********

 

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 2012 earnings per share (diluted) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders, 2012 FFO per share (diluted) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders, net operating income, net income and FFO for the three months ended December 31, 2012, and our projected sources and uses of capital in 2012.  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						Year Ended
		12/31/11			12/31/10			12/31/11			12/31/10
Revenues
Rental		$	109,042		$	99,531		$	431,359		$	367,184
Tenant recoveries		35,153			30,614			136,322			113,351
Other income		1,584			1,633			5,762			5,213
Total revenues		145,779			131,778			573,443			485,748
Expenses
Rental operations		43,959			36,688			168,627			132,181
General and administrative		10,604			8,601			41,163			34,383
Interest		14,757			17,158			63,407			69,509
Depreciation and amortization		40,885			34,409			157,526			126,033
Total expenses		110,205			96,856			430,723			362,106
Income from continuing operations before loss on early extinguishment of debt		35,574			34,922			142,720			123,642
Loss on early extinguishment of debt		–			(2,372		)	(6,485		)	(45,168		)
Income from continuing operations		35,574			32,550			136,235			78,474
(Loss) income from discontinued operations, net		(112		)	8			(888		)	1,106
Gain on sales of land parcels		–			59,442			46			59,442
Net income		35,462			92,000			135,393			139,022
Net income attributable to noncontrolling interests		1,142			944			3,975			3,729
Dividends on preferred stock		7,090			7,089			28,357			28,357
Net income attributable to unvested restricted stock awards		270			726			1,088			995
Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders		$	26,960		$	83,241		$	101,973		$	105,941
Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic
Continuing operations		$	0.44		$	1.52		$	1.75		$	2.17
Discontinued operations, net		–			–			(0.02		)	0.02
Earnings per share – basic		$	0.44		$	1.52		$	1.73		$	2.19
Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted
Continuing operations		$	0.44		$	1.52		$	1.75		$	2.17
Discontinued operations, net		–			–			(0.02		)	0.02
Earnings per share – diluted		$	0.44		$	1.52		$	1.73		$	2.19

 

10

 

ALEXANDRIA REAL ESTATE EQUITIES, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

		December 31,			December 31,
		2011			2010
Assets
Investments in real estate		$	6,750,975		$	6,060,821
Less: accumulated depreciation		(742,535		)	(616,007		)
Investments in real estate, net		6,008,440			5,444,814
Cash and cash equivalents		78,539			91,232
Restricted cash		23,332			28,354
Tenant receivables		7,480			5,492
Deferred rent receivable		142,097			116,849
Deferred leasing and financing costs, net		135,550			89,046
Investments		95,777			83,899
Other assets		82,914			46,175
Total assets		$	6,574,129		$	5,905,861
Liabilities, Noncontrolling Interests, and Equity
Secured notes payable		$	724,305		$	790,869
Unsecured line of credit		370,000			748,000
Unsecured bank term loans		1,600,000			750,000
Unsecured convertible notes		84,959			295,293
Accounts payable, accrued expenses, and tenant security deposits		325,393			304,257
Dividends payable		36,579			31,114
Total liabilities		3,141,236			2,919,533
Redeemable noncontrolling interests		16,034			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		616			550
Additional paid-in capital		3,028,558			2,566,238
Retained earnings		–			734
Accumulated other comprehensive loss		(34,511		)	(18,335		)
Alexandria Real Estate Equities, Inc.’s stockholders’ equity		3,374,301			2,928,825
Noncontrolling interests		42,558			41,583
Total equity		3,416,859			2,970,408
Total liabilities, noncontrolling interests, and equity		$	6,574,129		$	5,905,861

 

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