Alexandria Real Estate Equities, Inc. Reports: 3Q24 and YTD 3Q24 Net Income per Share - Diluted of $0.96 and $2.18, respectively; and 3Q24 and YTD 3Q24 FFO per Share - Diluted, as Adjusted, of $2.37 and $7.08, respectively
PASADENA, Calif., Oct. 21, 2024 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE:ARE) announced financial and operating results for the third quarter ended September 30, 2024.
Key highlights
YTD
Operating results
3Q24
3Q23
3Q24
3Q23
Total revenues:
In millions
$ 791.6
$ 713.8
$ 2,327.4
$ 2,128.5
Growth
10.9 %
9.3 %
Net income attributable to Alexandria's common stockholders, diluted:
In millions
$ 164.7
$ 21.9
$ 374.5
$ 184.4
Per share
$ 0.96
$ 0.13
$ 2.18
$ 1.08
Funds from operations attributable to Alexandria's common stockholders, diluted, as adjusted:
In millions
$ 407.9
$ 386.4
$ 1,217.3
$ 1,142.5
Per share
$ 2.37
$ 2.26
$ 7.08
$ 6.69
An industry-leading REIT with a high-quality, diverse tenant base and strong margins
(As of September 30, 2024, unless stated otherwise)
Occupancy of operating properties in North America
94.7 %
Percentage of annual rental revenue in effect from mega campuses
76 %
Percentage of annual rental revenue in effect from investment-grade or publicly traded large cap tenants
53 %
Operating margin
71 %
Adjusted EBITDA margin
70 %
Percentage of leases containing annual rent escalations
96 %
Weighted-average remaining lease term:
Top 20 tenants
9.5
years
All tenants
7.5
years
Sustained strength in tenant collections:
Tenant receivables as a percentage of 3Q24 rental revenues
0.9 %
October 2024 tenant rents and receivables collected as of October 21, 2024
99.6 %
3Q24 tenant rents and receivables collected as of October 21, 2024
99.9 %
Strong and flexible balance sheet with significant liquidity; top 10% credit rating ranking among all publicly traded U.S. REITs
Net debt and preferred stock to Adjusted EBITDA of 5.5x and fixed-charge coverage ratio of 4.4x for 3Q24 annualized (targets for 4Q24 annualized of ≤5.1x and ≥4.5x, respectively).
Significant liquidity of $5.4 billion.
31% of our total debt matures in 2049 and beyond.
12.6 years weighted-average remaining term of debt.
Since 2020, an average of 97.7% of our debt has been fixed rate.
Total debt and preferred stock to gross assets of 29%.
$1.0 billion of capital contribution commitments from existing consolidated real estate joint venture partners to fund construction from 4Q24 through 2027.
Strong leasing volume and solid rental rate changes
Strong leasing volume aggregating 1.5 million RSF during 3Q24, up 48% compared to our previous four-quarter average of 1.0 million RSF.
Rental rate changes on lease renewals and re-leasing of space were 5.1% and 1.5% (cash basis) for 3Q24 and 16.4% and 8.9% (cash basis) for YTD 3Q24.
80% of our leasing activity during the last twelve months was generated from our existing tenant base.
3Q24
YTD 3Q24
Total leasing activity, RSF
1,486,097
3,742,955
Leasing of development and redevelopment space, RSF
39,121
480,342
Lease renewals and re-leasing of space:
RSF (included in total leasing activity above)
1,278,857
2,863,277
Rental rate changes
5.1 %
(1)
16.4 %
Rental rate changes (cash basis)
1.5 %
(1)
8.9 %
(1)
Includes a five-year lease extension to an investment-grade rated technology tenant aggregating 357,136 RSF of recently acquired tech R&D space in our Texas market that was renewed with rental rate changes of (33.6)% and (4.8)% (cash basis). These spaces were originally targeted for a future change in use at acquisition, but we instead renewed them with a lower capital investment while we continue to evaluate options to convert these spaces in the future, subject to market conditions. Excluding this lease, rental rate changes for renewed/re-leased space for 3Q24 were 13.0% and 2.3% (cash basis).
Attractive dividend strategy to share net cash flows from operating activities with stockholders while retaining a significant portion for reinvestment
Common stock dividend declared for 3Q24 of $1.30 per common share aggregating $5.14 per common share for the twelve months ended September 30, 2024, up 24 cents, or 5%, over the twelve months ended September 30, 2023.
Dividend yield of 4.4% as of September 30, 2024.
Dividend payout ratio of 55% for the three months ended September 30, 2024.
Average annual dividend per-share growth of 5.4% from 2020 through 3Q24 annualized.
Significant net cash flows from operating activities after dividends retained for reinvestment aggregating $2.1 billion for the years ended December 31, 2020 through 2023 and including the midpoint of our 2024 guidance range for net cash provided by operating activities after dividends.
Ongoing successful execution of Alexandria's 2024 capital strategy
We expect to continue pursuing our strategy to fund a significant portion of our capital requirements for the year ending December 31, 2024 with dispositions primarily focused on sales of properties and land parcels not integral to our mega campus strategy. Refer to "Dispositions" in the Earnings Press Release for additional details.
(in millions)
Completed dispositions of 100% interest in properties
$ 319
Pending dispositions subject to non-refundable deposits
577
Pending dispositions subject to executed letters of intent and/or purchase and sale agreements
603
Forward equity sales agreements
28
Total
$ 1,527
2024 guidance midpoint for dispositions and common equity
$ 1,550
Ongoing successful execution of Alexandria's 2024 capital strategy (continued)
In September 2024, we completed the following transactions with our longstanding tenant, Fred Hutchinson Cancer Center ("Fred Hutch"), in the Lake Union submarket:
Sale of 1165 Eastlake Avenue East, a fully leased 100,086 RSF single-tenant Class A+ life science facility that was developed in 2021. We sold the property for $150.0 million, or $1,499 per RSF, at strong capitalization rates of 4.7% and 4.9% (cash basis). Upon completion of the sale, we recognized a gain on sale of real estate aggregating $21.5 million.
Fred Hutch executed early renewals aggregating 117,479 RSF at our 1201 and 1208 Eastlake Avenue East properties, including a 15-year lease extension at 1201 Eastlake Avenue East.
Our prior joint venture partner sold their partial interest ownership in each of 1201 and 1208 Eastlake Avenue East to Fred Hutch. Our ownership interest in both properties remains unchanged at 30.0%. This sale, lease extensions, and new joint venture affirm Fred Hutch's commitment to South Lake Union.
Alexandria's development and redevelopment pipeline delivered incremental annual net operating income of $21 million commencing during 3Q24 and is expected to deliver incremental annual net operating income aggregating $510 million primarily by 1Q28
During 3Q24, we placed into service development and redevelopment projects aggregating 316,691 RSF that are 100% leased across multiple submarkets and delivered incremental annual net operating income of $21 million. 3Q24 deliveries included 250,000 RSF at 9820 Darnestown Road on the Alexandria Center® for Life Science, Shady Grove mega campus in our Rockville submarket.
Annual net operating income (cash basis) is expected to increase by $57 million upon the burn-off of initial free rent, with a weighted-average burn-off period of approximately six months, from recently delivered projects.
69% of the RSF in our total development and redevelopment pipeline is within our mega campuses.
Development and Redevelopment Projects
Incremental
Annual Net Operating Income
RSF
Leased/Negotiating
Percentage
(dollars in millions)
Placed into service:
1H24
$ 42
628,427
100 %
3Q24
21
316,691
100
Placed into service in YTD 3Q24
$ 63
945,118
100 %
Expected to be placed into service(1):
4Q24 through 4Q25
$ 158
(2)
5,467,897
55 %
1Q26 through 1Q28
352
(3)
$ 510
(1)
Represents expected incremental annual net operating income to be placed into service from deliveries of projects undergoing construction and one committed near-term project expected to commence construction in the next two years.
(2)
Includes (i) 1.0 million RSF that is expected to stabilize through 2025 and is 92% leased/negotiating and(ii) expected partial deliveries through 4Q25 from projects expected to stabilize in 2026 and beyond. Refer tothe initial and stabilized occupancy years under "New Class A/A+ development and redevelopment properties:current projects" in the Supplemental Information for additional details.
(3)
70% of the leased RSF of our development and redevelopment projects was generated from our existingtenant base.
Continued solid net operating income and internal growth
Net operating income (cash basis) of $2.0 billion for 3Q24 annualized, up $274.2 million, or 15.5%, compared to 3Q23 annualized.
Same property net operating income growth of 1.5% and 6.5% (cash basis) for 3Q24 over 3Q23 and 1.6% and 4.6% (cash basis) for YTD 3Q24 over YTD 3Q23.
96% of our leases contain contractual annual rent escalations approximating 3%.
Strong balance sheet managementKey metrics as of or for the three months ended September 30, 2024
$33.1 billion in total market capitalization.
$20.5 billion in total equity capitalization, which ranks in the top 10% among all publicly traded U.S. REITs.
3Q24
Target
QuarterAnnualized
Trailing
12 Months
4Q24
Annualized
Net debt and preferred stock to Adjusted EBITDA
5.5x
5.6x
Less than or equal to 5.1x
Fixed-charge coverage ratio
4.4x
4.5x
Greater than or equal to 4.5x
Key capital events
In September 2024, we amended and restated our unsecured senior line of credit to, among other changes, extend the maturity date from January 22, 2028 to January 22, 2030, including extension options that we control.
During 3Q24, we had no activity under our ATM program. As of October 21, 2024, the remaining aggregate amount available for future sales of common stock was $1.47 billion.
Investments
As of September 30, 2024:
Our non-real estate investments aggregated $1.5 billion.
Unrealized gains presented in our consolidated balance sheet were $166.2 million, comprising gross unrealized gains and losses aggregating $284.4 million and $118.2 million, respectively.
Investment income of $15.2 million for 3Q24 presented in our consolidated statement of operations consisted of $23.0 million of realized gains and $2.6 million of unrealized gains, partially offset by $10.3 million of impairment charges.
Other key highlights
Key items included in net income attributable to Alexandria's common stockholders:
YTD
3Q24
3Q23
3Q24
3Q23
3Q24
3Q23
3Q24
3Q23
(in millions, except per share amounts)
Amount
Per Share, Diluted
Amount
Per Share, Diluted
Unrealized gains (losses) on non-real estate investments
$ 2.6
$ (77.2)
$ 0.02
$ (0.45)
$ (32.5)
$ (221.0)
$ (0.19)
$ (1.29)
Gain on sales of real estate
27.1
—
0.16
—
27.5
214.8
0.16
1.26
Impairment of non-real estate investments
(10.3)
(28.5)
(0.06)
(0.17)
(37.8)
(51.5)
(0.22)
(0.30)
Impairment of real estate
(5.7)
(20.6)
(0.03)
(0.12)
(36.5)
(189.2)
(0.22)
(1.11)
Acceleration of stock compensation expense due to executive officer resignations
—
(1.9)
—
(0.01)
—
(1.9)
—
(0.01)
Total
$ 13.7
$ (128.2)
$ 0.09
$ (0.75)
$ (79.3)
$ (248.8)
$ (0.47)
$ (1.45)
Refer to "Funds from operations and funds from operations per share" in the Earnings Press Release for additionaldetails.
Subsequent events
In October 2024, we agreed to sell four properties located in our Greater Boston market for a sales price of $369.4 million to the current tenant of the properties with whom we have a long-established relationship. The sales price represents capitalization rates of 8.5% and 6.3% (cash basis) based upon net operating income and net operating income (cash basis), respectively, for 3Q24 annualized. These properties, acquired primarily during 2020–2021, are currently 100% leased with a weighted-average remaining lease term of 18 years. In October 2024, we recognized an impairment charge aggregating $40.9 million to reduce the carrying amounts of these properties by approximately 10% to the expected sales price less costs to sell. Our decision to dispose of these properties is based on their non-strategic location and the significant capital that the expected sales proceeds provide for immediate reinvestment into our development and redevelopment pipeline.
In October 2024, we agreed to sell five operating properties aggregating 203,223 RSF and land parcels aggregating 1.5 million SF in our Sorrento Mesa and University Town Center submarkets to buyers that are expected to develop residential properties on these sites for an aggregate sales price of approximately $314.0 million. In October 2024, we recognized impairment charges aggregating $65.9 million to reduce the carrying amounts of these properties to the expected aggregate sales price less costs to sell. Our decision to dispose of these assets, which are not integral to our mega campus strategy, is primarily based on the substantial capital that the sales proceeds will provide for immediate reinvestment into our development and redevelopment pipeline.
Industry and corporate responsibility leadership: catalyzing and leading the way for positive change to benefit human health and society
In September 2024, Alexandria was named one of the World's Most Trustworthy Companies by Newsweek. This significant distinction builds on the Company's recognition by the publication as one of America's Most Trustworthy Companies in 2023 and 2024. Alexandria is one of only three S&P 500 REITs recognized in the real estate and housing category.
In September 2024, Alexandria and its executive chairman and founder, Joel S. Marcus, were honored with the inaugural Bisnow Life Sciences Icon & Influencer Award. This prestigious award highlights Mr. Marcus and the Company's significant long-term contributions to and lasting impact on the life science real estate sector and broader life science industry. Mr. Marcus accepted the award on his own behalf and that of Alexandria at Bisnow's International Life Sciences & Biotech Conference, where he was also the keynote speaker.
Alexandria continued to receive broad recognition for our operational excellence in asset management, design, development, and sustainability, including the following recent awards:
In our Greater Boston market, the atrium at 325 Binney Street, located on the Alexandria Center® at One Kendall Square mega campus, is a light-filled collaboration space with a terraced garden and communal staircase that was celebrated for design excellence in the Science & Research, Small (under 50,000 SF) category of the 2024 International Interior Design Association New England (IIDA NE) Design Awards and also received the award program's top honor, Best in Show.
In our Maryland market, we were awarded three 2024 NAIOP DC|MD Awards of Excellence for developments and enhancements on the Alexandria Center® for Life Science, Shady Grove mega campus: 9810 and 9820 Darnestown Road for Best Life Science Facility, 9800 Medical Center Drive for Best Amenity Space, and 9950 Medical Center Drive for Best Industrial/Flex.
We received a 2024 Nareit Sustainable Design Impact Award for our groundbreaking approach to utilizing alternative energy sources such as geothermal energy and wastewater heat recovery systems to reduce operational greenhouse gas emissions in Labspace® development projects in our Greater Boston and Seattle markets.
Alexandria GradLabs® at 9880 Campus Point Drive, located on the Campus Point by Alexandria mega campus in our San Diego market, earned a 2024 International Institute for Sustainable Laboratories (I2SL) Lab Buildings and Projects Award for Excellence in Energy Efficiency. The state-of-the-art building was designed to operate as a highly energy-efficient research facility. In 2023, the LEED Platinum certified facility earned an I2SL Labs2Zero pilot Energy Score of 96 out of 100, indicating its operational energy performance is better than 96% of similar facilities.
About Alexandria Real Estate Equities, Inc.
Alexandria Real Estate Equities, Inc. (NYSE:ARE), an S&P 500® company, is a best-in-class, mission-driven life science REIT making a positive and lasting impact on the world. As the pioneer of the life science real estate niche with our founding in 1994, Alexandria is the preeminent and longest-tenured owner, operator, and developer of collaborative mega campuses in AAA life science innovation cluster locations, including Greater Boston, the San Francisco Bay Area, San Diego, Seattle, Maryland, Research Triangle, and New York City. As of September 30, 2024, Alexandria has a total market capitalization of $33.1 billion and an asset base in North America that includes 41.8 million RSF of operating properties, 5.3 million RSF of Class A/A+ properties undergoing construction, and one committed near-term project expected to commence construction in the next two years. Alexandria has a longstanding and proven track record of developing Class A/A+ properties clustered in mega campuses that provide our innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. Alexandria also provides strategic capital to transformative life science companies through our venture capital platform. We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value. For more information on Alexandria, please visit www.are.com.
GuidanceSeptember 30, 2024(Dollars in millions, except per share amounts)
The following guidance for 2024 has been updated to reflect our current view of existing market conditions and assumptions for the year ending December 31, 2024. There can be no assurance thatactual results will not be materially higher or lower than these expectations. Also, refer to our discussion of "forward-looking statements" of the Earnings Press Release for additional details.
2024 Guidance Midpoint
Summary of Key Changes in Guidance
As of 10/21/24
As of 7/22/24
Summary of Key Changes in Sources and Uses of Capital
As of 10/21/24
As of 7/22/24
EPS, FFO per share, and FFO per share, as adjusted
See updates below
Cash expected to be held at December 31, 2024
$150
$—
Straight-line rent revenue
$147 to $162
$169 to $184
General and administrative expenses
$176 to $186
$181 to $191
Key Credit Metric Targets(1)
Net debt and preferred stock to Adjusted EBITDA, 4Q24 annualized
Less than or equal to 5.1x
Fixed-charge coverage ratio, 4Q24 annualized
Greater than or equal to 4.5x
Projected 2024 Earnings per Share and Funds From Operations per Share Attributable to Alexandria's Common Stockholders, Diluted
As of 10/21/24
As of 7/22/24
Earnings per share(2)
$2.60 to $2.64
$2.98 to $3.10
Depreciation and amortization of real estate assets
6.05
5.95
Gain on sales of real estate(3)
(0.38)
—
Impairment of real estate, rental properties and land(4)
0.67
0.01
Allocation to unvested ...
