ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements
Certain information and statements included in this quarterly report on Form 10-Q, including, without limitation, statements containing the words “forecast,” “guidance,” “projects,” “estimates,” “anticipates,” “goals,” “believes,” “expects,” “intends,” “may,” “plans,” “seeks,” “should,” or “will,” or the negative of those words or similar words, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, results of operations, and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by the forward-looking statements, including, but not limited to, the following:
•Operating factors such as a failure to operate our business successfully in comparison to market expectations or in comparison to our competitors, our inability to obtain capital when desired or refinance debt maturities when desired, and/or a failure to maintain our status as a REIT for federal tax purposes.
•Market and industry factors such as adverse developments concerning the life science, technology, and agtech industries and/or our tenants.
•Government factors such as any unfavorable effects resulting from federal, state, local, and/or foreign government policies, laws, and/or funding levels.
•Global factors such as negative economic, political, financial, credit market, and/or banking conditions.
•Uncertain global, national, and local impacts of the ongoing COVID-19 pandemic.
•Other factors such as climate change, cyber intrusions, and/or changes in laws, regulations, and financial accounting standards.
This list of risks and uncertainties is not exhaustive. Additional information regarding risk factors that may affect us is included under “Item 1A. Risk factors” and “Item 7. Management’s discussion and analysis of financial condition and results of operations” of our annual report on Form 10-K for the year ended December 31, 2019, and respective sections within this quarterly report on Form 10-Q. Readers of this quarterly report on Form 10-Q should also read our other documents filed publicly with the SEC for further discussion regarding such factors.
The COVID-19 pandemic
In December 2019, a novel coronavirus, which causes respiratory illness and spreads from person to person (COVID-19), was first identified during an investigation into an outbreak in Wuhan, China. The first case of COVID-19 in the U.S. was reported on January 20, 2020. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the U.S. declared a national emergency with respect to COVID-19. As of July 24, 2020, according to the World Health Organization, over 15 million novel coronavirus cases have been reported worldwide. The U.S. has reported more than 3.9 million cases of COVID-19 and over 140,000 deaths as of July 24, 2020.
COVID-19 disease, treatment, and measures to combat the pandemic
Most patients with COVID-19 have had mild to severe respiratory illness with symptoms of fever, chills, cough, shortness of breath, fatigue, and loss of taste. Many individuals with COVID-19 are asymptomatic and show limited to no symptoms, highlighting the ongoing challenge of containing the continued spread of COVID-19. Some patients develop pneumonia in both lungs and/or multi-organ failure, which in some cases leads to death. There is currently no specific treatment or vaccine for COVID-19, however since scientists shared the virus’s genetic makeup in January 2020, intense research has been underway around the world. At this time, while there are no FDA-approved drugs for the treatment of COVID-19, the FDA has granted emergency use authorization for the antiviral drug remdesivir to treat severe COVID-19. In addition, the U.S. National Institutes of Health (“NIH”) has recommended the corticosteroid dexamethasone for patients with severe COVID-19 who require supplemental oxygen or mechanical ventilation.
Vaccine testing in humans started with record speed in March 2020 and as of July 24, 2020, has evolved to over 165 potential vaccines in different stages of development. The current vaccines in development use a myriad of different scientific approaches to attempt to provoke an immune response, including:
•Genetic vaccines that use part of the coronavirus’s genetic code;
•Viral vector vaccines that use a virus to deliver coronavirus genes into cells;
•Protein-based vaccines that use a coronavirus protein or protein fragment to stimulate the immune system; and
•Whole-virus vaccines that use a weakened or inactivated version of the coronavirus.
At least 27 potential vaccines are currently in human clinical trials and in order to accelerate vaccine development, a number of these potential vaccines are in combined Phase I/II trials. Phase I trials typically include a small number of participants to test safety and dosage as well as to confirm that the vaccine stimulates the immune system. Phase II trials involve hundreds of participants split into groups, such as children and the elderly, to determine whether the vaccine acts differently in each subpopulation. Phase III trials involve delivering the vaccine to tens of thousands of people and waiting to see how many become infected, and the severity of symptoms, compared with volunteers who receive a placebo. Regulators in each country will review the trial results to make a determination as to whether the drug or vaccine should be approved. As of July 24, 2020, there are four potential vaccines in Phase III trials.
Regulators around the world are expected to expedite approvals or to allow for emergency use authorizations before issuing formal approvals for vaccines that prove successful in clinical trials. Vaccine candidates that demonstrate significant safety and efficacy in Phase II or Phase III trials may become available as early as year-end 2020 or in early 2021. Furthermore, the U.S. government’s Operation Warp Speed program has announced a handful of company partners to which it will allocate billions of dollars in federal funding to help expedite the development and manufacturing of coronavirus vaccines and treatments.
Shelter-in-place and stay-at-home orders
On March 19, 2020, California became the first state to set mandatory stay-at-home restrictions to help combat the spread of the coronavirus. The order included the shutdown of all nonessential services, such as dine-in restaurants, bars, gyms, conference or convention centers, and other businesses not deemed to support critical infrastructure. Exceptions for essential services, such as grocery stores, pharmacies, gas stations, food banks, convenience stores, and delivery restaurants, have allowed these services to remain open. Subsequently, almost all states issued similar orders, including New York, Massachusetts, Washington, Maryland, and North Carolina, where our remaining properties outside California are located. Countries around the world also implemented measures to slow the spread of the coronavirus, from national quarantines to school closures or similar types of stay-at-home orders or movement limitations.
Most state orders expired or were rescinded between May and early June 2020, and authorities began reopening businesses, including retail stores, restaurants, bars, salons, houses of worship, entertainment venues such as movie theaters and museums, and manufacturing facilities and offices. Daily new COVID-19 cases in the U.S., which declined to approximately 18,000 new cases by June 9, 2020, from the low- to mid-30,000 daily range in April 2020, began to increase after reopenings commenced across the country. On July 19, 2020, a new daily record of 74,000 new cases was reported, with daily case numbers rising significantly, particularly in South and Southwest states, including Alabama, Arizona, Florida, Mississippi, North Carolina, Texas, Tennessee, and California, all of which reported single-day records for new cases and deaths. As a result of the resurgence of new infections, states have begun to reconsider their reopenings and have warned that new lockdowns may be needed to reverse the increasing trend of infections.
Impact to the global and U.S. economy
As a result of the unprecedented measures taken in the U.S. and around the world, the disruption and impact to the U.S. and global economies and financial markets by the COVID-19 pandemic have been significant. It is feared that this pandemic could trigger, or has already triggered, a period of prolonged global economic slowdown or global recession. The International Monetary Fund (“IMF”) estimated in April 2020 that the global economy could be facing its worst recession since the Great Depression of the 1930s, with a 3% negative growth in 2020 rather than an expansion of 3.3% as it projected in January 2020.
In June 2020, the IMF revised its April forecast downward, projecting global growth to shrink by 4.9% in 2020, or 1.9% below the April 2020 forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast according to the IMF. In 2021, global growth is projected at 5.4%. Overall, this would leave 2021 U.S. gross domestic product some 6.5% lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s.
The IMF is currently projecting all advanced economies will contract in 2020, including an 8% contraction in the U.S. Based on the data provided by the U.S. Bureau of Labor Statistics on July 2, 2020, the unemployment rate in the U.S. is up by 7.6% since February 2020 to 11.1%, although down from the 13.3% from the month before. The July 2020 data reported 4.8 million jobs created in June 2020; however, the recent surge in new COVID-19 cases could make these job gains temporary. Stock markets around the globe have rebounded substantially since March 2020; however, since the pandemic was declared, access to capital has become much more challenging for most companies or non-existent for some.
The unprecedented disruption and impact to the U.S. and global economies and financial markets by the COVID-19 pandemic resulted in the U.S. President’s signing into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, a $2 trillion economic stimulus package. The CARES Act allocated over $140 billion to the U.S. health system to support COVID-19-related manufacturing, production, diagnostics, and treatments, and to accelerate the market entrance of necessary vaccines and cures. The CARES Act also designated $945.4 million specifically to the NIH, which is a tenant of ours in our Maryland market, to combat COVID-19, which includes, but is not limited to, providing support for research, construction, and acquisition of equipment for vaccine and infectious disease research facilities, including the acquisition of real property. In addition, on April 24, 2020, the U.S. President signed the Paycheck Protection Program and Health Care Enhancement Act into law, which provided an additional $484 billion relief package to primarily assist distressed small businesses and to prevent them from shutting their operations and laying off their employees. This package designated $75 billion to hospitals and $25 billion for a new COVID-19 testing program. It is too early to determine if the CARES Act and the $484 billion relief package were effective or sufficient to offset some of the most severe economic effects of the pandemic. Furthermore, the programs initiated under the aforementioned COVID-19 relief and stimulus packages are set to expire in the coming weeks. Unless the government extends the deadlines or introduces new relief measures, the impact of expirations on the U.S. economy could be severe and could lead to further deterioration of economic conditions, higher unemployment rates, and prolonged recession, which in turn could materially affect our (or our tenants’) performance, financial condition, results of operations, and cash flows.
See “Item 1A. Risk factors” within “Part II – Other information” of this quarterly report, for additional discussion of the risks posed by the COVID-19 pandemic, and uncertainties we, our tenants, and the national and global economies face as a result.
Overview
We are a Maryland corporation formed in October 1994 that has elected to be taxed as a REIT for federal income tax purposes. We are an S&P 500® urban office REIT and the first, longest-tenured, and pioneering owner, operator, and developer uniquely focused on collaborative life science, technology, and agtech campuses in AAA innovation cluster locations, with a total market capitalization of $27.7 billion and an asset base in North America of 43.0 million SF as of June 30, 2020. The asset base in North America includes 28.8 million RSF of operating properties and 2.3 million RSF of Class A properties undergoing construction, 6.6 million RSF of near-term and intermediate-term development and redevelopment projects, and 5.3 million SF of future development projects. Founded in 1994, we pioneered this niche and have since established a significant market presence in key locations, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle. We have a longstanding and proven track record of developing Class A properties clustered in urban life science, technology, and agtech 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, technology, and agtech companies through our venture capital arm. We believe these advantages result in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value.
As of June 30, 2020:
•Investment-grade or publicly traded large cap tenants represented 51% of our total annual rental revenue;
•Approximately 94% of our leases (on an RSF basis) contained effective annual rent escalations that were either fixed (generally ranging from approximately 3.0% to 3.5%) or indexed based on a consumer price index or other index;
•Approximately 93% of our leases (on an RSF basis) were triple net leases, which require tenants to pay substantially all real estate taxes, insurance, utilities, repairs and maintenance, common area expenses, and other operating expenses (including increases thereto) in addition to base rent; and
•Approximately 92% of our leases (on an RSF basis) provided for the recapture of capital expenditures (such as heating, ventilation, and air conditioning systems maintenance and/or replacement, roof replacement, and parking lot resurfacing) that we believe would typically be borne by the landlord in traditional office leases.
Our primary business objective is to maximize stockholder value by providing our stockholders with the greatest possible total return and long-term asset value based on a multifaceted platform of internal and external growth. A key element of our strategy is our unique focus on Class A properties clustered in urban campuses. These key urban campus locations are characterized by high barriers to entry for new landlords, high barriers to exit for tenants, and a limited supply of available space. They generally represent highly desirable locations for tenancy by life science, technology, and agtech entities because of their close proximity to concentrations of specialized skills, knowledge, institutions, and related businesses. Our strategy also includes drawing upon our deep and broad real estate, life science, technology, and agtech relationships in order to identify and attract new and leading tenants and to source additional value-creation real estate.
Executive summary
Operating results
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Three Months Ended June 30,
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Six Months Ended June 30,
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2020
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2019
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2020
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2019
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Net income attributable to Alexandria’s common stockholders – diluted:
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In millions
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$
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226.6
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$
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76.3
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|
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$
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244.8
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$
|
200.2
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Per share
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$
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1.82
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$
|
0.68
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$
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1.99
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$
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1.80
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Funds from operations attributable to Alexandria’s common stockholders – diluted, as adjusted:
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In millions
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$
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225.0
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$
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192.7
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$
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446.4
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$
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382.5
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Per share
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$
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1.81
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$
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1.73
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$
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3.63
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$
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3.44
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The operating results shown above include certain items related to corporate-level investing and financing decisions. Refer to the tabular presentation of these items at the beginning of the “Results of operations” section within this Item 2 for additional information.
Alexandria and its tenants at the vanguard of advancing solutions for COVID-19
Safe and effective vaccines and therapies, in addition to widespread testing, are desperately needed to combat the global COVID-19 pandemic. Over 80 of our life science tenants are advancing solutions for COVID-19. By maintaining essential business operations across our campuses, Alexandria has enabled several of our life science tenants to continue mission-critical COVID-19-related research and development. Refer to the “Alexandria and its innovative tenants are at the vanguard of the life science ecosystem advancing solutions for COVID-19” section within this Item 2 for additional information.
Strong and flexible balance sheet with significant liquidity
•$4.2 billion of liquidity as of June 30, 2020, pro forma for our $1.1 billion forward equity sales agreements entered into in July 2020.
•Zero debt maturing until 2023.
•9.9 years weighted-average remaining term of debt as of June 30, 2020.
•Investment-grade credit rating, which ranks in the top 10% among all publicly traded REITs, of Baa1/Stable from Moody’s Investors Service and BBB+/Stable from S&P Global Ratings, both as of June 30, 2020.
Continued dividend strategy to share cash flows with stockholders
Common stock dividend declared for the three months ended June 30, 2020, of $1.06 per common share, aggregating $4.12 per common share for the twelve months ended June 30, 2020, up 25 cents, or 6%, over the twelve months ended June 30, 2019. Our FFO payout ratio of 59% for the three months ended June 30, 2020, allows us to share cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.
A REIT industry-leading, high-quality tenant roster
•51% of annual rental revenue from investment-grade or publicly traded large cap tenants.
•Weighted-average remaining lease term of 7.8 years.
Continued strength in collections drives lowest tenant receivables balance since 2012
•As of July 24, 2020, we have collected 99% of July 2020 rents and tenant recoveries.
•We have collected 99.4% of June 2020 rents and tenant recoveries.
•As of June 30, 2020, our tenant receivables balance was $7.2 million, our lowest balance since 2012.
High-quality revenues and cash flows, strong Adjusted EBITDA margin, and operational excellence
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Percentage of annual rental revenue in effect from:
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Investment-grade or publicly traded large cap tenants
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51
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%
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Class A properties in AAA locations
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74
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%
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Occupancy of operating properties in North America
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94.8
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%
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(1)
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Operating margin
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72
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%
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Adjusted EBITDA margin
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69
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%
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|
Weighted-average remaining lease term:
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All tenants
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7.8
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years
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Top 20 tenants
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11.2
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years
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(1)Includes 647,771 RSF, or 2.3%, of vacancy in our North America markets, representing lease-up opportunities at properties recently acquired, primarily at our SD Tech by Alexandria campus (joint venture), 601, 611, and 651 Gateway Boulevard (joint venture), and 5505 Morehouse Drive. Excluding these vacancies, occupancy of operating properties in North America was 97.1% as of June 30, 2020. Refer to “Summary of occupancy percentages in North America” within this Item 2 for additional information regarding vacancy from recently acquired properties.
Strong leasing activity during the second quarter of 2020 and continued rental rate growth
•Continued strong leasing activity and rental rate growth in light of modest contractual lease expirations at the beginning of 2020 and a highly leased value-creation pipeline; continued rental rate growth during the six months ended June 30, 2020, over expiring rates on renewed and re-leased space:
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June 30, 2020
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Three Months Ended
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Six Months Ended
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Total leasing activity – RSF
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1,077,510
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1,780,865
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Leasing of development and redevelopment space – RSF
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196,039
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210,271
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Lease renewals and re-leasing of space:
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RSF (included in total leasing activity above)
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699,130
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1,251,152
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Rental rate increases
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37.2%
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41.1%
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Rental rate increases (cash basis)
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15.0%
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17.9%
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Guidance for unique and opportunistic value-creation acquisitions and construction
•Our initial 2020 guidance issued on December 3, 2019, included guidance midpoint for our 2020 construction spending and acquisitions of $1.6 billion and $950 million, respectively, and reflected a strong outlook for 2020, including continued strong demand for our value-creation development and redevelopment projects.
•Our guidance issued on April 27, 2020, reduced our 2020 forecasted construction spend, acquisitions, real estate dispositions and partial interest sales, and issuance of common equity. These reductions were deemed necessary while we monitored the impact of COVID-19 on many areas of our business, including the overall macro and capital market environments.
•Our guidance issued on July 27, 2020, was updated to address the continuing tenant demand for our development and redevelopment pipeline in part due to COVID-19 requirements, as well as existing and anticipated attractive acquisition opportunities in our markets, which will be partially funded through forecasted real estate dispositions and partial interest sales. Key updates to our sources and uses include:
•Increased midpoint for our 2020 construction spending guidance range from $960.0 million to $1.35 billion.
•An additional $900 million to $1.3 billion of real estate acquisitions in the second half of 2020, including acquisitions completed in July 2020.
•Increased midpoint of our real estate dispositions and partial interest sales from $50.0 million to $1.25 billion, which is expected to fund a portion of the increase in construction spending and acquisitions in addition to providing significant capital for growth over the next two to three quarters.
•See “Key capital events” below for additional details on our July 2020 forward equity offering.
•Refer to “Projected results” and “Capital resources” within this Item 2 for detailed assumptions for our updated 2020 guidance.
2020 Nareit Gold Investor CARE Award winner
2020 recipient of the Nareit Gold Investor CARE (Communications and Reporting Excellence) Award in the Large Cap Equity REIT category as the best-in-class REIT that delivers transparent, quality, and efficient communications and reporting to the investment community; our fifth Nareit Gold Investor CARE Award over the last six years, and our third consecutive Gold Award.
Continued strong net operating income and internal growth
•Total revenues:
•$437.0 million, up 16.9%, for the three months ended June 30, 2020, compared to $373.9 million for the three months ended June 30, 2019.
•$876.9 million, up 19.7%, for the six months ended June 30, 2020, compared to $732.7 million for the six months ended June 30, 2019.
•Net operating income (cash basis) of $1.1 billion for the three months ended June 30, 2020 annualized, increased by $165.0 million, or 17.6%, compared to the three months ended June 30, 2019 annualized.
•94% of our leases contain contractual annual rent escalations approximating 3.0%.
•Same property net operating income growth:
•1.6% and 4.5% (cash basis) for the six months ended June 30, 2020, over the six months ended June 30, 2019.
•0.6% and 2.5% (cash basis) for the three months ended June 30, 2020, over the three months ended June 30, 2019.
•Includes the effect of temporary reduction in same property occupancy of 80 basis points related to downtime in connection with leases aggregating 152,045 RSF, with 63% already leased for delivery in the third quarter of 2020 at significantly higher rental rates. Excluding the impact of the temporary vacancies, the same property net operating income growth for the three months ended June 30, 2020, would have been 1.6% and 4.2% (cash basis), respectively. We expect occupancy and other contractual rental increases in the second half of 2020 will increase same property NOI and same property NOI (cash basis) to within our guidance range for the year ending December 31, 2020.
•Minimal remaining 2020 contractual lease expirations, aggregating 2.3% of annual rental revenue.
Highly leased value-creation pipeline, including COVID-19-focused R&D space
•Current projects aggregating 3.3 million RSF, including COVID-19-focused R&D spaces, are highly leased at 61% and will generate significant revenues and cash flows.
•As of July 27, 2020, construction activities were in process at all of our active value-creation projects.
•Significant pre-leasing at two new value-creation projects in our Sorrento Mesa submarket:
•Near-term development project at SD Tech by Alexandria, aggregating 176,428 RSF, is 59% pre-leased; and
•Active redevelopment project at 9877 Waples Street, a recently acquired property aggregating 63,774 RSF, is 100% pre-leased.
•Annual net operating income (cash basis), including our share of unconsolidated real estate joint ventures, is expected to increase $29 million upon the burn-off of initial free rent on recently delivered projects.
Completed acquisitions
Refer to the “Acquisitions” subsection of the “Investments in real estate” section within this Item 2 for information on our strategic acquisitions.
Balance sheet management
Key metrics as of June 30, 2020
•$27.7 billion of total market capitalization.
•$20.2 billion of total equity capitalization.
•$4.2 billion of liquidity as of June 30, 2020, pro forma for our $1.1 billion forward equity sales agreements entered into in July 2020.
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As of June 30, 2020
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Goal for Fourth Quarter of 2020, Annualized
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Quarter Annualized
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Trailing 12 Months
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Net debt and preferred stock to Adjusted EBITDA
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5.8x
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|
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6.2x
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Less than or equal to 5.3x
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Fixed-charge coverage ratio
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|
4.2x
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|
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4.2x
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Greater than or equal to 4.4x
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Value-creation pipeline of new Class A development and redevelopment projects as a percentage of gross investments in real estate
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June 30, 2020
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Current projects 65% leased/negotiating
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7%
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|
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Income-producing/potential cash flows/covered land play(1)
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|
6%
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Land
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2%
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(1)Includes projects that have existing buildings that are generating or can generate operating cash flows. Also includes development rights associated with existing operating campuses.
Key capital events
•In April 2020, we closed an additional unsecured senior line of credit with $750.0 million of available commitments. The new unsecured senior line of credit matures on April 14, 2022, and bears interest at LIBOR plus 1.05%. Pursuant to the terms of the agreement, the outstanding commitments and any outstanding borrowings from the $750 million unsecured senior line of credit will be reduced by 100% of net cash proceeds from certain new debt transactions and 50% of net cash proceeds from new equity offerings as defined in the agreement, which includes any net proceeds from the settlement of our July 2020 forward equity sales agreements. Including our existing $2.2 billion unsecured senior line of credit, we have $2.95 billion in aggregate commitments under our unsecured senior lines of credit as of June 30, 2020.
•In 2020, we entered into forward equity sales agreements to sell an aggregate 13.8 million shares of our common stock (including the exercise of an underwriters’ option). As of the date of this report, our outstanding forward equity agreements are as follows:
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Public Offering Price
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Shares (in thousands)
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Net Proceeds (in thousands)
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Date
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Settled
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Outstanding
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Received
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Remaining
|
January 2020
|
|
$
|
155.00
|
|
|
3,356
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|
|
3,544
|
|
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$
|
500,001
|
|
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$
|
519,621
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July 2020
|
|
$
|
160.50
|
|
|
—
|
|
|
6,900
|
|
|
—
|
|
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1,061,952
|
|
|
|
|
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3,356
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|
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10,444
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$
|
500,001
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$
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1,581,573
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•During the three months ended June 30, 2020, and through the date of this report, there was no sale activity under our ATM common stock offering program. As of the date of this report, we have $843.7 million remaining available under our ATM program.
Investments
•Our investments in publicly traded companies and privately held entities aggregated a carrying amount of $1.3 billion, including an adjusted cost basis of $762.3 million and unrealized gains of $556.2 million, as of June 30, 2020.
•Investment income included $184.7 million during the three months ended June 30, 2020, which consisted of $17.7 million in realized gains, $4.7 million in impairments related to investments in privately held entities that do not report NAV, and $171.7 million in unrealized gains.
Leader in corporate responsibility: philanthropic activities and partnerships to positively impact our communities
At the vanguard of fighting COVID-19 by aiding communities adversely affected by the global pandemic
•Alexandria has sourced and donated over 54,000 pieces of much-needed personal protective equipment to 12 hospitals and other entities in need in New York City, Boston, Seattle, San Diego, Dayton, and Los Angeles for use by medical professionals working on the front lines of the COVID-19 response. Through strategic philanthropic giving and the Company’s matching gift programs, Alexandria donated, in aggregate, over $700,000 to several highly impactful national and regional organizations performing important work to support a myriad of efforts in communities affected by this global public health emergency, including the following:
•Feeding America – COVID-19 Response Fund, the fund from the nation’s largest hunger-relief organization with a network of 200 member food banks, is supporting the food banks that help people feed their families during the school closures, job disruptions, and health risks related to the COVID-19 pandemic.
•First Responders Children’s Foundation COVID-19 Emergency Response Fund is providing support to the families of first responders on the front lines of the COVID-19 pandemic, who are enduring financial hardship due to the outbreak.
•Robin Hood’s COVID-19 Relief Fund, from New York City’s largest poverty-fighting organization, is providing immediate, short-term grants to support non-profits that are on the front lines in the fight against COVID-19 so they can move swiftly to serve affected communities.
•Relief Opportunities for All Restaurants (ROAR) is providing financial relief directly to employees of restaurants who have lost their jobs as a result of the COVID-19 pandemic.
•City of Cambridge Disaster Fund for COVID-19 is providing emergency assistance in partnership with non-profit organizations to individuals and families in Cambridge experiencing extreme financial hardship caused by the COVID-19 crisis.
•Project Angel Food is committed to providing uninterrupted deliveries of nutritious medically tailored meals to people impacted by serious illness in the Los Angeles area throughout the duration of the COVID-19 pandemic.
Driving educational opportunity and providing resources to underserved communities
•We regard education as one of the most fundamental foundations to achieving a safe, healthy, and good life. As a result, we have forged deep partnerships with inspiring community organizations focused on providing educational resources to underserved communities in a multitude of ways. Working closely with these organizations, we have helped open the doors of opportunity for countless students.
•During 2Q20, we announced Alexandria’s 2020 scholarship recipients, 11 high-achieving public school students in San Francisco and Maryland who will each receive $5,000 annually to attend either a two- or four-year program at a college/university of their choice to study one of the STEM (science, technology, engineering, and mathematics) fields.
•As both a founding and sustaining donor, we have been passionate longtime supporters of Computer Science for All (CS4ALL) — a 10-year initiative launched in 2015 to provide high-quality computer science education for New York City’s 1.1 million public school students. Alexandria volunteers have worked alongside NYC high school students to rebuild computers donated by Alexandria for use in the CS4ALL program; served as judges for CS4ALL’s Hack League, a citywide coding competition involving students from 62 middle and high schools across New York City; participated in multiple Computer Science Education Weeks, a global effort encouraging computer science education; and hosted CS4ALL students at the Alexandria Center® for Life Science – NYC for them to learn about the vast array of jobs that computer science touches and the career paths available to them. Our ongoing partnership with CS4ALL has helped ensure that NYC’s public school students have the skills they need to achieve success in higher education, the 21st-century job market, and beyond.
•Through our very hands-on work with, and mission-critical funding support for, the Emily Krzyzewski Center in Durham, North Carolina, we are helping propel academically focused, low-income K–12 students and graduates toward success in college. Emily K programs begin in elementary and middle school to build and accelerate academic skills that lay the foundation for future college success. As students move on to high school, they receive holistic support in the areas of college planning, personal management and leadership, academic skills development, and career exploration, leading to graduating seniors who are scholarship eligible and college ready. After 12 years, the success rate for admittance to a four-year college is 100%.
•Robin Hood, New York City’s largest poverty fighting organization, has an intense focus on education and works to ensure that low-income students at risk of not finishing high school graduate ready to succeed in college and career. Robin Hood has provided over $29 million in funding to impactful tutoring and mentorship programs, college prep programs, mental health and counseling services, and teacher training initiatives and has helped more than 55,000 students across the city last year alone. We have very actively worked with CEO Wes Moore, as well as offered significant financial support, to make a huge impact in the underserved communities of New York City through highly important programs that have measurable outcomes.
•Alexandria has worked closely with Breakthrough Greater Boston (BTGB) over many years to prepare low-income students for success in college and train the next generation of urban teachers. Through six years of intensive, tuition-free, out-of-school-time programming, BTGB changes students’ academic trajectories and supports them along the path to college. Students gain a passion for learning and the perseverance and tools needed to succeed in college and beyond. BTGB also works to build the next generation of teachers through competitive recruitment, research-based training, and coaching from master teachers. Teaching Fellows gain intensive in-classroom experience, expert training, and 1:1 coaching.
Pioneering a uniquely comprehensive care model to tackle opioid addiction
•Against the backdrop of the COVID-19 pandemic, the U.S. opioid epidemic remains one of the most devastating public health issues of our time. With many people confronting additional stresses such as isolation, unemployment, anxiety, and loss, monthly drug overdose deaths, which decreased in 2018 for the first time in 25 years, have skyrocketed to record numbers during the pandemic, up 42% in May 2020 relative to May 2019. This alarming spike in drug overdoses highlights the urgent unmet need for evidence-based holistic treatment systems for addiction.
•As a key component of Alexandria’s mission to advance human health, we partnered with Verily, an Alphabet company, to pioneer a comprehensive care model for the full and sustained recovery of people suffering from opioid addiction. The 59,000 RSF campus, situated on 4.3 acres in Dayton, Ohio, includes dedicated facilities and services for treatment, residential housing, group therapy, family reunification, fitness, workforce development programs, job placement, and community transition. Alexandria has led the design and development of the campus, which opened to patients in the fall of 2019. In July 2020, we completed OneFifteen Living, the campus's three-story residential facility designed to serve as a safe place for individuals suffering from opioid addiction to live while accessing on-campus treatment services.
•As overdose deaths in 1H20 are up 34% compared to 1H19 in Montgomery County, Ohio, where our state-of-the-art OneFifteen campus is located, OneFifteen's doors are open to those ready to make a change and it has also successfully ramped up telehealth services to ensure those needing its addiction services do not experience a gap in care during this critical time. It is our sincerest hope that OneFifteen will not only provide hope for the Dayton community, but that is also serves as a blueprint for rest of the country.
Industry and ESG leadership
•In June 2020, our executive chairman and founder, Joel S. Marcus, had the honor of serving as the keynote speaker for a special fireside chat at the virtual BIO Health Caucus hosted by the Association of University Research Parks, an organization dedicated to guiding leaders to cultivate communities of innovation at global anchor institutions. The virtual fireside, titled “Three Decades of Building Bio Health Facilities and Companies,” covered a broad array of topics that provided a comprehensive view of our essential business, our dynamic cluster locations, and our critical role at the vanguard of the life science ecosystem fighting COVID-19.
•In June 2020, we released our 2019 Corporate Responsibility Report, which reinforces Alexandria’s longstanding environmental, social, and governance commitment, strong progress toward our 2025 environmental impact goals, and critical role at the vanguard of the life science ecosystem advancing solutions for COVID-19.
•In June 2020, we announced that Alexandria LaunchLabs® – AgTech awarded its inaugural $100,000 AgTech Innovation Prize to TerMir Inc., an early-stage agtech company aiming to address key, unresolved agricultural, environmental, and human health challenges.
(1)Represents an illustrative subset of over 80 tenants focused on COVID-19-related efforts, with some of these companies working on multiple efforts that span testing, treatment, and/or vaccine development.
(1)Source: FierceBiotech, “NIAID creates new COVID-19 drug and vaccine trial network through Trump's Warp Speed program,” July 9, 2020.
(2)Announced award value and clinical trial stage as of July 24, 2020.
Alexandria and its innovative tenants are at the vanguard of the life science ecosystem advancing solutions for COVID-19
Safe and effective vaccines and therapies, in addition to widespread testing, are desperately needed to combat the global COVID-19 pandemic. By maintaining essential business operations across our campuses, Alexandria has enabled several of our life science tenants to continue mission-critical COVID-19-related research and development. The heroic work being done by so many of our tenants and campus community members to help test for, treat, and prevent COVID-19, as well as provide medical supplies and protective equipment to neighboring hospitals, is profound and inspiring. We are currently tracking over 80 tenants across our cluster markets who are advancing solutions for COVID-19.
Developing preventative vaccines
•A prophylactic vaccine should help bring about the effective end of the global COVID-19 pandemic. As such, researchers around the world are developing over 165 vaccines against the coronavirus, with at least 27 vaccine candidates in human trials.
•In an effort to expedite the development, manufacturing, and distribution of COVID-19 vaccines, the U.S. government has allocated $10 billion to its Operation Warp Speed (OWS) initiative, calling for unprecedented public-private collaboration. OWS has awarded grants to a handful of company partners to date, including tenants AstraZeneca plc, Emergent BioSolutions Inc, Johnson & Johnson, Inc., Moderna, Inc., Novavax, Inc., and Pfizer Inc. Clinical trial data will continue to be reported by each company over the coming months, and the first COVID-19 vaccine could receive emergency use authorization from the FDA by year-end 2020 or early 2021.
•Other tenants, including GlaxoSmithKline, GreenLight Biosciences, Inc., Medicago Inc., Merck & Co., and Sanofi, are similarly leveraging their vaccine development expertise and technology platforms to bring vaccine candidates into clinical trials, with the goal of expediting the delivery of a safe and effective vaccine to the public within the next 12 months.
Advancing new and repurposed therapies
•Over 350 experimental drug treatments are being studied in over 500 clinical trials around the world in addition to more than 250 therapeutic candidates in preclinical development. A substantial number of these programs are sponsored by our tenants, including the following notable efforts:
•Eli Lilly and Company, in collaboration with AbCellera, began its Phase I study ahead of schedule to test a novel antibody targeted against the SARS-CoV-2 virus, the first COVID-19-specific antibody program of its kind to enter the clinic.
•Gilead Sciences, Inc.’s remdesivir is in late-stage studies for the treatment of moderate and severe COVID-19 patients. Based on positive safety and efficacy data, the FDA granted emergency use authorization for remdesivir in the treatment of hospitalized patients with severe COVID-19.
•Adaptive Biotechnologies Corporation and Amgen are working together to identify and develop therapeutic antibodies from the blood of patients who are actively fighting or have recently recovered from COVID-19.
•Vir Biotechnology, Inc. has announced unique partnerships with Alnylam Pharmaceuticals, Inc. and GlaxoSmithKline to utilize its neutralizing antibody platform to identify novel drug candidates that could be used as therapeutic or preventative COVID-19 treatments.
•Many other Alexandria tenants, including AbbVie Inc., Atreca Inc., Corvus Pharmaceuticals, Inc., Enanta Pharmaceuticals, Inc., Novartis AG, and Pfizer Inc., are similarly endeavoring to develop novel therapies and repurpose existing and investigational drugs to provide near-term treatments for moderate and severe COVID-19 patients and those at highest risk.
Improving testing quality and capacity
•Color Genomics, Laboratory Corporation of America Holdings, Quest Diagnostics, Roche, Thermo Fisher Scientific Inc., Verily Life Sciences, and others are working to improve testing quality, capacity, and turnaround time to more effectively determine who has an active COVID-19 infection, who has been exposed to the virus, and who has developed immunity against it. The increased availability of widespread COVID-19 testing is critical for curtailing the pandemic and facilitating a safer reopening for workplaces, communities, and society overall.
Operating summary
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Historical Same Property
Net Operating Income
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Favorable Lease Structure(1)
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Strategic Lease Structure by Owner and Operator of Collaborative Life Science, Technology, and
Agtech Campuses
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Increasing cash flows
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Percentage of leases containing annual rent escalations
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94
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%
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Stable cash flows
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Percentage of triple
net leases
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93
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%
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Lower capex burden
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Percentage of leases providing for the recapture of capital expenditures
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92
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%
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Historical Rental Rate:
Renewed/Re-Leased Space
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Margins(2)
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Operating
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Adjusted EBITDA
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72%
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69%
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(1)Percentages calculated based on RSF as of June 30, 2020.
(2)Represents percentages for the three months ended June 30, 2020.
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Long-Duration Cash Flows From High-Quality, Diverse, and
Innovative Tenants
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Investment-Grade or
Publicly Traded Large Cap Tenants
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Long-Duration Lease Terms
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51%
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7.8 Years
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of ARE’s
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Weighted-Average
|
Annual Rental Revenue(1)
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Remaining Term(2)
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Tenant Mix
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Percentage of ARE’s Annual Rental Revenue(1)
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(1)Represents annual rental revenue in effect as of June 30, 2020. Refer to the “Non-GAAP measures and definitions” section within this Item 2 for additional information.
(2)Based on aggregate annual rental revenue in effect as of June 30, 2020. Refer to definition of “Annual rental revenue” in the “Non-GAAP measures and definitions” section within this Item 2 for additional information on our methodology on annual rental revenue for unconsolidated real estate joint ventures.
(3)67% of our annual rental revenue from technology tenants is from investment-grade or publicly traded large cap tenants. The weighted-average remaining term of leases with our technology tenants is 15.5 years.
(4)Revenues from our other tenants, aggregating 5.0% of our annual rental revenue, comprise 4.3% of annual rental revenue from professional services, finance, telecommunications, and construction/real estate companies and only 0.7% from retail-related tenants.
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High-Quality Cash Flows From Class A Properties in AAA Locations
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Class A Properties in
AAA Locations
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AAA Locations
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74%
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of ARE’s
Annual Rental Revenue(1)
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Percentage of ARE’s Annual Rental Revenue(1)
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Solid Historical
Occupancy(2)
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Occupancy Across Key Locations(3)
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96%
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Over 10 Years
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|
(1)Represents annual rental revenue in effect as of June 30, 2020. Refer to the “Non-GAAP measures and definitions” section within this Item 2 for additional information.
(2)Represents average occupancy of operating properties in North America as of each December 31 for the last 10 years and as of June 30, 2020.
(3)As of June 30, 2020.
(4)Refer to the “Summary of occupancy percentages in North America” section within this Item 2 for additional information.
Leasing
The following table summarizes our leasing activity at our properties:
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Three Months Ended
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Six Months Ended
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Year Ended
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June 30, 2020
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June 30, 2020
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December 31, 2019
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Including
Straight-Line Rent
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Cash Basis
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Including
Straight-Line Rent
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Cash Basis
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Including
Straight-Line Rent
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Cash Basis
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(Dollars per RSF)
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Leasing activity:
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Renewed/re-leased space(1)
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Rental rate changes
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37.2%
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|
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15.0%
|
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41.1%
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|
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17.9%
|
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32.2%
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|
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17.6%
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New rates
|
|
$55.34
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|
$53.15
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|
$51.78
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|
|
$49.07
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|
|
$58.65
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|
|
|
$56.19
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Expiring rates
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|
$40.34
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$46.20
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$36.71
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$41.61
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$44.35
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$47.79
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RSF
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699,130
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1,251,152
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2,427,108
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Tenant improvements/leasing commissions
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|
$16.86
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$19.52
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$20.28
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Weighted-average lease term
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5.3 years
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5.4 years
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5.7 years
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Developed/redeveloped previously vacant space leased
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New rates
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$58.18
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|
$54.31
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|
|
$56.12
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$53.37
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|
|
$55.95
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|
|
|
$52.19
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RSF
|
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378,380
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(2)
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|
529,713
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2,635,614
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Tenant improvements/leasing commissions
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|
$19.79
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$17.73
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$13.74
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|
Weighted-average lease term
|
|
10.2 years
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8.9 years
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9.8 years
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Leasing activity summary (totals):
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New rates
|
|
$56.33
|
|
|
|
$53.56
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|
|
$53.07
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|
|
|
$50.35
|
|
|
$57.25
|
|
|
|
$54.11
|
|
RSF
|
|
1,077,510
|
|
(3)
|
|
|
|
1,780,865
|
|
(3)
|
|
|
|
5,062,722
|
|
|
|
|
Tenant improvements/leasing commissions
|
|
$17.89
|
|
|
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|
|
$18.99
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|
|
|
|
|
$16.88
|
|
|
|
|
Weighted-average lease term
|
|
7.0 years
|
|
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|
|
6.4 years
|
|
|
|
|
7.8 years
|
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|
|
Lease expirations(1)
|
|
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Expiring rates
|
|
$39.25
|
|
|
|
$44.04
|
|
|
$36.36
|
|
|
|
$40.67
|
|
|
$43.43
|
|
|
|
$46.59
|
|
RSF
|
|
1,081,504
|
|
|
|
|
|
1,879,355
|
|
|
|
|
|
2,822,434
|
|
|
|
|
Leasing activity includes 100% of results for each property in which we have an investment in North America.
(1)Excludes month-to-month leases aggregating 65,592 RSF and 41,809 RSF as of June 30, 2020, and December 31, 2019, respectively.
(2)As of the date of this report, our value-creation pipeline was 65% leased or negotiating.
(3)During the six months ended June 30, 2020, we granted tenant concessions/free rent averaging 1.7 months with respect to the 1,780,865 RSF leased. Approximately 66% of the leases executed during the six months ended June 30, 2020, did not include concessions for free rent.
Summary of contractual lease expirations
The following table summarizes information with respect to the contractual lease expirations at our properties as of June 30, 2020:
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Year
|
|
|
|
RSF
|
|
|
|
Percentage of
Occupied RSF
|
|
|
|
Annual Rental Revenue
(Per RSF)(1)
|
|
|
|
Percentage of Total
Annual Rental Revenue
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
2020
|
(2)
|
|
|
807,485
|
|
|
|
|
3.0
|
%
|
|
|
|
$
|
38.40
|
|
|
|
|
2.3
|
%
|
|
|
2021
|
|
|
|
1,550,450
|
|
|
|
|
5.7
|
%
|
|
|
|
$
|
42.80
|
|
|
|
|
4.8
|
%
|
|
|
2022
|
|
|
|
2,439,487
|
|
|
|
|
9.0
|
%
|
|
|
|
$
|
42.06
|
|
|
|
|
7.5
|
%
|
|
|
2023
|
|
|
|
2,815,546
|
|
|
|
|
10.4
|
%
|
|
|
|
$
|
45.65
|
|
|
|
|
9.3
|
%
|
|
|
2024
|
|
|
|
2,316,246
|
|
|
|
|
8.6
|
%
|
|
|
|
$
|
45.58
|
|
|
|
|
7.7
|
%
|
|
|
2025
|
|
|
|
1,979,757
|
|
|
|
|
7.3
|
%
|
|
|
|
$
|
48.43
|
|
|
|
|
7.0
|
%
|
|
|
2026
|
|
|
|
1,680,093
|
|
|
|
|
6.2
|
%
|
|
|
|
$
|
48.20
|
|
|
|
|
5.9
|
%
|
|
|
2027
|
|
|
|
2,481,628
|
|
|
|
|
9.2
|
%
|
|
|
|
$
|
50.78
|
|
|
|
|
9.2
|
%
|
|
|
2028
|
|
|
|
1,842,786
|
|
|
|
|
6.8
|
%
|
|
|
|
$
|
59.34
|
|
|
|
|
8.0
|
%
|
|
|
2029
|
|
|
|
1,474,769
|
|
|
|
|
5.4
|
%
|
|
|
|
$
|
57.38
|
|
|
|
|
6.2
|
%
|
|
Thereafter
|
|
|
|
|
7,698,120
|
|
|
|
|
28.4
|
%
|
|
|
|
$
|
57.69
|
|
|
|
|
32.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Represents amounts in effect as of June 30, 2020.
(2)Excludes month-to-month leases aggregating 65,592 RSF as of June 30, 2020.
The following tables present information by market with respect to our lease expirations in North America as of June 30, 2020, for the remainder of 2020, and all of 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Contractual Lease Expirations (in RSF)
|
|
|
|
|
|
|
|
|
|
Annual Rental Revenue
(Per RSF)(3)
|
Market
|
|
Leased
|
|
Negotiating/
Anticipating
|
|
Targeted for
Development/
Redevelopment
|
|
Remaining
Expiring Leases(1)
|
|
Total(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater Boston
|
|
79,736
|
|
|
38,834
|
|
|
75,754
|
|
(4)
|
69,051
|
|
|
263,375
|
|
|
$
|
44.68
|
|
San Francisco
|
|
15,128
|
|
|
—
|
|
|
—
|
|
|
106,540
|
|
|
121,668
|
|
|
45.86
|
|
New York City
|
|
3,407
|
|
|
—
|
|
|
—
|
|
|
21,581
|
|
|
24,988
|
|
|
59.81
|
|
San Diego
|
|
36,038
|
|
|
71,961
|
|
(5)
|
—
|
|
|
126,643
|
|
|
234,642
|
|
|
33.69
|
|
Seattle
|
|
15,835
|
|
|
—
|
|
|
—
|
|
|
8,397
|
|
|
24,232
|
|
|
54.24
|
|
Maryland
|
|
10,820
|
|
|
—
|
|
|
—
|
|
|
12,477
|
|
|
23,297
|
|
|
32.29
|
|
Research Triangle
|
|
34,226
|
|
|
1,592
|
|
|
—
|
|
|
41,778
|
|
|
77,596
|
|
|
15.95
|
|
Canada
|
|
—
|
|
|
2,587
|
|
|
—
|
|
|
20,953
|
|
|
23,540
|
|
|
11.23
|
|
Non-cluster markets
|
|
6,285
|
|
|
—
|
|
|
—
|
|
|
7,862
|
|
|
14,147
|
|
|
46.59
|
|
Total
|
|
201,475
|
|
|
114,974
|
|
|
75,754
|
|
|
415,282
|
|
|
807,485
|
|
|
$
|
38.40
|
|
Percentage of expiring leases
|
|
25
|
%
|
|
14
|
%
|
|
9
|
%
|
|
52
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 Contractual Lease Expirations (in RSF)
|
|
|
|
|
|
|
|
|
|
Annual Rental Revenue
(per RSF)(3)
|
Market
|
|
Leased
|
|
Negotiating/
Anticipating
|
|
Targeted for
Development/
Redevelopment
|
|
Remaining
Expiring Leases(6)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater Boston
|
|
—
|
|
|
11,897
|
|
|
79,101
|
|
(4)
|
241,230
|
|
|
332,228
|
|
|
$
|
43.69
|
|
San Francisco
|
|
35,798
|
|
|
2,843
|
|
|
26,738
|
|
(7)
|
403,952
|
|
|
469,331
|
|
|
52.39
|
|
New York City
|
|
13,101
|
|
|
—
|
|
|
—
|
|
|
2,315
|
|
|
15,416
|
|
|
116.82
|
|
San Diego
|
|
89,780
|
|
|
44,681
|
|
|
41,475
|
|
(8)
|
198,447
|
|
|
374,383
|
|
|
36.18
|
|
Seattle
|
|
15,704
|
|
|
—
|
|
|
—
|
|
|
54,514
|
|
|
70,218
|
|
|
51.17
|
|
Maryland
|
|
—
|
|
|
14,323
|
|
|
—
|
|
|
107,770
|
|
|
122,093
|
|
|
24.58
|
|
Research Triangle
|
|
16,942
|
|
|
22,634
|
|
|
—
|
|
|
91,517
|
|
|
131,093
|
|
|
28.45
|
|
Canada
|
|
—
|
|
|
4,722
|
|
|
—
|
|
|
13,672
|
|
|
18,394
|
|
|
23.40
|
|
Non-cluster markets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,294
|
|
|
17,294
|
|
|
67.08
|
|
Total
|
|
171,325
|
|
|
101,100
|
|
|
147,314
|
|
|
1,130,711
|
|
|
1,550,450
|
|
|
$
|
42.80
|
|
Percentage of expiring leases
|
|
11
|
%
|
|
7
|
%
|
|
10
|
%
|
|
72
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The largest remaining contractual lease expiration in 2020 is 93,521 RSF related to a recently acquired property in our South San Francisco submarket.
(2)Excludes month-to-month leases aggregating 65,592 RSF as of June 30, 2020.
(3)Represents amounts in effect as of June 30, 2020.
(4)Represents office space aggregating 154,855 RSF at The Arsenal on the Charles, a campus acquired on December 17, 2019, in our Cambridge/Inner Suburbs submarket, that is targeted for redevelopment into office/laboratory space upon expiration of the respective existing leases.
(5)Includes 71,961 RSF at 9363 and 9393 Towne Centre Drive in our University Town Center submarket, a future development site.
(6)The largest remaining contractual lease expiration in 2021 is 89,576 RSF at a Class A office/laboratory building in our University Town Center submarket.
(7)Represents two retail leases aggregating 26,738 RSF at our recently acquired properties at 987 and 1075 Commercial Street. Upon expiration of these leases, we expect to demolish the existing building to allow for the future development of 700,000 RSF of an office/laboratory building on the site.
(8)Represents 41,475 RSF at the recently acquired property at 4555 Executive Drive in our University Town Center submarket. Upon expiration of the existing lease during the third quarter of 2021, we expect to demolish the existing building to allow for the future development of a new office/laboratory building on the site.
Top 20 tenants
81% of Top 20 Annual Rental Revenue From Investment-Grade
or Publicly Traded Large Cap Tenants(1)
Our properties are leased to a high-quality and diverse group of tenants, with no individual tenant accounting for more than 3.9% of our annual rental revenue in effect as of June 30, 2020. The following table sets forth information regarding leases with our 20 largest tenants in North America based upon annual rental revenue in effect as of June 30, 2020 (dollars in thousands, except average market cap amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Lease Term(1)
(in Years)
|
|
|
|
|
Aggregate
RSF
|
|
|
Annual
Rental
Revenue(1)
|
|
|
|
Percentage of Aggregate Annual Rental Revenue (1)
|
|
|
Investment-Grade Credit Ratings
|
|
|
|
Average Market Cap(1)
(in billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moody’s
|
|
S&P
|
|
|
|
1
|
|
|
Bristol-Myers Squibb Company
|
|
|
8.2
|
|
|
|
|
900,050
|
|
|
|
$
|
52,243
|
|
|
|
3.9
|
%
|
|
|
A2
|
|
A+
|
|
$
|
116.5
|
|
|
2
|
|
|
Takeda Pharmaceutical Company Ltd.
|
|
|
9.1
|
|
|
|
|
606,249
|
|
|
|
|
39,342
|
|
|
|
2.9
|
|
|
|
Baa2
|
|
BBB+
|
|
$
|
57.2
|
|
|
3
|
|
|
Facebook, Inc.
|
|
|
11.5
|
|
|
|
|
903,786
|
|
|
|
|
38,951
|
|
|
|
2.9
|
|
|
|
—
|
|
—
|
|
$
|
562.6
|
|
|
4
|
|
|
Illumina, Inc.
|
|
|
10.1
|
|
|
|
|
891,495
|
|
|
|
|
35,907
|
|
|
|
2.7
|
|
|
|
—
|
|
BBB
|
|
$
|
45.4
|
|
|
5
|
|
|
Sanofi
|
|
|
8.0
|
|
|
|
|
494,693
|
|
|
|
|
33,845
|
|
|
|
2.5
|
|
|
|
A1
|
|
AA
|
|
$
|
116.9
|
|
|
6
|
|
|
Eli Lilly and Company
|
|
|
9.0
|
|
|
|
|
531,784
|
|
|
|
|
33,527
|
|
|
|
2.5
|
|
|
|
A2
|
|
A+
|
|
$
|
124.4
|
|
|
7
|
|
|
Novartis AG
|
|
|
7.8
|
|
|
|
|
441,894
|
|
|
|
|
31,216
|
|
|
|
2.3
|
|
|
|
A1
|
|
AA-
|
|
$
|
223.9
|
|
|
8
|
|
|
Roche
|
|
|
2.7
|
|
(2)
|
|
|
649,482
|
|
|
|
|
28,298
|
|
|
|
2.1
|
|
|
|
Aa3
|
|
AA
|
|
$
|
270.2
|
|
|
9
|
|
|
Uber Technologies, Inc.
|
|
|
62.4
|
|
(3)
|
|
|
1,009,188
|
|
|
|
|
27,379
|
|
|
|
2.0
|
|
|
|
—
|
|
—
|
|
$
|
56.3
|
|
|
10
|
|
|
bluebird bio, Inc.
|
|
|
6.9
|
|
|
|
|
312,805
|
|
|
|
|
23,169
|
|
|
|
1.7
|
|
|
|
—
|
|
—
|
|
$
|
4.7
|
|
|
11
|
|
|
Maxar Technologies(4)
|
|
|
5.0
|
|
|
|
|
478,000
|
|
|
|
|
21,577
|
|
|
|
1.6
|
|
|
|
—
|
|
—
|
|
$
|
0.7
|
|
|
12
|
|
|
Massachusetts Institute of Technology
|
|
|
8.5
|
|
|
|
|
257,626
|
|
|
|
|
21,145
|
|
|
|
1.6
|
|
|
|
Aaa
|
|
AAA
|
|
$
|
—
|
|
|
13
|
|
|
Moderna, Inc.
|
|
|
10.6
|
|
|
|
|
354,396
|
|
|
|
|
21,054
|
|
|
|
1.6
|
|
|
|
—
|
|
—
|
|
$
|
9.9
|
|
|
14
|
|
|
Merck & Co., Inc.
|
|
|
13.1
|
|
|
|
|
321,063
|
|
|
|
|
20,075
|
|
|
|
1.5
|
|
|
|
A1
|
|
AA-
|
|
$
|
211.3
|
|
|
15
|
|
|
New York University
|
|
|
11.3
|
|
|
|
|
201,284
|
|
|
|
|
19,126
|
|
|
|
1.4
|
|
|
|
Aa2
|
|
AA-
|
|
$
|
—
|
|
|
16
|
|
|
Pfizer Inc.
|
|
|
4.7
|
|
|
|
|
416,979
|
|
|
|
|
17,762
|
|
|
|
1.3
|
|
|
|
A1
|
|
AA-
|
|
$
|
204.9
|
|
|
17
|
|
|
Stripe, Inc.
|
|
|
7.3
|
|
|
|
|
295,333
|
|
|
|
|
17,736
|
|
|
|
1.3
|
|
|
|
—
|
|
—
|
|
$
|
—
|
|
|
18
|
|
|
athenahealth, Inc.(4)
|
|
|
12.0
|
|
|
|
|
409,710
|
|
|
|
|
17,686
|
|
|
|
1.3
|
|
|
|
—
|
|
—
|
|
$
|
—
|
|
|
19
|
|
|
Amgen Inc.
|
|
|
3.8
|
|
|
|
|
407,369
|
|
|
|
|
16,838
|
|
|
|
1.3
|
|
|
|
Baa1
|
|
A-
|
|
$
|
127.8
|
|
|
20
|
|
|
United States Government
|
|
|
7.4
|
|
|
|
|
287,638
|
|
|
|
|
16,521
|
|
|
|
1.2
|
|
|
|
Aaa
|
|
AA+
|
|
$
|
—
|
|
|
|
|
Total/weighted-average
|
|
|
11.2
|
|
(3)
|
|
|
10,170,824
|
|
|
|
$
|
533,397
|
|
|
|
39.6
|
%
|
|
|
|
|
|
|
|
|
Annual rental revenue and RSF include 100% of each property managed by us in North America.
(1)Based on aggregate annual rental revenue in effect as of June 30, 2020. Refer to the definitions of “Annual rental revenue” and “Investment-grade or publicly traded large cap tenants” in the “Non-GAAP measures and definitions” section within this Item 2 for our methodologies on annual rental revenue from unconsolidated real estate joint ventures and average daily market capitalization.
(2)Includes 197,787 RSF expiring in 2022 at our recently acquired property at 651 Gateway Boulevard in our South San Francisco submarket. Upon expiration of the lease, 651 Gateway Boulevard will be redeveloped into a Class A office/laboratory building.
(3)Includes (i) ground leases for land at 1455 and 1515 Third Street (two buildings aggregating 422,980 RSF), and (ii) leases at 1655 and 1725 Third Street (two buildings aggregating 586,208 RSF) owned by our unconsolidated joint venture in which we have an ownership interest of 10%. Annual rental revenue is presented using 100% of the annual rental revenue of our consolidated properties and our share of annual rental revenue for our unconsolidated real estate joint ventures. Refer to footnote 1 for additional details. Excluding the ground lease, the weighted-average remaining lease term for our top 20 tenants was 8.5 years as of June 30, 2020.
(4)Located at properties acquired during the three months ended December 31, 2019.
Locations of properties
The locations of our properties are diversified among a number of life science, technology, and agtech cluster markets. The following table sets forth the total RSF, number of properties, and annual rental revenue in effect as of June 30, 2020, in each of our markets in North America (dollars in thousands, except per RSF amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSF
|
|
|
|
|
|
|
|
|
|
Number of Properties
|
|
Annual Rental Revenue
|
|
|
|
|
Market
|
|
Operating
|
|
Development
|
|
Redevelopment
|
|
Total
|
|
% of Total
|
|
|
|
Total
|
|
% of Total
|
|
Per RSF
|
Greater Boston
|
|
7,591,334
|
|
|
—
|
|
|
205,690
|
|
|
7,797,024
|
|
|
25
|
%
|
|
66
|
|
|
$
|
475,672
|
|
|
35
|
%
|
|
$
|
63.82
|
|
San Francisco
|
|
7,732,722
|
|
|
841,178
|
|
|
347,912
|
|
|
8,921,812
|
|
|
29
|
|
|
62
|
|
|
370,512
|
|
|
28
|
|
|
57.88
|
|
New York City
|
|
1,127,580
|
|
|
—
|
|
|
140,098
|
|
|
1,267,678
|
|
|
4
|
|
|
5
|
|
|
77,766
|
|
|
6
|
|
|
71.91
|
|
San Diego
|
|
5,990,151
|
|
|
199,621
|
|
|
63,774
|
|
|
6,253,546
|
|
|
20
|
|
|
77
|
|
|
216,032
|
|
|
16
|
|
|
39.31
|
|
Seattle
|
|
1,538,465
|
|
|
100,086
|
|
|
—
|
|
|
1,638,551
|
|
|
5
|
|
|
17
|
|
|
77,640
|
|
|
6
|
|
|
53.07
|
|
Maryland
|
|
2,799,682
|
|
|
261,096
|
|
|
20,998
|
|
|
3,081,776
|
|
|
10
|
|
|
43
|
|
|
76,413
|
|
|
6
|
|
|
29.35
|
|
Research Triangle
|
|
1,224,904
|
|
|
160,000
|
|
|
—
|
|
|
1,384,904
|
|
|
4
|
|
|
17
|
|
|
33,186
|
|
|
2
|
|
|
28.00
|
|
Canada
|
|
256,967
|
|
|
—
|
|
|
—
|
|
|
256,967
|
|
|
1
|
|
|
3
|
|
|
5,717
|
|
|
—
|
|
|
24.72
|
|
Non-cluster markets
|
|
354,879
|
|
|
—
|
|
|
—
|
|
|
354,879
|
|
|
1
|
|
|
11
|
|
|
9,508
|
|
|
1
|
|
|
37.83
|
|
Properties held for sale
|
|
184,621
|
|
|
—
|
|
|
—
|
|
|
184,621
|
|
|
1
|
|
|
3
|
|
|
942
|
|
|
—
|
|
|
N/A
|
North America
|
|
28,801,305
|
|
|
1,561,981
|
|
|
778,472
|
|
|
31,141,758
|
|
|
100
|
%
|
|
304
|
|
|
$
|
1,343,388
|
|
|
100
|
%
|
|
$
|
51.30
|
|
|
|
|
|
2,340,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of occupancy percentages in North America
The following table sets forth the occupancy percentages for our operating properties and our operating and redevelopment properties in each of our North America markets, excluding properties held for sale, as of the following dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Properties
|
|
|
|
|
|
Operating and Redevelopment Properties
|
|
|
|
|
Market
|
|
6/30/20
|
|
3/31/20
|
|
6/30/19
|
|
6/30/20
|
|
3/31/20
|
|
6/30/19
|
Greater Boston
|
|
98.2
|
%
|
|
98.9
|
%
|
|
98.7
|
%
|
|
95.6
|
%
|
|
97.0
|
%
|
|
98.4
|
%
|
San Francisco
|
|
94.7
|
|
(1)
|
94.7
|
|
|
98.7
|
|
|
90.6
|
|
|
90.6
|
|
|
98.7
|
|
New York City
|
|
97.1
|
|
(2)
|
99.2
|
|
|
98.8
|
|
|
86.2
|
|
|
88.1
|
|
|
87.8
|
|
San Diego
|
|
91.8
|
|
(1)
|
90.9
|
|
|
95.2
|
|
|
90.8
|
|
|
90.9
|
|
|
95.2
|
|
Seattle
|
|
95.1
|
|
(3)
|
97.8
|
|
|
97.3
|
|
|
95.1
|
|
|
97.8
|
|
|
97.3
|
|
Maryland
|
|
93.9
|
|
|
95.9
|
|
|
96.7
|
|
|
93.2
|
|
|
94.6
|
|
|
95.1
|
|
Research Triangle
|
|
96.8
|
|
|
96.5
|
|
|
97.9
|
|
|
96.8
|
|
|
96.5
|
|
|
94.2
|
|
Subtotal
|
|
95.1
|
|
|
95.6
|
|
|
97.6
|
|
|
92.6
|
|
|
93.3
|
|
|
96.6
|
|
Canada
|
|
90.0
|
|
|
93.6
|
|
|
93.7
|
|
|
90.0
|
|
|
93.6
|
|
|
93.7
|
|
Non-cluster markets
|
|
70.8
|
|
|
65.2
|
|
|
84.9
|
|
|
70.8
|
|
|
65.2
|
|
|
84.9
|
|
North America
|
|
94.8
|
%
|
(1)
|
95.1
|
%
|
|
97.4
|
%
|
|
92.3
|
%
|
|
92.9
|
%
|
|
96.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Includes 647,771 RSF, or 2.3%, of vacancy in our North America markets (noted below), representing lease-up opportunities at properties recently acquired. Excluding these vacancies, occupancy of operating properties in North America was 97.1% as of June 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacant
|
|
Occupancy Impact
|
|
|
|
|
|
|
|
|
Property
|
|
Submarket/Market
|
|
RSF
|
|
Region
|
|
Consolidated
|
|
|
|
|
|
|
601, 611, and 651 Gateway Boulevard
|
|
South San Francisco/San Francisco
|
|
201,570
|
|
|
2.6
|
%
|
|
0.7
|
%
|
|
|
|
|
|
|
SD Tech by Alexandria
|
|
Sorrento Mesa/San Diego
|
|
182,484
|
|
|
3.0
|
%
|
|
0.6
|
|
|
|
|
|
|
|
5505 Morehouse Drive
|
|
Sorrento Mesa/San Diego
|
|
71,016
|
|
|
1.2
|
%
|
|
0.3
|
|
|
|
|
|
|
|
Other acquisitions
|
|
Various
|
|
192,701
|
|
|
N/A
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
647,771
|
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
(2)The decrease in occupancy for the New York City market from March 31, 2020, was primarily related to one lease for 19,647 RSF that ended during the three months ended June 30, 2020. This space has been 100% re-leased to a new tenant with expected delivery by the end of 2020.
(3)The decrease in occupancy for the Seattle market from March 31, 2020, was related to recently acquired properties containing 31,518 RSF of vacant space.
Refer to the “Non-GAAP measures and definitions” section within this Item 2 for additional information.
Investments in real estate
A key component of our business model is our disciplined allocation of capital to the development and redevelopment of new Class A properties located in collaborative life science, technology, and agtech campuses in AAA urban innovation clusters. These projects are focused on providing high-quality, generic, and reusable spaces that meet the real estate requirements of, and are reusable by, a wide range of tenants. Upon completion, each value-creation project is expected to generate a significant increase in rental income, net operating income, and cash flows. Our development and redevelopment projects are generally in locations that are highly desirable to high-quality entities, which we believe results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value. Our pre-construction activities are undertaken in order to get the property ready for its intended use and include entitlements, permitting, design, site work, and other activities preceding commencement of construction of aboveground building improvements.
Our initial 2020 guidance issued on December 3, 2019, for our 2020 construction spending guidance included a range from $1.55 billion to $1.65 billion and reflected a strong outlook for 2020 and continued strong demand for our value-creation development and redevelopment projects. Beginning in March 2020 and into early April 2020, due to the moratoriums on construction in some cities and states where our ground-up development projects are located, construction in some of our projects had to pause. In addition, due to the initial dislocation of capital and other markets caused by COVID-19 in March and early April, we reduced the midpoint of our 2020 forecasted construction spending from $1.6 billion to $960.0 million to focus primarily on projects that were partially or fully pre-leased on our guidance issued on April 27, 2020. These reductions were deemed necessary while we monitored the impact of COVID-19 on many areas of our business, including the overall macro and capital market environments. By early May 2020, however, the moratoriums on construction were lifted or some of our ground-up development projects had received essential healthcare operations designation that allowed construction to resume. Since April 27, 2020, we have increased the midpoint of our 2020 construction spending guidance midpoint from $960.0 million to $1.35 billion to address the continuing tenant demand for our development and redevelopment pipeline. The increase is primarily related to:
•Near-term development project at SD Tech by Alexandria, aggregating 176,428 RSF, is 59% pre-leased;
•Active redevelopment project at 9877 Waples Street, a recently acquired property aggregating 63,774 RSF, is 100% pre-leased; and
•Development and redevelopment projects under construction that were 61% pre-leased as of June 30, 2020.
As of the date of this report, construction activities were in process at all of our active construction projects with no further delays due to the temporary mandates issued by state or local ordinances arising from the COVID-19 pandemic. Construction workers continue to observe social distancing and follow rules that restrict gatherings of large groups of people in close proximity, as well as adhere to other appropriate measures that may slow the pace of construction.
Our investments in real estate consisted of the following as of June 30, 2020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development and Redevelopment
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Under Construction
|
|
Near
Term
|
|
Intermediate
Term
|
|
Future
|
|
Subtotal
|
|
Total
|
Investments in real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value as of June 30, 2020(1)
|
|
$
|
16,283,753
|
|
|
$
|
1,290,966
|
|
|
$
|
539,568
|
|
|
$
|
722,317
|
|
|
$
|
382,015
|
|
|
$
|
2,934,866
|
|
|
$
|
19,218,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square footage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
28,801,305
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,801,305
|
|
New Class A development and redevelopment properties
|
|
—
|
|
|
2,340,453
|
|
|
2,144,353
|
|
|
5,435,186
|
|
|
6,124,302
|
|
|
16,044,294
|
|
|
16,044,294
|
|
Value-creation square feet currently included in rental properties(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(975,060)
|
|
|
(846,550)
|
|
|
(1,821,610)
|
|
|
(1,821,610)
|
|
Total square footage
|
|
28,801,305
|
|
|
2,340,453
|
|
|
2,144,353
|
|
|
4,460,126
|
|
|
5,277,752
|
|
|
14,222,684
|
|
|
43,023,989
|
|
(1)Balances exclude our share of the cost basis associated with our unconsolidated properties, which is classified as investments in unconsolidated real estate joint ventures in our consolidated balance sheets.
(2)Refer to the definition of “Investments in real estate – value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section within this Item 2 for additional details on value-creation square feet currently included in rental properties.
Our real estate asset acquisitions during the six months ended June 30, 2020, consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Submarket/Market
|
|
Date of Purchase
|
|
Number of Properties
|
|
Operating
Occupancy
|
|
|
Square Footage
|
|
|
|
|
|
|
|
|
Unlevered Yields
|
|
|
|
|
|
Purchase Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Development
|
|
Active Redevelopment
|
|
Operating With Future Development/ Redevelopment
|
|
|
Operating
|
|
Initial Stabilized
|
|
|
Initial Stabilized (Cash)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275 Grove Street
|
|
Route 128/
Greater Boston
|
|
1/10/20
|
|
1
|
|
99%
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
509,702
|
|
|
8.0%
|
|
|
6.7%
|
|
|
$
|
226,512
|
|
|
601, 611, and 651 Gateway Boulevard (51% interest in consolidated JV)
|
|
South San Francisco/
San Francisco
|
|
1/28/20
|
|
3
|
|
73%
|
(1)
|
|
260,000
|
|
|
—
|
|
|
300,010
|
|
|
|
475,993
|
|
|
(2)
|
|
|
(2)
|
|
|
|
(2)
|
|
3330 and 3412 Hillview Avenue
|
|
Greater Stanford/
San Francisco
|
|
2/5/20
|
|
2
|
|
100%
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
106,316
|
|
|
7.6%
|
|
|
4.2%
|
|
|
|
105,000
|
|
|
987 and 1075 Commercial Street
|
|
Greater Stanford/
San Francisco
|
|
4/14/20
|
|
2
|
|
N/A
|
|
|
700,000
|
|
(3)
|
—
|
|
|
26,738
|
|
|
|
—
|
|
|
(4)
|
|
|
(4)
|
|
|
|
113,250
|
|
|
9808 and 9868 Scranton Road(5)
|
|
Sorrento Mesa/
San Diego
|
|
1/10/20
|
|
2
|
|
88%
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
219,628
|
|
|
7.3%
|
|
|
6.8%
|
|
|
|
102,250
|
|
|
4555 Executive Drive
|
|
University Town Center/San Diego
|
|
6/2/20
|
|
1
|
|
100%
|
|
|
200,000
|
|
(3)
|
—
|
|
|
41,475
|
|
|
|
—
|
|
|
(4)
|
|
|
(4)
|
|
|
|
43,000
|
|
|
Other
|
|
Various
|
|
|
|
4
|
|
51%
|
|
|
579,825
|
|
|
63,774
|
|
|
71,021
|
|
|
|
180,960
|
|
|
N/A
|
|
|
N/A
|
|
|
|
109,817
|
|
|
|
|
|
|
|
|
15
|
|
80%
|
|
|
1,739,825
|
|
|
63,774
|
|
|
439,244
|
|
|
|
1,492,599
|
|
|
|
|
|
|
|
|
$
|
699,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Includes 201,570 RSF of vacancy as of June 30, 2020. Refer to the “Summary of occupancy percentages in North America” section earlier within this Item 2 for additional details.
(2)Refer to the Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our unaudited consolidated financial statements under Item 1 of this report for additional details on this transaction.
(3)Represents total square footage upon completion of development or redevelopment of a new Class A property. Square footage presented includes RSF of buildings currently in operation. We intend to demolish the existing property upon expiration of the existing in-place leases and commencement of future construction. Refer to the definition of “Investments in real estate – value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section within this Item 2 for additional information.
(4)We expect to provide total estimated costs and related yields for development and redevelopment projects in the future, subsequent to the commencement of construction.
(5)In April 2020, we completed the sale of a partial interest in properties at 9808 and 9868 Scranton Road to the existing SD Tech by Alexandria consolidated real estate joint venture, of which we own 50%. We received proceeds of $51.1 million for the 50% interest in the properties that our joint venture partner acquired through the joint venture. We continue to control and consolidate this joint venture; therefore, we accounted for the sale as an equity transaction with no gain or loss recognized in earnings.
Sustainability
(1)Relative to a 2015 baseline for buildings in operation that Alexandria directly manages.
(2)Relative to a 2015 baseline for buildings in operation that Alexandria indirectly and directly manages.
(3)Reflects sum of annual like-for-like progress from 2015 to 2019.
(4)Reflects progress for all buildings in operation in 2019 that Alexandria indirectly and directly manages.
(1)Projects targeting Fitwel or WELL certification.
New Class A development and redevelopment properties: current projects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Arsenal on the Charles
|
|
945 Market Street
|
|
201 Haskins Way
|
Greater Boston/
Cambridge/Inner Suburbs
|
|
San Francisco/Mission Bay/SoMa
|
|
San Francisco/South San Francisco
|
205,690 RSF
|
|
255,765 RSF
|
|
315,000 RSF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexandria District for
Science and Technology
|
|
3160 Porter Drive
|
|
Alexandria Center® –
Long Island City
|
San Francisco/Greater Stanford
|
|
San Francisco/Greater Stanford
|
|
New York City/New York City
|
526,178 RSF
|
|
92,147 RSF
|
|
140,098 RSF
|
|
|
|
|
|
New Class A development and redevelopment properties: current projects (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9880 Campus Point Drive and
4150 Campus Point Court
|
|
9877 Waples Street
|
|
1165 Eastlake Avenue East
|
San Diego/University Town Center
|
|
San Diego/Sorrento Mesa
|
|
Seattle/Lake Union
|
199,621 RSF
|
|
63,774 RSF
|
|
100,086 RSF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9804 Medical Center Drive
|
|
9950 Medical Center Drive
|
|
Alexandria Center® for AgTech
|
Maryland/Rockville
|
|
Maryland/Rockville
|
|
Research Triangle/Research Triangle
|
176,832 RSF
|
|
84,264 RSF
|
|
160,000 RSF
|
|
|
|
|
|
New Class A development and redevelopment properties: current projects (continued)
The following tables set forth a summary of our new Class A development and redevelopment properties under construction as of June 30, 2020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property/Market/Submarket
|
|
|
|
Square Footage
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
Dev/Redev
|
|
In Service
|
|
CIP
|
|
Total
|
|
Leased
|
|
|
Leased/Negotiating
|
|
|
Initial
Occupancy(1)
|
|
|
|
Developments and redevelopments under construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Arsenal on the Charles/Greater Boston/Cambridge/Inner Suburbs
|
|
Redev
|
|
630,598
|
|
(2)
|
205,690
|
|
|
836,288
|
|
|
75
|
%
|
|
|
89
|
%
|
|
|
|
2021
|
|
|
945 Market Street/San Francisco/Mission Bay/SoMa
|
|
Redev
|
|
—
|
|
|
255,765
|
|
|
255,765
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2020
|
(3)
|
|
201 Haskins Way/San Francisco/South San Francisco
|
|
Dev
|
|
—
|
|
|
315,000
|
|
|
315,000
|
|
|
33
|
|
|
|
33
|
|
|
|
4Q20-1Q21
|
|
|
|
Alexandria District for Science and Technology/San Francisco/Greater Stanford
|
|
Dev
|
|
—
|
|
|
526,178
|
|
|
526,178
|
|
|
59
|
|
|
|
59
|
|
|
|
4Q20-1Q21
|
|
|
|
3160 Porter Drive/San Francisco/Greater Stanford
|
|
Redev
|
|
—
|
|
|
92,147
|
|
|
92,147
|
|
|
20
|
|
|
|
20
|
|
|
|
|
1H21
|
|
|
Alexandria Center® – Long Island City/New York City/New York City
|
|
Redev
|
|
36,661
|
|
|
140,098
|
|
|
176,759
|
|
|
21
|
|
|
|
28
|
|
|
|
4Q20-1Q21
|
|
|
|
9880 Campus Point Drive and 4150 Campus Point Court/San Diego/
University Town Center(4)
|
|
Dev
|
|
69,481
|
|
|
199,621
|
|
|
269,102
|
|
|
89
|
|
|
|
91
|
|
|
|
|
4Q19
|
|
|
9877 Waples Street/Sorrento Mesa/San Diego
|
|
Redev
|
|
—
|
|
|
63,774
|
|
|
63,774
|
|
|
100
|
|
|
|
100
|
|
|
|
|
2021
|
|
|
1165 Eastlake Avenue East/Seattle/Lake Union
|
|
Dev
|
|
—
|
|
|
100,086
|
|
|
100,086
|
|
|
100
|
|
|
|
100
|
|
|
|
4Q20-1Q21
|
|
|
|
9804 Medical Center Drive/Maryland/Rockville
|
|
Dev
|
|
—
|
|
|
176,832
|
|
|
176,832
|
|
|
100
|
|
|
|
100
|
|
|
|
|
2H20
|
|
|
9950 Medical Center Drive/Maryland/Rockville
|
|
Dev
|
|
—
|
|
|
84,264
|
|
|
84,264
|
|
|
100
|
|
|
|
100
|
|
|
|
|
2H20
|
|
|
704 Quince Orchard Road/Maryland/Gaithersburg(5)
|
|
Redev
|
|
59,034
|
|
|
20,998
|
|
|
80,032
|
|
|
90
|
|
|
|
90
|
|
|
|
|
4Q18
|
|
|
Alexandria Center® for AgTech/Research Triangle/Research Triangle(6)
|
|
Dev
|
|
180,400
|
|
|
160,000
|
|
|
340,400
|
|
|
50
|
|
|
|
50
|
|
|
|
|
2021
|
|
|
Total
|
|
|
|
976,174
|
|
|
2,340,453
|
|
|
3,316,627
|
|
|
61
|
%
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Initial occupancy dates are subject to leasing and/or market conditions. Construction disruptions resulting from COVID-19 and observance of social distancing measures may further impact construction and occupancy forecasts and will continue to be monitored closely. Multi-tenant projects may have occupancy by tenants over a period of time. Stabilized occupancy may vary depending on single tenancy versus multi-tenancy.
(2)We expect to redevelop an additional 154,855 RSF of an office space (acquired lease with space in operating RSF) into office/laboratory space upon expiration of the existing leases in the third quarter of 2020 and the first quarter of 2021.
(3)Various options are under evaluation for this property, including ongoing discussion with a company interested in this property. We expect to update the initial occupancy date later this year.
(4)Refer to footnote 2 on the next page.
(5)704 Quince Orchard Road is an unconsolidated real estate joint venture. RSF represents 100%.
(6)The new strategic collaborative agtech campus consists of Phase I at 5 Laboratory Drive, including campus amenities, and Phase II at 9 Laboratory Drive.
New Class A development and redevelopment properties: current projects (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Ownership Interest
|
|
|
|
|
|
|
|
|
|
|
|
Unlevered Yields
|
|
|
|
|
|
|
Property/Market/Submarket
|
|
|
|
|
In Service
|
|
CIP
|
|
Cost to Complete
|
|
Total at
Completion
|
|
|
Initial Stabilized
|
|
|
|
Initial Stabilized (Cash Basis)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developments and redevelopments under construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Arsenal on the Charles/Greater Boston/Cambridge/Inner Suburbs
|
|
100
|
%
|
|
|
$
|
428,539
|
|
|
$
|
109,107
|
|
|
TBD
|
|
|
|
|
|
|
|
|
|
|
|
945 Market Street/San Francisco/Mission Bay/SoMa
|
|
99.5
|
%
|
|
|
—
|
|
|
197,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201 Haskins Way/San Francisco/South San Francisco
|
|
100
|
%
|
|
|
—
|
|
|
211,100
|
|
|
$
|
102,900
|
|
|
$
|
314,000
|
|
|
|
|
6.6
|
%
|
|
|
|
6.5
|
%
|
|
Alexandria District for Science and Technology/San Francisco/Greater Stanford
|
|
100
|
%
|
|
|
—
|
|
|
368,998
|
|
|
$
|
220,002
|
|
|
$
|
589,000
|
|
|
|
|
6.4
|
%
|
|
|
|
6.1
|
%
|
|
3160 Porter Drive/San Francisco/Greater Stanford
|
|
100
|
%
|
|
|
—
|
|
|
39,264
|
|
|
TBD
|
|
|
|
|
|
|
|
|
|
|
|
Alexandria Center® – Long Island City/New York City/New York City
|
|
100
|
%
|
|
|
16,549
|
|
|
98,263
|
|
|
$
|
69,488
|
|
|
$
|
184,300
|
|
|
|
|
5.5
|
%
|
|
|
|
5.6
|
%
|
|
9880 Campus Point Drive and 4150 Campus Point Court/San Diego/
University Town Center(1)
|
|
(1)
|
|
|
78,429
|
|
|
58,269
|
|
|
$
|
118,302
|
|
|
$
|
255,000
|
|
|
|
|
6.3
|
%
|
(2)
|
|
|
6.4
|
%
|
(2)
|
9877 Waples Street/Sorrento Mesa/San Diego
|
|
100
|
%
|
|
|
—
|
|
|
17,064
|
|
|
$
|
12,136
|
|
|
$
|
29,200
|
|
|
|
|
8.6
|
%
|
|
|
|
7.9
|
%
|
|
1165 Eastlake Avenue East/Seattle/Lake Union
|
|
100
|
%
|
|
|
—
|
|
|
75,486
|
|
|
$
|
62,514
|
|
|
$
|
138,000
|
|
|
|
|
6.5
|
%
|
(3)
|
|
|
6.3
|
%
|
(3)
|
9804 Medical Center Drive/Maryland/Rockville
|
|
100
|
%
|
|
|
—
|
|
|
55,498
|
|
|
$
|
39,902
|
|
|
$
|
95,400
|
|
|
|
|
7.7
|
%
|
|
|
|
7.2
|
%
|
|
9950 Medical Center Drive/Maryland/Rockville
|
|
100
|
%
|
|
|
—
|
|
|
34,340
|
|
|
$
|
19,960
|
|
|
$
|
54,300
|
|
|
|
|
7.3
|
%
|
|
|
|
6.8
|
%
|
|
Alexandria Center® for AgTech/Research Triangle/Research Triangle
|
|
100
|
%
|
|
|
86,015
|
|
|
26,247
|
|
|
TBD
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated projects
|
|
|
|
|
609,532
|
|
|
1,290,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
704 Quince Orchard Road/Maryland/Gaithersburg(4)
|
|
56.8
|
%
|
|
|
8,599
|
|
|
2,825
|
|
|
$
|
1,876
|
|
|
$
|
13,300
|
|
|
|
|
8.9
|
%
|
|
|
|
8.8
|
%
|
|
Total
|
|
|
|
|
$
|
618,131
|
|
|
$
|
1,293,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Refer to the “Consolidated and unconsolidated real estate joint ventures” section under this Item 2 for additional information.
(2)Represents a two-phase development project as follows:
•Initial phase represents 9880 Campus Point Drive, a 98,000 RSF project to develop Alexandria GradLabs™, a highly flexible, first-of-its-kind life science platform designed to provide post-seed-stage life science companies with turnkey, fully furnished office/laboratory suites and an accelerated, scalable path for growth. As of June 30, 2020, 199,621 RSF and 69,481 RSF are classified in construction in process and in-service, respectively. The R&D building located at 9880 Campus Point Drive was demolished and as of June 30, 2020, continues to be included in our same property performance results. Refer to the “Same properties” subsection of the “Results of operations” section under this Item 2 for additional information.
•Subsequent phase represents 4150 Campus Point Court, a 171,102 RSF, 100% leased project undergoing pre-construction, and we expect to commence vertical construction in 1Q21, with occupancy expected in 2022.
•Project costs represent development costs for 9880 Campus Point Drive and 4150 Campus Point Court. Unlevered yields represent expected aggregate returns for Campus Pointe by Alexandria, including 9880, 10290, and 10300 Campus Point Drive and 4150 Campus Point Court.
(3)Unlevered yields represent anticipated aggregate returns for 1165 Eastlake Avenue, an amenity-rich research headquarters for Adaptive Biotechnologies Corporation, and 1208 Eastlake Avenue, an adjacent multi-tenant office/laboratory building.
(4)704 Quince Orchard Road is an unconsolidated real estate joint venture. Cost and yield amounts represent our share.
New Class A development and redevelopment properties: summary of pipeline
The following table summarizes the key information for all our development and redevelopment projects in North America as of June 30, 2020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property/Submarket
|
|
Our Ownership Interest
|
|
|
Book Value
|
|
Square Footage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development and Redevelopment
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Under Construction
|
|
Near
Term
|
|
Intermediate
Term
|
|
Future
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater Boston
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Arsenal on the Charles/Cambridge/Inner Suburbs
|
|
100
|
%
|
|
|
$
|
126,156
|
|
|
205,690
|
|
|
—
|
|
|
—
|
|
|
200,000
|
|
|
405,690
|
|
|
15 Necco Street/Seaport Innovation District
|
|
98.2
|
%
|
|
|
179,347
|
|
|
—
|
|
|
293,000
|
|
|
—
|
|
|
—
|
|
|
293,000
|
|
|
215 Presidential Way/Route 128
|
|
100
|
%
|
|
|
6,613
|
|
|
—
|
|
|
112,000
|
|
|
—
|
|
|
—
|
|
|
112,000
|
|
|
325 Binney Street/Cambridge
|
|
100
|
%
|
|
|
116,712
|
|
|
—
|
|
|
—
|
|
|
402,000
|
|
|
—
|
|
|
402,000
|
|
|
99 A Street/Seaport Innovation District
|
|
95.9
|
%
|
|
|
42,959
|
|
|
—
|
|
|
—
|
|
|
235,000
|
|
|
—
|
|
|
235,000
|
|
|
10 Necco Street/Seaport Innovation District
|
|
100
|
%
|
|
|
88,365
|
|
|
—
|
|
|
—
|
|
|
175,000
|
|
|
—
|
|
|
175,000
|
|
|
Alexandria Technology Square®/Cambridge
|
|
100
|
%
|
|
|
7,881
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100,000
|
|
|
100,000
|
|
|
100 Tech Drive/Route 128
|
|
100
|
%
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
300,000
|
|
|
300,000
|
|
|
231 Second Avenue/Route 128
|
|
100
|
%
|
|
|
1,093
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32,000
|
|
|
32,000
|
|
|
Other value-creation projects
|
|
100
|
%
|
|
|
9,587
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,955
|
|
|
16,955
|
|
|
|
|
|
|
|
578,713
|
|
|
205,690
|
|
|
405,000
|
|
|
812,000
|
|
|
648,955
|
|
|
2,071,645
|
|
|
San Francisco
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201 Haskins Way/South San Francisco
|
|
100
|
%
|
|
|
211,100
|
|
|
315,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
315,000
|
|
|
Alexandria District for Science and Technology/Greater Stanford
|
|
100
|
%
|
|
|
611,255
|
|
|
526,178
|
|
|
—
|
|
|
587,000
|
|
(1)
|
700,000
|
|
(1)
|
1,813,178
|
|
|
945 Market Street/Mission Bay/SoMa
|
|
99.5
|
%
|
|
|
197,330
|
|
|
255,765
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
255,765
|
|
|
3160 Porter Drive/Greater Stanford
|
|
100
|
%
|
|
|
39,264
|
|
|
92,147
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
92,147
|
|
|
88 Bluxome Street/Mission Bay/SoMa
|
|
100
|
%
|
|
|
256,334
|
|
|
—
|
|
|
1,070,925
|
|
(2)
|
—
|
|
|
—
|
|
|
1,070,925
|
|
|
Alexandria Technology Center® – Gateway/South San Francisco
|
|
45.0
|
%
|
|
|
44,025
|
|
|
—
|
|
|
217,000
|
|
|
300,010
|
|
(1)
|
291,000
|
|
|
808,010
|
|
|
505 Brannan Street, Phase II/Mission Bay/SoMa
|
|
99.7
|
%
|
|
|
18,770
|
|
|
—
|
|
|
—
|
|
|
165,000
|
|
|
—
|
|
|
165,000
|
|
|
3825 and 3875 Fabian Way/Greater Stanford
|
|
100
|
%
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
(1)
|
228,000
|
|
(1)
|
478,000
|
|
|
East Grand Avenue/South San Francisco
|
|
100
|
%
|
|
|
6,112
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90,000
|
|
|
90,000
|
|
|
Other value-creation projects
|
|
100
|
%
|
|
|
44,096
|
|
|
—
|
|
|
—
|
|
|
191,000
|
|
|
25,000
|
|
|
216,000
|
|
|
|
|
|
|
|
$
|
1,428,286
|
|
|
1,189,090
|
|
|
1,287,925
|
|
|
1,493,010
|
|
|
1,334,000
|
|
|
5,304,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Represents total square footage upon completion of development or redevelopment of a new Class A property. Square footage presented includes RSF of buildings currently in operation at properties that also have inherent future development opportunities, with the intent to demolish the existing property upon expiration of the existing in-place leases and commencement of future construction. Refer to the definition of “Investments in real estate – value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section within this Item 2 for additional information.
(2)Includes 488,899 RSF pre-leased to Pinterest, Inc., for which we expect demolition of the existing building to commence in January 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Class A development and redevelopment properties: summary of pipeline (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property/Submarket
|
|
Our Ownership Interest
|
|
|
Book Value
|
|
Square Footage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development and Redevelopment
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Under Construction
|
|
Near
Term
|
|
Intermediate
Term
|
|
Future
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York City
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexandria Center® – Long Island City/New York City
|
|
100
|
%
|
|
|
$
|
98,263
|
|
|
140,098
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
140,098
|
|
|
Alexandria Center® for Life Science – New York City/New York City
|
|
100
|
%
|
|
|
42,157
|
|
|
—
|
|
|
—
|
|
|
550,000
|
|
(1)
|
—
|
|
|
550,000
|
|
|
47-50 30th Street/New York City
|
|
100
|
%
|
|
|
28,497
|
|
|
—
|
|
|
—
|
|
|
135,938
|
|
|
—
|
|
|
135,938
|
|
|
219 East 42nd Street/New York City
|
|
100
|
%
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
579,947
|
|
(2)
|
579,947
|
|
|
|
|
|
|
|
168,917
|
|
|
140,098
|
|
|
—
|
|
|
685,938
|
|
|
579,947
|
|
|
1,405,983
|
|
|
San Diego
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Campus Pointe by Alexandria/University Town Center
|
|
(3)
|
|
|
111,126
|
|
|
199,621
|
|
|
—
|
|
|
390,164
|
|
(4)
|
359,281
|
|
(4)
|
949,066
|
|
|
9877 Waples Street/Sorrento Mesa
|
|
100
|
%
|
|
|
17,064
|
|
|
63,774
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
63,774
|
|
|
3115 Merryfield Row/Torrey Pines
|
|
100
|
%
|
|
|
49,409
|
|
|
—
|
|
|
125,000
|
|
|
—
|
|
|
—
|
|
|
125,000
|
|
|
SD Tech by Alexandria/Sorrento Mesa
|
|
(3)
|
|
|
47,444
|
|
|
—
|
|
|
176,428
|
|
(5)
|
190,074
|
|
|
388,000
|
|
|
754,502
|
|
|
10931 and 10933 Torrey Pines Road/Torrey Pines
|
|
100
|
%
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
242,000
|
|
(4)
|
—
|
|
|
242,000
|
|
|
University District/University Town Center
|
|
100
|
%
|
|
|
51,559
|
|
|
—
|
|
|
—
|
|
|
600,000
|
|
(4)(6)
|
—
|
|
|
600,000
|
|
|
Townsgate by Alexandria/Del Mar Heights
|
|
100
|
%
|
|
|
21,735
|
|
|
—
|
|
|
—
|
|
|
185,000
|
|
|
—
|
|
|
185,000
|
|
|
5200 Illumina Way/University Town Center
|
|
51
|
%
|
|
|
12,302
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
451,832
|
|
|
451,832
|
|
|
Vista Wateridge/Sorrento Mesa
|
|
100
|
%
|
|
|
4,175
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
163,000
|
|
|
163,000
|
|
|
4045 and 4075 Sorrento Valley Boulevard/Sorrento Valley
|
|
100
|
%
|
|
|
7,668
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
149,000
|
|
(4)
|
149,000
|
|
|
Other value-creation projects
|
|
100
|
%
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50,000
|
|
|
50,000
|
|
|
|
|
|
|
|
322,482
|
|
|
263,395
|
|
|
301,428
|
|
|
1,607,238
|
|
|
1,561,113
|
|
|
3,733,174
|
|
|
Seattle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1165 Eastlake Avenue East/Lake Union
|
|
100
|
%
|
|
|
75,486
|
|
|
100,086
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100,086
|
|
|
1150 Eastlake Avenue East/Lake Union
|
|
100
|
%
|
|
|
41,687
|
|
|
—
|
|
|
—
|
|
|
260,000
|
|
|
—
|
|
|
260,000
|
|
|
701 Dexter Avenue North/Lake Union
|
|
100
|
%
|
|
|
47,081
|
|
|
—
|
|
|
—
|
|
|
217,000
|
|
|
—
|
|
|
217,000
|
|
|
601 Dexter Avenue North/Lake Union
|
|
100
|
%
|
|
|
33,787
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
188,400
|
|
(4)
|
188,400
|
|
|
Other value-creation projects
|
|
100
|
%
|
|
|
53,877
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
579,825
|
|
|
579,825
|
|
|
|
|
|
|
|
$
|
251,918
|
|
|
100,086
|
|
|
—
|
|
|
477,000
|
|
|
768,225
|
|
|
1,345,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)We have been negotiating a long-term ground lease for the future site of a new building approximating 550,000 RSF. Beginning March 2020, due to the impacts of COVID-19 on New York City, the City has been using the site as a temporary morgue. The use of this site by the City has resulted in delays to deadlines for both ground lease negotiations and ultimately the timing to commence and complete key milestone construction dates.
(2)Includes 349,947 RSF in operation with an opportunity either to convert the existing office space into office/laboratory space through future redevelopment or to expand the building by an additional 230,000 RSF through ground-up development. The building is currently occupied by Pfizer Inc. with a remaining lease term of approximately five years.
(3)Refer to the “Consolidated and unconsolidated real estate joint ventures” section within this Item 2 for additional information on our ownership interest.
(4)Represents total square footage upon completion of development of a new Class A property. Square footage presented includes RSF of buildings currently in operation at properties that also have inherent future development opportunities. We intend to demolish the existing property upon expiration of the existing in-place leases and commencement of future construction. Refer to the definition of “Investments in real estate – value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section within this Item 2 for additional information.
(5)During the three months ended June 30, 2020, we pre-leased 59% of this project and expect to commence construction over the next six to eight months.
(6)Includes our recently acquired project at 4555 Executive Drive and 9363 and 9393 Towne Centre Drive in our University Town Center submarket, which are currently under evaluation for development, subject to future market conditions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Class A development and redevelopment properties: summary of pipeline (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property/Submarket
|
|
Our Ownership Interest
|
|
|
Book Value
|
|
Square Footage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development and Redevelopment
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Under Construction
|
|
Near
Term
|
|
Intermediate
Term
|
|
Future
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maryland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
704 Quince Orchard Road/Gaithersburg
|
|
56.8
|
%
|
|
|
$
|
—
|
|
(1)
|
20,998
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,998
|
|
|
9804 and 9800 Medical Center Drive/Rockville
|
|
100.0
|
%
|
|
|
56,905
|
|
|
176,832
|
|
|
—
|
|
|
—
|
|
|
64,000
|
|
|
240,832
|
|
|
9950 Medical Center Drive/Rockville
|
|
100.0
|
%
|
|
|
34,340
|
|
|
84,264
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
84,264
|
|
|
14200 Shady Grove Road/Rockville
|
|
100.0
|
%
|
|
|
27,285
|
|
|
—
|
|
|
—
|
|
|
290,000
|
|
|
145,000
|
|
|
435,000
|
|
|
|
|
|
|
|
118,530
|
|
|
282,094
|
|
|
—
|
|
|
290,000
|
|
|
209,000
|
|
|
781,094
|
|
|
Research Triangle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexandria Center® for AgTech, Phase II/Research Triangle
|
|
100.0
|
%
|
|
|
26,247
|
|
|
160,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
160,000
|
|
|
8 Davis Drive/Research Triangle
|
|
100.0
|
%
|
|
|
15,985
|
|
|
—
|
|
|
150,000
|
|
|
70,000
|
|
|
—
|
|
|
220,000
|
|
|
6 Davis Drive/Research Triangle
|
|
100.0
|
%
|
|
|
15,761
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
800,000
|
|
|
800,000
|
|
|
Other value-creation projects
|
|
100.0
|
%
|
|
|
4,185
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
76,262
|
|
|
76,262
|
|
|
|
|
|
|
|
62,178
|
|
|
160,000
|
|
|
150,000
|
|
|
70,000
|
|
|
876,262
|
|
|
1,256,262
|
|
|
Other value-creation projects
|
|
100.0
|
%
|
|
|
3,842
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
146,800
|
|
|
146,800
|
|
|
Total
|
|
|
|
|
2,934,866
|
|
|
2,340,453
|
|
|
2,144,353
|
|
|
5,435,186
|
|
|
6,124,302
|
|
|
16,044,294
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key pending acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mercer Mega Block/Lake Union
|
|
(3)
|
|
|
(3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
800,000
|
|
|
800,000
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
800,000
|
|
|
800,000
|
|
|
|
|
|
|
|
$
|
2,934,866
|
|
|
2,340,453
|
|
|
2,144,353
|
|
|
5,435,186
|
|
|
6,924,302
|
|
|
16,844,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)This property is held by an unconsolidated real estate joint venture. Refer to the “Consolidated and unconsolidated real estate joint ventures” section within this Item 2 for additional information on our ownership interest.
(2)Total square footage includes 1,821,610 RSF of buildings currently in operation that will be redeveloped or replaced with new development RSF upon commencement of future construction. Refer to the definition of “Investments in real estate – value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section within this Item 2 for additional information.
(3)Refer to the “Acquisitions” subsection of this “Investments in real estate” section within this Item 2 for additional information.
Summary of capital expenditures
Our construction spending for the six months ended June 30, 2020, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Construction Spending
|
|
Six Months Ended June 30, 2020
|
|
Additions to real estate – consolidated projects
|
|
$
|
725,742
|
|
|
Investments in unconsolidated real estate joint ventures
|
|
2,861
|
|
|
Contributions from noncontrolling interests
|
|
(5,704)
|
|
|
Construction spending (cash basis)
|
|
722,899
|
|
|
Change in accrued construction
|
|
(56,497)
|
|
|
Construction spending for the six months ended June 30, 2020
|
|
666,402
|
|
|
Projected construction spending for the six months ending December 31, 2020
|
|
683,598
|
|
|
Guidance midpoint
|
|
$
|
1,350,000
|
|
|
The following table summarizes the total projected construction spending for the year ending December 31, 2020, which includes interest, property taxes, insurance, payroll, and other indirect project costs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Construction Spending
|
|
Year Ending December 31, 2020
|
|
|
|
|
Development, redevelopment, and pre-construction projects
|
|
$
|
1,170,000
|
|
|
|
|
Contributions from noncontrolling interests (consolidated real estate joint ventures)
|
|
|
(20,000)
|
|
|
|
|
Revenue-enhancing and repositioning capital expenditures
|
|
|
144,000
|
|
|
|
|
Non-revenue-enhancing capital expenditures
|
|
|
56,000
|
|
|
|
|
Guidance midpoint
|
|
$
|
1,350,000
|
|
|
|
|
|
|
|
|
|
|
|
Results of operations
We present a tabular comparison of items, whether gain or loss, that may facilitate a high-level understanding of our results and provide context for the disclosures included in our most recent annual report on Form 10-K for the year ended December 31, 2019, and our subsequent quarterly reports on Form 10-Q. We believe such tabular presentation promotes a better understanding for investors of the corporate-level decisions made and activities performed that significantly affect comparison of our operating results from period to period. We also believe this tabular presentation will supplement for investors an understanding of our disclosures and real estate operating results. Gains or losses on sales of real estate and impairments of held for sale assets are related to corporate-level decisions to dispose of real estate. Gains or losses on early extinguishment of debt, gains or losses on early termination of interest rate hedge agreements, and preferred stock redemption charges are related to corporate-level financing decisions focused on our capital structure strategy. Significant realized and unrealized gains or losses on non-real estate investments and impairments of real estate and non-real estate investments are not related to the operating performance of our real estate assets as they result from strategic, corporate-level non-real estate investment decisions and external market conditions. Impairments of non-real estate investments are not related to the operating performance of our real estate as they represent the write-down of non-real estate investments when their fair values decline below their respective carrying values due to changes in general market or other conditions outside of our control. Significant items, whether a gain or loss, included in the tabular disclosure for current periods are described in further detail within this Item 2. Key items included in net income attributable to Alexandria’s common stockholders for the three and six months ended June 30, 2020 and 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
(In millions, except per share amounts)
|
Amount
|
|
|
|
Per Share – Diluted
|
|
|
|
Amount
|
|
|
|
Per Share – Diluted
|
|
|
Unrealized gains on non-real estate investments(1)
|
$
|
171.7
|
|
|
$
|
11.1
|
|
|
$
|
1.38
|
|
|
$
|
0.10
|
|
|
$
|
154.5
|
|
|
$
|
83.3
|
|
|
$
|
1.25
|
|
|
$
|
0.75
|
|
Impairment of real estate(2)
|
(13.2)
|
|
|
—
|
|
|
(0.11)
|
|
|
—
|
|
|
(22.9)
|
|
(3)
|
—
|
|
|
(0.18)
|
|
|
—
|
|
Impairment of non-real estate investments(1)
|
(4.7)
|
|
|
—
|
|
|
(0.04)
|
|
|
—
|
|
|
(24.5)
|
|
|
—
|
|
|
(0.20)
|
|
|
—
|
|
Loss on early extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.4)
|
|
|
—
|
|
|
(0.07)
|
|
Preferred stock redemption charge
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.6)
|
|
|
—
|
|
|
(0.02)
|
|
Total
|
$
|
153.8
|
|
|
$
|
11.1
|
|
|
$
|
1.23
|
|
|
$
|
0.10
|
|
|
$
|
107.1
|
|
|
$
|
73.3
|
|
|
$
|
0.87
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Refer to Note 7 – “Investments” to our unaudited consolidated financial statements under Item 1 of this report for more information.
(2)Refer to the section titled “Sales of real estate assets and impairment charges” in Note 3 – “Investments in real estate” to our unaudited consolidated financial statements under Item 1 of this report for detail.
(3)Amount includes $7.6 million impairment of our investment in a recently developed retail property held by our unconsolidated real estate joint venture. This impairment was recognized during the three months ended March 31, 2020, and was classified in equity in earnings of unconsolidated real estate joint ventures within our consolidated statements of operations. Refer to Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our unaudited consolidated financial statements under Item 1 of this report for additional detail.
Same properties
We supplement an evaluation of our results of operations with an evaluation of operating performance of certain of our properties, referred to as Same Properties. For more information on the determination of our Same Properties portfolio, refer to the definition of “Same property comparisons” in the “Non-GAAP measures and definitions” section within this Item 2. The following table presents information regarding our Same Properties for the three and six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
Percentage change in net operating income over comparable period from prior year
|
|
0.6%
|
(1)
|
|
1.6%
|
|
Percentage change in net operating income (cash basis) over comparable period from prior year
|
|
2.5%
|
(1)
|
|
4.5%
|
|
Operating margin
|
|
73%
|
|
|
73%
|
|
Number of Same Properties
|
|
228
|
|
|
|
213
|
|
|
RSF
|
|
21,779,066
|
|
|
|
21,191,416
|
|
|
Occupancy – current-period average
|
|
96.3%
|
|
|
96.6%
|
|
Occupancy – same-period prior-year average
|
|
97.1%
|
|
|
97.1%
|
|
(1)Includes the effect of temporary reduction in same property occupancy of 80 basis points related to downtime in connection with leases aggregating 152,045 RSF, with 63% already leased for delivery in the third quarter of 2020 at significantly higher rental rates. Excluding the impact of the temporary vacancies, the same property net operating income growth for the three months ended June 30, 2020, would have been 1.6% and 4.2% (cash basis), respectively. We expect occupancy and other contractual rental increases in the second half of 2020 will increase same property NOI and same property NOI (cash basis) to within our guidance range for the year ending December 31, 2020.
The following table reconciles the number of same properties to total properties for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
Development – under construction
|
|
Properties
|
9804 Medical Center Drive
|
|
1
|
|
9950 Medical Center Drive
|
|
1
|
|
Alexandria District for Science and Technology
|
|
2
|
|
201 Haskins Way
|
|
1
|
|
1165 Eastlake Avenue East
|
|
1
|
|
4150 Campus Point Court
|
|
1
|
|
Alexandria Center® for AgTech, Phase II
|
|
1
|
|
|
|
8
|
|
Development – placed into service after
January 1, 2019
|
|
Properties
|
399 Binney Street
|
|
1
|
|
279 East Grand Avenue
|
|
1
|
|
188 East Blaine Street
|
|
1
|
|
|
|
3
|
|
Redevelopment – under construction
|
|
Properties
|
Alexandria Center® – Long Island City
|
|
1
|
|
945 Market Street
|
|
1
|
|
3160 Porter Drive
|
|
1
|
|
The Arsenal on the Charles
|
|
5
|
|
9877 Waples Street
|
|
1
|
|
|
|
9
|
|
Redevelopment – placed into service after January 1, 2019
|
|
Properties
|
Alexandria PARC
|
|
4
|
|
681 and 685 Gateway Boulevard
|
|
2
|
|
266 and 275 Second Avenue
|
|
2
|
|
Alexandria Center® for AgTech, Phase I
|
|
1
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions after January 1, 2019
|
|
Properties
|
|
25, 35, and 45 West Watkins Mill Road
|
|
3
|
|
|
3170 Porter Drive
|
|
1
|
|
|
Shoreway Science Center
|
|
2
|
|
|
3911, 3931, and 4075 Sorrento Valley Boulevard
|
|
3
|
|
|
260 Townsend Street
|
|
1
|
|
|
5 Necco Street
|
|
1
|
|
|
601 Dexter Avenue North
|
|
1
|
|
|
4224/4242 Campus Point Court and 10210 Campus Point Drive
|
|
3
|
|
|
3825 and 3875 Fabian Way
|
|
2
|
|
|
SD Tech by Alexandria
|
|
11
|
|
|
The Arsenal on the Charles
|
|
6
|
|
|
275 Grove Street
|
|
1
|
|
|
601, 611, and 651 Gateway Boulevard
|
|
3
|
|
|
3330 and 3412 Hillview Avenue
|
|
2
|
|
|
9605 Medical Center Drive
|
|
1
|
|
|
220 2nd Avenue South
|
|
1
|
|
|
987 and 1075 Commercial Street
|
|
2
|
|
|
4555 Executive Drive
|
|
1
|
|
|
Other
|
|
8
|
|
|
|
|
53
|
|
|
|
|
|
|
Unconsolidated real estate JVs
|
|
6
|
|
|
Properties held for sale
|
|
3
|
|
|
Total properties excluded from Same Properties
|
|
91
|
|
|
Same Properties
|
|
213
|
|
(1)
|
Total properties in North America as of
June 30, 2020
|
|
304
|
|
|
|
|
|
|
(1)Includes 9880 Campus Point Drive and 3545 Cray Court. The 9880 Campus Point Drive building was occupied through January 2018 and is currently in active development, and 3545 Cray Court is currently undergoing renovations.
Comparison of results for the three months ended June 30, 2020, to the three months ended June 30, 2019
The following table presents a comparison of the components of net operating income for our Same Properties and Non-Same Properties for the three months ended June 30, 2020, compared to the three months ended June 30, 2019. Refer to the “Non-GAAP measures and definitions” section within this Item 2 for definitions of “Tenant recoveries” and “Net operating income” and their reconciliations from the most directly comparable financial measures presented in accordance with GAAP, income from rentals and net income (loss), respectively.
See additional discussion related to the COVID-19 pandemic and its impact to us under “The COVID-19 pandemic” within this Item 2. In addition, refer to “Item 1A. Risk factors” within “Part II – Other information” of this quarterly report on Form 10-Q for a discussion about risks that COVID-19 directly or indirectly may pose to our business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2020
|
|
2019
|
|
$ Change
|
|
% Change
|
|
Income from rentals:
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
$
|
272,951
|
|
|
$
|
273,543
|
|
|
$
|
(592)
|
|
|
(0.2
|
%)
|
|
Non-Same Properties
|
|
68,604
|
|
|
16,082
|
|
|
52,522
|
|
|
326.6
|
|
|
Rental revenues
|
|
341,555
|
|
|
289,625
|
|
|
51,930
|
|
|
17.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
81,618
|
|
|
79,637
|
|
|
1,981
|
|
|
2.5
|
|
|
Non-Same Properties
|
|
12,683
|
|
|
2,356
|
|
|
10,327
|
|
|
438.3
|
|
|
Tenant recoveries
|
|
94,301
|
|
|
81,993
|
|
|
12,308
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from rentals
|
|
435,856
|
|
|
371,618
|
|
|
64,238
|
|
|
17.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
32
|
|
|
93
|
|
|
(61)
|
|
|
(65.6)
|
|
|
Non-Same Properties
|
|
1,068
|
|
|
2,145
|
|
|
(1,077)
|
|
|
(50.2)
|
|
|
Other income
|
|
1,100
|
|
|
2,238
|
|
|
(1,138)
|
|
|
(50.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
354,601
|
|
|
353,273
|
|
|
1,328
|
|
|
0.4
|
|
|
Non-Same Properties
|
|
82,355
|
|
|
20,583
|
|
|
61,772
|
|
|
300.1
|
|
|
Total revenues
|
|
436,956
|
|
|
373,856
|
|
|
63,100
|
|
|
16.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
94,006
|
|
|
94,140
|
|
|
(134)
|
|
|
(0.1)
|
|
|
Non-Same Properties
|
|
29,905
|
|
|
11,549
|
|
|
18,356
|
|
|
158.9
|
|
|
Rental operations
|
|
123,911
|
|
|
105,689
|
|
|
18,222
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
260,595
|
|
|
259,133
|
|
|
1,462
|
|
|
0.6
|
|
|
Non-Same Properties
|
|
52,450
|
|
|
9,034
|
|
|
43,416
|
|
|
480.6
|
|
|
Net operating income
|
|
$
|
313,045
|
|
|
$
|
268,167
|
|
|
$
|
44,878
|
|
|
16.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income – Same Properties
|
|
$
|
260,595
|
|
|
$
|
259,133
|
|
|
$
|
1,462
|
|
|
0.6
|
%
|
|
Straight-line rent revenue
|
|
(18,873)
|
|
|
(22,441)
|
|
|
3,568
|
|
|
(15.9)
|
|
|
Amortization of acquired below-market leases
|
|
(4,637)
|
|
|
(5,292)
|
|
|
655
|
|
|
(12.4)
|
|
|
Net operating income – Same Properties (cash basis)
|
|
$
|
237,085
|
|
|
$
|
231,400
|
|
|
$
|
5,685
|
|
|
2.5
|
%
|
|
Income from rentals
Total income from rentals for the three months ended June 30, 2020, increased by $64.2 million, or 17.3%, to $435.9 million, compared to $371.6 million for the three months ended June 30, 2019, as a result of increases in rental revenues and tenant recoveries, as discussed below.
Rental revenues
Total rental revenues for the three months ended June 30, 2020, increased by $51.9 million, or 17.9%, to $341.6 million, compared to $289.6 million for the three months ended June 30, 2019. The increase was primarily due to an increase in rental revenues from our Non-Same Properties aggregating $52.5 million primarily related to 455,903 RSF of development and redevelopment projects placed into service subsequent to April 1, 2019, and 42 operating properties aggregating 3.8 million RSF acquired subsequent to April 1, 2019.
Rental revenues from our Same Properties for the three months ended June 30, 2020, decreased by $0.6 million, or 0.2%, to $273.0 million, compared to $273.5 million for the three months ended June 30, 2019. The decrease was primarily due to a temporary reduction in same property occupancy of 80 basis points related to downtime in connection with leases that will begin occupancy during the second half of 2020 at significantly higher rental rates. The decrease in rental revenues from Same Properties was also due to the effect of reduced revenues from our transient parking, retail tenants, and amenities, some of which were temporarily closed as a result of shelter-in-place orders during the three months ended June 30, 2020. The decrease was partially offset by rental rate increases on lease renewals and re-leasing of space since April 1, 2019.
Tenant recoveries
Tenant recoveries for the three months ended June 30, 2020, increased by $12.3 million, or 15.0%, to $94.3 million, compared to $82.0 million for the three months ended June 30, 2019. This increase was primarily due to an increase from our Non-Same Properties as described above.
Same Properties’ tenant recoveries for the three months ended June 30, 2020, increased by $2.0 million, or 2.5%, primarily due to an increase in recoverable property tax expense resulting from higher assessed values of our properties during the three months ended June 30, 2020. As of June 30, 2020, 93% of our leases (on an RSF basis) were triple net leases, which require tenants to pay substantially all real estate taxes, insurance, utilities, repairs and maintenance, common area expenses, and other operating expenses (including increases thereto) in addition to base rent.
Other income
Other income for the three months ended June 30, 2020 and 2019, was $1.1 million and $2.2 million, respectively, primarily consisting of construction management fees and interest income earned during each respective period.
Rental operations
Total rental operating expenses for the three months ended June 30, 2020, increased by $18.2 million, or 17.2%, to $123.9 million, compared to $105.7 million for the three months ended June 30, 2019. Approximately $18.4 million of the increase was due to an increase in rental operating expenses from our Non-Same Properties primarily related to development and redevelopment projects placed into service and acquired properties as discussed above under “Income from rentals.”
Same Properties’ rental operating expenses decreased by $0.1 million, or 0.1%, to $94.0 million during the three months ended June 30, 2020, compared to $94.1 million for the three months ended June 30, 2019. The decrease was primarily due to reduced operating expenses from retail tenants and amenities, some of which were temporarily closed as a result of COVID-19 shelter-in-place orders during the three months ended June 30, 2020. The decrease in expenses related to COVID-19 was partially offset by an increase in recoverable property tax expense resulting from higher assessed values of our properties during the three months ended June 30, 2020.
General and administrative expenses
General and administrative expenses for the three months ended June 30, 2020, increased by $5.3 million, or 20.2%, to $31.8 million, compared to $26.4 million for the three months ended June 30, 2019. The increase was primarily due to continued growth in the depth and breadth of our operations in multiple markets, including development and redevelopment projects placed into service and properties acquired subsequent to April 1, 2019, as discussed under Income from rentals” above. As a percentage of net operating income, our general and administrative expenses for the trailing twelve months ended June 30, 2020 and 2019, were 10.3% and 9.5%, respectively.
Interest expense
Interest expense for the three months ended June 30, 2020 and 2019, consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
Component
|
|
2020
|
|
2019
|
|
Change
|
Interest incurred
|
|
$
|
75,807
|
|
|
$
|
64,553
|
|
|
$
|
11,254
|
|
Capitalized interest
|
|
(30,793)
|
|
|
(21,674)
|
|
|
(9,119)
|
|
Interest expense
|
|
$
|
45,014
|
|
|
$
|
42,879
|
|
|
$
|
2,135
|
|
|
|
|
|
|
|
|
Average debt balance outstanding(1)
|
|
$
|
7,461,439
|
|
|
$
|
6,129,748
|
|
|
$
|
1,331,691
|
|
Weighted-average annual interest rate(2)
|
|
4.1
|
%
|
|
4.2
|
%
|
|
(0.1)
|
%
|
(1)Represents the average debt balance outstanding during the respective periods.
(2)Represents annualized total interest incurred divided by the average debt balance outstanding in the respective periods.
The net change in interest expense during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, resulted from the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Component
|
|
Interest Rate(1)
|
|
|
|
Effective Date
|
|
Change
|
|
Increases in interest incurred due to:
|
|
|
|
|
|
|
|
|
|
Issuances of debt:
|
|
|
|
|
|
|
|
|
|
$700 million unsecured senior notes payable
|
|
|
3.91
|
%
|
|
|
July/September 2019
|
|
$
|
6,921
|
|
|
$750 million unsecured senior notes payable
|
|
|
3.48
|
%
|
|
|
July 2019
|
|
6,348
|
|
|
$400 million unsecured senior notes payable
|
|
|
2.87
|
%
|
|
|
September 2019
|
|
2,765
|
|
|
$700 million unsecured senior notes payable
|
|
|
5.05
|
%
|
|
|
March 2020
|
|
8,585
|
|
|
Fluctuations in interest rate and average balance:
|
|
|
|
|
|
|
|
|
|
$1.0 billion commercial paper program
|
|
|
|
|
|
|
|
709
|
|
|
Other increase in interest
|
|
|
|
|
|
|
|
436
|
|
|
Total increases
|
|
|
|
|
|
|
|
25,764
|
|
|
Decreases in interest incurred due to:
|
|
|
|
|
|
|
|
|
|
Repayments of debt:
|
|
|
|
|
|
|
|
|
|
$550 million unsecured senior notes payable
|
|
|
4.75
|
%
|
|
|
July/August 2019
|
|
(6,339)
|
|
|
$400 million unsecured senior notes payable
|
|
|
2.96
|
%
|
|
|
July/August 2019
|
|
(2,792)
|
|
|
Unsecured senior bank term loan
|
|
|
Various
|
|
|
Various
|
|
(3,088)
|
|
|
$2.2 billion unsecured senior line of credit
|
|
|
|
|
|
|
|
(2,177)
|
|
|
Interest rate hedge agreement in effect during the three months ended June 30, 2019
|
|
|
|
|
|
|
|
(114)
|
|
|
Total decreases
|
|
|
|
|
|
|
|
(14,510)
|
|
|
Change in interest incurred
|
|
|
|
|
|
|
|
11,254
|
|
|
Increase in capitalized interest
|
|
|
|
|
|
|
|
(9,119)
|
|
|
Total change in interest expense
|
|
|
|
|
|
|
|
$
|
2,135
|
|
|
(1)Represents the weighted-average interest rate as of the end of the applicable period, including amortization of loan fees, amortization of debt premiums (discounts), and other bank fees.
Depreciation and amortization
Depreciation and amortization expense for the three months ended June 30, 2020, increased by $33.6 million, or 25.0%, to $168.0 million, compared to $134.4 million for the three months ended June 30, 2019. The increase was primarily due to additional depreciation from 455,903 RSF of development and redevelopment projects placed into service subsequent to April 1, 2019, and 42 operating properties aggregating 3.8 million RSF acquired subsequent to April 1, 2019.
Impairment charges
During the three months ended June 30, 2020, we recognized impairment charges aggregating $13.2 million, which primarily consisted of a $10 million write-off of the pre-acquisition deposit for a previously pending acquisition of an operating tech office property for which our revised economic projections declined from our initial underwriting. We recognized this impairment charge in April 2020, concurrently with the submission of our notice to terminate the transaction.
Investment income
During the three months ended June 30, 2020, we recognized investment income aggregating $184.7 million, which included $13.0 million of realized gains and $171.7 million of unrealized gains. Realized gains consisted of $17.7 million of realized gains, partially offset by an impairment charge of $4.7 million primarily related to two investments in privately held entities that do not report NAV. Unrealized gains of $171.7 million primarily consisted of increases in fair values of our investments in publicly traded companies during the three months ended June 30, 2020. For more information about our investments, refer to Note 7 – “Investments” to our unaudited consolidated financial statements under Item 1 of this report. For our impairments accounting policy, refer to the “Investments” section of Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements under Item 1 of this report.
During the three months ended June 30, 2019, we recognized investment income aggregating $21.5 million, which included $10.4 million of realized gains and $11.1 million of unrealized gains.
Comparison of results for the six months ended June 30, 2020, to the six months ended June 30, 2019
The following table presents a comparison of the components of net operating income for our Same Properties and Non-Same Properties for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. Refer to the “Non-GAAP measures and definitions” section within this Item 2 for definitions of “Tenant recoveries” and “Net operating income” and their reconciliations from the most directly comparable financial measures presented in accordance with GAAP, income from rentals and net income, respectively.
See additional discussion related to the COVID-19 pandemic and its impact to us under “The COVID-19 pandemic” within this Item 2. In addition, refer to “Item 1A. Risk factors” within “Part II – Other information” of this quarterly report on Form 10-Q for a discussion about risks that COVID-19 directly or indirectly may pose to our business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2020
|
|
2019
|
|
$ Change
|
|
% Change
|
|
Income from rentals:
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
$
|
529,138
|
|
|
$
|
522,721
|
|
|
$
|
6,417
|
|
|
1.2
|
%
|
|
Non-Same Properties
|
|
150,359
|
|
|
41,467
|
|
|
108,892
|
|
|
262.6
|
|
|
Rental revenues
|
|
679,497
|
|
|
564,188
|
|
|
115,309
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
162,493
|
|
|
153,902
|
|
|
8,591
|
|
|
5.6
|
|
|
Non-Same Properties
|
|
31,471
|
|
|
8,277
|
|
|
23,194
|
|
|
280.2
|
|
|
Tenant recoveries
|
|
193,964
|
|
|
162,179
|
|
|
31,785
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from rentals
|
|
873,461
|
|
|
726,367
|
|
|
147,094
|
|
|
20.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
114
|
|
|
265
|
|
|
(151)
|
|
|
(57.0)
|
|
|
Non-Same Properties
|
|
3,300
|
|
|
6,066
|
|
|
(2,766)
|
|
|
(45.6)
|
|
|
Other income
|
|
3,414
|
|
|
6,331
|
|
|
(2,917)
|
|
|
(46.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
691,745
|
|
|
676,888
|
|
|
14,857
|
|
|
2.2
|
|
|
Non-Same Properties
|
|
185,130
|
|
|
55,810
|
|
|
129,320
|
|
|
231.7
|
|
|
Total revenues
|
|
876,875
|
|
|
732,698
|
|
|
144,177
|
|
|
19.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
188,816
|
|
|
181,678
|
|
|
7,138
|
|
|
3.9
|
|
|
Non-Same Properties
|
|
64,198
|
|
|
25,512
|
|
|
38,686
|
|
|
151.6
|
|
|
Rental operations
|
|
253,014
|
|
|
207,190
|
|
|
45,824
|
|
|
22.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Properties
|
|
502,929
|
|
|
495,210
|
|
|
7,719
|
|
|
1.6
|
|
|
Non-Same Properties
|
|
120,932
|
|
|
30,298
|
|
|
90,634
|
|
|
299.1
|
|
|
Net operating income
|
|
$
|
623,861
|
|
|
$
|
525,508
|
|
|
$
|
98,353
|
|
|
18.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income – Same Properties
|
|
$
|
502,929
|
|
|
$
|
495,210
|
|
|
$
|
7,719
|
|
|
1.6
|
%
|
|
Straight-line rent revenue
|
|
(33,492)
|
|
|
(45,225)
|
|
|
11,733
|
|
|
(25.9)
|
|
|
Amortization of acquired below-market leases
|
|
(7,372)
|
|
|
(7,757)
|
|
|
385
|
|
|
(5.0)
|
|
|
Net operating income – Same Properties (cash basis)
|
|
$
|
462,065
|
|
|
$
|
442,228
|
|
|
$
|
19,837
|
|
|
4.5
|
%
|
|
Income from rentals
Total income from rentals for the six months ended June 30, 2020, increased by $147.1 million, or 20.3%, to $873.5 million, compared to $726.4 million for the six months ended June 30, 2019, as a result of increases in rental revenues and tenant recoveries, as discussed below.
Rental revenues
Total rental revenues for the six months ended June 30, 2020, increased by $115.3 million, or 20.4%, to $679.5 million, compared to $564.2 million for the six months ended June 30, 2019. The increase was primarily due to an increase in rental revenues from our Non-Same Properties aggregating $108.9 million primarily related to 926,892 RSF of development and redevelopment projects placed into service subsequent to January 1, 2019, and 53 operating properties aggregating 4.2 million RSF acquired subsequent to January 1, 2019. The increase was partially offset by the effect of the reduction in rental revenues from our transient parking, retail tenants, and amenities, some of which were temporarily closed as a result of shelter-in-place orders.
Rental revenues from our Same Properties for the six months ended June 30, 2020, increased by $6.4 million, or 1.2%, to $529.1 million, compared to $522.7 million for the six months ended June 30, 2019. The increase was primarily due to significant rental rate increases on lease renewals and re-leasing of space since January 1, 2019. The increase was partially offset by temporary reduction in Same Property occupancy of 50 basis points related to downtime in connection with leases that will begin occupancy during the second half of 2020 at significantly higher rental rates. The increase was also partially offset by the effect of reduced revenues generated from our transient parking, retail tenants, and amenities, some of which were temporarily closed due to shelter-in-place orders.
The increase in total rental revenues was partially offset by the $5.1 million reduction to rental revenues recognized during the six months ended June 30, 2020, related to the specific write-off aggregating $1.6 million and a general allowance aggregating $3.5 million related to deferred rent balances of tenants that are or may potentially be impacted by uncertainties surrounding COVID-19.
Tenant recoveries
Tenant recoveries for the six months ended June 30, 2020, increased by $31.8 million, or 19.6%, to $194.0 million, compared to $162.2 million for the six months ended June 30, 2019. This increase is consistent with the increase in our rental operating expenses of $45.8 million, or 22.1%, as discussed under “Rental operations” below. Same Properties’ tenant recoveries for the six months ended June 30, 2020, increased by $8.6 million, or 5.6%, primarily due to the increase in recoverable operating expenses for the six months ended June 30, 2020, as discussed under “Rental operations” below. As of June 30, 2020, 93% of our leases (on an RSF basis) were triple net leases, which require tenants to pay substantially all real estate taxes, insurance, utilities, common area expenses, and other operating expenses (including increases thereto) in addition to base rent.
Other income
Other income for the six months ended June 30, 2020 and 2019 was, $3.4 million and $6.3 million, respectively, primarily consisting of construction management fees and interest income earned during each respective period. The decrease is due primarily to lower construction management fees recognized due to the completion of certain projects.
Rental operations
Total rental operating expenses for the six months ended June 30, 2020, increased by $45.8 million, or 22.1%, to $253.0 million, compared to $207.2 million for the six months ended June 30, 2019. Approximately $38.7 million of the increase was due to an increase in rental operating expenses from our Non-Same Properties primarily related to 926,892 RSF of development and redevelopment projects placed into service subsequent to January 1, 2019, and 53 operating properties aggregating 4.2 million RSF acquired subsequent to January 1, 2019.
Same Properties’ rental operating expenses increased by $7.1 million, or 3.9%, to $188.8 million during the six months ended June 30, 2020, compared to the $181.7 million for the six months ended June 30, 2019. Approximately $5.8 million of the increase was due to an increase in property tax expense resulting from higher assessed values of our properties. The remaining $1.3 million was mainly a result of the higher repairs and maintenance expenses, contract services, payroll, and property insurance costs, which were partially offset by reduced operating expenses related to retail tenants, some of which were temporarily closed due to COVID-19 shelter-in-place orders during the three months ended June 30, 2020.
General and administrative expenses
General and administrative expenses for the six months ended June 30, 2020, increased by $12.6 million, or 24.7%, to $63.7 million, compared to $51.1 million for the six months ended June 30, 2019. The increase was primarily due to continued growth in the depth and breadth of our operations in multiple markets, including development and redevelopment projects placed into service and properties acquired subsequent to January 1, 2019, as discussed under “Income from rentals” above. As a percentage of net operating income, our general and administrative expenses for the trailing twelve months ended June 30, 2020 and 2019, were 10.3% and 9.5%, respectively.
Interest expense
Interest expense for the six months ended June 30, 2020 and 2019, consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
Component
|
|
2020
|
|
2019
|
|
Change
|
Interest incurred
|
|
$
|
146,226
|
|
|
$
|
122,162
|
|
|
$
|
24,064
|
|
Capitalized interest
|
|
(55,473)
|
|
|
(40,183)
|
|
|
(15,290)
|
|
Interest expense
|
|
$
|
90,753
|
|
|
$
|
81,979
|
|
|
$
|
8,774
|
|
|
|
|
|
|
|
|
Average debt balance outstanding(1)
|
|
$
|
7,358,158
|
|
|
$
|
5,958,590
|
|
|
$
|
1,399,568
|
|
Weighted-average annual interest rate(2)
|
|
4.0
|
%
|
|
4.1
|
%
|
|
(0.1)
|
%
|
(1)Represents the average debt balance outstanding during the respective periods.
(2)Represents annualized total interest incurred divided by the average debt balance outstanding in the respective periods.
The net change in interest expense during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, resulted from the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Component
|
|
Interest Rate(1)
|
|
|
|
Effective Date
|
|
Change
|
|
Increases in interest incurred due to:
|
|
|
|
|
|
|
|
|
|
Issuances of debt:
|
|
|
|
|
|
|
|
|
|
$650 million unsecured senior notes payable – green bond
|
|
|
4.03
|
%
|
|
|
June 2018/
March 2019
|
|
$
|
1,792
|
|
|
$350 million unsecured senior notes payable – green bond
|
|
|
3.96
|
%
|
|
|
March 2019
|
|
2,968
|
|
|
$300 million unsecured senior notes payable
|
|
|
4.93
|
%
|
|
|
March 2019
|
|
3,236
|
|
|
$750 million unsecured senior notes payable
|
|
|
3.48
|
%
|
|
|
July 2019
|
|
12,696
|
|
|
$700 million unsecured senior notes payable
|
|
|
3.91
|
%
|
|
|
July/September 2019
|
|
13,842
|
|
|
$400 million unsecured senior notes payable
|
|
|
2.87
|
%
|
|
|
September 2019
|
|
5,530
|
|
|
$700 million unsecured senior notes payable
|
|
|
5.05
|
%
|
|
|
March 2020
|
|
9,062
|
|
|
Fluctuations in interest rate and average balance:
|
|
|
|
|
|
|
|
|
|
$1.0 billion commercial paper program
|
|
|
|
|
|
|
|
3,599
|
|
|
Interest rate hedge agreement in effect during the six months ended June 30, 2019
|
|
|
|
|
|
|
|
1,815
|
|
|
Other increase in interest
|
|
|
|
|
|
|
|
722
|
|
|
Total increases
|
|
|
|
|
|
|
|
55,262
|
|
|
Decreases in interest incurred due to:
|
|
|
|
|
|
|
|
|
|
Repayments of debt:
|
|
|
|
|
|
|
|
|
|
$550 million unsecured senior notes payable
|
|
|
4.75
|
%
|
|
|
July/August 2019
|
|
(12,678)
|
|
|
$400 million unsecured senior notes payable
|
|
|
2.96
|
%
|
|
|
July/August 2019
|
|
(5,583)
|
|
|
Secured construction loan
|
|
|
3.29
|
%
|
|
|
March 2019
|
|
(1,778)
|
|
|
Unsecured senior bank term loan
|
|
|
Various
|
|
|
Various
|
|
(5,975)
|
|
|
$2.2 billion unsecured senior line of credit
|
|
|
|
|
|
|
|
(5,184)
|
|
|
Total decreases
|
|
|
|
|
|
|
|
(31,198)
|
|
|
Change in interest incurred
|
|
|
|
|
|
|
|
24,064
|
|
|
Increase in capitalized interest
|
|
|
|
|
|
|
|
(15,290)
|
|
|
Total change in interest expense
|
|
|
|
|
|
|
|
$
|
8,774
|
|
|
(1)Represents the weighted-average interest rate as of the end of the applicable period, including amortization of loan fees, amortization of debt premiums (discounts), and other bank fees.
Depreciation and amortization
Depreciation and amortization expense for the six months ended June 30, 2020, increased by $75.0 million, or 27.9%, to $343.5 million, compared to $268.5 million for the six months ended June 30, 2019. The increase was primarily due to additional depreciation from 926,892 RSF of development and redevelopment projects placed into service subsequent to January 1, 2019, and 53 operating properties aggregating 4.2 million RSF acquired subsequent to January 1, 2019.
Impairment charges
During the six months ended June 30, 2020, we recognized impairment charges aggregating $15.2 million, which primarily consisted of a $10 million write-off of the pre-acquisition deposit for a previously pending acquisition of an operating tech office property for which our revised economic projections declined from our initial underwriting. We recognized this impairment charge in April 2020, concurrently with the submission of our notice to terminate the transaction.
Investment income
During the six months ended June 30, 2020, we recognized investment income aggregating $162.8 million, which included $8.3 million of realized gains and $154.5 million of unrealized gains. Realized gains consisted of $32.8 million of realized gains, partially offset by an impairment charge of $24.5 million primarily related to four investments in privately held entities that do not report NAV. Unrealized gains of $154.5 million during the six months ended June 30, 2020, primarily consisted of increases in fair values of our investments in publicly traded companies. For more information about our investments, refer to Note 7 – “Investments” to our unaudited consolidated financial statements under Item 1 of this report. For our impairments accounting policy, refer to the “Investments” section of Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements under Item 1 of this report.
During the six months ended June 30, 2019, we recognized investment income aggregating $105.1 million, which included $21.8 million of realized gains and $83.3 million of unrealized gains.
Loss on early extinguishment of debt
During the six months ended June 30, 2019, we repaid early one secured note payable aggregating $106.7 million, which was originally due in 2020 and bore interest at 7.75%, and recognized a loss on early extinguishment of debt of $7.1 million, including the write-off of unamortized loan fees. Additionally, during the six months ended June 30, 2019, we repaid early the remaining $193.1 million balance of our secured construction loan related to 50/60 Binney Street and recognized a loss on early extinguishment of debt of $269 thousand.
Equity in earnings of unconsolidated real estate joint ventures
During the six months ended June 30, 2020, we recognized equity in earnings of unconsolidated real estate joint ventures of $777 thousand. This balance consisted of earnings from our unconsolidated real estate joint ventures of approximately $8.4 million, partially offset by the impairment charge discussed below.
In March 2020, the impact of COVID-19 pandemic and the resulting State of Maryland’s shelter-in-place order led to the closure of a retail center owned by one of our unconsolidated joint ventures. We evaluated the recoverability of our investment in this joint venture and recognized a $7.6 million impairment charge to lower the carrying amount of our investment balance, which primarily consisted of real estate, to its estimated fair value less costs to sell. This impairment charge was classified in equity in earnings of unconsolidated real estate joint ventures within our consolidated statements of operations for the six months ended June 30, 2020. Refer to Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our unaudited consolidated financial statements under Item 1 of this report for additional information.
Projected results
We present updated guidance for EPS attributable to Alexandria’s common stockholders – diluted, and funds from operations per share attributable to Alexandria’s common stockholders – diluted, as adjusted, based on our current view of existing market conditions and other assumptions for the year ending December 31, 2020, as set forth, and as adjusted, in the tables below. The tables below also provide a reconciliation of EPS attributable to Alexandria’s common stockholders – diluted, the most directly comparable GAAP measure, to funds from operations per share and funds from operations per share, as adjusted, non-GAAP measures, and other key assumptions included in our updated guidance for the year ending December 31, 2020. There can be no assurance that actual amounts will not be materially higher or lower than these expectations. Refer to our discussion of “Forward-looking statements” in this Item 2.
Guidance for 2020 has been updated to reflect our current view of existing market conditions and assumptions for the year ending December 31, 2020, and reflects the estimated impact stemming from the COVID-19 pandemic on our financial and operating results. Refer to the following tables for complete details on our updated 2020 guidance assumptions. There can be no assurance that actual amounts will not be materially higher or lower than these expectations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected 2020 Earnings per Share and Funds From Operations per Share Attributable to Alexandria’s Common Stockholders – Diluted
|
|
As of 7/27/20
|
|
|
|
As of 4/27/20
|
|
|
Earnings per share(1)
|
|
$3.00 to $3.08
|
|
|
|
$1.69 to $1.79
|
|
|
Depreciation and amortization of real estate assets
|
|
|
5.15
|
|
|
|
5.15
|
|
Impairment of real estate – rental properties(2)
|
|
|
0.06
|
|
|
|
0.06
|
|
Allocation of unvested restricted stock awards
|
|
|
(0.05)
|
|
|
|
(0.04)
|
|
Funds from operations per share(3)
|
|
$8.16 to $8.24
|
|
|
|
$6.86 to $6.96
|
|
|
Unrealized (gains) losses on non-real estate investments
|
|
|
(1.25)
|
|
|
|
0.14
|
|
Impairment of non-real estate investments
|
|
|
0.20
|
|
|
|
0.16
|
|
Impairment of real estate(4)
|
|
|
0.12
|
|
|
|
0.10
|
|
Allocation to unvested restricted stock awards
|
|
|
0.01
|
|
|
|
(0.01)
|
|
Other
|
|
|
0.02
|
|
|
|
—
|
|
Funds from operations per share, as adjusted(1)
|
|
$7.26 to $7.34
|
|
|
|
$7.25 to $7.35
|
|
|
Midpoint
|
|
|
$7.30
|
|
|
|
$7.30
|
|
|
|
|
|
|
|
|
|
|
(1)Excludes unrealized gains or losses after June 30, 2020, that are required to be recognized in earnings and are excluded from funds from operations per share, as adjusted.
(2)Includes a $7.6 million impairment on our investment in a recently developed retail property held by our unconsolidated real estate joint venture.
(3)Calculated in accordance with standards established by the Advisory Board of Governors of Nareit (the “Nareit Board of Governors”). Refer to the definition of “Funds from operations and funds from operations, as adjusted, attributable to Alexandria Real Estate Equities, Inc.’s common stockholders” in the “Non-GAAP measures and definitions” section within this Item 2 for additional information.
(4)Includes eight cents related to an impairment charge of $10 million recognized in April 2020 to write off the carrying amount of the pre-acquisition deposit related to an operating tech office property for which our revised economic projections declined from our initial underwriting. The impairment was recognized concurrently with the submission of our notice to terminate the transaction.
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Assumptions(1)
(Dollars in millions)
|
|
As of 7/27/20
|
|
|
|
As of 4/27/20
|
|
|
|
|
Low
|
|
High
|
|
Low
|
|
High
|
Occupancy percentage for operating properties in North America as of December 31, 2020
|
|
94.8%
|
|
95.4%
|
|
94.8%
|
|
95.4%
|
Lease renewals and re-leasing of space:
|
|
|
|
|
|
|
|
|
Rental rate increases
|
|
28.0%
|
|
31.0%
|
|
28.0%
|
|
31.0%
|
Rental rate increases (cash basis)
|
|
14.0%
|
|
17.0%
|
|
14.0%
|
|
17.0%
|
Same property performance:
|
|
|
|
|
|
|
|
|
Net operating income increase
|
|
1.0%
|
|
3.0%
|
|
1.0%
|
|
3.0%
|
Net operating income increase (cash basis)
|
|
4.5%
|
|
6.5%
|
|
4.5%
|
|
6.5%
|
Straight-line rent revenue
|
|
$
|
98
|
|
|
$
|
108
|
|
|
$
|
98
|
|
|
$
|
108
|
|
General and administrative expenses
|
|
$
|
121
|
|
|
$
|
126
|
|
|
$
|
121
|
|
|
$
|
126
|
|
Capitalization of interest
|
|
$
|
117
|
|
|
$
|
127
|
|
|
$
|
102
|
|
|
$
|
112
|
|
Interest expense
|
|
$
|
170
|
|
|
$
|
180
|
|
|
$
|
185
|
|
|
$
|
195
|
|
|
|
|
|
|
|
|
|
|
(1)Our assumptions presented in the table above are subject to a number of variables and uncertainties, including those discussed as “Forward-Looking Statements” under Part I; “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2019, as well as in “Item 1A. Risk Factors” within “Part II – Other Information” of this quarterly report on Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
Key Credit Metrics
|
|
2020 Guidance
|
|
|
Net debt and preferred stock to Adjusted EBITDA – fourth quarter of 2020, annualized
|
|
Less than or equal to 5.3x
|
|
|
Fixed-charge coverage ratio – fourth quarter of 2020, annualized
|
|
Greater than or equal to 4.4x
|
|
|
|
|
|
|
|
Consolidated and unconsolidated real estate joint ventures
We present components of balance sheet and operating results information for the noncontrolling interest share of our consolidated real estate joint ventures and for our share of investments in unconsolidated real estate joint ventures to help investors estimate balance sheet and operating results information related to our partially owned entities. These amounts are estimated by computing, for each joint venture that we consolidate in our financial statements, the noncontrolling interest percentage of each financial item to arrive at the cumulative noncontrolling interest share of each component presented. In addition, for our real estate joint ventures that we do not control and do not consolidate, we apply our economic ownership percentage to the unconsolidated real estate joint ventures to arrive at our proportionate share of each component presented. Refer to Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our unaudited consolidated financial statements under Item 1 of this report for further discussion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Real Estate Joint Ventures
|
|
|
|
|
|
Property/Market/Submarket
|
|
Noncontrolling(1)
Interest Share
|
|
|
|
225 Binney Street/Greater Boston/Cambridge
|
|
|
70.0
|
%
|
|
|
75/125 Binney Street/Greater Boston/Cambridge
|
|
|
60.0
|
%
|
|
|
409 and 499 Illinois Street/San Francisco/Mission Bay/SoMa
|
|
|
40.0
|
%
|
|
|
1500 Owens Street/San Francisco/Mission Bay/SoMa
|
|
|
49.9
|
%
|
|
|
Alexandria Technology Center® – Gateway/San Francisco/South San Francisco(2)
|
|
|
55.0
|
%
|
|
|
500 Forbes Boulevard/San Francisco/South San Francisco
|
|
|
90.0
|
%
|
|
|
Campus Pointe by Alexandria/San Diego/University Town Center(3)
|
|
|
45.0
|
%
|
|
|
5200 Illumina Way/San Diego/University Town Center
|
|
|
49.0
|
%
|
|
|
9625 Towne Centre Drive/San Diego/University Town Center
|
|
|
49.9
|
%
|
|
|
SD Tech by Alexandria/San Diego/Sorrento Mesa(4)
|
|
|
50.0
|
%
|
|
|
|
|
|
|
|
|
Unconsolidated Real Estate Joint Ventures
|
|
|
|
|
|
Property/Market/Submarket
|
|
Our Ownership Share(5)
|
|
|
|
1655 and 1725 Third Street/San Francisco/Mission Bay/SoMa
|
|
|
10.0
|
%
|
|
|
Menlo Gateway/San Francisco/Greater Stanford
|
|
|
49.0
|
%
|
|
|
704 Quince Orchard Road/Maryland/Gaithersburg
|
|
|
56.8
|
%
|
(6)
|
|
(1)In addition to the consolidated real estate joint ventures listed, various partners hold insignificant noncontrolling interests in six other joint ventures in North America.
(2)Excludes 600, 630, 650, 901, and 951 Gateway Boulevard in our South San Francisco submarket. Noncontrolling interest share is anticipated to be 49% as we make further contributions over time.
(3)Excludes 9880 Campus Point Drive in our University Town Center submarket.
(4)Excludes 5505 Morehouse Drive in our Sorrento Mesa submarket.
(5)In addition to the unconsolidated real estate joint ventures listed, we hold an interest in two other insignificant unconsolidated real estate joint ventures in North America.
(6)Represents our ownership interest; our voting interest is limited to 50%.
Our unconsolidated real estate joint ventures have the following non-recourse secured loans that include the following key terms as of June 30, 2020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity Date
|
|
|
|
Stated Rate
|
|
Interest Rate(1)
|
|
100% at Joint Venture Level
|
|
Unconsolidated Joint Venture
|
|
Our Share
|
|
|
|
|
|
|
|
|
|
Debt Balance(2)
|
|
704 Quince Orchard Road
|
|
56.8%
|
|
|
3/16/23
|
|
|
L+1.95%
|
|
2.40%
|
|
$
|
11,602
|
|
|
1655 and 1725 Third Street
|
|
10.0%
|
|
|
3/10/25
|
|
|
4.50%
|
|
4.57%
|
|
598,020
|
|
|
Menlo Gateway, Phase II
|
|
49.0%
|
|
|
5/1/35
|
|
|
4.53%
|
|
4.59%
|
|
106,580
|
|
|
Menlo Gateway, Phase I
|
|
49.0%
|
|
|
8/10/35
|
|
|
4.15%
|
|
4.18%
|
|
140,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
857,045
|
|
|
(1)Includes interest expense and amortization of loan fees.
(2)Represents outstanding principal, net of unamortized deferred financing costs, as of June 30, 2020.
The following tables present information related to the operating results and financial positions of our consolidated and unconsolidated real estate joint ventures (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interest Share of Consolidated Real Estate Joint Ventures
|
|
|
|
Our Share of Unconsolidated
Real Estate Joint Ventures
|
|
|
|
June 30, 2020
|
|
|
|
June 30, 2020
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Three Months Ended
|
|
Six Months Ended
|
Total revenues
|
$
|
39,869
|
|
|
$
|
77,646
|
|
|
$
|
10,011
|
|
|
$
|
20,655
|
|
Rental operations
|
(10,302)
|
|
|
(20,397)
|
|
|
(1,199)
|
|
|
(2,617)
|
|
|
29,567
|
|
|
57,249
|
|
|
8,812
|
|
|
18,038
|
|
General and administrative
|
(102)
|
|
|
(219)
|
|
|
(50)
|
|
|
(134)
|
|
Interest
|
—
|
|
|
—
|
|
|
(2,011)
|
|
|
(3,982)
|
|
Depreciation and amortization
|
(15,775)
|
|
|
(31,645)
|
|
|
(2,858)
|
|
|
(5,501)
|
|
Impairment of real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,644)
|
|
Fixed returns allocated to redeemable noncontrolling interests(1)
|
217
|
|
|
435
|
|
|
—
|
|
|
—
|
|
|
$
|
13,907
|
|
|
$
|
25,820
|
|
|
$
|
3,893
|
|
|
$
|
777
|
|
|
|
|
|
|
|
|
|
Straight-line rent and below-market lease revenue
|
$
|
1,274
|
|
|
$
|
3,236
|
|
|
$
|
5,698
|
|
|
$
|
11,551
|
|
Funds from operations(2)
|
$
|
29,682
|
|
|
$
|
57,465
|
|
|
$
|
6,751
|
|
|
$
|
13,922
|
|
(1)Represents an allocation of joint venture earnings to redeemable noncontrolling interests primarily in one property in our South San Francisco submarket. These redeemable noncontrolling interests earn a fixed return on their investment rather than participate in the operating results of the property.
(2)Refer to the definition of “Funds from operations and funds from operations, as adjusted, attributable to Alexandria Real Estate Equities, Inc.’s common stockholders” in the “Non-GAAP measures and definitions” section within this Item 2 for the definition and the reconciliation from the most directly comparable GAAP measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
|
|
Noncontrolling Interest Share of Consolidated
Real Estate Joint Ventures
|
|
Our Share of Unconsolidated
Real Estate Joint Ventures
|
Investments in real estate
|
$
|
1,491,601
|
|
|
$
|
459,843
|
|
Cash, cash equivalents, and restricted cash
|
48,327
|
|
|
9,338
|
|
Other assets
|
168,342
|
|
|
49,503
|
|
Secured notes payable
|
—
|
|
|
(186,254)
|
|
Other liabilities
|
(70,734)
|
|
|
(5,572)
|
|
Redeemable noncontrolling interests
|
(12,122)
|
|
|
—
|
|
|
$
|
1,625,414
|
|
|
$
|
326,858
|
|
During the six months ended June 30, 2020 and 2019, our consolidated real estate joint ventures distributed an aggregate of $38.2 million and $24.6 million, respectively, to our joint venture partners. Refer to our consolidated statements of cash flows and Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our unaudited consolidated financial statements under Item 1 of this report for additional information.
Investments
We present our equity investments at fair value whenever fair value or NAV is readily available. Adjustments for our limited partnership investments represent changes in reported NAV as a practical expedient to estimate fair value. For investments without readily available fair values, we adjust the carrying amount whenever such investments have an observable price change, and further adjustments are not made until another price change, if any, is observed. Refer to Note 7 – “Investments” to our unaudited consolidated financial statements under Item 1 of this report for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Year Ended December 31, 2019
|
|
Realized gains
|
|
$
|
13,005
|
|
(1)
|
|
$
|
8,328
|
|
(1)
|
|
$
|
33,158
|
|
(2)
|
Unrealized gains
|
|
171,652
|
|
|
|
154,508
|
|
|
|
161,489
|
|
|
Investment income
|
|
$
|
184,657
|
|
|
|
$
|
162,836
|
|
|
|
$
|
194,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
(In thousands)
|
|
Cost
|
|
|
Unrealized
Gains
|
|
|
Carrying Amount
|
|
Fair value:
|
|
|
|
|
|
|
|
|
|
Publicly traded companies
|
|
$
|
159,129
|
|
|
|
$
|
262,841
|
|
(3)
|
|
$
|
421,970
|
|
|
Entities that report NAV
|
|
302,954
|
|
|
|
218,602
|
|
|
|
521,556
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities that do not report NAV:
|
|
|
|
|
|
|
|
|
|
Entities with observable price changes
|
|
48,565
|
|
|
|
74,708
|
|
|
|
123,273
|
|
|
Entities without observable price changes
|
|
251,666
|
|
|
|
—
|
|
|
|
251,666
|
|
|
June 30, 2020
|
|
$
|
762,314
|
|
(4)
|
|
$
|
556,151
|
|
|
|
$
|
1,318,465
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
$
|
738,983
|
|
|
|
$
|
384,499
|
|
|
|
$
|
1,123,482
|
|
|
(1)Includes realized gains for the three and six months ended June 30, 2020, of $17.7 million and $32.8 million, respectively, and impairments related to investments in privately held entities that do not report NAV of $4.7 million and $24.5 million, respectively.
(2)Includes realized gains of $50.3 million and impairments related to investments in privately held entities that do not report NAV of $17.1 million for the year ended December 31, 2019.
(3)Includes gross unrealized gains and losses of $279.7 million and $16.9 million, respectively, as of June 30, 2020.
(4)Represents 3.3% of gross assets as of June 30, 2020.
|
|
|
|
|
|
|
|
|
|
Public/Private
Mix (Cost)
|
|
|
|
|
|
|
|
|
Tenant/Non-Tenant
Mix (Cost)
|
|
|
|
|
Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
|
|
|
Significant Availability on Unsecured Senior Lines of Credit
|
|
|
|
|
|
|
|
|
$4.2B
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Availability under our unsecured senior lines of credit
|
$
|
2,510
|
|
|
|
|
|
Outstanding forward equity sales agreements(1)
|
520
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash
|
242
|
|
|
|
|
|
Investments in publicly traded companies
|
422
|
|
|
|
|
|
Liquidity as of June 30, 2020
|
3,694
|
|
|
|
|
|
Outstanding forward equity sales agreements(2)
|
532
|
|
|
|
|
|
Total
|
$
|
4,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Debt and Preferred Stock to Adjusted EBITDA(4)
|
|
|
Fixed-Charge Coverage Ratio(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Represents expected net proceeds from the future settlement of the remaining 3.5 million shares outstanding under our January 2020 forward equity sales agreements.
(2)Represents expected net proceeds from the future settlement of 6.9 million shares outstanding under our July 2020 forward equity sales agreements, net of the reduction in availability for borrowing under our $750 million unsecured senior line of credit. Pursuant to the terms of the $750 million unsecured senior line of credit agreement, the outstanding commitments will be reduced in the future by 50% of the net proceeds from any equity offerings entered into subsequent to the execution of this line of credit in April 2020. As of the date of this report, none of our forward equity sales agreements entered into in July 2020 have been settled.
(3)Total outstanding availability on our unsecured senior lines of credit reduced by the expected net proceeds from the future settlement of 6.9 million shares outstanding under our July 2020 forward equity sales agreements.
(4)Quarter annualized.
We expect to meet certain long-term liquidity requirements, such as requirements for development, redevelopment, other construction projects, capital improvements, tenant improvements, property acquisitions, leasing costs, non-revenue-enhancing capital expenditures, scheduled debt maturities, distributions to noncontrolling interests, and payment of dividends through net cash provided by operating activities, periodic asset sales, strategic real estate joint venture capital, and long-term secured and unsecured indebtedness, including borrowings under our unsecured senior lines of credit, issuance under our commercial paper program, and issuance of additional debt and/or equity securities.
We expect to continue meeting our short-term liquidity and capital requirements, as further detailed in this section, generally through our working capital and net cash provided by operating activities. We believe that the net cash provided by operating activities will continue to be sufficient to enable us to make the distributions necessary to continue qualifying as a REIT.
Over the next several years, our balance sheet, capital structure, and liquidity objectives are as follows:
•Retain positive cash flows from operating activities after payment of dividends and distributions to noncontrolling interests for investment in development and redevelopment projects and/or acquisitions;
•Improve credit profile and relative long-term cost of capital;
•Maintain diverse sources of capital, including sources from net cash provided by operating activities, unsecured debt, secured debt, selective real estate asset sales, partial interest sales, non-real estate investment sales, preferred stock, and common stock;
•Maintain commitment to long-term capital to fund growth;
•Maintain prudent laddering of debt maturities;
•Maintain solid credit metrics;
•Maintain significant balance sheet liquidity;
•Mitigate variable-rate debt exposure through the reduction of short-term and medium-term variable-rate bank debt;
•Maintain a large unencumbered asset pool to provide financial flexibility;
•Fund common stock dividends and distributions to noncontrolling interests from net cash provided by operating activities;
•Manage a disciplined level of value-creation projects as a percentage of our gross investments in real estate; and
•Maintain high levels of pre-leasing and percentage leased in value-creation projects.
In addition, refer to “Item 1A. Risk factors” within “Part II – Other information” of this quarterly report on Form 10-Q for a discussion about risks that COVID-19 directly or indirectly may pose to our business.
The following table presents the availability under our $2.2 billion unsecured senior line of credit less amounts outstanding on our commercial paper program; $750 million unsecured senior line of credit; forward equity sales agreements; cash, cash equivalents, and restricted cash; and investments in publicly traded companies as of June 30, 2020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Stated Rate
|
|
Aggregate
Commitments
|
|
Outstanding
Balance
|
|
Remaining Commitments/Liquidity
|
Availability under our $2.2 billion unsecured senior line of credit
|
|
L+0.825
|
%
|
|
$
|
2,200,000
|
|
|
$
|
440,000
|
|
|
$
|
1,760,000
|
|
Availability under our $750 million unsecured senior line of credit
|
|
L+1.050
|
%
|
|
$
|
750,000
|
|
|
$
|
—
|
|
|
750,000
|
|
Outstanding forward equity sales agreements
|
|
|
|
|
|
|
|
519,621
|
|
Cash, cash equivalents, and restricted cash
|
|
|
|
|
|
|
|
241,540
|
|
Investments in publicly traded companies
|
|
|
|
|
|
|
|
421,970
|
|
Total liquidity
|
|
|
|
|
|
|
|
$
|
3,693,131
|
|
Cash, cash equivalents, and restricted cash
As of June 30, 2020, and December 31, 2019, we had $241.5 million and $242.7 million, respectively, of cash, cash equivalents, and restricted cash. We expect existing cash, cash equivalents, and restricted cash, cash flows from operating activities, proceeds from real estate asset sales and partial interest sales, non-real estate investment sales, borrowings under our unsecured senior lines of credit, issuances under our commercial paper program, issuances of unsecured notes payable, and issuances of common stock to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as regular quarterly dividends, distributions to noncontrolling interests, scheduled debt repayments, acquisitions, and certain capital expenditures, including expenditures related to construction activities.
Cash flows
We report and analyze our cash flows based on operating activities, investing activities, and financing activities. The following table summarizes changes in our cash flows for the six months ended June 30, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
Net cash provided by operating activities
|
$
|
393,657
|
|
|
$
|
308,340
|
|
|
$
|
85,317
|
|
Net cash used in investing activities
|
$
|
(1,397,060)
|
|
|
$
|
(1,452,237)
|
|
|
$
|
55,177
|
|
Net cash provided by financing activities
|
$
|
1,002,969
|
|
|
$
|
1,109,218
|
|
|
$
|
(106,249)
|
|
Operating activities
Cash flows provided by operating activities are primarily dependent upon the occupancy level of our asset base, the rental rates of our leases, the collectibility of rent and recovery of operating expenses from our tenants, the timing of completion of development and redevelopment projects, and the timing of acquisitions and dispositions of operating properties. Net cash provided by operating activities for the six months ended June 30, 2020, increased to $393.7 million, compared to $308.3 million for the six months ended June 30, 2019. This increase was primarily attributable to (i) cash flows generated from our highly leased development and redevelopment projects recently placed into service, (ii) income-producing acquisitions since January 1, 2019, and (iii) increases in rental rates on lease renewals and re-leasing of space since January 1, 2019.
Investing activities
Cash used in investing activities for the six months ended June 30, 2020 and 2019, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Increase (Decrease)
|
|
2020
|
|
2019
|
|
|
Sources of cash from investing activities:
|
|
|
|
|
|
Sales of non-real estate investments
|
$
|
68,468
|
|
|
$
|
49,967
|
|
|
$
|
18,501
|
|
Return of capital from unconsolidated real estate joint ventures
|
20,225
|
|
|
—
|
|
|
20,225
|
|
Change in escrow deposits
|
18,719
|
|
|
—
|
|
|
18,719
|
|
|
107,412
|
|
|
49,967
|
|
|
57,445
|
|
Uses of cash for investing activities:
|
|
|
|
|
|
Purchases of real estate
|
699,901
|
|
|
715,030
|
|
|
(15,129)
|
|
Additions to real estate
|
725,742
|
|
|
577,322
|
|
|
148,420
|
|
Investments in unconsolidated real estate joint ventures
|
2,861
|
|
|
95,950
|
|
|
(93,089)
|
|
Change in escrow deposits
|
—
|
|
|
9,000
|
|
|
(9,000)
|
|
Additions to non-real estate investments
|
75,968
|
|
|
104,902
|
|
|
(28,934)
|
|
|
1,504,472
|
|
|
1,502,204
|
|
|
2,268
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
$
|
1,397,060
|
|
|
$
|
1,452,237
|
|
|
$
|
(55,177)
|
|
The decrease in net cash used in investing activities for the six months ended June 30, 2020, was primarily due to a decreased use of cash for purchases of real estate, investments in unconsolidated real estate joint ventures, additions to non-real estate investments, and an increased source of cash from higher return of capital from unconsolidated real estate joint ventures. The decrease in cash used in investing activities was partially offset by an increased use of cash for property acquisitions. Refer to Note 3 – “Investments in real estate” to our unaudited consolidated financial statements under Item 1 of this report for further information.
Financing activities
Cash flows provided by financing activities for the six months ended June 30, 2020 and 2019, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
Proceeds from issuance of unsecured senior notes payable
|
$
|
699,532
|
|
|
$
|
854,209
|
|
|
$
|
(154,677)
|
|
Repayments of borrowings from secured notes payable
|
(3,088)
|
|
|
(302,878)
|
|
|
299,790
|
|
Borrowings from unsecured senior lines of credit
|
1,470,000
|
|
|
2,114,000
|
|
|
(644,000)
|
|
Repayments of borrowings from unsecured senior lines of credit
|
(1,414,000)
|
|
|
(1,808,000)
|
|
|
394,000
|
|
Proceeds from issuance of commercial paper notes
|
8,179,900
|
|
|
—
|
|
|
8,179,900
|
|
Repayments of borrowings from commercial paper program
|
(8,179,900)
|
|
|
—
|
|
|
(8,179,900)
|
|
Payments of loan fees
|
(7,957)
|
|
|
(15,796)
|
|
|
7,839
|
|
Changes related to debt
|
744,487
|
|
|
841,535
|
|
|
(97,048)
|
|
|
|
|
|
|
|
Contributions from and sales of noncontrolling interests
|
55,775
|
|
|
441,251
|
|
|
(385,476)
|
|
Distributions to and purchases of noncontrolling interests
|
(38,482)
|
|
|
(24,590)
|
|
|
(13,892)
|
|
Proceeds from issuance of common stock
|
504,338
|
|
|
85,394
|
|
|
418,944
|
|
Dividend payments
|
(256,259)
|
|
|
(221,046)
|
|
|
(35,213)
|
|
Taxes paid related to net settlement of equity awards
|
(6,890)
|
|
|
(4,086)
|
|
|
(2,804)
|
|
Repurchase of 7.00% Series D cumulative convertible preferred stock
|
—
|
|
|
(9,240)
|
|
|
9,240
|
|
Net cash provided by financing activities
|
$
|
1,002,969
|
|
|
$
|
1,109,218
|
|
|
$
|
(106,249)
|
|
Capital resources
We expect that our principal liquidity needs for the year ending December 31, 2020, 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.
Our initial 2020 guidance issued on December 3, 2019, included ranges for 2020 construction spending and acquisitions of $1.55 billion to $1.65 billion and $900 million to $1.0 billion, respectively, and reflected a strong outlook for 2020, including continued strong demand for our value-creation development and redevelopment projects. Our guidance issued on April 27, 2020 reduced our 2020 forecasted construction spending, acquisitions, real estate dispositions and partial interest sales, and issuance of common equity. These reductions were deemed necessary while we monitored the impact of COVID-19 on many areas of our business, including the overall macro and capital market environments. The following table provides key updates to our 2020 guidance issued on February 3, 2020 and April 27, 2020, based on our current view of existing market conditions and assumptions for the year ending December 31, 2020, and reflects increases in uses of capital to address the continuing tenant demand for our development and redevelopment pipeline and existing and anticipated attractive acquisition opportunities. Our updated 2020 construction spending guidance range increased since April 27, 2020, and is now closer to our initial forecast for 2020 disclosed in our guidance issued on February 3, 2020. Additionally, our initial guidance for 2020 anticipated meaningful acquisition opportunities and our updated 2020 acquisition guidance range continues to reflect opportunistic offerings in the market. The increase above our initial acquisition guidance range is expected to be funded through forecasted real estate dispositions and partial interest sales. Proceeds from forecasted sales are also expected to fund a portion of the increase in construction spending and to provide significant capital for growth over the next two to three quarters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Sources and Uses of Capital
(In millions)
|
|
As of 7/27/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
|
|
|
|
Midpoint
|
|
Certain
Completed Items
|
|
|
As of 4/27/20
Midpoint
|
|
As of 2/3/20
Midpoint
|
|
|
Sources of capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities after dividends
|
|
$
|
185
|
|
|
$
|
225
|
|
|
$
|
205
|
|
|
|
|
|
$
|
205
|
|
|
$
|
220
|
|
|
|
Incremental debt
|
|
415
|
|
|
575
|
|
|
495
|
|
|
see below
|
|
|
335
|
|
|
380
|
|
|
|
Real estate dispositions and partial interest sales
|
|
1,000
|
|
|
1,500
|
|
|
1,250
|
|
|
$
|
51
|
|
(1)
|
|
50
|
|
(1)
|
50
|
|
(1)
|
|
Common equity
|
|
2,090
|
|
|
2,090
|
|
|
2,090
|
|
|
$
|
2,087
|
|
(2)
|
|
1,020
|
|
(1)
|
1,900
|
|
(1)
|
|
Total sources of capital
|
|
$
|
3,690
|
|
|
$
|
4,390
|
|
|
$
|
4,040
|
|
|
|
|
|
$
|
1,610
|
|
|
$
|
2,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uses of capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction (refer to the “Investments in real estate” section within Item 2 for additional information)
|
|
$
|
1,200
|
|
|
$
|
1,500
|
|
|
$
|
1,350
|
|
|
|
|
|
$
|
960
|
|
|
$
|
1,600
|
|
|
|
Acquisitions (refer to the “Executive summary” section within Item 2 for additional information)
|
|
1,600
|
|
|
2,000
|
|
|
1,800
|
|
|
$
|
842
|
|
|
|
650
|
|
|
950
|
|
|
|
Total uses of capital
|
|
$
|
2,800
|
|
|
$
|
3,500
|
|
|
$
|
3,150
|
|
|
|
|
|
$
|
1,610
|
|
|
$
|
2,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental debt (included above):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of unsecured senior notes payable(3)
|
|
$
|
700
|
|
|
$
|
700
|
|
|
$
|
700
|
|
|
$
|
700
|
|
|
|
$
|
700
|
|
|
$
|
600
|
|
|
|
$3.0 billion unsecured senior lines of credit and other
|
|
(285)
|
|
|
(125)
|
|
|
(205)
|
|
|
|
|
|
(365)
|
|
|
(220)
|
|
|
|
Incremental debt
|
|
$
|
415
|
|
|
$
|
575
|
|
|
$
|
495
|
|
|
|
|
|
$
|
335
|
|
|
$
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess sources of capital
|
|
|
|
|
|
$
|
890
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(1)In April 2020, we completed the sale of a partial interest in properties at 9808 and 9868 Scranton Road in our Sorrento Mesa submarket to the existing SD Tech by Alexandria consolidated real estate joint venture, of which we own 50%. We received proceeds of $51.1 million for the 50% interest in the properties that our joint venture partner acquired through the joint venture. Our previous guidance disclosures included a combined amount for real estate dispositions, partial interest sales, and common equity. Amounts presented have been split into two separate categories for (i) actual real estate dispositions and partial interest sales completed through July 27, 2020, and (ii) common equity.
(2)In January 2020 and July 2020, we entered into forward equity sales agreements aggregating $1.0 billion and $1.1 billion, respectively, to sell an aggregate of 6.9 million shares for each offering (13.8 million in aggregate) of our common stock (including the exercise of an underwriters’ option) at a public offering price of $155.00 per share and $160.50 per share, respectively, before underwriting discounts. In March 2020, we settled 3.4 million shares from our forward equity sales agreements and received proceeds of $500.0 million. As of the date of this report, 10.4 million shares of our common stock remain outstanding under forward equity sales agreements, for which we expect to receive proceeds of $1.6 billion, to be further adjusted as provided in the agreements, that will fund pending and recently completed acquisitions and the construction of our highly leased development projects. We expect to settle the remaining outstanding forward equity sales agreements in 2020.
(3)We may opportunistically seek to refinance additional near term maturities in 2020, subject to market conditions.
The key assumptions behind the sources and uses of capital in the table above include a favorable capital market environment, performance of our core operating properties, lease-up and delivery of current and future development and redevelopment projects, and leasing activity. Our expected sources and uses of capital are subject to a number of variables and uncertainties, including those discussed as “Forward-looking statements” under Part I; “Item 1A. Risk factors”; and “Item 7. Management’s discussion and analysis of financial condition and results of operations” of our annual report on Form 10-K for the year ended December 31, 2019. We expect to update our forecast of sources and uses of capital on a quarterly basis.
Sources of capital
Net cash provided by operating activities after dividends
We expect to retain $185.0 million to $225.0 million of net cash flows from operating activities after payment of common stock dividends, and distributions to noncontrolling interests. For purposes of this calculation, changes in operating assets and liabilities are excluded as they represent timing differences. For the year ending December 31, 2020, we expect our recently delivered projects, our highly pre-leased value-creation projects expected to be completed, along with contributions from Same Properties and recently acquired properties, to contribute significant increases in income from rentals, net operating income, and cash flows. We anticipate significant contractual near-term growth in annual cash rents of $29 million related to the commencement of contractual rents on the projects recently placed into service that are near the end of their initial free rent period. Refer to the “Cash flows ” subsection of the “Liquidity” section within this Item 2 for a discussion of cash flows provided by operating activities for the six months ended June 30, 2020.
Debt
As of June 30, 2020, we have an outstanding balance of $440.0 million on our $2.2 billion unsecured senior line of credit. Our $2.2 billion unsecured senior line of credit bears an interest rate of LIBOR plus 0.825% and matures on January 28, 2024, which includes two six-month extension options that we control. As of June 30, 2020, we have no outstanding balance on our $750 million unsecured senior line of credit, which bears an interest rate of LIBOR plus 1.050% and matures on April 14, 2022. In addition to the cost of borrowing, the $2.2 billion and $750 million unsecured senior lines of credit are subject to an annual facility fee of 0.15% and 0.20%, respectively, based on the aggregate commitments outstanding.
We use our unsecured senior lines of credit to fund working capital, construction activities, and, from time to time, acquisition of properties. Borrowings under the unsecured senior lines of credit bear interest at a “Eurocurrency Rate,” a “LIBOR Floating Rate,” or a “Base Rate” specified in each respective unsecured senior line of credit agreement plus, in any case, the Applicable Margin. The Eurocurrency Rate specified in the unsecured senior lines of credit agreements is, as applicable, the rate per annum equal to either (i) the LIBOR or a successor rate thereto as agreed to by the administrative agent and the Company for loans denominated in a LIBOR quoted currency (i.e., U.S. dollars, euro, sterling, or yen), (ii) the average annual yield rates applicable to Canadian dollar bankers’ acceptances for loans denominated in Canadian dollars, (iii) the Bank Bill Swap Reference Bid rate for loans denominated in Australian dollars, or (iv) the rate designated with respect to the applicable alternative currency for loans denominated in a non-LIBOR quoted currency (other than Canadian or Australian dollars). The LIBOR Floating Rate means, for any day, one month LIBOR, or a successor rate thereto as agreed to by the administrative agent and the Company for loans denominated in U.S. dollars. The Base Rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the federal funds rate plus 1/2 of 1.00%, (ii) the rate of interest in effect for such day as publicly announced from time to time by the Administrative Agent as its “prime rate,” and (iii) the Eurocurrency Rate plus 1.00%. Our $2.2 billion unsecured senior line of credit contains a feature that allows lenders to competitively bid on the interest rate for borrowings under the facility. This may result in an interest rate that is below the stated rate.
Pursuant to the terms of the new line of credit agreement, the outstanding commitments and any outstanding borrowings from the $750 million unsecured senior line of credit will be reduced by 100% of net cash proceeds from certain new debt transactions and 50% of net cash proceeds from new equity offerings as defined in the agreement. Therefore, upon full or partial settlement of our forward equity sales agreements entered into in July 2020, described further under the “Common equity transactions” section of Note 13 – “Stockholders’ equity” to our unaudited consolidated financial statements, the outstanding commitments and any outstanding borrowings from the $750 million unsecured senior line of credit will be reduced by 50% of net proceeds received from the settlement of the aforementioned July 2020 agreements (January 2020 forward equity sales agreements are excluded). As of the date of this report, none of our forward equity sales agreements entered into in July 2020 have been settled.
We expect to fund a portion of our capital needs for the remainder of 2020 from the settlement of our outstanding forward equity sales agreements, from issuances under our commercial paper program discussed below, from borrowings under our $2.95 billion unsecured senior lines of credit, and from real estate dispositions and partial interest sales.
We established a commercial paper program with the ability to issue up to $1.0 billion of commercial paper notes generally with a maturity of 30 days or less and with a maximum maturity of 397 days from the date of issuance. Our commercial paper program is backed by our $2.2 billion unsecured senior line of credit, and at all times we expect to retain a minimum undrawn amount of borrowing capacity under our $2.2 billion unsecured senior line of credit equal to any outstanding balance on our commercial paper program. We use borrowings under the program to fund short-term capital needs. The notes issued under our commercial paper program are sold under customary terms in the commercial paper market. They are typically issued at a discount to par, representing a yield to maturity dictated by market conditions at the time of issuance. In the event we are unable to issue commercial paper notes or refinance outstanding commercial paper notes under terms equal to or more favorable than those under the $2.2 billion unsecured senior line of credit, we expect to borrow under the $2.2 billion unsecured senior line of credit at LIBOR plus 0.825%. The commercial paper notes sold during the three months ended June 30, 2020, were issued at a weighted-average yield to maturity of 0.79%. As of June 30, 2020, we had no outstanding borrowings under our commercial paper program.
In March 2020, we completed an offering of $700.0 million of unsecured senior notes payable due on December 15, 2030, at an interest rate of 4.90% for net proceeds of $691.6 million. The net proceeds were used to reduce the outstanding indebtedness under our $2.2 billion unsecured senior line of credit and commercial paper program. Since January 1, 2019, we have completed the issuances of $3.4 billion in unsecured senior notes, with a weighted-average interest rate of 3.95% and a weighted-average maturity as of June 30, 2020, of 15.2 years.
Proactive management of transition away from LIBOR
LIBOR has been used extensively in the U.S. and globally as a reference rate for various commercial and financial contracts, including variable-rate debt and interest rate swap contracts. However, it is expected that LIBOR will no longer be used after 2021. To address the increased risk of LIBOR discontinuation, in the U.S. the Alternative Reference Rates Committee (“ARRC”) was established to help ensure the successful transition from LIBOR. In June 2017, the ARRC selected SOFR, a new index calculated by reference to short-term repurchase agreements backed by U.S. Treasury securities, as its preferred replacement for U.S. dollar LIBOR. We have been closely monitoring developments related to the transition away from LIBOR and have implemented numerous proactive measures to minimize the potential impact of the transition to the Company, specifically:
•We have proactively reduced outstanding LIBOR-based borrowings under our unsecured senior bank term loans and secured construction loans through repayments. From January 2017 through June 2020, we retired approximately $1.5 billion of such debt.
•During 2020, we increased the aggregate amount of our commercial paper program to $1.0 billion from $750.0 million. This program provides us with ability to issue commercial paper notes bearing interest at short-term fixed rates, generally with a maturity of 30 days or less and with a maximum maturity of 397 days from the date of issuance. Our commercial paper program is not subjected to LIBOR and is used for funding short-term working capital needs. As of June 30, 2020, we had no borrowings outstanding under our commercial paper program.
•We prudently manage outstanding borrowings under our $2.2 billion and $750 million unsecured senior lines of credit. As of June 30, 2020, we have not drawn any amounts on our $750 million unsecured senior line of credit. Excluding LIBOR-based debt held by one of our unconsolidated real estate joint ventures, borrowings under our $2.2 billion unsecured senior line of credit represented our only LIBOR-based debt outstanding as of June 30, 2020, which represented less than 6% of our total debt balance outstanding as of June 30, 2020.
•Our unsecured senior lines of credit contain fallback language generally consistent with the ARRC’s Amendment Approach, which provides a streamlined amendment approach for negotiating a benchmark replacement and introduces clarity with respect to the fallback trigger events and an adjustment to be applied to the successor rate.
•We continue to actively monitor developments by the ARRC and other governing bodies involved in LIBOR transition.
Refer to Note 10 – “Secured and unsecured senior debt” to our unaudited consolidated financial statements under Item 1 of this report and “Item 1A. Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2019, for additional information about our management of risks related to the transition away from LIBOR.
Real estate dispositions and partial interest sales
We expect to continue the disciplined execution of select sales of operating assets. Future sales will provide an important source of capital to fund a portion of pending and recently completed opportunistic acquisitions and our highly leased value-creation development and redevelopment projects, and also provide significant capital for growth over the next two to three quarters. We may also consider additional sales of partial interests in core Class A properties and/or development projects. For 2020, we expect real estate dispositions and partial interest sales ranging from $1.0 billion to $1.5 billion. The amount of asset sales necessary to meet our forecasted sources of capital will vary depending upon the amount of EBITDA associated with the assets sold. As of the date of this report, we have received proceeds of $51.1 million from our partial interest sale at 9808 and 9868 Scranton Road in our Sorrento Mesa submarket.
As a REIT, generally we are subject to a 100% tax on the net income from real estate asset sales that the IRS characterizes as “prohibited transactions.” We do not expect our sales will be categorized as prohibited transactions. However, unless we meet certain “safe harbor” requirements, whether a real estate asset sale is a prohibited transaction will be based on the facts and circumstances of the sale. Our real estate asset sales may not always meet such safe harbor requirements. Refer to “Item 1A. Risk factors” of our annual report on Form 10-K for the year ended December 31, 2019, for additional information about the “prohibited transaction” tax.
Common equity transactions
In January 2020, we entered into forward equity sales agreements aggregating $1.0 billion to sell an aggregate of 6.9 million shares of our common stock (including the exercise of an underwriters’ option) at a public offering price of $155.00 per share, before underwriting discounts. In March 2020, we settled 3.4 million shares from our forward equity sales agreement and received proceeds of $500.0 million. We expect to receive proceeds of approximately $519.6 million upon settlement of the remaining outstanding forward equity sales agreements, to be further adjusted as provided in the sales agreements.
In addition, in July 2020, we entered into forward equity sales agreements to sell an aggregate of 6.9 million shares of our common stock (including the exercise of an underwriters’ option) at a public offering price of $160.50 per share, before underwriting discounts. We expect to receive proceeds of approximately $1.1 billion, to be further adjusted as provided in the sales agreements. As of the date of this report, no shares have been settled under these forward equity sales agreements.
We expect to settle the outstanding forward equity sales agreements in 2020, and use proceeds to fund pending and recently completed acquisitions and the construction of our highly leased development and redevelopment projects.
In February 2020, we entered into a new ATM common stock offering program, which allows us to sell up to an aggregate of $850.0 million of our common stock. As of June 30, 2020, the remaining availability under this ATM program was approximately $843.7 million. The amount of common equity issued will be subject to market conditions.
Other sources
Under our current shelf registration statement filed with the SEC, we may offer common stock, preferred stock, debt, and other securities. These securities may be issued, from time to time, at our discretion based on our needs and market conditions, including, as necessary, to balance our use of incremental debt capital.
Additionally, we hold interests, together with joint venture partners, in real estate joint ventures that we consolidate in our financial statements. These joint venture partners may contribute equity into these entities primarily related to their share of funds for construction and financing-related activities. During the six months ended June 30, 2020, we received $55.8 million of contributions from and sales of noncontrolling interests.
Uses of capital
Summary of capital expenditures
One of our primary uses of capital relates to the development, redevelopment, pre-construction, and construction of properties. We currently have projects in our growth pipeline aggregating 2.3 million RSF of Class A office/laboratory and tech office space undergoing construction, 6.6 million RSF of near-term and intermediate-term development and redevelopment projects, and 5.3 million SF of future development projects in North America. We incur capitalized construction costs related to development, redevelopment, pre-construction, and other construction activities. We also incur additional capitalized project costs, including interest, property taxes, insurance, and other costs directly related and essential to the development, redevelopment, pre-construction, or construction of a project, during periods when activities necessary to prepare an asset for its intended use are in progress. Refer to the “New Class A development and redevelopment properties: current projects” and “Summary of capital expenditures” subsections of the “Investments in real estate” section within this Item 2 for more information on our capital expenditures.
We 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 has been incurred. Capitalized interest for the six months ended June 30, 2020 and 2019, of $55.5 million and $40.2 million, respectively, is classified in investments in real estate. Indirect project costs, including construction administration, legal fees, and office costs that clearly relate to projects under development or construction, are capitalized as incurred during the period an asset is undergoing activities to prepare it for its intended use. We capitalized payroll and other indirect project costs related to development, redevelopment, pre-construction, and construction projects, which aggregated $32.3 million and $20.7 million for the six months ended June 30, 2020 and 2019, respectively. The increase in capitalized payroll and other indirect project costs for the six months ended June 30, 2020, compared to the same period in 2019 was primarily due to an increase in our value-creation pipeline projects undergoing construction and pre-construction activities aggregating six projects with 4.4 million RSF in 2020 over 2019. Pre-construction activities include entitlements, permitting, design, site work, and other activities preceding commencement of construction of aboveground building improvements. The advancement of pre-construction efforts is focused on reducing the time required to deliver projects to prospective tenants. These critical activities add significant value for future ground-up development and are required for the vertical construction of buildings. Should we cease activities necessary to prepare an asset for its intended use, the interest, taxes, insurance, and certain other direct project costs related to this asset would be expensed as incurred. Expenditures for repairs and maintenance are expensed as incurred.
Fluctuations in our development, redevelopment, and construction activities could result in significant changes to total expenses and net income. For example, had we experienced a 10% reduction in development, redevelopment, and construction activities without a corresponding decrease in indirect project costs, including interest and payroll, total expenses would have increased by approximately $8.8 million for the six months ended June 30, 2020.
We use third-party brokers to assist in our leasing activity, who are paid on a contingent basis upon successful leasing. We are required to capitalize initial direct costs related to successful leasing transactions that result directly from and are essential to the lease transaction and would not have been incurred had that lease transaction not been successfully executed. During the six months ended June 30, 2020, we capitalized total initial direct leasing costs of $26.4 million. Costs that we incur to negotiate or arrange a lease regardless of its outcome, such as fixed employee compensation, tax, or legal advice to negotiate lease terms, and other costs, are expensed as incurred.
Acquisitions
Refer to the “Acquisitions” section of Note 3 – “Investments in real estate” to our unaudited consolidated financial statements under Item 1 of this report, and the “Acquisitions” subsection of the “Investments in real estate” section within this Item 2 for information on our acquisitions.
Dividends
During the six months ended June 30, 2020 and 2019, we paid the following dividends (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
Common stock
|
$
|
256,259
|
|
|
$
|
218,914
|
|
|
$
|
37,345
|
|
Series D Convertible Preferred Stock
|
—
|
|
|
2,132
|
|
|
(2,132)
|
|
|
$
|
256,259
|
|
|
$
|
221,046
|
|
|
$
|
35,213
|
|
The increase in dividends paid on our common stock during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, was primarily due to an increase in number of common shares outstanding subsequent to January 1, 2019, as a result of issuances of common stock under our ATM program and settlement of forward equity sales agreements, and partially due to the increase in the related dividends to $2.06 per common share paid during the six months ended June 30, 2020, from $1.94 per common share paid during the six months ended June 30, 2019.
The decrease in dividends paid on our Series D Convertible Preferred Stock during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, was due to a decrease in number of shares outstanding as a result of the repurchase of 275,000 outstanding shares of our Series D Convertible Preferred Stock in 2019 and the conversion of the remaining 2.3 million outstanding shares of our Series D Convertible Preferred Stock into shares of our common stock during 2019. As of June 30, 2020, we had no outstanding shares of Series D Convertible Preferred Stock.
Contractual obligations and commitments
Contractual obligations as of June 30, 2020, consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments by Period
|
|
|
|
|
|
|
|
Total
|
|
2020
|
|
2021–2022
|
|
2023–2024
|
|
Thereafter
|
Secured and unsecured debt(1)(2)
|
$
|
7,549,352
|
|
|
$
|
3,331
|
|
|
$
|
14,127
|
|
|
$
|
1,878,107
|
|
|
$
|
5,653,787
|
|
Estimated interest payments on fixed-rate debt(3)
|
3,044,443
|
|
|
142,537
|
|
|
569,201
|
|
|
511,055
|
|
|
1,821,650
|
|
Ground lease obligations – operating leases
|
706,394
|
|
|
7,270
|
|
|
30,242
|
|
|
30,811
|
|
|
638,071
|
|
Ground lease obligations – finance lease
|
36,074
|
|
|
207
|
|
|
832
|
|
|
840
|
|
|
34,195
|
|
Other obligations
|
27,130
|
|
|
380
|
|
|
4,895
|
|
|
5,469
|
|
|
16,386
|
|
Total
|
$
|
11,363,393
|
|
|
$
|
153,725
|
|
|
$
|
619,297
|
|
|
$
|
2,426,282
|
|
|
$
|
8,164,089
|
|
(1)Amounts represent principal amounts due and exclude unamortized premiums (discounts) and deferred financing costs reflected in the consolidated balance sheets under Item 1 of this report.
(2)Payment dates reflect any extension options that we control.
(3)Amounts are based upon contractual interest rates, including interest payment dates and scheduled maturity dates.
Secured notes payable
Secured notes payable as of June 30, 2020, consisted of six notes secured by 11 properties. Our secured notes payable typically require monthly payments of principal and interest and had a weighted-average interest rate of approximately 3.57%. As of June 30, 2020, the total book value of our investments in real estate securing debt was approximately $1.1 billion. Additionally, as of June 30, 2020, our entire secured notes payable balance of $344.8 million, including unamortized discounts and deferred financing costs, was fixed-rate debt.
Unsecured senior notes payable, $2.2 billion unsecured senior line of credit, and $750.0 million unsecured senior line of credit
The requirements of, and our actual performance with respect to, the key financial covenants under our unsecured senior notes payable as of June 30, 2020, were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Covenant Ratios(1)
|
|
Requirement
|
|
June 30, 2020
|
Total Debt to Total Assets
|
|
Less than or equal to 60%
|
|
34%
|
Secured Debt to Total Assets
|
|
Less than or equal to 40%
|
|
2%
|
Consolidated EBITDA(2) to Interest Expense
|
|
Greater than or equal to 1.5x
|
|
6.9x
|
Unencumbered Total Asset Value to Unsecured Debt
|
|
Greater than or equal to 150%
|
|
273%
|
(1)All covenant ratio titles utilize terms as defined in the respective debt agreements.
(2)The calculation of consolidated EBITDA is based on the definitions contained in our loan agreements and is not directly comparable to the computation of EBITDA as described in Exchange Act Release No. 47226.
In addition, the terms of the indentures, among other things, limit the ability of the Company, Alexandria Real Estate Equities, L.P., and the Company’s subsidiaries to (i) consummate a merger, or consolidate or sell all or substantially all of the Company’s assets, and (ii) incur certain secured or unsecured indebtedness.
The requirements of, and our actual performance with respect to, the key financial covenants under our $2.2 billion unsecured senior line of credit and $750.0 million unsecured senior line of credit as of June 30, 2020, were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenant Ratios(1)
|
|
Requirement
|
|
June 30, 2020
|
|
Leverage Ratio
|
|
Less than or equal to 60.0%
|
|
30.7%
|
|
Secured Debt Ratio
|
|
Less than or equal to 45.0%
|
|
1.4%
|
|
Fixed-Charge Coverage Ratio
|
|
Greater than or equal to 1.50x
|
|
3.77x
|
|
Unsecured Interest Coverage Ratio
|
|
Greater than or equal to 1.75x
|
|
5.98x
|
|
(1)All covenant ratio titles utilize terms as defined in each respective credit agreement.
Estimated interest payments
Estimated interest payments on our fixed-rate debt were calculated based upon contractual interest rates, including interest payment dates and scheduled maturity dates. As of June 30, 2020, 94% of our debt was fixed-rate debt. For additional information regarding our debt, refer to Note 10 – “Secured and unsecured senior debt” to our unaudited consolidated financial statements under Item 1 of this report.
Ground lease obligations
Operating lease agreements
Ground lease obligations as of June 30, 2020, included leases for 33 of our properties, which accounted for approximately 11% of our total number of properties. Excluding one ground lease that expires in 2036 related to one operating property with a net book value of $7.5 million as of June 30, 2020, our ground lease obligations have remaining lease terms ranging from approximately 33 to 94 years, including available extension options that we are reasonably certain to exercise.
As of June 30, 2020, the remaining contractual payments under ground and office lease agreements in which we are the lessee aggregated $706.4 million and $27.1 million, respectively. We are required to recognize a right-of-use asset and a related liability to account for our future obligations under operating lease arrangements in which we are the lessee. The operating lease liability is measured based on the present value of the remaining lease payments, including payments during the term under our extension options that we are reasonably certain to exercise. The right-of-use asset is equal to the corresponding operating lease liability, adjusted for the initial direct leasing cost and any other consideration exchanged with the landlord prior to the commencement of the lease, as well as adjustments to reflect favorable or unfavorable terms of an acquired lease when compared with market terms at the time of acquisition. As of June 30, 2020, the present value of the remaining contractual payments, aggregating $733.5 million, under our operating lease agreements, including our extension options that we are reasonably certain to exercise, was $291.7 million, which is classified in accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets. As of June 30, 2020, the weighted-average remaining lease term of operating leases in which we are the lessee was approximately 43 years, and the weighted-average discount rate was 5.17%. Our corresponding operating lease right-of-use assets, adjusted for initial direct leasing costs and other consideration exchanged with the landlord prior to the commencement of the lease, aggregated $283.6 million. We classify the right-of-use asset in other assets in our consolidated balance sheets. Refer to the “Lease accounting” section of Note 2 – “Summary of significant accounting policies” to our unaudited consolidated financial statements under Item 1 of this report for additional information.
Commitments
As of June 30, 2020, remaining aggregate costs under contract for the construction of properties undergoing development, redevelopment, and improvements under the terms of leases approximated $1.2 billion. We expect payments for these obligations to occur over one to three years, subject to capital planning adjustments from time to time. We may have the ability to cease the construction of certain properties, which would result in the reduction of our commitments. In addition, we have letters of credit and performance obligations aggregating $11.1 million primarily related to construction projects.
We are committed to funding approximately $224.9 million for non-real estate investments primarily related to our investments in limited partnerships. Our funding commitments expire at various dates over the next 11 years, with a weighted-average expiration of 8.5 years as of June 30, 2020.
Exposure to environmental liabilities
In connection with the acquisition of all of our properties, we have obtained Phase I environmental assessments to ascertain the existence of any environmental liabilities or other issues. The Phase I environmental assessments of our properties have not revealed any environmental liabilities that we believe would have a material adverse effect on our financial condition or results of operations taken as a whole, nor are we aware of any material environmental liabilities that have occurred since the Phase I environmental assessments were completed. In addition, we carry a policy of pollution legal liability insurance covering exposure to certain environmental losses at substantially all of our properties.
Foreign currency translation gains and losses
The following table presents the changes in accumulated other comprehensive loss attributable to Alexandria Real Estate Equities, Inc.’s stockholders during the six months ended June 30, 2020, due to the changes in the foreign exchange rates for our real estate investments in Canada and Asia (in thousands). We reclassify unrealized foreign currency translation gains and losses into net income as we dispose of these holdings.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Balance as of December 31, 2019
|
|
|
|
$
|
(9,749)
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
|
|
|
(3,331)
|
|
|
|
Net other comprehensive loss
|
|
|
|
(3,331)
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2020
|
|
|
|
$
|
(13,080)
|
|
|
|
Issuer and guarantor subsidiary summarized financial information
Alexandria Real Estate Equities, Inc. (the “Issuer”) has sold certain debt securities registered under the Securities Act of 1933, as amended, that are fully and unconditionally guaranteed by Alexandria Real Estate Equities, L.P. (the “LP” or the “Guarantor Subsidiary”), an indirectly 100% owned subsidiary of the Issuer. The Issuer’s other subsidiaries, including, but not limited to, the subsidiaries that own substantially all of its real estate (collectively, the “Combined Non-Guarantor Subsidiaries”), will not provide a guarantee of such securities, including the subsidiaries that are partially or 100% owned by the LP. The following summarized financial information presents on a combined basis for the Issuer and the Guarantor Subsidiary balance sheet financial information as of June 30, 2020, and December 31, 2019, and results of operations and comprehensive income for the six months ended June 30, 2020, and year ended December 31, 2019. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. In presenting the summarized financial statements, the equity method of accounting has been applied to (i) the Issuer’s interests in the Guarantor Subsidiary, (ii) the Guarantor Subsidiary’s interests in the Combined Non-Guarantor Subsidiaries, and (iii) the Combined Non-Guarantor Subsidiaries’ interests in the Guarantor Subsidiary, where applicable, even though all such subsidiaries meet the requirements to be consolidated under GAAP. All assets and liabilities have been allocated to the Issuer and the Guarantor Subsidiary generally based on legal entity ownership.
The following tables present combined summarized financial information for the Issuer and Guarantor Subsidiary. Amounts provided do not represent our total consolidated amounts, as of June 30, 2020, and December 31, 2019, and for the six months ended June 30, 2020, and year ended December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Assets:
|
|
|
|
|
Cash, cash equivalents, and restricted cash
|
|
$
|
48,774
|
|
|
$
|
4,432
|
|
Other assets
|
|
92,316
|
|
|
71,036
|
|
Total assets
|
|
$
|
141,090
|
|
|
$
|
75,468
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Unsecured senior notes payable
|
|
$
|
6,738,486
|
|
|
$
|
6,044,127
|
|
Unsecured senior lines of credit
|
|
440,000
|
|
|
384,000
|
|
Other liabilities
|
|
304,502
|
|
|
278,858
|
|
Total liabilities
|
|
$
|
7,482,988
|
|
|
$
|
6,706,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
Year Ended December 31, 2019
|
Total revenues
|
|
$
|
11,179
|
|
|
$
|
22,731
|
|
Total expenses
|
|
(151,220)
|
|
|
(317,896)
|
|
Net loss
|
|
(140,041)
|
|
|
(295,165)
|
|
Net income attributable to unvested restricted stock awards and preferred stock
|
|
(3,574)
|
|
|
(12,170)
|
|
Net loss attributable to Alexandria Real Estate Equities, Inc.’s common stockholders
|
|
$
|
(143,615)
|
|
|
$
|
(307,335)
|
|
|
|
|
|
|
Critical accounting policies
Refer to our annual report on Form 10-K for the year ended December 31, 2019, for a discussion of our critical accounting policies related to REIT compliance, investments in real estate, impairment of long-lived assets, equity investments, interest rate hedge agreements, liability and right-of-use assets related to operating leases in which we are the lessee, and monitoring of tenant credit quality.
Non-GAAP measures and definitions
This section contains additional information of certain non-GAAP financial measures and the reasons why we use these supplemental measures of performance and believe they provide useful information to investors, as well as the definitions of other terms used in this report.
Funds from operations and funds from operations, as adjusted, attributable to Alexandria Real Estate Equities, Inc.’s common stockholders
GAAP-basis accounting for real estate assets utilizes historical cost accounting and assumes that 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 Nareit Board of Governors established funds from operations as an improved measurement tool. Since its introduction, funds from operations has become a widely used non-GAAP financial measure among equity REITs. We believe that funds from operations is helpful to investors as an additional measure of the performance of an equity REIT. Moreover, we believe that funds from operations, as adjusted, allows investors to compare our performance to the performance of other real estate companies on a consistent basis, without having to account for differences recognized because of real estate investment and disposition decisions, financing decisions, capital structure, capital market transactions, and variances resulting from the volatility of market conditions outside of our control. On January 1, 2019, we adopted standards established by the Nareit Board of Governors in its November 2018 White Paper (the “Nareit White Paper”) on a prospective basis. The Nareit White Paper defines funds from operations as net income (computed in accordance with GAAP), excluding gains or losses on sales of real estate, and impairments of real estate, plus depreciation and amortization of operating real estate assets, and after adjustments for our share of consolidated and unconsolidated partnerships and real estate joint ventures. Impairments represent the write-down of assets when fair value over the recoverability period is less than the carrying value due to changes in general market conditions and do not necessarily reflect the operating performance of the properties during the corresponding period.
We compute funds from operations, as adjusted, as funds from operations calculated in accordance with the Nareit White Paper, excluding significant gains, losses, and impairments realized on non-real estate investments, unrealized gains or losses on non-real estate investments, gains or losses on early extinguishment of debt, gains or losses on early termination of interest rate hedge agreements, preferred stock redemption charges, deal costs, the income tax effect related to such items, and the amount of such items that is allocable to our unvested restricted stock awards. Neither funds from operations nor funds from operations, as adjusted, should be considered as alternatives to net income (determined in accordance with GAAP) as indications of financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as measures of liquidity, nor are they indicative of the availability of funds for our cash needs, including our ability to make distributions.
The following table reconciles net income to funds from operations for the share of consolidated real estate joint ventures attributable to noncontrolling interests and our share of unconsolidated real estate joint ventures for the three and six months ended June 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interest Share of Consolidated Real Estate Joint Ventures
|
|
|
|
Our Share of Unconsolidated
Real Estate Joint Ventures
|
|
|
|
June 30, 2020
|
|
|
|
June 30, 2020
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Three Months Ended
|
|
Six Months Ended
|
Net income
|
$
|
13,907
|
|
|
$
|
25,820
|
|
|
$
|
3,893
|
|
|
$
|
777
|
|
Depreciation and amortization
|
15,775
|
|
|
31,645
|
|
|
2,858
|
|
|
5,501
|
|
Impairment of real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
7,644
|
|
Funds from operations
|
$
|
29,682
|
|
|
$
|
57,465
|
|
|
$
|
6,751
|
|
|
$
|
13,922
|
|
|
|
|
|
|
|
|
|
The following tables present a reconciliation of net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders, the most directly comparable financial measure presented in accordance with GAAP, including our share of amounts from consolidated and unconsolidated real estate joint ventures, to funds from operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, and funds from operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, as adjusted, and the related per share amounts for the three and six months ended June 30, 2020 and 2019. Per share amounts may not add due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted
|
|
$
|
226,600
|
|
|
$
|
76,330
|
|
|
$
|
244,845
|
|
|
$
|
200,181
|
|
Depreciation and amortization of real estate assets(1)
|
|
165,040
|
|
|
134,437
|
|
|
337,668
|
|
|
268,524
|
|
Noncontrolling share of depreciation and amortization from consolidated real estate JVs
|
|
(15,775)
|
|
|
(6,744)
|
|
|
(31,645)
|
|
|
(12,163)
|
|
Our share of depreciation and amortization from unconsolidated real estate JVs
|
|
2,858
|
|
|
973
|
|
|
5,501
|
|
|
1,819
|
|
Impairment of real estate – rental properties
|
|
—
|
|
|
—
|
|
|
7,644
|
|
|
—
|
|
Assumed conversion of 7.00% Series D cumulative convertible preferred stock
|
|
—
|
|
|
1,005
|
|
|
—
|
|
|
2,031
|
|
Allocation to unvested restricted stock awards
|
|
(2,228)
|
|
|
(1,445)
|
|
|
(4,531)
|
|
|
(3,740)
|
|
Funds from operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted(1)
|
|
376,495
|
|
|
204,556
|
|
|
559,482
|
|
|
456,652
|
|
Unrealized gains on non-real estate investments
|
|
(171,652)
|
|
|
(11,058)
|
|
|
(154,508)
|
|
|
(83,264)
|
|
Impairment of non-real estate investments
|
|
4,702
|
|
(2)
|
—
|
|
|
24,482
|
|
(3)
|
—
|
|
Impairment of real estate
|
|
13,218
|
|
(4)
|
—
|
|
|
15,221
|
|
(4)
|
—
|
|
Loss on early extinguishment of debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,361
|
|
Preferred stock redemption charge
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,580
|
|
Removal of assumed conversion of 7.00% Series D cumulative convertible preferred stock
|
|
—
|
|
|
(1,005)
|
|
|
—
|
|
|
(2,031)
|
|
Allocation to unvested restricted stock awards
|
|
2,251
|
|
|
179
|
|
|
1,711
|
|
|
1,157
|
|
Funds from operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, as adjusted
|
|
$
|
225,014
|
|
|
$
|
192,672
|
|
|
$
|
446,388
|
|
|
$
|
382,455
|
|
(1)Calculated in accordance with standards established by the Nareit Board of Governors.
(2)Primarily relates to two investments in privately held entities that do not report NAV.
(3)Primarily relates to four investments in privately held entities that do not report NAV.
(4)Primarily relates to a $10 million impairment charge to write off the pre-acquisition deposit for a previously pending acquisition, which was recognized in April 2020 concurrently with the submission of our notice to terminate the transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
(Per share)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted
|
|
$
|
1.82
|
|
|
$
|
0.68
|
|
|
$
|
1.99
|
|
|
$
|
1.80
|
|
Depreciation and amortization of real estate assets(1)
|
|
1.22
|
|
|
1.15
|
|
|
2.53
|
|
|
2.32
|
|
Impairment of real estate – rental properties
|
|
—
|
|
|
—
|
|
|
0.06
|
|
|
—
|
|
Allocation to unvested restricted stock awards
|
|
(0.01)
|
|
|
—
|
|
|
(0.04)
|
|
|
(0.04)
|
|
Funds from operations per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted(1)
|
|
3.03
|
|
|
1.83
|
|
|
4.54
|
|
|
4.08
|
|
Unrealized gains on non-real estate investments
|
|
(1.38)
|
|
|
(0.10)
|
|
|
(1.25)
|
|
|
(0.75)
|
|
Impairment of non-real estate investments
|
|
0.04
|
|
(2)
|
—
|
|
|
0.20
|
|
|
—
|
|
Impairment of real estate
|
|
0.11
|
|
(2)
|
—
|
|
|
0.12
|
|
|
—
|
|
Loss on early extinguishment of debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.07
|
|
Preferred stock redemption charge
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.02
|
|
Allocation to unvested restricted stock awards
|
|
0.01
|
|
|
—
|
|
|
0.02
|
|
|
0.02
|
|
Funds from operations per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, as adjusted
|
|
$
|
1.81
|
|
|
$
|
1.73
|
|
|
$
|
3.63
|
|
|
$
|
3.44
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding(3) for calculations of:
|
|
|
|
|
|
|
|
|
EPS – diluted
|
|
124,448
|
|
|
111,501
|
|
|
123,117
|
|
|
111,279
|
|
Funds from operations – diluted, per share
|
|
124,448
|
|
|
112,077
|
|
|
123,117
|
|
|
111,857
|
|
Funds from operations – diluted, as adjusted, per share
|
|
124,448
|
|
|
111,501
|
|
|
123,117
|
|
|
111,279
|
|
(1)Calculated in accordance with standards established by the Nareit Board of Governors.
(2)Refer to footnotes on the previous page for additional information.
(3)Refer to the definition of “Weighted-average shares of common stock outstanding – diluted” within this section of this Item 2 for additional information.
Adjusted EBITDA and Adjusted EBITDA margin
We use Adjusted EBITDA as a supplemental performance measure of our operations, for financial and operational decision-making, and as a supplemental means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation, and amortization (“EBITDA”), excluding stock compensation expense, gains or losses on early extinguishment of debt, gains or losses on sales of real estate, and impairments of real estate. Adjusted EBITDA also excludes unrealized gains or losses and significant realized gains and impairments that result from our non-real estate investments. These non-real estate investment amounts are classified in our consolidated statements of operations outside of revenues.
We believe Adjusted EBITDA provides investors with relevant and useful information as it allows investors to evaluate the operating performance of our business activities without having to account for differences recognized because of real estate and non-real estate investment and disposition decisions, financing decisions, capital structure, capital market transactions, and variances resulting from the volatility of market conditions outside of our control. For example, we exclude gains or losses on the early extinguishment of debt to allow investors to measure our performance independent of our indebtedness and capital structure. We believe that adjusting for the effects of impairments and gains or losses on sales of real estate, and significant impairments and significant gains on the sale of non-real estate investments allows investors to evaluate performance from period to period on a consistent basis without having to account for differences recognized because of real estate and non-real estate investment and disposition decisions. We believe that excluding charges related to stock compensation and unrealized gains or losses facilitates for investors a comparison of our business activities across periods without the volatility resulting from market forces outside of our control. Adjusted EBITDA has limitations as a measure of our performance. Adjusted EBITDA does not reflect our historical expenditures or future requirements for capital expenditures or contractual commitments. While Adjusted EBITDA is a relevant measure of performance, it does not represent net income (loss) or cash flows from operations calculated and presented in accordance with GAAP, and it should not be considered as an alternative to those indicators in evaluating performance or liquidity.
Our calculation of Adjusted EBITDA margin divides Adjusted EBITDA by our revenues, as adjusted. We believe that revenues, as adjusted, provides a denominator for Adjusted EBITDA margin that is calculated on a basis more consistent with that of the Adjusted EBITDA numerator. Specifically, revenues, as adjusted, includes the same realized gains on, and impairments of, non-real estate investments that are included in the reconciliation of Adjusted EBITDA. We believe that the consistent application of results from our non-real estate investments to both the numerator and denominator of Adjusted EBITDA margin provides a more useful calculation for the comparison across periods.
The following table reconciles net income (loss) and revenues, the most directly comparable financial measures calculated and presented in accordance with GAAP, to Adjusted EBITDA and revenues, as adjusted, respectively, for the three and six months ended June 30, 2020 and 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income
|
$
|
243,561
|
|
|
$
|
87,179
|
|
|
$
|
274,239
|
|
|
$
|
223,997
|
|
Interest expense
|
45,014
|
|
|
42,879
|
|
|
90,753
|
|
|
81,979
|
|
Income taxes
|
1,406
|
|
|
890
|
|
|
2,747
|
|
|
2,187
|
|
Depreciation and amortization
|
168,027
|
|
|
134,437
|
|
|
343,523
|
|
|
268,524
|
|
Stock compensation expense
|
9,185
|
|
|
11,437
|
|
|
19,114
|
|
|
22,466
|
|
Loss on early extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
7,361
|
|
Unrealized gains on non-real estate investments
|
(171,652)
|
|
|
(11,058)
|
|
|
(154,508)
|
|
|
(83,264)
|
|
Impairment of real estate
|
13,218
|
|
|
—
|
|
|
22,865
|
|
|
—
|
|
Impairment of non-real estate investments
|
4,702
|
|
|
—
|
|
|
24,482
|
|
|
—
|
|
Adjusted EBITDA
|
$
|
313,461
|
|
|
$
|
265,764
|
|
|
$
|
623,215
|
|
|
$
|
523,250
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
436,956
|
|
|
$
|
373,856
|
|
|
$
|
876,875
|
|
|
$
|
732,698
|
|
Non-real estate investments – total realized gains
|
13,005
|
|
|
10,442
|
|
|
8,328
|
|
|
21,792
|
|
Impairment of non-real estate investments
|
4,702
|
|
|
—
|
|
|
24,482
|
|
|
—
|
|
Revenues, as adjusted
|
$
|
454,663
|
|
|
$
|
384,298
|
|
|
$
|
909,685
|
|
|
$
|
754,490
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin
|
69%
|
|
69%
|
|
69%
|
|
69%
|
Annual rental revenue
Annual rental revenue represents the annualized fixed base rental obligzations, calculated in accordance with GAAP, for leases in effect as of the end of the period, related to our operating RSF. Annual rental revenue is presented using 100% of the annual rental revenue of our consolidated properties and our share of annual rental revenue for our unconsolidated real estate joint ventures. Annual rental revenue per RSF is computed by dividing annual rental revenue by the sum of 100% of the RSF of our consolidated properties and our share of the RSF of properties held in unconsolidated real estate joint ventures. As of June 30, 2020, approximately 93% of our leases (on an RSF basis) were triple net leases, which require tenants to pay substantially all real estate taxes, insurance, utilities, repairs and maintenance, common area expenses, and other operating expenses (including increases thereto) in addition to base rent. Annual rental revenue excludes these operating expenses recovered from our tenants. Amounts recovered from our tenants related to these operating expenses, along with base rent, are classified in income from rentals in our consolidated statements of operations.
Cash interest
Cash interest is equal to interest expense calculated in accordance with GAAP plus capitalized interest, less amortization of loan fees and debt premiums (discounts). Refer to the definition of “Fixed-charge coverage ratio” within this section of this Item 2 for a reconciliation of interest expense, the most directly comparable financial measure calculated and presented in accordance with GAAP, to cash interest.
Class A properties and AAA locations
Class A properties are properties clustered in AAA locations that provide 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. Class A properties generally command higher annual rental rates than other classes of similar properties.
AAA locations are in close proximity to concentrations of specialized skills, knowledge, institutions, and related businesses. Such locations are generally characterized by high barriers to entry for new landlords, high barriers to exit for tenants, and a limited supply of available space.
Development, redevelopment, and pre-construction
A key component of our business model is our disciplined allocation of capital to the development and redevelopment of new Class A properties, and property enhancements identified during the underwriting of certain acquired properties, located in collaborative life science, technology, and agtech campuses in AAA urban innovation clusters. These projects are generally focused on providing high-quality, generic, and reusable spaces that meet the real estate requirements of, and are reusable by, a wide range of tenants. Upon completion, each value-creation project is expected to generate a significant increase in rental income, net operating income, and cash flows. Our development and redevelopment projects are generally in locations that are highly desirable to high-quality entities, which we believe results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value.
Development projects generally consist of the ground-up development of generic and reusable facilities.
Redevelopment projects consist of the permanent change in use of office, warehouse, and shell space into office/laboratory, tech office, or agtech space. We generally will not commence new development projects for aboveground construction of new Class A office/laboratory, tech office, and agtech space without first securing significant pre-leasing for such space, except when there is solid market demand for high-quality Class A properties.
Pre-construction activities include entitlements, permitting, design, site work, and other activities preceding commencement of construction of aboveground building improvements. The advancement of pre-construction efforts is focused on reducing the time required to deliver projects to prospective tenants. These critical activities add significant value for future ground-up development and are required for the vertical construction of buildings. Ultimately, these projects will provide high-quality facilities and are expected to generate significant revenue and cash flows.
Development, redevelopment, and pre-construction spending also includes the following costs: (i) certain tenant improvements and renovations that will be reimbursed, (ii) amounts to bring certain acquired properties up to market standard and/or other costs identified during the acquisition process (generally within two years of acquisition), and (iii) permanent conversion of space for highly flexible, move-in-ready office/laboratory space to foster the growth of promising early- and growth-stage life science companies.
Revenue-enhancing and repositioning capital expenditures represent spending to reposition or significantly change the use of property, including through improvement in the asset quality from Class B to Class A.
Non-revenue-enhancing capital expenditures represent costs required to maintain the current revenues of a stabilized property, including costs for renewed and re-leased space.
Fixed-charge coverage ratio
Fixed-charge coverage ratio is a non-GAAP financial measure representing the ratio of Adjusted EBITDA to fixed charges. We believe this ratio is useful to investors as a supplemental measure of our ability to satisfy fixed financing obligations and preferred stock dividends. Cash interest is equal to interest expense calculated in accordance with GAAP plus capitalized interest, less amortization of loan fees and debt premiums (discounts).
The following table reconciles interest expense, the most directly comparable financial measure calculated and presented in accordance with GAAP, to cash interest and fixed charges for the three and six months ended June 30, 2020 and 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Adjusted EBITDA
|
|
$
|
313,461
|
|
|
$
|
265,764
|
|
|
$
|
623,215
|
|
|
$
|
523,250
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
45,014
|
|
|
$
|
42,879
|
|
|
$
|
90,753
|
|
|
$
|
81,979
|
|
Capitalized interest
|
|
30,793
|
|
|
21,674
|
|
|
55,473
|
|
|
40,183
|
|
Amortization of loan fees
|
|
(2,737)
|
|
|
(2,380)
|
|
|
(4,984)
|
|
|
(4,613)
|
|
Amortization of debt premiums
|
|
888
|
|
|
782
|
|
|
1,776
|
|
|
1,583
|
|
Cash interest
|
|
73,958
|
|
|
62,955
|
|
|
143,018
|
|
|
119,132
|
|
Dividends on preferred stock
|
|
—
|
|
|
1,005
|
|
|
—
|
|
|
2,031
|
|
Fixed charges
|
|
$
|
73,958
|
|
|
$
|
63,960
|
|
|
$
|
143,018
|
|
|
$
|
121,163
|
|
|
|
|
|
|
|
|
|
|
Fixed-charge coverage ratio:
|
|
|
|
|
|
|
|
|
– period annualized
|
|
4.2x
|
|
4.2x
|
|
4.4x
|
|
4.3x
|
– trailing 12 months
|
|
4.2x
|
|
4.2x
|
|
4.2x
|
|
4.2x
|
Initial stabilized yield (unlevered)
Initial stabilized yield is calculated as the estimated amounts of net operating income at stabilization divided by our investment in the property. Our initial stabilized yield excludes the benefit of leverage. Our cash rents related to our value-creation projects are generally expected to increase over time due to contractual annual rent escalations. Our estimates for initial stabilized yields, initial stabilized yields (cash basis), and total costs at completion represent our initial estimates at the commencement of the project. We expect to update this information upon completion of the project, or sooner if there are significant changes to the expected project yields or costs.
•Initial stabilized yield reflects rental income, including contractual rent escalations and any rent concessions over the term(s) of the lease(s), calculated on a straight-line basis.
•Initial stabilized yield (cash basis) reflects cash rents at the stabilization date after initial rental concessions, if any, have elapsed and our total cash investment in the property.
Investment-grade or publicly traded large cap tenants
Investment-grade or publicly traded large cap tenants represent tenants that are investment-grade rated or publicly traded companies with an average daily market capitalization greater than $10 billion for the twelve months ended June 30, 2020, as reported by Bloomberg Professional Services. In addition, we monitor the credit quality and related material changes of our tenants. Material changes that cause a tenant’s market capitalization to decline below $10 billion, which are not immediately reflected in the twelve-month average, may result in their exclusion from this measure.
Investments in real estate – value-creation square footage currently in rental properties
The following table represents RSF of buildings in operation as of June 30, 2020, that will be redeveloped or replaced with new development RSF upon commencement of future construction:
|
|
|
|
|
|
|
|
|
Property/Submarket
|
|
RSF
|
Intermediate-term projects:
|
|
|
651 Gateway Boulevard/South San Francisco
|
|
300,010
|
|
3825 Fabian Way/Greater Stanford
|
|
250,000
|
|
960 Industrial Road/Greater Stanford
|
|
110,000
|
|
10931 and 10933 North Torrey Pines Road/Torrey Pines
|
|
92,450
|
|
10260 Campus Point Drive/University Town Center
|
|
109,164
|
|
9363 and 9393 Towne Centre Drive/University Town Center
|
|
71,961
|
|
4555 Executive Drive/University Town Center
|
|
41,475
|
|
|
|
975,060
|
|
Future projects:
|
|
|
3875 Fabian Way/Greater Stanford
|
|
228,000
|
|
987 and 1075 Commercial Street/Greater Stanford
|
|
26,738
|
|
219 East 42nd Street/New York City
|
|
349,947
|
|
4161 Campus Point Court/University Town Center
|
|
159,884
|
|
4110 Campus Point Court/University Town Center
|
|
12,375
|
|
4075 Sorrento Valley Boulevard/Sorrento Valley
|
|
40,000
|
|
4045 Sorrento Valley Boulevard/Sorrento Valley
|
|
10,926
|
|
601 Dexter Avenue North/Lake Union
|
|
18,680
|
|
|
|
846,550
|
|
Total value-creation RSF currently included in rental properties
|
|
1,821,610
|
|
Joint venture financial information
We present components of balance sheet and operating results information related to our real estate joint ventures, which are not presented, or intended to be presented, in accordance with GAAP. We present the proportionate share of certain financial line items as follows: (i) for each real estate joint venture that we consolidate in our financial statements, which are controlled by us through contractual rights or majority voting rights, but of which we own less than 100%, we apply the noncontrolling interest economic ownership percentage to each financial item to arrive at the amount of such cumulative noncontrolling interest share of each component presented; and (ii) for each real estate joint venture that we do not control and do not consolidate, and are instead controlled jointly or by our joint venture partners through contractual rights or majority voting rights, we apply our economic ownership percentage to each financial item to arrive at our proportionate share of each component presented.
The components of balance sheet and operating results information related to our real estate joint ventures do not represent our legal claim to those items. For each entity that we do not wholly own, the joint venture agreement generally determines what equity holders can receive upon capital events, such as sales or refinancing, or in the event of a liquidation. Equity holders are normally entitled to their respective legal ownership of any residual cash from a joint venture only after all liabilities, priority distributions, and claims have been repaid or satisfied.
We believe this information can help investors estimate the balance sheet and operating results information related to our partially owned entities. Presenting this information provides a perspective not immediately available from consolidated financial statements and one that can supplement an understanding of the joint venture assets, liabilities, revenues, and expenses included in our consolidated results.
The components of balance sheet and operating results information related to our real estate joint ventures are limited as an analytical tool as the overall economic ownership interest does not represent our legal claim to each of our joint ventures’ assets, liabilities, or results of operations. In addition, joint venture financial information may include financial information related to the unconsolidated real estate joint ventures that we do not control. Refer to Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our unaudited consolidated financial statements under Item 1 of this report for more information on our unconsolidated real estate joint ventures. We believe that in order to facilitate for investors a clear understanding of our operating results and our total assets and liabilities, joint venture financial information should be examined in conjunction with our consolidated statements of operations and balance sheets. Joint venture financial information should not be considered an alternative to our consolidated financial statements, which are prepared in accordance with GAAP.
Net cash provided by operating activities after dividends
Net cash provided by operating activities after dividends includes the deduction for distributions to noncontrolling interests. For purposes of this calculation, changes in operating assets and liabilities are excluded as they represent timing differences.
Net debt to Adjusted EBITDA
Net debt to Adjusted EBITDA is a non-GAAP financial measure that we believe is useful to investors as a supplemental measure in evaluating our balance sheet leverage. Net debt is equal to the sum of total consolidated debt less cash, cash equivalents, and restricted cash. Refer to the definition of “Adjusted EBITDA and Adjusted EBITDA margin” within this section of this Item 2 for further information on the calculation of Adjusted EBITDA.
The following table reconciles debt to net debt and computes the ratio to Adjusted EBITDA as of June 30, 2020, and December 31, 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Secured notes payable
|
$
|
344,784
|
|
|
$
|
349,352
|
|
Unsecured senior notes payable
|
6,738,486
|
|
|
6,044,127
|
|
Unsecured senior lines of credit
|
440,000
|
|
|
384,000
|
|
Unamortized deferred financing costs
|
52,175
|
|
|
47,299
|
|
Cash and cash equivalents
|
(206,860)
|
|
|
(189,681)
|
|
Restricted cash
|
(34,680)
|
|
|
(53,008)
|
|
Net debt
|
$
|
7,333,905
|
|
|
$
|
6,582,089
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
– quarter annualized
|
$
|
1,253,844
|
|
|
$
|
1,148,620
|
|
– trailing 12 months
|
$
|
1,185,347
|
|
|
$
|
1,085,382
|
|
|
|
|
|
Net debt to Adjusted EBITDA:
|
|
|
|
– quarter annualized
|
5.8x
|
|
|
5.7x
|
|
– trailing 12 months
|
6.2x
|
|
|
6.1x
|
|
Net operating income, net operating income (cash basis), and operating margin
The following table reconciles net income to net operating income, and to net operating income (cash basis) for the three and six months ended June 30, 2020 and 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income
|
|
$
|
243,561
|
|
|
$
|
87,179
|
|
|
$
|
274,239
|
|
|
$
|
223,997
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated real estate joint ventures
|
|
(3,893)
|
|
|
(1,262)
|
|
|
(777)
|
|
|
(2,408)
|
|
General and administrative expenses
|
|
31,775
|
|
|
26,434
|
|
|
63,738
|
|
|
51,111
|
|
Interest expense
|
|
45,014
|
|
|
42,879
|
|
|
90,753
|
|
|
81,979
|
|
Depreciation and amortization
|
|
168,027
|
|
|
134,437
|
|
|
343,523
|
|
|
268,524
|
|
Impairment of real estate
|
|
13,218
|
|
|
—
|
|
|
15,221
|
|
|
—
|
|
Loss on early extinguishment of debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,361
|
|
Investment income
|
|
(184,657)
|
|
|
(21,500)
|
|
|
(162,836)
|
|
|
(105,056)
|
|
Net operating income
|
|
313,045
|
|
|
268,167
|
|
|
623,861
|
|
|
525,508
|
|
Straight-line rent revenue
|
|
(23,367)
|
|
|
(25,476)
|
|
|
(43,964)
|
|
|
(52,441)
|
|
Amortization of acquired below-market leases
|
|
(13,787)
|
|
|
(8,054)
|
|
|
(29,751)
|
|
|
(15,202)
|
|
Net operating income (cash basis)
|
|
$
|
275,891
|
|
|
$
|
234,637
|
|
|
$
|
550,146
|
|
|
$
|
457,865
|
|
|
|
|
|
|
|
|
|
|
Net operating income (cash basis) – annualized
|
|
$
|
1,103,564
|
|
|
$
|
938,548
|
|
|
$
|
1,100,292
|
|
|
$
|
915,730
|
|
|
|
|
|
|
|
|
|
|
Net operating income (from above)
|
|
$
|
313,045
|
|
|
$
|
268,167
|
|
|
$
|
623,861
|
|
|
$
|
525,508
|
|
Total revenues
|
|
$
|
436,956
|
|
|
$
|
373,856
|
|
|
$
|
876,875
|
|
|
$
|
732,698
|
|
Operating margin
|
|
72%
|
|
72%
|
|
71%
|
|
72%
|
Net operating income is a non-GAAP financial measure calculated as net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, excluding equity in the earnings of our unconsolidated real estate joint ventures, general and administrative expenses, interest expense, depreciation and amortization, impairments of real estate, gains or losses on early extinguishment of debt, gains or losses on sales of real estate, and investment income or loss. We believe net operating income provides useful information to investors regarding our financial condition and results of operations because it primarily reflects those income and expense items that are incurred at the property level. Therefore, we believe net operating income is a useful measure for investors to evaluate the operating performance of our consolidated real estate assets. Net operating income on a cash basis is net operating income adjusted to exclude the effect of straight-line rent and amortization of acquired above- and below-market lease revenue 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 revenue and the amortization of acquired above- and below-market leases.
Furthermore, we believe net operating income is useful to investors as a performance measure for our consolidated properties because, when compared across periods, net operating income reflects trends in occupancy rates, rental rates, and operating costs, which provide a perspective not immediately apparent from net income or loss. Net operating income can be used to measure the initial stabilized yields of our properties by calculating net operating income generated by a property divided by our investment in the property. Net operating income excludes certain components from net income in order to provide results that are more closely related to the results of operations of 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 comparability of operating performance at the property level. Impairments of real estate have been excluded in deriving net operating income because we do not consider impairments of real estate to be property-level operating expenses. Impairments of real estate relate to changes in the values of our assets and do not reflect the current operating performance with respect to related revenues or expenses. Our impairments of real estate represent the write-down in the value of the assets to the estimated fair value less cost to sell. These impairments result from investing decisions or a deterioration in market conditions. We also exclude realized and unrealized investment income or loss, which results from investment decisions that occur at the corporate level related to non-real estate investments in publicly traded companies and certain privately held entities. Therefore, we do not consider these activities to be an indication of operating performance of our real estate assets at the property level. Our calculation of net operating income also excludes charges incurred from changes in certain financing decisions, such as losses on early extinguishment of debt, as these charges often relate to corporate strategy. Property operating expenses included in
determining net operating income primarily consist of costs that are related to our operating properties, such as utilities, repairs, and maintenance; rental expense related to ground leases; contracted services, such as janitorial, engineering, and landscaping; property taxes and insurance; and property-level salaries. General and administrative expenses consist primarily of accounting and corporate compensation, corporate insurance, professional fees, office rent, and office supplies that are incurred as part of corporate office management. We calculate operating margin as net operating income divided by total revenues.
We believe that in order to facilitate for investors a clear understanding of our operating results, net operating income should be examined in conjunction with net income or loss as presented in our consolidated statements of operations. Net operating income should not be considered as an alternative to net income or loss as an indication of our performance, nor as an alternative to cash flows as a measure of our liquidity or our ability to make distributions.
Operating statistics
We present certain operating statistics related to our properties, including number of properties, RSF, occupancy percentage, leasing activity, and contractual lease expirations as of the end of the period. We believe these measures are useful to investors because they facilitate an understanding of certain trends for our properties. We compute the number of properties, RSF, occupancy percentage, leasing activity, and contractual lease expirations at 100% for all properties in which we have an investment, including properties owned by our consolidated and unconsolidated real estate joint ventures. For operating metrics based on annual rental revenue, refer to the definition of “Annual rental revenue” within this section of this Item 2.
Same property comparisons
As a result of changes within our total property portfolio during the comparative periods presented, including changes from assets acquired or sold, properties placed into development or redevelopment, and development or redevelopment properties recently placed into service, the consolidated total income from rentals, as well as rental operating expenses in our operating results, can show significant changes from period to period. In order to supplement an evaluation of our results of operations over a given quarterly or annual period, we analyze the operating performance for all consolidated properties that were fully operating for the entirety of the comparative periods presented, referred to as same properties. We separately present quarterly and year-to-date same property results to align with the interim financial information required by the SEC in our management’s discussion and analysis of our financial condition and results of operations. These same properties are analyzed separately from properties acquired subsequent to the first day in the earliest comparable quarterly or year-to-date period presented, properties that underwent development or redevelopment at any time during the comparative periods, unconsolidated real estate joint ventures, properties classified as held for sale, and corporate entities (legal entities performing general and administrative functions), which are excluded from same property results. Additionally, lease termination fees, if any, are excluded from the results of same properties. Refer to the “Same properties” subsection in the “Results of operations” section within this Item 2 for additional information.
Stabilized occupancy date
The stabilized occupancy date represents the estimated date on which the project is expected to reach occupancy of 95% or greater.
Tenant recoveries
Tenant recoveries represent revenues comprising reimbursement of real estate taxes, insurance, utilities, repairs and maintenance, common area expenses, and other operating expenses and earned in the period during which the applicable expenses are incurred and the tenant’s obligation to reimburse us arises.
We classify rental revenues and tenant recoveries generated through the leasing of real estate assets within revenue in income from rentals in our consolidated statements of operations. We provide investors with a separate presentation of rental revenues and tenant recoveries in the “Comparison of results for the three months ended June 30, 2020, to the three months ended June 30, 2019” and “Comparison of results for the six months ended June 30, 2020, to the six months ended June 30, 2019” subsections of the “Results of operations” section within this Item 2 because we believe it promotes investors’ understanding of our operating results. We believe that the presentation of tenant recoveries is useful to investors as a supplemental measure of our ability to recover operating expenses under our triple net leases, including recoveries of utilities, repairs and maintenance, insurance, property taxes, common area expenses, and other operating expenses, and of our ability to mitigate the effect to net income for any significant variability to components of our operating expenses.
The following table reconciles income from rentals to tenant recoveries for the three and six months ended June 30, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Income from rentals
|
|
$
|
435,856
|
|
|
$
|
371,618
|
|
|
$
|
873,461
|
|
|
$
|
726,367
|
|
Rental revenues
|
|
(341,555)
|
|
|
(289,625)
|
|
|
(679,497)
|
|
|
(564,188)
|
|
Tenant recoveries
|
|
$
|
94,301
|
|
|
$
|
81,993
|
|
|
$
|
193,964
|
|
|
$
|
162,179
|
|
|
|
|
|
|
|
|
|
|
Total market capitalization
Total market capitalization is equal to the outstanding shares of common stock at the end of the period multiplied by the closing price on the last trading day of the period (i.e., total equity capitalization), plus total debt outstanding at period-end.
Unencumbered net operating income as a percentage of total net operating income
Unencumbered net operating income as a percentage of total net operating income is a non-GAAP financial measure that we believe is useful to investors as a performance measure of the results of operations of our unencumbered real estate assets as it reflects those income and expense items that are incurred at the unencumbered property level. Unencumbered net operating income is derived from assets classified in continuing operations, which are not subject to any mortgage, deed of trust, lien, or other security interest, as of the period for which income is presented.
The following table summarizes unencumbered net operating income as a percentage of total net operating income for the three and six months ended June 30, 2020 and 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Unencumbered net operating income
|
$
|
296,358
|
|
|
$
|
251,397
|
|
|
$
|
591,359
|
|
|
$
|
494,588
|
|
Encumbered net operating income
|
16,687
|
|
|
16,770
|
|
|
32,502
|
|
|
30,920
|
|
Total net operating income
|
$
|
313,045
|
|
|
$
|
268,167
|
|
|
$
|
623,861
|
|
|
$
|
525,508
|
|
Unencumbered net operating income as a percentage of total net operating income
|
95%
|
|
94%
|
|
95%
|
|
94%
|
Weighted-average shares of common stock outstanding – diluted
From time to time, we enter into capital market transactions, including forward equity sales agreements (“Forward Agreements”), to fund acquisitions, fund construction of our highly leased development and redevelopment projects, and for general working capital purposes. We are required to consider the potential dilutive effect of our forward equity sales agreements under the treasury stock method while the forward equity sales agreements are outstanding. As of June 30, 2020, we had Forward Agreements outstanding to sell an aggregate of 3.5 million shares of common stock.
Prior to the conversion of our remaining outstanding shares in October 2019, we considered the effect of assumed conversion of our outstanding Series D Convertible Preferred Stock when determining potentially dilutive incremental shares to our common stock. When calculating the assumed conversion, we add back to net income or loss the dividends paid on our Series D Convertible Preferred Stock to the numerator and then include additional common shares assumed to have been issued (as displayed in the table below) to the denominator of the per share calculation. The effect of the assumed conversion is considered separately for our per share calculations of net income or loss; funds from operations, computed in accordance with the definition in the Nareit White Paper; and funds from operations, as adjusted. Prior to the conversion of our remaining outstanding shares in October 2019, our Series D Convertible Preferred Stock was dilutive and assumed to be converted when quarterly and annual basic EPS, funds from operations, or funds from operations, as adjusted, exceeded approximately $1.75 and $7.00 per share, respectively, subject to conversion ratio adjustments and the impact of repurchases of our Series D Convertible Preferred Stock. The effect of the assumed conversion was included when it was dilutive on a per share basis. The dilutive effect of less than a half cent per share appears as zero in our reconciliation of EPS – diluted to funds from operations per share – diluted, and funds from operations per share – diluted, as adjusted, even when the dilutive effect to the numerator alone appears in our reconciliation. Refer to Note 12 – “Earnings per share” and Note 13 – “Stockholders’ equity” to our unaudited consolidated financial statements under Item 1 of this report for more information related to our forward equity sales agreements and our Series D Convertible Preferred Stock.
The weighted-average shares of common stock outstanding used in calculating EPS – diluted, funds from operations per share – diluted, and funds from operations per share – diluted, as adjusted, for the three and six months ended June 30, 2020 and 2019, are calculated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Weighted-average shares of common stock outstanding:
|
|
|
|
|
|
|
|
Basic shares for EPS
|
124,333
|
|
|
111,433
|
|
|
122,883
|
|
|
111,245
|
|
Outstanding forward equity sales agreements
|
115
|
|
|
68
|
|
|
234
|
|
|
34
|
|
Series D Convertible Preferred Stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted shares for EPS
|
124,448
|
|
|
111,501
|
|
|
123,117
|
|
|
111,279
|
|
|
|
|
|
|
|
|
|
Basic shares for EPS
|
124,333
|
|
|
111,433
|
|
|
122,883
|
|
|
111,245
|
|
Outstanding forward equity sales agreements
|
115
|
|
|
68
|
|
|
234
|
|
|
34
|
|
Series D Convertible Preferred Stock
|
—
|
|
|
576
|
|
|
—
|
|
|
578
|
|
Diluted shares for FFO
|
124,448
|
|
|
112,077
|
|
|
123,117
|
|
|
111,857
|
|
|
|
|
|
|
|
|
|
Basic shares for EPS
|
124,333
|
|
|
111,433
|
|
|
122,883
|
|
|
111,245
|
|
Outstanding forward equity sales agreements
|
115
|
|
|
68
|
|
|
234
|
|
|
34
|
|
Series D Convertible Preferred Stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted shares for FFO, as adjusted
|
124,448
|
|
|
111,501
|
|
|
123,117
|
|
|
111,279
|
|