Alexandria Real Estate Equities, Inc. Reports: 2Q19 Revenues of $373.9 million, up 15.0% over 2Q18; 2Q19 and 1H19 EPS - Diluted of $0.68 and $1.80, respectively; 2Q19 and 1H19 FFO per Share - Dilu...

PASADENA, Calif., July 29, 2019 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE) announced financial and operating results for the second quarter ended June 30, 2019.

Key highlights

88 Bluxome Street is the first and only project to win full approval in Central SoMa
In July 2019, we, along with TMG Partners, won full project approval to develop a 1.07 million RSF mixed-use campus at 88 Bluxome Street in Central SoMa. Anchored by a 490,000 RSF lease with Pinterest, Inc., the future development, which is the first and only project in Central SoMa to receive full approval and 100% of its Prop M allocation from the San Francisco Planning Commission, is nearly 60% pre-leased. Construction is expected to commence in 2020, and initial delivery is expected in 2022.

Strong internal growth

• Net operating income (cash basis) of $938.5 million for 2Q19 annualized, up $119.9 million, or 14.6%, compared to 2Q18 annualized
• Same property net operating income growth:
• 4.3% and 9.5% (cash basis) for 2Q19, compared to 2Q18
• 3.5% and 9.7% (cash basis) for 1H19, compared to 1H18
• Continued strong leasing activity in light of modest contractual lease expirations at the beginning of 2019 and a highly leased value-creation pipeline; continued rental rate growth in 1H19 over expiring rates on renewed and re-leased space:

Strong external growth; disciplined allocation of capital to visible, highly leased value-creation pipeline

• Since the beginning of 4Q18, we have placed into service 1.2 million RSF of development and redevelopment projects, including 218,061 RSF in 2Q19.
• Significant near-term growth in net operating income (cash basis) of $58 million annually upon the burn-off of initial free rent on recently delivered projects.
• 2Q19 commencements of development projects aggregating 841,178 RSF, includes:
• 526,178 RSF at Alexandria District for Science and Technology in our Greater Stanford submarket; and
• 315,000 RSF at 201 Haskins Way in our South San Francisco submarket.
• Projects with initial occupancy in 2020 have grown to 2.2 million RSF.
• During 2019, we leased 948,986 RSF of development and redevelopment space, including 196,020 RSF executed in July 2019.

A REIT industry-leading, high-quality tenant roster

• 53% of annual rental revenue from investment-grade or publicly traded large cap tenants.
• Weighted-average remaining lease terms of 8.4 years.

New issuance of $1.25 billion unsecured senior notes to elongate debt maturities
In July 2019, we opportunistically issued $1.25 billion of unsecured senior notes payable, with a weighted-average interest rate of 3.72% and a weighted-average maturity of 19.5 years. The proceeds were used to refinance $1.125 billion of unsecured senior notes payable and unsecured senior bank term loan, with a weighted-average interest rate of 3.94% and a weighted-average maturity of 2.4 years, with remaining proceeds used to reduce the outstanding balance of our unsecured senior line of credit. Upon completion of the refinancing, the pro forma weighted-average remaining term on our outstanding debt is 10.1 years, with no debt maturing until 2023.

Increased common stock dividend
Common stock dividend declared for 2Q19 of $1.00 per common share, up three cents, or 3.1%, over 1Q19; continuation of our strategy to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.

2019 Nareit Investor CARE Gold Award winner
2019 recipient of the Nareit Investor CARE (Communications and Reporting Excellence) Gold Award in the Large Cap Equity REIT category as the best-in-class REIT that delivers transparency, quality, and efficient communications and reporting to the investment community; our fourth Nareit Investor CARE Gold Award over the last five years.

Completed acquisitions
During 2Q19, we completed the acquisitions of three properties and a land parcel for an aggregate purchase price of $296.5 million. These acquisitions consisted of:

• 5 and 15 Necco Street, located in our Seaport Innovation District submarket for $252.0 million, which includes a future ground-up development site aggregating 293,000 RSF, and a Class A office building aggregating 87,163 RSF, which is 87% leased for 12 years; and
• Future development opportunities aggregating 337,400 RSF strategically located in our Sorrento Valley and Lake Union submarkets, including 58,680 RSF currently 100% occupied.

Key items included in operating results

Core operating metrics as of or for the quarter ended June 30, 2019

High-quality revenues and cash flows, and operational excellence

Refer to the previous page for information on our total revenues, net operating income, same property net operating income growth, rental rate growth, and leasing activity.

Balance sheet management

Key metrics as of June 30, 2019

• $15.9 billion of total equity capitalization
• $22.2 billion of total market capitalization
• $3.4 billion of liquidity
• 94% of net operating income is unencumbered

Key capital events

• During 2Q19, we completed sales and entered into forward equity sales agreement for an aggregate of 8.7 million shares of common stock, including issuances under our ATM program, at a weighted-average price of $144.50 per share, for aggregate net proceeds of approximately $1.2 billion as follows:
• Issued 602,484 shares of common stock, at a weighted-average price of $145.58 per share, for net proceeds of $86.1 million.
• Entered into forward equity sales agreements to sell an aggregate 8.1 million shares of common stock, at a weighted-average price of $144.42 per share, for expected net proceeds (net of underwriters' discounts) aggregating $1.1 billion including:
• 4.4 million shares expiring in June 2020 at a price of $145.00 per share
• 3.7 million shares expiring in July 2020 at a weighted-average price of $143.73 per share
• We expect to settle these forward equity sales in 2019 and the aggregate net proceeds that will be received upon settlement will be further adjusted as provided in the sales agreements.
• As of July 29, 2019, the remaining aggregate amount available under our ATM program for future sales of common stock is $22.5 million. We expect to establish a new ATM program during 3Q19.

Investments
We carry our investments in publicly traded companies and certain privately held entities at fair value. As of June 30, 2019, cumulative unrealized gains related to changes in fair value aggregated $323.4 million and our adjusted cost basis aggregated $734.4 million. Investment income included the following:

• Unrealized gains of $11.1 million and $83.3 million recognized during 2Q19 and 1H19, respectively
• Realized gains of $10.4 million and $21.8 million recognized during 2Q19 and 1H19, respectively

Corporate responsibility, industry leadership, and strategic initiatives

• In April 2019, we announced the launch of a new strategic agricultural technology (agtech) business initiative and the opening of Phase I of the Alexandria Center^® for AgTech – Research Triangle, the first and only fully integrated, amenity-rich, multi-tenant agtech R&D and greenhouse campus, in the heart of Research Triangle, the most important, dense, and diverse agtech cluster in the United States. The campus opened with a 97% leased, 175,000 RSF first phase redevelopment at 5 Laboratory Drive.
• In June 2019, we announced our partnership with Columbia University to open our second Alexandria LaunchLabs^® in New York City in the spring of 2020. The full-service platform will offer member companies 13,298 RSF of highly flexible, turnkey office/laboratory space and feature a high-tech event center to host workshops, networking events, and educational opportunities for the entrepreneurial life science community.
• In June 2019, we celebrated the opening of the first facilities within a tech-focused opioid rehabilitation campus in Dayton, Ohio. In partnership with Verily Life Sciences, LLC, we are leading the design and development of this 59,000 RSF state-of-the-art campus to provide a comprehensive model of care dedicated to the recovery of people suffering from opioid addiction.

Subsequent events

• In July 2019, we opportunistically issued $1.25 billion of unsecured senior notes payable, with a weighted-average interest rate of 3.72% and a weighted-average maturity of 19.5 years, including $750.0 million of 3.375% unsecured senior notes due 2031 and $500.0 million of 4.00% unsecured senior notes due 2050. The proceeds were used to refinance $1.125 billion of unsecured senior notes payable and unsecured senior bank term loan, with a weighted-average interest rate of 3.94% and a weighted-average maturity of 2.4 years, consisting of the following:

• As a result of our refinancing and partial repayment, we expect to recognize a loss, primarily related to the early extinguishment of debt, of $43 million, or $0.38 per share, in 3Q19.
• The remaining proceeds were used to reduce the outstanding balance of our unsecured senior line of credit.
• Upon completion of the refinancing, the pro forma weighted-average remaining term on our outstanding debt is 10.1 years, with no debt maturing until 2023.
• In July 2019, we acquired a 55% interest in 4224 and 4242 Campus Point Court and 10210 Campus Point Drive, located adjacent to our Campus Pointe by Alexandria campus in our University Town Center submarket of San Diego, for $140.3 million. The joint venture will include three operating properties aggregating 314,092 RSF, which are currently 83% occupied by multiple tenants. The properties, which have future value-creation opportunities, will be integrated into the current campus to create a 1.9 million RSF mega campus.

Earnings Call Information and About the Company

We will host a conference call on Tuesday, July 30, 2019, at 3:00 p.m. Eastern Time ("ET")/noon Pacific Time ("PT"), which is open to the general public to discuss our financial and operating results for the second quarter ended June 30, 2019. To participate in this conference call, dial (833) 366-1125 or (412) 902-6738 shortly before 3:00 p.m. ET/noon PT and ask the operator to join the call for Alexandria Real Estate Equities, Inc. The audio webcast can be accessed at www.are.com in the "For Investors" section. A replay of the call will be available for a limited time from 5:00 p.m. ET/2:00 p.m. PT on Tuesday, July 30, 2019. The replay number is (877) 344-7529 or (412) 317-0088, and the access code is 10131624.

Additionally, a copy of this Earnings Press Release and Supplemental Information for the second quarter ended June 30, 2019, is available in the "For Investors" section of our website at www.are.com or by following this link: http://www.are.com/fs/2019q2.pdf.

For any questions, please contact Joel S. Marcus, executive chairman and founder; Stephen A. Richardson, co-chief executive officer; Peter M. Moglia, co-chief executive officer and co-chief investment officer; Dean A. Shigenaga, co-president and chief financial officer; or Sara M. Kabakoff, assistant vice president – corporate communications, at (626) 578-0777.

About the Company

Alexandria Real Estate Equities, Inc. (NYSE: ARE), an S&P 500^® urban office real estate investment trust ("REIT"), is the first and longest-tenured 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 $22.2 billion as of June 30, 2019, and an asset base in North America of 37.1 million square feet ("SF") as of July 29, 2019, including pending acquisitions. The asset base in North America includes 24.5 million RSF of operating properties and 1.5 million RSF of Class A properties undergoing construction, with projected initial occupancy in 2019, 2.2 million RSF of Class A properties undergoing construction or pre-construction, with projected initial occupancy in 2020, 4.4 million RSF of Class A properties undergoing or nearing pre-construction, with projected initial occupancy in 2021 or 2022, and 4.5 million of future development projects. Founded in 1994, Alexandria pioneered this niche and has since established a significant market presence in key locations, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle. Alexandria has 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 and technology companies through our venture capital arm. We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value. For additional information on Alexandria, please visit www.are.com.

**********

This document includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding our 2019 earnings per share attributable to Alexandria's common stockholders – diluted, 2019 funds from operations per share attributable to Alexandria's common stockholders – diluted, net operating income, and our projected sources and uses of capital. You can identify the forward-looking statements by their use of forward-looking words, such as "forecast," "guidance," "goals," "projects," "estimates," "anticipates," "believes," "expects," "intends," "may," "plans," "seeks," "should," or "will," or the negative of those words or similar words. These forward-looking statements are based on our current expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts, as well as a number of assumptions concerning future events. There can be no assurance that actual results will not be materially higher or lower than these expectations. These statements are subject to risks, uncertainties, assumptions, and other important factors that could cause actual results to differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, without limitation, our failure to obtain capital (debt, construction financing, and/or equity) or refinance debt maturities, increased interest rates and operating costs, adverse economic or real estate developments in our markets, our failure to successfully place into service and lease any properties undergoing development or redevelopment and our existing space held for future development or redevelopment (including new properties acquired for that purpose), our failure to successfully operate or lease acquired properties, decreased rental rates, increased vacancy rates or failure to renew or replace expiring leases, defaults on or non-renewal of leases by tenants, adverse general and local economic conditions, an unfavorable capital market environment, decreased leasing activity or lease renewals, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission ("SEC"). Accordingly, you are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements are made as of the date of this Earnings Press Release, and unless otherwise stated, we assume no obligation to update this information and expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For more discussion relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements, and risks to our business in general, please refer to our SEC filings, including our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q.

Alexandria^®, Lighthouse Design^® logo, Building the Future of Life-Changing Innovation™, LaunchLabs^®, Alexandria Center^®, Alexandria Technology Square^®, Alexandria Summit^®, Alexandria Technology Center^®, Alexandria Innovation Center^®, and GradLabs™ are trademarks of Alexandria Real Estate Equities, Inc. All other company names, trademarks, and logos referenced herein are the property of their respective owners.