ALEXANDRIA REAL ESTATE EQUITIES, INC. 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," "goals," "projects," "estimates," "anticipates," "believes," "expects," "intends," "may," "plans," "seeks," "should," "targets," 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, agtech, and technology 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, social, political, financial, credit market, and/or banking conditions;
•Uncertain global, national, and local impacts of the ongoing COVID-19 pandemic; and
•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 endedDecember 31, 2021 , 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 theSEC for further discussion regarding such factors. 44
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Overview
We are aMaryland corporation formed inOctober 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, agtech, and technology campuses inAAA innovation cluster locations, with a total market capitalization of$33.7 billion and an asset base inNorth America of 74.1 million SF as ofJune 30, 2022 . The asset base inNorth America includes 41.1 million RSF of operating properties and 5.9 million RSF of Class A properties undergoing construction, 9.9 million RSF of near-term and intermediate-term development and redevelopment projects, and 17.2 million SF of future development projects. Founded in 1994, we pioneered this niche and have since established a significant market presence in key locations, includingGreater Boston , theSan Francisco Bay Area ,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, agtech, and technology 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, agtech, and technology companies through our venture capital platform. 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
•Investment-grade or publicly traded large cap tenants represented 50% of our total annual rental revenue;
•Approximately 97% of our leases (on an annual rental revenue basis) contained effective annual rent escalations approximating 3.0% that were either fixed or indexed based on a consumer price index or other index; •Approximately 91% of our leases (on an annual rental revenue 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 94% of our leases (on an annual rental revenue basis) provided for the recapture of capital expenditures (such as HVAC 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 long-term asset value and shareholder returns 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 located inAAA innovation cluster locations. These key urban campus 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. They generally represent highly desirable locations for tenancy by life science, agtech, and technology 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, agtech, and technology relationships in order to identify and attract new and leading tenants and to source additional value-creation real estate. Executive summary Operating results Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income attributable toAlexandria's common stockholders - diluted: In millions$ 269.3 $ 380.6 $ 118.5 $ 388.5 Per share $ 1.67$ 2.61 $ 0.74 $ 2.74 Funds from operations attributable toAlexandria's common stockholders - diluted, as adjusted: In millions$ 338.8 $ 282.3 $ 663.4 $ 545.2 Per share $ 2.10$ 1.93 $ 4.15 $ 3.84 The operating results shown above include certain items related to corporate-level investing and financing decisions. For additional information, refer to "Funds from operations and funds from operations, as adjusted, attributable toAlexandria Real Estate Equities, Inc.'s common stockholders" in the "Non-GAAP measures and definitions" section and to the tabular presentation of these items in the "Results of operations" section within this Item 2 for additional information. 45
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Ringing of the New York Stock Exchange Opening Bell to celebrate our 25th anniversary
In celebration of our 25th anniversary as a publicly traded company, we recently rang The Opening Bell® at theNew York Stock Exchange to mark this momentous milestone. From our initial public offering onMay 27, 1997 throughMay 27, 2022 , we have generated a total stockholder return ("TSR") of 1,902%, assuming reinvestment of dividends, substantially outperforming the MSCIU.S. REIT Index TSR of 803% and the FTSE Nareit Equity Office Index TSR of 457%.
A REIT industry-leading high-quality roster of over 1,000 tenants with high-quality revenues and cash flows, strong margins, and operational excellence
Percentage of total annual rental revenue in effect from investment-grade or publicly traded large cap tenants
50 %
Sustained strength in tenant collections:
Tenant receivables as of June 30, 2022 $ 7.1 million July tenant rent and receivables collected as of the date of this report
99.9 %
Occupancy of operating properties in North America 94.6 %
Occupancy of operating properties in
(1)
recently acquired properties) 98.4 %
Operating margin 70 % (2)
Adjusted EBITDA margin 70 % (2)
Weighted-average remaining lease term:
All tenants 7.1 years
Top 20 tenants 10.2 years
(1)Excludes 1.6 million RSF, or 3.8%, of vacancy at recently acquired properties
representing lease-up opportunities that are expected to provide incremental
annual rental revenue. Refer to the "Summary of occupancy percentages in North
America " section within this Item 2 for additional information regarding vacancy
from recently acquired properties.
(2)For the three months ended June 30, 2022 .
Record rental rate increases and continued historic high leasing volume
•For the three months endedJune 30, 2022 , rental rate increases of 45.4% and 33.9% (cash basis) represent the second- highest and the highest quarterly increases in Company history, respectively. •During the three months endedJune 30, 2022 , we executed 2,279,758 RSF of leasing activity, representing the third-highest quarter of leasing volume in Company history; 87% of this leasing activity was generated from a roster of over 1,000 tenants and other relationships.
Three Months Ended Six Months Ended
Total leasing activity - RSF 2,279,758 4,743,196
Leasing of development and redevelopment space - RSF 916,436 2,356,132
Lease renewals and re-leasing of space:
RSF (included in total leasing activity above) 1,087,082 1,951,159
Rental rate increases 45.4% 39.0%
Rental rate increases (cash basis) 33.9% 25.2%
46
--------------------------------------------------------------------------------Continued strong net operating income and internal growth
•Total revenues: •$643.8 million, up 26.3%, for the three months endedJune 30, 2022 , compared to$509.6 million for the three months endedJune 30, 2021 . •$1.3 billion, up 27.2%, for the six months endedJune 30, 2022 , compared to$989.5 million for the six months endedJune 30, 2021 . •Net operating income (cash basis) of$1.6 billion for the three months endedJune 30, 2022 , annualized, increased by$315.5 million , or 24.3%, compared to the three months endedJune 30, 2021 , annualized. •97% of our leases contain contractual annual rent escalations approximating 3%. •Same property net operating income increases: •7.5% and 10.2% (cash basis) for the three months endedJune 30, 2022 , compared to the three months endedJune 30, 2021 , representing the second- and third-highest increases in the past 10 years, respectively. •7.7% and 8.6% (cash basis) for the six months endedJune 30, 2022 , compared to the six months endedJune 30, 2021 .
Strong valuations for partial interest sale and dispositions
During the three months endedJune 30, 2022 , we completed a partial interest sale and dispositions aggregating$548.7 million , including: •Sale of a 70% interest in300 Third Street in ourCambridge /Inner Suburbs submarket for a sales price of$166.5 million , or$1,802 per RSF, representing capitalization rates of 4.6% and 4.3% (cash basis). •Sale of 12 properties in ourRoute 128 andRoute 495 suburban submarkets ofGreater Boston for an aggregate sales price of$334.4 million , or$542 per RSF, representing a capitalization rate (cash basis) of 5.1%.
Strong and flexible balance sheet with significant liquidity as of
•Investment-grade credit ratings ranked in the top 10% among all publicly tradedU.S. REITs. •Net debt and preferred stock to Adjusted EBITDA of 5.5x and fixed-charge coverage ratio of 5.1x for the three months endedJune 30, 2022 , annualized. •Total debt and preferred stock to gross assets of 28%. •98.3% of our debt has a fixed rate. •13.6 years weighted-average remaining term of debt. •$5.5 billion of liquidity.
Continued high demand for Alexandria's brand drives visibility for future growth
aggregating
Our highly leased value-creation pipeline of current and key near-term projects that are under construction or that will commence construction in the next six quarters is expected to generate greater than$665 million of incremental annual rental revenue, primarily commencing from the third quarter of 2022 through the second quarter of 2025. •7.8 million RSF of our value-creation projects, which are 78% leased/negotiating, are either under construction or expected to commence construction in the next six quarters.
Continued dividend strategy to share growth in cash flows with stockholders
Common stock dividend declared for the three months endedJune 30, 2022 was$1.18 per common share, aggregating$4.60 per common share for the twelve months endedJune 30, 2022 , up24 cents , or 6%, over the twelve months endedJune 30, 2021 . Our FFO payout ratio of 56% for the three months endedJune 30, 2022 allows us to continue to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.
Seventh overall Nareit Investor CARE Award winner
We received the 2022 Nareit Investor CARE (Communications and Reporting
Excellence) Silver Award in the Large Cap Equity REIT category for superior
shareholder communications and reporting. This represents our fifth consecutive
and seventh overall Nareit Investor CARE Award since 2015, demonstrating
consistency in delivering best-in-class transparency, quality, and efficiency in
communications and reporting to the investment community.
47
--------------------------------------------------------------------------------External growth and investments in real estate
Delivery and commencement of value-creation projects
•During the three months endedJune 30, 2022 , we placed into service development and redevelopment projects aggregating 375,394 RSF across multiple submarkets. •80% of construction costs related to active development and redevelopment projects aggregating 5.9 million RSF are under a guaranteed maximum price ("GMP") contract or other fixed contracts. Our budgets also include construction cost contingencies in GMP contracts plus additional landlord contingencies that generally range between 3% and 5%. •Annual net operating income (cash basis) is expected to increase by$39 million upon the burn-off of initial free rent from recently delivered projects. •During the three months endedJune 30, 2022 , we commenced construction on six value-creation projects aggregating 917,599 RSF, including the following development projects: •320,809 RSF, 36% leased, at99 Coolidge Avenue in ourCambridge /Inner Suburbs submarket; •248,018 RSF, 85% leased, at500 North Beacon Street and4 Kingsbury Avenue in ourCambridge /Inner Suburbs submarket; •90,000 RSF, 29% leased, at9808 Medical Center Drive in ourRockville submarket; and •88,038 RSF, 100% leased, at our expansion at6040 George Watts Hill Drive in our Research Triangle submarket. •As ofJune 30, 2022 , our highly leased value-creation pipeline of current and key near-term projects that are under construction or that will commence construction in the next six quarters aggregates 7.8 million RSF and is 78% leased/negotiating.
Value-creation pipeline of new Class A development and redevelopment projects as a percentage of gross assets
June 30, 2022 Under construction projects 75% leased/negotiating 10% Pre-leased/negotiating near-term projects expected to commence 1%
construction in the next six quarters 89% leased/negotiating Income-producing/potential cash flows/covered land play(1)
8%
Land 2%
(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.
Alexandria is at the vanguard of innovation for a high-quality roster of over
1,000 tenants, with a focus on accommodating their current needs and providing
them with a path for future growth
•Reduced the upper end of our range of 2022 guidance for acquisitions by $750
million to a range from $2.6 billion to $2.8 billion .
•During the three months ended June 30, 2022 , we completed acquisitions in our
key life science cluster submarkets aggregating 1.1 million RSF of future
development and redevelopment opportunities for an aggregate purchase price of
$280.1 million .
Balance sheet management
Key metrics as of
•$33.7 billion in total market capitalization. •$23.4 billion in total equity capitalization, which ranks in the top 10% among all publicly tradedU.S. REITs. •No debt maturing prior to 2025. •13.6 years weighted-average remaining term of debt. June 30, 2022 Goal for Fourth Quarter of Quarter Annualized Trailing 12 Months 2022, Annualized Net debt and preferred stock to Adjusted 5.5x 5.9x Less than or equal to 5.1x EBITDA Fixed-charge coverage ratio 5.1x 5.1x Greater than or equal to 5.1x 48
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Key capital events
•During the three months endedJune 30, 2022 , we entered into new forward equity sales agreements aggregating$403.4 million to sell 2.4 million shares under our ATM program at an average price of$169.38 per share (before underwriting discounts). As ofJune 30, 2022 , the remaining aggregate amount available under our ATM program for future sales of common stock was$246.6 million . •During the three months endedJune 30, 2022 , we did not issue shares to settle our outstanding forward equity agreements. We expect to issue an aggregate of 9.0 million shares at an average price of$187.91 per share to settle all our outstanding forward equity sales agreements and receive net proceeds of approximately$1.7 billion in the second half of 2022. •InApril 2022 , we repaid two secured notes payable aggregating$195.0 million due in 2024 with an effective interest rate of 3.40%. As a result, we recognized a loss on early extinguishment of debt of$3.3 million , including a prepayment penalty and the write-off of unamortized fees.
Investments
•As ofJune 30, 2022 : •Our investments aggregated$1.7 billion . •Unrealized gains presented in our consolidated balance sheets were$459.8 million , comprising gross unrealized gains and losses aggregating$565.5 million and$105.7 million , respectively. •Investment loss of$39.5 million , presented in our consolidated statements of operations, consisted of$28.6 million of realized gains and$68.1 million of unrealized losses/changes in fair value. •Investment loss of$279.8 million for the six months endedJune 30, 2022 included$51.8 million in realized gains and$331.6 million in unrealized losses (due to changes in fair value).
Subsequent events
•On
Industry and ESG leadership: catalyzing and leading the way for positive change to benefit human health and society
•InJune 2022 , we released our 2021 ESG Report, which highlights our longstanding ESG leadership. The report details our efforts to advance our ESG impact, including by driving high-performance building design and operations to reduce carbon emissions, mitigating climate-related risk in our real estate portfolio, and investing in and providing essential infrastructure for sustainable agrifoodtech companies. It also showcasesAlexandria's comprehensive efforts to catalyze the health, wellness, safety, and productivity of our employees, tenants, local communities, and the world through the built environment and beyond, including through our visionary social responsibility endeavors. Notable initiatives presented in the report that highlight our innovative approach include: •Furthering the development of our approach to physical and transitional climate-related risk by initiating a process to assess and understand potential physical risk and pathways to mitigate and adapt to climate change, as well as preparing for the transition to a low-carbon economy and continuing to develop science-based targets; •Implementing innovative solutions to minimize fossil fuel use in our state-of-the-art laboratory development projects, such as at325 Binney Street , which will harness geothermal energy to target a LEED Zero Energy certification and a 92% reduction in fossil fuel use as a key component of its design to be the most sustainable laboratory building inCambridge ; at751 Gateway Boulevard , which is pursuing electrification and is tracking to be the first all-electric laboratory building inSouth San Francisco ; and at the Alexandria Center® for Life Science -South Lake Union mega campus inSeattle , where the Company is incorporating an innovative wastewater heat recovery system; and •Increasing our investment in renewable electricity to mitigate carbon emissions in our existing asset base, including through a large-scale solar power purchase agreement that will significantly increase the supply of renewable electricity to ourGreater Boston market starting in 2024. 49 -------------------------------------------------------------------------------- [[Image Removed: are-20220630_g1.jpg]]
(1)Source: Barron's, "10 Real Estate Companies That Are Both Greener and More
Profitable,"
50
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[[Image Removed: are-20220630_g2.jpg]]
Environmental data for 2021 reflected in the chart above received independent
limited assurance from
(1)2025 environmental goal forAlexandria's cumulative progress relative to a 2015 baseline on a like-for-like basis for buildings in operation that the company directly manages. (2)2025 environmental goal for buildings in operation thatAlexandria indirectly and directly manages. In alignment with industry best practice, the company reports waste diversion annually; the 2025 goal is to achieve a waste diversion rate of at least 45% by 2025. (3)Progress toward 2025 goals. 51 -------------------------------------------------------------------------------- [[Image Removed: are-20220630_g3.jpg]] 52 -------------------------------------------------------------------------------- Operating summary Historical Same Property Net Operating Income Growth Favorable Lease Structure(1) Strategic Lease Structure by Owner and Operator of Collaborative Life Science, Agtech, and Technology Campuses Increasing cash flows Percentage of leases containing annual rent escalations 97% Stable cash flows
[[Image Removed: are-20220630_g4.jpg]] [[Image Removed: are-20220630_g5.jpg]] Percentage of triple 91%
net leases
Lower capex burden
Percentage of leases providing for the recapture of capital expenditures 94%
Historical Rental Rate Growth:
Renewed/Re-Leased Space Margins(2)
[[Image Removed: are-20220630_g6.jpg]] [[Image Removed: are-20220630_g7.jpg]] Operating Adjusted EBITDA
70% 70%
Net Debt and Preferred Stock
to Adjusted EBITDA(3) Fixed-Charge Coverage Ratio(3)
[[Image Removed: are-20220630_g8.jpg]]
[[Image Removed: are-20220630_g9.jpg]]
(1)Percentages calculated based on annual rental revenue as of June 30, 2022 .
(2)Represents percentages for the three months ended June 30, 2022 .
(3)Quarter annualized. Refer to the definitions of "Net debt and preferred stock
to Adjusted EBITDA" and "Fixed-charge coverage ratio" in the "Non-GAAP measures
and definitions" section within this Item 2 for additional details.
53
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Long-Duration Cash Flows From High-Quality, Diverse, and
Innovative Tenants
Investment-Grade or Long-Duration Lease Terms
Publicly Traded Large Cap Tenants
50% 7.1 Years
of ARE's Total Weighted-Average
Annual Rental Revenue(1) Remaining Term(2)
Industry Mix of 1,000+ Tenants
[[Image Removed: are-20220630_g10.jpg]]
Percentage of ARE's Annual Rental Revenue(1)
(1)Represents annual rental revenue in effect as of June 30, 2022 . 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, 2022 . 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)Represents annual rental revenue currently generated from space that is
targeted for a future change in use. The weighted-average remaining term of
these leases is 4.2 years.
(4)Our other tenants, aggregating 4.0% of our annual rental revenue, comprise
3.0% of annual rental revenue from technology, professional services, finance,
telecommunications, and construction/real estate companies and only 1.0% from
retail-related tenants.
54
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High-Quality Cash Flows From High Quality Tenants and
Class A Properties in AAA Locations
Industry-Leading AAA Locations
Tenant Roster
86%
of ARE's Top 20 Tenants
Annual Rental Revenue(1) [[Image Removed: are-20220630_g11.jpg]]
Is From Investment-Grade
or Publicly Traded
Large Cap Tenants
Percentage of ARE's Annual Rental Revenue(2)
Solid Historical Occupancy Across Key Locations
Occupancy(3)
96% [[Image Removed: are-20220630_g12.jpg]]
Over 10 Years
(1)As ofJune 30, 2022 . Represents the percentage of our annual rental revenue generated by our top 20 tenants that are also investment-grade or publicly traded large cap tenants. (2)Represents annual rental revenue in effect as ofJune 30, 2022 . Refer to the "Non-GAAP measures and definitions" section within this Item 2 for additional information. (3)Represents average occupancy of operating properties inNorth America as of eachDecember 31 for the last 10 years and as ofJune 30, 2022 . (4)Refer to the "Summary of occupancy percentages inNorth America " section within this Item 2 for additional information on vacancy at recently acquired properties. 55 --------------------------------------------------------------------------------
Leasing
The following table summarizes our leasing activity at our properties:
Three Months Ended Six Months Ended Year Ended
June 30, 2022 June 30, 2022 December 31, 2021
Including Including Including
Straight-Line Rent Cash Basis Straight-Line Rent Cash Basis Straight-Line Rent Cash Basis
(Dollars per RSF)
Leasing activity:
Renewed/re-leased space(1)
Rental rate changes 45.4% (2) 33.9% (2) 39.0% 25.2% 37.9% 22.6%
New rates $54.34 $52.31 $56.61 $54.47 $59.00 $55.60
Expiring rates $37.36 $39.07 $40.73 $43.50 $42.80 $45.36
RSF 1,087,082 1,951,159 4,614,040
Tenant improvements/leasing
commissions $22.54 $26.83 $41.05
Weighted-average lease term 5.2 years 4.8 years 6.3 years
Developed/redeveloped/ previously
vacant space leased(3)
New rates $76.69 $68.39 $79.72 $70.20 $78.52 $69.42
RSF 1,192,676 2,792,037 4,902,261
Weighted-average lease term 12.7 years 12.9 years 11.2 years
Leasing activity summary (totals):
New rates $66.03 $60.72 $70.21 $63.73 $69.05 $62.72
RSF 2,279,758 4,743,196 (4) 9,516,301
Weighted-average lease term 9.1 years 9.5 years 8.8 years
Lease expirations(1)
Expiring rates $34.82 $36.26 $38.15 $38.30 $41.53 $43.70
RSF 1,572,185 3,094,767 5,747,192
Leasing activity includes 100% of results for each property in which we have an
investment in
(1)Excludes month-to-month leases aggregating 210,038 RSF and 110,180 RSF as ofJune 30, 2022 andDecember 31, 2021 , respectively. (2)For the three months endedJune 30, 2022 , rental rate increases of 45.4% and 33.9% (cash basis) represent the second-highest and the highest quarterly increases in Company history, respectively. (3)Refer to "New Class A development and redevelopment properties: summary of pipeline" section within this Item 2 for additional details on total project costs. (4)During the six months endedJune 30, 2022 , we granted tenant concessions/free rent averaging 2.8 months with respect to the 4,743,196 RSF leased. Approximately 58% of the leases executed during the six months endedJune 30, 2022 did not include concessions for free rent. 56 --------------------------------------------------------------------------------
Summary of contractual lease expirations
The following table summarizes information with respect to the contractual lease
expirations at our properties as of
Percentage of Annual Rental Revenue Percentage of Total
Year RSF Occupied RSF (per RSF)(1) Annual Rental Revenue
2022 (2) 987,720 2.6 % $ 51.62 2.6 %
2023 3,897,615 10.1 % $ 44.39 9.0 %
2024 3,444,777 8.9 % $ 45.38 8.1 %
2025 3,488,483 9.0 % $ 48.77 8.8 %
2026 2,515,497 6.5 % $ 50.94 6.6 %
2027 2,671,591 6.9 % $ 53.50 7.4 %
2028 3,782,340 9.8 % $ 49.10 9.6 %
2029 2,345,066 6.1 % $ 58.28 7.1 %
2030 2,486,008 6.4 % $ 56.28 7.3 %
2031 3,034,985 7.9 % $ 52.91 8.3 %
Thereafter 9,987,771 25.8 % $ 48.39 25.2 %
(1)Represents amounts in effect as of
The following tables present information by market with respect to our lease expirations inNorth America as ofJune 30, 2022 , for the remainder of 2022, and for all of 2023: 2022 Contractual Lease Expirations (in RSF) Targeted for Annual Rental Negotiating/ Development/ Remaining Revenue Market Leased Anticipating Redevelopment(1) Expiring Leases(2) Total(3) (per RSF)(4)
Greater Boston 36,379 - 48,793 118,677 203,849$ 75.06 San Francisco Bay Area - 74,992 - 60,622 135,614 44.87 New York City - - - 24,303 24,303 N/A San Diego 165,146 - 34,715 91,376 291,237 47.45 Seattle - 7,566 50,552 41,087 99,205 13.67 Maryland 34,001 21,241 - 59,988 115,230 22.95 Research Triangle - - - 30,855 30,855 35.48 Texas 65,188 - - - 65,188 24.89 Canada - 14,590 - - 14,590 34.66 Non-cluster/other markets - - - 7,649 7,649 82.26 Total 300,714 118,389 134,060 434,557 987,720$ 51.62 Percentage of expiring leases 30 % 12 % 14 % 44 % 100 % 2023 Contractual Lease Expirations (in RSF) Targeted for Annual Rental Negotiating/ Development/ Remaining Revenue Market Leased Anticipating Redevelopment Expiring Leases Total (per RSF)(4) Greater Boston 110,943 80,506 323,110 637,785 1,152,344$ 57.53 San Francisco Bay Area 15,711 160,622 250,000 338,410 764,743 59.11 New York City - - - 85,055 85,055 N/A San Diego 6,619 10,563 269,048 699,206 985,436 26.62 Seattle - - 110,885 266,752 377,637 25.19 Maryland - 74,054 - 218,233 292,287 28.18 Research Triangle - 81,956 - 126,941 208,897 32.40 Texas - - - - - - Canada - 13,321 - - 13,321 29.99 Non-cluster/other markets - - - 17,895 17,895 68.01 Total 133,273 421,022 953,043 2,390,277 3,897,615$ 44.39 Percentage of expiring leases 3 % 11 % 24 % 62 % 100 % (1)Represents RSF targeted for development or redevelopment upon expiration of existing in-place leases primarily related to recently acquired properties with an average contractual lease expiration date ofSeptember 29, 2022 andJanuary 30, 2023 for 2022 and 2023, respectively, weighted by annual rental revenue. Refer to "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. (2)The largest remaining contractual expiration is 73,273 RSF in ourCambridge /Inner Suburbs submarket. (3)Excludes month-to-month leases aggregating 210,038 RSF as ofJune 30, 2022 . (4)Represents amounts in effect as ofJune 30, 2022 . 57 --------------------------------------------------------------------------------
Top 20 tenants
86% 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 3.5% of our annual rental revenue
in effect as of June 30, 2022 . 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, 2022 (dollars in thousands, except
average market cap):
Annual Percentage of Aggregate Average Market
Remaining Lease Term(1) Aggregate Rental Annual Rental Revenue Investment-Grade Credit Ratings Cap(1)
Tenant (in Years) RSF Revenue(1) (1) Moody's S&P (in billions) 1 Bristol-Myers Squibb Company 6.4 919,292 $ 67,575 3.5 % A2 A+$ 146.4 2 Eli Lilly and Company 7.0 733,781 48,836 2.5 A2 A+$ 252.5 3 Moderna, Inc. 15.1 878,933 48,777 2.5 - -$ 98.2 4 Sanofi 6.3 490,154 42,284 2.2 A1 AA$ 129.6 5 Takeda Pharmaceutical Company Limited 7.5 549,760 37,399 1.9 Baa2 BBB+$ 47.3 6 Illumina, Inc. 8.1 891,495 36,196 1.9 Baa3 BBB$ 57.0 7 2seventy bio, Inc.(2) 11.2 312,805 33,617 1.7 - -$ 0.5 8 Novartis AG 6.1 447,831 30,582 1.6 A1 AA-$ 211.3 9TIBCO Software Inc. 4.7 (3) 292,013 28,537 1.5 - - $ - 10 Uber Technologies, Inc. 60.2 (4) 1,009,188 27,677 1.4 - -$ 71.9 11 Roche 7.0 416,833 26,541 1.4 Aa3 AA$ 326.1 12 Merck & Co., Inc. 10.4 339,344 21,889 1.1 A1 A+$ 204.3 13 Maxar Technologies 3.5 (5) 478,000 21,803 1.1 - -$ 2.2 14Massachusetts Institute of Technology 6.5 257,626 21,165 1.1 AaaAAA $ - 15The Children's Hospital Corporation 14.3 269,816 20,066 1.0 Aa2 AA $ - 16New York University 9.4 203,500 19,241 1.0 Aa2 AA- $ - 17 Pfizer Inc. 3.0 416,996 17,742 0.9 A2 A+$ 276.2 18 Apple Inc. 2.9 604,382 17,512 0.9 Aaa AA+$ 2,560.6 19 United States Government 7.6 315,908 17,491 0.9 Aaa AA+ $ - 20 Alphabet Inc. 4.7 354,304 16,985 0.9 Aa2 AA+$ 1,775.6 Total/weighted-average 10.2 (4) 10,181,961 $ 601,915 31.0 %
Annual rental revenue and RSF include 100% of each property managed by us in
(1)Based on aggregate annual rental revenue in effect as ofJune 30, 2022 . Represents the percentage of our annual rental revenue generated by our top 20 tenants that are also investment-grade or publicly traded large cap tenants. 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 market capitalization, respectively. (2)Represents two leases in ourGreater Boston andSeattle markets with in-place cash rents that are 5%-10% below current market. As ofMarch 31, 2022 , 2seventy bio, Inc. held$270.9 million of cash and cash equivalents. (3)Represents the remaining lease term at four recently acquired properties with future redevelopment and development opportunities. The leases with this tenant were in place when we acquired the properties during the three months endedMarch 31, 2022 . (4)Includes (i) ground leases for land at1455 and 1515 Third Street (two buildings aggregating 422,980 RSF) and (ii) leases at1655 and 1725 Third Street (two buildings aggregating 586,208 RSF) owned by our unconsolidated real estate joint venture in which we have an ownership interest of 10%. Annual rental revenue is presented using 100% of the annual rental revenue from our consolidated properties and our share of annual rental revenue from our unconsolidated real estate joint ventures. Refer to footnote 1 for additional details. Excluding the ground leases, the weighted-average remaining lease term for our top 20 tenants was 7.8 years as ofJune 30, 2022 . (5)Represents the remaining lease term at two acquired properties with future redevelopment and development opportunities. The leases with this tenant were in place when we acquired the properties in 2019. 58 --------------------------------------------------------------------------------
Locations of properties
The locations of our properties are diversified among a number of life science, agtech, and technology cluster markets. The following table sets forth the total RSF, number of properties, and annual rental revenue in effect as ofJune 30, 2022 in each of our markets inNorth America (dollars in thousands, except per RSF amounts): RSF Annual Rental Revenue Market Operating Development Redevelopment Total % of Total Number of Properties Total % of Total Per RSFGreater Boston 10,654,420 1,887,038 1,300,281 13,841,739 29 % 85$ 661,389 34 %$ 65.33 San Francisco Bay Area 8,678,996 230,592 300,010 9,209,598 20 72 477,206 25 61.26New York City 1,204,461 - 65,558 1,270,019 3 5 96,228 5 82.14San Diego 8,000,319 229,094 - 8,229,413 18 102 331,296 17 42.98Seattle 2,813,803 311,631 213,976 3,339,410 7 46 108,333 6 39.60Maryland 3,427,753 282,000 122,856 3,832,609 8 50 111,204 6 33.79 Research Triangle 3,550,170 329,718 376,871 4,256,759 9 42 94,291 5 28.41Texas 1,668,718 - 201,499 1,870,217 4 14 36,884 1 28.20Canada 614,028 - - 614,028 1 7 11,190 - 23.74 Non-cluster/other markets 412,128 - - 412,128 1 12 14,415 1 45.58 Properties held for sale 58,733 - - 58,733 - 1 428 - N/ANorth America 41,083,529 3,270,073 2,581,051 46,934,653 100 % 436$ 1,942,864 100 %$ 50.80 5,851,124
Summary of occupancy percentages in
The following table sets forth the occupancy percentages for our operating properties and our operating and redevelopment properties in each of ourNorth America markets, excluding properties held for sale, as of the following dates: Operating Properties Operating and Redevelopment Properties Market 6/30/22 3/31/22 6/30/21 6/30/22 3/31/22 6/30/21 Greater Boston 95.0 % (1) 95.4 % 95.5 % 84.7 % 85.0 % 91.0 % San Francisco Bay Area 95.8 95.6 94.0 92.6 92.4 92.9 New York City 97.3 (2) 98.4 99.4 92.2 91.9 90.1 San Diego 96.3 94.2 93.8 96.3 92.7 92.3 Seattle 97.2 97.9 97.6 90.4 91.0 90.2 Maryland 97.6 (3) 100.0 98.9 94.2 96.4 90.3 Research Triangle 93.5 93.6 92.8 84.5 85.5 84.1 Texas 78.4 N/A N/A 69.9 N/A N/A Subtotal 95.1 95.7 95.2 89.3 89.8 90.9 Canada 76.8 76.5 77.0 76.8 76.5 77.0 Non-cluster/other markets 76.7 80.4 46.0 76.7 75.7 46.0 North America 94.6 % (4) 94.7 % 94.3 % 89.0 % 88.9 % 90.1 % (1)Decline in occupancy primarily related to temporary vacancy of 40,282 RSF at one property in ourCambridge submarket. (2)Decline in occupancy related to temporary vacancy of 13,298 RSF at450 E. 29th Street . This space is leased with occupancy to commence in the third quarter of 2022. (3)Decline in occupancy primarily related to temporary vacancy at one property in our Alexandria Technology Center® - Gaithersburg II campus. This space is leased with occupancy to commence in first quarter of 2023. (4)Includes 1.6 million RSF, or 3.8%, of vacancy at recently acquired properties (noted below) representing lease-up opportunities that are expected to generate incremental annual rental revenue. Approximately 34% of the vacant 1.6 million RSF is currently leased/negotiating. Additionally, approximately 23% of the vacant 1.6 million RSF represents spaces, spread across multiple recently acquired properties, that are expected to be converted to laboratory/office space in the future. We expect to deliver 19% of the 1.6 million RSF over the next two quarters. Excluding recently acquired vacancies, occupancy of operating properties inNorth America was 98.4% as ofJune 30, 2022 . The following table provides vacancy detail for our recent acquisitions: As of June 30, 2022 Operating Properties Vacant Occupancy Impact Percentage of Vacancy Property Market/Submarket RSF Region North America Leased/Negotiating RSF Intersection Campus Texas/Austin 159,638 9.6 % 0.4 % 100 % 601 and 611 Gateway San Francisco Bay Area/South Boulevard San Francisco 153,596 1.8 % 0.4 46 Alexandria Center® for Life Research Triangle/Research Science - Durham Triangle 128,387 3.6 % 0.3 53 275 Grove Street Greater Boston/Route 128 124,240 1.2 % 0.3 - (5) Alexandria Center® for Life Science - Fenway Greater Boston/Fenway 89,458 0.8 % 0.2 20 Other acquisitions Various 909,833 N/A 2.2 24 1,565,152 3.8 % 34 %
(5)We are evaluating options to develop or redevelop this space for laboratory space in the future.
59
--------------------------------------------------------------------------------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, agtech, and technology campuses inAAA 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 prepare the property for its intended use and include entitlements, permitting, design, site work, and other activities preceding commencement of construction of aboveground building improvements.
Our investments in real estate consisted of the following as of
Development and Redevelopment
Under Near Intermediate
Operating Construction Term Term Future Subtotal Total
Investments in real estate
Gross book value as of June 30,
2022(1) $ 24,153,058 $ 3,746,801 $ 1,578,141 $ 687,091 $ 1,831,371 $ 7,843,404 $ 31,996,462
Square footage
Operating 41,083,529 - - - - - 41,083,529
New Class A development and (2)
redevelopment properties - 5,851,124 6,984,447 3,920,041 20,419,252 37,174,864 37,174,864
Value-creation square feet
currently included in rental
properties(3) - - (944,983) (28,535) (3,197,239) (4,170,757) (4,170,757)
Total square footage 41,083,529 5,851,124 6,039,464 3,891,506 17,222,013 33,004,107 74,087,636
(1)Balances exclude accumulated depreciation and our share of the cost basis
associated with our properties held by our unconsolidated real estate joint
ventures, which is classified as investments in unconsolidated real estate joint
ventures in our consolidated balance sheets.
(2)Includes 2.0 million RSF currently 89% leased/negotiating and expected to
commence construction in the next six quarters. Refer to "New Class A
development and redevelopment properties: current projects" within this Item 2
for additional details.
(3)Refer to "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.
60
--------------------------------------------------------------------------------Acquisitions
Our real estate asset acquisitions for the six months ended
Square Footage
Acquisitions With Development andRedevelopment Opportunities(1)
Operating With Future
Operating Development/
Property Submarket/Market Date of Purchase Number of Properties Occupancy Future Development Redevelopment Operating(2) Operating Total(3) Purchase Price
Six months ended June 30, 2022 :
One Hampshire Street (4) Cambridge /Inner 6/23/22 1 100% - 88,591 - - 88,591 $ 140,000
Suburbs/Greater Boston
421 Park Drive Fenway/Greater Boston 1/13/22 - N/A 202,997 (5) - - - 202,997 81,119 (5)
225 and 235 Presidential Way Route 128 /Greater Boston 1/28/22 2 100 - 440,130 - - 440,130 124,673
1150 El Camino Real South San Francisco /San 2/8/22 1 99 610,000 431,940 70,000 - 680,000 118,000
Francisco Bay Area
3301, 3303, 3305, and 3307 Greater Stanford / 1/6/22 4 100 - 292,013 - - 292,013 446,000
Hillview Avenue San Francisco Bay Area
Costa Verde by Alexandria University Town Center / 1/11/22 2 100 537,000 8,730 - - 545,730 125,000
San Diego
800 Mercer Street (60% interest Lake Union/Seattle 3/18/22 - N/A 869,000 - - - 869,000 87,608
in consolidated JV)
Alexandria Center® for Life Research Triangle/Research 1/11/22 - N/A 1,175,000 - - - 1,175,000 99,428
Science - Durham Triangle
104 and 108/110/112/114 TW Research Triangle/Research 1/6/22 4 89 750,000 69,485 - - 819,485 80,000
Alexander Drive, 2752 East NC Triangle
Highway 54 , and 10 South
Triangle Drive(6)
Intersection Campus Texas 2/18/22 9 81 - 998,099 - - 998,099 400,400
Other Various Various 9 90 1,342,994 537,654 381,760 - 2,262,408 418,635
32 91 % 5,486,991 2,866,642 451,760 - 8,373,453 $ 2,120,863
(1)We expect to provide total estimated costs and related yields for development
and redevelopment projects in the future, subsequent to the commencement of
construction.
(2)Represents the operating component of our value-creation acquisitions that is
not expected to undergo future development or redevelopment.
(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 operations with future development or redevelopment
opportunities. We intend to demolish and develop or redevelop the existing
properties upon expiration of the existing in-place leases. 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)Represents the acquisition of a condominium interest in two floors of a
seven-story building.
(5)Represents the incremental purchase price related to the achievement of
additional entitlement rights aggregating 202,997 SF at our Alexandria Center®
for Life Science - Fenway mega campus.
(6)Includes the acquisition of fee simple interests in the land underlying our
recently acquired 108/110/112/114 TW Alexander Drive buildings, which were
previously subject to ground leases.
61
--------------------------------------------------------------------------------Dispositions and sales of partial interest
Our completed dispositions of and sales of partial interests in real estate
assets during the six months ended
Capitalization Rate Sales Price per Gain or Consideration in
Property Submarket/Market Date of Sale Interest Sold RSF Capitalization Rate (Cash Basis) Sales Price RSF Excess of Book Value
Six months ended June 30,
2022 :
100 Binney Street Cambridge /Inner 3/30/22 70 % 432,931 3.6 % 3.5 % $ 713,228 (1) $ 2,353 $ 413,615 (2)
Suburbs/Greater Boston
300 Third Street Cambridge /Inner 6/27/22 70 % 131,963 4.6 % 4.3 % 166,485 (1) $ 1,802 113,020 (2)
Suburbs/Greater Boston
Alexandria Park at 128, 285 Route 128 and Route 6/8/22 100 % 617,043 5.1 % 5.1 % 334,397 $ 542 202,325
Bear Hill Road, 111 and 130 495/Greater Boston
Forbes Boulevard , and 20
Walkup Drive
Other N/A N/A 47,800 N/A 11,895
$ 1,261,910 $ 740,855
(1)Represents the contractual sales price for the percentage interest of the
property sold by us.
(2)We retained control over the newly formed real estate joint venture and
therefore continue to consolidate this property. We accounted for the difference
between the consideration received and the book value of the interest sold as an
equity transaction, with no gain or loss recognized in earnings.
62
--------------------------------------------------------------------------------New Class A development and redevelopment properties
Demand for our value-creation development and redevelopment projects consisting of high-quality office/laboratory space, and for our continued operational excellence at our world-class and sophisticated laboratory facilities, has translated into record leasing activity.
Projects Either Under Construction or Expected toCommence Construction in the Next Six Quarters(1) >$665 Million Projected Incremental Annual Rental Revenue Primarily Commencing From the Third Quarter of 2022 Through the Second Quarter of 2025 7.8 million RSF(2) 78% Leased/Negotiating As ofJune 30, 2022 . (1)We may also commence additional projects in this time frame, subject to market conditions. (2)Includes 5.9 million RSF under construction that is 75% leased/negotiating and 2.0 million RSF expected to commence construction in the next six quarters that is 89% leased/negotiating. 63 --------------------------------------------------------------------------------
New Class A development and redevelopment properties: recent deliveries
The Arsenal on the Charles 201 Haskins Way 825 and 835 Industrial Road 3160
Greater Boston/ San Francisco Bay Area/ San Francisco Bay Area/ San Francisco Bay Area/
Cambridge/Inner Suburbs South San Francisco Greater Stanford Greater Stanford
287,570 RSF 323,190 RSF 526,129 RSF 92,300 RSF
100% Occupancy 100% Occupancy 100% Occupancy 83% Occupancy
[[Image Removed: are-20220630_g13.jpg]] [[Image Removed: are-20220630_g14.jpg]] [[Image Removed: are-20220630_g15.jpg]] [[Image Removed: are-20220630_g16.jpg]]
30-02 48th Avenue 3115 Merryfield Row 10055 Barnes Canyon Road 5505 Morehouse Drive New York City /New York City San Diego /Torrey Pines San Diego /Sorrento MesaSan Diego /Sorrento Mesa 71,629 RSF 146,456 RSF 110,454 RSF 79,945 RSF 100% Occupancy 93% Occupancy 100% Occupancy 100% Occupancy [[Image Removed: are-20220630_g17.jpg]] [[Image Removed: are-20220630_g18.jpg]] [[Image Removed: are-20220630_g19.jpg]] [[Image Removed: are-20220630_g20.jpg]] 64
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New Class A development and redevelopment properties: recent deliveries (continued)
9601 and 9603 Medical Center Drive 9950 Medical Center Drive 20400 Century Boulevard
Maryland/Rockville Maryland/Rockville Maryland/Gaithersburg
17,378 RSF 84,264 RSF 36,227 RSF
100% Occupancy 100% Occupancy 100% Occupancy
[[Image Removed: are-20220630_g21.jpg]] [[Image Removed: are-20220630_g22.jpg]] [[Image Removed: are-20220630_g23.jpg]]
2400 Ellis Road, 40 and 41 Moore Drive, and
14 TW Alexander Drive(1) 5 and 9 Laboratory Drive(2) 8 and 10 Davis Drive(3)
Research Triangle/Research Triangle Research Triangle/Research Triangle Research Triangle/Research Triangle
326,445 RSF 278,720 RSF 250,000 RSF
100% Occupancy 100% Occupancy 94% Occupancy
[[Image Removed: are-20220630_g24.jpg]] [[Image Removed: are-20220630_g25.jpg]] [[Image Removed: are-20220630_g26.jpg]]
(1)Image represents 2400 Ellis Road in our Alexandria Center® for Life Science -
Durham mega campus.
(2)Image represents 9 Laboratory Drive in our Alexandria Center® for AgTech
campus.
(3)Image represents 10 Davis Drive in our Alexandria Center® for Advanced
Technologies mega campus.
65
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New Class A development and redevelopment properties: recent deliveries
(continued)
The following table presents value-creation development and redevelopment of new
Class A properties placed into service during the three months ended June 30,
2022 (dollars in thousands):
RSF Placed in Service Unlevered Yields
2Q22 Total Project
Property/Market/Submarket Delivery Date(1) Our Ownership Interest Prior to 1/1/22 Occupancy Percentage(3) RSF 1Q22 2Q22(2) Investment Total Initial Stabilized Initial Stabilized (Cash Basis)
Development projects
201 Haskins Way /San Francisco Bay Area /South San Francisco N/A 100% 270,879 52,311 - 323,190 100% 323,190 $ 367,000 6.3 % 6.0 %
825 and 835 Industrial Road /San Francisco Bay Area /Greater
Stanford N/A 100% 476,211 49,918 - 526,129 100% 526,129 631,000 6.7 6.5
3115 Merryfield Row /San Diego /Torrey Pines N/A 100% - 146,456 - 146,456 93% 146,456 150,000 6.3 6.2
9804 Medical Center Drive /Maryland /Rockville N/A 100% - - - 100%
10055 Barnes Canyon Road /San Diego /Sorrento Mesa 5/11/22 50% - - 110,454 110,454 100% 195,435 181,000 7.2 6.6
9950 Medical Center Drive /Maryland /Rockville N/A 100% - 84,264 - 84,264 100% 84,264 57,000 8.9 7.8
5 and 9 Laboratory Drive /Research Triangle/Research Triangle N/A 100% 267,509 11,211 - 278,720 100% 340,400 216,000 7.2 7.1
8 and 10 Davis Drive /Research Triangle/Research Triangle 6/21/22 100% 65,247 44,980 139,773 250,000 94% 250,000 159,000 7.6 7.3
Redevelopment projects
The Arsenal on the Charles/Greater Boston /Cambridge /Inner
Suburbs 5/7/22 100% 137,111 99,796 50,663 287,570 100% 872,665 831,000 6.3 5.5
3160 Porter Drive /San Francisco Bay Area /Greater Stanford N/A 100% 57,696 34,604 - 92,300 83% 92,300 117,000 4.6 4.6
30-02 48th Avenue /New York City /New York City 5/16/22 100% 41,848 11,092 18,689 71,629 100% 179,100 224,000 5.8 5.8
5505 Morehouse Drive /San Diego /Sorrento Mesa 4/27/22 100% 28,324 - 51,621 79,945 100% 79,945 68,000 7.1 7.2
9601 and 9603 Medical Center Drive /Maryland /Rockville N/A 100% 17,378 - - 17,378 100% 95,911 54,000 8.4 7.1
20400 Century Boulevard /Maryland /Gaithersburg 6/1/22 100% - 32,033 4,194 36,227 100% 80,550 35,000 8.5 8.6N/A 100% 326,445 - - 326,445 100% 703,316 337,000 7.5 6.7 Total5/18/22 1,688,648 566,665 375,394 2,630,707 3,969,661$ 3,427,000 6.7 % 6.2 % (1)Represents the average delivery date for deliveries that occurred during the three months endedJune 30, 2022 , weighted by annual rental revenue. (2)We expect the development and redevelopment RSF placed in service during the three months endedJune 30, 2022 to generate initial annual net operating income of approximately$21 million for the twelve months following delivery. (3)Relates to total operating RSF placed in service as of the most recent delivery. 66 --------------------------------------------------------------------------------
New Class A development and redevelopment properties: current projects
500 North 325 Binney Street One Rogers Street 99 Coolidge Avenue 4 Kingsbury Avenue The Arsenal on the CharlesGreater Boston /Greater Boston /Greater Boston /Greater Boston /Greater Boston /Cambridge /Inner SuburbsCambridge /Inner SuburbsCambridge /Inner SuburbsCambridge /Inner SuburbsCambridge /Inner Suburbs 462,100 RSF 403,892 RSF 320,809 RSF 248,018 RSF 100,108 RSF 100% Leased 100% Leased 36% Leased/Negotiating 85% Leased/Negotiating 95% Leased/Negotiating
[[Image Removed: are-20220630_g27.jpg]] [[Image Removed: are-20220630_g28.jpg]] [[Image Removed: are-20220630_g29.jpg]] [[Image Removed: are-20220630_g30.jpg]] [[Image Removed: are-20220630_g13.jpg]]
201 Brookline Avenue 15 Necco Street 40, 50, and60 Sylvan Road 840 Winter Street
Greater Boston /FenwayGreater Boston /Greater Boston /Route 128 Greater Boston /Route 128 San
Francisco Bay Area/
Seaport Innovation District
510,116 RSF 345,995 RSF 202,428 RSF 139,984 RSF 300,010 RSF
96% Leased/Negotiating 97% Leased/Negotiating 61% Leased/Negotiating 100% Leased 7%Leased/Negotiating
[[Image Removed: are-20220630_g31.jpg]] [[Image Removed: are-20220630_g32.jpg]] [[Image Removed: are-20220630_g33.jpg]] [[Image Removed: are-20220630_g34.jpg]] [[Image Removed: are-20220630_g35.jpg]]
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New Class A development and redevelopment properties: current projects (continued)
751 Gateway Boulevard 30-02 48th Avenue 10055 Barnes Canyon Road 1150 Eastlake Avenue East 9810 Darnestown Road San Francisco Bay Area /New York City /New York City San Diego /Sorrento MesaSeattle/Lake Union Maryland /Rockville South San Francisco 230,592 RSF 65,558 RSF 84,981 RSF 311,631 RSF 192,000 RSF 100% Leased 72% Leased/Negotiating 100% Leased 89% Leased/Negotiating 100% Leased [[Image Removed: are-20220630_g36.jpg]] [[Image Removed: are-20220630_g17.jpg]] [[Image Removed: are-20220630_g19.jpg]] [[Image Removed: are-20220630_g37.jpg]]
[[Image Removed: are-20220630_g38.jpg]]
2400 Ellis Road ,40 and 41 Moore Drive , and 14 TW Alexander6040 George Watts Hill Drive ,9808 Medical Center Drive 9601 and 9603 Medical Center Drive Drive(1)4 Davis Drive Phase IIMaryland /Rockville Maryland /Rockville Research Triangle/Research Triangle Research Triangle/Research Triangle
Research Triangle/Research Triangle
90,000 RSF 78,533 RSF 376,871 RSF 180,000 RSF 88,038 RSF
29% Leased/Negotiating 100% Leased 86% Leased/Negotiating -% Leased/Negotiating 100% Leased
[[Image Removed: are-20220630_g39.jpg]] [[Image Removed: are-20220630_g21.jpg]] [[Image Removed: are-20220630_g40.jpg]] [[Image Removed: are-20220630_g41.jpg]] [[Image Removed: are-20220630_g42.jpg]]
(1)Image represents
68
--------------------------------------------------------------------------------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 and pre-leased/negotiating near-term projects as ofJune 30, 2022 (dollars in thousands): Market Square Footage Percentage Occupancy(1) Property/Submarket Dev/Redev In Service CIP Total Leased Leased/Negotiating Initial Stabilized Under constructionGreater Boston 325 Binney Street /Cambridge /Inner Suburbs Dev - 462,100 462,100 100 % 100 % 2023 2024One Rogers Street /Cambridge /Inner Suburbs Redev 4,367 403,892 408,259 100 100 2023 202399 Coolidge Avenue /Cambridge /Inner Suburbs Dev - 320,809 320,809 36 36 2024 2025500 North Beacon Street and4 Kingsbury Avenue /Cambridge /Inner Suburbs Dev - 248,018 248,018 85 85 2024 2025 The Arsenal on the Charles/Cambridge /Inner Suburbs Redev 772,557 100,108 872,665 95 95 3Q21 2022201 Brookline Avenue /Fenway Dev - 510,116 510,116 96 96 2022 202315 Necco Street /Seaport Innovation District Dev - 345,995 345,995 97 97 2024 2024 40, 50, and60 Sylvan Road /Route 128 Redev 312,845 202,428 515,273 61 61 2023 2024840 Winter Street /Route 128 Redev 28,230 139,984 168,214 100 100 2024 2024 Other Redev - 453,869 453,869 - - 2023 2025San Francisco Bay Area 651 Gateway Boulevard /South San Francisco Redev - 300,010 300,010 - 7 (2) 2023 2025751 Gateway Boulevard /South San Francisco Dev - 230,592 230,592 100 100 2023 2023New York City 30-02 48th Avenue /New York City Redev 113,542 65,558 179,100 67 72 4Q20 2022San Diego 10055 Barnes Canyon Road /Sorrento Mesa Dev 110,454 84,981 195,435 100 100 2Q22 202210102 Hoyt Park Drive /Sorrento Mesa Dev - 144,113 144,113 100 100 2023 2023
1150 Eastlake Avenue East /Lake Union Dev - 311,631 311,631 73 89 2023 2024 Alexandria Center® for Advanced Technologies - MonteVilla Parkway/Bothell Redev 246,647 213,976 460,623 70 70 2022 2023Maryland 9810 Darnestown Road /Rockville Dev - 192,000 192,000 100 100 2024 20249808 Medical Center Drive /Rockville Dev - 90,000 90,000 29 29 2023 20249601 and 9603 Medical Center Drive /Rockville Redev 17,378 78,533 95,911 100 100 4Q21 202320400 Century Boulevard /Gaithersburg Redev 36,227 44,323 80,550 77 100 1Q22 2023 Research Triangle2400 Ellis Road ,40 and 41 Moore Drive , and14 TW Alexander Drive / Research Triangle Redev 326,445 376,871 703,316 86 86 2Q21 20244 Davis Drive /Research Triangle Dev - 180,000 180,000 - - (2) 2023 20246040 George Watts Hill Drive , Phase II/Research Triangle Dev - 88,038 88,038 100 100 2024 20245 and 9 Laboratory Drive /Research Triangle Redev/Dev 278,720 61,680 340,400 96 96 3Q21 2022
8800 Technology Forest Place /Greater Houston Redev - 201,499 201,499 23 23 2023 2024 2,247,412 5,851,124 8,098,536 74 % 75 %
(1)Initial occupancy dates are subject to leasing and/or market conditions. 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)This development project is focused on demand from our existing tenants in our adjacent properties/campuses. This project will also address demand from other non-ARE properties/campuses.
69
--------------------------------------------------------------------------------New Class A development and redevelopment properties: current projects (continued)
Market Square Footage
Percentage
Property/Submarket Dev/Redev In Service CIP Total Leased Leased/Negotiating Pre-leased/negotiating near-term projects expected to commence construction in the next six quartersSan Francisco Bay Area 230 Harriet Tubman Way/South San Francisco Dev - 285,346 285,346 100 % 100 % San Diego 11255 and 11355 North Torrey Pines Road/Torrey Pines Dev - 309,094 309,094 100 100 10931 and 10933 North Torrey Pines Road/Torrey Pines Dev - 299,158 299,158 100 100Alexandria Point ,Phase II/University Town Center Dev - 426,927 426,927 100 100Alexandria Point ,Phase I/University Town Center Dev - 171,102 171,102 100 100
701 Dexter Avenue North/Lake Union Dev - 226,586 226,586 - 9
9820 Darnestown Road/Rockville Dev - 250,000 250,000 - 100
- 1,968,213 1,968,213 76 89
2,247,412 7,819,337 10,066,749 74 % 78 %
70
--------------------------------------------------------------------------------
New Class A development and redevelopment properties: current projects
(continued)
Unlevered Yields
Market Our Ownership Total at Initial Stabilized (Cash
Property/Submarket Interest In Service CIP Cost to Complete Completion Initial Stabilized Basis)
Under construction
Greater Boston
325 Binney Street /Cambridge /Inner Suburbs 100 % $ - $ 334,164 $ 446,836 $ 781,000 8.6 % 7.2 %
One Rogers Street /Cambridge /Inner Suburbs 100 % 10,765 916,883 278,352 1,206,000 5.2 % 4.2 %
99 Coolidge Avenue/Cambridge/Inner Suburbs 75.0 % - 103,179 TBD
500 North Beacon Street and 4 Kingsbury
Avenue /Cambridge /Inner Suburbs 100 % - 85,054 341,946 427,000 6.2 % 5.5 %
The Arsenal on the Charles/Cambridge /Inner Suburbs 100 % 668,330 112,141 50,529 831,000 6.3 % 5.5 %
201 Brookline Avenue /Fenway 98.6 % - 600,014 133,986 734,000 7.2 % 6.2 %
15 Necco Street /Seaport Innovation District 90.0 % - 268,155 298,845 567,000 6.7 % 5.5 %
40, 50, and 60 Sylvan Road/Route 128 100 % 173,674 110,661 TBD
840 Winter Street /Route 128 100 % 13,227 86,450 108,323 208,000 7.5 % 6.5 %
Other 100 % - 120,171 TBD
San Francisco Bay Area
651 Gateway Boulevard/South San Francisco 50.0 % - 129,655 TBD
751 Gateway Boulevard /South San Francisco 51.0 % - 134,513 155,487 290,000 6.5 % 6.3 %
New York City
30-02 48th Avenue /New York City 100 % 115,134 83,635 25,231 224,000 5.8 % 5.8 %
San Diego
10055 Barnes Canyon Road /Sorrento Mesa 50.0 % 67,997 44,054 68,949 181,000 7.2 % 6.6 %
10102 Hoyt Park Drive /Sorrento Mesa 100 % - 65,628 48,372 114,000 7.4 % 6.5 %
Seattle
1150 Eastlake Avenue East /Lake Union 100 % - 154,126 250,874 405,000 6.4 %
6.2 %
Alexandria Center® for Advanced Technologies - Monte
100 % 56,563 76,841 TBD
9810 Darnestown Road /Rockville 100 % - 49,148 83,852 133,000 6.9 % 6.2 % 9808 Medical Center Drive/Rockville 100 % - 30,123 TBD9601 and 9603 Medical Center Drive /Rockville 100 % 6,288 28,911 18,801 54,000 8.4 % 7.1 %20400 Century Boulevard /Gaithersburg 100 % 15,296 9,747 9,957 35,000 8.5 % 8.6 % Research Triangle2400 Ellis Road ,40 and 41 Moore Drive , and14 TW Alexander Drive /Research Triangle 100 % 93,455 101,799 141,746 337,000 7.5 % 6.7 % 4 Davis Drive/Research Triangle 100 % - 21,362 TBD6040 George Watts Hill Drive , Phase II/Research Triangle 100 % - 4,256 59,744 64,000 8.0 % 7.0 %5 and 9 Laboratory Drive /Research Triangle 100 % 162,721 37,986 15,293 216,000 7.2 % 7.1 %Texas 8800 Technology Forest Place/Greater Houston 100 % - 38,145 TBD$ 1,383,450 $ 3,746,801 $ 4,210,000 (1)$ 9,340,000 (1)
(1)Amounts rounded to the nearest
71
--------------------------------------------------------------------------------New Class A development and redevelopment properties: summary of pipeline
The following table summarizes the key information for all our development and redevelopment projects inNorth America as ofJune 30, 2022 (dollars in thousands): Square Footage Development and Redevelopment Market Our Ownership Near Intermediate Property/Submarket Interest Book ValueUnder Construction Term Term Future Total(1) Greater Boston Mega Campus: Alexandria Center® atOne Kendall Square /Cambridge /Inner Suburbs 100 %$ 334,164 462,100 - - - 462,100325 Binney Street Mega Campus: Alexandria Center® atKendall Square /Cambridge / Inner Suburbs 100 % 916,883 403,892 - - - 403,892One Rogers Street Mega Campus: The Arsenal on the Charles/Cambridge /Inner Suburbs 100 % 207,990 348,126 - - 34,157 382,283
75.0 % 103,179 320,809 - - - 320,809
Mega Campus: Alexandria Center® for Life Science - Fenway/Fenway
(2) 868,320 510,116 507,997 - - 1,018,113
201 Brookline Avenue and 421 Park Drive
15 Necco Street /Seaport Innovation District 90.0 % 268,155 345,995 - - - 345,995
Reservoir Woods/Route 128 100 % 159,850 202,428 312,845 - 440,000 955,273
40, 50, and 60 Sylvan Road
840 Winter Street /Route 128 100 % 86,450 139,984 28,230 - - 168,214
275 Grove Street /Route 128 100 % - - 160,251 - - 160,251
10 Necco Street /Seaport Innovation District 100 % 96,555 - - 175,000 - 175,000
215 Presidential Way /Route 128 100 % 6,808 - - 112,000 - 112,000
Mega Campus:
100 % 56,988 - - - 775,000 775,000
550 Arsenal Street
Mega Campus: Alexandria Technology
Square®/Cambridge/
Inner Suburbs 100 % 7,881 - - - 100,000 100,000
Mega Campus:
100 % 123,514 - - - 1,000,000 1,000,000
99 A Street /Seaport Innovation District 100 % 48,882 - - - 235,000 235,000
Mega Campus: One Upland Road , 100 Tech Drive , and
One Investors Way /Route 128 100 % 24,264 - - - 1,100,000 1,100,000
Other value-creation projects 100 % 174,664 453,869 190,992 - 466,504 1,111,365
$ 3,484,547 3,187,319 1,200,315 287,000 4,150,661 8,825,295Refer to the definition of "Mega campus" in the "Definitions and reconciliations" in the "Non-GAAP measures and definitions" section within this Item 2 for additional information.
(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 or redevelopment opportunities. Upon expiration of existing in-place leases, we have the intent to demolish or redevelop the existing property and commence 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)We have a 98.6% ownership interest in201 Brookline Avenue aggregating 510,116 SF, which is currently under construction. We have a 100% ownership interest in the near-term development project at421 Park Drive aggregating 507,997 SF. 72
--------------------------------------------------------------------------------
New Class A development and redevelopment properties: summary of pipeline
(continued)
Square Footage
Development and Redevelopment
Market Our Ownership Near Intermediate
Property/Submarket Interest Book Value Under Construction Term Term Future Total(1)
San Francisco Bay Area
Mega Campus: Alexandria Technology Center® -
Gateway/ (2)
South San Francisco $ 286,827 530,602 - - 291,000 821,602
651 and 751 Gateway Boulevard
Mega Campus: Alexandria Center® for Science and
Technology - Mission Bay/Mission Bay 100 % 74,098 - 191,000 - - 191,000
1450 Owens Street
Alexandria Center® for Life Science -
Millbrae /South San Francisco 48.5 % 167,091 - 633,747 - - 633,747
230 Harriet Tubman Way , 201 and 231 Adrian
Road , and 6 and 30 Rollins Road
3825 and 3875 Fabian Way /Greater Stanford 100 % - - 250,000 - 228,000 478,000
Mega Campus: Alexandria Center® for Life
Science - San Carlos /Greater Stanford 100 % 369,162 - 105,000 700,000 692,830 1,497,830
960 Industrial Road , 987 and 1075 Commercial
Street , and 888 Bransten Road
901 California Avenue /Greater Stanford 100 % 6,337 - 56,924 - - 56,924
Mega Campus: 88 Bluxome Street /SoMa 100 % 331,907 - 1,070,925 - - 1,070,925
Mega Campus: 1122, 1150, and 1178 El Camino
Real/South San Francisco 100 % 335,885 - - - 1,930,000 1,930,000
Mega Campus: 211(3), 213(3), 249, 259, 269, and
279 East Grand Avenue /
South San Francisco 100 % 6,624 - - - 90,000 90,000
211 East Grand Avenue
Other value-creation projects 100 % - - - - 25,000 25,000
1,577,931 530,602 2,307,596 700,000 3,256,830 6,795,028
New York City
Alexandria Center® for Life Science - Long
Island City/New York City 100 % 115,368 65,558 135,938 - - 201,496
30-02 48th Avenue and 47-50 30th Street
Mega Campus: Alexandria Center® for Life
Science - New York City/ (4)
New York City 100 % 98,380 - - 550,000 - 550,000
219 East 42nd Street /New York City 100 % - - - - 579,947 579,947
$ 213,748 65,558 135,938 550,000 579,947 1,331,443Refer to the definition of "Mega campus" in the "Definitions and reconciliations" in the "Non-GAAP measures and definitions" section within this Item 2 for additional information.
(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 or redevelopment opportunities. Upon expiration of existing in-place leases, we have the intent to demolish or redevelop the existing property and commence 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)We have a 50.0% ownership interest in651 Gateway Boulevard aggregating 300,010 RSF and a 51.0% ownership interest in751 Gateway Boulevard aggregating 230,592 RSF. (3)We own a partial interest in this property through a real estate joint venture. 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 details. (4)Pursuant to an option agreement, we are currently negotiating a long-term ground lease with theCity of New York for the future site of a new building approximating 550,000 SF. 73 -------------------------------------------------------------------------------- New Class A development and redevelopment properties: summary of pipeline (continued) Square Footage Development and Redevelopment Market Our Ownership Near Intermediate Property/Submarket Interest Book ValueUnder Construction Term Term Future Total(1) San Diego Mega Campus: SD Tech byAlexandria /Sorrento Mesa 50.0 %$ 143,560 84,981 190,074 160,000 333,845 768,9009805 Scranton Road and10055 and 10075 Barnes Canyon Road Scripps Science Park byAlexandria /Sorrento Mesa 100 % 121,206 144,113 105,000 70,041 164,000 483,15410102 Hoyt Park Drive ,10048 and 12019 Meanley Drive , and10277 Scripps Ranch Boulevard Mega Campus: OneAlexandria Square /Torrey Pines 100 % 224,288 - 608,252 - 125,280 733,532 10931, 10933, 11255, and11355 North Torrey Pines Road and10975 and 10995 Torreyana Road Mega Campus:Alexandria Point/University Town Center 55.0 % 130,202 - 598,029 - 324,445 922,47410260 Campus Point Drive and 4110, 4150, and4161 Campus Point Court Mega Campus:Sequence District byAlexandria /Sorrento Mesa 100 % 41,334 - 200,000 509,000 1,089,915 1,798,915 6260, 6290, 6310, 6340, 6350, and6450 Sequence Drive Mega Campus:University District/University Town Center 100 % 193,622 - - 1,137,000 - 1,137,000 9363, 9373,9393 Towne Centre Drive ,4555 Executive Drive ,8410-8750 Genesee Avenue , and4282 Esplanade Court 9444 Waples Street /Sorrento Mesa 50.0 % 21,058 - - 149,000 - 149,000 Mega Campus:5200 Illumina Way /University Town Center 51.0 % 14,487 - - - 451,832 451,832 4025, 4031, 4045, and4075 Sorrento Valley Boulevard /Sorrento Valley 100 % 20,281 - - - 247,000 247,000 Other value-creation projects 100 % 71,919 - - - 539,235 539,235 981,957 229,094 1,701,355 2,025,041 3,275,552 7,231,042Seattle Mega Campus: The Eastlake Life Science Campus byAlexandria /Lake Union 100 % 154,126 311,631 - - - 311,6311150 Eastlake Avenue East Alexandria Center® for Advanced Technologies - MonteVilla Parkway/Bothell 100 % 76,841 213,976 50,552 - - 264,528 3301, 3555, and 3755 MonteVilla Parkway Mega Campus : Alexandria Center® for Life Science - South Lake Union/ (2)Lake Union 342,946 - 1,095,586 - 188,400 1,283,986 601 and 701 Dexter Avenue North and800 Mercer Street 830 and1010 4th Avenue South /SoDo 100 %$ 52,789 - - - 597,313 597,313
Refer to the definition of "Mega campus" in the "Definitions and reconciliations" in the "Non-GAAP measures and definitions" section within this Item 2 for additional information.
(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 or redevelopment opportunities. Upon expiration of existing in-place leases, we have the intent to demolish or redevelop the existing property and commence 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)We have a 100% ownership interest in 601 and 701 Dexter Avenue North aggregating 414,986 SF and a 60% ownership interest in the near-term development project at800 Mercer Street aggregating 869,000 SF. 74 -------------------------------------------------------------------------------- New Class A development and redevelopment properties: summary of pipeline (continued) Square Footage Development and Redevelopment Market Our Ownership Near Intermediate Property/Submarket Interest Book ValueUnder Construction Term Term Future
Total(1)
Seattle (continued) Mega Campus: Alexandria Center® for Advanced Technologies -Canyon Park /Bothell 100 %$ 13,392 - - - 230,000
230,000
21660 20th Avenue Southeast
Other value-creation projects 100 % 79,258 - - - 691,000 691,000
719,352 525,607 1,146,138 - 1,706,713 3,378,458
Maryland
Mega Campus: Alexandria Center® for Life Science -
100 % 143,407 360,533 250,000 258,000 38,000 906,533
9601, 9603, and
-
20400 Century Boulevard /Gaithersburg 100 % 9,747 44,323 - - - 44,323 153,154 404,856 250,000 258,000 38,000 950,856 Research Triangle Mega Campus: Alexandria Center® for Life Science -Durham / Research Triangle 100 % 248,421 376,871 - - 2,060,000 2,436,87140 and 41 Moore Drive and14 TW Alexander Drive Mega Campus: Alexandria Center® for Advanced Technologies/ Research Triangle 100 % 56,401 180,000 - - 990,000 1,170,0004 and 12 Davis Drive 6040 George Watts Hill Drive , Phase II/Research Triangle 100 % 4,256 88,038 - - -
88,038
Alexandria Center® for AgTech/Research Triangle 100 % 37,986 61,680 - - -
61,680
9 Laboratory Drive Mega Campus: Alexandria Center® for NextGen Medicines/ Research Triangle
100 % 98,089 - 100,000 100,000 855,000 1,055,000
100 % 50,121 - - - 750,000 750,000
Other value-creation projects 100 % 4,185 - - - 76,262 76,262
499,459 706,589 100,000 100,000 4,731,262 5,637,851
Texas
8800 Technology Forest Place /Greater Houston 100 % 42,981 201,499 - - 116,287 317,786
Other value-creation projects 100 % 136,837 - 143,105 - 2,090,000 2,233,105
179,818 201,499 143,105 - 2,206,287 2,550,891
Other value-creation projects 100 % 33,438 - - - 474,000 474,000
Total pipeline as ofJune 30, 2022 $ 7,843,404 (2) 5,851,124 6,984,447 3,920,041 20,419,252 37,174,864 (1)
Refer to the definition of "Mega campus" in the "Definitions and reconciliations" in the "Non-GAAP measures and definitions" section within this Item 2 for additional information.
(1)Total square footage includes 4,170,757 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. (2)Total book value includes$3.7 billion of projects currently under construction that are 75% leased/negotiating. We also expect to commence construction on pre-leased/negotiating near-term projects aggregating$441.8 million in the next six quarters that are 89% leased/negotiating. 75 --------------------------------------------------------------------------------
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 annual report on Form 10-K for the year endedDecember 31, 2021 and our subsequent quarterly reports on Form 10-Q. We believe that 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 that 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 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 decrease below their respective carrying values due to changes in general market or other conditions outside of our control. Significant items included in the tabular disclosure for current periods are described in further detail within this Item 2. Key items included in net income attributable toAlexandria's common stockholders for the three and six months endedJune 30, 2022 and 2021 and the related per share amounts were as follows (in millions, except per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 2022 2021 2022 2021 Amount Per Share - Diluted Amount Per Share - Diluted Unrealized (losses) gains on non-real estate investments$ (68.1) $ 244.0 $ (0.42) $ 1.67 $ (331.6) $ 197.8 $ (2.07) $ 1.39 Significant realized gains on non-real estate investments - 34.8 - 0.24 - 57.7 - 0.41 Gain on sales of real estate 214.2 - 1.33 - 214.2 2.8 1.34 0.02 Impairment of real estate - (4.9) - (0.03) - (10.1) - (0.07) Loss on early extinguishment of debt (3.3) - (0.02) - (3.3) (67.3) (0.02) (0.47) Total$ 142.8 $ 273.9 $ 0.89 $ 1.88 $ (120.7) $ 180.9 $ (0.75) $ 1.28 76
--------------------------------------------------------------------------------
Same properties
We supplement an evaluation of our results of operations with an evaluation of operating performance of certain of our properties, referred to asSame Properties . For additional information on the determination of ourSame 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 ourSame Properties for the three and six months endedJune 30, 2022 :
Three Months Ended Six Months Ended
Percentage change in net operating income over comparable period from prior year
7.5% 7.7%
Percentage change in net operating income (cash basis) over comparable period from prior year
10.2% 8.6%
Operating margin 71% 71%
Number of Same Properties 287 266
RSF 28,897,189 27,008,468
Occupancy - current-period average 95.9% 95.8%
Occupancy - same-period prior-year average 94.5% 94.6%
The following table reconciles the number of
Development - under construction Properties5 and 9 Laboratory Drive 24 Davis Drive 1201 Brookline Avenue 110055 Barnes Canyon Road 115 Necco Street 1751 Gateway Boulevard 1325 Binney Street 11150 Eastlake Avenue East 110102 Hoyt Park Drive 19810 Darnestown Road 199 Coolidge Avenue 1500 North Beacon Street and4 Kingsbury Avenue
2
9808 Medical Center Drive
1
6040 George Watts Hill Drive
1
16
Development - placed into service afterJanuary 1, 2021 Properties1165 Eastlake Avenue East 1201 Haskins Way 1825 and 835 Industrial Road 29950 Medical Center Drive 13115 Merryfield Row 18 and 10 Davis Drive 2 8 Redevelopment - under construction Properties30-02 48th Avenue 1 The Arsenal on the Charles 11
4840 Winter Street 120400 Century Boulevard 19601 and 9603 Medical Center Drive 2One Rogers Street 1 40, 50, and60 Sylvan Road 3
Alexandria Center® for Advanced Technologies -
6651 Gateway Boulevard 18800 Technology Forest Place 1 Other 2 34 Redevelopment - placed into service afterJanuary 1, 2021 Properties700 Quince Orchard Road 13160 Porter Drive 15505 Morehouse Drive 1 Other 1 4 Acquisitions afterJanuary 1, 2021 Properties 3301, 3303, 3305, 3307, 3420, and3440 Hillview Avenue 6Sequence District byAlexandria 5 Alexandria Center® for Life Science - Fenway 1550 Arsenal Street 11501-1599 Industrial Road 6One Investors Way 22475 Hanover Street 110975 and 10995 Torreyana Road 2Pacific Technology Park 6 1122 and 1150 El Camino Real 212 Davis Drive 17360 Carroll Road 18505 Costa Verde Boulevard and4260 Nobel Drive 2225 and 235 Presidential Way 2104 TW Alexander Drive 4One Hampshire Street 1 Intersection Campus 12 Other 48 103 Unconsolidated real estate JVs 4 Properties held for sale 1 Total properties excluded fromSame Properties 170Same Properties 266 Total properties inNorth America as ofJune 30, 2022 436 77 --------------------------------------------------------------------------------
Comparison of results for the three months ended
The following table presents a comparison of the components of net operating income for ourSame Properties andNon-Same Properties for the three months endedJune 30, 2022 , compared to the three months endedJune 30, 2021 . 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. Refer to "Item 1A. Risk factors" in our annual report on Form 10-K for the year endedDecember 31, 2021 for a discussion about risks that COVID-19 directly or indirectly may pose to our business. Three Months Ended June 30, (Dollars in thousands) 2022 2021 $ Change % Change Income from rentals: Same Properties$ 378,130 $ 350,577 $ 27,553 7.9 % Non-Same Properties 106,937 46,227 60,710 131.3 Rental revenues 485,067 396,804 88,263 22.2 Same Properties 124,693 101,088 23,605 23.4 Non-Same Properties 31,199 10,479 20,720 197.7 Tenant recoveries 155,892 111,567 44,325 39.7 Income from rentals 640,959 508,371 132,588 26.1 Same Properties 193 134 59 44.0 Non-Same Properties 2,612 1,114 1,498 134.5 Other income 2,805 1,248 1,557 124.8 Same Properties 503,016 451,799 51,217 11.3 Non-Same Properties 140,748 57,820 82,928 143.4 Total revenues 643,764 509,619 134,145 26.3 Same Properties 147,045 120,686 26,359 21.8 Non-Same Properties 49,239 23,269 25,970 111.6 Rental operations 196,284 143,955 52,329 36.4 Same Properties 355,971 331,113 24,858 7.5 Non-Same Properties 91,509 34,551 56,958 164.9 Net operating income$ 447,480 $ 365,664 $ 81,816 22.4 % Net operating income - Same Properties$ 355,971 $ 331,113 $ 24,858 7.5 % Straight-line rent revenue (15,859) (22,214) 6,355 (28.6) Amortization of acquired below-market leases (9,875) (9,338) (537) 5.8 Net operating income -Same Properties (cash basis)$ 330,237 $ 299,561 $ 30,676 10.2 % 78
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Income from rentals
Total income from rentals for the three months endedJune 30, 2022 increased by$132.6 million , or 26.1%, to$641.0 million , compared to$508.4 million for the three months endedJune 30, 2021 , as a result of increase in rental revenues and tenant recoveries, as discussed below.
Rental revenues
Total rental revenues for the three months endedJune 30, 2022 increased by$88.3 million , or 22.2%, to$485.1 million , compared to$396.8 million for the three months endedJune 30, 2021 . The increase was primarily due to an increase in rental revenues from ourNon-Same Properties related to 2.5 million RSF of development and redevelopment projects placed into service subsequent toApril 1, 2021 and 83 operating properties aggregating 7.3 million RSF acquired subsequent toApril 1, 2021 . Rental revenues from ourSame Properties for the three months endedJune 30, 2022 increased by$27.6 million , or 7.9%, to$378.1 million , compared to$350.6 million for the three months endedJune 30, 2021 . The increase was primarily due to rental rate increases on lease renewals and re-leasing of space sinceApril 1, 2021 and an increase of occupancy to 95.9% for the three months endedJune 30, 2022 from 94.5% for the three months endedJune 30, 2021 .
Tenant recoveries
Tenant recoveries for the three months endedJune 30, 2022 increased by$44.3 million , or 39.7%, to$155.9 million , compared to$111.6 million for the three months endedJune 30, 2021 . The increase was primarily from ourNon-Same Properties related to our development and redevelopment projects placed into service and properties acquired subsequent toApril 1, 2021 , as discussed above under "Rental revenues."Same Properties' tenant recoveries for the three months endedJune 30, 2022 increased by$23.6 million , or 23.4%, primarily due to higher operating expenses during the three months endedJune 30, 2022 , as discussed under "Rental operations" below. As ofJune 30, 2022 , 91% of our leases (on an annual rental revenue 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
Rental operations
Total rental operating expenses for the three months ended
General and administrative expenses
General and administrative expenses for the three months endedJune 30, 2022 increased by$5.5 million , or 14.6%, to$43.4 million , compared to$37.9 million for the three months endedJune 30, 2021 . The increase was primarily due to costs related to the continued growth in the depth and breadth of our operations in multiple markets, including development and redevelopment projects placed into service and properties acquired, as discussed above under "Income from rentals." As a percentage of net operating income, our general and administrative expenses for the trailing twelve months endedJune 30, 2022 and 2021 were 9.8% and 9.8%, respectively. 79 --------------------------------------------------------------------------------
Interest expense
Interest expense for the three months ended
Three Months Ended June 30,
Component 2022 2021 Change
Gross interest $ 92,459 $ 78,650 $ 13,809
Capitalized interest (68,202) (43,492) (24,710)
Interest expense $ 24,257 $ 35,158 $ (10,901)
Average debt balance outstanding(1) $ 10,300,789 $ 8,805,891 $ 1,494,898
Weighted-average annual interest rate(2) 3.6 % 3.6 % - %
(1)Represents the average debt balance outstanding during the respective
periods.
(2)Represents annualized total interest incurred divided by the average debt
balance outstanding during the respective periods.
The net change in interest expense during the three months ended June 30, 2022 ,
compared to the three months ended June 30, 2021 , resulted from the following
(dollars in thousands):
Component Interest Rate(1) Effective Date Change
Increases in interest incurred due to:
Issuances of debt:
$800 million unsecured senior notes payable February 2022 5,944
due 2034 - green bond 3.07 %
$1.0 billion unsecured senior notes payable 3.63 % February 2022
due 2052 8,896
Other increases in interest incurred 486
Total increases 15,326
Decreases in interest incurred due to:
Repayments of debt:
Secured notes payable 3.40 % April 2022 (1,517)
Total decreases (1,517)
Change in gross interest 13,809
Increase in capitalized interest (24,710)
Total change in interest expense $ (10,901) (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 endedJune 30, 2022 increased by$52.0 million , or 27.4%, to$242.1 million , compared to$190.1 million for the three months endedJune 30, 2021 . The increase was primarily due to additional depreciation from 2.5 million RSF of development and redevelopment projects placed into service subsequent toApril 1, 2021 and 83 operating properties aggregating 7.3 million RSF acquired subsequent toApril 1, 2021 . Impairments of real estate During the three months endedJune 30, 2021 , we recognized impairment charges aggregating$4.9 million , primarily related to two office properties located in ourSeattle market, to reduce the carrying amounts to their estimated fair values less costs to sell. We completed the sales of these properties during the three months endedSeptember 30, 2021 .
Loss on early extinguishment of debt
During the three months ended
80
--------------------------------------------------------------------------------Equity in earnings of unconsolidated real estate joint ventures
During the three months endedJune 30, 2022 and 2021, we recognized equity in earnings of unconsolidated real estate joint ventures of$213 thousand and$2.6 million , respectively. The decrease is primarily related to the sale of our investment in an unconsolidated real estate joint venture in our GreaterStanford submarket inDecember 2021 . 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. Investment loss During the three months endedJune 30, 2022 , we recognized investment losses aggregating$39.5 million , which consisted of$28.6 million of realized gains and$68.1 million of unrealized losses. Realized gains were primarily related to sales of investments and distributions received. Unrealized losses of$68.1 million primarily consisted of decreases in fair values of our investments in publicly traded companies. During the three months endedJune 30, 2021 , we recognized investment income aggregating$304.3 million , which consisted of$60.2 million of realized gains and$244.0 million of unrealized gains. 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.
Gain on sales of real estate
During the three months endedJune 30, 2022 , we recognized$214.2 million of gains related to the completion of 14 real estate dispositions. The gains were classified in gain on sales of real estate within our consolidated statements of operations for the three months endedJune 30, 2022 . For more information about our sales of real estate, refer to the "Sales of real estate assets" section of Note 3 - "Investments in real estate" to our unaudited consolidated financial statements under Item 1 of this report.
Other comprehensive income
Total other comprehensive income for the three months endedJune 30, 2022 decreased by$7.4 million to aggregate net unrealized losses of$6.1 million , compared to net unrealized gains of$1.3 million for the three months endedJune 30, 2021 , primarily due to the unrealized losses on foreign currency translation related to our operations inCanada andChina . 81 --------------------------------------------------------------------------------
Comparison of results for the six months ended
The following table presents a comparison of the components of net operating income for ourSame Properties andNon-Same Properties for the six months endedJune 30, 2022 , compared to the six months endedJune 30, 2021 . 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. Refer to "Item 1A. Risk factors" in our annual report on Form 10-K for the year endedDecember 31, 2021 for a discussion about risks that COVID-19 directly or indirectly may pose to our business. Six Months Ended June 30, (Dollars in thousands) 2022 2021 $ Change % Change Income from rentals: Same Properties$ 708,840 $ 656,182 $ 52,658 8.0 % Non-Same Properties 245,764 110,855 134,909 121.7 Rental revenues 954,604 767,037 187,567 24.5 Same Properties 235,108 196,835 38,273 19.4 Non-Same Properties 63,801 23,194 40,607 175.1 Tenant recoveries 298,909 220,029 78,880 35.8 Income from rentals 1,253,513 987,066 266,447 27.0 Same Properties 324 209 115 55.0 Non-Same Properties 4,992 2,193 2,799 127.6 Other income 5,316 2,402 2,914 121.3 Same Properties 944,272 853,226 91,046 10.7 Non-Same Properties 314,557 136,242 178,315 130.9 Total revenues 1,258,829 989,468 269,361 27.2 Same Properties 271,903 228,963 42,940 18.8 Non-Same Properties 105,709 52,880 52,829 99.9 Rental operations 377,612 281,843 95,769 34.0 Same Properties 672,369 624,263 48,106 7.7 Non-Same Properties 208,848 83,362 125,486 150.5 Net operating income$ 881,217 $ 707,625 $ 173,592 24.5 % Net operating income - Same Properties$ 672,369 $ 624,263 $ 48,106 7.7 % Straight-line rent revenue (41,101) (41,360) 259 (0.6) Amortization of acquired below-market leases (14,063) (14,365) 302 (2.1) Net operating income -Same Properties (cash basis)$ 617,205 $ 568,538 $ 48,667 8.6 %
Income from rentals
Total income from rentals for the six months endedJune 30, 2022 increased by$266.4 million , or 27.0%, to$1.3 billion , compared to$987.1 million for the six months endedJune 30, 2021 , as a result of increase in rental revenues and tenant recoveries, as discussed below. 82 --------------------------------------------------------------------------------
Rental revenues
Total rental revenues for the six months endedJune 30, 2022 increased by$187.6 million , or 24.5%, to$1.0 billion , compared to$767.0 million for the six months endedJune 30, 2021 . The increase was primarily due to an increase in rental revenues from ourNon-Same Properties related to 3.0 million RSF of development and redevelopment projects placed into service subsequent toJanuary 1, 2021 and 103 operating properties aggregating 9.1 million RSF acquired subsequent toJanuary 1, 2021 . Rental revenues from ourSame Properties for the six months endedJune 30, 2022 increased by$52.7 million , or 8.0%, to$708.8 million , compared to$656.2 million for the six months endedJune 30, 2021 . The increase was primarily due to rental rate increases on lease renewals and re-leasing of space and occupancy increases sinceJanuary 1, 2021 and an increase of occupancy to 95.8% for the six months endedJune 30, 2022 from 94.6% for the six months endedJune 30, 2021 . Tenant recoveries Tenant recoveries for the six months endedJune 30, 2022 increased by$78.9 million , or 35.8%, to$298.9 million , compared to$220.0 million for the six months endedJune 30, 2021 . This increase was primarily from ourNon-Same Properties related to our development and redevelopment projects placed into service and properties acquired subsequent toJanuary 1, 2021 , as discussed above under "Rental revenues."Same Properties' tenant recoveries for the six months endedJune 30, 2022 increased by$38.3 million , or 19.4%, primarily due to higher operating expenses during the six months endedJune 30, 2022 , as discussed under "Rental operations" below. As ofJune 30, 2022 , 91% of our leases (on an annual rental revenue 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 six months ended
Rental operations
Total rental operating expenses for the six months endedJune 30, 2022 increased by$95.8 million , or 34.0%, to$377.6 million , compared to$281.8 million for the six months endedJune 30, 2021 . The increase was primarily due to incremental expenses related to ourNon-Same Properties , which consist of development and redevelopment projects placed into service and acquired properties, as discussed above under "Income from rentals."Same Properties' rental operating expenses increased by$42.9 million , or 18.8%, to$271.9 million during the six months endedJune 30, 2022 , compared to$229.0 million for the six months endedJune 30, 2021 . The increase was primarily the result of higher utilities expenses, repairs and maintenance expenses, property insurance expenses, and contract services expenses.
General and administrative expenses
General and administrative expenses for the six months endedJune 30, 2022 increased by$12.5 million , or 17.3%, to$84.3 million , compared to$71.9 million for the six months endedJune 30, 2021 . The increase was primarily due to the costs related to corporate related costs, additional headcount, and corporate responsibility efforts, as well as the continued growth in the depth and breadth of our operations in multiple markets, including development and redevelopment projects placed into service and properties acquired, as discussed above under "Income from rentals." As a percentage of net operating income, our general and administrative expenses for the trailing twelve months endedJune 30, 2022 and 2021 were 9.8% and 9.8%, respectively. 83 --------------------------------------------------------------------------------
Interest expense
Interest expense for the six months ended
Six Months Ended June 30,
Component 2022 2021 Change
Gross interest $ 179,662 $ 155,003 $ 24,659
Capitalized interest (125,965) (83,378) (42,587)
Interest expense $ 53,697 $ 71,625 $ (17,928)
Average debt balance outstanding(1) $ 10,188,517 $
8,773,651
Weighted-average annual interest rate(2) 3.5 % 3.5 % - % (1)Represents the average debt balance outstanding during the respective periods. (2)Represents annualized total interest incurred divided by the average debt balance outstanding during the respective periods.
The net change in interest expense during the six months ended
Component Interest Rate(1) Effective Date Change Increases in interest incurred due to: Issuances of debt:$900 million unsecured senior notes payable - green bond 2.12 % February 2021$ 2,382 $850 million unsecured senior notes payable 3.08 % February 2021 3,341$800 million unsecured senior notes payable - 3.07 % February 2022 8,915 green bond$1.0 billion unsecured senior notes payable 3.63 % February 2022 13,344 Other increase in interest 1,191 Total increases 29,173 Decreases in interest incurred due to: Repayments of debt: Secured notes payable 3.40 % April 2022 (1,569)$650 million unsecured senior notes payable - 4.03 % March 2021 (2,945) green bond Total decreases (4,514) Change in gross interest 24,659 Increase in capitalized interest (42,587) Total change in interest expense$ (17,928)
(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 endedJune 30, 2022 increased by$111.8 million , or 30.1%, to$482.7 million , compared to$371.0 million for the six months endedJune 30, 2021 . The increase was primarily due to additional depreciation from 3.0 million RSF of development and redevelopment projects placed into service subsequent toJanuary 1, 2021 and 103 operating properties aggregating 9.1 million RSF acquired subsequent toJanuary 1, 2021 .
Impairment of real estate
During the six months endedJune 30, 2021 , we recognized impairment charges aggregating$10.1 million , primarily related to additional impairment charges for three of our office properties located in ourSan Francisco Bay Area andSeattle markets, to further reduce the carrying amounts to their estimated fair values less costs to sell. We completed the sales of these properties during the three months endedSeptember 30, 2021 .
Loss on early extinguishment of debt
During the six months ended
84
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During the six months ended June 30, 2021 , we recognized a loss on early
extinguishment of debt of $67.3 million , including the write-off of unamortized
loan fees primarily related to the refinancing of our 4.00% unsecured senior
notes payable aggregating $650.0 million due in 2024 pursuant to a partial cash
tender offer completed on February 10, 2021 and a subsequent call for redemption
of the remaining outstanding amounts completed on March 12, 2021 .
Equity in earnings of unconsolidated real estate joint ventures
During the six months ended
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.
Investment income
During the six months endedJune 30, 2022 , we recognized investment losses aggregating$279.8 million , which consisted of$51.8 million of realized gains and$331.6 million of unrealized losses. Realized gains of$51.8 million primarily consisted of sales of investments and distributions received. Unrealized losses of$331.6 million during the six months endedJune 30, 2022 primarily consisted of decreases in fair values of our investments in publicly traded companies and investments in privately held entities that report NAV.
During the six months ended
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.
Gain on sales of real estate
During the six months endedJune 30, 2022 , we recognized$214.2 million of gains related to the completion of 15 real estate dispositions. The gains were classified in gain on sales of real estate within our consolidated statements of operations for the six months endedJune 30, 2022 . During the six months endedJune 30, 2021 , we recognized$2.8 million of gains related to the completion of two real estate dispositions. The gains were classified in gain on sales of real estate within our consolidated statements of operations for the six months endedJune 30, 2021 . For more information about our sales of real estate, refer to the "Sales of real estate assets" section of Note 3 - "Investments in real estate" to our unaudited consolidated financial statements under Item 1 of this report.
Other comprehensive income
Total other comprehensive income for the six months endedJune 30, 2022 , decreased by$6.7 million to aggregate net unrealized losses of$4.6 million , compared to net unrealized gains of$2.1 million for the six months endedJune 30, 2021 , primarily due to the unrealized losses on foreign currency translation related to our operations inCanada andChina . 85 --------------------------------------------------------------------------------
Summary of capital expenditures
Our construction spending for the six months ended
Six Months Ended June
Construction Spending 30, 2022
Additions to real estate - consolidated projects $ 1,377,589
Investments in unconsolidated real estate joint ventures 336
Contributions from noncontrolling interests (99,215)
Construction spending (cash basis)
1,278,710
Change in accrued construction
115,575
Construction spending for the six months endedJune 30, 2022
1,394,285
Projected construction spending for the six months ending December 31, 2022 1,605,715 Guidance midpoint$ 3,000,000 (1)
The following table summarizes the total projected construction spending for the
year ending
Projected Construction Spending Year Ending December 31, 2022 Development, redevelopment, and pre-construction projects $ 3,106,000
Contributions from noncontrolling interests (consolidated real estate joint ventures)
(286,000)
Revenue-enhancing and repositioning capital expenditures 98,000
Non-revenue-enhancing capital expenditures 82,000
Guidance midpoint $ 3,000,000 (1)
(1)During the three months ended
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--------------------------------------------------------------------------------Projected results
We present updated guidance for EPS attributable toAlexandria's common stockholders - diluted, funds from operations per share attributable toAlexandria's common stockholders - diluted, and funds from operations per share attributable toAlexandria's common stockholders - diluted, as adjusted, based on our current view of existing market conditions and other assumptions for the year endingDecember 31, 2022 as set forth in the tables below. The tables below also provide a reconciliation of EPS attributable toAlexandria's common stockholders - diluted, the most directly comparable financial measure presented in accordance with GAAP, to funds from operations per share, a non-GAAP measure, and other key assumptions included in our updated guidance for the year endingDecember 31, 2022 . 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" within this Item 2.
Projected 2022 Earnings per Share and Funds From Operations
per Share Attributable to
As of 7/25/22 As of 4/25/22
Earnings per share(1) $2.14 to $2.20 $1.08 to $1.18
Depreciation and amortization of real estate assets 5.50 5.65
Gain on sales of real estate (1.34) -
Allocation of unvested restricted stock awards (0.02) (0.02)
Funds from operations per share(2) $6.28 to $6.34 $6.71 to $6.81
Unrealized losses on non-real estate investments 2.07 1.67
Loss on early extinguishment of debt(3) 0.02 0.02
Acceleration of stock compensation due to executive officer resignation(4)
0.04 -
Allocation to unvested restricted stock awards (0.02) (0.02)
Other (0.01) (0.05)
Funds from operations per share, as adjusted(2) $8.38 to $8.44 $8.33 to $8.43
Midpoint $8.41 $8.38
(1)Excludes unrealized gains or losses after June 30, 2022 that are required to
be recognized in earnings and are excluded from funds from operations per share,
as adjusted.
(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 additional information.
(3)Refer to the "Extinguishment of secured notes payable" section in Note 10 -
"Secured and unsecured senior debt" to our unaudited consolidated financial
statements of this report for additional information.
(4)Relates to the resignation of an executive officer in July 2022 . General &
administrative expenses increased by $4 million , including $7 million related to
the acceleration of stock compensation due to the resignation of Stephen A.
Richardson , our Co-Chief Executive Officer, partially offset by compensation
savings in the second half of 2022. Refer to Note 16 - "Subsequent events" to
our unaudited consolidated financial statements of this report for additional
information.
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--------------------------------------------------------------------------------Key Assumptions(1) As of 7/25/22 As of 4/25/22 (Dollars in millions) Low High Low High Occupancy percentage for operating properties in North America as of December 31, 2022 95.2% 95.8% 95.2% 95.8% Lease renewals and re-leasing of space: Rental rate increases 30.0% 35.0% 30.0% 35.0% Rental rate increases (cash basis) 18.0% 23.0% 18.0% 23.0% Same property performance: Net operating income increase 6.0% 8.0% 5.9% 7.9% Net operating income increase (cash basis) 6.8% 8.8% 6.5% 8.5% Straight-line rent revenue(2)$ 144 $ 154 $ 154 $ 164 General and administrative expenses(3)$ 172 $ 180 $ 168 $ 176 Capitalization of interest$ 269 $ 279 $ 269 $ 279 Interest expense$ 90 $ 100 $ 90 $ 100 (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 endedDecember 31, 2021 , as well as in "Item 1A. Risk factors" within "Part II - Other information" of this quarterly report on Form 10-Q. (2)The$10 million reduction in our guidance range for straight-line rent revenue includes reductions attributable to the following items: •Changes to our capital plan for 2022 as highlighted in our updated guidance for key sources and uses of capital in the "Capital resources" section in this Item 2, including the following: •Lower acquisitions with operating activities in 2022 as well as the$350 million reduction in the midpoint of our guidance range for acquisitions; and •Higher dispositions compared to sales of partial interest. •Acceleration of$2 million contractual rental payments due under one long-term lease in ourCambridge /Inner Suburbs submarket. •Early terminations of below-market leases: •Includes two spaces aggregating 141,649 RSF in two markets, of which 51% has been re-leased at aggregate rental rate increases of 114% and 140% (cash basis). We expect the re-leased spaces to take occupancy by the third quarter of 2022. (3)General and administrative expenses increased by$4 million , including$7 million related to the acceleration of stock compensation due to the resignation ofStephen A. Richardson , our Co-Chief Executive Officer, partially offset by compensation savings in the second half of 2022. Refer to Note 16 - "Subsequent events" to our unaudited consolidated financial statements of this report for additional information. Key Credit Metrics As of 7/25/22 As of 4/25/22 Net debt and preferred stock to Adjusted Less than or equal to 5.1x Less than or equal to EBITDA - fourth quarter of 2022, annualized 5.1x Fixed-charge coverage ratio - fourth quarter Greater than or equal to Greater than or equal to of 2022, annualized 5.1x 5.1x 88
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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.
Noncontrolling(1) Operating RSF
Property/Market/Submarket Interest Share at 100%
50 and 60 Binney Street/Greater Boston/Cambridge/Inner Suburbs 66.0 % 532,395
75/125 Binney Street/Greater Boston/Cambridge/Inner Suburbs 60.0 % 388,270
100 Binney Street/Greater Boston/Cambridge/Inner Suburbs 70.0 % (2) 432,931
225 Binney Street/Greater Boston/Cambridge/Inner Suburbs 70.0 % 305,212
300 Third Street/Greater Boston/Cambridge/Inner Suburbs 70.0 % 131,963
99 Coolidge Avenue/Greater Boston/Cambridge/Inner Suburbs 25.0 % - (3)
Alexandria Center® for Science and Technology -
75.0 % 1,005,989
Area/Mission Bay (4) 601, 611, 651, 681, 685, and 701 Gateway Boulevard/San Francisco Bay 50.0 % 789,567 Area/South San Francisco 751 Gateway Boulevard/San Francisco Bay Area/South San Francisco 49.0 % -
(3)
213 East Grand Avenue/San Francisco Bay Area/South San Francisco 70.0 % 300,930 500 Forbes Boulevard/San Francisco Bay Area/South San Francisco 90.0 % 155,685
Alexandria Center® for Life Science -
51.5 % -
San Francisco Alexandria Point/San Diego/University Town Center(5) 45.0 % 1,337,916 5200 Illumina Way/San Diego/University Town Center 49.0 % 792,687 9625 Towne Centre Drive/San Diego/University Town Center 49.9 % 163,648 SD Tech by Alexandria/San Diego/Sorrento Mesa(6) 50.0 % 793,957 Pacific Technology Park/San Diego/Sorrento Mesa 50.0 % 572,887
1201 and 1208 Eastlake Avenue East and
70.0 % 321,218
400 Dexter Avenue North/Seattle/Lake Union 70.0 % 290,111
800 Mercer Street/Seattle/Lake Union 40.0 % (2) -
Operating RSF
Property/Market/Submarket Our Ownership Share(7) at 100%
1655 and 1725 Third Street/San Francisco Bay Area/Mission Bay 10.0 % 586,208
1401/1413 Research Boulevard /Maryland /Rockville 65.0 % (8)
(9)
1450 Research Boulevard/Maryland/Rockville 73.2 % (10) 42,679 101 West Dickman Street/Maryland/Beltsville 57.9 % (10) 135,423 (1)In addition to the consolidated real estate joint ventures listed, various partners hold insignificant noncontrolling interests in three other real estate joint ventures inNorth America . (2)Refer to the "Formation of consolidated real estate joint ventures and sales of partial interests" subsection in Note 4 - "Consolidated and unconsolidated real estate joint ventures" to our unaudited consolidated financial statements under Item 1 of this report for additional information. (3)Represents a property currently under construction. Refer to "New Class A development and redevelopment properties: current projects" within this Item 2 for additional details. (4)Includes 409 and 499 Illinois Street,1500 and 1700 Owens Street , and455 Mission Bay Boulevard South . (5)Includes 10210, 10260, 10290, and10300 Campus Point Drive and 4110, 4150, 4161, 4224, and4242 Campus Point Court in ourUniversity Town Center submarket. (6)Includes 9605, 9645, 9675, 9685, 9725, 9735, 9808, 9855, and9868 Scranton Road and10055 and 10065 Barnes Canyon Road in our Sorrento Mesa submarket. (7)In addition to the unconsolidated real estate joint ventures listed, we hold an interest in one other insignificant unconsolidated real estate joint venture inNorth America . (8)Represents our ownership interest; our voting interest is limited to 50%. (9)Represents a joint venture with a distinguished retail real estate developer for an approximately 90,000 RSF retail shopping center. (10)Represents a joint venture with a local real estate operator in which our partner manages the day-to-day activities that significantly affect the economic performance of the joint venture. 89 --------------------------------------------------------------------------------
The following table presents key terms related to our unconsolidated real estate
joint ventures' secured loans as of
Aggregate
Commitment Debt Balance
Unconsolidated Joint Venture Our Share Maturity Date Stated Rate Interest Rate(1) at 100% at 100%(2)
1401/1413 Research Boulevard 65.0% 12/23/24 2.70% 3.32 % $ 28,500 $ 28,064
1655 and 1725 Third Street 10.0% 3/10/25 4.50% 4.57 % 600,000 598,868
101 West Dickman Street 57.9% 11/10/26 SOFR+1.95% (3) 3.51 % 26,750 10,129
1450 Research Boulevard 73.2% 12/10/26 SOFR+1.95% (3) N/A 13,000 -
$ 668,250 $ 637,061 (1)Includes interest expense and amortization of loan fees.
(2)Represents outstanding principal, net of unamortized deferred financing
costs, as of
The following tables present information related to the operating results and financial position of our consolidated and unconsolidated real estate joint ventures as of and for the three and six months endedJune 30, 2022 (in thousands): Noncontrolling Interest Share of Consolidated Our Share of Unconsolidated Real Estate Joint Ventures Real Estate Joint Ventures June 30, 2022 June 30, 2022 Three Months Three Months Ended Six Months Ended Ended Six Months Ended
Total revenues $ 89,263 $ 167,940$ 2,728 $ 5,566 Rental operations (25,331) (48,028) (638) (1,370) 63,932 119,912 2,090 4,196 General and administrative (547) (870) (25) (96) Interest - - (918) (1,778) Depreciation and amortization of real estate assets (26,418) (50,099) (934) (1,889) Fixed returns allocated to redeemable noncontrolling interests(1) 201 402 - - $ 37,168 $ 69,345 $ 213 $ 433 Straight-line rent and below-market lease revenue $ 4,309 $ 8,633 $ 287 $ 540 Funds from operations(2) $ 63,586 $ 119,444$ 1,147 $ 2,322 (1)Represents an allocation of joint venture earnings to redeemable noncontrolling interests primarily in one property in ourSouth 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 toAlexandria 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 financial measure, presented in accordance with GAAP. As of June 30, 2022 Noncontrolling Interest Our Share of Share of Consolidated Unconsolidated Real Estate Joint Real Estate Joint Ventures Ventures Investments in real estate $ 3,036,883 $ 110,461 Cash, cash equivalents, and restricted cash 110,417 4,466 Other assets 351,455 10,400 Secured notes payable (6,077) (83,998) Other liabilities (169,877) (3,742) Redeemable noncontrolling interests (9,612) - $ 3,313,189 $ 37,587 During the six months endedJune 30, 2022 and 2021, our consolidated real estate joint ventures distributed an aggregate of$92.1 million and$53.8 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. 90 --------------------------------------------------------------------------------
Investments
We hold investments in publicly traded companies and privately held entities
primarily involved in the life science, agtech, and technology industries. The
tables below summarize components of our non-real estate investments and
investment income. For additional information, refer to Note 7 - "Investments"
to our unaudited consolidated financial statements under Item 1 of this report.
June 30, 2022
(In thousands) Three Months Ended Six Months Ended Year Ended December 31, 2021
Realized gains $ 28,647 $ 51,761 $ 215,845 (1)
Unrealized (losses) gains (68,128) (331,561) 43,632
Investment (loss) income $ (39,481) $ (279,800) $ 259,477
Investments Unrealized
(In thousands) Cost Gains Carrying Amount
Publicly traded companies $ 220,033 $ 24,292 (2) $ 244,325
Entities that report NAV 433,133 355,062 788,195
Entities that do not report NAV:
Entities with observable price changes 68,744 80,457 149,201
Entities without observable price changes 395,271 - 395,271
Investments accounted for under the equity
method of accounting N/A N/A 80,469
June 30, 2022 $ 1,117,181 (3) $ 459,811 (4) $ 1,657,461
December 31, 2021 $ 1,007,303 $ 797,673 $ 1,876,564
(1)Includes six separate significant realized gains aggregating $110.1 million
related to the following transactions: (i) the sales of investments in three
publicly traded biotechnology companies, (ii) a distribution received from a
limited partnership investment, and (iii) the acquisition of two of our
privately held non-real estate investments in a biopharmaceutical company and a
biotechnology company.
(2)Comprises gross unrealized gains and losses of $122.5 million and $98.2
million , respectively.
(3)Represents 3.0% of gross assets as of June 30, 2022 .
(4)Comprises gross unrealized gains and losses of $565.5 million and $105.7
million , respectively.
Public/Private
Mix (Cost)
[[Image Removed: are-20220630_g43.jpg]]
Tenant/Non-Tenant
Mix (Cost)
[[Image Removed: are-20220630_g44.jpg]]
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Liquidity
Minimal Outstanding Borrowings and Significant Availability on
Liquidity Unsecured Senior Line of Credit
(in millions)
$5.5B
(In millions)
Availability under our unsecured senior line [[Image Removed: are-20220630_g45.jpg]]
of credit, net of amounts outstanding under
our commercial paper program $ 2,850 Outstanding forward equity sales agreements(1) 1,697 Cash, cash equivalents, and restricted cash 518 Remaining construction loan commitments
169
Investments in publicly traded companies 244
Liquidity as of June 30, 2022 $ 5,478 (1)Represents expected net proceeds from the future settlement of 9.0 million shares of forward equity sales agreements.
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, long-term secured and unsecured indebtedness, borrowings under our unsecured senior line of credit, issuances under our commercial paper program, and issuances of additional debt and/or equity securities. We also 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. For additional information on our liquidity requirements related to our contractual obligations and commitments, refer to Note 5 - "Leases" and Note 10 - "Secured and unsecured senior debt" to our unaudited consolidated financial statements under Item 1 of this report for additional information.
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, 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;
•Prudently manage variable-rate debt exposure through the reduction of
short-term and medium-term variable-rate 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 real estate assets; and
•Maintain high levels of pre-leasing and percentage leased in value-creation
projects.
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The following table presents the availability under our unsecured senior line of
credit, net of amounts outstanding under our commercial paper program;
availability under our secured construction loan; outstanding forward equity
sales agreements; cash, cash equivalents, and restricted cash; and investments
in publicly traded companies as of June 30, 2022 (dollars in thousands):
Aggregate Outstanding Remaining
Description Stated Rate Commitments Balance(1) Commitments/Liquidity
Availability under our unsecured senior
line of credit, net of amounts outstanding
under our commercial paper program L+0.815% $ 3,000,000 $ 149,958 $ 2,850,000
Outstanding forward equity sales
agreements(2) 1,696,960
Cash, cash equivalents, and restricted cash 517,662
Remaining construction loan commitments SOFR+2.70% $ 195,300 $ 24,308 169,325
Investments in publicly traded companies 244,325
Liquidity as of June 30, 2022 $ 5,478,272
(1)Represents outstanding principal, net of unamortized deferred financing
costs, as of June 30, 2022 .
(2)Represents expected net proceeds from the future settlement of 9.0 million
shares of forward equity sales agreements.
Cash, cash equivalents, and restricted cash
As ofJune 30, 2022 andDecember 31, 2021 , we had$517.7 million and$415.2 million , respectively, of cash, cash equivalents, and restricted cash. We expect existing cash, cash equivalents, and restricted cash, net cash from operating activities, proceeds from real estate asset sales and partial interest sales, non-real estate investment sales, borrowings under our unsecured senior line of credit, issuances under our commercial paper program, issuances of unsecured notes payable, borrowings under secured construction loans, and issuances of common stock to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as regular quarterly dividends, distributions to noncontrolling interests, scheduled debt repayments, acquisitions, and certain capital expenditures, including expenditures related to construction activities.
Cash flows
We report and analyze our cash flows based on operating activities, investing activities, and financing activities. The following table summarizes changes in our cash flows for the six months endedJune 30, 2022 and 2021 (in thousands): Six Months Ended June 30, 2022 2021 Change Net cash provided by operating activities$ 530,120 $ 451,814 $ 78,306 Net cash used in investing activities$ (3,096,199) $ (4,136,457) $ 1,040,258 Net cash provided by financing activities$ 2,668,900 $ 3,444,082 $ (775,182) 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 endedJune 30, 2022 increased by$78.3 million to$530.1 million , compared to$451.8 million for the six months endedJune 30, 2021 . The 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 sinceJanuary 1, 2021 , and (iii) increases in rental rates on lease renewals and re-leasing of space sinceJanuary 1, 2021 . 93 --------------------------------------------------------------------------------
Investing activities
Cash used in investing activities for the six months ended
Six Months Ended June 30, Increase
2022 2021 (Decrease)
Sources of cash from investing activities:
Proceeds from sales of real estate $ 375,379 $ 25,695 $ 349,684
Change in escrow deposits 138,440 - 138,440
Return of capital from unconsolidated real estate joint ventures
471 - 471
Sales of and distributions from non-real estate
investments 90,228 162,550 (72,322)
604,518 188,245 416,273
Uses of cash for investing activities:
Additions to real estate 1,377,589 1,001,983 375,606
Purchases of real estate 2,182,699 2,947,469 (764,770)
Change in escrow deposits - 131,974 (131,974)Acquisition of interest in unconsolidated real estate joint venture
- 9,048 (9,048)
Investments in unconsolidated real estate joint
ventures 336 720 (384)
Additions to non-real estate investments 140,093 233,508 (93,415)
3,700,717 4,324,702 (623,985)
Net cash used in investing activities $ 3,096,199 The decrease in net cash used in investing activities for the six months endedJune 30, 2022 when compared to the six months endedJune 30, 2021 was primarily due to a decreased use of cash for purchases of real estate and increase in cash obtained from dispositions of real estate, partially offset by increased cash used for additions to real estate. Refer to Note 3 - "Investments in real estate" to our unaudited consolidated financial statements under Item 1 of this report for additional information. 94 --------------------------------------------------------------------------------
Financing activities
Cash flows provided by financing activities for the six months ended
Six Months
Ended
2022 2021 Change
Borrowings from secured notes payable $ 15,973 $ - $ 15,973
Repayments of borrowings from secured notes payable (906) (16,250) 15,344
Payment for the defeasance of secured notes payable (198,304)
- (198,304)
Proceeds from issuance of unsecured senior notes
payable 1,793,318 1,743,716 49,602
Repayments of unsecured senior notes payable - (650,000) 650,000
Premium paid for early extinguishment of debt - (66,829) 66,829
Borrowings from unsecured senior line of credit 1,180,000 2,101,000 (921,000)
Repayments of borrowings from unsecured senior line of credit
(1,180,000) (2,101,000) 921,000
Proceeds from issuance under commercial paper
program 7,410,000 12,290,000 (4,880,000)
Repayments of borrowings from commercial paper
program (7,530,000) (12,090,000) 4,560,000
Payments of loan fees (17,596) (16,870) (726)
Changes related to debt 1,472,485 1,193,767 278,718
Contributions from and sales of noncontrolling
interests 1,029,134 357,597 671,537
Distributions to and purchases of noncontrolling
interests (92,224) (53,812) (38,412)
Proceeds from the issuance of common stock 646,316 2,266,464 (1,620,148)
Dividend payments (371,547) (311,760) (59,787)
Taxes paid related to net settlement of equity
awards (15,264) (8,174) (7,090)
Net cash provided by financing activities $ 2,668,900
95
--------------------------------------------------------------------------------Capital resources
We expect that our principal liquidity needs for the year endingDecember 31, 2022 will be satisfied by the multiple sources of capital 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. Key changes to our guidance include the reduction of an aggregate$635 million to our uses of capital, comprising a$350 million reduction in acquisitions and a$285 million reduction in construction spending. This reduction was offset by construction spending from January throughJune 2022 , which increased by$335 million to slightly above the high end of our previous guidance range, as a result of construction spending associated with the leasing of our development and redevelopment projects under construction and our near-term pipeline projects. In addition, the midpoint of our guidance for funds from operations per share, as adjusted increased bythree cents driven by strong same property performance and general and administrative savings in the second half of 2022 resulting from the retirement ofStephen A. Richardson , our Co-Chief Executive Officer. 2022 Guidance As of Key Sources and Uses of Capital Certain 4/25/22 Key Changes to (In millions) Range Midpoint Completed Items Midpoint Midpoint Sources of capital: Net cash provided by operating activities after dividends$ 275 $ 325 $ 300 $ 300 Net incremental debt 1,361 561 961 See below 950 Dispositions and sales of partial interest (refer to the "Dispositions and sales of partial interest" section within Item 2 for additional information) 1,450 2,600 2,025 $ 1,287 1,950$ 75 Common equity 2,364 2,364 2,364 $ 2,364 (1) 2,750$ (386) Total sources of capital$ 5,450 $ 5,850 $ 5,650 $ 5,950 Uses of capital: Construction (refer to the "Summary of capital expenditures" section within Item 2 for additional information)$ 2,900 $ 3,100 $ 3,000 $ 2,950 $
50
Acquisitions (refer to the "Acquisitions" section within Item 2 for additional information) 2,550 2,750 2,650 $ 2,130 3,000$ (350) Total uses of capital$ 5,450 $ 5,850 $ 5,650 $ 5,950 Incremental debt (included above): Issuance of unsecured senior notes payable$ 1,800 $ 1,800 $ 1,800 $ 1,800$ 1,800 Repayments of secured notes payable (195) (195) (195) $ (195) (195) Unsecured senior line of credit, commercial paper, and other (44) (744) (394) (655) Incremental cash expected to be held at December 31, 2022(2) (200) (300) (250) -$ (250) Net incremental debt$ 1,361 $ 561 $ 961 $ 950 (1)During the six months endedJune 30, 2022 , we entered into new forward equity sales agreements aggregating$2.4 billion to sell 12.3 million shares of our common stock. During the three months endedMarch 31, 2022 , we settled a portion of these forward equity sales agreements by issuing 3.2 million shares and received net proceeds of$648.2 million . We expect to issue 9.0 million shares to settle our remaining outstanding forward equity sales agreements and receive net proceeds of approximately$1.7 billion in 2022. Refer to Note 13 - "Stockholders' equity" to our unaudited consolidated financial statements under Item 1 of this report for additional information. (2)We expect this forecasted cash atDecember 31, 2022 to result in a reduction of our 2023 debt capital needs. 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 endedDecember 31, 2021 ; as well as "Item 1A. Risk factors" within "Part II - Other information" of this quarterly report on Form 10-Q. We expect to update our forecast of sources and uses of capital on a quarterly basis. 96 --------------------------------------------------------------------------------
Sources of capital
Net cash provided by operating activities after dividends
We expect to retain$275.0 million to$325.0 million of net cash flows from operating activities after payment of common stock dividends, and distributions to noncontrolling interests for the year endingDecember 31, 2022 . For purposes of this calculation, changes in operating assets and liabilities are excluded as they represent timing differences. For the year endingDecember 31, 2022 , we expect our recently delivered projects, our highly pre-leased value-creation projects expected to be completed and contributions fromSame 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$39 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 endedJune 30, 2022 .
Debt
We expect to fund a portion of our capital needs for the remainder of 2022 from the real estate dispositions and sales of partial interest, settlement of our outstanding forward equity sales agreements, issuances under our commercial paper program discussed below, borrowings under our unsecured senior line of credit, and borrowings under secured construction loans. As ofJune 30, 2022 , we have no outstanding balance on our unsecured senior line of credit. Our unsecured senior line of credit has an aggregate commitment of$3.0 billion and bears an interest rate of LIBOR plus 0.825% with a zero percent LIBOR floor and is subject to certain annual sustainability measures entitling us to a temporary reduction in the interest rate margin of one basis point, but not below zero percent per year. During the year endedDecember 31, 2021 , we achieved certain sustainability measures, as described in our unsecured senior line of credit agreement, which reduced our borrowing rate to LIBOR plus 0.815% for a one-year period. In addition to the cost of borrowing, the unsecured senior line of credit is subject to an annual facility fee of 0.15% based on the aggregate commitments outstanding. We plan to amend and extend our unsecured senior line of credit during the second half of 2022. We may also consider increasing the size of our commercial paper program up to to 50% of the total commitments under our unsecured senior line of credit. We use our unsecured senior line of credit to fund working capital, construction activities, and, from time to time, acquisition of properties. Borrowings under the unsecured senior line of credit bear interest at a "Eurocurrency Rate," a "LIBOR Floating Rate," or a "Base Rate" specified in the unsecured senior line of credit agreement plus, in any case, the Applicable Margin. The Eurocurrency Rate specified in the unsecured senior line of credit agreement 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 inU.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 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. We established a commercial paper program that provides us with the ability to issue up to$1.5 billion of commercial paper notes with a maturity of generally 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 unsecured senior line of credit, and at all times we expect to retain a minimum undrawn amount of borrowing capacity under our 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 unsecured senior line of credit, we expect to borrow under the unsecured senior line of credit at LIBOR plus 0.815%. The commercial paper notes sold during the three months endedJune 30, 2022 were issued at a weighted-average yield to maturity of 1.35%. As ofJune 30, 2022 , we had an outstanding balance of$150.0 million under our commercial paper program. InFebruary 2022 , we opportunistically issued$1.8 billion of unsecured senior notes payable with a weighted-average interest rate of 3.28% and a weighted-average maturity of 22.0 years. The unsecured senior notes consisted of$800.0 million of 2.95% green unsecured senior notes due 2034 and$1.0 billion of 3.55% unsecured senior notes due 2052. 97 -------------------------------------------------------------------------------- InApril 2022 , we repaid two secured notes payable aggregating$195.0 million due in 2024 with an effective interest rate of 3.40% and recognized a loss on early extinguishment of debt of$3.3 million , including a prepayment penalty and the write-off of unamortized loan fees.
Proactive management of transition away from LIBOR
LIBOR has been used extensively in theU.S. and globally as a reference rate for various commercial and financial contracts, including variable-rate debt and interest rate swap contracts. However, based on an announcement made by theFinancial Conduct Authority ("FCA") onMarch 5, 2021 , one-week and two-month LIBOR rates ceased to be published afterDecember 31, 2021 ; all other LIBOR settings will effectively cease afterJune 30, 2023 , and it is expected that LIBOR will no longer be used after this date. In addition, it is expected that LIBOR will no longer be used in new contracts entered into afterDecember 31, 2021 . To address the impending discontinuation of LIBOR, in theU.S. the Alternative Reference Rates Committee ("ARRC") was established to help ensure the successful transition from LIBOR. InJune 2017 , the ARRC selected SOFR, a new index calculated by reference to short-term repurchase agreements backed byU.S. Treasury securities, as its preferred replacement forU.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 eliminated outstanding LIBOR-based borrowings under our unsecured senior bank term loans and secured construction loans through repayments. From January 2017 through June 2022, we retired approximately $1.5 billion of all such debt. •During 2020, we increased the aggregate amount of our commercial paper program to $1.5 billion from $750.0 million. This program provides us with ability to issue commercial paper notes bearing interest at short-term fixed rates, with a maturity of generally 30 days or less and with a maximum maturity of 397 days from the date of issuance. Our commercial paper program is not subject to LIBOR and is used for funding short-term working capital needs. As of June 30, 2022, we had $150.0 million outstanding under our commercial paper program. •We continue to prudently manage outstanding borrowings under our unsecured senior line of credit. As of June 30, 2022, we had no borrowings outstanding under our unsecured senior line of credit. Additionally, new loans that we've entered into recently are SOFR-based rather than LIBOR-based. Our consolidated real estate joint venture at 99 Coolidge Avenue holds a SOFR-based secured construction loan with an outstanding balance of $24.3 million. In addition, two of our unconsolidated real estate joint ventures at 1450 Research Boulevard and 101 WestDickman Street each hold a SOFR-based secured construction loan. As of June 30, 2022, 1450 Research Boulevard had no outstanding balance on its secured construction loan and 101 WestDickman Street had an outstanding balance of $10.1 million. •Our unsecured senior line of credit contains fallback language generally consistent with the ARRC's Amendment Approach, which provides a streamlined amendment approach for negotiating a benchmark replacement. •We continue to monitor developments by theFCA , the ARRC, and other governing bodies involved in LIBOR transition. •As of June 30, 2022, our unsecured senior line of credit represents our only debt instrument tied to LIBOR. We plan to amend and extend our unsecured senior line of credit during the second half of 2022. In connection with this amendment, we expect to convert the borrowing rate from a LIBOR-based rate to a SOFR-based rate. Refer to Note 10 - "Secured and unsecured senior debt" and Note 4 - "Consolidated and unconsolidated real estate joint ventures" 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, 2021 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. We may also consider additional sales of partial interests in core Class A properties and/or development projects. For 2022, we expect real estate dispositions and sales of partial interest ranging from $1.5 billion to $2.6 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. Refer to Note 4 - "Consolidated and unconsolidated real estate joint ventures" to our unaudited consolidated financial statements under Item 1 of this report, and the "Dispositions and sales of partial interests" subsection of "Investments in real estate" within this Item 2 for additional information on our dispositions and sales of partial interests. As a REIT, we are generally subject to a 100% tax on the net income from real estate asset sales that theIRS 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, 2021 for additional information about the "prohibited transaction" tax. 98 --------------------------------------------------------------------------------
Common equity transactions
During the six months ended June 30, 2022, our common equity transactions included the following:
•In January 2022, we entered into new forward equity sales agreements aggregating $1.7 billion to sell 8.1 million shares of our common stock (including the exercise of an underwriters' option) at a public offering price of $210.00 per share, before underwriting discounts and commissions. •In March 2022, we settled a portion of these forward equity sales agreements by issuing 3.2 million shares and received net proceeds of $648.2 million. •In December 2021, we entered into a new ATM common stock offering program, which allows us to sell up to an aggregate of $1.0 billion of our common stock. •During the three months ended March 31, 2022, we entered into new forward equity sales agreements aggregating $350.0 million to sell 1.8 million shares under our ATM program at an average price of $192.42 per share (before underwriting discounts). •During the three months ended June 30, 2022, we entered into additional forward equity sales agreements aggregating $403.4 million to sell 2.4 million shares under our ATM program at an average price of $169.38 per share (before underwriting discounts). •As of June 30, 2022, the remaining aggregate amount available under our ATM program for future sales of common stock is $246.6 million. We expect to settle these forward equity sales agreements in 2022. During the three months ended June 30, 2022, we did not issue shares to settle our outstanding forward equity agreements. We expect to issue an aggregate of 9.0 million shares at an average price of $187.91 per share to settle all our outstanding forward equity sales agreements and receive net proceeds of approximately $1.7 billion in the second half of 2022.
Other sources
Under our current shelf registration statement filed with theSEC , 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, 2022, we received $1.0 billion of contributions from and sales of noncontrolling interests. 99 --------------------------------------------------------------------------------
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 5.9 million RSF of Class A office/laboratory, agtech, and technology office space undergoing construction, 9.9 million RSF of near-term and intermediate-term development and redevelopment projects, and 17.2 million SF of future development projects inNorth 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 in 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, 2022 and 2021 of $126.0 million and $83.4 million, respectively, was classified in investments in real estate. Property taxes, insurance on real estate, and indirect project costs, such as 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 costs related to development, redevelopment, pre-construction, and construction projects aggregating $43.9 million and $34.0 million and property taxes, insurance on real estate and other operating costs aggregating $45.2 million and $34.6 million for the six months ended June 30, 2022 and 2021, respectively. The increase in capitalized costs for the six months ended June 30, 2022, compared to the same period in 2021, was primarily due to an increase in our value-creation pipeline projects undergoing construction and pre-construction activities in 2022 over 2021. 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 and indirect project costs related to the 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 $17.0 million for the six months ended June 30, 2022. 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, 2022, we capitalized total initial direct leasing costs of $129.5 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" and
to Note 4 - "Consolidated and unconsolidated real estate joint ventures" 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.
100
--------------------------------------------------------------------------------Dividends
During the six months ended June 30, 2022 and 2021, we paid common stock dividends of $371.5 million and $311.8 million, respectively. The increase of $59.8 million in dividends paid on our common stock during the six months ended June 30, 2022, compared to the six months ended June 30, 2021, was primarily due to an increase in number of common shares outstanding subsequent to January 1, 2021 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 $2.30 per common share paid during the six months ended June 30, 2022 from $2.18 per common share paid during the six months ended June 30, 2021. Secured notes payable Secured notes payable as of June 30, 2022 consisted of three notes secured by one property. Our secured notes payable typically require monthly payments of principal and interest and had a weighted-average interest rate of approximately 3.78%. As of June 30, 2022, the total book value of our investments in real estate securing debt was approximately $146.7 million. As of June 30, 2022, our secured notes payable, including unamortized discounts and deferred financing costs, comprised approximately $678 thousand and $24.3 million of fixed-rate debt and unhedged variable-rate debt, respectively.
Unsecured senior notes payable and 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, 2022 were as follows:
Covenant Ratios(1) Requirement June 30, 2022
Total Debt to Total Assets Less than or equal to 60% 29%
Secured Debt to Total Assets Less than or equal to 40% 0.1%
Consolidated EBITDA(2) to Interest Expense Greater than or equal to 1.5x
15.7x
Unencumbered Total Asset Value to
Unsecured Debt Greater than or equal to 150% 333%
(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 unsecured senior line of credit as of June 30, 2022 were as follows:
Covenant Ratios(1) Requirement June 30, 2022
Leverage Ratio Less than or equal to 60.0% 28.5%
Secured Debt Ratio Less than or equal to 45.0% 0.1%
Fixed-Charge Coverage Ratio Greater than or equal to 1.50x 4.55x
Unsecured Interest Coverage Ratio Greater than or equal to 1.75x
11.91x
(1)All covenant ratio titles utilize terms as defined in the 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, 2022, 98.3% 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.
101
--------------------------------------------------------------------------------Ground lease obligations
Operating lease agreements
Ground lease obligations as of June 30, 2022 included leases for 41 of our properties, which accounted for approximately 9% 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 $6.6 million as of June 30, 2022, our ground lease obligations have remaining lease terms ranging from approximately 31 to 100 years, including available extension options that we are reasonably certain to exercise. As of June 30, 2022, the remaining contractual payments under ground and office lease agreements in which we are the lessee aggregated $893.1 million and $32.5 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, 2022, the present value of the remaining contractual payments aggregating $925.6 million under our operating lease agreements, including our extension options that we are reasonably certain to exercise, was $412.5 million, which was classified in accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets. As of June 30, 2022, the weighted-average remaining lease term of operating leases in which we are the lessee was approximately 42 years, and the weighted-average discount rate was 4.61%. 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 $567.7 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, 2022, remaining aggregate costs under contract for the construction of properties undergoing development, redevelopment, and improvements under the terms of leases approximated $3.9 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 projects, which would result in the reduction of our commitments. In addition, we have letters of credit and performance obligations aggregating $21.0 million primarily related to construction projects and an anticipated acquisition . We are committed to funding approximately $420.5 million related to our non-real estate investments. These funding commitments are primarily associated with our investments in privately held entities that report NAV, which expire at various dates over the next 11 years, with a weighted-average expiration of 8.8 years as of June 30, 2022.
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.
102
--------------------------------------------------------------------------------Foreign currency translation gains and losses
The following table presents the change in accumulated other comprehensive loss attributable toAlexandria Real Estate Equities, Inc.'s stockholders during the six months ended June 30, 2022 due to the changes in the foreign exchange rates for our real estate investments inCanada andAsia . We reclassify unrealized foreign currency translation gains and losses into net income as we dispose of these holdings. (In thousands) Total Balance as of December 31, 2021 $
(7,294)
Other comprehensive loss before reclassifications (4,557)
Net other comprehensive loss (4,557)
Balance as of June 30, 2022 $ (11,851)
Inflation
As of June 30, 2022, approximately 91% of our leases (on an annual rental
revenue 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. Approximately 97% of our leases (on
an annual rental revenue basis) contained effective annual rent escalations that
were either fixed (generally ranging from 3.0% to 3.5%) or indexed based on a
consumer price index or other indices. Accordingly, we do not believe that our
cash flows or earnings from real estate operations are subject to significant
risks from inflation. A period of inflation, however, could cause an increase in
the cost of our variable-rate borrowings, including borrowings related to our
unsecured senior line of credit, commercial paper program, secured construction
loans, and secured loans held by our unconsolidated real estate joint ventures.
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 inflation directly or indirectly may pose to our business.
103
--------------------------------------------------------------------------------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 byAlexandria 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, balance sheet information as of June 30, 2022 and December 31, 2021, and results of operations and comprehensive income for the six months ended June 30, 2022 and year ended December 31, 2021 for the Issuer and the Guarantor Subsidiary. 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 as of June 30, 2022 and December 31, 2021, for the six months ended June 30, 2022, and for the year ended December 31, 2021 for the Issuer and Guarantor Subsidiary. Amounts provided do not represent our total consolidated amounts (in thousands): June 30, 2022 December 31, 2021 Assets: Cash, cash equivalents, and restricted cash $ 124,597 $ 78,856 Other assets 98,647 101,956 Total assets $ 223,244 $ 180,812 Liabilities: Unsecured senior notes payable $ 10,096,462 $ 8,316,678 Unsecured senior line of credit and commercial paper 149,958 269,990 Other liabilities 422,943 401,721 Total liabilities $ 10,669,363 $ 8,988,389 Year Ended Six Months Ended December 31, June 30, 2022 2021 Total revenues $ 16,116 $ 26,798 Total expenses (140,904) (363,525) Net loss (124,788) (336,727)
Net income attributable to unvested restricted stock awards
(4,134) (7,848)
Net loss attributable to
$ (128,922) $ (344,575)
As of June 30, 2022, 424 of our 436 properties were held indirectly by the
REIT's wholly owned consolidated subsidiary,
Critical accounting estimates
Refer to our annual report on Form 10-K for the year ended December 31, 2021 for
a discussion of our critical accounting estimates related to recognition of real
estate acquired, impairment of long-lived assets, monitoring of tenant credit
quality, and allowance for credit losses.
104
--------------------------------------------------------------------------------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
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 acquisition and disposition decisions, financing decisions, capital
structure, capital market transactions, variances resulting from the volatility
of market conditions outside of our control, or other corporate activities that
may not be representative of the operating performance of our properties.
The 2018 White Paper published by the Nareit Board of Governors (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, significant termination fees, acceleration of
stock compensation expense due to the resignation of an executive officer, 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, 2022 (in thousands):
Noncontrolling Interest Share of Consolidated Our Share of Unconsolidated
Real Estate Joint Ventures Real Estate Joint Ventures
June 30, 2022 June 30, 2022
Three Months
Three Months Ended Six Months Ended Ended Six Months Ended
Net income $ 37,168 $ 69,345 $ 213 $ 433
Depreciation and amortization
of real estate assets 26,418 50,099 934 1,889
Funds from operations $ 63,586 $ 119,444 $ 1,147 $ 2,322
105--------------------------------------------------------------------------------
The following tables present a reconciliation of net income (loss) attributable toAlexandria 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 toAlexandria Real Estate Equities, Inc.'s common stockholders - diluted, and funds from operations attributable toAlexandria 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, 2022 and 2021. Per share amounts may not add due to rounding.
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