New Class A development and redevelopment properties: summary of pipeline (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Market Property/Submarket | | Our Ownership Interest | | Book Value | | Square Footage | |
| | | Development and Redevelopment | | Total(1) | |
| | | Under Construction | | Near Term | | Intermediate Term | | Future | | |
| | | | | | | | | | | | | | | | |
San Diego | | | | | | | | | | | | | | | | |
Mega Campus: SD Tech by Alexandria/Sorrento Mesa | | 50.0 | % | | | $ | 143,560 | | | 84,981 | | | 190,074 | | | 160,000 | | | 333,845 | | | 768,900 | | |
9805 Scranton Road and 10055 and 10075 Barnes Canyon Road | | | | | | | | | | | | | | | | |
Scripps Science Park by Alexandria/Sorrento Mesa | | 100 | % | | | 121,206 | | | 144,113 | | | 105,000 | | | 70,041 | | | 164,000 | | | 483,154 | | |
10102 Hoyt Park Drive, 10048 and 12019 Meanley Drive, and 10277 Scripps Ranch Boulevard | | | | | | | | | | | | | | | | |
Mega Campus: One Alexandria Square/Torrey Pines | | 100 | % | | | 224,288 | | | — | | | 608,252 | | | — | | | 125,280 | | | 733,532 | | |
10931, 10933, 11255, and 11355 North Torrey Pines Road and 10975 and 10995 Torreyana Road | | | | | | | | | | | | | | | | |
Mega Campus: Alexandria Point/University Town Center | | 55.0 | % | | | 130,202 | | | — | | | 598,029 | | | — | | | 324,445 | | | 922,474 | | |
10260 Campus Point Drive and 4110, 4150, and 4161 Campus Point Court | | | | | | | | | | | | | | | | |
Mega Campus: Sequence District by Alexandria/Sorrento Mesa | | 100 | % | | | 41,334 | | | — | | | 200,000 | | | 509,000 | | | 1,089,915 | | | 1,798,915 | | |
6260, 6290, 6310, 6340, 6350, and 6450 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, and 4282 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, and 4075 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 | | | 7,231,042 | | |
Seattle | | | | | | | | | | | | | | | | |
Mega Campus: The Eastlake Life Science Campus by Alexandria/ Lake Union | | 100 | % | | | 154,126 | | | 311,631 | | | — | | | — | | | — | | | 311,631 | | |
1150 Eastlake Avenue East | | | | | | | | | | | | | | | | |
Alexandria Center® for Advanced Technologies – Monte Villa Parkway/Bothell | | 100 | % | | | 76,841 | | | 213,976 | | | 50,552 | | | — | | | — | | | 264,528 | | |
3301, 3555, and 3755 Monte Villa Parkway | | | | | | | | | | | | | | | | |
Mega Campus: Alexandria Center® for Life Science – South Lake Union/ Lake Union | | (2) | | | 342,946 | | | — | | | 1,095,586 | | | — | | | 188,400 | | | 1,283,986 | | |
601 and 701 Dexter Avenue North and 800 Mercer Street | | | | | | | | | | | | | | | | |
830 and 1010 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 at 800 Mercer Street aggregating 869,000 SF. |
| | | | | | | | | | | | | | | | |
New Class A development and redevelopment properties: summary of pipeline (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Market Property/Submarket | | Our Ownership Interest | | Book Value | | Square Footage | |
| | | Development and Redevelopment | | Total(1) | |
| | | Under Construction | | Near Term | | Intermediate Term | | Future | | |
| | | | | | | | | | | | | | | | |
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 – Shady Grove/Rockville | | 100 | % | | | 143,407 | | | 360,533 | | | 250,000 | | | 258,000 | | | 38,000 | | | 906,533 | | |
9601, 9603, and 9808 Medical Center Drive and 9810, 9820, and 9830 Darnestown Road | | | | | | | | | | | | | | | — | | |
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 | | | 2,436,871 | | |
40 and 41 Moore Drive and 14 TW Alexander Drive | | | | | | | | | | | | | | | | |
Mega Campus: Alexandria Center® for Advanced Technologies/ Research Triangle | | 100 | % | | | 56,401 | | | 180,000 | | | — | | | — | | | 990,000 | | | 1,170,000 | | |
4 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 | | |
3029 East Cornwallis Road | | | | | | | | | | | | | | | | |
120 TW Alexander Drive, 2752 East NC Highway 54, and 10 South Triangle Drive/Research Triangle | | 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 of June 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.
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 ended December 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 to Alexandria’s common stockholders for the three and six months ended June 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 | |
| | | | | | | | | | | | | | | |
Same properties
We supplement an evaluation of our results of operations with an evaluation of operating performance of certain of our properties, referred to as Same Properties. For additional information on the determination of our Same Properties portfolio, refer to the definition of “Same property comparisons” in the “Non-GAAP measures and definitions” section within this Item 2. The following table presents information regarding our Same Properties for the three and six months ended June 30, 2022:
| | | | | | | | | | | | | | |
| | June 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 Same Properties to total properties for the six months ended June 30, 2022:
| | | | | | | | |
Development – under construction | | Properties |
5 and 9 Laboratory Drive | | 2 |
4 Davis Drive | | 1 | |
201 Brookline Avenue | | 1 | |
10055 Barnes Canyon Road | | 1 | |
15 Necco Street | | 1 | |
751 Gateway Boulevard | | 1 | |
325 Binney Street | | 1 | |
1150 Eastlake Avenue East | | 1 | |
10102 Hoyt Park Drive | | 1 | |
9810 Darnestown Road | | 1 | |
99 Coolidge Avenue | | 1 | |
500 North Beacon Street and 4 Kingsbury Avenue | | 2 | |
9808 Medical Center Drive | | 1 | |
6040 George Watts Hill Drive | | 1 | |
| | 16 | |
Development – placed into service after January 1, 2021 | | Properties |
1165 Eastlake Avenue East | | 1 | |
201 Haskins Way | | 1 |
825 and 835 Industrial Road | | 2 |
9950 Medical Center Drive | | 1 |
3115 Merryfield Row | | 1 |
8 and 10 Davis Drive | | 2 | |
| | 8 | |
Redevelopment – under construction | | Properties |
30-02 48th Avenue | | 1 | |
The Arsenal on the Charles | | 11 | |
2400 Ellis Road, 40 and 41 Moore Drive, and 14 TW Alexander Drive | | 4 | |
840 Winter Street | | 1 | |
20400 Century Boulevard | | 1 | |
9601 and 9603 Medical Center Drive | | 2 | |
One Rogers Street | | 1 | |
40, 50, and 60 Sylvan Road | | 3 | |
Alexandria Center® for Advanced Technologies – Monte Villa Parkway | | 6 | |
651 Gateway Boulevard | | 1 | |
8800 Technology Forest Place | | 1 | |
Other | | 2 | |
| | 34 | |
| | |
| | | | | | | | | | | |
Redevelopment – placed into service after January 1, 2021 | | Properties | |
700 Quince Orchard Road | | 1 | | |
3160 Porter Drive | | 1 | | |
5505 Morehouse Drive | | 1 | | |
Other | | 1 | | |
| | 4 | | |
Acquisitions after January 1, 2021 | | Properties | |
3301, 3303, 3305, 3307, 3420, and 3440 Hillview Avenue | | 6 | | |
Sequence District by Alexandria | | 5 | | |
Alexandria Center® for Life Science – Fenway | | 1 | | |
550 Arsenal Street | | 1 | | |
1501-1599 Industrial Road | | 6 | | |
One Investors Way | | 2 | | |
2475 Hanover Street | | 1 | | |
10975 and 10995 Torreyana Road | | 2 | | |
Pacific Technology Park | | 6 | | |
1122 and 1150 El Camino Real | | 2 | | |
12 Davis Drive | | 1 | | |
7360 Carroll Road | | 1 | | |
8505 Costa Verde Boulevard and 4260 Nobel Drive | | 2 | | |
225 and 235 Presidential Way | | 2 | | |
104 TW Alexander Drive | | 4 | | |
One Hampshire Street | | 1 | | |
Intersection Campus | | 12 | | |
Other | | 48 | | |
| | 103 | | |
Unconsolidated real estate JVs | | 4 | | |
Properties held for sale | | 1 | | |
Total properties excluded from Same Properties | | 170 | | |
Same Properties | | 266 | | |
Total properties in North America as of June 30, 2022 | | 436 | | |
| | | |
Comparison of results for the three months ended June 30, 2022 to the three months ended June 30, 2021
The following table presents a comparison of the components of net operating income for our Same Properties and Non-Same Properties for the three months ended June 30, 2022, compared to the three months ended June 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 ended December 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 | % | |
Income from rentals
Total income from rentals for the three months ended June 30, 2022 increased by $132.6 million, or 26.1%, to $641.0 million, compared to $508.4 million for the three months ended June 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 ended June 30, 2022 increased by $88.3 million, or 22.2%, to $485.1 million, compared to $396.8 million for the three months ended June 30, 2021. The increase was primarily due to an increase in rental revenues from our Non-Same Properties related to 2.5 million RSF of development and redevelopment projects placed into service subsequent to April 1, 2021 and 83 operating properties aggregating 7.3 million RSF acquired subsequent to April 1, 2021.
Rental revenues from our Same Properties for the three months ended June 30, 2022 increased by $27.6 million, or 7.9%, to $378.1 million, compared to $350.6 million for the three months ended June 30, 2021. The increase was primarily due to rental rate increases on lease renewals and re-leasing of space since April 1, 2021 and an increase of occupancy to 95.9% for the three months ended June 30, 2022 from 94.5% for the three months ended June 30, 2021.
Tenant recoveries
Tenant recoveries for the three months ended June 30, 2022 increased by $44.3 million, or 39.7%, to $155.9 million, compared to $111.6 million for the three months ended June 30, 2021. The increase was primarily from our Non-Same Properties related to our development and redevelopment projects placed into service and properties acquired subsequent to April 1, 2021, as discussed above under “Rental revenues.”
Same Properties’ tenant recoveries for the three months ended June 30, 2022 increased by $23.6 million, or 23.4%, primarily due to higher operating expenses during the three months ended June 30, 2022, as discussed under “Rental operations” below. As of June 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 June 30, 2022 and 2021, was $2.8 million and $1.2 million, respectively, which primarily consisted of construction management fees and interest income earned during each respective period.
Rental operations
Total rental operating expenses for the three months ended June 30, 2022 increased by $52.3 million, or 36.4%, to $196.3 million, compared to $144.0 million for the three months ended June 30, 2021. The increase was partially due to incremental expenses related to our Non-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 $26.4 million, or 21.8%, to $147.0 million during the three months ended June 30, 2022, compared to $120.7 million for the three months ended June 30, 2021. The increase was primarily the result of higher repairs and maintenance expenses, contract services expenses, utilities expenses, and property insurance expenses.
General and administrative expenses
General and administrative expenses for the three months ended June 30, 2022 increased by $5.5 million, or 14.6%, to $43.4 million, compared to $37.9 million for the three months ended June 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 ended June 30, 2022 and 2021 were 9.8% and 9.8%, respectively.
Interest expense
Interest expense for the three months ended June 30, 2022 and 2021 consisted of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 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 due 2034 – green bond | | | 3.07 | % | | | February 2022 | | 5,944 | | |
$1.0 billion unsecured senior notes payable due 2052 | | | 3.63 | % | | | February 2022 | | 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 ended June 30, 2022 increased by $52.0 million, or 27.4%, to $242.1 million, compared to $190.1 million for the three months ended June 30, 2021. The increase was primarily due to additional depreciation from 2.5 million RSF of development and redevelopment projects placed into service subsequent to April 1, 2021 and 83 operating properties aggregating 7.3 million RSF acquired subsequent to April 1, 2021.
Impairments of real estate
During the three months ended June 30, 2021, we recognized impairment charges aggregating $4.9 million, primarily related to two office properties located in our Seattle 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 ended September 30, 2021.
Loss on early extinguishment of debt
During the three months ended June 30, 2022, we recognized a loss on early extinguishment of debt of $3.3 million, including a prepayment penalty and the write-off of unamortized loan fees, related to the repayment of two secured notes payable.
Equity in earnings of unconsolidated real estate joint ventures
During the three months ended June 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 Greater Stanford submarket in December 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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 30, 2021, primarily due to the unrealized losses on foreign currency translation related to our operations in Canada and China.
Comparison of results for the six months ended June 30, 2022 to the six months ended June 30, 2021
The following table presents a comparison of the components of net operating income for our Same Properties and Non-Same Properties for the six months ended June 30, 2022, compared to the six months ended June 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 ended December 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 ended June 30, 2022 increased by $266.4 million, or 27.0%, to $1.3 billion, compared to $987.1 million for the six months ended June 30, 2021, as a result of increase in rental revenues and tenant recoveries, as discussed below.
Rental revenues
Total rental revenues for the six months ended June 30, 2022 increased by $187.6 million, or 24.5%, to $1.0 billion, compared to $767.0 million for the six months ended June 30, 2021. The increase was primarily due to an increase in rental revenues from our Non-Same Properties related to 3.0 million RSF of development and redevelopment projects placed into service subsequent to January 1, 2021 and 103 operating properties aggregating 9.1 million RSF acquired subsequent to January 1, 2021.
Rental revenues from our Same Properties for the six months ended June 30, 2022 increased by $52.7 million, or 8.0%, to $708.8 million, compared to $656.2 million for the six months ended June 30, 2021. The increase was primarily due to rental rate increases on lease renewals and re-leasing of space and occupancy increases since January 1, 2021 and an increase of occupancy to 95.8% for the six months ended June 30, 2022 from 94.6% for the six months ended June 30, 2021.
Tenant recoveries
Tenant recoveries for the six months ended June 30, 2022 increased by $78.9 million, or 35.8%, to $298.9 million, compared to $220.0 million for the six months ended June 30, 2021. This increase was primarily from our Non-Same Properties related to our development and redevelopment projects placed into service and properties acquired subsequent to January 1, 2021, as discussed above under “Rental revenues.”
Same Properties’ tenant recoveries for the six months ended June 30, 2022 increased by $38.3 million, or 19.4%, primarily due to higher operating expenses during the six months ended June 30, 2022, as discussed under “Rental operations” below. As of June 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 June 30, 2022 and 2021 was $5.3 million and $2.4 million, respectively, which primarily consisted of construction management fees and interest income earned during each respective period.
Rental operations
Total rental operating expenses for the six months ended June 30, 2022 increased by $95.8 million, or 34.0%, to $377.6 million, compared to $281.8 million for the six months ended June 30, 2021. The increase was primarily due to incremental expenses related to our Non-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 ended June 30, 2022, compared to $229.0 million for the six months ended June 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 ended June 30, 2022 increased by $12.5 million, or 17.3%, to $84.3 million, compared to $71.9 million for the six months ended June 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 ended June 30, 2022 and 2021 were 9.8% and 9.8%, respectively.
Interest expense
Interest expense for the six months ended June 30, 2022 and 2021 consisted of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 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 | | | $ | 1,414,866 | |
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 June 30, 2022, compared to the six 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: | | | | | | | | | |
$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 – green bond | | | 3.07 | % | | | February 2022 | | 8,915 | | |
$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 – green bond | | | 4.03 | % | | | March 2021 | | (2,945) | | |
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 ended June 30, 2022 increased by $111.8 million, or 30.1%, to $482.7 million, compared to $371.0 million for the six months ended June 30, 2021. The increase was primarily due to additional depreciation from 3.0 million RSF of development and redevelopment projects placed into service subsequent to January 1, 2021 and 103 operating properties aggregating 9.1 million RSF acquired subsequent to January 1, 2021.
Impairment of real estate
During the six months ended June 30, 2021, we recognized impairment charges aggregating $10.1 million, primarily related to additional impairment charges for three of our office properties located in our San Francisco Bay Area and Seattle 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 ended September 30, 2021.
Loss on early extinguishment of debt
During the six months ended June 30, 2022, we recognized a loss on early extinguishment of debt of $3.3 million, including a prepayment penalty and the write-off of unamortized loan fees, related to the repayment of two secured notes payable.
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 June 30, 2022 and 2021, we recognized equity in earnings of unconsolidated real estate joint ventures of $433 thousand and $6.1 million, respectively. The decrease is primarily related to the sale of our investment in an unconsolidated real estate joint venture in our Greater Stanford submarket in December 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 income
During the six months ended June 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 ended June 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 June 30, 2021, we recognized investment income aggregating $305.3 million, which consisted of $107.5 million of realized gains and $197.8 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 six months ended June 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 ended June 30, 2022.
During the six months ended June 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 ended June 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 ended June 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 ended June 30, 2021, primarily due to the unrealized losses on foreign currency translation related to our operations in Canada and China.
Summary of capital expenditures
Our construction spending for the six months ended June 30, 2022 consisted of the following (in thousands):
| | | | | | | | | | | |
Construction Spending | | Six Months Ended June 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 ended June 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 December 31, 2022, which includes interest, property taxes, insurance, payroll, and other indirect project costs (in thousands):
| | | | | | | | | | | | | | | | | | | | |
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 June 30, 2022, we reduced our projected construction spending for the remainder of 2022 by $285 million. Refer to the “Capital resources” section within this Item 2 for additional information.
Projected results
We present updated guidance for EPS attributable to Alexandria’s common stockholders – diluted, funds from operations per share attributable to Alexandria’s common stockholders – diluted, and funds from operations per share attributable to Alexandria’s common stockholders – diluted, as adjusted, based on our current view of existing market conditions and other assumptions for the year ending December 31, 2022 as set forth in the tables below. The tables below also provide a reconciliation of EPS attributable to Alexandria’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 ending December 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 Alexandria’s Common Stockholders – Diluted | | 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Key Assumptions(1) (Dollars in millions) | | As of 7/25/22 | | As of 4/25/22 |
| 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 ended December 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 our Cambridge/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 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.
| | | | | | | | | | | | | | |
Key Credit Metrics | | As of 7/25/22 | | As of 4/25/22 |
Net debt and preferred stock to Adjusted EBITDA – fourth quarter of 2022, annualized | | Less than or equal to 5.1x | | Less than or equal to 5.1x |
Fixed-charge coverage ratio – fourth quarter of 2022, annualized | | Greater than or equal to 5.1x | | Greater than or equal to 5.1x |
| | | | |
Consolidated and unconsolidated real estate joint ventures
We present components of balance sheet and operating results information for the noncontrolling interest share of our consolidated real estate joint ventures and for our share of investments in unconsolidated real estate joint ventures to help investors estimate balance sheet and operating results information related to our partially owned entities. These amounts are estimated by computing, for each joint venture that we consolidate in our financial statements, the noncontrolling interest percentage of each financial item to arrive at the cumulative noncontrolling interest share of each component presented. In addition, for our real estate joint ventures that we do not control and do not consolidate, we apply our economic ownership percentage to the unconsolidated real estate joint ventures to arrive at our proportionate share of each component presented. Refer to Note 4 – “Consolidated and unconsolidated real estate joint ventures” to our unaudited consolidated financial statements under Item 1 of this report for further discussion.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Real Estate Joint Ventures | | | | |
Property/Market/Submarket | | Noncontrolling(1) Interest Share | | Operating RSF 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 – Mission Bay/San Francisco Bay Area/Mission Bay(4) | | | 75.0 | % | | | | 1,005,989 | | |
601, 611, 651, 681, 685, and 701 Gateway Boulevard/San Francisco Bay Area/South San Francisco | | | 50.0 | % | | | | 789,567 | | |
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 – Millbrae/San Francisco Bay Area/South San Francisco | | | 51.5 | % | | | | — | | |
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 199 East Blaine Street /Seattle/Lake Union | | | 70.0 | % | | | | 321,218 | | |
400 Dexter Avenue North/Seattle/Lake Union | | | 70.0 | % | | | | 290,111 | | |
800 Mercer Street/Seattle/Lake Union | | | 40.0 | % | (2) | | | — | | |
| | | | | | | | |
Unconsolidated Real Estate Joint Ventures | | | | |
Property/Market/Submarket | | Our Ownership Share(7) | | Operating RSF 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 | | |
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(1)In addition to the consolidated real estate joint ventures listed, various partners hold insignificant noncontrolling interests in three other real estate joint ventures in North 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, and 455 Mission Bay Boulevard South.
(5)Includes 10210, 10260, 10290, and 10300 Campus Point Drive and 4110, 4150, 4161, 4224, and 4242 Campus Point Court in our University Town Center submarket.
(6)Includes 9605, 9645, 9675, 9685, 9725, 9735, 9808, 9855, and 9868 Scranton Road and 10055 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 in North 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.
The following table presents key terms related to our unconsolidated real estate joint ventures’ secured loans as of June 30, 2022 (dollars in thousands):
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| | | | Maturity Date | | Stated Rate | | Interest Rate(1) | | Aggregate Commitment at 100% | | Debt Balance at 100%(2) | |
Unconsolidated Joint Venture | | Our Share | | | | | | |
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 June 30, 2022.
(3)This loan is subject to a fixed SOFR floor rate of 0.75%.
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 ended June 30, 2022 (in thousands):
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| Noncontrolling Interest Share of Consolidated Real Estate Joint Ventures | | Our Share of Unconsolidated Real Estate Joint Ventures |
| June 30, 2022 | | June 30, 2022 |
| Three Months Ended | | Six Months Ended | | Three Months 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) | |
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Fixed returns allocated to redeemable noncontrolling interests(1) | 201 | | | 402 | | | — | | | — | |
| $ | 37,168 | | | $ | 69,345 | | | $ | 213 | | | $ | 433 | |
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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 our South San Francisco submarket. These redeemable noncontrolling interests earn a fixed return on their investment rather than participate in the operating results of the property.
(2)Refer to the definition of “Funds from operations and funds from operations, as adjusted, attributable to Alexandria Real Estate Equities, Inc.’s common stockholders” in the “Non-GAAP measures and definitions” section within this Item 2 for the definition and the reconciliation from the most directly comparable financial measure, presented in accordance with GAAP.
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| As of June 30, 2022 |
| Noncontrolling Interest Share of Consolidated Real Estate Joint Ventures | | Our Share of Unconsolidated Real Estate Joint 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 ended June 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.
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.
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| | 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 | | |
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Investments (In thousands) | | Cost | | Unrealized 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 | | |
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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.
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| Public/Private Mix (Cost) | |
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| Tenant/Non-Tenant Mix (Cost) | |
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Liquidity
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Liquidity | | Minimal Outstanding Borrowings and Significant Availability on Unsecured Senior Line of Credit | |
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$5.5B | | (in millions) | | |
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(In millions) | | |
Availability under our unsecured senior line 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 | | |
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(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.
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):
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Description | | Stated Rate | | Aggregate Commitments | | Outstanding Balance(1) | | Remaining 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 of June 30, 2022 and December 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 ended June 30, 2022 and 2021 (in thousands):
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| 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 ended June 30, 2022 increased by $78.3 million to $530.1 million, compared to $451.8 million for the six months ended June 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 since January 1, 2021, and (iii) increases in rental rates on lease renewals and re-leasing of space since January 1, 2021.
Investing activities
Cash used in investing activities for the six months ended June 30, 2022 and 2021 consisted of the following (in thousands):
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| Six Months Ended June 30, | | Increase (Decrease) |
| 2022 | | 2021 | |
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) | |
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Net cash used in investing activities | $ | 3,096,199 | | | $ | 4,136,457 | | | $ | (1,040,258) | |
The decrease in net cash used in investing activities for the six months ended June 30, 2022 when compared to the six months ended June 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.
Financing activities
Cash flows provided by financing activities for the six months ended June 30, 2022 and 2021 consisted of the following (in thousands):
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| Six Months Ended June 30, | | |
| 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 | |
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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 | | | $ | 3,444,082 | | | $ | (775,182) | |
Capital resources
We expect that our principal liquidity needs for the year ending December 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 through June 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 by three cents driven by strong same property performance and general and administrative savings in the second half of 2022 resulting from the retirement of Stephen A. Richardson, our Co-Chief Executive Officer.
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Key Sources and Uses of Capital (In millions) | | 2022 Guidance | | As of 4/25/22 Midpoint | | Key Changes to Midpoint | |
| Range | | Midpoint | | Certain Completed Items | | | |
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 | | | | |
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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 | | | | |
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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 | | | | |
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(1)During the six months ended June 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 ended March 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 at December 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 ended December 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.
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 ending December 31, 2022. For purposes of this calculation, changes in operating assets and liabilities are excluded as they represent timing differences. For the year ending December 31, 2022, we expect our recently delivered projects, our highly pre-leased value-creation projects expected to be completed and contributions from Same Properties and recently acquired properties, to contribute significant increases in income from rentals, net operating income, and cash flows. We anticipate significant contractual near-term growth in annual cash rents of $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 ended June 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 of June 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 ended December 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 in U.S. dollars. The Base Rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the federal funds rate plus 1/2 of 1.00%, (ii) the rate of interest in effect for such day as publicly announced from time to time by the Administrative Agent as its “prime rate,” and (iii) the Eurocurrency Rate plus 1.00%. Our 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 ended June 30, 2022 were issued at a weighted-average yield to maturity of 1.35%. As of June 30, 2022, we had an outstanding balance of $150.0 million under our commercial paper program.
In February 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.
In April 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 the U.S. and globally as a reference rate for various commercial and financial contracts, including variable-rate debt and interest rate swap contracts. However, based on an announcement made by the Financial Conduct Authority (“FCA”) on March 5, 2021, one-week and two-month LIBOR rates ceased to be published after December 31, 2021; all other LIBOR settings will effectively cease after June 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 after December 31, 2021. To address the impending discontinuation of LIBOR, in the U.S. the Alternative Reference Rates Committee (“ARRC”) was established to help ensure the successful transition from LIBOR. In June 2017, the ARRC selected SOFR, a new index calculated by reference to short-term repurchase agreements backed by U.S. Treasury securities, as its preferred replacement for U.S. dollar LIBOR. We have been closely monitoring developments related to the transition away from LIBOR and have implemented numerous proactive measures to minimize the potential impact of the transition to the Company, specifically:
•We have proactively 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 West Dickman 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 West Dickman 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 the FCA, 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 the IRS characterizes as “prohibited transactions.” We do not expect our sales will be categorized as prohibited transactions. However, unless we meet certain “safe harbor” requirements, whether a real estate asset sale is a “prohibited transaction” will be based on the facts and circumstances of the sale. Our real estate asset sales may not always meet such “safe harbor” requirements. Refer to “Item 1A. Risk factors” of our annual report on Form 10-K for the year ended December 31, 2021 for additional information about the “prohibited transaction” tax.
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 the SEC, we may offer common stock, preferred stock, debt, and other securities. These securities may be issued, from time to time, at our discretion based on our needs and market conditions, including, as necessary, to balance our use of incremental debt capital.
Additionally, we hold interests, together with joint venture partners, in real estate joint ventures that we consolidate in our financial statements. These joint venture partners may contribute equity into these entities primarily related to their share of funds for construction and financing-related activities. During the six months ended June 30, 2022, we received $1.0 billion of contributions from and sales of noncontrolling interests.
Uses of capital
Summary of capital expenditures
One of our primary uses of capital relates to the development, redevelopment, pre-construction, and construction of properties. We currently have projects in our growth pipeline aggregating 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 in North America. We incur capitalized construction costs related to development, redevelopment, pre-construction, and other construction activities. We also incur additional capitalized project costs, including interest, property taxes, insurance, and other costs directly related and essential to the development, redevelopment, pre-construction, or construction of a project, during periods when activities necessary to prepare an asset for its intended use are in progress. Refer to the “New Class A development and redevelopment properties: current projects” and “Summary of capital expenditures” subsections of the “Investments in real estate” section within this Item 2 for more information on our capital expenditures.
We capitalize interest cost as a cost of the project only during the period 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.
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.
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.
Foreign currency translation gains and losses
The following table presents the change in accumulated other comprehensive loss attributable to Alexandria 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 in Canada and Asia. 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.
Issuer and guarantor subsidiary summarized financial information
Alexandria Real Estate Equities, Inc. (the “Issuer”) has sold certain debt securities registered under the Securities Act of 1933, as amended, that are fully and unconditionally guaranteed by Alexandria Real Estate Equities, L.P. (the “LP” or the “Guarantor Subsidiary”), an indirectly 100% owned subsidiary of the Issuer. The Issuer’s other subsidiaries, including, but not limited to, the subsidiaries that own substantially all of its real estate (collectively, the “Combined Non-Guarantor Subsidiaries”), will not provide a guarantee of such securities, including the subsidiaries that are partially or 100% owned by the LP. The following summarized financial information presents, on a combined basis, 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 | |
| | | | |
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 | | Year Ended December 31, 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 Alexandria Real Estate Equities, Inc.’s common stockholders | | $ | (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, Alexandria Real Estate Equities, L.P.
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.
Non-GAAP measures and definitions
This section contains additional information of certain non-GAAP financial measures and the reasons why we use these supplemental measures of performance and believe they provide useful information to investors, as well as the definitions of other terms used in this report.
Funds from operations and funds from operations, as adjusted, attributable to Alexandria Real Estate Equities, Inc.’s common stockholders
GAAP-basis accounting for real estate assets utilizes historical cost accounting and assumes that real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets, the Nareit Board of Governors established funds from operations as an improved measurement tool. Since its introduction, funds from operations has become a widely used non-GAAP financial measure among equity REITs. We believe that funds from operations is helpful to investors as an additional measure of the performance of an equity REIT. Moreover, we believe that funds from operations, as adjusted, allows investors to compare our performance to the performance of other real estate companies on a consistent basis, without having to account for differences recognized because of real estate 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 Real Estate Joint Ventures | | Our Share of Unconsolidated Real Estate Joint Ventures |
| June 30, 2022 | | June 30, 2022 |
| Three Months Ended | | Six Months Ended | | Three Months 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 | |
| | | | | | | |
The following tables present a reconciliation of net income (loss) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders, the most directly comparable financial measure presented in accordance with GAAP, including our share of amounts from consolidated and unconsolidated real estate joint ventures, to funds from operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, and funds from operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – diluted, as adjusted, and the related per share amounts for the three and six months ended June 30, 2022 and 2021. Per share amounts may not add due to rounding.