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ARE Alexandria Real Estate Equities

Filed: 14 Jun 21, 4:06pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 8-K

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): June 14, 2021

 

ALEXANDRIA REAL ESTATE EQUITIES, INC.

(Exact name of registrant as specified in its charter)

 

Maryland 1-12993 95-4502084

(State or other jurisdiction of

incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

26 North Euclid Avenue
Pasadena , California91101
(Address of principal executive offices)(Zip Code)

 

Registrant’s telephone number, including area code: (626) 578-0777 N/A 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which
registered
Common Stock, $.01 par value per share ARE New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

 

Emerging growth company          ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

Item 7.01. Regulation FD Disclosure.

 

Alexandria Real Estate Equities, Inc. (the “Company”) previously provided guidance as of April 26, 2021, for, among other things, earnings per share (“EPS”), funds from operations (“FFO”) per share, and key sources and uses of capital, for the Company’s fiscal year ending December 31, 2021, which was included in its Form 8-K, filed with the Securities and Exchange Commission on April 26, 2021. The Company hereby updates its guidance for 2021, including key assumptions and key sources and uses of capital. The key changes to guidance for 2021 are attached hereto as Exhibit 99.1 and incorporated herein by reference. The guidance included in Exhibit 99.1 shall be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934.

 

Item 8.01. Other Events.

 

Recent Developments

 

We continue to execute our unique and differentiated life science strategy at an accelerated pace, expand our collaborative campuses and asset base in each of our key life science cluster submarkets, and have strategically positioned ourselves to take maximum advantage of historic tenant demand.

 

Historic demand for our value-creation development and redevelopment projects of high-quality office/laboratory space, as well as continued operational excellence at our world-class, sophisticated laboratory facilities and strong execution by our team, has translated into accelerated leasing activity.

 

Leasing activity of development and redevelopment projects:

 

 Leased RSF   In-Process RSF(1) 
 2020   

YTD 2021

Through June 14, 2021

   As of June 14, 2021 
 1.0 million   0.9 million   3.1 million 

 

(1)Represents in-process leasing activity on near-term value-creation development and redevelopment projects that are expected to commence construction in 2021/2022. Includes 2.2 million RSF related to leases under negotiation/executed letters of intent, and 0.9 million RSF related to letters of intent under negotiation.

 

Value-creation development and redevelopment projects are expected to generate significant growth in rental revenues and cash flows

 

Our value-creation pipeline of development and redevelopment projects consists of 7.6 million RSF, including 4.0 million RSF undergoing construction (79% leased/negotiating, including RSF in service) and 3.6 million RSF of near-term value-creation development and redevelopment projects (91% leased/negotiating) expected to commence construction in 2021/2022. These projects are expected to generate significant growth in annual rental revenues and cash flows as follows:

 

Under Construction Projects Expected to Commence
Construction in 2021/2022
  Incremental Projected
Annual Rental Revenues
4.0 million RSF 3.6 million RSF   
31 Properties 17 Properties  >$575 million
79% Leased/Negotiating 91% Leased/Negotiating   

 

Expansion of our collaborative campuses, as well as our asset base in each of our key life science cluster markets, through strategic acquisitions is focused on value-creation development and redevelopment opportunities

 

·From April 1, 2021 through June 14, 2021, we completed the acquisition of 18 properties in key life science cluster submarkets aggregating 5.9 million SF, including 5.0 million RSF of value-creation opportunities and 0.9 million RSF of operating space, for an aggregate purchase price of $966.5 million.

·Our current outlook for the remainder of 2021 includes projected acquisitions aggregating $2.1 billion. Each of these transactions include significant future value-creation development and redevelopment opportunities.

·Refer to “Key Pending and Completed Acquisitions in our Key Life Science Cluster Markets” section below for additional detail.

 

 

 

Key pending and completed acquisitions in our key life science cluster markets

 

Charles Park located in our Cambridge Submarket

 

 

In June 2021, we entered into a definitive agreement to expand our campus at Alexandria Center® at Kendall Square through the acquisition of One Rogers Street and One Charles Park for a purchase price of $815.0 million. This acquisition provides a key expansion to our mega campus strategy in our Cambridge submarket, the premier life science market in the world, and consists of the following:

 

·Upon closing the acquisition, we expect to redevelop the two buildings aggregating 400,000 RSF into technical office/laboratory space.

·These two buildings are 100% under lease negotiation with several cutting-edge life science companies.

·The redevelopment project is targeting initial occupancy in 2023.

·Parking garage with approximately 650 spaces.

·We expect to pursue additional entitlement opportunities for future development of additional office/laboratory space.

·We expect to complete this acquisition in December 2021.

 

 

 

Sequence District by Alexandria located in our Sorrento Mesa submarket

 

 

In June 2021, we acquired five operating buildings at 6260, 6290, 6310, 6340, and 6350 Sequence Drive, aggregating 487,023 RSF, located in our Sorrento Mesa submarket, for a purchase price of $298.5 million, with the opportunity to increase the campus by approximately 400,000 square feet through ground-up development.

 

·The five buildings are currently 100% occupied with a weighted-average remaining lease term of 2.7 years. We expect to develop or redevelop these spaces upon expiration of the existing in-place leases.

·The aggregate 887,000 RSF from this acquisition provides a significant future development opportunity to expand our existing Sequence District by Alexandria into a flagship mega campus aggregating 1.9 million square feet.

 

Our completed and projected real estate asset acquisitions for 2021 consist of the following: 

 

             Square Footage    
             Acquisitions with Development/Redevelopment Opportunities          
Property Submarket/
Market
 Date of
Purchase
  Number of
Properties
  Operating
Occupancy
  Future
Development
  Active
Development/
Redevelopment
  Operating With
Future
Development/
Redevelopment
  Operating  Operating  Total  Purchase Price
(in thousands)
 
Completed in 1Q21    1Q21  25   94%  374,426   849,411   431,066   1,353,247   80,032   3,088,182  $1,873,750 
Completed 4/1/21 – 6/14/21:                                          
Alexandria Center® for Advanced Technologies – Sorrento Mesa Sorrento Mesa/San Diego  6/10/21   5   100%  887,000      487,023         1,374,023   298,476(1)
550 Arsenal Street Cambridge/Inner Suburbs/Greater Boston  4/21/21   1   98%  515,000      260,867         775,867   130,000(1)
One Investors Way Route 128/Greater Boston  4/6/21   1   100%  350,000         240,000      590,000   105,000(1)
Other Various  2Q21  11   94%  2,121,280   131,523   289,873   645,220      3,187,896   432,979 
         18   97%  3,873,280   131,523   1,037,763   885,220      5,927,786   966,455 
                                           
Pending acquisitions:                                          
Charles Park Cambridge/Greater Boston  December 2021   2   N/A   TBD(2)   400,000            400,000   815,000(1)
Mercer Mega Block Lake Union/Seattle  2H21     N/A   800,000               800,000   143,500 
         2       800,000   400,000            1,200,000   958,500 
         45       5,047,706   1,380,934   1,468,829   2,238,467   80,032   10,215,968   3,798,705 
Other future acquisitions                                        1,161,295 
                                        $4,960,000 
                                           
2021 acquisition guidance range as of 6/14/21                       $4,460,000 – $5,460,000 

 

(1) We will provide total estimated costs and related yields for development and redevelopment projects in the future, subsequent to the commencement of construction.

(2) We expect to pursue additional entitlement opportunities for future development of additional office/laboratory space.

 

 

 

Vacancy within the operating RSF of our recent value-creation acquisitions represents lease-up opportunities that will generate growth in annual rental revenues and cash flows

 

A portion of certain recent acquisitions with development/redevelopment opportunities also included operating properties with vacant space. As of March 31, 2021, we had 1.2 million RSF of vacancy from recently completed value-creation acquisitions. This 1.2 million RSF is now 37% leased/negotiating (31% leased and 6% negotiating), of which the majority is expected to commence occupancy by the end of 2021. For example, in August 2020, we acquired Alexandria Center® for Life Science – Durham, a 16-building collaborative life science campus aggregating 2.2 million RSF, located in our Research Triangle market for $590.4 million. The campus comprises 12 operating properties, one operating property with future redevelopment opportunities, and three properties that are currently undergoing redevelopment. As of March 31, 2021, the operating properties contained 233,362 RSF of vacant space. Currently, this space is 72% leased/negotiating.

 

  As of   
  March 31, 2021  June 14, 2021   
Property
Market/Submarket
 Vacancy Acquired
from Value-Creation
Opportunities
  Percentage of
Vacancy Leased/
Negotiating
  Incremental
Projected Annual
Rental Revenues
Alexandria Center® for Life Science – Durham
Research Triangle/Research Triangle
  233,362   72%  
601, 611, and 651 Gateway Blvd
San Francisco Bay Area/South San Francisco
  254,582   4  
Alexandria Center® for Life Science – Fenway
Greater Boston/Fenway
  98,174   39 >$50 million
SD Tech by Alexandria
San Diego/Sorrento Mesa
  83,171   10  
Other acquisitions/Various  518,830   41  
   1,188,119   37%  

 

Our completed and pending value-creation acquisitions subsequent to March 31, 2021 include an estimated 350,000 RSF of vacant operating space that will provide additional opportunities to grow annual rental revenues and cash flows. Our updated guidance assumes that we complete these pending acquisitions prior to December 31, 2021. The additional vacancy from these acquisitions is projected to result in a temporary 1.0% decline in our overall operating occupancy as of December 31, 2021. As such, our guidance for occupancy as of December 31, 2021, was updated to a range from 94.3% to 94.9%.

 

Updated guidance as of June 14, 2021

 

We have updated key components of our 2021 guidance that was provided on April 26, 2021. Refer to Exhibit 99.1 for specific details.

 

 

 

New Class A development and redevelopment properties: current projects

 

The following tables set forth a summary of our new Class A development and redevelopment properties under construction and pre-leased near-term projects as of March 31, 2021, and includes 400,000 RSF at Charles Park, a pending acquisition, as well as nearly 3.0 million RSF across 11 other pre-leased near-term projects. Our leased and leased/negotiating percentages are as of June 14, 2021 (dollars in thousands):

 

    Square Footage  Percentage 

Market

Property/Submarket

 Dev/Redev In Service  CIP  Total  Leased  Leased/
Negotiating
 
Under construction                      
Greater Boston                      
The Arsenal on the Charles/Cambridge/Inner Suburbs Redev  475,743   360,545   836,288   84%  91%
201 Brookline Avenue/Fenway Dev     510,116   510,116   17   80 
840 Winter Street/Route 128 Redev  30,009   130,000   160,009   19   19 
San Francisco Bay Area                      
201 Haskins Way/South San Francisco Dev     315,000   315,000   100   100 
Alexandria Center® for Life Science – San Carlos/Greater Stanford Dev  196,020   330,158   526,178   100   100 
3160 Porter Drive/Greater Stanford Redev     92,147   92,147   20   38 
New York City                      
Alexandria Center® for Life Science – Long Island City/New York City Redev  54,377   122,382   176,759   35   44 
San Diego                      
3115 Merryfield Row/Torrey Pines Dev     146,456   146,456   100   100 
SD Tech by Alexandria/Sorrento Mesa Dev     176,428   176,428   96   100 
5505 Morehouse Drive/Sorrento Mesa Redev     79,945   79,945   35   100 
Other Redev     128,745   128,745   100   100 
Seattle                      
Other Redev  246,647   213,976   460,623   51   51 
Maryland                      
9950 Medical Center Drive/Rockville Dev     84,264   84,264   100   100 
700 Quince Orchard Road/Gaithersburg Redev     169,420   169,420   100   100 
20400 Century Boulevard/Gaithersburg Redev     80,550   80,550   13   18 
Research Triangle                      
Alexandria Center® for Life Science – Durham/Research Triangle Redev     652,381   652,381   77   77 
Alexandria Center® for AgTech/Research Triangle Redev/Dev  180,400   160,000   340,400   55   59 
Alexandria Center® for Advanced Technologies/Research Triangle Dev     250,000   250,000   61   79 
     1,183,196   4,002,513   5,185,709   69   79 
Pre-leased/negotiating near-term projects and key pending acquisitions                      
Charles Park/Greater Boston/Cambridge/(1) Redev     400,000   400,000      100 
Alexandria Point/San Diego/University Town Center Dev     171,102   171,102   100   100 
Other near-term projects (11 projects) Dev     2,982,956   2,982,956      90 
        3,554,058   3,554,058   5   91 
     1,183,196   7,556,571   8,739,767   43%  84%

 

(1)We expect to complete this acquisition in December 2021.

 

                       Unlevered Yields 
Market
Property/Submarket
  Our
Ownership

Interest
   In
Service
   CIP   Cost to
Complete
   Total at
Completion
   Initial
Stabilized
   Initial
Stabilized
(Cash Basis)
 
Under construction                            
Greater Boston                            
The Arsenal on the Charles/Cambridge/Inner Suburbs  100%  357,448   248,243  $166,309  $772,000    6.2%  5.5%
201 Brookline Avenue/Fenway  97.9%     370,409   363,591   734,000    6.8%  6.0%
840 Winter Street/Route 128  100%  12,517   47,979   TBD 
San Francisco Bay Area                            
201 Haskins Way/South San Francisco  100%     291,082   78,918   370,000    6.4%  6.2%
Alexandria Center® for Life Science – San Carlos/Greater Stanford  100%  182,558   340,378   107,064   630,000    6.4%  6.1%
3160 Porter Drive/Greater Stanford  100%     74,864   TBD 
New York City                            
Alexandria Center® for Life Science – Long Island City/New York City  100%  36,560   127,232   20,508   184,300    5.5%  5.6%
San Diego                            
3115 Merryfield Row/Torrey Pines  100%     72,464   79,536   152,000    6.2%  6.2%
SD Tech by Alexandria/Sorrento Mesa  50.0%     25,117   155,883   181,000    7.2%  6.6%
5505 Morehouse Drive/Sorrento Mesa  100%     21,950   TBD 
Other  100%     27,855   19,145   47,000    8.0%(1)  8.0%(1)
Seattle                            
Other  100%  54,152   65,329   TBD 
Maryland                            
9950 Medical Center Drive/Rockville  100%     41,154   18,446   59,600    8.6%  7.7%
700 Quince Orchard Road/Gaithersburg  100%     49,561   29,939   79,500    8.6%  7.3%
20400 Century Boulevard/Gaithersburg  100%     8,920   TBD 
Research Triangle                            
Alexandria Center® for Life Science – Durham/Research Triangle  100%     143,036   101,964   245,000    7.5%  6.7%
Alexandria Center® for AgTech/Research Triangle  100%  90,677   69,548   32,775   193,000    7.1%  7.0%
Alexandria Center® for Advanced Technologies/Research Triangle  100%     46,612   104,388   151,000    7.5%  7.3%
                             
       733,912   2,071,733  $1,520,000(2) $4,330,000 (2)        

 

(1)We expect to achieve yields greater than 8.0%.
(2)Amounts rounded to the nearest $50 million.

 

 

 

Fourth consecutive Nareit Gold Investor CARE Award

 

In June 2021, we were awarded our fourth consecutive, and sixth overall, Nareit Gold Investor CARE (Communications and Reporting Excellence) Award in the Large Cap Equity REIT category as the best-in-class REIT that delivers best-in-class communications and reporting excellence, including transparent, high-quality, and efficient disclosures and reporting to the investment community.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

99.12021 Guidance issued by Alexandria Real Estate Equities, Inc. on June 14, 2021.
  
104Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

The exhibit referenced herein provides key assumptions included in our guidance for the year ending December 31, 2021. Our expected sources and uses of capital are subject to a number of variables and uncertainties, including those discussed under the “Forward-looking statements” section under Part I and the “Risk Factors” section under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021. We expect to update our forecast of key sources and uses of capital on a quarterly basis.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 ALEXANDRIA REAL ESTATE EQUITIES, INC.
  
Date: June 14, 2021By:/s/ Dean A. Shigenaga
  

Dean A. Shigenaga

President and Chief Financial Officer