Alexandria successfully completes recapitalization of stand-alone operating property fully leased to multinational pharmaceutical company Takeda in San Diego's University Town Center submarket at $981 per RSF and a strong cash cap rate of 4.5%
Alexandria's tenants rely on the company's 24/7, high-intensity mission-critical life science infrastructure, which thrive in densely clustered campus ecosystems and cannot go remote
PASADENA, Calif., June 22, 2023 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE), the first, preeminent, longest-tenured and pioneering owner, operator and developer of collaborative life science, agtech and advanced technology campuses in AAA innovation cluster locations, has led the development, expansion and transformation of the San Diego life science ecosystem into one of the country's top life science clusters since inventing and creating the novel Labspace® niche in 1994 with the acquisition of the company's first properties in Torrey Pines as a newly founded startup. Through Alexandria's disciplined focus on creating highly sought-after mega campuses in high-barrier-to-entry markets, the company has established a dominant market presence in San Diego, primarily located in the highly desirable submarkets of Torrey Pines and University Town Center (UTC). As of March 31, 2023, its highly impactful footprint in San Diego consists of 14.5 million RSF, with 8.1 million RSF of operating properties, which support a range of high-quality tenants, including multinational pharmaceutical companies that are among Alexandria's top 20 tenants by annual rental revenue and currently have an aggregate market capitalization of over $830 billion: Bristol Myers Squibb, Eli Lilly, Novartis and Takeda. Takeda's west coast global research and development site is located at Alexandria's 9625 Towne Centre Drive in the UTC submarket of San Diego and is home to four research platform groups — structural biology, computational biology, early target discovery and biologics — that enable the discovery and advancement of promising molecules. Designed to enhance innovation, collaboration and efficiency, the Class A life science facility comprises 163,648 RSF that Alexandria redeveloped in 2017 and delivered to Takeda in 2018. The modern research facility is LEED Gold and Fitwel certified, and the site can accommodate an expansion opportunity of 100,000 SF or larger.
Alexandria continued its strong execution of its successful value harvesting and asset recycling self-funding strategy with the completion of the recapitalization of an existing real estate joint venture for 9625 Towne Centre Drive on June 21, 2023. Alexandria and its former real estate joint venture partner for this asset completed the sale of a 70% interest in 9625 Towne Centre Drive at a total property valuation of $160.5 million, or $981 per RSF, and at a strong capitalization rate of 4.5% (based upon cash net operating income for 2Q23 annualized). As a result of this recapitalization, Alexandria's share of the sales price was $32.3 million and its ownership interest in the property decreased from 50.1% to 30%; the company retains operating control, while the former joint venture partner exited the investment entirely, reaping a strong return. This transaction resulted in consideration in excess of book value of $15.6 million and a value-creation margin of 88% for Alexandria. Proceeds from this recapitalization will be reinvested into the company's highly leased value-creation pipeline. As of March 31, 2023, 6.7 million RSF of current and near-term projects that are 72% leased are expected to generate more than $610 million of annual incremental net operating income, primarily commencing from 2Q23 through 1Q26. This multiyear visibility for future growth enabled Alexandria to reiterate guidance of 6.4% annual growth in funds from operations per share – diluted, as adjusted, for 2023 at the midpoint of guidance as of April 24, 2023, with a strong adjusted EBITDA margin of 69% for 1Q23.
"Our successful recapitalization of this stand-alone, single-tenant building showcases the value of and demand for our scarce, high-quality life science assets," said Daniel J. Ryan, co-chief investment officer and regional market director at San Diego of Alexandria Real Estate Equities, Inc. "Purpose-built for Takeda, the state-of-the-art, mission-critical facility houses complex, specialized equipment and contiguous, integrated nontechnical workflow space to support their highly valuable pipeline of scientific research that cannot be operated from home. As one of Takeda's three global research and development centers, this site plays an important role in advancing their pipeline, particularly for debilitating gastrointestinal and neurological diseases. Ideally located in our UTC submarket — at the epicenter of the San Diego Science Sector, which is home to over 525 life science companies — 9625 Towne Centre Drive provides Takeda with critical proximity to leading research institutions and enables their relentless pursuit to bring transformative therapies to patients worldwide."
"The value and essential nature of laboratory space is based on the high value of the science that is housed, researched, developed and commercialized in these mission-critical and often government-regulated spaces," said Joel S. Marcus, executive chairman and founder of Alexandria Real Estate Equities, Inc. and Alexandria Venture Investments. "Alexandria's one-of-a-kind life science real estate platform, operational excellence, best-in-class design and thoughtfully curated placemaking continue to empower the growth of and accelerate innovation for our tenants in San Diego and across all our innovation clusters to enable their mission-critical work to improve, extend and save people's lives."
Alexandria counts 17 of the top 20 pharmaceutical companies by R&D spend, according to data from Evaluate Pharma, in its REIT industry-leading tenant base. The life science industry, which has an estimated market value of over $5 trillion and aggregate annual research and development funding in the range of $450 billion to $500 billion, is large, diverse and well positioned for continued secular growth. Alexandria's client base reflects this diversity with over 850 tenants that span multinational pharmaceutical companies; public and private biotechnology companies; life science product, service and device companies; and academic/medical institutions. With strong balance sheets and significant free cash flows to fuel innovation and growth, Alexandria's multinational pharmaceutical segment constitutes 18% of its annual rental revenue as of March 31, 2023. Additionally, global biopharma companies invested nearly $270 billion into R&D in 2022 in their efforts to translate discoveries into new, more effective medicines for patients, reflecting a 57% increase over the past decade. 2023 is on pace to be a record-setting year for new FDA-approved medicines, with potentially up to 60 new approvals anticipated this year. Yet, with 10,000 known diseases that affect us all, and only about 10% addressable with therapies, we are still in the early innings of a biology revolution that has remarkable growth potential for the life science industry. Catalyzed by innovative technologies, massive unmet medical need and strong fundamentals, this vital life science industry remains uniquely positioned to tackle and solve society's most persistent and pervasive healthcare challenges. Alexandria's Labspace infrastructure, which houses billions of dollars of irreplaceable tenant research and clinical pipeline assets, remains a key component of this noble pursuit.
About Alexandria Real Estate Equities, Inc.
Alexandria Real Estate Equities, Inc. (NYSE: ARE), an S&P 500® company, is a best-in-class, mission-driven life science REIT making a positive and lasting impact on the world. As the pioneer of the life science real estate niche since our founding in 1994, Alexandria is the preeminent and longest-tenured owner, operator and developer of collaborative life science, agtech and advanced technology campuses in AAA innovation cluster locations, including Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland and Research Triangle. The trusted partner to over 850 tenants, Alexandria has a total market capitalization of $33.0 billion and an asset base in North America of 75.6 million SF as of March 31, 2023, which includes 41.9 million RSF of operating properties, 5.5 million RSF of Class A properties undergoing construction and 9.7 million RSF of near-term and intermediate-term development and redevelopment projects. Alexandria has a longstanding and proven track record of developing Class A properties clustered in life science, agtech and advanced technology campuses that provide our innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity and success. Alexandria also provides strategic capital to transformative life science, agrifoodtech, climate innovation and technology companies through our venture capital platform. We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results in higher occupancy levels, longer lease terms, higher rental income, higher returns and greater long-term asset value. For more information on Alexandria, please visit www.are.com.
Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding the potential impacts of Alexandria's investment decisions on Alexandria and its tenants and their businesses, technologies and therapies, use of proceeds, market and industry expectations, the effectiveness of Alexandria's strategic value harvesting and asset recycling program, expectations regarding the impact of Alexandria's value-creation pipeline on Alexandria's future financial performance, expected pace of FDA drug approvals and expected life science research and funding levels. These forward-looking statements are based on Alexandria's present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by Alexandria's forward-looking statements as a result of a variety of factors, including, without limitation, the risks and uncertainties detailed in its filings with the Securities and Exchange Commission. All forward-looking statements are made as of the date of this press release, and Alexandria assumes no obligation to update this information. For more discussion relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in Alexandria's forward-looking statements, and risks and uncertainties to Alexandria's business in general, please refer to Alexandria's filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q.
CONTACT: Sara Kabakoff, Vice President – Strategic Communications, (626) 788-5578, skabakoff@are.com
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