Alexandria completes sale of non-core Labspace® assets in Greater Boston market
Alexandria is at the vanguard and heart of the over $5 trillion life science industry, which is poised for continued secular growth
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 20, 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 been at the vanguard and heart of the life science ecosystem since inventing and creating the novel Labspace® niche in 1994. Alexandria is a one-of-a-kind company — it is the only pure-play publicly traded laboratory REIT. Founded on the belief that life science companies are most successful when positioned in the epicenter of the world's top innovation ecosystems in close proximity to world-renowned academic medical institutions, deep specialized talent and ample risk capital, Alexandria has applied its cluster model to the life science industry in a disciplined manner to execute on its original bold vision to create a new kind of real estate company uniquely focused on this essential industry and the highly complex infrastructure needed to support its mission-critical work to advance human health. Over the past three decades, Alexandria has strategically and methodically created the highest-quality life science assets concentrated in high-barrier-to-entry markets and built the leading infrastructure platform for the life science industry. The company's execution of its multifaceted platform of internal and external growth continues to drive outstanding long-term total stockholder return (TSR). From its IPO in May 1997 through March 31, 2023, Alexandria has generated an outstanding TSR of 1,444% (assuming reinvestment of dividends), significantly outperforming major indices over the same period, including the Nasdaq Composite's TSR of 998%, the MSCI U.S. REIT's TSR of 706% and the S&P 500's TSR of 683%.
Alexandria's strong and timely execution of its strategic value harvesting and asset recycling program to raise accretive capital has demonstrated continuing solid demand for scarce, high-quality life science assets. Affiliates of Alexandria recently completed the sale of five non-core, non-mega campus properties aggregating 428,663 RSF in the Greater Boston market to affiliates of TPG Real Estate Partners. The portfolio includes 780 and 790 Memorial Drive in Cambridgeport, which the company acquired in 2001 and delivered in 2002 as its first two life science developments in the Cambridge cluster. It also consists of three properties in Waltham — 225 Second Avenue, a laboratory facility acquired in 2014, and 266 and 275 Second Avenue, which Alexandria purchased in 2017 and immediately redeveloped into Class A laboratory facilities. All five facilities were successfully operated and maintained by Alexandria during its ownership. Alexandria sold the portfolio for $365 million, or an average sales price of $852 per RSF, and at a weighted-average capitalization rate of 5.2% (based upon cash net operating income for 2Q23 annualized) that includes vacancy available for redevelopment, resulting in a gain on sale of $187.2 million and a value-creation margin of 80%. Inclusive of this transaction, Alexandria has completed or has signed letters of intent or purchase and sale agreements for pending transactions aggregating $884 million, or 58%, of its 2023 capital plan that is targeting $1.525 billion (at the midpoint of guidance) of dispositions and sales of partial interests.
Proceeds from this strategic disposition will be reinvested into the company's highly leased value-creation pipeline, which consists of large-scale research and development centers for top life science companies, including Eli Lilly, Bristol Myers Squibb and Moderna. As of March 31, 2023, 6.7 million RSF of current and near-term value-creation projects that are 72% leased are expected to drive over $610 million of annual incremental net operating income, primarily commencing from 2Q23 through 1Q26. This embedded growth enabled Alexandria to reiterate guidance of 6.4% annual growth in funds from operations (FFO) 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. While these projects are delivering during a time when supply is elevated above historic norms in some submarkets, Alexandria's value-creation pipeline is concentrated in high-value, high-barrier-to-entry submarkets, such as Cambridge and Watertown in Greater Boston, Torrey Pines in San Diego, Lake Union in Seattle and Shady Grove in Rockville, Maryland. These Class A development and redevelopment projects are primarily mega campus expansions in core markets, where supply is inherently limited due to a lack of available land and conversion opportunities. Alexandria's highly differentiated strategy and preeminent brand afford the company a distinct competitive advantage against new market supply across most of its operating asset base of nearly 42 million RSF as of March 31, 2023.
Alexandria's growth is supported by a strong and flexible balance sheet with no debt maturities until 2025, 96.1% of fixed-rate debt, credit ratings among the top 10% of all publicly traded U.S. REITs and $5.3 billion in liquidity as of March 31, 2023. Alexandria's cash dividend of $4.84 per common share for the 12 months ending June 30, 2023, represents an increase of 24 cents, or 5 percent, over the 12 months ended June 30, 2022. The dividend allows the company to share its continued high-quality, strong and increasing net cash provided by operating activities with its common stockholders while retaining a significant portion for reinvestment into its highly leased pipeline of new Class A development and redevelopment projects. Additionally, its FFO payout ratio (quarterly common stock dividends divided by quarterly funds from operations) remains favorably low at 55 percent for the three months ended March 31, 2023.
"A true national treasure, the life science industry has made incredible progress with over 250 new FDA-approved medicines over the past five years, and 2023 is on pace to be another near record-high year with potentially up to 60 new drug approvals. And still, with over 10,000 diseases known to humankind, 90% of which remain unaddressed, there is a vast opportunity for the industry to create new and better treatments and cures," said Joel S. Marcus, executive chairman and founder of Alexandria Real Estate Equities, Inc. and Alexandria Venture Investments. "With an estimated market value in excess of $5 trillion and aggregate annual research and development funding in the range of $450 billion to $500 billion, the life science industry, which is advancing innovation at unprecedented rates, is set for remarkable secular growth."
Alexandria's mission-critical Labspace assets house billions of dollars of high-intensity infrastructure, specialized equipment, and irreplaceable tenant research and clinical pipeline assets, which fuel the large, diverse and growing life science industry. This scientific research cannot be performed from home and must be conducted in dedicated spaces in compliance with stringent laboratory safety requirements governed by city, state and/or federal regulatory agencies. The company's Labspace assets often include nontechnical space that is fully integrated with the laboratories and intentionally designed to enable seamless workflows. While scientists must conduct research inside laboratories, they utilize the adjacent nontechnical space to meaningfully analyze data and make related business decisions, and hence this space is also critical to their research efforts overall. Alexandria's proven track record of operating and safeguarding its tenants' mission-critical research and development has yielded an incredibly loyal client base with an average retention rate of over 80% over the past five years.
Alexandria has established a powerful moat around its novel life science real estate platform, fueled by its stellar brand reputation; highly sought-after mega campuses; long-tenured, highly experienced management team; strong and flexible balance sheet; REIT industry-leading client base of over 850 tenants that drives stable, resilient and long-duration cash flows; direct asset management and integrated laboratory support services; and unmatched life science industry experience and expertise. In recognition of the company's nearly three-decade track record, renowned author and business strategist Jim Collins has said, "Alexandria has achieved the three outputs that define a great company: Superior Results, Distinctive Impact, and Lasting Endurance."
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 effectiveness of Alexandria's future operating or financial performance, including our outlook for future growth, the effectiveness of Alexandria's strategic value harvesting and asset recycling program, supply and demand for real estate investment opportunities, use of proceeds, Alexandria's progress on its 2023 capital plan, Alexandria's ability to monetize its investments and fund future growth opportunities, expected pace of FDA drug approvals and expected life science research and development 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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