Alexandria Real Estate Equities, Inc. (NYSE: ARE) was the pioneer and is the preeminent owner, operator, and developer of collaborative life science mega campuses in AAA innovation cluster locations. As of June 30, 2023, the company had a total market capitalization of $32.5 billion and an asset base in North America that included 42.1 million rentable square feet (RSF) of operating properties and 5.3 million RSF of Class A/A+ properties undergoing construction and one committed near-term project expected to commence construction in the next two years.

Financials

For the fiscal year ended December 31, 2022, Alexandria reported annual net income of $103,639,000, annual revenue of $2,885,699,000, annual operating cash flow of $1,630,550,000, and annual free cash flow of -$857,753,000. In the second quarter of 2023, the company generated total revenues of $766.7 million, up 7.4% year-over-year, and net income attributable to Alexandria's common stockholders of $42.9 million, or $0.25 per diluted share.

The company's strong performance in the second quarter was driven by a 7.4% increase in rental rates on renewed and re-leased space and a 3.7% increase on a cash basis. Same-property net operating income (NOI) grew 1.5% year-over-year and 3.9% on a cash basis. Occupancy of operating properties in North America stood at 94.6% as of June 30, 2023, up from 93.6% in the prior-year quarter.

Business Overview

Alexandria's business model is focused on providing high-quality, generic, and reusable spaces that meet the real estate requirements of a wide range of tenants in collaborative life science mega campuses located in AAA innovation clusters. The company's mega campuses are strategically positioned near top academic medical institutions and equipped with curated amenities, services, and transit access, designed to support tenants in attracting and retaining top talent, a key driver of demand for Alexandria's properties.

As of June 30, 2023, investment-grade or publicly traded large-cap tenants accounted for 53% of the company's annual rental revenue, and the weighted-average remaining lease term for all tenants was 7.4 years, with the top 20 tenants having a weighted-average remaining lease term of 9.4 years. This high-quality and diverse tenant base, along with the company's strategic focus on mission-critical life science real estate, has resulted in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value.

Recent Developments

During the second quarter of 2023, Alexandria placed into service development and redevelopment projects aggregating 284,982 RSF, which are 100% leased across multiple submarkets, delivering $16 million of incremental annual NOI. The company's highly leased value-creation pipeline is expected to deliver incremental annual NOI of $480 million by the first quarter of 2027.

Alexandria's geographic diversification is a key strength, with properties located in key life science clusters, including Greater Boston, the San Francisco Bay Area, San Diego, Seattle, Maryland, Research Triangle, and New York City. This diversification helps mitigate risks and provides the company with exposure to high-growth markets.

Liquidity

Alexandria exited the second quarter of 2023 with $561.0 million in cash and cash equivalents and $5.6 billion in total liquidity. The company's net debt and preferred stock to adjusted EBITDA ratio was 5.4x, and its fixed-charge coverage ratio was 4.5x on an annualized basis, reflecting a strong and flexible balance sheet.

Outlook

Looking ahead, Alexandria maintained its 2023 guidance for adjusted funds from operations (AFFO) per share in the range of $9.41 to $9.53, with a midpoint of $9.47. This guidance is supported by the company's expectations for occupancy in North America between 94.6% and 95.6% as of December 31, 2023, rental rate increases for lease renewals and re-leasing of space between 11% and 19% (5% to 13% on a cash basis), and same-property NOI growth of 0.5% to 2.5% (3% to 5% on a cash basis).

Conclusion

The company's strong performance, diversified portfolio, high-quality tenant base, and robust development pipeline position Alexandria as a leading player in the life science real estate sector. With its strategic focus on collaborative life science mega campuses in AAA innovation clusters, the company is well-poised to capitalize on the growing demand for mission-critical life science real estate and deliver long-term value for its shareholders.