Q4 2020 Alexandria Real Estate Equities Inc Earnings Call
[music].
Yes.
Good afternoon, and welcome to the Alexandria, real estate equities fourth quarter and year end 2020 conference call on.
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After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Paula Schwartz. Please go ahead.
Thank you and good afternoon, everyone. This conference call contains forward looking statements within the meaning of the federal Securities laws. The company's actual results might differ materially from those projected in the forward looking statements.
Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements.
And on the company's periodic reports filed with the Securities and Exchange Commission and now I'd like to turn the call over to Joel Marcus Executive Chairman and founder. Please go ahead Joel Thank you Paula and welcome everybody today with me.
As usual Jennifer <unk>.
Steve Richardson, Peter Moglia, and being chicken I again want to welcome everybody and extend our thoughts and prayers to each one of you to continue to be well safe and stay Covid free just over one year ago January 20th first of 2020.
The United States had its first reported cases of COVID-19 in Seattle.
And just today, a little more than a year later, we've lost more than 443000 Americans on a number that's actually quite astounding to imagine.
And that does not even count the number of the millions probably tens of millions of Americans, who have suffered really irreparable personal mental and financial harm due to the worldwide pandemic.
President Roosevelt on the on Pearl Harbor day referred to that day is a day that would live in infamy in I think we will all feel that 2020 is a year that will live in infamy in all of our memories.
Talking about the pandemic, there's much work to do to control the virus spread.
We need to enhance manufacturing supply chains as well as a big effort on distribution.
Administration of the vaccines as well as continued testing.
We as a country I think for decades have been ill prepared.
And behind the curve to respond to a true.
Worldwide and a.
Kind of a 100 year pandemic I think our readiness just has not been there. Unfortunately much work to do to rebuild businesses.
In line, so desert devastatingly impacted and I would say, it's going to take a good part of this decade to do that for many people who've been on really.
So devastated.
We still have not discovered the root cause of the virus natural or human made or brought those responsible to on accounting.
Are we at Alexandria at the Vanguard in the heart of the life Science industry are honored proud and yet humbled to serve this mission critical industry, which has been on the forefront 24 seven.
Really as the Savior of humankind in this pandemic.
Really doesn't get more important or impactful than that truly.
There are two primary causes behind the Covid vaccines rescue of.
Humanity from this pandemic I firmly believe.
The first one is our.
Free market system here in the United States, the economic system that facilitated the innovation competition and cooperation between our biotech and pharma industries and government.
Literally doesn't happen in other countries around the world.
There would likely be notable no multiple COVID-19 vaccines to day at Theyre not be on venture capitalist prepared to invest before a product or profit or profit was really visible and no corporate leadership.
I would be willing to double down other than those in our country with the company's own money in the spring of 2020 to fund a crash effort producers to produce its safe and effective vaccine by year end really truly unheard of.
The revolutionary I think cooperation.
And coordination between government and the private sector, the collaboration cooperation and really ingenuity of operations Warped speed really led by the world.
Foremost vaccine.
Experts months of slowly who is empowered to allocate billions of dollars outside of the normal government contracting procedures and he was able to bring forth multiple technology platforms with multiple vaccines, an absolute record time.
As Americans, we can now look forward to getting vaccinated in getting our lives back into a somewhat non pandemic normal environment. During 2021, it probably will never be the same again and we pause to give thanks to the remarkable group of scientists and entrepreneurs.
Whose free market drive passion and mission truly push them debenture into the unknown.
Our solemn mission with our remarkable life science.
And life saving life science industry colleagues has been to do everything on our power to help the industry Repatriate mission critical on novel Research development and manufacturing capability back to the United States and to control the research development and manufacturing in the future of complex medicines.
Policymakers on legislature's much absolute absolutely avoid the awful temptation to raise corporate taxes and reverse what is the mission critical.
The onshoring of our.
Critical R&D and manufacturing in this country and to its citizens.
Make a few comments generally about.
The life science.
Industry and particularly on the.
The number one cluster in the world and our number one region grew.
Greater Boston.
Peter will highlight Alexandria is highly insightful strategic and collaborative entry.
Into and our intent to create a new life science.
Cluster in the Fenway Submarket of our greater Boston region.
And contrary to incorrect recent news reports.
Alexandria is in fact, the absolute leading largest and most dominant life science owner, operator and developer of office lab space in our Cambridge, Submarket with three Mega campuses 33 properties.
And approximately $5 2 million square feet, including our three to five Binney Street development we're on.
Also the leading largest and most dominant life science owner, operator, and developer and our greater Boston region.
Currently as of this date February 2nd Groundhog day, all of Us know.
We have approximately $14 6 million square feet of office laboratory assets, including operating properties, plus our entire value creation pipeline near term intermediate in future.
Which also includes the recent Fenway acquisition.
With respect to the industry 2020 is the ultimate paradox, the worst year of our lives yet the greatest year ever for the life science industry.
My answer on that day in 2020.
Our R&D laboratories operated continuously 24, seven and Aerie was on the front lines of making that happen. The FDA approved a record setting second place all time 53, new medicines in 2020.
Including a number of breakthrough medicines for pediatric neuroblastoma, spinal muscular atrophy and thyroid eye disease, great clinical progress was made for many medicines in 2020 as well.
With this impressive scientific back drop it was not a surprise that the capital markets boomed in 2020 biotech equity markets had the best year ever.
Every major biotech index hit an all time high in 2020.
Biotech Ipos hit their all time high for both volume and deal activity.
The IPO class of 2020 at very strong post IPO performance.
Follow on equity financings in biotech hit their all time high as well and.
Venture funding and biotech hit an all time high.
Two other thoughts I'd like to share with everybody first of all a.
Truly.
Profound thank you to each and every one of the members of our team whose every day operational excellence during this continuous operation.
To keep our R&D.
Lab's going $24 seven during a horrendous worldwide panic pandemic really is a testament to their great passion Fortitude and mission driven excellence and thank you to each and everyone who worked collectively and contributed to those to our record setting results for the fourth quarter and for 2020 and.
I wish each of you to stay safe and God bless and before I turn it over to Jim I want to end with a timely quote from Confucius.
He won said our greatest glory is not and never failing but in rising up every time, we fail the greater the obstacle the more of the glory and overcoming it so with that I turn it over to Jennifer for a deep dive on vaccines.
Thank you so much good afternoon every line.
So really I think Alistair.
The entire world looks to the power of science and life Sciences.
Great.
Got it just got a store.
So they tend on plenty plenty on cash required why Alexandria dedicated our bank loans.
Our cash flow perfect helped drive this credit line.
All right.
Without a doubt biopharma central arent Guangdong.
On mobile productivity.
The past year, which is further magnified I tell them from a key solution to overcome low to both greater challenges, bringing on cash something positive sentiment for the sector still on that.
The achievement on Covid vaccine development on like how long.
By their net darn on Johnson <unk> Johnson.
Many others in the fourth quarter, specifically in <unk> 'twenty 'twenty, one on beginning of 'twenty 'twenty. One have marked the culmination of a full year's worth of tireless truly collaborative efforts.
Across the industry with significant need of federal funding.
The way I will now.
Hey, Joel and then Campbell industrial for a year from that first you have called the cases reported in January of 'twenty 'twenty with over 26 million confirmed cases in the U S.
450000 deaths in the U F allele.
But at the same pilot because this is all channel spiral developed at unprecedented speed. We now have two vaccines I'm calling from <unk>.
Net and Pfizer authorized for emergency use such strong faithful.
And the 95% range at least three other vaccines from Collins transient counts on the back Astrazeneca have reported same theme adult similarly.
So on dinner efficacy data in the range of 62% to 96% from various trial each had strong safety profile as well.
But at the same perspective would be outside of nickel in vaccine development efforts. The FDA has set the minimum standard S&P thresholds on Thursday actually about 50%. So clearly each major vaccine program on hopeful on away Pathmark and aggregate beside company pet capacity now sticking to at least 8 billion doses in 2021 with over 700 million doses.
Already procured by our own copper alone.
On the National vaccine rollout campaign has he got away from nearly 26 million people in the U S. Having already received at least that first goes on.
Which includes about 6 million people on.
It will have already been fully back a little bit.
Hey distribution like Macquarie I hope for our tenants are getting really what they can to bring significant manufacturing resources Inc.
Cal vaccine production also not again I appreciate that though I want to focus on vaccines for these comments on.
It's really the role of therapies in this equation on the fourth quarter and interest income full approval of Gilead. So I'm guessing here yesterday also authorized the emergency use that antibody based therapies from mild to moderate Covid, Inc.
Individuals from time on Eli Lilly on Regeneron, and another repurposed literally arthritis drug in combination with that adjusted here for hospitalized patients amazing results in those studies as well given the COVID-19 well, Unfortunately, but likely remain on the planet and definitely therapies are going to continue to be important in mitigating severity of COVID-19, and also cash.
They play a role in added prophylaxis that's low.
So to help further on tactical vaccine landscape on what we thought we'd do this time of the draft five pressing question on help frame, what we named left for the coming months.
Number one what are the major differences between the current vaccines and how should we think about which might be the best.
Pfizer and the door now with ebay as emergency use authorization granted in J&J, Novavax and Astrazeneca with phase III data from major titles reported and while there are advantages and nuances that I won't go into this call and net amount of shops that you get from each one Pfizer on return to cold chain requirement to touch on all five major programs are showing strong safety and efficacy income.
<unk> efficacy between trial on companies, it's really not apples to apples to the differences in efficacy there were all reading the headlines J&J, 66% to 72% I know that back there's 86% to 96% et cetera are referring to prevention against Covid infection of any kind, even the most mild kitted flow.
Really need to focus on when we read these headlines is whether these vaccines protect against the severity of the disease, whether they reduce death and hospitalization and longer term complication. That's how we're going to get out of this pandemic.
And it is important to note that <unk> does very well probably in excess of 85 percentage of protecting against severe disease.
A direct comparison between vaccine efficacy can also be misleading because differences on trial populations on the new variant circulating around the world at any given time from the dirt on Pfizer trials were largely based on the U S and are mostly performed prior to the evolution transmission of these new strength that we're hearing about in the U K, Brazil, South Africa, with Johnson, and Johnson and know the vaccine to capture low.
Right in their overall efficacy.
And given the addressable population for these vaccines I E. The entire world is will not be a winner take all opportunity no. One company alone can possibly supply that global demand from a diversity of options and importantly.
Question number two is it worth waiting to get a vaccine until more data becomes available, especially in light of these new variants, while non acquisition here's a critical fact.
On the roughly 75000 people who have received one of these five vaccines and a major research trial not a single person has died from Covid and only a few people appear to have been hospitalized in the vaccine group. So none of them. However remain hospitalized 28 days after receiving a shot from COVID-19 from the vaccine itself or otherwise.
Compare that to Covid exposure on a similar population will likely end up with about 150 deaths and many more hospitalization. So I came up with a pretty strong risk benefit argument.
Of course unknown for me regarding the durability of protection from these vaccines, how often we should be getting vaccinated. After the initial one two shot vaccine guidance for pregnant women and children, but we should have more insight on copies in the coming year.
Question number three.
So what do we make up all of these new Covid strain should I wait and get vaccinated against the newer strength instead.
While we need to take these new same seriously. This does not render the vaccines already out there that affect that.
Dominic trains in the U S. Right now are still closer to the original target identified for another vaccine, what's making headlines right now, particularly the Brazil, and South Africa variant that seems to clean several mutations for the spike protein on the virus basically, allowing the virus to partially escape antibodies produced by current vaccines, reducing their overall efficacy until now with any day.
So we're protected to the original stained work little compromise.
And even in the U K very into the Tampa increased transmission by 50% does not a day in day neutralizing antibody is produced by the current vaccines, which allows for a vaccine or felt worthwhile against debt. All of this just a day as you continue to vaccinate more on population with the current vaccine should still serve as a backstop against the continued spread of these variants on the new ones that will.
Inevitably evolve so question number four on related to number three is will these new variant strains and current vaccine development efforts quite to the contrary the more rapidly we vaccinate population. The more quickly. We can stay ahead of and slow down the emergence of new variance there will always be mutation. This is the nature of viruses enough shocking mcgarahan.
Either with their mrna based platform, particularly well suited to adapt quickly to mutational changes and others are already working on booster shots against new strains that could be available as early as the fall to understand and maximize the efficacy we do need to sequence COVID-19 patients more to identify the prevalence and emerging from new variants in real time.
And last question one is on all of this going to end.
On the bright side.
Incidents of positive COVID-19 cases has begun to decline in the U S. The strong efficacy data from these initial vaccines are highly encouraging and particularly their ability to protect against severe disease. The supply outlook for existing backlogs improving on the makers of these vaccines are already working on boosters to combat new strength that emerge and I remember so it would be non.
We do not need to completely eradicate COVID-19 from the face of the Earth for like start turning on.
Instead, we need to downgrade it from a database hadn't done that to a more mild virus that we can effectively treat with.
Further underscores the importance of new therapy, so as I mentioned earlier.
At the same time, we do need to flow transmission, we're still a ways off from herd immunity public health officials estimate that between 70% to 85% of the population needs to be vaccinated before people can start moving free weekend society. So things go well it could start happening by the summertime I wished point, you should have enough vaccine supply for the entire U S population and again it depends on.
The uptake of the vaccine on the level of infection community as more people get vaccinated. We should also expect severity of hospitalizations and deaths of drop.
So all things considered if we can continue to improve vaccine distribution on access and encouraging on the population get backs needed we should be able to return to a more normal normal and early fall and hopefully bring in and it depends on it but you're on.
In 2020 line and despite the incredible fatigue, we all feel around social distancing mask wearing quarantine, England travel, we really didn't need to continue to be vigilant day more locked together as a society. The more we continue to get the virus opportunity to adapt against natural selection crusher that mutate more efficiently.
And for all these reasons. It is our honor to continue to serve at the Vanguard at this essential life science industry in the fight against COVID-19 and to support the heroic work of our tenants on campus communities addressing that over 10000 diseases plaguing upon its day and solving tomorrow's greatest perhaps to human health.
That I will turn it overseas.
Thank you Dennis on the tremendous PCI good afternoon, everyone.
A clearer inherit vision used with undaunted determination during 2020 from the Alexandria team has enabled the company to thrive during this unprecedented and challenging time.
At a high level consider the truly exceptional growth during the past 12 months.
The operating platform has grown from $26 9 million square feet to 31 8 million square feet, an increase of 18%.
The development redevelopment pipeline has grown from $12 1 million square feet to $17 8 million square feet, an increase from 47%.
And it's important to note that this development pipeline has been smartly derisked.
With 45% of this value in significantly pre leased projects well underway, 40% and covered land plays interest at 15% of the value in land.
The total Alexandria real estate platform, then has grown during 2020 from 39 million square feet for $49 7 million square feet, an increase from 27% a truly remarkable achievement.
The company's leadership.
<unk> role in the nation's life science ecosystem is clearly evident and only increasing in each of our core clusters.
For 2020 demanded the very best from our teams from operational excellence and the vision and execution of critical strategic growth initiatives.
Alexandria is pleased to prevent its outperformance highlights for Q4 and 2020.
Operational excellence.
The company collected 99, 8% of its accounts receivable during Covid from April one through December 31, 2020.
And we're at 99, 6% for the month of January.
Alexandria labs were deemed essential infrastructure had been operational from day one of the pandemic.
Leasing outperformance.
During Q4, we leased approximately one 4 million square feet and a total of 435 million square feet. During 2020, which is meaningfully above our 10 year average of 4 million square feet and consistent with our five year average of $4 4 million square feet.
Current and near term development pipeline is 78% leased or negotiating is significant metric. When one considers the active pipeline is now $4 8 million square feet.
Up from $4 1 million square feet, just three months ago at the end of Q3.
And exceptionally strong core.
I want to pause for a moment.
And underscore that during this challenging time, we achieved the highest annual rental rate increases during the past 10 years.
With cash increases of 18, 3% and GAAP increased 37, 6%.
Fourth quarter was also strong with cash increases of 10, 7% and GAAP increases from 29, 8% we.
We are honored to work with the most innovative life science companies in the World and believe these metrics further validate the value, we're providing from a life science ecosystem.
All in occupancy.
We're at 94, 6% across 31 8 million square feet in the operating portfolio and again context is important here.
We've increased the operating portfolio from $26 9 million square feet as mentioned before providing.
Providing strategic embedded growth opportunities from lease up of available suites in the coming quarters.
I just want to emphasize this last point is the recent acquisitions provide very near term increases in cash.
Cash flows and strategic expansion of our tenant base.
Market health.
<unk> continues to be broad based across the renovation clusters as each of the markets have made meaningful contributions to the company's overall growth during 2020, and Alexandria continues to capture a dominant market share in each of these clusters.
We have discussed potential supply in our core clusters of the past several quarters and as we highlighted during our Investor day.
<unk> of generic office product into mission critical last class a laboratory facilities.
It's fraught with significant fall in.
Insufficient clear heights and live load.
Compromise hazardous material storage areas dysfunctional shipping and receiving areas impaired HVAC capabilities and performance amongst others.
We continue to monitor all potential supply closely but not see significant high quality class a products being delivered during the near term in our markets.
Also a note on the San Francisco Bay area as it has been a focus on the press.
As we stated the life science market continues to be very healthy with low single digit vacancy of three 4% in demand of two 6 million square feet.
Enabling Alexandria.
We lease up our Haskins from 858, <unk> five project at increasing rental rates on <unk>.
The city of San Francisco Tech office sector is struggling with direct vacancy now at $12, 4% above the 15 year average of 8% and sublease space pushing the availability rate to 22%.
In conclusion.
Your 2020 accelerated Alexandria leadership role in the life Science ecosystem. Our team is energized and enthusiastic to continue our partnership with World Class enterprises in the fight against COVID-19, and in the broader mission of building the future of life changing innovation.
With that I'll hand, it off to Peter.
Thanks, Steve I'm going to follow up on some remarks, we made about our valuation on Investor Day, and then I'm going to update you all on our development pipeline and briefly comment on a new acquisition.
As the inventor and pioneer of essential life Science real estate asset class, we've created our campuses in clusters in the best locations with the market's best assets by combining our irreplaceable locations on a world class campuses and ecosystems with meticulously designed highly functional buildings and a world class.
Net base Alexandria has aggregated the best life Science real estate base in the world and it doesn't close.
During Investor day, we highlighted our views that the private market has been sending strong signals that there should be significant upside in our stock price. This included a comparison of Ventas as acquisition on the Genesis property in South San Francisco for $1260 per square foot, which has since been updated.
1003 hundred $1 per square foot.
Blackstone's recap of BMR at a value of $1100 per square foot.
Against a very simple back of the napkin $767 per square foot implied value of our operating portfolio.
Which was based upon the difference between the closing price of our common stock on September 30th 2020, and the book value of other significant assets, such as construction and progress venture investments and cash divided by our total operating square feet.
We acknowledge that the implied value of our operating portfolio can vary up or down depending upon the valuation of our other assets and liabilities as well as adjustments for joint ventures, but we believe the underlying thesis remains true which is that Alexandria is significantly undervalued.
The Genesis property is vastly inferior to our south San Francisco asset base. It is located on the opposite side of the one on one free way, making it part of the cluster by address element.
Original South tower is an office building conversion, which sat vacant for years and required from Jerry rigging to make it work and will require more work to complete the conversion on the top floors and the north tower has relatively small floor plates, which causes it to have a load factor that exceeds what is typically acceptable on the market.
Both buildings have relatively low floor to floor heights that will dictate a lower finished ceiling on the market prefers and as a result, the two buildings did not attract the high quality tenant base.
<unk> has done well reforming and adding to <unk> original somewhat older and tired asset base, but given Alexandria superior locations assets from tenants our asset base should command a premium valuation on the real estate alone.
Taking all this into account our assets should be valued significantly higher than what is implied by todays stock price.
Since Investor day more evidence from the private market has come to light such as the sale of the $2 3 million square foot former Forest City lab portfolio from Brookfield to Blackstone BMR for 345 billion, which dollars, which implied an approximately 1500 dollar per square foot total valuation according to green.
Approximately 90% of the portfolio is concentrated in University Park, which was the original Cambridge development area before the emergence of Kendall square and according to Costar the allocation to those assets yield at a value of $18 $100 per square foot and an implied cap rate of four point.
2%.
This value and therefore, the overall value of the transaction would have likely been materially higher if not for the fact that those assets on relatively short to medium term ground leases when comparing this portfolio to Alexandria as primary Cambridge asset base located in the preferred Kendall square location it should be.
Parents debt the location of our assets are superior as we are aggregated at the front door of M. I T proximate to the Kendall Square T. T stop in the center of gravity of East, Cambridge ecosystem versus being on the western edge of them far.
Far from the heart of the campus and the less desirable area, Cambridge Court.
Some sell side analysts seem to agree with this premise the five that have a vs above our current stock price ranging from $175 and 54.
$184 per share value of our operating portfolio within a range of $824 per square foot from $1062 per square foot. These same analyst price targets ranging from $185 per square foot to 206, so they seem to be factored in.
And the private market activity, we are seeing.
Im curious if youre still not convinced and wanted to look at it from a different angle I would encourage you to compare Alexandria has multiple to the sector episode multiples published in cities weekly REIT and lodging strategy published on January 15th even with all of the momentum in life Science real estate single family home sector.
That's a flow multiple is 1.1 higher than ours. The industrial mixed ratio is 3.9 higher and the manufactured homes in dana's datacenter ethics on multiple ratios are three eight and 5.6 higher than Alexandria is respectively.
We are in the early days of the biology Revolution with 10000 non diseases in less than 10% of those are addressable with treatments. COVID-19 has brought unprecedented positive sentiment to the sector as the world recognizes the life science industry as contributions to solving today's greatest.
Health challenges the five fundamentals.
Signal strong demand government funding medical research philanthropy F D, a regulatory environment venture capital and public market investors sentiment and commercial R&D funding continue to have tailwind and there is no reason to suspect that that will change anytime soon.
The life Science industry is one of the few bright spots in the world today, and Alexandria is well positioned to enable and participate and it's outside it's outside growth. We invite you to reassess your valuation and future prospects in light of the private market data presented and the significant.
Prospects for growth in our underlying industry.
On to developments, we are pleased to report that we continue to make great progress with our development pipeline. We delivered a 107 hundred 77953 square feet in three projects in the fourth quarter, including 100% of the 90 877 wafer Street project in Sorrento may.
And the Suriname on Mesa Submarket of San Diego, which was featured on Investor day, because it illustrates the power of our brand when an existing tenant needed to expand and we did not have space for them. They found a building and effectuate or to say otherwise by telling me owner it would only lease it from us because of the facility was mission critical to them.
And they would not entrust its development and operation with anyone else.
Leasing activity has been robust since the third quarter with over 913000 square feet of leasing completed in our <unk>.
<unk> leased 50000 square feet of space put under LOI and the development redevelopment pipeline led by significant leasing at 201 Haskins in South San Francisco, The Alexandria Center for Life Science, and Carlos 3115, Mary field in San Diego and the newly acquired Alexandria Center for life.
Science, Durham, which significantly increased their pre leasing percentages in the range of 27% to 58%.
Overall with the addition of six new projects, we now have approximately $3 3 million square feet under construction that is 74% pre leased and the increase of over one 3 million square feet from last quarter's project degradation, which was only 63% pre leased.
And as Joel mentioned I'd like to conclude by X.
Pressing our great pride and enthusiasm with the acquisition just recently closed a 401 Park drive two O. One Brook line and a continuous development site that will provide Alexandria operating income and an ability to realize upside by marking rents to market converting certain office in.
Retail space to lab, completing the lease up of 201 broke line and developing the future 400000 square foot development opportunity into a world Class Laboratory office building in the same way. We are also pleased to be developing this campus.
Collaborative venture with steamed local developer Samuels and associates, who has been the visionary for the family for more than 20 years with that I'm going to pass it over to Dean.
Alright, Thanks, Peter Dean Chicken Nugget here. Good afternoon, everyone. Our team is super passionate about our strategic initiatives to drive unique disruptive and highly impactful solutions to tackle societies, most complex and pressing challenges now.
Now there are also very pleased with continued recognition as a leader in ESG from our $1 15 project focused on solving the opioid epidemic combating the COVID-19 pandemic, the <unk> sector leadership and leadership in health wellness from safety, our team's passion goes well beyond the operational excellence and strong finance.
And operating results from our real estate business.
Our fourth quarter and year end 2020 financial and operating results were outstanding for 2020, we reported strong growth in total revenues of 23, 1% NOI growth of 24, 8% adjusted EBITDA growth of 17, 4% EPS and <unk> as adjusted of $6 in one sense.
And $7.70 per share diluted respectively.
Now our high quality properties and tenant roster combined with our outstanding execution by our best in class team continues to generate strong performance, including many results result brokerage line and some of the top in the REIT industry.
Investment grade rated or large cap publicly traded companies that generate 55% of our annual rental revenue.
Consistently high and timely payment of rent and well into the 99% range each month.
Strong five 1% cash same property NOI growth strong leasing velocity with record rental rate growth of 37, 6% and 18, 3% on a cash basis.
And adjusted EBITDA margin of 69% higher in operational.
Operational excellence occupancy of 94, 6%.
Or 97, 7% adjusted for vacancy at recently acquired properties. Please see page 25 of our supplemental package for details on vacancy at these recently acquired properties now I should briefly mentioned that our quarterly rental rate growth related to lease renewals and releasing of space does vary occasionally since its.
Only one fourth of our annual leasing volume for example in the third quarter of 'twenty, We reported 30.9% cash rental rate growth and then in the fourth quarter of 'twenty, we reported 10.7% cash rental rate growth.
The key takeaway is that rental rate growth for 2020 was very strong at 37, 6% and 18, 3% on a cash basis and importantly, our outlook for 2021 reflects continued strength in the financial and operating performance.
Including rental rate growth on lease renewals and releasing of space at 35% and 17, 5% at the midpoint of our guidance ranges.
Our team is executing extremely well we are projecting strong growth in net operating income and cash flows we anticipate significant growth in occupancy in 2021 and 2022 as our team executes on lease up of recently acquired properties with vacancy and.
Additionally, as Peter highlighted we have a very highly leased pipeline of projects undergoing construction in a very large volume of deliveries in 2021 now it's important to highlight that our board has been very consistent with our common stock dividend policy given the high amount of operating cash flows after dividends that we generate each year now in 2020.
On the growth in our annual common stock dividend was 6% and cash flows from operating activities after dividends as projected in 2021 to be approximately $230 million at the midpoint of our guidance.
Now on Friday, we completed the purchase of what has been rebranded as the Alexandria Center for life Science Fenway, It's a campus of $1 8 million square feet upon full build out.
As a result, we expect to settle the $1 1 billion and forward equity sale agreements in March and that was related to our January common stock offering.
So huge kudos to our entire team for outstanding execution on this transaction and upon full build out this will represent another awesome collaborative campus in our asset base, it's super important.
To have one of the best teams from the country since real estate transactions move quickly from selection by the buyer on excuse me the selection by the seller to closing and in this case the solar selected Alexandria as the Best Party for this transaction on December 9th.
On the real estate disposition front, we provided our initial range of guidance for 2021 at a midpoint of 1.3 dollars 75 billion and we'll provide more information on dispositions quarter to quarter.
Our team has really positioned us very well with our pipeline of development redevelopment and development of class a properties. The key highlights include.
Execution over 1 million rentable square feet of leasing in 2020 related towards development and redevelopment pipeline projects.
Projects undergoing construction aggregate $3 2 million rentable square feet or 74% leased.
About two and a half million or plus square feet of this is projected for delivery in 2021, making 'twenty 'twenty one of the largest year of deliveries for Alexandria, and dish to generate annual net operating income of about $135 million.
Which on average commences in the third quarter of 'twenty. One now we have a number of well located near term projects aggregating $4 nine rentable square feet $4 9 million rentable square feet, including approximately 348000 rentable square feet that is 79% leased with vertical construction commencing in the second quarter.
Sure.
And in January we added two key projects under construction aggregates being 640000 rentable square feet with pre leasing in the 20% to 25% range now.
In our venture portfolio continues to perform extremely well realized gains on our venture investments included a net <unk> per share were $21 6 million and $71 6 million for the fourth quarter in 2020, respectively. Now as a percentage of adjusted EBITDA venture investment gains were approximately five 5% for 'twenty 'twenty.
<unk> up slightly from approximately the mid 4% range for 2019, as we look forward into 'twenty 'twenty. One we expect venture investment gains to increase slightly as a percentage of adjusted EBITDA as we look to capture a portion of the unrealized gains on the portfolio unrealized gains on venture investments as of December 31st were <unk> 76 from <unk>.
Again.
On our adjusted on our adjusted cost basis of $835 million now. Thank you to our team for hitting our key balance sheet goals and are well positioning our balance sheet to support our strategic business initiatives. We are very pleased to have a corporate credit corporate credit ratings that rank in the top 10% of companies within the REIT industry.
Our net debt to adjusted EBITDA was five three times for the fourth quarter annualized with slight improvement.
To 5.2 times by the end of 'twenty, one now our fixed charge coverage ratio was four points takes time for the fourth quarter annualized line is also expected to improve by the fourth quarter of 'twenty on liquidity was very solid at $4 1 billion.
And we continue to deal with long term capital to fund growth in our business and are very fortunate to have access to efficient cost of capital now to put this into perspective.
<unk> for 10, and 30 year bond today for Alexandria is extremely attractive at approximately 2% and 3% respectively.
Our prior shelf registration expired in December 2023 years after we filed it.
What aspect of the ATM program as I said each program is associated with a specific shelf registration for just a program that can be used as long as you have an effective shelf registration in place now.
Now on our case, our ATM program expired in connection with the shelf registration statement that expired in December and as a result, we expect to file a new ATM program over the next four weeks.
Moving onto guidance. Please refer to our detailed underlying assumptions included in our 'twenty and 'twenty one guidance beginning on page 12 of our supplemental package changes were limited to a breakout of our range of real estate dispositions from the overall equity type capital guidance.
Mid point of our guidance for dispositions as I mentioned earlier, it's at 1.3 dollars 75 billion and we also provided an update on acquisitions completed in January 2021, most of which was previously disclosed now there were no changes in our 'twenty 'twenty one guidance for EPS diluted of a range from $2.14 to $2.34.
And <unk> per share diluted of a range from $7 $67 89.
Now embedded in our overall guidance is continued strong growth in cash flows as we execute on the lease up and occupancy growth in 2021, and 2022 and continued execution on an important year of record deliveries in 'twenty and 'twenty one of our highly leased redevelopment and development projects with that let me turn it back to Joel.
Operator, if we could go to a question please.
Certainly thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble on roster.
And the first question will come from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.
Thank you and good afternoon.
I wanted to start off with the same way acquisition I'm, hoping you can talk a little bit more about what do you like about that Submarket, what do you like about those.
The three buildings or properties.
For the future and then how should we be thinking about just your Boston strategy going forward given it just seemed to day no now that you've moved to the <unk>.
Mega cluster model and it just seems like Theres, a lot more submarkets to choose from.
On where to spend we fit into the kind of the larger Alexandria footprint, we might see.
Yeah. So thanks, Jamie this is Joel.
I'll ask Peter to comment on a minute, we don't want to say too much.
About 10 way at this point Peters, given a little bit of detail. He can talk a little more about it I think it's pretty clear that the location of Fenway, which has good proximity to the other submarkets, obviously to Boston itself and downtown and Cambridge.
But it is also pretty proximate to the collection of important a harvard hospitals et cetera.
And it has been a sub market that has been I think quite vital for several decades and we just think that time is ripe for.
The kind of change.
Change to a more life science orientation there.
And so that's one of the motivations that are certainly attracted us it's pretty clear that the greater Boston region still is the number one region.
I should say the number one cluster market in the world and still some major destination for so many companies because there is such a rich amount of science.
Talent capital and the location is certainly one that's excellent so Peter just general comments.
Yeah. Thanks, Jamie.
401 Park asset Ah is a is a really nice.
Office R&D building it has some dry lab and it has a great tenant roster.
It's got great duration, and leases and you're just going to be opportunities for us to convert some of that to lab over time the development on T. O on Brookline is doing really well ever since we are.
We were awarded the transaction.
There's been great activity will be reporting on that.
In future quarters.
Theres some opportunities at the four O on park building as well too Mark some rents to market.
So overall, just typical Alexandria value creation play here with combination of use.
Using our brand to <unk>.
Kris rents to bring new product to market ultimately on another.
Another building to create a nice urban campus.
Alright. Thank you for the thoughts and then you don't wanted to have $1 billion. Obviously, a very large transaction is this something we should expect to see from Alexandria going forward. It's just.
So I don't I don't think.
People ask about that all the time about.
When we acquire something or become involved in a transaction.
We never know what is and I'm sure you know Blackstone had the same feeling.
You never know until you.
A like the University Park assets came forward when or if that will ever happen. So I don't think you can make any.
General assumptions about things like that I think they are very opportunistic and theyre very.
Now dependent upon the time place space, So I wouldn't take anything read anything into it or out of it.
Okay all.
Every one of these is just quite unique on their own.
Okay and then my last question is if you look at your T is in the quarter.
Above average for the year is there anything to read into about concessions.
Steve and Dan you guys maybe went up.
Yeah, Hi, Jamie it's Steve.
Yeah that was really driven we had two opportunities on.
In core markets with two very exciting tenants to re price buildings that were 15 to 20 years old. So we went ahead and did that on.
The incremental yield was exceptionally strong well into the double digits.
So when we see opportunities like that we are going to move. So if you excluded those you know I think we were in much more of a normal range, but.
It was opportunistic to go ahead and refresh buildings secured great and has exceptionally strong yields as well on the incremental capital.
Okay, and those are life science projects, Oh, Yeah, Yeah, yeah.
Yeah.
Okay. Thank you yep. Thanks, Jamie.
And the next question will come from Sheila Mcgrath with Evercore ISI. Please go ahead.
I guess I was wondering your thoughts on the new administration, if he believes there'll be more or less favorable to biotech research and investment and also bringing manufacturing a farm out back to the U S.
Just your big picture thoughts there, yes, so we don't fully know what the.
Health side of the administration is going to look like we have some indication.
But I would say, it's too early to tell I think though that when it comes to the.
Enormous substrate, which exists in the NIH.
Andy on much of the funding that goes on at really the basic research level that has remained I think very favorably bipartisan for free.
For decades, now and I don't think there'll be any change in the AR and the increase the rate of increase.
With respect to that I think the biggest worry would be.
Knee jerk reaction by some to raise corporate taxes.
To try to somewhat.
Either address deficits or just because it seems fair, but the challenge with that and policymakers and lawmakers should really know better and understand that you know plants can revert back to Ireland or more favorable.
Tax havens.
And cash can go overseas if the incentives aren't made to do those things in America. So I hope that people take a long term view about but at the moment I think by and large it looks I'd say favorable but still too early to tell.
Okay and one other question the investment portfolio had a very strong gains in fourth quarter, just I know dean touched on it a little bit, but I'm, just wondering given where biotech indices or if your thoughts on taking some more meaningful profit from that.
Those investments to invest in the pipeline development pipeline.
Well, we do and we've done that from time to time. So the answer is I'm sure we will.
We will.
Review that almost real time, and certainly considered that for sure.
Great. Thank you yep. Thank Sheila.
Okay.
And the next question will come from Emmanuel Korchman with Citi. Please go ahead.
Hey, good afternoon, everyone Joel.
Just wanted to sort of circle back on the on the early remarks, you made on the call about scale and especially at the scale you have in your cluster markets.
Can you just elaborate on sort of the direct advantages of having the market turned the scale vs.
An environment, where the tenants are growing quickly and at the same time, there is new supply being created so are those kind of going to match up naturally where tenants are just kind of slot into space. That's available maybe rather than working through our relationship they've had with you to build space years from now.
You've you've revealed the office playbook, because when you have a generic commodity product that's true, but I think as as Peter indicated or Steve when.
When you have a mission critical project much like the wobbles in.
In Sorrento Mesa with Q health.
You don't just turn it over to the.
The cheapest guy on the street or the one who maybe have something available it's much more careful than that office space. That's true, but when you have critical R&D and critical next gen manufacturing that just doesn't happen that way.
Alright. Thanks.
The next question is from Rich Anderson with <unk>. Please go ahead. Thanks, good afternoon, everyone.
So I was looking back in time, a little bit about your Madonna exposure.
It went from about 382000 square feet on the first quarter to 615000 square feet on the fourth quarter.
I guess my like my broader question is.
Is is can we considered COVID-19 a new line of business.
Perhaps as Jenna mentioned, you know more leaning.
Leaning towards the therapy side, once we kind of get beyond this year and now or or is what I see not something I should be reading through to in a broader sense.
Well I think maybe two things rich one is I think COVID-19 and pandemic virus.
You know we've been through a number of of many ones over the years, but certainly this is one of the biggest ones we've ever seen in our lifetime different than H, HIV AIDS, which we did turn into a chronic condition.
So I think in Jenna said, it'll be with us for a long long time.
And there will be continual.
Efforts not on not only on the vaccine side and the booster side. The testing side. There's testing is going to be critical going forward and then obviously on the therapy side, because if you can take a quick if you can have access to therapy, that's maybe not.
Fusible, but one that's a pill like.
Just as you get a sore throat or you get a fever that would be a whole lot better than trying to or being very sick and looking for an infusion site. So theres a lot to do there and I do think COVID-19 will be a continuous business.
And these companies will be very busy, but I think one of the things about my journey in particular.
We've bought into the mrna revolution back almost a decade ago. When <unk> was founded and I think today. If you just separate out the you know the COVID-19 stuff, but Ah represents really one of the most impressive and important platforms for many different.
To address many different illnesses imagine if the body could replicate or with real Poe Eaton's. So you didn't need to.
We have.
You now have a constant.
External.
<unk> injections et cetera.
Where the body itself could address different or insulin.
Where you couldn't do it by.
By regulation in a sense. So the opportunity is pretty big and that's what we've looked at when we look at companies like Madonna and there are obviously, many more that have enormously big technology platforms, it's not simply a one product company.
Great and then just one question on on Fenway Park, although not specifically since I know you want on kind of keep it a little tight to the best for the time being but if memory serves on the Longwood medical area, perhaps did not.
You know pan out as well, if if I and correct me if I'm wrong on that but it's it's a further afield from Cambridge, if I'm right on my on my recollection of Longwood.
And I'm not making a judgment about you I think you know your peers were invested there.
What makes you think Fenway you know pretty close close to Longwood would sort of work out. This you know using your recollection is correct. We we dipped our toe into the along with medical area and it turns out it's a pretty institutional area and one that is.
Is not a really vibrant one at night, but I think what's happened in in Fenway and certainly our partner has been at the forefront of that as is.
<unk> really created a $24 seven live work play environment certainly the park itself has been a major part of that so I think it's a totally different.
Sub market in a totally different feeling so I think we have no no qualms at all about the future there.
Wonderful thanks, everybody. Thanks rich.
The next question is from Michael Carroll with RBC capital markets. Please go ahead.
Yeah. Thanks, I think Joel you kind of touched on this a little bit earlier, but can you provide some color on the supply outlook for the space and I know a few years ago. There were some concerns in south San Francisco, but those seem to have abated or are there specific markets that the day Aries tracking that we should kind of look out for.
So I think Steve touched on that Steve do you want on maybe.
Yeah Yeah.
Yeah, Hi, Michael It's Steve No you're right, we were monitoring South San Francisco closely with a combination of <unk>.
Kilroy peak and Blackstone at the time and you know those projects have all been substantially leased.
And look we track literally building by building parcel by parcel in each of our markets very closely on.
And we just don't see.
I get a lot of new class a high quality product being delivered there hasnt been a line in the press about conversions and I think at Investor Day, we kind of went through that chapter and verse and I highlighted it in the comments today. So we stay very vigilant in our analysis of that but at the current time.
We just don't see a significant supply disruptions happening in the market.
Okay, Great and then I guess can you talk a little bit about I guess, the Mercer Mega block to.
What's the timeline on on that potential acquisition and or I guess the development than you do acquire what's holding it up and what should we be expecting there.
Yes, I think we don't know precisely, but I think sometime over the next six months part of it is diligence and part of it is you know the city has gone through.
Quite a shock over the last.
Probably since what late May.
Uh huh.
Triggered by the death of Georgia, Floyd and has had its share of Hum.
<unk> and obviously the city.
Both the Bayer on the Council had been fighting obviously, there was a defund police effort going on there. So I think part of the effort is hopefully for the city I think theres a mayoral election coming up I think maybe later this year to get back into a more normal environment. We hope that's true.
This certainly I think you'll see activity on this over the next six months, but I think Seattle, certainly South Lake Union remains a very safe.
And and really good area.
<unk> got a strong obviously on the technology side anchored by the likes of Amazon and and Microsoft across the the water.
And the big Facebook and Google and the Big things are up there other than Netflix.
Different way, but so I think that's been all positive the life science industry as you know Peter.
<unk> talked about our pricing on the partial interest sale. We made in a couple of assets Seattle has attracted a lot of institutional money and the life science industry, certainly is growing well anchored by the Fred Hutch and the University of Washington, So, it's a pretty positive outlook there.
Okay, great. Thank you.
And our next question will come from Tom Catherwood with BTG. Please go ahead.
Thank you very much and good afternoon, everyone. So Steven Dean you, both kind of alluded to this topic, but I wanted to dive into it a little more.
We know that the same store NOI growth guidance on a GAAP basis is 2% for the year, but you've done nearly $6 $3 billion of acquisitions over the last 25 months and I assume most of those if not all of them are not in the same store pool. So how should we think about NOI growth.
In 2021 from the lease up and Mark to market on these non same store assets.
Well, it's Tom it's Dean here just to clarify.
As I mentioned in our commentary and you have our guidance for 2021, which our guidance for occupancy covers the entire.
Asset based on the operating portfolio and you've got <unk>.
Something in the range of I think a 170 basis point on growth in occupancy.
And then that continues into 2022 as well.
We're actually likely to pick up.
You know something approaching 300 basis points over.
The two calendar years, so youre going to see occupancy growth from the acquisitions be a key driver.
It's you know it's not.
We are finding assets.
At fit our business profile, a nicely and occasionally they come with some vacancy that we need to manage.
But unfortunately, we feel comfortable about.
Making good progress on that in 2021, so that's going to be a key driver.
And you'll see that continue to benefit into 2022 as well. So that's important to note that as just kind of wonder trend I think.
22 will benefit.
Probably as well on the same property pool, because some of those properties will start to drop into the same property pool over time.
Got it that's really helpful Dean.
And then kind of along the same lines you know looking at newly acquired assets in all and development assets as well so a number of development projects shifts between your intermediate classification in your near term classification.
But one that had kind of a real marked jump was the arsenal on the Charles where 200000 square feet of future redevelopment moved from the future bucket to near term so kind of a two phased jump and you also picked up an extra 81000 square feet of potential redevelopment.
Can you speak a little bit to the demand that youre seeing in Watertown, and how that's driving this acceleration of your redevelopment plans.
Yeah, So I don't want to get into it too much there at the moment because nothing has been formally announced but.
One thing that has been announced that you've seen in a lot of the papers is the nextgen.
Innovation technologies and manufacturing consortium with ourselves.
Fuji film.
Harvard has selected that site.
As the home of.
This enterprise.
And then there are a host of other I would say advanced technology companies life science companies and other things that have sought that location is being I think very proximate to Cambridge.
And transportation being easier to deal with than some of the other submarkets that are I think it's harder to get in and out Alewife is a good example, we've stayed out of it because we believe that transportation and on transportation out.
<unk> been Super problematic and so that's been one of the challenges that when we've looked at acquisitions in that sub market, they've kind of confounded us to.
To figure out how we can solve that transportation problem Watertown, I think in much better shape.
On one of your tenants Bluebird bio Oh, yeah.
They're doing a spin off on one of their business units just curious if that has any implications for the economy.
With you guys.
I'm sorry, so the question is what.
At the banner spinning off one of their business units does that have any implications for the current lease they have with.
With you.
Ah well.
Well, we don't know the answer to that they they may.
Sublease and they may not Janet do you want on maybe just comment on the nature of that.
Change on sharp.
Sure. So our trucks a day, so bluebird bio basically on their own they haven't disclosed the details other than that there are basically divided the company between severe genetic diseases, and then an oncology company and so.
We didn't really have exposure to them in greater Boston.
Same branch and then in Seattle, and so basically there everything that they are retaining in place you know.
It.
What they have kind of with us both in terms of our HQ in Cambridge on in manufacturing in Seattle.
We're really not concerned on that at all.
Okay. That's helpful. Thank you.
And it would be easy to backfill space, if we had it in those locations I can tell you.
Great. Thank you yep. Thank you.
Yeah.
The next question is a follow up from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.
Thank you just quickly I wanted to go back to Dean's comment on you said your debt.
Investment gains as a percentage of EBITDA you expect to be higher this year than last year can you maybe quantify that how big of a portion of EBITDA do you think it can be.
Oh, it's just Jamie it's Dan here at Slide I think what my comments were 19 was probably in the four and a half a percent range 'twenty was probably about five and a half.
Percentage of EBITDA and.
Just a slight growth anticipated as we look out to 'twenty one on top of that so.
It's still stay.
Staying pretty small as a percentage of overall EBITDA.
Okay. Thank you that's helpful.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the call conference back over to Joel Marcus for any closing remarks.
No closing remarks other than to wish everybody be safe be healthy Inc.
Covid free and we'll look forward to talking to you on our first quarter call. Thank you again everybody.
Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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