Released on October 23, 2023, Alexandria Real Estate Equities Inc (ARE, Financial)'s Q3 2023 earnings report shows a promising financial performance. The company reported a net income per share of $0.13 for Q3 2023 and $1.08 for YTD 3Q23. The FFO per share – diluted, as adjusted, stood at $2.26 for Q3 2023 and $6.69 for YTD 3Q23.
Company Performance and Challenges
ARE demonstrated solid leasing volume during Q3 2023, aggregating 867,582 RSF, despite minimal remaining contractual lease expirations for 2023 aggregating 622,654 RSF available for lease as of the beginning of Q3 2023. The weighted-average lease terms were 13.0 years for Q3 2023 and 11.0 years for YTD 3Q23, respectively, above the company's historically long weighted-average lease term of 8.7 years over the last 10 years.
Financial Achievements
ARE's net operating income (cash basis) for Q3 2023 annualized was $1.8 billion, up $129.6 million, or 7.9%, compared to Q3 2022 annualized. The same property net operating income growth was 3.1% and 4.6% (cash basis) for Q3 2023 over Q3 2022 and 3.7% and 5.6% (cash basis) for YTD 3Q23 over YTD 3Q22. The company also reported that 96% of its leases contain contractual annual rent escalations approximating 3%.
Balance Sheet and Cash Flow Statement
ARE's balance sheet shows significant liquidity of $5.9 billion, with no debt maturities prior to 2025. The company's net debt and preferred stock to Adjusted EBITDA was 5.4x and the fixed-charge coverage ratio was 4.8x for Q3 2023 annualized. The total debt and preferred stock to gross assets was 27%. The company also reported $1.2 billion of expected capital contributions from existing real estate joint venture partners from 4Q23 through 2026 to fund construction.
Dividend Strategy and Value Harvesting
ARE declared a common stock dividend for Q3 2023 of $1.24 per common share, aggregating $4.90 per common share for the twelve months ended September 30, 2023, up 24 cents, or 5%, over the twelve months ended September 30, 2022. The dividend yield was 5.0% as of September 30, 2023. The company also reported a dividend payout ratio of 55% for the three months ended September 30, 2023.
Future Outlook
ARE's $1.65 billion value harvesting plan for 2023 is focused on enhancing its asset base. The company's highly leased value-creation pipeline is expected to deliver annual incremental net operating income of $120 million commencing during YTD 3Q23, including $39 million from Q3 2023, and drive future annual incremental net operating income aggregating $580 million.
