filings.toolsAlexandria Real Estate Equities 10-Q 2024-06-30
Filed 2024-07-22. 8 sections, 449K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-12993
ALEXANDRIA REAL ESTATE EQUITIES, INC.
(Exact name of registrant as specified in its charter)
| Maryland | 95-4502084 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
26 North Euclid Avenue**,** Pasadena**,** California 91101
(Address of principal executive offices) (Zip code)
(626) 578-0777
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value per share | ARE | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Smaller reporting company | ☐ | |
| Accelerated filer | ☐ | Emerging growth company | ☐ | |
| Non-accelerated filer | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 15, 2024, 174,926,073 shares of common stock, par value $0.01 per share, were outstanding.
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | FINANCIAL STATEMENTS (UNAUDITED) | |
| Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 ............................................................. | 1 | |
| Consolidated Financial Statements for the Three and Six Months Ended June 30, 2024 and 2023: | ||
| Consolidated Statements of Operations ................................................................................................................... | 2 | |
| Consolidated Statements of Comprehensive Income ............................................................................................ | 3 | |
| Consolidated Statements of Changes in Stockholders’ Equity and Noncontrolling Interests .......................... | 4 | |
| Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 ................................ | 8 | |
| Notes to Consolidated Financial Statements .................................................................................................................... | 10 | |
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........................................................................................................................................................................ | 42 |
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ......................................................... | 110 |
| Item 4. | CONTROLS AND PROCEDURES ..................................................................................................................................... | 111 |
| PART II – OTHER INFORMATION | ||
| Item 1A. | RISK FACTORS .................................................................................................................................................................... | 112 |
| Item 5. | OTHER INFORMATION ....................................................................................................................................................... | 113 |
| Item 6. | EXHIBITS ............................................................................................................................................................................... | 114 |
| SIGNATURES ................................................................................................................................................................................................. | 115 |
i
GLOSSARY
The following abbreviations or acronyms that may be used in this document
shall have the adjacent meanings set forth below:
| ASU | Accounting Standards Update |
| ATM | At the Market |
| CIP | Construction in Progress |
| EPS | Earnings per Share |
| FASB | Financial Accounting Standards Board |
| FDIC | Federal Deposit Insurance Corporation |
| FFO | Funds From Operations |
| GAAP | U.S. Generally Accepted Accounting Principles |
| IRS | Internal Revenue Service |
| JV | Joint Venture |
| Nareit | National Association of Real Estate Investment Trusts |
| NAV | Net Asset Value |
| NYSE | New York Stock Exchange |
| REIT | Real Estate Investment Trust |
| RSF | Rentable Square Feet/Foot |
| SEC | Securities and Exchange Commission |
| SF | Square Feet/Foot |
| SoDo | South of Downtown submarket of Seattle |
| SOFR | Secured Overnight Financing Rate |
| SoMa | South of Market submarket of the San Francisco Bay Area |
| U.S. | United States |
| VIE | Variable Interest Entity |
ii
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Alexandria Real Estate Equities, Inc.
Consolidated Balance Sheets
(In thousands)
| June 30, 2024 | December 31, 2023 | ||
| (Unaudited) | |||
| Assets | |||
| Investments in real estate | $32,673,839 | $31,633,511 | |
| Investments in unconsolidated real estate joint ventures | 40,535 | 37,780 | |
| Cash and cash equivalents | 561,021 | 618,190 | |
| Restricted cash | 4,832 | 42,581 | |
| Tenant receivables | 6,822 | 8,211 | |
| Deferred rent | 1,190,336 | 1,050,319 | |
| Deferred leasing costs | 519,629 | 509,398 | |
| Investments | 1,494,348 | 1,449,518 | |
| Other assets | 1,356,503 | 1,421,894 | |
| Total assets | $37,847,865 | $36,771,402 | |
| Liabilities, Noncontrolling Interests, and Equity | |||
| Secured notes payable | $134,942 | $119,662 | |
| Unsecured senior notes payable | 12,089,561 | 11,096,028 | |
| Unsecured senior line of credit and commercial paper | 199,552 | 99,952 | |
| Accounts payable, accrued expenses, and other liabilities | 2,529,535 | 2,610,943 | |
| Dividends payable | 227,408 | 221,824 | |
| Total liabilities | 15,180,998 | 14,148,409 | |
| Commitments and contingencies | |||
| Redeemable noncontrolling interests | 16,440 | 16,480 | |
| Alexandria Real Estate Equities, Inc.’s stockholders’ equity: | |||
| Common stock | 1,720 | 1,719 | |
| Additional paid-in capital | 18,284,611 | 18,485,352 | |
| Accumulated other comprehensive loss | (27,710) | (15,896) | |
| Alexandria Real Estate Equities, Inc.’s stockholders’ equity | 18,258,621 | 18,471,175 | |
| Noncontrolling interests | 4,391,806 | 4,135,338 | |
| Total equity | 22,650,427 | 22,606,513 | |
| Total liabilities, noncontrolling interests, and equity | $37,847,865 | $36,771,402 |
The accompanying notes are an integral part of these consolidated financial statements.
Alexandria Real Estate Equities, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Revenues: | |||||||
| Income from rentals | $755,162 | $704,339 | $1,510,713 | $1,392,288 | |||
| Other income | 11,572 | 9,561 | 25,129 | 22,407 | |||
| Total revenues | 766,734 | 713,900 | 1,535,842 | 1,414,695 | |||
| Expenses: | |||||||
| Rental operations | 217,254 | 211,834 | 435,568 | 418,767 | |||
| General and administrative | 44,629 | 45,882 | 91,684 | 94,078 | |||
| Interest | 45,789 | 17,072 | 86,629 | 30,826 | |||
| Depreciation and amortization | 290,720 | 273,555 | 578,274 | 538,857 | |||
| Impairment of real estate | 30,763 | 168,575 | 30,763 | 168,575 | |||
| Total expenses | 629,155 | 716,918 | 1,222,918 | 1,251,103 | |||
| Equity in earnings of unconsolidated real estate joint ventures | 130 | 181 | 285 | 375 | |||
| Investment loss | (43,660) | (78,268) | (376) | (123,379) | |||
| Gain on sales of real estate | — | 214,810 | 392 | 214,810 | |||
| Net income | 94,049 | 133,705 | 313,225 | 255,398 | |||
| Net income attributable to noncontrolling interests | (47,347) | (43,768) | (95,978) | (87,599) | |||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s stockholders | 46,702 | 89,937 | 217,247 | 167,799 | |||
| Net income attributable to unvested restricted stock awards | (3,785) | (2,677) | (7,444) | (5,283) | |||
| Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders | $42,917 | $87,260 | $209,803 | $162,516 | |||
| Net income per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders: | |||||||
| Basic | $0.25 | $0.51 | $1.22 | $0.95 | |||
| Diluted | $0.25 | $0.51 | $1.22 | $0.95 |
The accompanying notes are an integral part of these consolidated financial statements.
Alexandria Real Estate Equities, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Net income | $94,049 | $133,705 | $313,225 | $255,398 | |||
| Other comprehensive (loss) income | |||||||
| Unrealized (losses) gains on foreign currency translation: | |||||||
| Unrealized foreign currency translation (losses) gains arising during the period | (3,895) | 3,947 | (11,814) | 4,223 | |||
| Unrealized (losses) gains on foreign currency translation, net | (3,895) | 3,947 | (11,814) | 4,223 | |||
| Total other comprehensive (loss) income | (3,895) | 3,947 | (11,814) | 4,223 | |||
| Comprehensive income | 90,154 | 137,652 | 301,411 | 259,621 | |||
| Less: comprehensive income attributable to noncontrolling interests | (47,347) | (43,768) | (95,978) | (87,599) | |||
| Comprehensive income attributable to Alexandria Real Estate Equities, Inc.’s stockholders | $42,807 | $93,884 | $205,433 | $172,022 |
The accompanying notes are an integral part of these consolidated financial statements.
Alexandria Real Estate Equities, Inc.
Consolidated Statement of Changes in Stockholders’ Equity and Noncontrolling Interests
(Dollars in thousands)
(Unaudited)
| Alexandria Real Estate Equities, Inc.’s Stockholders’ Equity | ||||||||||||||||
| Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | Redeemable Noncontrolling Interests | |||||||||
| Balance as of March 31, 2024 | 172,007,967 | $1,720 | $18,434,690 | $— | $(23,815) | $4,326,703 | $22,739,298 | $16,620 | ||||||||
| Net income | — | — | — | 46,702 | — | 47,076 | 93,778 | 271 | ||||||||
| Total other comprehensive loss | — | — | — | — | (3,895) | — | (3,895) | — | ||||||||
| Contributions from and sales of noncontrolling interests | — | — | 499 | — | — | 77,907 | 78,406 | — | ||||||||
| Distributions to and redemption of noncontrolling interests | — | — | (14) | — | — | (59,880) | (59,894) | (451) | ||||||||
| Issuance pursuant to stock plan | 14,394 | — | 30,691 | — | — | — | 30,691 | — | ||||||||
| Taxes related to net settlement of equity awards | (4,687) | — | (549) | — | — | — | (549) | — | ||||||||
| Dividends declared on common stock ($1.30 per share) | — | — | — | (227,408) | — | — | (227,408) | — | ||||||||
| Reclassification of distributions in excess of earnings | — | — | (180,706) | 180,706 | — | — | — | — | ||||||||
| Balance as of June 30, 2024 | 172,017,674 | $1,720 | $18,284,611 | $— | $(27,710) | $4,391,806 | $22,650,427 | $16,440 |
The accompanying notes are an integral part of these consolidated financial statements.
Alexandria Real Estate Equities, Inc.
Consolidated Statement of Changes in Stockholders’ Equity and Noncontrolling Interests
(Dollars in thousands)
(Unaudited)
| Alexandria Real Estate Equities, Inc.’s Stockholders’ Equity |
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Item 2. for additional details, including value-creation square feet currently included in rental properties.
(2)Excluding the expiration described in footnote 5, the largest remaining contractual lease expiration in 2024 is 97,702 RSF in our Mission Bay submarket, where we are
working to retain the current tenant.
(3)Excludes month-to-month leases aggregating 129,549 RSF as of June 30, 2024.
(4)Represents amounts in effect as of June 30, 2024.
(5)Includes 349,947 RSF at 219 East 42nd Street that was classified as held for sale as of June 30, 2024 and was sold in July 2024.
(6)Key remaining expiring leases in 2025 include 600,477 RSF in three submarkets with a weighted-average expiration date of February 1, 2025 and annual rental revenue
as of June 30, 2024 aggregating approximately $37 million comprised of the following: (i) 248,700 RSF at our Alexandria Technology Square® mega campus in our
Cambridge submarket, of which 171,945 RSF is expected to be repositioned from single-tenancy to multi-tenancy, and we are evaluating options to reposition the
remaining 76,755 RSF; (ii) 247,246 RSF of industrial and R&D space in our Austin submarket for which we are evaluating options to market for re-lease or reposition the
space; and (iii) 104,531 RSF in our Research Triangle market that is currently being marketed for re-lease. We expect downtime on these spaces to range from 12 to 24
months on a weighted average basis.
(7)Includes 816,048 RSF of contractual lease expirations in our Cambridge/Inner Suburbs submarket. Refer to footnote 6 for additional details.
Top 20 tenants
92% of Top 20 Tenant Annual Rental Revenue Is From Investment-Grade
or Publicly Traded Large Cap Tenants**(1)**
Our properties are leased to a high-quality and diverse group of tenants, with no individual tenant accounting for more than 5.7%
of our annual rental revenue in effect as of June 30, 2024. The following table sets forth information regarding leases with our 20 largest
tenants in North America based upon annual rental revenue in effect as of June 30, 2024 (dollars in thousands, except average market
cap amounts):
| Remaining Lease Term(1) (in Years) | Aggregate RSF | Annual Rental Revenue(1) | Percentage of Annual Rental Revenue (1) | Investment-Grade Credit Ratings | Average Market Cap(1) (in billions) | |||||||||||||||||||
| Tenant | Moody’s | S&P | ||||||||||||||||||||||
| 1 | Moderna, Inc. | 12.9 | 1,385,536 | $ | 127,122 | 5.7% | — | — | $40.5 | |||||||||||||||
| 2 | Eli Lilly and Company | 8.6 | 1,134,349 | 92,931 | 4.2 | A2 | A+ | $620.0 | ||||||||||||||||
| 3 | Bristol-Myers Squibb Company | 6.6 | 999,379 | 76,363 | 3.4 | A2 | A+ | $107.4 | ||||||||||||||||
| 4 | Takeda Pharmaceutical Company Limited | 10.9 | 549,759 | 47,899 | 2.2 | Baa2 | BBB+ | $45.4 | ||||||||||||||||
| 5 | Roche | 5.8 | 770,279 | 45,888 | 2.1 | Aa2 | AA | $224.0 | ||||||||||||||||
| 6 | Illumina, Inc. | 6.6 | 955,669 | 41,588 | 1.9 | Baa3 | BBB | $21.4 | ||||||||||||||||
| 7 | Alphabet Inc. | 3.0 | 724,223 | 39,155 | 1.8 | Aa2 | AA+ | $1,805.5 | ||||||||||||||||
| 8 | 2seventy bio, Inc.(2) | 9.2 | 312,805 | 33,543 | 1.5 | — | — | $0.2 | ||||||||||||||||
| 9 | Novartis AG | 4.1 | 450,563 | 30,969 | 1.4 | A1 | AA- | $227.3 | ||||||||||||||||
| 10 | Harvard University | 6.3 | 343,858 | 28,872 | 1.3 | Aaa | AAA | $— | ||||||||||||||||
| 11 | Cloud Software Group, Inc. | 2.7 | (3) | 292,013 | 28,537 | 1.3 | — | — | $— | |||||||||||||||
| 12 | United States Government | 6.1 | 429,359 | 28,491 | 1.3 | Aaa | AA+ | $— | ||||||||||||||||
| 13 | Uber Technologies, Inc. | 58.3 | (4) | 1,009,188 | 27,765 | 1.3 | — | — | $123.5 | |||||||||||||||
| 14 | AstraZeneca PLC | 5.3 | 450,848 | 27,156 | 1.2 | A3 | A | $213.0 | ||||||||||||||||
| 15 | Pfizer Inc. | 0.7 | (5) | 504,716 | 23,730 | 1.1 | A1 | A+ | $171.0 | |||||||||||||||
| 16 | Sanofi | 6.5 | 267,278 | 21,444 | 1.0 | A1 | AA | $126.0 | ||||||||||||||||
| 17 | Merck & Co., Inc. | 9.0 | 337,703 | 21,401 | 1.0 | A1 | A+ | $293.8 | ||||||||||||||||
| 18 | Amgen Inc. | 8.5 | 428,227 | 21,314 | 1.0 | Baa1 | — | $148.0 | ||||||||||||||||
| 19 | New York University | 7.6 | 218,983 | 21,056 | 0.9 | Aa2 | AA- | $— | ||||||||||||||||
| 20 | Massachusetts Institute of Technology | 5.0 | 246,725 | 20,527 | 0.9 | Aaa | AAA | $— | ||||||||||||||||
| Total/weighted-average | 9.4 | (4) | 11,811,460 | $ | 805,751 | 36.5% |
Annual rental revenue and RSF include 100% of each property managed by us in North America. Refer to “Annual rental revenue” and “Investment-grade or publicly traded large
cap tenants” under “Definitions and reconciliations” in Item 2 for additional details, including our methodologies of calculating annual rental revenue from unconsolidated real
estate joint ventures and average market capitalization, respectively.
(1)Based on annual rental revenue in effect as of June 30, 2024.
(2)As of March 31, 2024, 2seventy bio, Inc. held $181.4 million of cash, cash equivalents, and marketable securities. In March 2024, Regeneron Pharmaceuticals, Inc., a
publicly traded biotechnology company with investment-grade credit ratings of Baa1 and BBB+ assigned by Moody’s and S&P, respectively, entered into a sublease for
approximately 195,000 RSF, or 69.6% of our annual rental revenue generated from 2seventy bio as of June 30, 2024. Additionally, 90.2% of the annual rental revenue
generated by 2seventy bio is guaranteed by another related public biotechnology company.
(3)Consists of one lease at a property acquired in 2022 with future development and redevelopment opportunities. This lease with Cloud Software Group, Inc. (formerly known
as TIBCO Software, Inc.) was in place when we acquired the property.
(4)Includes (i) ground leases for land at 1455 and 1515 Third Street (two buildings aggregating 422,980 RSF) and (ii) leases at 1655 and 1725 Third Street (two buildings
aggregating 586,208 RSF) in our Mission Bay submarket owned by our unconsolidated real estate joint venture in which we have an ownership interest of 10%. Annual
rental revenue is presented using 100% of the annual rental revenue from our consolidated properties and our share of annual rental revenue from our unconsolidated real
estate joint ventures. Refer to footnote 1 for additional details. Excluding these ground leases, the weighted-average remaining lease term for our top 20 tenants was 8.0
years as of June 30, 2024.
(5)Primarily relates to one office building in our New York City submarket aggregating 349,947 RSF with a contractual lease expiration in July 2024, which was classified as
held for sale as of June 30, 2024 and sold in July 2024.
Locations of properties
The locations of our properties are diversified among a number of Class A/A+ assets strategically clustered in life science
mega campuses in AAA innovation cluster markets. The following table sets forth the total RSF, number of properties, and annual rental
revenue in effect as of June 30, 2024 in each of our markets in North America (dollars in thousands, exc
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk
The primary market risk to which we believe we may be exposed is interest rate risk, which may result from many factors,
including government monetary and tax policies, domestic and international economic and political considerations, and other factors
that are beyond our control.
In order to modify and manage the interest rate characteristics of our outstanding debt and to limit the effects of interest rate
risks on our operations, we may utilize a variety of financial instruments, including interest rate hedge agreements, caps, floors, and
other interest rate exchange contracts. The use of these types of instruments to hedge a portion of our exposure to changes in interest
rates may carry additional risks, such as counterparty credit risk and the legal enforceability of hedge agreements. As of June 30, 2024,
we did not have any outstanding interest rate hedge agreements.
Our future earnings and fair values relating to our outstanding debt are primarily dependent upon prevalent market rates of
interest. The following tables illustrate the effect of a 1% change in interest rates, assuming a zero percent interest rate floor, on our
fixed- and variable-rate debt as of June 30, 2024 (in thousands):
| Annualized effect on future earnings due to variable-rate debt: | |
| Rate increase of 1% | $(653) |
| Rate decrease of 1% | $653 |
| Effect on fair value of total consolidated debt: | |
| Rate increase of 1% | $(774,018) |
| Rate decrease of 1% | $885,119 |
These amounts are determined by considering the effect of the hypothetical interest rates on our borrowings as of June 30,
- These analyses do not consider the effects of the reduced level of overall economic activity that could exist in such an
environment. Furthermore, in the event of a change of such magnitude, we would consider taking actions to further mitigate our
exposure to the change. Because of the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity
analyses assume no changes in our capital structure.
Equity price risk
We have exposure to equity price market risk because we hold equity investments in publicly traded companies and privately
held entities. All of our investments in actively traded public companies are reflected in our consolidated balance sheets at fair value.
Our investments in privately held entities that report NAV per share are measured at fair value using NAV as a practical expedient to fair
value. Our equity investments in privately held entities that do not report NAV per share are measured at cost less impairments,
adjusted for observable price changes during the period. Changes in fair value of public investments, changes in NAV per share
reported by privately held entities, and observable price changes of privately held entities that do not report NAV per share are
classified as investment income in our consolidated statements of operations. There is no assurance that future declines in value will
not have a material adverse effect on our future results of operations. The following table illustrates the effect that a 10% change in the
value of our equity investments would have on earnings as of June 30, 2024 (in thousands):
| Equity price risk: | |
| Fair value increase of 10% | $149,435 |
| Fair value decrease of 10% | $(149,435) |
Foreign currency exchange rate risk
We have exposure to foreign currency exchange rate risk related to our subsidiaries operating in Canada. The functional
currencies of our foreign subsidiaries are the local currencies in each respective country. Gains or losses resulting from the translation
of our foreign subsidiaries’ balance sheets and statements of operations are classified in accumulated other comprehensive income
(loss) as a separate component of total equity and are excluded from net income (loss). Gains or losses will be reflected in our
consolidated statements of operations when there is a sale or partial sale of our investment in these operations or upon a complete or
substantially complete liquidation of the investment. The following tables illustrate the effect that a 10% change in foreign currency rates
relative to the U.S. dollar would have on our potential future earnings and on the fair value of our net investment in foreign subsidiaries
based on our current operating assets outside the U.S. as of June 30, 2024 (in thousands):
| Effect on potential future earnings due to foreign currency exchange rate: | |
| Rate increase of 10% | $71 |
| Rate decrease of 10% | $(71) |
| Effect on the fair value of net investment in foreign subsidiaries due to foreign currency exchange rate: | |
| Rate increase of 10% | $39,090 |
| Rate decrease of 10% | $(39,090) |
The sensitivity analyses assume a parallel shift of all foreign currency exchange rates with respect to the U.S. dollar; however,
foreign currency exchange rates do not typically move in such a manner, and actual results may differ materially.
Our exposure to market risk elements for the six months ended June 30, 2024 was consistent with the risk elements presented
above, including the effects of changes in interest rates, equity prices, and foreign currency exchange rates.
Item 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
As of June 30, 2024, we had performed an evaluation, under the supervision of our principal executive officers and principal
financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. These controls and
procedures have been designed to ensure that information required for disclosure is recorded, processed, summarized, and reported
within the requisite time periods. Based on our evaluation, the principal executive officers and principal financial officer concluded that
our disclosure controls and procedures were effective as of June 30, 2024.
Changes in internal control over financial reporting
There has not been any change in our internal control over financial reporting during the three months ended June 30, 2024
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1A. RISK FACTORS
In addition to the information set forth in this quarterly report on Form 10-Q, one should also carefully review and consider the
information contained in the other reports and periodic filings that we make with the SEC, including, without limitation, the information
contained under the caption “Item 1A. Risk factors” in our annual report on Form 10-K for the year ended December 31, 2023. Those
risk factors could materially affect our business, financial condition, and results of operations. The risks that we describe in our public
filings are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we presently deem to be
immaterial, also may materially adversely affect our business, financial condition, and results of operations.
There have been no material changes in our risk factors from those disclosed under the caption “Item 1A. Risk factors” in our
annual report on Form 10-K for the year ended December 31, 2023, except for the following updates:
The use of artificial intelligence presents risks and challenges that may adversely impact our business and
operating results or that of our tenants and vendors or may adversely impact the requirements and demand for life
science laboratory space as a whole.
We may adopt and integrate generative artificial intelligence and machine learning (collectively, “AI”) tools into our
operations to enhance efficiencies and streamline existing systems. However, the deployment and maintenance of AI tools
may entail substantial risks. While these tools hold promise in optimizing processes and driving efficiencies, as with many
technological innovations, they also pose inherent risks. These include, but are not limited to, the potential for inaccuracy, bias,
intellectual property infringement, or misappropriation, as well as concerns regarding data privacy and cybersecurity.
Moreover, the use of AI may introduce errors or inadequacies that are not easily detectable. Deficiencies,
inaccuracies, or biases in the data used for AI training, or in the content, analyses, or recommendations generated by AI
applications, may adversely affect our business, financial condition, and results of operations. The legal landscape surrounding
AI is evolving and remains uncertain. It is unknown how the development of laws in this area could impact our business and
our ability to enforce our proprietary rights or protect against infringement of those rights.
Potential risks from the use of AI by our tenants
The integration of AI technologies in the life science industry presents both significant opportunities and inherent
risks. AI predictive models have the potential to enhance the accuracy and usefulness of simulation models and be utilized
broadly across various stages of drug development. However, the adoption of AI also introduces a complex risk landscape
similar to those described above that must be navigated with caution.
Moreover, the adoption of AI by our tenants may lead to infrastructure requirements that our buildings currently do not
accommodate, such as increased power needs due to high-performance computing. Infrastructure upgrades may necessitate
substantial capital expenditures and could potentially impact the environmental footprint of our building operations.
Potential risks from the use of AI by our investors, analysts, and other market participants
The increasing use of AI by investors, analysts, and other market participants for processing, summarizing, and
interpreting financial and other information, including that in our annual reports on Form 10-K, quarterly reports on Form 10-Q,
and other public disclosures, poses potential risks. While AI could improve efficiencies in data analysis, AI could also
inaccurately interpret or summarize information due to algorithmic limitations or misinterpretation of complex financial
concepts. These misinterpretations could be further exacerbated by the potential for AI to overlook additional disclosures in
various report sections, such as the Management's Discussion and Analysis of Financial Condition and Results of Operations
or Risk Factors section within our annual reports on Form 10-K and/or quarterly reports on Form 10-Q.
Our status as a REIT introduces unique financial metrics, such as funds from operations and fund from operations, as
adjusted, which represent widely used non-GAAP financial performance measures of equity REITs. Inadequate AI training on
the aspects unique to our industry could lead to inaccurate interpretations of these financial measures, particularly when
comparing our performance against non-REIT entities. Furthermore, rules and regulations requiring REITs to distribute at least
90% of REIT taxable income to stockholders result in a substantial reliance on debt and equity financing by REITs. Without
adequate training, these unique aspects might not be properly accounted for by AI and could lead to misinterpretations of our
financial metrics, such as net debt and preferred stock to Adjusted EBITDA, resulting in inaccurate conclusions and misleading
investment recommendations.
Additionally, current inconsistencies in the use, calculation, and presentation of non-GAAP measures among public
companies may lead to AI’s inaccurate interpretations and comparisons of these measures. Without appropriate adjustments
for these divergences, AI may generate erroneous comparisons with peer companies, distorting the view of our operational
performance and profitability, which could lead to misguided investor conclusions about our competitive position among other
companies.
Other challenges associated with AI use may include:
- Inadequate interpretation of real estate market nuances, including geographic and property-type differences, and
property quality.
- Overemphasis on quantitative data, which overlooks qualitative factors like management’s expertise, background,
and tenure; and company strategy, credit rating, track record, and market reputation.
-
Reliance on historical data, which may not reliably predict future performance in the dynamic real estate sector.
-
Current limited capability of AI in making nuanced judgments, particularly in understanding market trends,
uncertainties, and investor sentiment.
We are committed to the highest levels of transparency, integrity, and accountability in our public disclosures.
However, we have no control over the processing or interpretation of this information by third-party AI tools. Incorrect AI
interpretations could significantly impact investment decisions, which may adversely affect our stock price, investor confidence,
and our reputation. Additionally, the time and resources needed to address and remediate public misconceptions could distract
from our business activities, which may further exacerbate the potential negative impact.
Potential risks of use of AI by vendors
Our vendors may incorporate AI tools into their products or services without our knowledge, and the providers of
these tools may not meet existing or rapidly evolving regulatory or industry standards with respect to privacy and data
protection. Consequently, this may inhibit our or our vendors’ ability to uphold an appropriate level of service, data privacy, and
overall experience. Bad actors around the world use increasingly sophisticated methods, including the use of AI, to engage in
illegal activities involving the theft and misuse of personal information, confidential information, and intellectual property. If we,
our vendors, or other third parties with which we conduct business experience an actual or perceived breach of privacy or
security incident due to the use of AI, we may be adversely impacted, lose valuable intellectual property or confidential
information, and incur harm to our reputation and the public perception of the effectiveness of our security measures.
Potential risk of use of AI by cybercriminals
As AI technologies become more advanced, cybercriminals may develop more sophisticated attack methods. Such
methods may include the use of AI to automate and enhance phishing schemes, advance malware, and carry out more
effective cyberattacks. The AI-driven cyber threats could be harder to detect and counteract, which may pose significant risks
to our data security and the integrity of our systems. If such AI-enhanced cyberattacks are successful, they could lead to
substantial data breaches, loss of sensitive information, and significant financial and reputational damage.
The realization of any of the aforementioned risks could have a material adverse impact on our revenues, net operating
income; our results of operations, funds from operations, operating margins, occupancy, EPS, FFO per share; our overall business; and
the market value of our common stock. Any of the outcomes described above could cause damage to us, our tenants, and vendors and
adversely impact our business or that of our tenants and vendors. Furthermore, these risks, combined with an uncertain regulatory
environment, may result in reputational harm, legal liability, governmental or regulatory scrutiny, or other adverse consequences to our
business operations.
Item 5. OTHER INFORMATION
Disclosure of 10b5-1 plans
None of our officers or directors had any contract, instruction, or written plan for the purchase or sale of our securities that was
intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” in effect at any
time during the three months ended June 30, 2024.
Item 6. EXHIBITS
(*) Incorporated by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on July 22, 2024.
| ALEXANDRIA REAL ESTATE EQUITIES, INC. | |
| /s/ Joel S. Marcus | |
| Joel S. Marcus Executive Chairman (Principal Executive Officer) | |
| /s/ Peter M. Moglia | |
| Peter M. Moglia Chief Executive Officer and Chief Investment Officer (Principal Executive Officer) | |
| /s/ Marc E. Binda | |
| Marc E. Binda Chief Financial Officer and Treasurer (Principal Financial Officer) |