EDGAR 10-K Filing

Company CIK: 1035443
Filing Year: 2023
Filename: 1035443_10-K_2023_0001035443-23-000099.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
Overview
We are a Maryland corporation formed in October 1994 that has elected to be taxed as a REIT for federal income tax purposes. Alexandria Real Estate Equities, Inc. (NYSE: ARE), an S&P 500® company, is a best-in-class, mission-driven life science REIT making a positive and lasting impact on the world. As the pioneer of the life science real estate niche since its founding in 1994, Alexandria is the preeminent and longest-tenured owner, operator, and developer of collaborative life science, agtech, and technology campuses in AAA innovation cluster locations, including Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and Research Triangle. The trusted partner to approximately 1,000 tenants, Alexandria has a total market capitalization of $35.0 billion and an asset base in North America of 74.6 million SF as of December 31, 2022, which includes 41.8 million RSF of operating properties and 5.6 million RSF of Class A properties undergoing construction, 9.9 million RSF of near-term and intermediate-term development and redevelopment projects, and 17.3 million SF of future development projects.
We develop dynamic urban cluster campuses and vibrant ecosystems that enable and inspire the world’s most brilliant minds and innovative companies to create life-changing scientific and technological breakthroughs. We believe in the utmost professionalism, humility, and teamwork. Our tenants include multinational pharmaceutical companies; public and private biotechnology companies; life science product, service, and medical device companies; digital health, technology, and agtech companies; academic and medical research institutions; U.S. government research agencies; non-profit organizations; and venture capital firms. Alexandria has a longstanding and proven track record of developing Class A properties clustered in life science, agtech, and technology campuses that provide our innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. Alexandria also provides strategic capital to transformative life science, agrifoodtech, climate innovation, and technology companies through our venture capital platform. We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value.
Our portfolio includes 64 operating properties and development projects that are held by consolidated real estate joint ventures and four properties that are held by unconsolidated real estate joint ventures. The occupancy percentage of our operating properties in North America was 94.8% as of December 31, 2022. Our 10-year average occupancy percentage of our operating properties as of December 31, 2022 was 96%. Investment-grade or publicly traded large cap tenants represented 48% of our total annual rental revenue in effect as of December 31, 2022. Additional information regarding our consolidated and unconsolidated real estate joint ventures is included in “Item 7. Management’s discussion and analysis of financial condition and results of operations” in this annual report on Form 10-K. Additional information regarding risk factors that may affect us is included in “Item 1A. Risk factors” and “Item 7. Management’s discussion and analysis of financial condition and results of operations” in this annual report on Form 10-K.
Business objective and strategies
Our primary business objective is to maximize long-term asset value and shareholder returns based on a multifaceted platform of internal and external growth. A key element of our strategy is our unique focus on Class A properties located in collaborative life science, agtech, and technology campuses in AAA innovation clusters. These key campus locations are generally characterized by high barriers to entry for new landlords, high barriers to exit for tenants, and a limited supply of available space. They generally represent highly desirable locations for tenancy by life science, agtech, and technology entities because of their close proximity to concentrations of specialized skills, knowledge, institutions, and related businesses. Our strategy also includes drawing upon our deep and broad real estate, life science, agtech, and technology relationships in order to identify and attract new and leading tenants and to source additional value-creation real estate.
Our tenant base is broad and diverse within the life science, agtech, and technology industries and reflects our focus on regional, national, and international tenants with substantial financial and operational resources. For a more detailed description of our properties and tenants, refer to “Item 2. Properties” in this annual report on Form 10-K. We have an experienced Board of Directors and are led by an executive and senior management team with extensive experience in the real estate, life science, agtech, and technology industries.
Acquisitions
We seek to identify and acquire high-quality properties in our target cluster markets. Critical evaluation of prospective property acquisitions is an essential component of our acquisition strategy. When evaluating acquisition opportunities, we assess a full range of matters relating to the prospective property or properties, including:
•Proximity to centers of innovation and technological advances;
•Location of the property and our strategy in the relevant market, including our mega campus strategy;
•Quality of existing and prospective tenants;
•Condition and capacity of the building infrastructure;
•Physical condition of the structure and common area improvements;
•Quality and generic characteristics of the improvements;
•Opportunities available for leasing vacant space and for re-tenanting or renewing occupied space;
•Availability of and/or ability to add appropriate tenant amenities;
•Availability of land for future ground-up development of new space;
•Opportunities to generate higher rent through redevelopment of existing space;
•The property’s unlevered yields;
•Potential impacts of climate change and extreme weather conditions; and
•Our ability to increase the property’s long-term financial returns.
Development, redevelopment, and pre-construction
A key component of our business model is our disciplined allocation of capital toward the development and redevelopment of new Class A properties, as well as property enhancements of certain acquired properties. These projects are generally located in collaborative life science, agtech, and technology campuses in AAA innovation clusters and are focused on providing high-quality, generic, and reusable spaces that meet the real estate requirements of our diverse group of tenants.
Development projects generally consist of the ground-up development of generic and reusable facilities. Redevelopment projects consist of the permanent change in use of office, warehouse, and shell space into office/laboratory, agtech, or tech office space. We generally will not commence new development projects for aboveground construction of new Class A office/laboratory, agtech, and tech office space without first securing significant pre-leasing for such space, except when there is solid market demand for high-quality Class A properties.
We seek to meet growing demand from our stakeholders and continuously improve the efficiency of our buildings. Additionally, we have committed to significant building goals to promote wellness and productivity for our buildings’ occupants, including targeting a LEED® Gold or Platinum certification on all new ground-up construction projects.
Pre-construction activities include entitlements, permitting, design, site work, and other activities preceding commencement of construction of aboveground building improvements, which are focused on reducing the time required to deliver projects to prospective tenants. These critical activities add significant value to our future ground-up developments and are required for the vertical construction of buildings.
Another key component of our business model is our value-creation redevelopment of existing office, warehouse, or shell space, or newly acquired properties, into high-quality, generic, and reusable office/laboratory space that can be leased at higher rental rates. Our redevelopment strategy generally includes significant pre-leasing of projects prior to the commencement of redevelopment. We generally do not commence vertical construction of new projects prior to achieving significant pre-leasing.
Non-real estate investments
We also hold strategic investments in publicly traded companies and privately held entities primarily involved in the life science, agtech, and technology industries. We invest primarily in highly innovative entities whose focus on the development of therapies and products that advance human health and transform patients’ lives is aligned with Alexandria’s purpose of making a positive and meaningful impact on the health, safety, and well-being of the global community. Our status as a REIT limits our ability to make such non-real estate investments. Therefore, we conduct, and will continue to conduct, our non-real estate investment activities in a manner that complies with REIT requirements.
Balance sheet and financial strategy
We seek to maximize balance sheet liquidity and flexibility, cash flows, and cash available for distribution to our stockholders through the ownership, operation, management, and selective acquisition, development, and redevelopment of new Class A properties located in collaborative life science, agtech, and technology campuses in AAA innovation clusters, as well as the prudent management of our balance sheet. In particular, we seek to maximize balance sheet liquidity and flexibility, cash flows, and cash available for distribution to our stockholders by:
•Maintaining access to diverse sources of capital, which include net cash flows from operating activities after dividends, incremental leverage-neutral debt supported by growth in EBITDA, strategic value harvesting and asset recycling through real estate dispositions and sales of partial interests, non-real estate investment sales, sales of equity, and other capital;
•Maintaining significant liquidity through borrowing capacity under our unsecured senior line of credit and commercial paper program, secured construction loans, marketable securities, issuances of forward equity contracts from time to time, and cash, cash equivalents, and restricted cash;
•Continuing to improve our credit profile;
•Minimizing the amount of debt maturing in a single year;
•Maintaining commitment to long-term capital to fund growth;
•Maintaining low to modest leverage;
•Minimizing variable interest rate risk;
•Generating high-quality, strong, and increasing operating cash flows;
•Selectively selling real estate assets, including land parcels, non-core and “core-like” operating assets, and sales of partial interests, and reinvesting the proceeds into our highly leased value-creation development and redevelopment projects;
•Allocating capital to Class A properties located in collaborative life science, agtech, and technology campuses in AAA innovation clusters;
•Maintaining geographic diversity in urban intellectual centers of innovation;
•Selectively acquiring high-quality office/laboratory, agtech, and technology space in our target urban innovation cluster submarkets at prices that enable us to realize attractive returns;
•Selectively developing properties in our target urban innovation cluster submarkets;
•Selectively redeveloping existing office, warehouse, or shell space, or newly acquired properties, into high-quality, generic, and reusable office/laboratory space that can be leased at higher rental rates in our target urban innovation cluster submarkets;
•Renewing existing tenant space at higher rental rates to the extent possible;
•Minimizing tenant improvement costs;
•Improving investment returns through the leasing of vacant space and the replacing of existing tenants with new tenants at higher rental rates;
•Executing leases with high-quality tenants and proactively monitoring tenant health;
•Maintaining solid occupancy while attaining high rental rates;
•Realizing contractual rental rate escalations; and
•Implementing effective cost control measures, including negotiating pass-through provisions in tenant leases for operating expenses and certain capital expenditures.
Competition
In general, other office/laboratory and technology properties are located in close proximity to our properties. The amount of rentable space available in any market could have a material effect on our ability to rent space and on the rental rates we can attain for our properties. In addition, we compete for investment opportunities with other REITs, insurance companies, pension and investment funds, private equity entities, partnerships, developers, investment companies, owners/occupants, and foreign investors. Many of these entities have substantially greater financial resources than we do and may be able to invest more than we can or accept more risk than we are willing to accept. These entities may be less sensitive to risks with respect to the creditworthiness of a tenant or the overall expected returns from real estate investments. In addition, as a result of their financial resources, our competitors may offer more free rent concessions, lower rental rates, or higher tenant improvement allowances in order to attract tenants. These leasing incentives could hinder our ability to maintain or raise rents and attract or retain tenants. Competition may also reduce the number of suitable investment opportunities available to us or may increase the bargaining power of property owners seeking to sell. Competition in acquiring existing properties and land, both from institutional capital sources and from other REITs, has been very strong over the past several years; however, we believe we have differentiated ourselves from our competitors. As the first, longest-tenured, and pioneering publicly traded life science REIT to focus primarily on the office/laboratory real estate niche, we provide world-class collaborative life science, agtech, and technology campuses in AAA innovation cluster locations and maintain and cultivate many of the most important and strategic relationships in the life science, agtech, and technology industries.
Financial information about our reportable segment
Refer to Note 2 - “Summary of significant accounting policies” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for information about our one reportable segment.
Regulation
General
Properties in our markets are subject to various laws, ordinances, and regulations, including regulations relating to common areas. We believe we have the necessary permits and approvals to operate each of our properties.
Americans with Disabilities Act
Our properties must comply with Title III of the Americans with Disabilities Act of 1990 (“ADA”) to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to permit access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe that our properties are in substantial compliance with the ADA and that we will not be required to incur substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and make alterations as appropriate in this respect.
Environmental matters
Under various environmental protection laws, a current or previous owner or operator of real estate may be liable for contamination resulting from the presence or discharge of hazardous or toxic substances at that property and may be required to investigate and remediate contamination located on or emanating from that property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and the liability may be joint and several. Previous owners may have used some of our properties for industrial and other purposes, so those properties may contain some level of environmental contamination. The presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability or may materially adversely affect our ability to sell, lease, or develop the real estate or to borrow capital using the real estate as collateral.
State regulations, such as California’s Connelly Act and Proposition 65, among others, require certain building owners and operators to disclose information on the presence of asbestos or other harmful substances. Some of our properties may have asbestos-containing building materials. Environmental laws require that asbestos-containing building materials be properly managed and maintained and may impose fines and penalties on building owners or operators for failure to comply with these requirements. These laws may also allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos-containing building materials.
In addition, some of our tenants handle hazardous substances and wastes as part of their routine operations at our properties. Environmental laws and regulations subject our tenants, and potentially us, to liability resulting from such activities. Environmental liabilities could also affect a tenant’s ability to make rental payments to us. We require our tenants to comply with these environmental laws and regulations and to indemnify us against any related liabilities.
Independent environmental consultants have conducted Phase I or similar environmental site assessments on the properties in our portfolio. Site assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties and do not generally include soil samplings, subsurface investigations, or an asbestos survey. To date, these assessments have not revealed any material environmental liability that we believe would have a material adverse effect on our business, assets, or results of operations, and ongoing expenditures to comply with existing environmental regulations are not expected to be material. Nevertheless, it is possible that the assessments on our properties have not revealed all environmental conditions, liabilities, or compliance concerns that may have arisen after the review was completed or may arise in the future; and future laws, ordinances, or regulations may also impose additional material environmental liabilities.
Insurance
With respect to our properties, we carry commercial general liability insurance, and all-risk property insurance, including business interruption and loss of rental income coverage. We select policy specifications and insured limits that we believe to be appropriate given the relative risk of loss and the cost of the coverage. In addition, we have obtained earthquake insurance for certain properties located in the vicinity of known active earthquake zones in an amount and with deductibles we believe are commercially reasonable. We also carry environmental insurance and title insurance policies on our properties. We generally obtain title insurance policies when we acquire a property, with each policy covering an amount equal to the initial purchase price of each property. Accordingly, any of our title insurance policies may be in an amount less than the current value of the related property. Additional information about risk factors that may affect us is included in “Item 1A. Risk factors” in this annual report on Form 10-K.
Available information
Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, including any amendments to the foregoing reports, are available, free of charge, through our corporate website at www.are.com as soon as is reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The current charters of our Board of Directors’ Audit, Compensation, and Nominating & Governance Committees, along with our Corporate Governance Guidelines and Business Integrity Policy and Procedures for Reporting Non-Compliance (the “Business Integrity Policy”), are also available on our corporate website. Additionally, any amendments to, and waivers of, our Business Integrity Policy that apply to our Chief Executive Officer or our Chief Financial Officer will be available free of charge on our corporate website in accordance with applicable SEC and NYSE requirements. Written requests should be sent to Alexandria Real Estate Equities, Inc., 26 North Euclid Avenue, Pasadena, California 91101, Attention: Investor Relations. The public may also download these materials from the SEC’s website at www.sec.gov.
Human capital
As of December 31, 2022, we had 593 employees. We place a significant focus on building loyalty and trusted relationships with our employees. We have adopted a Business Integrity Policy that applies to all of our employees, and its receipt and review by each employee is documented and verified annually. To promote an exceptional corporate culture, Alexandria continuously monitors employee satisfaction, seeks employee feedback, and proactively enhances our employee offerings. We participate in annual performance reviews with our employees and conduct formal employee surveys, and our talent management team holds regular meetings with employees to continuously gather feedback and improve the employee experience. The positive employee experience is evidenced by our low voluntary and total turnover rates averaging 3.6% and 7.7%, respectively, over the last five years, from 2018 to 2022, which are substantially lower than the reported average voluntary and total turnover rates of 16.0% and 19.0%, respectively, in the 2022 Nareit Compensation & Benefits Survey (data for 2021).
We recognize that the fundamental strength of Alexandria results from the contributions of each and every team member within the organization and that our future growth is dependent upon the same. Alexandria devotes extraordinary efforts to hiring, developing, and retaining our talented employees, and we understand firsthand the health, happiness, and well-being of our best-in-class team are key factors to the success of our employees and of the Company.
We have an exceptional track record of identifying highly qualified candidates for promotion from within the Company. Alexandria’s executive and senior management teams, represented by our senior vice presidents and above, consist of 60 individuals, averaging 24 years of real estate experience, including 12 years with Alexandria. Moreover, our executive management team alone averages 18 years of experience with the Company. Alexandria’s executive and senior management teams have unique experience and expertise in creating, owning, and operating highly dynamic and collaborative campuses in key urban life science, agtech, and technology cluster locations. These teams also include regional market directors with leading reputations and longstanding relationships within the life science, agtech, and technology communities in their respective urban innovation clusters. We believe that our expertise, experience, reputation, and key relationships in the real estate, life science, agtech, and technology industries provide Alexandria with significant competitive advantages in attracting new business opportunities.
Building a diverse board of directors and inclusive workforce
Our Corporate Governance Guidelines highlight our Board of Directors’ focus on diversity at the board level, which explicitly states the Board’s commitment to considering qualified women and minority director candidates, as well its policy of requesting an initial list of diverse candidates of any search firm it retains.
We strive to create an open and respectful environment in which our employees can actively contribute, have access to opportunities and resources, and realize their full potential. As an equal opportunity employer, we have an Equal Employment Opportunity Policy and a Diversity, Equal Employment Opportunity, and Fair Labor Policy that emphasizes inclusion through hiring and compensation practices and considers a pool of diverse candidates for open positions and internal advancement opportunities.
Furthermore, as a federal government contractor, Alexandria maintains affirmative action plans, which sets forth the policies, practices, and procedures to which the Company is committed in order to ensure that its policies of nondiscrimination and affirmative action are followed for qualified females, minorities, individuals with disabilities, and protected veterans. To address issues related to pay discrimination, the Company has implemented a ban on any and all inquiries into an applicant’s salary history and we incorporate fair pay reviews into every employment compensation decision. To reinforce our corporate culture of respect, diversity, and inclusion, we provide anti-harassment training annually for all employees.
Providing exceptional benefits to support our employees’ medical and financial health and well-being
We provide a comprehensive benefits package intended to meet and/or exceed the needs of our employees and their families. Our company-sponsored suite of benefits covers 100% of the premiums for our employees and their dependents and includes, but is not limited to, a high-coverage, low-deductible PPO (preferred provider organization) medical plan, a 24/7 telehealth and concierge medical care services program, PPO dental and orthodontia coverage, a generous vision plan, comprehensive prescription drug plan, infertility and family planning benefits, short- and long-term disability benefits, and life and accidental death and dismemberment coverage. These benefits support the health of our employees and their families, their overall well-being, and their future plans and also reward and recognize their operational excellence.
In addition, we have prioritized our employees’ total well-being with additional benefits that focus on their emotional, mental, physical, financial, and social health:
•100% company-paid therapy and life coaching for our employees and their eligible dependents to help them prioritize their mental health and make these resources accessible and available
•Additional company-paid holidays and paid time off to encourage employees to rest and recharge
•24/7 telehealth and medical care, including COVID-19 testing
•Expert-led internal webinar series addressing relevant and engaging subjects to educate and inform our employees, including with the most up-to-date and reliable information on COVID-19 by leveraging our world-class life sciences network
•Wellness reimbursement benefit for fitness and mindfulness applications, online classes, and home exercise equipment that encourages our employees to stay mentally and physically fit
•Enhanced employee social connectedness through Alexandria’s Operation CARE program for corporate giving, fundraising, and volunteerism opportunities, which consists of several programs, including the following:
•Paid volunteer time off up to 16 hours per calendar year to use at eligible non-profit organizations of their choice
•Matching gifts up to $5,000 per person each calendar year to double the impact of their charitable giving
•Volunteer rewards initiated when an employee volunteers more than 25 hours in any quarter at eligible non-profit organizations, for which Alexandria donates a total of $2,500 to the eligible non-profit organizations of their choice, up to $10,000 annually
•Alexandria Lifeline™ - Alexandria’s unparalleled network in the life science community affords us access to deep medical expertise. Alexandria Lifeline makes this expertise available to our employees and their immediate family members who are suffering from a serious illness or injury and would benefit from specialized medical care.
Investing in professional development and training
We understand that to attract and retain the best talent, we must provide opportunities for our people to grow and develop. Therefore, we invest in training and development programs to enhance our employees’ engagement, effectiveness, and well-being.
Training topics include project management, business writing, change management, interviewing, presentations, productivity, effective one-on-ones, goal setting, delegation, communication, and feedback. Our mentoring program enables employees to partner with senior leaders throughout the organization for support and career guidance. To further customize development, we partner with key functional leaders to identify opportunities and design and deploy training programs for specific functional teams. Through a bespoke coaching program, we support new and high-potential leaders in their career progression. We also provide on-demand learning resources, such as LinkedIn Learning, as well as internally developed, ARE-specific on-demand content.
To continuously monitor and improve employee performance and engagement, we use employee engagement surveys, the most recent of which was conducted in 2022 and had an employee response rate of 91.4%.
(1)As of December 31, 2022, unless stated otherwise.
(2)Minorities are defined to include individuals of Asian, Black/African American, Hispanic/Latino, Native American, Pacific Islander, or multiracial background. We determine race and gender based on our employees' self-identification or other information compiled to meet requirements of the U.S. government.
(3)Managers and above include individuals who lead others and/or oversee projects.
(4)Represents a five-year average from 2018 to 2022.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Overview
The following risk factors may adversely affect our overall business, financial condition, results of operations, and cash flows; our ability to make distributions to our stockholders; our access to capital; or the market price of our common stock, as further described in each risk factor below. In addition to the information set forth in this annual report on Form 10-K, one should carefully review and consider the information contained in our other reports and periodic filings that we make with the SEC. Those risk factors could materially affect our overall business, financial condition, results of operations, and cash flows; our ability to make distributions to our stockholders; our access to capital; or the market price of our common stock. The risks that we describe in our public filings are not the only risks that we face. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial, also may materially adversely affect our business, financial condition, and results of operations. Additional information regarding forward-looking statements is included in the beginning of Part I in this annual report on Form 10-K.
Risk factors summary
An investment in our securities involves various risks. Such risks, including those set forth in the summary of material risks in this Item 1A, should be carefully considered before purchasing our securities.
Risks related to operating factors
•We may be unable to identify and complete acquisitions, investments, or development or redevelopment projects or to successfully and profitably operate properties.
•We could default on our ground leases or be unable to renew or re-lease our land or space on favorable terms or at all. Our tenants may also be unable to pay us rent.
•The cost of maintaining and improving the quality of our properties may be higher than anticipated, and we may be unable to pass any increased operating costs through to our tenants, which can result in reduced cash flows and profitability.
•We could be held liable for environmental damages resulting from our tenants’ use of hazardous materials, or from harmful mold, poor air quality, or other defects from our properties, or we could face increased costs in complying with other environmental laws.
•The loss of services of any of our senior officers or key employees and increased competition for skilled personnel could adversely affect us and/or increase our labor costs.
•We rely on a limited number of vendors to provide utilities and other services at our properties, and disruption in such services may have an adverse effect on our operations and financial condition.
•Our insurance policies may not adequately cover all of our potential losses, or we may incur costs due to the financial condition of our insurance carriers.
•We may change business policies without stockholder approval.
•Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business.
•If we failed to qualify as a REIT, we would be taxed at corporate rates and would not be able to take certain deductions when computing our taxable income.
•We may not be able to raise sufficient capital to fund our operations due to adverse changes in our credit ratings, our inability to refinance our existing debt or issue new debt, or our inability to sell existing properties timely.
•We may invest or spend the net proceeds from our equity or debt offerings in ways with which our investors may not agree and in ways that may not earn a profit.
•Our debt service obligations may restrict our ability to engage in some business activities or cause other adverse effects on our business.
•We face risks and liabilities associated with our investments (including those in connection with short-term liquid investments) and the companies in which we invest (including properties owned through partnerships, limited liability companies, and joint ventures, as well as through our non-real estate venture investment portfolio), which expose us to risks similar to those of our tenant base and additional risks inherent in venture capital investing. We may be limited in our ability to diversify our investments.
Risks related to market and industry factors
•There are limits on ownership of our stock under which a stockholder may lose beneficial ownership of its shares, as well as certain provisions of our charter and bylaws that may delay or prevent transactions that otherwise may be desirable to our stockholders.
•Possible future sales of shares of our common stock could adversely affect its market price.
•We are dependent on the health of the life science, agtech, and technology industries, and changes within these industries, increased competition, or the inability of our tenants and non-real estate equity investments within these industries to obtain funding for research, development, and other operations may adversely impact their ability to make rental payments to us or adversely impact their value.
•Market disruption and volatility, poor economic conditions in the capital markets and global economy, including in connection with a widespread pandemic or outbreak of disease (such as COVID-19), and tight labor markets could adversely affect the value of the companies in which we hold equity investments or the ability of tenants and the companies in which we invest to continue operations, raise additional capital, or access capital from venture capital investors or financial institutions on favorable terms or at all.
Risks related to government and global factors
•Actions, policy, or key leadership changes in government agencies, or changes to laws or regulations, including those related to tax, accounting, debt, derivatives, government spending, or funding (including those related to the FDA, the National Institutes of Health (the “NIH”), the SEC, and other agencies), and drug and healthcare pricing, costs, and programs could have a significant negative impact on the overall economy, our tenants and companies in which we invest, and our business.
•Partial or complete government shutdown resulting in temporary closures of agencies could adversely affect our tenants (some of which are also government agencies) and the companies in which we invest, including delays in the commercialization of such companies’ products, decreased funding of research and development, or delays surrounding approval of budget proposals.
•The replacement of LIBOR with SOFR (or another alternative reference rate) and uncertainty related to the volatility of SOFR may adversely affect interest expense related to outstanding variable-rate debt.
•The outbreak of COVID-19, or the future outbreak of any other highly infectious or contagious diseases, could adversely impact or cause disruption to our financial condition and results of operations, and/or to the financial condition and results of operations of our tenants and non-real estate investments.
Risks related to general and other factors
•Social, political, and economic instability, unrest, significant changes, and other circumstances beyond our control, including circumstances related to changes in the U.S. political landscape, could adversely affect our business operations.
•Seasonal weather conditions, climate change and severe weather, changes in the availability of transportation or labor, and other related factors may affect our ability to conduct business, the products and services of our tenants, or the availability of such products and services of our tenants and the companies in which we invest.
•We may be unable to meet our sustainability goals.
•System failures or security incidents through cyber attacks, intrusions, or other methods could disrupt our information technology networks, enterprise applications, and related systems, cause a loss of assets or data, give rise to remediation or other expenses, expose us to liability under federal and state laws, and subject us to litigation and investigations, which could result in substantial reputational damage and adversely affect our business and financial condition.
•The enactment of legislation, including the Inflation Reduction Act of 2022, may adversely impact our financial condition and results of operations.
•We are subject to risks from potential fluctuations in exchange rates between the U.S. dollar and certain foreign currencies and downgrades of domestic and foreign government sovereign credit ratings.
We attempt to mitigate the foregoing risks. However, if we are unable to effectively manage the impact of these and other risks, our ability to meet our investment objectives may be substantially impaired and any of the foregoing risks could materially adversely affect our financial condition, results of operations, and cash flows, our ability to make distributions to our stockholders, or the market price of our common stock.
Operating factors
We may be unable to identify and complete acquisitions and successfully operate acquired properties.
We continually evaluate the market of available properties and may acquire properties when opportunities exist. Our ability to acquire properties on favorable terms and successfully operate them may be exposed to significant risks, including, but not limited to, the following:
•We may be unable to acquire a desired property because of competition from other real estate investors with significant capital, including both publicly traded REITs and institutional funds.
•Even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the purchase price or result in other less favorable terms.
•Even if we enter into agreements for the acquisition of properties, these agreements are subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction.
•We may be unable to complete an acquisition because we cannot obtain debt and/or equity financing on favorable terms or at all.
•We may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties.
•We may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of operating properties or portfolios of properties, into our existing operations.
•Acquired properties may be subject to tax reassessment, which may result in higher-than-expected property tax payments.
•Market conditions may result in higher-than-expected vacancy rates and lower-than-expected rental rates.
•We may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities, such as liabilities for the remediation of undisclosed environmental contamination; claims by tenants, vendors, or other persons dealing with the former owners of the properties; and claims for indemnification by general partners, directors, officers, and others indemnified by the former owners of the properties.
The realization of any of the above risks could significantly and adversely affect our ability to meet our financial expectations, our financial condition, results of operations, and cash flows, our ability to make distributions to our stockholders, the market price of our common stock, and our ability to satisfy our debt service obligations.
We may suffer economic harm as a result of making unsuccessful acquisitions in new markets.
We may pursue selective acquisitions of properties in markets where we have not previously owned properties. These acquisitions may entail risks in addition to those we face in other acquisitions where we are familiar with the markets, such as the risk of not correctly anticipating conditions or trends in a new market and therefore not being able to generate profit from the acquired property. If this occurs, it could adversely affect our financial condition, results of operations, and cash flows, our ability to make distributions to our stockholders, our ability to satisfy our debt service obligations, and the market price of our common stock.
The acquisition or development of new properties may give rise to difficulties in predicting revenue potential.
We may continue to acquire additional properties and/or land and may seek to develop our existing land holdings strategically as warranted by market conditions. These acquisitions and developments could fail to perform in accordance with expectations. If we fail to accurately estimate occupancy levels, rental rates, lease commencement dates, operating costs, or costs of improvements to bring an acquired property or a development property up to the standards established for our intended market position, the performance of the property may be below expectations. Acquired properties may have characteristics or deficiencies affecting their valuation or revenue potential that we have not yet discovered. We cannot assure our stockholders that the performance of properties acquired or developed by us will increase or be maintained under our management.
We may fail to achieve the financial results expected from development or redevelopment projects.
There are significant risks associated with development and redevelopment projects, including, but not limited to, the following possibilities:
•We may not complete development or redevelopment projects on schedule or within budgeted amounts.
•We may be unable to lease development or redevelopment projects on schedule or within projected amounts.
•We may encounter project delays or cancellations due to unavailability of necessary labor and construction materials.
•We may expend funds on, and devote management’s time to, development and redevelopment projects that we may not complete.
•We may abandon development or redevelopment projects after we begin to explore them, and as a result, we may lose deposits or fail to recover costs already incurred.
•Market and economic conditions may deteriorate, which can result in lower-than-expected rental rates.
•We may face higher operating costs than we anticipated for development or redevelopment projects, including insurance premiums, utilities, security, real estate taxes, and costs of complying with changes in government regulations or increases in tariffs.
•We may face higher requirements for capital improvements than we anticipated for development or redevelopment projects, particularly in older structures.
•We may be unable to proceed with development or redevelopment projects because we cannot obtain debt and/or equity financing on favorable terms or at all.
•We may fail to retain tenants that have pre-leased our development or redevelopment projects if we do not complete the construction of these properties in a timely manner or to the tenants’ specifications.
•Tenants that have pre-leased our development or redevelopment projects may file for bankruptcy or become insolvent, or otherwise elect to terminate their lease prior to delivery, which may adversely affect the income produced by, and the value of, our properties or require us to change the scope of the project, which may potentially result in higher construction costs, significant project delays, or lower financial returns.
•We may encounter delays, refusals, unforeseen cost increases, and other impairments resulting from third-party litigation, natural disasters, or severe weather conditions.
•We may encounter delays or refusals in obtaining all necessary zoning, land use, building, occupancy, and other required government permits and authorizations.
•Development or redevelopment projects may have defects we do not discover through our inspection processes, including latent defects that may not reveal themselves until many years after we put a property in service.
The realization of any of the above risks could significantly and adversely affect our ability to meet our financial expectations, our financial condition, results of operations, and cash flows, our ability to make distributions to our stockholders, the market price of our common stock, and our ability to satisfy our debt service obligations.
We may face increased risks and costs associated with volatility in commodity and labor prices or as a result of supply chain or procurement disruptions, which may adversely affect the status of and returns on our construction projects.
The price of commodities and skilled labor for our construction projects may increase unpredictably due to external factors, including, but not limited to, performance of third-party suppliers and contractors; overall market supply and demand; inflationary pricing; government regulation; international trade; and changes in general business, economic, or political conditions. As a result, the costs of raw construction materials and skilled labor required for the completion of our development and redevelopment projects may fluctuate significantly from time to time.
We rely on a number of third-party suppliers and contractors to supply raw materials and skilled labor for our construction projects. We believe we have favorable relationships with our suppliers and contractors. We have not encountered significant difficulty collaborating with our suppliers and contractors and obtaining materials and skilled labor, nor experienced significant delays or increases in overall project costs due to disputes, work stoppages, or contractors’ misconduct or failure to perform. While we do not rely on any single supplier or vendor for the majority of our materials and skilled labor, we may experience difficulties obtaining necessary materials from suppliers or vendors whose supply chains might become impacted by economic or political changes, or difficulties obtaining adequate skilled labor from third-party contractors in a tightening labor market. It is uncertain whether we would be able to source the essential commodities, supplies, materials, and skilled labor timely or at all without incurring significant costs or delays, particularly during times of economic uncertainty resulting from events outside of our control. We may be forced to purchase supplies and materials in larger quantities or in advance of when we would typically purchase them. This may cause us to require use of capital sooner than anticipated. Alternatively, we may also be forced to seek new third-party suppliers or contractors, whom we have not worked with in the past, and it is uncertain whether these new suppliers will be able to adequately meet our materials or labor needs. Our dependence on unfamiliar supply chains or relatively small supply partners may adversely affect the cost and timely completion of our construction projects. In addition, we may be unable to compete with entities that may have more favorable relationships with their suppliers and contractors or greater access to the required construction materials and skilled labor.
In addition, new energy-related initiatives entered into in collaboration with partner countries through global climate agreements may impose stricter requirements for building materials, such as lumber, steel, and concrete, which could significantly increase our construction costs if the manufacturers and suppliers of our materials are burdened with expensive cap-and-trade or similar energy-related regulations or requirements, and the costs of which are passed onto customers like us. As a result of the factors discussed above, we may be unable to complete our development or redevelopment projects timely and/or within our budget, which may affect our ability to lease space to potential tenants and adversely affect our business, financial condition, and results of operations.
If we fail to identify and develop relationships with a sufficient number of qualified suppliers and contractors, the quality and status of our construction projects may be adversely affected.
We believe we have favorable relationships with our existing suppliers and contractors, and we generally have not encountered difficulty collaborating with and obtaining materials and skilled labor, nor experienced significant delays or increases in overall project costs due to disputes, work stoppages, or contractors’ misconduct or failure to perform. However, it is possible we may experience these events in the future, or our existing suppliers and contractors may encounter supply chain disruptions from time to time that hinder their ability to supply necessary materials and labor to us. As a result, we may be forced to seek new resources for our construction needs. We may become reliant on unfamiliar supply chains or relatively small supply partners, which may cause uncertainty in the quality, cost, and timely completion of our construction projects.
Our ability to continue to identify and develop relationships with a sufficient network of qualified suppliers who can adequately meet our construction timing and quality standards can be a significant challenge, particularly if global supply chain disruptions continue to persist into 2023. If we fail to identify and develop relationships with a sufficient number of suppliers and contractors who can appropriately address our construction needs, we may experience disruptions in our suppliers’ logistics or supply chain networks or information technology systems, and other factors beyond our or our suppliers’ control. If we are unable to access materials and labor to complete our construction projects within our expected budgets and meet our tenants’ demands and expectations in a timely and efficient manner, our results of operations, cash flows, and reputation may be adversely impacted.
Our tenants may face increased risks and costs associated with volatility in commodity and labor prices or the prices or availability of specialized materials or equipment, or as a result of supply chain or procurement disruptions of such items, which may adversely affect their businesses or financial condition.
Our tenants are generally subject to the same generalized risks of commodity and labor price increases and supply chain or procurement as we and many other companies are. A number of our tenants, however, are also involved in highly specialized research or manufacturing activities that may require unique or custom chemical or biologic materials or sophisticated specialty equipment that is not widely available and therefore may be particularly susceptible to supply chain disruption. In addition, these tenants may have complex supply chains due to their specialized activities that are subject to stringent government regulations, which may further hinder their access to necessary materials and equipment. While we are not aware of such issues materially affecting our tenants to date, it is possible that these issues may affect our tenants in the future, and continued supply chain and procurement disruptions could potentially impact such tenants adversely.
We could default on leases for land on which some of our properties are located or held for future development.
If we default under the terms of a ground lease obligation, we may lose the ownership rights to the property subject to the lease. Upon expiration of a ground lease and all of its options, we may not be able to renegotiate a new lease on favorable terms, if at all. The loss of the ownership rights to these properties or an increase in rental expense could have a material adverse effect on our financial condition, results of operations, and cash flows, and our ability to satisfy our debt service obligations and make distributions to our stockholders, as well as the market price of our common stock. Refer to “Ground lease obligations” under “Item 7. Management’s discussion and analysis of financial condition and results of operations” in this annual report on Form 10-K for additional information on our ground lease obligations.
We may not be able to operate properties successfully and profitably.
Our success depends in large part upon our ability to operate our properties successfully. If we are unable to do so, our business could be adversely affected. The ownership and operation of real estate is subject to many risks that may adversely affect our business and our ability to make payments to our stockholders, including, but not limited to, the following risks:
•Our properties may not perform as we expect.
•We may have to lease space at rates below our expectations.
•We may not be able to obtain financing on acceptable terms.
•We may not be able to acquire or sell properties when desired or needed, due to the illiquid nature of real estate assets.
•We may underestimate the cost of improvements required to maintain or improve space to meet standards established for the market position intended for that property.
•We may not be able to complete improvements required to maintain or improve space, due to unanticipated delays, significant cost increases by our vendors, or cancellation of construction resulting from shortages in the supply of necessary construction materials.
The realization of any of the above risks could significantly and adversely affect our ability to meet our financial expectations, our financial condition, results of operations, and cash flows, our ability to make distributions to our stockholders, the market price of our common stock, and our ability to satisfy our debt service obligations.
We may not be able to attain the expected return on our investments in real estate joint ventures.
We have consolidated and unconsolidated real estate joint ventures in which we share ownership and decision-making power with one or more parties. Our joint venture partners must agree in order for the applicable joint venture to take specific major actions, including budget approvals, acquisitions, sales of assets, debt financing, execution of lease agreements, and vendor approvals. Under these joint venture arrangements, any disagreements between our partners and us may result in delayed decisions. Our inability to take unilateral actions that we believe are in our best interests may result in missed opportunities and an ineffective allocation of resources and could have an adverse effect on the financial performance of the joint venture and our operating results.
We may experience increased operating costs, which may reduce profitability to the extent that we are unable to pass those costs through to our tenants.
Our properties are subject to increases in operating expenses, including insurance, property taxes, utilities, administrative costs, and other costs associated with security, landscaping, and repairs and maintenance of our properties. As of December 31, 2022, approximately 93% of our leases (on an annual rental revenue basis) were triple net leases, which require tenants to pay substantially all real estate and other rent-related taxes, insurance, utilities, security, common area expenses, and other operating expenses (including increases thereto) in addition to base rent.
Our operating expenses may increase as a result of tax reassessments that our properties are subject to on a regular basis (annually, triennially, etc.), which normally result in increases in property taxes over time as property values increase. In California, however, pursuant to the existing state law commonly referred to as Proposition 13, properties are generally reassessed to market value at the time of change in ownership or completion of construction; thereafter, annual property reassessments are limited to 2% of previously assessed values. As a result, Proposition 13 generally results in significant below-market assessed values over time. From time to time, lawmakers and political coalitions initiate efforts to repeal or amend Proposition 13 to eliminate its application to commercial and industrial properties.
Our triple net leases allow us to pass through, among other costs, substantially all real estate and rent-related taxes to our tenants in the form of tenant recoveries. Consequently, as a result of our triple net leases, we do not expect potential increases on property taxes as a result of tax reassessments to significantly impact our operating results. We cannot be certain, however, that we will be able to continue to negotiate pass-through provisions related to taxes in tenant leases in the future, or that higher pass-through expenses will not lead to lower base rents in the long run as a result of tenants’ not being able to absorb higher overall occupancy costs. Thus, the repeal of or amendment to Proposition 13 could lead to a decrease in our income from rentals over time. If our operating expenses increase without a corresponding increase in revenues, our profitability could diminish. In addition, we cannot be certain that increased costs will not lead our current or prospective tenants to seek space outside of the state of California, which could significantly hinder our ability to increase our rents or to maintain existing occupancy levels. The repeal of or amendment to Proposition 13 in California may significantly increase occupancy costs for some of our tenants and may adversely impact their financial condition, ability to make rental payments, and ability to renew lease agreements, which in turn could adversely affect our financial condition, results of operations, and cash flows and our ability to make distributions to our stockholders.
In addition, we expect to incur higher costs as a result of doing business in California and certain other states. Compliance with various laws passed in California and other states in which we conduct business may result in cost increases due to new constraints on our business and the effects of potential non-compliance by us or third-party service providers. Any changes in connection with compliance could be time consuming and expensive, while failure to timely implement required changes could subject us to liability for non-compliance, any of which could adversely affect our business, operating results, and financial condition.
Most of our costs, such as operating and general and administrative expenses, interest expense, and real estate acquisition and construction costs, are subject to inflation.
During the twelve months ended December 2022, the consumer price index rose by approximately 6.5%, compared to the twelve months ended December 2021. The recent increases in the consumer price index began during the COVID-19 pandemic and were attributed to disruption in global supply chains and labor shortages. During the COVID-19 pandemic, the federal government instituted a series of stimulus policies, aggregating approximately $6 trillion, which may have contributed to strong consumer demand and increased consumer spending.
During 2022, China encountered its largest COVID-19 outbreak since the pandemic began in 2020, with approximately two-thirds of the country’s provinces experiencing sustained outbreaks of the virus. In response, several of China’s largest factory cities ordered lockdowns, which, among its other impacts, imposed strains on the global supply chain and halted production of key consumer goods. At the end of 2022, China eased its lockdowns significantly, but it is unknown whether such actions will reduce global supply chain strains or result in a new surge of COVID-19 infections and hospitalizations.
Additional supply chain disruptions have been caused by a shortage of long-haul truck drivers and protests by the same. In addition, federal policies and recent global events may have exacerbated, and may continue to exacerbate, increases in the consumer price index. Those events include the following:
•In recent years, energy policy in the U.S. has lacked a consistent approach. Since 2015, during various administrations, the U.S. has joined, abandoned, and rejoined the Paris climate accord. In addition, the energy policy of the federal government in recent years has, at various times, either limited or increased the production of fossil fuels in the U.S. On March 31, 2022, in response to increases in oil prices, President Biden authorized the release of 1 million barrels per day for the following six months - over 180 million barrels in total - from the Strategic Petroleum Reserve. In addition, the administration encouraged U.S. oil producers to utilize the approximately 9,000 approved but unused permits for production of oil and gas on federal lands.
•Beginning in late 2021, as political tensions between Russia and Ukraine escalated, Russia amassed troops on the Ukrainian border, and in February 2022, Russia invaded Ukraine. In response, global economic sanctions were imposed on Russia by the U.S. and the European Union (“EU”), among others.
•In mid-2022, the U.S. administration requested for members of the Organization of the Petroleum Exporting Countries (“OPEC”), including Saudi Arabia and the United Arab Emirates, to significantly increase crude oil production as a way to calm soaring prices on oil. Conflicts in the Middle East, including a civil war in Yemen where the Saudi government has been heavily involved, also hindered any significant increase in oil production by OPEC beyond a modest increase in the summer months. In October 2022, due to uncertainty in the global economy and oil market outlook, OPEC announced it would decrease oil production by 2 million barrels a day, the largest cut since the COVID-19 pandemic began.
•On December 5, 2022, the agreement of the G-7 countries to ban their companies from insuring, financing or shipping Russian oil sold at or above $60 a barrel came into effect in the U.S., EU, and the United Kingdom (“U.K.”). In response, Russia threatened to cut off oil exports which could lead to an increase in global prices.
These factors appear to have had a significant impact on increases to the consumer price index and large fluctuations in energy costs, as reflected in crude oil prices that increased from $60-$70 per barrel in mid-2021 to more than $120 per barrel in March 2022, shortly after Russia’s invasion of Ukraine, then declined during the second half of 2022 and remained at approximately $70-$80 per barrel at the end of 2022.
Our operating expenses are incurred in connection with, among others, the property-related contracted services such as janitorial and engineering services, utilities, security, repairs and maintenance, and insurance. Property taxes are also impacted by inflationary changes as taxes are regularly reassessed based on changes in the fair value of our properties located outside of California. In California, property taxes are not reassessed based on changes in the fair value of the underlying real estate asset but are instead limited to a maximum 2% annual increase by law.
Our operating expenses, with the exception of ground lease rental expenses, are typically recoverable through our lease arrangements, which allow us to pass through substantially all expenses associated with property taxes, insurance, utilities, security, repairs and maintenance, and other operating expenses (including increases thereto) to our tenants. As of December 31, 2022, approximately 93% of our existing leases (on an annual rental revenue basis) were triple net leases, which allow us to recover operating expenses, and approximately 93% of our existing leases (on an annual rental revenue basis) also provided for the recapture of capital expenditures. Our remaining leases are generally gross leases, which provide for recoveries of operating expenses above the operating expenses from the initial year within each lease.
During inflationary periods, we expect to recover increases in operating expenses from our triple net leases. As a result, we do not believe that inflation would result in a significant adverse effect on our net operating income, results of operations, and operating cash flows at the property level. However, there is no guarantee that our tenants would be able to absorb these expense increases and be able to continue to pay us their portion of operating expenses, capital expenditures, and rent. Also, due to rising costs, they may be unable to continue operating their businesses or conducting research and development activities altogether. Alternatively, our tenants may decide to relocate to areas with lower rent and operating expenses, where we may not currently own properties, and our tenants may cease to lease properties from us. The success of our business depends in large part on our ability to operate our properties effectively. If we are unable to retain our tenants or withstand increases in operating expenses, capital expenditures, and rental costs, we may be unable to meet our financial expectations, which may adversely affect our financial condition, results of operations, cash flows, and our ability to make distributions to our stockholders.
Our general and administrative expenses consist primarily of compensation costs, technology services, and professional service fees. Annually, our employee compensation is adjusted to reflect merit increases; however, to maintain our ability to successfully compete for the best talent, especially in a talent shortage environment, rising inflation rates may require us to provide compensation increases beyond historical annual merit increases, which may unexpectedly or significantly increase our compensation costs. Similarly, technology services and professional service fees are also subject to the impact of inflation and expected to increase proportionately with increasing market prices for such services. Consequently, inflation may increase our general and administrative expenses over time and may adversely impact our results of operations and operating cash flows.
Also, during inflationary periods, interest rates have historically increased. In March 2022, in an attempt to curb the inflation rate, the Board of Governors of the Federal Reserve System (the “U.S. Federal Reserve”) raised its benchmark federal funds rate by 0.25% to a range between 0.25% and 0.50%, the first increase since December 2018. In addition, through a series of rapid federal funds rate increases in May 2022, June 2022, July 2022, September 2022, November 2022, and December 2022, the U.S. Federal Reserve increased the federal funds rate to a range between 4.25% and 4.50%.
In addition, on April 5, 2022, the U.S. Federal Reserve confirmed its plan to reduce its balance sheet at a rapid pace beginning in May 2022, effectively concluding the nearly 15-year-long quantitative easing era (in which the U.S. Federal Reserve effectively increased liquidity to consumers and businesses) and launching a reverse process known as quantitative tightening. Our exposure to increases in interest rates in the short term is limited to our variable-rate borrowings, which consist of borrowings under our unsecured senior line of credit and commercial paper program and SOFR-based secured notes payable. Amounts issued under our commercial paper program typically mature in less than 30 days and no later than 397 days from the date of issuance and require repayment or refinancing upon maturity. The effect of inflation on interest rates could increase our financing costs over time, either through near-term borrowings on our variable-rate unsecured senior line of credit and commercial paper program, refinancing of our existing borrowings, or the issuance of new debt.
Historically, during periods of increasing interest rates, real estate valuations have generally decreased as a result of rising capitalization rates which tend to move directionally with interest rates. Consequently, prolonged periods of higher interest rates may negatively impact the valuation of our real estate asset portfolio and result in the decline of our stock price and market capitalization and lower sales proceeds from future real estate dispositions, which in turn could adversely affect our financial condition and our ability to make distributions to our stockholders.
As of December 31, 2022, approximately 96% of our leases (on an annual rental revenue basis) contained effective annual rent escalations approximating 3% that were either fixed or indexed based on a consumer price index or other index. We have long-term lease agreements with our tenants, of which 3%-11% (based on occupied RSF) expire each year primarily over the next ten years. We believe that these annual lease expirations allow us to reset these leases to market rents upon renewal or re-leasing and that annual rent escalations within our long-term leases are generally sufficient to offset the effect of inflation on non-recoverable costs, such as general and administrative and interest expenses. However, the impact of the current rate of inflation of 6.5% may not be adequately offset by some of our annual rent escalations, and it is possible that the resetting of rents from our renewal and re-leasing activities would not fully offset the impact of the current inflation rate. As a result, during inflationary periods in which the inflation rate exceeds the annual rent escalation percentages within our lease contracts, we may not adequately mitigate the impact of inflation, which may adversely affect our business, financial condition, results of operations, and cash flows.
Additionally, inflationary pricing may have a negative effect on the construction costs necessary to complete our development and redevelopment projects, including, but not limited to, costs of construction materials, labor, and services from third-party contractors and suppliers. We rely on a number of these third-party suppliers and contractors to supply raw materials, skilled labor, and services for our construction projects. During 2021 and 2022, industry prices for certain construction materials, including steel, copper, lumber, plywood, concrete, electrical materials, and HVAC materials, experienced significant increases as a result of low inventories; surging demand; underinvestment in infrastructure; tariffs imposed on imports of foreign steel, including on products from key competitors in the EU and China (tariffs in the U.S. on EU exports of steel and aluminum were lifted, effective January 2022); significant changes in the U.S. steel production landscape stemming from the consolidation of certain steel-producing companies; and increases in global commodity and raw materials prices exacerbated by supply and energy shortages that have emerged since the Russia-Ukraine war in 2022.
As a result, the increase in costs of construction materials, heightened by recent inflationary pressure from events noted above, including the Russia-Ukraine conflict, may result in corresponding increases in our overall construction costs. Certain increases in the costs of construction materials, however, can often be managed in our development and redevelopment projects through either (i) general budget contingencies built into our overall construction costs estimates for each of our projects or (ii) guaranteed maximum price construction contracts, which stipulate a maximum price for certain construction costs and shift inflation risk to our construction general contractors. However, it is not guaranteed that our budget contingencies would accurately account for potential construction cost increases given the current severity of inflation and variety of contributing factors. Nor is it guaranteed that our general contractors would be able to absorb such increases in costs and complete our construction projects timely, within budget, or at all.
We have not encountered significant difficulty collaborating with our third-party suppliers and contractors and obtaining materials and skilled labor, nor experienced significant delays or increases in overall project costs due to the factors discussed above. While we do not rely on any single supplier or vendor for the majority of our materials and skilled labor, we may experience difficulties obtaining necessary materials from suppliers or vendors whose supply chains might become impacted by economic or political changes, outmoded technology, aging infrastructure, shortages of shipping containers and/or means of transportation, or difficulties obtaining adequate skilled labor from third-party contractors in a tight labor market. It is uncertain whether we would be able to source the essential commodities, supplies, materials, and skilled labor timely or at all without incurring significant costs or delays, particularly during times of economic uncertainty resulting from events outside of our control, including, but not limited to, effects of the COVID-19 pandemic, federal policies, and the ongoing Russia-Ukraine war.
Higher construction costs could adversely impact our net investments in real estate and expected yields on our development and redevelopment projects, which may make otherwise lucrative investment opportunities less profitable to us. Our reliance on a number of third-party suppliers and contractors may also make such investment opportunities unattainable if we are unable to sufficiently fund our projects due to significant cost increases or are unable to obtain the resources and materials to do so reasonably due to disrupted supply chains. As a result, our financial condition, results of operations, and cash flows, as well as our ability to pay dividends, could be adversely affected over time.
The cost of maintaining the quality of our properties may be higher than anticipated, which can result in reduced cash flows and profitability.
If our properties are not as attractive to current and prospective tenants in terms of rent, services, condition, or location as properties owned by our competitors, we could lose tenants or suffer lower rental rates. As a result, we may, from time to time, be required to make significant capital expenditures to maintain the competitiveness of our properties. However, there can be no assurances that any such expenditures would result in higher occupancy or higher rental rates or deter existing tenants from relocating to properties owned by our competitors.
Our inability to renew leases or re-lease space on favorable terms as leases expire may significantly affect our business.
Our revenues are derived primarily from rental payments and reimbursement of operating expenses under our leases. If our tenants experience a downturn in their business or other types of financial distress, they may be unable to make timely payments under their leases. In addition, because of the impact to the business environment due to civil unrest, high cost of living, taxes, and other increased region-specific costs of doing business in certain of our markets and submarkets, such as those located in the states of California and Washington, tenants may choose not to renew or re-lease space. Also, if our tenants terminate early or decide not to renew their leases, we may not be able to re-lease the space. Even if tenants decide to renew or lease space, the terms of renewals or new leases, including the cost of any tenant improvements, concessions, and lease commissions, may be less favorable to us than current lease terms. Consequently, we could generate less cash flows from the affected properties than expected, which could negatively impact our business. We may have to divert cash flows generated by other properties to meet our debt service payments, if any, or to pay other expenses related to owning the affected properties.
The inability of a tenant to pay us rent could adversely affect our business.
Our revenues are derived primarily from rental payments and reimbursement of operating expenses under our leases. If our tenants, especially significant tenants, fail to make rental payments under their leases, our financial condition, cash flows, and ability to make distributions to our stockholders could be adversely affected. Additionally, the inability of the U.S. Congress to enact a budget for a fiscal year or the occurrence of partial or complete U.S. government shutdowns may result in financial difficulties for tenants that are dependent on federal funding, which could adversely affect the ability of those tenants to pay us rent.
The bankruptcy or insolvency of a major tenant may also adversely affect the income produced by a property. If any of our tenants becomes a debtor in a case under the U.S. Bankruptcy Code, as amended, we cannot evict that tenant solely because of its bankruptcy. The bankruptcy court may authorize the tenant to reject and terminate its lease with us. Our claim against such a tenant for uncollectible future rent would be subject to a statutory limitation that might be substantially less than the remaining rent actually owed to us under the tenant’s lease. Any shortfall in rent payments could adversely affect our cash flows and our ability to make distributions to our stockholders.
We could be held liable for damages resulting from our tenants’ use of hazardous materials.
Many of our tenants engage in research and development activities that involve controlled use of hazardous materials, chemicals, and biologic and radioactive compounds. In the event of contamination or injury from the use of these hazardous materials, we could be held liable for damages that result. This liability could exceed our resources and any recovery available through any applicable insurance coverage, which could adversely affect our ability to make distributions to our stockholders.
Together with our tenants, we must comply with federal, state, and local laws and regulations governing the use, manufacture, storage, handling, and disposal of hazardous materials and waste products. Failure to comply with these laws and regulations, or changes thereto, could adversely affect our business or our tenants’ businesses and their ability to make rental payments to us.
Our properties may have defects that are unknown to us.
Although we thoroughly review the physical condition of our properties before they are acquired, and as they are developed or redeveloped, any of our properties may have characteristics or deficiencies unknown to us that could adversely affect the property’s value or revenue potential.
Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs to remedy the problem.
When excessive moisture accumulates in buildings or on building materials, mold may grow, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses, and bacteria. Indoor exposure to airborne toxins or irritants above certain levels may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants, and others if property damage or health concerns arise.
We may not be able to obtain additional capital to further our business objectives.
Our ability to acquire, develop, or redevelop properties depends upon our ability to obtain capital. The real estate industry has historically experienced periods of volatile debt and equity capital markets and/or periods of extreme illiquidity. A prolonged period in which we cannot effectively access the public debt or equity markets may result in heavier reliance on alternative financing sources to undertake new investments. An inability to obtain debt or equity capital on acceptable terms could delay or prevent us from acquiring, financing, and completing desirable investments and could otherwise adversely affect our business. Also, the issuance of additional shares of capital stock or interests in subsidiaries to fund future operations could dilute the ownership of our then-existing stockholders. Even as liquidity returns to the market, debt and equity capital may be more expensive than in prior years.
We may not be able to sell our properties quickly to raise capital.
Investments in real estate are relatively illiquid compared to other investments. Accordingly, we may not be able to sell our properties when we desire or at prices acceptable to us in response to changes in economic or other conditions. In addition, certain of our properties have low tax bases relative to their estimated current market values. As such, the sale of these assets would generate significant taxable gains unless we sold such properties in a tax-deferred exchange under Section 1031 (“Section 1031 Exchange”) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), or in a similar tax-free or tax-deferred transaction or applied an offsetting tax deduction. For a sale to qualify for tax-deferred treatment under Section 1031, net proceeds from the sale of a property must be held by a third-party escrow agent until applied toward the purchase of a qualifying real estate asset. It is possible we may encounter delays in reinvesting such proceeds, or we may be unable to reinvest such proceeds at all, due to an inability to procure qualifying real estate. Any delay or limitation in using the reinvestment proceeds to acquire additional real estate assets may cause the reinvestment proceeds to become taxable to us. Furthermore, if current laws applicable to such tax-deferred transactions are later amended or repealed, we may no longer be able to sell properties on a tax-deferred basis, which may adversely affect our results of operations and cash flows.
In addition, the Internal Revenue Code limits our ability to sell properties held for less than two years. These limitations on our ability to sell our properties may adversely affect our cash flows, our ability to repay debt, and our ability to make distributions to our stockholders.
Adverse changes in our credit ratings could negatively affect our financing ability.
Our credit ratings may affect the amount of capital we can access, as well as the terms and pricing of any debt we may incur. There can be no assurance that we will be able to maintain and/or improve our current credit ratings. In the event that our current credit ratings are downgraded or removed, we would most likely incur higher borrowing costs and experience greater difficulty in obtaining additional financing, which in turn would have a material adverse impact on our financial condition, results of operations, cash flows, and liquidity.
We may not be able to refinance our debt, and/or our debt may not be assumable.
Due to the high volume of real estate debt financing in recent years, the real estate industry may require more funds to refinance debt maturities than are available from lenders. This potential shortage of available funds from lenders and stricter credit underwriting guidelines may limit our ability to refinance our debt as it matures or may adversely affect our financial condition, results of operations, and cash flows, our ability to make distributions to our stockholders, and the market price of our common stock.
We may not be able to borrow additional amounts through the issuance of unsecured bonds or under our unsecured senior line of credit or commercial paper program.
There is no assurance that we will be able to continue to access the unsecured bond market on favorable terms. Our ability to borrow additional amounts through the issuance of unsecured bonds may be negatively impacted by periods of illiquidity in the bond market.
Aggregate borrowings under our unsecured senior line of credit require compliance with certain financial and non-financial covenants. Borrowings under our unsecured senior line of credit are funded by a group of banks. Our ability to borrow additional amounts under our unsecured senior line of credit and commercial paper program may be negatively impacted by a decrease in cash flows from our properties, a default or cross-default under our unsecured senior line of credit and commercial paper program, non-compliance with one or more loan covenants associated with our unsecured senior line of credit, and non-performance or failure of one or more lenders under our unsecured senior line of credit. In addition, we may not be able to refinance or repay outstanding borrowings on our unsecured senior line of credit or commercial paper program.
Our inability to borrow additional amounts on an unsecured basis could delay us in or prevent us from acquiring, financing, and completing desirable investments, which could adversely affect our business; and our inability to refinance or repay amounts under our unsecured senior line of credit or commercial paper program may adversely affect our cash flows, ability to make distributions to our stockholders, financial condition, and results of operations.
Our unsecured senior line of credit restricts our ability to engage in some business activities.
Our unsecured senior line of credit contains customary negative covenants and other financial and operating covenants that, among other things:
•Restrict our ability to incur additional indebtedness;
•Restrict our ability to make certain investments;
•Restrict our ability to merge with another company;
•Restrict our ability to make distributions to our stockholders;
•Require us to maintain financial coverage ratios; and
•Require us to maintain a pool of qualified unencumbered assets.
Complying with these restrictions may prevent us from engaging in certain profitable activities and/or constrain our ability to effectively allocate capital. Failure to comply with these restrictions may result in our defaulting on these and other loans, which would likely have a negative impact on our operations, financial condition, and ability to make distributions to our stockholders.
Our debt service obligations may have adverse consequences on our business operations.
We use debt to finance our operations, including the acquisition, development, and redevelopment of properties. Our use of debt may have adverse consequences, including, but not limited to, the following:
•Our cash flows from operations may not be sufficient to meet required payments of principal and interest.
•We may be forced to dispose of one or more of our properties, possibly on disadvantageous terms, to make payments on our debt.
•If we default on our secured debt obligations, the lenders or mortgagees may foreclose on our properties that secure those loans.
•A foreclosure on one of our properties could create taxable income without any accompanying cash proceeds to pay the tax.
•A default under a loan that has cross-default provisions may cause us to automatically default on another loan.
•We may not be able to refinance or extend our existing debt.
•The terms of any refinancing or extension may not be as favorable as the terms of our existing debt.
•We may be subject to a significant increase in the variable interest rates on our unsecured senior line of credit, secured construction loan, or commercial paper program, which could adversely impact our cash flows and operations.
•The terms of our debt obligations may require a reduction in our distributions to stockholders.
If our revenues are less than our expenses, we may have to borrow additional funds, and we may not be able to make distributions to our stockholders.
If our properties do not generate revenues sufficient to cover our operating expenses, including our debt service obligations and capital expenditures, we may have to borrow additional amounts to cover fixed costs and cash flow needs. This could adversely affect our ability to make distributions to our stockholders. Factors that could adversely affect the revenues we generate from, and the values of, our properties include, but are not limited to:
•National, local, and worldwide economic and political conditions;
•Competition from other properties;
•Changes in the life science, agtech, and technology industries;
•Real estate conditions in our target markets;
•Our ability to collect rent payments;
•The availability of financing;
•Changes to the financial and banking industries;
•Changes in interest rate levels;
•Vacancies at our properties and our ability to re-lease space;
•Changes in tax or other regulatory laws;
•The costs of compliance with government regulation;
•The lack of liquidity of real estate investments;
•Increases in operating costs; and
•Increases in costs to address environmental impacts related to climate change or natural disasters.
In addition, if a lease at a property is not a triple net lease, we will have greater exposure to increases in expenses associated with operating that property. Certain significant expenditures, such as mortgage payments, real estate taxes, insurance, and maintenance costs, are generally fixed and do not decrease when revenues at the related property decrease.
If we fail to effectively manage our debt obligations, we could become highly leveraged, and our debt service obligations could increase to unsustainable levels.
Our organizational documents do not limit the amount of debt that we may incur. Therefore, if we fail to prudently manage our capital structure, we could become highly leveraged. This would result in an increase in our debt service obligations that could adversely affect our cash flows and our ability to make distributions to our stockholders. Higher leverage could also increase the risk of default on our debt obligations or may result in downgrades to our credit ratings.
Failure to meet market expectations for our financial performance would likely adversely affect the market price and volatility of our stock.
Our actual financial results may differ materially from expectations. This may be a result of various factors, including, but not limited to:
•The status of the economy;
•The status of capital markets, including availability and cost of capital;
•Changes in financing terms available to us;
•Negative developments in the operating results or financial condition of tenants, including, but not limited to, their ability to pay rent;
•Our ability to re-lease space at similar rates as leases expire;
•Our ability to reinvest sale proceeds in a timely manner at rates similar to the rate at which assets are sold;
•Our ability to successfully complete developments or redevelopments of properties for lease on time and/or within budget;
•Our ability to procure third-party suppliers or providers of necessary construction materials for our developments and redevelopments of properties;
•Regulatory approval and market acceptance of the products and technologies of tenants;
•Liability or contract claims by or against tenants;
•Unanticipated difficulties and/or expenditures relating to future acquisitions;
•Environmental laws affecting our properties;
•Changes in rules or practices governing our financial reporting; and
•Other legal and operational matters, including REIT qualification and key management personnel recruitment and retention.
Failure to meet market expectations, particularly with respect to earnings estimates, funds from operations per share, operating cash flows, and revenues, would likely result in a decline and/or increased volatility in the market price of our common stock or other outstanding securities.
The price per share of our stock may fluctuate significantly.
The market price per share of our common stock may fluctuate significantly in response to a variety of factors, many of which are beyond our control, including, but not limited to:
•The availability and cost of debt and/or equity capital;
•The condition of our balance sheet;
•Actual or anticipated capital requirements;
•The condition of the financial and banking industries;
•Actual or anticipated variations in our quarterly operating results or dividends;
•The amount and timing of debt maturities and other contractual obligations;
•Changes in our net income, funds from operations, or guidance;
•The publication of research reports and articles about us, our tenants, the real estate industry, or the life science, agtech, and technology industries;
•The general reputation of REITs and the attractiveness of their equity securities in comparison to other debt or equity securities (including securities issued by other real estate-based companies);
•General stock and bond market conditions, including changes in interest rates on fixed-income securities, that may lead prospective stockholders to demand a higher annual yield from future dividends;
•Changes in our analyst ratings;
•Changes in our corporate credit ratings or credit ratings of our debt or other securities;
•Changes in market valuations of similar companies;
•Adverse market reaction to any additional debt we incur or equity we raise in the future;
•Additions, departures, or other announcements regarding our key management personnel;
•Actions by institutional stockholders;
•Speculation in the press or investment community;
•Terrorist activity adversely affecting the markets in which our securities trade, possibly increasing market volatility and causing the further erosion of business and consumer confidence and spending;
•Government regulatory action and changes in tax laws;
•Fiscal policies or inaction at the U.S. federal government level that may lead to federal government shutdowns or negative impacts on the U.S. economy;
•Fluctuations due to general market volatility;
•Global market factors adversely affecting the U.S. economic and political environment;
•The realization of any of the other risk factors included in this annual report on Form 10-K; and
•General market and economic conditions.
These factors may cause the market price of shares of our common stock to decline, regardless of our financial condition, results of operations, business, or prospects.
Possible future sales of shares of our common stock could adversely affect its market price.
We cannot predict the effect, if any, of future sales of shares of our common stock or the market price of our common stock. Sales of substantial amounts of capital stock, or the perception that such sales may occur, could adversely affect prevailing market prices for our common stock. Refer to “Other sources” under “Item 7. Management’s discussion and analysis of financial condition and results of operations” in this annual report on Form 10-K.
We have reserved a number of shares of common stock for issuance to our directors, officers, and employees pursuant to our Amended and Restated 1997 Stock Award and Incentive Plan (sometimes referred to herein as our “equity incentive plan”). We have filed a registration statement with respect to the issuance of shares of our common stock pursuant to grants under our equity incentive plan. In addition, any shares issued under our equity incentive plan will be available for sale in the public market from time to time without restriction by persons who are not our “affiliates” (as defined in Rule 144 adopted under the Securities Act of 1933, as amended). Affiliates will be able to sell shares of our common stock subject to restrictions under Rule 144.
Our distributions to stockholders may decline at any time.
We may not continue our current level of distributions to our stockholders. Our Board of Directors will determine future distributions based on a number of factors, including, but not limited to:
•The amount of net cash provided by operating activities available for distribution;
•Our financial condition and capital requirements;
•Any decision to reinvest funds rather than to distribute such funds;
•Our capital expenditures;
•The annual distribution requirements under the REIT provisions of the Internal Revenue Code;
•Restrictions under Maryland law; and
•Other factors our Board of Directors deems relevant.
A reduction in distributions to stockholders may negatively impact our stock price.
Distributions on our common stock may be made in the form of cash, stock, or a combination of both.
As a REIT, we are required to distribute at least 90% of our taxable income to our stockholders. Typically, we generate cash for distributions through our operations, the disposition of assets, including partial interest sales, or the incurrence of additional debt. Our Board of Directors may determine in the future to pay dividends on our common stock in cash, in shares of our common stock, or in a combination of cash and shares of our common stock. For example, we may declare dividends payable in cash or stock at the election of each stockholder, subject to a limit on the aggregate cash that could be paid. Any such dividends would be distributed in a manner intended to count in full toward the satisfaction of our annual distribution requirements and to qualify for the dividends paid deduction. While the IRS privately has ruled that such a dividend would so qualify if certain requirements are met, no assurances can be provided that the IRS would not assert a contrary position in the future. Moreover, a reduction in the cash yield on our common stock may negatively impact our stock price.
We have certain ownership interests outside the U.S. that may subject us to risks different from or greater than those associated with our domestic operations.
We have eight operating properties in Canada and one operating property in China. Acquisition, development, redevelopment, ownership, and operating activities outside the U.S. involve risks that are different from those we face with respect to our domestic properties and operations. These risks include, but are not limited to:
•Adverse effects of changes in exchange rates for foreign currencies;
•Challenges and/or taxation with respect to the repatriation of foreign earnings or repatriation of proceeds from the sale of one or more of our foreign investments;
•Changes in foreign political, regulatory, and economic conditions, including nationally, regionally, and locally;
•Challenges in managing international operations;
•Challenges in hiring or retaining key management personnel;
•Challenges of complying with a wide variety of foreign laws and regulations, including those relating to real estate, corporate governance, operations, taxes, employment, and legal proceedings;
•Differences in lending practices;
•Differences in languages, cultures, and time zones;
•Changes in applicable laws and regulations in the U.S. that affect foreign operations;
•Challenges in managing foreign relations and trade disputes that adversely affect U.S. and foreign operations;
•Future partial or complete U.S. federal government shutdowns, trade disagreements with other countries, or uncertainties that could affect business transactions within the U.S. and with foreign entities;
•Changes in tax and local regulations with potentially adverse tax consequences and penalties; and
•Foreign ownership and transfer restrictions.
In addition, our foreign investments are subject to taxation in foreign jurisdictions based on local tax laws and regulations and on existing international tax treaties. We have invested in foreign markets under the assumption that our future earnings in each of those countries will be taxed at the current prevailing income tax rates. There are no guarantees that foreign governments will continue to honor existing tax treaties we have relied upon for our foreign investments or that the current income tax rates in those countries will not increase significantly, thus impacting our ability to repatriate our foreign investments and related earnings.
Investments in international markets may also subject us to risks associated with establishing effective controls and procedures to regulate the operations of new offices and to monitor compliance with U.S. laws and regulations, including the Foreign Corrupt Practices Act and similar foreign laws and regulations. The Foreign Corrupt Practices Act and similar applicable anti-corruption laws prohibit individuals and entities from offering, promising, authorizing, or providing payments or anything of value, directly or indirectly, to government officials in order to obtain, retain, or direct business. Failure to comply with these laws could subject us to civil and criminal penalties that could materially adversely affect our results of operations or the value of our international investments. In addition, if we fail to effectively manage our international operations, our overall financial condition, results of operations, and cash flows, and the market price of our common stock could be adversely affected.
Furthermore, we may in the future enter into agreements with foreign entities that are governed by the laws of, and are subject to dispute resolution rules of, another country or region. In some cases, such a country or region might not have a forum that provides us an effective or efficient means for resolving disputes that may arise under these agreements.
We are subject to risks and liabilities in connection with properties owned through partnerships, limited liability companies, and joint ventures.
Our organizational documents do not limit the amount of funds that we may invest in non-wholly owned partnerships, limited liability companies, or joint ventures. Partnership, limited liability company, or joint venture investments involve certain risks, including, but not limited to, the following:
•Upon bankruptcy of non-wholly owned partnerships, limited liability companies, or joint venture entities, we may become liable for the liabilities of the partnership, limited liability company, or joint venture.
•We may share certain approval rights over major decisions with third parties.
•Our partners may file for bankruptcy protection or otherwise fail to fund their share of required capital contributions.
•Our partners, co-members, or joint venture partners might have economic or other business interests or goals that are inconsistent with our business interests or goals and that could affect our ability to lease or re-lease the property, operate the property, or maintain our qualification as a REIT.
•Our ability to sell the interest on advantageous terms when we so desire may be limited or restricted under the terms of our agreements with our partners.
•We may not continue to own or operate the interests or assets underlying such relationships or may need to purchase such interests or assets at an above-market price to continue ownership.
The risks noted above could negatively impact us or require us to:
•Contribute additional capital if our partners fail to fund their share of any required capital contributions;
•Experience substantial unanticipated delays that could hinder either the initiation or completion of redevelopment activities or new construction;
•Incur additional expenses that could prevent the achievement of yields or returns that were initially anticipated;
•Become engaged in a dispute with our joint venture partner that could lead to the sale of either party’s ownership interest or the property at a price below estimated fair market value;
•Initiate litigation or settle disagreements with our partners through litigation or arbitration; and
•Suffer losses or less than optimal returns as a result of actions taken by our partners with respect to our joint venture investments.
We generally seek to maintain control of our partnerships, limited liability companies, and joint venture investments in a manner sufficient to permit us to achieve our business objectives. However, we may not be able to do so, and the occurrence of one or more of the events described above could adversely affect our financial condition, results of operations, and cash flows, our ability to make distributions to our stockholders, and the market price of our common stock.
We could incur significant costs due to the financial condition of our insurance carriers.
We insure our properties with insurance companies we believe have good ratings at the time our policies are put into effect. The financial condition of one or more of the insurance companies we hold policies with may be negatively impacted, which can result in their inability to pay on future insurance claims. Their inability to pay future claims may have a negative impact on our financial results. In addition, the failure of one or more insurance companies may increase the cost of renewing our insurance policies or increase the cost of insuring additional properties and recently developed or redeveloped properties.
Our insurance may not adequately cover all potential losses.
If we experience a loss at any of our properties that is not covered by insurance, that exceeds our insurance policy limits, or that is subject to a policy deductible, we could lose the capital invested in the affected property and, possibly, future revenues from that property. In addition, we could continue to be obligated on any mortgage indebtedness or other obligations related to the affected properties. All properties carry comprehensive liability, fire, extended coverage, and rental loss insurance with respect to our properties, including properties partially owned through joint ventures that are managed by our joint venture partners.
We have obtained earthquake insurance for our properties that are located in the vicinity of active earthquake zones in an amount and with deductibles we believe are commercially reasonable. However, a significant portion of our real estate portfolio is located in seismically active regions, including the San Francisco Bay Area, San Diego, and Seattle, and a damaging earthquake in any of these regions could significantly impact multiple properties. As a result, the amount of our earthquake insurance coverage may be insufficient to cover our losses, and aggregate deductible amounts may be material, which could adversely affect our business, financial condition, results of operations, and cash flows. We also carry environmental insurance and title insurance policies for our properties. We generally obtain title insurance policies when we acquire a property, with each policy covering an amount equal to the initial purchase price of each property. Accordingly, any of our title insurance policies may be in an amount less than the current value of the related property.
For our properties located in the areas prone to wildfires or flooding, we are evaluating the extent to which we have mitigations in place and which operational and physical improvements may be made. For example, resilience measures that may be implemented at some of our properties will include the following:
•In areas prone to fire, we will work toward incorporating brush management practices into landscape design; we will select less flammable vegetation species and position them in a reasonable distance from a property; we will construct building envelopes with fire-resistant materials; and will install HVAC systems that are able to filter smoke particulates in the air in the event of fire.
•In areas prone to flooding, critical building mechanical equipment will be positioned on the roofs or significantly above the projected potential flood elevations; temporary flood barriers will be stored on-site to be deployed at building entrances prior to a flood event; property entrances or the first floor will be elevated above projected present-day and future flood elevations; backflow preventors on storm/sewer utilities that discharge from the building will be installed; and the building envelope will be waterproofed up to the projected flood elevation.
As a part of Alexandria’s risk management program, we maintain all-risk property insurance at the portfolio level to mitigate the risk of extreme weather events and natural disasters (including floods, wildfires, earthquakes, and wind events). However, our insurance may not adequately cover all of our potential losses. As a result, there can be no assurance that climate change and severe weather will not have a material adverse effect on our properties, operations, or business.
Our tenants are also required to maintain comprehensive insurance policies, including liability and casualty insurance that is customarily obtained for similar properties. There are, however, certain types of losses that we and our tenants do not generally insure against because they are uninsurable or because it is not economical to insure against them. The availability of coverage against certain types of losses, such as from terrorism or toxic mold, has become more limited and, when available, carries a significantly higher cost. We cannot predict whether insurance coverage against terrorism or toxic mold will remain available for our properties because insurance companies may no longer offer coverage against such losses, or such coverage, if offered, may become prohibitively expensive. We have not had material losses from terrorism or toxic mold at any of our properties.
The loss of services of any of our senior officers could adversely affect us.
We depend upon the services and contributions of relatively few senior officers. The loss of services or contributions of any one of them may adversely affect our business, financial condition, and prospects. We use the extensive personal and business relationships that members of our management have developed over time with owners of office/laboratory and tech office properties and with major tenants and venture investment portfolio companies in the life science, agtech, and technology industries. We cannot assure our stockholders that our senior officers will remain employed with us. In California and certain other regions where we have operations, there is intense competition for individuals with skill sets needed for our business. Moreover, the high cost of living in California, where our headquarters and many of our properties are located, as a result of high state and local taxes and increased home prices, may impair our ability to attract and retain employees locally in the future. Due to the long-term nature of our investments and properties, we are unable to predict and may be unable to effectively control such costs. If we do not succeed in attracting new personnel and retaining and motivating existing personnel, our business may suffer, and we may be unable to implement our current initiatives or grow effectively.
Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, results of operations, financial condition, and stock price.
Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of internal control. Changes to our business will necessitate ongoing changes to our internal control systems and processes. Internal control over financial reporting may not prevent or detect misstatement because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business, results of operations, and financial condition could be materially harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on the market price of our common stock.
If we failed to qualify as a REIT, we would be taxed at corporate rates and would not be able to take certain deductions when computing our taxable income.
We have elected to be taxed as a REIT under the Internal Revenue Code. If, in any taxable year, we failed to qualify as a REIT:
•We would be subject to federal and state income taxes on our taxable income at regular corporate rates;
•We would not be allowed a deduction for distributions to our stockholders in computing taxable income;
•We would be disqualified from treatment as a REIT for the four taxable years following the year during which we lost qualification, unless we were entitled to relief under the Internal Revenue Code; and
•We would no longer be required by the Internal Revenue Code to make distributions to our stockholders.
As a result of any additional tax liability, we may need to borrow funds or liquidate certain investments in order to pay the applicable tax. Accordingly, funds available for investment or distribution to our stockholders would be reduced for each of the years involved.
Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code to our operations and financial results, as well as the determination of various factual matters and circumstances not entirely within our control. There are only limited judicial or administrative interpretations of these provisions. Although we believe that our current organization and method of operation comply with the rules and regulations promulgated under the Internal Revenue Code to enable us to qualify as a REIT, we cannot assure our stockholders that we are or will remain so qualified.
From time to time, we dispose of properties in transactions qualified as Section 1031 Exchanges. If a transaction intended to qualify as a Section 1031 Exchange is later determined by the IRS to be taxable or if we are unable to identify and complete the acquisition of a suitable replacement property to effect a Section 1031 Exchange or if the laws surrounding Section 1031 Exchanges are amended or repealed, we may not be able to dispose of properties on a tax-deferred basis. In such a case, our earnings and profits and our taxable income would increase, which could increase the dividend income and reduce the return of capital to our stockholders. As a result, we may be required to pay additional dividends to stockholders, or if we do not pay additional dividends, our corporate income tax liability could increase and we may be subject to interest and penalties.
We may not be able to participate in certain sales that the IRS characterizes as “prohibited transactions.” The tax imposed on REITs engaging in prohibited transactions is a 100% tax on net income from the transaction. Whether or not the transaction is characterized as a prohibited transaction is a factual matter. Generally, prohibited transactions are sales or other dispositions of property, other than foreclosures, characterized as held primarily for sale to customers in the ordinary course of business. However, a sale will not be considered a prohibited transaction if it meets certain safe harbor requirements. Although we do not intend to participate in prohibited transactions, there is no guarantee that the IRS would agree with our characterization of our properties or that we will meet the safe harbor requirements.
Federal income tax rules are constantly under review by the U.S. Congress and the IRS. Changes to tax laws could adversely affect our investors or our tenants, and we cannot predict how those changes may affect us in the future. New legislation, U.S. Treasury Department regulations, administrative interpretations, or court decisions could significantly and negatively affect our ability to qualify as a REIT, the federal income tax consequences of such qualification, or an investment in our stock. Also, laws relating to the tax treatment of investment in other types of business entities could change, making an investment in such other entities more attractive relative to an investment in a REIT.
We are dependent on third parties to manage the amenities at our properties.
We retain third-party managers to manage certain amenities at our properties, such as restaurants, conference centers, exercise facilities, and parking garages. Our income from our properties may be adversely affected if these parties fail to provide quality services and amenities with respect to our properties. While we monitor the performance of these third parties, we may have limited recourse if we believe they are not performing adequately. In addition, these third-party managers may operate, and in some cases may own or invest in, properties or businesses that compete with our properties, which may result in conflicts of interest. As a result, these third-party managers may have made, and may in the future make, decisions that are not in our best interests.
We rely on a limited number of vendors to provide utilities and certain other services at our properties, and disruption in these services may have a significant adverse effect on our business operations, financial condition, and cash flows.
We rely on a limited number of vendors to provide key services, including, but not limited to, utilities, security, and construction services, at certain of our properties. Our business and property operations may be adversely affected if key vendors fail to adequately provide key services at our properties as a result of natural disasters (such as fires, floods, earthquakes, etc.), power interruptions, bankruptcies, war, acts of terrorism, public health emergencies, cyber attacks, pandemics, or other unanticipated catastrophic events. If a vendor encounters financial difficulty such as bankruptcy or other events beyond our control that cause it to fail to adequately provide utilities, security, construction, or other important services, we may experience significant interruptions in service and disruptions to business operations at our properties, incur remediation costs, and become subject to claims and damage to our reputation.
In addition, difficulties encountered by key vendors in providing necessary services at our properties could result in significant market rate increases for such services. Our triple net leases allow us to pass through substantially all operating expenses and certain capital expenditures to our tenants in the form of additional rent. However, we cannot be certain that we will be able to continue to negotiate pass-through provisions in tenant leases in the future, which could lead to a decrease in our recovery of operating expenses. If our operating expenses increase without a corresponding increase in revenues, our profitability could diminish. Also, we cannot be certain that increased costs will not lead our current or prospective tenants to seek space elsewhere, which could significantly hinder our ability to increase our rents or to maintain existing occupancy levels. Additionally, this may significantly increase occupancy costs for some of our tenants and may adversely impact their financial condition, ability to make rental payments, and ability to renew their lease agreements.
Pacific Gas and Electric Company (“PG&E”) is the primary public utility company providing electrical and gas service to residential and commercial customers in northern California, including the San Francisco Bay Area. Most of our properties located in our San Francisco Bay Area market depend on PG&E for the delivery of these essential services. PG&E initiated voluntary reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code in January 2019 in response to potential liabilities arising from a series of catastrophic wildfires that occurred in Northern California in 2017 and 2018. While PG&E emerged from bankruptcy in July 2020, there is no guarantee that PG&E will be able to sustain safe operations and continue to provide consistent utilities services. During periods of high winds and high fire danger in past fire seasons, PG&E preemptively shut off power to areas of Central and Northern California. The shutoffs were designed to help guard against fires ignited in areas with high winds and dry conditions. PG&E has warned that it may have to employ shutoffs while the utility company addresses maintenance issues. Future shutoffs of power may impact the reliability of access to a stable power supply at our properties and, in turn, adversely impact our tenants’ businesses. In addition, there is no guarantee that PG&E’s safety measures mandated by regulators will be timely and sufficient to prevent future catastrophic wildfires.
The realization of any of the above risks could significantly and adversely affect our ability to meet our financial expectations, our financial condition, results of operations, and cash flows, our ability to make distributions to our stockholders, the market price of our common stock, and our ability to satisfy our debt service obligations.
We may change our business policies without stockholder approval.
Our Board of Directors determines all of our material business policies, with management’s input, including those related to our:
•Status as a REIT;
•Incurrence of debt and debt management activities;
•Selective acquisition, disposition, development, and redevelopment activities;
•Stockholder distributions; and
•Other policies, as appropriate.
Our Board of Directors may amend or revise these policies at any time without a vote of our stockholders. A change in these policies could adversely affect our business and our ability to make distributions to our stockholders.
There are limits on the ownership of our capital stock under which a stockholder may lose beneficial ownership of its shares and that may delay or prevent transactions that might otherwise be desired by our stockholders.
In order for a company to qualify as a REIT under the Internal Revenue Code, not more than 50% of the value of its outstanding stock may be owned, directly or constructively, by five or fewer individuals or entities (as set forth in the Internal Revenue Code) during the last half of a taxable year. Furthermore, shares of our company’s outstanding stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year.
In order for us to maintain our qualification as a REIT, among other things, our charter provides for an ownership limit, which prohibits, with certain exceptions, direct or constructive ownership of shares of stock representing more than 9.8% of the combined total value of our outstanding shares of stock by any person, as defined in our charter. Our Board of Directors, in its sole discretion, may waive the ownership limit for any person. However, our Board of Directors may not grant such waiver if, after giving effect to such waiver, we would be “closely held” under Section 856(h) of the Internal Revenue Code. As a condition to waiving the ownership limit, our Board of Directors may require a ruling from the IRS or an opinion of legal counsel in order to determine our status as a REIT. Notwithstanding the receipt of any such ruling or opinion, our Board of Directors may impose such conditions or restrictions as it deems appropriate in connection with granting a waiver.
Our charter further prohibits transferring shares of our stock if such transfer would result in our being “closely held” under Section 856(h) of the Internal Revenue Code or would result in shares of our stock being owned by fewer than 100 persons.
The constructive ownership rules are complex and may cause shares of our common stock owned directly or constructively by a group of related individuals or entities to be constructively owned by one individual or entity. A transfer of shares to a person who, as a result of the transfer, violates these limits shall be void or these shares shall be exchanged for shares of excess stock and transferred to a trust for the benefit of one or more qualified charitable organizations designated by us. In that case, the intended transferee will have only a right to share, to the extent of the transferee’s original purchase price for such shares, in proceeds from the trust’s sale of those shares and will effectively forfeit its beneficial ownership of the shares. These ownership limits could delay, defer, or prevent a transaction or a change in control that might involve a premium price for the holders of our common stock or that might otherwise be desired by such holders.
In addition to the ownership limit, certain provisions of our charter and bylaws may delay or prevent transactions that may be deemed to be desirable to our stockholders.
As authorized by Maryland law, our charter allows our Board of Directors to cause us to issue additional authorized but unissued shares of our common stock or preferred stock and to classify or reclassify unissued shares of common or preferred stock without any stockholder approval. Our Board of Directors could establish a series of preferred stock that could delay, defer, or prevent a transaction that might involve a premium price for our common stock or that might, for other reasons, be desired by our common stockholders, or a series of preferred stock that has a dividend preference that may adversely affect our ability to pay dividends on our common stock.
Our charter permits the removal of a director only upon a two-thirds majority of the votes entitled to be cast generally in the election of directors, and our bylaws require advance notice of a stockholder’s intention to nominate directors or to present business for consideration by stockholders at an annual meeting of our stockholders. Our charter and bylaws also contain other provisions that may delay, defer, or prevent a transaction or change in control that involves a premium price for our common stock or that, for other reasons, may be desired by our stockholders.
Market and industry factors
We face substantial competition in our target markets.
The significant competition for business in our target markets could have an adverse effect on our operations. We compete for investment opportunities with:
•Other REITs;
•Insurance companies;
•Pension and investment funds;
•Private equity entities;
•Partnerships;
•Developers;
•Investment companies;
•Owners/occupants; and
•Foreign investors, including sovereign wealth funds.
Many of these entities have substantially greater financial resources than we do and may be able to pay more than we can or accept more risk than we are willing to accept. These entities may be less sensitive to risks with respect to the creditworthiness of a tenant or the geographic concentration of their investments. These entities may also have more favorable relationships and pricing with suppliers and contractors and may complete construction projects sooner and at lower costs than we are able. We may also face competition with these entities for access to the same or similar raw materials and labor resources from suppliers and contractors, as well as access to the specific suppliers and contractors we use. Competition may also reduce the number of suitable investment opportunities available to us or may increase the bargaining power of property owners seeking to sell. If there is no matching growth in demand, the intensified competition may lead to oversupply of available space comparable to ours and result in the pressure on rental rates and greater incentives awarded to tenants. To maintain our ability to retain current and attract new tenants, we may be forced to reduce the rental rates that our tenants are currently willing to pay or offer greater tenant concessions. Should we encounter intensified competition or oversupply, we cannot be certain that we will be able to compete successfully, maintain our occupancy and rental rates, and continue to expand our business. As a result, our financial condition, results of operations, and cash flows, our ability to pay dividends, and our stock price may be adversely affected.
Poor economic conditions in our markets could adversely affect our business.
Our properties are primarily located in the following markets:
•Greater Boston
•San Francisco Bay Area
•New York City
•San Diego
•Seattle
•Maryland
•Research Triangle
As a result of our geographic concentration, we depend upon the local economic and real estate conditions in these markets. We are therefore subject to increased exposure (positive or negative) to economic, tax, and other competitive factors specific to markets in confined geographic areas. Our operations may also be affected if too many competing properties are built in any of these markets. An economic downturn in any of these markets could adversely affect our operations and our ability to make distributions to our stockholders. We cannot assure our stockholders that these markets will continue to grow or remain favorable to the life science, agtech, and technology industries.
Improvements to our properties are significantly more costly than improvements to traditional office space.
Many of our properties generally contain infrastructure improvements that are significantly more costly than improvements to other property types. Although we have historically been able to recover the additional investment in infrastructure improvements through higher rental rates, there is the risk that we will not be able to continue to do so in the future. Typical infrastructure improvements include:
•Reinforced concrete floors;
•Upgraded roof loading capacity;
•Increased floor-to-ceiling heights;
•Heavy-duty HVAC systems;
•Enhanced environmental control technology;
•Significantly upgraded electrical, gas, and plumbing infrastructure; and
•Laboratory benches and fume hoods.
Because many of our infrastructure improvements are specialized and costlier than those for other property types, we may be more significantly impacted by any unanticipated delays or increased costs due to price volatility or supply shortages of construction materials or labor. As a result, we may be unable to complete our improvements as scheduled or within budgeted amounts, which may adversely affect our ability to lease available space to potential tenants or to reduce our projected project returns.
We are dependent on the life science, agtech, and technology industries, and changes within these industries may adversely impact our revenues from lease payments, the value of our non-real estate investments, and our operating results.
In general, our business strategy is to invest primarily in properties used by tenants in the life science, agtech, and technology industries. Through our venture investment portfolio, we also hold investments in companies that, similar to our tenant base, are concentrated in the life science, agtech, and technology industries. Our business could be adversely affected if the life science, agtech, and technology industries are impacted by an economic, financial, or banking crisis, or if these industries migrate from the U.S. to other countries. Because of our industry focus, events within these industries may have a more pronounced effect on our results of operations and ability to make distributions to our stockholders than if we had more diversified tenants and investments. Also, some of our properties may be better suited for a particular life science, agtech, or technology industry tenant and could require significant modification before we are able to re-lease space to another tenant. Generally, our properties may not be suitable for lease to traditional office tenants without significant expenditures on renovations.
Our ability to negotiate contractual rent escalations on future leases and to achieve increases in rental rates will depend upon market conditions and the demand for office/laboratory and tech office space at the time the leases are negotiated and the increases are proposed.
It is common for businesses in the life science, agtech, and technology industries to undergo mergers, acquisitions, or other consolidations. Mergers, acquisitions, or consolidations of life science, agtech, and technology entities in the future could reduce the RSF requirements of our tenants and prospective tenants, which may adversely impact the demand for office/laboratory and tech office space and our future revenue from lease payments and our results of operations.
Some of our current or future tenants may include technology companies in their startup or growth phases of their life cycle. Fluctuations in market confidence in these companies or adverse changes in economic conditions may have a disproportionate effect on the operations of such companies. Deterioration of our tenants’ financial condition may result in our inability to collect rental payments from them and therefore may negatively impact our operating results.
Our results of operations depend on our tenants’ research and development efforts and their ability to obtain funding for these efforts.
Our tenant base includes entities in the pharmaceutical, biotechnology, medical device, life science, technology, agtech, and related industries; academic institutions; government institutions; and private foundations. Our tenants determine their research and development budgets based on several factors, including the need to develop new products, the availability of government and other funding, competition, and the general availability of resources. Our investments through our venture investment portfolio are also in companies that, similar to our tenant base, are concentrated in the life science, agtech, and technology industries.
Research and development budgets fluctuate due to changes in available resources, research priorities, general economic conditions, institutional and government budgetary limitations, and mergers and consolidations of entities. Our business could be adversely impacted by a significant decrease in research and development expenditures by our tenants, our venture investment portfolio companies, or the life science, agtech, and technology industries.
Our tenants also include research institutions whose funding is largely dependent on grants from government agencies, such as the NIH, the National Science Foundation, and similar agencies or organizations. U.S. government funding of research and development is subject to the political process, which is often unpredictable. Other programs, such as Homeland Security or defense, could be viewed by the government as higher priorities. Additionally, proposals to reduce or eliminate budgetary deficits have sometimes included reduced allocations to the NIH and other U.S. government agencies that fund research and development activities. Additionally, the inability of the U.S. Congress to enact a budget for a fiscal year or the occurrence of partial or complete U.S. federal government shutdowns may result in temporary closures of agencies such as the FDA or NIH, which could adversely affect business operations of our tenants that are dependent on government approvals and appropriations. Any shift away from funding of research and development or delays surrounding the approval of government budget proposals may adversely impact our tenants’ operations, which in turn may impact their demand for office/laboratory and tech office space and their ability to make lease payments to us and thus adversely impact our results of operations.
Our life science industry tenants and venture investment portfolio companies are subject to a number of risks unique to their industry, including (i) changes in technology, patent expiration, and intellectual property rights and protection, (ii) high levels of regulation, (iii) failures in the safety and efficacy of their products, and (iv) significant funding requirements for product research and development. These risks may adversely affect our tenants’ ability to make rental payments or satisfy their other lease obligations to us or may impact our venture investment portfolio companies’ value and consequently may materially adversely affect our business, results of operations, financial condition, and stock price.
Changes in technology, patent expiration, and intellectual property rights and protection
•Our tenants and venture investment portfolio companies develop and sell products and services in an industry that is characterized by rapid and significant technological changes, frequent new product and service introductions and enhancements, evolving industry standards, and uncertainty over the implementation of new healthcare reform legislation, which may cause them to lose competitive positions and adversely affect their operations.
•Many of our tenants and venture investment portfolio companies, and their licensors, require patent, copyright, or trade secret protection and/or rights to use third-party intellectual property to develop, make, market, and sell their products and technologies. A tenant or venture investment portfolio company may be unable to commercialize its products or technologies if patents covering such products or technologies are not issued or are successfully challenged, narrowed, invalidated, or circumvented by third parties. Additionally, a third party may own intellectual property that limits a tenant’s or venture investment portfolio company’s ability to bring to market its product or technology without securing a license or other rights to use the third-party intellectual property, which may require the tenant to pay an upfront fee or royalty. Failure to obtain these rights from third parties may make it challenging or impossible for a tenant or venture investment portfolio company to develop and commercialize its products or technologies, which could adversely affect its competitive position and operations.
•Many of our tenants and venture investment portfolio companies depend upon patents to provide exclusive marketing rights for their products. As their product patents expire, competitors may be able to legally produce and market products similar to the products of our tenants or venture investment portfolio companies, which could have a material adverse effect on their sales and results of operations.
High levels of regulation
•Some of our life science industry tenants and venture investment portfolio companies develop and manufacture products that require regulatory approval, including approval from the FDA, prior to being manufactured, marketed, sold, and used. The regulatory approval process to manufacture and market drugs is costly, typically takes many years, requires validation through clinical trials and the use of substantial resources, and is often unpredictable. A tenant or venture investment portfolio company may fail to obtain or may experience significant delays in obtaining these approvals. Even if the tenant or venture investment portfolio company obtains regulatory approvals, marketed products will be subject to ongoing regulatory review and potential loss of approvals.
•The ability of some of our life science industry tenants and venture investment portfolio companies to commercialize any future products successfully will depend in part on the coverage and reimbursement levels set by government authorities, private health insurers, and other third-party payors. Additionally, reimbursements may decrease in the future.
Failures in the safety and efficacy of their products
•Some of our life science industry tenants and venture investment portfolio companies may find that their potential products are not effective, or are even harmful, when tested in humans.
•Some of our life science industry tenants and venture investment portfolio companies depend upon the commercial success of certain products. Even if a product developed by a life science industry tenant or venture investment portfolio company is proven safe and effective in human clinical trials, and the requisite regulatory approvals are obtained, subsequent discovery of safety issues with these products could cause product liability events, additional regulatory scrutiny and requirements for additional labeling, loss of approval, withdrawal of products from the market, and the imposition of fines or criminal penalties.
•A product developed, manufactured, marketed, or sold by a life science industry tenant or venture investment portfolio company may not be well accepted by doctors and patients, or may be less effective or accepted than a competitor’s product.
•The negative results of safety signals arising from the clinical trials of the competitors of our life science industry tenants or venture investment portfolio companies may prompt regulatory agencies to take actions that may adversely affect the clinical trials or products of our tenants or venture investment portfolio companies.
Significant funding requirements for product research and development
•Some of our life science industry tenants and venture investment portfolio companies require significant funding to develop and commercialize their products and technologies, which must be obtained from venture capital firms; private investors; public markets; other companies in the life science industry; or federal, state, and local governments. Such funding may become unavailable or difficult to obtain. The ability of each tenant or venture investment portfolio company to raise capital will depend on its financial and operating condition, viability of its products and technology, and the overall condition of the financial, banking, and economic environment, as well as government budget policies.
•Even with sufficient funding, some of our life science industry tenants or venture investment portfolio companies may not be able to discover or identify potential drug targets in humans, or potential drugs for use in humans, or to create tools or technologies that are commercially useful in the discovery or identification of potential drug targets or drugs.
•Some of our life science industry tenants or venture investment portfolio companies may not be able to successfully manufacture their products economically, even if such products are proven through human clinical trials to be safe and effective in humans.
•Marketed products also face commercialization risk, and some of our life science industry tenants and venture investment portfolio companies may never realize projected levels of product utilization or revenues.
•Negative news regarding the products, the clinical trials, or other business developments of our life science industry tenants or venture investment portfolio companies may cause their stock price or credit profile to deteriorate.
We cannot assure our stockholders that our life science industry tenants or venture investment portfolio companies will be able to develop, manufacture, market, or sell their products and technologies due to the risks inherent in the life science industry. Any life science industry tenant or venture investment portfolio company that is unable to avoid, or sufficiently mitigate, the risks described above may have difficulty making rental payments or satisfying its other lease obligations to us or may have difficulty maintaining the value of our investment. Such risks may also decrease the credit quality of our life science industry tenants and venture investment portfolio companies or cause us to expend more funds and resources on the space leased by these tenants than we originally anticipated. The increased burden on our resources due to adverse developments relating to our life science industry tenants may cause us to achieve lower-than-expected yields on the space leased by these tenants. Negative news relating to our more significant life science industry tenants and venture investment portfolio companies may also adversely impact our stock price.
Our technology industry tenants and venture investment portfolio companies are subject to a number of risks unique to their industry, including (i) an uncertain regulatory environment, (ii) rapid technological changes, (iii) a dependency on the maintenance and security of the Internet infrastructure, (iv) significant funding requirements for product research and development and sales growth, and (v) inadequate intellectual property protections. These risks may adversely affect our tenants’ ability to make rental payments to us or satisfy their other lease obligations or may impact our venture investment portfolio companies’ value, which consequently may materially adversely affect our business, results of operations, financial condition, and stock price.
Uncertain regulatory environment
•Laws and regulations governing the Internet, e-commerce, electronic devices, and other services continue to evolve. Existing and future laws and regulations and the halting of operations at certain agencies resulting from partial or complete U.S. federal government shutdowns may impede the growth of our technology industry tenants and venture investment portfolio companies. These laws and regulations may cover, among other areas, taxation, worker classification, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, business licensing, and consumer protection.
Rapid technological changes
•The technology industry is characterized by rapid changes in customer requirements and preferences, frequent new product and service introductions, and the emergence of new industry standards and practices. A failure to respond in a timely manner to these market conditions could materially impair the operations of our technology industry tenants and venture investment portfolio companies.
Dependency on the maintenance and security of the Internet infrastructure
•Some of our technology industry tenants and venture investment portfolio companies depend on continued and unimpeded access to the Internet by users of their products and services, as well as access to mobile networks. Internet service providers and mobile network operators may be able to block, degrade, or charge additional fees to these tenants, venture investment portfolio companies, or users of their products and services.
•The Internet has experienced, and is likely to continue to experience, outages and other delays. These outages and delays, as well as problems caused by cyber attacks and computer malware, viruses, worms, and similar programs, may materially affect the ability of our technology industry tenants and venture investment portfolio companies to conduct business.
•Reliance on a limited number of cloud provider vendors may result in detrimental impacts on or halts of operations during instances of network outages or interruptions.
•Security breaches or network attacks may delay or interrupt the services provided by our technology industry tenants and venture investment portfolio companies and could harm their reputations or subject them to significant liability.
Significant funding requirements for product research and development and sales growth
•Some of our technology industry tenants and venture investment portfolio companies require significant funding to develop and commercialize their products and technologies, which must be obtained from venture capital firms; private investors; public markets; companies in the technology industry; or federal, state, and local governments. Such funding may become unavailable or difficult to obtain. The ability of each tenant or venture investment portfolio company to raise capital will depend on its financial and operating condition, viability of their products, and the overall condition of the financial, banking, governmental budget policies, and economic environment.
•Even with sufficient funding, some of our technology industry tenants and venture investment portfolio companies may not be able to discover or identify potential customers or may not be able to create tools or technologies that are commercially useful.
•Some of our technology industry tenants and venture investment portfolio companies may not be able to successfully manufacture their products economically.
•Marketed products also face commercialization risk, and some of our technology industry tenants and venture investment portfolio companies may never realize projected levels of product utilization or revenues.
•Unfavorable news regarding the products or other business developments of our technology industry tenants or venture investment portfolio companies may cause their stock price or credit profile to deteriorate.
Inadequate intellectual property protections
•The products and services provided by some of our technology industry tenants and venture investment portfolio companies are subject to the threat of piracy and unauthorized copying, and inadequate intellectual property laws and other inadequate protections could prevent them from enforcing or defending their proprietary technologies. These tenants and venture investment portfolio companies may also face legal risks arising out of user-generated content.
•Trademark, copyright, patent, domain name, trade dress, and trade secret protection is very expensive to maintain and may require our technology industry tenants and venture investment portfolio companies to incur significant costs to protect their intellectual property rights.
We cannot assure our stockholders that our technology industry tenants and venture investment portfolio companies will be able to develop, manufacture, market, or sell their products and services due to the risks inherent in the technology industry. Any technology industry tenant or venture investment portfolio company that is unable to avoid, or sufficiently mitigate, the risks described above may have difficulty making rental payments or satisfying its other lease obligations to us or may have difficulty maintaining the value of our investment. Such risks may also decrease the credit quality of our technology industry tenants or venture investment portfolio companies or cause us to expend more funds and resources on the space leased by these tenants than we originally anticipated. The increased burden on our resources due to adverse developments relating to our technology industry tenants may cause us to achieve lower-than-expected yields on the space leased by these tenants. Unfavorable news relating to our more significant technology industry tenants and venture investment portfolio companies may also adversely impact our stock price.
Our agtech industry tenants and venture investment portfolio companies are subject to a number of risks unique to their industry, including (i) uncertain regulatory environment, (ii) seasonality in business, (iii) unavailability of transportation mechanisms for carrying products and raw materials, (iv) changes in costs or constraints on supplies or energy used in operations, (v) strikes or labor slowdowns or labor contract negotiations, and (vi) rapid technological changes in agriculture. These risks may adversely affect our tenants’ ability to make rental payments or satisfy their other lease obligations to us or may impact our venture investment portfolio companies’ value, which consequently may materially adversely affect our business, results of operations, financial condition, and stock price.
Uncertain regulatory environment
•Laws and regulations governing the Internet, e-commerce, electronic devices, and other services and products developed by the agtech industry continue to evolve. Existing and future laws and regulations and the halting of operations at certain agencies resulting from partial or complete U.S. federal government shutdowns may impede the growth of our agtech industry tenants and venture investment portfolio companies. These laws and regulations may cover, among other areas, taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, business licensing, and consumer protection.
Seasonality in business
•Our agtech industry tenants’ and venture investment portfolio companies’ businesses may fluctuate from time to time due to seasonal weather conditions and other factors out of their control, affecting products and services our agtech industry tenants and venture investment portfolio companies offer.
Unavailability of transportation mechanisms for carrying products and raw materials
•Some of our agtech industry tenants’ and venture investment portfolio companies’ businesses depend on transportation services to deliver their products or to deliver raw materials to their clients. If transportation service providers are unavailable or fail to deliver our agtech industry tenants’ or venture investment portfolio companies’ products in a timely manner, they may be unable to manufacture and deliver their services and products on a timely basis.
Changes in costs or constraints on supplies or energy used in operations
•Similarly, if fuel or other energy prices increase, it may increase transportation costs, which could affect our agtech industry tenants’ and venture investment portfolio companies’ businesses.
Strikes or labor slowdowns or labor contract negotiations
•Our agtech industry tenants and venture investment portfolio companies may face labor strikes, work slowdowns, labor contract negotiations, or other job actions from their employees or third-party contractors. In the event of a strike, work slowdown, or other similar labor unrest, our agtech industry tenants or venture investment portfolio companies may not have the ability to adequately staff their businesses, which could have an adverse effect on their operations and revenue.
Rapid technological changes in agriculture
•The agtech industry is characterized by regular new product and service introductions, and the emergence of new industry standards and practices. A failure to respond in a timely manner to these market conditions could materially impair the operations of our agtech industry tenants and venture investment portfolio companies.
•Technological advances in agriculture could decrease the demand for crop nutrients, energy, and other crop input products and services our agtech industry tenants and venture investment portfolio companies provide. Genetically engineered crops that resist disease and insects could affect the demand for certain of our tenants’ or venture investment portfolio companies’ products. Demand for fuel could decline as technology allows for more efficient usage of equipment.
We cannot assure our stockholders that our agtech industry tenants and venture investment portfolio companies will be able to develop, produce, market, or sell their products and services due to the risks inherent in the agtech industry. Any agtech industry tenant or venture investment portfolio company that is unable to avoid, or sufficiently mitigate, the risks described above may have difficulty making rental payments or satisfying its other lease obligations to us. Such risks may also decrease the credit quality of our agtech industry tenants or venture investment portfolio companies or cause us to expend more funds and resources on the space leased by these tenants than we originally anticipated. The increased burden on our resources due to adverse developments relating to our agtech industry tenants may cause us to achieve lower-than-expected yields on the space leased by these tenants. Unfavorable news relating to our more significant agtech industry tenants and venture investment portfolio companies may also adversely impact our stock price.
The companies in which we invest through our non-real estate venture investment portfolio expose us to risks similar to those of our tenant base and additional risks inherent in venture capital investing, which could materially affect our reported asset and liability values and earnings, and may materially and adversely affect our reported results of operations.
Through our strategic venture investment portfolio, we hold investments in companies that, similar to our tenant base, are concentrated in the life science, agtech, and technology industries. The venture investment portfolio companies in which we invest are accordingly subject to risks similar to those posed by our tenant base, including those disclosed in this annual report on Form 10-K. In addition, the companies in which we invest through our venture investment portfolio are subject to the risks inherent in venture capital investing and may be adversely affected by external factors beyond our control and other risks, including, but not limited to the following:
•Risks inherent in venture capital investing, which typically focuses on small early-stage companies with unproven technologies and limited access to capital and is therefore generally considered more speculative than investment in larger, more established companies.
•Market disruption and volatility, which may adversely affect the value of the companies in which we hold equity investments and, in turn, our ability to realize gains upon sales of these investments.
•Disruptions, uncertainty, or volatility in the capital markets and global economy, which may impact the ability of the companies in which we invest to raise additional capital or access capital from venture capital investors or financial institutions on favorable terms.
•Liquidity of the companies in which we invest, which may (i) impede our ability to realize the value at which these investments are carried if we are required to dispose of them, (ii) make it difficult for us to sell these investments on a timely basis, and (iii) impair the value of such investments.
•Changes in the political climate, potential reforms and changes to government negotiation and regulation, the effect of healthcare reform legislation, including those that may limit pricing of pharmaceutical products and drugs, market prices and conditions, prospects for favorable or unfavorable clinical trial results, new product initiatives, the manufacturing and distribution of new products, product safety and efficacy issues, and new collaborative agreements, all of which may affect the valuation, funding opportunities, business operations, and financial results of the companies in which we invest.
•Changes in U.S. federal government organizations or other agencies, including changes in policy, regulations, budgeting, retention of key leadership and other personnel, administration of drug approvals or restrictions on drug product or service development or commercialization, or a partial or complete future government shutdown resulting in temporary closures of agencies such as the FDA and SEC, could adversely affect the companies in which we invest, including delays in the commercialization of such companies’ products, decreased funding of research and development in the life science, agtech, and technology industries, or delays surrounding approval of budget proposals for any of these industries.
•Impacts or changes in business for any reason, including diversion of healthcare resources away from clinical trials, delays, or difficulties enrolling patients or maintaining scheduled appointments in clinical trials, interruptions, and delays in laboratory research due to the reduction in employee resources stemming from social distancing requirements and the desire of employees to avoid contact with people, insufficient inventory of supplies and reagents necessary for laboratory research due to interruptions in supply chain, delays or difficulties obtaining clinical site locations or engaging clinical site staff, interruptions on clinical site monitoring due to travel restrictions, delays in interacting with or receiving approval from regulatory agencies in connection with research activities or clinical trials, and disruptions to manufacturing facilities and supply lines.
•Reduction in revenue or revenue growth, deterioration in the global economy, or other reasons, may impair the value of the companies in which we hold equity investments or impede their ability to raise additional capital.
•Seasonal weather conditions, changes in availability of transportation or labor, and other related factors may affect the products and services or the availability of the products and services of the companies in which we invest in the agtech sector.
Many of the factors listed above are beyond our control and, if the venture investment portfolio companies are adversely affected by any of the foregoing, could materially affect our reported asset and liability values and earnings and may materially and adversely affect our reported results of operations. The occurrence of any of these adverse events could cause the market price of shares of our common stock to decline regardless of the performance of our primary real estate business.
Market and other external factors may adversely impact the valuation of our equity investments.
We hold equity investments in certain publicly traded companies, limited partnerships, and privately held entities primarily involved in the life science, agtech, and technology industries through our venture investment portfolio. The valuation of these investments is affected by many external factors beyond our control, including, but not limited to, market prices, market conditions, the effect of healthcare reform legislation, prospects for favorable or unfavorable clinical trial results, new product initiatives, the manufacturing and distribution of new products, product safety and efficacy issues, and new collaborative agreements. In addition, partial or complete future government shutdowns that may result in temporary closures of agencies such as the FDA and SEC may adversely affect the processing of initial public offerings, business operations, financial results, and funding for projects of the companies in which we hold equity investments. Unfavorable developments with respect to any of these factors may have an adverse impact on the valuation of our equity investments.
Market and other external factors may negatively impact the liquidity of our equity investments.
We make and hold investments in privately held life science, agtech, and technology companies through our venture investment portfolio. These investments may be illiquid, which could impede our ability to realize the value at which these investments are carried if we are required to dispose of them. The lack of liquidity of these investments may make it difficult for us to sell these investments on a timely basis and may impair the value of these investments. If we are required to liquidate all or a portion of these investments quickly, we may realize significantly less than the amounts at which we had previously valued these investments.
Government factors
Negative impact on economic growth resulting from the combination of federal income tax policy, debt policy, and government spending may adversely affect our results of operations.
Global macroeconomic conditions affect our and our tenants’ businesses. Instability in the banking and government sectors of the U.S. and/or the negative impact on economic growth resulting from the combination of government tax policy, debt policy, and government spending, may have an adverse effect on the overall economic growth and our future revenue growth and profitability. Volatile, negative, or uncertain economic conditions could undermine business confidence in our significant markets or in other markets and cause our tenants to reduce or defer their spending, which would negatively affect our business. Growth in the markets we serve could be at a slow rate or could stagnate or contract in each case for an extended period of time. Differing economic conditions and patterns of economic growth and contraction in the geographic regions in which we operate and the industries we serve may in the future affect demand for our services. Our revenues and profitability are derived from our tenants in North America, some of which derive significant revenues from their international operations. Ongoing economic volatility and uncertainty affects our business in a number of other ways, including making it more difficult to accurately forecast client demand beyond the short term and to effectively build our revenue and spending plans. Economic volatility and uncertainty are particularly challenging because it may take some time for the effects and resulting changes in demand patterns to manifest themselves in our business and results of operations. Changing demand patterns from economic volatility and uncertainty could have a significant negative impact on our results of operations. These risks may impact our overall liquidity, our borrowing costs, or the market price of our common stock.
Monetary policy actions by the U.S. Federal Reserve could adversely impact our financial condition and our ability to make distributions to our stockholders.
During 2017-2018, the U.S. Federal Reserve gradually increased the target range for the federal funds rate. As of December 31, 2018, the federal funds rate was set at a range from 2.25% to 2.50%. From August 2019 through March 2020, the U.S. Federal Reserve initiated a series of rate cuts. As of December 31, 2020, the federal funds rate was set at a range from 0% to 0.25%. In December 2021, the U.S. Federal Reserve maintained its target range but began to taper its bond purchases in early 2022. Due to inflation reaching a nearly 40-year high in 2022, the U.S. Federal Reserve raised the federal funds rate a total of seven times during 2022, resulting in a range from 4.25% to 4.50% as of December 31, 2022. In response, market interest rates have increased significantly during this time. It is expected that the U.S. Federal Reserve may continue to increase the federal funds rate during 2023. Should the U.S. Federal Reserve continue to raise rates in the future, this will likely result in further increases in market interest rates, which would also increase our interest expense under our variable-rate borrowings and the costs of refinancing existing indebtedness or obtaining new debt. In addition, continued increases in market interest rates may result in a decrease in the value of our real estate and a decrease in the market price of our common stock. Increases in market interest rates may also adversely affect the securities markets generally, which could reduce the market price of our common stock without regard to our operating performance. Any such unfavorable changes to our borrowing costs and stock price could significantly impact our ability to raise new debt and equity capital going forward.
Changes to the U.S. tax laws could have a significant negative impact on the overall economy, our tenants, and our business.
Changes to U.S. tax laws that may be enacted in the future could negatively impact the overall economy, government revenues, the real estate industry, our tenants, and us, in ways that cannot be reliably predicted. Furthermore, any future changes to U.S. tax laws may negatively impact certain of our tenants’ operating results, financial condition, and future business plans. Such changes to the tax laws may also result in reduced government revenues, and therefore reduced government spending, which may negatively impact some of our tenants that rely on government funding. For example, the Tax Cuts and Jobs Act of 2017 was enacted on December 20, 2017, and significantly revised the U.S. corporate income tax law by, among other things, reducing the corporate income tax rate to 21% for tax years beginning in 2018, imposing additional limitations on the deductibility of interest, changing the utilization of net operating loss carryforwards, allowing for the expensing of certain capital expenditures, and implementing a modified territorial system. We are currently unable to predict whether any future changes will occur and any impact such changes could have on our operating results, financial condition, and future business operations.
Actual and anticipated changes to the regulations of the healthcare system may have a negative impact on the pricing of drugs, the cost of healthcare coverage, and the reimbursement of healthcare services and products.
The FDA and comparable agencies in other jurisdictions directly regulate many critical activities of life science, technology, and healthcare industries, including the conduct of preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting, and product risk management. In both domestic and foreign markets, sales of products depend in part on the availability and amount of reimbursement by third-party payors, including governments and private health plans. Governments may regulate coverage, reimbursement, and pricing of products to control cost or affect utilization of products. Private health plans may also seek to manage cost and utilization by implementing coverage and reimbursement limitations. Substantial uncertainty exists regarding the reimbursement by third-party payors of newly approved healthcare products. The U.S. and foreign governments regularly consider reform measures that affect healthcare coverage and costs. Such reforms may include changes to the coverage and reimbursement of healthcare services and products. In particular, there have been judicial and congressional challenges to the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”), which could have an impact on coverage and reimbursement for healthcare terms and services covered by plans authorized by the ACA. During 2017 several attempts were made to amend the ACA; however, no amendment proposal gained the 50-vote support from the U.S. Senate needed to pass a repeal bill. As a result, in October 2017, then President Trump issued an executive order, “Promoting Healthcare Choice and Competition Across the United States,” which the Biden administration repealed in January 2021. It is unknown what other changes will be implemented through the U.S. Congress or future executive orders and how these would impact our tenants. Government and other regulatory oversight and future regulatory and government interference with the healthcare systems may adversely impact our tenants’ businesses and our business.
U.S. government tenants may not receive anticipated appropriations, which could hinder their ability to pay us.
U.S. government tenants are subject to government funding. If one or more of our U.S. government tenants fail to receive anticipated appropriations, we may not be able to collect rental amounts due to us. A significant reduction in federal government spending, particularly a sudden decrease due to tax reform or a sequestration process, which has occurred in recent years, could also adversely affect the ability of these tenants to fulfill lease obligations or decrease the likelihood that they will renew their leases with us. In addition, budgetary pressures have resulted in, and may continue to result in, reduced allocations to government agencies that fund research and development activities, such as the NIH. For example, the NIH budget has been, and may continue to be, significantly impacted by the sequestration provisions of the Budget Control Act of 2011, which became effective on March 1, 2013. Past proposals to reduce budget deficits have included reduced NIH and other research and development budgets. Any shift away from the funding of research and development or delays surrounding the approval of government budget proposals may cause our tenants to default on rental payments or delay or forgo leasing our rental space, which could adversely affect our business, financial condition, or results of operations. Additionally, the inability of the U.S. Congress to enact a budget for a future fiscal year or the occurrence of partial or complete U.S. federal government shutdowns could adversely impact demand for our services by limiting federal funding available to our tenants and their customers. In addition, defaults under leases with U.S. government tenants are governed by federal statute and not by state eviction or rent deficiency laws. As of December 31, 2022, leases with U.S. government tenants at our properties accounted for approximately 1.0% of our aggregate annual rental revenue in effect as of December 31, 2022.
Some of our tenants may be subject to increasing government price controls and other healthcare cost-containment measures.
Government healthcare cost-containment measures can significantly affect our tenants’ revenue and profitability. In many countries outside the U.S., government agencies strictly control, directly or indirectly, the prices at which our pharmaceutical industry tenants’ products are sold. In a number of EU member states, the pricing and/or reimbursement of prescription pharmaceuticals are subject to governmental control, and legislators, policymakers, and healthcare insurance funds continue to propose and implement cost-containing measures to keep healthcare costs down, due in part to the attention being paid to healthcare cost containment and other austerity measures in the EU. In the U.S., our pharmaceutical industry tenants are subject to substantial pricing pressures from state Medicaid programs, private insurance programs, and pharmacy benefit managers. In addition, many state legislative proposals could further negatively affect pricing and/or reimbursement for our pharmaceutical industry tenants’ products. Also, the pricing environment for pharmaceuticals continues to be in the political spotlight in the U.S. Pharmaceutical and medical device product pricing is subject to enhanced government and public scrutiny and calls for reform. Some states have implemented, and other states are considering implementing, pharmaceutical price controls or patient access constraints under the Medicaid program, and some states are considering price-control regimes that would apply to broader segments of their populations who are not Medicaid eligible. We anticipate that pricing pressures from both governments and private payors inside and outside the U.S. will become more severe over time.
Changes in U.S. federal government funding for the FDA, the NIH, and other government agencies could hinder their ability to hire and retain key leadership and other personnel, properly administer drug innovation, or prevent new products and services from being developed or commercialized by our life science industry tenants and venture investment portfolio companies, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including budget and funding levels, the ability to hire and retain key personnel, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the NIH and other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
The ability of the FDA, the NIH, and other government agencies to properly administer their functions is highly dependent on the levels of government funding and the ability to fill key leadership appointments, among various factors. Delays in filling or replacing key positions could significantly impact the ability of the FDA, the NIH, and other agencies to fulfill their functions and could greatly impact healthcare and the drug industry.
However, any future government proposals to reduce or eliminate budgetary deficits may include reduced allocations to the FDA, the NIH, and other related government agencies. These budgetary pressures may result in a reduced ability by the FDA and the NIH to perform their respective roles and may have a related impact on academic institutions and research laboratories whose funding is fully or partially dependent on both the level and the timing of funding from government sources.
On December 29, 2022, a $1.7 trillion government budgetary bill, which averted a government shutdown in mid-December 2022 and will provide funding to the government for fiscal year 2023, was signed into law by President Biden. It is unclear whether the U.S. federal government will fail to enact a budget in future fiscal years, and if it does fail to do so, it is possible a partial government shutdown similar to the one that took place from December 22, 2018 to January 25, 2019 may occur. If this occurs, the FDA and certain other science agencies may temporarily shut down select non-essential operations. Also, as was the case in the last government shutdown, the FDA may maintain only operations deemed to be essential public health-related functions and halt the acceptance of new medical product applications and routine regulatory and compliance work for medical products and certain drugs and foods during any shutdown.
Disruptions at the FDA and other agencies, such as those resulting from a government shutdown, or uncertainty from stopgap spending bills may slow the time necessary for new drugs and devices to be reviewed and/or approved by necessary government agencies and the healthcare and drug industries’ ability to deliver new products to the market in a timely manner, which would adversely affect our tenants’ operating results and business. Interruptions to the function of the FDA and other government agencies could adversely affect the demand for office/laboratory space and significantly impact our operating results and our business.
Changes in laws and regulations that control drug pricing for government programs may adversely impact our operating results and our business.
The Centers for Medicare & Medicaid Services is the federal agency within the U.S. Department of Health and Human Services that administers the Medicare program and works in partnership with state governments to administer Medicaid. The Medicare Modernization Act of 2003, which went into effect on January 1, 2006 (and made changes to the public Part C Medicare health plan program), explicitly prohibits the U.S. federal government from directly negotiating drug prices with manufacturers. Recently, there has been significant public outcry against price increases viewed to be unfair and unwarranted.
Currently, the outcome of potential reforms and changes to the government’s ability to regulate and negotiate drug pricing is unknown. Changes in policy that limit prices may reduce the financial incentives for the research and development efforts that lead to discovery and production of new therapies and solutions to life-threatening conditions. Negative impacts of new policies could adversely affect our tenants’ and venture investment portfolio companies’ businesses, including life science, agtech, and technology companies, which may reduce the demand for office/laboratory space and negatively impact our operating results and our business.
The provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) may subject us to substantial additional federal regulation and may adversely affect our business, results of operations, cash flows, or financial condition.
There are significant corporate governance- and executive compensation-related provisions in the Dodd-Frank Act that required the SEC to adopt additional rules and regulations in these areas. For example, the Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. Our efforts to comply with these requirements have resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management’s time from other business activities. In addition, provisions of the Dodd-Frank Act that directly affect other participants in the real estate and capital markets, such as banks, investment funds, and interest rate hedge providers, could have indirect, but material, impacts on our business.
In 2022, after long delays, the SEC adopted two final rules pursuant to the Dodd-Frank Act that apply to us. The first rule requires us to disclose in our annual proxy statements, commencing in 2023, specified information on the relationship between executive compensation actually paid and our financial performance (often referred to as “pay-for-performance” disclosure), including comparative information for peer companies. The second rule requires the national stock exchanges, including the NYSE (upon which our common stock is listed) to propose and adopt listing standards that require listed companies to adopt a compensation recovery (“clawback”) policy that allows for recovery of erroneously awarded incentive-based compensation from current or former executive officers in the event of a material restatement of an issuer’s financial statements. While we have for many years maintained a clawback policy contained in our Corporate Governance Guidelines, our existing clawback policy may require updates once the NYSE listing standards are established.
Many of the provisions of the Dodd-Frank Act have extended implementation periods and delayed effective dates and will require extensive rule-making by regulatory authorities. Given the uncertainty associated with the Dodd-Frank Act itself and the manner in which its provisions are implemented by various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our future operations is unclear. The provisions of the Dodd-Frank Act may impact the profitability of business activities, require changes to certain business practices, or otherwise adversely affect our business in general. The Dodd-Frank Act, including current and future rules implementing its provisions and the interpretation of those rules, along with other legislative and regulatory proposals directed at the financial or real estate industry or affecting taxation that are proposed or pending in the U.S. Congress, may limit our revenues, impose fees or taxes on us, and/or intensify the regulatory framework within which we operate in ways that are not currently identifiable. The Dodd-Frank Act also has resulted in, and is expected to continue to result in, substantial changes and dislocations in the banking industry and the financial services sector in ways that could have significant effects on, for example, the availability and pricing of unsecured credit, commercial mortgage credit, and derivatives, such as interest rate swaps, which are important aspects of our business. Accordingly, new laws, regulations, and accounting standards, as well as changes to or new interpretations of currently accepted accounting practices in the real estate industry, may adversely affect our results of operations.
Global factors
The replacement of LIBOR with SOFR or another alternative reference rate may adversely affect interest expense related to outstanding debt.
In advance of the cessation of LIBOR on June 30, 2023, we amended our unsecured senior line of credit with our lenders to be based on SOFR, and as of December 31, 2022, we had no LIBOR-based debt or financial contracts. SOFR is an index calculated by reference to short-term repurchase agreements backed by U.S. Treasury securities that was selected as a preferred replacement for U.S. dollar LIBOR by the U.S. Federal Reserve. SOFR is observed and backward looking, which stands in contrast to LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members.
The transition to SOFR may present challenges, including, but not limited to, the illiquidity of SOFR derivatives markets, which could make it difficult for financial institutions to offer SOFR-based debt products, the determination of the spread adjustment required to convert LIBOR to SOFR (and the related determination of a term structure with different maturities), and that such transition may require substantial negotiations with counterparties. There is no guarantee that the transition from LIBOR to SOFR will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could affect our interest expense and earnings and may have an adverse effect on our business, results of operations, financial condition, and stock price.
Whether or not SOFR attains market acceptance as a LIBOR replacement tool remains in question. As such, the future of SOFR at this time remains uncertain.
The outbreak of highly infectious or contagious diseases could adversely impact or cause disruption to our financial condition and results of operations. Further, the spread of COVID-19 has caused severe disruptions in the U.S. and global economies, may further disrupt financial markets, and could create widespread business continuity issues.
In recent years, the outbreaks of a number of diseases, including avian influenza, H1N1, and various other “superbugs,” have increased the risk of a pandemic. Since December 2019, COVID-19 has spread globally, including in the U.S., where COVID-19 has been reported in every state, including those where we own and operate our properties, have executive offices, and conduct principal operations. In March 2020, the World Health Organization declared COVID-19 a pandemic, and the U.S. subsequently declared a national emergency.
The COVID-19 pandemic has had, and continues to have, a significant adverse impact across regional and global economies and financial markets. Countries around the world instituted quarantines and restrictions on travel. Almost every state in the U.S. implemented some form of shelter-in-place or stay-at-home directive during 2020, including, among others, the cities of Boston, San Francisco (including five other San Francisco Bay Area counties), and Seattle, and the states of California, Maryland, Massachusetts, and New York, where we own properties. The lockdown restrictions implemented included quarantines, restrictions on travel, shelter-in-place orders, school closures, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects that could continue. The subsequent gradual reopening of retail, manufacturing, and office facilities came with required or recommended safety protocols.
The effects of COVID-19 or another pandemic on our (or our tenants’) ability to successfully operate could be adversely impacted due to the following factors, among others:
•The continued service and availability of personnel, including our executive officers and other leaders who are part of our management team, and our ability to recruit, attract, and retain skilled personnel. To the extent our management or personnel are impacted in significant numbers by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work, our business and operating results may be negatively impacted.
•Our (or our tenants’) ability to operate, generally or in affected areas, or delays in the supply of products or services from our vendors that are necessary for us to operate effectively.
•Our tenants’ ability to pay rent on their leases in full and timely and, to the extent necessary, our inability to restructure our tenants’ long-term rent obligations on terms favorable to us or to timely recapture the space for re-leasing.
•Difficulty in our accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets, or deterioration in credit and financing conditions, which may affect our (or our tenants’) ability to access capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis and may adversely affect the valuation of financial assets and liabilities, any of which could affect our (or our tenants’) ability to meet liquidity and capital expenditure requirements or could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
•Complete or partial closures of, or other operational issues at, one or more of our offices or properties resulting from government action or directives.
•Our (or our tenants’) ability to continue or complete construction as planned for our tenants’ operations, or delays in the supply of materials or labor necessary for construction, which may affect our (or our tenants’) ability to complete construction or to complete it timely, our ability to prevent a lease termination, and our ability to collect rent, which may have a material adverse effect on our business, financial condition, results of operations, and cash flows.
•The cost of implementing precautionary measures against COVID-19 (or another pandemic), including, but not limited to, potential additional health insurance and labor-related costs.
•Governmental efforts (such as moratoriums on or suspensions of eviction proceedings) that may affect our ability to collect rent or enforce remedies for the failure of our tenants to pay rent.
•Uncertainty related to whether the U.S. Congress or state legislatures will pass additional laws providing for additional economic stimulus packages, governmental funding, or other relief programs, whether such measures will be enacted, whether our tenants will be eligible or will apply for any such funds, whether the funds, if available, could be used by our tenants to pay rent, and whether such funds will be sufficient to supplement our tenants’ rent and other obligations to us.
•Deterioration of global economic conditions and job losses, which may decrease demand for and occupancy levels of our rental properties and may cause our rental rates and property values to be negatively impacted.
•Our dependence on short-term and long-term debt sources, including our unsecured senior line of credit, commercial paper program, and unsecured senior notes, which may affect our ability to continue our investing activities and make distributions to our stockholders.
•Declines in the valuation of our properties, which may affect our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of debt funding.
•Declines in the valuation of our venture investment portfolio, which may (i) impede our ability to realize the value at which these investments are carried if we are required to dispose of them, (ii) make it difficult for us to sell these investments on a timely basis, and (iii) impair the value of such investments.
•Refusal or failure by one or more of our lenders under our unsecured senior line of credit to fund their financing commitment to us, which we may not be able to replace on favorable terms, or at all.
•To the extent we enter into derivative financial instruments, one or more counterparties to our derivative financial instruments could default on their obligations to us or could fail, increasing the risk that we may not realize the benefits of utilizing these instruments.
•Any possession taken of our properties, in whole or in part, by governmental authorities for public purposes in eminent domain proceedings.
•Our level of insurance coverage and recovery we receive under any insurance we maintain, which may be delayed by, or insufficient to fully offset potential/actual losses caused by, COVID-19 (or another pandemic).
•Any increase in insurance premiums and imposition of large deductibles.
•Our level of dependence on the Internet, as it relates to employees’ working remotely, and increases in malware campaigns and phishing attacks preying on the uncertainties surrounding COVID-19 (or another pandemic), which may increase our vulnerability to cyber attacks.
•Our ability to ensure business continuity in the event our continuity of operations plan is not effective or is improperly implemented or deployed during a disruption.
•Our ability to operate, which may cause our business and operating results to decline or may impact our ability to comply with regulatory obligations and may lead to reputational harm and regulatory issues or fines.
The rapid spread, development, and fluidity of COVID-19 and its multiple variants resulted in, and may continue to result in, significant disruption of the global financial market and labor markets, and it is difficult to ascertain the ultimate impact of the pandemic. Although COVID-19 vaccines are widely distributed and available across the country, a significant percentage of the U.S. population remains unvaccinated due to vaccine hesitancy. As a result, the pandemic and public and private responses to the pandemic may lead to a deterioration of economic conditions, an economic downturn, and/or a recession, at a global scale, which could materially affect our (or our tenants’) performance, financial condition, results of operations, and cash flows.
The outbreak of the coronavirus disease, or COVID-19, or the future outbreak of any other highly infectious or contagious diseases, could adversely impact or cause disruption to our tenants’ financial condition and results of operations, which may adversely impact our ability to generate income sufficient to meet operating expenses or generate income and capital appreciation.
Our tenants, many of which conduct business in the life science, agtech, or technology industries, may incur significant costs or losses responding to the outbreak of a contagious disease (such as COVID-19), lose business due to interruption in their operations, or incur other liabilities related to shelter-in-place orders, quarantines, infection, or other related factors. Tenants that experience deteriorating financial conditions as a result of the outbreak of such a contagious disease may be unwilling or unable to pay rent in full or timely due to bankruptcy, lack of liquidity, lack of funding, operational failures, or other reasons. Our tenants’ defaults and delayed or partial rental payments could adversely impact our rental revenues and operating results.
The negative effects of an outbreak of a contagious disease on our tenants in the life science industry may include, but are not limited to:
•Delays or difficulties in enrolling patients or maintaining scheduled study visits in clinical trials;
•Delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and staff;
•Diversion of healthcare resources away from clinical trials, including the diversion of hospitals serving as our tenants’ clinical trial sites and hospital staff supporting the conduct of our tenants’ clinical trials;
•Interruptions of key clinical trial or other research activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers, and others;
•Limitations in employee resources that would otherwise be focused on our tenants’ research, business, or clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, or as a result of the governmental imposition of shelter-in-place or similar working restrictions;
•Interruptions in supply chain, manufacturing, and global shipping, or other delays that may affect the transport of materials necessary for our tenants’ research, clinical trials, or manufacturing activities;
•Reduction in revenue projections for our tenants’ products due to the prioritization of the treatment of affected patients over other treatments, such as specialty and elective procedures;
•Delays in necessary interactions with ethics committees, regulators, and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;
•Delays in receiving approval from regulatory authorities to initiate planned clinical trials or research activities;
•Delays in commercialization of our tenants’ products and approval by government authorities (such as the FDA and the federal and state Emergency Management Agencies) of our tenants’ products caused by disruptions, funding shortages, or health concerns, as well as by the prioritization by the FDA of the review and approvals of diagnostics, therapeutics, and vaccines that are related to an outbreak;
•Difficulty in retaining staff or rehiring staff in connection with layoffs caused by deteriorating global market conditions;
•Changes in local regulations as part of a response to an outbreak that may require our tenants to change the ways in which their clinical trials are conducted, which may result in unexpected costs or the discontinuation of the clinical trials altogether;
•Refusal or reluctance of the FDA to accept data from clinical trials in affected geographies outside the U.S.;
•Diminishing public trust in healthcare facilities or other facilities, such as medical office buildings, that are treating (or have treated) patients affected by contagious diseases; and
•Inability to access capital on terms favorable to our tenants because of changes in company valuation and/or investor appetite due to a general downturn in economic and financial conditions and the volatility of the market.
The negative effects of an outbreak of a contagious disease on our tenants in the technology industry may include, but are not limited to:
•Reduction in staff productivity due to business closures, alternative working arrangements, or illness of staff and/or illness in the family;
•Reduction in sales of our tenants’ services and products, longer sales cycles, reduction in subscription duration and value, slower adoption of new technologies, and increase in price competition due to economic uncertainties and downturns;
•Disruptions to our tenants’ supply chain, manufacturing vendors, or logistics providers of products or services;
•Limitations on business and marketing activities due to travel restrictions, virtualization, or cancellation of related events;
•Adverse impact on customer relationships and our ability to recognize revenues due to our tenants’ inability to access their clients’ sites for implementation and on-site consulting services;
•Inability to recruit and develop highly skilled employees with appropriate qualifications, to conduct background checks on potential employees, and to provide necessary equipment and training to new and existing employees;
•Network infrastructure and technology system failures of our tenants, or of third-party services used by our tenants, which may result in system interruptions, reputational harm, loss of intellectual property, delays in product development, lengthy interruptions in services, breaches of data security, and loss of critical data;
•Higher employment compensation costs that may not be offset by improved productivity or increased sales; and
•Inability to access capital on terms favorable to our tenants because of changes in company valuation and/or investor appetite due to a general downturn in of economic and financial conditions and the volatility of the market.
The negative effects of an outbreak of a contagious disease on our tenants in the agtech industry may include, but are not limited to:
•Reduction in productive capacity and profitability because of decreased labor availability due, for example, to government restrictions, the inability of employees to report to work, or collective bargaining efforts;
•Potential contract cancellations, project reductions, and reduction in demand for our tenants’ products due to the adverse effect on business confidence and consumer sentiments and the general downturn in economic conditions;
•Disruption of the logistics necessary to import, export, and deliver products to target companies and their customers, as ports and other channels of entry may be closed or may operate at only a portion of capacity;
•Disruptions to manufacturing facilities and supply lines; and
•Inability to access capital on terms favorable to our tenants because of changes in company valuation and/or investor appetite due to a general downturn in economic and financial conditions and the volatility of the market.
The potential impact of a pandemic or outbreak of a contagious disease with respect to our tenants or our properties is difficult to predict and could have a material adverse impact on our tenants’ operations and, in turn, on our revenues, business, and results of operations, as well as the value of our stock. The COVID-19 pandemic, or other pandemics or disease outbreaks, may directly or indirectly cause the realization of any of the other risk factors included in this annual report on Form 10-K.
Other factors
We may incur significant costs if we fail to comply with laws or if laws change.
Our properties are subject to many federal, state, and local regulatory requirements and to state and local fire, life-safety, environmental, and other requirements. If we do not comply with all of these requirements, we may have to pay fines to government authorities or damage awards to private litigants. We do not know whether these requirements will change or whether new requirements will be imposed. Changes in these regulatory requirements could require us to make significant unanticipated expenditures. These expenditures could have an adverse effect on us and our ability to make distributions to our stockholders.
For example, the California Safe Drinking Water and Toxic Enforcement Act, also referred to as Proposition 65, requires “clear and reasonable” warnings be given to persons who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity. We believe that we comply with Proposition 65 requirements; however, there can be no assurance that we will not be adversely affected by litigation or regulatory enforcement relating to Proposition 65. In addition, there can be no assurance that the costs of compliance with new environmental laws and regulations will not be significant or will not adversely affect our ability to meet our financial expectations, our financial condition, results of operations, and cash flows.
We may incur significant costs in complying with the Americans with Disabilities Act and similar laws.
Under the ADA, places of public accommodation and/or commercial facilities must meet federal requirements related to access and use by disabled persons. We may be required to make substantial capital expenditures at our properties to comply with this law. In addition, non-compliance could result in the imposition of fines or an award of damages to private litigants.
A number of additional federal, state, and local laws and regulations exist regarding access by disabled persons. These regulations may require modifications to our properties or may affect future renovations. These expenditures may have an adverse impact on overall returns on our investments.
We face possible risks and costs associated with the effects of climate change and severe weather.
We cannot predict the rate at which climate change will progress. However, the physical effects of climate change could have a material adverse effect on our properties, operations, and business. For example, most of our properties are located along the east and west coasts of the U.S. To the extent that climate change impacts changes in weather patterns, our markets could experience severe weather, including hurricanes, severe winter storms, and coastal flooding due to increases in storm intensity and rising sea levels. Certain of our properties are also located along shorelines and may be vulnerable to coastal hazards, such as sea level rise, severe weather patterns and storm surges, land erosion, and groundwater intrusion. Over time, these conditions could result in declining demand for space at our properties, delays in construction, resulting in increased construction costs, or in our inability to operate the buildings at all. Climate change and severe weather may also have indirect effects on our business by increasing the cost of, or decreasing the availability of, property insurance on terms we find acceptable, by increasing the costs of energy, maintenance, repair of water and/or wind damage, and snow removal at our properties.
In addition, to combat the cause of global warming domestically, President Biden identified climate change as one of his administration’s top priorities and pledged to seek measures that would pave the path for the U.S. to eliminate net greenhouse gas (“GHG”) pollution by 2050. In April 2021, President Biden announced the administration’s plan to reduce the U.S. greenhouse gas emissions by at least 50% by 2030.
In March 2022, the SEC released a proposed standard that would require quantitative disclosures of certain climate-related metrics and greenhouse gas emissions, including within the footnotes to our consolidated financial statements. As of the date of this report, the standard has not been finalized, and our assessment of the potential effect of this standard, if adopted as proposed, on our consolidated financial statements is ongoing.
In August 2022, the U.S. Congress signed into law the Inflation Reduction Act of 2022 (“IRA”), which directs nearly $400 billion of federal spending to be used toward reducing carbon emissions and funding clean energy over the next 10 years and is designed to encourage private investment in clean energy, transport, and manufacturing.
Numerous states and municipalities have adopted state and local laws and policies on climate change and emission reduction targets, including, but not limited to, the following:
California
•In September 2018, Senate Bill 100 was signed into law in California, accelerating the state’s renewable portfolio standard target dates and setting a policy of meeting 100% of retail electricity sales from eligible renewables and zero-carbon resources by December 31, 2045.
•In September 2020, Governor Newsom signed an executive order requiring all new passenger cars and trucks sold in the state to be emission free by 2035.
•In November 2020, the San Francisco Board of Supervisors adopted an All-Electric New Construction Ordinance that will require all new buildings (residential and non-residential) with initial building permit applications made on or after June 1, 2021 to have all-electric indoor and outdoor space-conditioning, water heating, cooking, and clothes drying systems.
•In September 2021, Governor Newsom signed legislation aimed at achieving net-zero GHG emissions associated with cement used within the state no later than 2045.
•In September 2022, Governor Gavin Newsom enacted a package of legislation that, among other measures, will allow the state to achieve carbon neutrality no later than 2045; establish an 85% emissions reduction target by 2045; achieve 90% and 95% clean energy by 2035 and 2040, respectively; and establish a regulatory framework for removing carbon pollution.
Massachusetts
•In March 2021, Senate Bill 9 was signed into law, updating the state’s climate policy to ensure net-zero GHG emissions by 2050 and establishing interim emission reduction targets for several sectors, including commercial and industrial buildings.
•In September 2021, the Boston City Council approved an amendment to the Building Emissions Reduction and Disclosure Ordinance (“BERDO 2.0”), which imposes enforceable emission limits on buildings over 20,000 square feet starting in 2025-2030, targeting zero emissions by 2050. Furthermore, BERDO 2.0 adds a requirement that water and energy use data reported to the City of Boston be verified by a third-party. (An annual reporting requirement starting in 2022 for year 2021 was imposed by BERDO 1.0.)
•In August 2022, Governor Charlie Baker enacted a bill to enable the state to meet its climate targets, with key provisions, including mandating all new vehicles sold to be emission free by 2035; providing certain municipalities the ability to ban fossil fuel hookups in new construction or major renovation projects; requiring the Massachusetts Bay Transportation Authority to electrify its entire fleet of public transportation vehicles by 2040 and purchase only zero-emission buses starting in 2030; and phasing out incentives for fossil fuel-powered heating and cooling systems.
New York
•In July 2019, the Climate Leadership and Community Protection Act (“CLCPA”) was signed into law, establishing a statewide framework to reduce net GHG emissions.
•In December 2022, New York approved the Scoping Plan, which details actions required to advance directives stated in the CLCPA and to enable New York to achieve:
•70% renewable energy by 2030;
•Zero emissions electricity by 2040;
•40% GHG emissions reduction below 1990 levels by 2030;
•85% GHG emissions reduction below 1990 levels by 2050; and
•Net-zero GHG emissions statewide by 2050.
•In May 2019, New York City enacted Local Law 97 as a part of the Climate Mobilization Act aimed at reducing GHG emissions by 80% from commercial and residential buildings by 2050. Starting in 2024, this law will place carbon caps on most buildings larger than 25,000 square feet.
•In December 2021, New York City passed Local Law 154, which will phase out fossil fuel usage in newly constructed residential and commercial buildings starting in 2024 for lower-rise buildings and in 2027 for taller buildings. With few exceptions, all buildings constructed in New York City must be fully electric by 2027.
Washington
•In May 2019, the Clean Buildings Act was signed into law in the state of Washington. The law imposed a cap on the energy used in commercial buildings larger than 50,000 square feet and established a phase-in compliance requirement starting in 2026. In March 2022, the law was expanded to apply to commercial buildings exceeding 20,000 square feet.
•In 2020, the State of Washington set GHG emission limits, which will require the state to reduce emissions levels by 45% below 1990 levels by 2030 and by 70% below 1990 levels by 2040, and to achieve net-zero emissions by 2050.
Maryland
•In April 2022, the Climate Solutions Now Act of 2022 became law in Maryland. The law requires new and existing buildings over 35,000 RSF:
•To report energy use data annually beginning in 2025;
•To reduce direct GHG emissions by 20% from 2025 levels by 2030; and
•To have net-zero direct emissions by 2040.
The law also requires the state to reduce its GHG emissions by 60% below 2006 levels by 2031 and to achieve net-zero GHG emissions by 2045.
North Carolina
•In January 2022, Governor Roy Cooper signed an executive order that updates the state’s GHG emission goals to require a reduction of 50% below 2005 levels by 2030 and achievement of net-zero GHG emissions by 2050.
Changes in federal, state, and local legislation and regulation based on concerns about climate change could result in increased capital expenditures on our existing properties and our new development properties (for example, to improve their energy efficiency and/or resistance to severe weather), and in our and our tenants’ increased compliance and other costs without a corresponding increase in revenue, which may result in adverse impacts to our and our tenants’ operating results.
Also, we rely on a limited number of vendors to provide key services, including, but not limited to, utilities and construction services, at certain of our properties. If, as a result of unanticipated events, including those resulting from climate change, these vendors fail to adequately provide key services, we may experience significant interruptions in service and disruptions to business operations at our properties, incur remediation costs, and become subject to claims and damage to our reputation. Nearly 40% of the properties we own and operate are located in California, where climate change has been linked to the progressively warmer and drier weather associated with ideal conditions for highly destructive wildfires.
For example, most of our properties located in our San Francisco Bay Area market depend on PG&E for the delivery of electric and gas services. In January 2019, in response to potential liabilities arising from a series of catastrophic wildfires that occurred in Northern California in 2017 and 2018, PG&E initiated voluntary reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code. While PG&E emerged from bankruptcy in July 2020, there is no guarantee that PG&E will be able to sustain safe operations and continue to provide consistent utilities services. During periods of high winds and high fire danger in recent fire seasons, PG&E has preemptively shut off power to areas of Central and Northern California. The shutoffs were designed to help guard against fires ignited in areas with high winds and dry conditions. PG&E has warned that it may have to employ shutoffs while the utility company addresses maintenance issues. Future shutoffs of power may impact the reliability of access to a stable power supply at our properties. There is no guarantee that in the future climate change and severe weather will not adversely affect PG&E or any of our other key vendors, which in turn could have a material adverse effect on our properties and our tenants’ operations, as well as on our financial condition, results of operations, and cash flows.
There can be no assurance that climate change and severe weather, or the potential impacts of these events on our vendors and suppliers, will not have a material adverse effect on our properties, operations, or business.
We may incur significant costs in complying with environmental laws.
Federal, state, and local environmental laws and regulations may require us, as a current or prior owner or operator of real estate, to investigate and remediate hazardous or toxic substances or petroleum products released at or from any of our properties. The cost of investigating and remediating contamination could be substantial and could exceed the amount of any insurance coverage available to us. In addition, the presence of contamination, or the failure to properly remediate, may adversely affect our ability to lease or sell an affected property, or to borrow funds using that property as collateral.
Under environmental laws and regulations, we may have to pay government entities or third parties for property damage and for investigation and remediation costs incurred by those parties relating to contaminated properties regardless of whether we knew of or caused the contamination. Even if more than one party was responsible for the contamination, we may be held responsible for all of the remediation costs. In addition, third parties may sue us for damages and costs resulting from environmental contamination, or jointly responsible parties may contest their responsibility or be financially unable to pay their share of such costs.
Environmental laws also govern the presence, maintenance, and removal of asbestos-containing building materials. These laws may impose fines and penalties on us for the release of asbestos-containing building materials and may allow third parties to seek recovery from us for personal injury from exposure to asbestos fibers. We have detected asbestos-containing building materials at some of our properties, but we do not expect that they will result in material environmental costs or liabilities for us.
Environmental laws and regulations also require the removal or upgrading of certain underground storage tanks and regulate:
•The discharge of stormwater, wastewater, and any water pollutants;
•The emission of air pollutants;
•The generation, management, and disposal of hazardous or toxic chemicals, substances, or wastes; and
•Workplace health and safety.
Many of our tenants routinely handle hazardous substances and wastes as part of their operations at our properties. Environmental laws and regulations subject our tenants, and potentially us, to liability resulting from these activities. Environmental liabilities could also affect a tenant’s ability to make rental payments to us. We require our tenants to comply with these environmental laws and regulations and to indemnify us against any related liabilities.
Independent environmental consultants have conducted Phase I or similar environmental assessments at our properties. We intend to use consultants to conduct similar environmental assessments on our future acquisitions. This type of assessment generally includes a site inspection, interviews, and a public records review, but no subsurface sampling. These assessments and certain additional investigations of our properties have not to date revealed any environmental liability that we believe would have a material adverse effect on our business, assets, or results of operations.
Additional investigations have included, as appropriate:
•Asbestos surveys;
•Radon surveys;
•Lead-based paint surveys;
•Mold surveys;
•Additional public records review;
•Subsurface sampling; and
•Other testing.
Nevertheless, it is possible that the assessments on our current properties have not revealed, and that assessments on future acquisitions will not reveal, all environmental liabilities. Consequently, there may be material environmental liabilities of which we are unaware that may result in substantial costs to us or our tenants and that could have a material adverse effect on our business.
Environmental, health, or safety matters are subject to evolving regulatory requirements. Costs and capital expenditures relating to the evolving requirements depend on the timing of the promulgation and enforcement of new standards. As discussed in the immediately preceding risk factor, due to concern over the risks of climate change, a more restrictive regulatory framework to reduce GHG pollution might be implemented, including the adoption of carbon taxes, restrictive permitting, and increased efficiency standards. These requirements could make our operations more expensive and lengthen our project timelines. The costs of complying with evolving regulatory requirements, including GHG regulations and policies, could negatively impact our financial results. Moreover, changes in environmental regulations could inhibit or interrupt our operations, or require modifications to our facilities. Accordingly, environmental, health, or safety regulatory matters could result in significant unanticipated costs or liabilities and could have a material adverse effect on our business, financial condition, results of operations, and cash flows, and the market price of our common stock.
We may be unable to meet our sustainability goals.
We seek to make a positive and meaningful impact on the health, safety, and well-being of our tenants, stockholders, employees, and the communities in which we live and work. In support of these efforts, we set specific sustainability goals to reduce the environmental impact of buildings in operation and for new ground-up construction projects. There are significant risks that may prevent us from achieving these goals, including, but not limited to, the following possibilities:
•Change in market conditions may affect our ability to deploy capital for projects that reduce energy consumption, GHG pollution, and potable water consumption and that provide waste savings.
•Our tenants may be unwilling or unable to accept potential incremental expenses associated with our sustainability programs, including expenses to comply with requirements stipulated under building certification standards such as LEED, WELL, and Fitwel.
The realization of any of the above risks could significantly impact our reputation, our ability to continue developing properties in markets where high levels of LEED certification contribute to our efforts to obtain building permits and entitlements, and our ability to attract tenants who include LEED certification among their priorities when selecting a location to lease.
We may invest or spend the net proceeds from the offerings of our unsecured senior notes payable due in April 2026, May 2032, and March 2034 in ways investors may not agree with and in ways that may not earn a profit.
The respective net proceeds from the offerings of our unsecured senior notes payable due in April 2026, May 2032, and March 2034 (collectively, the “Green Bonds”) will be used to fund, in whole or in part, Eligible Green Projects (as defined below), including the development and redevelopment of such projects. The net proceeds from these offerings were initially used to reduce the outstanding balance on our unsecured senior line of credit. We then allocated the funds to recently completed and future Eligible Green Projects.
‘‘Eligible Green Projects’’ are defined as:
•New class A development properties that have received or are expected to receive Gold or Platinum LEED certification;
•Existing class A redevelopment properties that have received or are expected to receive Gold or Platinum LEED certification; and
•Tenant improvements that have received or are expected to receive Gold or Platinum LEED certification.
Eligible Green Projects include projects with disbursements made in the three years preceding the applicable issue date of the Green Bonds. We intend to spend the remaining net proceeds from the sale of the Green Bonds within two years following the applicable issue date of the Green Bonds. LEED is a voluntary, third-party building certification process developed by the U.S. Green Building Council (‘‘USGBC’’), a non-profit organization. The USGBC developed the LEED certification process to (i) evaluate the environmental performance from a whole-building perspective over a building’s life cycle, (ii) provide a definitive standard for what constitutes a ‘‘green building,’’ (iii) enhance environmental awareness among architects and building contractors, and (iv) encourage the design and construction of energy-efficient, water-conserving buildings that use sustainable or green resources and materials.
There can be no assurance that the projects funded with the proceeds from the Green Bonds will meet investor criteria and expectations regarding environmental impact and sustainability performance. In particular, no assurance is given that the use of such proceeds for any Eligible Green Projects will satisfy, whether in whole or in part, any present or future investor expectations or requirements regarding any investment criteria or guidelines with which such investor or its investments are required to comply, whether by any present or future applicable law or regulations or by its own bylaws or other governing rules or investment portfolio mandates (in particular with regard to any direct or indirect environmental, sustainability, or social impact of any projects or uses, the subject of or related to, the relevant Eligible Green Projects). Adverse environmental or social impacts may occur during the design, construction, and operation of the projects, or the projects may become controversial or criticized by activist groups or other stakeholders. In addition, although we will limit the use of proceeds from the Green Bonds to Eligible Green Projects, there can be no assurance that one or more development, redevelopment, and tenant improvement projects that we expect will receive a LEED certification will actually receive such certification. Furthermore, from time to time, we may refinance our debt to take advantage of lower market rates or other favorable terms, and we might pursue this strategy in the future in connection with our Green Bonds. If the terms of the refinanced agreements set different or no restrictions on the range of purposes the funds can be allocated to, we can provide no assurance that allocations to future Eligible Green Projects established prior to the refinancing of our Green Bonds will remain unchanged after the refinancing has been completed.
Changes in U.S. accounting standards may adversely impact us.
The regulatory boards and government agencies that determine financial accounting standards and disclosures in the U.S., which include the FASB and the IASB (collectively, the “Boards”) and the SEC, continually change and update the financial accounting standards we must follow.
From time to time, the Boards issue ASUs that could have a material effect on our financial condition or results of operations, which in turn could also significantly impact the market price of our common stock. Such potential impacts include, without limitation, significant changes to our balance sheet, significant changes to the timing or methodology of revenue or expense recognition, or significant fluctuations in our reported results of operations, including an increase in our operating expenses or general and administrative expenses related to payroll costs, legal costs, and other out-of-pocket costs incurred in order to comply with the requirements of these ASUs.
Any difficulties in the implementation of changes in accounting principles, including the ability to modify our accounting systems and to update our policies, procedures, information systems, and internal controls over financial reporting, could result in materially inaccurate financial statements, which in turn could harm our operating results or cause us to fail to meet our reporting obligations. Significant changes in new ASUs could cause fluctuations in revenue and expense recognition and materially affect our results of operations. We may also experience an increase in general and administrative expenses resulting from additional resources required for the initial implementation of such ASUs. This could adversely affect our reported results of operations, profitability, and financial statements. Additionally, the adoption of new accounting standards could affect the calculation of our debt covenants. It cannot be assured that we will be able to work with our lenders to successfully amend our debt covenants in response to changes in accounting standards.
Security incidents through cyber attacks, cyber intrusions, or other methods could disrupt our information technology networks, enterprise applications, and related systems; cause a loss of assets, system availability, or data; give rise to remediation or other expenses; expose us to liability under federal and state laws; and subject us to litigation and investigations, which could result in substantial reputational damage and materially and adversely affect our business, financial condition, results of operations, and cash flows, and the market price of our common stock.
Information technology, communication networks, enterprise applications, and related systems are essential to the operation of our business. We use these systems to manage our tenant and vendor relationships, internal communications, accounting and record-keeping systems, and many other key aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks, which also depend on the strength of our procedures and the effectiveness of our internal controls.
A security incident may occur through physical break-ins; disruptions due to power outages or catastrophic events, such as fires, floods, hurricanes, and earthquakes; breaches of our secure network by an unauthorized party (including those caused by supply chain breaches); software vulnerabilities, malware, computer viruses, attachments to emails; employee theft or misuse; social engineering; or inadequate use of security controls. Outside parties may attempt to fraudulently induce our employees to disclose sensitive information or transfer funds via illegal electronic spamming, phishing, spoofing, or other tactics. Additionally, cyber attackers can develop and deploy malware, credential theft or guessing tools, and other malicious software programs to gain access to sensitive data or fraudulently obtain assets we hold.
We have implemented security measures to safeguard our systems and data and to manage cybersecurity risk. We monitor and develop our information technology networks and infrastructure, and invest in the development and enhancement of our controls designed to prevent, detect, respond, and mitigate the risk of unauthorized access, misuse, computer viruses, and other events that could have a security impact. We conduct periodic security awareness trainings of our employees to educate them on how to identify and alert management to phishing emails, spoofed or manipulated electronic communications, and other critical security threats. We have implemented routine phishing tests using a variety of scenarios, including those obtained from phishing samples and intelligence sources. Additionally, we have an internal team and external partners with well-defined processes devoted to responding to threats, including reports of phishing, in real time. We have implemented internal controls around our treasury function, including enhanced payment authorization procedures, verification requirements for new vendor setup and vendor information changes, and bolstered outgoing payment notification processes and account reconciliation procedures. Finally, we have policies and procedures in place in order to identify cybersecurity incidents and severe technology vulnerabilities and elevate such incidents to senior management in order to appropriately address and remediate any cyber attack. At least annually, we engage a third party to test our security by acting like an advanced threat and try to break into our computer systems.
There can be no assurance that our actions, security measures, and controls designed to prevent, detect, or respond to intrusion; to limit access to data; to prevent loss, destruction, alteration, or exfiltration of business information; or to limit the negative impact from such attacks can provide absolute security against a security incident. A significant security incident involving our information systems or those of our tenants, vendors, software creators, cloud providers, cybersecurity service providers, or other third parties with whom we do business could lead to, among other things:
•Theft of our cash, cash equivalents, or other liquid assets, including publicly traded securities;
•Interruption in the operation of our systems, which may result in operational inefficiencies and a loss of profits;
•Unauthorized access to, and destruction, loss, theft, misappropriation, or release of, proprietary, confidential, sensitive, or otherwise valuable information of ours or our tenants, and other business partners, which could be used to compete against us or for disruptive, destructive, or otherwise harmful purposes and outcomes;
•Our inability to produce financial and operational data necessary to comply with rules and regulations from the SEC, the IRS, or other state and federal regulatory agencies;
•Our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;
•Significant management attention and resources required to remedy any damages that result;
•Significant exposure to litigation and regulatory fines, penalties, or other sanctions;
•Violation of our lease agreements or other agreements;
•Damage to our reputation among our tenants, business partners, and investors;
•Loss of business opportunities;
•Difficulties in employee retention and recruitment;
•Unauthorized access to, and destruction, loss, or denial of service to, the computing systems that manage our buildings;
•Increase in the cost of proactive defensive measures to prevent future cyber incidents, including hiring personnel and consultants or investing in additional technologies;
•Increase in our cybersecurity insurance premiums; and
•The wide breadth of software required to run our business, and the increase in supply chain attacks by advanced persistent threats.
A principal reason that we cannot provide absolute protection from security incidents is that it may not always be possible to anticipate, detect, or recognize threats to our systems, or to implement effective preventive measures against all security incidents. We may not be able to immediately address the consequences of a security incident. A successful breach of our computer systems, software, networks, or other technology assets could occur and persist for an extended period of time before being detected due to, among other things:
•The breadth of our operations and the high volume of transactions that our systems process;
•The large number of our business partners;
•The frequency and wide variety of sources from which a cyber attack can originate;
•An increase in supply chain attacks;
•The severity of cyber attacks; and
•The proliferation and increasing sophistication and types of cyber attacks.
The extent of a particular cyber attack and the steps that we may need to take to investigate the attack may not be immediately clear. Therefore, in the event of an attack, it may take a significant amount of time before such an investigation can be completed. During an investigation, we may not necessarily know the extent of the damage incurred or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, which could further increase the costs and consequences of a cyber attack.
Even if we are not targeted directly, cyber attacks on the U.S. government, financial markets, financial institutions, or other businesses, including our tenants, vendors, software creators, cloud providers, cybersecurity service providers, and other third parties with whom we do business, may occur, and such events could disrupt our normal business operations and networks in the future. In December 2020, hackers reportedly linked to the Russian government engaged in a massive cyber attack on the U.S. government and major U.S.-based private companies through malware planted in third-party software. The full extent of the hack to these entities remains unknown, and there is no evidence that we have been impacted by this hack, though a significant number of government agencies and companies in the private sector, most of which are U.S.-based, have confirmed breaches.
We have not experienced any material breach of cybersecurity. However, our computer systems will likely be subject to cyber attacks, unauthorized access, computer viruses, or other computer-related penetrations. Our administrative and technical controls as well as other preventive actions we take to reduce the risk of cyber incidents and protect our information technology may be insufficient to prevent physical and electronic break-ins, cyber attacks, or other security breaches to our computer systems.
In response to increasing risks of cyber attacks, President Biden issued an executive order, “Improving the Nation’s Cybersecurity” in May 2021, which established a reporting requirement for government contractors and encouraged coordination between the public and private sectors to better protect against cybersecurity incidents. In addition, in June 2021, the SEC increased its focus on the failure of some public companies to disclose that they had been affected by the aforementioned December 2020 cyber attack, by sending investigative letters seeking voluntary information regarding the attack and questions around companies’ disclosures and internal controls. The SEC also communicated that cyber risks would be included on the SEC rulemaking agenda. We expect the federal government and regulatory agencies to continue to focus on ways to increase protection against and oversight and disclosure of cyber attack incidents.
In March 2022, President Biden signed into law the Cyber Incident Reporting for Critical Infrastructure Act (“CIRCIA”), which will require critical infrastructure entities to report to the Cybersecurity and Infrastructure Security Agency (“CISA”) of the U.S. Department of Homeland Security any substantial cyber incidents within 72 hours and ransomware payments made within 24 hours, among other items. CISA has until September 2025 to release a final rule, and it is yet unknown whether we will be subject to these rules under CIRCIA.
General risk factors
We face risks associated with short-term liquid investments.
From time to time, we may have significant cash balances that we invested in a variety of short-term investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. These investments may include (either directly or indirectly) obligations (including certificates of deposit) of banks, money market funds, treasury bank securities, and other short-term securities. Investments in these securities and funds are not insured against loss of principal. Under certain circumstances, we may be required to redeem all or part of these securities or funds at less than par value. A decline in the value of our investments, or a delay or suspension of our right to redeem them, may have a material adverse effect on our results of operations or financial condition and our ability to pay our obligations as they become due.
Competition for skilled personnel could increase labor costs.
We compete with various other companies in attracting and retaining qualified and skilled personnel. We depend on our ability to attract and retain skilled management personnel who are responsible for the day-to-day operations of the Company. Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel. We may not be able to offset such additional costs by increasing the rates we charge tenants. If there is an increase in these costs or if we fail to attract and retain qualified and skilled personnel, our business and operating results could be adversely affected.
Failure to hedge effectively against interest rate changes may adversely affect our results of operations.
From time to time, we may enter into interest rate hedge agreements to manage some of our exposure to interest rate volatility. Interest rate hedge agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements. In addition, these arrangements may not be effective in reducing our exposure to changes in interest rates. These risk factors may lead to failure to hedge effectively against changes in interest rates and therefore could adversely affect our results of operations. As of December 31, 2022, we had no interest rate hedge agreements outstanding.
Market volatility may negatively affect our business.
From time to time, the capital and credit markets experience volatility. In some cases, the markets have produced downward pressure on stock prices and credit capacity for certain issuers without regard to those issuers’ underlying financial and/or operating strength. If market disruption and volatility occur, there can be no assurance that we will not experience an adverse effect, which may be material, on our business, financial condition, and results of operations. Market disruption and volatility may adversely affect the value of the companies in which we hold equity investments, including through our non-real estate venture investment portfolio, and we may be required to recognize losses in our earnings. Disruptions, uncertainty, or volatility in the capital markets may also limit our access to capital from financial institutions on favorable terms, or altogether, and our ability to raise capital through the issuance of equity securities could be adversely affected by causes beyond our control through extraordinary disruptions in the global economy and financial systems or through other events.
Changes in financial accounting standards may adversely impact our compliance with financial debt covenants.
Our unsecured senior notes payable contain financial covenants that are calculated based on GAAP at the date the instruments were issued. However, certain debt agreements, including those related to our unsecured senior line of credit, contain financial covenants whose calculations are based on current GAAP, which is subject to future changes. Our unsecured senior line of credit agreement provides that our financial debt covenants be renegotiated in good faith to preserve the original intent of the existing financial covenant when such covenant is affected by an accounting standard change. For those debt agreements that require the renegotiation of financial covenants upon changes in accounting standards, there is no assurance that we will be successful in such negotiations or that the renegotiated covenants will not be more restrictive to us.
Extreme weather and natural or other unforeseen disasters may cause property damage or disrupt operations, which could harm our business and operating results.
We have properties located in areas that may be subject to extreme weather and natural or other disasters, including, but not limited to, earthquakes, winds, floods, hurricanes, fires, power shortages, telecommunication failures, medical epidemics, explosions, or other natural or manmade accidents or incidents. Our corporate headquarters and certain properties are located in areas of California that have historically been subject to earthquakes and wildfires. Such conditions and disastrous events may damage our properties, disrupt our operations, or adversely impact our tenants’ or third-party vendors’ operations. These events may affect our ability to operate our business and have significant negative consequences on our financial and operating results. Damage caused by these events may result in costly repairs for damaged properties or equipment, delays in the development or redevelopment of our construction projects, or interruption of our daily business operations, which may result in increased costs and decreased revenues.
We maintain insurance coverage at levels that we believe are appropriate for our business. However, we cannot be certain that the amount of coverage will be adequate to satisfy damages or losses incurred in the event of another wildfire or other natural or manmade disaster, which may lead to a material adverse effect on our properties, operations, and our business, or those of our tenants.
Failure of the U.S. federal government to manage its fiscal matters or to raise or further suspend the debt ceiling, and changes in the amount of federal debt, may negatively impact the economic environment and adversely impact our results of operations.
The U.S. federal government has established a limit on the level of federal debt that the U.S. federal government can have outstanding, often referred to as the debt ceiling. The U.S. Congress has authority to raise or suspend the debt ceiling and to approve the funding of U.S. federal government operations within the debt ceiling, and has done both frequently in the past, often on a relatively short-term basis. On January 19, 2023, the U.S. reached its borrowing limit and currently faces risk of defaulting on its debt. Generally, if effective legislation to manage the level of federal debt is not enacted and the debt ceiling is reached in any given year, the federal government may suspend its investments for certain government accounts, among other available options, in order to prioritize payments on its obligations. It is anticipated that the U.S. federal government will be able to fund its operations through approximately mid-2023. However, contention among policymakers, among other factors, may hinder the enactment of policies to further increase the borrowing limit or address its debt balance timely. A failure by the U.S. Congress to raise the debt limit would increase the risk of default by the U.S. on its obligations, the risk of a lowering of the U.S. federal government’s credit rating, and the risk of other economic dislocations. Such a failure, or the perceived risk of such a failure, could consequently have a material adverse effect on the financial markets and economic conditions in the U.S. and globally. If economic conditions severely deteriorate as a result of U.S. federal government fiscal gridlock, our operations, or those of our tenants, could be affected, which may adversely impact our financial condition and results of operations. These risks may also impact our overall liquidity, our borrowing costs, or the market price of our common stock.
Changes in laws, regulations, and financial accounting standards may adversely affect our reported results of operations.
As a response, in large part, to perceived abuses and deficiencies in current regulations believed to have caused or exacerbated the 2008 global financial crisis, legislative, regulatory, and accounting standard-setting bodies around the world are engaged in an intensive, wide-ranging examination and rewriting of the laws, regulations, and accounting standards that have constituted the basic playing field of global and domestic business for several decades. In many jurisdictions, including the U.S., the legislative and regulatory response has included the extensive reorganization of existing regulatory and rule-making agencies and organizations, and the establishment of new agencies with broad powers. This reorganization has disturbed longstanding regulatory and industry relationships and established procedures.
The rule-making and administrative efforts have focused principally on the areas perceived as having contributed to the financial crisis, including banking, investment banking, securities regulation, and real estate finance, with spillover impacts on many other areas. These initiatives have created a degree of uncertainty regarding the basic rules governing the real estate industry, and many other businesses, that is unprecedented in the U.S. at least since the wave of lawmaking, regulatory reform, and government reorganization that followed the Great Depression.
The global financial crisis and the aggressive reaction of the government and accounting profession thereto have occurred against a backdrop of increasing globalization and internationalization of financial and securities regulation that began prior to the 2008 financial crisis. As a result of this ongoing trend, financial and investment activities previously regulated almost exclusively at a local or national level are increasingly being regulated, or at least coordinated, on an international basis, with national rule-making and standard-setting groups relinquishing varying degrees of local and national control to achieve more uniform regulation and reduce the ability of market participants to engage in regulatory arbitrage between jurisdictions. This globalization trend has continued, arguably with an increased sense of urgency and importance, since the financial crisis.
This high degree of regulatory uncertainty, coupled with considerable additional uncertainty regarding the underlying condition and prospects of global, domestic, and local economies, has created a business environment that makes business planning and projections even more uncertain than is ordinarily the case for businesses in the financial and real estate sectors.
In the commercial real estate sector in which we operate, the uncertainties posed by various initiatives of accounting standard-setting authorities to fundamentally rewrite major bodies of accounting literature constitute a significant source of uncertainty as to the basic rules of business engagement. Changes in accounting standards and requirements, including the potential requirement that U.S. public companies prepare financial statements in accordance with international accounting standards and the adoption of accounting standards likely to require the increased use of “fair value” measures, may have a significant effect on our financial results and on the results of our tenants, which would in turn have a secondary impact on us. New accounting pronouncements and interpretations of existing pronouncements are likely to continue to occur at an accelerated pace as a result of recent congressional and regulatory actions as well as the continuing efforts by the accounting profession itself to reform and modernize its principles and procedures.
Although we have not been as directly affected by the wave of new legislation and regulation as banks and investment banks, we may also be adversely affected by new or amended laws or regulations; by changes in federal, state, or foreign tax laws and regulations; and by changes in the interpretation or enforcement of existing laws and regulations. In the U.S., the financial crisis and the subsequent economic slowdown prompted a variety of legislative, regulatory, and accounting profession responses.
The federal legislative response culminated in the enactment on July 21, 2010, of the Dodd-Frank Act. The Dodd-Frank Act contains far-reaching provisions that substantially revise, or provide for the revision of, longstanding, fundamental rules governing the banking and investment banking industries and provide for the broad restructuring of the regulatory authorities in these areas. The Dodd-Frank Act has resulted in, and is expected to continue to result in, profound changes in the ground rules for financial business activities in the U.S. To a large degree, the impacts of the legislative, regulatory, and accounting reforms to date are still not clear.
The ongoing implementation of derivatives regulations could have an adverse impact on our ability to hedge risks associated with our business.
Title VII of the Dodd-Frank Act regulates derivatives transactions, which include certain instruments that we use in our risk management activities. It remains impossible at this time to predict the full effects on our hedging activities of the derivatives-related provisions of the Dodd-Frank Act and rules of the Commodity Futures Trading Commission (“CFTC”) and SEC thereunder, or the timing of such effects. While the CFTC has implemented most of its derivatives-related regulations under the Dodd-Frank Act, it has not yet adopted all of those regulations, and it has proposed revisions to certain of its existing derivatives regulations. The impact of any future new or revised CFTC derivatives regulations, or new or revised CFTC interpretations of existing regulations, is unknown, but they could result in, among other things, increases in the costs to us of swaps and other derivatives contracts, and decreases in the number and/or creditworthiness of available hedge counterparties. Furthermore, at this time, the SEC’s regulations for security-based swaps have generally not yet been implemented, and their potential impact on our ability to hedge risks cannot yet be known.
In addition, we may enter into hedging transactions with counterparties based in the EU, Canada, or other jurisdictions that, like the U.S., are in the process of implementing regulations for derivatives. Non-U.S. regulations may apply to such derivatives transactions. The potential impact of such non-U.S. regulations is not fully known and may include, among other things, increased costs for our hedging transactions.
A global financial stress, high structural unemployment levels, and other events or circumstances beyond our control may adversely affect our industry, business, results of operations, contractual commitments, and access to capital.
From 2008 through 2010, significant concerns over energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market, and a declining real estate market in the U.S. contributed to increased volatility, diminished expectations for the economy and the markets, and high levels of structural unemployment by historical standards. These factors, combined with volatile oil prices and fluctuating business and consumer confidence, precipitated a steep economic decline. Further, severe financial and structural strains on the banking and financial systems have led to significant lack of trust and confidence in the global credit and financial system. Consumers and money managers have liquidated and may liquidate equity investments, and consumers and banks have held and may hold cash and other lower-risk investments, which has resulted in significant and, in some cases, catastrophic declines in the equity capitalization of companies and failures of financial institutions. Although U.S. bank earnings and liquidity have rebounded, the potential of significant future bank credit losses creates uncertainty for the lending outlook.
Downgrades of the U.S. federal government’s sovereign credit rating and an economic crisis in Europe could negatively impact our liquidity, financial condition, and earnings.
Previous U.S. debt ceiling and budget deficit concerns, together with sovereign debt conditions in Europe, have increased the possibility of additional downgrades of sovereign credit ratings and economic slowdowns. There is no guarantee that future debt ceiling or federal spending legislation will not fail and cause the U.S. to default on its obligations, which would likely cause the U.S. credit rating to degrade.
Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on the U.S. from “AAA” to “AA+” in August 2011, which was affirmed in April 2020. Although Standard & Poor’s Ratings Services maintains a stable outlook on the U.S. credit rating, further fiscal impasses within the federal government may result in future downgrades. Moody’s Investor Services, Inc. affirmed its “Aaa” long-term issuer and senior unsecured ratings in June 2020 and maintains a stable outlook on the U.S. credit rating but has warned that the U.S. fiscal strength has been deteriorating. The impact of any further downgrades to the U.S. government’s sovereign credit rating, or its perceived creditworthiness, is inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions.
In addition, certain European nations experienced in the recent past varying degrees of financial stress, including 2022 currency and cost of living crises in the U.K., which contributed to the start of what is expected to be a prolonged recession in the U.K. There can be no assurance that government or other measures to aid economic recovery will be effective.
Such developments could result in future sovereign credit rating cuts and cause interest rates and borrowing costs to rise further, which may negatively impact our ability to access the debt markets on favorable terms. In addition, the lowered credit rating could create broader financial turmoil and uncertainty, which may exert downward pressure on the market price of our common stock. Continued adverse economic conditions could have a material adverse effect on our business, financial condition, and results of operations.
Economic and social volatility and geopolitical instability outside of the U.S. due to large-scale conflicts, including warfare among countries, may adversely impact us, the U.S., and global economies.
From time to time, tensions between countries may erupt into warfare and may adversely affect neighboring countries and those who conduct trade or foreign relations with those affected regions. Such acts of war may cause widespread and lingering damage on a global scale, including, but not limited to, (i) safety and cyber security, (ii) the economy, and (iii) global relations.
In February 2022, Russia invaded Ukraine following years of strained diplomatic relations between the two countries, which was heightened in 2021 when Russia amassed large numbers of military ground forces and support personnel on the Ukraine-Russia border. In response to the invasion and ensuing war, many countries, including the U.S., imposed significant economic and other sanctions against Russia. The war has created the largest refugee crisis in Europe since World War II and has inflicted significant damage to Ukraine’s infrastructure and economy. Both countries’ economies may be significantly affected, which may also adversely impact the global economy, including that of the U.S. The humanitarian crisis that has resulted from the war is likely to have pronounced and enduring impact on Ukraine, as well as a significant impact to neighboring countries that have accepted refugees. Further, Russia has launched an onslaught of cyberwarfare against Ukraine following its invasion, targeting the country’s critical infrastructure, government agencies, media organizations, and related think tanks in the U.S. and EU.
The U.S. federal government has cautioned Americans on the possibility of Russia targeting the U.S. with cyber attacks in retaliation for sanctions that the U.S. has imposed and has urged both the public and private sectors to strengthen their cyber defenses and protect critical services and infrastructure. Additionally, President Biden directed government bodies to mandate cybersecurity and network defense measures within their respective jurisdictions and has initiated action plans to reinforce cybersecurity within the electricity, pipeline, and water sectors. The current administration also launched joint efforts with CISA through its “Shields Up” campaign to defend the U.S. against possible cyber attacks. CISA published advisories warning of Russian state-sponsored threat actors targeting “COVID-19 research, governments, election organizations, healthcare and pharmaceutical, defense, energy, video gaming, nuclear, commercial facilities, water, aviation, and critical manufacturing” sectors in the U.S. and other Western nations. While we have not experienced such cyber attacks to date, it is yet unknown whether Russia will be successful in breaching our network defenses or, more broadly, those within the areas listed above, which, if successful, may cause disruptions to critical infrastructure required for our operations and livelihoods, or those of our tenants, communities, and business partners.
Refer to the risk factor titled “Most of our costs, such as operating and general and administrative expenses, interest expense, and real estate acquisition and construction costs, are subject to inflation” within the “Operating factors” section of this Item 1A for additional discussion of potential impacts that the recent Russia-Ukraine conflict may have on our operations.
Disruption, instability, volatility, and decline in economic activity, regardless of where it occurs, whether caused by acts of war, other acts of aggression, or terrorism, could in turn also harm the demand for, the safety of, and the value of our properties. As a result of the factors discussed above, we may be unable to operate our business as usual, which may adversely affect our cash flows, financial condition, and results of operations.
We are subject to risks from potential fluctuations in exchange rates between the U.S. dollar and foreign currencies.
We have properties and operations in countries where the U.S. dollar is not the local currency, and we thus are subject to international currency risk from the potential fluctuations in exchange rates between the U.S. dollar and the local currency. In particular, a significant decrease or volatility in the value of the Canadian dollar or other currencies in countries where we may have an investment could materially affect our results of operations. We may attempt to mitigate such effects by borrowing in the local foreign currency in which we invest. Any international currency gain recognized with respect to changes in exchange rates may not qualify under gross income tests that we must satisfy annually in order to qualify and maintain our status as a REIT.
Adoption of the Basel III standards and other regulatory standards affecting financial institutions may negatively impact our access to financing or affect the terms of our future financing arrangements.
In response to various financial crises and the volatility of financial markets, the Basel Committee on Banking Supervision (the “Basel Committee”) adopted the Basel III regulatory capital framework (“Basel III” or the “Basel III Standards”). The final package of Basel III reforms was approved by the G20 leaders in November 2010. In January 2013, the Basel Committee agreed to delay implementation of the Basel III Standards and expanded the scope of assets permitted to be included in certain banks’ liquidity measurements. U.S. banking regulators have elected to implement substantially all of the Basel III Standards, with implementation of Basel III having commenced in 2014 and incrementally implemented through 2020, though progress was limited during 2020 due to the impact of the COVID-19 pandemic.
Since approving the Basel III Standards, U.S. regulators also issued rules that impose upon the most systemically significant banking organizations in the U.S. supplementary leverage ratio standards (the “SLR Standards”) more stringent than those of the Basel III Standards. In addition, the U.S. Federal Reserve has adopted a final rule that establishes a methodology to identify whether a U.S. bank holding company is a global systemically important banking organization (“GSIB”). Any firm identified as a GSIB would be subject to a risk-based capital surcharge that is calibrated based on its systemic risk profile. Under the final rule, the capital surcharge began phasing in on January 1, 2016 and became fully effective on January 1, 2019.
On September 3, 2014, U.S. banking regulators issued a final rule to implement the Basel Committee’s liquidity coverage ratio (the “LCR”) in the U.S. (the “LCR Final Rule”). The LCR is intended to promote the short-term resilience of internationally active banking organizations to improve the banking industry’s ability to absorb shocks arising from idiosyncratic or market stress, and to improve the measurement and management of liquidity risk. The LCR Final Rule contains requirements that are in certain respects more stringent than the Basel Committee’s LCR. The LCR measures an institution’s high-quality liquid assets against its net cash outflows. Under the LCR Final Rule, the LCR transition period occurred from 2015 through 2017.
U.S. regulators have also issued and proposed rules that impose additional restrictions on the business activities of financial institutions, including their trading and investment activities. For example, with effect in April 2014, U.S. regulators adopted a final rule implementing a section of the Dodd-Frank Act that has become known as the “Volcker Rule.” The Volcker Rule generally restricts certain U.S. and foreign financial institutions from engaging in proprietary trading and from investing in sponsoring or having certain relationships with “covered funds,” which include private equity funds and hedge funds. Amendments effective in January 2020 have provided a certain level of regulatory relief, particularly pertaining to proprietary trading restrictions, by tailoring the Volker Rule’s application, simplifying certain standards and requirements, and reducing compliance burden. Additional amendments related to “covered funds” are expected. The effects of the Volcker Rule are uncertain, but it is in any event likely to curtail various banking activities, which in turn could result in uncertainties in the financial markets.
In March 2020, the Basel Committee announced a deferral of Basel III implementation to January 1, 2023 due to impacts from the COVID-19 pandemic. Currently, it is expected that the U.S. will delay implementation until 2025.
The implementation of the Basel III Standards, the SLR Standards, the GSIB capital surcharge, the LCR Final Rule, the Volcker Rule, and other similar rules and regulations could cause an increase in capital requirements for, and place other financial constraints on, both U.S. and foreign financial institutions from which we borrow, which may negatively impact our access to financing or affect the terms of our future financing arrangements.
Social, political, and economic instability, unrest, and other circumstances beyond our control could adversely affect our business operations.
Our business may be adversely affected by social, political, and economic instability, unrest, or disruption in a geographic region in which we operate, regardless of cause, including legal, regulatory, and policy changes by a new presidential administration in the U.S., protests, demonstrations, strikes, riots, civil disturbance, disobedience, insurrection, or social and other political unrest.
Such events may result in restrictions, curfews, or other actions and give rise to significant changes in regional and global economic conditions and cycles, which may adversely affect our financial condition and operations. In the past several years, there have been protests in cities throughout the U.S. as well as globally, including in Hong Kong, in connection with civil rights, liberties, and social and governmental reform. While protests were peaceful in many locations, looting, vandalism, and fires occurred in cities such as Seattle, Portland, Los Angeles, Washington, D.C., New York City, and Minneapolis that led to the imposition of mandatory curfews and, in some locations, deployment of the U.S. National Guard. Government actions in an effort to protect people and property, including curfews and restrictions on business operations, may disrupt operations, harm perceptions of personal well-being, and increase the need for additional expenditures on security resources. In addition, action resulting from such social or political unrest may pose significant risks to our personnel, facilities, and operations. The effect and duration of demonstrations, protests, or other factors is uncertain, and we cannot ensure there will not be further political or social unrest in the future or that there will not be other events that could lead to social, political, and economic disruptions. If such events or disruptions persist for a prolonged period of time, our overall business and results of operations may be adversely affected.
Changes in federal policy, including tax policies, and at regulatory agencies occur over time through policy and personnel changes following elections, which lead to changes involving the level of oversight and focus on certain industries and corporate entities. The nature, timing, and economic and political effects of potential changes to the current legal and regulatory frameworks affecting the life science, agtech, and technology industries, as well as the real estate industry in general, remain highly uncertain. For example, any proposals to make changes related to U.S. tax law, such as those involving Section 1031 Exchanges, may have a material adverse effect on our future business, financial condition, results of operations, and growth prospects. From time to time, we dispose of properties in transactions qualified as Section 1031 Exchanges. If certain proposed changes were ultimately effected and the laws surrounding Section 1031 Exchanges amended or repealed, we may not be able to dispose of properties on a tax-deferred basis. In such a case, our earnings and profits and our taxable income would increase, which could increase dividend income and reduce the return of capital to our stockholders. As a result, we may be required to pay additional dividends to stockholders, or if we do not pay additional dividends, our corporate income tax liability could increase and we may be subject to interest and penalties.
Terrorist attacks may have an adverse impact on our business and operating results and could decrease the value of our assets.
Terrorist attacks such as those that took place on September 11, 2001, could have a material adverse impact on our business, our operating results, and the market price of our common stock. Future foreign or domestic terrorist attacks may result in declining economic activity, which could reduce the demand for, and the value of, our properties. To the extent that any future foreign or domestic terrorist attacks impact our tenants, their businesses similarly could be adversely affected, including their ability to continue to honor their lease obligations.
Our business and operations would suffer in the event of information technology system failures.
Despite system redundancy, the implementation of security measures, and the existence of a disaster recovery plan for our internal information technology systems, our systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war, and telecommunications failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. We may also incur additional significant costs to remedy damages caused by such disruptions.
Any or all of the foregoing could have a material adverse effect on our financial condition, results of operations, and cash flows, or the market price of our common stock. Additional risks and uncertainties not currently known to us, or that we presently deem to be immaterial, may also have potential to materially adversely affect our business, financial condition, and results of operations.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
General
As of December 31, 2022, we had 432 properties in North America containing approximately 47.4 million RSF of operating properties and development and redevelopment of new Class A properties under construction, including 64 properties that are held by consolidated real estate joint ventures and four properties that are held by unconsolidated real estate joint ventures. The occupancy percentage of our operating properties in North America was 94.8% as of December 31, 2022. The exteriors of our properties typically resemble traditional office properties, but the interior infrastructures are designed to accommodate the needs of life science, agtech, and technology tenants. These improvements typically are generic rather than specific to a particular tenant. As a result, we believe that the improvements have long-term value and utility and are usable by a wide range of tenants. Improvements to our properties typically include:
•Reinforced concrete floors;
•Upgraded roof loading capacity;
•Increased floor-to-ceiling heights;
•Heavy-duty HVAC systems;
•Enhanced environmental control technology;
•Significantly upgraded electrical, gas, and plumbing infrastructure; and
•Laboratory benches.
As of December 31, 2022, we held a fee simple interest in each of our properties, with the exception of 40 properties in North America subject to ground leasehold interests, which accounted for approximately 9% of our total number of properties. Of these 40 properties, we held 14 properties in the Greater Boston market, 20 properties in the San Francisco Bay Area market, two properties in the New York City market, one property in the Seattle market, one property in the Maryland market, and two properties in the Research Triangle market. During the year ended December 31, 2022, our ground lease rental expense aggregated 1.7% as a percentage of net operating income. Refer to further discussion in our consolidated financial statements and notes thereto in “Item 15. Exhibits and financial statement schedules” in this annual report on Form 10-K.
As of December 31, 2022, we had over 1,000 leases with a total of approximately 1,000 tenants, and 199, or 46%, of our 432 properties were single-tenant properties. Leases in our multi-tenant buildings typically have initial terms of 4-11 years, while leases in our single-tenant buildings typically have initial terms of 11-21 years. As of December 31, 2022:
•Investment-grade or publicly traded large cap tenants represented 48% of our total annual rental revenue;
•Approximately 96% of our leases (on an annual rental revenue basis) contained effective annual rent escalations approximating 3% that were either fixed or indexed based on a consumer price index or other index;
•Approximately 93% of our leases (on an annual rental revenue basis) were triple net leases, which require tenants to pay substantially all real estate taxes, insurance, utilities, repairs and maintenance, common area expenses, and other operating expenses (including increases thereto) in addition to base rent; and
•Approximately 93% of our leases (on an annual rental revenue basis) provided for the recapture of capital expenditures (such as HVAC maintenance and/or replacement, roof replacement, and parking lot resurfacing) that we believe would typically be borne by the landlord in traditional office leases.
Our leases also typically give us the right to review and approve tenant alterations to the property. Generally, tenant-installed improvements to the properties are reusable generic improvements and remain our property after termination of the lease at our election. However, we are permitted under the terms of most of our leases to require that the tenant, at its expense, remove certain non-generic improvements and restore the premises to their original condition.
Refer to the definitions of “Annual rental revenue” and “Operating statistics” in the “Non-GAAP measures and definitions” section under “Item 7. Management’s discussion and analysis of financial condition and results of operations” in this annual report on Form 10-K for a description of the basis used to compute the aforementioned measures.
Locations of properties
The locations of our properties are diversified among a number of life science, agtech, and technology cluster markets. The following table sets forth the total RSF, number of properties, and annual rental revenue in effect as of December 31, 2022 in each of our markets in North America (dollars in thousands, except per RSF amounts):
RSF Number of Properties Annual Rental Revenue
Market
Operating Development Redevelopment Total % of Total Total % of Total Per RSF
Greater Boston
11,450,547 1,546,965 1,200,173 14,197,685 30 % 84 $ 731,010 36 % $ 67.58
San Francisco Bay Area 8,100,245 443,388 300,010 8,843,643 19 67 452,191 23 61.88
New York City
1,270,019 - - 1,270,019 3 5 97,413 5 83.14
San Diego
8,099,957 254,771 - 8,354,728 18 94 330,713 16 42.79
Seattle
2,814,446 311,631 213,976 3,340,053 7 46 109,029 5 39.95
Maryland
3,459,475 282,000 91,134 3,832,609 8 50 115,347 6 35.12
Research Triangle
3,596,979 268,038 376,871 4,241,888 9 42 99,055 5 29.31
Texas 1,724,585 - 201,499 1,926,084 4 15 45,785 2 29.11
Canada
577,225 - 107,081 684,306 1 8 9,868 1 21.15
Non-cluster/other markets 382,960 - - 382,960 1 11 14,554 1 50.70
Properties held for sale
297,284 - - 297,284 - 10 (1)
2,476 - N/A
North America
41,773,722 3,106,793 2,490,744 47,371,259 100 % 432 $ 2,007,441 100 % $ 51.75
5,597,537
(1)Represents properties held for sale in three submarkets, including eight contiguous properties aggregating 128,870 RSF in a non-core submarket.
Summary of occupancy percentages in North America
The following table sets forth the occupancy percentages for our operating properties and our operating and redevelopment properties in each of our North America markets, excluding properties held for sale, as of the following dates:
Operating Properties Operating and Redevelopment Properties
Market 12/31/22 12/31/21 12/31/20 12/31/22 12/31/21 12/31/20
Greater Boston 94.5 % 95.2 % 98.1 % 85.5 % 83.2 % 94.8 %
San Francisco Bay Area 96.7 93.0 95.8 93.3 92.6 94.7
New York City 92.3 98.4 97.3 92.3 91.0 87.8
San Diego 95.4 93.1 93.5 95.4 91.7 92.4
Seattle 97.0 95.6 96.0 90.1 88.5 85.5
Maryland 95.8 99.8 96.1 93.3 96.0 90.6
Research Triangle 94.0 94.6 89.6 85.0 86.1 72.7
Texas 91.2 N/A N/A 81.6 N/A N/A
Subtotal 95.1 94.9 95.5 89.9 89.1 90.7
Canada 80.8 78.6 81.8 68.2 78.6 81.8
Non-cluster/other markets 75.0 75.1 52.7 75.0 75.1 52.7
North America 94.8 % 94.0 % 94.6 % 89.4 % 88.5 % 90.0 %
Top 20 tenants
90% of Top 20 Tenants 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 3.5% of our annual rental revenue in effect as of December 31, 2022. 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 December 31, 2022 (dollars in thousands, except average market cap amounts):
Remaining Lease Term(1)
(in Years)
Aggregate
RSF Annual
Rental
Revenue(1)
Percentage of Aggregate Annual Rental Revenue(1)
Investment-Grade Credit Ratings Average Market Cap(1)
(in billions)
Tenant Moody’s S&P
1 Bristol-Myers Squibb Company 4.3 962,439 $ 69,870 3.5 % A2 A+ $ 156.1
2 Moderna, Inc. 13.8 908,340 51,926 2.6 - - $ 62.1
3 Eli Lilly and Company 6.2 743,267 49,890 2.5 A2 A+ $ 292.5
4 Takeda Pharmaceutical Company Limited 7.0 549,760 37,399 1.9 Baa2 BBB+ $ 45.0
5 Illumina, Inc. 7.6 891,495 36,204 1.8 Baa3 BBB $ 40.2
6 Sanofi 7.6 434,648 34,104 1.7 A1 AA $ 122.2
7 2seventy bio, Inc.(2)
10.7 312,805 33,617 1.7 - - $ 0.5
8 Novartis AG 5.6 447,831 30,749 1.5 A1 AA- $ 206.3
9 TIBCO Software, Inc. 4.2 (3)
292,013 28,537 1.4 - - $ -
10 Uber Technologies, Inc. 59.7 (4)
1,009,188 27,704 1.4 - - $ 57.7
11 Roche 6.5 417,011 27,188 1.4 Aa2 AA $ 290.6
12 Amgen Inc. 3.5 503,832 24,680 1.2 Baa1 BBB+ $ 133.2
13 Pfizer Inc. 1.7 416,996 22,376 1.1 A1 A+ $ 280.1
14 Massachusetts Institute of Technology 6.1 257,626 21,438 1.1 Aaa AAA $ -
15 Harvard University 2.0 (3)
286,580 20,086 1.0 Aaa AAA $ -
16 Boston Children’s Hospital 13.8 269,816 20,066 1.0 Aa2 AA $ -
17 United States Government 7.3 315,908 19,660 1.0 Aaa AA+ $ -
18 New York University 8.9 203,500 19,241 1.0 Aa1 AA+ $ -
19 Merck & Co., Inc. 11.3 300,930 18,913 0.9 A1 A+ $ 227.3
20 AstraZeneca PLC 3.8 348,363 18,641 0.9 A3 A $ 195.1
Total/weighted average
9.4 (4)
9,872,348 $ 612,289 30.6 %
Annual rental revenue and RSF include 100% of each property managed by us in North America.
(1)Based on total annual rental revenue in effect as of December 31, 2022. Represents the percentage of our annual rental revenue generated by our top 20 tenants that are also investment-grade or publicly traded large cap tenants. Refer to the definitions of “Annual rental revenue” and “Investment-grade or publicly traded large cap tenants” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for our methodologies of calculating annual rental revenue from unconsolidated real estate joint ventures and average market capitalization, respectively.
(2)Represents two leases in our Greater Boston and Seattle markets with in-place cash rents that are 20%-25% below current market. As of September 30, 2022, 2seventy bio, Inc. held $127.0 million of cash and cash equivalents.
(3)Includes leases at recently acquired properties with future development and redevelopment opportunities. The leases with these tenants were in place when we acquired the properties.
(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) 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 the ground leases, the weighted-average remaining lease term for our top 20 tenants was 7.1 years as of December 31, 2022.
Long-Duration and Stable Cash Flows From
High-Quality Tenants
Investment-Grade or
Publicly Traded Large Cap Tenants Long-Duration Lease Terms
48% 7.1 Years
of ARE’s Total Weighted-Average
Annual Rental Revenue(1)
Remaining Term(2)
REIT Industry-Leading
Tenant Client Base
90%
of ARE’s Top 20 Tenants
Annual Rental Revenue
Is From Investment-Grade
or Publicly Traded
Large Cap Tenants(1)
Refer to the definition of “Annual rental revenue” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information on our methodology of calculating annual rental revenue for unconsolidated real estate joint ventures.
(1)Represents annual rental revenue in effect as of December 31, 2022.
(2)Based on total annual rental revenue in effect as of December 31, 2022.
High-Quality and Diverse Client Base in AAA Locations
Industry Mix of Approximately 1,000 Tenants
AAA Locations
Percentage of ARE’s Annual Rental Revenue(3)
Solid Occupancy From Historically Strong Demand
for Class A Properties in AAA Locations
Solid Historical
Occupancy(4)
Occupancy Across Key Locations
96%
Over 10 Years
Refer to the definition of “Annual rental revenue” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information on our methodology of calculating annual rental revenue for unconsolidated real estate joint ventures.
(1)Represents annual rental revenue currently generated from space that is targeted for a future change in use, including 1.1% of total annual rental revenue that is generated from covered land play projects. The weighted-average remaining term of these leases is 5.2 years.
(2)Our other tenants, which aggregate 2.0% of our annual rental revenue, comprise technology, professional services, finance, telecommunications, and construction/real estate companies and less than 1.0% of retail-related tenants by annual rental revenue.
(3)Represents annual rental revenue in effect as of December 31, 2022.
(4)Represents average occupancy of operating properties in North America as of each December 31 for the last 10 years.
Property listing
Mega Campuses Encompass 68% of Our Operating Property RSF(1)
The following table provides certain information about our properties as of December 31, 2022 (dollars in thousands):
Occupancy Percentage
RSF Number of Properties Annual Rental Revenue
Operating Operating and Redevelopment
Market / Submarket / Address
Operating Development Redevelopment Total
Greater Boston
Cambridge/Inner Suburbs
Mega Campus: Alexandria Center® at Kendall Square
2,449,354 - 403,892 2,853,246 11 $ 198,373 99.1 % 85.1 %
50(2), 60(2), 75/125(2), 100(2), and 225(2) Binney Street, 215 First Street, 150 Second Street, 300 Third Street(2), 11 Hurley Street, One Rogers Street, and 100 Edwin H. Land Boulevard
Mega Campus: Alexandria Center® at One Kendall Square
903,777 462,100 - 1,365,877 12 76,350 95.8 95.8
One Kendall Square (Buildings 100, 200, 300, 400, 500, 600/700, 1400, 1800, and 2000), 325 and 399 Binney Street, and One Hampshire Street
Mega Campus: Alexandria Technology Square®
1,185,190 - - 1,185,190 7 116,609 99.1 99.1
100, 200, 300, 400, 500, 600, and 700 Technology Square
Mega Campus: The Arsenal on the Charles 872,665 248,018 - 1,120,683 13 50,582 96.2 96.2
311, 321, and 343 Arsenal Street, 300, 400, and 500 North Beacon Street, 1, 2, 3, and 4 Kingsbury Avenue, and 100, 200, and 400 Talcott Avenue
Mega Campus: 480 Arsenal Way and 446, 458, 500, and 550 Arsenal Street 533,327 - - 533,327 5 24,241 97.6 97.6
99 Coolidge Avenue(2)
- 320,809 - 320,809 1 - N/A N/A
640 Memorial Drive 242,477 - - 242,477 1 19,320 77.6 77.6
780 and 790 Memorial Drive 99,658 - - 99,658 2 9,257 100.0 100.0
Cambridge/Inner Suburbs 6,286,448 1,030,927 403,892 7,721,267 52 494,732 97.3 91.4
Fenway
Mega Campus: Alexandria Center® for Life Science - Fenway
1,267,572 170,043 - 1,437,615 2 94,904 92.9 92.9
401 Park Drive and 201 Brookline Avenue(2)
Seaport Innovation District
5 and 15(2) Necco Street
95,400 345,995 - 441,395 2 4,414 86.6 86.6
Mega Campus: 380 and 420 E Street 195,506 - - 195,506 2 4,490 100.0 100.0
Seaport Innovation District 290,906 345,995 - 636,901 4 8,904 95.6 95.6
Route 128
Mega Campus: 40, 50, and 60 Sylvan Road, 35 Gatehouse Drive, and 840 Winter Street 638,651 - 342,412 981,063 5 38,439 100.0 65.1
Mega Campus: One Moderna Way 706,988 - - 706,988 4 29,059 100.0 100.0
19, 225, and 235 Presidential Way 585,022 - - 585,022 3 13,996 99.9 99.9
275 Grove Street 509,702 - - 509,702 3 15,704 66.1 66.1
225, 266, and 275 Second Avenue 329,005 - - 329,005 3 18,650 100.0 100.0
100 Beaver Street 82,330 - - 82,330 1 5,262 100.0 100.0
Route 128 2,851,698 - 342,412 3,194,110 19 121,110 93.9 83.8
Other 753,923 - 453,869 1,207,792 7 11,360 75.2 46.9
Greater Boston 11,450,547 1,546,965 1,200,173 14,197,685 84 $ 731,010 94.5 % 85.5 %
(1)As of December 31, 2022. Refer to the “New Class A development and redevelopment properties: summary of pipeline” section within this Item 2 and the definition of “Mega campus” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(2)We own a partial interest in this property through a real estate joint venture. Refer to the “Joint venture financial information” section under Item 7 in this annual report in Form 10-K for additional details.
Property listing (continued)
Occupancy Percentage
RSF Number of Properties Annual Rental Revenue
Operating Operating and Redevelopment
Market / Submarket / Address
Operating Development Redevelopment Total
San Francisco Bay Area
Mission Bay
Mega Campus: Alexandria Center® for Science and Technology - Mission Bay(1)
2,015,177 212,796 - 2,227,973 10 $ 98,444 100.0 % 100.0 %
1455(2), 1515(2), 1655, and 1725 Third Street, 409 and 499 Illinois Street, 1450, 1500, and 1700 Owens Street, and 455 Mission Bay Boulevard South
Mission Bay 2,015,177 212,796 - 2,227,973 10 98,444 100.0 100.0
South San Francisco
Mega Campus: Alexandria Technology Center® - Gateway(1)
1,114,890 230,592 300,010 1,645,492 12 60,385 92.6 73.0
600(2), 601, 611, 630(2), 650(2), 651, 681, 685, 701, 751, 901(2), and 951(2) Gateway Boulevard
Mega Campus: 213(1), 249, 259, 269, and 279 East Grand Avenue
919,704 - - 919,704 5 48,854 100.0 100.0
Mega Campus: 1122 and 1150 El Camino Real 725,172 - - 725,172 2 10,948 97.8 97.8
Alexandria Center® for Life Science - South San Francisco
504,551 - - 504,551 3 37,153 100.0 100.0
201 Haskins Way and 400 and 450 East Jamie Court
500 Forbes Boulevard(1)
155,685 - - 155,685 1 10,680 100.0 100.0
849/863 Mitten Road/866 Malcolm Road 103,857 - - 103,857 1 4,834 100.0 100.0
South San Francisco 3,523,859 230,592 300,010 4,054,461 24 172,854 97.2 89.6
Greater Stanford
Mega Campus: Alexandria Center® for Life Science - San Carlos
739,192 - - 739,192 9 49,953 97.3 97.3
825, 835, 960, and 1501-1599 Industrial Road
Alexandria Stanford Life Science District 703,742 - - 703,742 9 65,349 100.0 100.0
3160, 3165, 3170, and 3181 Porter Drive and 3301, 3303, 3305, 3307, and 3330 Hillview Avenue
3875 Fabian Way 228,000 - - 228,000 1 9,402 100.0 100.0
3412, 3420, 3440, 3450, and 3460 Hillview Avenue 338,751 - - 338,751 5 20,926 73.8 73.8
2100, 2200, 2300, and 2400 Geng Road 196,276 - - 196,276 4 8,448 70.7 70.7
2475 and 2625/2627/2631 Hanover Street and 1450 Page Mill Road 194,503 - - 194,503 3 18,040 100.0 100.0
2425 Garcia Avenue/2400/2450 Bayshore Parkway 99,208 - - 99,208 1 4,257 100.0 100.0
3350 West Bayshore Road 61,537 - - 61,537 1 4,518 99.9 99.9
Greater Stanford 2,561,209 - - 2,561,209 33 180,893 93.5 93.5
San Francisco Bay Area 8,100,245 443,388 300,010 8,843,643 67 452,191 96.7 93.3
New York City
New York City
Mega Campus: Alexandria Center® for Life Science - New York City
740,972 - - 740,972 3 71,779 94.2 94.2
430 and 450 East 29th Street
219 East 42nd Street 349,947 - - 349,947 1 18,638 100.0 100.0
Alexandria Center® for Life Science - Long Island City
179,100 - - 179,100 1 6,996 69.1 69.1
30-02 48th Avenue
New York City 1,270,019 - - 1,270,019 5 $ 97,413 92.3 % 92.3 %
Refer to the “New Class A development and redevelopment properties: summary of pipeline” section within this Item 2 and the definition of “Mega campus” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(1)We own a partial interest in this property through a real estate joint venture. Refer to the “Joint venture financial information” section under Item 7 in this annual report in Form 10-K for additional information.
(2)We own 100% of this property.
Property listing (continued)
Occupancy Percentage
RSF Number of Properties Annual Rental Revenue
Operating Operating and Redevelopment
Market / Submarket / Address
Operating Development Redevelopment Total
San Diego
Torrey Pines
Mega Campus: One Alexandria Square and One Alexandria North 904,883 - - 904,883 10 $ 53,236 99.9 % 99.9 %
3115 and 3215(1) Merryfield Row, 3010, 3013, and 3033 Science Park Road, 10975 and 11119 North Torrey Pines Road, 10975, 10995, and 10996 Torreyana Road, and 3545 Cray Court
ARE Torrey Ridge 298,863 - - 298,863 3 15,747 100.0 100.0
10578, 10618, and 10628 Science Center Drive
ARE Nautilus 213,900 - - 213,900 4 11,297 88.1 88.1
3530 and 3550 John Hopkins Court and 3535 and 3565 General Atomics Court
Torrey Pines 1,417,646 - - 1,417,646 17 80,280 98.2 98.2
University Town Center
Mega Campus: Campus Point by Alexandria(1)
1,662,342 - - 1,662,342 11 75,970 97.7 97.7
9880(2), 10010(2), 10140(2), 10210, 10260, 10290, and 10300 Campus Point Drive and 4161, 4224, 4242, and 4275(2) Campus Point Court
Mega Campus: 5200 Illumina Way(1)
792,687 - - 792,687 6 29,978 100.0 100.0
Mega Campus: University District 415,462 - - 415,462 7 18,641 100.0 100.0
9625 Towne Centre Drive(1), 4755, 4757, and 4767 Nexus Center Drive, 4796 Executive Drive, 8505 Costa Verde Boulevard, and 4260 Nobel Drive
University Town Center 2,870,491 - - 2,870,491 24 124,589 98.7 98.7
Sorrento Mesa
Mega Campus: SD Tech by Alexandria(1)
1,059,754 254,771 - 1,314,525 15 43,387 94.1 94.1
9605, 9645, 9675, 9685, 9725, 9735, 9808, 9855, and 9868 Scranton Road, 5505 Morehouse Drive(2), and 10055, 10065, 10075, 10121(2), and 10151(2) Barnes Canyon Road
Mega Campus: Sequence District by Alexandria 803,319 - - 803,319 7 23,993 89.0 89.0
6260, 6290, 6310, 6340, 6350, 6420, and 6450 Sequence Drive
Pacific Technology Park(1)
544,352 - - 544,352 5 8,106 88.6 88.6
9389, 9393, 9401, 9455, and 9477 Waples Street
Summers Ridge Science Park(1)
316,531 - - 316,531 4 11,521 100.0 100.0
9965, 9975, 9985, and 9995 Summers Ridge Road
Scripps Science Park by Alexandria 244,083 - - 244,083 3 10,226 100.0 100.0
10102 Hoyt Park Drive and 10256 and 10260 Meanley Drive
ARE Portola 101,857 - - 101,857 3 3,880 100.0 100.0
6175, 6225, and 6275 Nancy Ridge Drive
5810/5820 Nancy Ridge Drive 83,354 - - 83,354 1 3,853 100.0 100.0
9877 Waples Street 63,774 - - 63,774 1 2,521 100.0 100.0
5871 Oberlin Drive 33,842 - - 33,842 1 1,772 100.0 100.0
Sorrento Mesa 3,250,866 254,771 - 3,505,637 40 $ 109,259 93.5 % 93.5 %
Refer to the “New Class A development and redevelopment properties: summary of pipeline” section within this Item 2 and the definition of “Mega campus” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(1)We own a partial interest in this property through a real estate joint venture. Refer to the “Joint venture financial information” section under Item 7 in this annual report in Form 10-K for additional information.
(2)We own 100% of this property.
Property listing (continued)
Occupancy Percentage
RSF Number of Properties Annual Rental Revenue
Operating Operating and Redevelopment
Market / Submarket / Address
Operating Development Redevelopment Total
San Diego (continued)
Sorrento Valley
3911, 3931, 3985, 4025, and 4045 Sorrento Valley Boulevard 131,698 - - 131,698 5 $ 3,930 75.7 % 75.7 %
11025, 11035, 11045, 11055, 11065, and 11075 Roselle Street 119,513 - - 119,513 6 4,312 100.0 100.0
Sorrento Valley 251,211 - - 251,211 11 8,242 87.3 87.3
Other 309,743 - - 309,743 2 8,343 79.5 79.5
San Diego 8,099,957 254,771 - 8,354,728 94 330,713 95.4 95.4
Seattle
Lake Union
Mega Campus: The Eastlake Life Science Campus by Alexandria 937,290 311,631 - 1,248,921 9 56,305 97.4 97.4
1150, 1165, 1201(1), 1208(1), 1551, and 1616 Eastlake Avenue East, 188 and 199(1) East Blaine Street, and 1600 Fairview Avenue East
Mega Campus: Alexandria Center® for Life Science - South Lake Union
400(1) and 601 Dexter Avenue North
309,434 - - 309,434 2 15,494 100.0 100.0
219 Terry Avenue North 30,705 - - 30,705 1 1,935 100.0 100.0
Lake Union 1,277,429 311,631 - 1,589,060 12 73,734 98.1 98.1
SoDo
830 4th Avenue South 42,380 - - 42,380 1 1,691 70.5 70.5
Elliott Bay
3000/3018 Western Avenue 47,746 - - 47,746 1 3,147 100.0 100.0
410 West Harrison Street and 410 Elliott Avenue West 36,849 - - 36,849 2 1,613 100.0 100.0
Elliott Bay 84,595 - - 84,595 3 4,760 100.0 100.0
Bothell
Mega Campus: Alexandria Center® for Advanced Technologies - Canyon Park
1,060,958 - - 1,060,958 22 23,042 96.7 96.7
22121 and 22125 17th Avenue Southeast, 22021, 22025, 22026, 22030, 22118, and 22122 20th Avenue Southeast, 22333, 22422, 22515, 22522, 22722, and 22745 29th Drive Southeast, 21540, 22213, and 22309 30th Drive Southeast, and 1629, 1631, 1725, 1916, and 1930 220th Street Southeast
Alexandria Center® for Advanced Technologies - Monte Villa Parkway
246,647 - 213,976 460,623 6 4,657 97.3 52.1
3301, 3303, 3305, 3307, 3555, and 3755 Monte Villa Parkway
Bothell 1,307,605 - 213,976 1,521,581 28 27,699 96.8 83.2
Other 102,437 - - 102,437 2 1,145 93.5 93.5
Seattle 2,814,446 311,631 213,976 3,340,053 46 $ 109,029 97.0 % 90.1 %
Refer to the “New Class A development and redevelopment properties: summary of pipeline” section within this Item 2 and the definition of “Mega campus” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(1)We own a partial interest in this property through a real estate joint venture. Refer to the “Joint venture financial information” section under Item 7 in this annual report in Form 10-K for additional information.
Property listing (continued)
Occupancy Percentage
RSF Number of Properties Annual Rental Revenue
Operating Operating and Redevelopment
Market / Submarket / Address
Operating Development Redevelopment Total
Maryland
Rockville
Mega Campus: Alexandria Center® for Life Science - Shady Grove
1,090,102 282,000 61,322 1,433,424 19 $ 49,353 99.0 % 93.7 %
9601, 9603, 9605, 9704, 9708, 9712, 9714, 9800, 9804, 9808, 9900, and 9950 Medical Center Drive, 14920 and 15010 Broschart Road, 9920 Belward Campus Drive, and 9810 Darnestown Road
1330 Piccard Drive 131,511 - - 131,511 1 4,034 100.0 100.0
1405 and 1450(1) Research Boulevard
114,849 - - 114,849 2 2,631 62.8 62.8
1500 and 1550 East Gude Drive 91,359 - - 91,359 2 1,844 100.0 100.0
5 Research Place 63,852 - - 63,852 1 2,999 100.0 100.0
5 Research Court 51,520 - - 51,520 1 1,788 100.0 100.0
12301 Parklawn Drive 49,185 - - 49,185 1 1,530 100.0 100.0
Rockville 1,592,378 282,000 61,322 1,935,700 27 64,179 96.6 93.0
Gaithersburg
Alexandria Technology Center® - Gaithersburg I
613,438 - - 613,438 9 17,359 98.6 98.6
9, 25, 35, 45, 50, and 55 West Watkins Mill Road and 910, 930, and 940 Clopper Road
Alexandria Technology Center® - Gaithersburg II
486,324 - - 486,324 7 17,632 96.5 96.5
700, 704, and 708 Quince Orchard Road and 19, 20, 21, and 22 Firstfield Road
20400 Century Boulevard 50,738 - 29,812 80,550 1 2,035 100.0 63.0
401 Professional Drive 63,154 - - 63,154 1 1,918 100.0 100.0
950 Wind River Lane 50,000 - - 50,000 1 1,234 100.0 100.0
620 Professional Drive 27,950 - - 27,950 1 1,207 100.0 100.0
Gaithersburg 1,291,604 - 29,812 1,321,416 20 41,385 98.0 95.8
Beltsville
8000/9000/10000 Virginia Manor Road 191,884 - - 191,884 1 2,951 100.0 100.0
101 West Dickman Street(1)
135,423 - - 135,423 1 705 51.1 51.1
Beltsville 327,307 - - 327,307 2 3,656 79.8 79.8
Northern Virginia
14225 Newbrook Drive 248,186 - - 248,186 1 6,127 100.0 100.0
Maryland 3,459,475 282,000 91,134 3,832,609 50 $ 115,347 95.8 % 93.3 %
Refer to the “New Class A development and redevelopment properties: summary of pipeline” section within this Item 2 and the definition of “Mega campus” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(1)We own a partial interest in this property through a real estate joint venture. Refer to the “Joint venture financial information” section under Item 7 in this annual report in Form 10-K for additional information.
Property listing (continued)
Occupancy Percentage
RSF Number of Properties Annual Rental Revenue
Operating Operating and Redevelopment
Market / Submarket / Address
Operating Development Redevelopment Total
Research Triangle
Research Triangle
Mega Campus: Alexandria Center® for Life Science - Durham
1,880,185 - 376,871 2,257,056 16 $ 37,681 93.2 % 77.6 %
6, 8, 10, 12, 14, 40, 41, 42, and 65 Moore Drive, 21, 25, 27, 29, and 31 Alexandria Way, 2400 Ellis Road, and 14 TW Alexander Drive
Mega Campus: Alexandria Center® for Advanced Technologies - Research Triangle
350,267 180,000 - 530,267 5 15,869 93.9 93.9
4, 6, 8, 10, and 12 Davis Drive
Alexandria Center® for AgTech
342,881 - - 342,881 2 15,315 94.1 94.1
5 and 9 Laboratory Drive
104, 108, 110, 112, and 114 TW Alexander Drive 227,902 - - 227,902 5 7,375 94.3 94.3
Alexandria Technology Center® - Alston
186,870 - - 186,870 3 4,009 94.1 94.1
100, 800, and 801 Capitola Drive
6040 George Watts Hill Drive 61,547 88,038 - 149,585 2 2,148 100.0 100.0
Alexandria Innovation Center® - Research Triangle
136,729 - - 136,729 3 3,963 97.2 97.2
7010, 7020, and 7030 Kit Creek Road
7 Triangle Drive 104,531 - - 104,531 1 4,422 100.0 100.0
2525 East NC Highway 54 82,996 - - 82,996 1 3,651 100.0 100.0
407 Davis Drive 81,956 - - 81,956 1 1,644 100.0 100.0
601 Keystone Park Drive 77,395 - - 77,395 1 1,072 74.3 74.3
5 Triangle Drive 32,120 - - 32,120 1 1,147 100.0 100.0
6101 Quadrangle Drive 31,600 - - 31,600 1 759 100.0 100.0
Research Triangle 3,596,979 268,038 376,871 4,241,888 42 99,055 94.0 85.0
Texas
Austin
Mega Campus: Intersection Campus 1,525,613 - - 1,525,613 12 39,039 90.0 90.0
1001 Trinity Street and 1020 Red River Street 198,972 - - 198,972 2 6,746 100.0 100.0
Austin 1,724,585 - - 1,724,585 14 45,785 90.0 90.0
Greater Houston
8800 Technology Forest Place - - 201,499 201,499 1 - N/A -
Texas 1,724,585 - 201,499 1,926,084 15 45,785 91.2 81.6
Canada 577,225 - 107,081 684,306 8 9,868 80.8 68.2
Non-cluster/other markets 382,960 - - 382,960 11 14,554 75.0 75.0
North America, excluding properties held for sale 41,476,438 3,106,793 2,490,744 47,073,975 422 2,004,965 94.8 % 89.4 %
Properties held for sale 297,284 - - 297,284 10 2,476 34.0 % 34.0 %
Total - North America 41,773,722 3,106,793 2,490,744 47,371,259 432 $ 2,007,441
Refer to the “New Class A development and redevelopment properties: summary of pipeline” section within this Item 2 and the definition of “Mega campus” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
Leasing activity
During the year ended December 31, 2022, strong demand for our high-quality office/laboratory space has translated into the second-highest year of leasing volume in Company history and solid rental rate growth in 2022 for our overall portfolio and our value-creation pipeline.
•Executed a total of 336 leases, with a weighted-average lease term of 8.1 years, for 8.4 million RSF, representing the second-highest leasing year in Company history, 74% of which was generated from our client base of approximately 1,000 tenants, including 2.8 million RSF related to our development and redevelopment projects;
•Annual leasing activity of 4.5 million RSF for renewed and re-leased spaces; and
•Annual rental rate increases of 31.0% and 22.1% (cash basis) on renewed and re-leased space, representing the second-highest annual rental rate growth (cash basis) in Company history.
Approximately 63% of the 336 leases executed during the year ended December 31, 2022 did not include concessions for free rent. During the year ended December 31, 2022, we granted tenant concessions/free rent averaging 2.1 months with respect to the 8.4 million RSF leased.
The following chart presents renewed/re-leased space and developed/redeveloped/previously vacant space leased for the years ended December 31, 2020, 2021, and 2022:
Lease structure
Our Same Properties total revenue growth of 9.8% for the year ended December 31, 2022, and our Same Properties net operating income and Same Properties net operating income increases (cash basis) for the year ended December 31, 2022 of 6.6% and 9.6%, respectively, benefited significantly from strong market fundamentals. The limited supply of Class A space in AAA locations and strong demand from innovative tenants drove rental rate increases for the year ended December 31, 2022 of 31.0% and 22.1% (cash basis) on 4.5 million renewed/re-leased RSF, while a favorable triple net lease structure with contractual annual rent escalations resulted in both a consistent Same Properties operating margin of 70.0% and Same Properties current-period average occupancy of 95.7% for the year ended December 31, 2022, an increase of 100 bps for the same-period prior-year average, across our 253 Same Properties aggregating 26.1 million RSF. As of December 31, 2022, approximately 93% of our leases (on an annual rental revenue basis) were triple net leases, which require tenants to pay substantially all real estate taxes, insurance, utilities, repairs and maintenance, common area expenses, and other operating expenses (including increases thereto) in addition to base rent. Additionally, approximately 96% of our leases (on an annual rental revenue basis) contained contractual annual rent escalations approximating 3% that were either fixed or based on a consumer price index or another index, and approximately 93% of our leases (on an annual rental revenue basis) provided for the recapture of certain capital expenditures.
Leasing activity (continued)
The following table summarizes our leasing activity at our properties for the years ended December 31, 2022 and 2021:
Year Ended December 31,
2022 2021
Including
Straight-Line Rent Cash Basis Including
Straight-Line Rent Cash Basis
(Dollars per RSF)
Leasing activity:
Renewed/re-leased space(1)
Rental rate changes
31.0% 22.1% (2)
37.9% 22.6%
New rates
$50.37 $48.48 $59.00 $55.60
Expiring rates
$38.44 $39.69 $42.80 $45.36
RSF
4,540,325 4,614,040
Tenant improvements/leasing commissions
$27.83 $41.05
Weighted-average lease term
5.0 years 6.3 years
Developed/redeveloped/previously vacant space leased(3)
New rates
$73.46 $64.04 $78.52 $69.42
RSF
3,865,262 4,902,261
Weighted-average lease term
11.8 years 11.2 years
Leasing activity summary (totals):
New rates
$60.98 $55.64 $69.05 $62.72
RSF
8,405,587 (2)(4)
9,516,301
Weighted-average lease term
8.1 years 8.8 years
Lease expirations(1)
Expiring rates
$37.41 $38.06 $41.53 $43.70
RSF
6,572,286 5,747,192
Leasing activity includes 100% of results for properties in which we have an investment in North America.
(1)Excludes month-to-month leases aggregating 266,292 RSF and 110,180 RSF as of December 31, 2022 and 2021, respectively.
(2)Represents the second highest annual leasing volume and annual rental rate growth (cash basis) in Company history.
(3)Refer to the “New Class A development and redevelopment properties: summary of pipeline” section within this Item 2 for additional information on total project costs.
(4)During the year ended December 31, 2022, we granted tenant concessions/free rent averaging 2.1 months with respect to the 8,405,587 RSF leased. Approximately 63% of the leases executed during the year ended December 31, 2022 did not include concessions for free rent.
Summary of contractual lease expirations
The following table summarizes information with respect to the contractual lease expirations at our properties as of December 31, 2022:
Year RSF Percentage of
Occupied RSF Annual Rental Revenue
(per RSF)(1)
Percentage of Total
Annual Rental Revenue
2023 (2)
2,871,438 7.3 % $ 45.10 6.5 %
2024 4,341,944 11.1 % $ 46.70 10.2 %
2025 3,312,092 8.5 % $ 48.22 8.1 %
2026 2,628,988 6.7 % $ 50.79 6.7 %
2027 2,669,028 6.8 % $ 55.36 7.5 %
2028 4,160,778 10.6 % $ 51.51 10.8 %
2029 2,467,070 6.3 % $ 53.31 6.6 %
2030 2,766,240 7.1 % $ 58.03 8.1 %
2031 3,006,892 7.7 % $ 52.83 8.0 %
2032 1,298,945 3.3 % $ 56.91 3.7 %
Thereafter 9,613,205 24.6 % $ 48.72 23.8 %
(1)Represents amounts in effect as of December 31, 2022.
(2)Excludes month-to-month leases aggregating 266,292 RSF as of December 31, 2022.
The following tables present information by market with respect to our 2023 and 2024 contractual lease expirations in North America as of December 31, 2022:
2023 Contractual Lease Expirations (in RSF)
Annual Rental Revenue
(per RSF)(3)
Market
Leased Negotiating/
Anticipating Targeted for Future Development/
Redevelopment(1)
Remaining
Expiring Leases(4)
Total(2)
Greater Boston 61,091 83,346 323,110 428,905 896,452 $ 56.56
San Francisco Bay Area 30,876 10,208 - 342,952 384,036 52.63
New York City - - - 88,372 88,372 N/A
San Diego 184,287 124,745 - 426,615 735,647 33.50
Seattle 14,979 8,167 18,680 266,038 307,864 27.22
Maryland 6,674 115,454 - 131,735 253,863 35.41
Research Triangle 81,956 15,043 - 77,286 174,285 33.08
Texas - - - - - -
Canada 13,321 - - 2,484 15,805 28.89
Non-cluster/other markets - - - 15,114 15,114 41.42
Total
393,184 356,963 341,790 1,779,501 2,871,438 $ 45.10
Percentage of expiring leases
14 % 12 % 12 % 62 % 100 %
2024 Contractual Lease Expirations (in RSF)
Annual Rental Revenue
(per RSF)(3)
Market
Leased Negotiating/
Anticipating Targeted for Future Development/
Redevelopment(1)
Remaining
Expiring Leases(4)
Total
Greater Boston 102,060 5,881 122,465 500,918 731,324 $ 73.74
San Francisco Bay Area 35,798 407,369 - 592,252 1,035,419 50.33
New York City - - 349,947 5,645 355,592 N/A
San Diego - - 580,021 394,852 974,873 31.10
Seattle - 267,350 50,552 415,503 733,405 35.04
Maryland - 3,555 - 62,016 65,571 25.15
Research Triangle 15,519 - - 194,008 209,527 52.01
Texas - - 126,034 72,938 198,972 33.91
Canada - - - 6,786 6,786 24.38
Non-cluster/other markets - - - 30,475 30,475 65.74
Total
153,377 684,155 1,229,019 2,275,393 4,341,944 $ 46.70
Percentage of expiring leases
4 % 16 % 28 % 52 % 100 %
(1)Represents RSF targeted for future development or redevelopment upon expiration of existing in-place leases primarily related to recently acquired properties with an average contractual lease expiration date of January 7, 2023 and July 13, 2024 for 2023 and 2024, respectively, weighted by annual rental revenue. Refer to “Investments in real estate - value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional details on value-creation square feet currently included in rental properties.
(2)Excludes month-to-month leases aggregating 266,292 RSF as of December 31, 2022.
(3)Represents amounts in effect as of December 31, 2022.
(4)The largest remaining contractual expiration for 2023 and 2024 is 108,020 RSF in our Bothell submarket and 98,808 RSF in our Mission Bay submarket, respectively.
Investments in real estate
A key component of our business model is our disciplined allocation of capital to the development and redevelopment of new Class A properties, and property enhancements identified during the underwriting of certain acquired properties, located in collaborative life science, agtech, and technology campuses in AAA innovation clusters. These projects are focused on providing high-quality, generic, and reusable spaces that meet the real estate requirements of, and are reusable by, a wide range of tenants. Upon completion, each value-creation project is expected to generate a significant increase in rental income, net operating income, and cash flows. Our development and redevelopment projects are generally in locations that are highly desirable to high-quality entities, which we believe results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value. Our pre-construction activities are undertaken in order to prepare the property for its intended use and include entitlements, permitting, design, site work, and other activities preceding commencement of construction of aboveground building improvements.
Our investments in real estate consisted of the following as of December 31, 2022 (dollars in thousands):
Development and Redevelopment
Operating Under Construction Near
Term Intermediate
Term Future Subtotal Total
Investments in real estate
Gross book value as of December 31, 2022(1)
$ 25,568,121 $ 4,055,353 $ 1,738,913 $ 918,528 $ 2,002,541 $ 8,715,335 $ 34,283,456
Square footage
Operating 41,773,722 - - - - - 41,773,722
New Class A development and redevelopment properties - 5,597,537 6,248,830 (2)
4,780,268 20,716,308 37,342,943 37,342,943
Value-creation square feet currently included in rental properties(3)
- - (656,378) (434,776) (3,459,383) (4,550,537) (4,550,537)
Total square footage
41,773,722 5,597,537 5,592,452 4,345,492 17,256,925 32,792,406 74,566,128
(1)Balances exclude accumulated depreciation and our share of the cost basis associated with our properties held by our unconsolidated real estate joint ventures, which is classified as investments in unconsolidated real estate joint ventures in our consolidated balance sheets.
(2)Includes 2.0 million RSF currently 88% leased and expected to commence construction in the next four quarters. Refer to “New Class A development and redevelopment properties: current projects” within this Item 2 for additional details.
(3)Refer to “Investments in real estate - value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional details on value-creation square feet currently included in rental properties.
Acquisitions
Our real estate asset acquisitions for the year ended December 31, 2022 consisted of the following (dollars in thousands):
Property Submarket/Market Date of Purchase Number of Properties Operating
Occupancy Square Footage Purchase Price
Acquisitions With Development and Redevelopment Opportunities(1)
Total(3)
Future Development Operating With Future Development/ Redevelopment Operating(2)
One Hampshire Street(4)
Cambridge/Inner Suburbs/Greater Boston 6/23/22 1 100% - 88,591 - 88,591 $ 140,000
100 Edwin H. Land Boulevard Cambridge/Inner Suburbs/Greater Boston 8/1/22 1 100 TBD 104,500 - 104,500 170,000
421 Park Drive Fenway/Greater Boston 1/13/22 - N/A 202,997 (5)
- - 202,997 81,119 (5)
35 Gatehouse Drive(6)
Route 128/Greater Boston 12/29/22 1 100 75,000 31,611 265,965 372,576 272,500
225 and 235 Presidential Way Route 128/Greater Boston 1/28/22 2 100 - 440,130 - 440,130 124,673
1150 El Camino Real South San Francisco/ San Francisco Bay Area 2/8/22 1 99 610,000 431,940 70,000 680,000 118,000
3301, 3303, 3305, and 3307 Hillview Avenue Greater Stanford/
San Francisco Bay Area
1/6/22 4 100 - 292,013 - 292,013 446,000
Costa Verde by Alexandria University Town Center/
San Diego
1/11/22 2 100 537,000 8,730 - 545,730 125,000
10010 and 10140 Campus Point Drive and 4275 Campus Point Court University Town Center/
San Diego
9/29/22 3 100 750,000 226,144 - 750,000 106,380
800 Mercer Street (60% interest in consolidated JV) Lake Union/Seattle 3/18/22 - N/A 869,000 - - 869,000 87,608
Alexandria Center® for Life Science - Durham
Research Triangle/ Research Triangle 1/11/22 - N/A 1,175,000 - - 1,175,000 99,428
104 and 108/110/112/114 TW Alexander Drive, 2752 East NC Highway 54, and 10 South Triangle Drive(7)
Research Triangle/ Research Triangle 1/6/22 4 89 750,000 69,485 - 819,485 80,000
Intersection Campus
Austin/Texas 2/18/22 9 81 - 998,099 - 998,099 400,400
1001 Trinity Street and 1020 Red River Street Austin/Texas 10/4/22 2 100 51,038 198,972 - 250,010 108,000
Other Various Various 12 91 1,644,994 646,132 381,760 2,634,686 459,344
42 92 % 6,665,029 3,536,347 717,725 10,222,817 $ 2,818,452
(1)We expect to provide total estimated costs and related yields for development and redevelopment projects in the future, subsequent to the commencement of construction.
(2)Represents the operating component of our value-creation acquisitions that is not expected to undergo future development or redevelopment.
(3)Represents total square footage upon completion of development or redevelopment of one or more new Class A properties. Square footage presented includes RSF of buildings currently in operations with future development or redevelopment opportunities. Refer to the definition of “Investments in real estate - value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(4)Represents the acquisition of a condominium interest in two floors of a seven-story building.
(5)Represents the incremental purchase price related to the achievement of additional entitlement rights aggregating 202,997 SF at our Alexandria Center® for Life Science - Fenway mega campus.
(6)Represents an opportunity to expand our existing properties at 40, 50, and 60 Sylvan Road and 840 Winter Street into a mega campus.
(7)Includes the acquisition of fee simple interests in the land underlying our recently acquired 108/110/112/114 TW Alexander Drive buildings, which were previously subject to ground leases.
Dispositions and sales of partial interests
Our completed dispositions of and sales of partial interests in real estate assets during the year ended December 31, 2022 consisted of the following (dollars in thousands, except for sales price per RSF):
Property Submarket/Market Date of Sale Interest Sold RSF Capitalization Rate Capitalization Rate
(Cash Basis) Sales Price Sales Price per RSF Gain or Consideration in Excess of Book Value
100 Binney Street Cambridge/Inner Suburbs/Greater Boston 3/30/22 70 % 432,931 3.6 % 3.5 % $ 713,228 (1)
$ 2,353 $ 413,615 (2)
300 Third Street Cambridge/Inner Suburbs/Greater Boston 6/27/22 70 % 131,963 4.6 % 4.3 % 166,485 (1)
$ 1,802 113,020 (2)
Alexandria Park at 128, 285 Bear Hill Road, 111 and 130 Forbes Boulevard, and 20 Walkup Drive Route 128 and Route 495/Greater Boston 6/8/22 100 % 617,043 5.1 % 5.1 % 334,397 $ 542 202,325
1450 Owens Street Mission Bay/San Francisco Bay Area 7/1/22 20 % (3)
191,000 N/A N/A 25,039 (1)
N/A 10,083 (2)
341 and 343 Oyster Point Boulevard, 7000 Shoreline Court, and Shoreway Science Center South San Francisco and Greater Stanford/San Francisco Bay Area 9/15/22 100 % 330,379 5.2 % 5.2 % 383,635 $ 1,161 223,127
3215 Merryfield Row Torrey Pines/San Diego 9/1/22 70 % 170,523 4.5% 4.2% 149,940 (1)
$ 1,256 42,214 (2)
Summers Ridge Science Park Sorrento Mesa/San Diego 9/15/22 70 % 316,531 4.9% 4.6% 159,600 (1)
$ 720 65,097 (2)
7330 and 7360 Carroll Road Sorrento Mesa/San Diego 9/15/22 100 % 84,442 4.4% 4.6% 59,476 $ 704 35,463
Other Various N/A N/A 230,496 N/A 77,003
$ 2,222,296 $ 1,181,947
(1)Represents the contractual sales price for the percentage interest of the property sold by us.
(2)We retained control over the newly formed real estate joint venture and therefore continue to consolidate this property. We accounted for the difference between the consideration received and the book value of the interest sold as an equity transaction, with no gain or loss recognized in earnings.
(3)Relates to the sale of a partial interest in a land parcel. The noncontrolling interest share of our joint venture partner is anticipated to increase to 75% as our partner contributes capital for construction over time. As of December 31, 2022, the noncontrolling interest share of our joint venture partner was 40.3%.
New Class A development and redevelopment properties
Refer to “Net operating income” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional details and its reconciliation from the most directly comparable financial measures presented in accordance with GAAP.
(1)As of December 31, 2022. Represents projects under construction aggregating 5.6 million RSF and seven near-term projects aggregating 2.0 million RSF expected to commence construction during the next four quarters.
New Class A development and redevelopment properties: recent deliveries
The Arsenal on the Charles 201 Brookline Avenue 201 Haskins Way 825 and 835 Industrial Road
Greater Boston/
Cambridge/Inner Suburbs Greater Boston/
Fenway San Francisco Bay Area/
South San Francisco San Francisco Bay Area/
Greater Stanford
387,678 RSF 340,073 RSF 323,190 RSF 526,129 RSF
96% Occupancy 100% Occupancy 100% Occupancy 100% Occupancy
3160 Porter Drive 30-02 48th Avenue 3115 Merryfield Row 10055 Barnes Canyon Road
San Francisco Bay Area/
Greater Stanford New York City/New York City San Diego/Torrey Pines San Diego/Sorrento Mesa
92,300 RSF 137,187 RSF 146,456 RSF 195,435 RSF
83% Occupancy 69% Occupancy 93% Occupancy 100% Occupancy
New Class A development and redevelopment properties: recent deliveries (continued)
10102 Hoyt Park Drive 5505 Morehouse Drive 9601 and 9603 Medical Center Drive 9950 Medical Center Drive
San Diego/Sorrento Mesa San Diego/Sorrento Mesa Maryland/Rockville Maryland/Rockville
144,113 RSF 79,945 RSF 34,589 RSF 84,264 RSF
100% Occupancy 100% Occupancy 100% Occupancy 100% Occupancy
20400 Century Boulevard 2400 Ellis Road, 40 and 41 Moore Drive, and
14 TW Alexander Drive(1)
5 and 9 Laboratory Drive(2)
8 and 10 Davis Drive(3)
Maryland/Gaithersburg Research Triangle/Research Triangle Research Triangle/Research Triangle Research Triangle/Research Triangle
50,738 RSF 326,445 RSF 342,881 RSF 250,000 RSF
100% Occupancy 100% Occupancy 94% Occupancy 94% Occupancy
(1)Image represents 2400 Ellis Road in our Alexandria Center® for Life Science - Durham mega campus.
(2)Image represents 9 Laboratory Drive in our Alexandria Center® for AgTech campus.
(3)Image represents 10 Davis Drive in our Alexandria Center® for Advanced Technologies - Research Triangle mega campus.
New Class A development and redevelopment properties: recent deliveries (continued)
The following table presents value-creation development and redevelopment of new Class A properties placed into service during the year ended December 31, 2022 (dollars in thousands):
Deliveries in 4Q22 commenced $28 million in annual net operating income
Property/Market/Submarket 4Q22
Delivery Date(1)
Our Ownership Interest RSF Placed in Service Occupancy Percentage(2)
Total Project Unlevered Yields
Prior to 1/1/22 1Q22 2Q22 3Q22 4Q22 Total Initial Stabilized Initial Stabilized (Cash Basis)
RSF Investment
Development projects
201 Brookline Avenue/Greater Boston/Fenway 11/3/22 98.8% - - - 261,990 78,083 340,073 100% 510,116 $ 734,000 7.2 % 6.2 %
201 Haskins Way/San Francisco Bay Area/South San Francisco N/A 100% 270,879 52,311 - - - 323,190 100% 323,190 367,000 6.3 6.0
825 and 835 Industrial Road/San Francisco Bay Area/Greater Stanford N/A 100% 476,211 49,918 - - - 526,129 100% 526,129 631,000 6.7 6.5
3115 Merryfield Row/San Diego/Torrey Pines N/A 100% - 146,456 - - - 146,456 93% 146,456 150,000 6.3 6.2
10055 Barnes Canyon Road/San Diego/Sorrento Mesa 11/21/22 50.0% - - 110,454 9,473 75,508 195,435 100% 195,435 189,000 7.2 6.7
10102 Hoyt Park Drive/San Diego/Sorrento Mesa 11/15/22 100% - - - - 144,113 144,113 100% 144,113 114,000 7.4 6.8
9950 Medical Center Drive/Maryland/Rockville N/A 100% - 84,264 - - - 84,264 100% 84,264 57,000 8.9 7.8
5 and 9 Laboratory Drive/
Research Triangle/Research Triangle
12/21/22 100% 267,509 11,211 - 1,485 62,676 342,881 94% 342,881 221,000 6.9 7.0
8 and 10 Davis Drive/
Research Triangle/Research Triangle
N/A 100% 65,247 44,980 139,773 - - 250,000 94% 250,000 159,000 7.6 7.3
Redevelopment projects
The Arsenal on the Charles/Greater Boston/Cambridge/Inner Suburbs 12/31/22 100% 137,111 99,796 50,663 43,351 56,757 387,678 96% 872,665 834,000 6.3 5.6
3160 Porter Drive/San Francisco Bay Area/Greater Stanford N/A 100% 57,696 34,604 - - - 92,300 83% 92,300 117,000 4.6 4.6
30-02 48th Avenue/New York City/New York City 12/31/22 100% 41,848 11,092 18,689 10,197 55,361 137,187 69% 179,100 248,000 5.8 6.0
5505 Morehouse Drive/San Diego/Sorrento Mesa N/A 100% 28,324 - 51,621 - - 79,945 100% 79,945 68,000 7.1 7.2
9601 and 9603 Medical Center Drive/Maryland/Rockville 11/17/22 100% 17,378 - - - 17,211 34,589 100% 95,911 54,000 8.4 7.1
20400 Century Boulevard/Maryland/Gaithersburg 10/17/22 100% - 32,033 4,194 6,465 8,046 50,738 100% 80,550 35,000 8.5 8.6
2400 Ellis Road, 40 and 41 Moore Drive, and 14 TW Alexander Drive/Research Triangle/Research Triangle N/A 100% 326,445 - - - - 326,445 100% 703,316 337,000 7.5 6.7
Weighted average/total 11/18/22 1,688,648 566,665 375,394 332,961 497,755 3,461,423 4,626,371 $ 4,315,000 6.8 % 6.3 %
Refer to “New Class A development and redevelopment properties: current projects” within this Item 2 for details on the RSF in service and under construction, if applicable.
(1)Represents the average delivery date for deliveries that occurred during the three months ended December 31, 2022, weighted by annual rental revenue.
(2)Relates to total operating RSF placed in service as of the most recent delivery.
New Class A development and redevelopment properties: current projects
325 Binney Street One Rogers Street 99 Coolidge Avenue 500 North Beacon Street and
4 Kingsbury Avenue(1)
201 Brookline Avenue
Greater Boston/
Cambridge/Inner Suburbs Greater Boston/
Cambridge/Inner Suburbs Greater Boston/
Cambridge/Inner Suburbs Greater Boston/
Cambridge/Inner Suburbs Greater Boston/Fenway
462,100 RSF 403,892 RSF 320,809 RSF 248,018 RSF 170,043 RSF
100% Leased 100% Leased 36% Leased/Negotiating 85% Leased/Negotiating 98% Leased/Negotiating
15 Necco Street 40, 50, and 60 Sylvan Road(2)
1450 Owens Street 651 Gateway Boulevard 751 Gateway Boulevard
Greater Boston/
Seaport Innovation District Greater Boston/Route 128 San Francisco Bay Area/
Mission Bay San Francisco Bay Area/
South San Francisco San Francisco Bay Area/
South San Francisco
345,995 RSF 202,428 RSF 212,796 RSF 300,010 RSF 230,592 RSF
97% Leased/Negotiating 61% Leased/Negotiating -% Leased/Negotiating 7% Leased/Negotiating 100% Leased
(1)Image represents 500 North Beacon Street in our The Arsenal on the Charles mega campus.
(2)Image represents 50 Sylvan Road.
New Class A development and redevelopment properties: current projects (continued)
10075 Barnes Canyon Road 1150 Eastlake Avenue East 9810 Darnestown Road 9808 Medical Center Drive
San Diego/Sorrento Mesa Seattle/Lake Union Maryland/Rockville Maryland/Rockville
254,771 RSF 311,631 RSF 192,000 RSF 90,000 RSF
-% Leased/Negotiating 89% Leased/Negotiating 100% Leased 73% Leased/Negotiating
9601 and 9603 Medical Center Drive 2400 Ellis Road, 40 and 41 Moore Drive, and 14 TW Alexander Drive(1)
4 Davis Drive 6040 George Watts Hill Drive,
Phase II
Maryland/Rockville Research Triangle/Research Triangle Research Triangle/Research Triangle Research Triangle/Research Triangle
61,322 RSF 376,871 RSF 180,000 RSF 88,038 RSF
100% Leased 86% Leased/Negotiating 6% Leased/Negotiating 100% Leased
(1)Image represents 41 Moore Drive in our Alexandria Center® for Life Science - Durham mega campus.
New Class A development and redevelopment properties: current projects (continued)
The following tables set forth a summary of our new Class A development and redevelopment properties under construction and pre-leased/negotiating near-term projects as of December 31, 2022 (dollars in thousands):
Market
Property/Submarket
Square Footage Percentage Occupancy(1)
Dev/Redev In Service CIP Total Leased Leased/Negotiating Initial Stabilized
Under construction
Greater Boston
325 Binney Street/Cambridge/Inner Suburbs Dev - 462,100 462,100 100 % 100 % 2023 2024
One Rogers Street/Cambridge/Inner Suburbs Redev 4,367 403,892 408,259 100 100 2023 2023
99 Coolidge Avenue/Cambridge/Inner Suburbs Dev - 320,809 320,809 36 36 2024 2025
500 North Beacon Street and 4 Kingsbury Avenue/Cambridge/Inner Suburbs Dev - 248,018 248,018 85 85 2024 2025
201 Brookline Avenue/Fenway Dev 340,073 170,043 510,116 97 98 3Q22 2023
15 Necco Street/Seaport Innovation District Dev - 345,995 345,995 97 97 2024 2024
40, 50, and 60 Sylvan Road/Route 128 Redev 312,845 202,428 515,273 61 61 2023 2024
840 Winter Street/Route 128 Redev 28,230 139,984 168,214 100 100 2024 2024
Other Redev - 453,869 453,869 - - (2)
2023 2025
San Francisco Bay Area
1450 Owens Street/Mission Bay Dev - 212,796 212,796 - - (2)
2024 2025
651 Gateway Boulevard/South San Francisco Redev - 300,010 300,010 7 7 (2)
2023 2025
751 Gateway Boulevard/South San Francisco Dev - 230,592 230,592 100 100 2023 2023
San Diego
10075 Barnes Canyon Road/Sorrento Mesa Dev - 254,771 254,771 - - (2)
2024 2025
Seattle
1150 Eastlake Avenue East/Lake Union Dev - 311,631 311,631 89 89 2023 2024
Alexandria Center® for Advanced Technologies - Monte Villa Parkway/Bothell
Redev 246,647 213,976 460,623 84 84 2023 2024
Maryland
9810 Darnestown Road/Rockville Dev - 192,000 192,000 100 100 2024 2024
9808 Medical Center Drive/Rockville Dev - 90,000 90,000 29 73 2023 2024
9601 and 9603 Medical Center Drive/Rockville Redev 34,589 61,322 95,911 100 100 4Q21 2023
20400 Century Boulevard/Gaithersburg Redev 50,738 29,812 80,550 100 100 1Q22 2023
Research Triangle
2400 Ellis Road, 40 and 41 Moore Drive, and 14 TW Alexander Drive/
Research Triangle
Redev 326,445 376,871 703,316 86 86 2Q21 2024
4 Davis Drive/Research Triangle Dev - 180,000 180,000 - 6 (2)
2023 2024
6040 George Watts Hill Drive, Phase II/Research Triangle Dev - 88,038 88,038 100 100 2024 2024
Texas
8800 Technology Forest Place/Greater Houston Redev - 201,499 201,499 23 23 2023 2024
Canada
Canada Redev 22,992 107,081 130,073 71 81 2023 2024
1,366,926 5,597,537 6,964,463 67 % 68 %
(1)Initial occupancy dates are subject to leasing and/or market conditions. Multi-tenant projects may have occupancy by tenants over a period of time. Stabilized occupancy may vary depending on single tenancy versus multi-tenancy.
(2)This project is focused on demand from our existing tenants in our adjacent properties/campuses and will also address demand from other non-Alexandria properties/campuses.
New Class A development and redevelopment properties: current projects (continued)
Market
Property/Submarket
Square Footage Percentage
Dev/Redev In Service CIP Total Leased Leased/Negotiating
Near-term projects expected to commence construction in the next four quarters
San Francisco Bay Area
230 Harriet Tubman Way/South San Francisco Dev - 285,346 285,346 100 % 100 %
San Diego
11255 and 11355 North Torrey Pines Road/Torrey Pines Dev - 309,094 309,094 100 100
10931 and 10933 North Torrey Pines Road/Torrey Pines Dev - 299,158 299,158 100 100
Campus Point by Alexandria, Phase II/University Town Center Dev - 426,927 426,927 100 100
Campus Point by Alexandria, Phase I/University Town Center Dev - 171,102 171,102 100 100
Seattle
701 Dexter Avenue North/Lake Union Dev - 226,586 226,586 - - (1)
Maryland
9820 Darnestown Road/Rockville Dev - 250,000 250,000 100 100
- 1,968,213 1,968,213 88 88
Total 1,366,926 7,565,750 8,932,676 72 % 72 %
(1)This project was initiated due to demand from neighboring tenants.
New Class A development and redevelopment properties: current projects (continued)
Our Ownership Interest At 100% Unlevered Yields
Market
Property/Submarket
In Service CIP Cost to Complete Total at
Completion Initial Stabilized Initial Stabilized (Cash Basis)
Under construction
Greater Boston
325 Binney Street/Cambridge/Inner Suburbs 100 % $ - $ 477,206 $ 413,794 $ 891,000 8.5 % 7.2 %
One Rogers Street/Cambridge/Inner Suburbs 100 % 10,814 1,040,421 154,765 1,206,000 5.2 % 4.2 %
99 Coolidge Avenue/Cambridge/Inner Suburbs 75.0 % - 174,817 TBD
500 North Beacon Street and 4 Kingsbury Avenue/Cambridge/Inner Suburbs 100 % - 156,299 270,701 427,000 6.2 % 5.5 %
201 Brookline Avenue/Fenway 98.8 % 482,455 208,188 43,357 734,000 7.2 % 6.2 %
15 Necco Street/Seaport Innovation District 90.0 % - 339,207 227,793 567,000 6.7 % 5.5 %
40, 50, and 60 Sylvan Road/Route 128 100 % 173,686 151,887 TBD
840 Winter Street/Route 128 100 % 13,642 99,117 95,241 208,000 7.5 % 6.5 %
Other 100 % - 128,736 TBD
San Francisco Bay Area
1450 Owens Street/Mission Bay 59.7 % - 122,012 TBD
651 Gateway Boulevard/South San Francisco 50.0 % - 182,941
751 Gateway Boulevard/South San Francisco 51.0 % - 171,315 118,685 290,000 6.5 % 6.3 %
San Diego
10075 Barnes Canyon Road/Sorrento Mesa 50.0 % - 51,389 TBD
Seattle
1150 Eastlake Avenue East/Lake Union 100 % - 213,339 191,661 405,000 6.4 % 6.2 %
Alexandria Center® for Advanced Technologies - Monte Villa Parkway/Bothell
100 % 59,309 99,001 70,690 229,000 6.3 % 6.2 %
Maryland
9810 Darnestown Road/Rockville 100 % - 78,508 54,492 133,000 6.9 % 6.2 %
9808 Medical Center Drive/Rockville 100 % - 51,050 TBD
9601 and 9603 Medical Center Drive/Rockville 100 % 18,187 30,907 4,906 54,000 8.4 % 7.1 %
20400 Century Boulevard/Gaithersburg 100 % 21,185 7,584 6,231 35,000 8.5 % 8.6 %
Research Triangle
2400 Ellis Road, 40 and 41 Moore Drive, and 14 TW Alexander Drive/Research Triangle 100 % 93,858 121,944 121,198 337,000 7.5 % 6.7 %
4 Davis Drive/Research Triangle 100 % - 38,090 TBD
6040 George Watts Hill Drive, Phase II/Research Triangle 100 % - 20,583 43,417 64,000 8.0 % 7.0 %
Texas
8800 Technology Forest Place/Greater Houston 100 % - 73,436 TBD
Canada
Canada 100 % 3,154 17,376 TBD
$ 876,290 $ 4,055,353 $ 3,690,000 (1)
$ 8,620,000 (1)
(1)Amounts rounded to the nearest $10 million and include preliminary estimated amounts for projects listed as TBD.
New Class A development and redevelopment properties: current projects (continued)
Our Ownership Interest At 100%
Market
Property/Submarket
In Service CIP Cost to Complete Total at
Completion
Near-term projects expected to commence construction in the next four quarters
San Francisco Bay Area TBD
230 Harriet Tubman Way/South San Francisco 45.3 % $ - $ 110,278
San Diego
11255 and 11355 North Torrey Pines Road/Torrey Pines 100 % - 126,748
10931 and 10933 North Torrey Pines Road/Torrey Pines 100 % - 83,241
Campus Point by Alexandria, Phase II/University Town Center 55.0 % - 53,495
Campus Point by Alexandria, Phase I/University Town Center 55.0 % - 46,821
Seattle
701 Dexter Avenue North/Lake Union 100 % - 124,303
Maryland
9820 Darnestown Road/Rockville 100 % - 38,952
- 583,838 1,830,000 (1)
2,420,000 (1)
Total $ 876,290 $ 4,639,191 $ 5,520,000 (1)
$ 11,040,000 (1)
Our share of investment(2)
$ 4,660,000 (1)
$ 9,730,000 (1)
(1)Amounts rounded to the nearest $10 million and include preliminary estimated amounts for projects listed as TBD.
(2)Represents our share of investment based on our ownership percentages at the completion of development or redevelopment projects.
New Class A development and redevelopment properties: summary of pipeline
The following table summarizes the key information for all our development and redevelopment projects in North America as of December 31, 2022 (dollars in thousands):
Market
Property/Submarket
Our Ownership Interest Book Value Square Footage
Development and Redevelopment Total(1)
Under Construction Near
Term Intermediate Term Future
Greater Boston
Mega Campus: Alexandria Center® at One Kendall Square/Cambridge/
Inner Suburbs
100 % $ 477,206 462,100 - - - 462,100
325 Binney Street
Mega Campus: Alexandria Center® at Kendall Square/Cambridge/
Inner Suburbs
100 % 1,097,991 403,892 104,500 - 41,955 550,347
One Rogers Street and 100 Edwin H. Land Boulevard
99 Coolidge Avenue/Cambridge/Inner Suburbs 75.0 % 174,817 320,809 - - - 320,809
Mega Campus: The Arsenal on the Charles/Cambridge/Inner Suburbs 100 % 167,226 248,018 - - 342,603 590,621
311 Arsenal Street, 500 North Beacon Street, and 4 Kingsbury Avenue
Mega Campus: Alexandria Center® for Life Science - Fenway/Fenway
(2)
524,791 170,043 507,997 - - 678,040
201 Brookline Avenue and 421 Park Drive
15 Necco Street/Seaport Innovation District 90.0 % 339,207 345,995 - - - 345,995
Mega Campus: 40, 50, and 60 Sylvan Road, 35 Gatehouse Drive, and 840 Winter Street/Route 128 100 % 308,205 342,412 341,075 - 515,000 1,198,487
275 Grove Street/Route 128 100 % - - 160,251 - - 160,251
10 Necco Street/Seaport Innovation District 100 % 98,667 - - 175,000 - 175,000
215 Presidential Way/Route 128 100 % 6,808 - - 112,000 - 112,000
Mega Campus: 480 Arsenal Way and 446, 458, 500, and 550 Arsenal Street/Cambridge/Inner Suburbs 100 % 77,582 - - - 902,000 902,000
446, 458, and 550 Arsenal Street
Mega Campus: Alexandria Technology Square®/Cambridge/
Inner Suburbs
100 % 7,881 - - - 100,000 100,000
Mega Campus: 380 and 420 E Street/Seaport Innovation District 100 % 125,786 - - - 1,000,000 1,000,000
99 A Street/Seaport Innovation District 100 % 49,800 - - - 235,000 235,000
Mega Campus: One Moderna Way/Route 128 100 % 24,686 - - - 1,100,000 1,100,000
Other value-creation projects 100 % 202,708 453,869 260,992 - 449,549 1,164,410
$ 3,683,361 2,747,138 1,374,815 287,000 4,686,107 9,095,060
Refer to the definition of “Mega campus” in the “Definitions and reconciliations” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(1)Represents total square footage upon completion of development or redevelopment of one or more new Class A properties. Square footage presented includes RSF of buildings currently in operation at properties that also have inherent future development or redevelopment opportunities. Upon expiration of existing in-place leases, we have the intent to demolish or redevelop the existing property and commence future construction. Refer to the definition of “Investments in real estate - value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(2)We have a 98.8% ownership interest in 201 Brookline Avenue aggregating 170,043 RSF, which is currently under construction, and a 100% ownership interest in the near-term development project at 421 Park Drive aggregating 507,997 SF.
New Class A development and redevelopment properties: summary of pipeline (continued)
Market
Property/Submarket
Our Ownership Interest Book Value Square Footage
Development and Redevelopment Total(1)
Under Construction Near
Term Intermediate Term Future
San Francisco Bay Area
Mega Campus: Alexandria Center® for Science and Technology - Mission Bay/Mission Bay
59.7 % $ 122,012 212,796 - - - 212,796
1450 Owens Street
Mega Campus: Alexandria Technology Center® - Gateway/South San Francisco
(2)
378,730 530,602 - - 291,000 821,602
651 and 751 Gateway Boulevard
Alexandria Center® for Life Science - Millbrae/South San Francisco
45.3 % 252,173 - 633,747 - - 633,747
230 Harriet Tubman Way, 201 and 231 Adrian Road, and 6 and 30 Rollins Road
3825 and 3875 Fabian Way/Greater Stanford 100 % 137,076 - - 250,000 228,000 478,000
Mega Campus: Alexandria Center® for Life Science - San Carlos/Greater Stanford
100 % 397,323 - 105,000 700,000 692,830 1,497,830
960 Industrial Road, 987 and 1075 Commercial Street, and 888 Bransten Road
901 California Avenue/Greater Stanford 100 % 11,698 - 56,924 - - 56,924
Mega Campus: 88 Bluxome Street/SoMa 100 % 348,135 - 1,070,925 - - 1,070,925
Mega Campus: 1122, 1150, and 1178 El Camino Real/South San Francisco 100 % 350,590 - - - 1,930,000 1,930,000
Mega Campus: 211(3), 213(3), 249, 259, 269, and 279 East Grand Avenue/
South San Francisco
100 % 6,655 - - - 90,000 90,000
211 East Grand Avenue
Other value-creation projects 100 % - - - - 25,000 25,000
2,004,392 743,398 1,866,596 950,000 3,256,830 6,816,824
New York City
Mega Campus: Alexandria Center® for Life Science - New York City/New York City
100 % 133,505 - - 550,000 (4)
- 550,000
219 East 42nd Street/New York City 100 % - - - 579,947 - 579,947
$ 133,505 - - 1,129,947 - 1,129,947
Refer to the definition of “Mega campus” in the “Definitions and reconciliations” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(1)Represents total square footage upon completion of development or redevelopment of one or more new Class A properties. Square footage presented includes RSF of buildings currently in operation at properties that also have inherent future development or redevelopment opportunities. Upon expiration of existing in-place leases, we have the intent to demolish or redevelop the existing property and commence future construction. Refer to the definition of “Investments in real estate - value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(2)We have a 50.0% ownership interest in 651 Gateway Boulevard aggregating 300,010 RSF and a 51.0% ownership interest in 751 Gateway Boulevard aggregating 230,592 RSF.
(3)We own a partial interest in this property through a real estate joint venture. Refer to Note 4 - “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements under Item 15 of this annual report on Form 10-K for additional details.
(4)Pursuant to an option agreement, we are currently negotiating a long-term ground lease with the City of New York for the future site of a new building of approximately 550,000 SF.
New Class A development and redevelopment properties: summary of pipeline (continued)
Market
Property/Submarket
Our Ownership Interest Book Value Square Footage
Development and Redevelopment Total(1)
Under Construction Near
Term Intermediate Term Future
San Diego
Mega Campus: SD Tech by Alexandria/Sorrento Mesa 50.0 % $ 116,330 254,771 - 160,000 333,845 748,616
9805 Scranton Road and 10065 and 10075 Barnes Canyon Road
Mega Campus: One Alexandria Square and One Alexandria North/Torrey Pines 100 % 262,456 - 608,252 125,280 - 733,532
10931, 10933, 11255, and 11355 North Torrey Pines Road and 10975 and 10995 Torreyana Road
Mega Campus: Campus Point by Alexandria/University Town Center 55.0 % 259,044 - 598,029 - 1,074,445 1,672,474
10010(2), 10140(2), and 10260 Campus Point Drive and 4110, 4150, 4161, and 4275(2) Campus Point Court
Mega Campus: Sequence District by Alexandria/Sorrento Mesa 100 % 43,100 - 200,000 509,000 1,089,915 1,798,915
6260, 6290, 6310, 6340, 6350, and 6450 Sequence Drive
Scripps Science Park by Alexandria/Sorrento Mesa 100 % 69,978 - 105,000 175,041 164,000 444,041
10048 and 10219 Meanley Drive, and 10277 Scripps Ranch Boulevard
Mega Campus: University District/University Town Center 100 % 143,990 - - 937,000 - 937,000
9363, 9373, and 9393 Towne Centre Drive, 8410-8750 Genesee Avenue, and 4282 Esplanade Court
Pacific Technology Park/Sorrento Mesa 50.0 % 21,981 - - 149,000 - 149,000
9444 Waples Street
Mega Campus: 5200 Illumina Way/University Town Center 51.0 % 16,652 - - - 451,832 451,832
4025, 4031, 4045, and 4075 Sorrento Valley Boulevard/Sorrento Valley 100 % 21,282 - - - 247,000 247,000
Other value-creation projects 100 % 68,606 - - - 475,000 475,000
1,023,419 254,771 1,511,281 2,055,321 3,836,037 7,657,410
Seattle
Mega Campus: The Eastlake Life Science Campus by Alexandria/Lake Union 100 % 213,339 311,631 - - - 311,631
1150 Eastlake Avenue East
Alexandria Center® for Advanced Technologies - Monte Villa Parkway/Bothell
100 % 99,001 213,976 50,552 - - 264,528
3301, 3555, and 3755 Monte Villa Parkway
Mega Campus: Alexandria Center® for Life Science - South Lake Union/
Lake Union
(3)
377,870 - 1,095,586 - 188,400 1,283,986
601 and 701 Dexter Avenue North and 800 Mercer Street
830 and 1010 4th Avenue South/SoDo 100 % $ 53,937 - - - 597,313 597,313
Refer to the definition of “Mega campus” in the “Definitions and reconciliations” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(1)Represents total square footage upon completion of development or redevelopment of one or more new Class A properties. Square footage presented includes RSF of buildings currently in operation at properties that also have inherent future development or redevelopment opportunities. Upon expiration of existing in-place leases, we have the intent to demolish or redevelop the existing property and commence future construction. Refer to the definition of “Investments in real estate - value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(2)We have a 100% ownership interest in this property.
(3)We have a 100% ownership interest in 601 and 701 Dexter Avenue North aggregating 414,986 SF and a 60% ownership interest in the near-term development project at 800 Mercer Street aggregating 869,000 SF.
New Class A development and redevelopment properties: summary of pipeline (continued)
Market
Property/Submarket
Our Ownership Interest Book Value Square Footage
Development and Redevelopment Total(1)
Under Construction Near
Term Intermediate Term Future
Seattle (continued)
Mega Campus: Alexandria Center® for Advanced Technologies - Canyon Park/Bothell
100 % $ 14,059 - - - 230,000 230,000
21660 20th Avenue Southeast
Other value-creation projects 100 % 84,369 - - - 691,000 691,000
842,575 525,607 1,146,138 - 1,706,713 3,378,458
Maryland
Mega Campus: Alexandria Center® for Life Science - Shady Grove/Rockville
100 % 218,117 343,322 250,000 258,000 38,000 889,322
9601, 9603, and 9808 Medical Center Drive and 9810, 9820, and 9830 Darnestown Road
20400 Century Boulevard/Gaithersburg 100 % 7,584 29,812 - - - 29,812
225,701 373,134 250,000 258,000 38,000 919,134
Research Triangle
Mega Campus: Alexandria Center® for Life Science - Durham/
Research Triangle
100 % 271,547 376,871 - - 2,060,000 2,436,871
40 and 41 Moore Drive and 14 TW Alexander Drive
Mega Campus: Alexandria Center® for Advanced Technologies - Research Triangle/Research Triangle
100 % 74,801 180,000 - - 990,000 1,170,000
4 and 12 Davis Drive
6040 George Watts Hill Drive, Phase II/Research Triangle 100 % 20,583 88,038 - - - 88,038
Mega Campus: Alexandria Center® for NextGen Medicines/
Research Triangle
100 % 100,290 - 100,000 100,000 855,000 1,055,000
3029 East Cornwallis Road
120 TW Alexander Drive, 2752 East NC Highway 54, and 10 South Triangle Drive/Research Triangle 100 % 51,083 - - - 750,000 750,000
Other value-creation projects 100 % 4,185 - - - 76,262 76,262
$ 522,489 644,909 100,000 100,000 4,731,262 5,576,171
Refer to the definition of “Mega campus” in the “Definitions and reconciliations” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(1)Represents total square footage upon completion of development or redevelopment of one or more new Class A properties. Square footage presented includes RSF of buildings currently in operation at properties that also have inherent future development or redevelopment opportunities. Upon expiration of existing in-place leases, we have the intent to demolish or redevelop the existing property and commence future construction. Refer to the definition of “Investments in real estate - value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
New Class A development and redevelopment properties: summary of pipeline (continued)
Market
Property/Submarket
Our Ownership Interest Book Value Square Footage
Development and Redevelopment Total(1)
Under Construction Near
Term Intermediate Term Future
Texas
8800 Technology Forest Place/Greater Houston 100 % $ 84,514 201,499 - - 116,287 317,786
1020 Red River Street/Austin 100 % 9,197 - - - 177,072 177,072
Other value-creation projects 100 % 127,618 - - - 1,694,000 1,694,000
221,329 201,499 - - 1,987,359 2,188,858
Canada 100 % 17,376 107,081 - - 124,000 231,081
Other value-creation projects 100 % 41,188 - - - 350,000 350,000
Total pipeline as of December 31, 2022
$ 8,715,335 (2)
5,597,537 6,248,830 4,780,268 20,716,308 37,342,943
Refer to the definition of “Mega campus” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(1)Total square footage includes 4,550,537 RSF of buildings currently in operation that we intend to demolish or redevelop and commence future construction. Refer to the definition of “Investments in real estate - value-creation square footage currently in rental properties” in the “Non-GAAP measures and definitions” section under Item 7 in this annual report on Form 10-K for additional information.
(2)Total book value includes $4.1 billion of projects currently under construction that are 68% leased/negotiating. We also expect to commence construction of seven near-term projects aggregating $583.8 million, which are 88% leased, in the next four quarters.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
To our knowledge, no legal proceedings are pending against us, other than routine actions and administrative proceedings, and other actions not deemed material, substantially all of which are expected to be covered by liability insurance and which, in the aggregate, are not expected to have a material adverse effect on our financial condition, results of operations, or cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NYSE under the symbol “ARE.” On January 13, 2023, the last reported sales price per share of our common stock was $155.57, and there were 683 holders of record of our common stock (excluding beneficial owners whose shares are held in the name of Cede & Co.).
To maintain our qualification as a REIT, we must make annual distributions to stockholders of at least 90% of our taxable income for the current taxable year, determined without regard to deductions for dividends paid and excluding any net capital gains. Under certain circumstances, we may be required to make distributions in excess of cash flows available for distribution to meet these distribution requirements. In such a case, we may borrow funds or may raise funds through the issuance of additional debt or equity capital. No dividends can be paid on our common stock unless we have paid full cumulative dividends on our preferred stock. From the date of issuance of our preferred stock through December 31, 2022, we have paid full cumulative dividends on our preferred stock. As of December 31, 2022, we had no outstanding shares of preferred stock. Future distributions on our common stock will be determined by, and made at the discretion of, our Board of Directors and will depend on a number of factors, including actual cash available for distribution to our stockholders, our financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, restrictions under Maryland law, and such other factors as our Board of Directors deems relevant. We cannot assure our stockholders that we will make any future distributions.
Refer to “Item 12. Security ownership of certain beneficial owners and management and related stockholder matters” in this annual report on Form 10-K for information on securities authorized for issuance under equity compensation plans.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and notes thereto under “Item 15. Exhibits and financial statement schedules” in this annual report on Form 10-K. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, results of operations, and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to, those described within this “Item 7. Management’s discussion and analysis of financial condition and results of operations” in this annual report on Form 10-K. We do not undertake any responsibility to update any of these factors or to announce publicly any revisions to any of the forward-looking statements contained in this or any other document, whether as a result of new information, future events, or otherwise.
As used in this annual report on Form 10-K, references to the “Company,” “Alexandria,” “ARE,” “we,” “us,” and “our” refer to Alexandria Real Estate Equities, Inc. and its consolidated subsidiaries.
Sources: Bloomberg and S&P Global Market Intelligence. Assumes reinvestment of dividends.
(1)Alexandria’s IPO priced at $20.00 per share on May 27, 1997.
(2)Represents the FTSE Nareit Equity Office Index.
As of December 31, 2022.
(1)Quarter annualized. Refer to “Net debt and preferred stock to Adjusted EBITDA” in the “Non-GAAP measures and definitions” section within this Item 7 for additional details.
As of December 31, 2022.
(1)Represents the percentage of our annual rental revenue generated by our top 20 tenants that are also investment-grade or publicly traded large cap tenants. Refer to “Annual rental revenue” and “Investment-grade or publicly traded large cap tenants” in the “Non-GAAP measures and definitions” section within this Item 7 for additional details.
(2)Represents annual rental revenue currently generated from space that is targeted for a future change in use, including 1.1% of total annual rental revenue that is generated from covered land play projects. The weighted-average remaining term of these leases is 5.2 years.
(3)Our other tenants, which aggregate 2.0% of our annual rental revenue, comprise technology, professional services, finance, telecommunications, and construction/real estate companies and less than 1.0% of retail-related tenants by annual rental revenue.
(4)Represents annual rental revenue in effect as of December 31, 2022. Refer to “Annual rental revenue” in the “Non-GAAP measures and definitions” section within this Item 7 for additional details.
(1)Based on the closing price of common stock as of December 31, 2022 of $145.67 and the common stock dividend declared for the three months ended December 31, 2022 of $1.21 annualized.
(1)Includes initial proceeds from our joint venture partners’ contribution toward construction projects.
(2)Represents the aggregate gain and consideration in excess of book value recognized on dispositions and partial interest sales, respectively.
(3)Represents the weighted-average capitalization rates for stabilized operating assets.
Refer to “Net operating income” in the “Non-GAAP measures and definitions” section within this Item 7 for additional details and its reconciliation from the most directly comparable financial measures presented in accordance with GAAP.
(1)As of December 31, 2022. Represents projects under construction aggregating 5.6 million RSF and seven near-term projects aggregating 2.0 million RSF expected to commence construction during the next four quarters.
(1)A credit rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time. Top 10% ranking represents credit rating levels from Moody’s Investors Service and S&P Global Ratings for publicly traded U.S. REITs, from Bloomberg Professional Services as of December 31, 2022.
As of December 31, 2022.
(1)Quarter annualized. Refer to “Net debt and preferred stock to Adjusted EBITDA” in the “Non-GAAP measures and definitions” section within this Item 7 for additional details.
Executive summary
Operating results
Year Ended December 31,
2022 2021
Net income attributable to Alexandria’s common stockholders - diluted:
In millions
$ 513.3 $ 563.4
Per share
$ 3.18 $ 3.82
Funds from operations attributable to Alexandria’s common stockholders - diluted, as adjusted:
In millions
$ 1,361.7 $ 1,144.9
Per share
$ 8.42 $ 7.76
The operating results shown above include certain items related to corporate-level investing and financing decisions. For additional information, refer to “Funds from operations and funds from operations, as adjusted, attributable to Alexandria Real Estate Equities, Inc.’s common stockholders” in the “Non-GAAP measures and definitions” section and to the tabular presentation of these items in the “Results of operations” section within this Item 7 in this annual report on Form 10-K.
An operationally excellent, industry-leading REIT with a high-quality client base of approximately 1,000 tenants supporting high-quality revenues, cash flows, and strong margins
Percentage of total annual rental revenue in effect from investment-grade or publicly traded large cap tenants 48 %
Sustained strength in tenant collections:
Tenant receivables as of December 31, 2022
$ 7.6 million
January 2023 tenant rent and receivables collected as of the date of this report
99.4 %
Occupancy of operating properties in North America 94.8 %
Operating margin 70 % (1)
Adjusted EBITDA margin 69 % (1)
Weighted-average remaining lease term:
All tenants 7.1 years
Top 20 tenants 9.4 years
(1)For the three months ended December 31, 2022.
Second-highest annual leasing volume and rental rate increases (cash basis)
•Annual leasing volume of 8.4 million RSF in 2022 represents the second highest in Company history, with 74% generated from our client base of approximately 1,000 tenants.
•Rental rate increase (cash basis) of 22.1% on lease renewals and re-leasing of space represents the second highest rental rate growth (cash basis) in Company history.
Total leasing activity - RSF 8,405,587
Leasing of development and redevelopment space - RSF 2,828,539
Lease renewals and re-leasing of space:
RSF (included in total leasing activity above) 4,540,325
Rental rate increases 31.0%
Rental rate increases (cash basis) 22.1%
Continued strong net operating income and internal growth, including highest annual same property growth in Company history
•Total revenues of $2.6 billion, up 22.5%, for the year ended December 31, 2022, compared to $2.1 billion for the year ended December 31, 2021.
•Net operating income (cash basis) of $1.6 billion for the year ended December 31, 2022, increased by $292.8 million, or 22.2%, compared to the year ended December 31, 2021.
•96% of our leases contain contractual annual rent escalations approximating 3%.
•Same property net operating income growth of 6.6% and 9.6% (cash basis) for the year ended December 31, 2022, compared to the year ended December 31, 2021, with both increases representing the highest growth in Company history.
•Our 2022 same property growth outperformed our 10-year averages of 3.6% and 6.7% (cash basis) as a result of an increase in same property occupancy of 100 bps and early lease renewals that commenced in late 2021/early 2022.
Continued strong, consistent, and increasing dividends with a focus on retaining significant net cash flows from operating activities after dividends for reinvestment
•Common stock dividend declared for the three months ended December 31, 2022 was $1.21 per common share, aggregating $4.72 per common share for the year ended December 31, 2022, up 24 cents, or 5%, over the year ended December 31, 2021.
•Dividend yield of 3.3% as of December 31, 2022.
•Dividend payout ratio of 58% for the three months ended December 31, 2022.
•Average annual dividend per-share growth of 6.5% over the last five years.
Alexandria’s value-creation pipeline drives visibility for future growth aggregating over $655 million of incremental net operating income
•Highly leased value-creation pipeline of current and seven near-term projects expected to generate greater than $655 million of incremental net operating income, primarily commencing from the first quarter of 2023 through the fourth quarter of 2025.
•7.6 million RSF of value-creation projects, which are 72% leased.
•77% of the leased RSF of our value-creation projects was generated from our client base of approximately 1,000 tenants.
External growth and investments in real estate
Delivery and commencement of value-creation projects
•During the three months ended December 31, 2022, we placed into service development and redevelopment projects aggregating 497,755 RSF across multiple submarkets, resulting in $28 million of incremental annual net operating income.
•Annual net operating income (cash basis) is expected to increase by $57 million upon the burn-off of initial free rent from recently delivered projects.
•Commenced two development projects aggregating 467,567 RSF during the three months ended December 31, 2022, including 212,796 RSF at 1450 Owens Street in our Mission Bay submarket, which will be 100% funded by our joint venture partner, and 254,771 RSF at 10075 Barnes Canyon Road in our Sorrento Mesa submarket, which will be 50% funded by our joint venture partner.
Value-creation pipeline of new Class A development and redevelopment projects as a percentage of gross assets
December 31, 2022
Under construction projects 68% leased/negotiating
10%
Near-term projects expected to commence construction in the next four quarters 88% leased
2%
Income-producing/potential cash flows/covered land play(1)
7%
Land 3%
(1)Includes projects that have existing buildings that are generating or can generate operating cash flows. Also includes development rights associated with existing operating campuses. These projects aggregate 1.1% of total annual rental revenue as of December 31, 2022 and are included in targeted for a future change in use in our industry mix chart. Refer to “High-quality and diverse client base in AAA locations” under Item 2 in this annual report on Form 10-K.
•81% of construction costs related to active development and redevelopment projects aggregating 5.6 million RSF are under a guaranteed maximum price (“GMP”) contract or other fixed contracts. Our budgets also include construction cost contingencies in GMP contracts plus additional landlord contingencies that generally range from 3% to 5%.
Alexandria is at the vanguard of innovation for a high-quality client base of approximately 1,000 tenants, focused on accommodating their current needs and providing them with a path for future growth
•During the year ended December 31, 2022, we completed acquisitions in our key life science cluster submarkets aggregating 10.2 million SF, which comprise 9.5 million RSF of value-creation opportunities and 0.7 million RSF of operating space, for an aggregate purchase price of $2.8 billion.
Execution of capital strategy
2022 capital strategy
During 2022, we continued to execute on many of the long-term components of our capital strategy, as described below.
Maintained access to diverse sources of capital strategically important to our long-term capital structure
•Generated significant net cash flows from operating activities
•In 2022, we funded approximately $460 million of our equity capital needs with net cash flows from operating activities after dividends.
•Continued strategic value harvesting through real estate dispositions and partial interest sales
•In 2022, these sales generated $2.2 billion of capital for investment into our highly leased development and redevelopment projects and strategic acquisitions. In connection with these transactions, we recorded gains or consideration in excess of book value aggregating $1.2 billion.
•Achieved significant growth in annualized Adjusted EBITDA of $215.7 million, or 13%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, which allowed us to:
•Improve our net debt and preferred stock to Adjusted EBITDA ratio to 5.1x, representing the lowest ratio in Company history, for the three months ended December 31, 2022 annualized, and fund $1.2 billion of growth on a leverage-neutral basis; and
•Take advantage of favorable capital market environment and opportunistically issue, on a leverage-neutral basis, unsecured senior notes payable aggregating $1.8 billion with a weighted-average interest rate of 3.28% and an initial weighted-average term of 22.0 years.
•Continued disciplined management of common equity issuances to support growth in FFO per share, as adjusted, and NAV per share
•In 2022, the aforementioned internally generated capital enabled us to meet our capital requirements while prudently limiting the amount of equity issuances to 12.9 million shares of common stock sold under our forward equity sales agreements and ATM common stock offering program for net proceeds of $2.5 billion.
Maintained a strong and flexible balance sheet with lowest leverage in Company history as of December 31, 2022
•Investment-grade credit ratings ranked in the top 10% among all publicly traded U.S. REITs.
•Net debt and preferred stock to Adjusted EBITDA of 5.1x, the lowest ratio in Company history, and fixed-charge coverage ratio of 5.0x for the three months ended December 31, 2022 annualized.
•Total debt and preferred stock to gross assets of 25%.
•99.4% of our debt has a fixed rate.
•13.2 years weighted-average remaining term of debt.
•No debt maturities prior to 2025.
•No remaining LIBOR-based debt ahead of June 2023 phase-out.
•$5.3 billion of liquidity.
•$24.9 billion in total equity capitalization, which ranks in the top 10% among all publicly traded U.S. REITs.
•$1.4 billion of contractual construction funding commitments from existing real estate joint venture partners expected over the next four years.
Completion of unsecured senior line of credit amendment to upsize and extend term
•In 2022, we amended our unsecured senior line of credit with the following key changes:
New Agreement Change
Commitments available for borrowing $4.0 billion
Up $1.0 billion
Maturity date January 2028 Extended by 2 years
Interest rate SOFR+0.875% Converted to SOFR
from LIBOR
2023 capital strategy
During 2023, we intend to continue to execute our capital strategy to achieve further improvements to our credit profile, which will allow us to further improve our cost of capital and continue our disciplined approach to capital allocation. Consistent with 2022, our capital strategy for 2023 includes the following elements:
•Allocate capital to Class A properties located in life science, agtech, and tech campuses in AAA urban innovation clusters.
•Maintain prudent access to diverse sources of capital, which include net cash flows from operating activities after dividends, incremental leverage-neutral debt supported by growth in Adjusted EBITDA, strategic value harvesting and asset recycling through real estate disposition and partial interest sales, non-real estate investment sales, sales of equity, and other capital.
•Continue to improve our credit profile.
•Maintain commitment to long-term capital to fund growth.
•Prudently ladder debt maturities and manage short-term variable-rate debt.
•Prudently manage equity investments to support corporate-level investment strategies.
•Maintain a stable and flexible balance sheet with significant liquidity.
The anticipated delivery of significant incremental EBITDA from our development and redevelopment of new Class A properties is expected to enable us to continue to debt fund a significant portion of our development and redevelopment projects on a leverage-neutral basis. We expect to continue to maintain access to diverse sources of capital, including unsecured senior notes payable and secured construction loans for our development and redevelopment projects from time to time. We expect to continue to maintain a significant proportion of our net operating income on an unencumbered basis to allow for future flexibility for accessing both unsecured and secured debt markets, although we expect traditional secured mortgage notes payable will remain a small component of our capital structure. We intend to supplement our remaining capital needs with net cash flows from operating activities after dividends and proceeds from real estate asset sales, non-real estate investment sales, partial interest sales, and equity capital. For further information, refer to “Projected results, Sources of capital,” and “Uses of capital” within this Item 7. Our ability to meet our 2023 capital strategy objectives and expectations will depend in part on capital market conditions, real estate market conditions, and other factors beyond our control. Accordingly, there can be no assurance that we will be able to achieve these objectives and expectations. Refer to our discussion of “Forward-looking statements” under Part I and “Item 1A. Risk factors” in this annual report on Form 10-K.
Operating summary
Historical Same Property
Net Operating Income Growth(1)
Favorable Lease Structure(3)
Strategic Lease Structure by Owner and Operator of Collaborative Life Science, Agtech, and Technology Campuses
Increasing cash flows
Percentage of leases containing annual rent escalations
96%
Stable cash flows
Percentage of triple
net leases
93%
Lower capex burden
Percentage of leases providing for the recapture of capital expenditures
93%
Historical Rental Rate Growth:
Renewed/Re-Leased Space Margins(4)
Operating Adjusted EBITDA
70% 69%
Net Debt and Preferred Stock
to Adjusted EBITDA(5)
Fixed-Charge Coverage Ratio(5)
(1)Refer to “Same properties” and “Non-GAAP measures and definitions“ within this Item 7 for additional details. “Non-GAAP measures and definitions” contains the definition of “Net operating income” and its reconciliation from the most directly comparable financial measures presented in accordance with GAAP.
(2)Our 2022 same property growth outperformed our 10-year averages of 3.6% and 6.7% (cash basis) as a result of an increase in same property occupancy of 100 bps and early lease renewals that commenced in late 2021/early 2022.
(3)Percentages calculated based on annual rental revenue in effect as of December 31, 2022.
(4)Represents percentages for the three months ended December 31, 2022.
(5)Quarter annualized. Refer to the definitions of “Net debt and preferred stock to Adjusted EBITDA” and “Fixed-charge coverage ratio” in the “Non-GAAP measures and definitions” section within this Item 7 for additional details.
Industry and ESG leadership: catalyzing and leading the way for positive change to benefit human health and society
•In January 2022, Alexandria Venture Investments, our strategic venture capital platform, was recognized by Silicon Valley Bank in its “Healthcare Investments and Exits: Annual Report 2021” as the #1 most active corporate investor in biopharma by new deal volume (2020-2021) for the fifth consecutive year. In March 2022, Alexandria Venture Investments was also recognized by AgFunder in its “2022 AgriFoodTech Investment Report” as one of the five most active U.S. Investors in agrifoodtech by number of companies in which it invested (2021) for the second consecutive year.
•Several of Alexandria’s facilities and campuses across our regions received awards in honor of excellence in operations, development, and design:
•200 Technology Square on our Alexandria Technology Square® mega campus in our Cambridge/Inner Suburbs submarket earned a 2022 BOMA Mid-Atlantic TOBY (The Outstanding Building of the Year) award in the Corporate Category. The TOBY Awards honor and recognize quality in building operations and award excellence in building management.
•Our Alexandria Center® for AgTech campus in our Research Triangle submarket was named Top Flex/Warehouse Development in the Triangle Business Journal’s 2022 SPACE Awards. The annual SPACE Awards recognize the Research Triangle’s top real estate developments and transactions.
•685 Gateway Boulevard, an amenities building on our Alexandria Technology Center® - Gateway mega campus in our South San Francisco submarket, which is on track to achieve Zero Energy Certification, was awarded one of 10 national awards issued by WoodWorks - Wood Products Council in the 2022 Wood Design Awards, an annual awards program that celebrates excellence in wood building design.
•In February 2022, Alexandria earned the first-ever Fitwel Life Science certification for 300 Technology Square, located on our Alexandria Technology Square® mega campus in our Cambridge/Inner Suburbs submarket. The new rigorous, evidence-based Fitwel Life Science Scorecard - developed in partnership with the Center for Active Design exclusively for Alexandria - is the first healthy building framework dedicated to laboratory facilities, marking another pioneering effort by the Company to prioritize tenant health and wellness and further differentiate our world-class laboratory buildings.
•In February 2022, Alexandria was ranked the #5 most sustainable REIT, as featured in the Barron’s article, “10 Real Estate Companies That Are Both Greener and More Profitable.”
•In March 2022, Alexandria’s executive chairman and founder, Joel S. Marcus, was honored by the National Medal of Honor Museum Foundation in Arlington, Texas during a groundbreaking ceremony in celebration of the historic mission-critical milestone in the development of the national museum. Mr. Marcus, who serves on the foundation’s board of directors, attended alongside fellow foundation board members, major museum donors, government officials, and 15 Medal of Honor recipients to commemorate the foundation’s remarkable progress toward its goal to build a permanent home where the inspiring stories of our country’s Medal of Honor recipients will be brought to life.
•In April 2022, 9880 Campus Point Drive, a 98,000 RSF development on the Campus Point by Alexandria mega campus in our University Town Center submarket, earned LEED Platinum certification, the highest level of certification under the U.S. Green Building Council’s Core & Shell rating system. Home to Alexandria GradLabs®, a dynamic proprietary platform purpose-built to accelerate the growth of promising post-seed-stage life science companies, the cutting-edge facility demonstrates high levels of sustainability, including decreased water consumption, significantly reduced energy use, and increased use of recycled resources and materials.
•In June 2022, we released our 2021 ESG Report, which highlights our longstanding ESG leadership. The report details our efforts to advance our ESG impact, including by driving high-performance building design and operations to reduce carbon emissions, mitigating climate-related risk in our real estate portfolio, and investing in and providing essential infrastructure for sustainable agrifoodtech companies. It also showcases Alexandria’s comprehensive efforts to catalyze the health, wellness, safety, and productivity of our employees, tenants, local communities, and the world through the built environment and beyond, including through our visionary social responsibility endeavors. Notable initiatives presented in the report that highlight our innovative approach include:
•Furthering the development of our approach to physical and transitional climate-related risk by initiating a process to assess and understand potential physical risk and pathways to mitigate and adapt to climate change, as well as preparing for the transition to a low-carbon economy and continuing to develop science-based targets;
•Implementing innovative solutions to minimize fossil fuel use in our state-of-the-art laboratory development projects, such as at 325 Binney Street, which will harness geothermal energy to target a LEED Zero Energy certification and a 92% reduction in fossil fuel use as a key component of its design to be the most sustainable laboratory building in Cambridge; at 751 Gateway Boulevard, which is pursuing electrification and is tracking to be the first all-electric laboratory building in South San Francisco; and at our Alexandria Center® for Life Science - South Lake Union mega campus in Seattle, where the Company is incorporating an innovative wastewater heat recovery system; and
•Increasing our investment in renewable electricity to mitigate carbon emissions in our existing asset base, including through a large-scale solar power purchase agreement that will significantly increase the supply of renewable electricity to our Greater Boston market starting in 2024.
•In July 2022, Alexandria Venture Investments was recognized as the #1 most active corporate investor in biopharma by new deal volume (2021-1H22) for the fifth consecutive year by Silicon Valley Bank in its “Healthcare Investments and Exits: Mid-Year 2022 Report.” Alexandria’s venture activity provides us with, among other things, mission-critical data and insights into industry innovations and trends.
•In September 2022, coinciding with National Suicide Prevention Month, we announced our deepened partnership with KITA, a non-profit providing tuition-free summer camp for children who have lost a loved one to suicide, and the advancement of our eighth social responsibility pillar addressing the mental health crisis. Through Alexandria’s significant support, KITA will have free, long-term access to 28 acres in Acton, Maine that will serve as the non-profit’s new home and enable it to grow its program and increase the number of children it serves.
•In October 2022, Alexandria continued to enhance its first social responsibility pillar focused on advancing human health by empowering NEXT for AUTISM’s development of important support services for autistic individuals and their families. Alexandria has been forging strategically supportive partnerships with highly impactful organizations that aim to accelerate groundbreaking medical innovation to advance vitally needed therapies for individuals with autism.
•In October 2022, Alexandria’s position as a groundbreaking leader in ESG was reinforced in the 2022 GRESB Real Estate Assessment, with several achievements, including (i) Regional and Global Sector Leader for buildings in development in the Science & Technology sector, (ii) #2 ranking for buildings in operation in the Diversified Listed sector, and (iii) “A” disclosure score for the fifth consecutive year. Alexandria has earned “Green Star” recognitions in the operating asset benchmark for the sixth consecutive year and in the development benchmark for the third consecutive year since its 2020 launch.
•In October 2022, Alexandria was recognized as a Climate Leader by the Sponsors of Mass Save®, a collaborative of the energy utilities and energy efficiency service providers in Massachusetts. Utilizing these programs in our Greater Boston market, we have implemented over 65 energy conservation projects across more than 40 buildings over the last 10 years, resulting in estimated recurring annual energy savings of over 5 million kWh. Alexandria was the only real estate company to be selected in the inaugural cohort of honorees.
•In October 2022, Mr. Marcus, as a newly appointed member of the Prix Galien USA’s esteemed Awards jury, honored groundbreaking medical innovations in life science. He served on the Prix Galien committee, alongside other influential science leaders, that recognized the Best Startup, Best Digital Health Solution and the inaugural Best Incubators, Accelerators and Equity.
•In October 2022, 9880 Campus Point Drive on the Campus Point by Alexandria mega campus in our University Town Center submarket received an Orchid award for Architecture from the San Diego Architectural Foundation, and a People’s Choice Orchid. The facility is home to Alexandria GradLabs®, a dynamic platform that is accelerating the growth of promising early-stage life science companies.
•Alexandria is addressing some of today’s most urgent societal challenges through our eight social responsibility pillars, including the mental health crisis and opioid addiction. In October 2022:
•Alexandria presented a timely conversation on the state of mental health in America with former congressman Patrick J. Kennedy, one of the world’s leading voices and policymakers on mental health, at the Galien Forum USA 2022, which was held at the Alexandria Center® for Life Science - New York City.
•OneFifteen, a novel, data-driven comprehensive care model we developed in partnership with Verily, celebrated its third anniversary of the campus’s opening in Dayton, Ohio. OneFifteen has treated over 5,800 patients since opening its doors in October 2019.
•In November 2022, our executive chairman and founder, Joel S. Marcus, presented at the much-anticipated Annual Baron Investment Conference for a rare second time. Mr. Marcus opened the program with a presentation on what renowned author and business strategist Jim Collins describes as our “Superior Results, Distinctive Impact, and Lasting Endurance.”
•In November 2022, Alexandria earned several 2022 TOBY (The Outstanding Building of the Year) Awards from BOMA (Building Owners and Managers Association) in Boston, Seattle, and Raleigh-Durham. The TOBY Awards recognize quality in commercial buildings and reward excellence in building management.
•In our Cambridge/Inner Suburbs submarket: Four recognitions across three of our premier mega campuses - Alexandria Center® at Kendall Square, Alexandria Center® at One Kendall Square, and Alexandria Technology Square® - for Corporate Facility, Laboratory Building, Renovated Building, and Building Under 100,000 SF categories.
•In our Lake Union submarket: A recognition for 1165 Eastlake Avenue East on The Eastlake Life Science Campus by Alexandria mega campus in the Corporate Facility category.
•In our Research Triangle submarket: A recognition for 9 Laboratory Drive on our Alexandria Center® for AgTech campus in the Life Science category.
•In January 2023, Alexandria Venture Investments was recognized by Silicon Valley Bank in its “Healthcare Investments and Exits: Annual Report 2022” as the #1 most active corporate investor in biopharma by new deal volume (2021-2022) for the sixth consecutive year. Alexandria’s venture activity provides us with, among other things, mission-critical data on and insights into key macro life science industry and innovation trends.
(1)Reflects current score for Alexandria and latest scores available for the FTSE Nareit All REITs Index companies from Bloomberg Professional Services as of December 31, 2022.
(2)Top 10% ranking among companies included in the Sustainalytics Global Universe, based on information available from Bloomberg Professional Services as of December 31, 2022.
(3)Reflects current scores for Alexandria and latest scores available for the FTSE Nareit All REITs Index companies on ISS’s website as of December 31, 2022.
(4)Top 10% ranking among FTSE Nareit All REITs Index companies, based on information available from Bloomberg Professional Services as of December 31, 2022.
Environmental progress data for 2021 reflected in the chart above received independent limited assurance from DNV Business Assurance USA, Inc.
(1)2025 environmental goal for Alexandria’s cumulative progress relative to a 2015 baseline on a like-for-like basis for buildings in operation that the Company directly manages.
(2)2025 environmental goal for buildings in operation that Alexandria indirectly and directly manages. In alignment with industry best practice, the Company reports waste diversion annually; the 2025 goal is to
achieve a waste diversion rate of at least 45% by 2025.
(3)Progress toward 2025 goals.
Climate change and sustainability
We cannot predict the rate at which climate change will progress. However, the physical effects of climate change could have a material adverse effect on our properties, operations, and business. For example, most of our properties are located along the east and west coasts of the U.S. and some of our properties are located in close proximity to shorelines. To the extent that climate change impacts weather patterns, our markets could experience severe weather, including hurricanes, severe winter storms, wild fires, droughts, and coastal flooding due to increases in storm intensity and rising sea levels. Over time, these conditions could result in declining demand for space at our properties, delays in construction and resulting increased construction costs, or in our inability to operate the buildings at all. Climate change and severe weather may also have indirect effects on our business by increasing the cost of, or decreasing the availability of, property insurance on terms we find acceptable, and by increasing the costs of energy, maintenance, repair of water and/or wind damage, and snow removal at our properties. We continue to evaluate our asset base for potential exposure to the following climate-related risks: sea level rise and increases in heavy rain, flood, drought, extreme heat, and wildfire. As a part of Alexandria’s risk management program, we purchase property insurance to mitigate the risk of extreme weather events and natural disasters. However, our insurance may not adequately cover all of our potential losses. As a result, there can be no assurance that climate change and severe weather will not have a material adverse effect on our properties, operations, or business.
Board of directors and leadership oversight
The Audit Committee of Alexandria’s Board of Directors oversees the management of the Company’s financial and other systemic risks, including those related to climate. At a management level, Alexandria’s Sustainability Committee, which comprises members of the executive management team and senior decision makers spanning the Company’s Real Estate Development, Asset Management, Risk, and Sustainability teams, leads the development and execution of our approach to climate-related risk.
Proactively managing and mitigating climate risk
The resilience of our properties under a changing climate is paramount both for our business and our tenants’ mission-critical research, development, manufacturing, and commercialization efforts. We consider the potential impacts associated with climate change and extreme weather conditions in the acquisition, design, development, and operation of our buildings and campuses. Our approach to climate readiness focuses on physical and transition risks and is aligned to guidelines issued by the Task Force on Climate-related Financial Disclosures (“TCFD”), which we endorsed in 2018. To this end, we have initiated a process to assess potential physical risks as well as the pathways to mitigate and adapt to climate change. We are also preparing for the transition to a low-carbon economy and continue to advance our approach to sustainable design and operations to align with our tenants’ strategic sustainability goals and anticipate evolving regulations.
As further detailed in the “Monitoring and preparing for transition” section below, over the past few years, regulatory bodies in most of our regions have either passed or proposed legislation to limit the carbon footprint of buildings, require procurement of clean power, or eliminate natural gas from new construction projects. Additionally, certain U.S. jurisdictions incorporated guidelines into their building codes to address the up-front impacts of building materials such as concrete. Moreover, our tenant preferences for green, efficient, and healthy buildings continue to rise. As of December 31, 2022, 90% of Alexandria’s top 20 tenants (by annual rental revenue) have set net-zero carbon and/or carbon neutrality goals. As a result of our own sustainability mission compelling us to reduce carbon emissions and mitigate climate risk, as well as the changing regulatory environment and our tenants’ expectations, we have implemented a comprehensive approach to assessing and mitigating physical risk to our properties as well as to preparing for the transition, as described below.
Assessing and mitigating physical risk to our properties
We consider two climate change scenarios for the years 2030 and 2050 when evaluating physical risk to our properties: (1) a business-as-usual scenario in which greenhouse gas (“GHG”) emissions continue to increase with time (Representative Concentration Pathways (“RCP”) 8.5); and (2) a mitigation scenario in which GHG emissions level off by the year 2050 and decline thereafter (RCP 4.5). To ensure a conservative evaluation of potential risk at the asset level, we use the RCP 8.5 scenario, which has greater climate hazard impacts than RCP 4.5. These climate change assessments covering both acute and chronic risks enable us to assess preparedness for climate-related risks across the real estate life cycle.
For our property acquisitions, our risk management and sustainability teams will conduct climate change evaluations and advise the transactions and asset management teams of any need for potential property upgrades, which are evaluated in our financial modeling and transactional decisions.
For our developments and redevelopments of new Class A properties, we will evaluate the potential impact of sea level rise, storm surges in coastal or tidal locations, and changing temperatures out to the year 2050. As feasible, we will consider designs that accommodate potential expansion of cooling infrastructure to meet future building needs while providing flexibility and optimization of infrastructure funds for more immediate needs. In water-scarce areas, we will consider planting drought-resistant vegetation and equipping buildings to connect to a municipal recycled-water infrastructure where available and feasible. In areas prone to wildfire, we will work toward incorporating brush management practices into landscape design and including enhanced air filtration systems to
support safe and healthy indoor air. For example, we have designed our development project at 15 Necco street to account for a high-emissions climate scenario and incorporate a number of innovative measures, including the strategic placement of critical infrastructure and building systems to provide multiple layers of protection, elevate the first floor above predicted 2070 flood evaluation (as published by the City of Boston), and install landscape and hardscape features to decrease surface water runoff and serve as barriers to potential flooding.
For our properties located in the areas prone to wildfires or flooding, we are evaluating the extent to which we have mitigations in place and which operational and physical improvements may be made. For example, resilience measures that may be implemented at some of our properties will include the following:
•In areas prone to fire, we will work toward incorporating brush management practices into landscape design; we will select less flammable vegetation species and position them in a reasonable distance from a property; we will construct building envelopes with fire-resistant materials; and will install HVAC systems that are able to filter smoke particulates in the air in the event of fire.
•In areas prone to flooding, critical building mechanical equipment will be positioned on the roofs or significantly above the projected potential flood elevations; temporary flood barriers will be stored on-site to be deployed at building entrances prior to a flood event; property entrances or the first floor will be elevated above projected present-day and future flood elevations; backflow preventors on storm/sewer utilities that discharge from the building will be installed; and the building envelope will be waterproofed up to the projected flood elevation.
As a part of Alexandria’s risk management program, we maintain all-risk property insurance at the portfolio level to mitigate the risk of extreme weather events and natural disasters (including floods, wildfires, earthquakes, and wind events). However, our insurance may not adequately cover all of our potential losses. As a result, there can be no assurance that climate change and severe weather will not have a material adverse effect on our properties, operations, or business.
We also maintain all-risk property insurance at the portfolio level to mitigate certain risks associated with natural catastrophes (floods, wildfires, earthquakes, and wind events); our insurance policies, however, may not completely cover all our potential losses.
Monitoring and preparing for transition
Globally, public concern regarding climate change has continued to escalate. On November 20, 2022, the United Nations (“UN”) held its annual climate summit, COP27, and as a result of the summit announced an agreement that reaffirmed the goal to limit the global temperature rise to the crucial temperature threshold of 1.5 degrees Celsius above pre-industrial levels. The agreement also provided a loss and damage fund for countries most vulnerable to climate disasters. As of the date of this report, no decisions have been made on who should pay into the fund, where the funds will come from, and which countries will benefit, and it is unknown how or if the terms of the agreement will be carried out effectively or whether these funds will be sufficient to mitigate the effects of damages related to climate change over time.
In August 2021, the United Nations’ Intergovernmental Panel on Climate Change issued a detailed report titled “Climate Change 2021: The Physical Science Basis,” which provides comprehensive evidence of the catastrophic impact of GHG emissions on climate change, including increases in severe and dangerous weather conditions. In the U.S., in June 2019, President Biden identified climate change as one of his administration’s top priorities and pledged to seek measures that would pave the path for the U.S. to eliminate net GHG pollution by the year 2050. In April 2021, President Biden announced his plan to reduce the U.S. GHG emissions by at least 50% by the year 2030. These environmental goals earned a prominent place in President Biden’s $1.2 trillion infrastructure bill, which was signed into law on November 15, 2021. Also, in August 2022, U.S. Congress signed into law the Inflation Reduction Act of 2022 (“IRA”), which directs nearly $400 billion for federal spending to be used toward reducing carbon emissions and funding clean energy over the next 10 years and is designed to encourage private investment in clean energy, transport, and manufacturing. It is yet unknown what impact, if any, the IRA may have on us.
Numerous states and municipalities have adopted state and local laws and policies on climate change and emission reduction targets, including, but not limited to, the following:
California
•In September 2018, Senate Bill 100 was signed into law in California, accelerating the state’s renewable portfolio standard target dates and setting a policy of meeting 100% of retail electricity sales from eligible renewables and zero-carbon resources by December 31, 2045.
•In September 2020, Governor Newsom signed an executive order requiring all new passenger cars and trucks sold in the state to be emission free by 2035.
•In November 2020, the San Francisco Board of Supervisors adopted an All-Electric New Construction Ordinance that will require all new buildings (residential and non-residential) with initial building permit applications made on or after June 1, 2021 to have all-electric indoor and outdoor space-conditioning, water heating, cooking, and clothes drying systems.
•In September 2021, Governor Newsom signed legislation aimed at achieving net-zero GHG emissions associated with cement used within the state no later than 2045.
•In September 2022, Governor Gavin Newsom enacted a package of legislation that, among other measures, will allow the state to achieve carbon neutrality no later than 2045; establish an 85% emissions reduction target by 2045; achieve 90% and 95% clean energy by 2035 and 2040, respectively; and establish a regulatory framework for removing carbon pollution.
Massachusetts
•In March 2021, Senate Bill 9 was signed into law, updating the state’s climate policy to ensure net-zero GHG emissions by 2050 and establishing interim emission reduction targets for several sectors, including commercial and industrial buildings.
•In September 2021, the Boston City Council approved an amendment to the Building Emissions Reduction and Disclosure Ordinance (“BERDO 2.0”), which imposes enforceable emission limits on buildings over 20,000 square feet starting in 2025-2030, targeting zero emissions by 2050. Furthermore, BERDO 2.0 adds a requirement that water and energy use data reported to the City of Boston be verified by a third-party. (An annual reporting requirement starting in 2022 for year 2021 was imposed by BERDO 1.0.)
•In August 2022, Governor Charlie Baker enacted a bill to enable the state to meet its climate targets, with key provisions, including mandating all new vehicles sold to be emission free by 2035; providing certain municipalities the ability to ban fossil fuel hookups in new construction or major renovation projects; requiring the Massachusetts Bay Transportation Authority to electrify its entire fleet of public transportation vehicles by 2040 and purchase only zero-emission buses starting in 2030; and phasing out incentives for fossil fuel-powered heating and cooling systems.
New York
•In July 2019, the Climate Leadership and Community Protection Act (“CLCPA”) was signed into law, establishing a statewide framework to reduce net GHG emissions.
•In December 2022, New York approved the Scoping Plan, which details actions required to advance directives stated in the CLCPA and to enable New York to achieve:
•70% renewable energy by 2030;
•Zero emissions electricity by 2040;
•40% GHG emissions reduction below 1990 levels by 2030;
•85% GHG emissions reduction below 1990 levels by 2050; and
•Net-zero GHG emissions statewide by 2050.
•In May 2019, New York City enacted Local Law 97 as a part of the Climate Mobilization Act aimed at reducing GHG emissions by 80% from commercial and residential buildings by 2050. Starting in 2024, this law will place carbon caps on most buildings larger than 25,000 square feet.
•In December 2021, New York City passed Local Law 154, which will phase out fossil fuel usage in newly constructed residential and commercial buildings starting in 2024 for lower-rise buildings and in 2027 for taller buildings. With few exceptions, all buildings constructed in New York City must be fully electric by 2027.
Washington
•In May 2019, the Clean Buildings Act was signed into law in the state of Washington. The law imposed a cap on the energy used in commercial buildings larger than 50,000 square feet and established a phase-in compliance requirement starting in 2026. In March 2022, the law was expanded to apply to commercial buildings exceeding 20,000 square feet.
•In 2020, the State of Washington set GHG emission limits, which will require the state to reduce emissions levels by 45% below 1990 levels by 2030 and by 70% below 1990 levels by 2040, and to achieve net-zero emissions by 2050.
Maryland
•In April 2022, the Climate Solutions Now Act of 2022 became law in Maryland. The law requires new and existing buildings over 35,000 RSF:
•To report energy use data annually beginning in 2025;
•To reduce direct GHG emissions by 20% from 2025 levels by 2030; and
•To have net-zero direct emissions by 2040.
The law also requires the state to reduce its GHG emissions by 60% below 2006 levels by 2031 and to achieve net-zero GHG emissions by 2045.
North Carolina
•In January 2022, Governor Roy Cooper signed an executive order that updates the state’s GHG emission goals to require a reduction of 50% below 2005 levels by 2030 and achievement of net-zero GHG emissions by 2050.
Alexandria has implemented a comprehensive approach to responding to transition risk through the following strategies:
Decarbonizing construction
Alexandria targets LEED Gold or Platinum certification for new ground-up developments. Through our sustainability goals for new developments, we deliver energy- and resource-efficient buildings that meet or exceed tenant, city, state, and federal requirements for energy and water efficiency, material sourcing, biodiversity, and alternative transportation.
We are also revolutionizing the design of our buildings through innovative low-carbon solutions and are pursuing more advanced certifications in Zero Energy from LEED and the International Living Future Institute (“ILFI”) for two projects:
•At 325 Binney Street, on our Alexandria Center at One Kendall Square mega campus in our Cambridge submarket, the building design harnesses geothermal energy and is expected to yield a 92% reduction in fossil fuel consumption. The project is targeting LEED Platinum Core & Shell and LEED Zero Energy certifications.
•At 685 Gateway Boulevard, an amenities building on our Alexandria Technology Center® - Gateway mega campus in our South San Francisco submarket, we are targeting Zero Energy Certification through ILFI by leveraging design strategies such as building envelope optimization, high-performance features, and on-site energy generation.
With several jurisdictions shifting (or with plans to shift soon) from fossil fuels for heating and requiring all electric buildings as a strategy to reduce carbon emissions associated with building operations, we have proactively incorporated electrification into new building designs, with one project completed and three currently in progress. We also continue to explore further opportunities to heat and cool our buildings with alternative energy, such as geothermal and wastewater heat recovery.
Embodied carbon from the building sector accounts for 11% of annual global GHG emissions, and Alexandria is playing a leadership role in the industry’s effort to measure and ultimately reduce carbon associated with the construction process. In 2019, Alexandria became a sponsor and the first REIT to use the Carbon Leadership Forum’s Embodied Carbon in Construction Calculator (EC3) tool. For new construction projects, we seek to procure products with Environmental Product Declarations (“EPDs”), which document and verify information on product composition and environmental impact. Using such EPDs, Alexandria targets a 10% reduction in embodied carbon for new ground-up development projects.
Investing in renewable energy
Alexandria anticipates a significant increase in the percentage of renewable electricity used by our properties beginning in 2024 as a result of a new large-scale solar power purchase agreement (“PPA”) that we executed in our Greater Boston market. Starting in 2024, the PPA is expected to supply the Greater Boston market with new renewable electricity with power produced by a solar farm that will be connected to the New England grid. With this contract in place, 53% of Alexandria’s total electricity consumption is expected to be renewable based on electric usage during 2021.
Reducing the environmental footprint of buildings in operation
Our sustainability mission compels us toward industry-leading sustainability practices and performance that can help reduce operating expenses and result in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value, and thus enable us to capture climate-related opportunities. Our ongoing efforts to reduce consumption are driven by our commitment to operational excellence in sustainability, building efficiency, and service to our tenants. Alexandria’s 2025 sustainability goals for buildings in operation and new ground-up construction projects provide the framework, metrics, and targets that guide the Company’s focus on continuous, long-term improvement. For buildings in operation, we set goals to reduce carbon emissions, energy consumption, and potable water consumption and increase waste diversion by the year 2025.
(1)2025 environmental goal for Alexandria’s cumulative progress relative to a 2015 baseline on a like-for-like basis for buildings in operation that the Company directly manages.
(2)2025 environmental goal for buildings in operation that Alexandria indirectly and directly manages. In alignment with industry best practice, the Company reports waste diversion annually; the 2025 goal is to achieve a waste diversion rate of at least 45% by 2025.
(3)Progress toward 2025 goal.
As we look to the future, we are creating our long-term strategy and plan for the net zero-carbon transition. We are developing an approach to set industry-leading science-based targets that will provide a pathway to reduce GHG emissions and continue our leadership in sustainability.
Refer to “Item 1A. Risk factors” in this annual report on Form 10-K for discussion of the risks we face from climate change.
Results of operations
We present a tabular comparison of items, whether gain or loss, that may facilitate a high-level understanding of our results and provide context for the disclosures included in this annual report on Form 10-K. We believe that such tabular presentation promotes a better understanding for investors of the corporate-level decisions made and activities performed that significantly affect comparison of our operating results from period to period. We also believe that this tabular presentation will supplement for investors an understanding of our disclosures and real estate operating results. Gains or losses on sales of real estate and impairments of assets classified as held for sale are related to corporate-level decisions to dispose of real estate. Gains or losses on early extinguishment of debt are related to corporate-level financing decisions focused on our capital structure strategy. Significant realized and unrealized gains or losses on non-real estate investments, impairments of real estate and non-real estate investments, and acceleration of stock compensation expense due to the resignation of an executive officer are not related to the operating performance of our real estate assets as they result from strategic, corporate-level non-real estate investment decisions and external market conditions. Impairments of non-real estate investments are not related to the operating performance of our real estate as they represent the write-down of non-real estate investments when their fair values decrease below their respective carrying values due to changes in general market or other conditions outside of our control. Significant items included in the tabular disclosure for current periods are described in further detail under this Item 7 in this annual report on Form 10-K. Key items included in net income attributable to Alexandria’s common stockholders for the years ended December 31, 2022 and 2021 and the related per share amounts were as follows:
Year Ended December 31,
(In millions, except per share amounts)
2022 2021 2022 2021
Amount Per Share - Diluted
Impairment of real estate $ (65.0) $ (52.7) $ (0.40) $ (0.35)
Loss on early extinguishment of debt (3.3) (67.3) (0.02) (0.46)
Gain on sales of real estate(1)
537.9 126.6 3.33 0.86
Acceleration of stock compensation expense due to executive officer resignation (7.2) - (0.04) -
Unrealized (losses) gains on non-real estate investments (412.2) 43.6 (2.55) 0.30
Impairment of non-real estate investments (20.5) - (0.13) -
Significant realized gains on non-real estate investments - 110.1 - 0.75
Total $ 29.7 $ 160.3 $ 0.19 $ 1.10
(1)Refer to “Funds from operations and funds from operations, as adjusted, attributable to Alexandria Real Estate Equities, Inc.’s common stockholders” in the “Non-GAAP measures and definitions” section within this Item 7 for additional information.
Same properties
We supplement an evaluation of our results of operations with an evaluation of operating performance of certain of our properties, referred to as “Same Properties.” For additional information on the determination of our Same Properties portfolio, refer to the definition of “Same property comparisons” in the “Non-GAAP measures and definitions” section within this Item 7 in this annual report on Form 10-K. The following table presents information regarding our Same Properties as of December 31, 2022 and 2021:
December 31,
2022 2021
Percentage change in net operating income over comparable period from prior year 6.6% 4.2 %
Percentage change in net operating income (cash basis) over comparable period from prior year 9.6% 7.1 %
Operating margin 70% 72%
Number of Same Properties 253 247
RSF 26,121,796 23,490,412
Occupancy - current-period average 95.7% 96.6 %
Occupancy - same-period prior-year average 94.7% 96.3 %
The following table reconciles the number of Same Properties to total properties for the year ended December 31, 2022:
Development - under construction Properties
4 Davis Drive 1
201 Brookline Avenue 1
15 Necco Street 1
751 Gateway Boulevard 1
325 Binney Street 1
1150 Eastlake Avenue East 1
9810 Darnestown Road 1
99 Coolidge Avenue 1
500 North Beacon Street and 4 Kingsbury Avenue 2
9808 Medical Center Drive 1
6040 George Watts Hill Drive 1
1450 Owens Street 1
10075 Barnes Canyon Road 1
Development - placed into service after January 1, 2021
Properties
1165 Eastlake Avenue East 1
201 Haskins Way 1
825 and 835 Industrial Road 2
9950 Medical Center Drive 1
3115 Merryfield Row 1
8 and 10 Davis Drive 2
5 and 9 Laboratory Drive 2
10055 Barnes Canyon Road 1
10102 Hoyt Park Drive 1
Redevelopment - under construction Properties
2400 Ellis Road, 40 and 41 Moore Drive, and 14 TW Alexander Drive 4
840 Winter Street 1
20400 Century Boulevard 1
9601 and 9603 Medical Center Drive 2
One Rogers Street 1
40, 50, and 60 Sylvan Road 3
Alexandria Center® for Advanced Technologies - Monte Villa Parkway
651 Gateway Boulevard 1
8800 Technology Forest Place 1
Canada 2
Other 2
Redevelopment - placed into service after
January 1, 2021
Properties
700 Quince Orchard Road 1
3160 Porter Drive 1
5505 Morehouse Drive 1
The Arsenal on the Charles 11
30-02 48th Avenue 1
Other 1
Acquisitions after January 1, 2021
Properties
3301, 3303, 3305, 3307, 3420, and 3440 Hillview Avenue 6
Sequence District by Alexandria 5
Alexandria Center® for Life Science - Fenway
550 Arsenal Street 1
1501-1599 Industrial Road 6
One Investors Way 2
2475 Hanover Street 1
10975 and 10995 Torreyana Road 2
Pacific Technology Park 5
1122 and 1150 El Camino Real 2
12 Davis Drive 1
8505 Costa Verde Boulevard and 4260 Nobel Drive 2
225 and 235 Presidential Way 2
104 TW Alexander Drive 4
One Hampshire Street 1
Intersection Campus 12
100 Edwin H. Land Boulevard 1
10010 and 10140 Campus Point Drive and 4275 Campus Point Court 3
446 and 458 Arsenal Street 2
35 Gatehouse Drive 1
1001 Trinity Street and 1020 Red River Street 2
Other 37
Unconsolidated real estate joint ventures 4
Properties held for sale 10
Total properties excluded from Same Properties 179
Same Properties 253
Total properties in North America as of December 31, 2022
Comparison of results for the year ended December 31, 2022 to the year ended December 31, 2021
The following table presents a comparison of the components of net operating income for our Same Properties and Non-Same Properties for the year ended December 31, 2022, compared to the year ended December 31, 2021. We provide a comparison of the results for the year ended December 31, 2021 to the year ended December 31, 2020, including a comparison of the components of net operating income for our Same Properties and Non-Same Properties for the year ended December 31, 2021, compared to the year ended December 31, 2020, in the “Results of operations” section within this Item 7 of our annual report on Form 10-K for the year ended December 31, 2021. Refer to the “Non-GAAP measures and definitions” section within this Item 7 in this annual report on Form 10-K for definitions of “Tenant recoveries” and “Net operating income” and their reconciliations from the most directly comparable financial measures presented in accordance with GAAP, income from rentals and net income, respectively.
Year Ended December 31,
(Dollars in thousands) 2022 2021 $ Change % Change
Income from rentals:
Same Properties $ 1,385,380 $ 1,289,246 $ 96,134 7.5 %
Non-Same Properties 564,718 329,346 235,372 71.5
Rental revenues 1,950,098 1,618,592 331,506 20.5
Same Properties 478,333 407,450 70,883 17.4
Non-Same Properties 147,609 82,207 65,402 79.6
Tenant recoveries 625,942 489,657 136,285 27.8
Income from rentals 2,576,040 2,108,249 467,791 22.2
Same Properties 620 479 141 29.4
Non-Same Properties 12,302 5,422 6,880 126.9
Other income 12,922 5,901 7,021 119.0
Same Properties 1,864,333 1,697,175 167,158 9.8
Non-Same Properties 724,629 416,975 307,654 73.8
Total revenues 2,588,962 2,114,150 474,812 22.5
Same Properties 561,301 475,209 86,092 18.1
Non-Same Properties 221,852 148,346 73,506 49.6
Rental operations 783,153 623,555 159,598 25.6
Same Properties 1,303,032 1,221,966 81,066 6.6
Non-Same Properties 502,777 268,629 234,148 87.2
Net operating income $ 1,805,809 $ 1,490,595 $ 315,214 21.1 %
Net operating income - Same Properties $ 1,303,032 $ 1,221,966 $ 81,066 6.6 %
Straight-line rent revenue (54,991) (79,602) 24,611 (30.9)
Amortization of acquired below-market leases (26,224) (27,252) 1,028 (3.8)
Net operating income - Same Properties (cash basis) $ 1,221,817 $ 1,115,112 $ 106,705 9.6 %
Income from rentals
Total income from rentals for the year ended December 31, 2022 increased by $467.8 million, or 22.2%, to $2.6 billion, compared to $2.1 billion for the year ended December 31, 2021, as a result of increase in rental revenues and tenant recoveries, as discussed below.
Rental revenues
Total rental revenues for the year ended December 31, 2022 increased by $331.5 million, or 20.5%, to $2.0 billion, compared to $1.6 billion for the year ended December 31, 2021. The increase was primarily due to an increase in rental revenues from our Non-Same Properties related to 3.9 million RSF of development and redevelopment projects placed into service subsequent to January 1, 2021 and 99 operating properties aggregating 9.6 million RSF acquired subsequent to January 1, 2021.
Rental revenues from our Same Properties for the year ended December 31, 2022 increased by $96.1 million, or 7.5%, to $1.4 billion, compared to $1.3 billion for the year ended December 31, 2021. The increase was primarily due to rental rate increases on lease renewals and re-leasing of space since January 1, 2021 and an increase in occupancy from our Same Properties to 95.7% for the year ended December 31, 2022 from 94.7% for the year ended December 31, 2021.
Tenant recoveries
Tenant recoveries for the year ended December 31, 2022 increased by $136.3 million, or 27.8%, to $625.9 million, compared to $489.7 million for the year ended December 31, 2021. This increase was partially from our Non-Same Properties related to our development and redevelopment projects placed into service and properties acquired subsequent to January 1, 2021, as discussed above under “Rental revenues.”
Same Properties tenant recoveries for the year ended December 31, 2022 increased by $70.9 million, or 17.4%, primarily due to higher operating expenses during the year ended December 31, 2022, as discussed under “Rental operations” below. As of December 31, 2022, approximately 93% of our leases (on an annual rental revenue basis) were triple net leases, which require tenants to pay substantially all real estate taxes, insurance, utilities, repairs and maintenance, common area expenses, and other operating expenses (including increases thereto) in addition to base rent.
Other income
Other income for the year ended December 31, 2022 increased by $7.0 million, or 119.0%, to $12.9 million, compared to $5.9 million for the year ended December 31, 2021. The increase in other income was primarily due to an increase in fees for construction management services provided to tenants and an increase in interest income resulting from larger average deposits in, and higher interest rates earned by, our money market accounts during the year ended December 31, 2022, compared to the year ended December 31, 2021.
Rental operations
Total rental operating expenses for the year ended December 31, 2022 increased by $159.6 million, or 25.6%, to $783.2 million, compared to $623.6 million for the year ended December 31, 2021. The increase was partially due to incremental expenses related to our Non-Same Properties, which consist of development and redevelopment projects placed into service and acquired properties, as discussed above under “Rental revenues.”
Same Properties rental operating expenses increased by $86.1 million, or 18.1%, to $561.3 million during the year ended December 31, 2022, compared to $475.2 million for the year ended December 31, 2021. The increase was primarily the result of increases in (i) utilities expenses aggregating $21.4 million, primarily due to increased electricity usage and rates; (ii) property tax expenses aggregating $16.4 million, primarily related to changes in the ownership of four of our consolidated real estate joint ventures located in our Mission Bay submarket during the three months ended December 31, 2021 and resulting tax reassessment of values of the properties held by these joint ventures; and (iii) higher contract services costs aggregating $12.7 million, primarily due to increases in security services and trash and janitorial service consumption and rates.
General and administrative expenses
General and administrative expenses for the year ended December 31, 2022 increased by $25.8 million, or 17.0%, to $177.3 million, compared to $151.5 million for the year ended December 31, 2021. For the year ended December 31, 2022, approximately $7.2 million of the increase was the result of the acceleration of stock compensation expense recognized in connection with the resignation of Stephen A. Richardson, our former co-chief executive officer, which became effective on July 31, 2022. The remaining increase was primarily due to the costs related to corporate related costs, additional headcount, and corporate responsibility efforts, as well as the continued growth in the depth and breadth of our operations in multiple markets, including development and redevelopment projects placed into service and properties acquired, as discussed above under “Rental revenues.” As a percentage of net operating income, our general and administrative expenses for the years ended December 31, 2022 and 2021 were 9.8% and 10.2%, respectively.
Interest expense
Interest expense for the years ended December 31, 2022 and 2021 consisted of the following (dollars in thousands):
Year Ended December 31,
Component 2022 2021 Change
Gross interest $ 372,848 $ 312,806 $ 60,042
Capitalized interest (278,645) (170,641) (108,004)
Interest expense $ 94,203 $ 142,165 $ (47,962)
Average debt balance outstanding(1)
$ 10,374,497 $ 9,071,513 $ 1,302,984
Weighted-average annual interest rate(2)
3.6 % 3.4 % 0.2 %
(1)Represents the average debt balance outstanding during the respective periods.
(2)Represents total interest incurred divided by the average debt balance outstanding during the respective periods.
The net change in interest expense during the year ended December 31, 2022, compared to the year ended December 31, 2021, resulted from the following (dollars in thousands):
Component Interest Rate(1)
Effective Date Change
Increases in interest incurred due to:
Issuances of debt:
$850 million unsecured senior notes payable 3.08 % February 2021 $ 3,342
$900 million unsecured senior notes payable - green bond 2.12 % February 2021 2,384
$1.0 billion unsecured senior notes payable 3.63 % February 2022 31,138
$800 million unsecured senior notes payable - green bond 3.07 % February 2022 20,804
Fluctuation in interest rate and average balance:
$2.0 billion commercial paper program 7,167
Other increase in interest 3,032
Total increases 67,867
Decreases in interest incurred due to:
Repayments of debt:
$650 million unsecured senior notes payable - green bond 4.03 % March 2021 (2,945)
Secured notes payable 3.40 % April 2022 (4,880)
Total decreases (7,825)
Change in gross interest 60,042
Increase in capitalized interest (108,004)
Total change in interest expense $ (47,962)
(1)Represents the weighted-average interest rate as of the end of the applicable period, including amortization of loan fees, amortization of debt premiums (discounts), and other bank fees.
Depreciation and amortization
Depreciation and amortization expense for the year ended December 31, 2022 increased by $181.1 million, or 22.1%, to $1.0 billion, compared to $821.1 million for the year ended December 31, 2021. The increase was primarily due to additional depreciation from development and redevelopment projects placed into service and properties acquired, as discussed above under “Rental revenues.”
Impairment of real estate
During the year ended December 31, 2022, we recognized real estate impairment charges aggregating $65.0 million, as detailed below:
•Impairment charges aggregating $44.1 million, which consisted of write-offs of pre-acquisition costs, including the $38.3 million write-off of our entire investment in a future development project aggregating over 600,000 RSF in one of our existing submarkets in California. This impairment was recognized upon our decision to no longer proceed with this project as a result of a deteriorated macroeconomic environment that negatively impacted the financial outlook for this project.
•Impairment charges aggregating $20.9 million recognized during the three months ended December 31, 2022 to reduce the carrying amount of 10 properties and a land parcel located in multiple submarkets to their respective estimated fair value, less costs to sell, upon classification as held for sale. We expect to sell these real estate assets in 2023.
During the year ended December 31, 2021, we recognized impairment charges aggregating $52.7 million, primarily related to impairment charges for a land parcel in our SoMa submarket for the development of an office property and a property located in our non-core submarket, to its estimated fair value less costs to sell.
For more information, refer to the “Sales of real estate assets and impairment charges” section in Note 3 - “Investments in real estate” to our consolidated financial statements under Item 15 in this annual report on Form 10-K.
Loss on early extinguishment of debt
During the year ended December 31, 2022, we recognized a loss on early extinguishment of debt of $3.3 million, including a prepayment penalty and the write-off of unamortized loan fees, related to the repayment of two secured notes payable.
During the year ended December 31, 2021, we recognized a loss on early extinguishment of debt of $67.3 million, including the write-off of unamortized loan fees primarily related to the refinancing of our 4.00% unsecured senior notes payable aggregating $650.0 million due in 2024 pursuant to a partial cash tender offer.
Equity in earnings of unconsolidated real estate joint ventures
During the years ended December 31, 2022 and 2021, we recognized equity in earnings of unconsolidated real estate joint ventures of $645 thousand and $12.3 million, respectively. The decrease is primarily related to the sale of our investment in an unconsolidated real estate joint venture in our Greater Stanford submarket in December 2021.
Refer to Note 4 - “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional information.
Investment income
During the year ended December 31, 2022, we recognized investment losses aggregating $331.8 million, which consisted of $80.4 million of realized gains and $412.2 million of unrealized losses. Realized gains of $80.4 million primarily consisted of sales of investments and distributions received, partially offset by impairment charges of $20.5 million primarily related to investments in privately held entities that do not report NAV. Unrealized losses of $412.2 million during the year ended December 31, 2022 primarily consisted of decreases in fair values of our investments in publicly traded companies and investments in privately held entities that report NAV.
During the year ended December 31, 2021, we recognized investment income aggregating $259.5 million, which consisted of $215.8 million of realized gains and $43.6 million of unrealized gains.
For more information about our investments, refer to Note 7 - “Investments” to our consolidated financial statements under Item 15 in this annual report on Form 10-K. For our impairments accounting policy, refer to the “Investments” section in Note 2 - “Summary of significant accounting policies” to our consolidated financial statements under Item 15 in this annual report on Form 10-K.
Gain on sales of real estate
During the year ended December 31, 2022, we recognized $537.9 million of gains related to the completion of nine real estate dispositions across various markets. The gains were classified in gain on sales of real estate within our consolidated statements of operations for the year ended December 31, 2022.
During the year ended December 31, 2021, we recognized $126.6 million of gains, which included a $101.1 million gain recognized in connection with the sale of our entire 49.0% interest in the unconsolidated real estate joint venture at Menlo Gateway and a $23.2 million gain related to the sale of a property located in our Seattle market. The gains were classified in gain on sales of real estate within our consolidated statements of operations for the year ended December 31, 2021.
For more information about our sales of real estate, refer to the “Sales of real estate assets and impairment charges” section in Note 3 - “Investment in real estate” to our consolidated financial statements under Item 15 in this annual report on Form 10-K.
Other comprehensive income
Total other comprehensive income for the year ended December 31, 2022 decreased by $12.8 million to aggregate net unrealized losses of $13.5 million, compared to net unrealized losses of $0.7 million for the year ended December 31, 2021, primarily due to unrealized losses on foreign currency translation related to our operations in Canada and China.
Summary of capital expenditures
Our construction spending for the year ended December 31, 2022 consisted of the following (in thousands):
Year Ended
December 31, 2022
Construction Spending
Additions to real estate - consolidated projects $ 3,307,313
Investments in unconsolidated real estate joint ventures 1,442
Contributions from noncontrolling interests (320,057)
Construction spending (cash basis) 2,988,698
Change in accrued construction 102,801
Construction spending $ 3,091,499
The following table summarizes the total projected construction spending for the year ending December 31, 2023, which includes interest, property taxes, insurance, payroll, and other indirect project costs (in thousands):
Year Ending
December 31, 2023
Projected Construction Spending
Development, redevelopment, and pre-construction projects $ 3,549,000
Contributions from noncontrolling interests (consolidated real estate joint ventures) (794,000) (1)
Revenue-enhancing and repositioning capital expenditures 160,000
Non-revenue-enhancing capital expenditures 60,000
Guidance midpoint $ 2,975,000
(1)Approximately 55% of this amount represents contractual funding commitments from our existing consolidated real estate joint ventures, and the remaining amount is from projected new real estate joint ventures.
Projected results
Based on our current view of existing market conditions and certain current assumptions, we present guidance for EPS attributable to Alexandria’s common stockholders - diluted and funds from operations per share attributable to Alexandria’s common stockholders - diluted for the year ending December 31, 2023, as set forth in the table below. The tables below also provide a reconciliation of EPS attributable to Alexandria’s common stockholders - diluted, the most directly comparable financial measure presented in accordance with GAAP, to funds from operations per share, a non-GAAP measure, and other key assumptions included in our updated guidance for the year ending December 31, 2023. There can be no assurance that actual amounts will not be materially higher or lower than these expectations. Refer to our discussion of “Forward-looking statements” included in the beginning of Part I in this annual report on Form 10-K.
Projected 2023 Earnings per Share and Funds From Operations per Share Attributable to Alexandria’s Common Stockholders - Diluted
Earnings per share(1)
$3.41 to $3.61
Depreciation and amortization of real estate assets
5.50
Allocation of unvested restricted stock awards
(0.05)
Funds from operations per share(2)
$8.86 to $9.06
Midpoint
$8.96
(1)Excludes unrealized gains or losses after December 31, 2022 that are required to be recognized in earnings and are excluded from funds from operations per share, as adjusted.
(2)Refer to the definition of “Funds from operations and funds from operations, as adjusted, attributable to Alexandria Real Estate Equities, Inc.’s common stockholders” in the “Non-GAAP measures and definitions” section within this Item 7 in this annual report on Form 10-K for additional information.
Key Assumptions(1)
(Dollars in millions)
2023 Guidance
Low High
Occupancy percentage for operating properties in North America as of December 31, 2023
94.8% 95.8%
Lease renewals and re-leasing of space:
Rental rate increases
27.0% 32.0%
Rental rate increases (cash basis)
11.0% 16.0%
Same property performance:
Net operating income increase
2.0% 4.0%
Net operating income increase (cash basis)
4.0% 6.0%
Straight-line rent revenue $ 130 $ 145
General and administrative expenses
$ 183 $ 193
Capitalization of interest $ 342 $ 362
Interest expense
$ 74 $ 94
(1)Our assumptions presented in the table above are subject to a number of variables and uncertainties, including those discussed as “Forward-looking statements” under Part I; “Item 1A. Risk factors”; and Item 7. Management’s discussion and analysis of financial condition and results of operations in this annual report on Form 10-K. To the extent our full-year earnings guidance is updated during the year, we will provide additional disclosure supporting reasons for any significant changes to such guidance.
Key Credit Metrics
2023 Guidance
Net debt and preferred stock to Adjusted EBITDA - fourth quarter of 2023 annualized
Less than or equal to 5.1x
Fixed-charge coverage ratio - fourth quarter of 2023 annualized
4.5x to 5.0x
Consolidated and unconsolidated real estate joint ventures
We present components of balance sheet and operating results information for the noncontrolling interest share of our consolidated real estate joint ventures and for our share of investments in unconsolidated real estate joint ventures to help investors estimate balance sheet and operating results information related to our partially owned entities. These amounts are estimated by computing, for each joint venture that we consolidate in our financial statements, the noncontrolling interest percentage of each financial item to arrive at the cumulative noncontrolling interest share of each component presented. In addition, for our real estate joint ventures that we do not control and do not consolidate, we apply our economic ownership percentage to the unconsolidated real estate joint ventures to arrive at our proportionate share of each component presented. Refer to Note 4 - “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for further discussion.
Consolidated Real Estate Joint Ventures
Property/Market/Submarket Noncontrolling(1)
Interest Share
Operating RSF
at 100%
50 and 60 Binney Street/Greater Boston/Cambridge/Inner Suburbs 66.0 % 532,395
75/125 Binney Street/Greater Boston/Cambridge/Inner Suburbs 60.0 % 388,270
100 and 225 Binney Street and 300 Third Street/Greater Boston/Cambridge/Inner Suburbs 70.0 % (2)
870,106
99 Coolidge Avenue/Greater Boston/Cambridge/Inner Suburbs 25.0 % - (3)
Alexandria Center® for Science and Technology - Mission Bay/San Francisco Bay Area/Mission Bay(4)
75.0 % 1,005,989
1450 Owens Street/San Francisco Bay Area/Mission Bay 40.3 % (2)(5)
- (3)
601, 611, 651, 681, 685, and 701 Gateway Boulevard/San Francisco Bay Area/South San Francisco 50.0 % 789,567
751 Gateway Boulevard/San Francisco Bay Area/South San Francisco 49.0 % - (3)
211 and 213 East Grand Avenue/San Francisco Bay Area/South San Francisco 70.0 % 300,930
500 Forbes Boulevard/San Francisco Bay Area/South San Francisco 90.0 % 155,685
Alexandria Center® for Life Science - Millbrae/San Francisco Bay Area/South San Francisco
54.7 % -
3215 Merryfield Row/San Diego/Torrey Pines 70.0 % (2)
170,523
Campus Point by Alexandria/San Diego/University Town Center(6)
45.0 % 1,337,916
5200 Illumina Way/San Diego/University Town Center 49.0 % 792,687
9625 Towne Centre Drive/San Diego/University Town Center 49.9 % 163,648
SD Tech by Alexandria/San Diego/Sorrento Mesa(7)
50.0 % 876,869
Pacific Technology Park/San Diego/Sorrento Mesa 50.0 % 544,352
Summers Ridge Science Park/San Diego/Sorrento Mesa(8)
70.0 % (2)
316,531
1201 and 1208 Eastlake Avenue East and 199 East Blaine Street /Seattle/Lake Union 70.0 % 321,218
400 Dexter Avenue North/Seattle/Lake Union 70.0 % 290,754
800 Mercer Street/Seattle/Lake Union 40.0 % (2)
-
Unconsolidated Real Estate Joint Ventures
Property/Market/Submarket Our Ownership Share(9)
Operating RSF
at 100%
1655 and 1725 Third Street/San Francisco Bay Area/Mission Bay 10.0 % 586,208
1401/1413 Research Boulevard/Maryland/Rockville 65.0 % (10)
(11)
1450 Research Boulevard/Maryland/Rockville 73.2 % (12)
42,679
101 West Dickman Street/Maryland/Beltsville 57.9 % (12)
135,423
(1)In addition to the consolidated real estate joint ventures listed, various partners hold insignificant noncontrolling interests in three other real estate joint ventures in North America.
(2)Refer to the “Formation of consolidated real estate joint ventures and sales of partial interests” section in Note 4 - “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional information.
(3)Represents a property currently under construction. Refer to “New Class A development and redevelopment properties: current projects” under Item 2 in this annual report on Form 10-K for additional details.
(4)Includes 409 and 499 Illinois Street, 1500 and 1700 Owens Street, and 455 Mission Bay Boulevard South.
(5)The noncontrolling interest share of our joint venture partner is anticipated to increase to 75% as our partner contributes 100% of the remaining cost to complete the project over time.
(6)Includes 10210, 10260, 10290, and 10300 Campus Point Drive and 4110, 4150, 4161, 4224, and 4242 Campus Point Court.
(7)Includes 9605, 9645, 9675, 9685, 9725, 9735, 9808, 9855, and 9868 Scranton Road and 10055, 10065, and 10075 Barnes Canyon Road.
(8)Includes 9965, 9975, 9985, and 9995 Summers Ridge Road.
(9)In addition to the unconsolidated real estate joint ventures listed, we hold an interest in one other insignificant unconsolidated real estate joint venture in North America.
(10)Represents our ownership interest; our voting interest is limited to 50%.
(11)Represents a joint venture with a distinguished retail real estate developer for a retail shopping center aggregating 84,837 RSF.
(12)Represents a joint venture with a local real estate operator in which our partner manages the day-to-day activities that significantly affect the economic performance of the joint venture.
The following table presents key terms related to our unconsolidated real estate joint ventures’ secured loans as of December 31, 2022 (dollars in thousands):
Maturity Date Stated Rate Interest Rate(1)
At 100% Our Share
Unconsolidated Joint Venture Aggregate Commitment Debt Balance(2)
1401/1413 Research Boulevard 12/23/24 2.70% 3.33 % $ 28,500 $ 28,146 65.0%
1655 and 1725 Third Street 3/10/25 4.50% 4.57 % 600,000 599,081 10.0%
101 West Dickman Street 11/10/26 SOFR+1.95% (3)
6.38 % 26,750 11,575 57.9%
1450 Research Boulevard 12/10/26 SOFR+1.95% (3)
6.44 % 13,000 3,802 73.2%
$ 668,250 $ 642,604
(1)Includes interest expense and amortization of loan fees.
(2)Represents outstanding principal, net of unamortized deferred financing costs, as of December 31, 2022.
(3)This loan is subject to a fixed SOFR floor rate of 0.75%.
The following tables present information related to the operating results and financial positions of our consolidated and unconsolidated real estate joint ventures (in thousands):
Noncontrolling Interest Share of Consolidated Real Estate Joint Ventures Our Share of Unconsolidated
Real Estate Joint Ventures
December 31, 2022 December 31, 2022
Three Months Ended Year Ended Three Months Ended Year Ended
Total revenues $ 102,013 $ 366,794 $ 2,689 $ 11,130
Rental operations (31,176) (109,358) (753) (3,197)
70,837 257,436 1,936 7,933
General and administrative (372) (1,594) (10) (106)
Interest (15) (15) (772) (3,516)
Depreciation and amortization of real estate assets (29,702) (107,591) (982) (3,666)
Fixed returns allocated to redeemable noncontrolling interests(1)
201 805 - -
$ 40,949 $ 149,041 $ 172 $ 645
Straight-line rent and below-market lease revenue
$ 3,858 $ 15,776 $ 274 $ 1,136
Funds from operations(2)
$ 70,651 $ 256,632 $ 1,154 $ 4,311
(1)Represents an allocation of joint venture earnings to redeemable noncontrolling interests primarily in one property in our South San Francisco submarket. These redeemable noncontrolling interests earn a fixed return on their investment rather than participate in the operating results of the property.
(2)Refer to the definition of “Funds from operations and funds from operations, as adjusted, attributable to Alexandria Real Estate Equities, Inc.’s common stockholders” in the “Non-GAAP measures and definitions” section within this Item 7 in this annual report on Form 10-K for the definition and its reconciliation from the most directly comparable financial measure presented in accordance with GAAP.
As of December 31, 2022
Noncontrolling Interest Share of Consolidated Real Estate Joint Ventures Our Share of Unconsolidated
Real Estate Joint Ventures
Investments in real estate $ 3,392,839 $ 114,664
Cash, cash equivalents, and restricted cash 129,186 4,729
Other assets 386,667 11,346
Secured notes payable (14,599) (87,694)
Other liabilities (183,233) (4,610)
Redeemable noncontrolling interests
(9,612) -
$ 3,701,248 $ 38,435
During the years ended December 31, 2022 and 2021, our consolidated real estate joint ventures distributed an aggregate of $192.2 million and $112.4 million, respectively, to our joint venture partners. Refer to our consolidated statements of cash flows and Note 4 - “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional information.
Investments
We hold strategic investments in publicly traded companies and privately held entities primarily involved in the life science, agtech, and technology industries. The tables below summarize components of our non-real estate investments and investment income. Refer to Note 7 - “Investments” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional information.
December 31, 2022
(In thousands) Three Months Ended Year Ended Year Ended December 31, 2021
Realized gains $ 4,464 (1)
$ 80,435 (1)
$ 215,845 (2)
Unrealized (losses) gains (24,117) (412,193) 43,632
Investment (loss) income $ (19,653) $ (331,758) $ 259,477
Investments
(In thousands)
Cost Unrealized Gains Unrealized Losses Carrying Amount
Publicly traded companies $ 210,986 $ 96,271 $ (100,118) $ 207,139
Entities that report NAV 452,391 315,071 (7,710) 759,752
Entities that do not report NAV:
Entities with observable price changes 100,296 95,062 (1,574) 193,784
Entities without observable price changes 388,940 - - 388,940
Investments accounted for under the equity method of accounting N/A N/A N/A 65,459
December 31, 2022 $ 1,152,613 (3)
$ 506,404 $ (109,402) $ 1,615,074
December 31, 2021 $ 1,007,303 $ 830,863 $ (33,190) $ 1,876,564
(1)For the three months and year ended December 31, 2022, includes impairments aggregating $20.5 million primarily related to three non-real estate investments in privately held entities that do not report NAV.
(2)Includes six separate significant realized gains aggregating $110.1 million related to the following transactions: (i) the sales of investments in three publicly traded biotechnology companies, (ii) a distribution received from a limited partnership investment, and (iii) the acquisition of two of our privately held non-real estate investments in a biopharmaceutical company and a biotechnology company.
(3)Represents 2.9% of gross assets as of December 31, 2022.
Public/Private
Mix (Cost)
Tenant/Non-Tenant
Mix (Cost)
Liquidity
Liquidity Minimal Outstanding Borrowings and Significant Availability on Unsecured Senior
Line of Credit
(in millions)
$5.3B
(In millions)
Availability under our unsecured senior line of credit, net of amounts outstanding under our commercial paper program
$ 4,000
Outstanding forward equity sales agreements(1)
Cash, cash equivalents, and restricted cash 858
Remaining construction loan commitments 136
Investments in publicly traded companies 207
Liquidity as of December 31, 2022
$ 5,303
(1)Represents expected net proceeds from the future settlement of 0.7 million shares under forward equity sales agreements after underwriter discounts.
We expect to meet certain long-term liquidity requirements, such as requirements for development, redevelopment, other construction projects, capital improvements, tenant improvements, property acquisitions, leasing costs, non-revenue-enhancing capital expenditures, scheduled debt maturities, distributions to noncontrolling interests, and payment of dividends, through net cash provided by operating activities, periodic asset sales, strategic real estate joint ventures, long-term secured and unsecured indebtedness, borrowings under our unsecured senior line of credit, issuances under our commercial paper program, and issuances of additional debt and/or equity securities.
We also expect to continue meeting our short-term liquidity and capital requirements, as further detailed in this section, generally through our working capital and net cash provided by operating activities. We believe that the net cash provided by operating activities will continue to be sufficient to enable us to make the distributions necessary to continue qualifying as a REIT.
For additional information on our liquidity requirements related to our contractual obligations and commitments, refer to Note 5 - “Leases” and Note 10 - “Secured and unsecured senior debt” to our consolidated financial statements under Item 15 in this annual report on Form 10-K.
Over the next several years, our balance sheet, capital structure, and liquidity objectives are as follows:
•Retain positive cash flows from operating activities after payment of dividends and distributions to noncontrolling interests for investment in development and redevelopment projects and/or acquisitions.
•Improve credit profile and relative long-term cost of capital.
•Maintain diverse sources of capital, including sources from net cash provided by operating activities, unsecured debt, secured debt, selective real estate asset sales, strategic real estate joint ventures, non-real estate investment sales, and common stock.
•Maintain commitment to long-term capital to fund growth.
•Maintain prudent laddering of debt maturities.
•Maintain solid credit metrics.
•Maintain significant balance sheet liquidity.
•Prudently manage variable-rate debt exposure through the reduction of short-term and medium-term variable-rate debt.
•Maintain a large unencumbered asset pool to provide financial flexibility.
•Fund common stock dividends and distributions to noncontrolling interests from net cash provided by operating activities.
•Manage a disciplined level of value-creation projects as a percentage of our gross real estate assets.
•Maintain high levels of pre-leasing and percentage leased in value-creation projects.
The following table presents the availability under our unsecured senior line of credit, net of amounts outstanding under our commercial paper program; outstanding forward equity sales agreements; cash, cash equivalents, and restricted cash; availability under our secured construction loan; and investments in publicly traded companies as of December 31, 2022 (dollars in thousands):
Description Stated
Rate Aggregate
Commitments Outstanding
Balance(1)
Remaining Commitments/Liquidity
Availability under our unsecured senior line of credit, net of amounts outstanding under our commercial paper program SOFR+0.875% $ 4,000,000 $ - $ 4,000,000
Outstanding forward equity sales agreements(2)
102,427
Cash, cash equivalents, and restricted cash
857,975
Remaining construction loan commitments SOFR+2.70% $ 195,300 $ 58,396 135,583
Investments in publicly traded companies
207,139
Liquidity as of December 31, 2022
$ 5,303,124
(1)Represents outstanding principal, net of unamortized deferred financing costs, as of December 31, 2022.
(2)Represents expected net proceeds from the future settlement of 0.7 million shares under forward equity sales agreements after underwriter discounts.
Cash, cash equivalents, and restricted cash
As of December 31, 2022 and 2021, we had $858.0 million and $415.2 million, respectively, of cash, cash equivalents, and restricted cash. We expect existing cash, cash equivalents, and restricted cash, net cash provided by operating activities, proceeds from real estate asset sales, partial interest sales, strategic real estate joint ventures, non-real estate investment sales, borrowings under our unsecured senior line of credit, issuances under our commercial paper program, issuances of unsecured senior notes payable, borrowings under our secured construction loans, and issuances of common stock to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as regular quarterly dividends, distributions to noncontrolling interests, scheduled debt repayments, acquisitions, and certain capital expenditures, including expenditures related to construction activities.
Cash flows
We report and analyze our cash flows based on operating activities, investing activities, and financing activities. The following table summarizes changes in our cash flows for the years ended December 31, 2022 and 2021 (in thousands):
Year Ended December 31,
2022 2021 Change
Net cash provided by operating activities $ 1,294,321 $ 1,010,197 $ 284,124
Net cash used in investing activities $ (5,080,458) $ (7,107,324) $ 2,026,866
Net cash provided by financing activities $ 4,229,772 $ 5,916,361 $ (1,686,589)
Operating activities
Cash flows provided by operating activities are primarily dependent upon the occupancy level of our asset base, the rental rates of our leases, the collectibility of rent and recovery of operating expenses from our tenants, the timing of completion of development and redevelopment projects, and the timing of acquisitions and dispositions of operating properties. Net cash provided by operating activities for the year ended December 31, 2022 increased by $284.1 million to $1.3 billion, compared to $1.0 billion for the year ended December 31, 2021. The increase was primarily attributable to the following since January 1, 2021: (i) cash flows generated from our highly leased development and redevelopment projects recently placed into service, (ii) income-producing acquisitions, and (iii) increases in rental rates on lease renewals and re-leasing of space.
Investing activities
Cash used in investing activities for the years ended December 31, 2022 and 2021 consisted of the following (in thousands):
Year Ended December 31,
2022 2021 Increase (Decrease)
Sources of cash from investing activities:
Proceeds from sales of real estate $ 994,331 $ 190,576 $ 803,755
Change in escrow deposits 155,968 - 155,968
Return of capital from unconsolidated real estate joint ventures
471 - 471
Sale of interests in unconsolidated real estate joint ventures - 394,952 (394,952)
Sales of and distributions from non-real estate investments 198,320 424,623 (226,303)
1,349,090 1,010,151 338,939
Uses of cash for investing activities:
Purchases of real estate
2,877,861 5,434,652 (2,556,791)
Additions to real estate
3,307,313 2,089,849 1,217,464
Change in escrow deposits - 161,696 (161,696)
Acquisition of interest in unconsolidated real estate joint venture - 9,048 (9,048)
Investments in unconsolidated real estate joint ventures
1,442 13,666 (12,224)
Additions to non-real estate investments
242,932 408,564 (165,632)
6,429,548 8,117,475 (1,687,927)
Net cash used in investing activities $ 5,080,458 $ 7,107,324 $ (2,026,866)
The decrease in net cash used in investing activities for the year ended December 31, 2022 when compared to the year ended December 31, 2021 was primarily due to a decreased use of cash for purchases of real estate and increase in proceeds from dispositions of real estate, partially offset by increased cash used for additions to real estate. Refer to Note 3 - “Investments in real estate” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for further information.
Financing activities
Cash flows provided by financing activities for the years ended December 31, 2022 and 2021 consisted of the following (in thousands):
Year Ended December 31,
2022 2021 Change
Borrowings from secured notes payable $ 49,715 $ 10,005 $ 39,710
Repayments of borrowings from secured notes payable
(934) (17,979) 17,045
Payment for the defeasance of secured notes payable (198,304) - (198,304)
Proceeds from issuance of unsecured senior notes payable
1,793,318 1,743,716 49,602
Repayments of unsecured senior notes payable
- (650,000) 650,000
Premium paid for early extinguishment of debt
- (66,829) 66,829
Borrowings from unsecured senior line of credit
1,181,000 3,521,000 (2,340,000)
Repayments of borrowings from unsecured senior line of credit
(1,181,000) (3,521,000) 2,340,000
Proceeds from issuances under commercial paper program 14,641,500 30,951,300 (16,309,800)
Repayments of borrowings from commercial paper program
(14,911,500) (30,781,300) 15,869,800
Payments of loan fees
(35,612) (18,938) (16,674)
Changes related to debt
1,338,183 1,169,975 168,208
Contributions from and sales of noncontrolling interests
1,542,347 2,026,486 (484,139)
Distributions to and purchases of noncontrolling interests (192,171) (118,891) (73,280)
Proceeds from the issuance of common stock
2,346,444 3,529,097 (1,182,653)
Dividend payments
(757,742) (655,968) (101,774)
Taxes paid related to net settlement of equity awards
(47,289) (34,338) (12,951)
Net cash provided by financing activities $ 4,229,772 $ 5,916,361 $ (1,686,589)
Capital resources
We expect that our principal liquidity needs for the year ending December 31, 2023 will be satisfied by the following multiple sources of capital, as shown in the table below. There can be no assurance that our sources and uses of capital will not be materially higher or lower than these expectations.
Key Sources and Uses of Capital
(In millions)
2023 Guidance
Range Midpoint
Sources of capital:
Incremental debt $ 550 $ 850 $ 700
Excess 2022 bond capital held as cash at December 31, 2022 300 300 300
Net cash provided by operating activities after dividends 350 400 375
Real estate dispositions, sales of partial interests, and issuances of common equity 1,400 2,400 1,900 (1)
Total sources of capital $ 2,600 $ 3,950 $ 3,275
Uses of capital:
Construction
$ 2,400 $ 3,550 $ 2,975
Acquisitions 200 400 300
Total uses of capital $ 2,600 $ 3,950 $ 3,275
Incremental debt (included above):
Issuance of unsecured senior notes payable $ 500 $ 1,000 $ 750
Unsecured senior line of credit, commercial paper program, and other 50 (150) (50)
Incremental debt $ 550 $ 850 $ 700
(1)Refer to Note 15 - “Stockholders’ equity” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional details. During the three months ended December 31, 2022, we entered into new forward equity sales agreements aggregating $104.7 million to sell 699,274 shares under our ATM program at an average price of $149.68 per share (before underwriter discounts). We expect to settle these forward equity sales agreements in 2023 and establish a new ATM program during the first quarter of 2023.
The key assumptions behind the sources and uses of capital in the table above include a favorable capital market environment, performance of our core operating properties, lease-up and delivery of current and future development and redevelopment projects, and leasing activity. Our expected sources and uses of capital are subject to a number of variables and uncertainties, including those discussed as “Forward-looking statements” under Part I; “Item 1A. Risk factors”; and “Item 7. Management’s discussion and analysis of financial condition and results of operations” in this annual report on Form 10-K. We expect to update our forecast of key sources and uses of capital on a quarterly basis.
Sources of capital
Net cash provided by operating activities after dividends
We expect to retain $350.0 million to $400.0 million of net cash flows from operating activities after payment of common stock dividends and distributions to noncontrolling interests for the year ending December 31, 2023. For purposes of this calculation, changes in operating assets and liabilities are excluded as they represent timing differences. For the year ending December 31, 2023, we expect our recently delivered projects, our highly pre-leased value-creation projects expected to be delivered, and contributions from Same Properties and recently acquired properties to contribute significant increases in income from rentals, net operating income, and cash flows. We anticipate significant contractual near-term growth in annual cash rents of $57 million related to the commencement of contractual rents on the projects recently placed into service that are near the end of their initial free rent period. Refer to “Cash flows” within this Item 7 in this annual report on Form 10-K for a discussion of cash flows provided by operating activities for the year ended December 31, 2022.
Debt
We expect to fund a portion of our capital needs in 2023 from real estate dispositions, sales of partial interests, strategic real estate joint ventures, settlement of our outstanding forward equity sales agreements, cash on hand, issuances under our commercial paper program, borrowings under our unsecured senior line of credit, and borrowings under our secured construction loans.
In September 2022, we amended our unsecured senior line of credit to extend the maturity date to January 22, 2028 from January 6, 2026, increase the commitments to $4.0 billion from $3.0 billion, and convert the interest rate to SOFR plus 0.875% from LIBOR plus 0.815%. As of December 31, 2022, we had no outstanding balance on our unsecured senior line of credit. In addition to the cost of borrowing, the unsecured senior line of credit is subject to an annual facility fee of 0.15% based on the aggregate commitments outstanding. Based upon our ability to achieve certain annual sustainability targets, the interest rate and facility fee rate are also subject to upward or downward adjustments of up to four basis points with respect to the interest rate and up to one basis point with respect to the facility fee.
In September 2022, we increased the aggregate amount we may issue from time to time under our commercial paper program to $2.0 billion from $1.5 billion. Commercial notes under our commercial paper program can have a maximum maturity of 397 days from the date of issuance and are generally issued with a maturity of 30 days or less. Our commercial paper program is backed by our unsecured senior line of credit, and at all times we expect to retain a minimum undrawn amount of borrowing capacity under our unsecured senior line of credit equal to any outstanding balance under our commercial paper program. We use borrowings under the program to fund short-term capital needs. The notes issued under our commercial paper program are sold under customary terms in the commercial paper market. They are typically issued at a discount to par, representing a yield to maturity dictated by market conditions at the time of issuance. In the event we are unable to issue commercial paper notes or refinance outstanding commercial paper notes under terms equal to or more favorable than those under the unsecured senior line of credit, we expect to borrow under the unsecured senior line of credit at SOFR plus 0.875%. The commercial paper notes sold during the year ended December 31, 2022 were issued at a weighted-average yield to maturity of 1.91%. As of December 31, 2022, we had no outstanding balance under our commercial paper program.
In February 2022, we issued $1.8 billion of unsecured senior notes payable with a weighted-average interest rate of 3.28% and a weighted-average maturity of 22.0 years. The unsecured senior notes consisted of $800.0 million of 2.95% green unsecured senior notes due 2034 and $1.0 billion of 3.55% unsecured senior notes due 2052.
In April 2022, we repaid two secured notes payable aggregating $195.0 million due in 2024 with an effective interest rate of 3.40% and recognized a loss on early extinguishment of debt of $3.3 million, including a prepayment penalty and the write-off of unamortized loan fees.
The following table provides our average debt outstanding and weighted-average interest rate during the year ended December 31, 2022:
Year Ended December 31, 2022
Average Debt Outstanding Weighted-Average Interest Rate
Long-term fixed-rate debt $ 9,999,145 3.50 %
Short-term variable-rate unsecured senior line of credit and commercial paper program debt 564,649 1.72
Blended average interest rate $ 10,563,794 3.40
Loan fee amortization and annual facility fee related to unsecured senior line of credit N/A 0.11
Total/weighted average $ 10,563,794 3.51 %
Proactive management of transition from LIBOR
LIBOR has been used extensively in the U.S. and globally as a reference rate for various commercial and financial contracts, including variable-rate debt and interest rate swap contracts. However, based on an announcement made by the Financial Conduct Authority on March 5, 2021, one-week and two-month LIBOR rates ceased to be published after December 31, 2021; all other LIBOR settings will effectively cease after June 30, 2023, and it is expected that LIBOR will no longer be used after this date. In connection with this change, in the U.S. the Alternative Reference Rates Committee (“ARRC”) was established to help ensure the successful transition from LIBOR. In June 2017, the ARRC selected SOFR, a new index calculated by reference to short-term repurchase agreements backed by U.S. Treasury securities, as its preferred replacement for U.S. dollar LIBOR. We have been closely monitoring developments related to the transition from LIBOR and have implemented numerous proactive measures to eliminate the potential transition-related impacts to the Company, specifically:
•Since January 2017, we have proactively eliminated outstanding LIBOR-based borrowings, and as of December 31, 2022, we had no LIBOR-based debt or financial contracts, including through our consolidated and unconsolidated real estate joint ventures.
•From 2020 through December 31, 2022, we increased the aggregate amount available under our commercial paper program to $2.0 billion from $750.0 million. Our commercial paper program is not subject to LIBOR and is used for funding short-term working capital needs. This program provides us with the ability to issue commercial paper notes bearing interest at short-term fixed rates with a maturity of generally 30 days or less and a maximum maturity of 397 days from the date of issuance. As of December 31, 2022, we had no commercial paper notes outstanding.
•In September 2022, we amended our unsecured senior line of credit to convert its interest rate to SOFR, among other changes. As of December 31, 2022, we had no borrowings outstanding under our unsecured senior line of credit.
Refer to Note 10 - “Secured and unsecured senior debt” to our consolidated financial statements under Item 15 and “Item 1A. Risk factors” in this annual report on Form 10-K for additional information about our management of risks related to the transition from LIBOR.
Real estate dispositions, sales of partial interests, and issuances of common equity
We expect to continue the disciplined execution of select sales of operating assets. Future sales will provide an important source of capital to fund a portion of pending and recently completed opportunistic acquisitions and our highly leased value-creation development and redevelopment projects, and also provide significant capital for growth. We may also consider additional sales of partial interests in core Class A properties and/or development projects. For 2023, we expect real estate dispositions, sales of partial interests, and issuances of common equity ranging from $1.4 billion to $2.4 billion. The amount of asset sales necessary to meet our forecasted sources of capital will vary depending upon the amount of Adjusted EBITDA associated with the assets sold.
Refer to Note 3 - “Investment in real estate”, Note 4 - “Consolidated and unconsolidated real estate joint ventures”, and Note 15 - “Stockholders’ equity” to our consolidated financial statements under Item 15 and “Dispositions and sales of partial interests” under Item 2 in this annual report on Form 10-K for additional information on our dispositions, sales of partial interests, and issuances of common equity.
As a REIT, we are generally subject to a 100% tax on the net income from real estate asset sales that the IRS characterizes as “prohibited transactions.” We do not expect our sales will be categorized as prohibited transactions. However, unless we meet certain “safe harbor” requirements, whether a real estate asset sale is a prohibited transaction will be based on the facts and circumstances of the sale. Our real estate asset sales may not always meet such safe harbor requirements. Refer to “Item 1A. Risk factors” in this annual report on Form 10-K for additional information about the “prohibited transaction” tax.
Common equity transactions
During the year ended December 31, 2022, our common equity transactions included the following:
•In January 2022, we entered into new forward equity sales agreements aggregating $1.7 billion to sell 8.1 million shares of our common stock (including the exercise of an underwriters’ option) at a public offering price of $210.00 per share, before underwriting discounts and commissions.
•During the year ended December 31, 2022, we settled all of our outstanding forward equity sales agreements by issuing 8.1 million shares and received net proceeds of $1.6 billion.
•In December 2021, we entered into a new ATM common stock offering program, which allows us to sell up to an aggregate of $1.0 billion of our common stock.
•During the year ended December 31, 2022, we entered into new forward equity sales agreements aggregating $858.1 million to sell 4.9 million shares under our ATM program at an average price of $175.12 per share (before underwriting discounts).
•During the three months ended December 31, 2022, we settled a portion of our outstanding forward equity agreements by issuing 4.2 million shares and received net proceeds of $737.4 million.
•We expect to settle the remaining outstanding forward equity agreements by issuing 699,274 shares and receive net proceeds of approximately $102.4 million in 2023.
•As of December 31, 2022, the remaining aggregate amount available under our ATM program for future sales of common stock was $141.9 million. We expect to establish a new ATM program during the first quarter of 2023.
Other sources
Under our current shelf registration statement filed with the SEC, we may issue common stock, preferred stock, debt, and other securities. These securities may be issued, from time to time, at our discretion based on our needs and market conditions, including, as necessary, to balance our use of incremental debt capital.
Additionally, we, together with joint venture partners, hold interests in real estate joint ventures that we consolidate in our financial statements. These existing joint ventures provide significant equity capital to fund a portion of our future construction spend, and our joint venture partners may also contribute equity into these entities for financing-related activities. Over the next four years, we expect to receive $1.4 billion from our existing real estate joint venture partners to fund construction projects. For 2023, we expect contributions from noncontrolling interests to aggregate $794.0 million, approximately 55% of which represents funding commitments from our existing real estate joint ventures and the remaining amount of which represents funding expected from our future real estate joint ventures. During the year ended December 31, 2022, we received $1.5 billion of contributions from and sales of noncontrolling interests.
Uses of capital
Summary of capital expenditures
One of our primary uses of capital relates to the development, redevelopment, pre-construction, and construction of properties. We currently have projects in our value-creation pipeline aggregating 5.6 million RSF of Class A properties undergoing construction, 9.9 million RSF of near-term and intermediate-term development and redevelopment projects, and 17.3 million SF of future development projects in North America. We incur capitalized construction costs related to development, redevelopment, pre-construction, and other construction activities. We also incur additional capitalized project costs, including interest, property taxes, insurance, and other costs directly related and essential to the development, redevelopment, pre-construction, or construction of a project, during periods when activities necessary to prepare an asset for its intended use are in progress. Refer to “New Class A development and redevelopment properties: current projects” under Item 2 in this annual report on Form 10-K for more information on our capital expenditures.
We capitalize interest cost as a cost of the project only during the period in which activities necessary to prepare an asset for its intended use are ongoing, provided that expenditures for the asset have been made and interest cost has been incurred. Capitalized interest for the years ended December 31, 2022 and 2021 of $278.6 million and $170.6 million, respectively, was classified in investments in real estate in our consolidated balance sheets.
Property taxes, insurance on real estate, and indirect project costs, such as construction administration, legal fees, and office costs that clearly relate to projects under development or construction, are capitalized as incurred during the period an asset is undergoing activities to prepare it for its intended use. We capitalized payroll and other indirect costs related to development, redevelopment, pre-construction, and construction projects, aggregating $83.8 million and $69.8 million, and property taxes, insurance on real estate and indirect project costs aggregating $97.3 million and $73.8 million during the years ended December 31, 2022 and 2021, respectively.
The increase in capitalized costs for the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily due to an increase in our value-creation pipeline projects undergoing construction and pre-construction activities in 2022 over 2021. Pre-construction activities include entitlements, permitting, design, site work, and other activities preceding commencement of construction of aboveground building improvements. The advancement of pre-construction efforts is focused on reducing the time required to deliver projects to prospective tenants. These critical activities add significant value for future ground-up development and are required for the vertical construction of buildings. Should we cease activities necessary to prepare an asset for its intended use, the interest, taxes, insurance, and certain other direct and indirect project costs related to the asset would be expensed as incurred. Expenditures for repairs and maintenance are expensed as incurred.
Fluctuations in our development, redevelopment, and construction activities could result in significant changes to total expenses and net income. For example, had we experienced a 10% reduction in development, redevelopment, and construction activities without a corresponding decrease in indirect project costs, including interest and payroll, total expenses would have increased by approximately $36.2 million for the year ended December 31, 2022.
We use third-party brokers to assist in our leasing activity, who are paid on a contingent basis upon successful leasing. We are required to capitalize initial direct costs related to successful leasing transactions that result directly from and are essential to the lease transaction and would not have been incurred had that lease transaction not been successfully executed. During the year ended December 31, 2022, we capitalized total initial direct leasing costs of $186.7 million. Costs that we incur to negotiate or arrange a lease regardless of its outcome, such as fixed employee compensation, tax, or legal advice to negotiate lease terms, and other costs, are expensed as incurred.
Acquisitions
Refer to the “Acquisitions” section in Note 3 - “Investments in real estate” and to Note 4 - “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements under Item 15 in this annual report on Form 10-K, and the “Acquisitions” section in “Item 2. Properties” in this annual report on Form 10-K for information on our acquisitions.
Dividends
During the years ended December 31, 2022 and 2021, we paid common stock dividends of $757.7 million and $656.0 million, respectively. The increase of $101.8 million in dividends paid on our common stock during the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily due to an increase in the number of common shares outstanding subsequent to January 1, 2021 as a result of issuances of common stock under our ATM program and settlement of forward equity sales agreements, and partially due to the increase in the related dividends to $4.66 per common share paid during the year ended December 31, 2022 from $4.42 per common share paid during the year ended December 31, 2021.
Secured notes payable
Secured notes payable as of December 31, 2022 consisted of three notes secured by two properties. Our secured notes payable typically require monthly payments of principal and interest and had a weighted-average interest rate of approximately 6.75%. As of December 31, 2022, the total book value of our investments in real estate securing debt was approximately $216.8 million. As of December 31, 2022, our secured notes payable, including unamortized discounts and deferred financing costs, comprised approximately $649 thousand and $58.4 million of fixed-rate debt and unhedged variable-rate debt, respectively.
Unsecured senior notes payable and unsecured senior line of credit
The requirements of, and our actual performance with respect to, the key financial covenants under our unsecured senior notes payable as of December 31, 2022 were as follows:
Covenant Ratios(1)
Requirement December 31, 2022
Total Debt to Total Assets Less than or equal to 60% 27%
Secured Debt to Total Assets Less than or equal to 40% 0.2%
Consolidated EBITDA(2) to Interest Expense
Greater than or equal to 1.5x 18.2x
Unencumbered Total Asset Value to Unsecured Debt Greater than or equal to 150% 363%
(1)All covenant ratio titles utilize terms as defined in the respective debt agreements.
(2)The calculation of consolidated EBITDA is based on the definitions contained in our loan agreements and is not directly comparable to the computation of EBITDA as described in Exchange Act Release No. 47226.
In addition, the terms of the indentures, among other things, limit the ability of the Company, Alexandria Real Estate Equities, L.P., and the Company’s subsidiaries to (i) consummate a merger, or consolidate or sell all or substantially all of the Company’s assets, and (ii) incur certain secured or unsecured indebtedness.
The requirements of, and our actual performance with respect to, the key financial covenants under our unsecured senior line of credit as of December 31, 2022 were as follows:
Covenant Ratios (1)
Requirement December 31, 2022
Leverage Ratio Less than or equal to 60.0% 26.6%
Secured Debt Ratio Less than or equal to 45.0% 0.1%
Fixed-Charge Coverage Ratio Greater than or equal to 1.50x 4.34x
Unsecured Interest Coverage Ratio Greater than or equal to 1.75x 18.87x
(1)All covenant ratio titles utilize terms as defined in the credit agreement.
Estimated interest payments
Estimated interest payments on our fixed-rate debt are calculated based upon contractual interest rates, including interest payment dates and scheduled maturity dates. As of December 31, 2022, 99.4% of our debt was fixed-rate debt. For additional information regarding our debt, refer to Note 10 - “Secured and unsecured senior debt” to our consolidated financial statements under Item 15 in this annual report on Form 10-K.
Ground lease obligations
Operating lease agreements
Ground lease obligations as of December 31, 2022, included leases for 40 of our properties, which accounted for approximately 9% of our total number of properties. Excluding one ground lease that expires in 2036 related to one operating property with a net book value of $6.3 million as of December 31, 2022, our ground lease obligations have remaining lease terms ranging from approximately 31 to 99 years, including available extension options that we are reasonably certain to exercise.
As of December 31, 2022, the remaining contractual payments under ground and office lease agreements in which we are the lessee aggregated $870.1 million and $34.1 million, respectively. We are required to recognize a right-of-use asset and a related liability to account for our future obligations under operating lease arrangements in which we are the lessee. The operating lease liability is measured based on the present value of the remaining lease payments, including payments during the term under our extension options that we are reasonably certain to exercise. The right-of-use asset is equal to the corresponding operating lease liability, adjusted for the initial direct leasing cost and any other consideration exchanged with the landlord prior to the commencement of the lease, as well as adjustments to reflect favorable or unfavorable terms of an acquired lease when compared with market terms at the time of acquisition. As of December 31, 2022, the present value of the remaining contractual payments, aggregating $904.2 million, under our operating lease agreements, including our extension options that we are reasonably certain to exercise, was $406.7 million, which was classified in accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets. As of December 31, 2022, the weighted-average remaining lease term of operating leases in which we are the lessee was approximately 42 years, and the weighted-average discount rate was 4.6%. Our corresponding operating lease right-of-use assets, adjusted for initial direct leasing costs and other consideration exchanged with the landlord prior to the commencement of the lease, aggregated $558.3 million. We classify the right-of-use asset in other assets in our consolidated balance sheets. Refer to the “Lease accounting” section in Note 2 - “Summary of significant accounting policies” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional information.
Commitments
As of December 31, 2022, remaining aggregate costs under contract for the construction of properties undergoing development, redevelopment, and improvements under the terms of leases approximated $3.5 billion. In addition, we may be required to incur construction costs associated with our future development projects aggregating 643,331 RSF in our Greater Boston market pursuant to an agreement whereby our counterparty may elect to execute future lease agreements on mutually agreeable terms.
We expect payments for these obligations to occur over one to three years, subject to capital planning adjustments from time to time. We may have the ability to cease the construction of certain projects, which would result in the reduction of our commitments. In addition, we have letters of credit and performance obligations aggregating $22.4 million primarily related to construction projects and an anticipated acquisition.
We are committed to funding approximately $415.4 million related to our non-real estate investments. These funding commitments are primarily associated with our investments in privately held entities that report NAV and expire at various dates over the next 12 years, with a weighted-average expiration of 8.6 years as of December 31, 2022.
Exposure to environmental liabilities
In connection with the acquisition of all of our properties, we have obtained Phase I environmental assessments to ascertain the existence of any environmental liabilities or other issues. The Phase I environmental assessments of our properties have not revealed any environmental liabilities that we believe would have a material adverse effect on our financial condition or results of operations taken as a whole, nor are we aware of any material environmental liabilities that have occurred since the Phase I environmental assessments were completed. In addition, we carry pollution legal liability insurance covering exposure to certain environmental losses at substantially all of our properties.
Foreign currency translation gains and losses
The following table presents the change in accumulated other comprehensive loss attributable to Alexandria Real Estate Equities, Inc.’s stockholders during the year ended December 31, 2022 due to the changes in the foreign exchange rates for our real estate investments in Canada and Asia. We reclassify unrealized foreign currency translation gains and losses into net income as we dispose of these holdings.
(In thousands) Total
Balance as of December 31, 2021 $ (7,294)
Other comprehensive loss before reclassifications (13,518)
Net other comprehensive loss (13,518)
Balance as of December 31, 2022 $ (20,812)
Inflation
As of December 31, 2022, approximately 93% of our leases (on an annual rental revenue basis) were triple net leases, which require tenants to pay substantially all real estate taxes, insurance, utilities, repairs and maintenance, common area expenses, and other operating expenses (including increases thereto) in addition to base rent. Approximately 96% of our leases (on an annual rental revenue basis) contained effective annual rent escalations that were either fixed (generally ranging from 3.0% to 3.5%) or indexed based on a consumer price index or other indices. Accordingly, we do not believe that our cash flows or earnings from real estate operations are subject to significant risks from inflation. A period of inflation, however, could cause an increase in the cost of our variable-rate borrowings, including borrowings under our unsecured senior line of credit and commercial paper program, issuances of unsecured senior notes payable, and borrowings under our secured construction loans, and secured loans held by our unconsolidated real estate joint ventures.
In addition, refer to “Item 1A. Risk factors” in this annual report on Form 10-K for a discussion about risks that inflation directly or indirectly may pose to our business.
Issuer and guarantor subsidiary summarized financial information
Alexandria Real Estate Equities, Inc. (the “Issuer”) has sold certain debt securities registered under the Securities Act of 1933, as amended, that are fully and unconditionally guaranteed by Alexandria Real Estate Equities, L.P. (the “LP” or the “Guarantor Subsidiary”), an indirectly 100% owned subsidiary of the Issuer. The Issuer’s other subsidiaries, including, but not limited to, the subsidiaries that own substantially all of its real estate (collectively, the “Combined Non-Guarantor Subsidiaries”), will not provide a guarantee of such securities, including the subsidiaries that are partially or 100% owned by the LP. The following summarized financial information presents on a combined basis, balance sheet information as of December 31, 2022 and 2021, and results of operations and comprehensive income for the years ended December 31, 2022 and 2021 for the Issuer and the Guarantor Subsidiary. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. In presenting the summarized financial statements, the equity method of accounting has been applied to (i) the Issuer’s interests in the Guarantor Subsidiary, (ii) the Guarantor Subsidiary’s interests in the Combined Non-Guarantor Subsidiaries, and (iii) the Combined Non-Guarantor Subsidiaries’ interests in the Guarantor Subsidiary, where applicable, even though all such subsidiaries meet the requirements to be consolidated under GAAP. All assets and liabilities have been allocated to the Issuer and the Guarantor Subsidiary generally based on legal entity ownership.
The following tables present combined summarized financial information as of December 31, 2022 and 2021, and for the years ended December 31, 2022 and 2021, for the Issuer and Guarantor Subsidiary. Amounts provided do not represent our total consolidated amounts:
December 31,
(in thousands) 2022 2021
Assets:
Cash, cash equivalents, and restricted cash $ 465,707 $ 78,856
Other assets 107,287 101,956
Total assets $ 572,994 $ 180,812
Liabilities:
Unsecured senior notes payable $ 10,100,717 $ 8,316,678
Unsecured senior line of credit and commercial paper - 269,990
Other liabilities 466,369 401,721
Total liabilities $ 10,567,086 $ 8,988,389
Year Ended December 31,
(in thousands) 2022 2021
Total revenues $ 33,052 $ 26,798
Total expenses (277,647) (363,525)
Net loss (244,595) (336,727)
Net income attributable to unvested restricted stock awards (8,392) (7,848)
Net loss attributable to Alexandria Real Estate Equities, Inc.’s common stockholders
$ (252,987) $ (344,575)
As of December 31, 2022, 420 of our 432 properties were held indirectly by the REIT’s wholly owned consolidated subsidiary, Alexandria Real Estate Equities, L.P.
Critical accounting estimates
Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements in conformity with GAAP requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. We base these estimates, judgments, and assumptions on historical experience, current trends, and various other factors that we believe to be reasonable under the circumstances.
We continually evaluate the estimates, judgments, and assumptions we use to prepare our consolidated financial statements. Changes in estimates, judgments, or assumptions could affect our financial position and our results of operations, which are used by our stockholders, potential investors, industry analysts, and lenders in their evaluation of our performance.
Our critical accounting estimates are defined as accounting estimates or assumptions made in accordance with GAAP, which involve a significant level of estimation uncertainty or subjectivity and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our significant accounting policies, which utilize these critical accounting estimates, are described in Note 2 - “Summary of significant accounting policies” to our consolidated financial statements under Item 15 in this annual report on Form 10-K. Our critical accounting estimates are described below.
Recognition of real estate acquired
Generally, our acquisitions of real estate or in-substance real estate are accounted for as asset acquisitions and not business combinations because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings, and related intangible assets). The accounting model for asset acquisitions requires that the acquisition consideration (including acquisition costs) be allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. Any excess (deficit) of the consideration transferred relative to the sum of the fair value of the assets acquired and liabilities assumed is allocated to the individual assets and liabilities based on their relative fair values.
We assess the relative fair values of tangible and intangible assets and liabilities based on:
(i)Available comparable market information;
(ii)Estimated replacement costs; or
(iii)Discounted cash flow analysis/estimated net operating income and capitalization rates.
In certain instances, we may use multiple valuation techniques and estimate fair values based on an average of multiple valuation results. We exercise judgement to determine key assumptions used in each valuation technique. For example, to estimate future cash flows in the discounted cash flow analysis, we are required to use judgment and make a number of assumptions, including those related to projected growth in rental rates and operating expenses, and anticipated trends and market/economic conditions. The use of different assumptions in the discounted cash flow analysis can affect the amount of consideration allocated to the acquired depreciable/amortizable asset, which in turn can impact our net income due to the recognition of the related depreciation/amortization expense in our consolidated statements of operations.
We completed acquisitions of 42 properties for a total purchase price of $2.8 billion during the year ended December 31, 2022. These transactions were accounted for as asset acquisitions, and the purchase price of each was allocated based on the relative fair values of the assets acquired and liabilities assumed. Refer to the “Investments in real estate” section in Note 2 - “Summary of significant accounting policies” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional information.
Impairment of long-lived assets
Impairment of real estate assets classified as held for sale
A property is classified as held for sale when all of the accounting criteria for a plan of sale have been met. These criteria are described in the “Investments in real estate” section in Note 2 - “Summary of significant accounting policies” to our consolidated financial statements under Item 15 in this annual report on Form 10-K. Upon classification as held for sale, we recognize an impairment charge, if necessary, to lower the carrying amount of the real estate asset to its estimated fair value less cost to sell. The determination of fair value can involve significant judgments and assumptions. We develop key assumptions based on the following available factors: (i) contractual sales price, (ii) preliminary non-binding letters of intent, or (iii) other available comparable market information. If this information is not available, we use estimated replacement costs or estimated cash flow projections that utilize estimated discount and capitalization rates. These estimates are subject to uncertainty and therefore require significant judgment by us. We review all assets held for sale each reporting period to determine whether the existing carrying amounts are fully recoverable in comparison to their estimated fair values less costs to sell. Subsequently, as a result of our quarterly assessment, we may recognize an incremental impairment charge for any decrease in the asset’s fair value less cost to sell. Conversely, we may recognize a gain for a subsequent increase in fair value less cost to sell, limited to the cumulative net loss previously recognized.
Impairment of other long-lived assets
For each reporting period, we review current activities and changes in the business conditions of all of our long-lived assets, including our rental properties, CIP, land held for development, right-of-use assets related to operating leases in which we are the lessee, and intangibles, to determine the existence of any triggering events or impairment indicators requiring an impairment analysis. If triggering events or impairment indicators are identified, we review an estimate of the future undiscounted cash flows, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration.
Long-lived assets to be held and used, are individually evaluated for impairment when conditions exist that may indicate that the carrying amount of a long-lived asset may not be recoverable. The carrying amount of a long-lived asset to be held and used is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Triggering events or impairment indicators for long-lived assets to be held and used, including our rental properties, CIP, land held for development, and intangibles, are assessed by project and include significant fluctuations in estimated net operating income, occupancy changes, significant near-term lease expirations, current and historical operating and/or cash flow losses, construction costs, estimated completion dates, rental rates, and other market factors. We assess the expected undiscounted cash flows based upon numerous factors, including, but not limited to, construction costs, available market information, current and historical operating results, known trends, current market/economic conditions that may affect the property, and our assumptions about the use of the asset, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration.
Upon determination that an impairment has occurred, a write-down is recognized to reduce the carrying amount to its estimated fair value. If an impairment loss is not required to be recognized, the recognition of depreciation or amortization is adjusted prospectively, as necessary, to reduce the carrying amount of the real estate to its estimated disposition value over the remaining period that the asset is expected to be held and used. We may also adjust depreciation of properties that are expected to be disposed of or redeveloped prior to the end of their useful lives.
The evaluation for impairment and calculation of the carrying amount of a long-lived asset to be held and used involves consideration of factors and calculations that are different than the estimate of fair value of assets classified as held for sale. Because of these two different models, it is possible for a long-lived asset previously classified as held and used to require the recognition of an impairment charge upon classification as held for sale.
Impairment of real estate joint ventures accounted for under the equity method of accounting
We generally account for our investments in real estate joint ventures that do not meet the consolidation criteria under the equity method. Under the equity method of accounting, we initially recognize our investment at cost and subsequently adjust the carrying amount of the investment for our share of the investee’s earnings or losses, distributions received, and other-than-temporary impairments.
Our unconsolidated real estate joint ventures are individually evaluated for impairment when conditions exist that may indicate that the decrease in the carrying amount of our investment has occurred and is other than temporary. Triggering events or impairment indicators for an unconsolidated joint venture include its recurring operating losses, and other events such as occupancy changes, significant near-term lease expirations, significant changes in construction costs, estimated completion dates, rental rates, and other factors related to the properties owned by the real estate joint venture, or a decision by investors to cease providing support or reduce their financial commitment to the joint venture.
Upon determination that an other-than-temporary impairment has occurred, a write-down is recognized to reduce the carrying amount of our investment to its estimated fair value. As of December 31, 2022, the carrying amounts of our investments in unconsolidated real estate joint ventures aggregated $38.4 million, or approximately 0.1% of our total assets. During the year ended December 31, 2022, no other-than-temporary impairments related to our unconsolidated real estate joint ventures were identified. Refer to the “Unconsolidated real estate joint ventures” section in Note 4 - “Consolidated and unconsolidated real estate joint ventures” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional information.
Impairment of non-real estate investments
We hold strategic investments in publicly traded companies and privately held entities primarily involved in the life science, agtech, and technology industries. As a REIT, we generally limit our ownership percentage in the voting stock of each individual entity to less than 10%.
Our investments in privately held entities that do not report NAV per share require our evaluation for impairment when changes in these entities’ conditions may indicate that an impairment exists. We closely monitor these investments throughout the year for new developments, including operating results, prospects and results of clinical trials, new product initiatives, new collaborative agreements, capital-raising events, and merger and acquisition activities. We evaluate these investees on the basis of a qualitative assessment for indicators of impairment by monitoring the presence of the following triggering events or impairment indicators: (i) a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee; (ii) a significant adverse
change in the regulatory, economic, or technological environment of the investee, (iii) a significant adverse change in the general market condition, including the research and development of technology and products that the investee is bringing or attempting to bring to the market, (iv) significant concerns about the investee’s ability to continue as a going concern, or (v) a decision by investors to cease providing support to reduce their financial commitment to the investee. If such indicators are present, we are required to estimate the investment’s fair value and immediately recognize an impairment loss in an amount equal to the investment’s carrying value in excess of its estimated fair value. As of each December 31, 2022, 2021, and 2020, the carrying amounts of our investments in privately held entities that do not report NAV per share accounted for approximately 2% of our total assets and aggregated $582.7 million, $491.3 million, and $389.2 million, respectively. During the years ended December 31, 2022, 2021, and 2020, we recognized impairment charges aggregating 4%, 0%, and 6% of the carrying amounts of our investments in privately held entities that do not report NAV, respectively.
Monitoring of tenant credit quality
We monitor, on an ongoing basis, the credit quality and any related material changes of our tenants by (i) monitoring the credit rating of tenants that are rated by a nationally recognized credit rating agency, (ii) reviewing financial statements of the tenants that are publicly available or that are required to be delivered to us pursuant to the applicable lease, (iii) monitoring news reports regarding our tenants and their respective businesses and industries in which they conduct business, and (iv) monitoring the timeliness of lease payments.
We have a team of employees who, among them, have an extensive educational background or experience in biology, chemistry, industrial biotechnology, agtech, and the life science industry, as well as knowledge in finance. This team is responsible for timely assessment, monitoring, and communication of our tenants’ credit quality and any material changes therein. During the fiscal years ended 2022, 2021, and 2020, specific write-offs and a general allowance related to deferred rent balances of tenants recognized in our consolidated statements of operations have not exceeded 0.8% of our income from rentals for each respective year. For additional information, refer to the “Monitoring of tenant credit quality” section in Note 2 - “Summary of significant accounting policies” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional information.
Allowance for credit losses
For the financial assets in scope of the accounting standard on credit losses, we are required to estimate and recognize lifetime expected losses, rather than incurred losses, which results in the earlier recognition of credit losses even if the expected risk of credit loss is remote.
As of December 31, 2022, all of our 432 properties were subject to the operating lease agreements, which are excluded from the scope of the standard on credit losses. As of December 31, 2022, we had one direct financing lease agreement for a parking structure with an aggregate net investment balance of $39.4 million, which represented approximately 0.1% of our total assets. At each reporting date, we estimate the current credit loss related to these assets by assessing the probability of default on these leases based on the lessees’ financial condition, credit rating, business prospects, remaining lease term, and, in the case of the direct financing lease, the expected value of the underlying collateral upon its repossession, and, if necessary, we recognize a credit loss adjustment. Since our adoption of this standard on January 1, 2020, and as of each December 31, 2022 and 2021, our allowance for credit losses has not exceeded $2.8 million, or 0.01% of our total assets. For further details, refer to the “Allowance for credit losses” section in Note 2 - “Summary of significant accounting policies” and to Note 5 - “Leases” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional information.
Non-GAAP measures and definitions
This section contains additional information of certain non-GAAP financial measures and the reasons why we use these supplemental measures of performance and believe they provide useful information to investors, as well as the definitions of other terms used in this annual report on Form 10-K.
Funds from operations and funds from operations, as adjusted, attributable to Alexandria Real Estate Equities, Inc.’s common stockholders
GAAP-basis accounting for real estate assets utilizes historical cost accounting and assumes that real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets, the Nareit Board of Governors established funds from operations as an improved measurement tool. Since its introduction, funds from operations has become a widely used non-GAAP financial measure among equity REITs. We believe that funds from operations is helpful to investors as an additional measure of the performance of an equity REIT. Moreover, we believe that funds from operations, as adjusted, allows investors to compare our performance to the performance of other real estate companies on a consistent basis, without having to account for differences recognized because of real estate acquisition and disposition decisions, financing decisions, capital structure, capital market transactions, variances resulting from the volatility of market conditions outside of our control, or other corporate activities that may not be representative of the operating performance of our properties.
The 2018 White Paper published by the Nareit Board of Governors (the “Nareit White Paper”) defines funds from operations as net income (computed in accordance with GAAP), excluding gains or losses on sales of real estate, and impairments of real estate, plus depreciation and amortization of operating real estate assets, and after adjustments for our share of consolidated and unconsolidated partnerships and real estate joint ventures. Impairments represent the write-down of assets when fair value over the recoverability period is less than the carrying value due to changes in general market conditions and do not necessarily reflect the operating performance of the properties during the corresponding period.
We compute funds from operations, as adjusted, as funds from operations calculated in accordance with the Nareit White Paper, excluding significant gains, losses, and impairments realized on non-real estate investments, unrealized gains or losses on non-real estate investments, gains or losses on early extinguishment of debt, significant termination fees, acceleration of stock compensation expense due to the resignation of an executive officer, deal costs, the income tax effect related to such items, and the amount of such items that is allocable to our unvested restricted stock awards. We compute the amount that is allocable to our unvested restricted stock awards using the two-class method. Under the two-class method, we allocate net income (after amounts attributable to noncontrolling interests) to common stockholders and to unvested restricted stock awards by applying the respective weighted-average shares outstanding during each quarter-to-date and year-to-date period. This may result in a difference of the summation of the quarter-to-date and year-to-date amounts. Neither funds from operations nor funds from operations, as adjusted, should be considered as alternatives to net income (determined in accordance with GAAP) as indications of financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as measures of liquidity, nor are they indicative of the availability of funds for our cash needs, including our ability to make distributions.
The following table reconciles net income to funds from operations for the share of consolidated real estate joint ventures attributable to noncontrolling interests and our share of unconsolidated real estate joint ventures for the three and twelve months ended December 31, 2022 (in thousands):
Noncontrolling Interest Share of Consolidated Real Estate Joint Ventures Our Share of Unconsolidated
Real Estate Joint Ventures
December 31, 2022 December 31, 2022
Three Months Ended Year Ended Three Months Ended Year Ended
Net income $ 40,949 $ 149,041 $ 172 $ 645
Depreciation and amortization of real estate assets 29,702 107,591 982 3,666
Funds from operations $ 70,651 $ 256,632 $ 1,154 $ 4,311
The following tables present a reconciliation of net income (loss) attributable to Alexandria Real Estate Equities, Inc.’s common stockholders, the most directly comparable financial measure presented in accordance with GAAP, including our share of amounts from consolidated and unconsolidated real estate joint ventures, to funds from operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders - diluted, and funds from operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders - diluted, as adjusted, and the related per share amounts for the years ended December 31, 2022, 2021, and 2020. Per share amounts may not add due to rounding.
Year Ended December 31,
(In thousands) 2022 2021 2020
Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders - basic and diluted $ 513,268 $ 563,399 $ 760,791
Depreciation and amortization of real estate assets 988,363 804,633 684,682
Noncontrolling share of depreciation and amortization from consolidated real estate JVs
(107,591) (70,880) (61,933)
Our share of depreciation and amortization from unconsolidated real estate JVs
3,666 13,734 11,413
Gain on sales of real estate (537,918) (126,570) (154,089)
Impairment of real estate - rental properties
20,899 (1)
25,485 40,501
Allocation to unvested restricted stock awards
(1,118) (6,315) (7,018)
Funds from operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders - diluted(2)
879,569 1,203,486 1,274,347
Unrealized losses (gains) on non-real estate investments 412,193 (43,632) (374,033)
Significant realized gains on non-real estate investments - (110,119) -
Impairment of non-real estate investments
20,512 (3)
- 24,482
Impairment of real estate 44,070 (4)
27,190 15,221
Loss on early extinguishment of debt
3,317 67,253 60,668
Termination fee - - (86,179)
Acceleration of stock compensation expense due to executive officer resignation 7,185 (5)
- 4,499
Allocation to unvested restricted stock awards
(5,137) 710 4,790
Funds from operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders - diluted, as adjusted
$ 1,361,709 $ 1,144,888 $ 923,795
(1)Primarily consists of an impairment of one real estate asset recognized to reduce the carrying amount of the asset to its estimated fair value, less cost to sell, upon its classification as held for sale in December 2022. We expect to complete the sale of this asset during 2023.
(2)Calculated in accordance with standards established by the Nareit Board of Governors.
(3)Primarily relates to three investments in privately held entities that do not report NAV.
(4)Includes (i) the write-off of pre-acquisition deposits primarily related to one previously pending acquisition, which was recognized upon our decision not to proceed with the acquisition, and (ii) a $38.3 million impairment charge related to one future development, which we recognized upon our decision not to proceed with the project.
(5)Relates to the resignation of Stephen A. Richardson, our former co-chief executive officer, in July 2022.
Year Ended December 31,
(Per share) 2022 2021 2020
Net income per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders - diluted $ 3.18 $ 3.82 $ 6.01
Depreciation and amortization of real estate assets 5.47 5.07 5.01
Gain on sales of real estate (3.33) (0.86) (1.22)
Impairment of real estate - rental properties
0.13 (1)
0.17 0.32
Allocation to unvested restricted stock awards
(0.01) (0.04) (0.05)
Funds from operations per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders - diluted 5.44 8.16 10.07
Unrealized losses (gains) on non-real estate investments 2.55 (0.30) (2.96)
Significant realized gains on non-real estate investments - (0.75) -
Impairment of non-real estate investments
0.13 (1)
- 0.19
Impairment of real estate 0.27 (1)
0.18 0.12
Loss on early extinguishment of debt
0.02 0.46 0.48
Termination fee - - (0.68)
Acceleration of stock compensation expense due to executive officer resignation 0.04 (1)
- 0.04
Allocation to unvested restricted stock awards
(0.03) 0.01 0.04
Funds from operations per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders - diluted, as adjusted
$ 8.42 $ 7.76 $ 7.30
Weighted-average shares of common stock outstanding for calculations of:
EPS - diluted
161,659 147,460 126,490
Funds from operations - diluted, per share
161,659 147,460 126,490
Funds from operations - diluted, as adjusted, per share
161,659 147,460 126,490
(1) Refer to footnotes on the previous page for additional details.
Adjusted EBITDA and Adjusted EBITDA margin
We use Adjusted EBITDA as a supplemental performance measure of our operations, for financial and operational decision-making, and as a supplemental means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation, and amortization (“EBITDA”), excluding stock compensation expense, gains or losses on early extinguishment of debt, gains or losses on sales of real estate, impairments of real estate, and significant termination fees. Adjusted EBITDA also excludes unrealized gains or losses and significant realized gains or losses and impairments that result from our non-real estate investments. These non-real estate investment amounts are classified in our consolidated statements of operations outside of total revenues.
We believe Adjusted EBITDA provides investors with relevant and useful information as it allows investors to evaluate the operating performance of our business activities without having to account for differences recognized because of investing and financing decisions related to our real estate and non-real estate investments, our capital structure, capital market transactions, and variances resulting from the volatility of market conditions outside of our control. For example, we exclude gains or losses on the early extinguishment of debt to allow investors to measure our performance independent of our indebtedness and capital structure. We believe that adjusting for the effects of impairments and gains or losses on sales of real estate, significant impairments and realized gains or losses on non-real estate investments, and significant termination fees allows investors to evaluate performance from period to period on a consistent basis without having to account for differences recognized because of investing and financing decisions related to our real estate and non-real estate investments or other corporate activities that may not be representative of the operating performance of our properties.
In addition, we believe that excluding charges related to stock compensation and unrealized gains or losses facilitates for investors a comparison of our business activities across periods without the volatility resulting from market forces outside of our control. Adjusted EBITDA has limitations as a measure of our performance. Adjusted EBITDA does not reflect our historical expenditures or future requirements for capital expenditures or contractual commitments. While Adjusted EBITDA is a relevant measure of performance, it does not represent net income (loss) or cash flows from operations calculated and presented in accordance with GAAP, and it should not be considered as an alternative to those indicators in evaluating performance or liquidity.
In order to calculate the Adjusted EBITDA margin, we divide Adjusted EBITDA by total revenues as presented in our consolidated statements of operations. We believe that this supplemental performance measure provides investors with additional useful information regarding the profitability of our operating activities.
The following table reconciles net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA and calculates the Adjusted EBITDA margin for the three months and years ended December 31, 2022 and 2021 (dollars in thousands):
Three Months Ended December 31, Year Ended December 31,
2022 2021 2022 2021
Net income $ 95,268 $ 99,796 $ 670,701 $ 654,282
Interest expense 17,522 34,862 94,203 142,165
Income taxes
2,063 4,156 9,673 12,054
Depreciation and amortization
264,480 239,254 1,002,146 821,061
Stock compensation expense
11,586 14,253 57,740 48,669
Loss on early extinguishment of debt
- - 3,317 67,253
Gain on sales of real estate - (124,226) (537,918) (126,570)
Significant realized gains on non-real estate investments - - - (110,119)
Unrealized losses (gains) on non-real estate investments 24,117 139,716 412,193 (43,632)
Impairment of real estate
26,186 - 64,969 52,675
Impairment of non-real estate investments 20,512 - 20,512 -
Adjusted EBITDA
$ 461,734 $ 407,811 $ 1,797,536 $ 1,517,838
Total revenues $ 670,281 $ 576,923 $ 2,588,962 $ 2,114,150
Adjusted EBITDA margin
69% 71% 69% 72%
Annual rental revenue
Annual rental revenue represents the annualized fixed base rental obligations, calculated in accordance with GAAP, for leases in effect as of the end of the period, related to our operating RSF. Annual rental revenue is presented using 100% of the annual rental revenue from our consolidated properties and our share of annual rental revenue for our unconsolidated real estate joint ventures. Annual rental revenue per RSF is computed by dividing annual rental revenue by the sum of 100% of the RSF of our consolidated properties and our share of the RSF of properties held in unconsolidated real estate joint ventures. As of December 31, 2022, approximately 93% of our leases (on an annual rental revenue basis) were triple net leases, which require tenants to pay substantially all real estate taxes, insurance, utilities, repairs and maintenance, common area expenses, and other operating expenses (including increases thereto) in addition to base rent. Annual rental revenue excludes these operating expenses recovered from our tenants. Amounts recovered from our tenants related to these operating expenses, along with base rent, are classified in income from rentals in our consolidated statements of operations.
Capitalization rates
Capitalization rates are calculated based on net operating income and net operating income (cash basis) annualized for the quarter preceding the date on which the property is sold, or near-term prospective net operating income.
Cash interest
Cash interest is equal to interest expense calculated in accordance with GAAP plus capitalized interest, less amortization of loan fees and debt premiums (discounts). Refer to the definition of “Fixed-charge coverage ratio” in this section within this Item 7 in this annual report on 10-K for a reconciliation of interest expense, the most directly comparable financial measure calculated and presented in accordance with GAAP, to cash interest.
Class A properties and AAA locations
Class A properties are properties clustered in AAA locations that provide innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. Class A properties generally command higher annual rental rates than other classes of similar properties.
AAA locations are in close proximity to concentrations of specialized skills, knowledge, institutions, and related businesses. Such locations are generally characterized by high barriers to entry for new landlords, high barriers to exit for tenants, and a limited supply of available space.
Construction costs related to active development and redevelopment projects under contract
Includes (i) costs incurred to date, (ii) remaining costs to complete under a general contractor’s guaranteed maximum price (“GMP”) construction contract or other fixed contracts, and (iii) our maximum committed tenant improvement allowances under our executed leases. The general contractor’s GMP contract or other fixed contracts reduce our exposure to costs of construction materials, labor, and services from third-party contractors and suppliers, unless the overruns result from, among other things, a force majeure event or a change in the scope of work covered by the contract.
Development, redevelopment, and pre-construction
A key component of our business model is our disciplined allocation of capital to the development and redevelopment of new Class A properties, and property enhancements identified during the underwriting of certain acquired properties, located in collaborative life science, agtech, and technology campuses in AAA innovation clusters. These projects are generally focused on providing high-quality, generic, and reusable spaces that meet the real estate requirements of, and are reusable by, a wide range of tenants. Upon completion, each value-creation project is expected to generate a significant increase in rental income, net operating income, and cash flows. Our development and redevelopment projects are generally in locations that are highly desirable to high-quality entities, which we believe results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value.
Development projects generally consist of the ground-up development of generic and reusable facilities. Redevelopment projects consist of the permanent change in use of office, warehouse, and shell space into office/laboratory, agtech, or tech office space. We generally will not commence new development projects for aboveground construction of new Class A office/laboratory, agtech, and tech office space without first securing significant pre-leasing for such space, except when there is solid market demand for high-quality Class A properties.
Pre-construction activities include entitlements, permitting, design, site work, and other activities preceding commencement of construction of aboveground building improvements. The advancement of pre-construction efforts is focused on reducing the time required to deliver projects to prospective tenants. These critical activities add significant value for future ground-up development and are required for the vertical construction of buildings. Ultimately, these projects will provide high-quality facilities and are expected to generate significant revenue and cash flows.
Development, redevelopment, and pre-construction spending also includes the following costs: (i) amounts to bring certain acquired properties up to market standard and/or other costs identified during the acquisition process (generally within two years of acquisition) and (ii) permanent conversion of space for highly flexible, move-in-ready office/laboratory space to foster the growth of promising early- and growth-stage life science companies.
Revenue-enhancing and repositioning capital expenditures represent spending to reposition or significantly change the use of a property, including through improvement in the asset quality from Class B to Class A.
Non-revenue-enhancing capital expenditures represent costs required to maintain the current revenues of a stabilized property, including the associated costs for renewed and re-leased space.
Dividend payout ratio (common stock)
Dividend payout ratio (common stock) is the ratio of the absolute dollar amount of dividends on our common stock (shares of common stock outstanding on the respective record dates multiplied by the related dividend per share) to funds from operations attributable to Alexandria’s common stockholders - diluted, as adjusted.
Dividend yield
Dividend yield for the quarter represents the annualized quarter dividend divided by the closing common stock price at the end of the quarter.
Fixed-charge coverage ratio
Fixed-charge coverage ratio is a non-GAAP financial measure representing the ratio of Adjusted EBITDA to fixed charges. We believe that this ratio is useful to investors as a supplemental measure of our ability to satisfy fixed financing obligations and preferred stock dividends. Cash interest is equal to interest expense calculated in accordance with GAAP plus capitalized interest, less amortization of loan fees and debt premiums (discounts).
The following table reconciles interest expense, the most directly comparable financial measure calculated and presented in accordance with GAAP, to cash interest and fixed charges and computes the fixed-charge coverage ratio for the three months and years ended December 31, 2022 and 2021 (dollars in thousands):
Three Months Ended December 31, Year Ended December 31,
2022 2021 2022 2021
Adjusted EBITDA $ 461,734 $ 407,811 $ 1,797,536 $ 1,517,838
Interest expense $ 17,522 $ 34,862 $ 94,203 $ 142,165
Capitalized interest 79,491 44,078 278,645 170,641
Amortization of loan fees (3,975) (2,911) (13,549) (11,441)
Amortization of debt (discounts) premiums (272) 502 (384) 2,041
Cash interest and fixed charges $ 92,766 $ 76,531 $ 358,915 $ 303,406
Fixed-charge coverage ratio:
- period annualized 5.0x 5.3x 5.0x 5.0x
- trailing 12 months 5.0x 5.0x 5.0x 5.0x
Gross assets
Gross assets are calculated as total assets plus accumulated depreciation as of December 31, 2022 and 2021 (in thousands):
December 31,
2022 2021
Total assets $ 35,523,399 $ 30,219,373
Accumulated depreciation 4,354,063 3,771,241
Gross assets $ 39,877,462 $ 33,990,614
Initial stabilized yield (unlevered)
Initial stabilized yield is calculated as the estimated amounts of net operating income at stabilization divided by our investment in the property. Our initial stabilized yield excludes the benefit of leverage. Our cash rents related to our value-creation projects are generally expected to increase over time due to contractual annual rent escalations. Our estimates for initial stabilized yields, initial stabilized yields (cash basis), and total costs at completion represent our initial estimates at the commencement of the project. We expect to update this information upon completion of the project, or sooner if there are significant changes to the expected project yields or costs.
•Initial stabilized yield reflects rental income, including contractual rent escalations and any rent concessions over the term(s) of the lease(s), calculated on a straight-line basis.
•Initial stabilized yield (cash basis) reflects cash rents at the stabilization date after initial rental concessions, if any, have elapsed and our total cash investment in the property.
Investment-grade or publicly traded large cap tenants
Investment-grade or publicly traded large cap tenants represent tenants that are investment-grade rated or publicly traded companies with an average daily market capitalization greater than $10 billion for the twelve months ended December 31, 2022, as reported by Bloomberg Professional Services. Credit ratings from Moody’s Investors Service and S&P Global Ratings reflect credit ratings of the tenant’s parent entity, and there can be no assurance that a tenant’s parent entity will satisfy the tenant’s lease obligation upon such tenant’s default. We monitor the credit quality and related material changes of our tenants. Material changes that cause a tenant’s market capitalization to decrease below $10 billion, which are not immediately reflected in the twelve-month average, may result in their exclusion from this measure.
Investments in real estate - value-creation square footage currently in rental properties
The square footage presented in the table below includes RSF of buildings in operation as of December 31, 2022, primarily representing lease expirations or vacant space at recently acquired properties that also have inherent future development or redevelopment opportunities and for which we have the intent to demolish or redevelop the existing property upon expiration of the existing in-place leases and commencement of future construction:
Dev/Redev RSF of Lease Expirations Targeted for
Development and Redevelopment
Property/Submarket 2023 2024 Thereafter(1)
Total
Near-term projects:
100 Edwin H. Land Boulevard/Cambridge/Inner Suburbs Redev - 104,500 - 104,500
40 Sylvan Road/Route 128 Redev 312,845 - - 312,845
275 Grove Street/Route 128 Redev - - 160,251 160,251
840 Winter Street/Route 128 Redev 10,265 17,965 - 28,230
3301 Monte Villa Parkway/Bothell Redev - 50,552 - 50,552
323,110 173,017 160,251 656,378
Intermediate-term projects:
219 East 42nd Street/New York City Dev - 349,947 - 349,947
10975 and 10995 Torreyana Road/Torrey Pines Dev - 84,829 - 84,829
- 434,776 - 434,776
Future projects:
311 Arsenal Street/Cambridge/Inner Suburbs Redev - - 308,446 308,446
550 Arsenal Street/Cambridge/Inner Suburbs Dev - - 260,867 260,867
446 and 458 Arsenal Street/Cambridge/Inner Suburbs Dev - - 38,200 38,200
380 and 420 E Street/Seaport Innovation District Dev - - 195,506 195,506
Other/Greater Boston Redev - - 167,549 167,549
1122 and 1150 El Camino Real/South San Francisco Dev - - 655,172 655,172
3875 Fabian Way/Greater Stanford Dev - - 228,000 228,000
960 Industrial Road/Greater Stanford Dev - - 110,000 110,000
Campus Point by Alexandria/University Town Center Dev - 495,192 - 495,192
Sequence District by Alexandria/Sorrento Mesa Dev/Redev - - 688,034 688,034
4025 and 4045 Sorrento Valley Boulevard/Sorrento Valley Dev - - 22,886 22,886
601 Dexter Avenue North/Lake Union Dev 18,680 - - 18,680
830 4th Avenue South/SoDo Dev - - 42,380 42,380
Other/Seattle Dev - - 102,437 102,437
1020 Red River Street/Austin Redev - 126,034 - 126,034
18,680 621,226 2,819,477 3,459,383
341,790 1,229,019 2,979,728 4,550,537
(1)Includes vacant square footage as of December 31, 2022.
Joint venture financial information
We present components of balance sheet and operating results information related to our real estate joint ventures, which are not presented, or intended to be presented, in accordance with GAAP. We present the proportionate share of certain financial line items as follows: (i) for each real estate joint venture that we consolidate in our financial statements, which are controlled by us through contractual rights or majority voting rights, but of which we own less than 100%, we apply the noncontrolling interest economic ownership percentage to each financial item to arrive at the amount of such cumulative noncontrolling interest share of each component presented; and (ii) for each real estate joint venture that we do not control and do not consolidate, and are instead controlled jointly or by our joint venture partners through contractual rights or majority voting rights, we apply our economic ownership percentage to each financial item to arrive at our proportionate share of each component presented.
The components of balance sheet and operating results information related to our real estate joint ventures do not represent our legal claim to those items. For each entity that we do not wholly own, the joint venture agreement generally determines what equity holders can receive upon capital events, such as sales or refinancing, or in the event of a liquidation. Equity holders are normally entitled to their respective legal ownership of any residual cash from a joint venture only after all liabilities, priority distributions, and claims have been repaid or satisfied.
We believe that this information can help investors estimate the balance sheet and operating results information related to our partially owned entities. Presenting this information provides a perspective not immediately available from consolidated financial statements and one that can supplement an understanding of the joint venture assets, liabilities, revenues, and expenses included in our consolidated results.
The components of balance sheet and operating results information related to our real estate joint ventures are limited as an analytical tool as the overall economic ownership interest does not represent our legal claim to each of our joint ventures’ assets, liabilities, or results of operations. In addition, joint venture financial information may include financial information related to the unconsolidated real estate joint ventures that we do not control. We believe that in order to facilitate for investors a clear understanding of our operating results and our total assets and liabilities, joint venture financial information should be examined in conjunction with our consolidated statements of operations and balance sheets. Joint venture financial information should not be considered an alternative to our consolidated financial statements, which are presented and prepared in accordance with GAAP.
Mega campus
Mega campuses are cluster campuses that consist of approximately 1 million RSF or more, including operating, active development/redevelopment, and land RSF less operating RSF expected to be demolished. The following table reconciles our operating RSF as of December 31, 2022:
Operating RSF
Mega campus 28,554,356
Non-mega campus 13,219,366
Total 41,773,722
Mega campus RSF as a percentage of total operating property RSF 68 %
Net cash provided by operating activities after dividends
Net cash provided by operating activities after dividends includes the deduction for distributions to noncontrolling interests. For purposes of this calculation, changes in operating assets and liabilities are excluded as they represent timing differences.
Net debt and preferred stock to Adjusted EBITDA
Net debt and preferred stock to Adjusted EBITDA is a non-GAAP financial measure that we believe is useful to investors as a supplemental measure of evaluating our balance sheet leverage. Net debt and preferred stock is equal to the sum of total consolidated debt less cash, cash equivalents, and restricted cash, plus preferred stock outstanding as of the end of the period. Refer to the definition of “Adjusted EBITDA and Adjusted EBITDA margin” within this Item 7 in this annual report on Form 10-K for further information on the calculation of Adjusted EBITDA.
The following table reconciles debt to net debt and preferred stock and computes the ratio to Adjusted EBITDA as of December 31, 2022 and 2021 (dollars in thousands):
December 31,
2022 2021
Secured notes payable $ 59,045 $ 205,198
Unsecured senior notes payable 10,100,717 8,316,678
Unsecured senior line of credit and commercial paper - 269,990
Unamortized deferred financing costs 74,918 65,476
Cash and cash equivalents (825,193) (361,348)
Restricted cash (32,782) (53,879)
Preferred stock - -
Net debt and preferred stock $ 9,376,705 $ 8,442,115
Adjusted EBITDA:
- quarter annualized
$ 1,846,936 $ 1,631,244
- trailing 12 months $ 1,797,536 $ 1,517,838
Net debt and preferred stock to Adjusted EBITDA:
- quarter annualized 5.1 x 5.2 x
- trailing 12 months 5.2 x 5.6 x
Net operating income, net operating income (cash basis), and operating margin
The following table reconciles net income (loss) to net operating income and net operating income (cash basis) and computes operating margin for the years ended December 31, 2022, 2021, and 2020 (dollars in thousands):
Year Ended December 31,
2022 2021 2020
Net income $ 670,701 $ 654,282 $ 827,171
Equity in earnings of unconsolidated real estate joint ventures (645) (12,255) (8,148)
General and administrative expenses 177,278 151,461 133,341
Interest expense 94,203 142,165 171,609
Depreciation and amortization
1,002,146 821,061 698,104
Impairment of real estate 64,969 52,675 48,078
Loss on early extinguishment of debt 3,317 67,253 60,668
Gain on sales of real estate (537,918) (126,570) (154,089)
Investment loss (income) 331,758 (259,477) (421,321)
Net operating income 1,805,809 1,490,595 1,355,413
Straight-line rent revenue (118,003) (115,145) (96,676)
Amortization of acquired below-market leases (74,346) (54,780) (57,244)
Net operating income (cash basis) $ 1,613,460 $ 1,320,670 $ 1,201,493
Net operating income (from above) $ 1,805,809 $ 1,490,595 $ 1,355,413
Total revenues $ 2,588,962 $ 2,114,150 $ 1,885,637
Operating margin 70% 71% 72%
Net operating income is a non-GAAP financial measure calculated as net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, excluding equity in the earnings of our unconsolidated real estate joint ventures, general and administrative expenses, interest expense, depreciation and amortization, impairments of real estate, gains or losses on early extinguishment of debt, gains or losses on sales of real estate, and investment income or loss. We believe net operating income provides useful information to investors regarding our financial condition and results of operations because it primarily reflects those income and expense items that are incurred at the property level. Therefore, we believe net operating income is a useful measure for investors to evaluate the operating performance of our consolidated real estate assets. Net operating income on a cash basis is net operating income adjusted to exclude the effect of straight-line rent and amortization of acquired above- and below-market lease revenue adjustments required by GAAP. We believe that net operating income on a cash basis is helpful to investors as an additional measure of operating performance because it eliminates straight-line rent revenue and the amortization of acquired above- and below-market leases.
Furthermore, we believe net operating income is useful to investors as a performance measure of our consolidated properties because, when compared across periods, net operating income reflects trends in occupancy rates, rental rates, and operating costs, which provide a perspective not immediately apparent from net income or loss. Net operating income can be used to measure the initial stabilized yields of our properties by calculating net operating income generated by a property divided by our investment in the property. Net operating income excludes certain components from net income in order to provide results that are more closely related to the results of operations of our properties. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level rather than at the property level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort comparability of operating performance at the property level. Impairments of real estate have been excluded in deriving net operating income because we do not consider impairments of real estate to be property-level operating expenses. Impairments of real estate relate to changes in the values of our assets and do not reflect the current operating performance with respect to related revenues or expenses. Our impairments of real estate represent the write-down in the value of the assets to the estimated fair value less cost to sell. These impairments result from investing decisions or a deterioration in market conditions. We also exclude realized and unrealized investment gain or loss, which results from investment decisions that occur at the corporate level related to non-real estate investments in publicly traded companies and certain privately held entities. Therefore, we do not consider these activities to be an indication of operating performance of our real estate assets at the property level. Our calculation of net operating income also excludes charges incurred from changes in certain financing decisions, such as losses on early extinguishment of debt, as these charges often relate to corporate strategy. Property operating expenses included in determining net operating income primarily consist of costs that are related to our operating properties, such as utilities, repairs, and maintenance; rental expense related to ground leases; contracted services, such as janitorial, engineering, and landscaping; property taxes and insurance; and property-level salaries. General and administrative expenses consist primarily of accounting and corporate compensation, corporate insurance, professional fees, office rent, and office supplies that are incurred as part of corporate office management. We calculate operating margin as net operating income divided by total revenues.
We believe that in order to facilitate for investors a clear understanding of our operating results, net operating income should be examined in conjunction with net income or loss as presented in our consolidated statements of operations. Net operating income should not be considered as an alternative to net income or loss as an indication of our performance, nor as an alternative to cash flows as a measure of our liquidity or our ability to make distributions.
Operating statistics
We present certain operating statistics related to our properties, including number of properties, RSF, occupancy percentage, leasing activity, and contractual lease expirations as of the end of the period. We believe these measures are useful to investors because they facilitate an understanding of certain trends for our properties. We compute the number of properties, RSF, occupancy percentage, leasing activity, and contractual lease expirations at 100% for all properties in which we have an investment, including properties owned by our consolidated and unconsolidated real estate joint ventures. For operating metrics based on annual rental revenue, refer to the definition of “Annual rental revenue” in this “Non-GAAP measures and definitions” section.
Same property comparisons
As a result of changes within our total property portfolio during the comparative periods presented, including changes from assets acquired or sold, properties placed into development or redevelopment, and development or redevelopment properties recently placed into service, the consolidated total income from rentals, as well as rental operating expenses in our operating results, can show significant changes from period to period. In order to supplement an evaluation of our results of operations over a given quarterly or annual period, we analyze the operating performance for all consolidated properties that were fully operating for the entirety of the comparative periods presented, referred to as same properties. We separately present quarterly and year-to-date same property results to align with the interim financial information required by the SEC in our management’s discussion and analysis of our financial condition and results of operations. These same properties are analyzed separately from properties acquired subsequent to the first day in the earliest comparable quarterly or year-to-date period presented, properties that underwent development or redevelopment at any time during the comparative periods, unconsolidated real estate joint ventures, properties classified as held for sale, and corporate entities (legal entities performing general and administrative functions), which are excluded from same property results. Additionally, termination fees, if any, are excluded from the results of same properties. Refer to “Same properties” section within this Item 7 in this annual report on Form 10-K for additional information.
Stabilized occupancy date
The stabilized occupancy date represents the estimated date on which the project is expected to reach occupancy of 95% or greater.
Tenant recoveries
Tenant recoveries represent revenues comprising reimbursement of real estate taxes, insurance, utilities, repairs and maintenance, common area expenses, and other operating expenses and earned in the period during which the applicable expenses are incurred and the tenant’s obligation to reimburse us arises.
We classify rental revenues and tenant recoveries generated through the leasing of real estate assets within revenues in income from rentals in our consolidated statements of operations. We provide investors with a separate presentation of rental revenues and tenant recoveries in “Comparison of results for the year ended December 31, 2022 to the year ended December 31, 2021” in the “Results of operations” section within this Item 7 because we believe it promotes investors’ understanding of our operating results. We believe that the presentation of tenant recoveries is useful to investors as a supplemental measure of our ability to recover operating expenses under our triple net leases, including recoveries of utilities, repairs and maintenance, insurance, property taxes, common area expenses, and other operating expenses, and of our ability to mitigate the effect to net income for any significant variability to components of our operating expenses.
The following table reconciles income from rentals to tenant recoveries for the years ended December 31, 2022, 2021, and 2020 (in thousands):
Year Ended December 31,
2022 2021 2020
Income from rentals $ 2,576,040 $ 2,108,249 $ 1,878,208
Rental revenues (1,950,098) (1,618,592) (1,471,840)
Tenant recoveries $ 625,942 $ 489,657 $ 406,368
Total equity capitalization
Total equity capitalization is equal to the outstanding shares of common stock multiplied by the closing price on the last trading day at the end of each period presented.
Total market capitalization
Total market capitalization is equal to the sum of total equity capitalization and total debt.
Unencumbered net operating income as a percentage of total net operating income
Unencumbered net operating income as a percentage of total net operating income is a non-GAAP financial measure that we believe is useful to investors as a performance measure of the results of operations of our unencumbered real estate assets as it reflects those income and expense items that are incurred at the unencumbered property level. Unencumbered net operating income is derived from assets classified in continuing operations, which are not subject to any mortgage, deed of trust, lien, or other security interest, as of the period for which income is presented.
The following table summarizes unencumbered net operating income as a percentage of total net operating income for the years ended December 31, 2022, 2021, and 2020 (dollars in thousands):
Year Ended December 31,
2022 2021 2020
Unencumbered net operating income
$ 1,790,033 $ 1,444,307 $ 1,295,520
Encumbered net operating income
15,776 46,288 59,893
Total net operating income $ 1,805,809 $ 1,490,595 $ 1,355,413
Unencumbered net operating income as a percentage of total net operating income
99% 97% 96%
Weighted-average shares of common stock outstanding - diluted
From time to time, we enter into capital market transactions, including forward equity sales agreements (“Forward Agreements”), to fund acquisitions, to fund construction of our highly leased development and redevelopment projects, and for general working capital purposes. We are required to consider the potential dilutive effect of our Forward Agreements under the treasury stock method while the Forward Agreements are outstanding. As of December 31, 2022, we had Forward Agreements outstanding to sell an aggregate of 0.7 million shares of common stock. Refer to Note 15 - “Stockholders’ equity” to our consolidated financial statements under Item 15 in this annual report on Form 10-K for additional information.
The weighted-average shares of common stock outstanding used in calculating EPS - diluted, funds from operations per share - diluted, and funds from operations per share - diluted, as adjusted, for the years ended December 31, 2022, 2021, and 2020 are calculated as follows. Also shown are the weighted-average unvested shares associated with restricted stock awards used in calculating the amounts allocable to unvested stock award holders for each of the respective periods presented below (in thousands):
Year Ended December 31,
2022 2021 2020
Basic shares for earnings per share 161,659 146,921 126,106
Forward Agreements - 539 384
Diluted shares for earnings per share 161,659 147,460 126,490
Basic shares for funds from operations per share and funds from operations per share, as adjusted 161,659 146,921 126,106
Forward Agreements - 539 384
Diluted shares for funds from operations per share and funds from operations per share, as adjusted 161,659 147,460 126,490
Unvested restricted shares used in the allocation of net income, funds from operations, and funds from operations, as adjusted 1,723 1,782 1,728

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. 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 December 31, 2022, 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 December 31, 2022 and 2021 (in thousands):
December 31,
2022 2021
Annualized effect on future earnings due to variable-rate debt:
Rate increase of 1% $ (597) $ (527)
Rate decrease of 1% $ 597 $ 106
Effect on fair value of total consolidated debt:
Rate increase of 1% $ (668,639) $ (811,028)
Rate decrease of 1% $ 759,638 $ 944,392
These amounts are determined by considering the effect of the hypothetical interest rates on our borrowings as of December 31, 2022 and 2021, respectively. 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 December 31, 2022 and 2021 (in thousands):
December 31,
2022 2021
Equity price risk:
Fair value increase of 10% $ 161,507 $ 187,656
Fair value decrease of 10% $ (161,507) $ (187,656)
Foreign currency exchange rate risk
We have exposure to foreign currency exchange rate risk related to our subsidiaries operating in Canada and Asia. 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 December 31, 2022 and 2021 (in thousands):
December 31,
2022 2021
Effect on potential future earnings due to foreign currency exchange rate:
Rate increase of 10% $ 147 $ 120
Rate decrease of 10% $ (147) $ (120)
Effect on the fair value of net investment in foreign subsidiaries due to foreign currency exchange rate:
Rate increase of 10% $ 22,523 $ 18,790
Rate decrease of 10% $ (22,523) $ (18,790)
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 year ended December 31, 2022 was consistent with the risk elements presented above, including the effects of changes in interest rates, equity prices, and foreign currency exchange rates.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included as a separate section in this annual report on Form 10-K. Refer to “Item 15. Exhibits and financial statement schedules.”

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
As of December 31, 2022, 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 December 31, 2022.
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 December 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s annual report on internal control over financial reporting
The management of Alexandria Real Estate Equities, Inc. and its subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, and is a process designed by, or under the supervision of, the CEOs and the CFO and effected by the Company’s Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with the authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 and 2021. In making its assessment, management has utilized the criteria set forth in the 2013 framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (COSO 2013). Management concluded that based on its assessment, the Company’s internal control over financial reporting was effective as of December 31, 2022. The effectiveness of our internal control over financial reporting as of December 31, 2022, has been audited by Ernst & Young LLP, an independent registered accounting firm, as stated in its report, which is included herein.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Alexandria Real Estate Equities, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Alexandria Real Estate Equities, Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Alexandria Real Estate Equities, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and noncontrolling interests, and cash flows for each of the three years in the period ended December 31, 2022 and the related notes and financial statement schedule, and our report dated January 30, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying management’s annual report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Los Angeles, California
January 30, 2023

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this Item is incorporated herein by reference from our definitive proxy statement for our 2023 annual meeting of stockholders to be filed pursuant to Regulation 14A within 120 days after the end of our fiscal year (the “2023 Proxy Statement”) under the captions “Directors and Executive Officers” and “Corporate Governance Guidelines and Code of Ethics.”

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from our 2023 Proxy Statement under the caption “Executive Compensation.”

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information on the Company’s equity compensation plan as of December 31, 2022:
Equity Compensation Plan Information
Number of securities to be
issued upon exercise of
outstanding options,
warrants, and rights
(a) Weighted-average
exercise price of
outstanding options,
warrants, and rights
(b) Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
Equity Compensation Plan Approved by Stockholders - Amended and Restated 1997 Stock Award and Incentive Plan
- - 3,838,370
The other information required by this Item is incorporated herein by reference from our 2023 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.”

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference from our 2023 Proxy Statement under the captions “Certain Relationships and Related Transactions,” “Policies and Procedures with Respect to Related-Person Transactions,” and “Director Independence.”

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference from our 2023 Proxy Statement under the caption “Fees Billed by Independent Registered Public Accountants.”
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) and (2) Financial Statements and Financial Statement Schedule
The financial statements and financial statement schedule required by this Item are included as a separate section in this annual report on Form 10-K beginning on page.
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 00042)
Audited Consolidated Financial Statements of Alexandria Real Estate Equities, Inc.:
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Financial Statements for the Years Ended December 31, 2022, 2021, and 2020:
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity and Noncontrolling Interests
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Schedule III - Consolidated Financial Statement Schedule of Real Estate and Accumulated Depreciation
(a)(3) Exhibits
Exhibit
Number Exhibit Title Incorporated by Reference to: Date Filed
3.1* Articles of Amendment and Restatement of the Company
Form 10-Q August 14, 1997
3.2* Certificate of Correction of the Company
Form 10-Q August 14, 1997
3.3* Articles of Amendment of the Company, dated May 10, 2017
Form 8-K May 12, 2017
3.4* Articles of Amendment of the Company, dated May 18, 2022
Form 8-K May 19, 2022
3.5* Articles Supplementary, dated June 9, 1999, relating to the 9.50% Series A Cumulative Redeemable Preferred Stock
Form 10-Q August 13, 1999
3.6* Articles Supplementary, dated February 10, 2000, relating to the election to be subject to Subtitle 8 of Title 3 of the Maryland General Corporation Law
Form 8-K February 10, 2000
3.7* Articles Supplementary, dated February 10, 2000, relating to the Series A Junior Participating Preferred Stock
Form 8-K February 10, 2000
3.8* Articles Supplementary, dated January 18, 2002, relating to the 9.10% Series B Cumulative Redeemable Preferred Stock
Form 8-A January 18, 2002
3.9* Articles Supplementary, dated June 22, 2004, relating to the 8.375% Series C Cumulative Redeemable Preferred Stock
Form 8-A June 28, 2004
3.10* Articles Supplementary, dated March 25, 2008, relating to the 7.00% Series D Cumulative Convertible Preferred Stock
Form 8-K March 25, 2008
3.11* Articles Supplementary, dated March 12, 2012, relating to the 6.45% Series E Cumulative Redeemable Preferred Stock
Form 8-K March 14, 2012
3.12* Articles Supplementary, dated May 10, 2017, relating to Reclassified Preferred Stock
Form 8-K May 12, 2017
3.13* Amended and Restated Bylaws of the Company (Amended July 27, 2018)
Form 8-K August 2, 2018
4.1* Specimen certificate representing shares of common stock
Form 10-Q May 5, 2011
4.2* Indenture, dated as of February 29, 2012, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and the Bank of New York Mellon Trust Company, N.A., as Trustee
Form 8-K February 29, 2012
Exhibit
Number Exhibit Title Incorporated by Reference to: Date Filed
4.3* Supplemental Indenture No. 4, dated as of July 18, 2014, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and the Bank of New York Mellon Trust Company, N.A., as Trustee
Form 8-K July 18, 2014
4.4* Form of 4.500% Senior Note due 2029 (included in Exhibit 4.3 above)
Form 8-K July 18, 2014
4.5* Indenture, dated as of November 17, 2015, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Wilmington Trust, National Association, as Trustee
Form 8-K November 17, 2015
4.6* Supplemental Indenture No. 1, dated as of November 17, 2015, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Wilmington Trust, National Association, as Trustee
Form 8-K November 17, 2015
4.7* Form of 4.30% Senior Note due 2026 (included in Exhibit 4.6 above)
Form 8-K November 17, 2015
4.8* Supplemental Indenture No. 2, dated as of June 10, 2016, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Wilmington Trust, National Association, as Trustee
Form 8-K June 10, 2016
4.9* Form of 3.95% Senior Note due 2027 (included in Exhibit 4.8 above)
Form 8-K June 10, 2016
4.10* Indenture, dated as of March 3, 2017, among the Company, as Issuer Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K March 3, 2017
4.11* Supplemental Indenture No. 1, dated as of March 3, 2017, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K March 3, 2017
4.12* Form of 3.95% Senior Note due 2028 (included in Exhibit 4.11 above)
Form 8-K March 3, 2017
4.13* Supplemental Indenture No. 2, dated as of November 20, 2017, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K November 20, 2017
4.14* Form of 3.45% Senior Note due 2025 (included in Exhibit 4.13 above)
Form 8-K November 20, 2017
4.15* Supplemental Indenture No. 3, dated as of June 21, 2018, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K June 21, 2018
4.16* Supplemental Indenture No. 4, dated as of June 21, 2018, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K June 21, 2018
4.17* Form of 4.700% Senior Note Due 2030 (included in Exhibit 4.16 above)
Form 8-K June 21, 2018
4.18* Supplemental Indenture No. 5, dated as of March 21, 2019, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K March 21, 2019
4.19* Form of 3.800% Senior Note Due 2026 (included in Exhibit 4.18 above)
Form 8-K March 21, 2019
4.20* Supplemental Indenture No. 6, dated as of March 21, 2019, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K March 21, 2019
4.21* Form of 4.850% Senior Note Due 2049 (included in Exhibit 4.20 above)
Form 8-K March 21, 2019
4.22* Supplemental Indenture No. 8, dated as of July 15, 2019, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K July 15, 2019
4.23* Form of 3.375% Senior Note Due 2031 (included in Exhibit 4.22 above)
Form 8-K July 15, 2019
4.24* Supplemental Indenture No. 9, dated as of July 15, 2019, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K July 15, 2019
4.25* Supplemental Indenture No. 11 dated as of September 12, 2019, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K September 12, 2019
4.26* Form of 4.000% Senior Note Due 2050 (included in Exhibit 4.25 above)
Form 8-K July 15, 2019
Exhibit
Number Exhibit Title Incorporated by Reference to: Date Filed
4.27* Supplemental Indenture No. 10, dated as of September 12, 2019, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K September 12, 2019
4.28* Form of 2.750% Senior Note Due 2029 (included in Exhibit 4.27 above)
Form 8-K September 12, 2019
4.29* Supplemental Indenture No. 12, dated as of March 26, 2020, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Branch Banking and Trust Company, as Trustee
Form 8-K March 26, 2020
4.30* Form of 4.900% Senior Note due 2030 (included in Exhibit 4.29 above)
Form 8-K March 26, 2020
4.31* Supplemental Indenture No. 13, dated August 5, 2020, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Trust Bank, as Trustee
Form 8-K August 5, 2020
4.32* Form of 1.875% Senior Notes due 2033 (included in Exhibit 4.31 above)
Form 8-K August 5, 2020
4.33* Supplemental Indenture No. 14, dated February 18, 2021, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Trust Bank, as Trustee
Form 8-K February 18, 2021
4.34* Form of 2.000 % Senior Notes due 2032 (included in Exhibit 4.33 above)
Form 8-K February 18, 2021
4.35* Supplemental Indenture No. 15, dated February 18, 2021, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Trust Bank, as Trustee
Form 8-K February 18, 2021
4.36* Form of 3.000 % Senior Notes due 2051 (included in Exhibit 4.35 above)
Form 8-K February 18, 2021
4.37* Supplemental Indenture No. 16, dated February 16, 2022, among the Company, as Issuer, Alexandria Real Estate Equities, L.P. as Guarantor, and Truist Bank, as Trustee
Form 8-K February 16, 2022
4.38* Form of 2.950% Senior Notes due 2034 (included in Exhibit 4.37 above)
Form 8-K February 16, 2022
4.39* Supplemental Indenture No. 17, dated February 16, 2022, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and Truist Bank, as Trustee
Form 8-K February 16, 2022
4.40* Form of 3.550% Senior Notes due 2052 (included in Exhibit 4.39 above)
Form 8-K February 16, 2022
4.41 Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
N/A Filed herewith
10.1* Amended and Restated Credit Agreement, dated as of September 22, 2022, among the Company, as the Borrower, Alexandria Real Estate Equities, L.P., as a Guarantor, Citibank, N.A., as Administrative Agent, and the Other Lenders Party Thereto, Citibank, N.A., BofA Securities, Inc., JPMorgan Chase Bank, N.A., Goldman Sachs Bank USA, RBC Capital Markets, the Bank of Nova Scotia, Mizuho Bank, Ltd., Sumitomo Mitsui Banking Corporation, and U.S. Bank National Association, as Joint Lead Arrangers, Citibank, N.A., BofA Securities, Inc., JPMorgan Chase Bank, N.A., Goldman Sachs Bank USA, and RBC Capital Markets, as Joint Bookrunners, Bank of America, N.A., JPMorgan Chase Bank, N.A., Goldman Sachs Bank USA, and Royal Bank of Canada, as Co-Syndication Agents, and the Bank of Nova Scotia, Mizuho Bank, Ltd., Sumitomo Mitsui Banking Corporation, U.S. Bank National Association, Bank of the West, Barclays Bank PLC, Capital One, N.A., Banco Bilbao Vizcaya Argentaria, S.A. New York Branch, Fifth Third Bank, National Association, PNC Bank, National Association, Regions Bank, TD Bank, N.A., The Huntington National Bank, and Truist Bank, as Co-Documentation Agents, and Citibank, N.A., as Sustainability Structuring Agent
Form 10-Q October 24, 2022
10.2* (1) Amended and Restated 1997 Stock Award and Incentive Plan of the Company
Form 8-K May 19, 2022
10.3* (1) Form of Non-Employee Director Stock Option Agreement for use in connection with options issued pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan
Form S-11 May 5, 1997
10.4* (1) Form of Incentive Stock Option Agreement for use in connection with options issued pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan
Form S-11 May 5, 1997
10.5* (1) Form of Nonqualified Stock Option Agreement for use in connection with options issued pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan
Form S-11 May 5, 1997
Exhibit
Number Exhibit Title Incorporated by Reference to: Date Filed
10.6* (1) Form of Employee Restricted Stock Agreement for use in connection with shares of restricted stock issued to employees pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan
Form 10-K January 30, 2018
10.7* (1) Form of Employee Restricted Stock Agreement (U.S. Affiliate) for use in connection with shares of restricted stock issued to employees pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan
Form 10-K January 30, 2018
10.8* (1) Form of Independent Director Restricted Stock Agreement for use in connection with shares of restricted stock issued to directors pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan
Form 10-K January 30, 2018
10.9* (1) Form of Independent Contractor Restricted Stock Agreement for use in connection with shares of restricted stock issued to independent contractors pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan
Form 10-K January 30, 2018
10.10* (1) The Company’s 2000 Deferred Compensation Plan, amended and restated effective as of January 1, 2010
Form 10-K March 1, 2011
10.11* (1) The Company’s 2000 Deferred Compensation Plan for Directors, amended and restated effective as of January 1, 2010
Form 10-K March 1, 2011
10.12* (1) Amended and Restated Executive Employment Agreement, effective as of January 1, 2015, by and between the Company and Joel S. Marcus
Form 8-K April 7, 2015
10.13* (1) Letter Amendment to Amended and Restated Executive Employment Agreement, dated July 3, 2017, by and between the Company and Joel S. Marcus
Form 8-K July 3, 2017
10.14* (1) Letter Amendment to Amended and Restated Executive Employment Agreement, entered into on March 20, 2018, by and between the Company and Joel S. Marcus
Form 10-Q May 1, 2018
10.15* (1) Letter Amendment to Amended and Restated Executive Employment Agreement, dated January 15, 2019, by and between the Company and Joel S. Marcus
Form 8-K January 18, 2019
10.16* (1) Letter Amendment to Amended and Restated Executive Employment Agreement, dated June 8, 2020, by and between the Company and Joel S. Marcus
Form 10-Q July 27, 2020
10.17* (1) Fifth Amended and Restated Executive Employment Agreement between the Company and Stephen A. Richardson, entered into on March 20, 2018 and effective as of April 23, 2018
Form 10-Q May 1, 2018
10.18* (1) Third Amended and Restated Executive Employment Agreement between the Company and Peter M. Moglia, entered into on May 22, 2018 and effective as of May 22, 2018
Form 10-Q July 31, 2018
10.19* (1) Fourth Amended and Restated Executive Employment Agreement between the Company and Dean A. Shigenaga, entered into on March 20, 2018 and effective as of April 23, 2018
Form 10-Q May 1, 2018
10.20* (1) Executive Employment Agreement between the Company and Daniel J. Ryan, entered into on May 22, 2018 and effective as of May 22, 2018
Form 10-Q July 31, 2018
10.21* (1) Second Amended and Restated Executive Employment Agreement between the Company and John H. Cunningham, entered into on July 5, 2017 and effective as of July 5, 2017
Form 10-K February 1, 2021
10.22* (1) Second Amended and Restated Executive Employment Agreement between the Company and Vincent R. Ciruzzi, Jr., entered into on October 1, 2015 and effective as of October 1, 2015
Form 10-K February 1, 2021
10.23* (1) Executive Employment Agreement between the Company and Hunter Kass, entered into on January 1, 2021 and effective as of January 1, 2021
Form 10-K January 31, 2022
10.24* (1) Amended and Restated Consulting Agreement, dated as of September 30, 2011, between the Company and James H. Richardson
Form 10-Q November 9, 2011
10.25 (1) Summary of Director Compensation Arrangements
N/A Filed herewith
10.26* (1) Anniversary Bonus Plan of the Company
Form 8-K June 17, 2010
Exhibit
Number Exhibit Title Incorporated by Reference to: Date Filed
10.27* (1) Form of Indemnification Agreement between the Company and each of its directors and officers
Form 10-K March 1, 2011
14.1 The Company’s Business Integrity Policy and Procedures for Reporting Non-Compliance (code of ethics pursuant to Item 406 of Regulation S-K)
N/A Filed herewith
21.1 List of Subsidiaries of the Company
N/A Filed herewith
22.1 List of Guarantor Subsidiaries of the Company
N/A Filed herewith
23.1 Consent of Ernst & Young LLP
N/A Filed herewith
31.1 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
N/A Filed herewith
31.2 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
N/A Filed herewith
31.3 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
N/A Filed herewith
32.0 Certification of Principal Executive Officers and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
N/A Filed herewith
101.1 The following materials from the Company’s annual report on Form 10-K for the year ended December 31, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2022 and 2021, (ii) Consolidated Statements of Operations for the years ended December 31, 2022, 2021, and 2020, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021, and 2020, (iv) Consolidated Statements of Changes in Stockholders’ Equity and Noncontrolling Interests for the years ended December 31, 2022, 2021, and 2020, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020, (vi) Notes to Consolidated Financial Statements, and (vii) Schedule III - Consolidated Financial Statement Schedule of Real Estate and Accumulated Depreciation of the Company. N/A Filed herewith
104 Cover Page Interactive Data File (embedded within the Inline XBRL document) N/A Filed herewith
(*) Incorporated by reference.
(1) Management contract or compensatory arrangement.