Alexandria Real Estate Equities' New Debt Issue: Cheap To Peers

Feb.23.12 | About: Alexandria Real (ARE)

Alexandria Real Estate Equities (NYSE:ARE) did $550MM of a 10-year senior unsecured deal today which priced at +260/10-year or approximately 4.62%. This is the first offering of senior unsecured debt by ARE as they have previously utilized term loans. Here are the details of the offering (ARE 2022 Prospectus):

Issuer: Alexandria Real Estate Equities, Inc.
Guarantor: Alexandria Real Estate Equities, L.P.
Issue: Senior Unsecured Notes
Ratings: Baa2/BBB- (Stable/Stable)
Maturity: 10yr (04/01/2022)
Settle: T + 5 (2/29/2012)

Opt redemp: MWC (MW+40) / par call 3 month prior to maturity
UOP: To prepay the outstanding principal balance of $250mm (as of February 22, 2012) on the company's unsecured term loan due Oct-2012, and to reduce the outstanding balance of the company's borrowings on its unsecured line of credit.

Covenants:

  • Total debt/total assets <60%
  • Secured debt/total assets <40%
  • Int. Coverage >1.5x
  • Unencumbered assets/unsecured debt >150% (Excludes JVs

Covenants are traditional REIT covenants and the unencumbered assets exclude JVs (which is a better form of covenant).

As I write this, the debt was trading +253/249 - a decent first day tightening. I would expect the issue to tighten another five bps or so before coming to rest about 20bps wide to Ventas (Baa2/BBB).

Some comps for the issue:
Ventas (NYSE:VTR) 4.25% 3/1/22 trade at about +230 (according to FINRA Trace)
HCP (NYSE:HCP) 5.375% 21s (Baa2/BBB) trade at 210/205 (Trace)

Trade thoughts:

I would be a buyer of this debt at +250 or even a couple tighter - should it grind much tighter, I would sell into Ventas. I would also swap out of HCP into this deal or Ventas.

Credit/Covenant metrics:
Net debt to Adjusted EBITDA: 7.1x
Interest coverage ratio: 3.4x
Net debt to Gross Assets at end of period: 37%

A snapshot of the debt structure (Click to enlarge):

Click to enlarge

The company:

Alexandria Real Estate Equities is the largest REIT focused principally on cluster development through the ownership, operation, management, selective redevelopment, development and acquisition of properties containing life science laboratory space. Alexandria is the leading provider of high-quality, environmentally sustainable real estate, technical infrastructure, and services to the broad and diverse life science industry. Client tenants include institutional (universities and independent not-for-profit institutions), pharmaceutical, biotechnology, medical device, product, service, and translational entities, as well as government agencies. Alexandria's operating platform is based on the principle of "clustering," with assets and operations located in key life science markets.

Some stats:

  • Occupancy of operating properties at approximately 94.9%, and occupancy of operating and redevelopment properties at approximately 88.5% as of December 31, 2011;
  • Approximately 95% of the leases (on a rentable square footage basis) were triple net leases;
  • ARE's 173 properties aggregating approximately 15.3 million rentable square feet, composed of approximately 13.6 million rentable square feet of operating properties, approximately 818,020 rentable square feet undergoing active development, and approximately 919,857 rentable square feet undergoing active redevelopment.

More inf here: ARE DEC 2011 Supp.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.