When we founded the life science real estate business more than two decades ago, we started with a vision: to create and build space to meet the unique real estate needs of the growing life science community.
In the ten years since our initial public offering, the real estate solutions we have provided to our commercial and academic tenants and partners have supported groundbreaking science. Operating at the intersection of health care and innovation, we have created stockholder value through our leasing, new developments and strategic investments. And with the systematic, steady execution of our business model, we delivered another year of outstanding results in 2014.
Like the leading life science organizations we serve, we are always looking ahead. Our future is defined by three enduring fundamentals of the human condition: the never ending desire for longer and healthier lives, our constant quest for knowledge and information, and the endless frontier of innovation. These demand drivers underlie the growth and strength of the life sciences and health care, and we couldn’t be better positioned to be the real estate provider for these industries.
Healthy Industry Demand
Life science and health care are leading economic drivers of our domestic and global economies. The life science industry continued to outperform the broader economy in 2014, with the AMEX Biotech index rising 48% and surpassing the broader S&P 500 index, which increased 11%.
Last year life science companies received 41 new drug approvals from the U.S. Food and Drug Administration and raised a record $112 billion, including 106 IPOs in the U.S. that raised more than $9 billion for future research and development. Among last year’s IPOs were BioMed Realty tenants Ardelyx, Argos Therapeutics, CareDx, GlycoMimetics, Ignyta, Juno Therapeutics and Revance Therapeutics.
As a result, our business continues to benefit from the virtuous cycle: constant innovation, which enables our tenants to raise capital, which in turn allows them to grow and lease more space. All of these positive trends continue to point toward growing demand for life science real estate. By investing in core innovation districts throughout the U.S. and U.K., we are serving this dynamic industry by providing the best laboratory and office space to advance transformational research, which brings treatments and hope to patients around the world.
Our tenants are at the center of life science innovation, enabling us to continue delivering exceptional results year after year. With more than 300 tenant relationships, our portfolio of over 17.5 million square feet includes an operating portfolio which was 91.6% leased at year-end 2014. In 2014 we executed 203 leasing transactions representing approximately 2.8 million square feet. With our highest leasing volume in the company’s history, we drove positive net absorption for the year, including pre-leasing, of approximately 579,100 square feet. As of December 31, 2014, we had over $685 million in active construction projects that were more than 85% pre-leased.
We are focusing our capital on higher-growth opportunities by leveraging both our investment acumen and development capabilities. For example, in December 2014 we completed the strategic asset disposition of a fully-leased biological manufacturing facility in Rockville, Maryland, for approximately $322.5 million in gross proceeds. With this largest disposition ever in our history, we were able to realize a $136.0 million gain on the sale, deliver an immediate return to stockholders in the form of a special dividend of $0.30 per share, pay down our line of credit and position ourselves to reinvest the proceeds in higher-growth opportunities.
And we continue to grow our portfolio and our development pipeline. Last year we invested in nearly 1.4 million square feet of Class A facilities leased to world-renowned research organizations in irreplaceable locations. Highlights for 2014 include:
- Starting the development of 283,000 square feet in the Wake Forest Innovation Quarter in Winston-Salem, North Carolina, which is approximately 60% pre-leased to the Wake Forest School of Medicine;
- Committing approximately $308 million in two properties totaling one million square feet in New Haven, Connecticut, anchored by long-term leases with Yale University, the Yale-New Haven Hospital and Alexion Pharmaceuticals; and
- Starting a build-to-suit development that is 100% pre-leased to Takeda Pharmaceuticals in the Cambridge Science Park, our latest project in the United Kingdom.
Immediately after year end, we continued to execute on our growth strategy by:
- Expanding our footprint in the South Lake Union innovation district in Seattle with the $89.7 million acquisition of our 307 Westlake Avenue North building; and
- Breaking ground on i3, a 316,000 square foot campus in the University Towne Centre innovation district in San Diego and designed for LEED® Platinum certification, giving us first mover advantage in this supply-constrained market.
Altogether, our active new construction program now totals eight projects representing two million square feet of space. Beyond that, we have embedded growth opportunities with a land bank of over 6.7 million square feet of development potential – typically adjacent to existing properties in our portfolio, and all located in the best markets for life science research and development.
Our operational expertise – spanning superior leasing, strategic investments, selective dispositions and well-located new development projects – allows us to execute on our growth strategy to achieve long-term stockholder returns. In 2014 we once again achieved strong topline performance.
Driven by our continued leasing success, record rental revenues were up 8.9% over last year. Net income available to stockholders grew to almost $194 million, or $0.98 per diluted share, including the gain from the strategic asset sale in Rockville, Maryland, and core funds from operations (CFFO) per diluted share was $1.57, an increase of 5.4% over 2013. With our strategic investments, gross assets grew to $7.1 billion at the end of 2014, compared to $6.8 billion at the end of 2013. And, in addition to the special dividend of $0.30 per share paid in December, we increased our regular quarterly dividend by 4% to $0.26 per share in the fourth quarter of 2014, or $1.04 on an annualized basis.
Our credit profile at year-end remained solid and secure, with ample access to a wide variety of capital and plenty of liquidity to fund future growth opportunities in 2015, which earned us an upgrade on our investment grade corporate credit rating from Standard & Poor’s Ratings Services to BBB. Our three primary credit and liquidity metrics remained well within our target ranges. Fixed charge coverage was 4.8 times, debt-to-total gross assets came down to 38.1%, and net-debt-to-adjusted EBITDA was 6.5 times. We finished the year with $816 million of capacity on our unsecured line of credit. And in January 2015, we converted the remaining $95.7 million of our exchangeable notes into common equity.
Our superior financial results continue to reflect our team’s success in expertly executing our proven business strategy of investing in the life science industry’s core innovation districts, as well as our ability to create, develop and enhance value for the long-term.
With the dedication of our people and the depth of our leadership team, we are well positioned to continue our growth and increase stockholder value. In February 2015, we announced a realignment to leverage the depth of our life science real estate expertise and increase stockholder value.
We strengthened our executive bench with the addition of John Bonanno, who was promoted to Executive Vice President of Leasing & Development, and Jim Berens, President of our wholly-owned subsidiary Wexford Science + Technology, to our executive leadership team, which also includes me, Gary Kreitzer, co-founder and Executive Vice President, Greg Lubushkin, Chief Financial Officer, Karen Sztraicher, Executive Vice President of Asset Management, and Jon Klassen, Executive Vice President and General Counsel.
Today, along with our entire BioMed Realty team of over 240 professionals, I have never been more excited about our company and our opportunity to provide unique real estate solutions at the intersection of the growing health care industry and innovation sector.
In closing, we see significant opportunity ahead for BioMed Realty. Our business outlook for 2015 and beyond remains as bright as ever because of our team’s proven ability to deliver unmatched expertise to our tenants and superior returns at the corporate and asset level. We look forward to continuing to harvest value and seizing the opportunity ahead for the benefit of our tenants and stockholders alike.
Alan D. Gold
Chairman, President and Chief Executive Officer
Executive Leadership Team:
Alan D. Gold
Chairman, President and Chief Executive Officer
Executive Vice President
Chief Financial Officer
Executive Vice President of Asset Management
Executive Vice President and General Counsel
Executive Vice President of Leasing & Development
President, Wexford Science + Technology