Alexandria Real Estate Reports Q3 FFO of $1.54 Per Share

Alexandria Real Estate (NYSE: ARE ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Alexandria Real Estate reported a strong third quarter, with leasing of over 1.2 million square feet, a weighted average lease term of about 11 years and notable success in filling vacant spaces. The company raised $1.7 billion in capital since June 30, including a $1 billion junior subordinated notes offering and a $475 million joint venture at Campus Point. Occupancy ended at 87.1%, with expected increases through 2027 due to 1.3 million square feet of leases set to commence in mid-2027. The company achieved FFO per share diluted as adjusted of $1.54 and reaffirmed its 2026 guidance, tightening the range to plus or minus $0.02.

Focus remains on transitioning leased spaces to operations, reducing non-core assets and executing capital plans to meet leverage targets. Advanced technology companies are increasingly becoming tenants, drawn by Alexandria's mega campuses and infrastructure. Management expects temporary occupancy pressure in early 2027 but anticipates improvement by 2028, with a focus on reduced capital needs and strategic leasing. Full Transcript OPERATOR Good day everyone and welcome to the Alexandria Real Estate third quarter 2026 conference call.

All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one.

Using a touchtone telephone, to withdraw your question, you may press star and then two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Paula Schwartz with Investor Relations. Please go ahead.

Paula Schwartz (Investor Relations) Thank you and good afternoon everyone. This conference call contains forward-looking statements within the meaning of the federal securities laws. The company's actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause results to differ materially from those in the forward-looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission.

And now I'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel. Joel Marcus (Executive Chairman and Founder) Thank you, Paul, and good day everybody, and welcome to Alexandria's third quarter earnings call. First of all, I want to thank each and every member, individually and collectively, of the Alexandria team for a very solid third quarter 2026.

As a family team, we've impacted the lives of countless patients here in the United States and around the world. And thank you for your commitment to the life science sector through real estate venture capital that has really transformed the impact on the growth and success of this amazing industry. And with that, I'd like to highlight a couple of key thoughts before turning it over to Mark Binda, our Chief Financial Officer, to recap the quarter. First of all, under the category of demand and leasing, we had a solid third quarter leasing over 1.2 million square feet.

Notably, we had a weighted average lease term of about 11 years, which is pretty great. And we had the second highest filling of vacant space in the company's history. Seventy-four percent of our leasing was existing tenants. We do have the largest life science tenant base in the industry, and it was quite well balanced except for public biotech.

But we expect that to contribute importantly to fourth quarter projected leasing of about 1.25 million square feet. Helpful was the defeat of the cap on indirect costs, an issue that we have talked about many times. And that circuit court essentially beating back that cap helped drive institutional demand in leasing this quarter. One interesting indicator: People always wonder about the potential for public biotech health; rather than the XBI, I think people should look at what's called the BBC ETF, about 129 stocks, 93% of which are clinical stage, which I think reflect the public biotech sector probably more realistically.

Clinical-stage biotech valuations still remain well below historical averages. There's been a good contribution this quarter from advanced technology companies, as they're very attracted to our mega campuses for their recruitment and retention as well as our wonderful infrastructure that is quite well suited to their businesses. For 2027, we have, I think, a very strong 60 plus percent of the 1.37 million square feet of lease rolls with expected downtime; we're engaged with specific tenants, and that's very good at this stage. Moving on to the capital plan, and Mark will have a lot to say about that.

We had very successful or very solid progress in the third quarter and through this earnings call, including the hybrid notes, raising a billion dollars in a very unique and very timely REIT debut for this instrument. And it's useful to note that over $160 billion of hybrid notes in the U.S. trade and get 50% equity credit from the rating agencies. We just recently closed a $475 million joint venture at Campus Point.

With our continuing control of that quarter or mega campus, our ownership will grow back over 50% as we fund our Novartis build-to-suit. And on the Bristol Myers space that's coming back to us on that campus, about 250 plus thousand square feet rolling next year, 2027, I'm pleased to say we're in advanced negotiations and expect to resolve on very favorable terms almost 200,000 square feet of that. Moving on to the balance sheet and leverage. Importantly, we expect to hit our year-end guidance of 5.6 to 6.2x.

We closed and extended our $5 billion credit line. We have the longest weighted average remaining debt term of all S&P 500 REITs at over 11 and a half years. We have just $350 million of debt maturities next year. And then I'd like to refer everybody to pages X and XVI of the supplement showing our very significant progress in reducing cap interest as we transition from a decade life science bull run and COVID rocket ship era when our leasing went up 4x overnight, and that was led by historic development growth.

That transition is never simple and takes a fair amount of time, but we're well into it. Significant reductions are also noted on those pages in non-income-producing assets as a percentage of gross assets, which is very, very good. And our ARR from non-core assets versus a percentage of total ARR overall, especially from the mega campuses, continuing decline on the path forward, which we'll have more to say at our December 2nd investor day. We'll talk about 2027 and beyond.

In the interim, we're laser focused on many items, but including most importantly moving leased vacant space into operations as rapidly as possible, leasing currently vacant space, future rollovers and development/redevelopment space as rapidly as possible, and focusing our capex on releasing with the path to NOI. We're also heavily focused on continuing dispositions of land and non-core assets, especially focused on those without a reasonable path to NOI, and we've certainly culled our asset base considerably at this point. And then finally, execution of our capital plan to ensure we continue to achieve our leverage targets.

And with that, let me turn it over to Mark for a highlight of this third quarter. Mark, thank you. Mark Binda (Chief Financial Officer) This is Mark Binda. Good afternoon everyone.

Congratulations to the entire Alexandria Real Estate team for continued solid execution during the quarter, including the five key accomplishments. First, great progress on the funding plan with 1.7 billion of capital completed since June 30, including 234 million of dispositions of land and Encore assets, a 475 million joint venture completed in October, and 1 billion of junior subordinated notes which received 50% equity credit from key rating agencies.

Second, completed and pending dispositions and sales of partial interest aggregate 2.6 billion and exceed the midpoint of our 1.9 billion target by 720 million, which gives us the opportunity to defer some proceeds into 2027. Third, we had solid leasing volume for the quarter of 1.2 million square feet, which was the highest total volume in the last seven quarters and included 451,000 square feet of leasing from previously vacant space, which was the second largest quarterly total in company history.

Fourth, we continue to monetize the pipeline through deliveries of development and redevelopment space of 529,000 square feet during the quarter, providing 40 million of incremental annual net operating income and through successful resolution of projects under evaluation, including 421 Park which is under contract to sell, and our 311 Arsenal project which has around half of the building leased or under negotiation, primarily with advanced technology tenants. And fifth, we continue to manage general and administrative expenses prudently as our G&A expenses as a percentage of net operating income are almost half the S&P 500 REIT average.

FFO per share diluted as adjusted was $1.54 for 3Q26 and we reaffirmed the midpoint of our guidance for 2026 FFO per share diluted as adjusted at $6.40 while tightening the range to plus or minus $0.02. Leasing volume for the quarter was solid at 1,236,000 square feet and represented the largest total volume in the last seven quarters. Five key items to highlight on leasing activity: first, leasing of previously vacant space of 451,000 square feet was up significantly over the last several quarters and represented the second largest quarterly amount in company history.

Second, leasing with public biotech remained muted, representing only 1.1% of total leasing volume for the quarter and remains a future potential catalyst. And third, we expect continued positive leasing momentum into the fourth quarter with an early estimate of 1.25 million square feet. Fourth, we continue to outperform the broader markets on leasing for our three largest markets. Our share of the leasing represented 1.7 times our total share of the lab market over the last four quarters, driven by our high-quality assets, Mega Campus model, operational excellence, and brand.

And fifth, with respect to life science tenants in the market, after two consecutive quarters of high growth, we observed a modest 5% decline in the list of total tenants in the market. Across all our markets, Greater Boston and San Francisco had moderate gains and San Diego had a moderate decline. Declines are typically caused by the demand converting to leases without an equal number of new tenants to backfill the list. Initial free rent concessions remained elevated at two months per year of term for the trailing 12 months ended 3Q26, driven by one large non-life-science lease signed in Research Triangle.

Excluding this lease, free rent concessions would have been significantly lower at 1.1 months per annum. Tenant improvements and leasing commissions on renewed and releasing space were modest during the quarter. In fact, as a percentage of total rent they were 7.4%, which is the lowest percentage over the last 10 quarters. Occupancy at the end of 3Q26 was 87.1%, up 20 basis points from the prior quarter and in line with our guidance for year-end 2026 occupancy, which remained unchanged.

We continue to significantly outperform on occupancy in our largest three markets, ranging from 6% to 12% higher than those broader markets. Bolstered by solid new leasing during the past few quarters, we have leases aggregating 1.3 million square feet which will add 3.7% to occupancy over time and are expected to commence in June 2027 on average, with expected annual rental revenue of 52 million. We did not make any changes to our guidance for occupancy, rental rate changes on lease renewals or releasing of space, or same-property performance. Same-property net operating income was down 6.7% and 2.8% on a cash basis for the quarter.

The overall decline for 3Q26 same-property performance was primarily driven by lower occupancy in 2026. The recent quarter represented an improvement compared to the prior quarter performance of 3.9% and 5.8% on a cash basis, primarily related to slightly better occupancy dynamics in the comparative same-property pool and changes to the same-property pool driven by certain properties that were designated as held for sale during the quarter.

Despite current challenges in the life science real estate market, we continue to benefit from a high-quality tenant base with 57% of our annual rental revenue coming from investment grade or publicly traded large-cap tenants, long remaining lease terms of 7.7 years, average rent steps approaching 3% on 97% of our leases, and strong adjusted EBITDA margins of 65% for the quarter. We continue to focus on the successful reduction and management of general and administrative expenses.

We remain on track with our guidance range of 134 to 154 million for 2026 and our trailing twelve-month G&A as a percentage of net operating income through 3Q26 of 7.5% is almost half of the average for all S&P 500 REITs over the last few years of 14.3%. Realized gains included in FFO per share diluted as adjusted from our venture investments were 16 million for 3Q26 and 44.5 million for the first three quarters of 2026. We lowered our guidance range for realized investment gains by 10 million at the midpoint from 75 million to 65 million due to certain transactions being pushed out into 2027.

We expect average real estate basis capitalized to reach a bottom for 2026 in the fourth quarter ranging from 3.4 billion to 4.9 billion, which is a 40% to 60% decline from the basis that was capitalized for all of 2025. This is generally consistent with the significant 40% reduction in non-income-producing assets as a percentage of gross assets which has declined from 20% at the end of 2024 to 12% as of 3Q26. Capitalized interest for 3Q26 was 62.9 million, down 11 million from the prior quarter, primarily driven by significant deliveries from the pipeline coupled with redevelopment projects that reached milestones and were paused.

We expect a further decline in capitalized interest in the fourth quarter driven by two large projects designated as held for sale at September 30, coupled with significant deliveries from the pipeline in 3Q26, including the 199,000 square foot delivery to Novo Nordisk for its R&D Center at 60 Sylvan on our Waltham Mega Campus. We continue to execute and favorably resolve our development and redevelopment pipeline. From 4Q25 to 3Q26, the pipeline has shrunk by more than 50% from 3.6 million square feet to 1.6 million square feet. This included three major accomplishments during 3Q26, including the following.

First, we delivered 529,000 square feet of development and redevelopment space. It was 84% occupied and will generate 40 million of annual net operating income. Second, we entered into a contract to sell most of our remaining investment in our development project at 421 Park Drive in the Fenway with a 4Q26 anticipated closing date.

And third, with respect to our 311 Arsenal Street project in Watertown, we've executed leases of 67,000 square feet and 101,000 square feet of leases are under negotiation, primarily with advanced technology tenants, which has allowed us to pivot to a lower-cost advanced technology execution and will reduce future construction needs by approximately 220 million over the next few years. As of 3Q26, we have 906,000 square feet of development and redevelopment projects under construction and expected to stabilize through 2028, which are 77% leased or negotiating.

In addition, we have 667,000 square feet primarily related to two projects for which we are evaluating the business and financial strategy. The first is 40 Sylvan Road, which is located in our Waltham Mega Campus. We continue to believe this project will be attractive to advanced technology tenants that may find the campus as well as certain elements of the building attractive and may not require a conversion to lab. The second is 3000 Van Road which is located in our Andover Mega Campus.

The campus is very attractive to advanced technology tenants as evidenced by the 160,000 square foot lease we executed for an adjacent building on this campus in 2Q26. If we complete significant advanced technology leases, we may place all or some of these spaces into the operating pool which may reduce operating occupancy in the near term but more importantly will reduce our future capital needs and generate near-term revenue upon delivery. We continue to make very good progress in raising capital with 1.7 billion completed since June 30 including the 1 billion junior subordinated notes offering completed in August.

The 7.25% junior subordinated notes offering had several important benefits including the following four key features. First, the rating agencies ascribed 50% equity credit to the notes which will help us achieve our 2026 leverage goal. Second, it provided an implied cost of equity capital superior to the cost of issuing common equity as well as non-core stabilized operating asset sales. Third, it reduces our 2026 target for asset sales and near-term reliance on joint ventures.

And fourth, it represents a fixed cost of capital for at least five years with significant flexibility to refinance thereafter. We are highly focused on and expect to meet our 1.9 billion midpoint for dispositions and sales of partial interest.