Alexandria Real Estate Equities, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, and good afternoon, everyone.

This conference call contains forward-looking statements within the meaning of the federal 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. Now I'd like to turn the call over to Joel Marcus, Executive Chairman and Founder.

Please go ahead, Joel. Thank you, Paula, 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 U.S. and around the world. 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. With that, I'd like to highlight a couple of key thoughts before turning it over to Marc 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. 74% 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 off that cap helped drive institutional demand and 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 megacampuses 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 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 Marc will have a lot to say about that.

We had very successful, very solid progress in the third quarter and through this earnings call, including the hybrid notes raising $1 billion in a very unique and very timely REIT debut for this instrument. 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 core megacampus. Our ownership will grow back over 50% as we fund our Novartis build to suit. On the Bristol Myers space that's coming back to us on that campus, about 250,000-plus 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 5.6x-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. Then I'd like to refer everybody to pages XV and XVI of the supplement, showing our very significant progress in reducing CapEx 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 good, and our ARR from non-core assets versus a percentage of total ARR overall, especially from the megacampuses, continuing to decline. On the path forward, which we'll have more to say, at our December 2 investor day, we'll talk about 2027 and beyond. In the interim, we're laser focused on many items, but including, most importantly, moving lease 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 re-leasing 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.

Finally, execution of our capital plan to ensure we continue to achieve our leverage targets. With that, let me turn it over to Marc for a highlight of the third quarter.

Marc? Thank you, Joel. This is Marc Binda.

Good afternoon, everyone. Congratulations to the entire Alexandria team for continued solid execution during the quarter, including the 5 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 non-core assets completed, a $475 million JV 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 at 1.2 million square feet, which was the highest total volume in the last 7 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 NOI 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. Fifth, we continue to manage G&A expenses prudently as our G&A expenses as a percentage of NOI are almost half the S&P 500 REIT average.