Alexandria Real Estate Equities Q1 Earnings Call Highlights

Key Points

• Alexandria reported Q1 FFO per share (diluted, adjusted) of $1.73 and reaffirmed its full-year 2026 FFO midpoint at $6.40, citing $7.4 million in G&A savings and a $366 million gain from an unsecured bond tender.
• Occupancy fell to 87.7% (down 320 basis points) and same-property NOI declined about 11.9% as leasing slowed to 647,000 sq ft with zero public-biotech leases this quarter; management said early activity points toward roughly 900,000 sq ft in Q2 (not formal guidance).
• Management reiterated a 2026 disposition and partial-interest sales midpoint of $2.9 billion (about 80% identified or pending), noted 1.9 million sq ft under construction at 77% leased, and is evaluating 1.6 million sq ft of projects that could pivot to lower-capital "advanced technology" uses.

Alexandria Real Estate Equities NYSE: ARE executives described a “very tough operating environment” for life science real estate in the first quarter, while emphasizing progress on the company’s “path forward” strategy that focuses on balance sheet flexibility, capital recycling, reduced spending, and improving occupancy through leasing.

Macro backdrop: capital markets, NIH/FDA uncertainty, and AI

Executive Chairman and Founder Joel S. Marcus opened the call by framing the life science industry as reliant on “four key pillars,” including research funding, capital markets, regulatory efficiency, and reimbursement. He pointed to continued bipartisan support for NIH funding and called the defeat of a proposed 15% limitation on reimbursement of institutional indirect costs “a great victory” for the industry. At the same time, Marcus cited “leadership challenges” at NIH, HHS, and the FDA, describing FDA progress as “sluggish” and a meaningful source of uncertainty for funding and development timelines.

On capital markets, Marcus said private funding has been “very solid, but deliberate and discriminating,” while public markets have been open mainly for companies with “good data and key milestones,” leaving many public biotechs in preclinical or clinical stages facing “a very tough slog.” He also cited the “China effect,” saying capital has flowed to China due to perceived speed and cost advantages, though he suggested that could face regulatory scrutiny when bringing products back to the U.S.

Management also addressed investor questions about artificial intelligence. Marcus said “push-button drug discovery is overhyped” and that AI can support—but not replace—physical experimentation given the complexity of biology. EVP and Co-Lead – Life Science Jenna Foger said Alexandria is “really not seeing material changes from AI…in terms of tenant demand” or lab/office ratios, adding that AI’s near-term impact on real estate needs “remains neutral,” with potential for increased lab requirements if AI enables more experiments to be run.

First-quarter results and guidance

Chief Financial Officer Marc Binda reported first-quarter 2026 FFO per share diluted as adjusted of $1.73. Alexandria reaffirmed the midpoint of full-year 2026 FFO per share diluted as adjusted guidance at $6.40, while tightening the range.

Binda highlighted several operational and financial items during the quarter, including:

• Development and redevelopment leasing momentum with executed leases and letters of intent totaling 394,000 square feet.
• Leasing of 1.1 million square feet of currently vacant space that is expected to be delivered in September on a weighted average basis.
• General and administrative expense savings of $7.4 million versus the 2024 quarterly average.
• A $366 million gain associated with an unsecured bond tender that reduced overall debt.

For the fourth quarter of 2026, Binda said the company refined its prior outlook for FFO per share diluted as adjusted to a range of $1.40 to $1.50 (from $1.40 to $1.60 previously shared at Investor Day), citing a reduction in capitalized interest as a key driver of the lower midpoint. The full-year midpoint remained unchanged, which management attributed in part to slightly later assumed timing for dispositions and partial interest sales.

Leasing trends: zero public biotech leases, but relative outperformance in key markets

Leasing volume in the quarter totaled 647,000 square feet, which management said declined due to lower renewals and releasing activity following 657,000 square feet of known lease expirations that became vacant during the quarter. Binda also called out “limited demand from public biotech,” noting that Alexandria signed zero public biotech leasing volume in the quarter even though public biotech accounts for 24% of annual rental revenue.

Marcus said it was “maybe the first quarter in the history of the company” without a single public biotech lease, describing it as a reflection of the current environment, though he later suggested it could be “a one quarter blip.”

Despite the demand backdrop, Binda said Alexandria “continues to dominate in our largest markets,” reporting that in Greater Boston, San Francisco Bay, and San Diego the company captured roughly twice the leasing volume compared with its market share. He attributed the performance to Alexandria’s brand, “Megacampus” quality, locations, and operating platform.

Looking ahead, Binda said the company expects an uptick in second-quarter leasing volume to “around 900,000 square feet” based on early activity. Marcus later clarified that this was “not guidance,” but an indication of direction based on current activity.

On rental economics, Binda said free rent and rental rate changes were “under pressure” and noted that a 48,000 square foot, 12-year lease at 40 Arsenal in Watertown was a significant contributor to a roughly 15% rental rate reduction (and 15.8% on a cash basis) for the quarter. Marcus said the Arsenal tenant was an existing entertainment tenant and the renewal decision reflected lower market rents and a preference to keep the space occupied rather than reposition it.

Occupancy, NOI pressure, and 2026 lease expirations

Occupancy at the end of the first quarter was 87.7%, down 320 basis points from the prior quarter, primarily driven by the known expirations that went vacant. Management said another 747,000 square feet of key lease expirations are expected to go vacant in 2026, with about 45% expected in the second quarter, which is expected to pressure near-term occupancy.

Binda updated the midpoint of year-end 2026 occupancy guidance from 88.5% to 87%, attributing the change to a smaller anticipated benefit from selling assets with vacant space. He said the company now expects to retain more vacancy within the portfolio because certain assets previously considered for sale are seeing leasing interest.

Same-property net operating income declined 11.9% (and 11.7% on a cash basis) in the first quarter, primarily due to lower occupancy. Binda lowered the midpoint of same-property NOI guidance to down 9.5% from down 8.5%, again citing reduced benefit from assumed dispositions of vacancy-heavy assets. He reiterated expectations for stronger performance in the second half of 2026 as leased vacant space delivers.

Capital plan: dispositions, joint ventures, and projects under evaluation

Alexandria reiterated its disposition and partial interest sale guidance midpoint of $2.9 billion for 2026. Binda said about 80% of that midpoint is “pending or identified and in process,” and land is expected to comprise 10% to 25% of the total. CEO and Chief Investment Officer Peter M. Moglia said the company is seeing “a good amount of core type capital” seeking high-quality assets and said joint ventures could lower the company’s overall cost of capital, while still expecting non-core sales to continue. Moglia later added that both domestic and international capital are active, and that compared with the prior two years, there is now more interest in “good quality, safer assets.”

On the development pipeline, Binda said Alexandria has 1.9 million square feet under construction expected to stabilize through 2028, which is 77% leased. About 600,000 square feet expected to stabilize in 2026 is 93% leased. The company also outlined 1.6 million square feet across five projects where it is “evaluating the business and financial strategy,” including potential pivots to “advanced technology” uses that may require less capital than traditional lab conversions.

Management discussed several projects during Q&A, including 421 Park Drive in Boston, which Marcus described as “state-of-the-art lab.” He said Alexandria has sold several floors on a condominium basis to a major institution and expects future interest could return following the court defeat of the indirect cost reimbursement limitation, with the remaining space potentially leased or sold as condo interests.

Binda also noted a higher reserve for potential tenant wind-downs, increasing from about $23 million at Investor Day to roughly $25 million to $30 million, reflecting a more disciplined capital environment and company-by-company assessments.

About Alexandria Real Estate Equities NYSE: ARE

Alexandria Real Estate Equities, Inc NYSE: ARE is a real estate investment trust specializing in the ownership, development and management of collaborative life science and technology campuses. The company's properties are designed to support research and innovation by providing specialized laboratory, office and manufacturing space tailored to biotechnology, pharmaceutical, academic and related industries.

Since its founding in 1994, Alexandria has cultivated a diversified portfolio of campuses across leading innovation clusters in North America and Europe.

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