Alexandria Real Estate Equities Q2 Earnings Call Highlights

Key Points

• Alexandria reported Q2 adjusted FFO of $1.73 per share and reaffirmed full-year guidance at a $6.40 midpoint, while narrowing the range to plus or minus $0.05.
• Leasing rose to 1.039 million square feet, but occupancy fell 80 basis points sequentially to 86.9%; management expects about 950,000 square feet of leasing in Q3 and has 1.4 million square feet of leased space scheduled to commence.
• The company is progressing toward its $2.9 billion 2026 capital-raising target, with 46% completed or pending and another 38% in process, although transaction delays are raising interest expense and leverage remains elevated at 7 times annualized adjusted EBITDA.

Alexandria Real Estate Equities NYSE: ARE reported second-quarter 2026 adjusted funds from operations of $1.73 per diluted share and reaffirmed the midpoint of its full-year guidance at $6.40 per share, while narrowing the annual range to plus or minus $0.05.

The life science real estate company said quarterly leasing exceeded 1 million square feet, supported by demand from life science tools, services and device companies as well as advanced technology tenants. Management also outlined progress on a planned $2.9 billion capital-raising program, though it expects the weighted-average completion date for sales and other capital transactions to occur in September.

Leasing Activity Improves, While Occupancy Declines

Alexandria leased 1.039 million square feet during the second quarter, up 60% from the prior quarter and 9% above its prior four-quarter average, according to CFO and Treasurer Marc Binda. New leasing of development, redevelopment and vacant space totaled nearly 400,000 square feet, the company’s second-largest quarterly total since the second quarter of 2024, excluding a large pharmaceutical build-to-suit lease signed last year.

Life science products, services and device companies represented nearly 40% of leasing volume, while advanced technology tenants accounted for almost 30%, Executive Chairman and Founder Joel Marcus said. Public biotechnology companies represented 5.8% of leasing, improving from no public-biotech leasing in the prior quarter but remaining below the segment’s 21% share of Alexandria’s annual rental revenue.

Leasing activity outpaced Alexandria’s market share in the San Francisco Bay Area and San Diego, where it captured two times and 1.7 times its market share of activity, respectively. Greater Boston leasing was approximately in line with Alexandria’s market share after excluding a 500,000-square-foot Cambridge renewal completed by another party.

The company said tenant requirements across its three largest markets increased approximately 10% from the first quarter. Notably, 64% of tracked requirements were for spaces between 20,000 and 100,000 square feet, a range management described as the middle of the demand “barbell.” Peter Moglia, CEO and chief investment officer, said this tenant size is typically associated with public biotechnology companies.

Alexandria projected approximately 950,000 square feet of leasing volume for the third quarter, based on its current pipeline.

Occupancy was 86.9% at the end of the second quarter, down 80 basis points sequentially. Binda said the decline reflected previously disclosed lease expirations, as well as the reclassification of a 160,000-square-foot Andover building from redevelopment to operating properties after it was leased to an advanced technology tenant. The lease is expected to begin in the second quarter of 2027.

The company has 1.4 million square feet of leased but currently vacant space expected to commence, on average, in November. Those leases represent expected annual rental revenue of $69 million. Alexandria said its occupancy outperformed broader market occupancy by approximately 8% to 12% in its three largest markets.

Development Pipeline and 2027 Expirations Remain Key Focuses

Alexandria’s development and redevelopment projects under construction total 1.4 million square feet and are 71% leased, with stabilization expected through 2028. The company also has 1.4 million square feet across five projects for which it is evaluating business and financial strategies.

Management is pursuing advanced technology leasing opportunities at several projects initially intended for laboratory or biomanufacturing use. At 311 Arsenal Street in Watertown, Massachusetts, Alexandria signed letters of intent for approximately 109,000 square feet with multiple tenants, bringing the project’s leased or negotiating percentage to 44%.

Binda said that if significant advanced technology leases are completed at 311 Arsenal, 40 Sylvan Road or 3000 Minuteman Road, the company may move all or portions of those spaces into its operating pool. While such a shift could lower reported operating occupancy in the near term, management said it would reduce capital needs and generate revenue upon delivery.

Alexandria has 1.4 million square feet of key lease expirations in 2027, representing $100.5 million of expiring rent. The company expects average downtime of 12 to 24 months for this space, reflecting both lease-up time and capital required to prepare the space for new tenants.

For 2026, management said approximately 50% of key expirations are leased or in negotiations. For 2027 expirations, 67% are in early discussions, and Moglia said 85% of the space has active prospects.

Capital Plan, Asset Sales and Balance Sheet

Alexandria is targeting $2.9 billion of dispositions, sales of partial interests and other capital sources in 2026. As of the second quarter, $1.3 billion, or 46% of the target midpoint, had been completed or was pending through non-refundable deposits, letters of intent or sale negotiations. Another $1.1 billion, or 38%, was in process.

The expected mix includes land dispositions representing 15% to 35% of proceeds, non-core asset sales accounting for 10% to 20%, and sales of partial interests and other capital sources making up 50% to 70%. Management said the company does not assume any common-equity issuance in its 2026 guidance.

Marcus said the company remains comfortable meeting its capital target, while Moglia noted that some joint venture and non-core sale processes have taken longer than anticipated because of transaction complexity and buyer financing timelines.

During the quarter, Alexandria recognized $222.5 million of real estate impairments, with roughly 85% to 90% related to land or former laboratory-conversion opportunities. The largest impairments included a Northern San Diego land parcel under contract for sale to a residential developer and a Toronto office building under contract for sale to a user after biotech demand in the market diminished.

The company reported $3.6 billion of liquidity and extended its $5 billion unsecured senior credit facility to 2032. Net debt to annualized adjusted EBITDA was 7 times in the second quarter, and Alexandria reiterated its fourth-quarter leverage target of 5.6 to 6.2 times, with a medium-term objective in the mid-5-times range.

Guidance and Expense Outlook

Alexandria said interest expense is expected to increase by $20 million at the midpoint of its outlook, primarily because capital transactions are expected to close later than previously anticipated and because of lower capitalized interest from earlier project milestone completions. The company expects third-quarter FFO to benefit from the later timing of capital transactions, while fourth-quarter FFO is projected toward the lower end of a $1.40 to $1.50 per-share range.

Same-property net operating income declined 10.6% during the second quarter, or 8.6% on a cash basis, primarily due to lower occupancy compared with the prior year. Management expects stronger same-property performance in the second half, potentially aided by assets that could be sold or designated as held for sale and removed from the same-property portfolio.

Alexandria also said it remains on track for 2026 general and administrative expense of $134 million to $154 million. At the midpoint, that would represent approximately $24 million of annual savings compared with 2024, and combined savings for 2025 and 2026 are expected to total about $76 million relative to the 2024 benchmark.

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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