Alexandria Real Estate Equities Q4 Earnings Call Highlights

Key Points

• Management's "North Star" for 2026 is "timely execution"—prioritizing dispositions, balance-sheet flexibility, leasing vacant/rollover space and sharply reduced capex, with a $2.9 billion midpoint disposition target (65%–75% non-core/land) and $1.45 billion of impairments recognized in Q4 tied to that program.
• Q4 operational performance included $1.5 billion of dispositions across 26 transactions, 1.2 million rentable square feet of leasing (highest quarterly volume in a year) and occupancy of 90.9%, with FFO diluted as adjusted of $2.16 for Q4 and $9.01 for the full year.
• Outlook: management expects occupancy to dip in early 2026 due to ~1.2 million sq ft of expirations and tenant wind‑downs (guidance implies same‑property NOI down ~8.5% at the midpoint), but sees improvement in H2 while maintaining a strong balance sheet with $5.3 billion liquidity and long debt maturities, though leverage could temporarily rise 1–1.5 turns in Q1.

Alexandria Real Estate Equities NYSE: ARE executives used the company’s fourth-quarter and year-end 2025 earnings call to emphasize a “timely execution” focus for 2026 amid what Executive Chairman and Founder Joel Marcus described as the fifth year of a life science bear market and a fast-changing regulatory environment.

Marcus said management’s “North Star for 2026” is the plan laid out at the company’s recent investor day, with priorities centered on dispositions, balance sheet flexibility, driving occupancy through leasing of vacant and rollover space, and significantly reducing capital expenditures.

Fourth-quarter results: dispositions and leasing highlighted

Chief Financial Officer Marc Binda said the company delivered “outstanding operational execution” in the fourth quarter, highlighted by $1.5 billion of dispositions across 26 transactions and 1.2 million square feet of total leasing volume, which he called the highest quarterly leasing volume in the last year.

Binda reported FFO per share diluted as adjusted of $2.16 for the fourth quarter of 2025 and $9.01 for the full year, which he said represented the midpoint of the company’s prior guidance.

Leasing volume of 1.2 million square feet was up 14% versus the prior four-quarter average and up 10% versus the prior eight-quarter average, according to Binda. Leasing of vacant space totaled 393,000 rentable square feet, which he said was nearly double the quarterly average over the last five quarters. However, Binda noted that free rent and rental rate changes on renewed and re-leased space were “under pressure” during the quarter, citing two large deals—one in Canada and one in the Sorrento Mesa submarket.

Occupancy ended 2025 at 90.9%, up 30 basis points sequentially and 10 basis points above the midpoint of prior guidance. Binda also said the company has signed leases for almost 900,000 rentable square feet (about 2.5% of the portfolio) that are expected to commence in the third quarter of 2026 on average following construction completion and are expected to generate $52 million of incremental annual rental revenue.

2026 outlook: near-term occupancy pressure, second-half improvement expected

The company reiterated a year-end 2026 occupancy range of 87.7% to 89.3%, as provided at investor day, and Binda said management expects occupancy to dip in the first quarter of 2026 before improving in the second half of the year.

He attributed the anticipated first-quarter decline primarily to 1.2 million square feet of “key lease expirations with expected downtime,” noting about 60% of those expirations occurred in mid-January on average. Binda added that 13% of this expiring space is in lease negotiation with identified prospects, and the company is in early negotiations for another approximately 40%.

On same-property results, Binda said same property net operating income declined 6% (and 1.7% on a cash basis) for the fourth quarter, and declined 3.5% for full-year 2025 (while increasing 0.9% on a cash basis). Looking ahead, Alexandria reiterated its 2026 same-property NOI outlook of down 8.5% at the midpoint, expected to be driven by lower occupancy. Binda said management expects weaker same-property performance in the first half of 2026, with stronger performance in the back half.

Binda highlighted several first-quarter considerations included in the company’s supplemental package:

• 1.2 million square feet of key lease expirations with expected downtime.
• A nearly 171,000-rentable-square-foot lease termination in South San Francisco in 4Q 2025 that carried $11.4 million of annual rental revenue; the company said it has re-leased 100% of the space, but the new lease is expected to start in the second half of 2026, creating temporary vacancy in the first half.
• A guidance assumption for a rent reduction of approximately $6 million per quarter beginning in 1Q 2026 related to potential tenant wind-downs.

Cost actions and balance sheet: liquidity and leverage commentary

Binda said the company achieved $51.3 million of general and administrative cost savings in 2025, a 30% reduction versus the prior year. He said G&A as a percentage of NOI was 5.6% for 2025—about half the average for other S&P 500 REITs—though he cautioned that annual savings in 2026 relative to 2024 are expected to be roughly half of the 2025 level due to the temporary nature of some savings.

Alexandria reiterated guidance for 2026 capitalized interest of $250 million, down 24% from 2025. Binda said that during December 2025, the company sold or designated for held-for-sale projects with more than $1 billion of basis that had previously been subject to interest capitalization, and management expects capitalized interest to decline into the first quarter of 2026.

On the balance sheet, Binda said Alexandria maintains “one of the strongest balance sheets among all publicly traded U.S. REITs,” citing $5.3 billion of liquidity, average remaining debt maturity of just over 12 years, and net debt to adjusted EBITDA of 5.7x for the fourth quarter annualized. The company reiterated guidance for 4Q 2026 net debt to annualized adjusted EBITDA of 5.6x to 6.2x, while noting leverage could temporarily increase by 1 to 1.5 turns in 1Q 2026 due to lower quarterly adjusted EBITDA before improving with dispositions and partial interest sales.

Dispositions, impairments, and capital recycling

Management’s “path forward” includes a large-scale non-core disposition plan. Binda said the company expects non-core assets and land to comprise around 65% to 75% of the $2.9 billion midpoint of 2026 guidance for dispositions and sales of partial interests, with most closings expected in the second through fourth quarters and a weighted-average closing date in the third quarter.

In connection with the disposition program, Alexandria recognized $1.45 billion of impairments in the fourth quarter. Binda said roughly 90% of that was previously announced, and the remaining 10% was primarily tied to a Greater Boston land parcel designated held for sale later in December. He added that 50% to 60% of the impairments were related to land. The two largest impairments represented 37% of the total and included 88 Bluxome Street in San Francisco’s SoMa and the Gateway campus in South San Francisco, held through a consolidated joint venture.

Binda said the company sold its interest in the Gateway campus in December, citing challenging supply/demand dynamics in South San Francisco and the significant capital required to redevelop the campus. He also said the company expects to complete the sale of 88 Bluxome Street—Alexandria’s only SoMa asset—over the next few quarters, adding that Pinterest terminated its lease at the property in 2020 and paid an $89.5 million fee.

During Q&A, management discussed buyer interest and pricing. Peter Moglia said cap rates for non-core stabilized assets have ranged from the “mid-sixes all the way up to the mid-nines,” depending on market and lease term, and reiterated the view shared at investor day that top-end properties “should have a five-handle.” Moglia also said a potential “five-handle” transaction would “very likely” be a joint venture rather than an outright sale.

Leasing environment: “meet the market,” but caution on biotech demand

Executives described a leasing market where tenant decision-making remains cautious. Hallie (company executive) said venture capital dollars are tied to a specific segment—private biotechnology—and while industry funding into new companies has been similar to or slightly higher than the last couple of years, venture funds have raised the lowest amount of dollars in the last decade. She said this dynamic has kept companies conservative and elongated decision timelines.

Moglia said smaller spaces under 50,000 square feet remain active across markets, but the company continues to see a “dearth” of public biotech tenants—typically in the 50,000 to 150,000 square foot range—which management said is important to a broader market recovery. Joel Marcus said the company hopes public biotech leasing turns around in 2026, pointing to the limited availability of IPOs and secondary offerings as a factor.

On concessions, Moglia said tenant improvement levels have been stable, while free rent remains the area of weakening fundamentals. He said free rent “continued to elevate,” and the company used free rent as a tool to win deals while trying to keep rental rates “as stable as possible.”

Management also clarified the decision to lease a Fenway asset as office space rather than add lab supply, describing it as building- and submarket-specific due to existing lab availability in the area and increased office demand for that particular building.

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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