Alexandria's Q3 2025 Earnings Call: Contradictions Emerge on Occupancy, Capital Strategies, Biotech Outlook, and Development Strategy

Guidance:

• FFO per share diluted as adjusted 2025 guidance reduced by $0.25 to midpoint $9.01 per share.
• Realized investment gains guidance revised to $100M–$120M (implies ~ $15M in Q4).
• Year-end occupancy outlook narrowed to 90.0%–91.6% (midpoint implies ~80 bps decline).
• Year-end leverage updated to 5.5–6.0x net debt to annualized adjusted EBITDA.
• Dispositions (midpoint ~$1.5B) expected to fund capital needs and reduce land bank to 10%–15% of assets.
• 2026 construction spending expected similar to or slightly above 2025 midpoint of $1.75B; detailed 2026 guidance at Investor Day Dec 3.

Business Commentary:

• Occupancy and Leasing Trends:
• Alexandria Real Estate Equities reported a decline in occupancy to 90.6%, down 20 basis points from the prior quarter.

• The decrease was primarily driven by a challenging life science supply and demand dynamic and lower occupancy in certain submarkets.

• Financial Performance and Guidance Adjustments:

• The company revised its guidance for FFO per share for 2025, reducing it by $0.25 or approximately 2.7%.

• This adjustment was primarily due to a short-term renewal in Canada and higher free rent.

• Development Pipeline and Strategy:

• Alexandria plans to reduce its non-income-producing assets from 20% to 10% to 15% of its balance sheet.

• This strategic decision is aimed at minimizing construction spend and managing supply in oversupplied submarkets.

• Capitalized Interest Impact:

• The company expects steady to slightly lower capitalized interest in 2026, driven by the expected reduction in capitalized interest from fewer new projects and land dispositions.

• This reduction will be achieved by pausing or curtailing activities on certain projects beyond preconstruction milestones.

• Dividend Strategy:

• The company is expected to evaluate its future dividend levels considering current and potential taxable income, AFFO coverage, and other factors.
• The eventual decision will reflect the Board's assessment of future earnings and cash flow impacts on 2026 earnings and cash flows.

Sentiment Analysis:

Overall Tone: Neutral

• Management repeatedly balanced cautious near-term commentary (reduced FFO guidance, occupancy declines, potential impairments) with statements of strength ("strong, flexible" balance sheet, $4.2B liquidity, longest debt maturity 11.6 years) and early signs of recovery — producing a measured, neutral tone focused on execution and de-risking.

Q&A:

• Question from Farrell Granath (BofA): I first just want to touch on, I know last quarter, you had some commentary about potential benefits to occupancy, about $600,000 or 1.7%. I was curious on the update and your expectations or line of sight that you're seeing now?
  Response: 617k sq ft of identified vacant space (primarily Boston, SF, San Diego, Seattle) representing ~$46M potential annual rent is expected to deliver on average around May 1 next year and should help occupancy.

• Question from Farrell Granath (BofA): Broader question — peers see early positive leading indicators in biotech. What would turn your perspective or optimism higher (IPOs, capital markets, etc.)?
  Response: Reopening the government/FDA, renewed early‑stage venture activity (commitments to lease), and a meaningful recovery in the public biotech market are the key triggers for stronger demand.

• Question from Nicholas Joseph (Citi): Just as we think about the sources of capital, you mentioned equity-like capital. Could you elaborate on that and kind of either the pricing or what exactly you mean by that?
  Response: Equity‑like capital refers to measures such as dividend savings, JV/partial interest transactions and other non‑debt sources, but the primary capital plan for next year remains asset dispositions (land, non‑stabilized and some stabilized assets).

• Question from Nicholas Joseph (Citi): Are you seeing any change in buyer demand in the transaction market for stabilized assets given XBI improvement?
  Response: There is strong demand—particularly for opportunistic and alternative‑use assets—and no shortage of interest across assets brought to market; stabilized bids are active.

• Question from Richard Anderson (Cantor Fitzgerald): Can you talk about the development process going forward — will focus be more on build‑to‑suit and what will happen to the $4.2B land subject to capitalization?
  Response: Priority shifts to build‑to‑suit on mega‑campuses, pausing/curtailing select projects, evaluating $4.2B of land on a project‑by‑project basis and pursuing land dispositions to reduce non‑income‑producing assets from ~20% to 10%–15%.

• Question from Richard Anderson (Cantor Fitzgerald): Will you provide a run‑rate development exposure commitment at Investor Day or indicate target development % of assets going forward?
  Response: They reiterated the 10%–15% target for non‑income‑producing assets over time and said Investor Day will provide further framework; objective is to materially reduce development exposure via dispositions and project pauses.

• Question from Anthony Paolone (JPMorgan): On the dividend — do you need to pay it from taxable income, and is buyback/repurchase on the table given the depressed stock?
  Response: The company must pay a dividend (taxable income considerations) and the Board will evaluate dividend level for 2026; buybacks are attractive but finishing construction commitments and securing capital needs via dispositions is the first priority.

• Question from Michael Carroll (RBC Capital Markets): What tenant activity are you tracking — are tenants shifting to lower‑cost/secondary space or seeking Class A lab versus Class B?
  Response: Demand exists across sectors but decisions are slower; well‑capitalized tenants seek Class A, others target second‑generation or lower‑cost options — overall demand mixed and highly submarket‑specific, constrained by cost of capital and regulatory uncertainty.

• Question from John Kim (BMO Capital Markets): Can you provide color on how much capitalized interest may be lowered in 2026 given land sales and $1.75B expected construction spend next year?
  Response: Capitalized interest expected to be steady to slightly lower in 4Q'25 and materially lower starting Q1'26 as projects are paused/curtailed and land dispositions proceed; construction spend may be similar or slightly higher than 2025 midpoint but with fewer active capitalized projects.

• Question from John Kim (BMO Capital Markets): For the known move‑outs (1.2M sq ft) next year, why are tenants not renewing — shrinking footprint, consolidating, or other events?
  Response: Most known vacates are lab tenants consolidating or moving to other Alexandria campuses (lead‑behind space from pharma subsidiaries) and some are older product; several have LOIs (e.g., 83k sq ft and ~40% of a 118k block) reducing net exposure.

• Question from Dylan Burzinski (Green Street): Is the government shutdown the key change driving today's tone — and when it ends should demand pick up?
  Response: The government/FDA shutdown is a material constraint and a prerequisite for normalizing industry activity, but recovery also requires lower cost of capital, venture funding and IPO/secondary market improvements; reopening alone may not be sufficient.

• Question from Dylan Burzinski (Green Street): Any appetite to sell partial interests in megacampuses to raise equity while retaining exposure?
  Response: Not the primary plan — focus is on owning megacampuses long‑term; strategy centers on selling non‑core/non‑income assets rather than materially monetizing core campus ownership via partial sales.

• Question from James Kammert (Evercore): Are you thinking about 2027 expirations now and how tenant intentions might evolve beyond 2026?
  Response: Yes — management is actively engaging tenants across multi‑year expirations and focusing on retaining high‑value relationships, including recent decade‑long extension examples to preserve long‑term occupancy.

• Question from James Feldman (Wells Fargo): How should we think about the competitive set, rent downside and your comment on 'meeting the market'?
  Response: Alexandria will 'meet the market' selectively (more TI/free rent where needed) to protect occupancy and maintain premium megacampus positions; they expect weaker competitors to pivot or convert assets, reducing long‑term competitive supply and letting Alexandria capture premium economics over time.

Contradiction Point 1

Occupancy Trends and Leasing Pipeline

It involves differing perspectives on occupancy levels and leasing pipeline trends, which are crucial for understanding the company's financial health and growth prospects.

What are the potential benefits to occupancy from the update and your expectations for line of sight? - Farrell Granath (BofA)

2025Q3: we have a lot of leasing going on right now, a lot of great activity in this space. - Joel Marcus(CEO)

What factors influenced the tenant to choose build-to-suit over vacant space? What trends are currently emerging in your leasing pipeline? - Nicholas Gregory Joseph (Citi)

2025Q2: We have strong demand, and the pipeline continues to grow, with particularly strong interest in our most unique assets. - Joel Marcus(CEO)

Contradiction Point 2

Capital Market Dynamics and Funding Strategies

It highlights differences in the company's approach to financing and capital market conditions, which can impact investor confidence and strategic decisions.

What are your sources of capital, and are you using equity-like capital? - Nicholas Joseph (Citi)

2025Q3: We've used it for the last 15 years. That really is just capital that comes into the company through one form or another, it could be savings on dividend like we've done. - Joel Marcus(CEO)

Are you considering larger asset sales or major core asset JVs to fund capital needs? When do you expect the occupancy trough, and how strong is the build-to-suit pipeline? - Vikram L. Malhotra (Mizuho Securities)

2025Q2: The vast majority of the growth is actually coming from our capital base, I call it risk equity, which is really bringing in capital from a variety of different types of sources. - Joel Marcus(CEO)

Contradiction Point 3

Asset Sales vs. Development Pipeline

It highlights a shift in strategy regarding asset sales and development pipeline, which impacts the company's growth trajectory and financial structure.

Could you outline the future development process and the development pipeline? - Richard Anderson (Cantor Fitzgerald)

2025Q3: We're at 20% today. We were at 30% break GFC when we were unrated to today. I think by the end of next year and early '27, we'll be down to 10% to 15%. - Joel Marcus(CEO)

Do you think development will become a smaller percentage of your asset base after rightsizing your land bank? - Richard Anderson(Wedbush Securities Inc.)

2025Q1: We believe we should have no land bank at all. Our business model is very, very straightforward. We go in, we create, we develop, we lease it, we collect the rent and we reposition when necessary. - Joel Marcus(CEO)

Contradiction Point 4

Biotech Market Outlook

It involves differing perspectives on the outlook for the biotech market, which is critical for understanding Alexandria Real Estate Equities' future growth prospects.

What would increase your optimism about the biotech market, such as greater IPOs or different capital market movements? - Farrell Granath(BofA)

2025Q3: I think the two are critical links. Number one is the FDA -- the government shutdown has to stop, and the FDA has to open. Number two, venture earlier-stage venture-backed companies have to start making commitments for space. And finally, the public biotech sector has to reignite. - Joel Marcus(CEO)

What trends are you seeing in the life sciences industry in 2025, and how may they impact your business? - Wesley Golladay(UBS)

2024Q4: We are optimistic about 2025 due to the focus on the life science industry by the new administration, which aims to crack down on middlemen and PBMs. Positive reforms of the IRA provisions and repeal of the 95% excise tax are expected to benefit the industry. - Joel Marcus(CEO)

Contradiction Point 5

Development and Asset Sales Strategy

It involves changes in the company's development and asset sales strategy, which are crucial for understanding its future growth and financial management.

What is your development pipeline and future plans? - Richard Anderson(Cantor Fitzgerald)

2025Q3: We're at 20% today. We were at 30% break GFC when we were unrated to today. I think by the end of next year and early '27, we'll be down to 10% to 15%. We're clearly unable to do all megacampuses. And so we'll see on the megacampus projects which ones we could potentially exit. - Joel Marcus(CEO)

What are your 2025 capital recycling plans and how will you prioritize future mega campuses? - Vikram Malhotra(Mizuho Securities)

2024Q4: We plan to shrink our land bank and focus on future mega campuses by exiting non-core assets. Our capital recycling program in 2024 was solid and will continue in 2025, ensuring we have a strong balance sheet and liquidity. - Joel Marcus(CEO)