ALEXANDRIA REAL ESTATE EQUITIES, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Team Praise: Team commended for excellent operational and financial results, strong balance sheet, high occupancy (~94.7%), and near-100% collections.
• Life Science Update: FDA approvals by Alexandria tenants significant; venture capital and financing trends in biotech; BIOSECURE Act impact on life science product service and device tenants.
• Development Pipeline: Delivered 316k sq ft, leasing activity robust, competitive supply outlook, and value harvesting asset recycling program with $300M+ in Q3 asset sales.
• Financials: FFO per share diluted as adjusted $2.37, up 4.9% YoY; same-property NOI growth 1.5% cash; occupancy 94.7%; guidance for FFO per share $9.47, 5.6% growth in 2024.

Segment Performance

• Life Science Industry:
  • Pre-commercial public biotech: 9% of ARR, follow-on financing robust (second highest year on record).
  • Commercial stage public biopharma: 16% of ARR, continue to commit to R&D.
  • Large multinational pharma: ~20% of ARR, well capitalized with over $200B cash on hand.
  • Life science product service and device tenants: 20% of ARR, BIOSECURE Act could be positive long-term.
  • Biomedical and Government Institutions: 12% of ARR, institutions drive early discoveries.
  • Venture capital: Deployment to private biotech tenants (10% of ARR) healthy, tracking to eclipse 2023.
• Development and Leasing:
  • Delivered 316,000 rentable square feet in Q3, generating $21M incremental annual NOI.
  • Leasing volume 1.49M sq ft, up 33% QoQ, with 84% retention rate.
  • GAAP and cash rental increases: 1.5% and 5.1% respectively.

Guidance

• Maintained FFO per share guidance at $9.47, expecting 5.6% growth in 2024.
• Anticipate continuing to increase quality and resilience of mega campus platform via disposition strategy.
• Pending dispositions include ~$1.2B of assets, with half being stabilized properties (blended expected cap rate 8.5% GAAP, 7% cash) and half land/properties with vacancy/near-term lease expirations, expecting cash NOI decline of $30-35M for non-stabilized.

Risks

• Economic Backdrop: Stubborn economic conditions with high deficits, sticky inflation, and high cost of capital.
• Biotech Industry: Past overcapitalization and tough funding market challenges.
• Lease and Asset Risks: Potential impact of lease terminations and non-core asset sales on FFO.

Question and Answer

• Q: Comment on gap between Seattle asset sale cap rate and pending sales A: Stabilized cap rates vary due to lease terms; non-core assets have wider cap rates.
• Q: Pipeline for additional sales and development obligations A: Pending dispositions around $1.2B, with half stabilized properties and half land/properties with vacancy.
• Q: Valuations on pending sales and impact on FFO A: Cash NOI from pending sales around $91M, selling at higher cap rate to redeploy into mega campus pipeline.
• Q: Demand evolution and AI impact A: Disciplined capital deployment; AI could positively impact drug development via clinical trials, driving long-term demand.
• Q: Sublease space and deal cycles A: Sublease space stabilized, deal cycles longer due to Board scrutiny; expects improvement with rate reductions.
• Q: Demand pockets for new space A: Earlier stage companies and clinical stage companies with good news are key demand pockets.