Alexandria Real Estate Equities, Inc. Q3 FY2025 earnings call

• The company invented and pioneered life science real estate 31 years ago and focuses on innovation clusters and ecosystems unique to the life science industry.
• The balance sheet is strong, with the longest weighted average remaining debt among S&P 500 REITs at 11.6 years and over $4 billion of liquidity.
• Leasing volume was solid at 1.2 million square feet, with 82% of leasing activity coming from existing tenant relationships. Rental rate growth for lease renewals and re-leasing was solid but guidance for 2025 rental rate increases was reduced by 2%.
• The company is reducing its non-income-producing assets, aiming to go from 20% to 10%-15% of gross assets.
• G&A costs are being managed with progress towards annual savings of $49 million compared to 2024, with trailing 12 months G&A cost as a percentage of NOI at 5.7%.
• Venture investment gains guidance was revised down to a range of $100 million to $120 million for 2025.

For the third quarter of 2025, FFO per share diluted as adjusted was $2.22. Leasing volume for the quarter remained solid at 1.2 million square feet. Occupancy at the end of the quarter was 90.6%, down 20 basis points from the prior quarter. The Megacampus platform represents 77% of the company's annual rental revenue. Same-property NOI was down 6% and 3.1% on a cash basis for the quarter. The company recognized impairments of real estate of $323.9 million during the quarter, with approximately 2/3 from an investment in the Long Island City redevelopment property. Dispositions to date totaled $508 million, with $1 billion remaining to be completed in the fourth quarter.

• FFO per share diluted as adjusted for 2025 was reduced to a midpoint of $9.01 per share, primarily due to lower investment gains and lower same-property performance.
• Year-end occupancy outlook is revised to a range of 90%-91.6%, with a 90 basis point reduction. Same-property performance outlook for 2025 is reduced by 1% due to slower leasing.
• Leverage guidance for year-end 2025 net debt to annualized adjusted EBITDA is 5.5 to 6.0x, up from prior targets due to reduced disposition guidance and projected lower EBITDA in the fourth quarter.
• Disposition guidance is revised to a midpoint of $1.5 billion, with $450 million of potential dispositions delayed into 2026.

• Government shutdown impacting the FDA, which is serious as it affects submissions and approvals for new INDs.
• Oversupply in certain submarkets leading to occupancy declines.
• Uncertainty in venture capital and public biotech sectors affecting demand for space.
• Potential impairments from assets under consideration for sale with estimated values below carrying values ranging from $0 to $685 million.

Q: On Mission Bay potentially reallocating lab space to office use?

A: There was approval for Prop M allocation, allowing flexibility for existing tenants' needs, as lab users may need more office area and other uses like OpenAI require office space.

Q: Thoughts on asset-light models?

A: At this point, it doesn't make sense as the industry will consolidate, and experienced developers with their own platforms will remain, with projects deteriorating fundamentals likely converting to other uses.