Third Quarter 2026 Conference Call - ALEXANDRIA REAL ESTATE EQUITIES INC

Financial Performance:

• Reported FFO per share (diluted, as adjusted) of $1.54 for Q3 2026; reaffirmed full-year guidance midpoint of $6.40 (tightened range to ±$0.02).
• Q3 leasing volume reached 1.24 million sq. ft., the highest in seven quarters, with 451,000 sq. ft. leased from previously vacant space (second-highest quarterly total in company history).
• Same-property NOI declined 6.7% (GAAP) and 2.8% (cash) due to occupancy headwinds, though performance improved sequentially from the prior quarter.
• Adjusted EBITDA margin held strong at 65%; General & Administrative (G&A) expenses remained disciplined at 7.5% of Net Operating Income (NOI), roughly half the S&P 500 REIT average.
• Realized gains from venture investments were $16M for the quarter; full-year investment gain guidance reduced by $10M to $65M midpoint.
• Capitalized interest decreased $11M sequentially to $62.9M as pipeline deliveries accelerated and some projects paused.
• $1B junior subordinated notes issued with 50% equity credit from rating agencies; $475M joint venture closed on Campus Point with consolidated control.

Guidance and Future Outlook:

• Leasing outlook for Q4 2026 estimated at 1.25M sq. ft., driven by anticipated uptick in public biotech and continued momentum in advanced technology.
• Anticipates temporary occupancy pressure in H1 2027 due to 1.4M sq. ft. of lease expirations with extended downtime (avg 9-24 months) and potential tenant wind-downs.
• Expects same-property NOI growth to resume in 2028 as new leasing from current pipeline stabilizes and moves into the occupancy roll; 2027 NOI remains projected negative.
• Capitalized interest expected to continue declining in Q4 2026; construction spend for operating assets (lease-up/re-leasing) will be a major component of 2027 CapEx.
• Leverage target for year-end 2026 remains 5.6x–6.2x; intermediate-term goal to converge toward 5x–5.5x.
• Development and redevelopment pipeline contracted by 50% since Q4 2025 (to 1.6M sq. ft.); 77% of projects under construction (906k sq. ft.) are leased or under negotiation.

Business Segments and Product Lines:

• Leasing mix heavily skewed toward existing tenants (74%); public biotech activity remains muted (1.1% of volume) but expected to rebound in Q4.
• Advanced technology tenants driving demand for mega-campuses due to recruitment needs and infrastructure suitability, offering a path to utilize non-lab space.
• Major asset disposals/impressions: Under contract to sell 421 Park Drive (Fenway) and office-to-lab conversion assets in Palo Alto; 421 Park sale removes $136M of future interior improvement costs for the buyer.
• 311 Arsenal project in Watertown pivoting to advanced technology execution, reducing future construction needs by ~$220M.
• Mega-campus portfolio represents the core strategy; 80% of ARR derived from mega-campuses, with management expecting this share to potentially reach 85-90% but not 100%.
• 60%+ of 1.37M sq. ft. rolling in 2027 is engaged with specific tenants, reducing "downtown" risk.

Market and Competitive Landscape:

• Outperforming broader markets in key cities (Boston, SF, San Diego) with leasing volumes 1.7x the market share of total lab space.
• Occupancy in top three markets remains 6-12% higher than broader regional averages.
• Market tenant count declined modestly (~5%) in Q3 after two quarters of growth; this is viewed as a normalization where demand converts to leases rather than new tenant additions.
• Cap rates expected to vary by market quality: Tier 1 core assets trading near 5s, high-quality assets near 6s, and "workhorse" assets in the 7.5-8.5s range.
• Institutional demand strengthened following the defeat of the indirect cost cap in DC, aiding leasing progress.
• Clinical-stage biotech valuations remain below historical averages, yet the BBC ETF (93% clinical stage) is monitored as a more realistic sector health indicator than XBI.

Risks and Challenges:

• Significant lease rollovers in 2027 and 2028 creating temporary occupancy dips and potential NOI pressure.
• Public biotech sector remains under pressure; some tenants face funding milestones that could trigger wind-downs or defaults.
• Potential for future real estate impairments on assets held for use if decisions are made to sell below carrying value.
• Transition from a "development-heavy" bull run to a stabilized cycle requires disciplined capital allocation and extended timeframes.
• Specific "zombie buildings" in less desirable locations may struggle to find adaptive reuse without significant price concessions.

Management Commentary and Tone:

• Management maintained a tone of disciplined execution and cautious optimism, acknowledging near-term headwinds while highlighting strong balance sheet flexibility.
• Emphasis on "laser-focused" execution on moving vacant space to operations, reducing non-core assets, and managing G&A.
• Highlighted the successful transition of capital structure, citing the $1B hybrid note debut and 50% equity credit as a key win for leverage management.
• Expressed confidence in the "mega-campus" model and its differentiation from competitors in attracting diverse tenant types (biotech + advanced tech).
• Noted that the 5% decline in tenant count was a "stable situation" following an anomalous Q1 surge, suggesting the market has found a new baseline.

Analyst Questions and Answers:

• Joint Venture Structure: Confirmed the Campus Point JV treats distributions as having a minimum 5.5% yield for initial years, with a 7-year put right for the partner (cash/stock election); confirmed consolidation for leverage calculations (EBITDA remains on balance sheet).
• Capital Spending: 2027 construction guidance ($1.15B-$1.65B) to be refined at Investor Day; majority will target operating portfolio lease-up rather than new development.
• Asset Pricing: Peter described core asset pricing under pressure from rates but believes high-quality assets (e.g., Campus Point) will hold 5s, while broader portfolio trades in the 6s.
• Advanced Tech Leasing: Confirmed this tenant base requires lower CapEx and less downtime than traditional lab tenants, effectively converting "lab-only" buildings into multi-use assets.
• Disposition Pipeline: $1.9B midpoint target for 2026 partial interest sales is on track; $2.6B in completed/pending deals exceeds target by $720M, allowing potential deferral of proceeds to 2027.
• Leverage: Confirmation that consolidated JVs keep EBITDA on the balance sheet, influencing leverage ratios; target of ~5x-5.5x for mid-term.

Other Key Points:

• Deferred rent write-offs occur when tenants vacate or hit "occupancy rules" (milestones fail).
• Free rent concessions averaged 2 months per year (trailing 12 months), driven by one large non-life science lease; excluding this, concessions were 1.1 months.
• 57% of annual rental revenue comes from investment-grade or large-cap public tenants.
• Non-income producing assets reduced from 20% of gross assets (end of 2024) to 12% as of Q3 2026.
• The "hybrid notes" offering provides fixed cost of capital for 5+ years with flexibility to refinance, acting as a substitute for traditional equity or non-core asset sales.
• Two projects (40 Sylvan and 3000 Minuteman Road) are under evaluation for potential conversion to advanced tech uses to reduce capital needs.