Third Quarter 2026 Conference Call - ALEXANDRIA REAL ESTATE EQUITIES INC

Explicit Guidance:

• FFO per Share (Diluted as Adjusted): Reaffirmed midpoint of $6.40 for 2026; range tightened to +/- $0.02.
• G&A Expenses: Expected to remain in the range of $134–$154 million for 2026.
• Realized Investment Gains: Guidance lowered by $10 million (midpoint) to $65 million for 2026, primarily due to transaction timing shifts to 2027.
• Capitalized Interest (Basis): Expected to bottom out in Q4 2026, ranging from $3.4–$4.9 billion (a 40–60% decline from 2025 levels).
• Non-Income Producing Assets: Expected to decline from 20% (end of 2024) to 12% as of Q3 2026, consistent with the capitalization trajectory.
• Leverage Targets: Targeting a year-end 2026 leverage ratio of 5.6–6.2x Net Debt/Adjusted EBITDA; long-term intermediate goal of mid-5x leverage.
• Construction Spending (2027): Specific total not yet finalized; previously guided $1.15–$1.65 billion, with refinement expected by Investor Day (Dec 2). A significant portion is expected to target the operating portfolio.

Business-Segment Outlook:

• Leasing Volume: Expected Q4 2026 volume of approximately 1.25 million square feet; Q3 saw record volume of 1.24 million square feet (second-largest in history for vacant space leasing).
• 2027 Outlook: Projected temporary occupancy pressure in H1 2027 driven by 1.4 million square feet of lease expirations with average downtime of 9–24 months and $101 million in expiring rent. Expect average occupancy growth to resume in 2028.
• Same-Property Performance: Expected to improve from 2026 to 2027 and 2027 to 2028, though 2027 is expected to remain negative due to occupancy headwinds.
• Tenant Mix: Public biotech leasing remains muted (1.1% of Q3 volume) but expected to contribute to Q4; 60%+ of 1.37 million square feet in 2027 lease rolls are engaged with specific tenants.
• Advanced Technology: Strong demand for recruitment/retention; pivoting projects like 311 Arsenal Street to lower-cost advanced tech execution, potentially reducing future construction needs by ~$220 million.
• Development Pipeline: Shrank >50% from 3.6 million sq ft (Q4 2025) to 1.6 million sq ft (Q3 2026); 906,000 sq ft under construction expected to stabilize by 2028 (77% leased/negotiating).
• Dispositions: 2026 target of $1.9 billion (partial interest/core/non-core) exceeded; $2.6 billion aggregate completed/pending, allowing potential deferral of capital into 2027.
• Impairments: Recognized $638 million in Q3 related to developments in process, land, and lab conversion opportunities; further impairments possible in 2027 if held-for-use assets are reclassified as held-for-sale.

Market and Competitive Outlook:

• Market Share: Outperforming broader markets in top three geographies by 1.7x leasing share over the last four quarters.
• Cap Rates: Tier 1 core assets pressured toward 5% but high-quality assets (e.g., Campus Point) expected to maintain "5 handle"; overall better assets trading at 6% cap rate; workhorse assets at 7.5–8.5%.
• Supply/Demand Dynamics: Observed a 5% decline in total market tenant list (driven by consolidations rather than pure demand loss); public biotech valuations (BBC ETF) remain below historical averages, offering future catalyst potential.
• Concessions: Initial free rent concessions at 2 months/term (elevated due to one large non-life science lease in Research Triangle); excluding that deal, concessions were 1.1 months.
• Zombie Buildings: Identification of "zombie buildings" (poorly located lab space) as a supply headwind; advanced tech tenants seen as a solution to absorb this supply.

Macro / Industry Outlook:

• Economic Environment: Transitioning from a "COVID rocket ship" era to a more stable, lower-growth phase; management views the current market as a "bear market" following a historic bull run.
• Capital Markets: Successful debut of $1 billion hybrid notes (7.25% junior subordinated) receiving 50% equity credit from rating agencies; debt maturities next year limited to $350 million with a weighted average term of 11.6 years.
• Regulatory/Policy: Noted that the defeat of the cap on indirect costs (circuit court ruling) was a catalyst for institutional demand in Q3.
• Interest Rates: Rising rates expected to pressure cap rates on Tier 1 assets.

Strategic Initiatives:

• Campus Point Joint Venture: Closed $475 million JV; ownership >50% as Novartis and Bristol-Myers spaces (250k+ sq ft) return in 2027; expects 5.5% minimum annual distributions to partner; 7-year put-right exercisable by partner (settled in cash or stock at Alexandria's election).
• Asset Re-purposing: Evaluating 40 Sylvan Road and 3000 Minuteman Road for conversion to advanced tech or sale if leases not secured; potential to move completed advanced tech leases to operating pool to reduce capital needs.
• Capital Plan Execution: Focus on dispositions of non-core assets and land to reduce cap interest and deleverage; $1.7 billion capital raised since June 30.
• Investor Day: Scheduled for December 2nd to provide refined 2027 and beyond capital spending and strategy details.

Risks and Headwinds to Outlook:

• Lease Expirations & Downtime: Significant volume of leases rolling in 2027 with projected downtime; risk of "tenant wind-downs" similar to 2026 impacting occupancy and NOI.
• Investment Gains: Realized gains from venture investments may be delayed or reduced further if transactions move to 2027.
• Impairment Risk: Potential for future impairments on held-for-use assets if they meet held-for-sale criteria and values are below carrying amounts.
• Public Biotech Health: Continued muted performance of clinical-stage public biotech remains a risk to full sector recovery.
• Lease Execution Lag: Delays between lease execution and delivery (average 1.3 million sq ft not delivering until June 2027) create a gap in occupancy improvement.

Management Tone on the Future:

• Cautiously Optimistic: Management expresses confidence in the "mega campus" model and the ability to pivot to advanced tech, but acknowledges the complexity of the transition from the post-COVID bull run.
• Prudent & Disciplined: Emphasis on "laser focused" execution on reducing capital needs, managing G&A, and prioritizing high incremental returns.
• Transparent on Headwinds: Clear communication regarding 2027 occupancy pressure and temporary negative same-store NOI, framing 2028 as the recovery year.
• Flexibility: Willing to use diverse capital tools (JV, partial sales, hybrid debt) to optimize cost of capital and leverage.

Miscellaneous:

• Occupancy: Q3 2026 occupancy at 87.1% (in line with year-end guidance); 1.3 million square feet of new leases expected to add 3.7% to occupancy over time.
• Tenant Quality: 57% of ARR from investment grade/publicly traded large cap tenants; average lease terms of 7.7 years with 3% annual rent steps on 97% of leases.
• Credit Ratings: Top 20% among publicly traded U.S. REITs; $4.6 billion liquidity; extended $5 billion credit line to 2032.