Alexandria Real Estate Reports Higher Revenue, Leasing Activity During Q3
Leasing volume this past quarter was the REITs highest since Q4 2022.
By Nick Trombola October 22, 2024 6:05 pm
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Alexandria Real Estate Equities (ARE) is moving full steam ahead on its mission to drop its non-core assets in favor of its “mega-campus” life sciences portfolio, and the strategy appears to be paying off.
The Pasadena, Calif.-based, life sciences-focused real estate investment trust reported $791.6 million in revenue during the third quarter of this year, a nearly 11 percent year-over-year increase from the third quarter of 2023. Seventy-six percent of that revenue came from its larger campuses, such as the 9 million square feet of complexes it owns in San Diego.
Joel Marcus, Alexandria’s founder and executive chairman, is particularly bullish on mega-campuses, telling investors during its quarterly earnings call Tuesday that the REIT’s revenue will be “overwhelmingly driven” by those assets by the end of 2029.
“Best locations, best assets, best services that also compete and clearly demonstrate superior return on investment, higher occupancy, higher rental rates, best talent recruitment and retention for our tenants, and multiple and very convenient paths for growth,” Marcus said.
Leasing volume for Alexandria was particularly strong this past quarter, reaching about 1.5 million square feet, a 48 percent jump compared to its previous four-quarter average of 1 million square feet, and was the highest level of activity since the final quarter of 2022, according to Chief Financial Officer Marc Binda. Occupancy across its North American assets was 94.7 percent as of the end of September.
Rental rates for the REIT’s assets also saw a 5.1 percent boost this past quarter, and is up 16.4 percent year-to-date.
Alexandria’s development pipeline is focused on its mega-campus platform, too, with nearly 317,000 square feet delivered during the third quarter of this year, space that is both already fully leased and contained within its mega-campuses. That includes 250,000 rentable square feet delivered at the Alexandria Center for Life Science — Shady Grove, at 9820 Darnestown Road in Rockville, Md.
Although Marcus noted during Tuesday’s call that stubbornly high inflation, the cost of capital and high federal deficits over the past few years have driven investors to become “highly disciplined in capital deployment,” the life sciences industry was still “one of the few remaining crown jewel industries” in the United States, and that demand for high-quality life sciences property was still robust, particularly from its existing tenants. Indeed, 80 percent of Alexandria’s leasing activity over the past year came from its existing tenant pool, per its earnings report.
“While we’re in a conservative environment right now, the outlook on the growth of the industry … is certainly positive,” Hallie Kuhn, senior vice president of life sciences and capital markets, said during the call. “The leaps we see, for example, in the obesity space. There’s so much unmet need [for research] across Alzheimer’s, across other forms of cancer, that the industry outlook and the innovation driving that demand will continue.”
The REIT has sold three assets in the Seattle, New York City and Washington, D.C., regions in 2024 for a combined $319.2 million, including $238.7 million this past quarter, and has another $577.2 million worth of deals pending. Alexandria said it plans to use those funds to cover its debt obligations for the rest of the year.
“The best strategy for us to mitigate the supply that’s gone into our core markets is our mega-campus strategy, so we’re going all in on it,” Peter Moglia, CEO and chief investment officer, said. “We feel like all the assets we have are good assets, but we deem some of them to no longer be part of our strategy, and those are the ones we’re selling in order to fund our pipeline.”
Nick Trombola can be reached at ntrombola@commercialobserver.com.
