Alexandria Real Estate Equities (ARE) is moving full steam ahead with its mission to divest non-core assets in favor of a “megacampus” life sciences portfolio, and the strategy appears to be working.
The Pasadena, Calif.-based life sciences-focused real estate investment trust reported revenue of $791.6 million in the third quarter of this year. This was an increase of nearly 11% year over year from the third quarter of 2023. Some of that revenue came from larger campuses, including a 9 million-square-foot complex it owns in San Diego.
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Joel Marcus, Alexandria’s founder and executive chairman, was particularly bullish on large campuses, telling investors on Tuesday’s quarterly earnings call that REIT returns will be “overwhelmingly driven by those assets” by the end of 2029. “It will be done,” he said.
“The best location, the best assets, the best service give us a competitive edge, superior return on investment, higher occupancy, higher rents, recruiting and retaining the best talent for our tenants, and multiple great conveniences. It clearly shows a path for growth,” Marcus said.
Alexandria leasing volume was particularly strong this quarter, reaching nearly 1.5 million square feet, an increase of 48% compared to the previous four quarter average of 1 million square feet, and the highest level of activity since the last quarter of 2022. It became. Chief Financial Officer Mark Binda said: The overall occupancy rate of the company’s North American assets was 94.7% at the end of September.
Rent rates for REIT assets also rose 5.1% in the quarter and are up 16.4% year-to-date.
Alexandria’s development pipeline is also focused on a megacampus platform, with approximately 317,000 square feet delivered in the third quarter of this year, and that space already fully leased and contained within the megacampus. Masu. This includes 250,000 square feet of rentable space offered at the Alexandria Life Sciences Center (Shady Grove) located at 9820 Durnestown Road in Rockville, Maryland.
Marcus said on Tuesday’s conference call that while stubbornly high inflation, the cost of capital and high federal deficits over the past several years have led investors to “be very disciplined in deploying capital,” the life sciences industry has He pointed out that it is still “one of the few remaining crowns.” We found that the US has a thriving ‘jewelry industry’ and that demand for quality life science real estate remains strong, especially from existing tenants. In fact, 80 percent of Alexandria’s rental activity over the past year came from its existing tenant pool, according to Alexandria’s revenue report.
“We’re in a conservative environment right now, but the growth outlook for the industry is certainly positive,” Harry Kuhn, senior vice president of life sciences and capital markets, said on a conference call. “For example, the leaps we’re seeing in the obesity field. There’s so much unmet (research) need in Alzheimer’s disease and other cancers that we’re looking forward to the industry outlook and that demand. The innovations we foster will continue.”
The REIT sold three assets in the Seattle, New York City, and Washington, D.C., areas in 2024 for a total of $319.2 million, including $238.7 million this quarter, and an additional $577.2 million worth of assets. Transaction is pending. Alexandria said it plans to use the funds to pay off debt by the end of the year.
CEO and Chief Investment Officer Peter Moglia said: “The best strategy to relieve the supply of our core markets is a megacampus strategy, so we are fully committed to it.” “While we feel that all of the assets we own are good assets, we believe that some of them are no longer part of our strategy and that they will be used to fund our pipeline. That’s what I’m selling.”
Nick Trombola can be reached at ntrombola@commercialobserver.com.
