Alexandria Stock Drops 19% After Warning Deeper Losses Are Coming

The nation's leading developer of lab buildings watched its shares lose 19% in value Tuesday after reporting widening losses, shrinking operating income and open spaces lingering on the market longer than anticipated.

Alexandria Real Estate Equities posted a $234.9M net loss in the third quarter, more than double its losses from three months prior, according to its quarterly earnings statement, which was released Monday evening.

A dramatic change in guidance spooked investors. Alexandria had previously projected it would bring in 50 cents of net income per share in 2025, but it revised that to a projected $2.94-per-share loss.

It attributed the change in part to expected losses from dispositions, noting it could face impairments of up to $685M related to property sales in Q4 alone. 

Alexandria's net operating income decreased 5.8% year-over-year in the third quarter. It adjusted its projected same-property NOI down 1% in its guidance, “primarily due to slower than anticipated re-leasing of expiring spaces and lease-up of vacancy in our operating portfolio, reflecting reduced demand across the life science industry.”

The occupancy of its operating portfolio has fallen from 94.7% a year ago to 90.6% at the end of the third quarter.

Shares in Alexandria, which trades on the New York Stock Exchange under the ticker ARE, are down more than 35% on the year, pulling its market capitalization to less than $11B, down from $17.1B on Jan. 3.

Amid the darker outlook, the company plans to “continue to curtail our large development pipeline,” Chief Financial Officer Marc Binda said on the company's earnings call Tuesday afternoon. 

He went so far as to say that, due to a lack of clarity around life sciences demand across the country, ARE would be reevaluating its $4.2B development pipeline and decide during the first half of next year if some construction projects should be paused. It will also aggressively pursue asset sales.

“We’ve had two reasonable quarters of leasing, but that doesn't reflect the underlying health of the industry,” Alexandria Chairman Joel Marcus told analysts on the call. “I’ve tried to articulate that you need a number of pieces in place for a fulsome rebound to happen.”

Marcus referred a few times to challenges with regulations and long and costly  Food and Drug Administration approval times — the government shutdown is pausing new drug approvals — as well as a difficult financial landscape and frozen initial public offering market for life sciences firms. The challenging landscape means longer shopping periods for potential tenants and conservative space requirements. 

Marcus mentioned meeting with FDA Commissioner Martin Makary in September and praised the government’s efforts to speed up approvals, but he said the shutdown, about to hit its fourth week, is a major problem for the industry.

“The industry is now enduring a government shutdown, and the impact to the FDA is pretty serious,” he said.

But the main challenge remains the persistence of the lab supply glut. Total vacancy of life sciences space hit 27% this summer and is projected to keep increasing, according to JLL. With few reasons for optimism, JLL projected that nearly 19M SF of lab space will be converted to other uses by 2030.

Marcus said the surge of life sciences funding and interest during the pandemic, coupled with near-zero interest rates, “incentivized really foolish speculation by financially motivated real estate companies and they're even more foolish capital partners.”

“This brought an unwanted and unnecessary oversupply to many of the innovation submarkets,” he said.

Even though construction pipelines are slowing, more artificial intelligence-first biotech companies are taking up market share, and JLL found that those companies require a third less space than their traditional counterparts, potentially depressing demand further.

Alexandria reported increasing leasing volume in Q3 to 1.2M SF, but that was largely fueled by the 467K SF lease Novartis signed in July for the Campus Point development in San Diego. 

The Campus Point lease exemplified the firm’s megacampus strategy, which Alexandria has increasingly gone all-in on. The firm said 77% of its revenue came from those developments, a 2% increase from Q2, and said those properties are capturing an outsized share of leasing in their markets.

Marcus said the company plans to decrease its construction spending, both to preserve capital and to avoid adding more supply.

ARE expects roughly 1M SF of its developments will go into service between this month and the end of 2026, and it has already signed tenants for 80% of the available space.

The executive team said it aims for its assets not producing income to drop from 20% of its portfolio to between 10% and 15%. They also said that much of its land bank might be sought after for residential purposes. 

ARE sold just a handful of assets in the third quarter, including a small Seattle property and the Watertown Mall in Boston, both at a loss. That is a significant step down from $261M in sales in Q2 and $176M in Q1. It also reported $323M in impairment charges, including a $206M write-down for its property in Long Island City in Queens, New York.

The firm expects to sell $1B in assets in Q4, many of which it also expects to sell for a loss.

In addition to the uncertainty around asset sales and construction pauses, the current leasing market presents significant challenges. The JLL market report found that as of Q2, brand-new space that entered the market between 2022 and 2024 is still nearly half-empty, suggesting additional challenges for anybody seeking to bring new labs online.