Alexandria's Record-Breaking Quarter Shows REIT Riding Biotech Bull Market
Of all the numbers that attested to the meteoric growth of life sciences developer Alexandria Real Estate Equities during its earnings call Tuesday, the publicly traded real estate investment trust's rate of growth may be the most telling, especially in terms of how 2020 and 2021 radically changed its, and the industry it serves, trajectory.
Alexandria officials predicted back in December 2017 that it would double its rental revenues from $800M to $1.5B by the end of 2022. The largest owner of life sciences real estate in the country hit that goal a year and a half early, exceeding $1.5B in revenue in the second quarter of this year, in part by more than doubling the amount of square footage it owns or is developing, from 29M SF to 62M SF.
In April, May and June alone, the company leased 1.9M SF, the most ever for a quarter in Alexandria's 27 years of existence, and shows no signs of slowing. The 3.4M SF it has under construction is 80% leased, and the 3.6M SF set to commence construction this year and next is also 89% spoken for. Alexandria said it has liquidity of $4.5B as of June 30, which has fueled it to make huge acquisitions.
It was "one of the best quarters in the entire history of the company with an operational tempo, really like none other,” Executive Chairman and founder Joel Marcus said on the call.
The company reported 40% rental rate growth, almost 18% net operating incoming growth and almost 8% same-store NOI growth, with roughly $545M in incremental revenue in the development and redevelopment pipeline. A big part of why Q2 was so successful, co-CEO and co-Chief Investment Officer Peter Moglia said, was the company’s success in “pushing the boundaries” of existing markets due to historic demand.
The REIT delivered 756K SF of developed life sciences space last quarter, double the previous quarter, across five assets in South San Francisco, San Carlos, Long Island City, San Diego and the Research Triangle, buoyed by what he called “successful forays" into areas such as Watertown near Boston and Sorrento Mesa in Northwest San Diego, where a series of acquisition on Sequence Drive will eventually become a megacampus extending across roughly 1.9M SF.
Not surprisingly, considering the firms’ reach and scope, many of the biggest stories in life sciences — vaccine development by Pfizer and Moderna, Bayer and GSK working on a Covid antibody, and the approval of Biogen's Aduhelm to treat Alzheimer's disease — all revolve around ARE tenants.
In terms of market specifics, co-CEO Stephen Richardson said the firm is closely evaluating its Greater Boston ground-up pipeline, which is 56% leased. In expanding markets, Moglia noted the greater-than-expected growth in the firm’s Alexandria Center for Life Science in Durham, North Carolina, in the Research Triangle, saying the project has “knocked it out of the park.”
Marcus and others also commented on the challenges of the New York City market; the company’s Long Island City property is just 41% leased, a 10% bump from Q1.
“New York is the one market that brokers tout like this big demand, but the reality is the demand is much less," Marcus said. "And the demand is primarily organic companies that are starting up, being formed, spinning out.”
Marcus also made a case for more public-private cooperation within the sector to help continue the “historic biotech bull market,” praising Operation Warp Speed, highlighting the explosion in venture capital funding, and suggesting the impact of the proposed boost in National Institutes of Health funding proposed by the Biden administration. He also threw support behind a “21st century infrastructure package,” and underscored the need for more domestic semiconductor manufacturing.