Lawsuit Alleges Alexandria Misled Investors Before Stock Plunged
Alexandria Real Estate Equities, the largest owner of U.S. lab buildings, is being accused of providing false and overly confident statements to investors about the state of its portfolio amid the life sciences sector's extended downturn.
Shareholder Warren Hern filed a class action lawsuit Tuesday on behalf of all Alexandria investors claiming they have suffered financial losses due to mischaracterizations from Alexandria executives.
The lawsuit was filed in the U.S. District Court for the Central District of California, the jurisdiction where Alexandria is based. The defendants are Alexandria's corporate entity, plus three of its executives: Executive Chairman Joel Marcus, CEO Peter Moglia and Chief Financial Officer Marc Binda.
Alexandria didn't respond to Bisnow's request for comment.
The suit comes after Alexandria last month reported worse-than-expected third-quarter earnings and sharply cut its guidance, leading its stock price to drop 19%.
In its earnings release, it reported $323M in impairment charges, including a $206M write-down of a property in the Long Island City neighborhood of Queens.
That Long Island City property was a focus of Hern's lawsuit. It claims that in the three quarters prior to Q3, Alexandria executives made “false and/or materially misleading” statements about the leasing prospects for that property and about overall tenant demand in its portfolio.
“Defendants created the false impression that they possessed reliable information pertaining to the Company’s leasing spreads, development tenant pipeline, and anticipated occupancy growth for its life-science properties, specifically its LIC property while also minimizing risk from macroeconomic fluctuations,” the lawsuit states.
“In truth, the Company’s LIC value and potential growth as a life-science destination had been declining for years,” it adds.
The property in question is a 179K SF former book bindery that Alexandria converted into labs after buying it for $75M in 2018, and its latest earnings supplemental says it is 52% occupied. It sold another LIC property early last year for $19M, down from its $25M purchase price.
On Alexandria's Q3 earnings call, executives said the LIC neighborhood suffered a setback when Amazon backed out of its plan to build a second headquarters there in 2019. They said it has been hard to sign life sciences tenants in the area.
“And, ultimately, we don't view it as a life sciences destination that can scale,” Binda said on the call.
Executives also addressed the overall issues holding the life sciences market back from recovering, including the government shutdown's impact on Food and Drug Administration approvals and a tough fundraising landscape for biotech startups. They also said that “foolish speculation” from other real estate companies led to an oversupply in the lab market that elevated vacancy rates.
As a result, Binda said the company would be seeking to sell assets and reevaluating its $4B development pipeline.
The lawsuit claims that these Q3 statements stand in stark contrast to the optimistic outlook Alexandria executives had for the market and the REIT's portfolio on prior calls.
More than half of the 51-page complaint is devoted to showing the statements Alexandria made in earnings releases and that executives made on earnings calls over the last year. In addition to this public information, it says the plaintiff believes “further evidentiary support will exist for the allegations” after the case's discovery process.
The suit claims that Alexandria and its executives violated two sections of the Exchange Act that prohibit securities fraud. It is asking the court to require the defendants to pay damages to the plaintiffs commensurate with the stock market losses they sustained, but it doesn't include a specific dollar figure.
