A California judge stopped a class-action suit against Alexandria Real Estate Equities that accused the largest owner of U.S. lab buildings of misleading investors about its financial condition.
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Judge George Wu on Sept. 8 dismissed the suit against Alexandria and three of its executives that was filed by shareholder Warren Hern, who alleged that the misrepresentations caused shareholders to suffer financial losses.
The suit was filed in U.S. District Court for the Central District of California after Alexandria posted a worse-than-expected third quarter that included $323M in impairment charges. The complaint was amended after Alexandria added to those impairments with $1.7B in additional charges for the fourth quarter.
Shares in Alexandria fell sharply after the announcements and have failed to rally. The stock is down nearly 40% in the last 12 months.
The suit alleged that Alexandria was aware of deteriorating market conditions in the life sciences sector but “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.”
The suit named the REIT along with Executive Chairman Joel Marcus, CEO Peter Moglia and Chief Financial Officer Marc Binda as defendants.
It was dismissed without prejudice, and Hern could refile to address the deficiencies identified by the judge. But the court's ruling challenges the core of the allegations.
Alexandria argued that it and its executives acted in good faith and exercised their best accounting judgment as they reported its quarterly results. Hern alleged that the REIT misrepresented the strength of its portfolio in what amounted to securities fraud. Wu sided with Alexandria, writing that Alexandria’s argument “is the more cogent-and-compelling explanation related to the events described” in the complaint.
Hern’s lawsuit focused on a $206M write-down of a property in the Long Island City neighborhood of Queens, arguing that Alexandria created the false impression that the property was in a strong financial position.
The 179K SF property was converted into lab space by Alexandria after it paid $75M to acquire the former book bindery in 2018. At the time the suit was filed, the REIT disclosed that the property was roughly half occupied.
Binda said on the firm’s third-quarter call last year that Amazon’s 2019 decision not to build a second headquarters in Long Island City had been a setback for the neighborhood, and as a result, Alexandria no longer saw it as “a life sciences destination that can scale.”
The U.S. life sciences sector has been battered by a wave of new construction that is coming online at the same time that the federal government is making massive cuts to its spending on research and advances in artificial intelligence have the potential to shift how lab-related research is done.
Pockets of the sector are showing signs of improvement, but winning tenants in today’s crowded market is akin to “hand-to-hand combat," CenterSquare Investment Management senior investment strategist and Global Head of Sustainability Uma Moriarity told Bisnow in August.
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