In this paragraph, the operator welcomes participants to the Alexandria Real Estate Equities First Quarter 2024 Conference Call. The call will contain forward-looking statements and the company's actual results may differ from these statements. Executive Chairman and Founder Joel Marcus is present, along with other team members, and they congratulate the team for a solid first quarter. Marcus also mentions the company's recognition as one of the most trustworthy companies in America.

Alexandria is a highly respected company in the life science industry, guided by strong values and recognized for their achievements. They have achieved superior results, made a distinctive impact, and have lasting endurance. The company remains committed to maintaining their reputation and providing essential infrastructure for the development of new medicines. Despite challenges in the industry, Alexandria had a strong first quarter with solid growth, leasing, and occupancy. They are focused on leasing for future pipeline and redevelopment projects.

The company is moving forward with their pipeline due to the demand for laboratory space and positive projections for the life sciences industry in 2024. They have also sold or are in the process of selling noncore assets and are on track to meet their target of $1.4 billion in capital recycling for 2024. The decision to sell a former Pfizer headquarters building for residential use has been reinforced by the lack of lab leasing in New York City and the government's focus on supporting empty buildings rather than funding startup companies. The company's campus is well-positioned, but they are concerned about the government's priorities and their impact on the community. Hallie will provide further details.

Hallie Kuhn, SVP of Life Science and Capital Markets, discusses the fundamentals of the $5 trillion life science industry and how it has grown since the 2008 financial crisis. She highlights the increase in venture capital investment and the approval of new therapies, leading to a strong demand for Alexandria's Labspace infrastructure. In the first quarter of 2021, there were high levels of venture investment and an increase in mega rounds, indicating a positive outlook for demand from biotechnology tenants. Additionally, the company's pre-commercial and commercial public biotech tenants also contribute to their ARR.

The paragraph discusses the strong performance of Alexandria tenants in terms of follow-on and PIPE financings, with one tenant, Intracellular Therapies, raising $500 million after announcing positive clinical data. The multinational pharmaceutical companies, representing 20% of ARR, have also been active in M&A deals, reflecting a strong industry and a need for innovative therapies. The pressure to limit Chinese CDMOs is expected to benefit US-based CDMOs and maintain the country's competitive edge. The paragraph also mentions the lab requirements of a private biotech company expanding into 20,000 square feet.

The company worked with Alexandria's lab operations team to place 328 pieces of equipment in the lab, including 10 that require emergency power. The placement of equipment is based on the process flow of experiments, rather than just square footage. The lab space is more like a data center, driven by the physical equipment used. AI-centric tenants also have heavy equipment needs, and the industry is projected to continue growing in the future as companies work to cure diseases.

The company's role as a trusted partner to life science companies is to safeguard their research and support their discoveries. In the first quarter, they delivered 343,445 square feet of space and signed 162,000 square feet of LOIs for future development. They also have a strong development pipeline and expect to deliver $480 million of stabilized NOI from it. Demand for their properties is recovering, but the lack of funding activity may delay full recovery for a quarter or two. However, the company is well-positioned to weather these challenges due to their enduring competitive advantages.

During the first quarter, we leased a total of 1,142,857 square feet, which is in line with our pre-pandemic leasing rate. Both GAAP and cash rental rates saw significant increases, while tenant improvements and leasing commissions decreased. Our team is closely monitoring competitive supply in our proprietary databases, and we expect 2024 to be the peak year for new deliveries, followed by a slowdown in 2025. In Greater Boston, the unleased competitive supply for 2024 decreased from 7% to 1.6% of market inventory due to new projects delivering in the first quarter. In San Francisco Bay, the unleased competitive supply for 2024 is 9.6% of market inventory, with a temporary delay in construction leading to a reclassification of a project from 2024 to 2025. In San Diego, the unleased competitive supply for 2024 is 5.1% of market inventory, with two projects being moved to 2025 from their previous estimated delivery date of 2024.

In 2025, there will be an increase in market inventory due to the unleased competitive supply, but this will be offset by first quarter leasing at certain projects. Direct vacancy rates have increased in Greater Boston, San Francisco, and San Diego due to new deliveries and future vacancies. Sublease vacancy rates have decreased in Greater Boston and increased in San Francisco and San Diego. Alexandria has maintained a high occupancy rate and is actively selling noncore assets to private equity and other real estate partnerships.

The company had a successful first quarter, with strong operating and financial results. They closed on assets worth $17.2 million and acquired new properties that fit their strategic focus. They remain committed to their self-funding strategy and their offerings continue to attract investors. The CFO reported a 9.7% increase in total revenues and an 11.5% increase in NOI compared to the same quarter in the previous year. FFO per share diluted as adjusted was $2.35, up 7.3% from the previous year. The company's mega campus strategy and operational excellence contributed to their high-quality cash flows and strong collections.

The leasing volume in the first quarter was strong, up 30% compared to the last two quarters and consistent with historical averages. The company has a high-quality tenant roster and strong relationships, with 77% of leasing activity coming from existing tenants. Rental rate growth for renewals and new leases was strong and the outlook for the full year remains solid. Non-revenue enhancing expenditures are expected to be below average, highlighting the durability of the company's laboratory infrastructure. Same property NOI growth was solid, driven by rental rate growth and leasing volume. Occupancy remained consistent at 94.6%.

During the quarter, we added 343,445 square feet to our portfolio, which will generate $26 million in annual net operating income. We expect to see significant growth in cash flows and NAV from executed leases as initial free rent burns off. We have $5.5 million square feet of development and redevelopment projects expected to generate $480 million in annual net operating income over the next 4 years. We have the potential to grow our operating base by 78% with current and future projects. We capitalize a significant portion of our gross interest cost due to construction activities and preconstruction efforts, which has led to a decline in the average real estate basis subject to capitalization.

The company's capitalized interest has declined for two consecutive quarters and is expected to continue to decline in 2024. The company has a strong balance sheet with low leverage and high liquidity. They have recently completed a bond deal and plan to recycle capital through dispositions and partial interest sales to fund their development and redevelopment pipeline. They completed $17 million in dispositions during the quarter.

Peter asked about the company's asset recycling program during the Q&A portion of the call. The company has $258 million in pending transactions and is also working on additional dispositions and partial interest sales. They expect the program to focus more on outright dispositions of noncore assets rather than partial interest sales. The company plans to fund a significant portion of their equity needs with retained cash flows from operating activities after dividends. They have a conservative FFO payout ratio and have seen consistent realized gains from their venture investments. They have updated their guidance for 2024, with no change to the midpoint of 5.6% growth in FFO per share. The call then moved on to Q&A.

Peter Moglia clarifies that there is no pause in the company's sales activity, but rather a tendency to close more sales in the latter half of the year. He also mentions that the company's pending deals are on target for their goal. Marc Binda adds that leasing spreads in the first quarter were strong, but there may be some variation in the coming quarters. In response to a question about competitive supply, Peter notes that some properties have been pushed back in the development pipeline.

Joel Marcus and Peter Moglia address concerns about the supply picture in the real estate market, stating that only one project has been delayed and it is due to a complex credit tenant lease. They also mention that a few projects have been moved to later dates, but this is normal in the industry. They express confidence that after 2025, there will not be many more delays in project deliveries.

The speaker discusses the leasing environment and whether concessions or vacancies would be more beneficial for the development pipeline. They explain that demand in this sector is event-driven and not based on rental rates or concessions. The speaker also mentions the adjustment of the FFO guide, stating that they are on track for solid growth this year.

During a discussion about the company's performance, Joel Marcus mentions that this year is particularly challenging due to various factors such as macro issues, geopolitical concerns, and an upcoming election. This has led the company to take a conservative approach. Vikram Malhotra asks about the high volume of short-term renewals and Joel explains that it is common in the industry for tenants to wait for important data before making long-term commitments. He also mentions that the company expects a recovery in demand by 2025, which is supported by data from diverse segments such as small biotechs, public biotechs, and life science tools.

The speaker discusses the strength of venture capital and the biotech industry in 2021, with a particular focus on the increase in mega rounds and follow-on financing. They also mention the opening of the IPO window and the demand for large requirements in the pharma industry. They acknowledge some challenging macro markets but remain optimistic about continued strength in their segments. In response to a question about supply and cash flow, the speaker notes that it is difficult to predict but believes there will be a period of time where competition may impact their ability to operate nearby facilities before cash flow starts to increase again.

Peter Moglia and Hallie discuss the decrease in funding in 2023 and the lag effect it will have on the market. They predict that 2024 will be the bottom and demand will increase due to current investments. Joel Marcus adds that Alexandria will continue their pace of development funded by dispositions, but may slow down if necessary. They have seen a similar trend during the great financial crisis in 2021.

The company has been disciplined in starting new projects and has focused on meeting the needs of growing tenants. The first quarter has been strong and they expect the second half of the year to be as well. Potential demand drivers such as CDMO and AI could potentially have an impact in the future.

The company has been receiving a lot of questions about AI and the BIOSECURE Act, as well as regulatory concerns. However, these are just small pieces of the overall demand for lab space. The company has a number of tenants with significant lab requirements and is closely monitoring the impact of CDMOs on the industry. Despite new supply delivering, the company's brand and mega campuses continue to be in high demand, leading to strong occupancy and rent spreads. The new supply in tertiary markets is not competing well with the company's portfolio in prime locations.

The speaker discusses the current state of the life science real estate market and mentions that Alexandria is the go-to choice for tenants due to their expertise and operational excellence. They also address the potential opportunities for Alexandria in distressed markets and mention their successful track record in the Fenway area. However, they also note that some areas with high supply may not have the same potential for success and may end up becoming office buildings.

The speaker believes that although certain office buildings may become obsolete, new lab buildings can be converted into high-quality offices. They also discuss the development yields and how they are affected by interest rates and long-term projections.

The company is taking a long-term view in the face of challenging times and is focused on making strategic decisions for the benefit of shareholders. They are not ruling out the possibility of equity funding, but their current plan is to use noncore assets to fund their business. The market is expected to remain flat, with opportunities in the company's mega campuses performing better than the supply of new properties. The rental market is not expected to retreat to levels seen in 2021 and 2022, but will likely grow from the levels seen in 2017-2019.

Jim Kammert asks for more information on BioMed Realty's tenant interest in their development and redevelopment pipeline compared to 90-180 days ago. Joel Marcus declines to provide specific numbers due to the competitive nature of the business and states that the market has solidified since October. He also mentions that companies hitting milestones and receiving funding is a better benchmark for their business. Joel apologizes for not being able to provide more information.

The speaker is asked about the company's decision to start development projects at a lower yield compared to buying assets on the open market. The speaker explains that the company's focus is on creating mega campuses and being a first mover in the market, which will benefit the long-term growth and health of the company. Additionally, the team has not found any assets worth buying in the current market and is focused on areas that align with the company's strategy.

The speaker discusses the future opportunities for their company, stating that they will focus on their mega campuses due to the benefits of scale and vibrant tenants. They believe it will make more sense in the long-term to put tenants on these campuses rather than buying individual buildings. In response to a question about leasing activity, they mention that recent interest rate cuts have not affected tenants' ability to raise capital and make decisions. They use the first quarter as an example of how the sector is not directly correlated to economic environment or interest rates, though extreme events could have an impact.

The speaker discusses how tenants make decisions about expanding into new areas of research based on their ability to raise capital. They mention that most of these decisions are made at the venture level, and that venture firms have a lot of capital ready to deploy. The speaker also mentions that boards are very disciplined in their oversight and that they will make decisions based on key milestones or profitability. The next question is about whether boards are loosening up in their decision-making, to which the speaker responds that boards are still very disciplined.

Omotayo Okusanya asks Joel Marcus about when they might start a new development and what market it could potentially be in. Marcus says they would not announce it on an earnings call, but that the market has improved since October. He also mentions that May is Mental Health Month and they will be focusing on that in their corporate social efforts. He concludes by thanking everyone and wishing them well.

This summary was generated with AI and may contain some inaccuracies.