Alexandria Real Estate Maps a Difficult 2026 Trough

Alexandria Real Estate Equities ((ARE)) has held its Q4 earnings call. Read on for the main highlights of the call.

Alexandria Real Estate Equities Balances Strong Execution With Mounting Near-Term Headwinds in Earnings Call

Alexandria Real Estate Equities’ latest earnings call struck a careful balance between confidence and caution. Management highlighted substantial progress on deleveraging, cost control, leasing momentum, and liquidity, underscoring the platform’s resilience despite a challenging life science real estate backdrop. At the same time, they were candid about sizable Q4 impairments, declining same-property NOI, elevated free rent, and looming occupancy pressure that are expected to weigh on earnings and asset values through at least 2026. The overall tone was one of disciplined execution in the face of a prolonged industry downcycle and regulatory uncertainty.

Accelerated Dispositions Support Deleveraging and 2026 Plan

A key theme of the call was Alexandria’s aggressive disposition strategy. The company completed $1.5 billion of asset sales in Q4 alone across 26 transactions, a pace that not only helped the firm hit its leverage objectives but also meaningfully advanced its non-core disposition program aimed at 2026. Management emphasized that the broader disposition framework targets $2.9 billion (midpoint) of sales and partial interest transactions, with 65%–75% expected to come from non-core assets and land. This repositioning is intended to streamline the portfolio, recycle capital, and support balance sheet strength while reducing exposure to underperforming or non-income-producing properties.

Leasing Momentum Rebounds With Strong Q4 Volume

Despite a tough leasing environment for life science real estate, Alexandria posted its strongest quarter of leasing in the past year. Q4 leasing volume reached 1.2 million rentable square feet, up 14% versus the prior four-quarter average and 10% versus the prior eight-quarter average. Importantly, 393,000 square feet of that total came from leasing currently vacant space—almost double the five-quarter quarterly average—underscoring ongoing tenant demand for Alexandria’s core locations even as decision-making cycles have lengthened. This leasing performance was a central offset to concerns about near-term occupancy declines.

Signed Lease Backlog Sets Stage for 2026 Revenue Growth

The company highlighted a substantial backlog of signed but not yet commenced leases as an important driver of future growth. Nearly 900,000 rentable square feet—about 2.5% of the total portfolio—is scheduled to commence on average in the third quarter of 2026. These leases are expected to generate roughly $52 million in incremental annual rental revenue once fully ramped. Management framed this backlog as a key element supporting the 2026 financial framework, helping to bridge the gap between currently pressured NOI and the longer-term earnings and occupancy recovery.

FFO Delivery Tracks Guidance Amid Trough Expectations

On the earnings front, Alexandria delivered funds from operations in line with prior expectations. FFO per share diluted as adjusted was $2.16 for Q4 2025 and $9.01 for the full year, both essentially tracking the midpoint of earlier guidance. The company reaffirmed its 2026 FFO outlook and reiterated that Q4 2026 is expected to mark the trough quarter, with FFO per share projected between $1.40 and $1.60. That framing signals management’s view that current and upcoming earnings pressure is significant but finite, with a bottoming process anticipated as lease commencements and dispositions take hold.

High Margins and G&A Discipline Underpin Profitability

Alexandria underscored strong operating efficiency as a core differentiator. The company reported an adjusted EBITDA margin of 70% for Q4 2025, a level that reflects both scale and tight cost control. G&A savings were a standout: Alexandria achieved $51.3 million of G&A reductions in 2025—a 30% cut from the prior year. As a result, G&A expense was approximately 5.6% of NOI, which management noted is about half the average level seen across S&P 500 REITs. These structural cost improvements provide a cushion against revenue volatility and support the company’s ability to weather a prolonged downcycle.

Balance Sheet Strength Anchored by Liquidity and Long-Dated Debt

The balance sheet remains a relative bright spot. Alexandria reported $5.3 billion of liquidity and one of the longest average remaining debt maturities in the S&P 500 REIT universe, at just over 12 years. Net debt to annualized adjusted EBITDA stood at 5.7x in Q4 2025, within management’s comfort range. The company reiterated its Q4 2026 leverage target of 5.6x to 6.2x. While a temporary quarterly-annualized leverage spike is expected in early 2026, management emphasized that continued asset sales and lease commencements should drive improvement later in the year, reinforcing the REIT’s capacity to operate and invest without balance sheet strain.

Lower Capitalized Interest Signals Tighter Capital Deployment

Management is also dialing back capital intensity. Guidance for capitalized interest in 2026 was set at $250 million, a 24% decline from 2025. This drop is driven by the impact of dispositions and a deliberate review of projects under construction, with certain developments likely to be paused or sold. The move reflects a more cautious stance on new capital commitments and a willingness to preserve balance sheet flexibility rather than push ahead on projects that may not meet return thresholds in a more uncertain market.

Reducing Non-Income-Producing Assets and Non-Core Exposure

Alexandria is actively working to shrink its exposure to non-income-producing assets. These assets fell from 20% of gross assets at year-end 2024 to 17% by year-end 2025, and management expects further declines through 2026. The disposition program is central to that plan, with the majority of expected sales coming from non-core assets and land. This repositioning aims to tilt the portfolio more heavily toward stabilized, income-generating properties, which should support more predictable cash flows and lower development risk over time.

Same-Property NOI Under Pressure From Occupancy and Market Conditions

Notwithstanding operational strengths, same-property performance remains challenged. Same-property NOI declined 6% in Q4 2025 (down 1.7% on a cash basis) and fell 3.5% for the full year (though up 0.9% on a cash basis). Management attributed this pressure to lower occupancy and broader market headwinds, reflecting the prolonged softness in life science demand and a slower pace of leasing decisions. While cash NOI trends are somewhat more resilient, the headline decline underscores the earnings drag from vacant space and concessions required to close deals in today’s environment.

Large Q4 Impairments Reflect Revaluation of Land and Projects

The earnings call was marked by a sizable wave of impairments recognized in Q4 2025, totaling $1.45 billion. Management noted that roughly 90% of these impairments had been previously disclosed, softening the surprise factor. About 50%–60% of the charges related to land holdings, while two major assets—including 88 Bluxome Street and the Gateway campus—accounted for roughly 37% of the total. These write-downs reflect a reassessment of asset valuations in light of weaker market conditions and evolving expectations for development economics, and they contribute to the perception of heightened uncertainty around longer-term asset values.

Occupancy Headwinds and Expected Near-Term Downtime

Occupancy remains a key concern. The company finished 2025 with occupancy of 90.9%, a modest 30-basis-point improvement from the prior quarter. However, management is preparing investors for a near-term dip in Q1 2026 due to 1.2 million rentable square feet of key lease expirations, around 60% of which rolled off in mid-January. These expirations are expected to create downtime before space can be backfilled. Still, Alexandria reaffirmed its year-end 2026 occupancy guidance of 87.7% to 89.3%, suggesting that while the path may be bumpy, management expects stabilization in the high-80% range once current turnover and re-leasing play out.

Revenue Headwinds From Tenant Wind-Downs and Lease Terminations

Further adding to near-term pressure are specific tenant-related revenue headwinds. The company’s guidance assumes an approximate $6 million per quarter reduction in rent starting in Q1 2026 tied to potential tenant wind-downs. In addition, Alexandria terminated a lease for roughly 171,000 square feet in South San Francisco that had generated about $11.4 million in annual revenue. While the space has already been re-leased, the new lease is not expected to commence until the second half of 2026, creating a temporary vacancy gap. These factors contribute to the expected dip in earnings and highlight the current fragility of the tenant base in some markets.

Free Rent and Pricing Pressure Reveal Softer Leasing Economics

The call also underscored mounting pressure on leasing economics. Free rent has become a primary tool for winning deals, and both renewal and new lease rental rate changes were under pressure in Q4. This greater reliance on upfront concessions indicates weaker near-term cash collections relative to contractual rents, and suggests that even when Alexandria succeeds in filling space, it may need to sacrifice near-term revenue to secure creditworthy tenants and maintain occupancy. For investors, this dynamic points to a slower recovery in cash flow, even as leasing volume shows signs of resilience.

Lower Venture Gains Add Another Layer of Earnings Volatility

Alexandria’s venture investment portfolio, once a steady source of incremental gains, is also contributing less to the bottom line. Realized gains from venture investments totaled $21 million in Q4, down from an approximate $32 million quarterly average over the prior three quarters. Nevertheless, the company reiterated its 2026 realized gains guidance of $60 million to $90 million, implying about $19 million per quarter at the midpoint. This guidance acknowledges that venture gains will likely remain subdued relative to recent history, but still provide a meaningful, albeit volatile, supplement to core property earnings.

Temporary Leverage Spike Expected Before Improvement

While the balance sheet remains relatively conservative, investors should brace for a short-term increase in leverage metrics. Management expects net debt to annualized adjusted EBITDA to temporarily rise by about 1.0x to 1.5x on a quarterly annualized basis in Q1 2026, driven primarily by lower quarterly adjusted EBITDA rather than new borrowing. As the year progresses, however, the company anticipates leverage to improve toward its 5.6x–6.2x Q4 2026 target range, aided by asset sales and the revenue contributions from signed leases that commence later in 2026.

Regulatory and Industry Backdrop Continues to Slow Decision-Making

Beyond company-specific dynamics, Alexandria devoted time to the broader industry context. Management described being in the fifth year of a life science bear market, with venture funding and capital markets conditions remaining constrained. Regulatory uncertainty—including leadership changes at the FDA and volatile policy signals—has further complicated the landscape, slowing both investor and tenant decision-making and extending leasing cycles. These macro and regulatory factors help explain the cautious tone around near-term occupancy, pricing, and development decisions, even as the company continues to execute on controllable levers like cost and capital allocation.

Guidance Highlights a 2026 Trough and Gradual Recovery Path

Looking ahead, Alexandria reiterated its 2026 framework, emphasizing that Q4 2026 is expected to represent the earnings trough. Year-end 2026 occupancy is projected between 87.7% and 89.3%, with an anticipated dip in Q1 2026 as major lease expirations roll through and a recovery in the second half as nearly 900,000 square feet of signed leases commence and dispositions close. Q4 2026 FFO per share is guided to a range of $1.40 to $1.60, with same-property NOI guidance centered around roughly ±8.5% at the midpoint, incorporating both headwinds from tenant wind-downs (about $6 million per quarter) and a 2%–3% benefit from assets sold or held for sale in the back half of 2026. The disposition program’s $2.9 billion midpoint, capitalized interest guidance of $250 million (down 24% year over year), and realized investment gains guidance of $60 million to $90 million reflect a strategy focused on reshaping the portfolio, lowering capital intensity, and maintaining liquidity at $5.3 billion. Management also signaled continued cost discipline, with the substantial G&A savings achieved in 2025 expected to carry forward, though at a reduced incremental benefit in 2026.

In closing, Alexandria Real Estate Equities’ earnings call painted a picture of a company navigating a difficult industry cycle with deliberate balance sheet management, strong cost discipline, and growing future revenue visibility from signed leases. While near-term earnings, occupancy, and asset values face meaningful pressure—exacerbated by large impairments, elevated free rent, and tenant-specific headwinds—management’s reaffirmed guidance and clear articulation of a 2026 trough suggest a defined, though challenging, path to stabilization. For investors, the story is one of solid operational execution and liquidity strength set against a backdrop of prolonged sector weakness and regulatory uncertainty, with the eventual payoff hinging on the timing and strength of a broader recovery in life science demand.