Alexandria’s Top Tenants Help Life Sciences Leader Weather New 'Have And Have-Not' Era Of Biotech

“Alexandria is lasting endurance,” said Joel Marcus, CEO of Alexandria Real Estate Equities, the leading developer of life sciences properties, during the early moments of the REIT’s second-quarter earnings call earlier this week.

The firm’s strong performance during its second-highest leasing quarter in history — 2.5M SF leased with 1.4M SF in development, $577M in revenue and delivery of more than 500K SF representing 10 projects in 8 markets — suggests as much.

But Marcus also positioned the firm within a larger narrative about how inflation and a drop in biotech venture capital funding are increasingly creating a “have and have-not” division within the life sciences. On one side are small-and mid-cap biotech firms with preclinical research that have seen their values drop, he said. On the other side are larger biotech firms and those that have reached commercial stages that are “flush with cash.”

ARE executives on the call underscored the firm’s long-term relationships with big, established names in the field, a notable pivot to showcase certainty, not just the cutting edge.

ARE has been a strong performer for nearly 25 years since its inception. Marcus said that its total shareholder return since its founding in 1997, 2,532%, doubles the performance of the Nasdaq (1,291%) and outshines Warren Buffet’s investments (953%). But key to its performance right now amid inflation and uncertainty is that its reputation has attracted some of the leading firms innovating the biotech sector, such as Moderna, which in turn creates a steady tenant pipeline, something new entrants in the field can’t match.

Marcus said tenant selection has been a “cornerstone” of its performance. In the last five years, 48% of Food and Drug Administration novel therapy approvals have been granted to Alexandria tenants, he said. Bristol Myers Squibb, which signed a long-term lease in Q1 for 427K SF at the Campus Point Mega Campus in San Diego, is Alexandria’s top tenant and has leases in five of the firm’s core clusters. A vast majority (94%) of ongoing ARE lease negotiations involve existing relationships. 

That wasn’t the only big-name signing for the quarter. Alexandria also inked a deal with Eli Lilly for its 334K SF Institute for Genetic Medicine in Boston’s Seaport. Leadership also mentioned the April recapitalization deal of the 100 Binney St. property in Boston, making it one of the handful of billion-dollar assets in that city.

Looking ahead, Alexandria’s pipeline includes 8M SF under construction or expected to begin construction in the next six quarters, 77% of which is leased or under negotiation, and that development is expected to bring in $665M in annual rental revenue.

Alexandria Co-CEO Stephen Richardson said that new supply for 2022 is either leased or adding only around 1% of total inventory in key markets. In 2023, expected deliveries are either leased or contributing 3% or 4% to total market size, which will likely be further reduced during the coming quarters. Alexandria also underlined that it currently has no projects scheduled for delivery in 2024. 

Richardson also said that war in Ukraine, the coronavirus in China and continuing transportation issues are making materials and construction more complicated, though ARE has contracts and/or guaranteed maximums covering 82% of existing construction projects to mitigate the impact of inflation or delays.