Good afternoon, and welcome to the Alexandria Real Estate Equities 2023 Fourth Quarter and Year-End Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Paula Schwartz, Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. This conference call contains forward-looking statements within the meaning of the federal securities laws. The company's actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission. And now I would like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

Thanks, Paula, and welcome, everybody. Consistent with Alexandria's commitment to building the future of life-changing innovation in medicine and at the Vanguard and the heart of the $5 trillion secularly growing industry, I want to wish everyone a safe and healthy 2024. On the cover of our press release and supplemental package, we've included the great Jim Collins quote about Alexandria. Alexandria has achieved the three outputs that define a great company: superior results, distinctive impact, and lasting endurance. On superior results, we're very proud to say that we've had a very strong total shareholder return since IPO of over 1,500%, beating all of the benchmark REIT indices and almost every other health care REIT. On distinctive impact, Alexandria's tenants whom we have supported are responsible for an astounding 50% of the novel FDA approved therapies over the last decade, which is truly amazing. Our unique, one-of-a-kind full continuum of care project in Dayton, Ohio, has treated more than 7,000 patients afflicted by opioid addiction and other substance abuses and has made a dramatically positive impact on the lives of thousands of people, which we're very proud of. Moving on to my take on fourth quarter and year-end 2023, I would characterize our 2023 overall operating and financial performance as highly resilient. Notable achievements include over 11% NOI growth year-over-year, from 2022 to 2023, which is very strong. We delivered a record $265 million of incremental NOI in 2023 with our first-in-class development capabilities. We've continued solid leasing in 2023 with over 4 million rentable square feet leased and respectable GAAP and cash numbers. We had a remarkable 76% of leasing with existing tenants, and we look forward to a strong 2024 leasing effort, expecting significant leases to mature soon. This puts us in a position to achieve positive rent growth while filling vacant spaces. Moreover, I am proud to say that we have given and reconfirmed very solid detailed guidance for 2024. We believe that the life science industry will continue to benefit from key macro tailwinds in 2024, including positive M&A activity, declining interest rates, increased innovation, and significant data readouts.

Thanks, Joel. In Flagship Pioneering's 2024 Annual Letter, Founder and CEO, Noubar Afeyan, described 2023 as a polycrisis, encompassing the confluence of economic turbulence, climate change, deeply fractured politics, two global wars, threats to democracy, loss of trust in institutions, and continuing dislocations triggered by the COVID epidemic. Alexandria's solid 2023 performance within such a dismal backdrop is nothing less than extraordinary. I don't want to steal too much of Mark's thunder, but leasing close to our average volume since 2018, aside from the rocket ship years, and maintaining strong earnings growth while navigating through this polycrisis is a testament to Alexandria's competitive advantage and the power of our brand that Joel and Dan eloquently articulated at Investor Day. Heading into 2024, the polycrisis remains, but so does our resiliency. Our balance sheet is as strong as ever, and in 2023, we proved that we can self-fund our investments and still maintain our lowest leverage level in history. Thus, with our unique business model, highly skilled and experienced talent, impeccable execution, and a healthy underlying industry poised to advance human and planetary health, we've created the fertile industrial ecosystem that Mr. Afeyan postulated can generate value while defending against any coming vulnerabilities. I'm now going to discuss our development pipeline, leasing, supply, and asset sales before handing it over to Hallie. In the Fourth Quarter, we delivered 1,228,604 square feet into our high barrier to entry submarkets, bringing total deliveries for the year to 3,271,170 square feet covering 15 projects. The annual incremental NOI delivered during the year of approximately $265 million and the incremental NOI delivered during the quarter of $145 million are both the highest totals in company history. Development and redevelopment leasing activity of approximately 234,000 square feet was higher quarter-over-quarter for the third reporting period in a row, and the positive momentum is expected to continue as we signed 270,000 square feet of LOIs during the quarter.

Thank you, Peter, and good afternoon, everyone. Today, I will provide a recap of the life science industry in 2023 and an overview of the health and demand drivers of each of our life science tenant segments as we kick off 2024. John Templeton wisely wrote that bull markets are born on pessimism, grow on skepticism, mature on optimism, and die of euphoria. While the reset of the life science industry from euphoric 2021 highs has been rocky, healthy pessimism is seeding renewed momentum, underscored by rational valuations and capital flowing to the strongest technologies and experienced management teams. Fundamentally, the staggering unmet medical need that drives the $5 trillion secularly growing life science industry has not abated, and the opportunity for companies and investors in the life science sector to positively impact human health and disease is massive. Through the ups and downs, the trajectory of the industry remains positive, translating long-term into a healthy and expanding tenant base. This sentiment is reflected in the numbers. The XBI, a weighted index of small and mid-cap biotech, ended 2023 up 8%. Large biopharma performance, which had an exceptional 2022, while the rest of the market generally languished, ended flat. Two notable exceptions were Alexandria tenants, Eli Lilly and Novo Nordisk, both of which ended the year up over 50% as the market for their novel diabetes and obesity medicines accelerated. In December, we announced a significant lease with Novo Nordisk for their new US R&D headquarters on our Waltham Mega campus in Greater Boston. Another trend in biopharma for 2023 was M&A activity, which set a new high watermark with $159 billion in acquisitions, largely driven by pharma’s need to bolster pipelines as they face steep revenue losses due to patent expirations. With respect to the FDA, 55 novel medicines were approved in 2023, the second highest year on record, and double the average annual approvals from 20 years ago. Moreover, there were also eight advanced cell and gene therapies approved. Notably, tenant Vertex received FDA approval of CASGEVY in December, a potentially curative therapy for severe sickle cell disease and the first approved treatment utilizing novel genome editing technology known as CRISPR. The takeaway is that the industry’s model is working, as these novel scientific discoveries are translating into impactful medicines for patients.

Thank you, Hallie. Congratulations to our entire team for outstanding execution this past year amid a very challenging macroeconomic environment. I'll start with our solid financial results. Total revenues and NOI for 2023 were up 11.5% and 12.2%, respectively, primarily driven by solid same-property performance and record high development and redevelopment projects placed into service in 2023, yielding an incremental annual NOI of $265 million. FFO per share diluted as adjusted was $8.97, reflecting a solid 6.5% increase over 2022. We’re proud to report solid operating results for the year, driven by disciplined execution of our mega campus strategy. Our tenants appreciate our brand, collaborative mega campuses, and the operational excellence of our team. As of 4Q 2023, 52% of our annual rental revenue comes from investment-grade and publicly traded large-cap tenants, reflecting a 3% increase from the prior quarter. Additionally, 75% of our annual rental revenue comes from our collaborative mega campuses. Our collections remain high at 99.9%, and adjusted EBITDA margins remain strong at 69%. Furthermore, 96% of our leases contain annual rent escalations approximating 3%. Solid rental rate growth and leasing volume drove same-property NOI growth in 2023, which was up 3.4% and 4.6% on a cash basis. As expected, our Fourth Quarter same-property results experienced some pressure due to temporary vacancy in four properties across Boston, San Francisco, and San Diego, which amount to about 330,000 square feet that are 64% leased and under negotiation.

We will now begin the question-and-answer session. And our first question will come from Josh Dennerlein of Bank of America Merrill Lynch. Please go ahead.

Hey guys. Thanks for your time. I just wanted to explore the occupancy uplift that you're assuming in guidance. Just how much of that occupancy uplift is driven by leases you've already signed versus those that still need to be completed?

Yes, Marc, comment?

Yes, sure. Hi Josh. We have about 300,000 square feet of leases that we've already signed that will commence next year. So we have a good head start into 2024. In perspective, we've got about 3.4 million square feet of leases next year, but backing out the space anticipated to go dark into redevelopment or development leaves us with about 1.8 million square feet that is unresolved. I think that number feels pretty manageable relative to our historical run rate on leasing.

I appreciate that. It looks like supply is going to peak this year. What are your latest thoughts on the timing for net effective rents bottoming? Are there variations across your core markets?

Yes, so Marc, Peter, do you want to comment?

Yes, I'll take it, Josh. It's hard to predict. The effects of the 2023 supply have been seen in net effective rents. We've seen Tenant Improvements (TIs) increase significantly. TIs won't go higher because they're already pretty high, but there might be some pricing power to the tenant if they have a very large requirement. Outside of that, I think things have been holding relatively well.

Okay. Appreciate that. Thank you.

The next question comes from Anthony Paolone of JPMorgan. Please go ahead.

Yes, thanks. It's early in the year, and it seems you are approaching the midpoint of your acquisition guide. Are these transactions in process when you set up the guidance, or are you just seeing attractive opportunities?

Yes, the former, Tony.

Okay. So there's no anticipation for picking up more than what you're currently looking at. On the disposition side, when looking at the rest of the dispositions, do you think you'll have better execution on noncore sales? Or do you see selling stakes in more core, higher-quality assets as being more favorable right now?

Yes. I think we're focused mainly on noncore, noncampus assets. We feel pretty good about that execution.

Okay. All right. Thanks.

The next question comes from Vikram Malhotra of Mizuho. Please go ahead.

Good afternoon. Thank you for taking the questions. Could you provide more color on the pipeline you are looking at for expirations over the next 12 to 18 months, especially regarding developments that are expected to deliver in '25 and '26?

Yes. I don't think we would want to talk about that pipeline since it's pretty confidential. You can assume that every lease is somewhat different and every market is somewhat different. The situation with Cargo Therapeutics was unique with specific circumstances, and this market does not function like a commodity market.

Okay. I understand. Another topic, Biogen announced a rationalization of its office space. In conversations with tenants, what are their latest thoughts on space needs regarding office versus lab space?

That's always asked. Hallie, do you want to comment?

Sure. I think we need to separate non-technical space adjacent to labs, which is primarily desk space for researchers traversing between labs. There is no rationalization of that space, as it is essential for workflow. Certainly, for larger clinical or sales and marketing office requirements, companies will lease that as needed. But generally, lab-based infrastructure will not disappear.

Just to clarify, Biogen is rationalizing their office space, not their lab space.

Remember, they are a big-cap company, so they have dedicated teams doing traditional office work. It's not a typical case.

Thank you.

The next question comes from Rich Anderson of Wedbush. Please go ahead.

Hey, thanks. Good afternoon. I wanted to ask about the impairment and if we can expect to see more in 2024 as you part ways with non-core assets. Is this a trend we might see repeat?

Yes. Marc, do you want to comment on that?

Under the accounting rules, an asset can be impaired when it’s designated as held for sale. It's certainly possible that we could have additional impairments as we finalize which assets to sell.

Okay. On the $114 million of free rent burn, can you indicate how it compares historically and your expectations moving forward?

Marc?

We delivered $265 million of annual NOI this year. Those leases are generally long-term, around 10 years or more. So free rent being less than half a year of NOI isn't a major concern. Free rent has ticked upward slightly, but it’s still modest concerning the length of leases.

Looking back at the great financial crisis, free rent was much higher. So we’re still in a strong position compared to that time.

Great. Thanks for the insights.

The next question comes from Michael Griffin of Citi. Please go ahead.

Thanks. Can you provide additional color on the Cargo Therapeutics lease? What caused the decline in rents?

The key here is that we were trying to match the right tenant with the specific space. We faced minimal downtime, and there were no TIs involved. We didn’t want to let that space go into the market and be chosen by various tenants. The deal worked for both sides because it fit the circumstances perfectly.

Appreciate that. Can you also provide insight on the recent asset sales in Greater Boston and San Diego? What was the pricing, particularly the yield on the Cambridge asset?

Peter, do you want to comment?

While I can’t speculate on the yield for the Cambridge asset, stabilized assets in Boston typically trade in the low to mid-5s range. We sold one in Torrey Pines at a 5.3% cap rate, which illustrates the pricing trends.

Thanks, that’s all my questions.

The next question comes from Jim Kammert of Evercore ISI. Please go ahead.

Thank you. Regarding the positive M&A activity, does this historically translate to incremental space demand across your portfolio?

Yes, Jim, think of it this way: every case is different. For smaller companies, the acquisition may not utilize significant space, while strategic buys often result in larger expansions. It greatly depends on the specific acquisition situation.

Understood. Regarding the same-store progression in 4Q and how it may be impacted by the vacancy in four properties, what would need to happen to bridge that gap?

Yes, Marc?

We provided leased/negotiating stats for those properties. Half were leased, and the other half were in negotiation. With momentum expected to build in the second half of 2024, we anticipate improvements in those numbers. The amount of free rent that’s already been leased will also be a factor moving forward.

The next question comes from Tom Catherwood of BTIG. Please go ahead.

Thanks and good afternoon, everyone. Peter, you commented previously on tenant space planning trending towards more just-in-time leasing. Is that still accurate? Or are some markets seeing tenants getting ahead of their expirations to secure space?

Yes. Decision-making has been slow, and many tenants are looking to secure existing options rather than investing in new space. However, companies needing larger spaces must plan ahead as inventory in those sizes is limited.

The just-in-time inventory issue is mostly applicable to clinical biotech firms that are waiting for milestones to scale, prompting a more urgent need for space.

I appreciate the insights.

The next question comes from Jamie Feldman of Wells Fargo. Please go ahead.

Great. Looking ahead at your 2024 expiration schedule, the percentage moving into redevelopment has declined. Should we expect that number to trend lower as the year progresses?

Marc, do you want to address that?

Yes, last quarter we anticipated redeveloping the 219 East 42nd Street asset, which we've opted to sell. The redevelopment assets remain viable; we are focusing on non-core assets.

Thanks for the clarification. Regarding the expected $95 million to $125 million in investment gains, following the impairments, how confident are you that you'll reach those numbers?

Historically, we've averaged $96 million annually for the last three years. While impairments were modest, ongoing M&A activity and a positive outlook give us confidence in reaching that guidance.

This concludes our question-and-answer session. I would like to turn the conference back over to Joel Marcus for any closing remarks.

Thank you, everybody, and I look forward to our call for the first quarter again. Safe and healthy new year.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.