Alexandria Real Estate Equities Q3 2026: $638M of write-downs; adjusted FFO per share fell 31% to $1.54

Alexandria Real Estate Equities (NYSE: ARE) is a REIT, a company that owns rent-producing buildings and pays out most of its taxable income as dividends. It leases laboratory and life-science campuses, mainly in Greater Boston, San Diego and the San Francisco Bay Area. In the third quarter of 2026, reported in the 10-Q filed October 26, 2026, it wrote down another $637.9 million of property it has decided to sell, its biggest quarterly write-down of the year. That turned the GAAP result into a net loss of $638.5 million, or $3.74 per share, against a $1.38 loss a year earlier.

The write-downs are not cash and do not touch rent. The figure REIT investors follow is FFO (funds from operations): net income with real-estate depreciation, property write-downs and gains on property sales added back, because those say more about property values than about the rent coming in. ARE's own "as adjusted" version also removes swings on its venture-capital stakes and gains or losses from retiring debt early. That figure fell 30.6%, from $2.22 to $1.54 per share, and was down from $1.73 in Q2. The underlying business is still shrinking, just much more slowly than the $3.74 loss suggests.

The numbers

A note on two rows. "Operating margin" here is ARE's own measure: net operating income (rent and tenant reimbursements minus the cost of running the buildings) divided by total revenue. It is not the GAAP operating line. Once $304.4M of depreciation and $637.9M of impairments are counted, GAAP expenses exceeded revenue by about $620M. Same-property NOI covers only the buildings ARE owned and operated in both periods, so it is the cleanest read on the existing portfolio. It fell 6.7%, a much smaller decline than Q2's 10.6%.

Where the decline came from

Fewer occupied square feet, not lower rents. Same-property rental revenue fell $22.0M (4.8%). The filing ties this to average occupancy in those buildings falling to 88.1% from 91.7%, including 282,878 square feet of known lease expirations in the quarter. About 91% of ARE's leases are "triple net": the tenant also pays the building's taxes, insurance and running costs. Empty space therefore loses those reimbursements as well as the rent, and same-property tenant recoveries fell another $7.3M.

A smaller company. Revenue from buildings outside the same-property pool fell $51.4M (42.1%), "primarily due to the real estate dispositions completed after July 1, 2025." This is the planned result of selling assets to cut debt, not tenants leaving.

Interest expense up $24.8M (45.3%), almost all from accounting for construction. While a building is under construction, the interest on the money funding it is added to the building's cost ("capitalized") instead of hitting the income statement. Gross interest rose only $1.7M. Capitalized interest fell $23.2M as projects were finished, sold or set aside, so more of the interest bill now reaches earnings. This will continue. The capitalizable cost base fell to $4.46B at September 30 from a $5.87B average during Q3, because 421 Park Drive and the Stanford project stopped qualifying once they were classified as held for sale. Management expects $3.4–$4.9B in Q4.

G&A up $11.7M (40.0%). This is mostly a comparison effect. Q3 2025 was held down by the timing of a compensation-plan restructuring and by cost cuts that management says were partly temporary. The filing notes Q3 2026 G&A was still 6.9% below Q3 2024.

The write-downs: what ARE has decided it cannot finish

An impairment is a write-down taken when a property's book value exceeds what it can realistically be sold for. This quarter's charges show which pre-2023 bets ARE is giving up on:

• 421 Park Drive, Fenway (Boston): $343.3M, cutting the carrying value to about $238.9M. ARE signed a sale agreement with "an institutional user" for 339,668 square feet, close to the whole project. Closing is expected in Q4 2026, and the sale removes about $136M of construction spending ARE would otherwise have had to fund.
• Palo Alto and San Carlos: $256.1M in total. That is $135.3M on four vacant office buildings bought in 2022, $79.2M on six office-flex properties bought in 2021 (both groups meant to become labs), and $41.6M on a development site bought in 2018. In each case the filing cites "the significant capital that would have been required to convert these properties."
• Austin land: $50.4M, leaving a 344,000 sq ft parcel carried at about $11.1M.
• San Diego: $17.9M more on Sorrento Valley and Sorrento Mesa buildings, $8.5M of it "based on updated negotiations with prospective buyers." As in Q2, actual bids came in below the earlier markdown.
• Offset: a $31.5M reversal on Montreal. The sale agreement for that portfolio fell through and ARE decided to keep it. Most of the earlier charge was foreign-currency losses that will now not be booked.

Impairments now total $865.9M for nine months, after $2.20B in 2025. The pattern is consistent: almost everything written down was bought in 2018–2022 to convert into labs, and ARE is now selling it at a loss rather than spending the money to finish it.

Leasing and occupancy

Leasing volume was 1,236,030 square feet, the highest since Q4 2024. That included 450,961 square feet of previously empty space, the second-highest quarterly amount in the company's history. On renewals and re-leasing, rents fell 2.4% on a GAAP basis and 3.3% in cash, close to Q2's −0.7% and −4.3% and well clear of Q1's −15.0%.

Period-end occupancy rose slightly to 87.1% from 86.9%, but the bridge shows how the 0.2 points were made: +0.5 points from tenants moving in, +0.6 from moving partly vacant buildings into the held-for-sale category, and −0.9 from adding the 339,020 sq ft 311 Arsenal Street building to the operating pool. ARE moved 311 Arsenal out of redevelopment after switching it to a cheaper "advanced technology" (non-lab) use, which cuts about $220M of planned construction spending. Signed leases on space not yet occupied would add 3.7 points, taking occupancy to 90.8%.

What the headline numbers hide

• The GAAP loss is almost entirely write-downs. Impairments of $637.9M equal $3.74 per share, the same as the net loss per share. Without them ARE would have shown roughly break-even GAAP results. Depreciation alone is $1.58 per share.
• Adjusted FFO is the real measure, and it is still falling. At $1.54 it is down 30.6% year on year and 11% from Q2's $1.73. Two identifiable costs explain much of the drop from Q2: interest expense rose from $64.3M to $79.7M, and tenant wind-downs (write-offs and reserves on rent owed by tenants that are shutting down) cost about $16M, against about $8M in Q2. Neither is a one-off. Wind-downs are now guided at $30–35M for the year, up from $25–30M, and management "preliminarily estimate[s] at least a similar level" for 2027.
• Cash flow roughly matches the earnings measure. Operating cash flow was about $341.8M in the quarter ($875.4M for nine months minus $533.6M for the first half), against $264.4M of adjusted FFO. FFO counts only ARE's share of its joint ventures, while operating cash flow also includes partners' shares. Cash is not running weaker than the earnings figure.
• Cash same-property NOI (−2.8%) fell less than GAAP (−6.7%), mainly because of a $20.2M swing in straight-line rent. That accounting adjustment spreads scheduled rent increases and free-rent months evenly over a lease. The cash figure is the better read of rent actually collected.
• The share count did not help. Diluted shares were 170.8M, up 0.3% from a year earlier. No stock was bought back under the $500M authorization.
• Guidance tightened around an unchanged midpoint. Full-year adjusted FFO is now $6.38–$6.42 (was $6.35–$6.45), still centred on $6.40. With $5.00 earned through nine months, Q4 has to come in around $1.40. That is the bottom of the $1.40–$1.50 Q4 range management reiterated in August, and 9% below Q3.

On balance the quarter is understated: the $3.74 loss per share is the $637.9M write-down of assets being sold, while the adjusted FFO measure that excludes it shows $1.54 per share. That figure is falling at a 31% annual rate, though, so "understated" does not mean healthy.

Takeaway: ARE is choosing to take write-downs instead of finishing projects. It is selling half-built or never-converted lab projects at a loss (421 Park Drive, Palo Alto, San Carlos) to avoid funding hundreds of millions more of construction, and it is borrowing expensively to bridge the gap. The cost of that choice shows up in adjusted FFO, which is still declining, through more interest hitting earnings and tenants winding down. The quarter's 0.2-point occupancy gain came from reclassifications, not demand.

Balance sheet: the hybrid bond replaced $1 billion of asset sales

In August ARE sold $1.00B of 7.25% junior subordinated notes due 2057. These are hybrid bonds that rating agencies count as 50% equity, and ARE can defer their interest for up to five years. In return it cut its 2026 asset-sale target from $2.90B to $1.90B. The trade-off is direct: the coupon is roughly 3 points above the 4.17% commercial paper cost cited in Q2, and the filing puts the new notes at $8.1M of extra interest incurred in the quarter. Management now expects full-year interest expense "near the high-end" of $260–$300M. The fixed-charge coverage target (operating earnings relative to interest and other fixed charges) was cut to 3.4x–3.9x from 3.6x–4.1x for the same reason.

Leverage (net debt and preferred stock to annualized adjusted EBITDA) was 6.9x, or 6.6x after the October sale of a 29% stake in the Campus Point campus in San Diego for $475.0M. The year-end target is still 5.6x–6.2x. Completed sales total $716.8M, with another $355.4M under non-refundable deposit and $1.55B at signed-LOI or late-stage contract negotiation. Liquidity rose to $4.56B from $3.60B. ARE's BBB+ credit rating carries a negative outlook.

The dividend stayed at $0.72 per share, 45.5% below the $1.32 of a year ago, a 47% payout of adjusted FFO. Dividends paid in cash in the quarter were $123.8M ($371.4M nine months minus $247.6M first half), down from $227.2M.

Did last time's read hold up?

Our Q2 report named three things to watch. Asset sales: partly. Completed sales rose from $170M to $716.8M, but ARE reached its leverage path mostly by issuing $1.0B of 7.25% hybrid debt and cutting the sales target by the same amount, which costs interest. Renewal rents: they held. Q3's −2.4% stayed close to Q2's −0.7% rather than falling back toward Q1's −15%. Tenant wind-downs staying inside $25–30M: they did not. The range moved up to $30–35M, with about $30M already recognized. One more slip is worth recording. In Q2, signed-but-not-yet-occupied leases (then 1.4M sq ft and $69M of annual rent) were expected to move in around November 2026. That pool is now 1.3M sq ft and $52M, with a weighted-average move-in date of about June 2027, and only 32% expected in place by year-end (vs 64% before). Part of the change reflects 311 Arsenal Street's not-yet-delivered leases joining the pool, but the rent support we expected in the second half has largely moved into 2027.

Outlook

Management's 2026 guidance: adjusted FFO $6.38–$6.42 per share; year-end occupancy 86.2%–87.8% (unchanged); same-property NOI down 8.5%–10.5% (cash basis the same); renewal rents −9.0% to −1.0%; straight-line rent $40–70M (cut by $5M for tenant wind-downs); asset sales $1.10–$2.70B (midpoint $1.90B). For 2027, management already expects average occupancy to dip below the year-end 2026 level because of 1.38M sq ft of known 2027 expirations ($100.5M of annual rent, expiring around March 2027, with 9–24 months of expected downtime). It expects same-property NOI to remain negative but improve on 2026.

Our read: the guidance points to adjusted FFO of about $1.40 in Q4, below Q3's $1.54, and 2027 starts with another big block of expirations, more interest expense as capitalization winds down, and wind-down charges guided to at least 2026's level. The signs of stabilization are in leasing: near-flat renewal rents for two quarters and record leasing of vacant space. Those signed leases mostly take effect in 2027, while the costs are landing now. For Q4, watch whether the 421 Park Drive sale closes on schedule, whether the San Diego and Palo Alto held-for-sale assets sell near their new marks or need a fourth round of cuts, and whether occupancy holds within the 86.2%–87.8% range without further reclassifications.

Source: Alexandria Real Estate Equities, Inc. Form 10-Q for the quarter ended September 30, 2026, filed with the SEC on October 26, 2026; the Q2 2026 Form 10-Q for first-half cash flow figures.