Alexandria Real Estate Equities Aktie

Good afternoon, everyone, and welcome to the Alexandria Real Estate Equities Second Quarter 2026 Conference Call. [Operator Instructions] Please also note, today's event is being recorded.

At this time, I'd like to turn the floor over to Paula Schwartz with 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'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

Thank you, Paula, and welcome, everybody, to the Alexandria Second Quarter Earnings Call. With me today are Peter, Marc and Hallie. And before we start detailed comments, I'd like to start with a quote from Ralph Waldo Emerson, Cultivate the habit of being grateful for every good thing that comes to you, and to give thanks continuously. And because all things have contributed to your advancement, you should include all things in your gratitude. The point being we are very grateful and most proud of our one-of-a-kind team and of our one-of-a-kind mission. Operating in a highly regulated industry within a rapidly changing macro environment is never easy, but we remain steadfastly focused on our path forward.

Let me share with you some key observations regarding the second quarter and maybe a good place to start is leasing kind of the lifeblood and the key to stabilization of operating metrics, especially in the life science industry these days. And remember, 75% of our leasing has come from our own tenants, really best-in-class tenant roster.

We're seeing steady improvement, which is good. We're winning outsized number of shares of transactions, which is good. We have a very well diversified and strong tenant base. Our Page 18 pie chart is illustrative of that. Very strong leasing in the second quarter from our life science product, service and device sector, really the picks, shovels and tools of the industry, almost 40% of the leasing volume. Also a strong second quarter showing from our advanced technology sector in several of our submarkets with almost 30% of the leasing volume.

Public biotech, only about 6% as the industry is seeing substantially improving metrics. They are still decoupled from the demand on the ground, and we might have more to say about that in the Q&A. I think the one thing that could make a difference there would be, well, many things could make a difference, but I think stability and truly knowledgeable and expert leadership at HHS, FDA and NIH would certainly go a long way. There's still much work to do on our leasing of our redevelopment, development pipeline with only about 70,000 rentable square feet in the second quarter. And we're very keenly focused on the modest remaining 2026 rollovers that remain unresolved of about 494,000 rentable square feet. 2027 rollovers, unresolved other than those focused either track to leasing or track, we have ongoing discussions of about [ 2.7 million ]. This is mission-critical as we go forward to the last half of 2026 and into '27, of course.

For third quarter, our pre-read indicates that our best knowledge at this point is about 950,000 rentable square feet of leasing projected in the third quarter, again, based on our current view of that forward pipeline. We have and will continue to meet the market.

Moving from leasing to sources of capital, as we did in 2025, we are currently very comfortable that we can and will meet our total target of $2.9 billion. We're always mindful time is of the essence, but timing is never simple. We are making excellent progress and would not let some artificial timing because or be of concern at this juncture. The demand for Alexandria's assets remain strong. And in third quarter, we'll take a bit of a deep dive into the composition of the assets that have been sold or will be sold this year and the disposed NOI analysis. We are very mindful not to unduly tie our hands in any new joint venture transactions and are working hard to make sure those are successful both for capital raising and for operational efficiency.

Moving on to allocation of capital. We're laser-focused on trying to reduce our CapEx of the $1.75 billion construction pipeline for this year, which is fortunately highly leased, and we're anxious to continue deliveries, and we're focused on the lease-up of vacant space and making good progress there.

On the life science industry itself, I'll refer you to pre-read pages VII and VIII, 7 and 8 of the supplement regarding the core pillars and the key 2026 second quarter events. To say it's greatly nuanced and complex would be a bit of an understatement. Again, we're still very focused on HHS, FDA and NIH.

One other comment we see during an election year, a lot of people advocating for Medicare for all. It's been stated by many administrations at both the executive level and the HHS level that -- that would be -- Medicare for all would be kind of a budget buster. It would be almost impossible to administer given the current administration is still tough, and it would be a giant impact on budget. It would also mean taking 2/3 of the population who are covered under private plans and moving them to a government system. And if you go to Canada or any other country that has that system, you wait in line, so not a very desirable outcome.

The key factors to watch for the rest of 2026 in the life science industry beyond, obviously, the midterms, there's obviously continuing strong innovation, which is fueling the industry. There's been a very solid financing environment, and we're closely watching interest rates as they move around pretty significantly day-to-day, week-to-week, month-to-month.

Sentiment, we're watching closely, has been generally positive. M&A has been very strong this year. Drug pricing and policy has been kind of a mixed bag, but the most favored nations has not derailed the profitability and the go-forward health of the industry. We'll see where some of the IRA implementations come over the coming months and quarter.

On the regulatory side, that still is a bit of a mess, and that is of concern, although 23 products were approved year-to-date, and that is pretty well in line with past practice. Patent cliffs continue to be a big bugaboo of the industry. Earnings and growth have been pretty positive and China remains a big negative overhang.

Moving quickly to the balance sheet, our North Star and one that we continue to focus on and keeping strong and flexible. Marc will have a lot more to say about it, but we're confident that our year-end target leverage remains we can achieve 5.6x to 6.2x. Medium term, we're looking at mid-5s. We have excellent liquidity, and we successfully are extending our $5 billion line of credit to 2032. And as we've said a number of times, the longest average remaining debt maturity of all S&P 500, which is good. And Marc will discuss before I just turn it over to him in a moment, guidance. And he and the team have tried to detail the multifaceted set of items impacting '26. and the fourth quarter on Page 6 of the earnings release. Obviously, critical to establishing a solid earnings run rate base beyond 2026 will be a strong and consistent leasing of our development and redevelopment pipeline and successful handling of the 2027 lease rules.

We're laser-focused on continuing to decrease CapEx and manage our funding cost effectively. And with that, let me turn it over to Marc.

Thank you, Joel. Good afternoon, everyone. This is Marc. Congratulations to the entire Alexandria team for solid execution during the quarter. First, leasing volume for the quarter was solid and exceeded 1 million square feet. Second, we continue to be focused on improving occupancy with 1.4 million square feet of lease space that is currently vacant and is expected to be delivered to the tenants and positively impact occupancy in November on average. Third, continued outperformance on occupancy relative to the broader markets with average outperformance across our largest three markets ranging from approximately 8% to 12% as of the end of 2Q. Fourth, we delivered a 427,000 square foot build-to-suit to Bristol-Myers at our Campus Point Megacampus under a long-term lease, which will provide significant net operating income and value to our shareholders. Fifth, we remain committed to meeting our funding goals with 46% of our target for dispositions and sales of partial interest and other capital completed or pending subject to nonrefundable deposits signed LOIs or sales agreements under negotiation with another 38% in process. And sixth, we completed an extension of our $5 billion credit facility to 2032, providing tremendous access to liquidity for many years.

FFO per share diluted as adjusted was $1.73 for 2Q '26, and we reaffirm the midpoint of our guidance for 2026 FFO per share diluted as adjusted at $6.40, while tightening the range to plus or minus $0.05. Leasing volume for the quarter was solid at 1,039,000 square feet. A few items to highlight here on leasing activity. First, total volume was up 60% over the prior quarter and up 9% over the prior 4-quarter historical average. Second, new leasing comprised of both leasing of our development redevelopment projects and the vacant space aggregated almost 400,000 square feet for the quarter, which was the second largest quarterly total since 2Q '24, excluding the large big pharma build-to-suit lease we signed last year. And then third, leasing from public biotech increased quarter-over-quarter from zero last quarter to 5.8% of the total leasing volume, a positive sign, but still below the representative portion of our overall tenant base based upon annual rents of 21% for biotech.

Regional leasing outperformance continued in the San Francisco Bay and San Diego markets where we accounted for 2x and 1.7x the leasing activity compared to our market share during the quarter. Greater Boston lab leasing was approximately in line with our market share for the quarter if we carve out a 0.5 million square foot renewal of a big pharma company in Cambridge executed by another party. But our team was still very active executing 160,000 square foot advanced technology lease during the quarter, among others. With respect to tenants in the market, a positive momentum continued into the second quarter with an overall quarter-over-quarter increase of approximately 10%.

Another positive note is that we are starting to see an increase in tenants in the 20,000 to 100,000 square foot size range, which we've defined as the middle of the demand barbell. In the second quarter, 64% of the total requirements we're tracking in the big three markets are in that size range. Many of these tenants are public biotech companies, a segment of demand that has been lagging over the last few quarters. Looking ahead to the next quarter, we currently project solid leasing volume for 3Q '26 in the 950,000 square foot range. One factor to consider for context is that we have very modest lease expirations over the next 2 quarters with only 734,000 square feet of unleased expirations remaining for 2026.

And then on concessions, initial free rent concessions remain elevated but came down off the peak from last quarter of two months per year of term to this quarter based on a trailing 12 months of 1.5 months per year of term.

Occupancy at the end of 2Q '26 was 86.9%, down 80 basis points from the prior quarter. The key changes in occupancy for the quarter included the following three components: first, a reduction of 80 basis points driven by previously disclosed key known lease expirations, which went vacant during the quarter. Second, we reclassified 160,000 square foot building in our Andover Megacampus from redevelopment to operating when we leased the building to an advanced technology tenant. When we made this decision to not complete the redevelopment of the building as originally intended for laboratory and/or biomanufacturing use, we reclassified this building back into operating and accordingly, operating occupancy came down by 40 basis points. Importantly, we expect the lease to commence in 2Q '27 and positively impact occupancy at that time. Third, we had occupancy growth of 40 basis points, primarily driven by the commencement of leases and leasing activity.

Bolstered by solid new leasing during the quarter, we now have leased 1.4 million square feet, which is expected to commence in November 2026 on average with expected annual rental revenue of $69 million annually. Tenants continue to recognize the importance of Alexandria's strong sponsorship, operational excellence, asset quality location and our Megacampus model, which represents 80% of our annual rent and has led to our continued outperformance by approximately 8% to 12% across our largest three markets compared to market occupancy as of the end of 2Q.

Same-property net operating income was down 10.6% and 8.6% on a cash basis for 2Q '26. These percentage changes represent an improvement compared to the prior quarter performance of 1.3% and 3.1% on a cash basis. The overall decline for 2Q ' 26 same-property performance was primarily driven by a reduction in occupancy compared to the prior year. We expect stronger same-property performance in the second half of 2026, which includes the potential benefit related to a range of assets with vacancy that could potentially be sold or designated as held for sale in the second half of 2026 and could be removed from the same-property population. We did not make any changes to our guidance for occupancy, same-property performance or rental rate changes on lease renewals and re-leasing of space. Despite current challenges in the life science real estate market, we continue to benefit from a high-quality tenant base with 57% of our annual rental revenue coming from investment-grade or publicly traded large-cap tenants, long remaining lease terms of 7.7 years, average rent steps approaching 3% on 97% of our leases and strong adjusted EBITDA margins of 67% for 2Q '26.

We continue to focus on the successful reduction in management of our general and administrative expenses as well. We remain on track with our guidance range of $134 million to $154 million for 2026, which represents around a 14% savings at the midpoint compared to our 2024 benchmark or about $24 million in annual savings. On a combined basis for 2025 and 2026, we expect G&A expense savings of around $76 million in aggregate relative to 2024. Our trailing 12-month G&A as a percentage of net operating income through 2Q '26 of 6.6% is less than half of the average for all S&P 500 REITs over the last few years of 14.3%.

Realized gains included in FFO per share diluted as adjusted from our venture investments were $10.3 million for 2Q '26 or $28.5 million for the first half of 2026. We reiterated our guidance range for realized investment gains of $60 million to $90 million for 2026. Capitalized interest for 2Q '26 of $73.7 million was up slightly from the prior quarter, primarily driven by an increase in our weighted average interest rate on debt. We expect average real estate basis capitalized to reach a bottom for 2026 in the fourth quarter, ranging from $3.4 billion to $4.9 billion, which is a $2.8 billion reduction in basis compared to the first half of 2026. We reduced our guidance for capitalized interest by $5 million at the midpoint of our range due to anticipated earlier completion of certain construction and preconstruction milestones, primarily impacting 4Q, including a potential decline related to projects which we are evaluating business and financial strategy.

As of 2Q '26, we have 1.4 million square feet of development and redevelopment projects under construction and expected to stabilize through 2028, which are 71% leased. In addition, we have 1.4 million square feet spread across five projects, which we are evaluating the business and financial strategy for. Overall, the square footage in our pipeline has shrunk by 20% from the beginning of the year as we continue to execute on our plan, which includes completing our development and redevelopment projects or in some cases, pivoting to advanced technology strategies. We continue to make progress in resolving the go-forward strategy for our five projects under evaluation. 311 Arsenal Street located on our arsenal and the Charles Megacampus in Watertown and our Greater Boston market is the first one. We are seeing very solid activity for this project from advanced technology users, and we executed letters of intent for approximately 109,000 square feet with multiple tenants, which increased the lease negotiating percentage for this project up to 44%.

Next, 421 Park located in our Fenway Megacampus. This is a ground-up development project intended for laboratory use, and we have important activity from an institutional user. The outcome for this project will depend on tenant interest, and we have upcoming construction milestones to consider in early 2027. 40 Sylvan Road is the next one located in Waltham. This project will be attractive to advanced technology tenants that may find certain elements of the building attractive and may not require a conversion to lab. This project has critical milestones in the second half of 2026, which we are carefully evaluating. And then finally, 3,000 Minuteman Road, which is located in our Andover Megacampus. This site will be attractive to advanced technology tenants as evidenced by the 160,000 square foot lease we executed for one of the buildings on this campus during the quarter. For 311 Arsenal, 40 Sylvan Road and 3,000 Minuteman Road, if we complete significant advanced technology leases, we may place all or some portion of these spaces into the operating pool, which may reduce operating occupancy in the near term, but more importantly, will reduce our capital needs and generate near-term revenue upon delivery.

We continue our laser focus on our sources of capital with a disciplined multifaceted strategy, which includes dispositions, sales of partial interest and other capital with a focus on the substantial completion of our large-scale noncore asset sale program in 2026, with a guidance midpoint of $2.9 billion and a weighted average projected completion date in September. We continue to refine the projected sale composition ranges as we get more clarity with land dispositions comprising 15% to 35%, noncore asset dispositions of 10% to 20% and sales of partial interest and other capital of 50% to 70%. In addition to traditional joint ventures of core assets included in the 50% to 70% basket within our guidance, we are also evaluating other important cost-efficient capital source alternatives that would help us achieve our desired leverage goals and allocation of capital uses, and we expect to have more information to share soon.

To be very clear on this point, our guidance does not assume the issuance of any common equity for 2026. Our team is making good progress with $1.3 billion or 46% of our $2.9 billion guidance midpoint, which is completed or pending subject to nonrefundable deposit, signed LOI or sale agreement negotiations and is spread across about a dozen transactions. We have another $1.1 billion or 38% of the midpoint of our guidance of transactions that is currently in process. and we expect to make decisions on the remaining 16% over the next few months.

In connection with our disposition program, we recognized impairments of real estate of $222.5 million during the quarter, of which approximately 85% to 90% of this amount relates to either land or properties that were laboratory conversion opportunities. The two largest impairments made up around 57% of the total balance and included the following: first, a land parcel located in Northern San Diego that was acquired in the last five years with the intent to develop new laboratory buildings. And the submarkets outside of Torrey Pines and UTC have become very oversupplied and this land parcel is now under contract to sell to a residential developer. And then second, an office building located in Toronto that was acquired in the last five years with the intent to convert to laboratory use. Biotech demand in Toronto has been greatly diminished, and this building is now under contract to sell to a user.

We have over $450 million of assets that have been designated as held for sale and are expected to be sold within the next 12 months, the majority of which were designated and had impairment charges going back to 4Q '25. Looking forward, we have real estate assets under consideration for potential disposition either by the end of this year or in 2027 that may have estimated market values below their respective carrying values. These assets remain as held-for-use assets at 2Q '26 and remain recoverable under a probability weighted recovery analysis and accordingly, have not been impaired due to a variety of factors necessary to designate these types of assets as held for sale. including the lack of a final decision to proceed as well as our current estimation that it is unlikely that we will complete these individual sales within the next 12 months. We could have impairments over the next couple of quarters if these types of assets subsequently meet the accounting requirements for held-for-sale designation as we refine our approach, make final decisions to proceed, obtain the necessary approvals and commence the disposition marketing process.

On the balance sheet, we have a very strong and flexible balance sheet. Our corporate credit ratings continue to rank in the top 20% of all publicly traded U.S. REITs. We have tremendous liquidity of $3.6 billion as of the end of the quarter, and we recently completed an agreement to extend our $5 billion unsecured senior line of credit to 2032, providing significant runway and flexibility.

We continue to have the longest average remaining debt term maturity among all S&P 500 REITs with an average term of 9.7 years. And we remain committed, as Joel said, to our leverage goal for 4Q '26 of 5.6x to 6.2x on a net debt to annualized adjusted EBITDA basis. Leverage for 2Q '26 was at 7x on a quarterly annualized basis, and we expect this ratio to come down significantly over the next two quarters as we make progress on our capital plan. Over the medium term, we would like to be around mid-5x.

On guidance, we tightened the range of our guidance for 2026 FFO per share diluted as adjusted with no changes to the midpoint of $6.40. Our current outlook has a few moving pieces to highlight. Interest expense is expected to increase by $20 million at the midpoint, driven primarily by two factors: first, later timing on disposition and sales of partial interest, which is now expected to be September on average, which represents about a six-week change. And then second, a reduction of capitalized interest of $5 million related to earlier completion of various milestones across several projects, primarily impacting the fourth quarter. We now expect higher FFO per share results in 3Q '26 caused by the later weighted average completion date on capital sources, and we expect lower FFO per share results in 4Q '26, driven by the lower capitalized interest. We expect 4Q '26 FFO per share diluted as adjusted to be on the lower end of the range of $1.40 to $1.50. But given the benefit in 3Q '26 that I mentioned, there is no change to the full year results, which remain at $6.40.

Our earnings release contains several key considerations that could have an impact on our results beyond 2026, which are highlighted on Page 6. Two important takeaways for that page are as follows: First, we have 1.4 million square feet of key lease expirations in 2027 with expiring rent of $100.5 million, which are expected to have downtime ranging from 12 to 24 months on average. And second, we are laser-focused on meeting the market and leasing up vacant space. And accordingly, our very preliminary estimate for construction spending for '27 ranges from $1.15 billion to $1.65 billion and is expected to heavily focus on costs necessary for lease-up of our operating properties. And the increase from our last update of around $1.25 billion is primarily attributable to higher leasing costs associated with current and anticipated leasing for our operating assets.

We continue to focus on the execution of the steps for our path forward that we established at our Investor Day. With 10,000 known diseases and limited cures and treatments, the industry is in the early innings of the fight against disease, and we believe Alexandria is well primed to attract the best tenants driven by our world-class Megacampuses in the best locations and operated by our seasoned team, prioritizing operational excellence in everything that we do.

Now I'll turn it back to Joel.

So, operator, if you could open it up for questions, please.

At this time we'll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Farrell Granath from BofA.

I first just wanted to touch on the leasing that has been done, especially for the advanced technology tenants. I'm thinking about that going forward as potentially a key tenant for your leasing and how the trade-off between the lower CapEx and potentially lower stabilized yield may offset from the tenant improvements or other costs that you would have had upfront for life science tenants.

Yes. Thanks, Farrell, for your question. So, I think, it's fair to say that many of these are not traditional kind of AI office kind of tenants. There are tenants who are looking for critical infrastructure. So the lease rates will vary based on that infrastructure, how much we contribute versus how much they contribute. And obviously, many of these tenants are extremely well funded, have pretty great credit and wish to put a lot of their own money in. So there is that trade-off of lower CapEx and somewhat lower rental rates.

But I don't know, Marc, do you want to make any comments generally on that?

Yes. Yes. The other thing I would add to that is incremental yields are generally around the same as lab. But as you said, Farrell, the all-in yields can be lower, but certainly being able to monetize these assets by getting cash flows with a path -- a path to get cash flows with better visibility is something we're interested in doing. And it was a big piece of the leasing pipeline or the leasing activity this quarter, and I think it will be a decent size next quarter as well.

Yes. And maybe just thinking historically, if you go back, this generation of advanced tech tenants and technologies is quite varied and quite complicated just given the evolution of technology. But going back to the early days, we never really pitched to tech tenants. But early on, we had Google's first campus. As you know, we had Uber come to us quite surprisingly to build for them in Mission Bay. OpenAI has come into there. So we have by chance, but most of that has been fortunate because of excellent location of the Megacampuses and the amenitization and what goes into those campuses as being a great place to recruit and retain talent for these companies.

And my second question is on your disposition timing. I know that the weighted average disposition time only shifted a few weeks. But one I wanted to see if you could touch on what drove that shift? And if -- what gives you confidence on the continued close of your midpoint of the $2.9 billion?

Yes, I'll ask Peter to comment. But I think it's fair to say that in general, much like we did last year where we closed the vast proportion of our dispositions in the fourth quarter, timing is what it is, and parties are always positioning to make sure they're doing the best job they can on diligence, protecting themselves. We do the same. And so I wouldn't read anything at all whatsoever into any timing issues.

Peter, I don't know if you want to make any overarching comments.

Yes. I mean the -- there's a significant amount of sales that are in the JV bucket, and we're progressing on them. One of the JVs is in its final steps, but the other one is less advanced because it's more complicated. We thought we'd be further along by now when we talked at different investor conferences.

The other thing is on the noncore bucket is typically reliant on financing and financing is available, but it is taking our buyers longer to obtain it. So that's also pushed the time line out a bit.

Our next question comes from Ronald Kamdem from Morgan Stanley.

Great. My first one is just sticking on the dispositions. Just thinking about from the Investor Day where you sort of announced a $2.9 billion plan and sort of what you've seen so far. If you sort of marry the comments you made about the CapEx spending next year and the NOI or the rents that are coming out, presumably, there could be more dispositions next year. And I guess I'm just curious, are there any sort of lessons learned sort of in this year's experience on trying to get these dispositions through that presumably as we flip the calendar, if you have to put in another sort of big program that you think could sort of be helpful.

Yes. I don't think we have any lessons learned that we haven't learned previously. I think that our experience last year is pretty reflective, I think, as we've shared of this year. I think the level of interest and the momentum has been greater this year. And certainly, the industry has made a much better recovery than where it was last year. So I think we're on track this year. We feel good, and we'll see about next year. We're trying to manage CapEx. We're trying to manage spend and sources. And we'll give further framework, if we will, to that in the third quarter and certainly specific guidance in the fourth quarter. But I think we feel very comfortable where we are.

Great. And then my second question, I know the occupancy guide includes 1% or 2% benefit from the dispositions and so forth. Maybe can you talk about just high level, marry the leasing with sort of the occupancy and how you're seeing sort of the tenant health and their access to funding?

Yes. So, maybe, Marc, do you want to comment and then maybe I'll ask Kelly on tenant health overall.

Sure. Yes. In terms of the occupancy guide, the big moving pieces between the end of 2Q and the end of the year is -- well, I should say this, at the end of 2Q, we're right around where the midpoint is for year-end occupancy. And as you think about between now and the end of the year, we've got some lease expirations that we've identified that we expect to have some downtime. That's about 450,000 feet. And then there's a good chunk of the 1.4 million square feet of stuff that's leased that hasn't yet hit occupancy, about 60% -- I think 64% of that is expected to deliver by the end of this year. So those are the two kind of offsetting items between now and the end of the year. And then obviously, we've got lease -- other lease expirations that are pretty manageable. We've got 500,000 beyond that to deal with as well as if there's any surprises on the -- on tenant health. But I think we feel -- still feel very good about where we're going to end up on occupancy.

Great. And Hallie here, happy to take the second part of the question on tenant health and general sentiment on the ground. So we continue to monitor all of our tenants individually. And just as a reminder, even irrespective of the funding environment, biotech is hard, and there certainly are clinical failures and things that are going to happen irrespective of what the macro market looks like. And so our team across the country is incredibly diligent on getting ahead of those issues and trying to swap out tenants or find replacements before we do have an issue.

One thing that I would say in terms of positive momentum on the funding side is private venture funding was very strong this past quarter, one of the strongest quarters since 2021. IPOs have continued to pick up this year. Secondary financings have been strong as well. We continue to see conservatism from companies in making space decisions, but I think line of sight into funding is positive, and we're seeing that in the tenants in the market.

Our next question comes from Seth Bergey from Citi.

I just kind of wanted to follow up on some of the key expirations. And what kind of increased the downtime from 6 to 24 months to 12 to 24 months? And then I know you kind of included some of the disclosure around the 67% of early discussions and 33% marketing around the 2027 key expirations. But just what are your expectations around retention broadly for those leases?

Yes. So maybe I'll have Marc comment maybe Peter as well. But I think the movement from 6% to 24% to 12% to 24%, 6% to 18% to 12% to 24% is really done out of an abundance of conservatism and caution. Again, until we see the mainstay tenant base of public biotech really come back in a meaningful way, we just want to be cautious. We've got other -- as you saw this quarter, the picks and shovels and tools sector picked up substantially. We had good activity, as we just talked about from advanced technology companies, which also have, by and large, longer lease terms, and they're positive for both occupancy and obviously, weighted average lease terms. But I think out of an abundance of caution, we just want to be careful with that, but we hope we can do better.

I don't know, Marc, a couple of comments. And then, Peter, any thoughts on the leasing side.

Yes. Seth, yes, on the 1.4 million square feet, I think you were referring to as part of the key lease expirations that have downtime. Those are things that we've identified that we don't expect to retain those existing tenants. So we do expect downtime that 12 to 24 months does reflect both lease-up time and time to put capital in because those are spaces that we expect on average will require some capital. And then I know you asked also about -- or I think you meant to ask more about retention broadly. I don't know that we're ready to get into where retention will land on the rest of the expirations for next year. But -- in terms of where we ended up or started the year for '26, we -- outside of the known vacates, we were somewhere in the 60% to 70% range for 2026 is what we've been modeling.

Yes. And keep in mind, if you look at Page 23, we've tried to -- Marc and his team have tried to layer on a couple of visuals regarding downtime and obviously, where those tenants are going, relocation to other ARE properties or they're moving or doing something different. So we've tried to add that to disclosure.

Peter, anything else, Hallie, on leasing, guys?

Yes. I will say that if you look at the 2026 key expirations at the bottom of Page 23, 50% of that, as we pointed out, is leased and negotiating and that -- that's going really well. The other half of it, we do have activity, as you can see in the early discussions bucket. But there is a big chunk of that as well that is still leased and is just going to become available in the next quarter. And until the -- usually until the tenants move out, it's really tough to get a lot of activity going. So I'm pretty pleased with the fact that we've got almost half of that remaining 50% already under discussions and then that other half, we should start seeing some activity on.

And then the other thing I'd like to point out is the '27s -- we noted that 67% has early discussions. I did some analysis, and we've actually got 85% of that space has active prospects, meaning people that we are talking to specifically about the space. So that -- I think that bodes well for starting to make good progress on that towards the later half of this year.

I don't know if Hallie wants to say anything about that.

Nothing else here. You guys covered it well.

And maybe just a second one on the 10% increase in tenants in the market. Were there any kind of main kind of food groups of leasing activity that really drove that improvement?

Yes. Again, this is Peter. I walked through this with Marc, and he had it in his comments, but there was a significant increase in tenants between 20,000 square feet and 100,000 square feet. That's the middle of the barbell that we've been talking about being missing for quite a while. That's why we have a barbell. So I would say that, that was a positive this quarter that we started seeing that size tenant come in. And as Marc mentioned, those -- that size tenant is typically public biotech. So if you marry it with what Hallie just talked about with secondaries and IPOs starting to come into the market and people having line of sight on financing, I think that's why we're starting to see that tenant size, which is very welcome.

This is Hallie. I would just add, while we are seeing that demand increase, we are also seeing those sizes, the requirements, I would say, more broadly across the different sectors of life science tools, which Joel mentioned, continues to be strong, and that's driven by lots of leases. We had quite a few that contributed to those numbers this quarter. So I do think public biotech is still slow and lagging compared to the other sectors. But I think broadly across all of the other ones, we're seeing pretty widespread tenants in the market, which is great to see.

And this is Peter again. I also just want to emphasize what we talked about at the investor conferences when we revealed the increases in tenants in the market. It takes a while for this activity to land in leasing. So I just want to just give you guys a reminder. I mean, it's typically 9 to 12 months for significant activity or significant increases in tenants in the market to start showing up in leasing.

Our next question comes from John Kim from BMO Capital Markets.

A couple of times in this call, you mentioned meeting the market on leasing, and I just wanted to get more clarity on whether that meant just being more aggressive on the face rents or TIs? Or is that -- when you say meeting the market, that's where the demand is in terms of advanced technology or other non-biopharma tenants?

Yes. I mean I view it as both, but Peter?

Yes, I was going to say exactly it's both. But in the traditional sense of, hey, look, there's been disruption in the market. You have a choice. You can hold firm on the economics that you underwrote or you can be flexible. And we've chosen to be flexible. I think the market in general has done a good job of keeping face rates above where they were pre-COVID rocket ship, but they have come down. And then obviously, meeting the market also means you have to meet what the tenant is requiring today, which is much larger TI packages, if not full build-out and free rent concessions.

But I'll know, as Marc mentioned on his commentary that we think the free rent concession is starting to bottom, and we're starting to see improvement there. But yes, we're meeting the market two ways: one, by getting to the economics that we need to get to, to make the deal and also opening ourselves up for an alternative tenant class that can utilize our infrastructure. It may mean that we have lower rents, but it also means that we'll have lower capital requirements. And given the cost of capital today, that's a great trade-off.

And also helps plug the operations, any leakage there, which is important to keep in mind.

Yes. On your disposition plan, it sounds like you have good visibility on the $1.2 billion under LOI or with deposits. Of the remaining $1.6 billion that you plan to sell this year. I was wondering if you could talk about either the confidence you have on that? Or if that -- if those sales don't happen this year, what is plan B in terms of either other sources or delaying some of the uses to maintain your leverage?

Yes. So I'll ask Peter to answer, but let me give you my view is very high confidence in that category that you talked about. And there is no plan B in the sense that we're adjusting each and every day how we think about both saving CapEx and then raising capital to fund the necessary CapEx, especially for the well-leased pipeline, et cetera. So it's not like we're changing plans. We're pivoting and shifting and working every day to get through a highly nuanced set of assets.

And I think we feel very, very good about where we are. But Peter?

Yes. I referenced it on an earlier question. One of the larger transactions in that bucket is joint venture that's just taking longer than we anticipated. So that's driving that number. But that number has come down 50% from last quarter, if you compare. So there is progress happening. It's not as fast as we would like. And again, there's other things that I mentioned in answering that last question such as we've got a lot of land sales. We've got a lot of noncore sales. And today's buyer for those things wants to leverage it. And it's -- that financing is available, which is key because if it wasn't, we'd have to pivot to a different solution, but it just takes a lot longer than we were expecting.

Our next question comes from Anthony Paolone from JPMorgan.

On the 1.4 million square feet of vacates for next year, do you have a sense as to what the lease economics are going to look like versus prior leases, just either in face or just total net effective rents and what those roll ups or downs or what they may be?

I don't know, Marc, if you want to think about that comment.

Yes. Yes, Tony. Look, we haven't -- that's not baked into this year's guidance in terms of the rent roll downs or roll-ups just given that those expirations are a little bit further out. And as Peter said, we tend to get more traction as those spaces come back. But if you look across the portfolio, the spot mark-to-market is, call it, around 6% above market. So, on average, that's kind of where we're at today. And we're seeing some -- we're seeing pressure on rents relative to expiring on average for this year that's baked into our guidance. So I don't have a whole lot to add beyond that.

Okay. And then just second one, in terms of the development and CIP, you have the various buckets where there's milestones that you'll evaluate. I mean what would you need to have to continue to move forward with those outside of, say, like a pre-lease to kind of do an incremental deal?

Yes. It really depends on the category. On the land, we've got pretty good visibility on the stuff in the '28 bucket. I think you're referring to the stuff that's in the '26, '27 categories with milestones coming up. That will really depend on opportunities to add value on those land parcels. And if there -- if we don't see the trade-off between being able to add value in the near term, particularly given where demand is, we may choose to pause on some of those things or we may choose to flip that into the disposition program and land is going to be a pretty sizable piece of the overall disposition plan for this year.

Our next question comes from Jim Kammert from Evercore.

In the capital recycling for the balance of '26, I think Peter and others on the call have mentioned there's a fair bit of JV component. Would Alexandria contemplate JV-ing an entire Megacampus?

Well, we have JVs on a number of Megacampuses already. So the answer would be, yes, there could be varying degrees of joint ventures, but we already have some of that historically. So that would not be a different strategy than we've had in the past.

And then a small question, Marc, I think you mentioned at 421 Park, you had an institutional user, I think, as you described it. Was that maybe for the entire 392,000 square feet or so? Or is that a portion of the building?

Yes. I think we can make no comment because we've got ongoing pretty detailed negotiations. So let us -- sorry to do that, but let us punt on that because it's an important transaction.

Our next question comes from Vikram Malhotra from Mizuho.

I guess just maybe, first of all, a higher level, if you can give us a sense of like where do you see occupancy bottoming? You've had maybe two years of step downs now. And related to that, just I wanted to clarify, how should we think about occupancy falling or rent falling from, say, like the move-outs you outlined, the $100 million of impact and what that means for margin? Like how much is the NOI hit if, say, it's $100 million of revenue loss?

Yes. So, Marc, do you want to respond?

Yes, sure. So we're kind of right around 87% today. We think that's right around where we'll end up by the end of this year. We've got the 1.4 million square feet that comes back to us in March kind of on average. It's really going to depend on how quickly we can get ahead of leasing up vacant space to backfill that. Some of the stuff we've already leased today is going to, I think, 2/3 of it lands this year and about 1/3 of it next year. So that will help soften some of that space coming back to us next year. But we obviously still have work to do in terms of backfilling and leasing vacant space, and that will be largely dependent on the market.

I think we feel good that when there are opportunities where our asset can meet the size requirements and the timing requirements, we're often winning those deals. I think the times when we can't meet those time lines, et cetera, are the ones that may look to go elsewhere given the amount of supply that's out there.

In terms of the actual P&L impact to the $100 million, yes, there would be OpEx that would hit the income statement in addition to the rent, that $100 million is the rent -- the base rent number, Vikram. So some of that will hit the P&L. And I mean, you can do the math, but those -- it really depends on the market, but it's generally property taxes and insurance that when the buildings come back to us, that's hitting the P&L.

Yes. And then remember, Peter did say that we've got some pretty interesting discussions going on, on the 27 roles at a number that's not insignificant. So that's a good thing. Go ahead, sorry.

Okay. No, that's helpful. And then just two things I want to clarify the comments you made. So, I guess, one in the guide and the capitalized interest guide, you talked about, I guess, 3% in total of capitalized G&A and OpEx. And I just want to -- I want to make sure we're clear. So like as you sell these assets and the capitalized interest, the interest piece steps down, is there an additional G&A and OpEx hit that we need to bake in as we kind of factor in these sales into 2027, meaning you would typically capitalize at whatever total cost of debt at 4%, let's say. But do we need to then tack on 3% to that?

Yes. Vikram, so on the capitalized operating expenses, if you just look back over the six months, it's averaged about 2% of the basis that's been subject to capitalization. So I think that's what you're getting at. If we sell the asset, the OpEx will go away, right, because the buyer will assume those operating expenses. So that 2% shouldn't hit the P&L.

On the payroll side, like the internal payroll that generally gets capitalized to these projects, I think we've identified, it's averaged about 1% for the first half of the year. That will really depend. It's -- that is mathematically the amount that's been capitalized, but it will ultimately depend on what -- where those folks that are working on those projects spend their time. So it's possible some of that hits the P&L, but we've got a great group of development people, and I'm pretty sure they're not going to be doing nothing. So they're likely to be working on a variety of other projects. And we do have -- we still have a fair amount of construction tied into TI projects, et cetera, fitting up space. So I expect that they'll be very busy. So I wouldn't expect all that to hit the P&L.

Okay. I can maybe follow up on that. I just want to make sure there's not like an incremental hit to the FFO that would happen next year because of that? And maybe just last one, if I can sneak in. Just can you -- you mind us just giving the ins and out of the debt paydown as you go through the year? Just it's a bit confusing because the revolver balance, the commercial paper balance has gone up pretty significantly. And depending on what you're selling and then paying down debt, doesn't seem like overall debt is going down. So do you mind just giving us the ins and outs and how we should think about the debt balance at year-end '25 versus projected year-end '26?

Sure. Yes. So we had a pretty small balance on the line or really on the commercial paper at the beginning of this year. I expect that to be the same case at the end of '26. I think we said we'd expect it to be under, call it, $350 million or so. So that -- the lion's share of that $1.6 billion of debt paydown should come in the way of really unsecured bonds. So we had a couple of maturities. I think it was $750 million that was in the first part of -- or I guess, in the first quarter and the second quarter.

We also did the tender on top of that. We financed some of that with new bonds, but there was a couple of hundred million on top of that, that was a reduction of debt. So -- and then from here to the end of the year, we expect to have essentially almost all of the commercial paper that's outstanding today, close to $2 billion. We expect that to really be paid off by the end of this year with the disposition and the inflows of capital that we expect to execute on for the disposition program between now and the end of the year.

Our next question comes from Rich Anderson from Cantor Fitzgerald.

I'll keep it short, getting long on the call here. Just one topic for me, back to tenants in the market. I just want to make sure that this is -- first of all, I want to make sure this is exactly apples-to-apples to what was discussed at NAREIT, which was up 30% sequentially and really was just your three markets of San Diego, San Francisco and Boston. Is that the equivalent number of the 10%?

Rich, it's Peter. I'll just correct you if it was -- if I didn't communicate well NAREIT. The 30% quarter-over-quarter increase was all markets, not just the big three. And it's the same this time, and it is a sequential 10% increase over last quarter.

Okay. And I'm sure it was my fault, Peter.

And Rich, just to jump in there, that's just life science. That does not include technology tenants.

Okay. And so then glad you jumped in there because then I was going to ask if you have any sort of early read on the third quarter. We had the overhead cap taken away for NIH. So perhaps that caused some activity in the first quarter into the second quarter. Do you feel like it's still trending in a similar direction as we get into the back half of 2026?

I mean that particular issue was a driver for the outsized growth last quarter. I don't -- I didn't see anything in particular institutional that was meaningful outside of what happened last quarter. But obviously, there was no pullback, and that's ultimately going to be helpful driving institutional demand. But as I mentioned in a previous answer, what we're really happy to see is just more midsized tenants. And as Hallie pointed out, it's kind of across the board in the types of tenants. But I will say there are some public biotechs in there, which is nice to see.

And again, any insight into present quarter, third quarter?

As far as tenants in the market, we do the full accumulation of that before earnings. So I don't have any visibility of how that might look next quarter. We'll talk about it next call.

Our next question comes from Julien Blouin from Goldman Sachs.

So if dispositions were -- disposition timing were to slip into next year, what would be the impact on your FFO in the back half of this year? Would the additional NOI from holding those assets longer be washed out by the additional interest expense? And I think you mentioned other cost-efficient sources of capital you're considering. Not sure if you can sort of elaborate on what's being...

Yes. So let me maybe just give you one simple answer. And the answer is we don't expect them to slip into next year. We, I think, well managed and concluded our disposition program last year on target. We expect that to happen this year. So no further comment on that.

Got it. And then on 311 Arsenal, 40 Sylvan and then 3,000 Minuteman, I just want to make sure I'm getting this right. Conversions to the operating floor not currently anticipated in your capitalized basis guidance that you gave for the fourth quarter of '26. Is that right? And then if those were to happen, that would sort of lead to additional capitalized interest burn off into next year?

Yes. Julien, I can take that one. So I kind of think of them as separate issues. We -- right now, our guidance does not assume at least for occupancy in same property and such, like the operating statistics, it doesn't assume that those come back into the operating pool. So if that does happen, that will be -- that will impact occupancy in same property. But in reality, it's just a shift in classification.

In terms of capitalized interest, our guidance does assume that some of those projects may have to pause, and that was baked into our guidance for capitalized interest.

And our next question comes from Dylan Burzinski from Green Street.

Just a quick one for me. On Page 23 of the supp when you sort of outlined the reason for expected downtime on the 27 key lease expirations. So you talked about 1/3 being related to leases that assets originally acquired for redevelopment. Can you sort of talk about the plan for those assets? I assume they're no longer slated for redevelopment, but maybe if you can talk about sort of the plan there in order to get those leased up. Are they competitive in their current state? And then as we look at the other 1/3 that you sort of label as other, is there any noticeable trend as to what is causing these move-outs? Is it sort of moving to other properties? Is it downsizing? Just any commentary there, I think, would be helpful.

Yes. So, Marc?

Yes, sure. So on the 1/3 or so of the assets originally acquired for redevelopment, those are assets that we've been very interested to see if there are advanced technology type tenants interested in those buildings, and we have seen quite a bit of activity. We had a big lease this quarter. It was 160,000 up in Andover. That was exactly what we're talking about, something we thought we were going to convert to either lab or biomanufacturing. But because of the nature of those assets, the ceiling heights, the ability to access power, they were very attractive to some of these other types of users. And it's an interesting swath of types of tenants that need those requirements. But we are tracking that, that is -- there are a lot of tenants out there, I guess, is what I would say that interested in those things, particularly in places like Boston and San Francisco and also in Seattle. So that -- I mean, those are the opportunities we're looking at for those as well as trying to lease them as is, but less likely that we convert some of that stuff to lab unless we've got tenants in hand.

On the last 1/3 that you asked about the other bucket, I mean, those are -- in some cases, those are assets that may need just may need capital. As an example, our Tech Square 200 campus, great location, great asset, but we really haven't invested money in that asset for many, many years, I think, since we really -- since we bought the asset back in 2006. So there's a little bit of that where there's some time that needs to go in there to upgrade those facilities before we can get tenants in there.

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to Joel Marcus for any closing remarks.

Okay. Thank you very much, everybody. Wishing everybody well and look forward to talking on the third quarter call. Thank you.

And with that, we'll conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.

Good day, and welcome to the Alexandria Real Estate Equities' First Quarter 2026 Conference Call. [Operator Instructions] Please note, today's event is being recorded. I'd now like to turn the conference over to Paula Schwartz with 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'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

Thank you, Paula, and welcome, everybody, to our first quarter earnings call. With me today are Marc, Peter and Jenna. First of all, as I always do, I want to say a thank you to our remarkable family team for their awesome efforts during a tough first quarter operating environment. And as they know well, we are motivated each and every day by our solemn mission to enable this precious life science industry, one of the most treasured and innovative industries on the face of the planet to discover and bring to patients life-saving and life-changing therapies. And how many of us, friends, loved ones still suffer from the likes of Parkinson's, ALS, pancreatic, colon, breast, et cetera, cancers, dementia to name a few. 2026, we celebrate the 50th anniversary of the DNA and biotech revolution, and we still have addressed less than 10% of human disease. The life science industry is a highly regulated industry dependent upon proper functioning of the 4 key pillars.

As we've said before, strong and basic translational research is critical. There remains strong bipartisan support in Washington to fully fund the NIH. There was a great victory this quarter in the defeat of the 15% limitation on reimbursement of institutional indirect costs, which I think will be very, very well both received and implemented over the coming quarters and years. Unfortunately, August 24 (sic) [ April 24 ], the entire NSF, National Science Foundation Advisory Board was fired. Their role is science and engineering advice, kind of a shock. Leadership challenges remain at the NIH and HHS and FDA. Number two, strong innovation, coupled with open and vibrant capital markets. Obviously, we're in one of the -- maybe the greatest innovation time in the history of humankind. On the capital markets, they've been very selective. Private funding has been very solid, but deliberate and discriminating.

On the public side, the markets have been open for good data and key milestones, but for most public biotechs in preclinical or in the clinic, which don't have data or milestones to finance off of, it's been a very tough slog. Number three, reliable and efficient regulatory framework, continuing effort to need to reduce time and cost into and through the clinic. The FDA progress has been sluggish. Leadership and staffing pressures have been abundant, and China continues to pressure the industry here at home. Number four, health payment and reimbursement environment for innovative medicines. CMS is actually operating quite well under the leadership of Dr. Oz, but both sides of the aisle are focused on drug pricing. And it's hard to imagine that they haven't figured out an approach to cut out the middleman, which takes 40% to 60% of medicine pricing, which would ease the burden both on the recipients of care and on the innovative drug discoverers.

We get often asked about AI in all realms of all industries. And I think it's fair to say that most of you know by now, we've got 37 trillion cells in each of our bodies and AI can support but not replace physical experimentation. Biology is just way too complex at this stage. R&D cannot go fully in silico given the massive complexity of biology. And giving an example, Novartis' CEO, who just joined the Board of Anthropic said, we only understand less than 5% of human -- the functioning of the human body today. And as you know, drug development is very complex from target discovery to hit generation to lead identification to optimization to clinical trials and on to commercialization. And it's pretty clear that the authorities in this area believe AI cannot replace physical experimentation. Most current usage is still document-centric, not biology breaking.

Push button drug discovery is overhyped and even native AI companies in this sector haven't proven dominance whatsoever. It's pretty clear that AI is not fully autonomous discovery, but is aimed at compressing time lines and increasing throughput and recovering lost institutional knowledge, and that is all really good. I think most experts believe that AI will have a small impact on real estate requirements and could even see the need for additional dry and wet space as they run experiments designed by AI. Moving to the first quarter, as all of you know, it was a very tough operating environment, but we made very solid progress on our path forward laid out in detail at our Investor Day. Number one was to maintain a strong and flexible balance sheet, and Marc will talk more about that. Number two is to reduce capital spend and funding needs going forward. And I think we're well on our way to refining -- or refining and reducing CapEx in our pipeline.

And we've also been fortunate to sign quite a number of LOIs leading to leases, which will reduce the CapEx into the lease statistics as we go forward. Something that is a cornerstone to this year in this reset is to substantially complete a large-scale core, noncore and sales of partial interest disposition plan. We are on track even though the first quarter was relatively quiet, but we fully intend like last year to meet our goal. And I think it's fair to say, and Peter can expound on this when -- during Q&A, the transaction market for life science assets is even better this year than it was last year, and we have a high level of confidence. Four, we want to steadily improve occupancy and increase NOI focused on leasing. The pinch point in leasing has been -- this is one of our lower quarters, but we look to bounce back nicely next quarter.

This is maybe the first quarter in the history of the company that I can remember where we didn't sign a single public biotech lease. So that gives you a sense of what the environment is out there. I think it's fair to say in our pre-read, we highlighted the sale, which closed during the fourth quarter, but it's emblematic of the quality and value of the underlying life science assets that we continue to hold, especially on the mega campus. Our disposition of 409/499 Illinois Street in Mission Bay received a record pricing of $1,645 per square foot, the highest ever achieved for lab asset in San Francisco. And by the way, it was 40% occupied. Fair to say that this year, what is critical for us is to continue our path forward. The mega campuses will continue to differentiate us. Our balance sheet will remain strong and flexible. We've worked on continuing to lower G&A.

The quality of our assets continues to be outstanding as recognized by our tenants as well as our operational excellence and clearly a best-in-class team throughout. I think finally, fair to say that if you look at our top 20 tenants, 80% of the top 20 tenants are investment grade and -- or large-cap companies, and that's very reassuring. 55% of our total ARR comes from that. And of the top 20, we have almost a 10-year WALT, which is really great. And we have one -- I think, the longest of WALT of -- not WALT, but duration of our debt, and Marc will talk about that. And then finally, 78% of our ARR comes from our mega campus platform, which we've been working hard on. So with that kind of intro to the quarter, let me turn it over to Marc for his detailed comments.

Thank you, Joel. This is Marc Binda, Chief Financial Officer. Good afternoon, everybody. First, congratulations to the entire Alexandria team for the outstanding operational execution of the steps of our path forward set forth at our December Investor Day despite a very challenging industry backdrop, including, first, outperformance on capturing leasing demand in our largest markets relative to our market share. I'll get to that later. Second, positive development and redevelopment leasing momentum with the execution of development and redevelopment leases and letters of intent aggregating 394,000 square feet. Third, focus on improving occupancy with cumulative leasing of vacant space of 1.1 million square feet that we will deliver in September on average.

Fourth, continued general and administrative expense savings of $7.4 million compared to the 2024 quarterly average. Fifth, a $366 million gain associated with our unsecured bond tender, which reduced our overall debt; and sixth, significant fundraising efforts with $2.2 billion of dispositions and sales partial interest pending or identified and in process. FFO per share diluted as adjusted was $1.73 for 1Q '26, and we reaffirm the midpoint of our guidance for FFO per share diluted as adjusted for 2026 at $6.40 while tightening the range. Leasing volume for the quarter was 647,000 square feet. The decline in total lease volume was driven by the following: first, as expected, lower renewals and re-leasing space given the 657,000 square feet of key known lease expirations that we anticipated would become vacant during the quarter; and second, limited demand from public biotech with 0 leasing volume in the first quarter a segment of our tenant base, which accounts for 24% of our annual rental revenue.

A bright spot for the quarter includes the positive momentum on development leasing with 118,000 square feet executed and another 276,000 square feet of signed letters of intent for existing development and redevelopment space. Looking ahead to the second quarter, we do expect an uptick in total leasing volume of around 900,000 square feet, given the early activity to date. Free rent and rental rate changes on renewed and re-leased space were under pressure in 1Q '26, which reflects the market realities and includes a 48,000 square foot lease at 40 Arsenal Watertown for a 12-year term, which was a significant contributor to the rental rate reduction of about 15% and 15.8% on a cash basis for the quarter. Alexandria continues to dominate in our largest markets. This is a really important takeaway. In our largest 3 markets during 1Q '26, we captured on average around twice the leasing volume compared with our market share of life science real estate.

For Greater Boston, we captured approximately 20% of the total leases in the market, which is 153% of our market share. For San Francisco Bay, we captured 30% of the total leases in the market, which is 253% of our market share. And for San Diego, we captured approximately 67% of the total leases in the market, which is 208% of our market share. These stats highlight Alexandria's dominant brand, sponsorship, mega campus quality location and the best team in the business. Occupancy at the end of 1Q '26 was 87.7%, down 320 basis points from the prior quarter, primarily driven by the 657,000 square feet of key known lease expirations, which went vacant during the quarter. We have an additional 747,000 square feet of key lease expirations expected to go vacant in 2026 with approximately 45% of that expected to expire in the second quarter, which should put pressure on occupancy for 2Q '26.

For the second half of '26, we expect occupancy to benefit from the 1.1 million square feet of vacant space that has been leased and is expected to deliver in September on a weighted average basis. We updated the midpoint of our guidance range for year-end 2026 occupancy from 88.5% to 87% or a reduction of 1.5%, which was primarily due to a reduction in the anticipated benefit from a range of several potential disposition properties, which have vacant space. Our initial guidance assumed a 2% benefit, and we now assume around a 1% benefit as we no longer expect to sell as many assets with significant vacant space. It's important to highlight that we've had good leasing interest on some of these types of properties with vacant space. Tenants continue to prioritize asset quality, location, best-in-class operations, sponsorship and brand trust, which distinguishes Alexandria as well as our mega campuses, which represent 78% of our total annual rental revenue at 1Q '26.

Importantly, this has led to significant occupancy outperformance by Alexandria in the mid to high 80% range across our largest 3 markets compared to market occupancy in the mid to high 70% range for these same markets at the end of 1Q '26. Same-property net operating income was down 11.9% and 11.7% on a cash basis for 1Q '26, which was primarily driven by a reduction in occupancy. Consistent with my commentary on our last earnings call, we expect stronger performance in the second half of 2026, primarily driven by improved occupancy compared with the corresponding prior year period. It's important to also highlight that our anticipated same-property pool also had lower occupancy in the second half of 2025 compared with the first half of 2025, which all things being equal, should help same-property performance in the second half of 2026.

We updated the midpoint of our guidance range for same-property net operating income from down 8.5% to down 9.5% or a 1% reduction due to a decrease in the anticipated benefit from a range of several disposition properties, which have vacant space similar to the dynamics I described for the change in occupancy guidance. Despite the current challenges in the life science real estate market, we continue to benefit from a very high-quality tenant base with 55% of our annual rental revenue coming from investment-grade or publicly traded large-cap tenants, long remaining lease terms of 7.5 years, average rent steps approaching 3% on 97% of our leases and strong adjusted EBITDA margins of 66% for 1Q '26. We continue to focus on one of the pillars of our path forward, which includes the continuing successful reduction in management of general and administrative expenses.

We remain on track with our guidance range of $134 million to $154 million for 2026, which represents around a 14% savings at the midpoint compared to our 2024 benchmark or about $24 million in annual savings. On a combined basis for 2025 and 2026, we expect G&A expense savings of around $76 million in aggregate relative to 2024. And our trailing 12-month G&A as a percentage of net operating income through 1Q '26 of 6% is less than half the average of all S&P 500 REITs over the last 3 years at around 14.3%. For 1Q '26, realized gains included in FFO per share diluted as adjusted from our venture investments were $18 million, and we reiterated our guidance range for realized investment gains of $60 million to $90 million for 2026. Capitalized interest for 1Q '26 was $70 million, which was down around $12 million from the prior quarter. The decline was primarily driven by a pause on construction and preconstruction activities on assets that were sold or designated for sale in 4Q '25.

We expect capitalized interest to decline in the second half of 2026 due to a combination of factors, including, first, the completion and delivery of some of our current development and redevelopment projects under construction; and second, the potential for pauses or ultimate dispositions related to land, including some portion of the land with real estate basis averaging $1.2 billion with preconstruction milestones in August of 2026 on a weighted average basis. We reduced our guidance for capitalized interest by $5 million at the midpoint of our range with a corresponding increase to interest expense due to anticipated earlier completion of certain construction and preconstruction milestones and pauses related to several projects in the second half of 2026.

We enhanced our disclosures for capitalized interest to highlight construction and preconstruction milestones broken down by year, including the following: first, land with $567 million of real estate basis with preconstruction milestones in April 2027 on a weighted average basis; and second, development and redevelopment projects under evaluation for business and financial strategy of $1.3 billion spread across 5 projects with construction milestones in March of 2027 on a weighted average basis. We continue to evaluate each project individually. If in the future, we decide not to move forward with these projects beyond these construction milestones, capitalization of interest for these projects would cease along with other related project costs, including payroll, which are highlighted on Page 42 of our supplemental package.

We have 1.9 million square feet of projects under construction and expect it to stabilize through 2028, which are 77% leased, including around 600,000, which is expected to stabilize in 2026, which is 93% leased. We also have 1.6 million square feet spread across 5 different projects for which we are evaluating the business and financial strategy. I'll walk through the 4 largest. First, 421 Park Drive is located in our Fenway mega campus. This is a ground-up development intended for laboratory use. We expect this project to be attractive to the many nearby institutions. And the outcome for this project will depend on tenant interest, and we expect to have critical construction milestones in early 2027, which we are evaluating. Second, 40 Sylvan Road is located in our Waltham mega campus. We believe this project could be attractive to advanced technology tenants that may find certain elements of the building attractive and may not require a full conversion to lab.

This project has critical construction milestones in the second half of 2026, which we are also carefully evaluating. Third, 311 Arsenal Street is located on and is highly integrated into our Arsenal In the Charles mega campus located in Watertown in Greater Boston. We are seeing good activity for this project from advanced technology users, and we recently executed approximately 82,000 square feet of letters of intent with 4 tenants for this kind of use, which increased the lease negotiating percentage for this project up to 28%. And fourth, 3000 Minuteman Road is located in our mega campus along Route 495 north of Boston. We believe this site will be attractive to advanced technology tenants as evidenced by the 160,000 square foot letter of intent we recently signed for a portion of the project.

For both 311 Arsenal Street and 3000 Minuteman Road, if we complete these advanced technology leases, we may place all or some portion of these spaces into the operating pool, which may reduce operating occupancy in the near term, but more importantly, will reduce our capital needs and generate near-term revenue upon delivery. We continue to focus on our disciplined strategy to recycle capital from dispositions and partial interest sales to support our funding needs with a focus on the substantial completion of our large-scale noncore asset program in 2026. We expect land to comprise 10% to 25% of the $2.9 billion midpoint of our guidance for 2026 dispositions and sales of partial interest with core, noncore and sales of partial interest to comprise the balance of 75% to 90%. Our guidance assumes a weighted average completion date of August 2026, which is about a month later than our initial guidance provided at our Investor Day.

We believe there is strong institutional interest for our core assets at a reasonable cost of capital. And accordingly, we believe that joint ventures for some of our core assets could be a significant component of our capital plan, and we expect to have more details over the next quarter on the mix of dispositions as well as the timing as this continues to evolve. Our team is making good progress with about 80% of the $2.9 billion midpoint for dispositions and sales of partial interest pending or identified and in process. We expect to make decisions on the remaining 20% over the next several months. In early December, our Board authorized a reload and extension of the common stock repurchase program of up to $500 million. Our guidance does not assume any common stock repurchases in 2026 based upon current market conditions, and we're currently prioritizing our fundraising efforts to go towards our existing capital needs before we consider future common stock repurchases.

We continue to have a strong and flexible balance sheet. Our corporate credit ratings continue to rank in the top 15% of all publicly traded U.S. REITs. We have tremendous liquidity of $4.2 billion and the longest average remaining debt maturity among all S&P 500 REITs of 10 years. We have reiterated our guidance range for 4Q '26 net debt to annualized adjusted EBITDA of 5.6 to 6.2x. As expected, our first quarter 2026 leverage increased to 6.8x on a quarterly annualized basis, and we expect leverage to come down in the second half of 2026 as we make progress on our dispositions and sales of partial interest. We tightened the range of our guidance for 2026 FFO per share diluted as adjusted with no change to the midpoint of $6.40. We made a number of changes to the underlying assumptions for guidance, which were primarily driven by 2 items.

First, we reduced rental rate changes and rental rate changes on a cash basis by 7% and 3%, respectively, primarily for 2 transactions, which include a 48,000 square foot long-term lease completed during 1Q '26 in Watertown to an entertainment studio user and an 81,000 square foot lease completed in April with an exciting growth stage life science company to backfill a struggling tenant located in Torrey Pines, and we continue to focus on capturing demand and meeting the market for the right tenants. Second, our initial guidance assumptions for occupancy and same-property performance included a 2% and a 3% benefit, respectively, for a range of assets that could be considered for sale during 2026.

Due to changes in the mix of assets considered for sale this year since our initial guidance, we now have a smaller assumption for sales of assets with significant vacancy. Accordingly, we reduced our outlook for occupancy and same-property performance by 1.5% and 1%, respectively, to reflect an updated assumption that we hold on to more assets with vacancy in part due to good tenant interest on these types of assets. At our Investor Day in December, we provided a guidance range for 4Q '26 FFO per share diluted as adjusted of $1.40 to $1.60 with a midpoint of $1.50. We refined this range to $1.40 to $1.50, which implies a $0.05 decline at the midpoint of the range of $1.45 which is primarily related to a reduction in capitalized interest, as I discussed earlier.

It's important to note that while our guidance for the fourth quarter of 2026 implies a $0.05 reduction in the midpoint to the $1.45, the midpoint for the full year 2026 FFO per share diluted as adjusted was unchanged at $6.40 and benefited from later timing on the projected timing of dispositions and sales of partial interest, which was moved back by about a month. In addition, we also provided several key current considerations on Page 6 of our supplemental package that highlight several factors that could have an impact on our results in and beyond 2026, including 1.5 million square feet of lease expirations for 2027 with approximately $97 million in annual rental revenue that are expected to have downtime and which we are closely monitoring.

We remain keenly focused on executing the steps for our path forward that we established at our Investor Day, including maintaining a strong and flexible balance sheet, reducing funding needs, substantially completing our large-scale noncore disposition plan, focusing on improving occupancy and NOI and successfully managing G&A, among others. With 10,000 known diseases and limited cures and treatments, the industry has a lot to accomplish, and we continue to believe that life science companies will continue to recognize Alexandria as the market leader with the best assets in the best locations and the best on-the-ground teams to operate these mission-critical research facilities. Now I'll turn it back to Joel.

Operator, let's go to questions, please.

[Operator Instructions] Today's first question comes from Farrell Granath with BofA.

I first wanted to address the change in occupancy guidance that you made a commentary about the consideration of those assets no longer being considered for disposition, but the disposition guidance did maintain at the $2.9 billion. So I was just wondering if you could bridge that change what other assets were maybe being considered? Is it more assets that don't have as much vacancy? Or is it land? I'm just trying to understand that mix.

Yes, Marc?

Yes. So it was a change in the mix. As you said, the midpoint was unchanged. There were a handful of assets that we had been considering for sale that had vacancy that we've seen, in some cases, some good leasing interest from tenants. And so we ended up changing some of the assumptions to other assets that have more kind of stabilized occupancy. The ultimate mix, we gave a broader range this time around of 75% to 90% for both core, noncore as well as joint ventures. So that's really where the change in the mix will come in that component. And we should be able to have more color on what that looks like over the -- I would say, over -- hopefully, over the next quarter or 2.

And my second question is about the leasing into the entertainment studio for the arsenal lease. Just curious about that type of exit opportunity of reaching the demand that's in the market and maybe being an alternative use. How much of the near-term or line of sight leasing is potentially for this alternate use versus life science?

Well, yes, Farrell, this is Joel. The entertainment tenant was an existing tenant, and it was a renewal given the fact that rental rates for that type of space have come down in the area. So it seemed prudent to renew a tenant in hand rather than empty out the space and reposition it or whatever. So it wasn't a new use. It was already there. And that's an asset that we've owned for probably 20 years. But I think you see through a number, 311 Arsenal, we've had very good activity with a range of advanced technology companies where we can utilize the space at a less CapEx investment. Rental rates are not as buoyant as lab, but those represent good opportunities. So it really depends on the location, the type of space. It's hard to generalize.

And our next question today comes from Seth Bergey at Citi.

It's Nick Joseph here with Seth. Just given the FDA leadership uncertainty and NIH budget pressures, have you seen any behavioral changes on the private biotech tenant side around expansion decisions or sublease activity or requests for lease modifications?

Well, on the private side, I think we've said that ventures continue to raise money and deploy that money. They've done it in a much more judicious fashion than during, obviously, the bull market run of the last decade and then kind of a rocket ship of COVID, just given market conditions and the fact that you can't -- some companies can execute an IPO, but it's pretty difficult. But overall, I think that the FDA impact to the private side is really more impactful on the public markets, but they do obviously impact the private markets in the sense of confidence in raising the money. But I don't know, Jenna, any comments you want to make?

I think that's right. I think overall, FDA uncertainty as far as policy is concerned, changes. I mean, obviously, there are some things that the FDA has tried to do and announce in trying to expedite regulatory review processes and the like, which is hopefully net positive for the industry, but that's not really playing out, as Joel mentioned on the private side just yet. Public are kind of contending with that a bit more.

That's helpful. And then just curious, any changes to the current tenant watch list relative to kind of the past few quarters?

Yes, Marc, you could comment on that.

Yes. Look, we continue to evaluate tenants really on a kind of one by one, tenant-by-tenant basis. I will say at the beginning of the year or really at our Investor Day, I think we had identified something around $23 million. That number has crept up in terms of a reserve for wind downs or tenant failure. That number today is somewhere in that $25 million to $30 million range. And it's through a variety of -- it's a variety of tenants, both private and public biotech as well as the kind of the ancillary type tenants, the revenue kind of producing tenants that also service those types of tenants as well.

Yes. I think, Seth (sic) [ Nick ], if you look at the -- just one comment on that. If you look at the current environment over the last, say, year or 2 as distinguished from historical biotech, this is the first time that companies have really more -- or owners have more aggressively, not at the public level, but at the private level, tried to combine companies or wind down companies that they feel that the opportunities for the marketplace just aren't there. And so that's just part of capital discipline and the judiciousness with which people are watching dollars, again, given tight public capital markets. So that's the big change, I think, that we've seen compared to historical.

And our next question today comes from Ronald Kamdem with Morgan Stanley.

I was looking through some of the disclosure on the 2027 expirations, which were really helpful in terms of -- I think there were some added expirations coming in 2027 versus prior. I guess my question is, as we're sort of putting it all in the blender and you're thinking on a same-store basis, it seems likely that 2027 could be down similar magnitudes as 2026, given it's a pretty similar setup with the expiration level. Is that a fair way to think about it? Or just what breadcrumbs would you provide for that?

Yes. So I'll ask Marc to comment, but maybe just from a topside view, I think we're not -- it's so early in the year and so much can change. Just look at what changed last year from inauguration through the year was kind I couldn't believe the impact to the industry. It's pretty clear that, number one, we can't give '27 guidance at the moment. And number two, I think we're hopeful, as you see from some of the -- if you call them breadcrumbs, but the movement in leasing, whether it be for life science or alternative advanced technology to be gaining some good foothold there. And I think that gives us hope that we can address some of these. As I said, one of our key elements to the path forward is increase occupancy and hence, NOI. So -- but Marc, any comments you want to make?

Yes. Just that, as Joel said, we're not ready to give guidance for '27. But certainly, you're right that there's some expirations that we expect to have downtime. But a lot of -- the ultimate answer to your question is how quickly can we lease up vacant space, lease up the developments, et cetera, to blend into an occupancy number that makes sense. And a lot will really just depend on where the industry goes and a lot of these kind of macro factors. But we'll continue to lease and I hope continue to outperform in terms of capturing the amount of demand.

Yes. And a couple of examples that Marc mentioned, 311 Arsenal and 3000 Minuteman are really good examples of that where we were having chronic vacancy and figuring out the strategy that we wanted to go forward, whether it is hold and lease, whether it's reposition, whether it's disposition, et cetera. And I think just those incremental achievements this quarter have been positive. So that just gives you a little bit of the change we're seeing.

Great. My second question was just on the dispositions. It sounds like there's a little bit of a pivot away from some of the more vacant assets. I think you said you're considering JVs now. I guess my question is, is there also a change in sort of pricing expectations? And is there any sort of market concentrations where you're seeing more or less traction?

Yes. So I'll ask Peter to comment, but let me say, in general, I think any mix, and Marc has kind of given you the mixing bowl and there's a slide in the pre-supp read. It's very dependent upon traction of leasing and where we see leasing progress, especially if we can lease for lower CapEx and get quicker NOI realization, we're going to pivot on that particular asset in a positive way. That doesn't mean that someday we would hold the asset indefinitely, we might choose to sell it. But I think that's been the key driver. But Peter, just a comment or 2 on the transaction market.

Yes. We have just found that there's a good amount of core type capital in the market that's looking for high-quality assets. So we wanted to leverage that. We have found a way to do it through JVs. But I wanted to say that it doesn't mean that our noncore asset sales would suffer through because of that. There's still a lot of people out there looking at those types of acquisitions as well. And everything that we have been marketing has been well received and does have multiple people looking at it. So we got a lot of confidence that we're going to hit our numbers despite the fact that we didn't do much this quarter, although we let people know that early. But anyway, yes, the amount of money from the core side that's coming into the market has really just allowed us to lower our cost of capital overall by doing some of these JVs.

And our next question today comes from Anthony Paolone with JPMorgan.

Joel, you mentioned the FDA and judicious capital markets as being some factors out there in the environment. But just what do you -- are there any other items that you think right now are impacting the demand for space? Has there been any change in sort of like the type of space folks want? Or this is just going to take a while to play out?

Well, I think the pinch points are a couple of pinch points. One is the turmoil at NIH, which caused a lot of -- certainly impacted us directly in a number of markets. And now that's easing up with the limitation on the indirect cost reimbursement that the NIH was doing and then kind of the NIH going to the hill wanting a reduction in their budget, which I've never actually heard of anybody who would want to do that when the Senator or when Congress on both sides of the aisle are in favor of more or less fully funding the NIH. So that's early-stage stuff. And hopefully, that gets worked out over time. I think there's some good positives there, but leadership is a problem. I think the FDA is a huge problem.

Almost every day -- there was just a release today that it looks like they may try to pull an approved drug off the market because the FDA claims that maybe there was some manipulation in data. So almost every day, you're getting a shock effect from the FDA, both at the leadership and at the core level. And I think that's very real because as people think about funding, whether it's preclinical or into the clinic, you've got to be mindful of time, cost and approvability. I think that another pinch point clearly is the capital markets. As I said, public biotech, whether they're preclinical or clinical, can't really finance unless they've got data or a milestone, and that's kind of a killer situation. Zero public biotech leases this quarter to the leading franchise is unheard of.

And then I think finally, there is the China effect, which a lot of capital is flowing to China for perceived ease of time frames and cost. I think that ultimately is going to backfire like a lot of offshoring that has taken place because Chinese data is not going to be allowed without going through a pretty rigorous FDA approvability and oversight. But I think there -- a lot of people are trying to get drugs into the clinic in China and then bring them over. And so that certainly impacted, I think, space. So I think all those factors together have made it a much more challenging operating environment. But Todd Young, who's Senator from Indiana has got a bill and an effort to try to curtail some of this craziness with China.

It's a little bit about how we offshore autos and steel over the last many decades and then realize that, boy, you can't do that or rare earth minerals, you can't leave them in the hands of a potential adversary. So I think there will be congressional action. It probably will come after the midterms, unfortunately, just because there's so much controversy, but I think it will happen because this is a critical industry, and we continue to lead the world, but the fact is China is a powerhouse and their government has poured immeasurable resources into this while we're kind of in disarray at the moment, which is unfortunate. But I think we'll get our act together here.

Okay. That's real helpful. And then just second one on 421 Park Drive. I just -- I didn't quite get what the considerations or what the options were as you evaluate that. So I think there's a little bit of leasing there, but I couldn't tell if there was a change of use or I just was hoping to understand that a bit better.

Yes. So 421 is a state-of-the-art lab. It is -- we've sold several floors of that on a condo basis to a major institution in Boston and the rest remains for lease or for sale in the sense of a condominium kind of situation. But the NIH 15% kind of brought a halt to almost all demand, certainly in the Boston area and to some extent across the country. Now that, that has been overturned in the circuit courts and the administration has not chosen to fight it. I think the path forward there likely will be institutional leasing or sale of condominium interest. So we're waiting for that to kind of evolve. I don't think we would pivot to another use there likely. I mean it could be office from Longwood Medical Center or the Fenway. There is a huge amount of medical-related office demand there. And so that's a possibility, but we feel pretty good about the future there now that the 15% issue has kind of gone by the wayside. It will just take a little bit of time.

And our next question today comes from Jim Kammert with Evercore.

Joel and team, pardon my ignorance, what do you define as advanced technology tenants? And I'm just trying to get a sense of maybe not your tenants, but what would those industries or tenants representatively be? And what would sort of be the tenants of that sort in the market across your 3 primary Boston, San Diego, San Francisco markets?

Well, a lot of that is secret sauce. So -- but let me say, I think an example, and you guys were just there at Campus Point when you did the tour with us, that campus holds -- primarily, we're delivering the Bristol-Myers West Coast Research headquarters hub. We're working -- we just broke ground on Novartis, and there's a lot of early-stage biotech there. But the campus in addition to being heavily big pharma is heavily advanced technology, 2 tenants really make up maybe 25% of the rent roll there. One is a Amazon. This is not a fulfillment or a distribution. This is part of -- I really can't say what part of Amazon, but it is a very sophisticated and research-oriented part of Amazon, and they've been there for quite a long time. And then we did a build-to-suit on that property. I think we showed you the buildings or the building, several stories of brand-new office for Leidos who does the -- they manufacture the advanced screening technology at airports, et cetera.

And then we've built several floors of skiff space below that. So we consider both the Amazon use and the Leidos use as advanced technology uses. So advanced technology is pretty broad. We've been involved in it since -- I mean, we did Google, although Google is not necessarily an office -- or a lab-type tenant, although we've leased to some of their subsidiaries laboratory would be -- advanced technology is a pretty broad definition. But I don't necessarily on a public call, get into how we view this and how we're trying to position some of our spaces because obviously, it's a highly competitive marketplace. But the demand there is large and the funding there is large.

Very helpful. And then for second question. As regards to the 4Q $1.40 to $1.50 run rate, does that contemplate at the lower end even $3.7 billion potentially capital recycling or more closer to the midpoint of $2.9 billion? Just trying to square some of our modeling assumptions.

Yes, Marc?

Yes. Yes, sure. Yes. No, we did bring down that range, Jim, I think at Investor Day, we gave a range of $4 billion to $5.5 billion, so $4.75 billion as the average amount of basis being capitalized for 4Q '26. We brought that range down by about $200 million. So that's kind of where we expect things to fall out. Obviously, things can change, but that's our best guess for now.

Okay, appreciate that.

And our next question -- sorry.

Yes, let me just say one other thing. So Jim, one thing that we've mentioned over and over is for a variety of technologies, we call them advanced, but it's a broad range of technologies. There are needs for highly secure spaces, heavy floor loading capacity, very enhanced HVAC systems, et cetera. There's a bunch of -- I think, even Hallie at quarter or 2 kind of highlighted some of that. So we're particularly interested in that kind of an advanced technology tenant, not just a, say, an office AI kind of tenant, we wouldn't really consider that in the same category. So if that's helpful, sorry.

And our next question today comes from Vikram Malhotra with Mizuho.

I guess just I wanted to go back to that $1.40 to $1.50 run rate. I know you said that was sort of our best guess. But you revised the guide now a couple of times. And I guess I'm trying to figure out like at this point, is that truly the $1.40 bottom? What's maybe the biggest variable in your mind that could push that $1.40 lower? And just to clarify, is that $1.40 sort of the initial run rate going into '27?

Yes. So I'll let Marc answer that, but I think you have to remember, we give you our best judgment based on facts and circumstances as we know it at the quarter end point in time. And obviously, things change a lot. I mean, imagine what happened first quarter of '26 when the leadership and nature of health and human services changed dramatically with the appointment there last year. So -- and then tariffs came shortly thereafter. So you can only make a best judgment based on this time and space. So we'll update quarterly. But Marc, you can answer the question.

Yes, Vikram, so yes, cap interest is one of those drivers. That's the one that drove the number down by around $0.05 from kind of the last time we updated that number at Investor Day. I mean in terms of areas that we're focused on or risk factors, I mean, the couple that come to mind is we've got to execute on the disposition plan. As Peter said, we're very focused on that and I think are feeling incrementally more confident on our ability to execute there. And then tenant wind downs can sometimes be unpredictable. That number, as I think I mentioned earlier on the call, had grown from kind of a reserve number of $23 million to something closer to $25 million to $30 million, but we've continued to work through that. So those are a couple of things that we're watching closely, but the $1.45 midpoint is our best estimate at this point from what we know.

Okay. Great. And I just want to touch on 2 -- get your thoughts on 2 topics. One more specific, the G&A, sort of given the dispositions that you've embarked on for a while and now perhaps next 2 years, is there simultaneously maybe a relook at G&A to cut that further over the next 2 years, both sort of core G&A, but also performance-based? And then second, do you mind just touching on the topic of AI and square footage needs? There's a lot of debate on is the lab-to-office ratio changing? Is the total square footage potentially changing? But any anecdotes from your tenant base on their use of AI and what that means for future space would be helpful.

So maybe, Marc, do you want to take number one and then maybe Jenna and I will address two.

Sure. Yes. We've been -- in terms of G&A, we've obviously been focused on really managing G&A very carefully for many years. We had a big reduction last year that had $50-plus million of savings. And we've been highlighting for a while that some of that wouldn't necessarily continue into '26, but still a meaningful improvement. Part of that has been some restructure of the comp plans. There was certainly some forfeited comp for some of the executives last year. And so we -- look, we continue to do what's right for the organization and put people in the right positions to succeed. And so we continue to make sure we got the right people on the bus, and I think we have an outstanding team. I don't know if you want to add anything else there, Joel.

No, I think it was good. So on AI and square footage, I think it's fair to say that I made remarks in my commentary, and I would add to that. We haven't seen any tenant, not to my knowledge, and I've got pretty good insight into tenants across the portfolio who've come to us and said, gee, we want to reduce because of AI. We just haven't seen that, and we don't have back office space that would be highly susceptible to that. On the other hand, we haven't seen people come to us and say, gee, we're expanding because of AI, and we're ready to do that, generally. I mean those -- it's just too early, and I kind of laid out the experts view of this area, not Joel or Alexandria, but I think what I said in my earlier commentary rings true. But Jenna, from the ground -- on the ground thoughts, comments of what you're seeing there?

Happy to. Hello, everyone. So as Joel mentioned, we are really not seeing material changes from AI on the ground in terms of tenant demand and the specificity of which they need in terms of lab office ratios shifting at this point, we're just not seeing it. And part of the reason why is because as Joel mentioned, we are still in superbly early innings of AI's impact on drug discovery and development. And Joel mentioned 37 trillion cells in the human body. Biology is so massively complex. And certainly, disease pathophysiology, we just don't understand it enough to apply an AI layer to make it completely autonomous. We're very far from that. So AI certainly cannot replace physical experimentation or validation in a lab. But what we are seeing, and we hope because the opportunity set is so large with 10,000 diseases and only 10% addressed, many of them with not even adequate treatment is that we hope that AI will have value in compressing time lines, increasing efficiencies and reducing costs and really recovering lost institutional knowledge.

So that is kind of where we're starting to see AI take place and some of our companies are fully starting to incorporate AI into lab workflows in this lab in a loop type fashion, where they'll generate in silico knowledge and then they will test it in biological systems within the lab. So again, as far as AI's impact -- and we cannot reiterate this enough, in terms of AI's impact on real estate demand and also kind of in the types of states right now, it really remains neutral. Certainly, if AI really does bear the promise of allowing one company to increase the number of targeted experiments that can run at one time, lab requirements may increase. You may have some issues where you have more distributed AI going on. We just don't know yet. But certainly, we're really not seeing a shift. So we really want to get that message across today.

It looks like our next question today comes from Rich Anderson at Cantor Fitzgerald.

I'll keep it to one question as we're getting long here. A while back, someone asked -- I think it was Ronald who asked about lease expiration activity in 2027. You rightfully said you do not given guidance at this point, but there is, call it, $0.55 of annual revenue related to that 1.5 million square feet. Is it prudent in your mind to -- for us to be assuming the entirety of that $97 million gets put into a delay bucket of some sort as you look to re-lease that space? Or is there progress going to be made now in front of next year such that it may not be that draconian of an event?

Yes, Marc, I'll ask you to respond.

Yes. Rich, so yes, if you're just talking about those expirations in a vacuum, Rich, we do expect there to be downtime on those particular spaces. Look, we're making good progress. And I think we identified something like 35% or 36% of that, that we've got kind of early negotiations on. So obviously, we're going to try our best to beat the amount of downtime that we guided to there and to try to get revenue as soon as possible. But also, as I said, that also doesn't consider all the other things that we're focused on. Obviously, we're focused on filling vacant space today, in particular, kind of some of these developments with the alternative use as Joel mentioned, and trying to convert things to revenue as soon as possible elsewhere in the portfolio to make up for that, but TBD.

Okay. Yes. And just real quick for you, Marc. The assets that you are no longer selling that are -- that have some vacancy to them, you're holding on them because you're seeing some leasing success. Is that a result of just the market coming towards you? Or is that a change of strategy for these assets, maybe bringing in tech type tenants? What has changed the narrative on those assets, whereby you're thinking about holding on to them now whereas before you were considering selling them?

Yes. Look, I can give you one example of a property that we had considered as a potential to be sold in San Diego. And Joel kind of alluded to this earlier, if there was ability to get near-term revenue and put in a reasonable amount of capital, we would certainly consider that. And the asset I'm thinking about was a big asset. It was 160,000 feet, and we've got somebody looking at that very closely right now. And it's a nice asset. So I mean, it's really a consideration on an asset-by-asset basis. We didn't -- it wasn't like we just kind of said, okay, well, let's just sell less noncore assets. That wasn't the case. It was really asset by asset, those assets that needed a lot of capital or were, in our minds, noncore kind of not really associated with the mega campuses were definitely assets we're continuing to look to sell if it makes sense. And in some cases, when we saw good activity, we decided to pivot on those.

Okay. Fair enough.

Yes, Rich, another good example would be -- and it's in the list or has been in the list over time of under business and financial review, the Minuteman assets north of Boston, we signed a pretty big LOI there. And so that inherently changes less CapEx and quicker time to delivery. That then changes your calculus on what you want to do with such an asset. So it's very driven by -- and in one case, there's life science use. In another case, it's advanced technology use. So it's not one use per se, it's -- really depends on the market.

And our next question today comes from Wes Golladay of Baird.

We're now about 5 years past the COVID boom where tenants were funded on weaker science, and you did call out aggressive wind down. So just curious where are we at as far as winding down these COVID era tenants, are we in the late innings?

That's a hard question to answer the way you framed it. I wouldn't call it COVID era tenants per se. I mean, I think -- and maybe you're just referring to companies that got formed on the prospects of a really super buoyant market or something. But so many of these are really probably too much money flowed to too many deals and -- both on the public and private side so some of those naturally get wound down along the lines that you talked about. But in today's market, the wind downs come from other things too, the recognition that, okay, we're going after a particular disease and it turns out somebody just hit a huge milestone.

We feel we can't be first-in-class. We're going to be a follower and do we really want to put -- if I'm a venture person, put our money into that, that's not a frontline therapy. So that's a calculus that comes into a lot of this as well or particular issues with you're seeing side effects or you're seeing this or that. So it's complicated. There are a lot of different reasons, not just, gee, we went after a -- or we just took advantage of kind of silly money during COVID times, and now we're just unwinding it. So it's more complicated than that.

So I would add I would just add one thing to that. I think Joel's exactly right, it's not that there's a flushing out of COVID companies per se. It's in a capital constrained -- a continuous capital constrained environment where the cost of capital is high, Boards and investors on both the public and private side are being that much more judicious about where they're spending their capital. And if companies don't have a strong line of sight on milestones or certainly they miss those milestones, investors have to make decisions about where to allocate their capital. And so in this environment, that is really what is creating the decision-making of we may wind down a company or we may contract in terms of capital allocation. It's not necessarily all these companies are built over COVID, and now they're being flushed out.

Okay, I appreciate that.

That's a great point.

And then you did make the comment about no leases with public biotechs, but maybe you can talk about the pipeline? Are people touring that are public biotechs and are they just a little hesitant due to the macro environment?

Yes. I think that's probably a 1 quarter blip because I suspect we'll be back there during the second quarter with positive leasing, but it just goes to show that we've never seen that before. And as I say, that's a combination of a lot of factors that I've mentioned. But I think it's a 1 quarter blip. But still, the -- if you look at overall ARR from public biotech compared to the demand, that sector -- and we've said this continually over the last couple of year -- quarters and years, that's the one sector that's most obviously lacking in demand. And the primary reason is they can't -- unless you have good data or a critical milestone, you can't just go to the market and do a secondary offering just to extend your cash runway, really hard to do, both private and public.

And our next question comes from John Kim of BMO Capital Markets.

On your second quarter leasing guidance of 900,000 to 950,000 square feet, I was wondering how much visibility you have on that? And if you could provide some commentary on how much of that is new versus renewal versus new development? And lastly, how big your leasing pipeline is overall beyond the second quarter?

Yes. Number one, it's not guidance. It's just an indication based on activity and transaction work, and I don't think we will give any other comments on that at the moment.

Okay.

We wouldn't give an indication of general direction unless we felt pretty comfortable, I'll say that.

Sounds good. On capitalized...

But until things are done, they're never done, as you know.

Right. Capitalized interest, your guidance implies $58 million run rate going forward. It looks like you are going to be capitalizing about 1/3 less assets by the fourth quarter. So simple math kind of suggests it would be about $46 million by the fourth quarter. Is that math right? Is that how we should be looking at cap interest as we head into 2027?

Yes. John, our...

Yes, we're not giving guidance for '27, but Marc will give you some framework.

Yes. Yes, that's right. I mean if you look at the basis today, it's north of $6 billion of basis that we're capping today. And we've said, okay, we think the second half comes down because we've got some big deliveries. There's the one big delivery in San Diego, and then we've got some assets that have got some milestones that are probably going to either be put on pause or in some cases, sold. Some of that's land. And so we gave -- in our supplemental, we gave what we think that basis under capitalization is going to be in the fourth quarter, which was that kind of $4.5 billion or $4.6 billion of basis at the midpoint of that revised range for the fourth quarter.

And then we tried to give folks a sense of what -- how much basis is out there that has milestones in 2027. Some of that is land, and we broke that out very carefully in our supplemental. Some of it's land and then some of it is these -- are these kind of 5 assets that we've been highlighting that we characterized it as evaluating business and financial strategy. There are some milestones related with those assets that's in the early part of 2027 that -- those are being capitalized today. The big one is 421 Park. So -- and that will -- we don't know what's going to happen there. It will -- a lot of it will just depend on the demand and how quickly we can lease up that project. But -- so that's about as best as I can frame it for you at this point.

And our next question today comes from Michael Carroll at RBC Capital Markets.

Marc, I wanted to circle back on those 5 projects that ARE is evaluating for a potential change in the business strategy. Like what are the exact options here? Is it you're going to build it for a different use like advanced technologies? And then if that doesn't work, then you're going to like keep it kind of as is waiting for a better market to pursue those projects. So it's lease it as a different use or hold off until a better market. Are those the 2 options that you're analyzing?

Yes, Michael. So I mean, I think for most of these assets, it is considering whether we pivot away from a traditional lab use to some type of advanced technology use or other interested parties that would find the kind of the nature of those buildings very interesting for other uses other than laboratory. So that's most of the assets. 311 Arsenal Street, we mentioned we've seen some activity there from those types of uses. I think we signed 80-plus thousand of LOIs for that. 40 Sylvan, similar bucket, 3000 Minuteman, we actually did sign a big LOI for a non-laboratory use there.

So the pivot -- the potential pivot there is -- on most of those assets is for other types of uses. But as Joel mentioned, we could also consider these as potential sale candidates down the road. 421 was the one that was a little uniquely different than the others, where we could consider condo interest or that asset could go office, I suppose, but it is intended to be a lab building. But all these assets are -- have -- or we've got a little bit of time here, but we're running up on milestones where we would need to make decisions or capitalized interest would turn off. And those milestones are coming up on average kind of early part of next year.

Great. And then if you do change the scope of those specific development projects, I mean, could that impact your construction budget in 2026? Or is that really the $500 million, I think, that it was highlighted in the supplemental, is that more of a '27 beyond impact just because the investments for these other types of uses would be smaller investments versus life science?

Yes. I think we have a good handle on this year's capital plan, Michael. It would really be more of an item that could impact spending for next year.

And our next question today comes from Dylan Burzinski with Green Street.

I appreciate the commentary so far on sort of the $97 million of vacates in 2027. I guess what we're trying to figure out is it looks like excluding that amount, there's, call it, another 1.536 million square feet of lease expirations. Do you guys sort of have a good handle on that? Is that -- are those likely to renew? I guess what we're trying to figure out is like the likelihood or probability of that $97.5 million moving higher as we get closer to '27.

Yes. Dylan, yes, it's just a little bit too early to tell on what happens with the rest of the expirations for 2027. What we do know now is that, that 1.5 million or the $97 million of rent you referenced that those may have -- or are likely to have some downtime. So it's really hard to predict at this point what the retention rate looks on the balance. I can tell you, at least for this year, we're -- I think at the beginning of the year, at least for 2026 expirations when we carved out the kind of the key lease expirations for '26, we thought we would be somewhere in the 60-plus percent retention rate. But I really don't think we're prepared to kind of comment on where '27 is.

That's fair. And maybe just -- and I appreciate the color on sort of the potential amount of leasing activity that you guys think you'll get done in Q2. I guess as we sort of think about beyond that, is that sort of a good, call it, 3.5 million to 4 million square feet of annualized leasing volume a good amount to sort of use as a run rate? Or -- and obviously, leasing is going to ebb and flow, but just sort of curious how we should sort of think about the pipeline beyond the next quarter.

I don't think you should assume that, that is a run rate. I think we're in a different time now. So I think the run rate will evolve over time, especially given a more life science/advanced technology mix given the assets. So I don't think you could use that immediately. But I mean, historically, give or take, some amount on either side, $1 million has been a common run rate over time. Whether we get back to that as a run rate, I think time will tell.

And our final question today comes from Jamie Feldman with Wells Fargo.

Congrats on getting to the end of the call. I just wanted to take your -- the latest temperature on opportunistic capital looking at the space from the real estate perspective. I think you had mentioned JV is looking a little more interesting. Has anything changed? Or can you give us the update on whether it's global capital, whether it's domestic capital, there's a lot shifting around there in terms of the capital needs across the globe. What's the latest state of affairs in terms of opportunistic buyers into life science?

Yes, I don't think we want to comment really too much on that. But Peter, you can.

Yes. I would say that it's a combination of both domestic and international capital that is looking at these assets.

So would you say the appetite has changed? Or it's pretty much the same?

What has changed is over the last 2 years up until this year, there was really no money looking at core. It was all opportunistic. And for the right reasons, right? I mean we were coming -- we were hopefully bottoming out in the real estate industry and everybody was raising money based on double-digit IRRs. And that's what those funds' targets were, and that's what they had to invest in. Now we have money, how it came about, I don't know, but we have folks that are saying, "Hey, I want good quality, safer assets." And I know I can get a real estate deal that will provide a spread over bonds that I like for the risk that I'm going to take. And so now that, that money is there, and as I said, it comes both domestically and internationally, we're leveraging that to get a better cost of capital overall for our program.

And that concludes our question-and-answer session. I'd like to turn the conference back over to Joel Marcus for any closing remarks.

Yes. Thank you, operator, and thank you, everybody. We appreciate it.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Good afternoon, everyone, and welcome to the Alexandria Real Estate Equities fourth quarter and year-end 2025 Conference Call. [Operator Instructions] Please also note, today's event is being recorded.

At this time, I would like to turn the floor over to Paula Schwartz with Investor Relations. Ma'am, 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'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

Thank you, Paula, and welcome, everybody, to our fourth quarter and year-end 2025 conference call. With me today are Peter, Marc and Hallie. And I want to wish everybody a happy New Year. And remember, most importantly, health is wealth. I want to thank our family team for their exceptional efforts during 2025 and particularly a very busy fourth quarter.

In 2025, we witnessed the fifth year of a life science bear market. Our 2025 time line clearly evidences that no one could have predicted the February 2025 nomination of [ HH Secretary ], the intense cascade of events from February 2025 on to the numerous key departures toward year-end at the FDA. And in fact, sadly, measles and polio may be back to some extent.

We have been navigating a fast-changing life science industry landscape throughout 2025, which has been front and center for our team. Our Investor Day path forward is our North Star for 2026. As the industry begins to adapt to the fast-changing landscape, 2026 is all about timely execution of our plan, heavily focused on dispositions and maintaining a strong and flexible balance sheet, driving occupancy with intense leasing focus on vacant space, rollover space and redevelopment and development space and meeting the marketplace. We also plan to continue to significantly reduce CapEx.

And with that, let me turn it over to Marc to highlight 4Q in 2025 briefly, and then we'll turn it over to everybody for questions. Since we had Investor Day less than 60 days ago and we just reported yesterday, we'll try to make our comments brief. So Marc?

Thank you, Joel. This is Marc Binda, Chief Financial Officer. Good afternoon, everyone. First, a congratulations to the entire Alexandria team for the outstanding operational execution during the fourth quarter, including the completion of $1.5 billion of dispositions spread across 26 transactions and 1.2 million square feet of total leasing volume for the fourth quarter, which was the highest quarter in the last year. We are focused on taking all the 7 steps to our path forward that we outlined at our recent Investor Day and are also included on Page 4 of the press release. Our team continues to navigate a challenging macro industry and regulatory environment.

Please refer to our earnings release for our EPS results. FFO per share diluted as adjusted was $2.16 for 4Q '25 and $9.01 for the year, which represents the midpoint of our prior guidance provided on our last quarterly call. Leasing volume for the quarter of 1.2 million square feet was up 14% over the prior 4 quarter average and up 10% over the prior 8-quarter average. An important takeaway for the quarter is that the leasing of vacant space completed during the fourth quarter of 393,000 rentable square feet was almost double the quarterly average over the last 5 quarters. Free rent and rental rate changes on renewed and released space were under pressure this quarter, which reflects the market realities and included 2 large deals, 1 in Canada and 1 in our Sorrento Mesa submarket. Lease terms for the quarter of just over 7.5 years were consistent with the prior 3-year average of right around 8 years.

Occupancy at the end of 2025 was 90.9%, which was up 30 basis points from the prior quarter and was up 10 basis points over the midpoint of our prior guidance. In addition, we've signed leases of almost 900,000 rentable square feet or about 2.5% of the portfolio that are expected to commence in the third quarter of 2026 on average upon completion of construction and will generate incremental annual rental revenue of $52 million. It's important to emphasize that our asset quality, location, best-in-class operations, sponsorship and brand trust continue to be a major distinguishing factor for tenants, as our Megacampuses, which represent about 78% of our annual rental revenue, outperformed the total market occupancy in our largest 3 markets by 19% for occupancy.

We reiterated our year-end 2026 occupancy range of 87.7% to 89.3% that was provided at our Investor Day this past December. A key takeaway on our outlook for 2026 is that we expect occupancy to dip in the first quarter of 2026, and we expect occupancy growth in the second half of 2026. The projected decline in occupancy for the first quarter is primarily driven by the 1.2 million square feet of key lease expirations with expected downtime that we highlighted on Page 22 of our supplemental package, consistent with our outlook from Investor Day. We're making good progress across these spaces with 13% that's either lease negotiating, and we've identified prospects or in early negotiations on another approximately 40% of these spaces.

Same-property net operating income was down 6% and 1.7% on a cash basis for the fourth quarter and down 3.5% and up to 0.9% on a cash basis for 2025. The results for the year were at or better than the guidance midpoint we provided on our last earnings call. The full year 2025 results were primarily driven by a decline in occupancy which occurred in early 2025, and the cash results had a boost from the burn off of free rent in the first half of 2025. We reiterated our outlook for same-property performance for 2026, up/down 8.5% at the midpoint of our guidance range, which is expected to be driven by lower occupancy. And despite the anticipated decline in occupancy in 1Q '26 I previously mentioned, we continue to benefit from a very high-quality tenant base, with 53% of our annual rental revenue coming from investment-grade or publicly traded large cap tenants, long remaining lease terms of 7.5 years, average rent steps approaching 3% on 97% of our leases and strong adjusted EBITDA margins of 70% for the fourth quarter.

We expect same-property NOI performance to be weaker in the first half 2026, driven by lower occupancy and stronger performance in the back half of 2026. Our guidance assumes the delivery of the nearly 900,000 square feet of signed leases commencing in the third quarter of 2026 on average, as well as about a 2% to 3% pursuit benefit from a range of assets that could be sold or designated as held for sale in the second half of 2026.

We highlighted several considerations for the first quarter of 2026 on Page 5 of our supplemental package, including the following 3 items that we expect to impact same property performance. First, the 1.2 million square feet of key lease expirations with expected downtime, of which around 60% expired in mid-January on average. Second, we terminated 1 lease for nearly 171,000 rentable square feet in South San Francisco in 4Q '25 that had annual rental revenue of $11.4 million. And we are announcing that we re-leased 100% of the space to a new tenant, but the new lease isn't expected to commence until beginning in the second half of 2026. So there will be some additional temporary vacancy in the first half of 2026. And third, our guidance assumes a reduction of rent of approximately $6 million per quarter, starting in the first quarter of 2026 related to potential tenant wind downs.

During 2025, we achieved tremendous general and administrative cost savings of $51.3 million or 30% compared to the prior year. And our G&A cost as a percentage of NOI was about half the average for other S&P 500 REITs at 5.6% for 2025. As we've guided in the past, we expect those annual savings in 2026, relative to 2024, to be cut roughly in half, given the temporary nature of some of the 2025 savings. We reiterated our guidance for capitalized interest for 2026 of $250 million, down 24% from 2025.

With projects under construction and expected to generate significant NOI over the next few years and other earlier-stage projects undergoing important entitlement design and site work necessary to be ready for future ground-up development, we are required to capitalize a portion of our gross interest costs. Part of our strategic path forward includes goals to reduce the size of our pipeline and construction spending needs and to substantially complete our large-scale noncore disposition plan in 2026.

During December 2025, we sold or designated for held-for-sale projects with more than $1 billion of basis that had previously been subject to interest capitalization. As a result, we expect a decline in capitalized interest headed into the first quarter of 2026, and we have a number of projects under construction where we are evaluating the business strategy and a number of future pipeline projects undergoing preconstruction activities with milestones in May 2026 on average. To the extent that we decide in the future to either pause or sell any of those projects, capitalization of interest and other costs would cease.

While those ultimate decisions have not yet been made, we would like our disposition program for 2026 to include a significant component of land, which will also help us achieve 1 of our strategic objectives to significantly reduce the size of our land bank. During the fourth quarter, realized gains from our venture investments was $21 million, down from the approximate $32 million quarterly average for the preceding 3 quarters. For 2026, we reiterated our guidance range for realized investment gains of $60 million to $90 million or approximately $19 million per quarter at the midpoint.

We continue to have one of the strongest balance sheets amongst all publicly traded U.S. REITs. Our corporate credit ratings continue to rank in the top 15% of all publicly traded U.S. REITs. We have tremendous liquidity of $5.3 billion, the longest average remaining debt maturity among all S&P 500 REITs at just over 12 years and modest leverage of 5.7x for net debt to adjusted EBITDA for the fourth quarter annualized.

We reiterated our guidance range for 4Q '26 net debt to annualized adjusted EBITDA of 5.6x to 6.2x. While we remain on track to achieve our leverage goals for year-end 2026 leverage, we expect leverage in the first quarter of 2026 measured on a quarterly annualized basis to temporarily increase by 1x to 1.5x higher, driven by a reduction in quarterly adjusted EBITDA. Please refer to Page 5 of our supplemental package for detailed assumptions specific to the first quarter. We expect 1Q '26 leverage to significantly improve over the balance of 2026 as we make progress on our dispositions and sales of partial interest. As we announced at our Investor Day, we sold 1 of our campuses in South San Francisco. We expect to sell 2 redevelopment projects in 2026, and we pivoted to office on 1 project in the Fenway. And these changes reduced our future funding needs by more than $300 million.

In addition, we are evaluating the go-forward business strategy for 4 additional projects that are currently under construction and have significant remaining capital needs. Again, a huge congratulations to the Alexandria team for the tremendous execution during the fourth quarter with $1.5 billion of dispositions that completed across 26 different transactions, which allowed us to achieve our leverage target of 5.7x for the fourth quarter.

Over the course of 2025, we also made significant progress in reducing our investment in nonincome-producing assets as a percentage of gross assets from 20% at the end of 2024 to 17% at the end of 2025, and we expect that ratio to continue to decline by the end of 2026. In connection with our disposition program, we recognized our share of impairments of $1.45 billion in the fourth quarter.

Five important items to highlight here. First, approximately 90% of that number was previously announced with our 8-K on December 3, and the remaining 10% was primarily related to 1 land parcel located in Greater Boston, which was designated as held for sale later in December. Second, 50% to 60% of our share of the real estate impairments recognized in the fourth quarter was related to land, which is notable given the oversupply in numerous submarkets. Third, the 2 largest impairments comprised 37% of the total and included our future development project at 88 Bluxome Street and Soma located in San Francisco and our Gateway campus in South San Francisco, which was owned through a consolidated joint venture. Fourth, we sold our interest in the Gateway campus in South San Francisco in December. Ultimately, we decided to exit this investment given the challenging supply and demand dynamics in South San Francisco and the very significant capital required over time to redevelop the campus. And fifth, we expect to complete the sale of the 88 Bluxome Street, our only asset located in Soma over the next few quarters. We originally acquired this site in 2017 with the intent to expand the Mission Bay cluster. However, Pinterest terminated their lease with us in 2020 and paid us an $89.5 million fee. And we ultimately decided the sale proceeds from this project would be better recycled into our Megacampus platform and to address our current funding needs.

We continue to focus on our disciplined strategy to recycle capital from dispositions and partial interest sales to support our funding needs with a focus on the substantial completion of the large-scale noncore asset program in 2026. And we expect noncore assets and land to comprise around 65% to 75% of the $2.9 billion midpoint of our guidance for 2026 dispositions and sales of partial interest. We expect most of our dispositions and partial interest sales to close in the second, third and fourth quarters with a weighted average closing date in the third quarter.

In early December, our Board also authorized a reload and extension of the common stock repurchase program of up to $500 million. And our guidance does not assume any common stock repurchase in 2026 based upon current market conditions. And lastly, we reaffirmed our guidance for 2026 FFO per share diluted as adjusted, as well as the key components of guidance.

Now I'll turn it back to Joel.

So can we go to questions, operator, please?

[Operator Instructions] Our first question today comes from Farrell Granath from Bank of America.

This is Farrell Granath. I want to start off, I know that we spoke about a month ago, but just given the sustained and slightly up quarter-over-quarter leasing that you've seen and recent commentary around better VC funding that we've seen in the broader biotech market, has that changed your outlook at all and expectations into '26? Or are you at least receiving greater inbounds in terms of sentiment as people are potentially making more decisions?

Okay. So Farrell, is your question aimed broadly at leasing? Or is it aimed at venture back private? So I'm not sure how broad or narrow your question is.

I want to just connect the dots between what we've seen as positive headlines for broader VC funding and how that may be connecting to leasing and sentiment towards leasing.

Okay, because that's one segment of a very broadened market. So Hallie, maybe take her through a little bit of venture and the private side, but then maybe overall.

Yes. Farrell, this is Hallie. As Joel mentioned, when we think about VC dollars going into this industry, it's very much tied to a specific segment, our private biotechnology segment. And we have seen, over the course of this year, sustained funding and numbers that are similar, if not slightly higher to the last couple of years. This is money that is going into new companies.

On the other hand, venture funds have raised the lowest amount of dollars in the last decade. So this is LPs investing in these funds. And so we have no kind of interesting dynamic going on here where it's certainly not back to a healthy robust environment that we would fully like to see. And what we see that manifesting in is that VCs and these companies continue to be very conservative.

So we certainly are seeing demand. We have -- Peter can talk to tours increasing. There are some great companies out there. I do think by and large, decision-making is still taking longer and companies are very cautious in terms of how they think about taking on new space or expanding. So while we're cautiously optimistic, we are monitoring it closely because we don't necessarily think that we're back to a fully robust environment that we may have been in the past.

More broadly speaking on headlines, the other big one is the XBI has certainly performed incredibly well over the past year, outperformed broader indices. As mentioned in the Investor Day, the majority of those companies are commercial or near commercial companies, which don't typically drive labs-based needs. So we're not seeing the immediate translation of that activity to leasing.

So altogether, while we do feel that we're moving in the right direction in terms of positive sentiment, we still have a lot more work to do. There's still a lot of volatility on the regulatory and pricing side of things. And so we just continue to monitor. And for the demand that is out in the market, meet the market and really capture our outsized share of leasing.

Yes. Let me put 1 footnote on that, Farrell. If you look at the pie chart of our leasing for the year and the fourth quarter, you'll see in the fourth quarter, a notable, very small amount of leasing for public biotech. That's something that we're hoping turns around in 2026 because that's a critical mainstay of this industry. And much of that has to do with the lack of availability of secondary offerings except on data or the lack of a real, robust open IPO market. Okay?

And I also wanted to ask about your strategy of retaining the Fenway office property and looking to lease as an office. Is -- was that a one-off transaction that you're looking to maintain? Or is that something that you could see doing across other properties as well?

Well, I'll have Peter comment on that. But you have to remember that the Fenway is made up of multiple buildings. The one we're speaking about is, in fact, an office building and in fact, has multiple long-term leases with some of the best institutions in LMA and the Fenway. And so we sometimes you think about would you create lab space or other things out of vacant space or stick with what makes sense and the demand there we think is -- will, on a go-forward basis, be pretty good office-wise. But Peter, do you want to comment on that, I think, 401?

Yes. I mean, would agree exactly with what you just said, we have seen an increase in demand for office space. And given the availability we have elsewhere in the Fenway for lab, it made more sense to just go ahead and follow a business plan to lease it as office and not create any more lab space in the near future.

Yes. So that's more building and submarket specific as opposed to something much broader.

And our next question comes from Ronald Kamdem from Morgan Stanley.

Two quick ones. Just on -- starting with the dispositions. I saw some of the cap rates on the stabilized assets in the supplemental, which was helpful. But as you're sort of thinking about that $2.9 billion, I appreciate a lot of it is going to be land, but -- any sort of commentary on cap rate trends, sort of the interest, price discovery, how that's been going relative to your expectations?

Yes. Peter?

Yes. I mean there's still going to be a considerable amount of noncore assets that we're selling, and you've seen cap rates for those in the mid 6s, all the way up to the mid-9s. A lot has to do with what markets they're in, how much leasing or what the wall is, the lower the wall, the higher the cap rate.

We do plan on a couple of executions during the year that would involve more core assets. So you should be able to get more discovery on what our NAV could be for what we're holding on to. But I'm not going to speculate on those cap rates yet. We have talked in the past and mentioned at Investor Day, and we do think our top and properties should have a 5 handle. And 1 or 2 of those types of properties could be involved in this execution, and we'll report on that when it happens.

Great. Just my follow-up, I had sort of a similar question on the leasing chart, but maybe asking it a different way. Can you just comment on the leasing pipeline in terms of high to rebuild after the quarter? And if any sort of notable groups are in the pipeline or not in the pipeline? That would be helpful.

Yes. That's kind of a secret sauce. I'm not sure I want to say much. But Peter, do you have any overall comments?

Yes. Look -- in practically all of our markets, the smaller space is under 50,000 square feet are still what is moving most of the tours are in that range. There is, as Joel mentioned and Hallie mentioned, there is a bit of a dearth of biotech, public biotech type of companies, which are usually the middle of the barbell, 50,000 to 150,000 square feet. We're not seeing a lot of that, but we do have, in certain markets, some good activity in the 100,000 square foot plus range. So we're pleased to see that. But as Joel mentioned, we really need to see the public biotech sector contribute to the leasing pipeline in order for it to really start to turn around.

There is some good green shoots, we're very cautiously optimistic. But 1 example is that the Greater Boston region did see an 11% increase in tenants in the market, and that was really the first time we've seen an increase in a number of quarters. So we're happy to see that. And we'll keep you informed as we go.

Our next question comes from John Kim from BMO Capital Markets.

I was wondering if you still felt comfortable with the previous guidance you gave for the fourth quarter '26 FFO of $1.40 to $1.60 stated at your Investor Day? And whether or not you believe this would represent trough earnings? I think in the presentation, you mentioned that earnings will be flattening out in the second half of the year. But there are some dispositions that looks like that's falling into the fourth quarter.

Yes. So Marc?

Yes. John, yes, we're still tracking within that range that we gave for the fourth quarter of '26, which I think was $1.40 to $1.60. And that does represent kind of the trough for the year, at least for 2026. But as far as '27, I know you don't want to give guidance for that, but...

Yes. Yes, we have it and can't give guidance at this point for '27. But that was the point of saying that's a good run rate to think about as a base.

And then can you comment on dispositions you've completed year-to-date and what you planned for the year in terms of the type of buyers you're talking to as far as owner users, other REITs, developers looking to convert some of that space potentially or other buyers?

Yes. So maybe, Marc, do you want to just talk about the percentages of dispositions through the year? And then maybe ask Peter to comment on the buyer pool.

Yes, sure. Yes, the mix of dispositions was pretty consistent with what we kind of set out at Investor Day. So about 20% stabilized, 21% land and then 59% non-stabilized. So I mean, the biggest -- obviously, the biggest portion was the nonstabilized properties, which is going to attract a certain type of buyer. Maybe I'll hand it over to Peter to go over it a little bit more.

Yes. Before you do, talk about timing, quarter-by-quarter because I think that's...

Sure. So as we look forward to 2026, we've got just under $200 million of stuff that were under contract or under PSA negotiations. We've got about $580 million of assets on balance sheet today that have been designated as held for sale. And so I think that the first quarter closings will be pretty small. We expect the bulk of the closings to occur over 2Q, 3Q, 4Q. And again, I think if you -- on a weighted average basis is probably closer to third quarter as a kind of a blended average for the closings for 2026.

Yes, Peter?

Yes. So on our guidance page, we did indicate that we've got about $180 million under contract or negotiations that we expect to close in the near term. That's essentially 3 assets. One is a portfolio that is being purchased by what we would classify as an investment fund. Investment fund buyers have been our fourth largest over the last couple of years, taking down about 12% to 15% of our inventory. That's the -- an investment fund as someone is buying it to hold long term and is usually private capital.

The other 2 assets are residential conversions. They're land or assets that are at the end of their useful life that will be demolished and turned into a residential type of use. And that was another 1 of our largest segments of buyers last year and we anticipate that will continue this year. More than 55% of our available land is either zoned or could have an allowable residential use and is in urban environments that could use the housing. So we expect that out of the 2.9 midpoint -- $2.9 billion this year, although as Marc said, there'll be a considerable amount of land, 25% to 35%, and we do expect the majority of that to go to residential developers.

But there has not been a problem getting assets sold. There's a number of buyers. The biggest issue is just the yields that these buyers are looking for and that has created some impairments, and -- but the good news is when we need to get things sold, we do. And we fully are confident we'll do the same thing this year, even though it's a larger amount that we have to execute on.

And our next question comes from Vikram Malhotra from Mizuho.

I just wanted to clarify kind of the earnings, I guess, trajectory through the year. With the vacancy or the move-outs you mentioned, some of the fees, et cetera, onetime items in 4Q '25, I'm just wondering sort of the cadence that you showed at Investor Day trending down to that $1.40 to $1.60, is that cadence still intact?

Yes, Vikram. Yes, we still expect the fourth quarter to kind of be the low point in earnings for the year, for 2026. We did -- I think there was some question around where the first quarter goes and how steep of a decline that is coming off the fourth quarter. And so we tried to give a lot of color about the components that go in there, but the general trajectory that fourth quarter, things will even out in the back half of the year. And the fourth quarter being in that $1.40 to $1.60 range still holds.

Okay. Great. And then I guess maybe Joel or Hallie. From a broader perspective, I understand like it takes a while for all the changes on the macro front to translate to leasing. But I don't know if you've had any like recent conversations with FDA officials or any larger VCs in terms of the shifts that you may be hearing as a precursor to new company formation and hopefully them leaving down the pike. So maybe you can update us on any thoughts around the FDA and like early-stage CV AB type funding?

Yes. So maybe let me make a couple of comments and ask Hallie to fill in the blanks. So I think it's fair to say that the FDA Commissioner has been active. He's out a lot. He's certainly trying to hit in the right direction and do the right things, given speed of approvals, looking at trying to get products into the clinic much quicker than otherwise.

Remember, we talked about it at Investor Day, the things that the market really wants to see is a substantial compression of the 10- to 12-year billion-plus cycle of bringing up a compound from discovery to the market. And he's, I think, very much focused on that now have defections, DOGE firings, resignations and all that stuff at the FDA, how much does that practically impede the ability of the agency to do what they want to do, which I think they've got their mindset in the right place I think is a big question for this year. Last year, they did end up approvals at 46, which was a very, very respectable number, but a lot of that was in the pipeline. This year is going to be a much more telling result. But Hallie, other thoughts, comments?

Sure. So maybe Vikram to take a step back on this question as it continues to come up. On Page 21 of the sup, we break out our leasing volume by business type, both for the fourth quarter and for the full year '25. And if you look at private biotechnology, in the last quarter, it made up about 1/5 of all leasing volume.

So to be clear, we still continue to see demand from this segment. Whether that's going to pick up and how long that takes, I wish we could give you a specific time frame. These things take a while, right? And I think generally, we need a lot more confidence in terms of the broader landscape, being able to return capital to LPs, the IPO window opening up, which is a really important source of capital for private companies. But where we've really seen the drop off, as Joel mentioned, is in that public biotechnology cohort. So in terms of overall impact to our leasing going forward, we think that segment in particular is critical.

And we are seeing some demand out there from some really good companies. They still are tending to be more capital conservative, more commercial, near commercial. And without that next bolus of new companies that are IPO-ing that tend to be earlier stage, they still seem to be on the back burner right now. At JPMorgan, there was a lot of, I would say, positive sentiment around the potential for some really strong companies to go public and raise capital. We haven't seen that yet. But that is really top of mind as we think about the next, I would say, 12 to 18 months.

Okay. Great. And then can I just clarify? Like, the new leasing was really good this quarter and hopefully, the pipeline supports sort of that continuation. But where are we today in terms of like incentive packages, TIs, free rents to achieve that leasing? And I asked just because there have been a couple of leases in South San Francisco where we've heard like very big TI numbers. So I'm just wondering if you can give us a bit more granular color on the TI and free rents?

Yes, Peter?

Yes. I mean, tenant improvements haven't changed. They're still elevated for anything that's from [ Shell ]. It's got to really be -- either you get an allowance to build the whole thing out or you have to spec build it. So on renewals and re-leasing of the TIs are also stable. The fact that the space is already built out and the fact that people tend not to change much in the generic labs that we build, that's an advantage to us.

So really, where we continue to see weakening in fundamentals is in the free rent category, and it's continued to elevate. We did have a couple of leases this quarter that really had significant amount of free rent in order to win the deal. And Joel mentioned in the very -- in his comments that we're meeting the market. It's in our best interest to meet the market, but keep rental rates as stable as possible. Because as free rent burns off, then you get the income that you can build upon and hopefully, the next generation of leasing you can increase it from there. When you start taking rents down, then you're starting to destruct value.

So Alexandria and others that are competing in the market, free rent is the tool that we're using. Tenants really appreciate it because obviously, it's good for their cash flow. And as long as we continue to have availability in the mid-20s to low 30s in the major markets, free rent is going to be the tool that people need to use in order to execute on deals. But outside of that, we are pretty happy to see that rental rates are stable, in certain cases, growing. And we just got to get the net effect is to improve, but that will take a decrease in supply over time in order to start seeing that.

Our next question comes from Jim Kammert from Evercore.

Just trying to triangulate on Peter and Hallie's comments regarding the public biotech. Is there any concern? I mean, you said they're both critical to sort of kick starting demand again. But is it possible that some of these public biotechs, if they raise more capital, already have sufficient space? Or do you really think there's expansion space need there?

Well, yes, let me maybe give you an overarching comment, Jim. I think number one, historically, public biotech has been the mainstay of -- I mean, the broader industry is obviously institutional pharma product tools, services, all that. But when you get to biotech itself, the public market has been the mainstay of this industry, going back 50 years this year to Genentech. And 1 would assume that it would continue to be the mainstay and it's made up of really, 3 things.

One, you get a good start at the venture level. You can get public through an IPO window that's reasonable, and you can continue to finance the company even if you don't have immediately actionable data. That's how it's worked over the last several decades, and that's what we're hoping to see a return to. Now in any given case, it's hard to say. Some will need more space, some will need less space. Some will be able to keep the same. But I don't know, Hallie, thoughts there?

Yes, Jim, I think that is in a way what we have been seeing. If you look at the XBI this past year and follow-on financings, which on an absolute numbers basis have been pretty strong, most of those have been for particularly commercial stage companies, which is great in terms of sentiment for the industry, but these are by and large, not companies that are driving a lot of R&D expansion.

So to Joel's point, we need to see that earlier funnel fill up. We need to see the venture stage companies go public, gain more liquidity, expand their investor base. Those are more likely at that stage to drive additional R&D needs, which is what we've seen historically. I think Peter did mention we have seen some requirements hit the market. Things take a while, but not to say that it's a complete desert, but it is further and fewer between than it has been in years past.

That's very great color. And then 1 quick clarification. Peter, you also, I think, said that it's possible you might see a 5 handle on some of the core asset, do the capital recycling in ' 26. Would that be potentially -- I mean, if it happens, on a JV? Or would that also be for an outright sale? I'm just trying to [ about ] NAV implication sale versus JV.

Yes, very likely a JV that would happen. We are not planning on selling any core assets outright unless there's a special situation.

Our next question comes from [ Ray Jeong ] from JPMorgan.

My first 1 is on the capital allocation side, it seems like you guys did above midpoint of the guidance on dispo this year. And you guys -- I think Marc mentioned, buyback is still not on the table at this point. But with the excess cash, is the thinking that the priority is on the debt side? Or how should we think about that? And when would buyback be on the table with the excess cash?

Yes. So Marc?

Yes. Ray, I think in terms of the buyback, we'd like to get farther along on the disposition program, which is going to involve paying down debt to keep the balance sheet in check before we consider buybacks. Now I say that given the current market conditions and -- will remain flexible. But as we sit here today, that's kind of our current thinking.

Got it. And a follow-up question on uses of funding then. You guys disclosed how much you historically spend on the non-real estate investments in the K. If I'm looking at it correctly, I think between 200 to 250 a year. How should we think about that moving forward? Anything -- any help on that front would be appreciated.

Yes, sure. So we really look at the fund kind of net of the inflows and outflows. So I think if you -- if you look at the cash that came in, it was maybe a net outflow of somewhere between $60 million to $70 million for the year. And that's been -- I mean, I think it was a similar number in the prior year. So I think we'd like to see that the fund be as close to neutral as possible so that we're not putting a ton of capital in there, but still continue to be very active in the space.

Got it. So the net will -- the expectation is hopefully get to net neutral on that front?

That's right. Or at least a small number. Like I said, it's been $60 million to $70 million in the last couple of years.

And our next question comes from Rich Anderson from Cantor Fitzgerald.

The elephant in the room is, I guess, stock is up 20% this year. It's great, or 19%. And yet, it still feels like pricing power is quite a ways off still with everything that's going on. Do you have any sense on the people that you're talking to, a different type of investor that's showing interest in the stock? Do you think it's just pure rotation, people sort of profit taking, looking for a bottom in life science? Do you have any sense of what's driving stock performance so far this year?

Well, I think it's all of the above. And I think it's pretty clear that the slide that we showed at Investor Day, when you looked at stock price versus consensus NAV certainly tells the story in many respects. I think if 1 believes in this industry, 50 years after Genentech was founded this year back in 1976. Again, we've only addressed 10% of diseases, 90% are left. And if the public is willing to pay for therapies and addressable cures to the extent we can have that, that's -- 1 has to believe the industry has a promising future.

We are making some, we're slipping back. As I said, when you look at some of the vaccine policy stuff, which is a little distressing to a lot of people. But I think if you set that kind of mentality aside and you look at what the FDA is trying to do, I think they're trying to do exactly the right thing to compress the time to go from discovery into the clinic, through the clinic and out of the clinic into the commercial side and assuming the policymakers and executive and legislative branches don't get too crazy to pay a fair return on these innovative therapies. I mean, just look at anybody who's been the beneficiary of any real therapy that saves somebody's life and made that more an ongoing chronic condition as opposed to life threatening, if you will.

I think that's where the great promise is here, Rich. And -- so I think that when you look at our locations, quality of assets, quality of sponsorship, I mean it's not surprising that the sell-off after the third quarter was, I think, pretty radical.

And -- but those are all good color, but do you think you're attracting a different investor? I think you're attracting a non-REIT investor, biotech investor, a generalist investor to the name?

I think the nature of investors change over time. I mean, think about when we went public, there are a lot of long-term investors today. There's very few long-term investors, a lot of ETF investors. But there's a large cohort of value-driven investors that don't look at quarterly day-to-day, monthly, year-to-year earnings, they look at quality of assets generating quality of cash flows. Obviously, people interested in the industry. So I think it's a whole bunch of sets of different interests that have come to bear because the sell-off just was, I think, foolishness.

Thought Hallie was going to jump in there, but maybe I misheard that. So okay.

No problem. Keep going. Joel covered it really well.

Okay. Perfect. Okay. Second question for me is, let's say, your development exposure as a percentage just to use a simple way of looking at as a percentage of total assets goes from 20%-ish to 15% this year. I'm assuming that sort of a step in the process. And I'm curious, Joel, Peter, whoever, what do you think the appropriate run rate is for development exposure, financing risk need to access capital, all those things? Like what is new Alexandria going to look like from a development exposure point of view, call it, 2, 3 years from now in your mind?

Yes. I think we kind of articulated that at Investor Day, and there's a slide there that talked about -- we think -- we don't know precisely because we're still in a -- I think, a -- how shall I say, a phase of trying to get used to a new reality with the industry. But I think we've hypothesized that we think somewhere 10-plus percent as a percentage of nonproductive or nonincome-producing land as a percentage of overall gross assets is probably where we want to be very different than GFC, where there were no supply issues. The prospects were kind of unlimited because there was no supply constraint issue -- oversupply issue, if you will. So I think this is just a new reality.

But yes, we've got great opportunities on many or most of our Megacampuses. And so those will be the instruments of future development and external growth, and we're excited about that. And there isn't just biotech. There is a whole host of other interested parties, both in our current pie charts and pie charts beyond that view those locations as top of mind.

Our next question comes from Seth Bergey from Citi.

It's Nick Joseph here with Seth. I guess, last month at the Investor Day, you talked about a 4- to 5-year recovery for life science broadly. And I recognize it's only been about 2 months, but you've been busy over those 2 months. So has anything changed that time line, either moving it up or delaying it from what you see?

Yes. So that's actually -- I'm glad you teed this up because Peter, I think, addressed this, but a lot of people came away reporting it a little bit unclear. And he basically said that he thought that the time frame for recovery in our markets where we were very active would be in the 2- to 3-year range and that it may be as much as 4 to 5 in submarkets where we were not particularly involved or active. But Peter, do you want to comment on that?

Yes. Thanks for clarifying that exactly. Like if you look at Greater Boston, for example, there's a significant amount of inventory in an area like Somerville and other tertiary areas and Alewife that -- where we're not at, which -- that's where we think that it's going to take 4 to 5 years for that to resolve. But Cambridge and Watertown, Seaport, where we're heavily invested, those -- that's probably more like 2 to 3 years and maybe even less depending on the trend of a lot of people are starting to realize that they should probably go a different path in life science, and we're hoping to continue to see that.

So if we -- obviously, demand is going to be needed to take a lot of the lab space, but as a lot of it decides to change use, that -- even that 4 to 5 estimate would be reduced. But Joel is exactly on point. 4 to 5 years for the areas that are the new markets that really didn't ever need to be lab markets, those will need a long time to resolve because it's not going to get resolved through lab demand, it's going to get resolved by changing use. But the lab markets that we're in that have been functional lab markets for decades, there has been some oversupply, and it will take 2 to 3 years for that to resolve.

Our next question comes from Tayo Okusanya from Deutsche Bank.

Yes. In terms of the guidance, you talked a little bit about $6 million a quarter revenue headwinds from tenant wind down. Could you talk a little bit just about what's happening with that pool of tenants? Is it just they're not -- they didn't get their drug vials filled or they ran out of cash? So just kind of thematically, what's happening with that group to just kind of understand what that headwind is?

Yes. So I'll ask Marc to comment there, but I would say in this environment over the last handful of years -- again, we're in the fifth year of a bear market, hopefully turning that around. And when you find that happening, obviously, more companies at the earlier stage or less companies are formed and more companies may be wound down. Some companies merged in the public markets. The bankers, certainly during the heyday of the last decade, led too many companies go public. So there has been a shake out there over the last handful of years of companies that probably shouldn't have gone public. So this is a natural outgrowth of that given where we are today. But Marc, you could comment more specifically.

Yes. The thing I would add is it's -- public and private biotech comprises the majority of it for the reasons that Joel and Hallie have mentioned. And some of it is kind of failure, which in their clinical milestones, which is normal in a market that will happen, but a lot of it is also ability to attract capital and just the kind of shorter runway that investors have given these companies that has caused part of the issue.

That's helpful. And if I may ask 1 more, the 4 development assets that is still under strategic evaluation. Could you -- does it all basically boil down to just leasing around these assets to determine whether you kind of proceed or you go through strategic alternatives?

No. I think it's much more granular than that. It's what is the prospect broadly in the submarket, the nature of the asset, any competitive product that we may have with that asset. I mean there's a whole set of variability -- or analysis that you go through. Leasing is clearly important, but it's not the sole determinant.

Our next question comes from Michael Carroll from RBC Capital Markets.

Joel or Peter, can you guys provide some color on the 400,000 square feet of leases that were signed, a previously vacant space? I mean, I would imagine a good chunk of that relates to the backfill at 259 East Grand Avenue? I guess if that's true, where were the other leases signed within that bucket?

Yes. Peter, I don't know if you want to give any color there?

I don't have the specific leases, but you are right that a significant amount of leasing was done at East Grand. I will say that 1 thing that we were asked about and did some investigation on is that a significant amount of that leasing was absolute new tenancy, not tenants relocating from 1 place to another, but new tenants actually coming in into our portfolio, which we really love to see.

This is Hallie. I do have that list in front of me. And so just to say it was a pretty diverse from a regional perspective, leasing in Cambridge. We have [ RT ], Seattle, some in San Francisco. So in terms of just generally seeing positive momentum backfilling the vacant space across the board. We think that diversity across the region is healthy.

Yes, and broader base than you might otherwise guess.

And that's -- is there any common themes on why those tenants were willing to lease space, I guess, in the fourth quarter?

Yes, because we're great sponsors.

Do they have like funding agreements where they just got funding? Or is there...

Yes, Mike, it's so episodical in a sense because if a company has a clinical milestone, a data milestone and they need to do something, I mean that's -- I mean, we've seen that with a couple of companies where they've doubled their space just on that 1 event. So it is very episodicly-driven. And I'm not sure I'd read anything into -- was the fourth quarter substantially different than the second quarter vis-a-vis leasing trends because it tends to be very case specific.

Okay. Great. That's helpful. And then just 1 last 1 for me. On 401 Park -- and I think I caught this earlier in the call. I just wanted to confirm to make sure I'm right. It's not necessarily that you have office tenants ready to lease that space. I don't know what type of interest. It's just that you had lab space available in that marketplace that you didn't need you decide, okay, we have this building that could be lab or could be office, let's kind of diversify our approach and kind of go office with this specific property. Is that the right way to think about it? Or is there like a vibrant office market ready for that asset?

Yes. I think that is the answer. It's an iconic office building that's been known for a long time. The mainstay is primarily anchor Boston institutions, brand names that you would know that have very, very specific uses there. Some are pure office, some are more clinical like or whatever. But in fundamental, this is part of and kind of adjacent to the LMA along with medical center. So this is a big, big market for those institutions and their office and other adjacent or other kinds of uses other than, say, traditional wet lab space.

So it's not so much that it's a hard call. It's -- the call was, given the NIH's move on the 15% limitation on indirect costs in a variety of ways, we saw a big decline of demand and immediate decision-making by a lot of medical institutions, and we've seen that across the country. We did put in the [indiscernible]. There is a court decision that is -- has overruled that. That may start to move institutions in a different direction. But at some point, institutions still need to get space, and both Fenway and the LMA are the best locations for that. So it actually is a pretty easy decision.

And our final question today comes from [ Mason Gel ] from Baird.

You had previously talked about San Carlos and [ Bruno ], Seattle and Campus Point as Megacampuses with large channel pipeline and that you may look to reevaluate some of these in the future. I guess, do you have any updates? Or do you expect to have any updates on it over the next few quarters?

You're talking about the expansion?

Yes. not just a future shadow pipeline.

Yes. I think those are all under pretty deep study in each market. And probably, at this point, don't want to get into that. But we clearly are looking to reduce our non-income producing assets, as we've said, as a percentage of the gross assets and where we can carve off land that we have for other uses or move into a monetization path at a much faster rate. We're trying to do that. And so I would say stay tuned there. Certainly, for the Bay Area ones and Seattle.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Joel Marcus for closing remarks.

Okay. Well, thank you, everybody. We appreciate it and look forward to talking to everybody next quarter. Thank you, and stay safe.

And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

Good morning, everyone, and thank you to those joining us in person and via webcast for Alexandria Real Estate Equities 2025 Investor Day.

This event 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 forward-looking statements and factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's periodic reports with the Securities and Exchange Commission -- excuse me.

And now I'd like to turn the event over to Joel Marcus, Executive Chairman and Founder. Joel?

Thank you, Paula, and welcome, everybody, to Alexandria's Investor Day 2025. With me today are Hallie Kuhn, Hunter Kass, Peter Moglia and Marc Binda.

We just got finished celebrating Thanksgiving, and it's a meaningful reminder of our enduring mission why we do what we do at Alexandria. Markets may rise and fall, but our mission is steady, noble and essential. We are a unique and consequential company focused on advancing human health by enabling the creation of life-changing and life-saving treatments.

Every single person in this room, either personally or family members, has been impacted by illness. Amazingly, 3.7 trillion medicines are used each year globally, which is more than one a day by each and every one of us extending globally. We are not an ordinary company leasing generic office or industrial space, but a one-of-a-kind company working each and every day with mission-critical space to improve the lives of others. And for that, we are eternally grateful.

Despite the disruptive and relentless political -- I should say, despite the disruptive and relentless march of political, economic, technological and financial forces and their complexity, which no one can control or predict, our team has remained steady with unwavering resolve. We thank our one-of-a-kind team for their superlative resilience and their power of determination drive and mission. And I think one of the most important and proud things we always think about is over the last 10 or more years, over 50 -- approximately almost 50% of all FDA approvals were accomplished by Alexandria tenants.

So let me move to the formal presentation. This will be the -- essentially, the material we cover today in 4 sections. And let me start with Section #1. We are, in fact, a -- both the inventor and the dominant leader in life science real estate, and intend to remain that way. We put this chart together to give you a sense of the kind of the accumulation of the impact of market regulatory policy and global activities and headwinds that have occurred just since our last Investor Day a year ago today. And if you combine that with the fifth year of a broad-based bear market, and Hallie will debunk the issue of the XBI has recovered shortly, you can see that this has been probably the single most tumultuous year I've ever seen in the biotech industry. And these events have dramatic impact on our tenants.

2025 is a year like no other. And yesterday was another one of those event riddle days where Rick Pazdur, who is a longtime friend of the company and many in the life science ecosystem and community, who is recently appointed as Director of CDER, announced his resignation as of the end of the year, and that can't be too understated. Rick, for many years, ran the oncology group at the FDA and was one of the most highly respected and important people in the FDA. In fact, many of us thought maybe he should become a director.

There are really 4 bedrock foundational principles, if you will, or issues that really underpin this -- the life science industry. And this is really part of an evolution over the last 50 years, Genentech was founded in 1976, will celebrate its 50th anniversary next year. And over those years, the really 4 bedrock foundational aspects of this industry has been basic research, the capital markets, the FDA because it's a highly regulated industry, and of course, how innovative and new products get paid for, which is the whole area of reimbursement. And each of these has a profound impact on our tenants and certainly on us. And I would say this is the first time ever that we have seen all 4 factors really in a negative position. We've never seen that alignment before. And Hallie will have more to say about that.

If you go back and look at the last -- or 8 years from about 2014 to 2021, an unprecedented bull market in the biotech life science industry driven by risk on and risk on kind of sentiment as well as very, very low interest rates. And then you look at the rocket ship demand of COVID, which increased demand in a rather short period of time, 4x what we experienced, coupled with, as I say, that long-term bull market and low interest rates, there was an enormous supply surge in our industry.

Previously, it had been a product that most people didn't want to touch their -- tip their toe into, but these factors as they aligned, lured a lot of investors and a lot of developers into the space and the oversupply issue then emerged over the last handful of years. And so as you move from the supply then to the demand -- when you look at peak demand here in 2021, the demand has really fallen substantially a 62% decrease over the last handful of years. So you copy or you compare that, you've got this supply and this demand equation is obviously not a good combination of factors.

Over the last several years, we've certainly worked hard to increase our focus on our Megacampus assets, which Hunter and Peter will describe, which we really initiated back in 2004 with the launch of our Mission Bay cluster, and we held those assets back during the great financial crisis on balance sheet. We sought to reduce our development exposure because developing into an oversupplied market while demand is receding clearly doesn't make a lot of sense, but you can't just turn off development in a single day. So we've been working hard on that.

The current state of play on the battlefield really is the following. You've got a number of key submarkets that are oversupplied. You've got a supply demand juxtaposition, as we talked about, which is causing a decline in occupancy. You've got slower lease-up of development and redevelopment pipeline, and you've got increased CapEx for lease up of vacant space and clearly a higher cost of capital.

So with those challenges -- and as a consequence, our key goals for this year and all of which we have been focused on over the last handful of years, but importantly, this year, our intent -- I say this year, meaning 2026, the coming year, to meet our targeted leverage and keep our balance sheet liquid and strong; optimize cash flow to support a rightsized dividend, and we announced a dividend cut this morning, and Marc will deal with that in a short while; to achieve solid returns on incremental investment and obviously increase net asset value.

And if you look at those goals, the actions that we're taking and have been taking and will continue to emphasize our maintaining balance sheet strength and flexibility, liquidity, importantly, solid leverage metrics and our credit rating; to invest in our operating portfolio to drive occupancy, obviously, and NOI; to invest in near-term product -- or projects, and both Marc and I will talk about that in a moment, to drive occupancy and NOI, of course; and to incrementally and strategically invest in our Megacampus to, again, increase occupancy, NOI and create value, and Hunter and Peter will take a deep dive onto the Megacampus shortly; and then flexibly and opportunistically consider a buyback of the shares. We did make a modest buyback of shares last January. This is before President Trump was inaugurated and before the cascade of events that I put up on the screen on the first slide.

So we're going to step through the 7 levers that we are focused on for 2026. And just to remind you, we have been recycling substantial assets since actually 2021, and have recycled over $7.5 billion of assets since then and larger since 2019. Clearly, we've reduced the size of our asset base and have substantially focused on our growth of the Megacampus, and I alluded to that many, many quarters ago, that was kind of our game plan.

So number one, our first lever is maintain a strong and flexible balance sheet, as I said, significant liquidity and our targeted leverage. Lever 2 is to reduce our capital spend and funding needs. Lever 3 is to substantially complete large-scale noncore disposition plan in 2026. Lever 4 is to steadily improve occupancy and NOI, importantly, focusing on all the sectors of our tenant base, including the most innovative entities in a rapidly changing environment, and it is that. Lever 5 is to continue to successfully manage G&A. I think we've done a marvelous job of that. Lever 6 is to maintain optionality regarding future growth investment on the Megacampus. And Lever 7, as I mentioned, is we'll consider flexible and opportunistic share buyback.

Marc will get into, obviously, guidance for 2026, an update for 2025, but our targeted investment hopefully will be less than 6x at year-end 2026. That's kind of where we're headed. In the reduction of capital spend and Lever 2 and our funding needs, we certainly made substantial cuts in CapEx. And again, our goal is not to build into oversupply submarkets.

Very different than the great financial crisis when we had on balance sheet, 30% of our assets were non-income producing, and we had an unrated balance sheet. It was kind of unusual at that time. But we had much of the Mission Bay land assembled in much of the Cambridge ACKS, Alexandria Center for Kendall Square, many of those parcels. And at that time, we felt that we would weather the storm and hold on to those assets, which turned out to be the growth drivers of the next decade. Today, that's not true. At that time, there was no excess supply. Today, there is excess supply. So the game plan obviously changes.

Now Marc will spend a little bit of time on this slide as well, but I want to highlight, as part of Lever 2, reducing CapEx. This is a snapshot of our 2026 pipeline, very highly leased at 86% on the Megacampus, including the delivery of Bristol-Myers Squibb this coming year. The Texas asset, we're reevaluating. We were taken to Texas. This happens to be in the Woodlands north of Houston by an important client of ours in San Francisco, which wanted to set up a major operation there. We didn't just parachute in and decided to do it. It was trying to meet the need of the tenant. But unfortunately, given the impact of the headwinds in the industry institutional demand, which is an anchor around Houston is pretty dried up, and entrepreneurial activity has decreased. And we have made a decision, and it's highlighted in our 8-K today, filed today or furnished to the SEC, that we're going to exit our Montreal assets in Canada, and Marc will talk more about that.

So the 2026 [indiscernible] pipeline highly leased and the incremental NOI from that, substantial. So we're moving forward as best we can. And hopefully, we can even improve leasing beyond 86% as an average on the Megacampus.

A lot of focus has been on 2027 and beyond pipeline, the incremental NOI that could deliver there is off to the side. We've spent a lot of time over the past year or 2 and a huge focus of the company in the coming years -- in the coming year, I should say. This is a more lowly leased pipeline because it's out a bit, but still we're very focused on it. Today's 8-K highlights 2 -- indicate 2 checkmarks down there for an asset in the Greater Boston and in the San Francisco Bay Area that we're now holding for sale. We're repositioning one of our Fenway projects, space that's available for office because we think that's where the demand is. And we're reevaluating several projects as to go or no go and what the tenant mix might be there. On the ones that were continuing construction, we have reasonable prospects and hopefully, we can make good progress in the coming year.

Third lever is substantially complete our large-scale noncore disposition plan. There's a snapshot of assets recycled over the past handful of years. It's -- Marc will talk about this $2.9 billion. It seems like a high number, but we accomplished close to that in '21 and '22. Again, the goal is to reduce the assets -- the asset base size and position the company primarily for growth on the Megacampuses.

And this is a slide about 2 issues: one, moving our noncore asset revenue down. And I said many, many quarters ago that we would hope to have, at some point, 90% of our annual rental revenue from our core Megacampuses and core assets. And the balance now, we're hoping for about 5% to 10% targeted, I should say, not hoping, but targeted in the coming year, and that really aligns well with our strategy.

And as opposed to the mention about holding assets at the great financial crisis for the coming decade boom, today that -- we don't see that same situation lining up because we have an oversupplied market in some of the markets and we don't want to impair our balance sheet or hold our balance sheet with large amounts of non-income-producing assets. So the goal is to move it from about 20%, down to 11% to 16% where we feel that's rightsizing the portfolio. So stay tuned on that. This is just to reemphasize, this is where our annual rental revenues are headed from our Megacampuses, and we feel very comfortable. And Hunter and Peter will talk about the competitive advantages and why we can demonstrate pretty clearly that they represent a great investment.

So the fourth lever focuses on leasing in all sectors. Given the rapidly changing technological environment, I think it's fair to say today that the disappointments that we have in demand in the marketplace would be the bottom 3 parts of the pie chart, so biomedical institutions, that demand across the country has primarily dried up because of a declaration by the federal government and the NIH that they wouldn't reimburse for indirect cost institutions, much of which goes into facility, leasing, acquisition, maintenance, et cetera. And that market has just simply dried up. And so that's a mainstay of this industry, and we hope that matters in litigation right now to over turn the 15% limitation rule.

Historically, most institutions have indirect costs between 60%, 65% and some going to 85%, 90%. So this represents, and Hallie is going to talk about this a bit, a critical, critical funding source for these institutions, private biotech. Hallie will talk about the decline in venture has been substantial. And at the moment, most of the venture folks are trying to prevent companies from spending money on hiring or expansion. So that has been slower than it has been during normal times. And public biotech is kind of in the valley of death, as we call it, not necessarily true death, but a valley of financing where unless you have data, it is very hard to do financing to extend your cash runway or extend or grow in any way. So that -- those are the 3 parts of the pie chart that today are having difficulty with demand. The rest of the pie chart is in relatively stable shape.

Also important, and we're going to get into this in the Megacampus section, Alexandria continues to capture outsized share of demand. I think it's fair to say if there's a tenant in the market that we want and that we have space for, we'll virtually always win the battle. And I think some of the stats that are just astounding in Greater Boston, the Bay Area and San Diego. Our leasing volume is 105%. This is as of from '23 through the end of the third quarter of this year of the next 5 largest life science real estate owners on a rentable square footage combined. I think an astounding feat and a great credit to our teams who are best in the business. We continue to have strong retention. And I think the bottom line here is where there is demand, we'll capture it.

This kind of gives you a sense of where you've got the best assets in the best locations, and we do, undisputedly. The Alexandria Megacampus combined with the best leasing team and dominating the life science leasing market. We're really focused as the key lever for next year and every year, but particularly in a tougher time, vacancy leasing, renewal leasing and obviously, development and redevelopment leasing.

This is a kind of a complicated chart, I don't want to spend too much time on, but it kind of gives you a sense of, okay, where does occupancy go and what might be the impact? And the first kind of set of stats that has the 1.8 over there indicates what leasing would be like if the run rate at 3Q '25 just continues, there's no increase in incremental leasing, and this is how it would play out over the coming years.

And the second one is if you added 250,000 rentable square feet annually, which doesn't seem like certainly, historically, like a big stretch what occupancy might look like. And the final one, just as an example, if -- or if leasing increased 100,000 square feet per quarter, 400,000 rentable square feet for the year, what the occupancy pickup might be. So clearly, this is important to us, and we're laser-focused on it. And I think most everybody always knows, our leases are best in breed. We set the industry standard having really invented this industry. 97% of our leases have annual escalations. Those escalations create really strong annual cash rents. So something that we're very pleased about.

The other side of the coin here and the other -- another lever. Lever 4 is part of those lease structures, the triple net lease structures drive really, I think, very strong operating margins for -- that we posted certainly historically over many, many years, and we intend to try to maintain those margins as best we can. Obviously, as occupancy slips and we pick up costs of vacant spaces, margins are impacted, but Marc will talk about our margin targets, and they still will remain strong.

When you get to G&A, I think we're particularly proud over the last year, we've brought down G&A to about 5.7% as a percentage of NOI, almost half the industry standard. And I think we've done a really credible job of that, and Marc will talk about our targets for 2026.

We obviously, to the extent that we have cash that we can invest incrementally in a smart and positive way, we clearly would like to do that on our Megacampuses in various fashions. This is just a picture of our Megacampus in San Carlos, 100% leased at this point.

And the final lever that I talked about is opportunistic, flexible buyback of stock. Clearly, our current stock price is well under net add. Street sell-side and NAV. So at opportune times during the coming year, we hope to buy back stock.

And then maybe finally, let me just say, going back to what I think is the winning formula for us in this really tough environment is we got the best assets. We got the best locations. We've got the best team, and where we choose to lease, we're going to win.

And so with that, let me turn it over to Hallie Kuhn.

Good morning, everyone. I'm Dr. Hallie Kuhn, SVP of Life Science and Capital Markets. In this section, we're going to discuss the current state of the life science industry, including the accumulation of 2025 headwinds, future catalysts for growth and long-term opportunity.

First and foremost, this is an industry driven by massive unmet medical need. And it has the opportunity to transform diseases like Alzheimer's, cancer, ultra-rare forms of genetic abnormalities into treatable conditions. This industry is also critical for the health, safety and national security of the United States, and must be recognized by the White House, Congress and the public as nothing less than a critical priority.

But where do we sit today? Joel showed this chart. There has been an accumulation of 2025 events that have tested the resiliency of this industry. Just to name a few, the FDA has faced unprecedented turmoil of leadership and career staff. Venture capital fundraising is at all-time lows. The IPO window is essentially closed, and we're facing unprecedented competition, particularly from China.

So here's what we need to see for catalysts for growth and importantly, for demand for lab space. Now unlike other sectors like office, for example, there's not one single indicator or simple algorithm that will say hey, we're going to see demand increase or we're going to see it go down. Instead, it's a collective set of catalysts that together impact each individual segment of the life science industry that then play into an impact to the other segments. So we're going to walk through each of these 4 pillars today.

Starting with the NIH, which Joel reviewed, high level. The NIH is foundational to basic and translational research. So basic research, what we mean is, think early foundational discoveries like the structure of DNA. Translational research is taking those discoveries and translating them to new medicines, think genetically altering that DNA to cure a rare disease. Now 80% of NIH funding is to extramural or we'd say, colleges, research institutions, including those right across the street, such as NYU. And on paper, funding remains steady at approximately $50 billion with broad bipartisan support.

But there still remains underlying challenges to its funding mandate. First and foremost, this 15% indirect spending cap that Joel referred to. For context, when a lab gets a grant from the NIH, the NIH pays on top of that, an overhead rate to fund critical infrastructure, literally keeping the lights on. Historically, that can range from 30% to 80%. And overnight, they proposed capping it at 15%. Now it's making its way through the courts. Hopefully, we'll come to a rational agreement on what that would look like in the future, but it has truly frozen institutional demand as they don't know what their budgets are going to look like this year, next year, the year after.

However, the NIH is not the only source for innovation, biotech and pharma R&D are important innovators in this industry. Over the past 10 years, R&D spend has increased over 58%. This past year, it's near nearly $300 billion. And there are companies like Eli Lilly, where their R&D budgets may in fact exceed that of the NIH over the next 10 years. But this is not a fix for innovation as these are commercial entities, right? They're going to be focused on the near-term commercial opportunities, right, versus more basic research.

And we must not take our life science leadership in the U.S. for granted. We really face a sputnik moment as China has transformed into a true biotech innovator. Orienting you to the slide, from 2014 to 2019, essentially no molecules were in-licensed from pharma companies from China. Now a mere 6 years later, that's [ 1/3 ], and it will be more this year. And these are not copycat, easy-to-make type molecules. They're true innovations, and pharma is paying real dollars to in-license them.

Moving on to the second pillar, industry funding. We'll start with venture capital fundraising. What this chart shows is venture firms raising money over the past 10 years. And you can see 2025 is at a nearly a 10-year low. This is because we're in the fifth year of a bear market, and many of these funds are experiencing lackluster returns. They're also being more conservative in deploying capital, elongating their fund cycles.

Moving to the public markets. As Joel mentioned, the IPO window remains essentially closed. There have been a few companies that have gone out into the public markets this quarter, but it still remains challenging, and is really reminiscent of the great financial crisis. And this is really important for private biotech companies as it offers an opportunity to exit for their investors and another opportunity to raise capital. Now these companies must rely on private venture capital for longer, and is a real bottleneck for growth in terms of how they think about the next several years.

Now the XBI has partially recovered in 2025. However, the XBI is not a proxy for the broad health of the life science industry nor is it a good indicator of lab demand. The reason is most companies, 95% of the constituents of the XBI are commercial-stage companies or almost commercial companies. They have products. They're focused on regulatory, clinical, commercial scaling. They're not focused particularly in this environment and expanding their research platforms, which is a driver for lab space.

One silver lining has been a strong year for M&A. This is because pharma is looking at patent expirations through 2030 that could drive up to $180 billion in revenue loss. What we mean there is as novel medicines lose exclusivity in the market either through a patent expiration or set exclusivity timings from the FDA or human health and services, new or novel generics -- sorry, not novel, but generics can come on to the market, increasing competition and decreasing prices. So pharma then looks for new sources of innovation by acquiring or in-licensing new assets. And of the top 20 pharma, they have approximately $1.1 trillion to deploy in firepower towards these types of acquisitions. M&A, as Peter will cover, is also an important driver of organic growth within our Megacampuses.

Now on to the third pillar. This industry relies on a consistent, dependable regulatory agency, the FDA. The FDA has certainly rolled out a number of reforms this year to attempt to modernize the agency and expedite review processes. But executionally, there is so much turmoil. There's been over turnover of leadership just this year. Joel mentioned one in the highly respected Dr. Rick Pazdur.

And we're starting to see it in the numbers. There's been approximately a 3x increase in delays or missed deadlines for reviews. What we're seeing this year is a slight decline in approvals compared to prior years. So on average, annually, there was about 50 approvals per year the past 5 years. This year, we're about 38, but these approvals also reflect years of regulatory interaction, and it's possible in the years to come, we'll see more of these issues arise given the turmoil and the agency.

Now all that being said, as Joel mentioned, we are incredibly proud that 1 out of every 2 therapies approved by the FDA, over the past decade, has been by an FDA -- or has been by an Alexandria tenant. A great example, a recent interview with David Ricks, the CEO of Eli Lilly, he mentioned that 1/3 of all their approved therapies came from their San Diego research site, an Alexandria facility located on our Campus Point Megacampus.

Moving to the fourth pillar. This industry, for it to be in any way investable, requires a healthy reimbursement environment for novel medicines. But to provide a little bit more context. Of the nearly $5 trillion in U.S. health care costs, 14% of that is prescription medicines. That's 3x less than all the spend on hospital and physician care, and it's about the same amount spent on what they estimate of paperwork administrative waste, right? It's a small percentage of the overall pie. Additionally, middleman, particularly PBMs or pharmacy benefit managers, needlessly mark up the prices of medicines, and 50% of all spend goes to these middlemen, with no appreciable positive impact to patients. And at the same time, 90% of the medicines patients take in the U.S. are less expensive generics.

That being said, drug pricing is front and center for the White House, Congress and the public. In particular, most favored nations has been put forward in executive orders to incentivize companies to match prices to other developed countries. There has been some positive outcomes from this, for example, the U.K. in just the past couple of weeks, has indicated they are going to potentially increase their drug prices by 25%. There have also been one-off deals with pharma and the White House that have overall been relatively rational, mainly targeting Medicaid and Medicare spend.

But that being said, the industry is not out of the woods. The IRA, as an example, which was passed during the Biden administration, enables CMS to set prices for therapies for Medicare, 10 to 15 a year. And a recent study came out estimating that it has led to the decrease in over 50 oncology drugs being developed. So it does have a negative impact on patients.

One silver lining of this rhetoric though, is increased announcements for onshoring commitments of biomanufacturing. Now to be clear, this is not a driver of significant demand for Alexandria as biomanufacturing tends to be in less expensive areas of the country and pharma companies tend to own and not lease these biomanufacturing facilities. However, we still think it's important for the industry as it shores up supply chain resiliency and ensures we have advanced manufacturing talent in the U.S.

So given all the headwinds, what's the case for the massive opportunity of this industry? Well, there's 2 realities. One, we are in the golden age of biological discoveries. Two, the potential reduction in drug development cost and time line could massively expand the biotech and life science industry as we know it.

Here's where we sit today. Approximately 10% of diseases have approved therapies, and the market capitalization of the biotech and pharma industry is approximately $6 trillion. So what can we do to increase that? One, these biological discoveries. For example, we have things like the Human Cell Atlas, which is working to replicate how individual cells work in the body, genetic engineering to exquisitely target drivers of disease and automated lab robotics and AI methods to develop, predict, test novel proteins, excuse me.

And we've seen what happens when a company can unlock massive areas of unmet medical need. Eli Lilly is a prime example. They are one of the leaders in GLP-1 therapies for obesity. They are the first and only pharma company to breach $1 trillion market cap. And importantly, novel therapies reduce health care costs. Think about Alzheimer's. By 2050, absent development of new medicines, the global cost of care is going to reach $3 trillion.

The second tool we have are AI methods across the drug development spectrum. Starting with basic research and drug discovery. AI is still early. It's nascent. And that's because biology is infinitely complex. Everyone sitting here in this room today is made up of nearly 37 trillion cells. Each of those cells has up to 10 trillion proteins, and then there's RNA, DNA, sugars that all dynamically interact on the atomic level, right? Like if you think about it too hard, it's dizzying, right? And so AI can help uncover patterns, but it is not a silver bullet.

Where we're seeing AI make, I would say, an even bigger impact, is in later-stage drug development. So regulatory preparation, clinical -- design of clinical trials, regulatory review, which is really where large language models shine, right? This is millions of pages of documents that historically had to be reviewed by humans who can now be aided by these tools.

So put yourself in the shoes of an investor. Today, you're looking at approximately 10 years and over $2 billion for a company to get a drug to a patient. We're looking at a potential future where that could be cut in half or more. And in doing so, maintain the rigor and high science to get safe and effective drugs to therapies. The impact of that is potentially massive capital inflow into this industry.

50 years ago, the first biotech, Genentech, our tenant in South San Francisco, was started. Right now, as mentioned, we're still a cottage industry, right? $6 trillion, about 10% of diseases with treatments. If we can shorten that drug development cost and time line, we're looking at an expansion of this industry, that would be a true paradigm shift, more similar to tech with a generalist investor community. And the more the pie expands and this industry expands, so does the need for Alexandria infrastructure.

So despite the challenges and headwinds that this industry faces in the current environment, innovation is not going away. And our Megacampuses are uniquely poised to capture the demand from this evolving and diverse tenant mix.

With that, I'll pass it over to Hunter.

Thank you, Hallie. My name is Hunter Kass, Co-President and Regional Market Director for Greater Boston. It is great to be here with you all today.

Alexandria's long-standing commitment across all of our regions is to execute on our key tactical actions that support and reinforce our cornerstone strategy that will drive us into the future, Alexandria's Megacampus business model.

In this section, Peter and I will discuss 4 key topics. First, Alexandria's proprietary algorithm that drives our differentiated Megacampus strategy. Second, highlight 2 key Megacampuses: Alexandria Technology Square in East Cambridge, and Campus Point by Alexandria in San Diego's University Town Center. Third, the unique brand trust that Alexandria has earned over its more than 30-year history. Fourth, we will provide clear metrics of outperformance that our Megacampuses deliver.

Before we can dive into those critical topics, it is important to provide the supply and demand backdrop we are navigating in Greater Boston and San Diego, where we're going to present 2 case studies. Over the last 15 years, the Greater Boston market has grown over 175%, from 17.5 million square feet in 2010, to 48.1 million square feet by the end of 2025. From 2010 to 2015, the market saw rational growth, which is represented by availability reducing from 11% to 6%. At the same time, the market grew 25%.

That rational market behavior changed between 2015 and 2025, when exponential growth was fueled by low interest rates and irrational market participants, predominantly new entrants into the sector that caused staggering market growth of 120% in that 10-year period, and availability increased 5.5x. The exponential growth translated into total demand of over 22 million square feet during the 5-year period of 2019 through 2023. At that time, the expectation was that demand would remain strong and support absorption of the new supply delivered. Instead, as Hallie described in our previous section, the life science industry was impacted by numerous macro and regulatory events that ultimately lowered total demand materially.

Let us now review San Diego's market conditions, where despite the better weather, market fundamentals are remarkably similar to Greater Boston. San Diego had rational market forces from 2010 through 2015 with modest growth of 8% and availability more than cut in half from 13% to 6%. The 10-year period of 2015 through 2025 saw a growth of 55%, which is almost half of the growth realized in Greater Boston. However, the market had its availability increased significantly at 4.5x.

Like Greater Boston, the growth in San Diego was driven by exceptionally strong demand of 9.5 million square feet that occurred during the 5-year period of 2019 through 2023. Across all our markets, and highlighted here in our review of Greater Boston and San Diego, the exponential market growth that delivered massive supply, coupled with change in the demand profile has translated into today's demand and supply fundamentals being structurally different when compared to previous market cycles. The market dynamics today continue to reinforce that it is mission critical for life science companies to cluster because that concentration of talent fuels innovation.

Alexandria's Megacampus ecosystems are strategically located in key innovation clusters to enable us to capture an outside share of demand. Alexandria's proprietary algorithm is the combination of our clustering and Megacampus strategy that delivers Alexandria's irreplaceable platform consisting of 26 Megacampuses. Over our 30-plus year history, Alexandria has acquired, developed and redeveloped assets that laid the foundation for our differentiated Megacampus advantage. In 1994, Alexandria pioneered the life science real estate industry, providing us with a first mover advantage that we still benefit from today.

We utilized Harvard Business Professor Michael Porter's cluster theory as the basis for our proven cluster model. We identified 4 critical components for the life science companies to thrive: location, innovation, talent, and capital. Highlighted here is Mission Bay, the first assemblage of our cluster campus strategy that established the foundation of our Megacampus platform. The proprietary algorithm that fuels Alexandria is a simple concept, but it takes decades to materialize, requires the combination of great real estate assets and a dedicated team committed to operational excellence.

The combination of what we refer to as great hardware, the real estate, and great software, the people, is what the market calls sponsorship. Well, today, sponsorship matters. And it is clear that Alexandria's cluster model Megacampus platform and premier sponsorship delivers leasing outperformance. In Greater Boston, Alexandria's leasing volume is 110% of the next 5 largest life science real estate owners by rentable square feet combined. In San Diego, thanks to the magnificent work of a tremendous team, the region has delivered leasing volume of 150% of the next 5 largest life science real estate owners by rentable square feet combined. The leasing outperformance of 110% and 150% is truly exceptional and highlights the dominance of our Megacampus platform and operational excellence.

We will now dive deeper into 2 Megacampuses. I will cover Alexandria Technology Square, and Peter will cover Campus Point by Alexandria. Peter will also explain the importance of how Alexandria brand translates into trust for our tenants.

Alexandria Technology Square is our first foundational Megacampus in operation. We have been stewards of this generational asset for nearly 20 years. We will now walk through how Technology Square delivers on all 4 components of our cluster model: location, innovation, talent, and capital. And 3 components of our differentiated Megacampus platform: space, place and service. The combination of these 2 components is what delivers Alexandria's proprietary algorithm that drives our differentiated Megacampus strategy.

Our Greater Boston regional portfolio has 3 Megacampuses located in East Cambridge that combined, make up 62% of the region's ARR. These campuses have taken over 20 years to aggregate and transform into the engine that anchors the region. Technology Square is directly located across from MIT's campus within walking distance of the red line, referred to commonly as the brain train.

The most innovative square mile on the planet is the quote on the earlier slide. Technology Square's 60-plus-year history as the home of technology and biotechnology innovation is the reason for that description of East Cambridge. It is amazing to see how Technology Square's heritage, evolution and future underscores its integral part in the diverse and robust innovation economy.

The concentration of elite talent is vital to an innovation economy like East Cambridge. Technology Square is uniquely positioned across from MIT or the [ Coke Institute ], this data center and the college of computing, just to name a few, produce talent that is the lifeblood for companies like Toyota, Google, AstraZeneca and Takeda. These companies and many more are pushing their respective innovation boundaries to deliver breakthroughs in their fields of expertise.

The capital markets remain challenged and in times like today, sophisticated investors focused on core markets. While overall funding has been down recently, as Hallie has outlined, Greater Boston has a long-standing history of a strong capital base as represented by over 30% of U.S. biotech capital has been deployed to Greater Boston over the last decade. More recently, we have seen strong venture capital fundraising, with over $14 billion raised since 2023. However, we need to acknowledge that in the current risk-off environment, many venture investors have focused their investment activity on derisked and later-stage assets that do not translate into increased lab demand.

Having covered the 4 key components of the cluster model, we will now focus on the components of the Megacampus platform: space, place and service. Alexandria Technology Square, since the acquisition in 2006, has been an over 1 million square foot operating Megacampus. This scale has offered an ability to deliver flexibility and strategic optionality to our tenants.

What I am going to walk through here is emblematic of the dynamic Megacampus platform. I would have you look to the left side of this slide, which provides the tenant mix of Technology Square by ARR in the fourth quarter of 2023. At that time, the campus was nearly 100% leased and occupied, reinforcing that our sponsorship and the strategic optionality a Megacampus provides secures strong tenancy.

Moving to the right side of the slide, we have highlighted how our Megacampus platform, now spanning multiple submarkets in Greater Boston, has secured tenancy from Technology Square. Starting at the top of the right side with [ Chimera ], a clinical-stage company that has grown by over 900% from its 300 Technology Square location, and now anchors 500 North Beacon located on our Arsenal on the Charles Megacampus in Watertown.

Verve, which was acquired by Eli Lilly in July of this year for $1.3 billion, grew by over 500% from its 500 Technology Square location before moving into our Fenway Megacampus asset 201 Brooklyn.

Moderna, a long-standing tenant partner relocated and grew by 270% from 200 Technology Square to 325 Binney Street located on our One Kendall Square Megacampus.

In addition to supporting tenant growth, Foghorn is an excellent example of working with a tenant to adapt their space in order to meet their needs. Here, Foghorn moved from 500 Tech Square to 99 Coolidge.

We recognize that this growth has translated into vacancy that we are committed to resolving. It is important to acknowledge that the vacancy also came with over 700,000 square feet of absorption across 4 Megacampuses and a net growth of 218%.

The Center of Technology Square is its iconic central lawn that has been convening the brightest minds for decades. It is a great example of how each Megacampus is positioned with a strategic focus to curate ecosystems that are designed to recruit and retain top talent that will ignite collaboration and catalyze innovation.

I am humbled every day by the tremendous team at Alexandria, and in honor to lock arms in our pursuit of delivering operational excellence. In Greater Boston, we had the Building Owners and Managers Association, TOBY Awards, on the night of November 20, which is the industry's highest recognition honoring excellence in building management and operations. It was a great night. The Greater Boston team secured 5 awards highlighted here. 325 Binney Street, the most sustainable building in Cambridge, earned the Earth Building Award. Our Arsenal on the Charles Megacampus in Watertown won both the Suburban Campus of the Year and had its community link building win in the public assembly category. And the Fenway 201 Brookline won the Life Science Building of the Year, and our 15 Necco property leased to the first [ trillion dollar ] life science company, Eli Lilly, won the Corporate Facility of the Year.

As we round out my commentary, there are 2 key items that we wanted to highlight. The first is the strong financial performance of Alexandria Technology Square and how since its acquisition in 2006, the cash NOI has grown 313% and delivered a value creation margin of nearly 80%.

The second key item relates to valuation in our core markets and in this case, East Cambridge. Over the last year, 2 key transactions occurred. The first is the well-known full building lease secured at 75 Broadway by MIT and their JV partner, BioMed Realty. The biogen lease delivers an initial cap rate or return on the $1.2 billion investment of 6.75% to the JV.

The second was the sale of 730-750 Main Street by MIT to BioMed Realty and Blackstone. This transaction's value of $361 million translated into a 5.7% cap rate. When you analyze these 2 transactions, the spread between the going in and the going out cap rate is 105 basis points, called out in the center of the slide and represents an 18% profit margin. We acknowledge these are separate transactions. However, the location and quality of these assets make it a good proxy for what a developer would target for an initial yield, and what their underwriting spread may be with a credit anchor tenant secured.

The main takeaway here is that real estate investment capital recognizes the value of premier assets located in core markets as exemplified by the return of 6.75% on a development deal and the 5.7% cap rate for a stabilized asset. Furthermore, the combined transactions total over $1.5 billion. That reinforces the liquidity of these assets in the capital markets today.

Thank you. And I will now pass it over to my friend and colleague, Peter.

Thank you, Hunter. Good morning. I'm Peter Moglia, CEO and Chief Investment Officer. Thank you very much for joining us. I'm going to walk you through the Campus Point Megacampus in San Diego's University Town Center, a place we like to call the Miracle Mile of Medicine. And I'm going to offer proof that our Megacampus algorithm is working. Over the past 15 years, we have methodically assembled more than 100 acres and transformed it into one of the world's most diverse and dynamic research hubs. It's a story of vision, patience and persistence.

This is the area that we refer to as the science sector. It's about a 4-mile radius with hundreds of innovative companies surrounded by powerhouse research institutes, such as Scripps, [indiscernible], Sanford Burnham and UCSD. We have 4 Megacampuses within the stent zone of innovation, and Campus Point is centrally located.

A truly remarkable aspect of the San Diego cluster is the overlap of life science, tech and defense. The cross-pollinization of these industries creates a unique ecosystem of discovery and invention, and none of it would happen without talent. San Diego's life science talent base is well known. It has attracted many pharma companies to the cluster. But what you may not know is that San Diego actually has the largest concentration of military talent in the world, and that San Diego is actually the fastest-growing U.S. area in tech talent.

Recently ranking #1 in deal volume, San Diego has benefited from a significant amount of M&A as big pharma has recognized the breakthroughs and opportunities that live within the companies that drive this ecosystem. At Campus Point, we've been able to capture 2 significant pharma requirements from Bristol-Myers and Novartis, both driven by M&A activity that had happened over many years. And as Hunter noted in the introduction, the way we win in oversupplied markets is to differentiate ourselves by applying Alexandria's proprietary algorithm, driven by space, place and service. You'll hear that a lot.

Our spaces are purpose-built and human-centered with flexible, scalable infrastructure that empowers mission-critical research. We lead with great design, not because it's a decoration. It's actually a strategy to capture and retain tenants. And if you've walked through our buildings, you know they are beautiful, and that matters to tenants.

Placemaking is simply designing time well spent. Our intention is for the workforce at our Megacampuses to leave work better than they were when they arrived. We want them to want to come to work, not have to go to work. At Campus Point, walking trails, wellness centers and art labs and sports fields do just that.

And service is the layer that makes everything stick together. Our white glove service delivered by our operational team makes it challenging for a tenant to ever leave an Alexandria property. And as part of that service, we host events that help tenant partners build culture, which improves their employee retention and productivity. People want to be in activated environments where they can interact with others, which is why we intentionally curate moments for people to connect. Those connections can translate to collaboration and build community, and that's a powerful tenant retention tool for Alexandria.

When place, space and service is done right, the campus performs. Campus Point sits at over 99% occupancy with an average lease term of 9.2 years in a market with 26.5% availability, quite remarkable. It also attracts top-tier tenants, and that's something I'm going to touch on a little later on.

Even more impressive is that our tenants have grown their footprints at Campus Point by over 230%, driving a 4x increase in ARR since Campus Point became a Megacampus. When a Megacampus like this matures, it becomes like a flywheel, creating positive momentum with every turn, and that has resulted in major leases with the likes of Eli Lilly, Bristol-Myers, Novartis and Leidos. Leidos is a health and defense company that also makes the airport scanners that we all walk through and pray don't beep.

To conclude this case study, Campus Point success is a result of vision, patience and persistence. It took us 15 years or over 15 years to assemble this Miracle Mile of Medicine, and that patience is paying off. Warren Buffett once said, "Someone is sitting in the shade today because someone planted a tree long ago." Campus Point is exactly that, a long tenured investment now producing outsized sustainable results.

These 2 case studies Hunter and I went through are emblematic of how truly differentiated our Megacampus platform is. However, their success would not be possible without the trust tenants have in us to ensure that their mission-critical facilities are online and productive. At Alexandria, we work every day to continue earning the trust of our over 700 tenants and their tens of thousands of employees. And look -- just look how long some of these tenants have been with us. We have certainly earned their trust.

Every day, our goal is to continue to be the most trusted landlord in life science real estate, and we are. Our new build-to-suit with Novartis is a perfect example of that trust. They had more than a dozen options in San Diego that could satisfy this requirement, including many buildings that were already finished and TI ready. But they chose us because they trust us to deliver the world-class, state-of-the-art research center that they had envisioned, and we will. The build-to-suit, which will deliver approximately $800 million in revenue over its 16-year term is not only a driver of future earnings, but it will elevate the entire campus ecosystem and amplify the buildings within it, much like a new beautiful house elevates a neighborhood and the value of the other houses in that neighborhood. And it isn't just Novartis that puts their trust in us. For decades, some of the world's most innovative companies have entrusted Alexandria with their mission-critical facilities. Alexandria is not just a developer. We're not just a landlord. We are a trusted partner to these amazing companies and we are very proud of that.

Okay. We started this section discussing the oversupply problem and the fundamental change in demand contributing to higher market vacancy and weaker leasing fundamentals. Then we discussed why Alexandria's proprietary Megacampus algorithm, driven by the inputs of space, place and service is our best weapon to mitigate those challenges. To further illustrate this, I'm now going to present a direct comparison of the performance of our established Megacampuses and our non-Megacampus assets. The data you will see spans from the first quarter of 2023 through the most recent quarter. That time frame accurately reflects the impact of current market conditions and those we expect to manage through in the foreseeable future.

First, just to set everybody's knowledge of our Megacampus platform. It comprises all properties that currently have or are projected to have 1 million square feet in operation upon full development. Altogether, we have 26 of these Megacampuses, and they account for 27.1 million square feet in operation, far away the most any other operator would have or does have, and it's not even close.

To provide a meaningful comparison between the performance of our Megacampus platform and our non-Megacampuses, we identified a subset of 17 established Megacampuses to serve as a benchmark for this analysis. Each established Megacampus asset has at least 750,000 square feet in operation, ensuring that it benefits from the Megacampus algorithm input of scale. To paraphrase what Hunter said in the introduction, the inputs of our proprietary algorithm are high-quality space at scale, place in the form of activated environments, and service in the form of operational excellence contained within the substrate of our cluster model.

Now let's go through some of the outputs. Rent growth is a very important metric considering its impact on future earnings. The premium realized over our 11 quarter comparison period proves that the Megacampus algorithm significantly outperforms in rental rate growth outperformance versus our non-Megacampus assets. Our established Megacampus has secured significantly longer lease terms compared to our non-Megacampuses. The data suggests that this is driven by the flexibility of the Megacampuses provide through their scale.

Tenants can grow within a Megacampus much easier than in a one-off building, and the ability to grow is often a very high priority for life science CEOs. The stable occupancy and income we get through these long-term leases translates to higher asset values. The exceptional quality of our spaces, the inherent ability to scale and the vibrant activated environment we create through thoughtful place making, combined with our superior service to attract tenants that are solving for more than just cost considerations. These tenants are prioritizing recruiting and retaining world-class talent and they seek environments that support innovation, collaboration and growth, and they are often of the highest caliber. This strong credit profile also translates to higher asset values, driving long-term value for our shareholders.

So because we have good third-party market occupancy data for the big 3 markets of Greater Boston, San Francisco and San Diego, we did a comparison of the performance of our established Megacampuses to our non-Megacampuses and to the market itself here. The findings clearly demonstrate that our Megacampus platform soundly outperformed the market, and so did our non-Megacampus assets, a testament to the quality of our overall asset base, our brand and our operational excellence.

The supply and demand dynamic has led to a decline in fundamentals in the form of lower occupancy, negative rental growth and significant lease concessions, which we anticipate will continue to impact our results for the foreseeable future. The Megacampus algorithm is our best weapon to mitigate these circumstances, and that's why we are investing so heavily into it. Our cluster model and the Megacampus components of space, place and service will continue to deliver outsized rent growth, drive occupancy outperformance, provide longer lease terms and attract higher-quality tenants relative to the assets and entities that have created the supply challenges we're managing through. We can't control demand, but we can control where it goes, and our Megacampus platform is primed to capture it.

With that, I will give you Mr. Marc Binda.

Thank you, Peter. Good morning. My name is Marc Binda, CFO and Treasurer, and I'm going to provide you an update on 4 key topics. First, our updated guidance for 2025. Second, our initial guidance for 2026. Third, our solid balance sheet. And fourth, I do plan to share a few key data points which will be useful for thinking about 2027. And one common thread throughout this section, is that we are highly focused on pulling every lever in our arsenal of things that we can control to put us in a position to succeed.

So starting with 2025. We remain on track with FFO per share diluted as adjusted occupancy leverage, asset sales and G&A consistent with our third quarter call. Earlier this morning, we filed an 8-K that announced, among other things, that we decided to monetize a large basket of public securities in the fourth quarter for 2025 for approximately $41 million. It's listed at the bottom of this page. We will use those proceeds from this sale to bolster leverage, pay down debt, and we plan to add back the $103 million onetime loss for purposes of FFO per share diluted.

Now back on our most recent third quarter earnings call, we highlighted that we had closed around $508 million of dispositions and had around $1 billion of dispositions that we're tracking to close in the fourth quarter, bringing us to around $1.5 billion for the full year. We continue to remain on track. As of today, looking at the left-hand side of the slide, you can see we've closed $695 million, and we have $840 million of dispositions expected to close this month that are subject to nonrefundable deposits. We also have an additional $296 million subject to executed letters of intent or purchase and sale agreements, which we are pushing hard to close this year, which could potentially bring our total well above the $1.5 billion midpoint of our guidance to closer to $1.8 billion for 2025.

As Joel touched on earlier, we continue to carefully scrutinize all spending, understanding that the incremental return hurdles and risk profiles needed to move forward in today's cost of capital environment is challenging. In most cases, the initial decision to move forward with these projects was made a long time in advance, and we're making great progress with our 2026 development and redevelopment projects, which are 81% leased or negotiating, and are expected to generate $105 million of additional annualized EBITDA by the end of 2026.

In our 8-K we filed this morning, we made some new announcements on the pipeline. We recently made the decision to pause and sell certain projects, thereby eliminating the remaining capital needs to finish those projects, and allowing us to redeploy the future sale proceeds into projects that we have higher long-term conviction. That included our Canadian project highlighted here in green.

Now turning to the 2027 projects, 2027 and beyond. Included in the green shading on this slide are 2 additional projects, which we designated for held for sale very recently. In addition, we've decided to pivot back to a lower investment strategy for office use for our 401 Park project located in the Fenway.

As a result of these changes, we accomplished the following for the total active pipeline. We reduced the size of our committed funding needs by more than $300 million over the next few years. The pipeline has been reduced from 16 projects to 12 projects. And what remains in the pipeline will be highly concentrated and aligned with our Megacampus strategy and is expected to generate $240 million of incremental annual EBITDA upon lease-up and delivery over the next few years.

One other item to point out here, we are evaluating the business strategy for another 4 assets, including the 3 projects that are listed on this slide, which includes scenarios where we could potentially continue, continue to the redevelopment or development, pursue lower investment alternatives or potentially sell. If we do ultimately choose to sell these projects, that would further reduce future funding requirements.

Now I'd like to turn our attention to 2026 guidance. At our third quarter earnings call, we highlighted 5 key factors that would have an impact on 2026 FFO per share results, including core operations, capitalized interest, realized gains on nonreal estate investments, G&A expenses and dispositions.

Fast forward to today, here's the relative impact of these factors, with core operations driven by near-term pressure on occupancy, a reduction in capitalized interest primarily driven by asset sales and the disposition of primarily noncore assets in aggregate driving around 75% of the decline in FFO per share as adjusted from 2025 to 2026.

Our guidance range for FFO per share diluted as adjusted is $6.25 to $6.55. The midpoint is $6.40. It's important to point out that the midpoint of our refined and tightened guidance of $6.40 is $0.15 below the midpoint but within the range of the very broad range for FFO per share diluted as adjusted that we gave back on October 29 of $6.25 to $6.85. The primary reason for this is due to changes in the final composition and timing of real estate dispositions and sales of partial interest expected to close in 2026. Earlier this morning, our 8-K released the details of several of those projects that were just recently designated as held for sale.

We think of the near-term period as substantially concluding the reset brought on by a variety of macro industry and regulation factors that Joel and Hallie discussed earlier. As expected, by shrinking the size of the business in the near term and funding the business with sales of land parcels and noncore assets, FFO per share results will come down. We expect to substantially complete a large portion of our total disposition and partial interest sale program by around midyear. As a result, our outlook for 2026 assumes that quarterly FFO results flatten towards the second half of 2026 as we close on transactions and provides a relevant data point for earnings as we end 2026 and head into 2027.

Now we're going to dive into the key operating metrics embedded in our guidance for 2026. The pressure on same property results, occupancy and rental rates reflects our view of the current market, including the oversupply issues in the regulatory environment that Hallie and Joel, Peter and Hunter all discussed earlier. During this time, we continue to prioritize meeting the market and winning deals to boost occupancy. Our trophy Megacampus assets give us the best opportunity to do that, as you heard from Hunter and Peter earlier.

Starting with same-property results. You can see from this slide that we are in unprecedented times. The stability and strength of internal cash flows has been a hallmark of the company for many, many years. Up through 2024, annual cash same property results had been positive for more than 2 decades, including during the great financial crisis. It's important to note that for most of this period, there was a rational industry supply and demand dynamics at play. 2025 marks the first negative cash same-property performance year in more than 2 decades, and our guidance for 2026 assumes a decline of 8.5% at the midpoint. The industry supply and regulatory factors have had a tremendous impact.

Now let's dive into the micro factors specific to Alexandria's cash same-property results for 2026. Our guidance includes, but is not limited to 3 key factors, which are listed on the left side of this slide, all of which have a negative impact to occupancy and to net operating income. First, as we initially introduced back in our second quarter earnings and as we continue to refine, we have 1.2 million square feet or $79 million of annual rental revenue of key lease expirations in 2026 that are known vacates and are expected to have downtime for all or most of 2026. I'll come back to this with more details on the next slide.

Second, in the middle there, we have 2 properties located in the San Francisco Bay Area market, which are currently occupied by existing tenants with lease terms which extend beyond 2026, but which no longer need the space. We have good activity for both these spaces with new interested parties. But if we move forward, we will have some downtime for most of 2026 for construction. So that will impact same property results in the short term.

Third, on the bottom left, we are monitoring a number of tenants in our asset base today, which we believe could consider wind down in operations if their conditions worsen. Out of an abundance of caution, our guidance assumes a probability-weighted contingency that 500,000 square feet goes vacant for next year.

Next, we'll dive deeper into the 1.2 million square feet I mentioned earlier or $79 million of annual rental revenue of the key known vacates for next year, which have a weighted average lease expiration date of around March 2026. We have 2 large spaces representing 12% of the annual rental revenue under negotiation today with prospective tenants, and we are laser-focused on all of this, with more than 50% of this located in our Megacampuses. Importantly, our guidance for 2026 does not assume significant income from these lease expirations in 2026, even if we get them leased ahead of time given the potential time needed for construction and delivery.

For 2026, we have almost 3.1 million square feet of lease expirations as shown on the bottom right of this slide. If we exclude lease expirations related to the 1.2 million square feet of known vacates, potential asset sales and one small property expected to be taken out of service. We're left with 1,296,868 square feet of lease expirations, which is located in the middle left of the slide and the subtotal header in the blue shading. Our expectation for this space is that the retention on that 1.3 million square feet of lease expirations is in the 60% to 70% range.

Next, we're going to take a look at 2027 lease expirations. While it's normally too early to tell for lease expirations that are that far out, especially in this environment, we've been asked by the investment community to give an update to the extent possible. I'll walk through each of the top 5 lease expirations, all of which exceed 100,000 square feet.

First, at the top, is 190,000 square feet and represent a space that will be left behind as Bristol-Myers relocates to our 427,000 square foot development project expected to deliver at our Megacampus that Peter just mentioned at Campus Point. The good news is that we believe this space will be highly desirable to 2 other large tenants located in that particular building.

Second is 170,000 square feet at our 259 East Grand campus located in South San Francisco. We've got good activity on all that space.

Third is 132,000, which is currently leased to a technology tenant on our SD Tech Megacampus in San Diego. It's early there, but we have a good chance at renewal there.

Fourth is 249 East Grand in South San Francisco. The existing tenant, Verily, a subsidiary of Google, is relocating back to the Google campus, but we've got good activity on that space already.

And fifth is 199 East Blaine located in our East Lake Megacampus in Seattle, and we're in early discussions there with the tenant interested in taking the whole building.

Now turning to occupancy for 2026. Occupancy for 2026 is expected to be down by 2.3% at the midpoint of our guidance ranges, landing at 88.5% by the end of 2026. Our guidance assumes around a 2% boost in occupancy from some combination of noncore assets that will be sold with -- that have vacancy today, which suggests around a net 4.3% decline in occupancy through the year.

Two additional points to make here. First, as I highlighted earlier, we do have 1.2 million square feet of lease expirations expected to go vacant in March of 2026 on average. As a result, we expect that the occupancy in the first quarter of 2026 could drop below the midpoint of where we expect to land on occupancy by the end of 2026 of 88.5%. And second, recall that the market occupancy in our largest 3 markets is in the low 70% range. So despite the decrease in occupancy next year, we're significantly outperforming the market.

Now that we've covered occupancy and same-property results for 2026, we'll turn to rental rate increases on renewed and re-leased space. As expected, we assume pressure on rental rate increases for next year. Most importantly, we expect to meet the market on lease economics and prioritize occupancy with the very best tenants. We believe our Megacampus model puts us in a great position to win deals when we have the right space available. Our guidance assumes rental rates are down 8% on a cash basis and up 2% at the midpoint for next year.

As Joel mentioned earlier, we continue to manage general and administrative expenses very prudently, with an aggregate of $72 million of savings on a combined basis for 2025 and 2026 compared to 2024. As we've shared for quite some time now, some of the savings expected to be realized in 2025 were temporary in nature. So while 2026 expenses are expected to increase from '25 to '26, the recurring savings at the midpoint of our guidance for 2026 compared to 2024 are still significant at around $24 million a year or 14%.

The next slide highlights the disciplined approach we've taken at managing G&A costs. As you can see, when we compare our G&A costs on the right as a percentage of net operating income, our projected results significantly outperformed the average of other S&P 500 REITs at a range of 7.4% to 8.9%.

We also look at our adjusted EBITDA margins very closely. We like this metric a lot because it captures not just net operating income, but also G&A expenses. We expect margins to come down next year into the mid- to high 60% range in 2026, really driven by the anticipated decline in occupancy. But as you can see from this slide, we continued to outperform many of our REIT peers.

Next, I'll cover interest expense and capitalized interest. Our guidance for next year is shown on this slide. Net interest expense for 2025 is up from 2020 -- it's up from 2025, primarily driven by lower capitalized interest. So capitalized interest. Capitalized interest is expected to decline by $85 million or 25% at the midpoint of our guidance for 2026 compared to 2025. This slide provides a high-level roll forward capitalized interest from 2025 to 2026. And as you can see on the second bar on the left, the biggest decline in capitalized interest is coming from land or projects we've chosen to pause that we now expect to sell. The $85 million reduction in capitalized interest implies around a $2 billion reduction in average basis capitalized from 2025 to 2026.

Now we expect capitalized interest to decline significantly in the second half of 2026 as we work through the asset sale program. Average basis subject to capitalization is expected to decline significantly from the third quarter of 2025 of $8.4 billion shown here on the left, to the fourth quarter of 2026, with a range of $4 billion to $5.5 billion, which is a 43% decline between now and then. Given the current demand and supply trends, we'd like to see the ratio of nonincome-producing assets as a percentage of our total gross assets decline from where they are today, 20%, to the 11% to 16% range by the end of 2026, really through asset recycling of land and nonincome-producing property.

Now I'll turn to investment gains on our non-real estate investments. We've had some very healthy gains from 2021 through 2025, with those averaging around $103 million a year over that 5-year period. Given the current state of the life science industry, as Hallie walked through earlier, and given factors unique to our portfolio of investments, we expect realized venture gains included in FFO per share to be in the $60 million to $90 million range in 2026, which resets these gains to effectively around the 2020 historical levels.

Next, I will cover sources and uses for 2026. This slide shows a snapshot of our capital needs and funding sources for next year. I'll dive into each of these separately, starting with our uses of capital there on the bottom.

So construction spending continues to represent our primary use of capital in 2026. We recognize, in this high cost of capital environment, it's important to moderate our uses of capital, particularly in the short term. This slide highlights the great work we've done here, including shrinking the size of the active pipeline from 16 projects to 12 projects very recently, selling certain noncore assets that would have otherwise required significant capital to release, and seeking to moderate our spending. So as you can see, construction spending has come down by almost 40% from the period from 2024 to 2026 compared with the preceding 3 years.

We continue to intensely focus on making sure that construction dollars are spent where it makes sense. 90% of our construction spending for 2026 relates to the active development and redevelopment projects already underway on the left, and then investments into our operating assets to help with leasing of current and future vacant space. So only 10% of our construction budget relates to our future pipeline, of which, 75% of that 10% represents capitalized costs, including capitalized interest.

Construction spending related to the lease-up of our operating properties is expected to increase significantly in 2026. We've mentioned this before. We measure our revenue and nonrevenue enhancing capital expenditures related to operating assets as a percentage of net operating income. This ratio had been, historically, around 15% or lower for many years, as you can see on the left side of this slide.

Looking forward to 2026, we have a number of assets that are expected to undergo renovations. There are 2 projects that make up more than half of the capital expenditure bucket for next year. First is our Advanced Technologies Campus in South San Francisco. I mentioned earlier that we have good activity on this campus. And then second is our Technology Square Project in Cambridge, which Hunter covered earlier. It's been around 16 years since the last renovation of those buildings at that project, and we feel good about investing into this project given the iconic nature of the building and the location really at the center of Main and Main.

Now I'll move to our funding plan. Our plan this year is to self-fund our capital needs with a combination of retained cash flows, sales of noncore assets and land and some partial interest sales of core assets. I'll get to the details of each of these in a moment.

But before I do, this slide provides a snapshot how we determine the amount of funding for 2026. Starting on the left side of this page, we determined that we would need $2.7 billion of funding based upon the range of our guidance for net debt to adjusted EBITDA target for 2026. We consider that the funding would need to exceed our construction needs next year to pay down debt, given the anticipated decline in EBITDA from a variety of factors, including the 2026 [ same ] property performance and for a reduction in EBITDA in 2026 from the dispositions expected to be completed in the fourth quarter of 2025 that will carry over into 2026.

Moving from left to right in the blue shading there, we expect to solve that $2.7 billion funding need with 2 strategies. First, our Board approved a reduction of the dividend of 45% today, which will generate an additional $410 million of capital that can be used to address our funding needs. And then second, we plan to address the $2.3 billion remainder with both dispositions of noncore assets and land, and sales and partial interest of core assets. You can see on this slide that the midpoint of our guidance assumes $2.9 billion of dispositions and sales of partial interest to address the $2.3 billion funding need. The reason for the dispositions and the sales of partial interest being larger than the funding need is due to the expected loss of EBITDA associated with the potential sales of noncore assets, which will require us to sell more and to pay down debt further based upon our goal for net debt to adjusted EBITDA for leverage.

Next, I want to provide some context around the change to the dividend that was considered by the Board. The Board considered a variety of factors, including taxable income, our AFFO coverage ratio, current and future capital needs, the potential for $410 million of additional capital and our dividend yield. Following the dividend cut, the dividend yield is much more in line with the average of other S&P 500 REITs, as you can see on this slide. Including the dividend reduction announced today, net cash flows from operations after dividends and distributions is expected to be $525 million at the midpoint of our guidance for 2026, and will represent a significant component of our overall funding need -- our overall funding plan.

Next, I will cover our disposition and sales of partial interest plan for next year. I already walked through how we arrived at the $2.9 billion at the midpoint of our guidance. Shown on the left is our initial estimate for the mix between dispositions between the 3 buckets, including the following: noncore assets, both stabilized and nonstabilized; land; and sales of partial interest related to some of our core assets. Dispositions of noncore assets and land are expected to represent around 70% of our total plan, and our hope is that 2026 is the substantial completion of our large-scale noncore disposition program. In addition, our initial guidance assumed a weighted average transaction date of around midyear.

Private real estate developers, owners, users, investment funds, other REITs have all been the biggest buyers of our assets over the last 2 years, and we're laser-focused on execution. 55% of the total $2.9 billion expected for 2026 has either been identified as a partial interest sale or was recently designated as held for sale as part of the 8-K that we filed this morning. We have a number of other assets that we are evaluating for the remaining 45%. We believe that the reshaping of the portfolio is imperative in this environment, and this will set us up for the long term to have an incredibly high-quality asset base that will outperform other life science real estate.

I'd also like to point out that we generated tremendous value over the last several years with realized gains of $3.6 billion through asset sales and partial interest sales since 2019. Looking back, we've sold $10 billion of assets since 2019. We also have more than $1 billion lined up to close in the fourth quarter of 2025 alone. For the noncore assets and land parcels designated very recently and included in our 8-K this morning, we did recognize $1.3 billion of impairments, which included both assets expected to be sold in the fourth quarter of '25 and also in 2026. Our 8-K has the details. This is in addition to the $1.4 billion of real estate impairments recorded from 2019 through the third quarter of 2025, as shown on this slide.

In addition to generating significant proceeds to recycle into the business, we expect our 2026 disposition program to accomplish a number of highly strategic objectives, as shown on this chart. On the left, we expect to have a very high concentration of Megacampus and core assets by the end of 2026 at 90% to 95% of our total annual rental revenue. And on the right, we expect noncore assets to fall into the 5% to 10% bucket as a percentage of annual rental revenue.

Last point to make on the capital plan. I mentioned earlier that we continue to prioritize the health of the balance sheet and expect to pay down debt by around $1.7 billion in 2026 in order to keep leverage in check. This should allow us to eliminate any short-term borrowings and pay off our 2026 debt maturities of $650 million with the proceeds from our asset sale program.

Now that I've run through guidance and the sources and uses for 2026, I want to highlight a few important topics for 2027. I'll highlight 3 of them on this page. First, I mentioned earlier that we expect our FFO per share diluted as adjusted to be in a range from $1.40 to $1.60 by the fourth quarter of next year. We expect this to include the impact of most of the asset sales, which have a weighted average transaction date of around midyear.

Second, we gave the estimated basis in 4Q 2026 expected to be subject to capitalization. This implies a low point within the year of 2026 for capitalization.

And third, we expect to substantially complete the large-scale noncore asset program in 2026, which means we expect to seek a lower cost of capital in 2027 for our funding needs, which could include joint ventures of core assets.

Now I'd like to turn back to the balance sheet, and I'll make a few points here. A strong balance sheet has been a hallmark of the company for many years, and we continue to recognize the importance of maintaining it. We have one of the most impressive maturity stacks in the REIT space, with only 7% of our debt maturing through 2027, and as you can see on this chart, a very well-laddered maturity profile through 2054. Our weighted average debt maturity is 11.6 years, which is about twice as long as the average for other S&P 500 REITs, and this provides us with a significant amount of flexibility and reduces our near-term risk to refinancing.

Now we took advantage of the low interest rates in the prior cycle and locked in some phenomenal rates for a very long period. As of 3Q '25, our fixed rate unsecured bonds were well in the money compared to market pricing for new unsecured bonds today. From an NAV basis, this discount to par represents around $8 per share of value as of September 30, so it's significant.

We have tremendous liquidity on the balance sheet, and we expect to keep it. As of the end of 2025, we expect to have around $5 billion of liquidity, which, to put that into perspective, represents enough liquidity to cover our debt maturities through 2030.

We provided guidance ranges here for fixed charges and leverage on a net debt to adjusted EBITDA basis for the fourth quarter of 2026, as you can see. Leverage for 4Q 2026 is expected to be in a range of 5.6 to 6.2x on a net debt to adjusted EBITDA basis or 5.9x at the midpoint. Our near-term goal beyond 2026 is to target somewhere in the mid- to high 5 range. We expect to have a number of tools to keep leverage in check beyond 2026, including the additional EBITDA coming online from the development pipeline and the significant retained cash flow as I mentioned earlier. We also took a deep dive on the covenants in our revolver and our unsecured bonds. We published those projections here, but the bottom line is that we're in good shape on all of these covenants really with plenty of cushion.

And before I wrap up, I do want to leave you with a few closing thoughts. First, COVID has had a profound impact on the world and ultimately on our business, really brought on by the following oversupply wave. And we are pulling on every thread within our control to position the company for success, including shrinking the size of the land bank, selling noncore assets and investing in our Megacampus assets, which are our greatest weapon against supply. We continue to significantly outperform the market on occupancy and leasing, as Peter and Hunter outlined. And ultimately, Alexandria remains a highly consequential company, enabling some of the greatest scientists in our tenant base to find cures and therapies that make a difference in the lives of your families and for all human kind.

With that, I want to wrap it up, and I will hand it over to Joel for Q&A.

Maybe just turn off the screen or leave that, it's fine. So if we could open it up for questions, please. Tony?

Yes, Joel. I guess, with 30% vacancy in a lot of your core markets and just some of those 4 foundational items you mentioned that are causing headwinds, like how long do you think it takes for the life science space market to get back to some equilibrium?

Peter has very specific thoughts on that.

This is a crystal ball. I'm not sure. But look, I've been asked that question a number of times over the past 18 months. And originally, my thought was 2 to 3 years in general. If you take the entire overall inventory that has hit the markets since those 18 months, and you didn't look at it submarket by submarket, which is the way we should, you're probably looking at 4 to 5 years.

But what I would caution you is that, that's everything. Those are -- including supply in submarkets that we think will never be lab submarkets like Summerville. If you look at our main submarkets like Torrey Pines and Cambridge and South Lake Union, I mean there's not a lot of supply there because there wasn't a lot of available land or conversion opportunities. So that certainly, in the next couple of years, should get to a stabilized run rate.

How the periphery of assets that will try to compete for tenants that are normally going to those areas, how that affects our business. We don't know right now, but it's very likely that it will weaken the fundamentals. But we do believe that we will keep our core submarkets very stable, even though there will be high vacancy through -- for at least the next 4 to 5 years.

Yes. I would also say, if you look at the submarkets we're in, and you look at the changing dynamics of just technology and technology companies, you look at San Francisco as a whole today, it has the largest growth in AI-related people. You look at -- Seattle's probably second to that. You look at a number, I think Peter talked about the defense technologies down in San Diego. So there are a set of wide technology companies that surround and interact with the life science industry.

If you go back to the pie chart that we showed for Campus Point, Campus Point is about 30% leased to advanced technology companies. We can't tell you the names of all the companies there because some have to remain secret, but Leidos is one that we did a build-to-suit. They -- we [ bought ] their building, tore down and then built a new building for them there.

So I think you could look at San Diego, San Francisco, Seattle on the West Coast, certainly Texas and the move into Texas by a lot of very advanced technology companies, robotics automation, and then you look at some of the locations on the East Coast. I think we're -- and Hunter mentioned Technology Square and what surrounds that. So I think we're not wholly dependent on lab space demand.

Please?

Aaron Hecht from Citizens Bank. A couple of questions around the slides regarding competitiveness with China and the time frame of drug development in the United States. And it's interesting to see how those drugs being developed in China are really ramping, I think, 30% for the last couple of years. Just your thoughts around the pace that they're being developed at, the dysfunction that we're seeing now in the U.S. and the likelihood of being able to shorten development time frames. And I guess, from a regulatory standpoint and whatnot, how much intestinal fortitude do we have to have in the U.S. to achieve those things?

Yes. Well, certainly, good question. One of our team members, [ Lynn ] and I were in China, maybe, what, 2013, 2014, we actually put on a program in China. And at that time, that was the first 5-year plan that put biotechnology at a -- in the top 5 categories of state-sponsored technologies that were mission-critical to the People's Republic. And at that time, literally, the Chinese could not do a clinical trial in oncology that would get any data that would be meaningful. They were really [ archaic ].

So you look fast forward 10 years, it's pretty amazing. Now they -- and I'll let Hallie answer more detailed. But a combination of state sponsorship money forcing priorities to happen. They've built an infrastructure of CROs across contract research organizations, maybe some of the best in the world, CDMOs. They brought together the means of production from beginning to end, and now clinical trial work, and they're -- their FDA, which is the SFDA, was patterned on ours, but they have compressed the time to go from preclinical into the clinic at a fraction of what we have and to go from Phase I to approved drug about half the time that Hallie's chart showed.

If we don't have a national priority and Senator Young out of Indiana has a bill in Congress that starts to move this in the right direction, whether the head of HHS is listening to that, I don't know. But we have to have a national priority here or it will not be good. I mean, could you imagine if any of us are on a cancer medication, this is like rare earths, right? And suddenly, China decides, well, we're not going to supply that cancer medication or a Parkinson's medication, like we cannot be without supply and without origin.

So Hallie, be more articulate.

Sure. Yes. I think the other side of that is that global competition is the reality of any industry. So this is certainly a wake-up call. And to Joel's point, the Biotech Security National Council has continued to put out proposals. We have been speaking to folks both sides of the aisle at the White House who do recognize its critical importance. And I think for the industry, it has really kicked into gear, the imperative to modernize how we think about drug development.

Ultimately, we are still in the lead in terms of innovation and talent here in the U.S., and so capitalizing on that now is critical. But I also do think, just to put it in a broad perspective, if you think about tech and other industries, it's going to push this industry to be better over time.

Sometimes competition makes a big difference, but having a managed economy versus, say, a free market economy, kind of tells the story. It reminds me of the company, [ MP Materials ], which, bought out of bankruptcy, which is now going to be soup to nuts on the full integration of the supply of mining rare earths to the delivery of finished magnets. We had to be forced into kind of doing that. Now that company has partnered with the government. I think Jamie Dimon and JPMorgan are heavily involved in that. That's what we need to do in the biotech area.

Other questions? Yes, Rich?

Just a question for Hallie. If you could deploy some of your 37 trillion cells in answering this question. So Peter talked about supply and the time line to sort of a stabilization. But on the demand side, I wrote down -- sorry, 5.3 million square feet in the third quarter, down from 14 million square feet in 2021. What are the -- what gives you confidence that we're sort of bottoming out on the demand side of space? What are some of the -- you used the term silver lining a few times when you were speaking. If you were to deploy your crystal ball, where are we on a -- from a demand point of view, once we get perhaps some of the political problems that are facing the industry and so on 5 years from now, what's the demand picture look like for everybody here?

Sure. Yes. 37 trillion cells and incubating more. So I wish we had a simple answer. Part of the reason that we pulled together these 4 pillars is because there's no simple kind of one thing that's going to suddenly increase demand. I think what we can say in terms of the bottom is even though demand is certainly at the lowest it's been in years, we're still seeing really great companies, right? We're not saying that we're not seeing amazing companies out there doing really interesting work that need lab space. We still see those. They take longer to make decisions because Boards, executive teams are hesitant about where their capital is going to come from over the next several years.

So what we need to see, again, just kind of go back to that framework, I think we can need to see kind of everything all working in concert. We need more predictability from the FDA. We need capital markets to start opening up, which is dependent on interest rates. We need to make sure that we are continuing to reimburse and value medicines that provide care to patients and drive down long-term health care costs. And we need a value basic research. Those might not be -- basic research might not impact next year's new drug discovery, but it may impact that in 20 years, right? So I think we need to see everything. I think what gives us, again, hope on the ground, is we still see really amazing companies and founders, things are just taking longer.

Please? Can we get a mic kindly?

So you talked a little bit about kind of how AI is impacting drug development. How does that -- with your conversation with tenants and as you think about designing new buildings, how does that kind of change how you think about designing buildings, the need for traditional office space, lab space? And what are your tenants kind of saying on that front?

Sure. Where we see the biggest impact right now is really for our large multinational pharmaceutical tenants because the capital required, in particular, to deploy really significant automation in these buildings is so intense. And so Novartis is a great example in San Diego. The team has spent 2 years talking to them about what does the future of drug discovery look like? How can we future-proof the building? And what that comes down to is really robust infrastructure beyond, and I would -- well, I'd say, similar to what we already have, but beyond that. So it is ensuring that there's going to be excess air capacity that the live loads for really heavy equipment can withstand automated robotics, that they expect to have vibrations are really minimal, and then power is really big as well, ensuring that there is robust backup power and significant backup power. So all of those things are what we are good at, right? Like that is our bread and butter. We understand those infrastructure needs. It's just really ensuring that those are going to be sufficient.

I would say, for smaller companies, we really don't see a change in conversation. They are not going to be once deploying $40 million towards the next kind of robotic set of automated experiments. They're still more focused on that artisanal type discovery work that still needs the same type of kind of lab. And again, I would say, even when you walk into a lab for, say, a really AI-focused company, all the benching and everything, that looks the same, right? It's just the equipment that's on top of it might look a little bit fancier, right? So there is a shift, I think, at that later stage. But across the spectrum, it's not going to drastically impact what we think about from lab side.

So one thing you might think about, there are a lot of smart people thinking about what the makeup of people on our Megacampus might look like going into the future. And some people think the breakdown might be less than 50% traditional scientists, maybe 25% data scientists, 20% engineers, maybe 15% AI-related folks. So that would be a change from historical, but that's kind of looking into the future, if you look at the makeup of people.

Yes, sir.

Yes. Marc, in your comments, you talked about in 2027, potentially looking at JV financing. And I'm just kind of curious, why is that not an option kind of on a more near-term basis? I mean, do we have an issue where simply because of all the uncertainty of moving parts, it's just kind of finding a large capital partner at this point is just a little bit more difficult in kind of [ 12 ] to 18 months?

Yes. Let me answer that, and Marc can expand on it. It is on the table. We've been doing them historically over the last 5 to 7 years, and we will continue to do some of those in '26. But our main focus is reducing our exposure to land and noncore assets down to the 11% to 16%, as Marc stated. But that's clearly on the table. We're not excluding that at all.

I don't know if you want to add anything, Marc?

Yes. No, it is a part of the capital plan for 2026, but it's just a smaller component. Just wanted to highlight, as we look forward to 2027, obviously, our hope is that we're substantially done with the noncore asset sales, so we would move to something different.

Yes, ma'am?

I was curious if you could add a few comments around your confidence in the midpoint of your disposition guidance? Specifically, I know we continue to talk about the uncertainty around the increase in demand. I'm curious about who the buyers are and where you see that going?

Yes. Peter, do you want to maybe talk about that? And I think we've got good confidence. Marc showed the asset recycling that we've done over the last several years. And in peak years, we're able to do over $2 billion and almost approaching $3 billion. So I think we have a reasonable confidence level, but Peter?

Yes, sure. I'm working on a presentation for our Board this week and happen to have -- what I asked our team to do is put break down who has purchased our assets from '24 through '25. So the last 2 years, an owner users represented 35%, they are the biggest customer. Private real estate firm developers, 20%; REITs, 16%; investment funds, 12%; private real estate firms -- so I don't want to give names, but there's -- those are the types of opportunistic investors that typically are backed by institutional capital, 9%; government was 2%; residential developers, 2%; and then local developers, 1%; universities, 1%.

So basically, what you're trying to get to is the customers, and there are -- one of the things we've had going for us in this noncore disposition effort has been, for the last 2 years, the majority of capital out there is looking for opportunistic investments. They're not really looking for core. Now if we wanted to sell a core asset, we could get that done. That's -- we're confident of that.

And that gets to the JV question, are you not doing JVs because nobody is interested in that? That's not the case. We're doing noncore asset sales because we wanted to get our portfolio positioned to compete with the massive supply. So that's why I went through, and Hunter and I went through the Megacampus model because really, we're trying to get to that 90% to 95% of our ARR coming from that. So to get there, we needed to shed these noncore assets.

And serendipitously, that's where these investors, they're looking for something that they can buy from us at a really good price that has flaws. It has vacancy or coming vacancy or it has a lot of CapEx needs, that we would rather have somebody else do and save our capital for a better outcome. But they have patient money and they can do that. They can reinvest in those properties and then presumably in the next 2 to 3 or 4 years, bring them to market themselves.

I'll give you one current example. I had an in-depth conversation yesterday with the head of real estate of one of the major investment banks, a name that you would recognize. And the individual was talking about, well, they made a move in senior housing when it kind of hit a bottom during the early days of COVID, I believe. I think Welltower even had pretty big negative same-store in those days, and it's kind of the darling of Wall Street today, a great company. And the person indicated, we're looking at the life science industry. Kind of that was perceived to be the bottom and thinking about how should we play in that and asking a bunch of questions.

So I think people are looking at the industry opportunistically if what Hallie projected. I mean, again, the Lilly story is maybe the greatest story of all. If you looked at their stock running on the bottom for decades and suddenly a breakthrough of -- that no one imagined -- sorry, I was losing my voice here. No one imagined in the whole GLP-1 weight loss space. And now you've got, what, $1 trillion company. They're a lot more than GLP-1, of course. But I think that's the prospect and the question that [ Aaron ] asked, if we could get our act together from a governmental and policy perspective, we could really be continuing to be great as a country. We just need to get the right people.

It reminds me of Jim Collins, you get the right people in the right seats on the bus and at the moment, in government, there are a few wrong people in the wrong seats, and that's been a hindrance.

Yes, Andrew? Can we get a...

I can go loud...

One sec. I know you yell at [indiscernible].

Constantly, constantly. All right. So look, dividend cuts happen, stocks open, the stocks down. There's a lot of negative stuff. But really, the way I'm trying to look at this is finding the optimistic side, and we've talked a lot about the negative side. So let's talk about the optimistic side. We have a country that's just getting older and older and older and couldn't need the right kind of drugs, new drug discoveries to satisfy that need, which is coming. And you see it in senior housing, that's part of that drive and that direction. So we're going to have a lot of that.

You guys are selling the stuff that you don't want. You're keeping the stuff that really dominates. So when the story turns, I don't know, maybe -- I mean is there any argument that the politics might change because of the graying of America, because of the need of this to happen and the competition from China. I'm just trying to look for what changes the macro story in some way because that is obviously a major problem right now. And it's -- when you're talking about 3 or 4 years, that's a long time to be holding and waiting.

Yes. I think leadership matters and the leadership of health in this country needs to be front and center on these issues, front and center on the China threat, front and center on basic research, front and center on getting the FDA realigned in a way that it can fulfill its situation to get a Fed chair in place that will rationalize interest rates and not to kill innovation by bringing drug companies in every day and bidding them up over pricing because imagine if -- I mean this is the only industry I know you create something great that helps humans and you can only sell it for a limited time and then your pricing during that limited time is beat the heck. I always say, imagine if we said to Microsoft, you've got to give up your Windows franchise in 10 years and go on to something else, I mean, what kind of a business is that.

These are tough, tough issues. And I wish I had a crystal ball, but I do think it's leadership. And at the moment, we're in need of that. I mean the...

[indiscernible] getting older creates that kind of pressure on the...

No. But that's kind of a slow tsunami in a sense. But I mean, I know -- 2 of friends of mine, one lawyer, one businessperson relatively vital, both now have been stricken with Parkinson's. And when you look at the quality of their life, it's awful. And I mean that's just one example. When that sits in front of you and you see it live, and you knew that person as one of them ran a major law firm in the country and was an incredible person, you know that this industry has to address that and the government needs to put the framework together to make that much more efficient and possible and not kill innovation. I mean, otherwise, we're, I think, doomed as a society, unfortunately.

Maybe just one thing to add to that on the aging population. I think we're starting to see it and are going to see it probably sooner rather than later is on the budgetary impact, right, in terms of health care costs. And that's really, I think, going to be the biggest drivers for a recognition that medicines are one of the most inexpensive ways to manage that. So especially for Alzheimer's, people are living longer, which increases the health care cost, which increases the amount of medicines that are needed. And so I would say from an aging perspective, I do think that budgetary impact is going to be the thing that really is going to have to push people to recognize that this industry needs to be supported.

Maybe just bring it back to the real estate for one second. We are obviously laser-focused on a strategy that is the best real estate. I look at this as an opportunity to plant the green shoots for the future. As Hallie described, there's still great science out there. And if this market has proven anything, is that the tides come in, and the best real estate with the best people win, and the best talent that is coming up with these great ideas have more and more of a need for robust infrastructure, which only we can manage and want to be in the core markets where they can attract the best talent.

And so as I look at it right now, it's that we have the real estate that can capture the best companies in the most challenging time, which will enable us to weather the storm and then be poised when things turn to deeply outperform on a go-forward basis and probably have way more wind at our back than we do at our faces today. And so I know we are all in the trenches every day, really running through pretty much every one of our [ PIK ] access to the end and then buying a new one and getting up and going, we got to build this thing out. We got to deliver on occupancy because that's going to be the growth for us going forward.

And I have super high conviction that the redefined portfolio that is our Megacampus. I speak with super high conviction in saying that investors today will want to own that real estate as the tide turns. None of us are able to have the crystal ball to say when that is, but I have super high confidence that we're going to be the first ones out and we're going to be the ones, and I think all of our statistics speak to it today, that we're the one still putting up numbers that are very, very impressive. When you think about what is the opportunity out there, I think it's hard to say that we're not capturing every piece of that opportunity that's there.

So I would like to -- I wake up every morning being the optimist, and so I share your thoughts on what could drive us on a macro to kind of have the tides turn in a way that's beneficial, frankly, to everyone. But in a little bit, these are the times where you get the scars that prove that we're going to be the better ones when we come out. So I have high conviction on our strategy.

I think well said. I think, again, you have to go back to the -- Peter, articulated our operating Megacampus. And I think if you just look at the locations, this is where innovation is happening to, I think, Hunter's point and Hallie's point. And I don't think a company could be better positioned for those opportunities.

And I think, again, the world of pure laboratory and pure lab space is, I think, morphing and changing. And I think we are well positioned to take advantage of that. I think Mission Bay is a great example and what we've seen in Campus Point in San Diego. So I think we feel good about in a turbulent time to be able to get to the best tenants. And what's nice is the reputation that I think we've established on the ground in these innovation centers has brought people to us, and I don't think that's easily replicable by many people. So very, very important.

Jamie?

So to Peter's point about this could take a couple of years to turn, how do we think about just tenant credit over that period? Do you think -- do you think as we're sitting here this time next year or the year after, you start to have a little bit more of a tenant credit bleed? Or how should we think about that cushion and how you guys are thinking about it?

Yes. I'll let Hallie answer that in depth. But I think how we -- we've been very fortunate over a long period of time. We've got a fabulous team that has spent a lot of time and a lot of effort underwriting tenants, especially in the venture arena. And I think we've had a really marvelous track record at avoiding major, major big blow ups. But I think it's clear today, we're in a kind of a different area.

And as Marc indicated, our go-forward guidance for '26 assumes a certain amount of wind downs we've never assumed in our numbers today. And part of that is people being frustrated with either the venture capital raising market, the public markets, the time frames and the costs and feel like, well, maybe if we wind down and combine the IP and the assets with somebody else, we can be more efficient about going about that. And so we're seeing some of that out there for sure.

But Hallie, do you want to maybe talk about that?

Sure. I mean, generally, and this goes back even to the good days, like this is a tough industry, right? We have companies that do have failures irrespective of the macro environment. And so our strategy is always, how do we get ahead of it, how do we mitigate any issues going forward. We have an amazing team of PhDs, MDs, folks from the biotech world on the ground, interacting with these companies directly. All of our private companies, we get financial statements as part of our standard lease form. And so it's this constant process of, hey, is there an issue? How do we get ahead of it? What's the other demand on the ground?

In San Carlos, as an example, there was a company that still had a significant amount of cash over $300 million, but had a clinical failure. The San Francisco team was able to backfill them with a really strong tenant just in over the past 6 months. So as Joel said, we are not immune that there's going to be potentially more impact going forward because of those capital markets, but I think it's within how we're already operating. And what we do have in the model this year is really a contingency out of an abundance of caution because we recognize that there are unique headwinds right now that we have not had to experience in the past. But I think our team in terms of managing those issues is the best position to do it, especially combined with the fact that we continue to out lease when there is demand.

And the Fed, frankly, can have a lot to do with it because if they can push down interest rates, that is going to move a psychology of sentiment of a little more risk on and make the biotech sector a little more investable at the moment that people don't see it quite that way.

So other questions? Yes, please. Can we get a...

Seth Bergey, with Citi. Just going back to kind of the capital plan, you gave the cap rate on kind of the noncore assets the range. Where do you think kind of the core asset pricing could come in on kind of the JV and partial sales? And how should we think about kind of the pricing you could get on some of the land sales as well?

Well, I think when it comes to core mega campus, core or mega campus, I think Hunter did gave you a little bit of the case study in Cambridge, and I think that's a benchmark. But Peter?

Yes, it's obviously submarket by submarket, right? But as we put that slide in the deck to kind of help answer the question. There has not been a lot of core trades in the last couple of years. The ones that Hunter brought up have really been the best data points. Our feeling is that something with a 5 handle is where our best assets are going to trade today, but it's yet to be completely proven. But those comps, which, by the way, were -- I think they were both ground lease assets, which is also kind of helpful to understand that investors were paying a 5 handle for ground lease assets.

Now they were in Cambridge. So that's also saying something. But yes, if you looked at the big 3 markets and some of our periphery markets like Seattle that have historically had low cap rates, I think we do think our best assets would be in the -- would have a 5 handle. The last time we did sell an asset with a lot of income on it was in Seattle. We did sell it to a user. So maybe make an adjustment. But the cap rate there, and that was in 2024 was 4.9. So that's a little bit more support because that was 2024 during pretty much the same interest rate environment we're in today.

Tony? -- we get it. Thank you.

You mentioned potential stock buybacks. What would happen or what would have to happen on the sources and uses for that to make its way on there? Like how -- what are the drivers to that?

Yes. It would -- we would want to fund it leverage neutral. So if we pursue that, that would mean either higher dispositions, higher JVs as a funding source. Does that answer your question, Tony?

So above the [ 2.9 ]...

Above the 2.9, yes, we don't have a buyback assumption embedded in guidance right now.

But it's top of mind when possible, I can promise you that. Right here.

We appreciate the breadcumbs for '27. And I just want to reconcile, you mentioned that you hope to be at the end of '26, $4 billion to $5.5 billion in development qualifying balances. Should we think then for '27 and '28, some of that -- or most of that, I should say, is going to be the money-good projects, if you will, because you're largely done with the capital recycling. I'm just trying to understand, do we have another $4.2 billion sort of partial to digest, if you will, at the end of '26, if that makes sense. You're looking at unknown decision-making on that portfolio today? How much of that is feathered out? And how does that impact the forward look?

Yes. Really hard to comment on -- are there components of cap interest that turn off on things that were being capitalized in '26 that could potentially turn off in 2027. What I can tell you, though, is that we will have made a significant amount of headway based upon our plan. The land bank itself, I mean, if you look at the numbers today, it's about $4 billion or about half of the CIP. So that's shrinking by, in aggregate, 45%. The land component is going from 50% to somewhere between 35% and 40%. So the land bank is shrinking. So -- and we're shrinking into, by and large, things we really like the mega campuses.

One of the items you mentioned in terms of next year is prioritizing occupancy and being more willing to meet the market. I'm wondering what your views are in terms of where the market will be next year in rents, TIs, flexibility and how willing or aggressive you're going to be in order to get leases signed?

Well, your comment -- one comment I'd have and then maybe ask Peter and Hunter to answer that. You said we might be more willing to meet the market. I think we do meet the market. There's no unwillingness at all. And you saw from the stats that were up there, we have way outperformed the aggregate of the next 5 largest owners by a long shot. So we're meeting the market. In many cases, we're trying to make the market. I think the Novartis lease wasn't making the market moment in San Diego, given rental rate factors and things like that.

But -- so there's no hesitation to do that if the tenant -- I mean if it's our tenant, we almost never lose. If it's not our tenant, we almost never lose if we have the space. Oftentimes, we don't have a match of space, and that's something. But when you ask about specifics in the market, I mean, every submarket is a little different. So I don't know that we could go through them all, but maybe generalizations on overall, guys?

Yes. I think your point is well taken, Joel, but maybe we look at the deals in 2 different buckets. One is your question around TIs. I think we've been stating for a long time now that the cost to construct whatever is needed for a deal to get done is going to be borne by the landlord, and that remains true today. The good news is for us is that the vast majority of our asset base is an operating asset base. So when you look at the massive spike in TI, that's really mostly influencing vacant delivered space, which is why you see a lot of the new projects stalled out right now because those capital stacks can't actually afford to strike the deal, which is an important thing to note around supply in general is that -- and we saw this with office and every other sector really is that when capital stacks are struggling to find the resources needed to make the deal, they kind of stay dormant for a while and eventually almost become in this purgatory state, but they still impact the availability, which is undeniably going to impact sentiment.

So that dynamic, I think, is something we haven't done anything but stayed very truthful about being part of the reality today. To Joel's point, which is spot on, is that every submarket is very different. Obviously, when you compare the pricing power of ownership in Cambridge, that's very different than the pricing power in Summerville, though the TI dynamics may be very similar. So I think on a case-by-case basis is really the way you have to think about pricing.

That being all said, as I mentioned earlier in my comments, I think our mega campuses are ones where now more than ever, there's a recognition of the value that we do provide and tenants more and more -- actually, many of them are leaving the secondary and tertiary markets because they now have the opportunity to move back to the core, and they're coming to our assets for 2 reasons. One, the talent doesn't want to go where those secondary markets are; and two, the blunt fact is most of those people have no idea what they're doing in terms of managing real estate.

If you look at the supply out there in most markets, most of the supply that's sitting out there totally vacant. The sponsorship has very, very limited experience in this space, some of which were experts in totally different fields like residential and thought they could throw their hat into this ring. And the reality is 30-plus years of being in the business and having the expertise that we uniquely have really matters today. So that's the way I would think about it.

Peter, anything to add? Peter?

The only thing I would add, and a lot of you have heard me say this before, we're actually -- the rents that we are getting today are certainly pulled back 10% to 15% from the peak, but they're still above what they were in 2017, 2018. So I take some solace in that because they're still pretty strong. If it wasn't for the fact that we had to contribute so much money for TIs, a lot of our yields would have probably held in our development and redevelopment pipeline, but they've deteriorated because of the -- mostly because of the TIs and not because of rents.

I guess one other thing I would add is the playbook in real estate, no matter what the product type is, is keep rents high and wait for the next day, right? Because the concessions burn off and all of a sudden, your rent roll looks great. And interest rates go down a few years go by and somebody buys that. And had you lowered the rent, you wouldn't get the value. So you try to keep rents high, you give the concessions and you wait for a better day, and that's what the market is doing.

Any other, please?

Just in terms of overall strategy of the company, just wondering, given the size that you guys are at now, it's different than it was 10, 15 years ago. Has there been any consideration for offloading all development projects, maybe retaining rights to them, taking that risk off your balance sheet? Because if the life science market is doing well, you're probably trading at a premium, you can raise capital at premiums to NAV and whatnot and create value that way and take some of the risk from the development and uncertainty on cash flows off the table.

Well, I'll let these guys maybe opine on that. But let me say this, if we said to Lilly or Bristol-Myers or Novartis or Moderna when we did their headquarters well, we're really not going to do it because our balance sheet is -- we've got a stretch or we've got to do this or do that. I think you lose your franchise, you lose your credibility in the market. You don't -- you become a property manager, you don't become the vanguard of the life science industry.

So what we're doing is, I think, a judicious and really careful reduction in the pipeline, as I say, we built the company during the 2013, 2014 through 2021 on development because that's what was needed. No supply really to speak of and the demand was healthy and you have the wind of one of the longest biotech markets we had ever seen and the government situation was actually pretty neutral and friendly.

I think some of those things have shifted, but you can't just offload your development pipeline. Number one, we don't think there's anybody better than us at what we do in the development side. So I don't know who we would choose. And number two, if you do that, you see your position as the go-to landlord of choice and the go-to trusted partner because it's not only just construction, it's space, place, service, it's all of those.

So I think you always have to have a development capability to be credible in this area. But I think by reducing the land bank, different than we did at the GFC where we kept a big land bank and reducing the development projects in the pipeline, I think, gets us to a rightsized situation. I mean, imagine our equity market cap today is under $10 billion. We've sold more than $10 billion of assets in the last 5, 6, 7 years. I mean that's kind of astounding.

But I don't know, Peter, Hunter?

So if you look through to your question, it's like how do we think about judicious deployment of capital, right? And the way I think about it is that we have one of the most sophisticated teams on the ground, which, as Joel remarked, is integral in winning the deals that you want to win to be able to secure tenancy. And I think we have a tremendous team on the transaction side across all the regions as well. And when you put those 2 together, you can think very creatively about ways to both make sure that the franchise is reinforced, you deliver on what you say you're going to do and you optimize capital deployment.

And I think 2 examples that I'll just speak to because I'm very well versed in them because they occurred within Greater Boston is we executed [ 15 ECO for Eli Lilly ]. And not that far into construction, we brought in a joint venture partner, derisking the asset at the time from a capital basis, actually recycling that capital back into the system on a short term and securing what now looks like a pretty good cap rate with a 5 handle on it.

We also developed 421 Park, which was one of the largest buildings in Greater Boston at over 600,000 square feet and recognized early on that maybe that was too much supply to hit the market. And we were able to secure at the time when institutions -- and by the way, they still are going to need to find space for their researchers. They're just challenged now to find the capital to do it. But at the time, Boston Children's Hospital saw the benefit of coming into an ecosystem like we do. And in that deal as well, we were able to shed almost 50% of that project when you think about a capital recycling basis.

So the way I look at it is to find ways to do it creatively that optimize all components because what you're describing is not one I believe will resonate with the tenants we're trying to meet their demands, not to mention really bring complexities in on an execution level that are not tenable to be able to stand behind what you promise.

Peter?

I think if this was a commodity product, your strategy could work. But because sponsorship really matters here, and as -- I mean, I agree with everything Joel said, we're the leader. And if the leader decides to bail out on projects to -- for a financial benefit that will last maybe a year, you're trading that year for 20 years of reputation and future business. So if it was a commodity, people wouldn't really care. It's like, okay, I'll just let Company B build it and you can just sell it to them. And I don't care as long as I get my office or building or industrial property. But with lab, it's different.

Yes. And I think Hunter's point is well taken that in all the transactions we're working on, on the development side, we are on each and every one looking at creative ways to offload some of the capital risk for sure. And I think Hunter's comment about [ 15 Echo ], which is not on a mega campus actually, but is a core asset in the Seaport is just one great example of that. So thank you for the question. Please. Jay?

Thanks, Joel. Joel, in your 31 years plus as a public company, historically, you and your research team have made -- done the research and made identified and made a number of investments in private growing companies that have turned into wonderfully large tenants for you. That market is also capital constrained right now. And I'm wondering, with the dividend reduction, you've got $410 million now of recurring capital that you'll be able to retain and make investments in primarily, obviously, in real estate. But what's the environment like now to do what you've historically done really well is identify new and growing companies with emerging ideas that you can actually grow with?

Yes, that's a great question. I think we are extremely proud of some of the early investments, not all biotech, our best investment ever was Series A and Google, when we did their first campus when we got a call, and we still actually hold some of that stock today. Another one that I've mentioned time and time again was Alnylam. We were -- we did their first space. I think it was 3,500 feet or so in West Cambridge, and we took an investment in Series A. It was like a $15 million or $20 million round. And today, Alnylam is one of the [ stalwart ] highly profitable companies in the biotech arena and it turned out to be not only a great investment, but a great space play for us. And Moderna has been another one that we were very early on and had the great fortune of being able to move them as Hunter articulated from Tech Square to their own building.

I mean what's happened to Moderna is a little distressing because every time people talk about vaccines, that stock gets hit. Just the mere mention of it, it's off 5%, which is very distressing. And I mean, they've done a great job. Literally, they saved a whole lot of people together with Pfizer and B&B or BioNTech, I forgot the Pfizer partner in this -- in the COVID situation. And you just couldn't have wanted a better quality of company and sponsorship there to be on the front line in the fight against this incredible pandemic. Obviously, imported from China, right, Wuhan.

But maybe ask Hallie to comment on maybe a couple of the remarkable companies we're seeing today, and there's a handful of them that have gotten scooped up in San Diego recently, very, very interesting and exciting companies, and we've been part of their capital structure. So...

Sure. Well, high level, I would say, given the environment where we're currently in and our own capital, our team is incredibly disciplined, right? We are looking for opportunities that are going to drive financial return, also have a positive real estate impact. It's also a great time to find very well-priced opportunities, right? Valuations have gone down, and there's some really amazing companies out there. We do have a few great recent examples. We had a company in San Diego on our UTC campus developing -- sorry, Campus Point mega campus, developing in-vivo CAR-T. So instead of giving a patient a cell therapy to moderate really severe autoimmune diseases, you give them a form of RNA, right, that can be easily delivered and do the same thing to tamp down their immune system.

And this company was bought out by AbbVie for over $2 billion, and we now have a captive high credit pharma tenant added to that campus. Just the other day, we had an investment, Joel, just because you brought up Parkinson's that came to mind, that was showing us a video of a patient treated with a cell therapy delivered to the brain, very severe Parkinson's and showing them walking before and after. And it was just one of those moments that just knocks you off your feet, right? You're like, yes, there's so many challenges. There's so much rhetoric, there's so much headline risk. But like this is why we're all here, right? Because it can be incredibly transformative, right? So we continue to see those types of opportunities. Again, where we put our capital, it is precious. The team is so diligent, but we continue to see it as a really important vertical of our business.

Yes. And I think there's a lot more intersection today between -- this is the Steve Jobs quote between biology and technology. And I think that's really an exciting area. And if we can get commercialization times compressed like China is able to do in their managed world, that's just going to be game changing. So we continue to be optimistic about that for sure.

Any other questions? Yes, sir.

Just another quick question around the development pipeline. And I did notice that quite a few development projects currently have low occupancy or low pre-leasing, but the decision was to kind of still make to kind of continue developing those assets. Just kind of curious in general, the criteria that was kind of used to kind of assess those type of situations and this to kind of got the green light.

Yes. So I think we showed a couple of slides on our '26 pipeline, we're actually very highly leased here on 3 projects that are on mega campus. So we feel very good about that and the prospects for completing those. We -- I mentioned about the Texas situation, the San Francisco tenant took us there, but we're stuck in kind of the current environment where because of the 15% rule, institutional demand is like evaporated and venture demand is pretty minimal at the moment. Otherwise, it's an amazing campus. So we're evaluating that. Thanks, guys.

And then Canada, we've made a decision to move out of that. So then the next is the '27 and beyond. And I think here, leasing is a little varied. We've had some success in a number of locations, and we're working hard on others. And then we've made some decisions, the 2 that you see there, one in Greater Boston, one in San Francisco for a variety of reasons, including capital we'd like not to commit in the future and occupancy vacancy issues. We've moved those to held for sale and a couple of ones we think are great projects, but there may be some alternative decisions, either go, change use or offload through a sale, and we're evaluating that.

So I think we're -- I don't know if that helps answer your question, but we're laser-focused on this because this is very important. And we're not trying to initiate any large-scale new projects because we're not interested in building into an oversupplied set of markets. But again, going back to the situation in San Diego when Novartis presented itself, it really was a 2- to 3-year gestational situation. So it wasn't like we just received off the street an RFP and had to respond because if that came in today in that fashion, we probably wouldn't respond.

So any other? One here, please.

Do you expect much of a carry cost in either taxes or insurance from the assets you'll stop capitalizing? Or would you sell those quickly after capitalization?

Yes. No, there will definitely be some lag between when capitalization turns off and when we sell the asset, but it's embedded in the numbers. But yes, there will be a little bit of a hit there.

Okay. If there are no other questions, thank you very much for your time. We appreciate it greatly and to the team. Thank you.

Good day, and welcome to the Alexandria Real Estate Equities' Third Quarter 2025 Conference Call. [Operator Instructions] Please note, today's event is being recorded.

I'd now like to turn the conference over to Paula Schwartz from 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.

Thank you, Paula, and welcome, everybody, to Alexandria's third quarter earnings call. With me today are Hallie Kuhn, Peter Moglia and Marc Binda.

Let me start off as I usually do with a quote. My friend and mentor Jim Collins, who wrote his well-known book built to last noted that, the secret to an enduring great company is its ability to manage continuity and change simultaneously, a discipline that must be consciously practiced, keeping clearly focused on which should never change and what should be open to change. And clearly, our development pipeline is front and center in that. Jim's visionary wisdom and advice is a great frame for Alexandria at this moment in time as the gold standard and leader of our niche.

We invented and pioneered life science real estate, a whole new asset class and category 31 years ago during the early years of the biotechnology revolution. Our North Star was and remains our focus on innovation clusters and ecosystems unique to the life science industry different than almost every other property type. We're blessed with best assets, best tenants, best megacampus and best team.

Our relentless mission is driven by building the future of life-changing innovation and enabling the world's leading innovators to advance and better human health. The biotechnology revolution started almost 50 years ago. And in those 50 years, we've only been able to therapeutically address less than 10% of the more than 10,000 diseases known to human kind. No one lives in a family, community, which has not been struck by the [indiscernible] disease and illness devastating in so many ways.

We now find ourselves on the precipice of an entirely new age of discovery and innovation at the intersection of biology and technology 50 years later. Biology, it's important to remember, is inherently slow and complex. The life science industry and particularly the innovation engine of the biotech sector is mission-critical for a strong, safe, healthier country and planet as well as for America's global leadership future economic growth and security.

As opposed to most property types, office, industrial and resi, we operate in a highly regulated industry that takes extraordinary time and cost to bring life-changing medicines to patients. To get a life-saving product on the market, you only can sell that product for a handful of years in a regime of pricing oversight sometimes control different than other property types. I wonder what Microsoft would say if they were told you could only license window for a decade and then you lose the right to retain revenue or develop revenue from that innovation. If it matters fundamentally if the government is shut down or not operating effectively or efficiently.

The four pillars of the life science industry are critical and a critical bedrock to what I've just said about this country's health. We must preserve, protect and grow the strong and basic translational research. It is a critical bedrock of new discoveries, and we must deal hopefully quickly with the current limitation on indirect overhead cost, which is timing demand out of the institutional sector.

We must preserve, protect and grow the robust entrepreneurial ecosystem with access to affordable capital. Cost of capital today is high for discovery research engines, from the venture capital to the IPO to the M&A we are in a continuing difficult environment, getting better, but difficult nonetheless. That's the second bedrock.

The third one is providing a reliable and efficient and time-sensitive regulatory science framework and pathways, once again, the FDA must compress time frames and cost of R&D development. We met with Commissioner McGarry at the end of September, and he is super focused on this issue. Important to note that total development time frame for molecules in the Western world, U.S. and the EU ranges in the neighborhood of about 10 to 12 years versus China, which is about 1/3 of that time frame in their early stage of development in this industry. Approximate cost to bring products to market in the Western world is somewhere in the range of about $1.5 billion. And in China, it's about 50% to 90% below that. So we're faced with a very different circumstance today that the industry must face.

And the fourth pillar is providing reasonable reimbursement for innovative medicines, which are costly and time consuming to bring to market. We at Alexandria has successfully navigated the dot-com bust and crica 2000, the great financial crisis, circa 2008, 2009, both when we are unrated non-investment-grade, and during the GFC, we had 30% of our gross assets in non-income producing land at Mission Bay and Cambridge. But this time, the navigation is once again different than before. We've seen the unprecedented [indiscernible] market -- the unprecedented bold biotech market post GFC 2014 to '21 capped off by the rocket ship of COVID rate funding and demand, a very low interest rate environment went along with that, which incentivized really foolish speculation by financially motivated real estate companies and they're even more foolish capital partners.

This brought an unwanted and unnecessary oversupply to many of the innovation submarkets. This has never happened in this niche before. But they're learning painful lessons that this real estate niche is unique and different from all others. This was followed by a biotech bear market, we're now in the fifth year, which is starting to turn the corner, and we're now witnessing the bottom and early signs of a recovery and strengthening as we predicted at NAREIT in June.

The industry is now enduring a government shutdown and the impact to the FDA is pretty serious.

This brings us to the third quarter a critical juncture and time for this industry. On the one hand, the greatest prospect ever for innovation in our time, and coupled with the relentless change in government shutdown. [indiscernible] deposition, huge congrats to our first-in-class team were navigating this difficult environment with relentless grit and determination and unparalleled experience and expertise. While declines in FFO per share, occupancy and guidance are tough at any point in time, Alexandria remains strong, tough resilient and continuing beacon of life for our life science industry.

One of our North Stars has been our balance sheet, working out of the GFC when we are unrated to today. We're now one of the top 15 of all REITs. It's strong, flexible and we have the longest weighted average remaining debt of all S&P 500 REITs at 11.6 years, over $4 billion of liquidity, strong fixed coverage ratio 96%, almost 97% of our fixed rate debt is at [ 39.7 ] blended interest rate and 1 area of laser focus for us will be to continue to reduce our current non-income-producing assets on the balance sheet from the current 20% as we diagram for you in the supplement and press release, to about 10% to 15%.

As opposed to the great financial crisis where we had 30% non-income producing assets as a percentage of gross assets with an unrated balance sheet there was pent-up demand and no supply coming out of the GFC year. So we kept our land at Mission Bay and Cambridge for future development, which provided a decade of unprecedented growth.

Alexandria has will continue in this environment to accelerate its transition from substantial development to a build-to-suit on mega campus only development model. We intend to continue to decreased construction spend, preserve capital and not create further supply.

And then finally, let me make a couple of comments before I turn it over to Marc for an in-depth review of the quarter and kind of factors impacting 2026. Let me make a couple of comments about leasing. The lifeblood of Alexandria's sector, a leading platform with the largest number of clients and strongest tenant base is our leasing. And our tenant base, of course, 53% of our leases are two investment grade or big cap, tenants with an average almost 9.5 years weighted average lease term for our top 20 tenants, and 18 of the top 20 pharmas are our tenants, a best example of our brand being the most trusted in the industry. And congrats to our team for the historic lease executed in this third quarter for 16 years with a credit -- existing credit tenant for almost 500,000 square feet at our Campus Point Megacampus in San Diego. We're proud to say that our ARR from megacampuses 77% and is continuing to approach 80%.

We continue to benefit from stellar operating margins and a very disciplined G&A run rate. Q3 was a solid quarter of leasing. However, institutional demand is still stuck due to the NIH issues and particularly the reimbursement of indirect costs. Coupled with we need to see more green shoots from early-stage venture-backed companies as well as the larger cadre of public biotech companies which have yet to recover in a meaningful way. We're starting to see green shoots on that, but that will be a critical litmus test going forward.

And finally, before I turn it over to Marc for comments, let me just say we intend to continue to meet the market for our tenants and continue to successfully lease and dominate our space. And with that, Marc?

Thanks, Joel. This is Marc Binda, Chief Financial Officer. Good afternoon. I plan to cover the performance for the third quarter as well as some key emerging trends expected to impact 2026.

Our team continues to navigate a challenging environment given macro industry and policy factors beyond our control. Please refer to our earnings release for our EPS results. FFO per share diluted as adjusted was $2.22 for 3Q '25 and included the following three key impacts compared with the prior quarter.

First, occupancy was effectively down 1.1% for the quarter after considering the benefit from the exclusion of assets with vacancy, which were sold or designated for held-for-sale during the quarter, and was driven by a challenging life science supply and demand dynamic.

Second, there was a $0.03 reduction in rental income associated with one tenant in our Seattle market to adjust rental income to cash basis. Importantly, that tenant remains in occupancy and is current on rent pending future critical milestones in the first half of 2026.

And third, other income was down $8.7 million or about $0.05 compared to the prior quarter. Current quarter other income of $16 million remains consistent with the prior 8 quarter average. And as we discussed in our prior call, 2Q '25 did have some lumpy fees in there.

Leasing volume for the quarter remained solid at 1.2 million square feet, in line with the 5 quarter average. This includes the previously announced 467,000 square foot build-to-suit lease with a multinational pharma tenant that was executed in July.

We continue to benefit from our scale, high-quality tenant roster and brand loyalty with 82% of our leasing activity in the quarter coming from our existing deep well of approximately 700 tenant relationships.

Rental rate growth for lease renewals and re-leasing the space for the quarter was solid at 15.2% and 6.1% on a cash basis, which is at the high end of our guidance range for the year. We've reduced our guidance for 2025 rental rate increases on renewals and re-leasing the space by 2%, primarily due to one short-term renewal in Canada that was executed in October as well as some higher free rent.

Lease terms on leasing continue to be long at 14.6 years for the quarter, which is well above our historical average, and tenant improvement leasing costs on renewals and re-leasing the space for the quarter are relatively consistent with the prior year and down from the first half of the year.

Occupancy at the end of the quarter was 90.6%, which was down 20 basis points from the prior quarter. As of September 30, certain assets with vacancy were designated for held-for-sale and were removed from our operating occupancy metric, which benefited occupancy at September 30 by 90 basis points. As a result, the decline in occupancy for our operating properties on an apples-to-apples basis declined by 110 basis points during the quarter.

While occupancy declined due to oversupply in certain of our submarkets, it's important to highlight that our megacampus platform, which represents 77% of our annual rental revenue as of 3Q '25 outperformed overall market occupancy in our three largest markets by 18%. Our outlook for year-end occupancy was reduced by 90 basis points to a range of 90% to 91.6%. Our outlook assumes up to a 1% benefit from assets with vacancy, which could potentially be sold or designated as held-for-sale by December 31, which implies an 80 basis point decline in occupancy by the end of 2025, based upon the midpoint of our guidance.

Our team continues to execute with 617,458 square feet of leasing completed to date for spaces that are vacant today and expected to deliver upon the completion of construction in May of next year on average. Looking ahead to next year, we have 1.2 million square feet of lease expirations through the end of 2026, and which are in great assets in AAA locations but are expected to go vacant, and we expect downtime on those assets.

Same-property NOI was down 6% and 3.1% on a cash basis for the quarter. The decline in same-property was primarily driven by lower occupancy. In addition, we provided an alternative same-property presentation, which recast the first and second quarter results based upon the third quarter same-property pool to provide a consistent quarterly trend view given several assets that were removed from the third quarter same-property pool as they were either sold or designated as held-for-sale. It's important to note that this alternative presentation shows higher same-property performance in the first half of 2025, which means there will be a tougher benchmark in the first half of 2026.

We reduced our outlook for same-property performance for 2025 by 1%, primarily due to slower-than-anticipated leasing caused by a slower realization of demand. Despite this change, we continue to benefit from a very high-quality tenant base with 53% of our ARR coming from investment-grade or publicly-traded large cap tenants, long remaining average lease terms of 7.5 years, average rent steps approaching 3% on 97% of our leases, solid rental rate increases of renewed and re-leasing space during the quarter, and our adjusted EBITDA margins remained strong at 71% for the most recent quarter, consistent with our 5-year average.

On G&A, we continue to make great progress towards our goal of annual savings for 2025 of approximately $49 million compared to 2024 through a number of prudent and strategic cost savings initiatives. Our trailing 12 months G&A cost as a percentage of NOI was 5.7%, which represents approximately half the average of other S&P 500 REITs. We expect that around half of the 2025 savings will continue into 2026, given the temporary nature of some of the 2025 savings.

With projects under construction and expected to generate significant NOI over the next few years, and other earlier-stage projects undergoing important entitlement design and site work necessary to be ready for future ground-up development, we are required to capitalize a portion of our gross interest cost. We have and will continue to curtail our large development pipeline coming off a decade bull run for the industry fueled by the rocket ship demand of COVID. Given the lack of clarity on near-term demand as well as significant availability in some of our submarkets, we are carefully evaluating on a project-by-project basis the $4.2 billion of land subject to capitalization during the first 9 months of the year.

With preconstruction milestones in April 2026 on average, we continue to evaluate whether to progress preconstruction or construction efforts beyond the current milestones and in various cases will likely pause or curtail activity. If we decide to pause on a project as it reaches the next milestone, capitalization of interest, payroll and other required costs would cease on that project.

While these ultimate decisions have not yet been made, we would like our funding program for next year to include a significant component of land dispositions which help us achieve one of our strategic objectives over the near to intermediate term to significantly reduce the size of our land bank. Sales of land could result in a significant reduction in capitalized interest and potential impairment charges. We expect steady to slightly lower capitalized interest in 4Q '25 and lower capitalized interest beginning in the first quarter of 2026.

Despite positive recent activity for the biotech XBI Index, private and public biotech companies continue to remain challenged given the 5-year bear market for the sector. Given these and other factors unique to our venture investments, we did revise our guidance down to a range of $100 million to $120 million. It's important to point out that for the first 9 months of 2025, we realized $95 million of gains from our venture investments, which were included in FFO per share as adjusted or about $32 million per quarter. Based upon the midpoint of our revised guidance for realized investment gains of $110 million, this implies $15 million for the fourth quarter, or a $17 million decline over the average quarterly run rate for the last 3 quarters.

We continue to stand out as our corporate credit ratings rank in the top 15% of all publicly traded U.S. REITs. We have the longest average remaining debt maturity among all S&P 500 REITs at 11.6 years and tremendous liquidity of $4.2 billion. We updated our guidance for year-end leverage to 5.5 to 6.0x for 4Q '25 net debt to annualized adjusted EBITDA. The increase from our prior target of 5.2x was primarily due to two factors: first, a reduction in our disposition guidance to a midpoint of $1.5 billion related to $450 million of potential dispositions expected to be delayed into 2026; and second, a projected reduction in annualized EBITDA in the fourth quarter from lower same-property net operating income and lower realized investment gains.

We've completed $508 million of dispositions to date, which leaves $1 billion to complete in the fourth quarter, all of which are subject to non-fundable deposits signed LOIs or purchase and sale negotiations. In connection with our disposition program, we recognized impairments of real estate of $323.9 million during the quarter, with approximately 2/3 of that coming from an investment in our Long Island City redevelopment property.

Three items to highlight here. First, we acquired the site in 2018. That submarket suffered a substantial setback when Amazon abandoned its plan for new HQ in that location in 2019 and it never recovered. Second, despite the lower rental rate price point and our dominance in that submarket, it has been challenging to get a critical mass of life science tenants to go to this location. And ultimately, we don't view it as a life science destination that can scale. And third, this location has become more of an industrial flex and cinema submarket rather than life science.

Ultimately, at the end of September, we decided future capital needs and the sale proceeds related to this project would be better recycled into our mega campuses where we have greater conviction long term.

Looking forward, we have a number of assets under consideration for sale either by the end of this year or sometime in 2026 that have estimated values below our carrying values ranging from 0 to $685 million. Although these potential impairments have not been triggered and final decisions to proceed have not been made, we updated our guidance range for 2025 to reflect these potential additional impairments in the fourth quarter. We anticipate an end to the large-scale non-core asset program by the end of 2026 or early 2027. We also expect dispositions to provide the vast majority of our capital needs for next year.

Turning to capital allocation, two points here. First, we are continuing to evaluate some of our development and redevelopment projects expected to stabilize in 2027 and 2028 for opportunities to pivot. Second, we estimate our 2026 construction spending to be similar to slightly higher than the midpoint of construction spending for 2025 of $1.75 billion, which includes the recently announced build-to-suit in San Diego and higher CapEx and repositioning costs necessary to lease vacant space related to our operating properties. But the goal is to continue to reduce non-income-producing assets and other development pipeline -- and our development pipeline over time.

Next, on dividend policy. The Board's approach has been to share cash flows from operating activities with investors as well as to retain a meaningful amount for reinvestment and which has allowed us to retain $475 million at the midpoint of our guidance range for 2025. In addition, the cumulative growth in dividends and FFO has been highly correlated since 2013. Given the factors that we described in our press release that are expected to impact 2026 earnings and cash flows, we anticipate that our Board of Directors will carefully evaluate future dividend levels accordingly.

We provided updated guidance for FFO per share diluted as adjusted for 2025, which was reduced by $0.25, or about 2.7% to a midpoint of $9.01 per share. This change was primarily due to lower investment gains and lower same-property performance driven by lower occupancy.

Looking ahead to 2026, as is our long-standing practice, we will provide detailed guidance at our Investor Day on December 3. And in advance of that, we've shared five important trends that will impact earnings for 2026, including core operations and occupancy, capitalized interest, realized gains on non-real estate investments, G&A and our disposition program. Please refer to Page 6 of our supplemental package for more information.

Given the various factors impacting 2026 earnings, it's important to recognize the tremendous intrinsic value of our highly differentiated mega campus assets included in consensus NAV, which is significantly above our current trading price today with that consensus NAV coming in at around $117 per share. To be clear, we continue to be the dominant leader for life science real estate with the best assets in the best locations and the best tenants. Our focus in irreplaceable world-class mega campuses will continue to set us apart and give us an opportunity to capture premium economics for the long term as the demand and supply picture improves over time.

Now I'll turn it back to Joel.

Operator, please start questions.

[Operator Instructions] Today's first question comes from Farrell Granath with BofA.

I first just want to touch on, I know last quarter, you had some commentary about potential benefits to occupancy, about $600,000 or 1.7%. I was curious on the update and your expectations or line of sight that you're seeing now?

Yes. That's a really good question. Marc, do you want to comment on those assets?

Sure. Yes. So we did provide an update, it's in Page 2 of the press release, that number is about 617,000 feet as of September 30. It's primarily at properties located in Greater Boston, San Francisco, San Diego and Seattle. And it's about $46 million of -- potential annual rental revenue of $46 million. And we expect it to deliver on average. There's a lot of spaces in there, as you can imagine, but on average, around May 1 of next year.

Okay. And also, I guess, a broader question. In peer's calls, we've heard that there was early positivity around leading indicators in the biotech market. And you made a few comments around that. But it generally still feels like you're very much seeing the impacts of supply and demand. And I'm curious, what would turn your perspective or optimism a little bit higher, either if that's greater IPOs or different capital market movements?

Yes. That's also a really important question. I think the two -- well, there are three missing links, as I mentioned in my opening comments to demand today and Hallie, can give you chapter and verse on the green shoots that we're seeing, which are substantial from the capital market side to M&A, et cetera. But one is the FDA -- the government shutdown has to stop and the FDA has to open. Number two, venture earlier-stage venture-backed companies have to start making commitments for space as opposed to kind of holding, waiting for cost of capital issues with the Fed and broadly in the industry.

And I think, three, the public biotech sector, which has been, to a large extent, the mainstay of this industry as far as space and demand has to be reignited. And even though the [indiscernible] is up substantially, that has not yet translated into action.

So I think those are the key things we're looking for. And institutional demand, if the NIH can get its act together on the issues we talked about, one, making sure they're fully funded and disbursing funds and that there's an unlocking of the current bar to the 15% indirect cost limitation.

Thank you. And our next question today comes from [ Seth Berhe ] with Citi.

It's Nick here with Seth. Just as we think about the sources of capital, you mentioned equity-like capital. Could you elaborate on that and kind of either the pricing or what exactly you mean by that?

Yes. I mean we've used that for the last, I don't know, 15-or-so years. That really is just capital that comes into the company through one form or another, it could be savings on dividend like we've done. It could be other sources, joint sales of joint ventures. But primarily, I think Marc stated it pretty clearly, and let me just repeat for everybody, the vast majority of capital for next year's plan, which will unveil on December 3 at Investor Day will be asset sales. And we gave you a pie chart in the press release regarding at least this year's proportion of those, so a big chunk from land, a very big chunk from other than fully stabilized assets and then a chunk from stabilized assets. So I don't think that's going to vary much from this year.

That's helpful. And then in your opening comments, you said the bear market is starting to turn the corner. Are you seen that in the transaction market as well for -- on the stabilized asset side? Is there a change in buyer demand given the underlying fundamentals and what you're seeing?

Yes, Peter?

Yes. I would say that there is strong demand for our assets, especially ones that investors consider to be opportunistic, that's really the sweet spot right now. But yes, we have no shortage of interest in everything that we're bringing to the table, that's life science and things that are alternative uses where we're finding a lot of interest from residential developer.

And our next question today comes from Rich Anderson at Cantor Fitzgerald.

So can you talk a little bit about a little bit more detail on the development sort of process going forward. I think it's a matter of -- maybe it comes down in order of magnitude over the coming years just in dollars in terms of development spend, but also type of development. Joel, did I hear you right that the focus going forward will be more on build-to-suits than anything else, not that you haven't been focused on that. But I mean, I wonder what the development picture is going to look like kind of post-2026, when you top off what's left and then you consider the $4.2 billion that's kind of still early stage in terms of the process. Just if you could sort of give us a line of sight into what this will all look like eventually?

Yes. And I mean you can look at, we've been at this now for a multiyear period. It obviously is a lot of pick and shovel work this year is a good example. And again, the chart or the pie chart I referred to just a moment ago, this year's land sales as estimated, both what we've accomplished and what we have left to do will be an important part of reducing that land bank.

And if you look at Page 46 of the press release is up, you can see the pie chart Marc has tried to enhance this in as clear a fashion as possible. And you can look just your eyes kind of go to two particular places right away. One is the 15% bucket critical milestones coming up on megacampus projects. We clearly want to bring -- to try to, through entitlement, design and sometimes design, but entitlement in particular, trying to create as much value for alternative uses. We mentioned resi and we've been very successful there.

So this is a bucket that will clearly not be there over the coming years. The one of its immediate left, 26%, where we have both -- well, stable near-term projects that are not yet fully stabilized, of course, '27 and beyond. We have a smaller amount of leasing. Those are projects that we are going to look at very carefully and make some pretty big determinations as soon as we can get to points in time where we think we've tried to maximize the current value. And my guess is a bunch of those projects will be sold, which will further reduce the land bank.

And we'll see on the megacampus projects, what happens to those, we're clearly unable to do all megacampuses. And so it's certainly possible we bring one or more. There's a chart of, I think, or pictures of 4 big mega campuses, one in Seattle, one in near South San Francisco, in San Bruno, another one in San Carlos. And then the final one at Campus Point, it's pretty clear that -- for example, the San Bruno is one that we're thinking about very carefully. We're working through a very complex project with both entitlements and existing tenants. And we'll see what happens there.

But that's the kind of project that we could see potentially exiting at some point as well. So we're trying to be as both as aggressive as we can, time-wise, cost-wise, but also very thoughtful.

Okay. And so do you think that there will be like at Investor Day some sort of run rate development exposure that Alexandria will sort of commit to at the other side of all this? Is that sort of the messaging that you expect to provide, if not right now, but...

Development run rate specifically as to what time...

Well, as a percentage of assets or however you want to look at...

Well, I think I actually said it on the call, my opening, we're at 20% today. We were at 30% break GFC, but for different reasons, we decided to hold those, Mission Bay and Cambridge, and those turned out to be the lifeblood of our decade bull run with the biotech industry, I think it's different this time because there's a lot of stupid space that was built by others.

And so we don't want to build into that kind of a market. So 20% should come down to 10% to 15% over the coming years, and we're certainly looking at trying to accelerate that as fast as possible because the less we have on balance sheet and the less dollars going into that or the less construction dollars and funding dollars we have to require. So the two go hand-in-hand. But 10% to 15% is the number.

Yes. Okay you did that, my apologies. And then lastly for me, on the dividend, you're running at a $5.28 annual dividend and talking about the Board taking a look at it next year. What's your comfort level from a payout ratio sort of when you kind of think about resetting the dividend, I'm just curious what the sort of the policy is -- the dividend policy.

Yes. Well, the Board will look at that in the fourth quarter and declare a fourth quarter dividend. I think what we want to do is try to be able to frame 2026, I think, very, very clearly, and we'll try to do that to the Street as quickly as we can. But I think that frame then impacts how the Board will think about the metrics of dividend. But remember, that's our cheapest form of capital. So we are focused on that. But Marc, you could give any broad parameters you want.

Well, I would -- the only thing I would add to that is we do have room in our taxable income. So the Board will obviously make the final decision, but there's room potentially up to 40 -- 30%, 40% but they'll be looking at a variety of factors, including the amount of retained cash flows or capital needs for next year, AFFO coverage as well as a few other stats there.

And our next question comes from Anthony Paolone with JPMorgan.

Just on that last point on the dividend, Marc, do you all have taxable net? Like do you need to pay a dividend? Or do you have the ability to just keep cash?

No, we do need to pay a dividend. That's right. I mean...

If we intend to...

Okay. Just wondering, because also it seems like even after a day like today with the stock down the way it is, and you had brought up kind of where some of the Street numbers are for NAV, like does this bring back the prospect of using capital just for your stock here? Or are the development needs just going to be great enough that you got to keep going down that path?

Yes. Look, I think we believe the price is attractive to buy back, but we're certainly focused on making sure that we have enough capital to finish out the construction commitments that we have, and that's kind of our first priority.

Okay. And then just another question. Just in the -- you called out the 1.2 million square feet that are sort of the key leases or move-outs we should be thinking about. But the remaining like 1.3 million square feet expiring next year, are those likely to stay and so you kind of have kept them in a separate bucket? Or should we assume there's still some normal retention to move out in that grouping as well?

Yes. Look, those -- what's left over is -- are things in the normal course of leasing. So what we've called out are items that we are -- we know are going to go vacant. The rest of it are things that are just too early to tell.

Okay. If I could just sneak one more in. Just, Marc, you mentioned the $15 million in venture gains for the fourth quarter I know you'll give details on other income in December. But should we think that $15 million is the new $32 million or any guidepost there point?

Look, the $15 million as the number for the fourth quarter is really a reflection of where we think the market is and the unique factors specific to our portfolio of investments, we'll be able to give a clear picture on what we think next year looks like at our Investor Day come December.

And our next question comes from Wes Golladay Baird.

I was just looking at the future pipeline, the $3 billion and the $1.2 billion, how much of the potential residential land plays will come out of that bucket? And then when you also look at the potential for $685 million of impairments, would that mostly fall in that bucket as well.

Yes. It's Marc. I can definitely take the second question on the $685 million. Just to be clear, the $685 million is relates to a variety of assets that are under consideration. So there's a variety of ways that, that could go. It just depends on what happens with the buyer, if we can get a price that we like, et cetera, some of these assets, we could end up holding if we decide to pivot. But the $685 million, I would say the bigger chunk there has to do with land type assets.

Okay. And then for the -- go ahead. sorry.

No, please.

No, go ahead, go ahead. Yes.

Well, I was going to say, if you just look at the 4 megacampuses that are pictured in the press release and up -- each one of those are intended to have a component and some substantial component of resi. So you can make that judgment based on that commentary.

Okay. Got that. And then for the leases that are going to commence in, I guess, the first half of next year, was there any -- it looks like there might have been a small delay on that. Was that anything like permitting wise or just the tenant looking to move in a little bit later.

Yes. No, I don't know that there was necessarily a delay. It's just a -- that bucket continues to evolve, right, as some of it gets delivered and then we're obviously adding new stuff there, right? We're leasing space that don't extend that. So that will be an evolution just because that bucket changes from quarter-to-quarter.

And our next question comes from Michael Carroll at RBC Capital Markets.

Can you provide some color on the type of tenant activity that the company is tracking right now? I mean it sounds like in the prepared remarks that you're seeing activity being kind of flat despite the XBI uptick. But are there certain tenants looking for different types of spaces. I mean, how many tenants are looking for like the Class A space versus the Class B space? I mean is there a different price points that tenants are looking at just given them trying to extend their cash burn rates given the current uncertainty.

Well, yes, that's almost an impossible question to answer because if you look at the press release and up, we put a pie chart of our the tenant sectors in there, and there is certainly demand from almost all of those. There's no government demand. And at the moment, there's muted institutional demand, although we're working on one big deal as we speak. But aside from that, I think what we said is, and it varies submarket by submarket, each submarket has its own particular dynamics. Some are pretty well in balance with supply and demand. Others are imbalanced. And so that is a little bit different.

But I think across the board, there is demand. I think what the commentary really is that given the recovery in the XBI, we're a little surprised that demand hasn't followed as much -- it's not as obvious than maybe in past times, but the reason for that is clear, cost of capital and federal interest rates are being stubbornly high. The government has shut down. The FDA is close by and large, and there's a lot of log jams out there that are preventing a company -- and the IPO market is shut by and large, there's a little bit of activity, but it really isn't an opening. I think those are the factors.

But there's demand from a variety of sectors. But again, it's very case specific. And it also depends on, when you say Class A, you tend to have revenue-producing companies looking for Class A space or companies that are extremely well capitalized. Others are looking for either moved out space or second -- true second-generation space after a 5-, 7-, 10-year lease, it varies all over the marketplace.

All right. That's helpful. And then just following up on Anthony's question related to the 1.3 million square feet of '26 lease expirations that are still outstanding that you guys need to address. Is that mostly lab tenants that are looking at that space? Or I guess, what's the mix between lab tenants or maybe covered land plays that those have for holding. I mean, can you provide any details on what type of tenants are included in that bucket?

Yes. Yes. I mean we try to give some framework for kind of the key drivers there. I think it was on Page 23, footnote 4. If you go kind of line by line through the call out of those properties, most of those are going to be lab related, with the exception of the first one that we called out, which is about in 137,000 in Greater Stanford, that one is probably more likely to be targeted to an advanced technology use, but the other ones that we called out there in San Diego and then also in Cambridge are all lab.

Okay. Is this the 1.3 million remaining square feet? Or is that footnote talking about the 1.1 million square feet that is expected to move out?

That's related to the -- sorry, I was referring to the 1.2 million square feet of lease expirations that are known vacates.

And then the 1.3 million that is remaining that is yet to be addressed. Is that mostly lab?

It's a mix, I would say, mostly lab, but it's a mix.

Yes, Marc, it's Peter. I can confirm it's mostly lab. There is also a little bit more tech space in there, just like in the 1.2, but it's mostly lab.

And our next question today comes from John Kim with BMO Capital Markets.

I was wondering if you could provide a little bit more color on the quantum of capitalized interest that may be lowered in 2026. I know you mentioned A lot of this will be driven by land sales. But I'm trying to match that with the $1.75 billion of expected construction spend you'll have next year, which would suggest that the majority of CapEx interest will continue?

Yes. I can take that. So two things driving next year in terms of construction numbers, one is the development costs and redevelopment costs to finish what's in the active pipeline, right? We still have a decent amount that's going to deliver next year that is 80% leased. And then we've also got higher, I would say, CapEx or repositioning type costs next year than we had in 2025, and that has a lot to do with the fact that there are some known vacates and it's going to cost -- we're going to have higher maintenance costs just given how much vacancy we have to lease in this market. So those are really the two biggest drivers.

I think in terms of your fundamental question of how much cap interest rolls off, I would just refer you to the commentary that Joel had earlier about really thinking through that pie chart on Page 46 of the supplemental, the way we're thinking about the various buckets the mega campuses, obviously, we'd love to do. They're very valuable, but we can't do them all. You've got the non-megacampus future land assets, which would be right if there are opportunities to sell. And then the 2027 and beyond projects, which we may look at opportunities to pivot there in some fashion.

Okay. And then going back to the known move-outs for next year, the 1.2 million square feet, can you provide some commentary on why those tenants are not renewing? Whether they're going to a new product, or they're shrinking footprint, or there was some kind of event within the company.

Yes, sure. I can run through those. So maybe I'll just go through the four that we mentioned there. The first basket was really I would say, a non-lab tenant, they were a software company that was in there when we acquired those assets and Greater Stanford, that's 138,000 feet. That was a known vacate. The original business plan there was to redevelop it when we bought that a number of years ago. But things are obviously different, and we may choose to do something different there in terms of targeting more advanced type technology users. So that...

And there's a lot of tech activity on that location. Actually, it's a very, very unique campus, mini campus.

Yes. And then in San Diego, I would just point to the one asset in Torrey Pines, the 118,000, that was a project that had been occupied by a subsidiary of a big pharma. That big pharma ended up consolidating on our campus at Campus Point and they ended up coming out of that space, but they did expand with us. And I think that project delivers next year. So that was kind of lead behind space.

The 84,000 or 83,000 square foot space in Serino Mesa, a similar story. That was a subsidiary of a big pharma that also expanded with us on our SD-tech campus, and that was the lead behind space, very good quality spaces in both of those instances, but they're bigger spaces may take some time if we end up either targeting a larger user or smaller type users since they were big kind of single tenant spaces.

And then the last bucket in Cambridge, some of that was -- it's just a variety of different spaces. Those spaces, as we mentioned there were older product that we really had in at least most of it hadn't really touched since we bought that campus in 2016. So it's a variety of factors.

Yes. And then you should note that of the 3 noted vacancies on Page 23, Footnote 4, we have an LOI signed for 83,000 square feet of that known vacate, and we have an LOI signed of about 40% of the 118,000 feet at the moment. So stay tuned.

And our next question today comes from Vikram Malhotra with Mizuho.

I guess, Joel, bigger picture, you're now in a macro, you sort of called the bottom, but things are uncertain. Obviously, you don't have control over that, seems like the sales process is also -- it really depends on buyer timing, so perhaps less control and you're trying to solve for leverage and capital needs. So I'm wondering like as you get through this in the next year or 2 to be in a better position to maybe take advantage of distress, why not consider just outright equity to fix the balance sheet, fix your capital needs, rather than having to rely on the asset sale process. which I know is important, but I'm just trying to...

That's a really good question. But I think, number one, the balance sheet is actually in great shape. Leverage ticked up a little bit, but I think we're pretty comfortable given the sales we have in line. I think what we really want to do is to bring our balance sheet down to a much healthier non-income producing asset waiting, if you will, now at 20%, down to 10% to 15%, and I think we'll make pretty huge strides on that through the end of next year and early '27. We've got a couple of big sales where we are close to pretty big entitlements and that will help us on valuations.

But we feel like we can manage the balance sheet and provide the capital we need through the assets that we would like to shed. And also, we have been selling a lot of non-core assets, some stabilized and some non-stabilized and that's part of our goal to move our mega campus ARR up to about the 80% level. So I think we feel pretty good about that without the need to go through a common equity raise.

Okay. And then just on this the Investor Day, like, there's a bit of a departure, you're giving a lot of tealeaves on '26. I'm just wondering sort of why not so-called rip the Band-Aid just give a high-level number of where you think next year is going to shake out. Just -- it seems like a 2-step process, which I don't know...

Yes, we get that. Unfortunately -- well, let me just say this, we -- we wouldn't have preferred to plan third quarter earnings so close in time to Investor Day. But I think Marc and his team may very well give a range for FFO kind of a framework for that here shortly to the Street. So keep your eye out for that, we're likely to probably try to do that, so that we don't keep people in a mystery box for 3 or 4 weeks, which we never intended to do.

But frankly, the industry is, as I said, it's a regulated industry. And it is in a tough time because the government shutdown essentially puts almost everything, you can't file for -- you can't submit to the FDA for new INDs. There are some things coming out the back end, but the wheels are substantially stopped. And then on the other hand, the President has chosen, I think, better than the former administration, who is trying to get much broader price controls. This administration is really negotiating with each big pharma in a sense to get his version of [ MFM. ] So far, it's been limited to Medicaid which I think has been great, but going through 20 big pharmas is tough.

So there's a lot of kind of a lot of slow moving wheels out there that we really need to see kind of -- the wheel put back on the cart so that the industry moves forward. And as I said, the industry has tremendous prospects. Any of us who have seen or been near disease know that there's a lot of wood to chop. We know of a whole number of people who've just been diagnosed with Parkinson's. We still don't have any addressable therapy. We got to get moving on these.

So we will try to give the Street guidance here pretty shortly. So there's not a 3-, 4-, 5-week delay in trying to at least frame it. Marc did a -- I thought trying to do a good job giving factors, but we realize with cap interest rolling the way it's going to roll as we reduce the development pipeline, that leaves an unknown numbers out there that we'll try to fill in broadly speaking.

on that.

And our next question today comes from Dylan Burzinski with Green Street.

I guess just -- maybe going back to some of your comments, Joel, it seems like the only thing that's necessarily changed this quarter versus last quarter is really related to the government shutdown, right? Because if you think about the supply pipeline that sort of continues to dwindle, albeit is still at high levels. There's obviously been a huge challenging capital market environment for a lot of tenants. So I guess you mentioned that the government shutdown is having a huge impact in terms of kind of demand, it seems like. So is it the idea that we should think that once the government comes back, that demand start to pick up off of this level or...

I don't think that's necessarily the issue, but that's a prerequisite for the industry kind of getting on it's for feet because, again, it's a regulated industry, both from submissions, clinical trials and then approvals. And if the government doesn't open, you can't get any of those really effectively done. Some of -- I think there was one approval of AstraZeneca that kind of came out recently. But I mean the wheels are stopped. That isn't directly tied to demand, but it's hugely tied to the health of the industry, which then in turn, is tied to demand.

I think if you go back to the second quarter, I think people still -- I remember, second quarter call, and then at NAREIT it wasn't clear when the industry would kind of hit this bottom, but it kind of has been bottoming but at a time when the government is shut. I think what we really need to see is lower cost of capital and a clear and condensed regulatory path. I mean I think if you think about a couple of things, what's needed for this industry, there are three things I could tell you.

One is we must reduce the drug development costs. And that's really in the hands of the FDA and our meeting with McGarry confirmed he's hyper-focused on that. We've got to increase the probability of success of drug development. I think AI and other tools will help that. But the FDA, again, is front and center there. And then we've got to lower the regulatory barriers to help streamline a lot of these programs. And I think that's what's needed to bring health back to this industry in a really robust fashion.

We need venture to kind of open their pocket book and cost of capital is a big issue there, and we need the IPO market to open and the secondary market to become even more fulsome, not just doing offerings on data per se. If those things happen, then you've got a very healthy industry.

I guess as a sort of follow-up to that, I mean, [indiscernible] sorry if I missed it, I joined late. But I mean I get the sense that reading some listening to the call today, reading some of the tealeaves and the 2026 consideration settlement that demand may have worsened since the second quarter, but it felt like looking back at my note and your commentary on that, that things were set to improve, and we're hearing out of peers of yours that the touring demand -- the overall touring pipeline is improving. So just trying to see if maybe I'm misreading into some of the comments made today as well as the 2026 considerations.

Well, I don't -- again, I don't think you can look at -- this isn't like office where you can look at certain data and be fairly certain that office is going to rebound or data for mini storage or data for resi or something. This industry is far more complex it's highly regulated, both at the front end and the back end. So I know everybody struggles, they want indicators and factors that point to demand and quarter-to-quarter, it doesn't really work that way.

And I think we've had two reasonable quarters of leasing, but that doesn't reflect the health -- the underlying health of the industry, which I've tried to articulate, is still in need of a number of pieces to be put in place for that to happen. And then I think you've got a fulsome rebound. So that's the best I can articulate it.

Maybe -- this is Hallie here. Maybe just to add to Joel's comments, when you think about tour activity where we're certainly seeing really great companies looking for new space, thinking about expansion. But as we've mentioned before, decisions are taking longer. We're very conservative in how they think about when to pull the trigger. And given all of the factors Joel mentioned, there's still a lot of uncertainty. And so we do feel confident that there are some fantastic companies, really high quality in this market that are going to need space. The question is, when are they going to get comfort around making those decisions. And to date, there's just still a lot up in the air, especially on the regulatory front.

Very [indiscernible].

Yes. Really appreciate that. And maybe just one more, if I can. I know you guys kind of alluded to equity-type capital, and Joe, you mentioned partial interest sales dividends, stuff like that. But I know most of your guys is focused on the disposition of sort of the non-core assets. I guess is there any desire to sell a partial interest in any of the megacampuses given it still seems like there'd be a strong bid or depth of demand for that type of product today?

Well, I don't think that is our game plan because I think over time, our goal is actually to own more of the megacampus rather than less. But I think there are a variety of campuses. Some are at the absolute upper end, some are in the medium to high end. So it's a matter of selection there and some we already have partners on. But I don't think that's necessarily the key game plan, our key game plan is to rid the balance sheet of a whole lot of non-income-producing property and reduce our exposure to non-core assets to as minimal as we can. I think that's the core strategy here.

And our next question today comes from Jim Kammert with Evercore.

You've given a lot of great color regarding the '26 expirations and potential move-outs. Is it -- given the environment, is it like too early to even start thinking about 2027 type expirations and how those tenants are looking in terms of their burn rates and their intentions. I'm just curious, as you go into the Investor Day, et cetera, perhaps as much clarity on that would be helpful.

Yes. Well, we -- it's a good question, Jim, and we're pretty laser focused, not only on next year's roles, but the year after roles. And in fact, we just had one I think renewal extension we just did, which was a company that I think had a role in 2031. We just extended for a decade. So we're all over every single tenant that we want to keep in our markets about what we can do to preserve them, protect our core and to create future growth. So that clearly is also front and center for us, yes.

Okay, great. And quickly, the second one, there was some discussion that in Mission Bay, you had been potentially looking to reallocate, I think, is the term they use some of the lab space there, your 4 assets in Mission Bay to office use, particularly targeting AI? I mean one is that a valid report? And if there is validity to it, how would that sort of work, what would you do with your existing tenants?

Yes. I'll have Peter comment, but we did go in for propane allocation for, I think, most of our buildings there. We have them in a partnership, but we're the managing partner, and we got 100% approval on that. And the reason is because, one, we want to be able to offer office to the extent that it makes sense for our existing tenants as they need it. UCSF is a big tenant on campus and sometimes their needs flex between lab and office.

Clearly, OpenAI has made that the center of the universe for their needs and campuses buildings around a campus, and that's a very valuable use of space. So it makes good sense to be able to have that flexibility. But Peter, do you want to comment?

Yes. So we already had a couple of properties in Mission Bay, the Illinois properties already had 100% allocation for propane. When we developed the Owens properties, 1450, 1500, 1700 Owens and then 45 Mission Bay Boulevard. We only had a partial allocation for about 1/3 of the building area. That would be for pure office users only. Office that houses the researcher is not included in that. We don't have to have propane for that.

But as Joel alluded to, we're seeing more and more use -- users from our tenant base, both traditional tenant base and otherwise in that area that would like to have all office type of space. And it just makes a lot of sense to have that flexibility.

In addition to just the pure office users, though, our lab users are more and more looking for additional office area for computational workflows as they integrate AI and other technologies into their research. So all of the -- we've been thinking about this for a while. We finally had an ability to act on it, and so we did. But I wouldn't read into anything as far as like are we not going to be doing lab there. Of course, that's the primary use. But to the extent that our lab tenants need more office area or there's other alternative tech in the area that is complementary to the innovation economy there. We want to be able to serve it and the counselors agreed with us and allocated the propane.

And our final question today comes from Jamie Feldman at Wells Fargo.

Joel, I was hoping you can just look into your crystal ball a little bit. You guys are clearly thinking about the balance sheet, making some changes to get capital in line, shrinking construction pipeline. You're probably the league leader in this space. How should we think about what's to come from the competitive set? Or just the industry overall in terms of finding a bottom and working through other pain in this industry? And I'm thinking specifically about your comment about meeting the market, I assume you meant on rents, like you think there's a lot more downside on rents as across the sectors, across the markets as this all plays out? Just how should we think about what's to come across the industry?

Yes. So maybe I'll make a couple of comments and ask Peter to come in in depth. Yes, we don't feel like there is any real competitor out there, probably the next biggest company, which is maybe, I don't know, 1/4 of our size or something like that 1/3 of our size is, Blackstone, and they're private, obviously, and they have a very different mindset about how they run their business in the sense of they don't mean we view closers in ecosystems in a different way than, say, a purely financial investor would view it. And that's a pretty important thing.

And to a large extent, that's why we ended up with this big lease that we signed in San Diego that was not generated by an RFP. So another company would not have had a chance to really kind of come and bid on that. So we view ourselves very differently. There's nobody who is a public pure play. The one other company that's out there has got a big presence in South San Francisco and heavily weighted medical office. So I don't think that really counts as a comparable, and then there's a whole lot of private guys out there.

But I think the point of what I said was, I think that very low interest rates coupled with almost a decade-long bull market and this COVID run up. Remember, our demand went up 4x due to COVID. I mean we'd never see anything like that, and you try to meet the demand of your clients, but real estate takes time, and that's unfortunate that you can't meet it instantly. And so I think many, many of those folks that decided to hop into in the circa '20, '21, '22 era built foolishly. There's a lot of building standing empty, Peter and others call them zombie buildings. I just think they're just of a different ilk than buildings in the heart of clusters and wrapped into ecosystems just different.

But if we're one-on-one with any other developer and we have space that fits the clients' needs, we're going to win. We almost never lose. And the reason is because we have the best team. We have the best space generally. You can rely on us. We have the highest level of trust and we do what we say and we say what we do. And we've got street credit in the industry that nobody else has anything like that. Peter?

Yes. Look, economics are very important, especially in an uncertain time when you don't know when the next dollar or where the next dollar is coming from, but you need space, you need to renew what have you? There's other choices out there as Joel alluded to some downspace decisions made by others. And what that has caused is a deterioration in fundamentals. We've talked a lot about the TI allowances that are in the market, the free rent that's in the market.

By and large, the market has held the rents fairly high. I mean I think we're still above pre-COVID rents in the big markets and especially in the tertiary markets where there's been less competition. But even our tenants who are used to our great service, they know what's out there, they want to stay with us and they increasingly come to us and say, guys, we want to renew. We want to stay with you. We want to make a long-term commitment, but the reality is the market are this. And we just want to assure people that we understand that, and we're going to meet the market.

Now are we going to have to go to the bottom in order to make the play? No. Like what Joel said as far as why people come to us, our platform, our service, our megacampuses, I mean they still value that. But at the same time, they need a deal. And we're out there understanding where we need to be, and we are going to get a premium, but it's not going to be where it was in the old -- in the previous cycle.

So we just want to assure everybody that the tenants that are the best tenants in the market that we want to retain worth going to retain. And if that means more TIs than traditionally we had to get or a roll down in rent, then we'll do it. We're going to get through this time. It's going to take a while, but a lot of this zombie buildings will go and become different uses. The market will get tight, and we'll be in a better position the next time around. But we're going to continue to prioritize occupancy. And that's why Joel mentioned meeting the market.

Super helpful. So as you think about -- I mean, your Slide 19, you still have a positive mark-to-market? I mean is it -- could you sense when markets are bottoming or leases are bottoming? Or it's just too early to tell? Can you maintain positive...

I think it varies by submarket, Jamie, because some are very oversupplied and others are within some reasonable balance. But Peter, you can kind of...

Yes. I -- it's a guess, right? But as I see that the majority of supply left to be delivered, which I think right now that we consider competitive is somewhere in the neighborhood of 3.3 million in our 3 big submarkets. Out of that 3.3 million, the majority of it is already pre-leased. So I'd say roughly about maybe 30% of that 3.3 million is going to be delivered vacant and increase availability. But then after that, we don't see anything in -- and that's inclusive of things delivering in '26 by the way. We don't see anything coming in '27.

So the availability numbers are going to peak. And maybe it's a little bit into '26 when they peak. And so they are only going to go up from there. So I don't see fundamentals deteriorating further, given that there's just -- we're going to start recovering soon that you never know.

Okay. Just to add here, Hallie here, and to summarize that, given all the work myself and the team on the ground are saying as we continue to outlease competitors, which we are doing across all of our markets, we do see the early stages and acceleration of conversion of what we're targeted as life science spaces going to other uses. And so back to your original question on competition, the more that we continue to out lease and dominate the more we'll see that balance of supply coming into picture.

Yes. In other words, people are going to be capitulating and pivoting.

Yes, that makes sense. And if I could just throw in one more. I mean it seems like a big strategic moment for the company. I mean, we've seen some of your office peers talk about asset-light models. Is that something -- I think your answer to one of the prior questions is no, you just want to continue to own your best megacampuses, but have you thought about that at all? I mean, you have such a good operating platform? Is there a way to monetize the platform without tying up so much capital?

Yes. Peter, you can speculate...

Yes. I mean it's an interesting concept, Jamie, that we actually have discussed a number of times -- at this point in time, though, it really doesn't make sense to have so many different players. It's going to consolidate down to where it was before, meaning experienced developers that have their own platforms and a lot of these projects that have deteriorated the fundamentals are just going to -- they're going to be something else and those operators are going to go away. So I don't know if it's really an opportunity to where you're managing other people's projects because those projects aren't going to be lab. That would be my take.

Yes. And I think, remember, Jamie, that I kind of emphasized a number of times, this is just very different than almost any other property type due to the intense regulation of all aspects of this industry -- the underlying industry. And demand is just different as well. It isn't just about what's the cheapest space or what's just simply available. It's -- I've got mission-critical both assets and processes in that space, and I don't want somebody to screw it up and lose me a whole lot of money. So that matters, whereas if you're just going in for Wells Fargo office, whether you're in this building or that building generally isn't going to make a huge difference. But for lab, it actually makes a giant difference. So it's just different.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Joel Marcus for closing remarks.

Just simply say thank you, everybody, be safe, be well. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.