Alexandria Real Estate Equities, Inc.

Good afternoon, and welcome to the Alexandria Real Estate Equity's fourth quarter and year-end 2024 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Paula Schwartz, Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. This conference call contains forward-looking statements within the meaning of the Federal Securities Wallet. 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 report filed with the SEC. 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. With me today are Hallie, Peter, and Mark, and want to welcome you to Alexandria's fourth quarter and year-end 2020 for Earnings Call Podcast. Our team has been hit pretty hard by the California wildfires during this month of January, but luckily they are supremely resilient. Our profound prayers are with all those impacted as well as our own team. And we are by the side of our team each and every step of the way to recovery. Despite the inadequate preparation by the local utilities, the city, the county, and the state, as we have had or actually as there were several days of violent wind warnings ahead of time, largely ignored by those empowered to protect us. Really disheartening start to 2025. Let me give a couple observations on fourth quarter and overall year end on the operating and financial results. We're very proud of producing an almost 6% FFO per share growth in a very tough macro environment. Another very solid year of leasing, both on a quarterly and a yearly basis, and Peter will get into depth on some of that. We had a solid fourth quarter and full year capital recycling program as we shrink our land bank to focus on future mega campuses and exit non-core assets. We have continued stability, strength, and flexibility of our balance sheet, great liquidity, and a increasing and well-covered dividend. A couple of thoughts on the life science industry. I'll leave it to Hallie to do more in-depth, but I think the three reasons for a go-forward 2025 optimistic view are, one, the anti-industry ideologues of the last administration are gone, and the FTC is maybe a simple example of that. The new administration is focused on cracking down on the middlemen and PBMs taking 40% to 60%. the economic value of therapeutics in the chain of value and adding very little. And so that's going to be a welcome bullseye. And then likely there'll be positive reform of the IRA provisions and a repeal of the unconstitutional 95% excise tax. And as the new administration wins the day versus the Fed, interest rates are likely to come down and the life science industry will experience a solid return to hopefully a normalized bull market. The quarter ahead, we're super laser focused, as you all know, on the redevelopment and development pipeline. It is, as Hallie and Peter will tell you, it's a It's been a very diversified demand from leasing. Actually, biotech has been the slowest because they're really an adjusting time syndrome given the macro, but that's likely to change when we see the Fed start to ease up. The vast majority of our leasing has come from other sectors. Our pipeline for this year is almost 90% leased or undersigned LOIs. Next year is looking very strong. The year 2027 and beyond is where we have a lot of work to do. We're seeing good activity and actually new activity across some of our sub markets. South San Francisco remains slow as we have predicted for a long time. We're laser focused on leasing spaces coming back to us as we noted at investor day, obviously in the rollovers for this year and making very good progress. We're also laser focused on capital recycling for this year. and also making very good progress as well. As I said at Investor Day, the critical components of our enduring success have been a preeminent brand, superior knowledge of our customer, a superior product, highly focused niche, our industry leadership, and we believe we possess all those characteristics. And as I said, you know, back on Investor Day on December 4th, We've been through three major cycles as a collective management team in general, and I must say that we've successfully navigated each of these very different market cycles successfully, and we've emerged in an even stronger industry position of leadership and strength. And finally, it's interesting that like the real world legacy media, there are always a bunch of legacy pundits who back in 2009 urge us to unload Mission Bay and Cambridge Land during the GFC as worthless non-income producing assets that weighed on our balance sheet. And they turned out to be the growth engines of the next decade. Those legacy pundits are here again and got it all wrong. We look forward to our first quarter call where we'll give you an update on the strong leasing progress we're already seeing during this quarter. and some strong new pockets of demand and give a peek into our 2026 trends transaction plans. And then finally, let me wish everyone we need a new new year since the last one just January alone, we saw the tragedy in New Orleans in Las Vegas, and obviously the wildfires here in Southern California. So the year of the dragon starts tomorrow. And The key symbols are wisdom and transformation, which I think epitomize Alexandria. And with that, let me turn it over to Hallie.

Thank you, Joel, and good afternoon. This is Hallie Kuhn, Senior Vice President of Life Science and Capital Markets. To start, a brief spotlight on Alexandria Tenant Intercellular Therapeutics. whose acquisition by J&J for $14.6 billion represents the largest announced biotech M&A in over a year and a half. Our partnership with Intracellular goes back over two decades, when the company was founded on research from Nobel laureate Paul Gringard's lab at Rockefeller University. Leveraging breakthrough science on how brain cells communicate through chemical signals, Intracellular is developing novel medicines for patients with mental illness. including an FDA-approved treatment for schizophrenia and bipolar depression. With one in five Americans affected by mental illness, intracellular novel medicines have the potential to transform patients' lives. Turning to trends across our broad and diverse life science tenant base, demand continues to be driven by our nearly 800 strong tenants, with 84% of leasing from existing relationships in 4Q24. Importantly, leasing also continues to come from each and every segment of the life science industry. Over the course of 2024, multinational pharma represented the largest proportion of life science leasing by RSS at 28%, followed by life science product, service, and devices, 22%, private biotech, 21%, biomedical institutions, 15%, And the small segment, which Joel referred to, was public biotech at 14%. Now looking towards 2025, a few notable trends on the horizon. First, the FDA is expected to maintain its healthy pace of novel drug approvals. In 2024, the FDA's Center for Drug Evaluation and Research, CEDAR, approved 50 novel therapies, while the Center for Biologics Evaluation and Research, CBER, approved eight novel gene and cell therapies. Notably, over the past two decades, the average number of annual approvals has more than doubled, a tremendous win for patients. With respect to incoming appointees, we don't expect significant disruptions at the FDA. The new administration's nominee for FDA Commissioner, Dr. Marty McCary, is a surgeon and public policy researcher at Johns Hopkins that is highly respected by the medical community with deep clinical trial experience. In the interim, the administration has tapped Sarah Brenner, a career FDA official, as acting commissioner of the agency. Second, we anticipate Life Science M&A will continue to pick up. Given impending patent cliffs, pharma companies are seeking to back-build their pipelines with innovative medicines through private and public biotech acquisitions, with potential for larger deals given a more lenient SEC environment. This M&A cycle is vital as returns to investors are then reinvested in the next generation of innovative companies. We benefit from M&A across our regions through upgraded tenant, credit, post-acquisition, and in some cases, expanded footprint from the pharma acquirer over time. Third, we expect strong follow-on market performance for public biotech companies with value-driving clinical data. VACCITE exemplifies this trend. having signed a 250,000 square foot expansion at our San Carlos mega campus in Q4. However, public companies lacking key value inflection points will likely face continued downward pressure, while the IPO window will be limited. These dynamics may contribute to sustained volatility in indices like the XBI throughout 2025. Fourth, venture financing will remain strong, and will be concentrated on fewer but larger life science deals, as evidenced by over 120 financings exceeding 100 million in 2024. Private biotechs continue to take a conservative approach to space decisions, prioritizing just-in-time needs that align with their mission-critical life science infrastructure requirements. Our dynamic megacampuses, with their unmatched flexibility and scale, are ideally positioned to meet this demand. there will still remain large uncertainty as macro conditions such as interest rates weigh on all industries. However, the long-term outlook of biotech remains incredibly bright, and we are hyper-focused on capturing the most promising life science companies today that will drive significant demand in the future. To put it into perspective, over the last 30 years, the size of the public biotech market has increased 20x. With only 10% of diseases with approved therapies, and innovation accelerating at an exponential pace, the industry continues to have massive growth potential. With that, I will pass it over to Peter.

Thank you, Hallie. I'll echo Joel's comments that the resilience of our people has been nothing short of astounding, and the support from their colleagues inside and outside of the Los Angeles area confirms that we have an extraordinary group of individuals who've shown that they're not only exceptional in what they do for the company, but in what they do for their friends and neighbors. It's no surprise as it's notoriously tough to get a position within Alexandria because Joel famously requires our team members to not only be the best in the world at what they do, but to also care about our mission deeply, which at its core is about helping humanity. I'm going to discuss our development pipeline, leasing, supply, and value harvesting, asset recycling, and then hand it over to Mark. In the fourth quarter, we delivered 602,593 square feet into our high barrier to entry submarkets, bringing total deliveries for the year to 2,457,963 square feet, covering 13 projects. The annual incremental NOI delivered during the year was approximately $118 million, including $55 million in the fourth quarter. Another $395 million is expected to deliver beginning in 2025 through the second quarter of 2028. The initial weighted average stabilized yield for 2024 deliveries was 6.7% supported by a solid stabilized yield on cost of 7.1% from our fourth quarter delivery. Development and redevelopment leasing activity for the quarter was low at 13,000 square feet, due in part to lingering conservatism from life science company boards. Companies are prioritizing organic growth and delaying expansion plans until they have a critical need for the space, which is why just-in-time inventory that is turnkey and ready to occupy is most attractive to current demand. This trend can be seen in the least percentages of our pipelines. Projects expected to fully deliver in 2025 and 2026 are 89% and 70% leased or under negotiations with signed LOIs respectively, while projects delivering in 2027 or beyond are 15% leased or under negotiation. And I echo Joel's comments. We have a lot of work to do on those projects. Alexandria's pipeline is well positioned to capture future demand when expansion needs arise. Our dominant existing tenant base allows us to get in front of many requirements before they reach the market. And our locations, scale, and sponsorship matter a lot to tenants, as we statistically illustrated at Investor Day. Transitioning to leasing and supply, 5,053,954 square feet was leased during the year, representing a 17.3% increase from last year. And 1,310,999 square feet was leased during the quarter, which was a 47.3% increase compared to the fourth quarter of 23. Rental rate increases for the year were consistent with guidance at 16.9% and 7.2% on a cash basis and were 18.1% and 3.3% on a cash basis for the quarter. Net effective rents remain positive despite elevated availability. And there was strong early renewal activity reflecting the tenant's appreciation of our location, scale, and sponsorship. With respect to supply statistics, we presented a deep dive into them at Investor Day and not much has changed. So in lieu of rehashing that, we'd like to highlight a couple of interesting trends observed in JLL's recent Boston Lab Market overview as they validate a lot of what we spoke about at Investor Day. First, JLL indicated that there is a flight to quality for both geography and ownership. 40% of all urban lab leases signed in 2024 were in Kendall Square. 33% were in Watertown. 21% were in Fenway and Seaport, Alexandria's urban submarkets, meaning that only 6% of leases were transacted in other submarkets. According to JLL, one-third of the leasing deals were signed by Alexandria and another experienced owner. This is proof that location and sponsorship really matters. Second, JLL estimates that at least one-third and probably closer to 40% of today's available lab space is made up of zombie buildings, meaning the building is unleasable because it's either a bad office conversion undesirable location and or an inexperienced owner. Further proof that location quality and sponsorship matters. We're very pleased to have executed a strong finish to the year within our value harvesting asset recycling program by closing on over $1.1 billion of transactions in the fourth quarter, bringing our total for the year the approximately $1.4 billion included in our self-funding capital plan. As presented at Investor Day, our 2024 strategic dispositions exemplified that we continue to have a very solid portfolio of diversified assets, providing us with strategic optionality. Approximately 36% of our sales were to investors, 42% to users, and 22% of the transactions were land sales. The investor sales and user sales were a combination of stabilized and non-stabilized assets, with the latter requiring downtime and significant capital to stabilize. In all cases, these assets were deemed by executive management and the local teams to no longer fit our core strategy. We have provided cap rates for the stabilized transactions that range from 6.3% to 7.4% on a cash basis. It should be noted that none of these sales were in the super core life science submarkets coveted by investors. The other large sales of note were the properties with vacancy or near-term lease expirations in Cambridge and the UTC submarket of San Diego. We are bound by confidentiality agreements. Our commentary must be limited here. With respect to the Cambridge assets, the economics were significantly driven by the inclusion of 215 First Street, a historical building primarily improved as an office building. In addition to current vacancy and significant occupancy loss expected over the next two years, the asset will require material capex beyond leasing costs to stabilize the building in the future. The University Town Center assets have a similar profile with respect to current vacancy and future occupancy loss. The Cambridge and UTC assets served us well over time, but they are no longer part of our core mega campus strategy, and the opportunity to monetize the assets by receiving capital today and avoiding CapEx in the future is a prudent and disciplined strategy. As we look to 2025, we are confident we will continue to meet our self-funding goal with our value harvesting asset recycling program continuing to drive the transformation of our asset base into the mega campus strategy that provides the location, scale, and sponsorship prioritized by today's high-quality tenant base. With approximately 540 million in pending transactions subject to non-refundable deposits or executed letters of intent and or purchase and sale agreement negotiations, we're off to a great start. So with that, I'll pass it over to Mark.

Mr. Binda, this is the conference operator. Perhaps your phone is muted on your end. You're open on mine. Again, Mr. Binda, perhaps your line is muted.

We're checking with them.

Do you hear me now?

Mark, are you there? Yes.

Yes, I'm here. Can you hear me?

Yes, we can. Yes, we can.

Okay. Apologies. Thank you, Peter. This is Mark Binda, CFO. Hello, and good afternoon, everyone. First, I'd like to pause for a moment to recognize many of our Alexandria team members who've been personally impacted by the horrible fires that have plagued the Los Angeles area over the last few weeks. Second, congratulations to the entire Alexandria team. for the outstanding execution during the quarter, including the tremendous capital recycling of $1.1 billion completed during the quarter. We reported solid operating financial results for the fourth quarter and the year. Total revenues and adjusted EBITDA were up 8% and 11.6% respectively over 2023, primarily driven by solid same-property performance and continued execution of our development and redevelopment strategies. FFO per share, as adjusted, was $9.47, up 5.6% over 2023, and up 36% over the last three years, which represents the highest percentage growth amongst the 15-day equity healthcare index over that time. On internal growth, our solid operating results for the quarter continue to be driven by our disciplined execution of our mega-campus strategy, tremendous scale advantage, long-standing tenant relationships, and operational excellence by our team. 77% of our annual rental revenue comes from our collaborative mega campuses, and we hope to increase this steadily over time. We have high quality cash flows with 52% of our annual rental revenue from investment grade and publicly traded large cap tenants. Collections remain very high, 99.9%, and adjusted EBITDA margins were strong at 72% for the quarter and represent the second highest quarterly margins reported since 2019. On leasing, an important takeaway for the quarter is the continued solid leasing volume driving our business. Leasing volume for the quarter was 1.3 million square feet, which represents the fourth consecutive quarter over a million square feet and creates great momentum as we transition into the new year. The quarterly volume also included 273,000 square feet of previously vacant space, the largest amount in the last five quarters. Leasing volume for the full year of 24 was 5.1 million square feet, up 17% over the prior year, and up 19% compared to the seven-year historical period prior to 2020. We continue to benefit from our tremendous scale, high-quality tenant roster, and brand loyalty, with 84% of our leasing activity over the last 12 months coming from our existing deep well of approximately 800 tenant relationships. Rental rate growth for lease renewals and releasing of space in 24 was solid at 16.9% and 7.2% on a cash basis. For the quarter, it was 18.1% and 3.3% on a cash basis. We continue to achieve very healthy lease terms on completed leases with nine and a half years on average for the quarter, which is above our historical 10-year average. TIs and leasing commissions on renewals and releasing the space for the quarter was elevated on a per square foot basis due to two large long-term leases signed in San Francisco and San Diego. But importantly, these costs were fairly modest for the year when considered as a percentage of the total rent over the lease term, which was 8.4% for the full year 24 and ranks as the second lowest percentage over the last five years. Our non-revenue enhancing expenditures including TIs and leasing commissions on second-generation space, have averaged 15% of net operating income over the last five years, including the last three that have all been below the five-year average. Looking forward to 25, we do expect this ratio to tick up a bit due to the repositioning activities at Technology Square and 409 Illinois. On same property, NOI growth was solid at 1.2% and 4.6% on a cash basis, and 0.6 and 6.3 on a cash basis for 24 and the fourth quarter of 24, respectively. Driven by solid rental rate increase, the pickup in same property occupancy and some burn off of free rent benefiting the cash numbers. Our outlook for full year 25 same property growth is consistent with our prior outlook at down 2% and flat on a cash basis at the midpoints. These projected results for 2025 include the impact of approximately 2.6% and 3.4% on a cash basis from the 768,000 lease expirations expected to go vacant in 1Q25 spread across four projects. As a reminder, the two largest components of those key 1Q25 lease expirations relate to Alexandria Technology Square with the move out and expansion to another Alexandria property by Moderna and our single tenant building at 409 Illinois's. in Mission Bay. We made great progress on these specific upcoming lease explorations with 136,000 square feet already leased during their negotiation with most of the balance under ongoing discussions with several prospective tenants. We expect downtime on these spaces on average to be at least 12 months given time to complete construction work. We expect same property results to be impacted starting in 1Q25 with some offsets to the cash results for the burn off of free rent across the rest of the same property pool over the first half of 25. Turning to occupancy, occupancy for the quarter was solid at 94.6%, which is consistent with the steady results over the last five quarters. The midpoint of our guidance range for occupancy for year end 25 is 92.4%, which includes approximately 2% vacancy coming from the four projects with one T25 lease expirations expected to go vacant that I described earlier. and are described on page 24 of our supplemental package. During the quarter, we continue to execute our development and redevelopment strategy by delivering 603,000 square feet from the pipeline, which will generate 55 million of incremental annual net operating income. We have 4.4 million rentable square feet of development and redevelopment projects that are projected to generate 395 million of incremental annual net operating income over the next three and a half years. including $83 million in 2025 from projects that are leased or negotiating around 89%. We also expect to see significant growth in incremental annual net operating income on a cash basis of $70 million from executed leases as the initial free rent from recent deliveries burns off over the next three months on a weighted average basis. Turning to buybacks, On December 9th, we announced that our board had authorized a common stock purchase program of up to $500 million. To date, we've repurchased $200 million under the program, including $50 million in December and $150 million in January at an average price of $98.16. Subject to changing market conditions, we will continue to monitor additional share repurchases under the plan and expect to find any repurchases on a leverage-neutral basis through the end of 2025. As a reminder here, Our guidance range for acquisitions and other opportunistic uses of capital is 0 to 200 million. So, with the share repurchases completed in the first quarter, we're already on the high end of our guidance range for the year. Turning next to the balance sheet, 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 10% of all publicly traded U.S. REITs. We ended the year with low leverage of 5.2 times for net debt to adjusted EBITDA, consistent with the average of our year-end leverage for the last five years. We have tremendous liquidity, and we have one of the longest debt maturity profiles amongst all S&P 500 REITs, with only 14% of total debt maturing over the next three years. Practicing next to funding, we continue to be focused on our discipline funding strategy to recycle capital from dispositions and to minimize the issuance of common stock, which has been nominal over the last two years. Huge congratulations to the Alexandria team for the tremendous execution during 24, with 1.4 billion dispositions completed, including 1.1 billion of dispositions completed during the fourth quarter across 12 different transactions, with about half of that coming from stabilized dispositions with a weighted average cash capitalization rate of 6.9%. Important to note here that the stabilized dispositions completed in the fourth quarter were primarily located in suburban Boston, Northern Virginia, and RT, submarkets which comprise a small fraction of our overall asset base. In the fourth quarter, we did recognize impairments averaging $186 million, which was primarily comprised of the following. First, $40.9 million for properties at 1 Moderna Way in Group 128, which was sold to our longstanding tenant for $369.4 million during the quarter. And second, $102.8 million primarily related to multiple land parcels located in San Diego, some of which were sold in the fourth quarter and many of which will close next year. The team continues to be laser focused on the execution of our capital plan. As Peter mentioned, we're off to a great start. We have pending 2025 dispositions subject to nonrefundable deposits or contract negotiations for $539.5 million, of which about half of this represents anticipated sales of land. and in total represents about a third of the midpoint of our guidance for next year. In addition to dispositions and sales of partial interest, we also expect to fund a meaningful amount of our equity needs next year with retained cash flows from operating activities after dividends of $475 million at the midpoint of our guidance for next year. Our high-quality cash flows continue to support the growth in our common stock dividends, with an average annual increase in dividends per share of 5.4% since 2020, and we continue to have a conservative FFO payout ratio of 55% for the quarter. On venture investments, quarterly realized gains from venture investments, including FFO per share as adjusted since 2021, have averaged about $25 million a quarter. For 2024, realized gains including FFO per share were just slightly above our historical rate at about $29 million a quarter on average, or $117 million for the full year, and $32 million in the fourth quarter. Our outlook for 2025 is consistent with the most recent run rate for the full year of 2024. Turning to guidance, we reaffirmed our guidance for 2025 with a $150 million change to our 25 sources of capital to reflect the closing of certain dispositions that were originally expected to close in 2024 and are now expected to close in 2025. There were no changes to midpoints of our guidance ranges for EPS of $2.67, and FFO per share diluted as adjusted of $9.33. As a reminder, we view our projected 25 FFO per share midpoint as flat relative to 2024 after considering the approximate 14-cent impact from the Alexandria Technology Square ground lease extension completed last year. In closing, as we reflect on the fourth quarter and the full year of 2024, we're pleased with the tremendous execution with solid FFO growth of 5.6% in a very tough macroeconomic environment. With our tremendous scale, high-quality cash flows, deep industry relationships, and our highly experienced management team, we're well-positioned to continue reinforcing our dominant platform and strategically position us for future growth. With that, I'll turn it back to Joel.

Okay, operator, if we can open it up for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Our first question today is from Anthony Pallone with JP Morgan. Please go ahead.

Yeah, thank you, and hi, everyone. The first question is, Joel, I think you alluded to the first quarter here going to – or trending toward having a really strong leasing picture. I was wondering if you could give a little bit more cover on that in terms of whether that's in the core or with regards to the development pipeline or the types of leases, just maybe a little bit more detail there on the comments.

I prefer to make them on the first quarter, but I would say – heavily it's kind of spread among the various items you talked about. So it's not necessarily one single one. Okay.

And then just if we look at the development spending guidance for the full year, can you remind us how much of that is related to projects that are kind of in process versus ones that you might want to start? And I guess where I'm going with the question is, you know, given the buyback, you know, would you consider maybe moving any, you know, capital from that bucket to maybe further buybacks or thoughts there? Yeah. So, Mark, you could comment on that.

Yeah. Yeah, we do break that out in the back. Tony, I'd say that the lion's share is related to active construction projects. It's $1.2 billion out of the $1.75 billion. Yeah. But, yeah, take your point there. There's not a ton of new projects expected to start, you know, vertical construction next year.

But should we take it as though this, you know, it sounded like from your comments, you know, kind of hearing it right, that the $150 you've done on the buyback, you know, puts you at the high end of your acquisition, kind of opportunistic purchases, right? guidance and that's kind of about it, or is there room for that to go further?

Yeah, I wouldn't assume that to be the case, but let us refresh that in the first quarter, Tony, much like I think the lease in color will give you on rollovers, vacant space coming back to us, the development pipeline, et cetera. But give us that room. But that's current guidance, but we will definitely update it and it could change. Okay. Thanks. Yep, thank you.

The next question is from Rich Anderson with Wedbush.

Please go ahead. Hey, thanks. Good afternoon. Another leasing question. Maybe I'm going to get shut down again like Tony. But on the 768 and the 336 that you have leased and a lot of it's under discussion, Would you say you're running at or, you know, where you were at investor day in terms of plan, or do you think you're running ahead of plan, just any?

Yeah, I can answer that question ahead of plan.

Ahead of plan, okay, good. And then in terms of the G&A savings for 2025, can you talk about that? I mean, it's kind of fortuitous timing around, you know, maintaining some level of reasonable FFO, well, in this case, flattish FFO growth for 2025 work. Where did that come from? Like, how did that sort of materialize and sort of hit the books in 2025, if you can give some finer points around that?

So, yesterday, I'll ask Mark to, you know, make comments, but let me give you kind of a frame. So, yesterday, we filed our 10-K, so you can look there in MDNA. We've got savings in legal expenses, IT expenses, payroll and payroll-related expenses, other G&A expenses, and, you know, some benefit programs. So I don't know, Mark, if you want to make any other comment. It's pretty broad and also software implementation, et cetera.

Yeah, no, nothing to add there, Joel.

Okay. And then lastly for me, Joel, a big picture question around, you know, I guess I could say politics. You know, you sounded like fairly optimistic about 2025. with the new administration, although, you know, there's some interesting tactics going on around the HHS, and I understand that, you know, certainly regulatory pauses are par for the course for a new administration, but it does feel like it may be more aggressive this time. Would you say there's any concern about, you know, where things are headed from a policy point of view, or are you absolutely confident that, you know, despite some of the questions that maybe are in place today, that this is a step back and a several step forward type of situation that you're looking at. Thanks.

Yeah, I would say compared to the last administration, it's like night, the dark of night and the light of day. Just FTC commissioner alone is one. We've also got, I think, Kelly gave you some idea. I mean, our industry is primarily governed by the FDA, and I think, you know, both the nominee and the interim are both, you know, highly skilled people, so we feel very good, and we don't see any abatement of the pace of approvals, both on biologics and non-biologics. And I think when it comes to HHS as an overarching area, I mean, over the past four years, you had somebody who didn't even know what healthcare was, and a political appointee, Javier Becerra from California. So whether RFK Jr. gets it or not, and I know there's a lot of controversy about that, that probably won't have nearly as much impact as the FDA. Also on the NIH, we feel that you know, the nominee, there will be a solid nominee. The NIH kind of lost its way, as you know, it lost credibility during COVID. It certainly withheld, I think, accurate reporting on the cause of COVID out of the Wuhan lab. I mean, we understand BSL, you know, for labs and things like that. And it's pretty clear that we funded gain of function work there. And people were getting sick as early as the summer of 2019. And, you know, that was on the NIH. And they went from a merit-based award system to a mandated award system. And I think in the province of science, you know, you want best science project to win, not just somebody who's mandated to win for the sake of it. So I think the NIH has a fair amount of work to do to kind of clean house, but it is a fantastic agency overall that funds some of the most important core research, the substrate of a lot of ultimately therapeutic products that come out, and we would imagine that that will continue. If you look micro to us, we don't have a whole lot of exposure to the NIH directly other than a few leases which are actually long-term leases in the Maryland market. But I think I'm pretty optimistic.

Awesome. Thanks very much, Joel.

Yep, thank you. The next question is from Wes Galladay with Baird. Please go ahead.

Hey, everyone. I just want to go back to that comment about just-in-time leasing. What does that mean for your 2026 developments? Would that be more back-half leasing this year? Would it be all the way until next year that we see leasing there?

So, Peter, do you want to maybe frame that?

Yeah. Certainly, things that are delivering in 2026 are just not top of mind for folks that are, you know, deciding they need space and then go out to the market and identify things within 60 to 90 days.

Yeah, that's the biotech sector, so keep that in mind.

Yeah.

Okay.

But we certainly do have our existing tenant base that just loves our platform, loves our operations, and has been very loyal. So, you know, we certainly do see ourselves getting things done in 2026. I think I mentioned we're 70% leaser under negotiations, which means we have signed LOIs for 70% of that space. So the other 30%, you know, will likely come from our existing tenant base or potentially some But those are in pretty good shape. It's getting into 27 where we're still too far out for folks thinking. So, you know, we're going to do our best to generate some more activity there. But the market is really just looking at things that they can get into in a very short time or a relatively short time frame. But, you know, the 25 and the 26 deliveries are in pretty good shape.

Yeah, so maybe with respect to that, because I think it's worth noting, Hallie, do you just want to run through the percentages of leasing of the sectors? Because I think this is where people get 100% focused on biotech and they lose focus of the rest of the industry. So maybe just run through those for a minute. I'm sorry to bear with us.

Yeah, yeah, absolutely. And as I mentioned in my remarks, and this is particular to the just-in-time leasing comment, Yeah, that is for more of the earlier stage companies. If you think about privately funded companies, and they could be incredibly well funded, but are a small portion of our overall ARR. And for this past year, you know, they, private biotech, they reflected about 21% of our leasing and a good portion of those, as Peter said, were from existing tenants. And then public biotech in particular, right, which has had certainly the most challenges in terms of access to capital, very much a have and have nots, represented about 14% of our leasing. So when we talk about just-in-time leasing, You know, it's very much focused on companies where, you know, it's going to be leasing that, you know, say 20,000 square foot space. You know, we're not talking about the much larger requirements where that takes a lot of time from both parties, right, to really find a solution that works both for existing and new tenants.

Okay, thanks for that. And then maybe just one quick follow-up. Any regions standing out from a development or from a demand side from the leasing? And is there any, I guess, non-biotech, non-pharma, more so the AI connects any of those coming into the portfolio?

Well, I think that I don't want to really give competitive information out, but I think we see good activity in, you know, the key hubs. The slow one, as I mentioned, was South San Francisco. But I think the good news is, is our presence in Mission Bay, which we developed, you know, the decade after the great financial crisis, has seen a huge boom in AI anchored by OpenAI and a number of other AI companies are moving or looking at space and certainly looking at San Francisco as a critical, you know, linchpin base for that talent. So we're pretty optimistic about that.

Okay, thanks for the time.

Yeah, thank you.

The next question is from Vikram Mahotra with Mizuho. Please go ahead.

Thanks for taking the questions. I guess, Joel, just, you know, bigger picture, leaving Velocity is sort of critical now, given sort of deliveries hopefully coming in towards the back half, but critical for the industry, critical for the ARES story as well. Can you just, you know, without, I know you don't want to comment on OneCube, but just even bigger picture, how do you anticipate leaving inflecting any numbers you can share, like tenants in the market or even just how the pipeline has changed Q over Q? It just feels like that's a critical piece, and I'm wondering if you can just share some statistics how 25 could evolve versus 24.

Yeah, I think that's the kind of question that I'd really prefer to leave for first quarter when we can give you, I think, more granularity that we feel comfortable with. Remember that the bulk of our tenants in the variety of sectors we service under the life science industry as a whole that Hallie mentioned come from our own tenant base. We have a really, really good picture, over 800 tenants of each and every market and what the demand is quite apart from what people that the brokers may represent or what they see, they often don't see. much of what we see and oftentimes we may sign leases or LOIs where brokers simply aren't aware of those things. So I don't really want to get into first quarter. I want to kind of get into the details there. So I'd ask you just to be patient and bear with us. But I think we're going to have some pretty good news. But I think the key to me is, as I said, is the biotech sector, apart from the other sectors who've been pretty active, that's going to take really the Fed to get their butt in gear. And hopefully this administration can kind of jawbone that to happen. That also impacts the servicing of debt. It impacts cost of living because people are paying outrageous interest rates on credit cards and loans and things like that. Seems to me that's the key, and that's what's going to open up the next biotech bull market. We hope it's not as wild as the last one, but one that's measured and steady. But I think that's really the secret there. And remember, I think Powell's term comes up early 26, and you can be assured that Trump's going to replace him.

Got it. Maybe perhaps if you could give us some relative color across sort of the key, the three key submarkets, and we've been hearing more and more pickup in San Diego, maybe a little bit in South San Francisco, but just like that mix of tenants you gave us overall, like how does the relative strength of each of the markets fare today?

Yeah, I think, you know, we see strength in Mission Bay, not so much in South San Francisco, and Mission Bay is driven by biotech, institutional, and now artificial intelligence. San Diego has been an overall good market because it's a great place to live, and, you know, it's much more affordable. The Bay Area still has an enormous span of distance and still the highest cost of living, I think, in the U.S. as far as biotech markets by and large. And I think Boston remains very, very steady, at least the heart of Cambridge, and the sub markets, I think Peter went through some of the leasing there. So I think, you know, the only sore thumb I would say is South San Francisco, again, kind of a really a kind of a reckless oversupply there by people who really didn't know what they were doing. And then South San Francisco also suffers from being primarily a biotech market. So you've got those two things at work that really hurt it compared to, say, Mission Bay, which is more institutionally based and now, you know, AI-based. So that's kind of a little bit of the lay of the land.

And then just, sorry, last one if I can clarify. You mentioned you feel pretty good about the lease-up of the development into 25, 26. maybe 27, the question starts. But, like, would there be factors that cause you to pause any of the developments in either 25 or 26, push it out into 27, say?

No, I think what Mark published in the SUP and press release is our best guess of how we think our allocation of capital should match, you know, the demand we're seeing. So I don't expect any material changes, certainly, to 25 or 26, you know, post this print. Thank you. Yep. Thank you.

The next question is from Tom Catherwood with BTIG. Please go ahead.

Thank you. Good afternoon, everybody. Sticking with leasing for 409 Illinois and Moderna's previous space at Tech Square, two questions on that. First, Mark, I think you mentioned 136,000 square feet. of signed or negotiating leases. Was that those two buildings or was the four buildings with vacancy? And then the second part is on 409 Illinois and Tech Square.

So that's Tech Square. But I don't want to get any more granular than that. The 409 Illinois, remember, that's a building that sits right next to it. It's got a water view right next to UCSF and right next to the Chase Center. And one could imagine, you know, the biotech company there exited, but the demand for that building in South City is really – I don't mean South City. Mission Bay is heavily institutional and AI-related at the moment, so I think we have fairly good optimism on that. And the location is superb.

Got it. And is that building competing against – I mean, as tenants are looking at it, is it competing against new construction? Is it competing against second-gen space? And kind of how does it stack up across that range?

Well, it depends on who the tenant is. You know, smaller tenants probably prefer existing space. Bigger tenants probably prefer new space. But it's so dependent on – you can't generalize. It's so tenant-dependent there, Tom. Got it. Appreciate that, Joel.

And then the last one for me, Hallie, I want to go back to your comments about M&A, specifically the idea that deal activity provides investors with a liquidity event and can lead to reinvestment back in life science companies. Is an increase in M&A alone enough to boost early stage and biotech investment, or do we also need a kind of sustained rebound in IPO activity to get there?

Yeah, I think it's a holistic mix across the board. But I would say, and we see this historically, that there's always this balance between IPO activity and pharma licensing deals and M&A, right? It's all about where is capital coming from and is there a source of capital? And so, you know, I think we could see a really strong year for M&A and continued and very healthy investment in private biotech companies without the IPO market opening. I don't think they're mutually exclusive. You know, M&A at the end of the day is really the lifeblood of this industry. If you look at pharma, you know, across their current revenues, around two-thirds of that came from acquired products, right? They really rest on the innovation coming from you know, private and public biotechs. And I think, you know, investors get those returns and are going to put them to work. So I think, you know, we'll see what the IPO market does. You know, certainly, you know, the IPO market opening up is another avenue for capital, but that also doesn't mean it's the right choice, right? Being a public company is hard. And so I think as we look to M&A, it's very positive overall and continues to be very significant drivers for pharma looking for that innovation.

Got it. Appreciate your thoughts. Thanks, everyone.

Yep. Thanks, Tom. The next question is from Dylan Berzinski with Green Street. Please go ahead.

Good afternoon, guys. Thanks for taking the question. Just wanted to touch sort of on leasing economics. I know, you know, over the last 18 months or so that new development leasing economics have deteriorated during the supply pipeline and drop off in demand. So just curious sort of as you think about the current environment and expectations moving forward, I mean, is it your sense that TIs and free rent have sort of stabilized at these higher levels and then sort of expectations for that over the next 12 months?

Peter?

Yeah, I mean, it's the TIs today for new construction are essentially turnkey if it's a biotech type of tenant, not so much if it's a larger institutional or pharma type company that you can still do a traditional deal there where you kind of split the TIs between the landlord and tenant. But it, you know, it is still, you know, 50% higher than it was pre rocket ship years. But as far as, you know, the demand is looking outside of the institutional and pharma company, the demand is looking for a turnkey space. That's what the market is providing. That's, where we understand we need to be and we're adjusting our economics accordingly. We see that other consensus free rent are definitely stabilizing. I think we're reaching the bottom of the fundamental collapse, but we'll see as we report in the next few quarters.

That's helpful. And then maybe just on the disposition side, I know you guys talked a little bit about sort of the buyer profile of the 4Q dispositions. But as you guys are sort of continuing to bring assets to market, I mean, are you seeing institutional real estate firms come back and kick the tires in terms of deploying capital in the sector? Or is it still largely, you know, maybe your one-off family office type money or your owner users that are mostly in bidding tents today?

So, we haven't had a lot for sale on the institutional quality side. We had a nice sale last quarter, the Fred Hutchinson Cancer Research Center Institute, but a user sale. So, you know, we haven't tested that market yet to tell you whether or not there's, you know, the strength of demand. But we do meet with institutions that are current partners and folks that want to be partners. on a fairly regular basis and we keep getting assurances that life science is something that they want to be in at some level and they want to be in it with Alexandria. That's probably the takeaway. We had a meeting, a couple of us had a meeting in San Francisco recently where one of our partners, which is a very large institution, said, hey, look, takeaway we've been telling people that but I think it's you know it all ties together with what I talked about in my commentary about supply like these zombie buildings right they you know about 40% of the inventory in Greater Boston probably won't lease because it's just not good quality the sponsor has no experience and it's in the wrong location and unfortunately some of some of that stuff and they've learned their lesson. So I think you're going to see life science and a lot of institutional real estate portfolios from here on out, but it's going to be with us or it's going to be with somebody else that at least has scale and experience and there's a couple of others. But all these other fly-by-night, want to be developers that have tried to get into space are just going to fail. and some of this institutional money will be lost, but they're not going to be soured on it because they know it's a good business. They know there's a use case for life science real estate, and they know we're the ones that they need to be partnered with.

That's helpful commentary, Peter. Really appreciate it.

Thanks. The next question is from Omotayo Okusanya from Deutsche Bank. Please go ahead.

Yes. Good afternoon, everyone. I just wanted to focus on some of the capital allocation as well as cost savings plan. One, if you could just help us walk through the $32 million in expected savings at the midpoint, how quickly that could potentially happen. And then also just taking a look at the stock today, it's trading below where you did the first $200 million of buyback. So just kind of curious. how you kind of think about the remaining 300 million buybacks and how quickly and under what circumstances that could happen. Thank you.

Yeah, thanks for your question. Mark, you want to maybe address those?

Yeah, I can address the first one. I had a little problem hearing on the second one. But on the first one, on the G&A, I think the fourth quarter had actually some pretty significant savings relative to the third quarter. And in fact, 24 in total compared to 23 actually had pretty significant savings. If you strip out the acceleration of stock expense from last year, there was still – I'm talking about 23. There was an $11 million amount of savings to G&A in 24 versus 23. So, obviously, our guidance assumes that that trend will accelerate into 25, which decline, but I think the fourth quarter should be encouraging to give you a sense for what we can accomplish. I think at that run rate, that actually is, you know, right around the run rate that's implied in our guidance for 2025. So, you know, I think the fourth quarter is sort of good evidence that we can accomplish what we expect to in terms of G&A savings headed into 2025.

And Mark, just comment globally on the buyback where we are.

Oh, right. Yeah. So, yeah, I would definitely refer back to Jill's earlier comments. You know, we bought back $200 million, you know, 50 last quarter, 150 in January. You know, our guidance assumes zero to 200. So we've already, you know, blown through 150 of that this year in our 25 guidance. So I think stay tuned. As Joel said, we'll continue to evaluate it, but as we stand here today, that's what we've got in guidance is really not much more, but we'll continue to monitor that as market conditions change.

Thank you. Yep, thank you.

The next question is from Jim Kamert with Evercore. Please go ahead.

Good afternoon. Thank you. Is there any thematic content to be extracted regarding the lease up of previously vacant space? And I'm suggesting that, you know, are these tenants that otherwise might have gone into some of your new developments and they're doing sort of tide me over leases? Or if there's any, I'm curious because it's been picking up quarter over quarter that you're leasing up the vacant space.

Well, again, remember, Jim, with 800 tenants and – a pretty big stable in each of the core cluster markets. We have pretty good insight into the different sectors and what their needs are. So I would say it's very case specific and really hard to generalize.

Fair enough. Thanks. And then finally, looking at page 40, you look at your probable retained cash flow the next three years. then compare that to your remaining commitment to fund new developments, at least in the near term. Is it reasonable to assume that maybe 25 is sort of peak year in terms of absolute dollar dispositions?

Yeah, I think, well, Mark, you can comment on that.

Yeah, well, I would say this. We've seen the construction dollars come down the last couple of years, right, with the amount of deliveries has been outpacing the amount of projects that have been going in. We've obviously got pretty good visibility here through the end of 25 on what that looks like. But, you know, 26 is a little far off for us to kind of give you a sense for where construction dollars might be going. So I guess stay tuned.

All right. Appreciate your time. Thank you. Yep. Thanks, Jim.

The next question is from John Kilachowski with Wells Fargo. Please go ahead.

Hi. This is Jamie Feldman with John. Joel, we're very sorry to hear that the wildfires had so much impact on your company and such a difficult impact on the team. But to that end, I wanted to go back to your comments regarding the handling of them when you started the call. So you're one of the largest commercial real estate landlords in California. What are your initial thoughts on the long-term impact to your business, to owning commercial real estate in California in terms of political changes, any initiatives, insurance costs? I mean, what do you think the long-term implications are here? And also, for incremental dollars, are you leaning towards investing in California or away from investing in California as a result of all this?

Yeah, so let me frame it, and then I'll ask Mark to comment, and I would refer you to the 10-K, which addresses a number of the points of your question. But I think if you look at our portfolio, San Diego, I think, is in very good shape and doesn't have particularly great exposure to, you know, the wildfires, most of which start in, you know, hill country. South San Francisco, I think the same is true there, not particularly exposed. So I think overall, the bulk of our assets are in really good shape. You know, I think it is possible that because of the lack of preparation, even though it was well known several days ahead of time that we're going to have 100 mile an hour winds. And you know what that means during a very dry season. I hope the electorate here in California rethink how they elect local, county, and state officials and think about the election here of the current mayor versus one that lost. I think he's going to come back, Rick Russo. You have a choice of a political person all their lives versus someone who's a business person who operates real estate. who headed the police commission. So I think, you know, I think people are going to search for more common sense, practical leadership, and I think that is kind of, I hope, where California is headed and not take on, you know, kind of foolish policies. I mean, I lived in the Palisades for many years, and I was evacuated twice during the time I lived there and finally just gave up. In fact, my house overlooked the reservoir that was dry. And during the days when I was there, I never saw it dry. So, you know, how could a reservoir in a high-fire area be dry during the fire season? Makes no sense. But anyway, so I think we're well-protected in California. But, Mark, do you want to comment anything further?

Yeah, no, just to say that, you know, obviously in California, we've got – We've got a concentration of assets mostly in San Francisco and then San Diego. San Diego is the region that's probably got more exposure there to wildfire. Obviously, really unfortunate what's happened here in Los Angeles. But I can tell you that the company has taken climate resilience across the portfolio very seriously. It's been something that we've adopted really as part of a you know, as part of the design into our buildings, as well as operationally doing what we can to kind of harden our facilities and put ourselves and our tenants and their signs in the best position to deal with, you know, a potential fire.

Okay. Thank you for that, Culler. And I guess just if you think about some of the policy initiatives that are even on the table, and I know it's very early, I mean, is there anything that you think could have a longer-term impact on operating expenses or your appetite to be in California and then similarly on the insurance front?

Well, I think you have to remember two of the three major clusters are in California. So, you know, this is an industry that's a knowledge-based industry, an intellectual industry. And so you have to be where that tenant base or where that knowledge base is because that's where tenants cluster and hire from. And as I say, I think San Francisco, our assets there and the nature of San Francisco is in good shape, right fires. I think same thing in San Diego. I think insurance is a big issue. You know, the state has made it much harder for insurance companies to operate here and make a profit here and do right by their policyholders here. And I would hope that that changes whether by the ballot or whether by maybe current people just getting a lot smarter and acting more prudently. But we don't tend to exit California when it comes to our holdings in the Bay Area or San Diego. But as Mark said, we've taken extraordinary steps from our, whether it be fire, you know, water, any kinds of other natural disaster hazards, earthquakes as well. And I think our insurances were well insured. And I think we've done a really good job of risk management and we report to our board quarterly on that issue.

Okay. Thank you for your thoughts on this. I know it's a sensitive topic and our thoughts are with your team.

Yeah, it's an amazing number of people who've been dislocated, unfortunately. Thank you, Jamie, very much.

The last question today is from Michael Griffin with Citi. Please go ahead.

Great, thanks. Hallie, maybe going back to some of your comments on the VC funding environment and capital flowing to more Established firms with marketed products, you know, I realize after a funding round, you know, these type of tenants might expand their space. But do you need to see a greater increase in capital flows to the more startup-y type tenants that could go from, you know, 5,000 to 50,000 square feet in order to see the cadence of leasing pick up?

Yeah, as the previous question, when this came up, you have to keep it in context of what proportion of our overall ARR, right, is coming from that portion. So, 9% of our overall ARR comes from private biotech. So, while certainly that contingent is important and is a driver of lease-up, right, it's not I would say, reflective of our entire portfolio, right? We've really built a very diverse set of tenants to help enable, right, kind of broad demand as the market conditions change. You know, and I would say from a funding perspective, you know, it has come down off the peak of 21. And, you know, we're looking at, I would say, a pretty strong funding environment going into 25. There's a lot of dry capital that venture investors have on hand to deploy. So it remains to be seen throughout the year how that evolves. As Joel mentioned, there are still a lot of macro factors that are dampening, right, activity just in a more risk-off environment. So certainly tracking it closely, and we'll provide an update as the year goes on.

Thanks. That's helpful. And then just maybe one on sort of the transaction market and activity there. You know, you called out kind of expectations for – cap rate that your investor day of below to mid sevens, but, you know, given the move we've seen in the 10 year and, you know, I guess it's anybody's guess whether or not the new administration policies will be inflationary, you know, are you taking into account if the yield, the return hurdles might be higher for prospective buyers given, you know, the current interest rate environment?

Yeah. Peter.

Uh, yeah, yes, we have, um, I think we take into account what we have to sell and the quality of it and then just average it to give you the numbers we gave you at investor day. So yeah, we're comfortable at this point that we can achieve those numbers.

Great. That's it for me. Thanks for the time.

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

Just thank you, everybody, and we'll look forward to talking to you on the first quarter call. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.