Alexandria Real Estate Equities Inc ($ARE) Q4 2025 Earnings Call

Good afternoon everyone and welcome to the Alexandria Real Estate Equities fourth quarter and year end 2025 conference call. All participants will be in a listen-only mode. Should you need assistance, please contact 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 and then one on your touchtone telephones. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I would like to turn the floor over to Paula Schwarz 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 statement. 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, Joel. This is Mark 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 seven steps to our path forward that we outlined at our recent investor day and are also included on page four 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 4Q25 and $9.10 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 four quarter average and up 10% over the prior eight 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 five quarters. Free rent and rental rate changes on renewed and released space were under pressure this quarter which reflects the market realities and included two large deals, one in Canada and one in our Sorrento Mesa submarket. Lease terms for the quarter of just over seven and a half years were consistent with the prior three-year average of right around eight 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 mega campuses, which represent about 78% of our annual rental revenue, outperform the total market occupancy in our largest three 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 yesterday. We're making good progress across these spaces with 13% that's either leased, 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 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 of 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 1Q26 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, 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 of 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% assumed 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 five of our supplemental package, including the following three 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 mid-January on average. Second, we terminated one lease for nearly 171,000 rentable square feet in South San Francisco in 4Q25 that had annual rental revenue of $11.4 million. And we are announcing that we released 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 costs 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 were required to capitalize a portion of our gross interest cost. 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 non-core disposition plan in 2026. During December 2025, we sold or designated for held for sale projects with more than a billion dollars 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 pre-construction 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 one 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 three quarters. For 2026, we reiterated our guidance range for realized investment gains of $60 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 US REITs. Our corporate credit ratings continue to rank in the top 15% of all publicly traded US 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 5.7 times for net debt to adjusted EBITDA for the fourth quarter annualized. We reiterated our guidance range for 4Q26 net debt to annualized adjusted EBITDA of 5.6 to 6.2 times. 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 one to one and a half times higher driven by a reduction in quarterly adjusted EBITDA. Please refer to page five of our supplemental package for detailed assumptions specific to the first quarter. We expect 1Q26 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 one of our campuses in South San Francisco. We expect to sell two redevelopment projects in 2026 and we pivoted to office on one 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 four 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 5.7 times for the fourth quarter. Over the course of 2025, we also made significant progress in reducing our investment in non-income 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 3rd, and the remaining 10% was primarily related to one 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 two largest impairments comprised 37% of the total and included our future development project at 88 Brannan Street in 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 88 Brannan 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 mega campus 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 non-core asset program in 2026. And we expect non-core 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 interests. 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.

At this time, we'll begin the question and answer session. To ask a question, you may press star and then one on your touchtone telephones. If you are using a speaker phone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two at any time. Once again, that is star and then one to join the question queue. Our first question today comes from Farel Granov from Bank of America. Please go ahead with your question.

Hello, this is Farel Granov. Thank you for taking my question. I wanted to start it 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 on expectations into '26 or are you at least receiving greater inbounds in terms of sentiment as people are potentially making more decisions?

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.

Yeah, thanks. And hi, Farel. This is Hie. 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 numbers are similar if not slightly higher to the last couple 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 this 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, you know, Peter can talk to tours increasing. There's 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 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 investor day, the majority of those companies are commercial or near commercial companies which don't typically drive lab space 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 outside share of leasing.

Okay, thank you for the color on that. And I also wanted to ask about your strategy of retaining the Fenway office property and looking to lease as an office. 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?

Yeah, 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.

Okay. Thank you very much.

And our next question comes from Ronald Camden from Morgan Stanley. Please go ahead with your question.

Hey, 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, 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. Thanks.

Yeah, I mean there's still going to be a considerable amount of non-core assets that we're selling. And you've seen cap rates for those in the mid-sixes all the way up to the mid-nines. A lot has to do with what markets they're in, how much leasing or what the WALT is. The lower the WALT, 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 that we do think our top-end properties should have a five handle. And one or two of those types of properties could be involved in this execution. And then 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 how it's rebuilt after the quarter and if any sort of notable groups are in the pipeline or are not in the pipeline. That'd be helpful. Thanks.

Well, yeah, look, in practically all of our markets, the smaller spaces under 50,000 square feet are still what is moving. Most of the tours are in that range. There is, as Joel mentioned and Hie mentioned, there is a bit of a dearth of public biotech type of companies which are usually the middle of the barbell, 50 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 one 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.

Really helpful. Thanks so much.

Our next question comes from John Kim from Capital Markets. Please go ahead with your question.

Thank you. 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 that 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.

Yeah. Hey, John. Yeah, 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...

Yeah, we haven't 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...

And then can you comment on the dispositions you've completed year-to-date and what you've planned for the year in terms of 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.

Yeah, sure. 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 the biggest obviously the biggest pot or portion was the non-stabilized properties which is going to attract a certain type of buyer. Maybe I'll hand it over to Peter to kind of get a little bit more.

Oh sure. Yeah. So, as we look forward to 2026, we've got just under $200 million of stuff that we're 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 it's probably closer to third quarter as a kind of a blended average for the closings for 2026.

Yeah. So on our guidance page we did indicate that we've got about $180 million under contract or in negotiations that we expect to close in the near term. That's essentially three 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 years, taking down about 12 to 15% of our inventory. An investment fund is someone who's buying it to hold long-term and is usually private capital. The other two 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 one 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 billion midpoint this year though as Mark 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. 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.

Thank you. And our next question comes from Vicram Maholra from Mizuo. Please go ahead with your question.

Morning. I just wanted to clarify kind of the earnings trajectory through the year. With the vacancies or the moveouts, you mentioned some of the fees, etc., onetime items in 4Q25. I'm just wondering sort of the cadence that you showed at investor day trending down to that 140 to 160. Is that cadence still intact?

Yeah. Hi Vicram. 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 $140 to $160 range still holds.

Okay, great. And then I guess maybe Joel or Hie, from a broader perspective, I understand 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 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 then leasing down the pike. So maybe you can update us on any thoughts around the FDA and like early-stage VC funding. Thanks.

Sure. So maybe Vicram, 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 a fifth 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 tend to be more capital conservative, more commercial, near commercial, and without that next bolus of new companies that are IPOing that tend to be earlier stage, they still seem to be on the back burner right now. At JP Morgan, there was a lot of 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 12 to 18 months.

Okay, great. And then can I just clarify, 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 incentive packages, TIs, free rents to achieve that leasing? And I ask just because there have been a couple of leases, you know, in say South San Francisco where we've heard like very big TI numbers. So I'm just wondering if you give us a bit more granular color on the TI and free rents. Thanks.

Yeah, I mean, tenant improvements haven't changed. They're still elevated for anything that's from shell. It's got to really be, it's either you get an allowance to build the whole thing out or you have to spec build it. So on renewals and releasing, 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 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. If 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 some cases growing, and we just got to get the net effectives to improve, but that'll take a decrease in supply over time in order to start seeing that.

Our next question comes from Jim Camt from Evercore. Please go ahead with your question.

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

Yeah, 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 the 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 farther and fewer between than it has been in years past.

That's very great color. And then one quick clarification, Peter, you also I think said that it's possible you might see a five handle on some of the core asset 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 think about NAV implications. Sale versus JV. Thank you.

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

Great. Thank you all.

Our next question comes from Ray Jeang from JP Morgan. Please go ahead with your question.

Hi, thank you for taking my question. My first one is on the capital allocation side. Seems like you guys did above midpoint of your guidance on dispo this year. And you guys, I think Mark mentioned buyback is still not on the table at this point, but with the excess cash, is the thinking that the priority is on a debt side or like how should we think about that and when would buyback be on the table with the excess cash?

Yeah. Hi 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 we'll 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. You guys disclose 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 will be appreciated. Thank you.

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

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

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

Got it. Thank you so much.

And our next question comes from Rich Anderson from Cancer Fitzgerald. Please go ahead with your question.

Hey, thanks. And still good morning out there. The elephant in the room is I guess stocks up 20% this year. It's great, or 19%. And yet 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?

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

Thought Hie 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 percentage of total assets, goes from 20%ish to 15% this year. I'm assuming that that's 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 two, three years from now in your mind.

Yeah. Okay. Great. Thanks very much.

Our next question comes from Seth Bergie from city. Please go ahead with your question.

Thanks. It's Nick Joseph up here with Seth. I guess last month at the investor day you talked about a four to five year recovery for life science broadly and I recognize it's only been about two months, but you've been busy over those two months. So has anything changed that timeline either moving it up or delaying it from what you've seen?

Yeah. 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 four to five years for that to resolve. But Cambridge and Watertown, Seaport where we're heavily invested, those that's probably more like two to three 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, even that four to five year estimate could be reduced. But Joel's exactly on point. Four to five 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'll take two to three years for that to resolve.

That's very helpful. Thank you.

Our next question comes from Taio Okusa from Deutsche Bank. Please go ahead with your question.

Yes, good afternoon out there. In terms of the guidance there, you talked a little bit about about 6 million a quarter revenue headwinds from tenant windowns. Could you talk a little bit just about what's happening with that pool of tenants? Is it just they didn't get, the drug trials failed or they run out of cash or just kind of thematically what's happening with that group. Just kind of understand what that headwind is.

Yeah. The thing I would add is it's public and private biotech comprises the majority of it for the reasons that Joel and Hie have mentioned and some of it is kind of failure in their clinical milestones which is normal in a market that'll 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.

Gotcha. That's helpful. And if I may ask one more, the four development assets that they're 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?

Thank you very much.

Our next question comes from Michael Carroll from RBC Capital Markets. Please go ahead with your question.

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

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 one 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 one place to another but new tenants actually coming into our portfolio which we really love to see.

This is Hie. I do have that list in front of me and so just to say, it was 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 that vacant space across the board, we think that diversity across the regions is healthy.

That's and that's good. Is there any common themes on why those tenants were willing to leave space? I guess today the fourth quarter.

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

Okay great that's helpful. Then just one last one for me on 401 Park and I think I caught this earlier in the call. I just wanted to confirm and 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 and you didn't need, you decided, 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?

Okay, great. Thank you. I appreciate it.

And our final question today comes from Mason Gil from Bear. Please go ahead with your question.

Hi everyone, thanks for the time. You had previously talked about San Carlos, San Bruno, Seattle, and Campus Point as mega campuses with large shadow pipelines 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 any of these over the next few quarters?

Yeah. The future shadow pipeline.

Great. That's it for me.

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.

And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining.