Alexandria Real Estate Equities - Earnings Call - Q1 2025

Executive Summary

• Q1 2025: Revenues $758.2M, net loss per diluted share $(0.07), and FFO per share – diluted, as adjusted $2.30; occupancy fell to 91.7% on 768K RSF known expirations, while leasing stayed solid at 1.03M RSF with 18.5% rent spreads (7.5% cash).
• Guidance cut: 2025 FFO per share – as adjusted lowered by $0.07 at the midpoint to $9.26; year-end occupancy and same-property NOI expectations trimmed; capitalized interest down $20M with a $20M offset to interest expense.
• Balance sheet remains strong: liquidity $5.3B, 12.2 years weighted-average remaining debt term, only 13% of total debt matures through 2027; net debt and preferred to Adjusted EBITDA 5.9x with a ≤5.2x 4Q25 target.
• Potential stock reaction catalysts: step-down in occupancy and guidance reduction vs. countervailing positives from leasing momentum, development NOI deliveries ($37M), and increased 2025 dispositions midpoint to $1.95B.

What Went Well and What Went Wrong

What Went Well

• Fifth consecutive quarter with >1M RSF leased; Q1 rent spreads +18.5% (7.5% cash), and 10-year weighted-average lease term; 89% of leasing came from existing tenants.
• Development/redevelopment execution: 309,494 RSF placed into service (100% leased) delivering incremental annual NOI of $37M; Harriet Tubman Way (285,346 RSF) stabilized yields 7.5% initial (6.2% cash).
• Cost discipline: Q1 G&A $30.7M (down 35% Y/Y); trailing-12-month G&A 6.9% of NOI (lowest in a decade); 2025 G&A guidance reduced by $17M to reflect additional savings.

Selected quotes:

• “Tariffs will not create material dilution to our current pipeline projects.” – Peter Moglia (CEO/CIO).
• “Leasing volume continues to be solid… fifth consecutive quarter over 1 million square feet.” – Marc Binda (CFO).
• “We updated… 2025 guidance… to reflect an additional $17 million of cost savings.” – Marc Binda.

What Went Wrong

• Occupancy dropped to 91.7% (from 94.6% at 12/31/24) on known expirations of 768,080 RSF across submarkets; same-property NOI change was (3.1)% GAAP, +5.1% cash; excluding expirations, same-property NOI would have been ~0.1% GAAP and +9.0% cash.
• 2025 guidance trimmed: FFO as adjusted midpoint cut by $0.07; year-end occupancy target reduced by 70 bps; straight-line rent down $15M; capitalized interest down $20M (and interest expense up $20M).
• Investment and impairment headwinds: Q1 investment loss $50.0M (including $68.1M unrealized losses); real estate impairment $32.2M; non-real estate impairment $11.2M.

Transcript

Operator (participant)

Good day and welcome to the Alexandria Real Estate Equities First Quarter 2025 conference call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the * key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press *, then one on your telephone keypad. To withdraw your question, please press *, then two. Please note this event is being recorded. I would now like to turn the conference over to Paula Schwartz. Please go ahead.

Paula Schwartz (Head of Investor Relations)

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

Joel Marcus (Executive Chairman and Founder)

Thank you, Paula, and welcome everybody to our first quarter call. With me today are Hallie, Peter, and Mark. Let me begin by a quote from Robert Browning, who once said, "Great things are made of little things." Needless to say, our profound thank you to the entire Alexandria family team. It is the little things each of us do each and every day that create the great things Alexandria is doing day in, day out. We are a unique, one-of-a-kind, mission-driven company. Also, I want to mention our continued thoughts, prayers, and assistance go to many of our team members impacted by the LA wildfires in January of 2025, a really shocking start to this year.

I want to mention, I think, something that we probably do not say enough about, and that is Alexandria has been and will continue to be one of the most consequential REITs in the sector's history. We have pioneered the life science real estate sector. We are the first and only pure-play life science REIT, and we have invented the complex principle of clustering for the life science industry. We own and operate the top quality portfolio in life science real estate, almost 40 million rentable sq ft, with 25-plus mega campus ecosystems in AAA locations with quality, high-quality, top-quality assets. Now 75% of our annual rental revenues are generated by the Mega Campus platform, which is actually a cluster in itself within the broader ecosystem cluster.

Alexandria is the brand of choice to the life science sector and has built brand loyalty with our sector-leading client base and has accomplished that with our deep knowledge of our client base, the medicines, cures, therapies, and technology that continue to save and improve human life. Innovation is speeding to patients. Alexandria has scale, access to capital, low leverage, and the best-in-class credit rating. Alexandria is best positioned to continue to reinforce the bedrock of the biotech sector, which actually will celebrate its 50th anniversary next year on the founding of Genentech. This sector is the crown jewel in the broader biomedical sector, life science industry of not only this country, but the world's best. The underlying science and technology has never been as advanced as it is today or has ever been held as much promise as it does today.

Alexandria's balance sheet is in the top 10% of all REIT credit ratings and never has been as strong. Alexandria has the longest weighted average remaining debt term among all S&P 500 REITs at two times the average. Alexandria is one of the strongest and safest dividends in the REIT sector with a very low payout ratio. Alexandria's world-class development expertise, coupled with our best-in-class industry leasing capabilities, have enabled our near-term development pipeline for 2025 and 2026 to report 75% lease or negotiating. Alexandria has an industry-leading client base of over 750 tenants, 89% of which were the source of our first quarter leasing, which came from this cherished tenant base. Our average lease duration's 9.6 years, almost 10 years from our top 20 tenants and over seven and a half years from all of our tenants.

Proudly, in the first quarter, we collected 99% of our tenant rents and receivables. Moving to the macro issues, which have garnered a huge amount of attention, let me list them and give our take on them. Immigration, very good progress to date. Deregulation, similarly, very good progress to date. Tax and budget, based on meetings with key insiders in the Senate and the House recently, I have been told that July 4th is the most likely date for this big bill to emerge. On the international side, tariffs and wars overseas have created chaos and a key focal point for many folks, both domestic and foreign. The Fed and interest rates, the Fed is being stubborn in moving interest rates down when the impact would be very, very helpful to Main Street. Center for Medicare Services, Dr.

Oz has recently taken over that, and based on insider conversations that we've had, CMS is stable. The NIH, that agency, which is now run by Dr. Bhattacharya, is going to see and is incurring restructuring based on a very inefficient structure of many different institutions, several dozen institutions, which the head of those institutions actually have budget and command and control authority, not the director of the NIH. This has led to a substantial decentralization of control and certainly got a bit out of control during COVID and funding some of the experiments in the Wuhan lab through a third party. My guess is the private sector will pick up some slack in some of the applied research, and the NIH, under the new leadership, hopefully will emerge leaner, stronger, and focused on its mission with an organizational charge, which will make good sense.

On the FDA, the comp, which is the crown jewel regulatory agency, both for the U.S., and the world, and the bedrock of our best-in-class biomedical industry. We've seen a loss of some quality senior people, and some have we've seen returning. Most staff are in place, and drug reviews are moving forward. On a personal basis, we have a company that we're deeply involved with that just got review comments this past week who has an industry partner and seeing relatively normality at that level. Dr. McCary, who now heads the FDA, is going to see to it that great science and regulatory skills continue and focused on their mission. Life science industry is delivering innovative products. The demand for innovation is strong. Drug approvals are moving forward. June will be a big month for approvals.

There's four big ones coming up, including RSV, hereditary angioedema, COPD, and a rare skin disorder. That may be a bellwether for the FDA's continued urgency and vitality in approving drugs. When it comes to the FDA, three things could make a huge difference. One is to curb the burdensome regulations and accelerate development, meaning safety has become so overwhelmingly important that they have, in some cases, lost sight of approving drugs where there are no other choices and choosing a relevant population that may be too large. That could make a big difference if they could improve that. Also, on the manufacturing and medical resilience side, things can be done to improve on that level. M&A is ongoing in the industry, and that's been a positive.

When it comes to the 15% institutional indirect cost limitation, which was under executive order, that's under judicial stay at the moment. It's causing lots of concerns for institutions. Congress may soften the impact by legislation, but the variance of indirect costs among institutions is huge, and a lot of inefficiencies remain. Our history at Alexandria demonstrates that in very tough times like these, the dot-com bubble burst and the great financial crisis, we've emerged better and stronger. Our fortress balance sheet emerged over the last decade out of the lessons of the GFC. And we see this as a time for important strengthening of all of our levers to continue to manage and grow the company. Out of the last two severe market corrections came two of our most important clients, Alnylam in 2003 and Moderna in 2011.

Remember, the biggest and most consequential investments and ultimately gains are made when investors and operators do the right thing at the worst time. These are perceived by many people as the worst of times. Finally, I just want to say a couple of comments about Alexandria brand is about trust. Our brand is more than a logo on a sign. It is a shorthand for consistency, reliability, and expectations we set every time we deliver space, mission-critical space that performs, endures, and elevates the people and science who use it. With that, let me turn it over to Hallie Kuhn.

Hallie Kuhn (Senior VP)

Thank you, Joel. Good afternoon, everyone. This is Hallie Kuhn, SVP of Life Science and Capital Markets. Amid choppy macroeconomic conditions, the fundamental thesis driving the life science industry and Alexandria remains firmly in place. Three key points. First and foremost is that the foundation of this industry is massive unmet medical need. Nine out of ten diseases have no approved therapies, and chronic conditions impact 129 million people in the U.S. That's nearly 40% of Americans living with diseases like hypertension and heart disease and driving more than $4.5 trillion in annual healthcare costs. Second, innovation. The life science industry is fueled by new discoveries, and the United States and Alexandria have the best substrate in the world to continue to drive new discoveries and development well into the future.

U.S. Headquartered companies account for 55% of global biopharmaceutical R&D investment and six out of every ten FDA-approved therapies. Third, biotechnology is critical to maintaining a safe and secure nation, and we strongly support the recent slate of biopharma announcements committing billions of dollars to manufacturing in the United States. As emphasized by the bipartisan National Security Commission on Emerging Biotechnology report published earlier this month, biotechnology is key for the U.S., to remain dominant and secure future economic growth in a new era of global competition. Now, let us turn to Alexandria's diverse, 750-strong tenant base. The diversity of our tenant base is important as each of the segments draw on multifaceted sources of funding, de-risking the possibility of a singular funding shock. Our tenant base is also a critical embedded source of demand, with 89% of leasing originating from our existing tenants this quarter.

Our tenant base remains resilient. 51% of our tenant base is investment-grade or large cap, as is 87% of our top 20 tenants. 17 of the top 20 multinational pharmaceutical companies and four of the largest tech companies in the world are Alexandria tenants. Pivoting to 1Q25 specifically, we are sharing for the first time on this call quarterly leasing by RSF across our life science tenant segments to illustrate how the diversity of our tenant base contributed to 1Q25's solid leasing activity. First, biomedical institutions accounted for 10% of life science leasing by RSF, represented by six different private and public institutions. Across this segment, our tenants have over seven and a half years of average remaining lease term, and approximately 80% are investment-grade. Next, private biotech, with 12% of life science leasing. Venture funding remains steady and was deployed at a similar rate to 2023 and 2024.

Capturing strong, well-capitalized private biotech tenants remains a core focus as these companies form the next generation of demand and the next wave of ingenuity. Moving to multinational pharma at 13% this quarter. As pharma requirements tend to be larger and take a longer time to mature, this number can vary meaningfully from quarter to quarter. Importantly, we continue to see requirements across multiple markets. Public biotech had a strong quarter at 27% of life science leasing, led by our 400 Tech Square lease with Intellia, a leading gene therapy company developing the next generation of treatments for rare disease. Public biotech continues to be a story of haves and have-nots, and our mega campuses continue to attract the haves as the Intellia lease and 4Q's lease expansion with VacSite in San Carlos demonstrate.

Last is life science product, service, and devices at 38%, with a significant direct lease to a commercial contract research organization in Research Triangle. Over time, this segment may see increasing tailwinds in the U.S., as companies move to onshore manufacturing and other capabilities due to recently announced tariffs. Altogether, we continue to monitor the impact of regulatory and economic conditions closely and remain cautiously optimistic with respect to positive announcements, including onshoring of biomanufacturing, a newly proposed FDA approval pathway for rare disease, steady venture funding, and breakthroughs in new potential medicines, such as tenant Eli Lilly's recently announced clinical data on a new type of weight loss medicine that would come in a pill. In the 30 years since Alexandria's founding, the life science industry and our company have shown tremendous resilience and traversed multiple economic cycles.

Some of the strongest biotech companies have been founded during times like this, as Joel mentioned. Our focus remains on capturing and retaining the strongest tenants and deepening relationships with our current tenants to continue to position the portfolio for future growth. With that, I will turn the call over to Peter.

Peter (Analyst)

Thank you, Hallie. The life science industry is a national treasure and critical to a stronger, safer, and healthier country. High interest rates and government disruption are not tempering and will not temper the demand for a better quality of life. The life science industry will always be here to meet that demand. Alexandria was created to enable it, and we will always be here to support it. I'm going to discuss our development pipeline, inclusive of the potential impact of tariffs, leasing and supply, and update you on the progress of our value harvesting asset recycling program. In the first quarter, we delivered approximately 309,500 sq ft of 100% leased Class A-plus laboratory space into our high barrier to entry submarkets, which will contribute approximately $37 million in annual incremental net operating income.

An additional 1.6 million sq ft, currently 75% leased or subject to a signed letter of intent, is expected to add another $171 million in annual NOI by the end of 2026. The initial weighted average stabilized yield for this quarter's delivery was 6.6%, driven by the solid stabilized yield of 7.5% from our key 285,000 sq ft delivery at 230 Harriet Tubman Way in Millbrae, which is located in the San Francisco Bay Market. This high-quality project with adjacent access to both Caltrain and BART is fully leased to Icon Therapeutics, a highly disruptive company at the intersection of science and technology founded by prolific drug hunter Roger Perlmutter, who has been a strategic Alexandria relationship for decades. Roger is a highly accomplished industry and academic leader who has directed foundational research at Amgen and Merck and served as a professor at the University of Washington and Caltech.

ICON, under Roger's leadership, is integrating the disciplines of data science, engineering, chemistry, and biology to discover the next generation of drug candidates. They are working with super high-resolution microscopes, living cells, algorithms, and robotics so they can observe therapeutically relevant biology in a way no one has before. Roger knew he needed robust building infrastructure coupled with world-class operational excellence to house ICON and wanted Alexandria to develop it in closely coordinated fashion. Turning to the impact of tariffs on our active development and redevelopment pipeline. Spoiler alert,they are not expected to have a material influence on our yields. At the end of the first quarter, we had approximately $2.4 billion of remaining cost to complete, of which $1.3 billion is not subject to a fixed-price contract as of the end of the quarter.

We estimate that 30%-40% of those costs are for construction materials such as steel, drywall, and HVAC equipment. Assuming 100% of those materials were subject to tariffs, we estimate that for every 10% tariff on such materials, our yields would decline by 2.5 to 3.5 basis points. Transitioning to leasing and supply. Alexandria's superior quality, location, scale, and sponsorship enabled the leasing of 1,030,553 sq ft in the first quarter at solid rental rate increases for renewed and released space of 18.5% and 7.5% on a cash basis. The weighted average lease term was very strong at 10.1 years. This is the fifth straight quarter where we've exceeded a million sq ft of leasing, and despite elevated concessions, net effective rents on releasing and renewal space remain positive.

We have a solid list of prospects for our development and redevelopment projects, but activity for this leasing segment, which is typically driven by expansion requirements, remains muted for the moment due to continuing conservatism from life science company management teams and boards. With respect to competitive supply, it peaked in 2024, and we expect far fewer additions in 2025 and 2026. In Greater Boston, we anticipate 900,000 sq ft to be delivered in 2025. Currently, it's 0% pre-leased, and we expect 2.4 million sq ft in 2026. That is 46% pre-leased. San Francisco has 1.1 million sq ft of competitive supply scheduled for 2025, and it's currently 21% pre-leased and has no scheduled deliveries in 2026. San Diego expects 700,000 sq ft to be delivered in 2025, currently 80% pre-leased, and 400,000 sq ft to be delivered in 2026, which is 100% pre-leased.

Although availability in these markets ranges from 20% to 30%, a meaningful portion of it is what JLL termed zombie buildings in their Greater Boston overview from last quarter. Described as likely never to be leased as laboratory because the buildings are either a bad office conversion in an undesirable location and/or built by an inexperienced owner. Location, quality, and sponsorship matter to tenants for their mission-critical infrastructure, and that is why those numbers should be discounted. Much of what is in those numbers is going to be office, not laboratory inventory in the future. To conclude this section, we would like to report on a lease in Cambridge we feel reinforces that quality, location, scale, and sponsorship matter to tenants. During the first quarter, Alexandria Real Estate Equities secured a 580,000 sq ft, 15-year laboratory office lease with Biogen at their large-scale Volpe site in East Cambridge.

The reported rental rate was $136 triple net, with 3% annual increases and a tenant improvement allowance of $310 per sq ft, reminiscent of economics achieved at the peak of the cycle and illustrative of high-quality tenants' willingness to pay significant rents for high-quality buildings in great locations. I'll conclude with our value harvesting asset recycling program. The team continues to be strategic and opportunistic in identifying non-core asset dispositions, including land and partial interest sales, to self-fund our high-quality development and redevelopment pipeline that is transforming our asset base into predominantly mega campuses, a strategy that positions Alexandria over the long term to capture an even greater share of future demand from the secular growing life science industry.

As of the end of the first quarter, we've completed $176 million in dispositions and have another $434 million subject to non-refundable deposits or letters of intent, aggregating to nearly $610 million or approximately 31% of our updated dispositions guidance. Highlighting this quarter's value harvesting efforts is the disposition of 13.2 acres of land in the University Town Center submarket of San Diego to a residential developer, which provides $124 million of accretive equity and contributes to rightsizing our land bank. Here are the takeaways. We continue to deliver transformative projects and incremental NOI from our pipeline. Tariffs will not create material dilution to our current pipeline projects. We continue to execute solid leasing. Competitive supply deliveries are winding down, and we're making good progress on our asset harvesting and recycling program. With that, I'll pass the call over to Mac.

Marc Binda (CFO)

Thank you, Peter. This is Marc Binda, Chief Financial Officer. Hello and good afternoon to everyone on this call. First, congratulations to the entire Alexandria team for outstanding execution during the quarter and for delivering solid operating and financial results for the first quarter of 2025. Total revenues were up 4%, and adjusted EBITDA was up 5% for 1Q25 over 1Q24 after removing the impact of dispositions completed since the beginning of 2024. FFO per share diluted as adjusted, which was $2.30 for 1Q25. As expected, bottom-line results were impacted in the short term by the cost of our recently completed non-core asset sales to fund our development and redevelopment pipeline and our investment in the long-term ground lease at our Alexandria Technology Square campus, both of which we expect to provide significant long-term value for our tenants and our shareholders.

Our solid operating results for the quarter continue to be driven by our highly disciplined execution of our mega campus strategy, tremendous scale advantage, long-standing tenant relationships, and operational excellence by our team. 75% of our annual rental revenue comes from our collaborative mega campuses, and we expect to increase this steadily over time. We have high-quality cash flows with 51% of our annual rental revenue from investment-grade and publicly traded large-cap tenants. Collections remain very high at 99.9%, and adjusted EBITDA margins were strong at 71% for the quarter and represent the third highest quarterly margins reported since 2019. As Peter highlighted, our leasing volume continues to be solid with over 1 million sq ft leased during the quarter and represents the fifth consecutive quarter over a 1 million sq ft.

We continue to benefit from our tremendous scale, high-quality tenant roster, and brand loyalty, with 89% of our leasing activity in the quarter coming from our existing deep well of approximately 750 tenant relationships. We also continue to dominate in our core submarkets, getting more of the deals in many of our submarkets than the next several landlords combined. Rental rate growth for lease renewals and releasing of space for the quarter was a solid 18.5% and 7.5% on a cash basis, which is at or above the high end of our guidance ranges for the year. We continue to achieve very healthy lease terms on completed leases with 10 years on average for the quarter, which is above our historical 10-year average.

Tenant improvement and leasing commission costs on renewals and releasing of space for the quarter was elevated on a per square foot basis due to one large long-term lease executed at our Alexandria Technology Square mega Campus in Cambridge. Excluding this one lease, leasing costs on a gross basis and as a percentage of total rental of the lease term were in line with our five-year quarterly averages. Occupancy at the end of the quarter was at 91.7%, which was down 2.9% from the prior quarter. About two-thirds of the decline was related to the 768,000 sq ft of lease expirations that were known vacates spread across four submarkets.

We discussed these spaces at our investor day last year, and it includes both Moderna's move-out of Alexandria Technology Square to the new HQ R&D campus we developed for them at 325 Binney and our single-tenant building at 409 Illinois in Mission Bay, San Francisco. The remaining one-third represents several smaller spaces spread across multiple markets, of which the two largest spaces in that bucket have been re-leased and are expected to be delivered later in 2025. Overall, for the full 2.9% reduction in occupancy, we're making very good progress on resolving these with about a quarter of this amount leased, with a future delivery date around the end of this year. Based upon our current outlook, we reduced the midpoint of guidance for our year-end 2025 occupancy by 70 basis points from 92.4% to 91.7%, driven by lower-than-anticipated releasing and lease-up of space.

Same property NOI was down 3.1% and up 5.1% on a cash basis for the quarter. As we have highlighted over the last few earnings calls, our 1Q25 same property results were impacted by the key 1Q25 lease expirations, which became vacant in 1Q25, aggregating 768,000 sq ft spread across four submarkets. Excluding these properties, our same property results would have been flat and up 9% on a cash basis. Also, important to note that these spaces expired at the end of January on average, so we would expect an additional decline to the quarterly results next quarter as the impact becomes fully included. The strong cash same property performance for the quarter included the impact of some free rent in 1Q24 from development and redevelopment projects completed in 2023, and we expect that benefit to go away over the next quarter or two.

Our outlook for full year 2025 same property growth has been reduced by 70 basis points and 20 basis points on a cash basis to reflect the impact on occupancy over the balance of the year. Turning next to general and administrative expenses. At our investor day, we outlined a plan to achieve significant savings in G&A costs through various corporate cost savings initiatives in 2025. G&A costs over the last two quarters have averaged around $32 million per quarter, which represents a 30% savings over the preceding three quarters. In addition, our trailing 12 months G&A cost as a percentage of NOI was 6.9% for 1Q 2025, which is the best percentage in the last 10 years for Alexandria and is significantly better than the healthcare index average for last year, which was around 10%.

Given the great progress that we've shown over the last two quarters, and based upon our current outlook, we've updated the midpoint of our 2025 guidance range for G&A cost to reflect an additional $17 million of cost savings, which now represents an expected $49 million total savings in 2025 G&A compared to 2024. Our updated guidance also implies a run rate for G&A similar to the first quarter for the balance of the year. With projects under construction and expected to generate significant NOI over the next few years, coupled with our future pipeline projects undergoing important pre-construction activities, adding value and focused on reducing the time from lease execution to delivery, we are required to capitalize a significant portion of our gross interest cost.

Capitalized interest as a percentage of gross interest cost was 69 or 61% for 1Q25 and has declined significantly compared to the two-year average of 74% for 2024 and 2023, driven by the completion of our in-process development and redevelopment projects. Our outlook for capitalized interest for the full year 2025 was reduced by $20 million and primarily relates to future development projects, which are expected to cease capitalization in the second half of this year. In addition, there are a few active construction projects which may no longer qualify for capitalization of interest as construction work reaches critical milestones and may subsequently resume in the future when we advance final construction for delivery of space to prospective tenants. In total, the change to capitalized interest represents approximately $1.4 billion of basis for approximately four months.

Turning next to share buybacks, we updated our sources and uses guidance for acquisitions and other opportunistic uses of capital, including share buybacks to $250 million at the midpoint to reflect the $208 million purchases completed during the first quarter, with the potential to do more in the future under the right market conditions. As of today, we have approximately $242 million remaining under the plan authorized by the Board of Directors. One of the important areas to highlight in this quarter is that we have spent many disciplined years shaping and refining our strong balance sheet to provide flexibility in challenging macroeconomic times like these. Our balance sheet continues to stand out amongst all publicly traded U.S. REITs as our corporate credit ratings rank in the top 10% of all publicly traded U.S. REITs. Indeed, the balance sheet is in great shape.

We're targeting year-end 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 of $5.3 billion, and we have the longest debt maturity profile among all S&P 500 REITs, with the average remaining debt term of 12.2 years and very low debt maturities over the next three years. Transitioning next to funding, we're pleased with the execution of our bond deal in February for $550 million of 10-year unsecured bonds at an attractive pricing of 5.5%. We continue to focus on our disciplined funding strategy to recycle capital from dispositions and to minimize the issuance of common stock. Since 2019, we've completed more than $9.6 billion of dispositions and partial interest sales.

As Peter highlighted, we've made good progress for 2025 with $609 million completed or in process, which represents 31% of the midpoint of our guidance for dispositions and sales of partial interest of $1.95 billion. Land sales and user sales continue to be an important component of the deals completed and in process. In addition to dispositions, we also expect to fund a meaningful amount of our equity needs in 2025 with retained cash flows from operating activities after dividends of $475 million at the midpoint of our guidance for 2025. Our high-quality cash flows continue to support our common stock dividends with a conservative FFO payout ratio of 57% for 1Q25 and an attractive dividend yield of 5.7% as of the end of 1Q. Over the last five years, realized gains from venture investments included in the FFO per share as adjusted have averaged approximately $29 million per quarter.

Our outlook for 2025 remains unchanged with a range of $100 million-$130 million, which implies about $29 million per quarter at the midpoint. Turning to guidance, the details of our guidance are included on page four of our supplemental package. Our guidance for FFO per share diluted as adjusted was reduced by $0.07 to a midpoint of $9.26, which puts the revised midpoint at the low end of our initial range for FFO per share results and represents a change of 75 basis points from our initial guidance. Even with this change, our estimate for five-year growth in FFO per share diluted as adjusted through 2025 is 27%, which puts us near the top end of the range among the peers in the FTSE Nareit Equity Healthcare REIT Index. Now I'll turn it over to Joel.

Joel Marcus (Executive Chairman and Founder)

Thank you. Operator, can we go to questions, please? Certainly.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press , then One on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press *, then Two. At this time, we will pause momentarily to assemble our roster. The first question comes from Farrell Granath with Bank of America. Please go ahead.

Farrell Granath (Analyst)

Hi, good afternoon. Thank you for taking my question. I was wondering if you could walk us through with the new guidance. Does this encompass a worst-case scenario, especially in terms of what could happen in the biotech market, specifically with capital raising? Or within the range, is there a worst-case and best-case scenario baked in?

Joel Marcus (Executive Chairman and Founder)

Well, before I direct that question to Mark, I'm not sure I fully understand it. What do you mean by worst-case scenario and what in guidance are you looking to ask the question about?

Farrell Granath (Analyst)

Specifically, when it comes to leasing going forward, when it comes to the demand, and specifically if there's continued cuts when it comes to NIH funding or even further reductions.

Joel Marcus (Executive Chairman and Founder)

Just overall leasing demand. Yes. Yes. Okay, Mark.

Marc Binda (CFO)

Yeah, look, I think the estimate we put out there is our best estimate with the facts that we know today. It's not the best case, and it's not the worst case. It's really our estimate with the facts that we know today.

Farrell Granath (Analyst)

Okay, thank you.

I guess also you had made a comment about the quarterly leasing coming from the private biotech, that venture funding is coming in around the same rate of 2023 and 2024. Just given kind of the macro and knowing that a lot of these companies require a lot of capital, do you think that that pacing of leasing within private biotech is sustainable going forward for 2025?

Joel Marcus (Executive Chairman and Founder)

Well, yes, I mean, I'll ask Kelly to comment, but I think you have to think about venture who have pretty full, have full funding in many of the big funds that have raised large amounts of money over the last year or two, and these funds are generally long-term funds.

You find today venture folks deploying capital in a, I think, a more judicious fashion than certainly they did during the boom or rocket years of COVID and looking to put their capital to companies that have significant near-term value inflection milestones. I think that's where things are going much more intensively. Halli, you could comment.

Hallie Kuhn (Senior VP)

Sure, thanks for the question. Yes, as I mentioned, the quarterly venture capital deployment was similar to what we saw in 2023 and 2024. Venture funds still sit on a significant amount of dry capital, so they do have funding to deploy. Yeah, I think as we've talked about for multiple quarters, both venture funds and companies continue to be conservative in how they make space decisions. I don't think this quarter has changed that. They were already in that mindset, especially last year.

We continue to see really strong companies with great executive management teams get funding. I think there's just a, I would say, a healthy, right, rationalism towards where the dollars are going.

Farrell Granath (Analyst)

Okay, thank you so much.

Joel Marcus (Executive Chairman and Founder)

Thank you.

Operator (participant)

Our next question comes from Seth Berji with Citi. Please go ahead.

Nick Joseph (Analyst)

Thanks. It's Nick Joseph here with Seth. Joel, I guess in your prepared remarks, you talked about the history of Alexandria, and one of the comments you made is kind of sometimes doing the right thing at the worst time. I'm curious what that means for Alexandria now. Obviously, you've been through plenty of cycles. Where we stand today, what is the right thing, and when do you expect to see the payoff from it?

Joel Marcus (Executive Chairman and Founder)

Well,I think you can think about that in terms of where the industry is, both in its cycle. We're in the fifth year of a bear market with the biotech indices starting to move down, what, February of 2021. This is fifth year, which is a fairly long duration, although we've seen longer ones. I think the sentiment toward the industry, at least in the spoken and written world out there, is among the most negative that I've seen. The reality kind of belies that, as we talked about through the different agencies, what's going on, and the pace of innovation and new therapies being delivered to patients.

If you take a page out of the book that we saw in the .com bubble burst and the GFC, the aftermath, I mentioned we established a relationship with Alnylam in 2003, and today that company is now a big biotech occupying a huge amount of swath of real estate in Cambridge. And the same is true of Moderna in 2011. When they were founded, we established an early relationship and today have a sizable swath of real estate in Cambridge. The view is to align ourselves with the most innovative, most disruptive, most impactful companies that are likely to bring near-term therapies and other biomedical products to patients. I think rather than back away, we have to think about, and we are doing that, doubling down on what we consider to be great innovation.

At the same time, shaping, and we've been doing this now for a handful of years, shaping our asset base into a mega campus, which we consider to be a cluster within a cluster, which is the most attractive platform for any companies at any spectrum of the barbell. Next year, we deliver the R&D headquarters, West Coast headquarters of Bristol Myers Squibb and our Campus Point. So those are the things we're trying to do. If, as we see, time goes on, there are opportunities for entering new markets, and we've already been incubating a plan on that or doing some interesting acquisition opportunities that we see at the right time, we won't hesitate to do those as we continue to sell off non-core assets and enhance our mega campus ARR percentage. Sorry for the long-winded answer.

Nick Joseph (Analyst)

No, that was helpful. Thanks.

Just, I guess, a question on capitalized interest. You mentioned it coming down from 75% to 61%. What's the potential this year in 2025 for more of an adjustment of capitalized versus expense interest, or do you think this captures the potential for at least adjustment this year?

Marc Binda (CFO)

Yeah. Hi, Nick. Look, I think the adjustment that we've made is our best estimate at this point. Obviously, next year, we can comment later at Investor Day, but at least for the duration of this year, I think we've got pretty good visibility. That's our best guess at this point.

Operator (participant)

Our next question comes from Anthony Paolone with JPMorgan. Please go ahead. Thank you.

Anthony Paolone (Analyst)

Joel, last quarter, you talked about, I think, a couple of pockets of demand maybe starting to emerge, and you were pretty optimistic about some messaging you might have on the first quarter call based on what you were seeing then. I mean, do you feel like that emerged, or did things just change quite a bit in the last few months?

Joel Marcus (Executive Chairman and Founder)

I would say that they haven't changed. Stay tuned. I think we continue to see, and Hallie did a good job of describing the multifaceted demand that we're seeing given the more muted environment we're in and the pie chart we put out there this time. I think over the coming few weeks or month or two, I think we'll have some things that will be viewed as very positive.

It's just time; it just takes time to do that, but nothing is changing for the negative.

Anthony Paolone (Analyst)

Okay. Then on the disposition side, I mean, you got $400 and some odd million teed up, and then a decent amount to go over the balance of the year. How do you feel capital markets are holding up? How do you get comfortable that the stuff that's in process will make it through and close? I guess, what's the buyer pool look like? Because you mentioned a lot of land, and if it doesn't work for you all, I guess how it might work for someone else.

Joel Marcus (Executive Chairman and Founder)

Yeah. Let me frame it, and then I'll ask Peter to comment.

Remember, too, that if you look at quite a number of our sales over the past 12, 15, 18 months, we've tried to pivot and redirect some of the land holdings because we'd like to reduce some of those. Peter cited one of them where we sold a great piece of land in University Town Center to Resi Developers. There's a pretty healthy demand out there for land that we hold in really great locations for highest and best use residential. I think you'll continue to see that, and that buyer pool has only expanded, not shrunk. I think there are still good opportunities, and we've done some of it to sell to owner users. We do feel that given good quality non-core workhorse assets, as Peter has kind of coined the term, there still is a buyer pool for that.

Peter, do you want to maybe just give Tony some thoughts on that?

Peter (Analyst)

Yeah. I'll echo Joel's remarks. I really think it's a big positive that we've been able to raise funds through reducing our land bank where we feel like they're not going to contribute to our mega campus model. We've also been able to sell assets to users. It's taking it out of a potential competitor's hands. That's been a significant amount of the sales this year. As we look towards what we're going to complete for the rest of the year, there's still more land that we're teeing up. The buyer pool there is really residential developers. I've personally worked on a couple of deals myself. There's a voracious appetite for that. They have capital, and they've got a will to do the entitlements and to get it done.

We think that's a huge positive. At the end of the day, we'll right-size our land bank through non-competitive opportunities for the future as those things go residential. As I look at what we are looking to sell to investors, what we're working on specifically right now, the audience is private equity. Pure private equity that dabbles in the real estate space by owning assets directly. There is private equity that is teamed up with some life science operators that look at some of our non-core assets that need repositioning and are willing to take those on and put in the capital to do so. I recently hosted a sovereign in our offices here. They reiterated to me that they have looked at a lot of different opportunities in the life science space with different people.

They really want to focus their concentration on acquiring life science assets through us. They are certainly a customer. They are really excited if we can come back to them with some higher quality, low cap rate assets because that is the type of asset that that particular buyer likes. We know we have got a customer for that when we are ready to do that. We have also been approached by industrial users for some of our properties. That is a positive. Overall, if you consider the uncertainty in the market and the lack of capital flows at the time being, I think we are doing really well with our activity.

Joel Marcus (Executive Chairman and Founder)

Yes. Tony, I would say one other thing, and Peter, thanks for that really good explanation. Something else that we have seen that may give us an additional source of funding that we had not really planned on is we are being approached.

We've got over 25 mega campuses on a handful of those mega campuses by Resi operators to either ground lease or build on land, buy land, do any number of things, joint venture, critical sites in our mega campuses that would both continue to make it a work-live play location. One of our mega campuses is almost 3 million sq ft in the aggregate. They are almost like little mini cities. I think that's going to give us a really strong boost for both the vibrancy of the mega campus and also an additional funding source.

Anthony Paolone (Analyst)

Okay. Thanks for all that.

Joel Marcus (Executive Chairman and Founder)

Yes. Thanks, Tony.

Operator (participant)

The next question comes from Richard Anderson with Wedbush. Please go ahead. Thanks. Good afternoon.

Richard Anderson (Analyst)

When you kind of reflect upon this nightmare of fundamental backdrop for the business, and you talked just then about right-sizing your land bank, do you think that the end game here in the aftermath of all this is to have development be a far lesser percentage of your asset base? If it's 20%-25% of your NAV today, maybe it's significantly less by design, but also because you're selling so much land at the current time. If you could just comment on a kind of longer-term view of your development exposure.

Joel Marcus (Executive Chairman and Founder)

Well, part of that depends on location, Rich. I think locations that are either on or adjacent to the mega campus, we really don't want to part with those assets.

We might partner those in some way or not, but those have been accumulated over a long period of time, and we consider to be AAA locations in the best place on the planet for biotech and life science. It is really the other locations. A good example is the land we sold this past quarter, the first quarter in University Town Center. It sat astride and was really part of a big shopping center. It was not integrated with any mega campus we own, but it was a AAA location, great access to transit, great access to retail and resi. That would be in a more boom-bull market. That would be a great life science site or even advanced technologies because Qualcomm and a number of the folks are pretty active in the San Diego area. Given the current, and I would not call it a nightmare scenario.

I think it's a, there's a lot of good things happening, but there is dislocation, and there are giant misperceptions about what actually is going on.But in a boom market, you might hold that for a period of time to build. In this kind of a market, we thought it's better to monetize that, which has, as Peter said, a creative use of proceeds rather than hold. I think that's how we'll kind of analyze it. I wouldn't use the term of what people are talking about, Doge. We're going to use a scalpel, not a sledgehammer. I think that's how we'll approach it. We do think there are significant opportunities to do what we're doing in other locations. That's on our target list over time as well. Okay.

Richard Anderson (Analyst)

And just lastly, on the disposition program, what is the percentage of seller financing that you'd expect from that? Is that sort of ramping up or declining as you go through the process this year? Thanks.

Joel Marcus (Executive Chairman and Founder)

Yeah. Peter? Peter?

Peter (Analyst)

Yes. Last year, there was definitely a few of those that occurred. Right now, we do not have anything in process for investor sales that are not land or users, but that could change as we go throughout the year. We are open to it if the terms are right, but I am not sure it is going to be a requirement to execute.

Richard Anderson (Analyst)

Okay. Fair enough.

Joel Marcus (Executive Chairman and Founder)

Thanks very much. Yep. Thanks, Richard.

Operator (participant)

The next question comes from Tayo Okusanya with Deutsche Bank. Please go ahead.

Tayo Okusanya (Analyst)

Yes. Good afternoon, everyone.

I'm wondering if you could share some comments just around the ag tech piece of your business and if there's anything unique happening in the Research Triangle.

Joel Marcus (Executive Chairman and Founder)

Yeah. That's a really good question. It's kind of strange that the amount of private capital, venture capital going into ag tech from the middle part of last decade to kind of the COVID period went up more than 5x. It may have been well in excess of that, but it was astoundingly large. There was kind of a precipitous drop in that once COVID hit, and it hasn't really recovered. So we still have a very active AgTech tenant base in Research Triangle. A number of companies have moved down there from the Boston area. There's a good talent base. There is venture available. The problem in AgTech these days is really, I think, twofold.

One is there are no exits for private capital. The SPAC market dried up, and we looked at that very carefully. There are really no IPO opportunities over the last handful of years. That has been a challenge. I think the bigger challenge is the handful of half a dozen incumbents that control the distribution, sales, marketing, that whole system. Whereas pharma and bio have a much broader palette of participants, the ag area has a few incumbents, and they just are so dominant, it is hard to get in and break through to commercialize a product. Those are the factors at work these days, but we're still active.

Hallie Kuhn (Senior VP)

Maybe just to jump in here on RT, not on the ag tech side, but on biomanufacturing.

Research Triangle has a long history of biomanufacturing and is really an epicenter for that type of talent, which is certainly of interest as pharma companies look to strategize around onshoring and biomanufacturing. I do think that the Research Triangle region is pretty well situated, right, for ongoing onshoring activities.

Tayo Okusanya (Analyst)

That's super helpful. If you could just indulge me for one more question. I want to go back to the next question on capitalized interest. I think in the earlier comments, there was a statement that one of the reasons why it's declining is there are certain future projects that may no longer qualify. I just wondered if you could just talk a little bit about that statement and exactly what that meant.

Marc Binda (CFO)

Yeah. Mark? Sure. Sure. Yeah.

What I was referring to there is we do have one or two projects that are under active construction, which may get to a point where, or one in particular, we expect to get to a point where there will not be much left to do absent fitting out the space for a tenant. We do expect in that particular situation, it is an asset in San Francisco that capitalization of interest would pause until we are ready to resume construction and finish out the space.

Tayo Okusanya (Analyst)

That was not in initial guidance. It is something that just kind of has been reassessed, which is why guidance was changed somewhat for that line item.

Marc Binda (CFO)

That was a much smaller portion of the adjustment to cap interest. Most of the adjustment of the $20 million that we changed guidance, call it 70% or so, was really on the future land bank.

That was the lion's share of it.

Tayo Okusanya (Analyst)

Got you. Thank you very much.

Joel Marcus (Executive Chairman and Founder)

You're welcome. Thank you.

Operator (participant)

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

Vikram Malhotra (Analyst)

Afternoon. Thanks for the question. I guess, Joel, based on just the comments around dispositions, you talked about a sovereign interested potentially in potentially some assets. I'm just wondering, your stock's trading at a 10 cap. There's a huge disconnect between the private markets where you're kind of saying life sciences is still trading. Would you consider sort of selling kind of $2 billion-$3 billion and doing a big buyback?

Joel Marcus (Executive Chairman and Founder)

Selling $2 billion or $3 billion of what?

Vikram Malhotra (Analyst)

Of assets, of properties.

Joel Marcus (Executive Chairman and Founder)

Well, it depends on what they are. I think the way we're thinking about it is a more measured and careful way to do it.

We're continuing to sell land parcels, which are very accretive to us and our reinvestment of those. We're continuing to sell workhorse, non-core assets. Those are important because those help us further enhance our focus on revenue from the mega campus environment. There may be over time owner-user sales. As Peter said, there may be some partial interest sales as well over time. We're heavily focused on the earlier ones I talked about. The guidance we gave for this year is our best judgment about doing that. Whether we go further into asset sales to fund any buybacks, I think that'll be determined as we go quarter to quarter through this year. Obviously, that's something we're watching carefully and closely.

Vikram Malhotra (Analyst)

Okay. Fair enough.

Just on the credit side, I mean, I guess in this environment where maybe VCs are a little more hesitant or maybe when publics are having maybe a little bit more difficulty raising, would you mind just giving us a sense of how you see the current watchlist? What's the exposure to privates and publics that are pre-revenue? It would be helpful to size that just given the environment.

Joel Marcus (Executive Chairman and Founder)

Yeah. Mark, do you want to maybe comment on that?

Marc Binda (CFO)

Yeah. Look, I would say we monitor each and every—well, I'll start with the private companies. We monitor those tenants very carefully. We generally get quarterly financial statements. We generally have a very good pulse on the funding needs of those companies and certainly try to get ahead of that.

The same is true on the public companies, but those are a lot easier to monitor because their information's public. Just one example of that, Vikram, was we did have a tenant in San Francisco end of 2023 that was in a large space, 100,000 sq ft. We had been working with that company for several months before they got into trouble. We were able to backfill that space completely without spending a bunch of money on TIs with another company to take that space. I think our strategy has always been and will continue to be extremely proactive to try to navigate those types of situations. Failures do happen. That's just a natural part of the business. I think we've got a uniquely talented team led by Hallie and others that really spend a lot of time meeting with the companies and doing really diligent underwriting.

Vikram Malhotra (Analyst)

Thank you.

Operator (participant)

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

Michael Carroll (Analyst)

Yes. Thanks. Mark, I wanted to circle back on your capitalization comments and, I guess, specific land parcels that will likely stop being capitalized. I guess, are these sites that were going through pre-development work and you're just pausing because you were thinking about going vertical previously and now you're not? That's the reason why you're stopped capitalizing those at the end of this year?

Marc Binda (CFO)

Yeah. That's right, Michael. We've got about, if you look at what we capitalized for the last quarter, it's about $4.1 billion of the future land bank, right? Those are across multiple sites. Some are in mega campuses, some are not. They're in various different phases of entitlement and design.

The basis that I mentioned that was turning off roughly $1.4 billion, most of that is part of that future land bank. It is really situations where we got to a point where we have done and added all the value that we felt like made sense at that point. We are really just pausing and deciding what to do next, whether that resumes in the future because we get encouraged that there is demand and that we could go forward or whether we sell or whether we continue to hold for another day. It will just depend.

Michael Carroll (Analyst)

Okay. Great. Thanks. I guess lastly, Joel, I want to circle back on your comments on the leasing trends. I know in the last quarter, you are pretty positive. I think you were talking to Tony and you were saying you are still positive on some of those transactions.

I guess, are those tenants just being slower on making those decisions right now? And that's kind of why we're a little bit farther off in talking about them. Are they just stopping making decisions or slowing down because of the uncertain macro environment?

Joel Marcus (Executive Chairman and Founder)

I think almost every today, Michael, almost every transaction other than maybe smaller transactions of some size, medium, and large are complex and inherently slower. In today's world, you've got oversight by third parties and boards and other people that their job is to be judicious in making sure that the company is making the best decision and minimizing its risk. Because remember, I guess, like Peter Drucker said, every decision is risky. It's a commitment of today's resources to an uncertain and unknown future. People are taking that very seriously. We're in a different business.

We're not in office space where somebody decides, "Well, okay, we don't need to move to a better place or we don't need to expand." If an R&D group, whether it be biotech, pharma, product, and services, needs space mission-critical for its business, it has to make a move and do it. That gives us confidence and comfort that at the end of the day, the process, there will be a good outcome. This is going to be a bumpy year until, as I said, until this tariff thing gets a little bit straightened out in the minds of the American public, until the budget and tax bill are done, hopefully maybe by summer, I think, and maybe the Fed gets a knock on the head and decides to move rates lower. I think that then opens up the possibility of a more normal business environment.

Until then, it's just much more cautious. I still have the same view.

Michael Carroll (Analyst)

Yeah. That makes sense. Just following up real quick, there's no example of these tenants stopping or canceling their expansion plans. It's just more of a pause is a better way to

Joel Marcus (Executive Chairman and Founder)

Well, but I think that I'm not sure you can— I was referring to several specific things that are underway. If you try to generalize it, every company is different. Every entity is different. They're going to make a decision based on how they see macro and micro in their own circumstance. Everyone is in just a different decision-making mode and situation. Sometimes boards or management teams are way more cautious. Other times, they're more realistic and business-like. It just kind of depends.

I don't want to generalize too broadly because every situation is so different.

Michael Carroll (Analyst)

Okay. Great. Thanks.

Joel Marcus (Executive Chairman and Founder)

Yes. Thank you.

Operator (participant)

The next question is from Dylan Burzinski with Green Street Advisors. Please go ahead.

Dylan Burzinski (Analyst)

Yes. Thanks for taking the question. I guess just sort of continuing with the theme of the last question, you guys mentioned that negative sentiment towards the industry is as negative as it's been. You guys talked about how expansion requirements are remaining muted for the time being due to that conservatism from company management teams and boards. I guess you kind of mentioned tariffs, still high rates being issues. I guess are there certain idiosyncratic things across the life science industry that you think is causing more of this conservatism, like some of the NIH funding cuts, just FDA uncertainty? You sort of view this environment as more broader U.S., macro-related?

Joel Marcus (Executive Chairman and Founder)

I think it's both. I think it depends on the investor. I think it's both. People are worried about macro for the half a dozen reasons I articulated in my comments. People are worried about the industry because they've never seen the NIH upended before. The FDA was kind of just always there and steady. Suddenly, you've got a head of HHS who's a little bit of a bull in a China shop. I do think what's very settling for those of us who are on the ground and doing this work day by day is that the heads of the agencies are really, really solid people. They're making really good decisions. We know that both from our own direct experience and from people inside. We are comfortable with that.

I mean, people like to try to characterize all this stuff going on as total chaos. I think the tariffs were total chaos. I do not think what's going on in the agencies now that they're being run directly by the folks heading it as opposed to HHS somehow or DOJ directing this or that decision. I think that's going to kind of fade in the past. Each will emerge. Although, as I said, I think CMS is in great shape. The FDA has got a little bit of repair work doing. I think they're doing that. The key reviewers are in place and working. I think the NIH is yet to be seen what's going to happen there. The investment in the Wuhan lab, which is related to COVID, destroyed a lot of the great reputation the NIH had had for decades and decades.

The organization of the NIH is pretty arcane. You've got, what, 27 plus or minus entities all headed by a different CEO, so to speak, who has budget authority and decision-making authority. They all have their own IT teams. It's almost like having 27 entities under one. I was on the board of the foundation for the NIH for more than a decade. I know a lot about the inside workings. There's a lot of reorganization that can be done. I think under the last administration, they also went away from best idea wins the grant. I don't think that's a good idea either. The NIH remains to be seen. We as a company have very little exposure to the NIH. We have a small handful of leases. They're fairly good duration. They're non-cancelable.

What happens to their grant-making capability and their extramural investment remains to be seen. We'll see. Private industry is going to have to pick some of that up as well. I don't know, Hallie, if there's anything else you want to mention about the NIH.

Hallie Kuhn (Senior VP)

Sure. I would just mention that historically, where the NIH focused on really large national projects that needed immense coordination, the economic output has just been incredible. The Human Genome Project cost about $3.8 billion between 1990 and 2003. They estimate that by 2010, the economic impact was nearly $800 billion, right? Whether the NIH looks different or is structured in a different way, the importance really is that there's funding going to innovation to ensure that we maintain our global leadership position.

Joel Marcus (Executive Chairman and Founder)

Yes.Remember one thing, and I don't mean to drag this on, but whatever anybody thinks of the president and the current administration, one thing is true. These people are not totally stupid. They are focused on preserving and protecting this industry, which is one of the few remaining crown jewel industries. When it comes to things like the tariffs, they're really trying to put tariffs on making a distinction between materials coming from friendly countries and unfriendly countries. What they want to do is bring supply lines back to the U.S., or to safer locations. I think that's going to benefit this industry greatly. People in Congress, bipartisan, whether it's this administration, the last administration, future administrations, they're going to want this industry to remain dominant and not allow China to overtake us, much like Japan did in the automobile industry.

The steel industry went by the wayside. I think people are looking forward to trying to protect this industry as best we can. It's a crown jewel.

Dylan Burzinski (Analyst)

Great. Appreciate those comments. Thank you.

Joel Marcus (Executive Chairman and Founder)

Yes.

Operator (participant)

The next question comes from Peter Abramowitz with Jefferies. Please go ahead.

Peter Abramowitz (Analyst)

Yes. Thank you for taking my question. Just wondering, as you have conversations internally, especially, I guess, as it relates to the change in the guidance, certainly, you've outperformed a lot of your markets in terms of occupancy loss. Just curious, your internal conversations, do you have a sense of where you think occupancy could bottom in the portfolio, the timeline for how that could happen, and then kind of what you would need to see to start to see an inflection?

Joel Marcus (Executive Chairman and Founder)

Yeah. Mark, you could talk about how you analyze occupancy guidance.

Marc Binda (CFO)

Yeah. We definitely look space by space.

I mean, I do think that we had a large amount of expirations that came proportionately in the first quarter here, Peter. I do think that that was a little unusual that it was that large in a particular quarter. Of course, we knew that we had a couple of big suites coming back to us that will require some time. The couple of projects in that 768,000, many of those, most of those will take some time to release. We are not expecting that at least that 768,000, that much of any of that will be delivered this year. It could be into 2026 before we see that stuff. Both could get released this year. I would hope that that would be the case, but delivery really not until next year.

Beyond that, the stuff that came back this quarter, as we said in the prepared comments, it was a lot of smaller spaces here and there. Some of those were released. They're just going to take some time to renovate and to deliver to the tenants.

Joel Marcus (Executive Chairman and Founder)

Yes. I'd say also we're seeing a phenomenon, a very different macro backdrop, but that we saw during the bull market run. Now we're in a bear market run. We have a number of spaces in different locations which are being eyed for alternative use, not lab. Peter's mentioned, and I think we've mentioned on this call, and it's certainly been prominent in the press.

If you look at Mission Bay, AI has, and OpenAI in particular, but AI in general has taken a lot of space in that market, in that sub-market, in a way that if you go back a year or two, you would not have guessed. There are a number of users and disciplines outside of lab that are looking at a bunch of our different spaces. You could see some of those, and I am not speaking about Mission Bay in particular, but more generally, you could see some of those spaces becoming occupied maybe quicker than we would have anticipated given alternative uses. We had some of that with Big Tech taking space in our laboratory developments, which we never imagined back a handful of years ago. We are seeing that kind of thing again starting to take hold.

I'd say stay tuned on that as well.

Peter Abramowitz (Analyst)

All right. I appreciate the time, Terry. Thanks for the time.

Joel Marcus (Executive Chairman and Founder)

Yep. Thank you.

Operator (participant)

Our next question is from James Kammert with Evercore ISI. Please go ahead.

James Kammert (Analyst)

Hey. Thank you, sir. I didn't make you stay on. Just to clarify, please, some of Mark's comments regarding the interest expense. Is that correct, Mark, that I interpret the $20 million plus or minus the revision for 2025 is for four months on $1.4 billion? Does that imply on annualized kind of $56 million-$60 million for 2026 of incremental expense?

Marc Binda (CFO)

Yeah. The numbers I rattled through, though, on average, about $1.4 billion for four months, that kind of gets you to that $20 million. That's spread across several projects.

Yeah, I mean, if the assumption was that we did not recommence on any of that for a year, the $20 million, you can do the math. That $20 million becomes three times that amount, right, to get to an annualized number. It is just difficult to predict what next year looks like, right? A lot of that land is very well located in mega campuses. Hard to predict what the world looks like come 2026 and whether we recommence work on those sites or whether they continue to be shut down.

James Kammert (Analyst)

Fair enough. Maybe just finally circling back to some of Hallie and other prepared comments regarding the onshoring of pharma manufacturing, etc., certainly a positive for the U.S., industry.

Do you look back over your long history as an operating company, have you seen where R&D also kind of gets a ramp when more manufacturing is located? In other words, does that stimulate more R&D space, which I think is being more your middle of the fairway tenant demand?

Joel Marcus (Executive Chairman and Founder)

Yeah. Hallie?

Hallie Kuhn (Senior VP)

Sure. Yeah. I think it depends on the type of manufacturing. When we're talking about manufacturing for chemical APIs, so most of the medicines in pill form, those are largely, think of them as more kind of chemical refinery type projects, which are not going to be located where our clusters are. However, if you think about more advanced manufacturing, particularly cell therapy, gene therapies, those tend to have a much more advanced talent base, right, that overlaps with R&D talents, right?

RT is a good example where many of those employees could be both in an R&D lab or in a manufacturing site. They're more one and the same. I certainly think it depends on the specific case and what type of manufacturing it is. I just think also broadly speaking, it's just a really important step for our industry to ensure that we do not have shortfalls in really critical medicines. I think broadly have more investment here in the U.S., and more capabilities in the industry.

James Kammert (Analyst)

All right. Okay. No, thank you for your color. Appreciate it.

Joel Marcus (Executive Chairman and Founder)

Thanks, Jim.

Operator (participant)

Thank you. We have no further questions. I would now like to turn the conference back over to Joel Marcus for any closing remarks.

Joel Marcus (Executive Chairman and Founder)

Just to say thank you very much. We'll look forward to talking to you on the second quarter call.

Take care.

Operator (participant)

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