Q1 2025 Alexandria Real Estate Equities Inc Earnings Call
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Good day and welcome to the Alexandria Real estate equities first quarter 2025 conference call.
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Speaker Change: I would now like to turn the conference over to Paula Schwartz. Please go ahead.
Speaker Change: Thank you and good afternoon, everyone. This conference call contains forward looking statements within the meaning of the federal Securities laws.
Speaker Change: The company's actual results might differ materially from those projected in the forward looking statements.
Speaker Change: Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission and now I would like to turn the call over to Joel Marcus Executive Chairman and founder. Please go ahead Joel.
Joel Marcus: Thank you Paula and welcome everybody to our first quarter call with me today are Halle Pieter and Mark.
Joel Marcus: And let me begin by a quote from Robert Browning, who once said great things are made up of little things.
Joel Marcus: And needless to say our profound thank you to the entire Alexandria family team. It is the little things each of US do every 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.
Joel Marcus: Also I want to mention our continued thoughts prayers and well.
Joel Marcus: Systems go to many of our team members impacted by the L. A wildfires.
Speaker Change: January of 2025 I really.
Joel Marcus: Shocking start to this year.
Joel Marcus: I want to mention I think something that we probably don't say enough about and that is Alexandria has been and will continue to be one of the most consequential rights and the sector's history.
Joel Marcus: We have pioneered the life science real estate sector.
Joel Marcus: We are the first and only pure play life Science, REIT and we haven't been at the complex principle of clustering for the life science industry, we own and operate.
Joel Marcus: The top quality portfolio, and our life science real estate, almost 40 million rentable square feet.
Joel Marcus: With 25, plus Mega campus ecosystems in AAA locations with quality high quality top quality assets and now 75% of our annual rental revenues generated by the Mega campus platform, which is actually a cluster in itself within the broader ecosystem cluster.
Alexandria is the brands brand of choice the life science sector, and its build brand loyalty with our sector leading client base.
Joel Marcus: 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.
Joel Marcus: Innovation is speeding to patients.
Joel Marcus: Alexandria has scale access to capital low leverage and the best in class credit rating.
Joel Marcus: Alexandria is best positioned to continue to reinforce the bedrock of the biotech sector, which actually will celebrate its 50th anniversary next year.
Speaker Change: On the founding of Genentech.
Joel Marcus: This sector is the crown jewel in the broader biomedical sector.
Joel Marcus: Life Science industry.
Joel Marcus: Not only this country, but the world's best and 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.
Speaker Change: Alexandria is balance sheet is in the top 10% of all REIT credit credit ratings and never has been a strong ally.
Speaker Change: Alexandria has the longest weighted average remaining debt term among all lessons P 500 reads at two times the average.
Speaker Change: Alexandria is one of the strongest unsafe as dividends in the REIT sector with a very low payout ratio.
Speaker Change: Alexandria has world class development expertise, coupled with our best in class industry leasing capabilities have enabled our near term development pipeline for 25, and 26 to report 75% leased or negotiating.
Speaker Change: Alexandria has an industry, leading client base of over 750 tenants, 89% of which.
Speaker Change: Where.
Speaker Change: Where the source of our first quarter leasing which came from this cherish tenant base.
Speaker Change: And our average lease durations nine six years, almost 10 years from our top 20 tenants.
Speaker Change: And over seven and a half years from all of our tenants and.
Speaker Change: And probably in the first quarter, we collected 99% of our 10 up rents in receivables.
Speaker Change: Moving to the macro issues, which have garnered a huge amount of attention and let me list them and give.
Speaker Change: Our take on them immigration a very good progress to date deregulation. Similarly, very good progress to date.
Speaker Change: Tax on budget.
Speaker Change: Based on meetings with key insiders in the Senate and the house recently.
Speaker Change: I've been told that July 4th is the most likely date for this big build too to emerge on the international side tariffs and wars overseas have.
Speaker Change: Created chaos and a key focal point for.
Speaker Change: Many folks both domestic and foreign.
Speaker Change: The fed in interest rates, the fed is being stubborn and moving interest rates down when the impact would be.
Speaker Change: Very very helpful to us to main street.
Speaker Change: Center for Medicare services Doctor Oz has recently taken over that and based on insider our conversations that we've had a CMS is stable.
Speaker Change: The NIH that agency, who which is now run by Dr. Bhattacharya.
Speaker Change: He 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 and this has led to a.
Speaker Change: Abstention decentralization of control and certainly got a bit out of control during COVID-19 and are funding some of the experiments in the Wuhan lab through a third party.
Speaker Change: My guess is the private sector will pick up some slack in some of the applied research and the NIH under that new leadership, hopefully will emerge leaner stronger and focused on its mission with and organizational charge, which will make good sense on the F. D. A to come which is the crown jewel.
Speaker Change: Regulatory agency, both for the United States, and the World and the bedrock of our best in class biomedical industry.
Speaker Change: We've seen a lots of some quality senior people and somehow we've seen returning most staff are in place and drug reviews are moving forward and on a personal basis. We are a company that were deeply involved with that is just got review comments this past week.
As our industry partner and seeing relatively normality at that level Doctor Macquarrie, who now heads the FDA is going to see to it that great science and.
Speaker Change: Our regulatory skills continue and are focused on their mission.
Speaker Change: The life science industry is delivering innovative products. The demand for innovation is strong drug approvals are moving forward June will be a big month Rea approvals, there's four big ones coming up.
Speaker Change: Including.
Speaker Change: RSV hereditary angioedema C O P D and a rare skin disorder and that may be a bellwether for the Fda's, a continued urgency and vitality in approving drugs, but when it comes to the F. D. A three things could make a huge difference one is.
Speaker Change: Kurt curb the burdensome regulations and accelerate development.
Speaker Change: Meaning safety has become so overwhelmingly important that they have in some cases lost sight of approving.
Speaker Change: Drugs, where there are no other choices and choosing a relevant population that may be too large so that could make a big difference if they could improve that and also on the manufacturing and medical resilient side things can be done to improve on on that level.
Speaker Change: M&A is ongoing in the industry.
Speaker Change: And that's been a positive when it comes to the 15% institutional lender rec cost limitation.
Speaker Change: 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.
Speaker Change: Maine.
Speaker Change: Our history at Alexandria demonstrates that in very tough times like these the dotcom bubble burst and the great financial crisis, we've emerge better and stronger our fortress balance sheet emerged over the last decade of the lessons of the G. F C.
Speaker Change: And.
Speaker Change: We see this as a time for important.
Speaker Change: You know important strengthening of all of our levers to continue to manage and grow the company.
Speaker Change: Out of the last two severe market corrections came two of our most important clients in Ireland in 2003 and Madonna in 2011.
Speaker Change: And remember the biggest and most consequential investments and ultimately.
Speaker Change:
Gains are made when investors and operators do the right thing at the worst time.
Speaker Change: And these are perceived by many.
Speaker Change: People as the worst of times.
Speaker Change: And then finally I just wanted to say a couple of comments about Alexandria brand is about trust. Our brand is more than a logo on a sign it's a shorthand for consistency reliability and expectations. We set every time, we deliver space mission critical space that performs endures.
Hal: And elevates the people in science, who use it and with that let me turn it over to Hal.
Speaker Change: Yeah.
Hal King: Thank you Joel and good afternoon, everyone. This is highly king SVP of life science in capital markets.
Hal King: Choppy macro economic conditions, the fundamental thesis driving the life science industry and Alexandria remains firmly in place three.
Hal King: Three key points.
Hal King: First and foremost.
Hal King: Is that the foundation of this industry, it's a massive unmet medical need.
Hal King: Nine out of 10, because he then had no approved therapies and chronic condition impacts 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 four and a half trillion in annual health care costs.
Hal King: Second innovation.
Hal King: The life science industry, if people buy new discoveries in the United States and Alexandria.
Hal King: That's that straight in the world to continue to drive new discoveries and development well into the future.
Hal King: U S headquartered companies account for 55% of global biopharmaceutical R&D investment.
Hal King: Six out of every time FDA approved therapies.
Speaker Change: 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.
Speaker Change: As emphasized by the bipartisan National Security Commission on emerging Biotechnology report published earlier this month.
Speaker Change: And technology is key for the U S to remain dominant in secured future economic growth and a new era of global competition.
Speaker Change: Now, let us turn to Alexandria, diapers 750 strong tenant base.
Speaker Change: Diversity of our tenant base is important as each of the segments draw on multifaceted sources.
Speaker Change: Derisking the possibility of a singular founding shock.
Speaker Change: Our tenant base is also a critical embedded starts with demand with 89% of leasing originating from our existing tenants this quarter.
Speaker Change: And our tenant base remains resilient, 51% of our tenant base is investment grade or large cap added 87% of our top 20 tenants.
Speaker Change: 17 of the top 20 multinational pharmaceutical companies and four at the largest tech companies in the World are Alexandria tenants.
Speaker Change: Pivoting to <unk> 25, specifically, we're sharing for the first time on this call quarterly leasing by our staff across our life science tenant segments.
Speaker Change: Illustrate how the diversity of our tenant base contributed to 125 solid leasing activity.
Speaker Change: Yeah.
Speaker Change: First biomedical institutions accounted for 10% of life science leasing by Orissa.
Speaker Change: Represented by six different private and public institutions.
Speaker Change: Across the segment, our tenant had over seven and a half a years of average remaining lease term and approximately 80% are investment grade.
Speaker Change: Next private biotech with 12% of life science leasing.
Speaker Change: Venture funding remains study and once deployed at a similar rate to 2023 and 'twenty 'twenty four capture.
Speaker Change: Capturing strong well capitalized private biotech tenants remains a core focus.
Speaker Change: These companies for a next generation of demand in the next wave of ingenuity.
Speaker Change: Moving to multinational pharma at 13% this quarter.
Speaker Change: That's farmer 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.
Speaker Change: Public biotech had a strong quarter at 27% of life Science leasing led by our 400 Tech square lease with <unk>, a leading gene therapy company developing the next generation of treatments for rare disease.
Speaker Change: Public biotech continues to be a story of haves and have nots.
Speaker Change: And our Medicaid franchise continued to attract the house as the Italian lease and four keys lease expansion with DAC site in San Carlos Street.
Speaker Change: Last is life science product services and devices at 38% with a significant direct lease to a commercial contract research organization in research triangle.
Speaker Change: Over time this segment may see increasing tailwind from the U S as companies move to onshore manufacturing and other capabilities due to recently announced tariffs.
Speaker Change: 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 bio manufacturing a newly proposed FDA approval pathway for rare disease.
Speaker Change: E venture funding and breakthroughs in new potential medicines, such as Tennant, Eli Lilly's recently announced clinical data on a new type of weight loss medicine that would come in a pill.
Speaker Change: In the 30 years since Alexandria founding the life science industry, and our company have shown tremendous resilience and sugars multiple economic cycles.
Speaker Change: And some of the strongest biotech companies have been founded during times like this as Joe mentioned.
Speaker Change: And the portfolio for future growth.
Peter: With that I will turn the call over to Peter.
Speaker Change: Yeah.
Peter: Thank you Holly the life science industry is a national treasure and critical to a stronger safer and healthier country.
Peter: High interest rates and government disruption or not tampering and will not tempered the demand for a better quality of life and the life science industry will always be here to meet that demand.
Peter: Alexandria was created to enable it and we will always be here to support it.
Peter: 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.
Peter: In the first quarter, we delivered approximately 309500 square feet of a 100% leased class a plus laboratory space into our high barrier to entry Submarkets, which will contribute approximately $37 million in annual net in an annual incremental net operating income and additional one.
Peter: One 6 million square feet 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 deliveries. It was six 6% driven by the <unk>.
<unk> stabilized yield of seven 5% from our key 285000 square foot delivery at 230 here at Taubman way and Millbrae, which is located in the San Francisco Bay market.
Peter: This high quality project with adjacent access to both Cal train and Bart is fully leased to eikon therapeutics, a highly disruptive company at the intersection of Science and technology founded by prolific drug Hunter Roger Perlmutter.
Peter: 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.
Peter: 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 revlon.
Peter: In a way no one asked before Roger knew he needed robust building infrastructure, coupled with world class operational excellence to house icon and wanted Alexandria to develop it and closely coordinated fashion.
Speaker Change: 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.
Peter: Subject to a fixed price contract as of the end of the quarter.
Peter: We estimate that 30% to 40% of those costs are for construction materials, such as steel drywall and HVA see equipment.
Peter: Assuming 100% of those materials were subject to tariffs we.
Peter: Great that for every 10% tariff on such materials are yields would decline by $2 five to 3.5 basis points.
Peter: Transitioning to leasing and supply.
Peter: Alexandria is superior quality location scale and sponsorship enabled the leasing of 1 million 30553 square feet in the first quarter at solid rental rate increases for renewed and released space of 18, 5% and seven 5% on a cash basis and a weighted average lease term.
Peter: It was very strong at 10.1 years. This is the fifth straight quarter, where we've exceeded 1 million square feet of leasing and despite elevated concessions net effective rent on releasing internal space remain positive.
Peter: 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.
Peter: With respect to competitive supply it peaked in 2024, and we expect far fewer additions in 2025, and 2026 and greater Boston, We anticipate we anticipate 900000 square feet to be delivered in 2025.
Peter: Currently it's zero percent pre leased and we expect $2 4 million square feet. In 2026 that is 46% pre leased San Francisco has 1.1 million square feet of competitive supply is scheduled for 2025, and it's currently 21% pre leased and has no schedule.
Peter: <unk> deliveries in 2026, San Diego expect 700000 square feet to be delivered in 2025 currently 80% pre leased and 40, I'm, sorry, 400000 square feet to be delivered in 2026, which is 100% pre leased.
Peter: Although availability in these markets ranges from 20% to 30% a meaningful portion of it is what J O L term zombie buildings and their greater Boston overview from last quarter.
Peter: Described is likely never to be leased as laboratory because the buildings are either a bad office conversion and an undesirable location and or built by an experienced inexperienced owner.
Peter: Location quality and sponsorship matter to tenants for their mission critical infrastructure and that is why those numbers should be discounted.
Peter: Of what is in those numbers was is gonna be office not laboratory inventory in the future.
Peter: 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.
Peter: During the first quarter <unk> secured a 580000 square foot 15 year Laboratory office lease with Biogen at their large scale multi site in east, Cambridge, the reported rental rate was $136 triple net with 3% annual increases and a tenant improvement allowance of three <unk>.
Peter: And $10 per square foot 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.
Peter: 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 sale.
Peter: To self fund our high quality development and redevelopment pipeline that is transforming our asset base.
Peter: Dominantly Mega campuses, a strategy that positions Alexandria over the long term to capture an even greater share of future demand from this secular growing life science industry.
Peter: As of the end of the first quarter, we 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 app.
David: David dispositions guidance.
David: Highlighting this quarter's value harvesting efforts as the disposition of 13.2 acres of land in the University Town Center Submarket of San Diego to a residential developer, which provides a $124 million of accretive equity and contributes to right sizing our land bank.
David: Here are the takeaways, we continued 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 solidly seeing competitive supply deliveries are winding down and we are making.
David: Good progress on our asset harvesting and recycling program with that I'll pass the call over to Mark.
Speaker Change: Thank you Peter This is Marc Benioff, Chief Financial Officer, Hello, and good afternoon to everyone. On this call firstly, 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.
Speaker Change: Total revenues were up 4% and adjusted EBITDA was up 5% from <unk> 25 over a <unk> 24 after removing the impact of dispositions completed since the beginning of 2024.
Speaker Change: That's still a per share diluted as adjusted which was $2 30 for <unk> 25 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.
Speaker Change: Our investment in the long term ground lease at our Alexandria, Alexandria Technology Square campus, both of which we expect to provide significant long term value for our tenants and our shareholders.
Speaker Change: Our solid operating results for the quarter continued 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 steadily over time.
Speaker Change: We have high quality cash flows with 51% of our annual rental revenue from investment grade and publicly traded large cap tenants collections remained very high at 99, 9% and adjusted EBITDA margins were strong at 71% for the quarter and represented the third highest quarterly margins reported since 2019.
Speaker Change: As Peter highlighted our leasing volume continues to be solid with over 1 million square feet leased during the quarter and represents the fifth consecutive quarter over 1 million square feet.
Speaker Change: 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.
Speaker Change: We also continue to dominate in our core submarkets getting more of the deals in many of our sub markets in the next several landlords combined.
Speaker Change: Rental rate growth for lease where he rules and releasing of space for the quarter was a solid 18, 5% and seven 5% on a cash basis, which is at or above the high end of our guidance ranges for the year.
Speaker Change: 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.
Speaker Change: 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 in Mega campus in Cambridge, Excluding this one lease leasing costs on a gross basis and as a percentage of total rent over the lease term work.
Speaker Change: In line with our five year quarterly averages.
Speaker Change: Occupancy at the end of the quarter was at 91, 7%, which was down two 9% from the prior quarter about two thirds of the decline was related to the 768000 square feet of lease expirations that were known vacates spread across four submarkets, we discuss these spaces.
Speaker Change: At our Investor Day last year and it includes both Maduro has moved out of Alexandria technology square to the new HQ R&D campus, we developed for them at $3 25, Binney and our single tenant building at four nine Illinois in Mission Bay San Francisco.
Speaker Change: Remaining one third represents several smaller spaces spread across multiple markets of which the two largest spaces in that bucket have been released and are expected to be delivered later in 2025 overall.
Speaker Change: Overall for the full two 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.
Speaker Change: Based upon our current outlook, we reduced the midpoint of guidance for year end 2020 occupancy by 70 basis points from 92, 4% to 91, 7% driven by lower than anticipated re leasing and lease up of space.
Speaker Change: Same property NOI was down three 1% and up five 1% on a cash basis for the quarter.
Speaker Change: As we have highlighted over the last year earnings calls our <unk> 25 same property results were impacted by the key one key 25 lease expirations, which became vacant in <unk> 'twenty five aggregating 768000 square feet spread across four submarkets. Excluding these properties. Our same property results would have been flat.
Speaker Change: And up 9% on a cash basis.
Speaker Change: 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.
Speaker Change: The strong cash same property performance for the quarter included the impact of some free rent in <unk> 24 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 'twenty five same property growth has been reduced by 70 basis points.
Speaker Change: 20 basis points on a cash basis to reflect the impact on occupancy over the balance of the year.
Speaker Change: Turning next to general and administrative expenses.
Speaker Change: At our Investor day, we outlined our 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.
Speaker Change: Month's G&A costs as a percentage of NOI was six 9% from <unk> 25, 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%.
Speaker Change: Even the great progress that we've shown over the last few quarters and based upon our current outlook. We've updated the midpoint of our 2025 guidance range for G&A costs reflect an additional $17 million of cost savings.
Speaker Change: Which now represents an expected $49 million total savings in 2025, G&A compared to 2020 for our updated guidance also implies a run rate for G&A similar to the first quarter for the balance of the year.
Speaker Change: With projects under construction and expected to generate significant NOI over the next few years, coupled with our future pipeline projects undergoing important preconstruction activities, adding value and focused on reducing the time from lease execution to delivery, we are required to capitalize a significant portion.
Speaker Change: Our gross interest costs.
Speaker Change: Capitalized interest as a percentage of gross interest cost was $60 or 61% from <unk> 25, 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 rebuilt redevelopment projects.
Speaker Change: Outlet for capitalized interest for the full year 2020 fibers 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.
Speaker Change: Work reaches critical milestones and May subsequently resumed in the future when we advanced spinal construction for delivery of space to prospective tenants.
Speaker Change: In total the change to capitalize the interest represents approximately $1 4 billion of basis for approximately four months.
Speaker Change: 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 REIT market.
Speaker Change: Conditions as of today, we have approximately $242 million remaining under the plan authorized by the board of directors.
Speaker Change: One of the important areas to highlight in this quarter is that we have spent many discipline year shaping and refining our strong balance sheet to provide flexibility and challenging macroeconomic times like these our balance sheet continues to stand out amongst all publicly traded U S. Reits is our corporate credit ratings ranked in the top 10 person.
Speaker Change: Net of all publicly traded U S. Reits indeed, the balance sheet is in great shape.
Speaker Change: We are targeting year end leverage of five two 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 had the longest debt maturity profile. Among all S&P 500, Reits with average remaining debt term of 12, two years and very low debt maturities over the.
Speaker Change: Three years.
Speaker Change: Transitioning next to funding we are pleased with the execution of our bond deal in February for $550 million of 10 year unsecured bonds at an attractive pricing of five 5%.
Speaker Change: We continue to be 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 is.
Speaker Change: As Peter highlighted we've made good progress for 2025 was 609 million completed or in process, which represents 31% at the midpoint of our guidance for dispositions and sales of partial interest of $1 95 billion land sales end user sales continue to be an important component of the deal is completed and in process.
Speaker Change: In addition to dispositions, we also expect to find 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 25.
Speaker Change: Our high quality cash flows continue to support our common stock dividend with a conservative <unk> payout ratio of 57% from 125, and an attractive dividend yield of five 7% as of the end of <unk>.
Speaker Change: Over the last five years realized gains from venture investments, including the <unk> <unk> per share as adjusted to have averaged approximately $29 million per quarter and our outlook for 25 remains unchanged with a range of $100 million to $130 million, which implies about $29 million per quarter at the midpoint.
Speaker Change: Turning to guidance the details of our guidance are included on page four of our supplemental package our guidance for <unk> per share diluted as adjusted was reduced by seven cents to a midpoint of $9 26.
Speaker Change: <unk> puts the revised mid point at the low end of our initial range for <unk> per share results and represents a change of 75 basis points from our initial guidance.
Speaker Change: Even with this change our estimate for five year growth in <unk> per share diluted as adjusted through 2025 is 27%, which puts us near the top end of the range. Among the peers in the 15 NAREIT equity health care REIT Index now I'll turn it over to Joel.
Joel: Thank you and operator can we go to questions. Please.
Speaker Change: Certainly.
Speaker Change: We will now begin the question and answer session.
Speaker Change: Ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yes.
Unidentified Moderator: The first question comes from Sarah Barnett.
Speaker Change: Bank of America. Please go ahead.
Sarah Barnett: Hi, Good afternoon. Thank you for taking my question.
Sarah Barnett: Wondering if you could walk us through what the new guidance is this encompass a worse case scenario, especially in terms of what could happen in the biotech market specifically with capital raising.
Sarah Barnett: Or within the range is there a worse case and best case scenario baked in.
Speaker Change: Well before I direct that question to Mark I'm not sure I fully understand it what do you what do you mean by worst case scenario and what in guidance or are you looking.
Sarah Barnett: To ask the question about.
Sarah Barnett: Specifically when it comes to leasing going forward.
Sarah Barnett: When it comes to the demand and specifically if theres continued cuts when it comes to NIH funding or even further reduction.
Speaker Change: Just overall lease leasing demand yeah, okay Mark.
Speaker Change: Yeah look I think the estimate we put out there is our best estimate with the facts that we know today. So it's not the best case and it's not the worst case, it's it's really our estimate with the facts that we know today.
Speaker Change: Okay. Thank you and I guess also you had made a comment about quarterly leasing coming from the private biotech that venture funding is coming in around the same rate at 2023, and 2024, just given kind of the macro and knowing that a lot of these companies.
Speaker Change: A lot of capital do you think that that pacing of leasing within private biotech is sustainable going forward for 'twenty five.
Hal King: Well, yes, I mean, I'll ask Kelly to comment, but I think you have to think about.
Hal King: Venture who have pretty full.
Hal King: Sure.
Hal King: No.
Hal King: Full.
Hal King: Funding in.
Hal King: Many of the big funds that have raise large amounts of money over the last year or two and these funds are generally.
Hal King: Long term funds.
Hal King: You find today venture folks deploying cash.
Hal King: Capital in a I think a more judicious fashion then certainly they did during the boom of rocket years of Covid and looking to put their capital.
Hal King: Two companies that have significant near term.
Speaker Change: Value inflection milestones I think that's where things are going much more intensively, but tally you could comment.
Speaker Change: Alright. Thanks for the question Yeah, as I mentioned, the quarterly venture capital deployment was similar to what we saw in 2023 and 2024 venture fund still fit on a significant amount of dry capital. So they do have funding to deploy.
Speaker Change: Yeah, I think as we've talked about for multiple quarters.
Speaker Change: Both venture funds and companies continue to be conservative in how they make decisions and I don't think this quarter has changed that they were already in that mindset.
Speaker Change: Actually last year and so we continue to see really strong companies with great Executive management teams get funding.
Speaker Change: Yeah, I think Theres, just a I would say a healthy rash.
Speaker Change: Rationalism towards where the dollars are going.
Speaker Change: Okay. Thank you so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Seth <unk> with Citi. Please go ahead.
Speaker Change: 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 and so I'm curious what that means for Alexandria, now obviously, you've been through plenty of cycles, so kind of where we stand today, what what is what is the right thing and.
Speaker Change: When do you expect to see the pay off from it.
Speaker Change: 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 of a bear market with the biotech indices starting to move down what February of 'twenty. One. So this is fifth year, which is fairly long duration although.
Speaker Change: We've seen longer ones and I think the sentiment.
Speaker Change: Toward the industry at least in the spoken and written world out there as well.
Speaker Change: Among the most negative that I've seen.
Speaker Change: But the reality kind of belies that as we talked about through the different agencies, what's going on and the.
Speaker Change: And the pace of innovation and new.
Speaker Change: Therapies being delivered to the patient. So if you take a page out of the book that we saw in the.
Speaker Change: Dot com bubble burst and the Dfc the aftermath I mentioned.
Speaker Change: We established a relationship with <unk> 2003, and today that company is now a big biotech occupying a huge amount of swap the real estate in.
Speaker Change: In Cambridge, and the same is true of Madonna in 2011, when they were founded we established an early relationship and today have.
Speaker Change: A sizable.
Speaker Change: Swath of real estate in Cambridge, and so the view is to align ourselves with the most innovative most disruptive.
Speaker Change: Most.
Speaker Change: Impactful companies that are likely to bring nearer term therapies and other.
Speaker Change: You know <unk> biomedical products to patients and so I think rather than back away. We have to think about and we are doing that.
Speaker Change: <unk> down on what we consider to be great innovation and at the same time.
Speaker Change: 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 company that any spectrum of the barbell.
Speaker Change: Next year, we deliver the R&D headquarters West Coast headquarters of.
Speaker Change: Bristol Myers Squibb in our campus point. So those are the things, we're trying to do and if.
Speaker Change: If as we see time goes on there are opportunities for.
Speaker Change: Entering new markets and we've already been incubating a plan on that or doing some.
Speaker Change:
Speaker Change: Interesting acquisition opportunities that we see at the right time, we won't hesitate to do.
Speaker Change: To do those as we continue.
Speaker Change: Sell off noncore assets and enhance our.
Speaker Change: Mega campus, a percentage sorry for the long winded answer.
Speaker Change: No that was that was helpful. Thanks, and then just I guess a question on capitalized interest you mentioned coming down from 75% to 61%.
Speaker Change: 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 adjustments this year.
Yeah, Hi, Nick.
Speaker Change: I think the adjustment that we made is our best estimate at this point.
Speaker Change: Obviously.
Speaker Change: Next year, we can comment.
Speaker Change: Later at our Investor day, but at least with the duration of this year I think we've got pretty good visibility.
Speaker Change: Our best guess at this point.
Speaker Change: Right.
Speaker Change: Yeah.
Unidentified Moderator: Our next question comes from Anthony <unk> with J P. Morgan. Please go ahead.
Speaker Change: Alright, thank you.
Speaker Change: Joe last quarter, you talked about I think a couple of pockets of demand, maybe starting to emerge and you're.
Speaker Change: We're pretty optimistic about some messaging you might have on the first quarter call based on what you were seeing that I mean, do you feel like that that emerged or did things just change quite a bit in the last few months.
Speaker Change: I would say that they haven't changed.
Speaker Change: And stay tuned I think we continue to see in Hell. He did a good job of describing the.
Speaker Change: The multi.
Speaker Change: Facet of demand that we're seeing given the more muted.
Speaker Change: Environment, we're in and the Pie chart, we put out there at this time, but I think over the coming few weeks or month or two I think we will have.
Some things that will be viewed as very positive. It's just time just.
Speaker Change: It just takes time to do that but nothing nothing is changing for the negative.
Speaker Change: Okay, and then on on the disposition side I mean, you've got 400, and some odd million.
Speaker Change: Teed up and then.
Speaker Change: Decent amount to go over the balance of the year right. How do you feel capital markets are holding up how do you get comfortable with that.
Speaker Change: The stuff that's in process will make it through and close in.
And I guess like what's what's the buyer pool look like as you mentioned a lot of land and if it doesn't work for you all I guess, how it might work for someone else.
Speaker Change: Yes, So let me frame it and then I'll ask Peter to comment remember too that if you look at a number of quite a number of our sales over the past.
Speaker Change: 12, 15 18 months.
Speaker Change: We've tried to pivot and redirect some of the land holdings, because we'd like to reduce some of those.
Speaker Change: And Peter cited one of them, where we sold a great.
Speaker Change: A great piece of land in University Town Center to resi developers, there's a pretty healthy demand out there for.
Speaker Change: Land that we hold in really great locations for highest and best use residential and I think youll continue to see that and that buyer pool.
Speaker Change: Has only expanded not shrunk I think there are still good opportunities and we've done some of it to sell to owner users and then we do feel that given.
Good quality.
Speaker Change: Noncore workhorse assets as Peter has kind of coined the term theres still has the buyer pool for that but Peter do you want to maybe just give Tony some thoughts on that.
Speaker Change: Yeah look I'll Echo Joe's remarks, and I really think it's a big positive that we've been able to raise funds through.
Speaker Change: Reducing our land bank were.
Speaker Change: Where we feel like that they're not going to.
Speaker Change: Contribute to our Mega campus model, we've also been able to sell assets to users. So it's taking it out of a potential competitors hands.
Speaker Change: And that's been a significant amount of the sales this year and as we look towards what we're going to complete.
Speaker Change: For the rest of the year there is still more land.
Speaker Change: 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.
Speaker Change: They have capital.
Speaker Change: And they've got a will to do the entitlements and to get it done and.
Speaker Change: We think.
Speaker Change: That's a huge positive so at the end of the day, we will we will rightsize our land bank through.
Speaker Change: Non competitive opportunities.
Speaker Change: For the future as those things go residential and then as I look at what we are looking to sell to investors what we're working on.
Speaker Change: Specifically right now the audience is private equity.
Speaker Change: And then pure private equity that that dabbles in the real estate space by owning assets directly then there's private equity equity that has 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.
Speaker Change: I recently hosted a sovereign in our offices here they reiterated to me that.
Speaker Change: They have looked at a lot of different opportunities in life science space with different people they really want to.
Speaker Change: Focus their concentration on acquiring life science assets through us So there's certainly a customer there.
Speaker Change: Really excited if we can come back to them with that with some higher quality low cap rate assets, because that's that type of asset that that particular buyer likes.
Speaker Change: So we know we've got a customer for that when we're ready to to do that.
Speaker Change: We've also been approached.
Speaker Change: Approached by industrial users for some of our properties. So that's a positive. So overall if you consider the uncertainty in the market and the lack of capital flows.
Speaker Change: At the time being I think we're doing really well with our activity.
Speaker Change: Yes, Tony I would say one other thing and Peter Thanks for that really good explanation.
Speaker Change: Something else that we've seen that may give us a additional source of funding that we had not really planned on is we're being approached.
Speaker Change: Over 25 Mega campuses on a handful of those mega campuses by <unk> operators to either ground lease or build on build on land buy land do any number of things joint venture.
Critical sites and our mega campuses that.
Speaker Change: Wood.
Speaker Change: <unk> continued to make it a work live play location one of our Mega campus is almost 3 million square feet in the aggregate so they're almost like little mini cities and.
Speaker Change: That's going to give us a really strong boost for.
Speaker Change: Both the vibrancy of the Mega campus and also additional funding source.
Speaker Change: Okay. Thanks for all that.
Speaker Change: Thanks, Tony.
The next question comes from Richard Anderson with Wedbush. Please go ahead.
Richard Anderson: Good afternoon. So when you kind of reflect upon this nightmare of fundamental backdrop for the business.
Richard Anderson: And you talk just then about right sizing your land bank.
Richard Anderson: Do you think that the the.
Richard Anderson: The end game here in the aftermath of all this is to have development.
Richard Anderson: A far lesser percentage of your asset base, if it's 20% to 25% of your LTV today, maybe it's significantly less by 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.
Richard Anderson: Well part of that depends on location rich.
Richard Anderson: I think locations that are either on or adjacent to the Mega campus, we really don't want to part with those assets.
Richard Anderson: We might partner those in some way or not.
Richard Anderson: But are you now.
Richard Anderson: Those have been accumulated over.
Richard Anderson: A long period of time, and we considered to be AAA locations in the best.
Richard Anderson: And the best place on the planet for.
Richard Anderson: Biotech and life science, its really the other locations and a good example is the land we sold this past quarter. The first quarter in University Town Center, SATA stride and was really part of our.
Richard Anderson: Of a big shopping center.
Richard Anderson: Wasn't integrated with any Mega campus, we owned but it was a AAA location, great access to transit great access to.
Richard Anderson: Retail and rosy.
And that would be in a more boom bull market that would be a great lifestyle site.
Richard Anderson: Or even advanced technologies.
Richard Anderson: Because Qualcomm and then on the number of the folks are pretty active in the San Diego area.
Richard Anderson: But given the current and I don't I wouldn't call. It a nightmarish scenario I think it's a.
Richard Anderson: It's there's a lot of good things happening, but there is dislocation.
Richard Anderson: And there is miss giant misperceptions about what actually is going on.
Richard Anderson: But in a boom market you might hold that for a period of time to bill.
Richard Anderson: Build but in this kind of a market we thought it's better to monetize that.
Speaker Change: Which has as Peter said accretive use of proceeds rather than hold and so I think that's that's how what kind of analyze that I wouldn't use.
Speaker Change: To use the term of what people are talking about dose, we're going to use a scalpel not a sledge hammer and I think that's how we'll approach it but we do think there are significant opportunities.
Speaker Change: To do what we're doing in other locations and so that's on our.
Speaker Change: That's on our target list over over time as well.
And just lastly on the on the disposition program.
Speaker Change: What is the percentage of seller financing that you would expect from that is that sort of ramping up or declining as you go through the process. This year. Thanks, Peter Peter.
Speaker Change: Yeah.
Speaker Change: Last year, there was definitely a few of those.
Speaker Change: That occurred right now.
Speaker Change: We don't have anything in process.
Speaker Change: For Investor sales that are not land or users, but you know that.
Speaker Change: That could change as we go throughout the year, where we're open to it if the terms are right.
Speaker Change: But I'm not sure it's gonna be a requirement to execute okay.
Fair enough thanks very much.
Richard Anderson: Yes, Thanks Richard.
Speaker Change: The next question comes from Tayo Okusanya with Deutsche Bank. Please go ahead.
Hi, yes, good afternoon, everyone.
Speaker Change: Wondering if you could.
Speaker Change: She has some comments just around the AD tech piece of your business and if there's anything unique happening in the research triangle.
Speaker Change: Yeah, that's a really good question.
Speaker Change: It's kind of strange that the amount of private capital venture capital going.
Speaker Change: Going into AD tech from the middle part of last decade to kind of the Covid period.
Speaker Change: Went up.
Speaker Change: More than five exit it may have been well in excess of that but it was astoundingly large.
Speaker Change: But then there was kind of a.
Speaker Change: A.
Speaker Change: A precipitous drop in that once COVID-19 hit and it hasn't really recovered. So we still have a very active AG tech.
Speaker Change: Tenant base in research triangle number of companies, who moved down there from the Boston area. There's a good talent base. There is venture available the problem in AG Tech. These days is really.
Speaker Change: I think two fold one is there are no exits for private capital the spec market dried up and we looked at that very carefully there really no IPO opportunities over the last handful of years. So that's that's been a challenge and then I think the bigger challenge is the hand.
Speaker Change: Full of half a dozen incumbents that control the distribution.
Speaker Change: Sales marketing that whole system, whereas pharma and bio have a much broader palette of participants the agg area has a few incumbents and they just are.
Speaker Change: So dominant it is hard to get in and break through to commercialize a product. So those are the factors at work these days, but we're still active.
Speaker Change: But maybe just jump in here.
Speaker Change: T and not AD tech side, but on bio manufacturing.
Speaker Change: Research Triangle has a long history of bio manufacturing and it's really an epicenter for that type of talent, which is certainly.
Speaker Change: Of interest as pharma companies look to strategize around onshoring and bio manufacturing I do think that the research triangle region is.
Speaker Change: Pretty well situated.
Speaker Change: Situated right for ongoing.
Speaker Change: Onshoring activities.
Speaker Change: Okay.
Speaker Change: Super helpful.
Speaker Change: For one more question.
Speaker Change: The next question on capitalized interest and I think in the earlier comment.
Speaker Change: There was a statement that one of them like declining.
Speaker Change: Uh huh.
Speaker Change: Project no longer that may no longer qualify.
Speaker Change: Just wondering if you could just talk a little bit about that statement and exactly what that meant.
Speaker Change: Yes, so mark sure sure Yeah. So what I was referring to there is we do have.
Speaker Change: One or two projects that are under active construction, which may get to a point where we're in.
Speaker Change: One in particular, we expect to get to a point where.
Speaker Change: There won't be it won't be much left to do absent sitting out the space for a tenant so.
Speaker Change: We do expect in that particular situation, it's an asset in.
Speaker Change: And in turn Francisco debt capitalization of interest would pause until we're ready to go ready to resume construction and finish out the space.
Speaker Change: And that wasn't in that was not an initial guidance of something thats just kind of this.
Speaker Change: This is a lot of guidance.
Speaker Change: Well listen somewhat for that line item.
Speaker Change: That was a much smaller portion of the adjustment to cap interest most of most of the adjustment of the 20 million that we change guidance.
Speaker Change: Call it 70% or so was really on the future land bank. So that was the lion's share of it.
Speaker Change: Gotcha. Thank you very much.
Speaker Change: Youre welcome. Thank you.
The next question is from Vikram Malhotra with Mizuho. Please go ahead.
Vikram Malhotra: Afternoon, Thanks for taking the question.
Vikram Malhotra: I guess you all based on just the comments around dispositions you talked about the sovereign interested potentially up.
Vikram Malhotra: Potentially some assets I'm just wondering like.
Vikram Malhotra: You're trading stocks trading at a 10 cap is a huge disconnect between.
Vikram Malhotra: On the private markets, where you're kind of thing life Sciences, it's still true.
Vikram Malhotra: Would you consider sort of selling kind of two $3 billion and doing a big buyback.
Speaker Change: Selling two or $3 billion of what.
Vikram Malhotra: All of.
Speaker Change: As at the properties.
Speaker Change: Well it depends on what they are.
Speaker Change: But I think the way, we're thinking about it as a more measured and.
Speaker Change: Careful way to do it we're continuing to sell land parcels, which are you know.
Speaker Change: Very they are accretive to.
Speaker Change: Accretive to us.
Speaker Change: And our reinvestment of those.
Speaker Change: We're continuing to sell.
Speaker Change: Workhorse noncore assets and those are important because those help us further enhance our focus on revenue from the Mega campus environment and there may be overtime, and then owner user sales and then as Peter said, there may be some partial interest sales as well over time.
Speaker Change: But we're heavily focused on the early.
Speaker Change: Earlier ones I talked about in the guidance. We gave for this year as are our best judgment about doing that whether we go further into.
Speaker Change: Asset sales to fund.
Speaker Change: Any buybacks I think that'll be determined as we go quarter to quarter through this year and obviously.
Speaker Change: That's something we're watching carefully and closely.
Speaker Change: Okay fair enough.
Speaker Change: Just on the credit side, I mean, I guess in this environment, where maybe the fees are a little more hesitant or maybe even publics are having.
Speaker Change: A little bit more definitely rethink would you mind, just giving us a sense of how you see that.
Speaker Change: Current watch list you know, what's the exposure to private and public set up pre revenue.
Speaker Change: It just would be have to decide that just given the environment.
Yes, so mark do you want to maybe comment on that.
Speaker Change: Yeah.
Speaker Change: Look I would I would say, we monitor each and every well I'll start with the private companies we monitor.
Speaker Change: Those tenants very carefully we generally get quarterly financial statements. So.
Speaker Change: We generally have a very good.
Speaker Change: Pulse on the funding needs of those companies.
Speaker Change: Certainly try to try to get ahead of that the same is true on the public companies, but those are a lot easier to monitor because their.
Speaker Change: That information is public.
Speaker Change: Just one example of that Vikram was we did have a tenant.
Speaker Change: In San Francisco, and a 23 that was in a large space 100000 feet and we had been working with that company for several months before.
Speaker Change: Before they got into trouble and we were able to to backfill that space completely without spending a bunch of money on ti's.
Speaker Change: With another company to take this that space. So I think our strategy has always been and will continue to be.
Speaker Change: Extremely proactive to try to navigate those those types of situations.
Speaker Change: Failures do happen Thats, just a natural part of the business, but I think we've got a uniquely talented team.
Speaker Change: Led by Hallie and others that.
Speaker Change: Really spend a lot of time meeting with the companies and doing really diligent underwriting.
Speaker Change: Thank you.
Michael Carroll: Our next question comes from Michael Carroll with RBC capital markets. Please go ahead.
Speaker Change: Yeah. 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 we're going through pre pre development work and Youre just pausing because you are thinking about going vertical previously and now youre not and Thats. The reason why your <unk>.
Michael Carroll: Capitalizing those.
Speaker Change: At the end of this year.
Michael Carroll: Yes, that's right Michael we've got about.
Speaker Change: If you look at what we capitalized for the last quarter, it's about $4 1 billion of the future land Bank right.
Speaker Change: Those are across multiple sites somewhere in mega campuses. Some are not they are in various different phases of entitlement and design.
Speaker Change: So the basis that I mentioned that was turning off roughly $1 4 billion.
Speaker Change: Most of that is part of that feature at land Bank and it's it's really situations, where we got to a point where we.
Speaker Change: I've done an added all the value that we felt like made sense at that point and we're really just pausing.
Speaker Change: And deciding what to do next whether that.
Whether that resumes in the feature because we.
Speaker Change: We get encouraged that there is.
Speaker Change: There is demand.
Speaker Change: And that we could go forward or whether we sell or whether we continue to hold it for another day it'll just depend.
Speaker Change: Okay, Great. Thanks, and then just lastly, Joe I know I wanted to circle back on your comments on the leasing trends I know in the last quarter, you were pretty positive and I think you were talking to Tony and Youre, saying Youre still positive on some of those transactions. I guess is there are those tenants just being slower on me.
Speaker Change: And those decisions right now and that's kind of why we're a little bit farther off and talking about them as are they just stopping making decisions or slowing down because of the uncertain macro environment.
Speaker Change: Well I think almost every today.
Michael Carroll: Michael every.
Michael Carroll: Almost every transaction other than may be smaller transactions of some size medium and large are complex and inherently.
Michael Carroll: Slower and in today's world, you've got oversight by third parties and boards and other people that.
Michael Carroll: Their job is to be judicious in making sure that.
Michael Carroll: The company is making the best decision and minimizing its risk.
Michael Carroll: Because remember I guess like Peter Drucker said every every decision is risky commitment of today's resources.
Michael Carroll: To an uncertain and unknown future and so people are taking that very seriously.
Michael Carroll: And but.
We're in a different business, we're not in office space, where.
Michael Carroll: Somebody decides well okay, we don't.
Michael Carroll: We don't need to move to better better place, we don't need to expand if a if an R&D group whether it be biotech pharma.
Michael Carroll: And services need space mission critical for its business it has to make a move and do it and.
Michael Carroll: That gives us comfort.
Michael Carroll: Confidence and comfort that at the end of the day the process there will be a good outcome, but.
Michael Carroll: This is going to be a bumpy year until as I said until this tariff thing gets a little bit.
Michael Carroll: Straightened out in the minds of.
Michael Carroll: The American public until the budget and tax bill or done hopefully may be.
Michael Carroll: By summer.
Michael Carroll: 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, but until then if.
It's just.
Michael Carroll: It's just.
Michael Carroll: Much more.
Michael Carroll: Cautious but.
Michael Carroll: They'll have the same view.
Michael Carroll: Okay that makes sense and then just following up real quick.
Michael Carroll: But these there's no example of these tenants stopping or canceling their expansion plans. There's just more of a pause is a better way to.
Michael Carroll: But I think that.
Michael Carroll: I'm not sure you can you can I was referring to several.
Michael Carroll: Specific things that were that are underway, but if you try to generalize it.
Michael Carroll: Every every company is different every entity is different and they're going to make a decision based on how they see.
Macro and micro and their own circumstance.
Michael Carroll: So everyone is in just that different decision making mode.
Michael Carroll: And situation.
Michael Carroll: And sometimes boards or.
Michael Carroll: Management teams or way more cautious than other times there.
Michael Carroll: More realistic in business like so it just kind of depends.
Michael Carroll: So I don't want I don't want to generalize too too broadly because every situation is so different.
Speaker Change: Okay, great. Thanks.
Speaker Change: Yep. Thank you.
Moderator/Event Host: The next question is from Devin Burzynski with Green Street Advisors. Please go ahead.
Moderator/Event Host: Yes, thanks for taking the question I guess, just sort of continuing with the theme of the last question you.
Speaker Change: You guys mentioned that negative sentiment towards the industry is as negative as it has been.
Speaker Change: I talked about how expansion requirements are remaining needed for the time being due to that conservatism from company management teams and boards, but I guess.
Speaker Change: You kind of mentioned tariffs.
Speaker Change: Still higher rates via an issues, but 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 are you sort of view this environment as more more broader U S macro related.
Speaker Change: I think it's both I think it depends on the investor, but I think it's both people are worried about macro for.
Speaker Change: Half a dozen reasons.
Speaker Change: Articulated in my comments and people are worried about the industry because they've never seen the NIH.
Speaker Change: Ended before the.
Speaker Change: The FDA was kind of just always there and steady and suddenly you've got ahead of HHS is little bit of a bolt on a China shop.
Speaker Change: And but 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 on there, we're making really good decisions and we know that both from our own direct experience and from people.
Speaker Change: People inside and so we're we're comfortable with that it's not mean people like to try to characterize all this stuff going on is total chaos.
Speaker Change: The tariffs were total chaos, but I don't think.
Speaker Change: What's going on in the agencies now that they are being run directly by the folks hitting it as opposed to HHS somehow or dose directing this or that.
Speaker Change: You know decision I think that that's going to kind of fade in the past.
Speaker Change: Each will emerge although as I said I think CMS is in great shape the FDA.
Speaker Change: <unk> got a little bit of repair work doing but I think they're doing that and the key reviewers are in place and working.
Speaker Change: And I think the.
Speaker Change: The NIH has yet to be seen what's going to happen there.
Speaker Change: The investment in the Wuhan lab, which is related to COVID-19.
Speaker Change: Destroyed a lot of the great reputation the NIH had had for decades and decades, but the.
Speaker Change: The organization of the NIH is pretty arcane <unk>.
Got what 2007.
Speaker Change: Or minus entities, all headed by a different CEO. So to speak was budget authority and decision making authority.
Speaker Change: And they all have their own teams. They all so it's almost like having 27 entities under one.
Speaker Change: I was on the board of the foundation for the NIH for more than a decade. So I know a lot about the inside workings and.
Speaker Change: A lot of reorganization that can be done and I think under the last administration. They also.
Speaker Change: Went away from best idea wins, the grant and I don't think that's that's a good idea either so.
Speaker Change: The NIH remains to be seen but we don't have.
We as a company have very little exposure to the NIH, we have small handful of leases theyre fairly good duration and they are noncancelable.
Speaker Change: But what happens to their grant, making capability and their extra mural investment remains to be seen and we'll see in private industry is going to have to pick some of that up as well.
Speaker Change: I don't know tally if theres anything else you want to mention about the NIH.
Speaker Change: I would just mentioned that historically you know as you know.
Speaker Change: Where the NIH focused on really large national projects that Dan.
Speaker Change: And then coordination the economic output has just been incredible the human genome project cost about $3 8 billion between 1990 in 2003.
Speaker Change: They estimate that by 2000 patent economic impacts with nearly $800 billion.
Speaker Change: So whether.
Speaker Change: Whether the NIH looks different or is structured in a different way. The importance really is that this funding going to innovation to ensure that we maintain our global leadership position.
Speaker Change: And 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 and there. They are focused on preserving and protecting this industry, which is one of the few remaining crown jewel industry.
Speaker Change: <unk> and when it comes to things like the tariffs, they're really trying to put tariffs on.
Speaker Change: Making a distinction between materials coming from friendly countries and unfriendly countries.
Speaker Change: And what they want to do is bring supply lines back to the U S or to safer locations and I think thats going to benefit this industry greatly but people in Congress bipartisan whether its this administration. The last administration future administrations theyre going to want this industry to remain dominant and not allow.
Speaker Change: China to overtake us <unk>.
Speaker Change: <unk> 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.
Speaker Change: Great well forget those comments thank you.
Speaker Change: Yes.
Speaker Change: The next question comes from Peter Abramowitz with Jefferies. Please go ahead.
Peter Abramowitz: Yeah. Thank you for taking my question.
Peter Abramowitz: Just wondering as you have conversations internally, especially I guess as it relates to the change in the guidance certainly <unk>.
Peter Abramowitz: Performed a lot of your markets in terms of occupancy loss, but just curious your internal conversations do you have a sense of where you think occupancy could bottom in the portfolio.
Peter Abramowitz:
Peter Abramowitz: The timeline for how that could happen and then kind of what you would need to see to start to see an inflection.
Peter Abramowitz: Yes, so mark you could talk about how you how you analyze occupancy guidance.
Peter Abramowitz: Yes.
Peter Abramowitz: We definitely look space by space.
Peter Abramowitz: Do you think that we have.
Peter Abramowitz: We had a large amount of expirations that came proportionately in the first quarter here Peter So.
Peter Abramowitz: I do think that that was.
Peter Abramowitz: A little unusual that it was that large in a particular quarter and of course, we knew that we had.
Peter Abramowitz: A couple of big suites coming back to us.
Peter Abramowitz: That will require some time.
Peter Abramowitz: A couple of projects in that 768000.
Peter Abramowitz: Many of those most of those will take some time to release so.
Peter Abramowitz: Those were not expecting that at least that 268000 that much of any of that will be delivered this year. So.
Peter Abramowitz: It could be in the 26 before we see.
Peter Abramowitz: That stuff both.
Peter Abramowitz: Could you at least this year I would hope that that would be the case, but delivered.
Peter Abramowitz: Delivery really not until until next year, but beyond that the stuff that came back this quarter as we as we said in the prepared comments.
Peter Abramowitz: A lot of a lot of smaller spaces.
Peter Abramowitz: Here and there.
Peter Abramowitz: Some of those were leased and they just they are just going to take some time to to renovate and to deliver to the to the tenants.
Yes, I would say also we're seeing a phenomenon very different macro backdrop, but that we saw.
Peter Abramowitz: During the Bull market run now we're in a bear market run.
Peter Abramowitz: But where we have a number of spaces in different locations, which are being IDE for alternative use not lab and so.
Peter Abramowitz: Yeah.
Speaker Change: Peter has mentioned.
Speaker Change: I think we've mentioned on this call and it's certainly been prominent in the press if you look at mission Bay.
Speaker Change: AI has and open AI 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 wouldn't have guessed and so there are a number of users and <unk>.
Speaker Change: Disciplines outside of lab that are looking at a bunch of our different spaces. So you could see some of those.
Speaker Change: 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 and we had some of that with.
Speaker Change: Big Tech taking space in our laboratory developments, which we never imagined back a handful of years ago. So we're seeing that kind of thing again, starting to take hold so I'd say stay tuned on that as well.
Speaker Change: Alright, I appreciate the commentary thanks for the time.
Speaker Change: Yes. Thank you.
Speaker Change: Our next question is from James camera with Evercore ISI. Please go ahead.
Speaker Change: Thank you sorry to make you stay on just to clarify please some of Mark's comments regarding the interest expense is that correct Martin interpret the $20 million plus or minus a revision for $25 for four months on 1 billion four does that imply.
Speaker Change: Annualized kind of 50 665 million from 26.
Speaker Change: Rental expense.
Speaker Change: Yes, the numbers that I rattled through on.
Speaker Change: On average about $1 4 billion for four months that that kind of gets you to that $20 million that's spread across.
Speaker Change: Several projects.
Speaker Change: So yes, I mean, if the assumption was that that we didnt recommence on any of that for a year.
Speaker Change: The 20 million you can do the math at $20 million becomes $3 three times that amount right to get to an annualized number.
Speaker Change: It's just difficult to.
Speaker Change: To predict what next year looks like a lot of that land is very well located and mega campuses. So.
Speaker Change: Hard to predict.
Speaker Change: What the world looks like come.
Speaker Change: Come 2006, and whether we recommenced work on those sites or whether they continue to be shut down.
Speaker Change: Fair enough and maybe just finally circling back to some of the prepared comments regarding the onshoring of pharma manufacturing et cetera, certainly a positive for the U S industry.
Speaker Change: But can you look back over your long history as an operating company have you seen where R&D also kind of gets a ramp when we're manufacturing is located in other words is that stimulate more R&D space, which I think has been more your middle of the fairway tenant demand.
Speaker Change: Yes, Alex.
Speaker Change: Yeah, I think it depends on the type of manufacturing and so when we're talking about manufacturing for chemical API. So most of that medicines until farm further largely think of them as broker mechanical refinery type.
Speaker Change: Projects, which are not going to be located where arent clusters are however, if you think about more advanced manufacturing.
Speaker Change: Early sell.
Speaker Change: Therapy gene therapies.
Speaker Change: Tend to have a much more advanced talent base right that overlaps with R&D talent right and so <unk> is a good example, where many of those employees could be bolt on in R&D lab oriented manufacturing site, there, but we're one of them is fine.
Speaker Change: So I certainly think it depends on the specific case and then what type of manufacturing it is.
Speaker Change: Just think of that broadly speaking, it's just a really important step for industry to ensure that we have.
We don't have shortfalls and really critical medicines anything broadly have more investment here in the U S market abilities in the industry.
Speaker Change: Alright, Thank you for the color I appreciate it.
Jim: Thanks, Jim.
Speaker Change: Thank you.
Jim: We have no further questions.
Jim: I would now like to turn the conference back over to Joel Marcus for any closing remarks.
Joel Marcus: Just to say thank you very much and we'll look forward to talking to you on our second quarter call take care.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].