管理層發言
Good afternoon, everyone, and welcome to the Alexandria Real Estate Equities Second Quarter 2026 Conference Call. Please note, today's event is being recorded. At this time, I'd like to turn the floor over to Paula Schwartz with Investor Relations. Please go ahead.
Thank you, and good afternoon, everyone. This conference call contains forward-looking statements within the meaning of the federal securities laws. The company's actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission. And now I'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.
Thank you, Paula, and welcome, everybody, to the Alexandria Second Quarter Earnings Call. With me today are Peter, Marc and Hallie. And before we start detailed comments, I'd like to start with a quote from Ralph Waldo Emerson: 'Cultivate the habit of being grateful for every good thing that comes to you, and to give thanks continuously. And because all things have contributed to your advancement, you should include all things in your gratitude.' The point being we are very grateful and most proud of our one-of-a-kind team and of our one-of-a-kind mission. Operating in a highly regulated industry within a rapidly changing macro environment is never easy, but we remain steadfastly focused on our path forward. Let me share with you some key observations regarding the second quarter and maybe a good place to start is leasing, kind of the lifeblood and the key to stabilization of operating metrics, especially in the life science industry these days. And remember, 75% of our leasing has come from our own tenants, a really best-in-class tenant roster. We're seeing steady improvement, which is good. We're winning an outsized number of shares of transactions, which is good. We have a very well diversified and strong tenant base. Our Page 18 pie chart is illustrative of that. Very strong leasing in the second quarter from our life science product, service and device sector really depicts shovels and tools of the industry, almost 40% of the leasing volume. Also a strong second quarter showing from our advanced technology sector in several of our submarkets with almost 30% of the leasing volume. Public biotech was only about 6% as the industry is seeing substantially improving metrics. They are still decoupled from the demand on the ground, and we might have more to say about that in the Q&A. I think one thing that could make a difference there would be, well, many things could make a difference, but I think stability and truly knowledgeable and expert leadership at HHS, FDA and NIH would certainly go a long way. There's still much work to do on our leasing of our redevelopment and development pipeline with only about 70,000 rentable square feet in the second quarter. We're very keenly focused on the modest remaining 2026 rollovers that remain unresolved of about 494,000 rentable square feet. 2027 rollovers unresolved other than those focused either track to leasing or track, we have ongoing discussions of about 2.7 million. This is mission-critical as we go forward to the last half of 2026 and into 2027, of course. For the third quarter, our pre-read indicates that our best knowledge at this point is about 950,000 rentable square feet of leasing projected in the third quarter, again based on our current view of that forward pipeline. We have and will continue to meet the market. Moving from leasing to sources of capital, as we did in 2025, we are currently very comfortable that we can and will meet our total target of $2.9 billion. We're always mindful time is of the essence, but timing is never simple. We are making excellent progress and would not let some artificial timing be of concern at this juncture. The demand for Alexandria's assets remains strong. In the third quarter, we'll take a bit of a deep dive into the composition of the assets that have been sold or will be sold this year and the disposed NOI analysis. We are very mindful not to unduly tie our hands in any new joint venture transactions and are working hard to make sure those are successful both for capital raising and for operational efficiency. Moving on to allocation of capital: we're laser-focused on trying to reduce our CapEx of the $1.75 billion construction pipeline for this year, which is fortunately highly leased, and we're anxious to continue deliveries, and we're focused on the lease-up of vacant space and making good progress there. On the life science industry itself, I'll refer you to pre-read pages VII and VIII regarding the core pillars and the key 2026 second quarter events. To say it's greatly nuanced and complex would be a bit of an understatement. Again, we're still very focused on HHS, FDA and NIH. One other comment: we see during an election year a lot of people advocating for Medicare for All. It's been stated by many administrations at both the executive level and the HHS level that Medicare for All would be a budget buster. It would be almost impossible to administer given the current environment and would be a giant impact on budget. It would also mean taking two-thirds of the population who are covered under private plans and moving them to a government system. If you go to Canada or any other country that has that system, you wait in line, so not a very desirable outcome. The key factors to watch for the rest of 2026 in the life science industry beyond, obviously, the midterms: there's continuing strong innovation, which is fueling the industry. There's been a very solid financing environment, and we're closely watching interest rates as they move around pretty significantly day-to-day, week-to-week, month-to-month. Sentiment we're watching closely has been generally positive. M&A has been very strong this year. Drug pricing and policy has been kind of a mixed bag, but the most favored nations has not derailed the profitability and the go-forward health of the industry. We'll see where some of the IRA implementations come over the coming months and quarter. On the regulatory side, that still is a bit of a mess, and that is of concern, although 23 products were approved year-to-date, which is pretty well in line with past practice. Patent cliffs continue to be a big bugaboo of the industry. Earnings and growth have been pretty positive and China remains a big negative overhang. Moving quickly to the balance sheet, our North Star and one that we continue to focus on is keeping it strong and flexible. Marc will have a lot more to say about it, but we're confident that our year-end target leverage remains achievable at 5.6x to 6.2x. Medium term, we're looking at mid-5s. We have excellent liquidity, and we successfully extended our $5 billion line of credit to 2032. As we've said a number of times, we have the longest average remaining debt maturity of all S&P 500 REITs, which is good. Marc will discuss guidance before I turn it over to him in a moment. He and the team have tried to detail the multifaceted set of items impacting 2026 and the fourth quarter on Page 6 of the earnings release. Obviously, critical to establishing a solid earnings run rate base beyond 2026 will be strong and consistent leasing of our development and redevelopment pipeline and successful handling of the 2027 lease rolls. We're laser-focused on continuing to decrease CapEx and manage our funding cost effectively. With that, let me turn it over to Marc.
Thank you, Joel. Good afternoon, everyone. This is Marc. Congratulations to the entire Alexandria team for solid execution during the quarter. First, leasing volume for the quarter was solid and exceeded 1 million square feet. Second, we continue to be focused on improving occupancy with 1.4 million square feet of leased space that is currently vacant and is expected to be delivered to the tenants and positively impact occupancy in November on average. Third, continued outperformance on occupancy relative to the broader markets with average outperformance across our largest three markets ranging from approximately 8% to 12% as of the end of 2Q. Fourth, we delivered a 427,000 square foot build-to-suit to Bristol-Myers at our Campus Point Megacampus under a long-term lease, which will provide significant net operating income and value to our shareholders. Fifth, we remain committed to meeting our funding goals with 46% of our target for dispositions and sales of partial interest and other capital completed or pending, subject to nonrefundable deposits, signed LOIs or sales agreements under negotiation, with another 38% in process. And sixth, we completed an extension of our $5 billion credit facility to 2032, providing tremendous access to liquidity for many years. FFO per share diluted as adjusted was $1.73 for 2Q 2026, and we reaffirm the midpoint of our guidance for 2026 FFO per share diluted as adjusted at $6.40, while tightening the range to plus or minus $0.05. Leasing volume for the quarter was solid at 1,039,000 square feet. A few items to highlight on leasing activity: first, total volume was up 60% over the prior quarter and up 9% over the prior four-quarter historical average. Second, new leasing comprised of both leasing of our development and redevelopment projects and the vacant space aggregated almost 400,000 square feet for the quarter, which was the second largest quarterly total since 2Q 2024, excluding the large big pharma build-to-suit lease we signed last year. Third, leasing from public biotech increased quarter-over-quarter from zero last quarter to 5.8% of the total leasing volume, a positive sign, but still below the representative portion of our overall tenant base based upon annual rents of 21% for biotech. Regional leasing outperformance continued in the San Francisco Bay and San Diego markets where we accounted for 2x and 1.7x the leasing activity compared to our market share during the quarter. Greater Boston lab leasing was approximately in line with our market share for the quarter if we carve out a 0.5 million square foot renewal of a big pharma company in Cambridge executed by another party. Our team was still very active executing a 160,000 square foot advanced technology lease during the quarter, among others. With respect to tenants in the market, positive momentum continued into the second quarter with an overall quarter-over-quarter increase of approximately 10%. Another positive note is that we are starting to see an increase in tenants in the 20,000 to 100,000 square foot size range, which we've defined as the middle of the demand barbell. In the second quarter, 64% of the total requirements we're tracking in the big three markets are in that size range. Many of these tenants are public biotech companies, a segment of demand that has been lagging over the last few quarters. Looking ahead to the next quarter, we currently project solid leasing volume for 3Q 2026 in the 950,000 square foot range. One factor to consider for context is that we have very modest lease expirations over the next two quarters with only 734,000 square feet of unleased expirations remaining for 2026. On concessions, initial free rent concessions remain elevated but came down off the peak from last quarter of two months per year of term to this quarter, based on a trailing 12 months, of 1.5 months per year of term. Occupancy at the end of 2Q 2026 was 86.9%, down 80 basis points from the prior quarter. The key changes in occupancy for the quarter included the following three components: first, a reduction of 80 basis points driven by previously disclosed key known lease expirations, which went vacant during the quarter. Second, we reclassified one 160,000 square foot building in our Andover Megacampus from redevelopment to operating when we leased the building to an advanced technology tenant. When we made this decision to not complete the redevelopment of the building as originally intended for laboratory and/or biomanufacturing use, we reclassified this building back into operating and accordingly, operating occupancy came down by 40 basis points. Importantly, we expect the lease to commence in 2Q 2027 and positively impact occupancy at that time. Third, we had occupancy growth of 40 basis points, primarily driven by the commencement of leases and leasing activity. Bolstered by solid new leasing during the quarter, we now have leased 1.4 million square feet, which is expected to commence in November 2026 on average with expected annual rental revenue of $69 million. Tenants continue to recognize the importance of Alexandria's strong sponsorship, operational excellence, asset quality, location and our Megacampus model, which represents 80% of our annual rent and has led to our continued outperformance by approximately 8% to 12% across our largest three markets compared to market occupancy as of the end of 2Q. Same-property net operating income was down 10.6% and 8.6% on a cash basis for 2Q 2026. These percentage changes represent an improvement compared to the prior quarter performance of 1.3% and 3.1% on a cash basis. The overall decline for 2Q 2026 same-property performance was primarily driven by a reduction in occupancy compared to the prior year. We expect stronger same-property performance in the second half of 2026, which includes the potential benefit related to a range of assets with vacancy that could potentially be sold or designated as held for sale in the second half of 2026 and could be removed from the same-property population. We did not make any changes to our guidance for occupancy, same-property performance or rental rate changes on lease renewals and re-leasing of space. Despite current challenges in the life science real estate market, we continue to benefit from a high-quality tenant base with 57% of our annual rental revenue coming from investment-grade or publicly traded large-cap tenants, long remaining lease terms of 7.7 years, average rent steps approaching 3% on 97% of our leases and strong adjusted EBITDA margins of 67% for 2Q 2026. We continue to focus on the successful reduction and management of our general and administrative expenses as well. We remain on track with our guidance range of $134 million to $154 million for 2026, which represents around a 14% savings at the midpoint compared to our 2024 benchmark or about $24 million in annual savings. On a combined basis for 2025 and 2026, we expect G&A expense savings of around $76 million in aggregate relative to 2024. Our trailing 12-month G&A as a percentage of net operating income through 2Q 2026 of 6.6% is less than half of the average for all S&P 500 REITs over the last few years of 14.3%. Realized gains included in FFO per share diluted as adjusted from our venture investments were $10.3 million for 2Q 2026 or $28.5 million for the first half of 2026. We reiterated our guidance range for realized investment gains of $60 million to $90 million for 2026. Capitalized interest for 2Q 2026 of $73.7 million was up slightly from the prior quarter, primarily driven by an increase in our weighted average interest rate on debt. We expect average real estate basis capitalized to reach a bottom for 2026 in the fourth quarter, ranging from $3.4 billion to $4.9 billion, which is a $2.8 billion reduction in basis compared to the first half of 2026. We reduced our guidance for capitalized interest by $5 million at the midpoint of our range due to anticipated earlier completion of certain construction and preconstruction milestones, primarily impacting the fourth quarter, including a potential decline related to projects which we are evaluating from a business and financial strategy perspective. As of 2Q 2026, we have 1.4 million square feet of development and redevelopment projects under construction and expected to stabilize through 2028, which are 71% leased. In addition, we have 1.4 million square feet spread across five projects which we are evaluating the business and financial strategy for. Overall, the square footage in our pipeline has shrunk by 20% from the beginning of the year as we continue to execute on our plan, which includes completing our development and redevelopment projects or, in some cases, pivoting to advanced technology strategies. We continue to make progress in resolving the go-forward strategy for our five projects under evaluation. 311 Arsenal Street, located on our Arsenal on the Charles Megacampus in Watertown in our Greater Boston market, is the first one. We are seeing very solid activity for this project from advanced technology users, and we executed letters of intent for approximately 109,000 square feet with multiple tenants, which increased the leased negotiating percentage for this project up to 44%. Next, 421 Park located in our Fenway Megacampus is a ground-up development project intended for laboratory use, and we have important activity from an institutional user. The outcome for this project will depend on tenant interest, and we have upcoming construction milestones to consider in early 2027. 40 Sylvan Road in Waltham is attractive to advanced technology tenants that may find certain elements of the building attractive and may not require a conversion to lab. This project has critical milestones in the second half of 2026 which we are carefully evaluating. Finally, 3000 Minuteman Road, located in our Andover Megacampus, will be attractive to advanced technology tenants as evidenced by the 160,000 square foot lease we executed for one of the buildings on this campus during the quarter. For 311 Arsenal, 40 Sylvan Road and 3000 Minuteman Road, if we complete significant advanced technology leases, we may place all or some portion of these spaces into the operating pool, which may reduce operating occupancy in the near term, but more importantly will reduce our capital needs and generate near-term revenue upon delivery. We continue our laser focus on our sources of capital with a disciplined multifaceted strategy which includes dispositions, sales of partial interest and other capital with a focus on the substantial completion of our large-scale noncore asset sale program in 2026, with a guidance midpoint of $2.9 billion and a weighted average projected completion date in September. We continue to refine the projected sale composition ranges as we get more clarity with land dispositions comprising 15% to 35%, noncore asset dispositions of 10% to 20% and sales of partial interest and other capital of 50% to 70%. In addition to traditional joint ventures of core assets included in the 50% to 70% basket within our guidance, we are also evaluating other important cost-efficient capital source alternatives that would help us achieve our desired leverage goals and allocation of capital uses, and we expect to have more information to share soon. To be very clear on this point, our guidance does not assume the issuance of any common equity for 2026. Our team is making good progress with $1.3 billion or 46% of our $2.9 billion guidance midpoint which is completed or pending subject to nonrefundable deposit, signed LOI or sale agreement negotiations and is spread across about a dozen transactions. We have another $1.1 billion or 38% of the midpoint of our guidance of transactions that is currently in process. We expect to make decisions on the remaining 16% over the next few months. In connection with our disposition program, we recognized impairments of real estate of $222.5 million during the quarter, of which approximately 85% to 90% of this amount relates to either land or properties that were laboratory conversion opportunities. The two largest impairments made up around 57% of the total balance and included the following: first, a land parcel located in Northern San Diego that was acquired in the last five years with the intent to develop new laboratory buildings. The submarkets outside of Torrey Pines and UTC have become very oversupplied and this land parcel is now under contract to sell to a residential developer. Second, an office building located in Toronto that was acquired in the last five years with the intent to convert to laboratory use. Biotech demand in Toronto has been greatly diminished, and this building is now under contract to sell to a user. We have over $450 million of assets that have been designated as held for sale and are expected to be sold within the next 12 months, the majority of which were designated and had impairment charges going back to 4Q 2025. Looking forward, we have real estate assets under consideration for potential disposition either by the end of this year or in 2027 that may have estimated market values below their respective carrying values. These assets remain as held-for-use assets at 2Q 2026 and remain recoverable under a probability-weighted recovery analysis and accordingly have not been impaired due to a variety of factors necessary to designate these types of assets as held for sale, including the lack of a final decision to proceed as well as our current estimation that it is unlikely that we will complete these individual sales within the next 12 months. We could have impairments over the next couple of quarters if these types of assets subsequently meet the accounting requirements for held-for-sale designation as we refine our approach, make final decisions to proceed, obtain the necessary approvals and commence the disposition marketing process. On the balance sheet, we have a very strong and flexible balance sheet. Our corporate credit ratings continue to rank in the top 20% of all publicly traded U.S. REITs. We have tremendous liquidity of $3.6 billion as of the end of the quarter, and we recently completed an agreement to extend our $5 billion unsecured senior line of credit to 2032, providing significant runway and flexibility. We continue to have the longest average remaining debt term maturity among all S&P 500 REITs with an average term of 9.7 years. We remain committed, as Joel said, to our leverage goal for 4Q 2026 of 5.6x to 6.2x on a net debt to annualized adjusted EBITDA basis. Leverage for 2Q 2026 was at 7x on a quarterly annualized basis, and we expect this ratio to come down significantly over the next two quarters as we make progress on our capital plan. Over the medium term, we would like to be around mid-5x. On guidance, we tightened the range of our guidance for 2026 FFO per share diluted as adjusted with no changes to the midpoint of $6.40. Our current outlook has a few moving pieces to highlight. Interest expense is expected to increase by $20 million at the midpoint, driven primarily by two factors: later timing on disposition and sales of partial interest, which is now expected to be September on average representing about a six-week change, and a reduction of capitalized interest of $5 million related to earlier completion of various milestones across several projects, primarily impacting the fourth quarter. We now expect higher FFO per share results in 3Q 2026 caused by the later weighted average completion date on capital sources, and we expect lower FFO per share results in 4Q 2026, driven by the lower capitalized interest. We expect 4Q 2026 FFO per share diluted as adjusted to be on the lower end of the range of $1.40 to $1.50. But given the benefit in 3Q that I mentioned, there is no change to the full year results, which remain at $6.40. Our earnings release contains several key considerations that could have an impact on our results beyond 2026, which are highlighted on Page 6. Two important takeaways for that page are as follows: first, we have 1.4 million square feet of key lease expirations in 2027 with expiring rent of $100.5 million, which are expected to have downtime ranging from 12 to 24 months on average; and second, we are laser-focused on meeting the market and leasing up vacant space. Accordingly, our very preliminary estimate for construction spending for 2027 ranges from $1.15 billion to $1.65 billion and is expected to heavily focus on costs necessary for lease-up of our operating properties. The increase from our last update of around $1.25 billion is primarily attributable to higher leasing costs associated with current and anticipated leasing for our operating assets. We continue to focus on the execution of the steps for our path forward that we established at our Investor Day. With 10,000 known diseases and limited cures and treatments, the industry is in the early innings of the fight against disease, and we believe Alexandria is well primed to attract the best tenants driven by our world-class Megacampuses in the best locations and operated by our seasoned team, prioritizing operational excellence in everything that we do. Now I'll turn it back to Joel.
So, operator, if you could open it up for questions, please.
分析師問答
At this time we'll begin the question-and-answer session. Our first question today comes from Farrell Granath from BofA.
I first just wanted to touch on the leasing that has been done, especially for the advanced technology tenants. And thinking about that going forward as potentially a key tenant for your leasing and how the trade-off between the lower CapEx and potentially lower stabilized yield may offset from the tenant improvements or other costs that you would have had upfront for life science tenants. And my second question is on your disposition timing. I know that the weighted average disposition time only shifted a few weeks. I wanted to see if you could touch on what drove that shift and what gives you confidence on the continued close of your midpoint of the $2.9 billion?
Yes. Thanks, Farrell, for your question. I think it's fair to say that many of these are not traditional AI office kind of tenants. There are tenants who are looking for critical infrastructure. So the lease rates will vary based on that infrastructure, how much we contribute versus how much they contribute. And obviously, many of these tenants are extremely well funded, have pretty great credit and wish to put a lot of their own money in. So there is that trade-off of lower CapEx and somewhat lower rental rates. Marc, do you want to make any comments generally on that?
Yes. The other thing I would add to that is incremental yields are generally around the same as lab. But as Farrell noted, the all-in yields can be lower. Being able to monetize these assets by getting cash flows with a path to cash flow and better visibility is something we're interested in doing. It was a big piece of the leasing pipeline and activity this quarter, and I think it will be a decent size next quarter as well.
Yes. Maybe just thinking historically, if you go back, this generation of advanced tech tenants and technologies is quite varied and complicated given the evolution of technology. Going back to the early days, we never really pitched to tech tenants. But early on, we had Google's first campus. We had Uber come to us to build for them in Mission Bay. OpenAI has come into there. We've had some fortunate occurrences because of excellent location of the Megacampuses and the amenitization and what goes into those campuses as being a great place to recruit and retain talent for these companies.
Yes. There's a significant amount of sales that are in the JV bucket, and we're progressing on them. One of the JVs is in its final steps, but the other one is less advanced because it's more complicated. We thought we'd be further along by now when we talked at different investor conferences. The other thing is on the noncore bucket: it is typically reliant on financing and financing is available, but it is taking our buyers longer to obtain it. So that's also pushed the timeline out a bit.
Our next question comes from Ronald Kamdem from Morgan Stanley.
Great. My first one is just thinking on the dispositions. From the Investor Day where you announced a $2.9 billion plan and sort of what you've seen so far — if you sort of marry the comments you made about the CapEx spending next year and the NOI or the rents that are coming out, presumably, there could be more dispositions next year. Are there any lessons learned in this year's experience on trying to get these dispositions through that, as we flip the calendar, could be helpful? My second question: I know the occupancy guide includes a 1% or 2% benefit from the dispositions. Maybe can you talk about how you're marrying the leasing with the occupancy and how you're seeing the tenant health and their access to funding?
I don't think we have any lessons learned that we haven't learned previously. Our experience last year is pretty reflective of this year. The level of interest and the momentum has been greater this year. The industry has recovered more than last year. We're on track this year. We feel good, and we'll see about next year. We're trying to manage CapEx, manage spend and sources. We'll give further framework in the third quarter and specific guidance in the fourth quarter. We feel very comfortable where we are.
In terms of the occupancy guide, the big moving pieces between the end of 2Q and the end of the year: at the end of 2Q, we're right around where the midpoint is for year-end occupancy. Between now and the end of the year, we've identified some lease expirations that we expect to have some downtime — about 450,000 square feet. Then there's a good chunk of the 1.4 million square feet that's leased but hasn't yet hit occupancy; about 64% of that is expected to deliver by the end of this year. Those are the two offsetting items. We have other lease expirations that are manageable, about 500,000 beyond that, and if there are surprises on tenant health, we'll address them. We feel good about where we'll end up on occupancy.
We continue to monitor all of our tenants individually. Even irrespective of the funding environment, biotech is hard, and there are clinical failures and other events that will happen regardless of the macro. Our teams across the country are diligent on getting ahead of those issues and trying to swap out tenants or find replacements before we have an issue. On the funding side, private venture funding was very strong this past quarter — one of the strongest quarters since 2021. IPOs have continued to pick up this year. Secondary financings have been strong as well. We continue to see conservatism from companies in making space decisions, but line of sight into funding is positive, and we're seeing that in the tenants in the market.
Our next question comes from Seth Bergey from Citi.
I wanted to follow up on some of the key expirations. What caused the increase in expected downtime from 6 to 24 months to 12 to 24 months? Also, you included disclosure around the 67% in early discussions and 33% in marketing for the 2027 key expirations — what are your expectations around retention broadly for those leases?
The movement to a 12 to 24 months range was done out of an abundance of conservatism and caution. Until the mainstay tenant base of public biotech really comes back in a meaningful way, we want to be cautious. This quarter showed increased activity from picks and shovels and tools sectors and from advanced technology companies, which generally have longer lease terms and are positive for occupancy. Out of caution, we're conservative with our downtime assumptions, but we hope to do better.
On the 1.4 million square feet that are part of the key lease expirations with downtime, those are spaces we don't expect to retain the existing tenants. The 12 to 24 months downtime reflects both lease-up time and time to put capital in because those spaces on average will require some capital. In terms of retention generally for other expirations, outside of the known vacates, we were modeling somewhere in the 60% to 70% range for 2026.
If you look at the 2026 key expirations at the bottom of Page 23, 50% of that is leased and negotiating and that's going really well. The other half has activity in the early discussions bucket, and there is a big chunk that is still leased and will become available in the next quarter. Until tenants move out, it's tough to get a lot of activity going. For the 2027 expirations, we noted that 67% has early discussions; I did some analysis and we've actually got 85% of that space as active prospects — people we're talking to specifically about the space. That bodes well for progress toward the latter half of the year.
I'll add that while we are seeing increased demand, the requirements are broader across different sectors, including life science tools, which continues to be strong and drove a lot of leases this quarter. Public biotech is still slower and lagging compared to other sectors, but broadly across other sectors we're seeing widespread tenant interest.
Maybe a second on the 10% increase in tenants in the market — were there particular groups driving that improvement?
There was a significant increase in tenants between 20,000 and 100,000 square feet, the middle of the demand barbell we've been missing for a while. That size tenant is typically public biotech, and with secondaries and IPOs starting to come into the market, companies have better line of sight on financing, which is why we're starting to see that tenant size.
I would just add that the increased demand is showing across other tenant types as well, including life science tools and other sectors, not just public biotech, which is encouraging.
Our next question comes from John Kim from BMO Capital Markets.
A couple of times in this call you mentioned meeting the market on leasing. I wanted clarity on whether that means being more aggressive on face rents or TIs, or does it also mean shifting to meet where the demand is in terms of advanced technology or non-biopharma tenants? Also, on the disposition plan, you sound like you have good visibility on the $1.3 billion under LOI or with deposits. Of the remaining $1.6 billion planned to sell this year, what is your confidence on that? If those sales don't happen this year, what is plan B in terms of other sources or delaying some uses to maintain leverage?
I view 'meeting the market' as both approaches: adjusting economics and also making sure we're meeting what the tenant requires today. Peter, do you want to add on the disposition visibility?
It's important to note that one of the larger transactions in that bucket is a joint venture that's taking longer than anticipated, which is driving timing. That number has come down 50% from last quarter, so there is progress. Buyers of noncore and land typically rely on financing, and while financing is available, it's taking buyers longer to obtain it. If financing weren't available, we'd have to pivot to different solutions, but financing is available.
Our next question comes from Anthony Paolone from JPMorgan.
On the 1.4 million square feet of vacates for next year, do you have a sense of what the lease economics will look like versus prior leases, either in face rents or total net effective rents and what the roll-ups or roll-downs may be? Also, on the development and CIP projects with upcoming milestones, what would you need to have to continue to move forward with those aside from a pre-lease?
We haven't baked specific rent roll-ups or roll-downs from the 1.4 million expirations into this year's guidance since those expirations are further out. Across the portfolio, the spot mark-to-market is around 6% above market on average. We're seeing pressure on rents relative to expiring that is baked into our guidance. On the projects with milestones, it depends on the category. For land, we have pretty good visibility on the items in the '28 bucket. For projects in the '26 and '27 categories with upcoming milestones, the decision will depend on opportunities to add value on those land parcels. If we don't see the trade-off to add near-term value, we may pause or pivot and may include them in the disposition program; land will be a sizable piece of the disposition plan for this year.
Our next question comes from James Kammert from Evercore.
In the capital recycling for the balance of '26, you mentioned a fair bit of JV component. Would Alexandria contemplate JV-ing an entire Megacampus? Also, Marc, at 421 Park you mentioned an institutional user — was that for the entire building or a portion?
We have joint ventures on a number of Megacampuses already, so yes, there could be varying degrees of joint ventures. On 421 Park, we can't comment at this stage because there are ongoing detailed negotiations; let us punt on that for now.
Our next question comes from Vikram Malhotra from Mizuho.
First, can you give a sense of where you see occupancy bottoming? You had two years of step downs. Relatedly, how should we think about occupancy falling or rent falling from the move-outs you outlined — the $100 million of impact — what does that mean for margin and NOI? Second, on the capitalized interest and capitalized operating expenses: as you sell these assets and capitalized interest steps down, is there an additional G&A and OpEx hit we need to bake in as we factor in these sales into 2027? Finally, can you give the ins and outs of the debt paydown as you go through the year? The revolver and commercial paper balances have gone up; how should we think about the debt balance at year-end '25 versus projected year-end '26?
We're around 87% occupancy today and think that's around where we'll end the year. The 1.4 million square feet comes back on average in March; how quickly we can backfill will depend on leasing. Two-thirds of the space we've already leased lands this year and about one-third next year, which helps soften the impact. The $100 million is base rent; if buildings come back to us, property taxes and insurance hit the P&L in addition to rent. On capitalized operating expenses, over the six months it's averaged about 2% of the basis subject to capitalization — that OpEx will go away if we sell the asset because the buyer will assume those operating expenses. On payroll that is capitalized, it averaged about 1% for the first half of the year, and that will depend on where internal staff spend their time; we expect our development team to be busy on other projects, so not all of that should hit the P&L. Regarding debt, our commercial paper balance was small at the beginning of the year and I expect it to be small at the end of the year; we said we'd expect it to be under about $350 million. The lion's share of the debt paydown should come via unsecured bonds. We had some maturities earlier in the year and tendered. From here to year-end, we expect almost all of the commercial paper that's outstanding today, close to $2 billion, to be paid off with proceeds from the disposition program.
Our next question comes from Richard Anderson from Cantor Fitzgerald.
Just one topic: on tenants in the market, I want to make sure the sequential increase you discussed is apples-to-apples with what was discussed at NAREIT. Is the 10% sequential increase the same metric?
To clarify, the 30% quarter-over-quarter increase we referenced at NAREIT was across all markets, not just the big three. The 10% sequential increase we're discussing now is also across all markets. Also, Hallie noted that this is life science-only and does not include technology tenants.
Any insight into the present quarter, third quarter?
That particular issue drove outsized growth last quarter; I didn't see anything institutional beyond what happened last quarter. We are pleased to see more midsized tenants. We accumulate tenant-in-market data before earnings, so I don't have visibility on next quarter's tenant-in-market count; we'll discuss it next call.
Our next question comes from Julien Blouin from Goldman Sachs.
If dispositions slip into next year, what would be the impact on FFO in the back half of this year? Would additional NOI from holding those assets longer be offset by additional interest expense? You mentioned other cost-efficient sources of capital you are considering — can you elaborate? Also, regarding 311 Arsenal, 40 Sylvan and 3000 Minuteman: conversions to the operating pool are not currently anticipated in your capitalized basis guidance for 4Q 2026 — is that right? If those were to happen, would that lead to additional capitalized interest burn off into next year?
We don't expect dispositions to slip into next year; we managed and concluded our disposition program last year on target and expect that to happen this year. We won't comment further on potential slippage.
On the classification of those projects, our guidance does not assume those projects come back into the operating pool. If they do, that will impact occupancy in same-property metrics as it's a classification shift. Regarding capitalized interest, our guidance does assume that some projects may pause, and that was baked into our capitalized interest guidance.
Our next question comes from Dylan Burzinski from Green Street.
On Page 23 of the supplement, you outlined reasons for expected downtime on the 2027 key lease expirations. You said approximately one-third relates to leases on assets originally acquired for redevelopment. Can you talk about the plan for those assets? Are they still slated for redevelopment or are they more likely to be leased as-is? For the other third labeled 'other,' is there any trend causing these move-outs — relocating to other properties, downsizing, or other reasons?
On the one-third that were originally acquired for redevelopment, those are assets we're exploring advanced technology tenant interest for, and we've seen activity. The 160,000 square foot lease in Andover is an example where a building we intended to convert to lab was leased to an advanced technology tenant because the asset's characteristics—ceiling heights, power access—made it attractive as-is. We're tracking those opportunities in Boston, San Francisco and Seattle. For the 'other' bucket, some assets may need capital investment before they can be re-leased. For example, our Tech Square 200 campus is a great location but hasn't been significantly invested in for many years. Some of these assets will require upgrades before we can attract tenants.
Those redevelopment-acquired assets present potential to be leased to advanced technology tenants without conversion, which reduces capital needs and shortens time to revenue if we can secure those leases. Where capital is required, we evaluate the business case before proceeding.
That concludes the question-and-answer session. I'll turn the floor back to Joel Marcus for closing remarks.
Okay. Thank you very much, everybody. Wishing everybody well and look forward to talking on the third quarter call. Thank you.
This concludes today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.