Good day, and welcome to the Alexandria Real Estate Equities' Third Quarter 2025 Conference Call. Please note, today's event is being recorded. I'd now like to turn the conference over to Paula Schwartz from 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 would like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

Thank you, Paula, and welcome, everyone, to Alexandria's third-quarter earnings call. Joining me today are Hallie Kuhn, Peter Moglia, and Marc Binda. I'll begin, as is my custom, with a quote. My friend and mentor, Jim Collins, the author of Built to Last, observed that the hallmark of a great enduring company lies in its capacity to manage continuity alongside change, a practice that requires clear focus on what must remain constant versus what is open to modification. Our development pipeline exemplifies this principle. Jim's insights provide a valuable lens through which to view Alexandria's position as a leader in our niche. We pioneered life science real estate 31 years ago during the early biotechnology revolution, driven by our commitment to innovation clusters and ecosystems that are specific to the life science industry, setting us apart from other property types. We are fortunate to have the best assets, tenants, Megacampus, and team. Our ongoing mission centers on constructing the future of transformative innovation and supporting top innovators in enhancing human health. The biotechnology revolution began nearly five decades ago, and within that time, we've only managed to develop treatments for less than 10% of the more than 10,000 diseases recognized worldwide. Disease affects every family and community, causing widespread devastation. Now, we find ourselves at the threshold of a new era of discovery and innovation, intersecting biology and technology. It's crucial to acknowledge that biology is inherently slow and complex. The life science industry, particularly the biotech sector, is vital for a robust and healthy country and planet, as well as for maintaining America’s leadership in global economic growth and security. Unlike most property types such as office, industrial, and residential, we are immersed in a heavily regulated industry where developing life-saving medicines involves significant time and expense. Bringing a product to market allows for only a limited period of sales under strict pricing oversight, distinct from other industries. I ponder what Microsoft might say if they were limited to licensing Windows for just a decade, after which they'd lose the ability to generate revenue from that innovation. The functioning of the government and its agencies is fundamentally important. The four essential pillars of the life science industry are critical to the health of our country. We must sustain and enhance strong translational research, which is the foundation for new discoveries. We need to address the current limitations on indirect overhead costs affecting the institutional sector. It is also vital to foster a robust entrepreneurial ecosystem that ensures access to affordable capital; the high cost of capital today is a challenge for research ventures. While we are seeing improvements, it remains a tough environment. The third pillar involves creating a reliable, efficient, and timely regulatory science framework. The FDA must work to shorten development timeframes and reduce R&D costs. After discussions with Commissioner McGarry in late September, it’s clear he is focused on this issue. It is worth noting that the total development time for molecules in the Western world, particularly in the U.S. and EU, typically spans about 10 to 12 years, whereas in China, it is roughly one-third of that timeframe. The estimated cost to bring products to market in the Western world is around $1.5 billion, compared to costs in China that are 50% to 90% lower. Thus, the industry faces unique challenges today. The fourth pillar relates to ensuring reasonable reimbursement for innovative medicines, which are costly and time-consuming to develop. Alexandria successfully navigated the dot-com bust around 2000 and the great financial crisis from 2008 to 2009, despite being unrated and non-investment grade at the time. During the GFC, we had 30% of our gross assets tied up in non-income-producing land in Mission Bay and Cambridge. This time, however, the navigational challenges are different. We have experienced an unprecedented bull market in biotech from 2014 to 2021, characterized by aggressive COVID-related funding in a low-interest-rate environment that led to reckless speculation by some real estate firms and their financial backers, resulting in an oversupply in various innovation submarkets. This created a situation never seen before in this niche, but those involved are learning that this sector operates distinctly from others. Following this period, we entered a biotech bear market that has lasted five years; however, we are beginning to see signs of recovery, as we anticipated during our presentation at NAREIT in June. The industry is currently grappling with a government shutdown, which poses significant ramifications for the FDA, creating a challenging backdrop for this quarter, marked by unprecedented innovation potential alongside a government shutdown. I extend my gratitude to our outstanding team for their resilience and expertise as they navigate this tough landscape. While declines in funds from operations per share, occupancy, and guidance are challenging at any time, Alexandria remains robust, resilient, and a beacon of hope for the life science industry. One of our guiding principles has been our financial position, which has strengthened since the GFC when we were unrated. Today, we rank among the top 15 REITs, with a strong and flexible balance sheet, the longest weighted average remaining debt among S&P 500 REITs at 11.6 years, over $4 billion in liquidity, and a solid fixed coverage ratio. Almost 97% of our fixed-rate debt carries a blended interest rate of 3.7%. We are focused on reducing our non-income-producing assets from the current 20% to around 10% to 15%. Compared to the GFC when we had 30% of our gross assets tied up in non-income-generating assets with an unrated balance sheet, we recognized a pent-up demand during that period. We have retained our land in Mission Bay and Cambridge for future development, which contributed to a decade of significant growth. Alexandria is transitioning from extensive development to a focus on build-to-suit projects on Megacampus. We plan to reduce construction spending, conserve capital, and avoid further oversupply. Before I turn the call over to Marc for a detailed review of the quarter and the factors impacting 2026, I would like to briefly address our leasing strategy. Our leasing platform is vital to Alexandria, housing the largest number of clients and a strong tenant base. Currently, 53% of our leases are with investment-grade or large-cap tenants, boasting an average weighted lease term of nearly 9.5 years among our top 20 tenants, with 18 of the top 20 pharmaceutical companies being our clients, demonstrating our brand's trustworthiness in the industry. Congratulations to our team for successfully executing a historic lease this quarter for 16 years with an existing credit tenant for nearly 500,000 square feet at our Campus Point Megacampus in San Diego. We're proud to report that our annual rental revenue from Megacampus stands at 77% and is close to reaching 80%. Our operating margins remain strong, and we maintain a disciplined approach to general and administrative expenses. The third quarter showed solid leasing activity, though institutional demand remains sluggish due to NIH-related issues, particularly concerning the reimbursement of indirect costs. Additionally, we need to witness more signs of growth from early-stage, venture-backed companies as well as from larger public biotech firms, which have not yet meaningfully recovered. There are early indicators of improvement in this area, making it a crucial point to monitor moving forward. Finally, we remain committed to meeting market demands for our tenants and will continue to succeed in leasing and leading our sector. Now, Marc, over to you.

Thanks, Joel. This is Marc Binda, Chief Financial Officer. Good afternoon. I plan to cover the performance for the third quarter as well as some key emerging trends expected to impact 2026. Our team continues to navigate a challenging environment given macro industry and policy factors beyond our control. Please refer to our earnings release for our EPS results. FFO per share diluted as adjusted was $2.22 for the third quarter of 2025, and included the following three key impacts compared with the prior quarter. First, occupancy was effectively down 1.1% for the quarter after considering the benefit from the exclusion of assets with vacancy, which were sold or designated for held-for-sale during the quarter, and was driven by a challenging life science supply and demand dynamic. Second, there was a $0.03 reduction in rental income associated with one tenant in our Seattle market to adjust rental income to cash basis. Importantly, that tenant remains in occupancy and is current on rent pending future critical milestones in the first half of 2026. And third, other income was down $8.7 million, or about $0.05 compared to the prior quarter. Current quarter other income of $16 million remains consistent with the prior 8 quarter average. And as we discussed in our prior call, the second quarter of 2025 did have some lumpy fees in there. Leasing volume for the quarter remained solid at 1.2 million square feet, in line with the 5 quarter average. This includes the previously announced 467,000 square foot build-to-suit lease with a multinational pharma tenant that was executed in July. We continue to benefit from our scale, high-quality tenant roster, and brand loyalty with 82% of our leasing activity in the quarter coming from our existing deep well of approximately 700 tenant relationships. Rental rate growth for lease renewals and re-leasing the space for the quarter was solid at 15.2% and 6.1% on a cash basis, which is at the high end of our guidance range for the year. We've reduced our guidance for 2025 rental rate increases on renewals and re-leasing the space by 2%, primarily due to one short-term renewal in Canada that was executed in October as well as some higher free rent. Lease terms on leasing continue to be long at 14.6 years for the quarter, which is well above our historical average, and tenant improvement leasing costs on renewals and re-leasing the space for the quarter are relatively consistent with the prior year and down from the first half of the year. Occupancy at the end of the quarter was 90.6%, which was down 20 basis points from the prior quarter. As of September 30, certain assets with vacancy were designated for held-for-sale and were removed from our operating occupancy metric, which benefited occupancy at September 30 by 90 basis points. As a result, the decline in occupancy for our operating properties on an apples-to-apples basis declined by 110 basis points during the quarter. While occupancy declined due to oversupply in certain of our submarkets, it's important to highlight that our Megacampus platform, which represents 77% of our annual rental revenue as of the third quarter of 2025 outperformed overall market occupancy in our three largest markets by 18%. Our outlook for year-end occupancy was reduced by 90 basis points to a range of 90% to 91.6%. Our outlook assumes up to a 1% benefit from assets with vacancy, which could potentially be sold or designated as held-for-sale by December 31, which implies an 80 basis point decline in occupancy by the end of 2025, based upon the midpoint of our guidance. Our team continues to execute with 617,458 square feet of leasing completed to date for spaces that are vacant today and expected to deliver upon the completion of construction in May of next year on average. Looking ahead to next year, we have 1.2 million square feet of lease expirations through the end of 2026, and which are in great assets in AAA locations but are expected to go vacant, and we expect downtime on those assets. Same-property NOI was down 6% and 3.1% on a cash basis for the quarter. The decline in same-property was primarily driven by lower occupancy. In addition, we provided an alternative same-property presentation, which recasts the first and second quarter results based upon the third quarter same-property pool to provide a consistent quarterly trend view given several assets that were removed from the third quarter same-property pool as they were either sold or designated as held-for-sale. It's important to note that this alternative presentation shows higher same-property performance in the first half of 2025, which means there will be a tougher benchmark in the first half of 2026. We reduced our outlook for same-property performance for 2025 by 1%, primarily due to slower-than-anticipated leasing caused by a slower realization of demand. Despite this change, we continue to benefit from a very high-quality tenant base with 53% of our ARR coming from investment-grade or publicly-traded large cap tenants, long remaining average lease terms of 7.5 years, average rent steps approaching 3% on 97% of our leases, solid rental rate increases of renewed and re-leasing space during the quarter, and our adjusted EBITDA margins remained strong at 71% for the most recent quarter, consistent with our 5-year average. On G&A, we continue to make great progress towards our goal of annual savings for 2025 of approximately $49 million compared to 2024 through a number of prudent and strategic cost savings initiatives. Our trailing 12 months G&A cost as a percentage of NOI was 5.7%, which represents approximately half the average of other S&P 500 REITs. We expect that around half of the 2025 savings will continue into 2026, given the temporary nature of some of the 2025 savings. With projects under construction and expected to generate significant NOI over the next few years, and other earlier-stage projects undergoing important entitlement design and site work necessary to be ready for future ground-up development, we are required to capitalize a portion of our gross interest cost. We have and will continue to curtail our large development pipeline coming off a decade bull run for the industry fueled by the rocket ship demand of COVID. Given the lack of clarity on near-term demand as well as significant availability in some of our submarkets, we are carefully evaluating on a project-by-project basis the $4.2 billion of land subject to capitalization during the first nine months of the year. With preconstruction milestones in April 2026, on average, we continue to evaluate whether to progress preconstruction or construction efforts beyond the current milestones and in various cases will likely pause or curtail activity. If we decide to pause on a project as it reaches the next milestone, capitalization of interest, payroll, and other required costs would cease on that project. While these ultimate decisions have not yet been made, we would like our funding program for next year to include a significant component of land dispositions which help us achieve one of our strategic objectives over the near to intermediate term to significantly reduce the size of our land bank. Sales of land could result in a significant reduction in capitalized interest and potential impairment charges. We expect steady to slightly lower capitalized interest in the fourth quarter of 2025 and lower capitalized interest beginning in the first quarter of 2026. Despite positive recent activity for the biotech XBI Index, private and public biotech companies continue to remain challenged given the 5-year bear market for the sector. Given these and other factors unique to our venture investments, we did revise our guidance down to a range of $100 million to $120 million. It's important to point out that for the first nine months of 2025, we realized $95 million of gains from our venture investments, which were included in FFO per share as adjusted or about $32 million per quarter. Based upon the midpoint of our revised guidance for realized investment gains of $110 million, this implies $15 million for the fourth quarter, or a $17 million decline over the average quarterly run rate for the last 3 quarters. We continue to stand out as our corporate credit ratings rank in the top 15% of all publicly traded U.S. REITs. We have the longest average remaining debt maturity among all S&P 500 REITs at 11.6 years and tremendous liquidity of $4.2 billion. We updated our guidance for year-end leverage to 5.5 to 6.0x for the fourth quarter of 2025 net debt to annualized adjusted EBITDA. The increase from our prior target of 5.2x was primarily due to two factors: first, a reduction in our disposition guidance to a midpoint of $1.5 billion related to $450 million of potential dispositions expected to be delayed into 2026; and second, a projected reduction in annualized EBITDA in the fourth quarter from lower same-property net operating income and lower realized investment gains. We've completed $508 million of dispositions to date, which leaves $1 billion to complete in the fourth quarter, all of which are subject to non-fundable deposits signed NOIs or purchase and sale negotiations. In connection with our disposition program, we recognized impairments of real estate of $323.9 million during the quarter, with approximately 2/3 of that coming from an investment in our Long Island City redevelopment property. Three items to highlight here. First, we acquired the site in 2018. That submarket suffered a substantial setback when Amazon abandoned its plan for a new HQ in that location in 2019 and it never recovered. Second, despite the lower rental rate price point and our dominance in that submarket, it has been challenging to get a critical mass of life science tenants to go to this location. And ultimately, we don't view it as a life science destination that can scale. And third, this location has become more of an industrial flex and cinema submarket rather than life science. Ultimately, at the end of September, we decided future capital needs and the sale proceeds related to this project would be better recycled into our Megacampuses where we have greater conviction long term. Looking forward, we have a number of assets under consideration for sale either by the end of this year or sometime in 2026 that have estimated values below our carrying values ranging from $0 to $685 million. Although these potential impairments have not been triggered and final decisions to proceed have not been made, we updated our guidance range for 2025 to reflect these potential additional impairments in the fourth quarter. We anticipate an end to the large-scale non-core asset program by the end of 2026 or early 2027. We also expect dispositions to provide the vast majority of our capital needs for next year. Turning to capital allocation, two points here. First, we are continuing to evaluate some of our development and redevelopment projects expected to stabilize in 2027 and 2028 for opportunities to pivot. Second, we estimate our 2026 construction spending to be similar to slightly higher than the midpoint of construction spending for 2025 of $1.75 billion, which includes the recently announced build-to-suit in San Diego and higher CapEx and repositioning costs necessary to lease vacant space related to our operating properties. But the goal is to continue to reduce non-income-producing assets and our development pipeline over time. Next, on dividend policy. The Board's approach has been to share cash flows from operating activities with investors as well as to retain a meaningful amount for reinvestment which has allowed us to retain $475 million at the midpoint of our guidance range for 2025. In addition, the cumulative growth in dividends and FFO has been highly correlated since 2013. Given the factors that we described in our press release that are expected to impact 2026 earnings and cash flows, we anticipate that our Board of Directors will carefully evaluate future dividend levels accordingly. We provided updated guidance for FFO per share diluted as adjusted for 2025, which was reduced by $0.25, or about 2.7% to a midpoint of $9.01 per share. This change was primarily due to lower investment gains and lower same-property performance driven by lower occupancy. Looking ahead to 2026, as is our long-standing practice, we will provide detailed guidance at our Investor Day on December 3. And in advance of that, we've shared five important trends that will impact earnings for 2026, including core operations and occupancy, capitalized interest, realized gains on non-real estate investments, G&A and our disposition program. Please refer to Page 6 of our supplemental package for more information. Given the various factors impacting 2026 earnings, it's important to recognize the tremendous intrinsic value of our highly differentiated Megacampus assets included in consensus NAV, which is significantly above our current trading price today with that consensus NAV coming in at around $117 per share. To be clear, we continue to be the dominant leader for life science real estate with the best assets in the best locations and the best tenants. Our focus on irreplaceable world-class Megacampuses will continue to set us apart and give us an opportunity to capture premium economics for the long term as the demand and supply picture improves over time. Now I'll turn it back to Joel.

Operator, please start questions.

Today's first question comes from Farrell Granath with BofA.

I first just want to touch on, I know last quarter, you had some commentary about potential benefits to occupancy, about $600,000 or 1.7%. I was curious on the update and your expectations or line of sight that you're seeing now?

Yes. That's a really good question. Marc, do you want to comment on those assets?

Sure. Yes. So we did provide an update, it's in Page 2 of the press release, that number is about 617,000 feet as of September 30. It's primarily at properties located in Greater Boston, San Francisco, San Diego, and Seattle. And it's about $46 million of potential annual rental revenue of $46 million. And we expect it to deliver on average. There's a lot of spaces in there, as you can imagine, but on average, around May 1 of next year.

Okay. And also, I guess, a broader question. In previous calls, we've heard that there was early positivity around leading indicators in the biotech market. And you made a few comments around that. But it generally still feels like you're very much seeing the impacts of supply and demand. And I'm curious, what would turn your perspective or optimism a little bit higher, either if that's greater IPOs or different capital market movements?

Yes, that's an important question. There are three key factors influencing demand right now. Hallie can provide more details on the positive signs we're observing, particularly from the capital market and M&A perspectives. First, the FDA needs to resume operations after the government shutdown. Second, earlier-stage venture-backed companies must begin committing to space instead of holding back due to concerns about capital costs with the Fed and the industry as a whole. Third, the public biotech sector, which has been critical for the industry’s stability and demand, needs to experience a resurgence. Although the XBI has seen significant gains, this hasn't yet resulted in actionable outcomes. These are the main factors we are monitoring. Additionally, if the NIH can effectively address the issues we've discussed, such as ensuring they are fully funded and distributing funds, and alleviate the current restrictions on the 15% indirect cost limitation, it could bolster institutional demand.

Thank you. And our next question today comes from Seth Bergey with Citi.

It's Nick here with Seth. Just as we think about the sources of capital, you mentioned equity-like capital. Could you elaborate on that and kind of either the pricing or what exactly you mean by that?

Yes. I mean we've used that for the last, I don't know, 15-or-so years. That really is just capital that comes into the company through one form or another; it could be savings on dividend like we've done. It could be other sources, joint sales of joint ventures. But primarily, I think Marc stated it pretty clearly, and let me just repeat for everybody, the vast majority of capital for next year's plan, which will unveil on December 3 at Investor Day, will be asset sales. And we gave you a pie chart in the press release regarding, at least, this year's proportion of those, so a big chunk from land, a very big chunk from other than fully stabilized assets and then a chunk from stabilized assets. So I don't think that's going to vary much from this year.

That's helpful. In your opening comments, you mentioned that the bear market is starting to improve. Are you noticing similar changes in the transaction market for stabilized assets? Is there a shift in buyer demand considering the underlying fundamentals and your observations?

Yes, Peter?

Yes. I would say that there is strong demand for our assets, especially ones that investors consider to be opportunistic; that's really the sweet spot right now. But yes, we have no shortage of interest in everything that we're bringing to the table that's life science and things that are alternative uses where we're finding a lot of interest from residential developers.

And our next question today comes from Rich Anderson at Cantor Fitzgerald.

Could you provide more details on the development process moving forward? I'm curious about the overall development spending over the next few years, as well as the types of developments planned. Joel, did I hear correctly that the emphasis will shift more towards build-to-suits? I wonder what the development landscape will look like after 2026, considering the remaining projects and the $4.2 billion that is still in the early stages. Can you give us some insight into the future of these developments?

Yes, we have been working on this for several years, and it involves significant groundwork. This year serves as a prime example. The estimated land sales for this year, including what we've achieved and what remains, will play a crucial role in decreasing our land bank. You can refer to Page 46 of the press release to see the pie chart; Marc has presented it clearly. Two key areas stand out. One is the 15% section representing critical upcoming milestones for non-Megacampus projects, where we aim to maximize value through entitlements and design, particularly for residential use, which has been quite successful. This portion will likely decrease in the coming years. The adjacent 26% segment includes stable near-term projects that have not yet reached full stabilization, with a smaller amount expected for leasing in 2027 and beyond. We will carefully assess these projects and likely sell several to further lower our land bank. We will also monitor the Megacampus projects closely, as we cannot undertake all of them. We are considering several large Megacampuses, such as those in Seattle, near South San Francisco, San Carlos, and Campus Point. San Bruno is a project we are particularly focused on, as it's complex due to existing entitlements and tenants. We will evaluate our options there, aiming to be both proactive and strategic in our decisions moving forward.

Okay. And so do you think that there will be like at Investor Day some sort of run rate development exposure that Alexandria will sort of commit to at the other side of all this? Is that sort of the messaging that you expect to provide, if not right now, but...

When you say development run rate specifically as to what time?

Well, as a percentage of assets or however you want to look at.

Well, I think I actually said it on the call in my opening; we're at 20% today. We were at 30% break GFC, but for different reasons, we decided to hold those, Mission Bay and Cambridge, and those turned out to be the lifeblood of our decade bull run with the biotech industry. I think it's different this time because there's a lot of foolish space that was built by others. And so we don't want to build into that kind of a market. So 20% should come down to 10% to 15% over the coming years, and we're certainly looking at trying to accelerate that as fast as possible because the less we have on balance sheet and the less dollars going into that or the less construction dollars and funding dollars we have to require. So the two go hand-in-hand. But 10% to 15% is the number.

Yes, you mentioned that, and I apologize for my oversight. Lastly, regarding the dividend, you're currently at a $5.28 annual dividend and indicated that the Board will review it next year. I'm interested in understanding your comfort level concerning the payout ratio when considering a potential adjustment to the dividend. What is the current policy on dividends?

Yes. Well, the Board will look at that in the fourth quarter and declare a fourth quarter dividend. I think what we want to do is try to be able to frame 2026, I think, very, very clearly, and we'll try to do that to the Street as quickly as we can. But I think that frame then impacts how the Board will think about the metrics of dividend. But remember, that's our cheapest form of capital, so we are focused on that. But Marc, you could give any broad parameters you want.

The only thing I would add is that we do have flexibility in our taxable income. The Board will make the final decision, but there is potential for increases up to 30% or 40%. They will consider various factors, including the amount of retained cash flows, capital needs for next year, AFFO coverage, and a few other metrics.

And our next question today comes from Anthony Paolone with JPMorgan.

Just on that last point on the dividend, Marc, do you all have taxable net? Like do you need to pay a dividend? Or do you have the ability to just keep cash?

No, we do need to pay a dividend. That's right. I mean...

And we intend to.

Okay. Just wondering, because also it seems like even after a day like today with the stock down the way it is, and you had brought up kind of where some of the Street numbers are for NAV, like does this bring back the prospect of using capital just for your stock here? Or are the development needs just going to be great enough that you got to keep going down that path?

Yes. Look, I think we believe the price is attractive to buy back, but we're certainly focused on making sure that we have enough capital to finish out the construction commitments that we have, and that's kind of our first priority.

Okay. I have another question regarding the 1.2 million square feet you mentioned that are key leases or move-outs to consider. For the remaining 1.3 million square feet expiring next year, is it likely that those will remain occupied, hence their separation into a different category? Or should we expect some usual turnover in that area as well?

Yes. What remains are items related to the typical leasing process. We have identified specific vacancies that we anticipate, while the other areas are still too uncertain to predict.

Okay. If I could just sneak one more in. Just, Marc, you mentioned the $15 million in venture gains for the fourth quarter. I know you'll give details on other income in December, but should we think of $15 million as the new $32 million or any guidepost there at this point?

Look, the $15 million as the number for the fourth quarter is really a reflection of where we think the market is and the unique factors specific to our portfolio of investments. We'll be able to give a clear picture on what we think next year looks like at our Investor Day come December.

And our next question comes from Wes Golladay of Baird.

I was just looking at the future pipeline, the $3 billion and the $1.2 billion, how much of the potential residential land plays will come out of that bucket? And then when you also look at the potential for $685 million of impairments, would that mostly fall in that bucket as well?

Yes, it's Marc. I can definitely address the second question regarding the $685 million. To clarify, the $685 million pertains to various assets that we're currently evaluating. There are multiple possibilities for how this could unfold, depending on the buyer's actions and whether we can achieve a favorable price. Some of these assets might be retained if we choose to change our strategy. However, I would say that a significant portion of the $685 million is related to land-type assets.

Okay. And then for the next question, go ahead. Sorry.

Well, please. If you just look at the four Megacampuses that are pictured in the press release and supp, each one of those are intended to have a component and some substantial component of residential. So you can make that judgment based on that commentary.

Okay. Got that. For the leases that are set to begin in the first half of next year, was there a small delay? Was it related to permitting or is the tenant just looking to move in a bit later?

Yes. No, I don't know that there was necessarily a delay. It's just that bucket continues to evolve, right, as some of it gets delivered and then we're obviously adding new stuff there, right? We're leasing space that then extends that. So that will be an evolution just because that bucket changes from quarter-to-quarter.

And our next question comes from Michael Carroll at RBC Capital Markets.

Can you provide some color on the type of tenant activity that the company is tracking right now? I mean it sounds like in the prepared remarks that you're seeing activity being kind of flat despite the XBI uptick. But are there certain tenants looking for different types of spaces? I mean, how many tenants are looking for like the Class A space versus the Class B space? I mean is there different price points that tenants are looking at just given them trying to extend their cash burn rates given the current uncertainty?

That's a difficult question to answer because our press release includes a pie chart showing the tenant sectors, and there is certainly demand from almost all of those. However, there is no government demand at the moment, and institutional demand is currently muted, though we are working on one significant deal. The situation varies from submarket to submarket, each with its own dynamics. Some are fairly balanced regarding supply and demand, while others are not. Overall, there is demand, but with the recent recovery in the XBI, we are somewhat surprised that demand hasn't kept pace as clearly as in the past. This can be attributed to the high costs of capital and persistently high federal interest rates. With the government essentially shut down and the FDA largely inactive, there are many log jams causing delays, and the IPO market is mostly closed, leading to limited activity. There is demand from various sectors, but it is very specific to each case. When you mention Class A space, it typically attracts revenue-generating companies or those with strong capitalization, while others seek moved-out or true second-generation spaces after longer leases. The marketplace is quite diverse in this regard.

All right. That's helpful. And then just following up on Anthony's question related to the 1.3 million square feet of 2026 lease expirations that you guys need to address. Is that mostly lab tenants that are looking at that space? Or I guess, what's the mix between lab tenants or maybe covered land plays that those assets were holding? I mean, can you provide any details on what type of tenants are included in that bucket?

Yes. Yes. I mean we try to give some framework for kind of the key drivers there. I think it was on Page 23, footnote 4. If you go kind of line by line through the call out of those properties, most of those are going to be lab related, with the exception of the first one that we called out, which is about in 137,000 in Greater Stanford, that one is probably more likely to be targeted to an advanced technology use, but the other ones that we called out there in San Diego and then also in Cambridge are all lab.

Yes, and then you should note that of the three noted vacancies on Page 23, footnote 4, we have an LOI signed for 83,000 square feet of that known vacate, and we have an LOI signed of about 40% of the 118,000 feet at the moment. So stay tuned.

And our next question today comes from Vikram Malhotra with Mizuho.

I guess, Joel, looking at the bigger picture, you've indicated that we're at a macro bottom, but there's still a lot of uncertainty. Clearly, you can't control that. It seems that the sales process really hinges on buyer timing, which may mean less control for you as you're trying to address leverage and capital requirements. So I’m curious, as you move through the next year or two to position yourself better to potentially take advantage of distress situations, why not consider raising outright equity to improve the balance sheet and meet your capital needs instead of depending on the asset sale process, which I understand is significant, but I’m just trying to...

Well, yes, that's a really good question. But I think, number one, the balance sheet is actually in great shape. Leverage ticked up a little bit, but I think we're pretty comfortable given the sales we have in line. I think what we really want to do is to bring our balance sheet down to a much healthier non-income-producing asset weighting, if you will, now at 20%, down to 10% to 15%, and I think we'll make pretty huge strides on that through the end of next year and early '27. We've got a couple of big sales where we are close to pretty big entitlements and that will help us on valuations. But we feel like we can manage the balance sheet and provide the capital we need through the assets that we would like to shed. And also, we have been selling a lot of non-core assets, some stabilized and some non-stabilized, and that's part of our goal to move our Megacampus ARR up to about the 80% level. So I think we feel pretty good about that without the need to go through a common equity raise.

Okay. On the Investor Day, there's a noticeable shift; you're providing a lot of insights for 2026. I'm curious why you aren’t just giving a straightforward estimate for next year. It feels like a two-step process, which is unclear to me.

Yes, we understand. Unfortunately, we wouldn't have preferred to schedule third quarter earnings so close to Investor Day. However, Marc and his team will likely provide a range for FFO as a framework for that soon. Please keep an eye out for that. We aim to provide this information to avoid keeping people in the dark for three or four weeks, which was never our intention. The industry is regulated and facing tough times due to the government shutdown, which halts many filings and submissions to the FDA for new INDs. Some things are coming out eventually, but progress is largely stalled. Additionally, the current administration is negotiating with major pharmaceutical companies for a version of MFN, which has so far been focused on Medicaid, making it a challenging process. There are many slow-moving aspects in the industry that need to get moving again. The industry has great potential, and anyone familiar with these diseases knows there's a significant amount of work to do. We are aware of numerous new Parkinson's diagnoses, yet we still lack addressable therapies. We need to make progress on these fronts. We will try to provide guidance to the Street soon to avoid a lengthy delay in framing this information. Marc attempted to outline several factors, but with capital interest rates fluctuating as we reduce our development pipeline, it leaves some uncertainty that we will strive to clarify.

Great. We look forward to the update and definitely ARE on the other side.

And our next question today comes from Dylan Burzinski with Green Street.

It seems the main change this quarter compared to last is related to the government shutdown. The supply pipeline continues to dwindle, although it remains at high levels. The capital markets environment has been quite challenging for many tenants. You mentioned that the government shutdown is significantly affecting demand, so should we expect an increase in demand once the government resumes operations?

I don't believe that's the main issue, but it's essential for the industry's recovery because it's heavily regulated in terms of submissions, clinical trials, and approvals. If the government doesn't return to function, then these processes can't be completed effectively. Recently, there was an approval for AstraZeneca, but overall progress is stalled. While this isn't directly affecting demand, it significantly impacts the industry's health, which ultimately influences demand. Reflecting on the second quarter, it was unclear when the industry would reach its lowest point, and it seemed to be declining while the government was shut down. To revitalize this industry, we need lower capital costs and a streamlined regulatory process. There are three key aspects necessary for this industry: we need to lower drug development costs, which is largely dependent on the FDA, and our discussions with Makary highlighted his strong focus on this. We must also enhance the success rates of drug development, where tools like AI can provide assistance, with the FDA being crucial again. Additionally, it's important to reduce regulatory barriers to simplify many programs. These changes are vital to restore health to the industry in a significant way. We need venture capital to become more accessible, as the cost of capital is a major factor, and we also need the IPO market to reopen and for the secondary market to become more active, not just through offerings based on data. If these conditions are met, the industry can thrive.

I wanted to follow up on that. I joined the call late, so I apologize if this has already been asked. It seems to me, based on what I gathered today and some insights from the 2026 considerations, that demand may have declined since the second quarter. However, reviewing my notes and your comments, it appears that the situation is expected to improve. Additionally, we are hearing from your peers that the overall touring pipeline is becoming better. I'm trying to confirm whether I'm misinterpreting today's comments and the 2026 considerations.

Well, I don't think you can look at this the same way as you would with office data, where you can be fairly certain about a rebound. The industry is more complex and heavily regulated, both at the beginning and the end. I understand that everyone is looking for indicators that show demand, but it doesn't work that way from quarter to quarter. We've had two decent quarters of leasing, but that doesn't truly reflect the underlying health of the industry, which still requires several elements to fall into place for a real improvement. Once that happens, I believe we'll see a significant rebound. That's the best way I can explain it.

This is Hallie. I want to add to Joel's comments about tour activity. We are seeing strong interest from great companies looking for new space and considering expansion. However, as we've noted before, decision-making is taking longer. Companies are being very cautious about when to make commitments, and there are still many uncertainties due to the factors Joel mentioned. We are confident that there are outstanding companies in the market that will need space, but the timing of their decisions is unclear, especially with the ongoing regulatory challenges.

Yes...

Yes. Really appreciate that. And maybe just one more, if I can. I know you guys kind of alluded to equity-type capital, and Joel, you mentioned partial interest sales dividends, stuff like that. But I know most of your guys' focus is on the dispositions of sort of the non-core assets. I guess is there any desire to sell a partial interest in any of the Megacampuses given it still seems like there'd be a strong bid or depth of demand for that type of product today?

Well, I don't think that is our game plan because I think over time, our goal is actually to own more of the Megacampus rather than less. But I think there are a variety of campuses. Some are at the absolute upper end, some are in the medium to high end. So it's a matter of selection there, and some we already have partners on. But I don't think that's necessarily the key game plan. Our key game plan is to rid the balance sheet of a whole lot of non-income-producing property and reduce our exposure to non-core assets to as minimal as we can. I think that's the core strategy here.

And our final question today comes from Jim Kammert with Evercore.

You've provided a lot of valuable insights regarding the expirations in 2026 and potential tenant move-outs. Given the current environment, is it too early to start considering expirations for 2027? I'm interested in understanding how tenants are performing in terms of their burn rates and intentions. As you prepare for Investor Day, any additional clarity on this topic would be appreciated.

Yes. It's a good question, Jim, and we're focused not only on next year's roles but also on the roles for the year after. In fact, we recently completed a renewal extension with a company that had a role set for 2031, which we've now extended for another decade. We're actively engaging with every tenant we want to retain in our markets to explore ways to preserve them, protect our core, and foster future growth. This is clearly a top priority for us.

Okay, great. And quickly second one, there was some press discussion that in Mission Bay, you had been potentially looking to reallocate, I think, is the term they use, some of the lab space there, your four assets in Mission Bay to office use, particularly targeting AI? I mean, one, is that a valid report? And if there is validity to it, how would that sort of work? What would you do with your existing tenants?

Yes. I'll have Peter comment, but we did go in for Prop M allocation for, I think, most of our buildings there. We have them in a partnership, but we're the managing partner, and we got 100% approval on that. And the reason is because, one, we want to be able to offer office to the extent that it makes sense for our existing tenants as they need it. UCSF is a big tenant on campus and sometimes their needs flex between lab and office. Clearly, OpenAI has made that the center of the universe for their needs and campuses buildings around a campus, and that's a very valuable use of space. So it makes good sense to be able to have that flexibility. But Peter, do you want to comment?

We already had a few properties in Mission Bay, with the Illinois properties having a full allocation for Prop M. When we developed the Owens properties—1450, 1500, 1700 Owens, and 455 Mission Bay Boulevard—they only received a partial allocation for about one-third of the building area, designated for pure office users. This does not include office spaces for researchers, which do not require Prop M. However, as Joel mentioned, we're observing an increasing demand from our tenant base, both traditional and others in the area, for all office-type spaces. It seems logical to offer that flexibility. Additionally, our lab users are increasingly seeking more office space for computational workflows as they incorporate AI and other technologies into their research. We've been considering this for some time, and now we've taken action. That said, it should not be interpreted as a shift away from lab usage, which remains our primary focus. We want to meet the needs of our lab tenants for office space and support other complementary tech in the area that contributes to the innovation economy, and the counselors agreed with us and allocated Prop M accordingly.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Joel Marcus for closing remarks.

Just simply say thank you, everybody, be safe, be well. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.