Earnings Call Transcript - ARE Q2 2025

Operator, Operator

Good day, and welcome to the Alexandria Real Estate Equities Second Quarter 2025 Conference Call. Please note, today's event is being recorded. I would now like to turn the conference over to Paula Schwartz with Investor Relations. Please go ahead.

Paula Schwartz, Investor Relations

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

Joel S. Marcus, Executive Chairman and Founder

Thank you, Paula, and welcome, everybody, to our second quarter earnings call. With me today are Hallie, Peter, and Marc. I'd like to start with a quote from Brad Stevens, who coached at Butler and the Celtics as most of you know. There is no more important quality in striving for excellence than true grit, a ferocious determination demonstrating resilience, hard work and passion, clear direction and mission. This so aptly describes the Alexandria team in pursuit of providing the best environments for the best scientific minds, which in turn enhances human health and extends the quality of life for inhabitants on this planet. A profound thank you to this one-of-a-kind team for an impactful second quarter. Disciplined people, disciplined thought, disciplined action built to last. As I open my first quarter comments, I comment that ARE has been and will continue to be one of the most consequential REITs in the sector's history. Steve Jobs once said, a brand is simply trust. The recent execution of the largest lease in the company's history is a testament to that, and our brand trust, our unique product quality, and value to the client. Trust is the lifeblood of the Alexandria one-of-a-kind brand. This 466,000 square foot lease represents a seminal moment in the history of Alexandria and demonstrates the resilience of our sector showing long-term commitment, a long-term lease with a high credit tenant. A couple of thoughts on the second quarter before I turn it over to Hallie, then Peter, then Marc. Alexandria continues its solid performance across a wide variety of financial and operating metrics in the face of macro and industry headwinds. A key focal point for the company is the 2027 and beyond stabilization pipeline. We're pleased to report that we're making solid progress on 311 Arsenal, Sylvan Road Asset, 1450 Owens, 269 East Grand, and 701 Dexter. Another key focal point is asset sales, and Peter will talk about this in our recycling strategy. We have about $1.1 billion to add to our executable sales pipeline for the next two quarters. And we feel that it is doable given we completed $1.1 billion of sales in the fourth quarter of 2024. So in today's current environment, what are we most focused on beside the operating and financial performance? Over the next several quarters, we expect the Fed to finally lower interest rates, which is desperately needed for the capital markets of our industry. We have not seen or heard any major issues from our tenants regarding undue delays from the FDA; however, we're monitoring this item very closely. In fact, several of our team members on July 17, attended a meeting with Commissioner Marty Makary, who articulated his 100-day agenda focused on the impact of better food for children as we know, revamping and rethinking how to modernize the FDA to move more efficiently and nimbly. The FDA is a national treasure and is strong. We will meet our PDUFA targets, add more AI efficiencies, and ensure our staff has what they need. We have a phenomenal talent coming in, like George Tidmarsh, who was just announced to be the Director of the Center for Drug Evaluation and Research. We will be making exciting new announcements on talent who are motivated by the incredible tradition of the FDA. On tariffs, in theory, they should not have a huge impact on the innovation biopharma ecosystem, mostly because of the low cost of goods sold relative to other industries. Commonly used transfer pricing schemes may expose large pharma companies more heavily to tariffs but the impact of tariffs on biopharma may be muted. As we know, IP reshoring, trading companies as manufacturing intermediaries, moving manufacturing back to the U.S., and increased drug pricing issues play a role. Regarding drug pricing and most favored nations, this isn't new. It was introduced during the first Trump term but was rescinded by Biden following legal challenges. The impact appears constrained based on currently available details. We know that some manufacturers are moving to direct sales to consumers, which would provide tailwinds, especially in segments like obesity drugs. Key details remain unclear, and we know there are negotiations ongoing. The market reaction so far suggests limited concern. In summary, there are reasons to be optimistic; fears of spending cuts and changes at HHS may be substantially overblown. Onshoring R&D can provide a tailwind for the life science sector. Public markets move in cycles, macro events will eventually dissipate, and the markets will stabilize. M&A consolidation is instrumental for a healthy biopharma ecosystem. Now, let me turn it over to Hallie.

Hallie Kuhn, SVP of Life Science and Capital Markets

Thank you, Joel, and good afternoon, everyone. This is Hallie Kuhn. Today, we will provide an update on the strength of the Life Science industry, an industry that remains critical to the health and safety of the U.S., driven by a resilient and dogged effort to address the 90% of diseases that remain untreated by medicine. Overall, the leasing statistics we are about to walk through reflect the importance of the diversity of our tenant base, which drove over 80% of our second quarter leasing by volume. Starting with private biotechnology companies, which represented 30% of overall leasing for the quarter, Life Science venture funding remained steady with nearly $22 billion deployed in the first half of the year. Financings were predominantly later stage as seed-stage financing took a back burner to more de-risked technologies closer or already in human studies. This resulted in fewer, albeit larger financings as investors focus on select, but in their minds more certain opportunities. This cohort of companies remains highly disciplined regarding leasing decisions. However, the companies that are being funded and are expanding are extremely high quality and form a solid foundation for future growth. Moving on to publicly traded biotechnology companies, this segment represented just under one-fourth of our leasing for the quarter, with over 95% consisting of new leases. This cohort continues to be dominated by 'haves' and 'have-nots,' with select companies with high-quality data and teams driving leasing and demand. The broader picture for public biotech equities remains tough, with no biotech IPOs in the second quarter. Given the broader risk-off environment, we are not likely to see the biotech public equity markets open meaningfully until interest rates subside. Notably, biomedical institutions represented 22% of leasing this quarter. Leasing was driven by significant new leases from well-endowed investment-grade public institutions, demonstrating that lab space remains critical to institutional operations. Importantly, the budget for the NIH remains the same as last year's levels under a continuing resolution. While the White House has proposed significant budget cuts, there remains substantial bipartisan support to maintain funding close to current levels. For context, approximately 80% of NIH funding is for external institutions, supporting work in all 50 states. One clarification: while NIH funding is one of several sources for biomedical institutions, few, if any, of our private and public biotech tenants rely on NIH funding. Lastly, large pharma represented 5% of leasing this quarter, not including our recently announced long-term lease with a top 20 pharma for 467,000 square feet on our Campus Point Megacampus in San Diego, signed at the beginning of the third quarter. Pharma generally remains buffered from short-term volatility given significant cash flows and a long-term strategic outlook on generating innovative medicines. Their success ultimately comes down to talent and access to the best innovation. The recently announced lease reflects their desire to position their R&D in an Alexandria Megacampus, which is highly strategic to these goals. To round out industry stats, there are two tailwinds we are monitoring through the second half of the year. First, an acceleration of M&A with acquisitions in the first half eclipsing all of M&A in 2024. M&A is a significant positive for the entire biotech industry, recycling and incentivizing capital back into new companies. Examples include AbbVie's acquisition of Capstone, an early-stage company developing novel mRNA therapies for autoimmune diseases, signaling that pharma is ready and willing to buy cutting-edge science. The second tailwind is the abundance of biopharma licensing dollars flowing into private and public biotechs. These are deals where large pharma licenses specific programs from smaller companies rather than full-fledged acquisitions. In the first half of this year, $113 billion in biopharma licensing deals were announced, compared to $187 billion for the full year 2024. This dynamic is vital because it enables smaller companies to access additional capital and resources when venture or public equity capital becomes more challenging to raise. Both the life science sector and Alexandria remain resilient in the face of an uncertain macroeconomic environment. By retaining and securing high-quality tenants today, we continue to lay the groundwork for long-term growth underpinned by the robust biopharma ecosystem and the tremendous ingenuity we are seeing in science, technology, and medicine. With that, I will pass it over to Peter.

Peter M. Moglia, CFO

Thank you, Hallie. I hope you all saw our recent press releases. I'll discuss the seminal multinational pharma lease in a bit, but I want to first congratulate our team for their superb operational excellence and for winning our first international Building of the Year Award for 8 Davis Drive, a 150,000 square foot premier research and development building in the heart of our Alexandria Center for Advanced Technologies Megacampus in the research triangle. This achievement highlights the quality of the workplaces we deliver to our tenants. While our Megacampus platform is a strategically important strength, it's also important to recognize the high-quality buildings that proliferate throughout the core of our asset base. In life science real estate, a flight to quality means a flight to Alexandria. I'm going to discuss our development pipeline, leasing, and supply, and provide an update on the progress of our value harvesting and asset recycling program. In the first quarter, we delivered approximately 218,000 square feet of 90% leased Class A-plus laboratory space into our high barrier-to-entry submarkets, contributing approximately $15 million in annual incremental net operating income. The initial weighted average stabilized yield for this quarter's deliveries was 6.6%, driven by a 100 basis point improvement in yield at our One Alexandria Square Megacampus in Torrey Pines, as well as a reduction in construction costs. You've heard the big news from Joel and Hallie before me, but I wanted to talk about the multinational pharmaceutical lease—the largest in our company's history. This opportunity aligns well with ongoing development at the same campus with Bristol-Myers and illustrates that our Megacampus platform is perfectly positioned to capture these opportunities by offering essential expansion space and premium amenities that support the recruitment and retention of key talent required for future scientific advancements. So, let's transition to leasing and supply. In the second quarter, we leased approximately 770,000 square feet, with leasing spreads of 5.5% and 6.1% on a cash basis. We were very pleased that tenant improvements and leasing commissions on renewals were down 40% compared to the previous two quarters. Although free rent was elevated, it allowed us to secure a relatively high average duration of 9.4 years. The lease duration was also healthy for developed, redeveloped, and previously vacant space at 12.3 years. One key result we’d like to highlight from the quarter is that our focused effort on development and redevelopment leasing has begun to gain traction. We leased 131,768 square feet during the quarter, including the first lease signed at 701 Dexter in Seattle and continued leasing progress at 99 Coolidge in Watertown. Another key leasing item is the progress on the 786,000 square feet of lease rolls identified in the third quarter 2024 supplemental. We've leased 20% of that space, with serious prospects for another 30% that would resolve about half of it in the near term. We are confident that we will achieve that. Moving to competitive supply. In Greater Boston, two competitive projects—one in Fenway and one in Austin—totaling approximately 565,000 square feet were delivered completely vacant. This reduced the remaining supply expected for 2025 delivery to 300,000 square feet, which is unleased. The 2.5 million square feet expected to deliver in 2026 remains two-thirds pre-leased. In San Francisco, two competitive projects were delivered, one in Menlo Park and one in Millbrae, reducing the expected supply for 2025 delivery to 700,000 square feet, which is currently 32% pre-leased. No additional supply is expected to be delivered after this year. In San Diego, Alexandria delivered 119,000 square feet of fully leased space at One Alexandria Square in Torrey Pines and approximately 120,000 square feet of unleased competitive space remains for delivery in the second half of the year. Also, I previously mentioned 700,000 square feet expected in 2025, but that was actually total for both 2025 and 2026. The 400,000 square feet expected in 2026 is 100% pre-leased. I will conclude with our value harvesting asset recycling program. Our dispositions and sales of partial interest are heavily weighted towards the fourth quarter. We closed on approximately $84 million in asset sales in the second quarter. Included in those sales were several vacant buildings in our Greater Stanford submarket. To date, dispositions and our share of non-core pending dispositions amount to $785.4 million, with approximately 36% consisting of land; 52% are unstabilized improved properties and 12% are stabilized improved properties. The current identified non-core asset pool being marketed comprises 25% land, 52% unstabilized properties, and 24% stabilized properties. We expect to achieve a weighted average cap rate on our non-core projected dispositions and partial interest sales, including non-stabilized operating properties, in the range of 7.5% to 8.5%. The buyer pool for our closed and pending dispositions includes residential developers, municipalities, healthcare systems, local commercial investor operators, domestic and international private equity, users, universities, and domestic core funds. Here are the key takeaways: first, we continue to deliver transformative projects and incremental NOI from our pipeline; second, our focused efforts to catalyze development and redevelopment leasing have gained traction; third, we are making great progress resolving the 768,000 square feet of move-outs that rolled at the end of 2024 and in the first quarter of 2025; and fourth, further material progress on our asset recycling program will be heavily weighted towards the end of the year. With that, I'll pass it over to Marc.

Marc E. Binda, Chief Financial Officer

Thank you, Peter. This is Marc Binda. Hello, and good afternoon to everyone on this call. I plan to walk through our performance and outlook and provide greater detail around the disciplined steps we've taken and will continue to take across the portfolio and pipeline to bolster our strong balance sheet as we manage through this period in order to emerge in a position of strength to support our future. First, a big congratulations to the entire Alexandria team for outstanding execution during the quarter and for completing the largest lease in the history of the company earlier this month. Second, our team delivered solid per share results for the quarter. Please refer to our earnings release for our EPS results. FFO per share diluted as adjusted was $2.33 for the second quarter of 2025, up 1.3% compared to the prior quarter and included the positive impact from the recent development deliveries in San Francisco and San Diego. Occupancy at the end of the quarter was at 90.8%, which was down 90 basis points from the prior quarter. With 75% of our annual rental revenue coming from our highly distinguished Megacampus platform, we continue to outperform the rest of the market on occupancy in our biggest three markets. We are reiterating our prior guidance for year-end 2025 occupancy at 90.9% to 92.5%. An important note about our occupancy guidance is that we have 669,000 square feet or about 1.7% occupancy of leased but not yet delivered space, which will positively impact our occupancy early in 2026 on average upon delivery. Our year-end occupancy guidance assumes around a 2% benefit from assets with vacancy expected to be sold, about one-third of which is subject to a signed purchase and sale agreement. Next on same property. Same property NOI was down 5.4% and up 2% on a cash basis for the quarter. Included in the second quarter '25 same-property results is the full impact from the 768,000 square feet of leases across four projects that expired on average in late January 2025, which are now fully included in the results. We continue to make good progress with these four projects, as Peter highlighted, with 20% leased and some more expected to be delivered in late 2025, and we have a user focused on another 234,000 square feet. We are reiterating our prior guidance for same-property performance 2025. Three items to note: first, we expect continued pressure on same-property results in the second half of 2025 driven by the recent decline in occupancy. Second, we also expect second half 2025 cash same-property results to decline from the first half due to the burn-off of initial free rent from last year. Third, our guidance for the full year 2025 same-property results also assumes the same property pool in the back half of the year will change from the first half 2025 pool as we progress on our disposition program and those assets become excluded from the pool. In the meantime, we 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 7.4 years, average rent steps approaching 3%, and our adjusted EBITDA margin remained strong at 71% for the most recent quarter, consistent with our five-year average. Turning next to general and administrative expenses, we continue to work towards our goal of annual savings for 2025 of approximately $49 million compared to 2024 through various strategic cost savings initiatives. Our trailing 12-month G&A cost as a percentage of NOI was 6.3%, representing our lowest level in the past 10 years. We estimate that around half of the 2025 G&A savings will recur into 2026. Next on the development pipeline, with projects under construction expected to generate significant NOI over the next few years and other earlier-stage projects undergoing important entitlement, design, and site work, we are required to capitalize a portion of our gross interest cost. The recent 466,000 square foot build-to-suit win announced is an example of the value created by our important pre-construction activities associated with future pipeline projects, allowing us to meet delivery timelines. We remain focused on continuing these important pre-construction activities for our future pipeline where it makes good financial sense. On Page 45 of our supplemental package, we highlighted that we have a $3 billion investment in various future pipeline projects that required interest to be capitalized in the first half of 2025 while we pursue pre-construction activities with future project milestones over the next 18 months. We routinely evaluate these projects on a project-by-project basis, determining whether to continue progress. If we decide to pause progress beyond the current milestones, capitalization of interest and other required costs would terminate on that project. For 2025, we reiterate our guidance for capitalization of interest and expect steady to slightly higher capitalized interest in the back half of the year due to spending on the active pipeline and continued high-interest rates. Moving on to venture investments, for the first half of 2025, we realized $60 million in gains from our venture investments, consistent with our last six quarters. Our outlook for the full year 2025 remains unchanged, with a range of $100 million to $130 million. Next on other income, primarily including interest income, leasing, and management fees. For the first half of 2025, other income was $39.7 million, or less than 3% of total revenues, which results in a quarterly average of about $20 million, close to our average over the last six quarters of around $18 million. Turning now to the balance sheet and funding. We stand out with our corporate credit ratings in the top 10% of publicly traded U.S. REITs. Our average remaining debt maturity among all S&P 500 REITs is 12 years, and we maintain liquidity of $4.6 billion. We are focused on achieving our year-end leverage target of 5.2x for net debt to adjusted EBITDA by executing on our disposition program, which Peter covered. In connection with our disposition program, we recognized impairments of real estate of $129.6 million during the quarter, with about two-thirds coming from one land parcel expected to be sold to a residential user and an office property in Northern San Diego. These sales will raise significant equity-light capital and continue the trend of enhancing our asset base quality, focusing on our Megacampus platform. We are managing our capital allocation in a high cost of capital environment. For construction spending, we are evaluating some of our 2027 redevelopment projects for alternative lower-cost investment opportunities. We did not execute any common stock buybacks and currently have no plans as we focus on our disposition program. Our Board's approach is to share cash flows with investors while retaining a meaningful amount for reinvestment, which allowed us to retain $475 million at the midpoint of our 2025 guidance. For the second quarter, our Board maintained the dividend at $1.32 per quarter, giving a dividend yield of 7.3% as of quarter-end. We are holding firm on our guidance for FFO per share diluted for 2025 at $9.26 per share at the midpoint of our guidance range. I'll turn it back to Joel.

Joel S. Marcus, Executive Chairman and Founder

Can we open it up for questions, please?

Operator, Operator

Our first question today comes from Farrell Granath with Bank of America.

Farrell Granath, Analyst

I first wanted to congratulate you on the California Campus Point lease but also dig deeper into that. Can you share any possible trends or catalysts that led to this deal being able to close? I'm curious if there are initiatives on reshoring or larger investments stateside that would be a tailwind for further leasing like this?

Joel S. Marcus, Executive Chairman and Founder

First of all, thank you for the compliment. No, that didn't have anything to do with the onshoring issues currently underway with respect to administration policies. It was more an effort by a notable big pharma to bring together its core R&D hub on the West Coast and position them in a world-class location where they could continue to recruit and retain great talent. Much like Bristol-Myers, they chose Campus Point; we had a great team, a great solution, and great execution.

Farrell Granath, Analyst

Okay. And in terms of free rent, I know you mentioned it upticked slightly. What are your thoughts around that? If viewed on a trailing basis, do you see that starting to peak anytime soon?

Marc E. Binda, CFO

Yes, it did go up a little bit this quarter. That trend has been relatively consistent up until this quarter. So it did peak this quarter given one lease with considerable free rent. It’s hard to tell what that looks like in the future.

Operator, Operator

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

Nicholas Gregory Joseph, Analyst

Just following up on Campus Point. Can you provide additional detail from the tenant perspective on why they chose build-to-suit over available vacant space?

Joel S. Marcus, Executive Chairman and Founder

Certainly. When you have a robust R&D effort, you need a location that provides everything rather than disaggregated buildings. The power of Campus Point is that it will eventually be almost 3 million square feet, which functions almost like a city with every possible amenity. It's the best place to work to retain and recruit talent.

Nicholas Gregory Joseph, Analyst

That's very helpful.

Hallie Kuhn, SVP of Life Science and Capital Markets

May I jump in? The infrastructure for these buildings is crucial. These requirements cannot be accommodated by just any generic building; it's essential to meet specific needs.

Joel S. Marcus, Executive Chairman and Founder

Remember, they invested significant amounts of their capital, similarly to Bristol-Myers.

Nicholas Gregory Joseph, Analyst

What trends are you seeing in your leasing pipeline? Are they larger or smaller space takers?

Joel S. Marcus, Executive Chairman and Founder

Each submarket has its own dynamics, whether it's a headwind or tailwind, making it hard to generalize.

Operator, Operator

And our next question comes from Anthony Paolone with JPMorgan.

Anthony Paolone, Analyst

I wanted to follow up on occupancy comments. If I understand correctly, should we expect a 2% drop in the second half if we set aside dispositions?

Marc E. Binda, CFO

Yes, occupancy is at 90.8% today. We're expecting occupancy will pick up as those identified assets with vacancies sell, along with normal leasing in the second half.

Anthony Paolone, Analyst

What about leases that are signed but not yet commenced and the 2026 expirations?

Marc E. Binda, CFO

It's early to provide guidance, as we're still working through business plans and re-leasing strategies.

Anthony Paolone, Analyst

What about the previously mentioned $1.4 billion that was going to stop later this year?

Marc E. Binda, CFO

Yes, it's part of the $3 billion. We’re evaluating which projects will continue based on market conditions.

Operator, Operator

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

Michael Albert Carroll, Analyst

Can you provide insights on what tenants are saying today regarding the FDA leadership change and its impact on their decision-making?

Joel S. Marcus, Executive Chairman and Founder

The concerns of tenants depend on their nature. For example, private biotech tenants focus on their developmental stage, and public biotech focuses on financing health. Conservation of cash is paramount, and while interest rates are a big negative for this industry, we haven't seen major delays from the FDA.

Michael Albert Carroll, Analyst

How long to get comfortable with the FDA situation? Is it just a matter of time?

Joel S. Marcus, Executive Chairman and Founder

It really depends on the tenant's nature and product. If they’re in clinical trials, they are very focused on the FDA.

Michael Albert Carroll, Analyst

What about the NIH budget and capital supply issues?

Joel S. Marcus, Executive Chairman and Founder

There are concerns about the NIH's ability to issue grants and appropriated capital, which disrupts the capital supply to institutions.

Operator, Operator

And our next question comes from Vikram Malhotra with Mizuho.

Vikram L. Malhotra, Analyst

I wanted to understand if you're considering bigger transactions in dealing with capital needs faster?

Joel S. Marcus, Executive Chairman and Founder

It's essential to focus on our Megacampus asset base, which is strategic. We're selling non-core assets and continue to build our platform, but we would prefer to own more.

Peter M. Moglia, CFO

We have significant equity in our Megacampuses. While we could strategically monetize some equity to fund opportunities, we prefer owning more.

Vikram L. Malhotra, Analyst

Can you provide an overview of anticipated occupancy trends over the next 18 months?

Joel S. Marcus, Executive Chairman and Founder

The capital markets will significantly impact leasing behaviors. Hopefully, we see the Fed lowering rates and a stabilization of agencies in the industry, which will quicken decision-making in leasing.

Marc E. Binda, CFO

Our guidance was reiterated at 90.8%. We expect a pickup in occupancy next year due to previously identified leases and some work we need to do on upcoming expirations.

Operator, Operator

And your next question is from Tom Catherwood with BTIG.

William Thomas Catherwood, Analyst

Are you seeing an uplift in prospects for space in your current pipeline?

Joel S. Marcus, Executive Chairman and Founder

That is correct. The pipeline of prospects is larger and growing, although timing of decisions remains elongated.

Peter M. Moglia, CFO

The pool of prospects has increased due to our focus on leasing, but the timeline for decisions varies individually.

William Thomas Catherwood, Analyst

To clarify, the pipeline you have is growing compared to what it would have been a quarter or year ago?

Peter M. Moglia, CFO

That’s accurate, and we’re pleased with the influx of prospects, although decision timelines may lag.

William Thomas Catherwood, Analyst

Regarding the 286,000 square feet of development and redeveloped leasing, how should we classify the 155,000 square feet gap?

Marc E. Binda, CFO

That represents vacant space from our existing properties, not categorized in development or redevelopment.

Operator, Operator

Next question comes from Omotayo Okusanya with Deutsche Bank.

Omotayo Tejumade Okusanya, Analyst

Congrats on the large build-to-suit lease. Have you discussed building costs and potential yields?

Joel S. Marcus, Executive Chairman and Founder

We haven't provided specific details on costs or yields, but those will be forthcoming.

Omotayo Tejumade Okusanya, Analyst

What alternatives are you considering for the 2027 redevelopment projects?

Joel S. Marcus, Executive Chairman and Founder

We are observing new trends in R&D, with interest from tech companies in some of our locations, further adjusting our strategy as necessary.

Operator, Operator

Next question from Peter Abramowitz with Jefferies.

Peter Dylan Abramowitz, Analyst

Looking at the 2026 known vacates, do you have a sense of timing on their re-leasing?

Joel S. Marcus, Executive Chairman and Founder

Our assumptions on re-leasing will depend on each building and campus. It’s very case-specific.

Marc E. Binda, CFO

The timing on re-leasing will depend significantly on capital put into those sites.

Peter Dylan Abramowitz, Analyst

Regarding the underwriting of rents, are the improvements specific to projects or indicating an overall market acceleration?

Peter M. Moglia, CFO

The improvements on rents are specific to high-quality projects but reflect the willingness of tenants to pay for value.

Joel S. Marcus, Executive Chairman and Founder

There are incentives for domestic R&D through legislation, contributing to positive trends as companies strategize based on these changes.

Operator, Operator

And our final question is from Jim Kammert with Evercore.

James Hall Kammert, Analyst

In addition to interest expense, what other costs are you capitalizing on the identified $3 billion projects?

Marc E. Binda, CFO

Our capitalized operating expenses are around 3%, which provides a good estimate for overhead with capitalized projects.

James Hall Kammert, Analyst

Will Alexandria potentially sell some of these $3 billion assets?

Marc E. Binda, CFO

Yes, some of the $3 billion is evaluated for sale and expected to contribute to our disposition goals.

Joel S. Marcus, Executive Chairman and Founder

Thank you, everybody, and have a very safe and good summer. Thank you.

Operator, Operator

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