Participants

Paula Schwartz; Managing Director, Rx Communications Group; Alexandria Real Estate Equities Inc

Joel Marcus; Founder, Executive Chairman of the Board; Alexandria Real Estate Equities Inc

Hallie Kuhn; Senior Vice President, Science & Technology and Capital Markets; Alexandria Real Estate Equities Inc

Peter Moglia; Co-President and Regional Market Director, San Diego; Alexandria Real Estate Equities Inc

Marc Binda; Chief Financial Officer, Treasurer; Alexandria Real Estate Equities Inc

Anthony Paolone; Analyst; JPMorgan Chase

Richard Anderson; Analyst; Wedbush Securities

Wesley Golladay; Analyst; Robert W. Baird & Company

Vikram Malhotra; Analyst; Mizuho Securities USA LLC

Tom Catherwood; Analyst; BTIG LLC

Dylan Burzinski; Analyst; Green Street

Omotayo Okusanya; Analyst; Deutsche Bank AG

James Kammert; Analyst; Evercore ISI

Jamie Feldman; Analyst; Wells Fargo

Michael Griffin; Analyst; Citigroup Global Markets Inc

Presentation

Operator

Good afternoon, and welcome to the Alexandria Real Estate Equities fourth-quarter and year end 2024 conference call. (Operator Instructions)
Please note this event is being recorded.
I would now like to turn the conference over to Paula Schwartz, Investor Relations. Please go ahead.

Paula Schwartz

Thank you, operator 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 SEC.
And now I'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

Joel Marcus

Thank you, Paula, and welcome, everybody.
With me today are Hallie, Peter and Marc. And I want to welcome you to Alexandria's fourth quarter and year end 2024 earnings call.
Our team has been hit pretty hard by the California wildfires during this month of January. But luckily, they are supremely resilient. Our profound prayers are with all those impacted as well as our own team. And we are by the side of our team each and every step of the way to recovery. Despite the inadequate preparation by the local utilities, the city, the county and the state, as we have had actually as there were several days of violent wind warnings ahead of time, largely ignored by those empowered to protect us. A really disheartening start to 2025.
Let me give a couple of observations on fourth quarter and overall year end on the operating and financial results. We're very proud of producing an almost 6% FFO per share growth in a very tough macro environment. Another very solid year of leasing both on a quarterly and yearly basis. And Peter will get into depth on some of that. We had a solid fourth quarter and full year capital recycling program as we shrink our land bank to focus on future megacampuses and exit noncore assets. We have continued stability, strength and flexibility of our balance sheet, great liquidity and a increasing and well covered dividend.
A couple of thoughts on the life science industry. I'll leave it to Hallie to do more in depth. But I think the three reasons for a go forward 2025 optimistic view are one, the anti-industry ideologues of the last administration are gone, and the FTC is maybe the simple example of that. The new administration is focused on cracking down on the middleman and PBMs taking 40% to 60% of the economic value of therapeutics in the chain of value and adding very little. And so that's going to be a welcome bull's eye. And then likely, there'll be positive reform of the IRA provisions and a repeal of the unconstitutional 95% excise tax.
And as the new administration wins the day versus the Fed, interest rates are likely to come down and the life science industry will experience a solid return to a hopefully a normalized bull market. The quarter ahead, we're super laser focused as you all know on the redevelopment and development pipeline. It is as Hallie and Peter will tell you, it's a -- it's been a very diversified demand from leasing. Actually, biotech has been the slowest because they're really in a just in time syndrome given the macro but that's likely to change when we see the Fed start to ease up.
The mass -- the vast majority of our leasing has come from other sectors. Our pipeline for this year is almost 90% leased or undersigned LOIs. Next year is looking very strong. The year 2027 and beyond is where we have a lot of work to do. We're seeing good activity and actually new activity across some of our submarkets. South San Francisco remains slow as we have predicted for a long time. We're laser focused on leasing spaces coming back to us as we noted at Investor Day, obviously, and the rollovers for this year and making very good progress.
We're also laser focused on capital recycling for this year and also making very good progress as well. As I said at Investor Day, the critical components of our enduring success have been a preeminent brand, superior knowledge of our customer, a superior product, highly focused niche, our industry leadership and we believe we possess all those characteristics. And as I said back on Investor Day on December 4, we've been through three major cycles as a collective management team in general.
And I must say that we've successfully navigated each of these very different market cycles successfully. And we've emerged in an even stronger industry position of leadership and strength. And finally, it's interesting that like the real-world legacy media, there are always a bunch of legacy pundits who back in 2009 urged us to unload Mission Bay and Cambridge land during the GFC as worthless, non income producing assets that weighed on our balance sheet.
And they turned out to be the growth engines of the next decade. Those legacy pundits are here again and got it all wrong. We look forward to our first quarter call where we'll give you an update on the strong leasing progress we're already seeing during this quarter and some strong new pockets of demand and give a peek into our 2026 transaction plans.
And then finally, let me wish everyone, we need a new New Year since the last one, just January alone, we saw the tragedy in New Orleans, in Las Vegas and obviously the wildfires here in Southern California. So the Year of the Dragon starts tomorrow and the key symbols are wisdom and transformation which I think epitomize Alexandria.
And with that, let me turn it over to Hallie.

Hallie Kuhn

Thank you, Joel, and good afternoon.
This is Hallie Kuhn, Senior Vice President of Life Science and Capital Markets.
To start, a brief spotlight on Alexandria tenant, Intra-Cellular Therapeutics whose acquisition by J&J for $14.6 billion represents the largest announced biotech M&A in over 1.5 years. Our partnership with Intra-Cellular goes back over two decades when the company was founded on research from Nobel Laureate Paul Greengard's lab at Rockefeller University. Leveraging breakthrough science on how brain cells communicate through chemical signals, Intra-Cellular is developing novel medicines for patients with mental illness, including an FDA approved treatment for schizophrenia and bipolar depression.
With one in five Americans affected by mental illness, Intra-Cellular's novel medicines have the potential to transform patients' lives.
Turning to trends across our broad and diverse life science tenant base. Demand continues to be driven by our nearly 800 strong tenants with 84% of leasing from existing relationships in 4Q '24. Importantly, leasing also continues to come from each and every segment of the life science industry. Over the course of 2024, multinational pharma represented the largest proportion of life science leasing by RSF at 28% followed by life science product, service and devices, 22%, private biotech, 21% biomedical institutions, 15% and the smallest segment which Joel referred to with public biotech at 14%.
Now looking towards 2025, a few notable trends on the horizon. First, the FDA is expected to maintain its healthy pace of novel drug approvals. In 2024, the FDA Center for Drug Evaluation and Research, CDER, approved 50 novel therapies while the Center for Biologics Evaluation and Research, CBER, approved eight novel gene and cell therapies.
Notably, over the past two decades, the average number of annual approvals has more than doubled, a tremendous win for patients. With respect to incoming appointees, we don't expect significant disruptions at the FDA. The new administration's nominee for FDA Commissioner, Dr. Marty Makary, is a surgeon and public policy researcher at Johns Hopkins that is highly respected by the medical community with deep clinical trial experience. In the interim, the administration has tapped Sara Brenner, a career FDA official, as acting commissioner of the agency.
Second, we anticipate life science M&A will continue to pick up. Given impending patent cliffs, pharma companies are seeking to backfill their pipelines with innovative medicines through private and public biotech acquisitions with potential for larger deals given a more lenient FTC environment. This M&A cycle is vital as returns to investors are then reinvested in the next generation of innovative companies. We benefit from M&A across our regions through upgraded tenant, credit, post-acquisition and in some cases, expanded footprint from the pharma acquirer over time.
Third, we expect strong follow-on market performance for public biotech companies with value driving clinical data. Vaxcyte exemplifies this trend having signed a 250,000 square foot expansion at our San Carlos megacampus in Q4. However, public companies lacking key value inflection points will likely face continued downward pressure while the IPO window will be limited.
These dynamics may contribute to sustained volatility in indices like the XBI throughout 2025. Fourth, venture financing will remain strong and will be concentrated on fewer but larger life science deals as evidenced by over 120 financings exceeding $100 million in 2024. Private biotechs continue to take a conservative approach to space decisions, prioritizing just in time needs that align with their mission critical life science infrastructure requirements.
Our dynamic megacampuses with their unmatched flexibility and scale are ideally positioned to meet this demand. There will still remain large uncertainty as macro conditions such as interest rates weigh on all industries. However, the long-term outlook of biotech remains incredibly bright, and we are hyper focused on capturing the most promising life science companies today that will drive significant demand in the future.
To put it into perspective, over the last 30 years, the size of the public biotech market has increased 20x. With only 10% of diseases with approved therapies and innovation accelerating at an exponential pace, the industry continues to have massive growth potential.
With that, I will pass it over to Peter.

Peter Moglia

Thank you, Hallie.
I'll echo Joel's comments that the resilience of our people has been nothing short of astounding and the support from their colleagues inside and outside of the Los Angeles area confirms that we have an extraordinary group of individuals who've shown that they're not only exceptional in what they do for the company but in what they do for their friends and neighbors.
It's no surprise as it's notoriously tough to get a position within Alexandria because Joel famously requires our team members to not only be the best in the world at what they do, but to also care about our mission deeply, which at its core is about helping humanity.
I'm going to discuss our development pipeline, leasing, supply and value harvesting, asset recycling and then hand it over to Marc.
In the fourth quarter, we delivered 602,593 square feet into our high-barrier-to-entry submarkets bringing total deliveries for the year to 2,457,963 square feet covering 13 projects. The annual incremental NOI delivered during the year was approximately $118 million including $55 million in the fourth quarter. Another $395 million is expected to deliver beginning in 2025 through the second quarter of 2028.
The initial weighted average stabilized deal for 2024 deliveries was 6.7% supported by a solid stabilized yield on cost of 7.1% from our fourth quarter delivery. Development and redevelopment leasing activity for the quarter was low at 13,000 square feet due in part to lingering conservatism from life science company Boards.
Companies are prioritizing organic growth and delaying expansion plans until they have a critical need for the space which is why just in time inventory that is turnkey and ready to occupy is most attractive to current demand. This trend can be seen in the least percentages of our pipeline. Projects expected to fully deliver in 2025 and 2026 are 89% and 70% leased or under negotiations with signed LOIs respectively while projects delivering in 2027 or beyond are 15% leased or under negotiation.
And I echo Joel's comments, we have a lot of work to do on those projects. Alexandria's pipeline is well-positioned to capture future demand when expansion needs arise. Our dominant existing tenant base allows us to get in front of many requirements before they reach the market and our locations, scale and sponsorship matter a lot to tenants as we statistically illustrated at Investor Day.
Transitioning to leasing and supply, 5,53,954 square feet was leased during the year, representing a 17.3% increase from last year and 1,310,999 square feet was leased during the quarter which was a 47.3% increase compared to the fourth quarter of '23. Rental rate increases for the year were consistent with guidance at 16.9% and 7.2% on a cash basis and were 18.1% and 3.3% on a cash basis for the quarter.
Net effective rents remained positive despite elevated availability and there was strong early renewal activity, reflecting the tenants appreciation of our location, scale and sponsorship. With respect to supply statistics, we presented a deep dive into them at Investor Day and not much has changed. So in lieu of rehashing that, we'd like to highlight a couple of interesting trends observed in JLL's recent Boston lab market overview as they validate a lot of what we spoke about at Investor Day.
First, JLL indicated that there is a flight to quality for both geography and ownership. 40% of all urban lab leases signed in 2024 were in Kendall Square. 33% were in Watertown. 21% were in Fenway and Seaport Alexandria's urban submarkets, meaning that only 6% of leases were transacted in other submarkets. According to JLL, one-third of the leasing deals were signed by Alexandria and another experienced owner. This is proof that location and sponsorship really matters.
Second, JLL estimates that at least one-third and probably closer to 40% of today's available lab space is made up of zombie buildings, meaning the building is unleasable because it's either a bad office conversion, undesirable location and/or inexperienced owner, further proof that location, quality and sponsorship matters. We're very pleased to have executed a strong finish to the year within our value harvesting asset recycling program by closing on over $1.1 billion of transactions in the fourth quarter, bringing our total for the year to be approximately $1.4 billion included in our self-funding capital plan.
As presented at Investor Day, our 2024 strategic dispositions exemplified that we continue to have a very solid portfolio of diversified assets providing us with strategic optionality. Approximately 36% of our sales were to investors, 42% to users and 22% of the transactions were land sales. The investor sales and user sales were a combination of stabilized and non stabilized assets with the latter requiring downtime and significant capital to stabilize.
In all cases, these assets were deemed by executive management and the local teams to no longer fit our core strategy. We have provided cap rates for the stabilized transactions that range from 6.3% to 7.4% on a cash basis. It should be noted that none of these sales were in the super core life science submarkets coveted by investors.
The other large sales of note were the properties with vacancy or near-term lease expirations in Cambridge and the UTC submarket of San Diego. We are bound by confidentiality agreements. Our commentary must be limited here. With respect to the Cambridge assets, the economics were significantly driven by the inclusion of 215 First Street, a historical building primarily improved as an office building. In addition to current vacancy and significant occupancy loss expected over the next two years, the asset will require material CapEx beyond leasing costs to stabilize the building in the future.
The University Town Center assets have a similar profile with respect to current vacancy and future occupancy laws. The Cambridge and UTC assets served us well over time but they are no longer part of our core megacampus strategy and the opportunity to monetize the assets by receiving capital today and avoiding CapEx in the future is a prudent and disciplined strategy.
As we look to 2025, we are confident we will continue to meet our self-funding goal with our value harvesting asset recycling program continuing to drive the transformation of our asset base into the megacampus strategy that provides the location, scale and sponsorship prioritized by today's high quality tenant base.
With approximately $540 million in pending transactions subject to nonrefundable deposits or executed letters of intent and/or purchase and sale agreement negotiations, we're off to a great start.
So with that, I'll pass it over to Marc.

Operator

Mr. Binda, this is the conference operator. Perhaps your phone is muted on your end. You're open and online. Again, Mr. Binda, perhaps your line is muted.

Peter Moglia

We're checking with him.

Marc Binda

Can you hear me now?

Joel Marcus

Marc, are you there?

Marc Binda

Yes, I'm here. Can you hear me?

Joel Marcus

Yes, we can.

Peter Moglia

Yes, we can.

Marc Binda

Okay, apologies. Thank you, Peter. This is Marc Binda, CFO. Hello and good afternoon, everyone.
First, I'd like to pause for a moment to recognize many of our Alexandria team members who have been personally impacted by the horrible fires that have plagued the Los Angeles area over the last few weeks.
Second, a congratulations to the entire Alexandria team for the outstanding execution during the quarter including the tremendous capital recycling of $1.1 billion completed during the quarter. We reported solid operating financial results for the fourth quarter and the year. Total revenues and adjusted EBITDA were up 8% and 11.6% respectively over 2023 primarily driven by solid same property performance and continued execution of our development and redevelopment strategy.
FFO per share as adjusted was $9.47, up 5.6% over 2023 and up 36% over the last three years, which represents the highest percentage growth amongst the 15 Nareit equity healthcare index over that time. On internal growth, our solid operating results for the quarter continue to be driven by our disciplined execution of our megacampus strategy, tremendous scale advantage, longstanding tenant relationships and operational excellence by our team.
77% of our annual rental revenue comes from our collaborate megacampuses and we hope to increase this steadily over time. We have high quality cash flows with 52% of our annual rental revenue from investment grade and publicly traded large cap tenants. Collections remain very high, 99.9% and adjusted EBITDA margins were strong at 72% for the quarter and represent the second highest quarterly margins reported since 2019.
On leasing, an important takeaway for the quarter is the continued solid leasing volume driving our business. Leasing volume for the quarter was 1.3 million square feet which represents the fourth consecutive quarter of over 1 million square feet and creates great momentum as we transition into the New Year. The quarterly volume also included 273,000 square feet of previously vacant space, the largest amount in the last five quarters.
Leasing volume for the full year '24 was 5.1 million square feet, up 17% over the prior year and up 19% compared to the seven-year historical period prior to 2020. We continue to benefit from our tremendous scale, high quality tenant roster and brand loyalty with 84% of our leasing activity over the last 12 months coming from our existing deep well of approximately 800 tenant relationships. Rental rate growth for lease renewals and releasing space in '24 was solid at 16.9% and 7.2% on a cash basis. For the quarter, it was 18.1% and 3.3% on a cash basis.
We continue to achieve very healthy lease terms on completed leases with 9.5 years on average for the quarter, which is above our historical 10-year average. TIs and leasing commissions on renewals and releasing the space for the quarter was elevated on a per square foot basis due to two large long-term leases signed in San Francisco and San Diego. But importantly, these costs were fairly modest for the year when considered as a percentage of the total rent over the lease term, which was 8.4% for the full year '24 and ranks as the second lowest percentage over the last five years.
Our non-revenue enhancing expenditures including TIs and leasing commissions on second generation space have averaged 15% of net operating income over the last five years including the last three that have all been below the five year average. Looking forward to '25, we do expect this ratio to tick up a bit due to the repositioning activities at Technology Square and 409 Illinois.
On same property. same property NOI growth was solid at 1.2% and 4.6% on a cash basis and 0.6% and 6.3% on a cash basis for '24 and the fourth quarter of '24 respectively driven by solid rental rate increase to pick up in the same property occupancy and some burn off of free rent benefiting the cash numbers. Our outlook for full year '25 same property growth is consistent with our prior outlook at down 2% and flat on a cash basis at the midpoint.
These projected results for 2025 include the impact of approximately 2.6% and 3.4% on a cash basis from the 768,000 of lease expirations expected to go vacant in 1Q '25 spread across four projects. As a reminder, the two largest components of those key 1Q '25 lease expirations relate to Alexandria Technology Square with the moveout and expansion to another Alexandria property by Moderna. And our single tenant building at 409 Illinois in Mission Bay.
We made great progress on these specific upcoming lease expirations with 136,000 square feet already leased or are in negotiation with most of the balance under ongoing discussions with several prospective tenants. We expect downtime on these spaces on average to be at least 12 months given time to complete construction work. We expect same property results to be impacted starting in 1Q '25 with some offsets to the cash results for the burn off of free rent across the rest of the same property pool over the first half of '25.
Turning to occupancy. Occupancy for the quarter was solid at 94.6% which is consistent with the steady results over the last five quarters. The midpoint of our guidance range for occupancy for year-end '25 is 92.4% which includes approximately 2% vacancy coming from the four projects with 1Q '25 lease expirations expected to go vacant that I described earlier and are described on page 24 of our supplemental package.
During the quarter, we continued to execute on our development and redevelopment strategy by delivering 603,000 square feet from the pipeline which will generate $55 million of incremental annual net operating income. We have 4.4 million rentable square feet of development and redevelopment projects. They're projected to generate $395 million of incremental annual net operating income over the next 3.5 years including $83 million in 2025 from projects that are at least are negotiating around 89%.
We also expect to see significant growth in incremental annual net operating income on a cash basis of $70 million from executed leases as the initial free rent from recent deliveries burns off over the next three months on a weighted average basis.
Turning to buybacks. On December 9, we announced that our Board had authorized a common stock purchase program of up to $500 million. To date, we've repurchased $200 million under the program including $50 million in December and $150 million in January at an average price of $98.16. Subject to changing market conditions, we will continue to monitor additional share repurchases under the plan and expect to fund any repurchases on a leverage neutral basis through the end of '25. As a reminder here, our guidance range for acquisitions and other opportunistic uses of capital is 0 to $200 million.
So with the share repurchases completed in the first quarter, we're already on the high end of our guidance range for the year.
Turning next to the balance sheet. We continue to have one of the strongest balance sheets amongst all publicly traded US REITs. Our corporate credit ratings continue to rank in the top 10% of all publicly traded US REITs. We ended the year with low leverage of 5.2 times for net debt to adjusted EBITDA, consistent with the average of our year end leverage for the last five years. We have tremendous liquidity and we have one of the longest debt maturity profiles amongst all S&P 500 REITs with only 14% of total debt maturing over the next three years.
Transitioning next to funding, we continue to be focused on our disciplined funding strategy to recycle capital from dispositions and to minimize the issuance of common stock which has been nominal over the last two years. Huge congratulations to the Alexandria team for the tremendous execution during '24 with $1.4 billion of dispositions completed including $1.1 billion of dispositions completed during the fourth quarter across 12 different transactions with about half of that coming from stabilized dispositions with a weighted average cash capitalization rate of 6.9%.
Important to note here that the stabilized dispositions completed in the fourth quarter were primarily located in suburban Boston, Northern Virginia and RT submarkets which comprise a small fraction of our overall asset base. In the fourth quarter, we did recognize impairments aggregating $186 million which was primarily comprised of the following: first, $40.9 million for properties at One Moderna Way in Route 128 which was sold to our long standing tenant for $369.4 million during the quarter.
And second, $102.8 million primarily related to multiple land parcels located in San Diego, some of which were sold in the fourth quarter and many of which will close next year. The team continues to be laser focused on the execution of our capital plan. As Peter mentioned, we're off to a great start. We have pending 2025 dispositions subject to nonrefundable deposits or contract negotiations for $539.5 million of which about half of this represents anticipated sales of land and in total represents about a third of the midpoint of our guidance for next year.
In addition to dispositions and sales of partial interest, we also expect to fund a meaningful amount of our equity needs next year with retained cash flows from operating activities after dividends of $475 million at the midpoint of our guidance for next year. Our high-quality cash flows continue to support the growth in our common stock dividends with an average annual increase in dividends per share of 5.4% since 2020. And we continue to have a conservative FFO payout ratio of 55% for the quarter.
On venture investments, quarterly realized gains from venture investments including FFO per share as adjusted since 2021 have averaged about $25 million a quarter. For 2024, realized gains including FFO per share were just slightly above our historical rate at about $29 million a quarter on average or $117 million for the full year and $32 million in the fourth quarter.
Our outlook for 2025 is consistent with the most recent run rate for the full year 2024.
Turning to guidance. We reaffirmed our guidance for 2025 with a $150 million change to our '25 sources of capital to reflect the closing of certain dispositions that were originally expected to close in 2024 and are now expected to close in 2025. There were no changes to the midpoints of our guidance ranges for EPS of $2.67 and FFO per share diluted as adjusted of $9.33. As a reminder, we view our projected '25 FFO per share midpoint as flat relative to 2024 after considering the approximate 14% impact from the Alexandria Technology Square ground lease extension completed last year.
In closing, as we reflect on the fourth quarter and the full year of 2024, we're pleased with the tremendous execution with solid FFO growth of 5.6% in a very tough macroeconomic environment. With our tremendous scale, high quality cash flows, deep industry relationships and our highly experienced management team, we're well-positioned to continue reinforcing our dominant platform and strategically position us for future growth.
With that, I'll turn it back to Joel.

Joel Marcus

Okay.
Operator, we can open it up for questions.

Question and Answer Session

Operator

(Operator Instructions)
Anthony Paolone, JPMorgan.

Anthony Paolone

The first question is Joel, I think you alluded to the first quarter here going to or trending toward having a really strong leasing picture. I was wondering if you could give a little bit more color on that in terms of whether that's in the core or with regards to the development pipeline or the types of leases. Just maybe a little bit more detail there on the comments.

Joel Marcus

I prefer to make them on the first quarter, but I would say heavily, it's kind of spread among the various items you talked about. So it's not necessarily one single one.

Anthony Paolone

And then just if we look at your -- the development spending guidance for the full year, can you remind us how much of that is related to projects that are kind of in process versus ones that you might want to start? And I guess where I'm going with the question is, given the buyback, would you consider maybe moving any capital from that bucket to maybe further buybacks or thoughts there?

Joel Marcus

Yeah. So Marc, you could comment on that.

Marc Binda

Yeah. We do break that out in the back, Tony. I'd say that the lion's share is related to active construction projects, $1.2 billion out of the $1.75 billion. But yeah, take your point there. There not a ton of new projects expected to start vertical construction next year.

Anthony Paolone

But should we take it as though this -- it sounded like from your comments if kind of hearing it right that the $150 million you have done on the buyback puts you at the high end of your acquisition kind of opportunistic purchases guidance and that's kind of about it or is there room for that to further --

Joel Marcus

Yeah. I wouldn't assume that to be the case, but let us refresh that in the first quarter, Tony, much like I think the leasing color will give you on rollovers, vacant space coming back to us, the development pipeline, et cetera, but give us that that room. But that's current guidance, but we will definitely update it, and it could change.

Operator

Rich Anderson, Wedbush.

Richard Anderson

Another leasing question. Maybe I'm going to get shut down again like Tony, but on the 768,000, would you and the [336] that you have leased and a lot of it's under discussion, would you say you're running at or where you were at Investor Day in terms of plan or do you think you're running ahead of plan? Just any comment --

Joel Marcus

Yeah. That -- I can answer that question. Ahead of plan.

Richard Anderson

Ahead of plan. Okay. Good.
And then in terms of the G&A savings for 2025, can you talk about that? I mean it's kind of fortuitous timing around maintaining some level of reasonable FFO -- well, in this case, flattish FFO growth for 2025. Where did that come from? Like where -- how did that sort of materialize and sort of hit the books in 2025 if you can give some finer points around that?

Joel Marcus

So yesterday -- I'll ask Marc to make comments but let me give you kind of a frame. So yesterday, we filed our 10-K. So you can look there in MD&A. We've got savings and legal expenses, IT expenses, payroll and payroll related expenses, other G&A expenses and some benefit programs. So I don't know, Marc, if you want to make any other comments. It's pretty broad and also software implementation, et cetera.

Marc Binda

Yeah. No, nothing to add there, Joel.

Richard Anderson

And then lastly for me, Joel, big picture question around, I guess I could say politics, you sounded like a fairly optimistic about 2025 with the new administration, although, some interesting tactics going on around the HHS. And I understand that certainly, regulatory pauses are part for the course for a new administration, but it does feel like it may be more aggressive this time. Would you say there's any concern about where things are headed from a policy point of view or are you absolutely confident that despite some of the questions that maybe are in place today, that this is a step back and a several step forward type of situation that you're looking at?

Joel Marcus

Yeah. I would say compared to the last administration, it's like night -- the dark of night and the light of day. Just FTC commissioner alone is one. We've also got I think Hallie gave you some idea. I mean our industry is primarily governed by the FDA and I think both the nominee and the interim are both highly skilled people. So we feel very good, and we don't see any abatement of the pace of approvals both on biologics and nonbiologic. And I think when it comes to HHS as an overarching area, I mean over the past four years, you had somebody who didn't even know what healthcare was in a political appointee, Xavier Becerra, from California.
So whether RFK Junior gets it or not and I know there's a lot of controversy about that, that probably won't have nearly as much impact as the FDA. Now also on the NIH, we feel that the nominee, there will be a solid nominee. The NIH kind of lost its way. As you know, it lost credibility during COVID. It certainly withheld, I think, accurate reporting on the cause of COVID out of the Wuhan lab. I mean we understand BSL-4 labs and things like that. And it's pretty clear that we funded gain-of-function work there.
And people were getting sick as early as the summer of 2019. And that was on the NIH. And they went from a merit-based award system to a mandated award system. And I think in the province of science, you want best science project to win, not just somebody who's mandated to win for the sake of it. So I think the NIH has a fair amount of work to do to kind of clean house, but it is a fantastic agency overall that funds some of the most important core research, the substrate of a lot of ultimately therapeutic products that come out.
And we would imagine that that will continue. If you look micro to us, we don't have a whole lot of exposure to the NIH directly other than a few leases, which are actually long-term leases in the Maryland market. But I think I'm pretty optimistic.

Operator

Wes Golladay, Baird.

Wesley Golladay

I just want to go back to that comment about just in time leasing. What does that mean for your 2026 developments? Would that be more back half leasing this year or would it be all the way until next year that we see leasing there?

Joel Marcus

So Peter, do you want to maybe frame that?

Peter Moglia

Yeah. Certainly, things that are delivering in 2026 are just not top of mind for folks that are deciding they need space, and they go out to the market and identify things within 60 days to 90 days. So.

Joel Marcus

Yeah. That's the biotech sector. So keep that in mind.

Peter Moglia

Yeah. But we certainly do have our existing tenant base that just loves our platform, loves our operations and it's been very loyal. So we certainly do see ourselves getting things done in 2026. I think I mentioned we're 70% leased or under negotiations, which means we have signed LOIs for 70% of that space. So the other 30% will likely come from our existing tenant base or potentially some new tenants, but that -- those are in pretty good shape.
It's getting into '27 where we're still too far out for folks thinking So we're going to do our best to generate more activity there. But the market is really just looking at things that they can get into and in a very short time or a relatively short time frame. But the '25 and the '26 celebrities are in pretty good shape.

Joel Marcus

Yeah. So maybe with respect to that because I think it's worth noting, Hallie, do you just want to run through the percentages of leasing of the sectors? Because I think this is where people get 100% focused on biotech and they lose focus of the rest of the industry? So maybe just run through those for a minute. Sorry to bear with us.

Hallie Kuhn

Yeah, absolutely. And as I mentioned in my remarks and this is particular to the just in time leasing comment, that is for more of the earlier stage companies. If you think about privately funded companies and they could be incredibly well funded, but are a small portion of our overall ARR. And for this past year, they -- private biotech, they reflected about 21% of our leasing and a good portion of those as Peter said were from existing tenants. And then public biotech in particular, right, which has had certainly the most challenges in terms of access to capital, very much a have and have nots, represented about 14% of our leasing.
So when we talk about just in time leasing, it's very much focused on companies where it's going to be leasing that, say 20,000 square foot space. We're not talking about the much larger requirements where that takes a lot of time from both parties, right, to really find a solution that works for existing and new tenants.

Wesley Golladay

And then maybe just one quick follow up. Any regions standing out from a development -- from a demand side from the leasing? And is there any, I guess nonbiotech, nonpharma, more so, the AI tenants, any of those coming into the portfolio?

Joel Marcus

Well, I think that I don't want to really give competitive information out, but I think we see good activity in the key hubs. The slow one as I mentioned was South San Francisco. But I think the good news is our presence in Mission Bay, which we developed after -- the decade after the great financial crisis has seen a huge boom in AI anchored by OpenAI and a number of other AI companies are moving -- are looking at space and certainly, looking at San Francisco as a critical linchpin base for that talent. So we're pretty optimistic about that.

Operator

Vikram Malhotra, Mizuho.

Vikram Malhotra

I guess Joel, just bigger picture, leasing velocity is sort of critical now given sort of deliveries hopefully coming in towards the back half, but critical for the industry, great for the ARE story as well. Can you just -- I know you don't want to comment on 1Q but just even bigger picture, how do you anticipate leaving, inflecting, any numbers you can share like tenants in the market or even just how the pipeline has changed Q-over-Q? Just feels like that's a critical piece. And I'm wondering if you can just share some statistics, how '25 could evolve versus '24.

Joel Marcus

Yeah. I think that's the kind of question that I'd really prefer to leave for first quarter when we can give you I think more granularity that we feel comfortable with. Remember that the bulk of our tenants in the variety of sectors we service under the life science industry as a whole that Hallie mentioned come from our own tenant base. So we have a really, really good picture over 800 tenants of each and every market and what the demand is quite apart from what people that the brokers may represent or what they see.
They often don't see much of what we see. And oftentimes, we may sign leases or LOIs where brokers simply aren't aware of those things. So I don't really want to get into first quarter. I want to kind of get into the details there. So I'd ask you just to be patient and bear with us. But I think we're going to have some pretty good news.
But I think the key to me is, as I said is the biotech sector apart from the other sectors who have been pretty active. That's going to take really the Fed to get their butt in gear. And hopefully, this administration is -- can kind of jawbone that to happen. That also impacts the servicing of debt. It impacts cost of living because people are paying outrageous interest rates on credit cards and loans and things like that seems to me that's the key and that's what's going to open up the next biotech bull market.
We hope it's not as wild as the last one but one that's measured and steady. But I think that's really the secret there. And remember, I think Powell's term comes up early '26 and you can be assured that Trump's going to replace him.

Vikram Malhotra

Maybe perhaps if you could give us some relative color across sort of the key -- the three key submarkets. And when we hear -- we've been hearing more and more pick up in San Diego, maybe a little bit in South San Francisco, but just like that mix of tenants you gave us overall, like how does the relative strength of each of the markets fare today?

Joel Marcus

Yeah. I think we see strength in Mission Bay, not so much in South San Francisco. And Mission Bay is driven, biotech, institutional and now, artificial intelligence. San Diego has been an overall good market because it's a great place to live and it's a much more affordable. The Bay Area still has a -- it's an enormous span of distance and still the highest cost of living I think in the US as far as biotech markets by and large.
And I think Boston remains very, very steady, at least the heart of Cambridge and the submarkets. I think Peter went through some of the leasing there. So I think the only sore thumb I would say is South San Francisco again, kind of a really kind of a reckless oversupply there by people who really didn't know what they were doing.
And then South San Francisco also suffers from being primarily a biotech market. So you've got those two things that work that really hurt it compared to, say, Mission Bay, which is more institutionally based. And now AI based. So that's kind of a little bit of the lay of the land.

Vikram Malhotra

And then just sorry, last one, if you can clarify. You mentioned you feel pretty good about the lease up of the development into '25, '26, maybe '27, the question is and starts. But like would there be factors that cause you to pause any of the developments in either '25 or '26, push it out into '27, let's say?

Joel Marcus

No. I think what Marc published in the press -- the supp and press release is our best guess of how we think our allocation of capital should match the demand we're seeing. So I don't expect any material changes certainly to '25 or '26 post this print.

Operator

Tom Catherwood, BTIG.

Tom Catherwood

I'll be sticking with leasing for 409 Illinois and Moderna's previous space at Tech Square. Two questions on that. First, Marc, I think you mentioned 136,000 square feet of signed or negotiating leases. Was that those two buildings or it was the four buildings with vacancy? And then the second part is on 409 Illinois. The Tech Square --

Joel Marcus

So that's Tech Square. But I don't want to get any more granular than that. The 409 Illinois, remember that's a building that sits right next to -- It's got a water view, right next to UCSF and right next to the Chase Center. And one could imagine, the biotech company there exited but the demand in -- for that building in South City is really -- I don't mean South City, Mission Bay is heavily institutional, and AI related at the moment. So I think we have fairly good optimism on that, and the location is superb.

Tom Catherwood

And is that building competing against -- I mean as tenants are looking at, is it competing against new construction? Is it competing against second gen space? And kind of how does it stack up across that (multiple speakers)

Joel Marcus

Well, it depends on who the tenant is. Smaller tenants probably prefer existing space, bigger tenants probably prefer new space, but it's so dependent on. You can't generalize. It's so tenant dependent there, Tom.

Tom Catherwood

And then last one for me. Hallie, I want to go back to your comments about M&A, specifically, the idea that deal activity provides investors with a liquidity event and can lead to reinvestment back in life science companies. Is an increase in M&A alone enough to boost early stage and biotech investment or do we also need a kind of sustained rebound in IPO activity to get there?

Hallie Kuhn

Yes. So I think it's a holistic mix of -- across the board, but I would say, and we see this historically that there's always this balance between IPO activity and pharma licensing deals and M&A, right? It's all about where is capital coming from and is there a source of capital? And so I think we could see a really strong year for M&A and continued and very healthy investment in private biotech companies without the IPO market opening. I don't think they're mutually exclusive.
M&A at the end of the day is really the lifeblood of this industry. If you look at pharma and across their current revenues, around two-thirds of that came from acquired products, right? They really rest on the innovation coming from private and public biotechs. And I think investors get those returns and are going to put them to work. And so I think this -- we'll see what the IPO market does. Certainly, the IPO market opening up is another avenue for capital, but that also doesn't mean it's the right choice, right? Being a public company is hard. And so I think as we look to M&A, it's very positive overall and there continues to be very significant drivers for pharma looking for that innovation.

Operator

Dylan Burzinski, Green Street.

Dylan Burzinski

Just wanted to touch sort of on unleasing economics. I know over the last 18 months or so that new development leasing economics have deteriorated given the supply pipeline and drop off in demand. So just curious sort of as you think about the current environment and expectations moving forward, I mean is it your sense that TIs and free rent have sort of stabilized at these higher levels and then sort of expectations for that over the next 12 months?

Joel Marcus

Peter?

Peter Moglia

Yeah. I mean it's -- the TIs today for new construction are essentially turnkey if it's a biotech type of tenant, not so much if it's a larger institutional or pharma type company that you can still do a traditional deal there where you kind of split the TIs between the landlord and tenant. But it is still 50% higher than it was pre rocketship years.
But as far as, the demand is -- looking outside of the institutional and pharma companies, the demand is looking for turnkey space. That's what the market is providing. That's where we understand we need to be and we're adjusting our economics accordingly. We see that other things such as free rent are definitely stabilizing. I think we're reaching the bottom of the fundamental collapse. But we'll see as we report in the next few quarters.

Dylan Burzinski

And then maybe just on the disposition side. I know you guys talked a little bit about sort of the buyer profile of the four key dispositions. But as you guys are sort of continuing to bring assets to market, I mean are you seeing institutional real estate firms come back and kick the tires in terms of deploying capital to the sector or is it still largely maybe your one-off family office type money or your owner users that are mostly in bidding tenants today?

Peter Moglia

So we haven't had a lot for sale on the institutional quality side. We had a nice sale last quarter, the Fred Hutchinson Cancer Research Center Institute, but a user sale. So we haven't tested that market yet to tell you whether or not there's the strength of demand. But we do meet with institutions that are current partners and folks that want to be partners on a fairly regular basis.
And we keep getting assurances that life science is something that they want to be in at some level, and they want to be in it with Alexandria. That probably the way we take away. We had a meeting -- a couple of us had a meeting in San Francisco recently where one of our partners, which is a very large institution said, hey, look, we've invested in a lot of different folks and we -- one of the lessons we've learned is we need to focus our life science investors with you.
That was a great meeting, a great takeaway. We've been telling people that, but I think it all ties together with what I talked about in my commentary about supply, like the zombie buildings, right. They -- about 40% of the inventory in Greater Boston probably won't lease because it's just not good quality that the sponsor has no experience. And it's in the wrong location.
And so unfortunately, some institutional investors were so hyped up about life science, they funded some of that stuff and they've learned their lesson. And so I think you're going to see life science in a lot of institutional real estate portfolios from here on out, but it's going to be with us or it's going to be with somebody else that at least has scale and experience and there's a couple others.
But all these other fly-by-night want-to-be developers that try to get into space are just going to fail. And some of these institutional money will be lost, but they're not going to be soured on it because they know it's a good business. They know there's a use case for life science real estate and they know we're the ones that they need to be partners with.

Operator

Omotayo Okusanya, Deutsche Bank.

Omotayo Okusanya

I just wanted to focus on some of the capital allocation and as well as cost savings plan. Wonder if you could just help us walk through the $32 million in expected savings at the midpoint. How quickly that could potentially happen? And then also just taking a look at the stock today, it's trading below where you did the first $200 million of buybacks. So just kind of curious how you kind of think about the remaining $300 million of buybacks and how quickly and under what circumstances that could happen.

Joel Marcus

Thanks for your question. Marc, do you want to maybe address those?

Marc Binda

Yeah. I can address the first one. I had a little problem hearing on the second one. But on the first one, on the G&A, I think the fourth quarter had actually some pretty significant savings relative to the third quarter. And in fact, '24, in total compared to '23 actually had pretty significant savings. If you strip out the acceleration of stock expense from last year, there was still -- and I'm talking about '23, there was an $11 million amount of savings to G&A in '24 versus '23. So obviously, our guidance assumes that trend will accelerate into '25.
We're expecting $30 million-plus of a decline. But I think the fourth quarter should be encouraging to give you a sense for what we can accomplish I think at that run rate that actually is right around the run rate that's implied in our guidance for 2025. So I think the fourth quarter is sort of good evidence that we can accomplish what we expect to in terms of G&A savings headed into '25.

Joel Marcus

And Marc, just comment globally on the buyback where we are.

Marc Binda

Right. Yeah. So yeah, I would definitely refer back to Joel's earlier comments. We bought back $200 million, $50 million last quarter, $150 million in January. Our guidance assumes 0 to $200 million. So we've already blown through $150 million of that this year in our '25 guidance. So I think stay tuned. As Joel said, we'll continue to evaluate it, but as we stand here today, that's what we've got in guidance. It's really not much more, but we'll continue to monitor that as market conditions change.

Operator

Jim Kammert, Evercore.

James Kammert

Is there any thematic content to be extracted regarding the lease up of previously vacant space? And I'm suggesting that are these tenants that otherwise might have gone into some of your new developments and they're doing sort of tide me over leases or if there's any. I'm curious because it's been picking up quarter over quarter that you're leasing up the vacant space.

Joel Marcus

Well, again, remember, Jim, with 800 tenants and a pretty big stable in each of the core cluster markets, we have pretty good insight into the different sectors and what their needs are. So I would say, it's very case specific and really hard to generalize.

James Kammert

And then finally looking at page 40, when you look at your probable retain cash flow for the next three years, then compare that to your remaining commitment to fund their developments, they're released in near term. Is it reasonable to assume that maybe '25 sort of a peak here in terms of absolute dollar dispositions?

Joel Marcus

Yeah. I think, well, Marc, you can comment on that.

Marc Binda

Yeah. Well, I would say this, we've seen construction -- the construction dollars come down the last couple of years, right, with the amount of deliveries has been outpacing the amount of projects that have been going in. We've got obviously got pretty good visibility here through the end of '25 on what that looks like. But '26 is, it's a little far off to -- for us to kind of give you a sense for where construction dollars might be. So I guess stay tuned.

Operator

John Kilichowski, Wells Fargo.

Jamie Feldman

Jamie Feldman with John.
Joel, we're very sorry to hear that the wildfires had so much impact on your company, and such a difficult impact on the team. But to that end, I wanted to go back to your comments regarding the handling of them when you started the call. So you're one of the largest commercial real estate landlords in California. What are your initial thoughts on the long-term impact to your business to owning commercial real estate in California in terms of political changes, any initiatives, insurance costs?
I mean what do you think the long-term implications are here? And also for incremental dollars, are you leaning towards investing in California or away from investing in California as a result of all this?

Joel Marcus

Yeah. So let me frame it and then I'll ask Marc to come in. I would refer you to the 10-K which addresses a number of the points of your question. But I think if you look at our portfolio, San Diego, I think is in very good shape and doesn't have particularly great exposure to the wildfires, most of which start in hill country. South San Francisco, I think the same is true there, not particularly exposed. So I think overall, the bulk of our assets are in really good shape.
I think it is possible that because of the lack of preparation, even though it was well known several days ahead of time that we're going to have 100 mile an hour winds and you know what that means during a very dry season, I hope the electorate here in California rethink how they elect local county and state officials. And think about the election here of the current mayor versus one that lost.
I think he's going to come back, Rick Caruso. You have a choice of a political person all their lives versus someone who's a businessperson, who operates real estate, who under -- who headed the police commission. So I think people are going to search for more common sense practical leadership. And I think that is kind of I hope where California is headed and not take on kind of foolish policies.
I mean I lived in the Palisades for many years, and I was evacuated twice during the time I lived there and finally just gave up. In fact, my house overlooked the reservoir that was dry and during the days when I was there, I never saw it dry. So how could a reservoir in a high fire area be dry during the fire season? Makes no sense. But anyway, so I think we're well protected in California. But Marc, do you want to comment anything further?

Marc Binda

Yeah. No, just to say that, obviously in California, we've got a concentration of assets mostly in San Francisco and then San Diego. San Diego is the region that's probably got more exposure there to wildfire. Obviously, really unfortunate what's happened here in Los Angeles. But I can tell you that the company has taken climate resilience across the portfolio very seriously. It's been something that we've adopted really as part of the design into our buildings, as well as operationally doing what we can to kind of harden our facilities and put ourselves and our tenants and their signs in the best position to deal with a potential fire.

Jamie Feldman

And I guess just if you think about some of the policy initiatives that are even on the table and I know it's very early, I mean is there anything that you think could have a longer term impact on operating expenses or your appetite to be in California? And then similarly on the insurance front?

Joel Marcus

Well, I think you have to remember, two of the three major clusters are in California. So this is an industry that's a knowledge-based industry and intellectual industry. And so you have to be where that tenant base or where that knowledge base is because that's where tenants cluster and hire from. And as I say, I think San Francisco are our assets there and the nature of San Francisco is in good shape, rate of fires. I think same thing in San Diego.
I think insurance is a big issue. The state has made it much harder for insurance companies to operate here and make a profit here and do right by their policyholders here. And I would hope that that changes whether by the ballot or whether by maybe current people just getting a lot smarter and acting more prudently. But we don't tend to exit California when it comes to our holdings in the Bay Area or San Diego.
But as Marc said, we've taken extraordinary steps from our, whether it be fire, water, any kinds of other natural disaster hazards, earthquakes as well. And I think our insurances were well insured and I think we've done a really good job of risk management, and we report to our Board quarterly on that issue.

Jamie Feldman

I know it's a sensitive topic and our thoughts are with your team.

Joel Marcus

Yeah. It's an amazing number of people who've been dislocated unfortunately. Thank you, Jamie, very much.

Operator

Michael Griffin, Citi.

Michael Griffin

Hallie, maybe going back to some of your comments on the VC funding environment and capital flowing to more established firms with marketed products. I realized after a funding round, these type of tenants might expand their space. But do you need to see a greater increase in capital flows to the more startup-e type tenants that could go from 5,000 to 50,000 square feet in order to see the cadence of leasing pick up?

Hallie Kuhn

Yeah. I mean as a -- the previous question when this came up, you have to keep it in context of what proportion of our overall ARR, right, is coming from that portion. So 9% of our overall ARR comes from private biotech. So while certainly, that contingent is important and is a driver of lease up, right, it's not, I would say reflective of our entire portfolio, right? We've really built a very diverse set of tenants to help enable right kind of broad demand as the market conditions change.
And I would say from a funding perspective, it has come down off the peak of '21 and we're looking at, I would say, a pretty strong funding environment going into '25. There's a lot of dry capital that venture investors have on hand to deploy. So it remains to be seen throughout the year. How that evolves, as Joel mentioned, there are still a lot of macro factors that are dampening, right, activity and just in a more risk off environment. So certainly, tracking it closely and we'll provide an update as the year goes on.

Michael Griffin

And then just maybe one on sort of the transaction market and activity there. You called out kind of expectations for cap rates at your Investor Day of the low to mid-7s. But given the move we've seen in the 10 year, and I guess it's anybody's guess whether or not, the new administration's policies will be inflationary. Are you taking into account if yields or return hurdles might be higher for prospective buyers given the current interest rate environment?

Joel Marcus

Yeah. Peter?

Peter Moglia

Yeah. Yes, we have -- I think we take into account what we have to sell and the quality of it. And then just to average it to give you those -- the numbers we gave you at Investor Day. So yeah, we're comfortable at this point that we can achieve those numbers.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Joel Marcus for any closing remarks.

Joel Marcus

Just thank you everybody and we'll look forward to talking to you on the first quarter call. Thank you.

Marc Binda

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