Alexandria Real Estate Equities, Inc. (NYSE: ARE) Q4 2025 Earnings Call dated Jan. 27, 2026
Corporate Participants:
operator
Paula Schwartz — Investor Relations
Joel S. Marcus — Executive Chairman & Founder
Marc E. Binda — Chief Financial Officer & Treasurer
Hallie E. Kuhn — Executive Vice President, Capital Markets & Co-Lead, Life Science
Peter M. Moglia — Chief Executive Officer & Chief Investment Officer
Analysts:
Unidentified Participant — Analyst
Farrell Granath — Analyst
Ronald Kamdem — Analyst
John Kim — Analyst
Vikram Malhotra — Analyst
James Kammert — Analyst
Rich Anderson — Analyst
Nicholas Joseph — Analyst
Omotayo Okusanya — Analyst
Michael Carroll — Analyst
Mason Guell — Analyst
Presentation:
operator
Good afternoon everyone and welcome to the Alexandria Real Estate Equities fourth quarter and year end 2025 conference call. All participants will be in a listen only mode. Should you need assistance, please know a conference specialist by pressing the star key followed by zero. After today’s presentation there will be an opportunity to ask questions. To ask a question you may press STAR and then one on your touchstone telephones. To withdraw your questions you may press star and 2 please also note today’s event is being recorded. At this time I would like to turn the floor over to Paula Schwartz with Investor Relations.
Ma’, am. 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 period periodic reports filed with the securities and Exchange Commission. And now I’d like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead Joel.
Joel S. Marcus — Executive Chairman & Founder
Thank you Paul and welcome Everybody to our fourth quarter and year end 2025 conference call. With me today are Peter, Mark and Hallie and I want to wish everybody a happy New Year and remember, most importantly, health is wealth. I want to thank our family team for their exceptional efforts during 2025 and particularly a very fourth quarter. In 2025 we witnessed the fifth year of a life science bear market. Our 2025 timeline clearly evidences that no one could have predicted with the February 2025 nomination of HH Secretary, the intense cascade of events from February 2025 on to the numerous key departures toward year end at the FDA and in fact sadly, measles and polio may be back to some extent.
We have been navigating a fast changing life science industry landscape throughout 2025 which has been front and center for our team. Our Investor Day Path forward is our North Star for 2026 as the industry begins to adapt to the fast changing landscape. 2026 is all about timely execution of our plan, heavily focused on dispositions and maintaining a strong and flexible balance sheet driving occupancy with intense leasing, focus on vacant space, rollover space and redevelopment and development space and meeting the marketplace. We also plan to continue to significantly reduce capex and with that let me turn it over to mark to highlight 4Q and 2025 briefly and then we’ll turn it over to everybody for questions.
Since we had Investor day less than 60 days ago and we just reported yesterday. We’ll try to make our comments brief. So Marc?
Marc E. Binda — Chief Financial Officer & Treasurer
Thank you Joel this is Mark Benda, Chief Financial Officer. Good afternoon everyone. First, a congratulations to the entire Alexandria team for the outstanding operational execution during the fourth quarter, including the completion of 1.5 billion of dispos spread across 26 transactions and 1.2 million square feet of total leasing volume for the fourth quarter, which was the highest quarter in the last year. We are focused on taking all the seven steps to our path forward that we outlined at our recent Investor Day and are also included on page four of the press release. Our team continues to navigate a challenging macro, industry and regulatory environment.
Please refer to our earnings release for our EPS results. FFO per share diluted AS adjusted was $2.16 for 4Q25 and $9.01 for the year, which represents the midpoint of our prior guidance provided on our last quarterly call. Leasing volume for the quarter of 1.2 million square feet was up 14% over the prior four quarter average and up 10% over the prior eight quarter average. An important takeaway for the quarter is that the leasing of vacant space completed during the fourth quarter of 393,000 rentable square feet was almost double the quarterly average over the last five quarters.
Free rent and rental rate changes on renewed and released space were under pressure this quarter, which reflects the market realities and included two large deals, one in Canada and one in our Sorrento Mesa submarket. Lease terms for the quarter of just over seven and a half years were consistent with the prior three year average of right around eight years. Occupancy at the end of 2025 was 90.9%, which was up 30 basis points from the prior quarter and was up 10 basis points over the midpoint of our prior guidance. In addition, we’ve signed leases of almost 900,000 rentable square feet, or about 2.5% of the portfolio, that are expected to commence in the third quarter of 2026 on average upon completion of construction and will generate incremental annual rental revenue of $52 million.
It’s important to emphasize that our asset quality, location, best in class operations, sponsorship and brand trust continue to be a major distinguishing factor for tenants as our mega campuses, which represent about percent of our annual rental revenue, outperformed the total market occupancy in our largest three markets by 19%. For occupancy, we reiterated our year end 2026 occupancy range of 87.7% to 89.3% that was provided at our Investor Day this past December. A key takeaway on our outlook for 2026 is that we expect occupancy to dip in the first quarter of 2026 and we expect occupancy second half of 2026.
The projected decline in occupancy for the first quarter is primarily driven by the 1.2 million square feet of key lease expirations with expected downtime that we highlighted on page 22 of our supplemental package. Consistent with our outlook from Investor Day, we’re making good progress across these spaces with 13% that’s either lease negotiating and we’ve identified prospects or in early negotiations on another approximately percent of these spaces. Same property net operating income was down 6% and 1.7% on a cash basis for the fourth quarter and down 3.5% and up 0.9% on a cash basis for 2025.
The results for the year were at or better than the guidance midpoint we provided on our last earnings call. The full year 2025 results were primarily driven by a decline in occupancy which occurred in early 2020. Cash results had a boost from the burn off of free rent in the first half of 2025. We reiterated our outlook for same property performance for 2026 of down 8.5% at the midpoint of our guidance range, which is expected to be driven by lower occupancy. Despite the anticipated decline in occupancy in 1Q26 I previously mentioned, we continue to benefit from a very high quality tenant base with 53% of our annual rental revenue coming at greater publicly traded large cap tenants, long remaining lease terms of seven and a half years, average rent steps approaching 3% on 97% of our leases, and strong adjusted EBITDA margins of 70% for the fourth quarter.
We expect same property NOI performance to be weaker in the first half of 20202026 driven by lower occupancy and stronger performance in the back half of 2026. Our guidance assumes the delivery of the nearly 900,000 square feet of signed leases commencing in the third quarter of 2026 on average, as well as about a 2 to 3% assumed benefit from a range of assets that could be sold or designated as held for sale in the second half of 2026. We highlighted several considerations for the first quarter of 2026 on Page 5 of our supplemental package, including the following 3 items that we expect to impact same property performance.
First, the 1.2 million square feet of key lease expirations with expected downtime, of which around 60% expired mid January on average. Second, we terminated one lease for nearly 171,000 rentable square feet in South San Francisco in 4Q25 that had annual rental revenue of $11.4 million, and we are announcing that we released 100% of the space to a new 10. But the new lease isn’t expected to commence until beginning in the second half of 2026, so there will be some additional temporary vacancy in the first half of 2026. And third, our guidance assumes a reduction of rent of approximately 6 million per quarter starting in the first quarter of 2026 related to potential tenant wind downs.
During 2025 we achieved tremendous general and administrative cost savings of 51.3 million or 30% compared to the prior year and our G and A cost as a percentage of NOI was about half the average for other S&P 500 REITs at 5.6% for 2025. As we’ve guided in the past, we expect those annual savings in 2026 relative to 2024 to be cut roughly in half. Given the temporary nature of some of the 2025 savings, we reiterated our guidance for capitalized interest for 2026 of 250 million, down 24% from 2025. With projects under construction and expected to generate significant NOI over the next few years and other earlier stage projects undergoing important entitlement design and site work necessary to be ready for future ground up development, we were required to capitalize a portion of our gross interest costs.
Part of our strategic path forward includes goals to reduce the size of our pipeline and construction spending needs and to substantially complete our large scale non core disposition plan in 2026. During December 2025 we sold or designated for held for sale projects with more than a billion dollars of basis that had previously been subject to interest capitalization. As a result, we expect a decline in capitalized interest headed into the first quarter of 2026 and we have a number of projects under construction where we are evaluating the business strategy and a number of future pipeline projects undergoing pre construction activities with milestones in May 2026 on average.
To the extent that we decide in the future to either pause or sell any of those projects, capitalization of interest and other costs would cease. While those ultimate decisions have not yet been made, we would like our disposition program for 2026 to include a significant component of land which will also help us achieve one of our strategic objectives to significantly reduce the size of our land bank during the fourth quarter, realized gains from our venture investments was $21 million, down from the approximate 32 million quarterly average for the preceding three quarters. For 2026, we reiterated our guidance range for realized investment gains of 60 to 90 million or approximately 19 million per quarter.
At the midpoint, we continue to have one of the strongest balance sheets amongst all publicly traded U.S. rEITs. Our corporate credit ratings continue to rank in the top 15% of all publicly traded US REITs. We have tremendous liquidity of 5 billion, the longest average remaining debt maturity among all S&P 500 REITs at just over 12 years and modest leverage of 5.7 times for net debt to adjusted EBITDA for the fourth quarter. Annualized we reiterated our guidance range for 4Q26 net debt to annualized adjusted EBITDA of 5.6 to 6.2 times. While we remain on track to achieve our leverage goals for year end 2026 leverage we expect leverage in the first quarter of 2026 measured on a quarterly annualized basis to temporarily increase by 1 to 1.5 times higher driven by a reduction in quarterly adjusted EBITDA.
Please refer to page 5 of our supplemental package for detailed assumptions specific to the first quarter. We expect one Q26 leverage to significantly improve over the balance of 2026 as we make progress on our dispositions and sales of partial interest. As we announced at our Investor day, we sold one of our campuses in South San Francisco. We expect to sell two redevelopment projects in 2026 and we pivoted to office on one project in the Fenway and these changes reduced our future funding needs by more than $300 million. In addition, we are evaluating the go forward business strategy for four additional projects that are currently under construction and have significant remaining capital needs.
Again, a huge congratulations to the Alexandria team for the tremendous execution during the fourth quarter with 1.5 billion of dispositions completed across 26 different transactions which allowed us to achieve our leverage target of 5.7 times for the fourth quarter over the course of 2025. We also made significant progress in reducing our investment in non income producing assets as a percentage of gross assets from 20% at the end of 2024 to at the end of 2025 and we expect that ratio to continue to decline by the end of 2026. In connection with our disposition program, we recognized our share of impairments of $1.45 billion in the fourth quarter.
Five important items to highlight here. First, approximately 90% of that number was previously announced with our 8K on December 3, and the remaining 10% was primarily related to one land parcel located in Greater which was designated as held for sale later in December. Second, 50 to 60% of our share of the real estate impairments recognized in the fourth quarter was related to land, which is notable given the oversupply in numerous submarkets. Third, the two largest impairments comprised 37% of the total and included our future development project at 88 Bluxam street in Soma, located in San Francisco and our Gateway campus in South San Francisco, which was owned through a consolidated joint venture.
Fourth, we sold our interest in the Gateway campus in South San Francisco in December. Ultimately, we decided to exit this investment given the challenging supply and demand dynamics in South San Francisco and the very significant capital required over time to redevelop the campus. And fifth, we expect to complete the sale of 88 Bluxom Street. Our only asset located in Soma over the next few quarters. We originally acquired $0.5 million fee and we ultimately decided the sale proceeds from this project would be better recycled into our Mega campus platform and to address our current funding needs, we continue to focus on our disciplined strategy to recycle capital from dispositions and partial interest sales to support our funding needs with a focus on the substantial completion of the large scale non core asset program in 2026 and we expect non core assets and land to comprise around 65 to 75% of the 2.9 billion midpoint of our guidance for 2026 dispositions and sales of Partial Interest we expect most of our dispositions and partial interest sales to close in the second, third and fourth quarters with a weighted average closing date in the third quarter in early December.
Our board also authorized a reload and extension of the common stock repurchase program of up to $500 million and our guidance does not assume any common stock repurchase in 2026 based upon current market conditions. And lastly, we reaffirmed our guidance for 2026 Expo per share diluted as adjusted as well as the key components of guidance. Now I’ll turn it back to Joel.
Joel S. Marcus — Executive Chairman & Founder
So can we go to questions Operator please?
Questions and Answers:
operator
At this time we’ll begin the question and answer session. To ask a question you may press STAR and then one on your touchtone telephones. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press STAR and two at any time. Once again, that is STAR and then one to join the question queue Our first question today comes from Pharrell Granath from Bank of America. Please go ahead with your question.
Farrell Granath
Hello, this is Farrell Granite. Thank you for taking my question. I wanted to start it off, I know that we spoke about a month ago, but just given the sustained and slightly up quarter over quarter leasing that you’ve seen and recent commentary around better VC funding that we’ve seen in the broader biotech market, has that changed your outlook at all on expectations into 26 or are you at least receiving greater inbounds in terms of sentiment as people are potentially making more decisions?
Joel S. Marcus
Okay, so Farrell, is your question aimed broadly at leasing or is it aimed at, you know, venture backed private? So I’m not sure how broad or narrow your question is.
Farrell Granath
I want to just connect the dots between what we’ve seen as positive headlines for broader VC funding and how that may be connecting to leasing and sentiment towards leasing.
Joel S. Marcus
Okay. Because that’s one segment of a very broad market. So Hallie, maybe take her through a little bit of, you know, venture and the private side, but then maybe overall.
Hallie E. Kuhn
Yeah, thanks. And hi Farrell, this is Hallie. As Joel mentioned, you know, when we think about VC dollars going into this industry, it’s very much tied to a specific segment, our private biotechnology segment. And we have seen over the course of this year, sustained funding numbers are similar, if not slightly higher to the last couple years. This is money that is going into new companies. On the other hand, venture funds have raised the lowest amount of dollars in the last decade. So this is LPs investing in these funds. And so we have this kind of interesting dynamic going on here where it’s certainly not back to a healthy, robust environment that we would fully like to see.
And what we see that manifesting in is that VCs and these companies continue to be very conservative. So we certainly are seeing demand. We, you know how Peter can talk to tours increasing. There’s some great companies out there. I do think by and large, decision making is still taking longer and companies are very cautious in terms of how they think about taking on new space or expanding. So while we’re cautiously optimistic, you know, we are monitoring it closely because we don’t necessarily think that we’re, you know, back to a fully robust environment that we may have been in in the past.
More broadly speaking on headlines, the other big one is the XBI has certainly performed incredibly well over the past year, outperformed broader indices. As mentioned in Investor Day, the majority of those are commercial or near commercial companies which don’t typically drive lab space needs. So we’re not seeing the immediate translation of that activity to leasing. So, you know, altogether, while we do feel that, you know, we’re moving in the right direction in terms of positive sentiment, we still have a lot more work to do. There’s still a lot of volatility on the regulatory and, you know, pricing side of things.
And so, you know, we just continue to monitor and for the demand that is out in the market, meet the market and really capture, you know, our outsized share of leasing.
Joel S. Marcus
Yeah, let me, let me put one footnote on that, Farrell. If you look at the pie chart of our leasing for the year and the fourth quarter, you’ll see in the fourth quarter a notable very small amount of leasing for public biotech. That’s something that we’re hoping turns around in 2026, because that’s a critical main of this industry. And much of that has to do with the lack of availability of secondary offerings, except on data or, you know, the lack of a real robust open IPO market.
Farrell Granath
Thank you for the color on that. And I also wanted to ask about your strategy of retaining the Fenway office property and looking to lease as an office. Is the, was that a one off transaction that you’re looking to maintain or is that something that you could see doing across other properties as well?
Joel S. Marcus
Well, yeah, I’ll have Peter comment on that. But you have to remember that the Fenway is made up of multiple buildings. The one we’re speaking about is in fact an office building and in fact has multiple long term leases with some of the best institutions in LMA and the Fenway. And so, you know, we sometimes you think about would you create lab space or other things out of vacant space or stick with what makes sense. And the demand there, we think is, you know, will on a go forward basis be pretty good office wise. But Peter, do you want to comment on that? I think 401.
Peter M. Moglia
Yeah, I mean, would agree exactly with what you just said. We have seen an increase in demand for office space and given the availability we have elsewhere in the Fenway for lab, it made more sense to just go ahead and follow a business plan to lease it as office and not create any more lab space in the near future.
Farrell Granath
Okay, thank you very much.
Joel S. Marcus
Yeah, so that’s more building and submarket specific as opposed to something much broader.
operator
And our next question comes from Ronald Camden from Morgan Stanley. Please go ahead with your question.
Ronald Kamdem
Hey, two quick ones. Just on starting with the dispositions, you know, I saw some of the cap rates on the stabilized Assets and the supplemental which was helpful. But as you’re sort of thinking about that 2.9 billion appreciate, a lot of it is going to be land. But any sort of commentary on, you know, cap rate trends, sort of the interest price discovery, how that’s been going relative to your expectations. Thanks. Yep.
Joel S. Marcus
Yeah. Peter.
Peter M. Moglia
Yeah, I mean there’s still going to be a considerable amount of non core assets that we’re selling and you know, you’ve seen cap rates for those in the, you know, mid sixes all the way up to the mid nines. A lot has to do with what markets they’re in, how much leasing or what the wallet is. You know, the lower the wallet, the higher the cap rate. We do plan on a couple of executions during the year that would involve more core assets. So you should be able to get more discovery on, you know, what our nav could be for what we’re holding on to.
But I’m not going to speculate on those cap rates yet. We have talked in the past and mentioned at Investor Day that we do think our top and properties should have a five handle and you know, one or two of those types of properties could be involved in this execution and we’ll report on that when it happens.
Ronald Kamdem
Great. Just my follow up, I had sort of a similar question on the leasing chart, but maybe asking it a different way. Can you just comment on the leasing pipeline in terms of how it’s rebuilt after the quarter and if any sort of notable groups are in the pipeline or not in the pipeline, that’d be helpful. Thanks.
Joel S. Marcus
Yeah, that’s kind of secret sauce. I’m not sure I want to say much but Peter, do you have any overall comments?
Peter M. Moglia
Well, yeah, look. In practically all of our markets the smaller spaces under 50,000 square feet are still what is moving. Most of the tours are in that range. There is, as Joel mentioned and Hallie mentioned, there is a bit of a dearth of biotech, public biotech type of companies which are usually the middle of the barbell. 50 to 150,000 square feet. We’re not seeing a lot of that, but we do have in certain markets some good activity in the 100,000 square foot plus range. So we’re pleased to see that. But you know, as Joel mentioned, we really need to see the public biotech sector contribute to the leasing pipeline in order for it to really start to turn around.
There is some good, you know, there is some good green shoots. We’re very cautiously optimistic. But you know, one example is that the Greater Boston region did did see an 11% increase in tenants in the market and that was really the first time we’ve seen an increase in a number of quarters. So we’re happy to see that and you know, we’ll keep, keep you informed as we go.
Ronald Kamdem
Really helpful. Thanks so much.
Joel S. Marcus
Thank you.
operator
Our next question comes from John Kim from BMO Capital Markets. Please go ahead with your question.
John Kim
Thank you. I was wondering if you still felt comfortable with the previous guidance you gave for the fourth quarter 26 FFO of $1.40 to $1.60 stated at your investor day and whether or not you believe this would represent trough earnings. I think in that presentation you mentioned that earnings will be flattening out in the second half of the year, but there are some dispositions that looks like that’s falling into the fourth quarter.
Joel S. Marcus
Yep. So, Mark.
Marc E. Binda
Yeah, hey. Hey, John. Yeah, we’re still tracking within that range that we gave for 4Q26, which I think was $1.40, $1.60 and that, that does represent kind of the trough for the year, at least for 2026. But as far as 27, I know you don’t want to give guidance for that, but.
Joel S. Marcus
But yeah, we haven’t and can’t. Yeah, we haven’t, can’t give guidance at this point for 27. But that was the point of saying that’s a good run rate to think about as opposed.
John Kim
Okay. And then can you comment on dispositions you’ve completed year to date and what you’ve planned for the year in terms of type of buyers you’re talking to as far as owner users, other REITs, developers looking to convert some of that space potentially, or other buyers.
Joel S. Marcus
Yeah. So maybe Mark, do you want to just talk about the percentages of dispositions through the year and then maybe ask Peter to comment on the buyer pool?
Marc E. Binda
Yeah, sure. Yeah. The mix of dispositions was pretty consistent with what we kind of set out at investor day. So about 20% stabilized, 21% land, and then 59% non stabilized. So I mean, obviously the biggest pot or portion was the non stabilized properties, which is going to attract a certain type of buyer. Maybe I’ll hand it over to Peter to kind of get a little bit more. Yeah.
Joel S. Marcus
Before you do, talk about timing quarter by quarter, because I think that’s.
Peter M. Moglia
Oh, sure. Yeah. So as we look forward to 2026, we’ve got, you know, we’ve got, you know, just under 200 million of stuff that were, you know, under contract or under PSA negotiations. We’ve got about 580 million of assets on balance sheet today that have been designated as held for sale. And and so I think that the first quarter closings will be pretty small. We expect the bulk of the closings to occur over 2q3q4q and again I think on a weighted average basis it’s probably closer to third quarter as a kind of a blended average for the closings for 2026.
John Kim
Yep. Thanks.
Joel S. Marcus
Yeah. Peter Bayer.
Peter M. Moglia
Yeah. So on our guidance page we did indicate that we’ve got about 180 million under contract or in negotiations that we expect to close in the near term. That’s essentially three assets. One is a portfolio that is being purchased by what we would classify as an investment fund. Investment fund buyers have been our fourth largest over the last couple years, taking down about 12 to 15% of our inventory. That’s an investment fund, is someone who’s buying it to hold long term and is usually private capital. The other two assets are residential conversions, their land or assets that are at the end of their useful life that will be demolished and turned into a residential type of use.
And that was another one of our largest segments of buyers last year and we anticipate that will continue this year. More than 55% of our available land is either zoned or could have an allowable residential use and is in urban environments that could use the housing. So we expect that out of the 2.9 midpoint, 2.9 billion midpoint this year though, as Mark said, there’ll be a considerable amount of land, 25 to 35 per. And we do expect the majority of that to go to residential developers. But. There has not been a problem getting assets sold. There’s, there’s a number of buyers. The, you know, the biggest issue is just, you know, the yields that, that these buyers are, are looking for and that has created, you know, some, some impairments. But the good news is when we need to get things sold, we do and we fully are confident we’ll do the same thing this year even though it’s a larger, a larger amount that we have to execute on.
operator
Thank you. And our next question comes from Vikram Hocha from Mizuho. Please go ahead with your question.
Vikram Malhotra
Morning. I just wanted to clarify kind of the earnings, I guess trajectory through the year, you know, with the, you know, the vacancies or the move outs you mentioned, you know, some of the fees, etc. One time items in 4Q25. I’m just wondering sort of the cadence that you showed at Investor Day trending down to that 140 to 160. Is that cadence still intact?
Marc E. Binda
Yeah. Hi Vikram. Yeah, we still expect the fourth quarter to kind of be the low point in earnings for the year for 2026.
We did. You know, I think there was some question around, you know, where the first quarter goes and how steep of a decline that is coming off the fourth quarter. And so we tried to give a lot of color about the components that go in there. But the general trajectory, that fourth quarter things will even out in the back half of the year and the fourth quarter being in that $1.40 to $1.60 range still holds.
Vikram Malhotra
Okay, great. And then I guess maybe Joel or Haley from a broader perspective, I understand, like it takes a while for all the changes on the macro front to translate to leasing.
But I don’t know if you’ve had any like recent conversations with FDA officials or any larger VCs in terms of the shifts that you may be hearing as a precursor to new company formation and hopefully then leasing down the pike. So maybe you can update us any thoughts around the FDA and like early stage series AB type funding. Thanks.
Joel S. Marcus
Yeah, so maybe let me make a couple of comments and ask Hallie to fill in the blanks. So I think it’s fair to say that the FDA commissioner has been active, he’s out a lot. He’s certainly trying to head in the right direction and do the right things. Given speed of approvals, looking at trying to get products into the clinic much quicker than otherwise. Remember we talked about it at Investor Day. The thing that the market really wants to see is a substantial compression of the 10 to 12 year billion dollar plus cycle of bringing, you know, a compound from discovery to the market.
And he’s I think very much focused on that now. Have defections, doge firings, you know, resignations and all that stuff at the fda. How much does that, that practically impede the ability of the agency to do what they want to do, which I think they’ve got their mindset in the right place, I think is a big question for this year. Last year they did end up approvals at 46, which was a very, very respectable number. But a lot of that was in the pipeline. This year is going to be a much more telling result. But Hallie, other thoughts? Comments?
Hallie E. Kuhn
Sure. So maybe Vikram, to take a step back on this question as it continues to come up on page 21 of the SUPP. We break out our leasing volume by business type Both for the fourth quarter and for the full year 25. And if you look at private biotechnology, in the last quarter, it. It made up about a fifth of all leasing volume. So to be clear, we still continue to see demand from this segment. Whether that’s going to pick up and how long that takes, I wish we could give you a specific time frame.
These things take a while. And I think generally we need a lot more confidence in terms of the broader landscape being able to return capital to LPs, the IPO window opening up, which is a really important source of capital for private companies. But where we’ve really seen the drop off, as Joel mentioned, is in that public biotechnology cohort. So in terms of overall impact to our leasing going forward, we think that segment in particular is critical. And we are seeing some demand out there from some really good companies. They still are tending to be more capital, conservative, more commercial, near commercial.
And without that next bolus of new companies that are ipoing that tend to be earlier stage, they still seem to be on the back burner right now. At JP Morgan, there was a lot of, I would say, positive sentiment around the potential for some really strong companies to go public and raise capital. We haven’t seen that yet, but that is really top of mind as we think about the next, you know, I would say 12 to 18 months.
Vikram Malhotra
Okay, great. And then can I just clarify, like, the new leasing was really good this quarter and hopefully the pipeline supports sort of that continuation. But where are we today in terms of like incentive packages, TI’s, free rents to achieve that leasing? And I asked just because there have been a couple of, of leases, you know, in say, South San Francisco where we’ve heard like very big TI numbers. So I’m just wondering if it gives a bit more granular color on the TI and free rents. Thanks.
Joel S. Marcus
Yeah. Peter. Yeah.
Peter M. Moglia
I mean, tenant improvements haven’t changed. They’re still, you know, elevated. For anything that’s from Shell, it’s gotta really be. It’s either you get an allowance to build the whole thing out or you have to spec build it. So on renewals and releasing, the TI’s are also stable. The fact that the space is already built out and the fact that people tend not to change much in the generic labs that we build, that’s an advantage to us. So really where we continue to see weakening in fundamentals is in the free rent category and it’s continued to elevate.
We did have a couple of leases this quarter that really had significant amount of free rent in order to win the deal. And you know, Joel mentioned in the very, in his comments that, you know, we’re meeting the market, it’s in our best interest to meet the market but keep rental rates as stable as possible because as free rent burns off then you get, you get the income that you can build upon and hopefully the next generation of leasing you, you can increase it from there. If you, you know, when you start taking rents down, then you’re starting to destruct value.
So Alexandria and others that are competing in the market, free rent is, is the tool that we’re using. Tenants really appreciate it because obviously it’s good for their cash flow. And as long as we continue to have availability in the mid-20s to low-30s in the major markets, you know, free re to be the tool that people need to use in order to execute on deals. But outside of that, we are pretty happy to see that rental rates are stable in certain cases growing and you know, we just got to get the net effect is to improve, but that’ll take a decrease in supply over time in order to start seeing that.
operator
Our next question comes from Jim Kamert from Evercore. Please go ahead with your question.
James Kammert
Thank you very much. Just trying to triangulate on Peter and Hallie’s comments regarding the public biotech. Is there any concern? I mean, you said they’re both, you know, critical to sort of kick starting demand again. But is it possible that some of these public biotechs, even if they raise more capital, already have sufficient space or do you really think there’s expansion space need there?
Joel S. Marcus
Well, yeah, let me maybe give you an overarching comment, Jim. I think number one, historically public biotech has been the mainstay of, I mean the broader industry is obviously, you know, institutional pharma, product tools, services, all that. But you know, when you get to biotech itself, the public market has been the mainstay of this industry going back 50 years this year to Genentech. And one would assume that it would continue to be the mainstay. And it’s made up of really three things. One, you get a good start at the venture level, you can get public through an IPO window that’s reasonable and you can continue to finance the company even if you don’t have immediately actionable data.
That’s how it’s worked over the last, you know, several decades and that’s what we’re hoping to see a return to. Now in any given case, it’s hard to say, some will need more space, some will need less space, some will be able to keep the same, but I don’t know. Hallie thoughts there?
Hallie E. Kuhn
Yeah, Jim, I think that is in a way what we have been seeing. If you look at the XBI this past year and follow on financings which on an absolute numbers basis have been pretty strong. Most of those have been for particularly commercial stage companies, which is great in terms of sentiment for the industry. But these are by and large not companies that are driving a lot of R and D expansion. So to Joel’s point, we need to see the earlier funnels fill up. We need to see the venture stage companies go public, gain more liquidity, expand their investor base.
Those are more likely at that stage to drive additional R and D needs, which is what we’ve seen historically. I think Peter did mention we have seen some requirements hit the market. Things take a while but not to say that it’s a complete desert, but it is farther and fewer between than it has been in years past.
James Kammert
That’s a very great color. And then one quick clarification, Peter, you also I think said that possible you might see a five handle on some of the core asset capital recycling in 26. Would that be potentially, I mean if it happens on a JV or would that also be for an outright sale? I’m just talking about NAV implications. Sale versus jv. Thank you.
Peter M. Moglia
Yeah, very likely a JV that would happen. We are not planning on selling any core assets outright unless there’s a special situation.
James Kammert
Great. Thank you all.
operator
Our next question comes from Ray Zhong from JPMorgan. Please go ahead with your question.
Unidentified Participant
Hi, thank you for taking my question. My first one is on the capital allocation side. Seems like you guys did above midpoint of the guidance on this poll this year. And you guys, I think Mark mentioned buyback is still not on the table at this point. But with the excess cash is the thinking that, you know, the priority is. On the debt side or how should we think about that and when would buyback be on the table with the excess cash?
Joel S. Marcus
Yeah. So Mark.
Marc E. Binda
Yeah. Hi Ray. I think in terms of the buyback we’d like to get farther along on the disposition program which is going to involve paying down debt to keep the balance sheet in check before we consider buybacks. Now I say that given the current market conditions and we’ll remain flexible. But as we sit here today that’s kind of our current thinking.
Unidentified Participant
Got it. And a follow up question on uses of funding. Then you guys disclosed how much you historically spent on the non real estate investments in the K. If I’m looking at it correctly, I think between 200 to 250 a year.
How should we think about that moving forward? Yeah, any help on that front would be appreciated. Thank you.
Marc E. Binda
Yeah, sure. So we really look at the fund kind of net of the inflows and outflows. So I think if you look at the cash that came in, it was maybe a net outflow of somewhere between 60 to 70 million for the year. And that’s been, I think it was a similar number in the prior year. So I think we’d like to see the fund be as close to neutral as possible so that we’re not putting a ton of capital in there.
Still continuing to be very active in the space.
Unidentified Participant
Got it. So the net will, you know, the. Expectation is hopefully get to a net neutral on that front.
Marc E. Binda
That’s right. Or at least a small number. Like I said, it’s been 60 to 70 million the last couple years.
Unidentified Participant
Got it. Thank you so much.
operator
And our next question comes from Rich Anderson from Cancer Fitzgerald. Please go ahead with your question.
Rich Anderson
Hey, thanks. And still good morning out there. You know, the elephant in the room is, I guess Stock’s up 20% this year. It’s great. Or 19%. And yet, you know, it still feels. Like pricing power is quite a ways off still with everything that’s going on. Do you have any sense in on. The people that you’re talking to, you. Know, a different type of investor that’s. Showing interest in the stock? Do you think it’s just pure rotation. People sort of profit taking, looking for a bottom in life science? Do you have any sense of what’s. Driving stock performance so far this year?
Joel S. Marcus
Well, I think it’s all of the above. And I think it’s pretty clear that the slide that we showed at Investor day, when you looked at stock price versus consensus nav certainly tells the story in many respects. I think if one believes in this industry, you know, 50 years after Genentech was founded this year, back in 1976, again, we’ve only addressed 10% of diseases. 90% are left. And if the, and if, you know, the public is willing to pay for therapies and, you know, addressable cures to the extent we can have that, that’s, you know, one has to believe the industry has, you know, a promising future.
You know, we are making some, we’re slipping back. As I said, when you look at some of the vaccine policy stuff, which is a little distressing to a lot of people, but I think if you set that kind of mentality aside and you look at what the FDA is trying to do, I think they’re trying to do exactly the right thing to, you know, compress the time to go from discovery into the clinic, through the clinic and out of the clinic, into the commercial side. And assuming the policymakers and executive and legislative branches don’t get too crazy to pay a fair return on, you know, on these, on these innovative therapies.
I mean, just look at anybody who’s been the beneficiary of, you know, any real therapy that saved somebody’s life and made that more a, you know, a ongoing chronic condition as opposed to, you know, life, life threatening, if you will. I think that’s where the great promise is here, Rich. And you know, so I think that, you know, when you look at our locations, quality of assets, quality of sponsorship, I mean, it’s not surprising that the sell off, you know, after the third quarter was, I think, pretty radical.
Rich Anderson
And. But those are all good color.
But do you think you’re attracting a different investor? You think you’re attracting a non REIT. Investor, a biotech investor, a generalist investor to the name?
Joel S. Marcus
I think the nature of investors change over time. I mean, think about when we went public. You know, there are a lot of long term investors today. There’s very few long term investors, a lot of ETF investors, but you know, there’s a large cohort of value driven investors that don’t look at, you know, quarterly day to day, monthly, year to year earnings. They look at, you know, quality of assets, generating quality of cash flows, obviously people interested in the industry. So I think it’s a whole, you know, a whole bunch of sets of different interests that have come to bear because the sell off just was, you know, I think foolishness.
Rich Anderson
Thought Haley was going to jump in. There, but maybe I misheard that.
Hallie E. Kuhn
So no problem, keep going. Joel covered it really well.
Rich Anderson
Okay, perfect. Okay, second question for me is let’s. Say your development exposure as a percentage, just to use a simple way of looking at it as a percentage of total assets, goes from 20% ish to 15% this year. I’m assuming that that’s sort of a. Step in the process. And I’m curious, Joel, Peter, whoever, what do you think the appropriate run rate. Is for development exposure, financing risk, need to access capital, all those things. What is New Alexandria going to look. Like from a development exposure point of view? Call it two, three years from now in your mind?
Joel S. Marcus
Yeah, I think we kind of articulated that at Investor Day and there’s a slide there that talked about. We think, we don’t know precisely because we’re still in a, I think a, how shall I say, you know, a phase of trying to get used to a new reality with the industry. But I think we’ve hypothesized that we think, you know, 10%, you know, somewhere 10 plus percent as a percentage of non productive or you know, non income producing land as a percentage of overall gross assets is probably where we want to be very different than GFC where you know, there were no supply issues, the prospects, you know, were kind of unlimited because there was no supply constraint issue over supply issue, if you will.
So I think this is just a new reality. But you know, we’ve got great opportunities on the, on many or most of our mega campuses and so those will be the instruments of future development and you know, external growth and we’re excited about that. And you know, there isn’t just biotech, there is a whole host of other interested parties both in our current pie charts and pie charts beyond that view those locations as, you know, top of mind.
Rich Anderson
Yep, okay, great. Thanks very much.
Joel S. Marcus
Yep, thank you.
operator
Our next question comes from Seth Berge from Citi. Please go ahead with your question.
Nicholas Joseph
Thanks. It’s Nick Joseph here with Seth. I guess last month at the Investor you talked about a four to five year recovery for life science broadly. And I recognize it’s only been about two months, but you’ve been busy over those two months. So has anything changed that timeline, either moving it up or delaying it from what you said?
Joel S. Marcus
Yeah, so that’s. Actually I’m glad you teed this up because Peter I think addressed this but a lot of people came away reporting it a little bit unclear and he basically said that he thought that the timeframe for recovery in our markets where we were, you know, very active would be in the two to three year range and that it may be as much as 4 to 5 in sub markets where we were not particularly involved or active. But Peter, you want to comment on that?
Peter M. Moglia
Yeah, thanks for clarifying that. Exactly. Like, you know, if you look at greater Boston, for example, there’s a significant amount of inventory in an area like Somerville and other tertiary areas and you know, alewife that where we’re not at which that’s where we think that it’s going to take four to five years for that to resolve. But you know, Cambridge and Watertown Seaport where we, where we’re heavily invested, those that’s, you know, probably more like two to three years and you know, maybe even less depending on the trend of, you know, a lot of people are starting to, to realize that they should probably go a different path in life science.
And you know, we’re hoping to continue to see that. So if we, if we, you know, obviously demand is going to be needed to take a lot of the lab space, but as a lot of it decides to change use that, you know, even that 4 to 5 estimate could be reduced. But, but Joel’s exactly on point. Four to five years. For the areas that are the new markets that really didn’t ever need to be lab markets, those will need a long time to resolve because it’s not gonna get resolved through lab demand. It’s gonna get resolved by changing use.
But the lab markets that we’re in, that have been functional lab markets for decades, there has been some oversupply and it’ll take two to three years for that to resolve.
Nicholas Joseph
That’s very helpful, thank you.
operator
Our next question comes from Tayo Okosanya from Deutsche Bank. Please go ahead with your question.
Omotayo Okusanya
Yes, good afternoon out there. In terms of the guidance, you talked a little bit about, you know, about 6 million a quarter revenue headwinds from tenant wind down. Could you talk a little bit just about what’s happening with that pool of tenants? Is it just they didn’t get their drug trials failed or they run out of cash or just kind of thematically what’s happening with that group? Just kind of understand what that headwind is.
Joel S. Marcus
Yeah. So I’ll ask Mark to comment there. But I would say in this environment over the last handful of years, again, you know, we’re in the fifth year of a bear market, hopefully turning that around. And when you find that happening, obviously more companies at the earlier stage or less companies are formed, more companies may be wound down. Some companies, you know, merged in the public markets. The bankers certainly during the heyday of the last decade let too many companies go public. So, you know, there has been a shakeout there over the last handful of years of companies that probably shouldn’t have gone public.
So this is a natural outgrowth of that, given where we are today. But Mark, you could comment more specifically.
Marc E. Binda
Yeah, the thing I would add is it’s public and private. Biotech comprises the majority of it for the reasons that Joel and Hallie have mentioned. And some of it is kind of failure, which in their clinical milestones, which is normal in a market that will happen. But a lot of it is also ability to track capital and just the kind of shorter Runway that investors have given these companies that has caused part of the issue.
Omotayo Okusanya
Gotcha. That’s helpful. And if I may ask, One more. The four development assets that they’re still under strategic evaluation. Does it all basically boil down to just leasing around those assets to determine whether you kind of proceed or you go through a.
Through strategic alternatives?
Joel S. Marcus
No, I think it’s much more granular than that. It’s. What is the prospect broadly in the submarket, the nature of the asset, you know, any competitive product that we may have with that. With that asset. I mean, there’s a whole set of variability or, you know, analysis that you go through. Leasing is clearly important, but it’s not the sole determinant.
Omotayo Okusanya
Gotcha. Thank you very much. All the best.
operator
Our next question comes from Michael Carroll from RBC Capital Markets. Please go with your question.
Michael Carroll
Yep. Thanks, Joel. Or Peter. Can you guys provide some color on the 400,000 square feet of leases that were signed at previously vacant space? I mean, I would imagine a good chunk of that relates to the backfill at 259 E. Grand Ave. I guess if that’s true, where were the other leases signed? Within that bucket?
Joel S. Marcus
Yeah. Peter, I don’t know if you want to give any color there.
Peter M. Moglia
I don’t have the specific leases, but you are right that a significant amount of leasing was done at East Grand. I will say that one thing that we were asked about and did some investigation on is that, you know, a significant amount of that leasing was. Was, you know, absolute new tenancy, not, you know, tenants relocating from one place to another, but new tenants actually coming in into our portfolio, which. Which we really love to see.
Hallie E. Kuhn
This is. Hallie, I do have that list in front of me. And so just to say it was a pretty diverse, from a regional perspective, leasing in Cambridge, we have rt, Seattle, some in San Francisco. So in terms of just generally seeing positive momentum, backfilling that vacant space across the board, we think that diversity across the regions is healthy.
Joel S. Marcus
Yeah. And broader base than you might otherwise guess.
Michael Carroll
Is there any common themes on why those tenants were willing to lease space, I guess, today for the fourth quarter?
Joel S. Marcus
Yes, because we’re great sponsors.
Michael Carroll
Do they have, like, funding agreements where they just got funding or is there.
Joel S. Marcus
Yeah, Mike, it’s so episodical in a sense, because, you know, if a company hits a clinical milestone, a data milestone, and they need to do something, I mean, that’s. I mean, we’ve seen that with a couple of companies where they’ve doubled their space just on that one event. So it is very episodically driven. And, you know, I’m not sure I’d read anything into, you know, was the Fourth quarter substantially different than the second quarter, you know, vis a vis leasing trends, because it tends to be be very case specific.
Michael Carroll
Okay, great. That’s helpful then. Just one last one for me on 401 Park. I think I caught this earlier in the call. I just wanted to confirm to make sure I’m right. It’s not necessarily that you have office tenants ready to lease that space. I don’t know what type of interest. It’s just that you had lab space available in that marketplace and you didn’t need. You decide, okay, we have this building that could be lab or could be office. Let’s kind of diversify our approach and kind of go office with this specific property. The right way to think about it, or is there like a vibrant office market ready for that asset?
Joel S. Marcus
Yeah, I think that is the answer. It’s an iconic office building that’s been known for a long time. The mainstay is primarily anchor Boston institutions, brand names that you would know that have very, very specific, you know, uses there. Some are pure office, some are, you know, more clinical like, or whatever. But in fundamental, this is part of and kind of adjacent to the LMA Alongwood Medical Center. So this is a big, big market for, you know, those institutions and their office and other adjacent or other kinds of uses other than, say, traditional wet lab space.
So it’s not so much that it’s a hard call. The call was given the NIH’s move on the 15% limitation on indirect costs in a variety of ways. We saw a big decline of demand and immediate decision making by a lot of medical institutions. And we’ve seen that across the country. You know, we did put in the. There is a court decision that has overruled that, that may start to move institutions in a different direction. But at some point, institutions still need to get space. And both Fenway and the LMA are the best locations for that.
So it actually is a pretty easy decision.
Michael Carroll
Okay, great. Thank you. I appreciate it.
operator
And our final question today comes from Mason Gill from Baird. Please go ahead with your question.
Mason Guell
Hi, everyone. Thanks for the time. You previously talked about San Carlos, San Bruno, Seattle and Campus Point as mega campuses with large shadow pipelines and that you may look to reevaluate some of these in the future, I guess. Do you have any updates or do you expect to have any updates on any of these over the next few quarters?
Joel S. Marcus
You’re talking about the expansion.
Mason Guell
Yeah. Future shadow pipeline.
Joel S. Marcus
Yeah, I think those are all under pretty deep study in each market. And probably at this point don’t want to get into that, but we clearly are looking to reduce our non income producing assets, as we’ve said, as a percentage of the gross assets and where we can carve off land that we have for other uses or move into a monetization path at a much faster rate. We’re trying to do that. And so I would say stay tuned there certainly for the Bay Area ones and Seattle.
Mason Guell
Great. That’s it for me.
operator
And ladies and gentlemen, with that, we’ll be concluding today’s question and answer session. I’d like to turn the floor back over to Joel Marcus for closing remarks.
Joel S. Marcus
Well, thank you, everybody. We appreciate it and look forward to talking to everybody next quarter. Thank you and stay safe.
operator
And with that, ladies and gentlemen, we’ll conclude today’s conference call and presentation. We thank you for joining. Warning, you may now disconnect your lines.