Good day, and welcome to the Alexandria Real Estate Equities' Third Quarter 2025 Conference Call. [Operator Instructions] Please note, today's event is being recorded. I'd now like to turn the conference over to Paula Schwartz from Investor Relations. Please go ahead.

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

Thank you, Paula, and welcome, everybody, to Alexandria's third quarter earnings call. With me today are Hallie Kuhn, Peter Moglia and Marc Binda. Let me start off as I usually do with a quote. My friend and mentor, Jim Collins, who wrote his well-known book, Built to Last, noted that, the secret to an enduring great company is its ability to manage continuity and change simultaneously, a discipline that must be consciously practiced, keeping clearly focused on which should never change and what should be open to change. And clearly, our development pipeline is front and center in that. Jim's visionary wisdom and advice is a great frame for Alexandria at this moment in time as the gold standard and leader of our niche. We invented and pioneered life science real estate, a whole new asset class and category 31 years ago during the early years of the biotechnology revolution. Our North Star was and remains our focus on innovation clusters and ecosystems unique to the life science industry different than almost every other property type. We're blessed with best assets, best tenants, best Megacampus and best team. Our relentless mission is driven by building the future of life-changing innovation and enabling the world's leading innovators to advance and better human health. The biotechnology revolution started almost 50 years ago. And in those 50 years, we've only been able to therapeutically address less than 10% of the more than 10,000 diseases known to human kind. No one lives in a family, community, which has not been struck by the wrath of disease and illness devastating in so many ways. We now find ourselves on the precipice of an entirely new age of discovery and innovation at the intersection of biology and technology 50 years later. Biology, it's important to remember,…

Thanks, Joel. This is Marc Binda, Chief Financial Officer. Good afternoon. I plan to cover the performance for the third quarter as well as some key emerging trends expected to impact 2026. Our team continues to navigate a challenging environment given macro industry and policy factors beyond our control. Please refer to our earnings release for our EPS results. FFO per share diluted as adjusted was $2.22 for 3Q '25 and included the following three key impacts compared with the prior quarter. First, occupancy was effectively down 1.1% for the quarter after considering the benefit from the exclusion of assets with vacancy, which were sold or designated for held-for-sale during the quarter, and was driven by a challenging life science supply and demand dynamic. Second, there was a $0.03 reduction in rental income associated with one tenant in our Seattle market to adjust rental income to cash basis. Importantly, that tenant remains in occupancy and is current on rent pending future critical milestones in the first half of 2026. And third, other income was down $8.7 million or about $0.05 compared to the prior quarter. Current quarter other income of $16 million remains consistent with the prior 8 quarter average. And as we discussed in our prior call, 2Q '25 did have some lumpy fees in there. Leasing volume for the quarter remained solid at 1.2 million square feet, in line with the 5 quarter average. This includes the previously announced 467,000 square foot build-to-suit lease with a multinational pharma tenant that was executed in July. We continue to benefit from our scale, high-quality tenant roster and brand loyalty with 82% of our leasing activity in the quarter coming from our existing deep well of approximately 700 tenant relationships. Rental rate growth for lease renewals and re-leasing the space for…

Operator, please start questions.

[Operator Instructions] Today's first question comes from Farrell Granath with BofA.

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

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

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

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

Yes. That's also a really important question. I think the two -- well, there are three missing links, as I mentioned in my opening comments to demand today and Hallie, can give you chapter and verse on the green shoots that we're seeing, which are substantial from the capital market side to M&A, et cetera. But one is the FDA, the government shutdown has to stop and the FDA has to open. Number two, venture, earlier-stage venture-backed companies have to start making commitments for space as opposed to kind of holding, waiting for cost of capital issues with the Fed and broadly in the industry. And I think, three, the public biotech sector, which has been, to a large extent, the mainstay of this industry as far as space and demand has to be reignited. And even though the XBI is up substantially, that has not yet translated into action. So I think those are the key things we're looking for. And institutional demand, if the NIH can get its act together on the issues we talked about, one, making sure they're fully funded and disbursing funds and that there's an unlocking of the current bar to the 15% indirect cost limitation.

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

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

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

That's helpful. And then in your opening comments, you said the bear market is starting to turn the corner. Are you seen that in the transaction market as well for -- on the stabilized asset side? Is there a change in buyer demand given the underlying fundamentals and what you're seeing?

Yes, Peter?

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

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

So can you talk a little bit about -- a little bit more detail on the development sort of process going forward? I think it's a matter of -- maybe it comes down in order of magnitude over the coming years just in dollars in terms of development spend, but also type of development. Joel, did I hear you right that the focus going forward will be more on build-to-suits than anything else, not that you haven't been focused on that. But I mean, I wonder what the development picture is going to look like kind of post-2026, when you top off what's left and then you consider the $4.2 billion that's sort of kind of still early stage in terms of the process. Just if you could sort of give us a line of sight into what this will all look like eventually?

Yes. And I mean you can look at, we've been at this now for a multiyear period. It obviously is a lot of pick and shovel work. This year is a good example. And again, the chart or the pie chart I referred to just a moment ago, this year's land sales as estimated, both what we've accomplished and what we have left to do, will be an important part of reducing that land bank. And if you look at Page 46 of the press release and supp, you can see the pie chart. Marc has tried to enhance this in as clear a fashion as possible. And you can look just your eyes kind of go to 2 particular places right away. One is the 15% bucket critical milestones coming up, non-Megacampus projects. We clearly want to bring -- to try to, through entitlement, design and sometimes design, but entitlement in particular, trying to create as much value for alternative uses. We mentioned resi and we've been very successful there. So this is a bucket that will clearly not be there over the coming years. The one at its immediate left, 26%, where we have both -- well, stable near-term projects that are not yet fully stabilized, of course, '27 and beyond, we have a smaller amount of leasing. Those are projects that we are going to look at very carefully and make some pretty big determinations as soon as we can get to points in time where we think we've tried to maximize the current value. And my guess is a bunch of those projects will be sold, which will further reduce the land bank. And we'll see on the Megacampus projects, what happens to those. We're clearly unable to do all Megacampuses. And so it's certainly possible we bring one or more. There's a chart of, I think, or pictures of 4 big Megacampuses, one in Seattle, one in near South San Francisco, in San Bruno, another one in San Carlos and then the final one at Campus Point. It's pretty clear that, for example, the San Bruno is one that we're thinking about very carefully. We're working through a very complex project with both entitlements and existing tenants. And we'll see what happens there. But that's the kind of project that we could see potentially exiting at some point as well. So we're trying to be as both as aggressive as we can time-wise, cost-wise, but also very thoughtful.

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

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

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

Well, I think I actually said it on the call in my opening, we're at 20% today. We were at 30% break GFC, but for different reasons, we decided to hold those, Mission Bay and Cambridge, and those turned out to be the lifeblood of our decade bull run with the biotech industry. I think it's different this time because there's a lot of stupid space that was built by others. And so we don't want to build into that kind of a market. So 20% should come down to 10% to 15% over the coming years, and we're certainly looking at trying to accelerate that as fast as possible because the less we have on balance sheet and the less dollars going into that or the less construction dollars and funding dollars we have to require. So the 2 go hand-in-hand. But 10% to 15% is the number.

Yes. Okay, you did say that, my apologies. And then lastly for me, on the dividend, you're running at a $5.28 annual dividend and talking about the Board taking a look at it next year. What's your comfort level from a payout ratio sort of when you kind of think about resetting the dividend? I'm just curious where -- what the sort of the policy is -- the dividend policy...

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

Well, I would -- the only thing I would add to that is we do have room in our taxable income. So the Board will obviously make the final decision, but there's room potentially up to 40 -- 30%, 40%, but they'll be looking at a variety of factors, including the amount of retained cash flows or capital needs for next year, AFFO coverage as well as a few other stats there.

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

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

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

And we intend to.

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

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

Okay. And then just another question. Just in the -- you called out the 1.2 million square feet that are sort of the key leases or move-outs we should be thinking about. But the remaining like 1.3 million square feet expiring next year, are those likely to stay and so you kind of have kept them in a separate bucket? Or should we assume there's still some normal retention to move out in that grouping as well?

Yes. Look, those -- what's left over is -- are things in the normal course of leasing. So what we've called out are items that we are -- we know are going to go vacant. The rest of it are things that are just too early to tell.

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

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

And our next question comes from Wes Golladay of Baird.

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

Yes. It's Marc. I can definitely take the second question on the $685 million. Just to be clear, the $685 million is -- relates to a variety of assets that are under consideration. So there's a variety of ways that, that could go. It just depends on what happens with the buyer, if we can get a price that we like, et cetera, some of these assets we could end up holding if we decide to pivot. But the $685 million, I would say the bigger chunk there has to do with land-type assets.

Okay. And then for the -- go ahead. sorry.

No, please.

No, go ahead, go ahead. Yes.

Well, I was going to say, if you just look at the 4 Megacampuses that are pictured in the press release and supp, each one of those are intended to have a component and some substantial component of resi. So you can make that judgment based on that commentary.

Okay. Got that. And then for the leases that are going to commence in, I guess, the first half of next year, was there any -- it looks like there might have been a small delay on that. Was that anything like permitting-wise or just the tenant looking to move in a little bit later?

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

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

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

Well, yes, that's almost an impossible question to answer because if you look at the press release and supp, we put a pie chart of our -- the tenant sectors in there, and there is certainly demand from almost all of those. There's no government demand. And at the moment, there's muted institutional demand, although we're working on one big deal as we speak. But aside from that, I think what we said is, and it varies submarket by submarket, each submarket has its own particular dynamics. Some are pretty well in balance with supply and demand. Others are imbalanced. And so that is a little bit different. But I think across the board, there is demand. I think what the commentary really is, is that given the recovery in the XBI, we're a little surprised that demand hasn't followed as much. It's not as obvious than maybe in past times, but the reason for that is clear, cost of capital and federal interest rates are being stubbornly high. The government has shut down. The FDA is closed by and large, and there's a lot of log jams out there that are preventing a -- and the IPO market is shut by and large. There's a little bit of activity, but it really isn't an opening. I think those are the factors. But there's demand from a variety of sectors. But again, it's very case specific. And it also depends on, when you say Class A, you tend to have revenue-producing companies looking for Class A space or companies that are extremely well capitalized. Others are looking for either moved out space or second -- true second-generation space after a 5-, 7-, 10-year lease, so it varies all over the marketplace.

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

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

Okay. Is this the 1.3 million remaining square feet? Or is that footnote talking about the 1.1 million square feet that is expected to move out?

That's related to the -- sorry, I was referring to the 1.2 million square feet of lease expirations that are known vacates.

And then the 1.3 million that is remaining that is yet to be addressed. Is that mostly lab?

It's a mix. I would say, mostly lab, but it's a mix.

Yes, Marc, it's Peter. I can confirm it's mostly lab. There is also a little bit more tech space in there, just like in the 1.2 million, but it's mostly lab.

And our next question today comes from John Kim with BMO Capital Markets.

I was wondering if you could provide a little bit more color on the quantum of capitalized interest that may be lowered in 2026. I know you mentioned a lot of this will be driven by land sales, but I'm trying to match that with the $1.75 billion of expected construction spend you'll have next year, which would suggest that the majority of capitalized interest will continue?

Yes, I can take that. So 2 things driving next year in terms of construction numbers, one is the development costs and redevelopment costs to finish what's in the active pipeline, right? We still have a decent amount that's going to deliver next year that is 80% leased. And then we've also got higher, I would say, CapEx or repositioning type costs next year than we had in 2025, and that has a lot to do with the fact that there are some known vacates and it's going to cost -- we're going to have higher maintenance costs just given how much vacancy we have to lease in this market. So those are really the 2 biggest drivers. I think in terms of your fundamental question of how much cap interest rolls off, I would just refer you to the commentary that Joel had earlier about really thinking through that pie chart on Page 46 of the supplemental, the way we're thinking about the various buckets. The Megacampuses, obviously, we'd love to do. They're very valuable, but we can't do them all. You've got the non-Megacampus future land assets, which would be ripe if there are opportunities to sell. And then the 2027 and beyond projects, which we may look at opportunities to pivot there in some fashion.

Okay. And then going back to the known move-outs for next year, the 1.2 million square feet, can you provide some commentary on why those tenants are not renewing? Whether they're going to new product or they're shrinking footprint or there was some kind of event within the company?

Yes, sure. I can rattle through those. So maybe I'll just go through the 4 that we mentioned there. The first basket was really, I would say, a non-lab tenant. They were a software company that was in there when we acquired those assets in Greater Stanford. That's 138,000 feet. That was a known vacate. The original business plan there was to redevelop it when we bought that a number of years ago. But things are obviously different, and we may choose to do something different there in terms of targeting more advanced type technology users. So that...

Yes. And there's a lot of tech activity on that location. Actually, it's a very, very unique campus, mini campus.

Yes. And then in San Diego, I would just point to the one asset in Torrey Pines, the 118,000, that was a project that had been occupied by a subsidiary of a big pharma. That big pharma ended up consolidating on our campus at Campus Point and they ended up coming out of that space, but they did expand with us. And I think that project delivers next year. So that was kind of lead behind space. The 84,000 or 83,000 square foot space in Sorrento Mesa, a similar story. That was a subsidiary of a big pharma that also expanded with us on our SD Tech campus, and that was the lead behind space, very good quality spaces in both of those instances, but they're bigger spaces, so it may take some time if we end up either targeting a larger user or smaller-type users since they were big kind of single tenant spaces. And then the last bucket in Cambridge, some of that was -- it's just a variety of different spaces. Those spaces, as we mentioned there were older product that we really hadn't -- at least most of it hadn't really touched since we bought that campus in 2016. So it's a variety of factors.

Yes. And then you should note that of the 3 noted vacancies on Page 23, footnote 4, we have an LOI signed for 83,000 square feet of that known vacate, and we have an LOI signed of about 40% of the 118,000 feet at the moment. So stay tuned.

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

I guess, Joel, bigger picture, you're now in a macro, you sort of called the bottom, but things are uncertain. Obviously, you don't have control over that. It seems like the sales process is also -- it really depends on buyer timing, so perhaps less control and you're trying to solve for leverage and capital needs. So I'm wondering like as you get through this in the next year or 2, to be in a better position to maybe take advantage of distress, why not consider just outright equity to fix the balance sheet, fix your capital needs, rather than having to rely on the asset sale process, which I know is important, but I'm just trying to...

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

Okay. And then just on this -- the Investor Day, like, there's a bit of a departure, you're giving a lot of tea leaves on '26. I'm just wondering sort of why not so-called rip the Band-Aid just give a high-level number of where you think next year is going to shake out. Just -- it seems like a 2-step process, which I don't know...

Yes, we get that. Unfortunately -- well, let me just say this, we wouldn't have preferred to plan third quarter earnings so close in time to Investor Day. But I think Marc and his team may very well give a range for FFO kind of a framework for that here shortly to the Street. So keep your eye out for that. We're likely to probably try to do that, so that we don't keep people in a mystery box for 3 or 4 weeks, which we never intended to do. But frankly, the industry is -- as I said, it's a regulated industry. And it is in a tough time because the government shutdown essentially puts almost everything you can't file for, you can't submit to the FDA for new INDs. There are some things coming out the back end, but the wheels are substantially stopped. And then on the other hand, the President has chosen, I think, better than the former administration, who is trying to get much broader price controls. This administration is really negotiating with each big pharma in a sense to get his version of MFN. So far, it's been limited to Medicaid, which I think has been great, but going through 20 big pharmas is tough. So there's a lot of -- kind of a lot of slow-moving wheels out there that we really need to see kind of the wheel put back on the cart so that the industry moves forward. And as I said, the industry has tremendous prospects. Any of us who have seen or in their disease know that there's a lot of wood to chop. We know of a whole number of people who've just been diagnosed with Parkinson's. We still don't have any addressable therapy. We got to get moving on these. So we will try to give the Street guidance here pretty shortly. So there's not a 3-, 4-, 5-week delay in trying to at least frame it. Marc did a -- I thought tried to do a good job giving factors, but we realized with cap interest rolling the way it's going to roll as we reduce the development pipeline, that leaves an unknown numbers out there that we'll try to fill in, broadly speaking.

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

Yes. And thank you for the thought on that.

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

I guess just -- maybe going back to some of your comments, Joel, it seems like the only thing that's necessarily changed this quarter versus last quarter is really related to the government shutdown, right? Because if you think about the supply pipeline that sort of continues to dwindle, albeit it's still at high levels. There's obviously been a huge challenging capital markets environment for a lot of tenants. So I guess you mentioned that the government shutdown is having a huge impact in terms of kind of demand, it seems like. So is it the idea that we should think that once the government comes back, that demand start to pick up off of this level or...

I don't think that's necessarily the issue, but that's a prerequisite for the industry kind of getting on its feet because, again, it's a regulated industry, both from submissions, clinical trials and then approvals. And if the government doesn't open, you can't get any of those really effectively done. Some of -- I think there was one approval to AstraZeneca that kind of came out recently. But I mean the wheels are stopped. That isn't going to -- that isn't directly tied to demand, but it's hugely tied to the health of the industry, which then in turn is tied to demand. I think if you go back to the second quarter, I think people still -- I remember, second quarter call, and then at Nareit, it wasn't clear when the industry would kind of hit this bottom, but it kind of has been bottoming but at a time when the government is shut. I think what we really need to see is lower cost of capital and a clear and condensed regulatory path. I mean I think if you think about a couple of things, what's needed for this industry, there are 3 things I could tell you. One is we must reduce the drug development costs. And that's really in the hands of the FDA and our meeting with Makary confirmed he's hyper-focused on that. We've got to increase the probability of success of drug development. I think AI and other tools will help that. But the FDA, again, is front and center there. And then we've got to lower the regulatory barriers to help streamline a lot of these programs. And I think that's what's needed to bring health back to this industry in a really robust fashion. We need venture to kind of open their pocket book and cost of capital is a big issue there, and we need the IPO market to open and the secondary market to become even more fulsome, not just doing offerings on data per se. If those things happen, then you've got a very healthy industry.

I guess as a sort of follow-up to that, I mean -- and maybe it was asked, sorry if I missed it, I joined late. But I mean I get the sense that reading some -- or listening to the call today, reading some of the tea leaves and the 2026 consideration settlement that demand may have worsened since the second quarter, but it felt like looking back at my note and stuff and your commentary on that, that things are set to improve, and we're hearing out of peers of yours that the demand -- the overall touring pipeline is improving. So just trying to see if maybe I'm misreading into some of the comments made today as well as the 2026 considerations.

Well, I don't -- again, I don't think you can look at -- this isn't like office where you can look at certain data and be fairly certain that office is going to rebound or data for mini storage or data for resi or something. This industry is far more complex. It's highly regulated, both at the front end and the back end. So I know everybody struggles. They want indicators and factors that point to demand and quarter-to-quarter, it doesn't really work that way. And I think we've had 2 reasonable quarters of leasing, but that doesn't reflect the health -- the underlying health of the industry, which I've tried to articulate, is still in need of a number of pieces to be put in place for that to happen. And then I think you've got a fulsome rebound. So that's the best I can articulate it.

Maybe -- this is Hallie here. Maybe just to add to Joel's comments, when you think about tour activity where we're certainly seeing really great companies looking for new space, thinking about expansion. But as we've mentioned before, decisions are taking longer. We're very conservative in how they think about when to pull the trigger. And given all of the factors Joel mentioned, there's still a lot of uncertainty. And so we do feel confident that there are some fantastic companies, really high quality in this market that are going to need space. The question is, when are they going to get comfort around making those decisions. And to date, there's just still a lot up in the air, especially on the regulatory front.

Yes...

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

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

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

You've given a lot of great color regarding the '26 expirations and potential move-outs. Is it -- given the environment, is it like too early to even start thinking about 2027 type expirations? And how those tenants are looking in terms of their burn rates and their intentions? I'm just curious, as you go into the Investor Day, et cetera, perhaps as much clarity on that would be helpful.

Yes. Well, we -- it's a good question, Jim, and we're pretty laser focused, not only on next year's roles, but the year after's roles. And in fact, we just had one I think renewal extension we just did, which was a company that I think had a role in 2031. We just extended for a decade. So we're all over every single tenant that we want to keep in our markets about what we can do to preserve them, protect our core and to create future growth, so that clearly is also front and center for us, yes.

Okay, great. And quickly second one, there was some press discussion that in Mission Bay, you had been potentially looking to reallocate, I think, is the term they use, some of the lab space there, your 4 assets in Mission Bay to office use, particularly targeting AI? I mean, one, is that a valid report? And if there is validity to it, how would that sort of work? What would you do with your existing tenants?

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

Yes. So we already had a couple of properties in Mission Bay, the Illinois properties already had 100% allocation for Prop M. When we developed the Owens properties, 1450, 1500, 1700 Owens and then 455 Mission Bay Boulevard, they only had a partial allocation for about 1/3 of the building area. That would be for pure office users only. Office that houses the researchers is not included in that. We don't have to have Prop M for that. But as Joel alluded to, we're seeing more and more users from our tenant base, both traditional tenant base and otherwise in that area that would like to have all office type of space. And it just makes a lot of sense to have that flexibility. In addition to just the pure office users, though, our lab users are more and more looking for additional office area for computational workflows as they integrate AI and other technologies into their research. So all of the -- we've been thinking about this for a while. We finally had an ability to act on it, and so we did. But I wouldn't read into anything as far as like are we not going to be doing lab there. Of course, that's the primary use. But to the extent that our lab tenants need more office area or there's other alternative tech in the area that is complementary to the innovation economy there, we want to be able to serve it and the counselors agreed with us and allocated the Prop M.

And our final question today comes from Jamie Feldman at Wells Fargo.

Joel, I was hoping you can just look into your crystal ball a little bit. You guys are clearly thinking about the balance sheet, making some changes to get capital in line, shrinking construction pipeline. You're probably the league leader in this space. How should we think about what's to come from the competitive set or just the industry overall in terms of finding a bottom and working through other pain in this industry? And I'm thinking specifically about your comment about meeting the market, I assume you meant on rents. Like you think there's a lot more downside on rents across the sectors, across the markets as this all plays out? Just how should we think about what's to come across the industry?

Yes. So maybe I'll make a couple of comments and ask Peter to come in, in depth. Yes, we don't feel like there is any real competitor out there, probably the next biggest company, which is maybe, I don't know, 1/4 of our size or something like that, 1/3 of our size is, Blackstone, and they're private, obviously, and they have a very different mindset about how they run their business in the sense of they don't -- I mean we view clusters in ecosystems in a different way than, say, a purely financial investor would view it, and that's a pretty important thing. And to a large extent, that's why we ended up with this big lease that we signed in San Diego that was not generated by an RFP. So another company would not have had a chance to really kind of come and bid on that. So we view ourselves very differently. There's nobody who is a public pure play. The one other company that's out there has got a big presence in South San Francisco and heavily weighted medical office. So I don't think that really counts as a comparable, and then there's a whole lot of private guys out there. But I think the point of what I said was, I think that 0 -- very low interest rates coupled with almost a decade-long bull market and this COVID run up. Remember, our demand went up 4x due to COVID. I mean we'd never see anything like that. And you try to meet the demand of your clients, but real estate takes time, and that's unfortunate that you can't meet it instantly. And so I think many, many of those folks that decided to hop into in the circa '20, '21, '22 era built foolishly. There's a lot of building standing empty. Peter and others call them zombie buildings. I just think they're just of a different ilk than buildings in the heart of clusters and wrapped into ecosystems just different. But if we're one-on-one with any other developer and we have space that fits the clients' needs, we're going to win. We almost never lose. And the reason is because we have the best team. We have the best space generally. You can rely on us. We have the highest level of trust and we do what we say and we say what we do. And we've got street cred in the industry that nobody else has anything like that. Peter?

Yes. Look, economics are very important, especially in an uncertain time when you don't know when the next dollar or where the next dollar is coming from, but you need space, you need to renew what have you. There's other choices out there, as Joel alluded to, some dumb space decisions made by others. And what that has caused is a deterioration in fundamentals. We've talked a lot about the TI allowances that are in the market, the free rent that's in the market. By and large, the market has held the rents fairly high. I mean I think we're still above pre-COVID rents in the big markets and especially in the tertiary markets where there's been less competition. But even our tenants, who are used to our great service, they know what's out there, they want to stay with us and they increasingly come to us and say, "Guys, we want to renew. We want to stay with you. We want to make a long-term commitment, but the reality of the market are this." And we just want to assure people that we understand that, and we're going to meet the market. Now are we going to have to go to the bottom in order to make the play? No. Like what Joel said as far as why people come to us, our platform, our service, our Megacampuses, I mean they still value that. But at the same time, they need a deal. And we're out there understanding where we need to be, and we are going to get a premium, but it's not going to be where it was in the old -- in the previous cycle. So we just want to assure everybody that the tenants that are the best tenants in the market that we want to retain, we're going to retain. And if that means more TIs than traditionally we had to get or a roll down in rent, then we'll do it. We're going to get through this time. It's going to take a while, but a lot of these zombie buildings will go and become different uses. The market will get tight, and we'll be in a better position the next time around. But we're going to continue to prioritize occupancy. And that's why Joel mentioned meeting the market.

Super helpful. So as you think about -- I mean, your Slide 19, you still have a positive mark-to-market. I mean is it -- could you sense when markets are bottoming or leases are bottoming? Or it's just too early to tell? Can you maintain positive spread?

I think it varies by submarket, Jamie, because some are very oversupplied and others are within some reasonable balance. But Peter, you can kind of...

Yes. It's a guess, right? But as I see that the majority of supply left to be delivered, which I think right now that we consider competitive is somewhere in the neighborhood of 3.3 million in our 3 big submarkets. Out of that 3.3 million, the majority of it is already pre-leased. So I'd say roughly about maybe 30% of that 3.3 million is going to be delivered vacant and increased availability. But then after that, we don't see anything in -- and that's inclusive of things delivering in '26 by the way. We don't see anything coming in '27. So the availability numbers are going to peak. And maybe it's a little bit into '26 when they peak. And so you're only going to go up from there. So I don't see fundamentals deteriorating further, given that there's just -- we're going to start recovering soon but you never know.

Just to add here, Hallie here, and to summarize that, given all the work myself and the team on the ground are seeing, as we continue to out lease competitors, which we are doing across all of our markets, we do see the early stages and acceleration of conversion of what were targeted as life science spaces going to other uses. And so back to your original question on competition, the more that we continue to out lease and dominate, the more we'll see that balance of supply coming into picture.

Yes. In other words, people are going to be capitulating and pivoting.

Yes, that makes sense. And if I could just throw in one more. I mean it seems like a big strategic moment for the company. I mean we've seen some of your office peers talk about asset-light models. Is that something -- I think your answer to one of the prior questions is no, you just want to continue to own your best Megacampuses, but have you thought about that at all? I mean you have such a good operating platform, is there a way to monetize the platform without tying up so much capital?

Peter, you can speculate on that.

Yes. I mean it's an interesting concept, Jamie, that we actually have discussed a number of times. At this point in time, though, it really doesn't make sense to have so many different players. It's going to consolidate down to where it was before, meaning experienced developers that have their own platforms and a lot of these projects that have deteriorated the fundamentals are just going to -- they're going to be something else and those operators are going to go away. So I don't know if it's really an opportunity to where you're managing other people's projects because those projects aren't going to be lab. That would be my take.

Yes. And I think, remember, Jamie, that I kind of emphasized a number of times, this is just very different than almost any other property type due to the intense regulation of all aspects of this industry -- the underlying industry. And demand is just different as well. It isn't just about what's the cheapest space or what's just simply available. It's -- I've got mission-critical both assets and processes in that space, and I don't want somebody to screw it up and lose me a whole lot of money. So that matters. Whereas if you're just going in for Wells Fargo office, whether you're in this building or that building, generally isn't going to make a huge difference. But for lab, it actually makes a giant difference. So it's just different.

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

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

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