Hallie Kuhn

Thank you, Joel, and good afternoon, everyone. This is Hallie Kuhn, SVP of Life Science and Capital Markets. Today, I'm going to review the fundamentals of the $5 trillion secularly growing life science industry, what these fundamentals mean for the health of our diverse life science base, and how our tenant science dictates the need for Alexandria's Labspace infrastructure.
In 2008, on the heels of a great financial basis, the size of the public biopharma industry was around $2.5 trillion, and approximately $11 billion in venture capital was invested in private life science companies. There was no cure for hepatitis C, obesity was considered too complex to ever treat with an effective therapy and gene and cell therapies were a hope, not a reality.
Today, the industry is valued at over $5 trillion. Venture capital is on pace to reach 4x the level deployed in 2008. 600 additional novel therapies have been approved by the FDA and countless lives have been improved, extended and saved.
Coming out of this bear cycle, albeit with stops and starts along the way. The life science industry is in a profoundly different place compared to previous cycles, with a fundamentally strong framework to accelerate long-term growth of the industry and demand for Alexandria Labspace.
With the long-term perspective as a backdrop, let's step through first quarter trends in the life science industry. First, with respect to life science venture investment, nearly $11 billion of deployed capital was announced in the first quarter and $100 million-plus mega rounds accounted for 34 deals, the highest number in the last 8 quarters and any quarter prior to 2021. These trends bode well for demand from new and existing private biotechnology tenants, which account for 10% of our ARR.
Moving on to our pre-commercial and commercial public biotech tenants, which represent 9% and 16% of our ARR, respectively. Follow-on and pipe financings achieved one of the highest quarters on record, totaling $15.5 billion, of which $1 in every $4 was raised by an Alexandria tenant.
This past week, long-time Alexandria tenant, Intracellular Therapies, announced clinical data for their first-in-class therapy, lumateperone, for treatment of depression and went on to raise $500 million. The story here is that demand is milestone-based, and for companies that achieve their target milestones, typically clinical data, they have access to meaningful capital to accelerate their science and expand.
Third, our multinational pharmaceutical companies, which represent 20% ARR. M&A is a key headline for this segment. 2023 was a record for acquisitions, and first quarter continued at a strong pace, eclipsing $40 billion in announced deals. This activity reflects large pharma's strong balance sheets and pressure to expand their pipelines with innovative therapies to counter the over $200 billion in revenue at risk from patent expirations through 2030.
M&A is a robust sign of the health of the industry. And as capital is recycled back to investors and entrepreneurs, it will be redeployed into the next generation of life science companies.
Last, are our life science products, service and device tenants, which represent 21% ARR. A trend we are watching closely is pressure from Congress to limit utilization of Chinese CDMOs under the proposed BIOSECURE Act. Whether or not the legislation passes, this is positive for our U.S.-based CDMO tenants, which analysts expect to see a substantial increase in demand and will help ensure we maintain our national competitive edge in such a critical industry.
Switching gears, let's put on our lab coats and examine how our tenants research dictates their lab requirements. Illustrating with a real-world example, consider a private biotech company developing precision oncology medicines that is expanding into 20,000 square feet. Working directly with Alexandria's in-house lab operations team, they placed 328 pieces of equipment in the lab, ranging from bench top centrifuges to freezers, cryo tanks, DNA sequencers and advanced microscopes.
10 pieces of equipment, including negative 80-degree freezers require emergency power as it is critical this equipment operates 24/7 to ensure hundreds of thousands of dollars of experimental samples are safeguarded.
Now where this equipment is placed is not based simply on the square footage required but the process flow of their experiments. A single cell biologist utilizes equipment spanning multiple benches, chemical, fume hoods, tissue culture suites and microscopy rooms. Beyond that, she moves back and forth through the lab and adjacent nontechnical space, conference rooms and communal kitchen throughout the day. Lab space cannot be equated to traditional office desks dictated solely by the number of workers, but is more akin to a data center where the space needs are driven by the physical equipment.
While highly trained scientific talent is required to oversee the science, it's a scientific workflow and instrumentation use that dictates the lab footprint.
On a related topic, given the immense volume and complexity of data required to inform AI algorithms, many AI-centric tenants have heavy equipment needs that require significant laboratory footprints. A great example is South San Francisco-based tenant, insitro, with whom we announced a significant early extension this quarter. AI is an amazing tool, but the laboratory is still the workbench.
So circling back to where we began. In the past 15 years, the life science industry has doubled in size, along the way, improving countless lives. Projecting 15 years into the future, the growth trajectory of this industry is massive. As companies work to cure diseases, such as Alzheimer's, autoimmune disease, and the nearly 7,000 rare diseases that affect 1 in 10 Americans.
As a trusted partner to the world's leading life science companies, our job is to safeguard our tenant's mission-critical research and support and catalyze discoveries that will shape the future of medicine.
With that, I will pass it to Peter.

Peter M. Moglia

Thanks, Hallie. I know myself, family and friends benefited from this innovation that has occurred since 2008. So I appreciate the context you just gave us. I'm going to go ahead and discuss our development pipeline, leasing supply and asset sales, and then I'll hand it over to Marc.
In the first quarter, we delivered 343,445 square feet into our high barrier to entry submarkets, covering 5 projects. The annual incremental NOI delivered during the quarter aggregated to $26 million. Development and redevelopment leasing during the quarter was approximately 100,000 square feet.
In addition to the executed leases, we signed 162,000 square feet of LOIs during the quarter, which will feed future development and redevelopment pipeline leasing. Space leased or under negotiation in our current and near-term projects under construction increased by 3% over the last quarter to 63%, and projects delivering in 2024 and 2025 are 80% leased.
From the second quarter of 2024 through the end of 2027, we expect to deliver approximately $480 million of stabilized NOI from the current pipeline.
Transitioning to leasing and supply. As we noted last quarter, the bottom of demand was reached during the first half of 2023, and it continues to incrementally recover in our core markets. We expect that the lack of funding activity in early 2023 will continue to be an overhang to whole recovery for a quarter or 2, but we have strong conviction that a recovery will be achieved in the near term, given the key fundamentals Hallie outlined.
Alexandria is well positioned to weather these storms, given the moat and enduring competitive advantages, we continue to widen and build.
We leased 1,142,857 square feet during the first quarter, consistent with our pre-pandemic velocity. GAAP and cash rental rate increases were extraordinarily strong at 33% and 19%, respectively, and the related tenant improvements and leasing commissions trended down 16% compared to our 2023 leasing costs.
Our teams continue to closely track competitive supply, building by building, in our proprietary databases. As noted in last quarter's call, we expect 2024 to be the peak year for new deliveries and then begin to dissipate in 2025.
In Greater Boston, unleased competitive supply estimated to be delivered in 2024 decreased significantly from 7% of market inventory in the fourth quarter to 1.6% due to 3.3 million square feet of competitive projects delivering in the first quarter. Approximately 1.17 million square feet of those projects were moved from an estimated 2023 delivery to a 2024 delivery last quarter. The unleased delivered space is reflected in the direct vacancy numbers I'm going to present in a moment. In 2025, the unleased competitive supply in Greater Boston will increase market inventory by another 2%, which is an expected slowdown from the 2024 levels.
In San Francisco Bay, unleased competitive supply estimated to be delivered in 2024 is 9.6% of market inventory, which is a 1.1% decrease driven mostly by reclassifying a 0.5 million square foot project from a 2024 to 2025 delivery due to a temporary delay in construction. In 2025, the unleased competitive supply in San Francisco will increase market inventory by 3.7%, a 1.5% increase over last quarter due to that reclassification.
In San Diego, unleased competitive supply estimated to be delivered in 2024 is 5.1% of market inventory, a 1.6% decrease from last quarter due to moving 2 projects from an estimated '24 delivery to 2025. In 2025, the unleased competitive supply will increase market inventory by another 3.8%, a 1.1% increase due to that reclassification, but offset somewhat due to first quarter leasing at those projects.
To update you on direct and sublease vacancy, direct vacancy in Greater Boston is up 593 basis points to 12.98% due to the previously mentioned 1Q '24 deliveries. It has climbed more moderately in San Francisco, up 175 basis points to 14.11%, propelled by a 147,000 square foot spec delivery in San Carlos.
In San Diego, direct vacancy increased by 244 basis points to 10.41%, driven primarily by the inclusion of space not vacant today, but now known will be vacant soon. Sublease vacancy decreased in Greater Boston by about 0.75% to 5.17%, increased in San Francisco Bay by 0.5% to 6.28% and increased by 1/3 in San Diego to 5.7%.
Again, 2024 is the peak year of disruption from supply. Alexandria's steady 94.6% occupancy is another data point supporting the effectiveness of our wide moat and enduring competitive advantages.
I'll conclude with an update on our value harvesting asset recycling program. After a busy 4Q '23 schedule, where we closed on $439 million in asset sales marketed and negotiated throughout the year, we spent the first quarter priming our disposition and partial interest sales pipeline for what will likely be a closing schedule heavily weighted towards the third and fourth quarters.
Early progress is reflected in pending transactions, subject to letters of intent or purchase and sale agreement negotiations of $258.1 million, and there are a number of other ongoing active sales efforts. Buyers of noncore assets are generally private equity, family office, local operators and institutionally backed real estate partnerships looking to diversify their asset mix with life science real estate.
During the quarter, we closed on assets totaling $17.2 million, inclusive of 99 A Street in the Seaport, which executive management deems to no longer be strategic due to its one-off profile and our pivot to 285, 299, 307 and 347 Dorchester Avenue acquired during the quarter, which is nearby with similar red line access but has the scale to be a future mega campus.
We remain committed to our self-funding strategy and our offerings remain attractive to investors looking for exposure to life science real estate given the promising outlook for the industry Hallie presented despite near-term supply challenges.
With that, I'll pass it over to Marc.

Marc E. Binda

Thank you, Peter. This is Marc Binda, CFO. Hello, and good afternoon, everyone. We reported very strong operating and financial results for the first quarter, and our team is off to a great start to 2024.
Total revenues and NOI for 1Q '24 was up 9.7% and 11.5%, respectively, over 1Q '23, primarily driven by solid same-property performance and continued execution of our development and redevelopment strategy.
FFO per share diluted as adjusted for the quarter was $2.35, up 7.3% over 1Q '23 and was ahead of consensus. We also reiterated the midpoint of our full year 2024 guidance for FFO per share diluted as adjusted of $9.47, which is up 5.6% over 2023.
Our solid operating results for the quarter were driven by our disciplined execution of our mega campus strategy, tremendous scale and our differentiated business. Our tenants continue to appreciate our brand, collaborative mega campuses and operational excellence by our team. 74% of our annual rental revenue comes from our collaborative mega campuses. We have high-quality cash flows from 52% of our annual rental revenue from investment-grade or publicly traded large cap tenants.
Collections remain very high at 99.9%, and adjusted EBITDA margins were very strong at 72%.
Leasing volume in the first quarter was strong at 1.1 million square feet for the quarter, which is up 30% over the average of the last 2 quarters, and consistent with our historical quarterly average for the period from 2013 to 2020.
We continue to benefit from our tremendous scale, high-quality tenant roster and brand loyalty, with 77% of our leasing activity over the last 12 months coming from existing deep tenant relationships.
Rental rate growth for lease renewals and releasing space in 1Q '24 were strong at 33% and 19% on a cash basis. Our outlook for rental rate growth for the full year 2024 remains solid at 11% to 19% and 5% to 13% on a cash basis and reflects our view that given the relatively small amount included in the renewals or re-leasing in any particular quarter compared to the full year and the mix of lease expirations in any particular quarter, we do expect some variation in rental rate growth from quarter-to-quarter.
The overall mark-to-market for cash run rates for our entire portfolio remains very solid at 14%, which is unchanged from the prior quarter, which is impressive given the strong realized rental rate growth experienced in the first quarter.
Our non-revenue-enhancing expenditures, including TIs on second-generation space, have averaged 15% of net operating income over the last 5 years and are expected to be below that in the 12% to 13% range in 2024, which really highlights the durable nature of our laboratory infrastructure.
Same property NOI growth for 1Q 2024 was solid at 1% and 4.2% on a cash basis, driven by strong rental rate growth and leasing volume. Our outlook for full year same property growth was unchanged since our last update at 1.5% and 4% on a cash basis at the midpoint.
Occupancy for the quarter was solid at 94.6%, which is consistent with the prior quarter. And during the quarter, we continued to execute on our development and redevelopment strategy by delivering 343,445 square feet from the pipeline, which will generate $26 million of incremental annual net operating income.
We also expect to see significant future growth in incremental annual net operating income on a cash basis of $101 million from executed leases as the initial free rent from recent deliveries burns off over the next 7 months on a weighted average basis. As a reminder, this contractual increase in cash flows will have a significant positive impact on NAV as these projects were previously delivered and no longer sit in CIP at the end of 1Q '24.
As Peter highlighted, we have 5.5 million rentable square feet of development and redevelopment projects that are projected to generate $480 million of incremental annual net operating income over the next 4 years, including 2.1 million square feet delivering through 2025 that are 81% lease negotiating and are expected to generate $229 million of additional net operating income.
With projects committed and/or under construction and expected to generate significant NOI over the next few years, coupled with our future pipeline projects in preconstruction, we have the ability to grow our already large operating base of 42 million square feet by 78% over time.
With significant construction activities as well as important preconstruction activities, adding value and focused on reducing the time from lease execution to delivery were required to capitalize a significant portion of our gross interest cost.
Last year, we saw a peak in capitalized interest in the quarter preceding our record deliveries in the fourth quarter of 2023, which generated $265 million of incremental annual net operating income. These record deliveries have driven a decline in the average real estate basis, subject to capitalization, of $1.3 billion or 14% from all of 2023 on average to 1Q '24.
Capitalized interest as a percentage of gross interest has similarly declined from 83% for the entire year of '23 to 67% from 1Q '24. In addition, capitalized interest has had an overall decline for 2 consecutive quarters coming off the peak of 3Q '23.
Our outlook for capitalized interest for 2024 is consistent with our previous guidance and continues to assume a double-digit decline in average basis subject to capitalization for the full year ended '24 compared to 2023.
Transitioning to the balance sheet. We continue to have one of the strongest balance sheets amongst all publicly-traded U.S. REITs. Our corporate credit ratings rank in the top 10% of all publicly traded U.S. REITs, our leverage continues to remain low at 5.2x for net debt to adjusted EBITDA on a quarterly annualized basis. We have tremendous liquidity of $6 billion. Fixed rate debt comprising 98.9% of our total debt and a weighted average remaining debt term of 13.4 years. In addition, nearly 1/3 of our total debt has at least 25 years remaining to maturity, with a very advantageous blended rate of 3.86%.
We remain disciplined with our strategy for long-term funding of our business with a focus on maximizing bottom line growth, maintaining our fortress balance sheet and recycling capital from dispositions and partial interest sales to minimize the issuance of common stock. We're very pleased with the execution of our bond deal, which we completed during the quarter, aggregating $1 billion with a weighted average interest rate of 5.48% and a weighted average maturity of 23.1 years.
Similar to the self-funding strategy that we executed in 2023, we expect to recycle capital into our highly leased development and redevelopment pipeline through outright dispositions and partial interest sales primarily focused on assets not integral to our mega campus strategy, allowing us to enhance the quality of our asset base.
As Peter mentioned, we completed $17 million of dispositions during the quarter. We have $258 million of pending transactions at various levels of negotiation. And we have a significant amount of additional target dispositions and partial interest sales that we're working on beyond that.
Based on our current outlook, we expect our asset recycling program to be more heavily weighted towards outright dispositions of noncore assets rather than partial interest sales.
I'll turn to the dividends. We also expect to continue to fund a meaningful amount of our equity needs with retained cash flows from operating activities after dividends of $450 million at the midpoint for 2024, or an estimated $2.1 billion for the 5-year period through 2024. And our high-quality cash flows continue to support the growth in our annual common stock dividend with an average annual increase in dividends per share of 5% since 2020, and we continue to have a very conservative FFO payout ratio of 54% in the first quarter.
Realized gains from the venture investments included in FFO per share as adjusted for the quarter were $28.8 million, relatively consistent with our historical average of $24 million per quarter going back to 2021. Gross unrealized gains in our venture investment portfolio as of 1Q '24 were $320 million on a cost basis of just under $1.2 billion.
We have updated our guidance as I mentioned for '24, for EPS of $3.60 to $3.72. And we tightened the range for FFO per share diluted as adjusted to $9.41 to $9.53, with no change to the midpoint of $9.47, which represents a solid 5.6% growth in FFO per share for 2024.
With that, let me turn it back to Joel.

Joel S. Marcus

So operator, let's go to Q&A, kindly?

Question and Answer Session

Operator

(Operator Instructions) And the first question will come from Joshua Dennerlein with Bank of America Merrill Lynch.

Joshua Dennerlein

Peter, I just wanted to follow up on your question -- or your comments on asset recycling. Could you just kind of provide more color on -- it sounds like you're pausing or relooking at what you're selling. So I think there's a little bit slowing activity near term. I guess just what's driving that? And how is the potential pool changing?

Peter M. Moglia

Yes. I think you misinterpreted my comments, there's no pause. I was just trying to point out that tend to close a lot of our sales in the latter half of the year like we did last year. And because we spend a lot of time in the first quarter teeing up things after a busy fourth quarter. So yes, no pause, activity remains brisk.

Joshua Dennerlein

Okay. Because I think if I -- if I'm not mistaken, it looks like what you had pending versus 4Q or under like letter of intent versus like today, it looks like it fell a bit. Is that just -- is anything falling out?

Peter M. Moglia

It's about 20% of our goal, which again, given how we're heavily weighted towards 3Q and 4Q, I think, is on target.

Joshua Dennerlein

Okay. Okay. Then Marc, just wanted to follow up on your comment on leasing spreads in 1Q. And just looking at the guide, it looks like there's a slowing for the rest of the year on rental rate increases. Just kind of curious how we should think about the cadence through the rest of the year.

Marc E. Binda

Yes. I mean it really depends market by market lease by lease that we renew in each particular quarter. So there can definitely be some variation to quarter-to-quarter. First quarter was very strong. We're really pleased with that. And I think the year is strong. We still feel good about the guidance we gave for both GAAP and cash flow rate increases for the year.

Operator

The next question will come from Michael Griffin with Citi.

Michael Anderson Griffin

Peter, I want to go back to your comments just around the competitive supply set. You've noted that a number of properties, I think, have been pushed out a couple of years in the development pipeline. I guess, what gives you confidence that we're nearing the peak of the supply picture, and we're not sitting here a year from now and seeing a lot of those projects get the can kicked down the road and supply picture is still pretty challenging.

Joel S. Marcus

Yes. So this is Joel. I'll let Peter answer that. But I think the words you used are pretty inaccurate. One project in San Diego was moved to the following year, not kicked down several years on the can, because there's a very substantial credit, tenant, lease they're working on that makes it more complex to deliver the space as we originally intended. So I think your thinking is not like the federal government not getting a budget and just kicking it down. That's not what's going on here. But Peter?

Peter M. Moglia

Yes. I think Michael was also referring just to the general market data that I was talking about. There were probably, I think of 4 projects within the 3 markets that I commented on that got moved. And that is something fairly normal because, of course, what mentioned was one of our own projects that got moved, but we're tracking all projects that we believe in one competitive.
And as the data comes in from the brokerage community and from our own observations, at times, something that was supposed to or we thought would deliver in 1 year gets kicked a quarter 2 and puts it into the next year. So that's just the nature of data. But yes, we do -- we are fairly confident that we're not going to see too much more after 2025, frankly, because we're not seeing anything else start right now, or limited, I think maybe one project started in San Diego in the third quarter of '23, but nothing of material -- that's material that we've noticed has started since then. So that would put us in a pretty good position after '25 to get to a very normalized delivery run.

Michael Anderson Griffin

Okay. That makes sense. And I appreciate the clarification there, Joel. And then just on the leasing environment, specifically as it pertains to the development pipeline. Would you have to give up more in concessions in order for tenants to sign leases? Or would you rather leave some vacancy in those developments [with] they go at or after stabilization in order to potentially get better rents if the environment improves?

Joel S. Marcus

It doesn't quite work that way. That -- it's kind of how it works in the rest of real estate. But as Hallie said, demand in this sector, as you can see over many years is event driven. So it's not so much a rental rate or a concession per se. It's the key location for recruitment of talent the ability to grow or need space immediately based on a major clinical milestone that's either made financing possible or just scale up possible.
So those are the things that tend to be the most important, which is space for delivery. And the market will be the market. But that's not the concessions or things like that are not driving people's decisions. It doesn't work that way.

Operator

Next question will come from Vikram Malhotra with Mizuho.

Vikram L. Malhotra

I guess just you sort of painted a picture where things are on track, spreads, better, et cetera. So I guess, Marc, I'm just wondering why adjust the guide, the FFO guide early on, especially the top end of the guide, given what you just outlined as likely a good start.

Marc E. Binda

Yes. I mean I think we're on track. It's not unusual for us as we get out -- as we kind of get through the year to shrink the range as we get more and more comfortable. So we shrunk the top end and the bottom end with no change to the midpoint of our guidance. So I think we still feel good about very solid growth this year of 5.6% over 2023.

Joel S. Marcus

Yes. And that's been pretty consistent as -- Vikram, how we've done it year by year, year-over-year.

Vikram L. Malhotra

Okay. Fair enough. The...

Joel S. Marcus

And remember, this is one of those years where you've got macro at home, you've got geopolitical issues and then you've got an election. So we wanted to be conservative about what we're doing here.

Vikram L. Malhotra

Makes sense. I think there were a bunch of shorter-term renewals or I guess, extensions into '25 because we did see the '25 overall expirations move up. And I'm just wondering like what is the nature of those discussions? Is it kind of tenants are uncertain about space needs? Or what drove those relatively higher volume of short-term renewals?

Joel S. Marcus

Well, short-term renewals often happen. Remember what I just said to Michael, in this industry, people are waiting for data that Hallie said. And if you've got a clinical trial data or some important catalyst that's going to drive the business, hopefully positively, but that could be negatively. And that's coming up. You want to ensure that you're kind of preserving your strategic optionality as much as possible, and that's why people want to kind of keep where they are until they know what do we need and where are we going. So that's very typical of this industry over many years.

Vikram L. Malhotra

Got it. Okay. And if one more, I can just slip in. I think there was a comment about '24 being sort of the bottom or at least your trajectory seems to be in a recovery from here on into '25. And I'm wondering if you can just elaborate on that. Is it demand? Is it -- what parameter or the factors are you seeing that give you confidence in this demand recovery into '25?

Joel S. Marcus

Yes. So Hallie, do you want to maybe just comment again?

Hallie Kuhn

Sure. Yes. So Vikram, as I walked through in the data across our different segments, just remember that we have a very diverse set of different tenant demands ranging from small private biotechs, public biotechs, large pharma institutions, life science tools, product, devices. So each of those, you have to look at differently.
But across each one of those, we're seeing strength. And again, we're coming down off 2021 but still quite strong compared to any year previously. So venture capital continues to be at a very robust pace, mega rounds, which are a great indicator of what will be near-term demand drivers, oftentimes just-in-time space have really picked up with 34 just this quarter.
On the public biotech side, follow-on financing, very strong historic quarter, but also IPOs, the window is opening slightly. We'll see how that trend continues over the rest of the year. And then pharma demand, we continue to see a number of very large requirements across our regions, very much driven by the need to be able to recruit the best talent and ensure that they can innovate for years to come.
So I think across each of our segments, we're seeing continued strength in the backdrop of, of course, some challenging macro markets.

Operator

The next question will come from Rich Anderson with Wedbush.

Richard Charles Anderson

So what's -- Peter, what's the tail of supply? And by that, I mean, okay, let's say, we peak in deliveries this year, but that doesn't just shut off the light switch and you're off to the races or shut off -- turn on the light switch. There is a period of time where there's free rent to burn from your competition and that impacts your ability to operate nearby facilities, perhaps.
I'm wondering, is it a year lag where you can really start to see cash flow roll in again, for Alexandria? Or is it shorter or is it longer? I'm just curious, yes, maybe we're getting to a point where we're peaking on deliveries, but then when do we start peaking or get back up and running on a cash flow basis for the company?

Peter M. Moglia

Yes. I mean it's a great question, Rich, and it's a crystal ball question. But I mean, the way I think about it...

Richard Charles Anderson

You got a crystal ball.

Peter M. Moglia

The way I think about it is I look at what Hallie is talking about with demand and, to kind of add on to what her last comments were, we saw a decrease relative decrease in funding during 2023. And there's a lag effect for that to take place. And that's one of the reasons why we think 2024 is going to be the kind of the bottom to use the crystal ball and that it's going to accelerate from here because of all the investment that Hallie pointed out that's going on today is going to create demand.
So the tail of the supply is going to be a direct correlation to how much demand there is to take it up, and we think that, that demand is going to be strong, therefore, the tail won't be that long. But we'll see, as I said, we're going to see some significant additions to the market in 2024 and then roughly half of what we're seeing in 2024 and 2025, and then virtually hopefully 0 to very little in 2026, probably just things that get delayed in '25 have bleed into '26. But we'll be -- that will be coming into a market that is strengthening as more demand appears because of the funding.

Richard Charles Anderson

Yes. Fair enough. And then as it relates to you guys, using those observations that you just made, would we expect you to continue on your kind of existing pace of development starts, funded primarily through dispositions? Or do you feel the need to maybe slow it down a little bit on the view that disposition funding is not a forever strategy, assuming the stock stays where it is, hopefully not, but let's say everything, I'll hold everything else constant, or starts down next year up to meet the demand? What do you think from Alexandria's lens?

Joel S. Marcus

Yes. So maybe, Rich, let me just say this. I think you've seen us kind of, like we did in the great financial crisis, once the rocket ship of COVID started to come back to Earth rather rapidly, February of '21 is when it started, certainly, over the last couple of years and certainly into this year, we've been, I think, profoundly disciplined in thinking about, we've certainly stopped a number of projects. We've restarted 1 or 2 here or there based on leasing volume, but we've been very, very disciplined about what we would start.
So there is not a volume throughput or some kind of a need to do that. We have right now, as you know, a pretty decent pipeline that's relatively well leased. And our goal is to meet the needs of growing tenants. And that's what really dictates our decision to start projects or convert space or try to move people into vacant space that's available and quickly operational.
So those are the things that we're really focused on, and it's really judged by demand and then against the backdrop of cost of capital and yield and things like that, which Peter has given pretty -- over many quarters, pretty great detail on.

Operator

The next question will come from Wes Golladay with Baird.

Wesley Keith Golladay

It looks like the first quarter is off to a good start with the same-store NOI growth. I believe the expectation was for the growth to be back half weighted. Is that still the case?

Marc E. Binda

Yes. Wes, this is Marc. Yes, I think last quarter, we did believe that the second half of the year would have some acceleration. I think our view is that the second half will be strong to in line with guidance right now. And I think, to be fair, I think the first quarter came in pretty strong. So I think second half, we expect to be strong.

Wesley Keith Golladay

Okay. And then you mentioned potential demand drivers, CDMO, AI, is this going to move the needle this year? Is it more of a '25, '26, '27-type driver?

Joel S. Marcus

Yes. So Hallie, you could kind of comment on that? I think that's ongoing, frankly, but...

Hallie Kuhn

Sure. Yes. I think these are really popular topics, right? We don't go more than half an hour without getting a question on AI and the BIOSECURE Act and certainly on the regulatory front has been front and center. I think these are pieces of a kind of large pool of different types of demand that we see across our spectrum of tenants. But certainly, we have a number of tenants, insitro, we mentioned and a number of others in our portfolio that do have significant lab requirements given the large data generation.
And then for CDMOs and how that relates to demand going forward, these things happen in the order of years, not months. But certainly, I think, is a positive trend for the industry, overall, with respect to ensuring that this industry remains certainly a what we would consider a national -- really, important for our national security for development of drugs.
So 2 things that we're watching closely, but I wouldn't say are going to be the things that are pushing the industry overall. Just 2 pieces of it.

Operator

The next question will come from Tom Catherwood with BTIG.

William Thomas Catherwood

Peter, maybe moving over to the leasing activity this quarter. Costs were down pretty materially, yet, obviously, the unleased new supply continues to deliver as you've detailed. How is this new supply competing with the expiring leases in your operating portfolio?

Peter M. Moglia

I don't think it's competing very well at all, and that's illustrated by our occupancy, the cash and GAAP rent spreads that we reported today, I mean, we've been saying for a long time that our brand and platform of mega campuses means a lot to our tenants. And I think it's just proving out.
Remember, a lot of the supply is one-off in tertiary markets. And it's the type of profile that if things get super tight in areas like Cambridge or Torrey Pines or South Lake Union in Seattle, they might catch a bid just like tertiary markets and office would when there'd be spikes in office demand.
But for now, nothing is really moving outside a handful of leases here and there outside of what we're doing because as we say all the time, if Alexandria has space available that fits what the tenants' needs are, 90-plus percent of time, they're going to come to us because we know what we're doing. We can scale them. We have operational excellence. And no one -- and I say this all the time, no one is going to get fired for picking an Alexandria building, it might get fired for picking a building from someone who has no idea what they're doing.

William Thomas Catherwood

Understood. And actually, that kind of feeds into the next question, which is -- and this is probably another crystal ball question here. But if we take a step back and think more broadly on the unleased competitive supply and your comments on secondary markets and secondary operators. How do you think distress could play out in the life science real estate market, if at all? And does that present a potential opportunity for Alexandria?

Peter M. Moglia

Yes, it's a great question. We get asked -- my first reaction is always, well, gosh, if we weren't there by now, it wasn't a priority. I believe there'll probably be some opportunities that we will look at in the future. If we put our brand on the building and people know we're operating it, even if it's in a newer market, it can be successful. A great illustration of that is what we did in the Fenway. When we came in there, it was an unproven market. The 201 Brookline asset that we bought was about 17% leased. We come in, put our brand on it, put our know-how into it. And within, I think, 3 quarters, it was fully stabilized.
That said, that was a submarket that we knew was going to be -- had a lot of the fundamentals that make a good submarket. Some of these areas that this supply is in today, I don't see the same profile, so probably a tougher decision down the road. But what happens to those buildings? I think a lot of them will become office building, frankly, offices, it's certainly not dead. Probably office that was built in the '60s and '70s and even the '80s might have to go away because it's functionally obsolete. But if you built a new lab building and you couldn't lease it as lab, it's probably going to be a pretty good office building. But again, crystal ball, that's just my opinion.

Operator

Next question will come from Anthony Paolone with JPMorgan.

Anthony Paolone

I guess, first question is your development yields seem to have been around 7% for a number of years at this point. And, Joel, you mentioned interest rates being stubbornly high. But if this is the rate environment on a go-forward basis, is that 7%? Is that an appropriate level for you all to continue with the program or -- and maybe you've just been over-earning on spread in prior years? Or does that number have to go up? Like how do you think about that?

Joel S. Marcus

Yes. So, Peter, thoughts?

Peter M. Moglia

Yes. Look, Tony, I think you really have to look. Joel laid out what creates opportunities that we may capitalize on, but we are going to be looking, obviously, at cost of capital. We can't make decisions, though, on what we think -- or what the cost of capital is today. We have to take a longer look.
So as an analyst, you would look at the internal rate of return that you would get on a development because you know that if you believe that fundamentals are going to improve over time, you could do something with a 6% yield today, a 7% yield today. But it -- as cap rates adjust as rental growth adjusts, you look out 10 years and you get an IRR that's above your weighted average cost of capital today and then you have confidence to go forward.
So I know it's real easy to just look at initial yield, and we published that because it's an interesting topic to everybody, and rightly so, but in challenging times like this, you really have to take a longer view because you don't want to miss on an opportunity that would be very strategic and excellent for your shareholders over the long run. And that's what we're trying to do.

Anthony Paolone

Okay. And then just on the funding side of that then, you talked about just the preference for dispositions versus stake sales. But just what about your comment at this point? I mean is that completely off the table? Or is similar type discussion where there -- it could make sense depending on what's teed up.

Joel S. Marcus

Yes. So Tony, as we've said, our guidance assumes no equity. Same was true in 2023 to remind everybody. And our focus is on sources of capital to fund our business on the noncore assets outside of the mega campus. But obviously, you reevaluate that on an ongoing basis, just like we have in past practice.

Anthony Paolone

Okay. And then if I could just sneak one more in for Peter, since you got your crystal ball out. If you kind of look forward to, I guess, maybe next year, when you're past this whole wave of supply that you outlined, what do you think happens to market rents between now and then and not just phase, but just totality of lease economics?

Peter M. Moglia

Yes. Look, we're anticipating a very flat environment opportunities that Alexandria can provide in a mega campus are likely going to perform much better, materially better, than some of the supply that's going to be delivered. But certainly, supply is going to weigh on rents and -- but we don't necessarily see a retrenchment outside of -- certainly, levels that were hit in 2021 and 2022 are going to be back -- we're going to back off from that. But the area, the rental areas of '17, '18, '19, that our submarkets we're in, I'm certain will be the bottom and it will grow from there.

Operator

The next question will come from Jim Kammert with Evercore.

James Hall Kammert

Joel, certainly appreciate your comments that demand can be more event driven for the lab business, which is understandable. But is it possible for the team to provide just a little bit more context or quantification regarding your tenant interest in your development and redevelopment pipeline today, say, versus 90 to 180 days ago. And when I say context, I'm thinking the number of tenants you're holding discussions with, the range of space requirements they might be seeking and maybe the timetables for making decisions? Just trying to get some more comfort into the visibility of the lease up.

Joel S. Marcus

Yes. I don't -- Jim, good question and fair to ask. I don't think we would want to be that transparent, given the competitive nature of what we're doing these days. I just -- I'm not sure that would serve our interest or even our tenant's interest. In fact, they may not want us to be talking about something like that in advance. So I'd be pretty wary of that kind of thing.
I think that what is happening is, and Peter, I think, has talked about this, we kind of hit a low in '23, certainly after the Silicon Valley Bank episode and some of the market shutters and so forth. But I think as Hallie has presented, the market since October is really solidified and more money was flowing into or is flowing into the sector. And I think that's really a better benchmark. And certainly, as companies hit milestones as Hallie mentioned, Intra-Cellular hitting a critical, critical, very high-quality milestone and was able to do, I think, their last financing and then they turn profitable.
So that's kind of how we look at it. I think anything more of a norad early warning system probably wouldn't be in our best interest. I apologize for that.

Operator

The next question will come from Dylan Burzinski with Green Street.

Dylan Robert Burzinski

Just going back to sort of development yields coming down versus historical levels. But just -- I guess, just given as you guys think about things from a holistic capital allocation approach, how do you weigh sort of starting the development at a low 6% cap rate versus sort of going out and buying in the open market or buying assets, I guess, I should say, is it simply maybe you guys are willing to sort of accept that lower yield today because a lot of these developments are sort of an extension of the mega campus strategy? Or is there something else?

Joel S. Marcus

Yes. No, I think that's a really -- I'll ask Peter to comment, but I think that -- the last point you raised is really the point. The mega campus provide, I mean, we were first mover. We have, by and large, in almost every market, I can't think of any market where we don't have really best locations. And if somebody wants to grow and grow on your campus, that's going to be a lot better for the long-term growth and health of the campus and the company as opposed to somebody who wants to go into a one-off building somewhere. It's just -- even if the yield is potentially higher, I don't think so.
And remember, too, with 3-plus percent bumps each year, the ending rental value on certainly development, 10, 15, 20-year leases is pretty substantial. But, Peter?

Peter M. Moglia

Yes. Dylan, I'm not -- not just me, but the team is not necessarily seeing anything we'd want to buy. Again, as I make the commentary about supply, most of what probably will be available to buy is not in the areas that we're interested in today. I'm not saying we're not -- never say never that an area might not become interesting in the future. And as I said, we could put our brand on it and make it work.
But the opportunities that we will be talking about in the future and I'd say the near future, are going to be on our mega campuses because of all the things that we talk about, with the scale and the vibrancy, our tenants and tenants that are not ours, but want to be ours, notice and understand the value. And so it's going to make the -- it's just going to make more sense long term for us to put them on these campuses rather than buy a one-off building and put someone in there and end up wondering in the future why we did that because it doesn't really match our model.

Operator

Next question will come from Michael Carroll with RBC Capital Markets.

Michael Albert Carroll

I wanted to circle back on overall leasing activity. It sounds like trends are improving over the past few quarters. But does the recent pushout in interest rate cuts, does that impact, I guess, tenant's ability to raise capital at all? Or does that delay their decisions or ability to make these types of decisions?

Joel S. Marcus

No. And you can just look at what's happened, as Hallie outlined in the first quarter, Michael, again, event-driven. It's not a direct correlation to economic environment or interest rates. That's just how this sector and industry kind of walks the walk. And so it's not totally shielded by that because if there was to be some -- I mean, imagine if China decided to invade Taiwan, the market seized and rates spiked in some crazy fashion or something, obviously, that would have an immediate impact on everybody.
But I think no, not -- the deferral isn't going to change if somebody hits a great milestone, they're going to be able to finance. Now maybe there might be a higher concession on the underwriting or the overnight or whatever method they choose. But that's a rather infinitesimal cost of capital issue for companies.

Michael Albert Carroll

Okay. I mean do tenants make decisions on expanding into new areas of research based off of their ability to raise capital. So like they're -- I think, correct me if I'm wrong...

Joel S. Marcus

Of course. And most of that is done at the venture level. And so when somebody is pioneering a new area, that's really done venture not so much the publicly traded markets. But once you get into the clinic, then if you are fortunate enough to get public, then the public markets kind of take hold of that.

Hallie Kuhn

Yes. And just to -- this is Hallie. Just one addition. Recall that with venture firms, they're sitting on a lot of dry powder, right? That is already committed capital that they can call on. And there's a number of larger funds that we're talking to that are raising closing, multibillion dollar funds. So they're sitting on capital that's ready to deploy. They're not dependent in the same way that a public company is on the interest rate.

Michael Albert Carroll

Okay. And then just last one for me. I know there has been discussions where the Board and some of these tenants have been making like veto decisions as companies can lease space or not, I mean, is that -- are the Boards loosening up? Or are they willing to make these decisions now?

Joel S. Marcus

Well, I think historically, Boards have had very careful oversight. I think, unfortunately, when the markets become very frothy, Boards get a little bit lazy and not as astute or disciplined in what they do. But I think you can be certain today, Boards are very disciplined, and it's been that way now for a handful of years. So I don't think anything is changing in that regard.
I mean the answer is, if somebody needs space to scale and grow because they hit a key milestone or they've turned profitable or whatever it happens to be, those are high-quality decisions because the cost of space for most of these companies is a fairly nominal amount of their overall cost of doing business.

Operator

The next question will come from Omotayo Okusanya with Deutsche Bank.

Omotayo Tejumade Okusanya

I appreciate all the comments around supply and also development. If we could go back to this crystal ball-type scenarios, Curious if you'd be willing to offer up when you think you might be able to start a new development? And then what potential market could that be, given the demand supply dynamics you've seen in each of your key major markets and on the mega campuses?

Joel S. Marcus

Yes. I don't think we would announce such a thing on an earnings call, willy nilly. It's based on tenant demand, of course.

Omotayo Tejumade Okusanya

But are markets getting better? Are you seeing like more demand that suggest that could happen soon?

Joel S. Marcus

Based on the questions that have been raised on the call right now and Hallie's commentary, I think we've said since October, the markets certainly have gotten better, yes.

Operator

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

Joel S. Marcus

Yes. Thank you, everybody. Just remember May is Mental Health Month, and we'll be very focused on that with our efforts on a number of corporate social fronts. So be safe. Take care. God bless. Thank you.

Operator

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