Marc E. Binda
Chief Financial Officer and Treasurer at Alexandria Real Estate Equities
Thank you, Peter. This is Marc Binda, CFO. Hello, and good afternoon everyone. We reported solid operating and financial results for the second quarter. Total revenues and NOI for 3Q '24 were up 10.9% and 12.5% respectively over 3Q '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 $2.37, up 4.9% over 3Q '23, and is in line with consensus. Our solid operating results for the quarter were driven by our disciplined execution of our mega campus strategy, tremendous scale, longstanding tenant relationships, and operational excellence by our team.
76% of our annual rental revenue comes from our collaborative mega campuses. We have high-quality cash flows with 53% of our annual rental revenue from investment grade and publicly traded large-cap tenants. Collections remained very high at 99.9%, and adjusted EBITDA margins continued to be strong at 70% for the quarter. An important takeaway for the quarter should be the very strong leasing volume results.
Leasing volume for the quarter was 1.5 million square feet, which was up 48% over the trailing four-quarter average, and was the highest quarterly volume since 4Q '22. We continue to benefit from our tremendous scale, high-quality tenant roster, and brand loyalty with 80% of our leasing activity over the last 12 months coming from our existing deep well of approximately 800 tenant relationships.
The rental rate increases for the first nine months of 2024 were strong at 16.4% and 8.9% on a cash basis. And our outlook for rental rate growth for the full year '24 remains solid at 11% to 19%, and 5% to 13% on a cash basis. Rental rate growth for lease renewals and releasing the space for the quarter was 5.1% and 1.5% on a cash basis. We did highlight the renewal of an acquired lease in Texas for tech R&D space that did weigh down the numbers during the quarter.
During the quarter, we also achieved very healthy lease terms on completed leases, which were almost 10 years on average. The overall mark-to-market for cash rental rates related to in place leases for our entire asset base remained solid at about 10%. Tenant improvements and leasing commissions on second generation leasing as a percentage of starting cash rent were around 8% this quarter, which is less than our historical average over the last three years of about 9%.
Our total non-revenue enhancing expenditures, which includes tenant improvements on renewals and releasing the space is expected to be in the 10% to 11% range as a percentage of net operating income in 2024, which this amount is below our five-year average of 15% and is lower than that of several other REIT sectors and really highlights the durable nature of our laboratory infrastructure. This is the third year in a row that we've been in the 10% to 13% range, although we do expect next year to be higher given some larger repositioning projects on the horizon.
Turning to same-property results, same-property NOI growth for 3Q24 was solid at 1.5% and 6.5% on a cash basis, really driven by solid rental rate increases, a pickup in occupancy and some burn-off of free rent. Our outlook for the full year 2024 same-property growth is consistent with our last update at solid growth of 1.5% and 4% on a cash basis at the midpoints of our guidance. We do expect some pressure on fourth quarter same-property results resulting from a lease termination that occurred at 409 Illinois Street in our Mission Bay submarket where the lease will be expiring at the beginning of 2025 and we expect little to no rent in the fourth quarter of '24.
As a reminder, our same-property results do include 100% of consolidated results. So even though we only have a 25% interest in this particular property, the approximately $17 million of annual rental revenue going away related to this tenant in the fourth quarter will be fully reflected in same-property results, even though the bottom line FFO results will only pick up our 25% share.
Turning to occupancy, for the quarter, occupancy was very solid at 94.7%, which is up 10 basis points over the prior quarter and continues the steady results over the last four quarters. We expect year-end occupancy to be on the low end of our guidance range of 94.6% to 95.6%.
On lease expirations, our team has done a great job of addressing the '24 lease expirations with very strong leasing volume again completed in the quarter of 1.5 million square feet and the unresolved lease expirations remaining for the balance of 2024 are modest at only 134,000 rentable square feet.
Looking ahead to the first quarter of 2025, we highlighted a few key lease expirations spread across four projects aggregating 768,000 rentable square feet with $47 million of annual rental revenue that are expected to have 12 to 24 months of downtime on a weighted average basis.
75% to 80% of the total $47 million annual rental revenue is related to our Alexandria Technology Square and 409 Illinois Street projects, which are expected to remain as operating properties with the same-property pool following the lease expiration, even though these spaces may require some time and capital to release or reposition the buildings for multi-tenancy.
The Alexandria Technology Square project primarily relates to the move out of Moderna and the expansion to their new 462,000 square foot building we delivered late last year at 325 Binney. And we are in early discussions with the tenant to lease approximately half of the 409 Illinois Street property. Please refer to footnote 4 on Page 24 of our supplemental package for additional details there.
On external growth, during the quarter, we continued to execute on our development and redevelopment strategy by delivering 316,691 rentable square feet from the pipeline, which will generate $21 million of incremental annual net operating income. We have 5.5 million rentable square feet of development and redevelopment projects that are 55% leased or negotiating, and are projected to generate $510 million of incremental net operating income over the next three and half years, including $158 million over the next five quarters.
Transitioning next 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 are in the top 10% of all publicly traded U.S. REITs. We remain on track to achieve our targeted net debt to adjusted EBITDA leverage ratio of 5.1 times on a quarterly annualized basis by year-end.
We have tremendous liquidity of $5.4 billion, and our attractive debt profile highlights our commitment to long-term funding of our business with a weighted average remaining term of debt of 12.6 years and average year-end percentage of fixed-rate debt over the last five years of 97.7%. We continue to focus on our disciplined funding strategy to recycle capital from dispositions, and to minimize the issuance of common stock.
Common stock issuances have amounted to less than 2% of our total funding sources in 2023 and 2024, and we do not expect to issue any new equity in the fourth quarter of 2024. Our disposition strategy for 2024 is focused primarily on outright dispositions of non-core assets not integral to our mega campus strategy, allowing us to enhance the quality of our asset base and include stabilized properties, non-stabilized properties with vacancy or near-term lease expirations, and land parcels.
To date, we've completed $319 million of asset sales, including the sale Peter mentioned at 1165 Eastlake Avenue, which is located in our Lake Union Submarket that was sold to the Fred Hutchinson Cancer Research Institute. We have another $1.2 billion of pending dispositions subject to non-refundable deposits or executed letters of intent or PSA agreements. About half of the pending dispositions represent stabilized property sales, most of which are expected to be sold to users with a blended expected capitalization rate of 8.5% and 7% on a cash basis.
The other half represents the sales of land and properties with vacancy or near-term lease expirations. The 3Q '24 annualized NOI associated with the $1.2 billion of pending sales is $95.8 million and $91 million on a cash basis. It's important to note that the $95.8 million is a backwards-looking amount and does not consider certain lease expirations for some of the non-stabilized properties expected to occur over the next 12 months, including a significant amount of non-laboratory space.
On a forward-looking 12 months basis for these non-stabilized disposition assets, we expect that NOI will decline by $30 million to $35 million. And given that these assets no longer fit our strategy, we've elected to sell these assets and allow the buyer to invest the capital to reposition those assets.
Included in the $1.2 billion pending dispositions are two key items aggregating nearly $700 million. First, a suburban campus with specialty non-traditional lab space in our Greater Boston market to the existing tenant for $369 million which represents a 6.3% cash cap rate, and second various sites in Sorrento Mesa and University Town Center to residential developers for $314 million which will allow us to monetize some of our future pipeline without adding to the lab supply.
The aggregate total of the completed and pending dispositions is $1.5 billion which puts us right around the mid-point of our guidance and we're reasonably confident we can close all of this by the end of the year.
We also expect to fund a meaningful amount of our equity needs with retaining cash flows from operating activities after dividends of $450 million at the mid-point of our guidance for 2024 and our high quality cash flows continue to support the growth in our annual common stock dividends with an average annual increase in dividends per share of 5.4% since 2020 and we continue to have a conservative FFO payout ratio of 55% for 3Q '24.
Realized gains for the venture investments, including FFO per share as adjusted for the quarter, were $23 million and $85.2 million for the nine months ended September. Quarterly realized gains since 2021 have averaged about $25 million. Through the first three quarters of 2024, we've averaged about $28 million so pretty close to the historical run rate and consistent with our guidance range for the full year of $95 million to $125 million.
Turning to guidance, there were a few moving pieces in our underlying guidance, including lower straight line rent revenue and lower G&A, which we highlighted on Page 5 of our supplemental. We've updated our guidance for 2024 for EPS of $2.60 to $2.64 and we maintained the midpoint of our guidance for FFO per share diluted as adjusted of $9.47, which represents a solid 5.6% growth in FFO per share for 2024.
As we look ahead beyond 3Q '24, we continue to have conviction to reinforce our core through our differentiated mega campus strategy, which is the driving force behind our disposition strategy. With 76% of our annual rental revenue coming from mega campuses today and aspirations to enhance this number over time with non-core dispositions of land and properties, as well as disciplined development and redevelopment on these mega campuses, we expect to continue increasing the quality and resilience of our dominant platform and asset base.
With that, let me turn it over to you Joel.
