Alexandria Real Estate Equities Inc (ARE) 2003 Q1 法說會逐字稿

Good day, and welcome, everyone, to the Alexandria Real Estate Equity First Quarter 2003 Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Rhonda Chaiger of RX Communications. Please go ahead.

Thank you. Good afternoon, and thank you for joining us today. This conference call contains forward-looking statements within the meaning of the federal securities laws. The company's actual results may 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 form 10K annual report and other periodic reports filed with the Securities and Exchange Commission.

With that underway, I'd like to turn the call over to Joel Marcus, Chief Executive Officer. Please go ahead.

Welcome to the first quarter '03 earnings call. With me are Pete Nelson and Jim Richardson, and I'd like to start out with a couple of just general observations and then get into a recap of the quarter.

This quarter was clearly characterized by the war in Iraq. It has been a very challenging quarter in a tough market, but the company prefers to operate in a stressful macro market environment. The quarter's also characterized by fairly weak demand across all markets, but our continued consistency and productive leasing efforts have been really led by the strong and unique relationships within our constituency, and particularly with our unique ability to grow our current client base. I think this translates into fairly important and critical franchise value.

As far as the industry goes, the FDA as a bottleneck certainly continues, but I think this quarter has shown more flexibility and speed under the new leadership of Commissioner Mark McClellan, as exemplified by Astra Zeneca's cancer drug approval, IRESSA.

As we move through 2003, we see a continuing tough macro market, but scientific research does continue to be poised to grapple with the major human and environmental challenges from deadly disease to global hunger to global warming.

With that said, let me move into earnings guidance and dividend policy. We're pleased to report $1.04 per share diluted for first quarter '03 FFO, a little more than 9% growth, and EPS of 52 cents per share, about 13% growth over last year. Our earnings guidance has been reiterated this quarter, at $4.23 to $4.27, as we gave last quarter. EPS guidance for this year, $2.22 to $2.26. As we said we would in the fourth quarter of '02 and year-end, that we would give, after the conclusion of the Iraqi conflict, we would give guidance for '04. We are doing that here, at FFO per diluted share of $4.55 to $4.59 for 2004, and EPS of $2.71 to $2.75, and those are our initial guidance numbers.

The Board of Directors this quarter did increase the dividend 6%, from 50 cents a share per quarter to 53 cents per share per quarter. The operating and financial performance of the company -- revenues up about 21%, FFO 25%, and as we said, FFO per share diluted, a little more than 9% Same-store growth dipped this quarter, but it is still positive, at 1.7% on a GAAP and 3.7% on a cash. Most of this came from rental rate increases. One swing item moved the GAAP same-store growth below 2%, a lease in the San Francisco Bay Area, which has certainly suffered in the current environment. Seasonal expenses, which are recoverable, obviously, skewed the results as well.

Moving on to leasing, despite generally weak demand, we did sign 22 leases for 190,000 square feet plus 14 month to month leases for 47,000 square feet. Eleven of the leases, as you see from the press release, were about 50,000 square feet of previously vacant space, and virtually all of this has been generated through the personal relationships the company has with industry participants. Eleven leases for about 140,000 square feet were renewed or released space on previously leased space, again, here, virtually all of this came from existing tenant and key relationships. And other, as I said, one San Francisco Bay lease, step down was a relatively flat lease quarter.

The redevelopment program, as we indicated, would drop this quarter. We did deliver three properties. And as we said we would last quarter, that pipeline has shrunk from about 430,000 square feet to about a little more than 380,000 square feet, and we're expecting one delivery in the second quarter.

You'll see from the press release we did acquire one property in the Seattle market, which has been put in the redevelopment pipeline, and we moved a tear-down of an existing facility into a reconstruction mode in the suburban DC market. The development pipeline has bumped up, from about 240,000 square feet or so to about-- a little more than 475,000 square feet, but I think you'll see it shrink through the balance of 2003 and 2004.

Getting to balance sheet capital structure and financial metrics, our debt to total market cap was a healthy 42.5%, comprised of about 18.5% fixed and 24% floating, and those continue to get closer together. Approximately 60% has been hedged. Our operating margins continue to remain very steady, in the 78% to 80% range, about 78.2%, impacted a little bit by seasonal matters back East. Solid coverage ratios, interest coverage of about 3.89, and fixed charge at about 3.18. Currently, no reserves for bad debts, and our metrics on that, in that area, have continued to be stable.

Let me ask James Richardson to comment a little bit on some of the real estate matters [inaudible] that the company experienced in the first quarter.

I'm going to start with a little bit different twist than we normally do here, and comment on the broader market perspective, as it relates to real estate markets and submarkets that Alexandria participates in. We, as a company, independently research and track each of the submarkets that we have properties and operations in, and we look specifically at the office and research and development/flex product, and how it's performing in those markets, in order to best assess overall direction and the indirect impact it has on our specific niche portfolio. We're looking specifically to track rental rate trends, employment growth, and states of equilibrium at which we might see rent movement coming back in a positive direction. We track 32 separate submarkets, defined by both geography and product type, and in kind of a broad, global sense, our general range across these submarkets, until we reach equilibrium, ranges from two to five years. And we're seeing, kind of on an overall weighted average basis, vacancy or availability in the high teens. Although this does not have-- the overall health of these markets does not have a direct, one to one correlation to the performance of our specific assets, we clearly are impacted by rental rate pressures and vacancies on a submarket by submarket basis.

What we see, broadly speaking, is pretty consistent with probably what's been more widely reported by other real estate providers and real estate operating companies. Vacancy and availability, generally speaking, appears to be leveling off. Demand does continue to be fairly nominal, to anemic. And we see very little real growth in demand. We see a lot of tenants trading up to higher-class properties or retrading, as available and appropriate to their economic advantage. That said, again, specifically speaking to our submarkets, we feel that rents have substantially adjusted. We don't anticipate significant additional adjustments and again, this is talking more generally to both the office and the research and development submarkets that we have assets in.

More specifically focused within our sector, there has been no substantive change from the comments that I made in this regard during our February conference call. We are seeing continued focus on shorter term leases, longer decision-making timeframes to get transactions done, and continual kind of pushing on economics, for the reasons and factors that we talked about before, tied specifically to the economy. Demand continues to be relatively sparse. That said, we, Alexandria, have experienced relative success, based on the broad and deep network that we have and the relationships that we have. Although I don't have objective metrics to back this up at this point, we are capitalizing on a majority of the real and valued requirements that are actually in the marketplace, reinforcing our whole tenant-centric focus.

Let me move now to some of the performance projections, going forward, as well as looking back at our vacancy successes. In 2003, we have remaining, just roughly, over half a million square feet of space rolling over. About half of that space rolls over before the middle of this calendar year, with the remaining half in the second half. As we look at overall status, about 40% of that space is either committed, or we're anticipating commitments here in the short-term. 15% to 20% of the space will flow into the redevelopment pipeline, with the remaining 40% of the space either too early to make a projection, or we're in the marketing phase. It's important to note that of that last category, 40%, only about 1/3 of that is really office/laboratory space. The other 1/3 is pure office space, and the remaining 1/3 is potential conversion/redevelopment space, but it's too early in the cycle to make that determination. And then we project, at this point, 5%-plus rent growth on the rollovers for the balance of 2003.

Moving to current vacancy, we have roughly 200,000 square feet in the operating portfolio that's currently vacant, which is up less than 5,000 square feet from the prior quarter. Overall status - 60% of that space is either leased or we're actively in negotiations, with the remaining 40% being actively marketed. And again, of that 40%, nearly half is pure office or warehouse space.

I want to jump quickly to touch upon the development pipeline that Joel described. I want to talk specifically about one of the properties that is coming into the development- has come into the development pipeline schedule, and that's the one that's also referenced in the supplemental financial information as a reconstruction property. We own several properties in our Maryland submarket as part of a multi-property project. The project has been master-planned sequentially to be developed and part of that plan required the demolition of an existing, older structure, as the lease expired, and then the redevelopment of overall site infrastructure, which we are doing under a historical groundwater management code that results in significant economic benefit to the company. That, coupled with the fact that the property has an extraordinary Rockville location, adjacent to a wet lab, intensive government user, resulted in our decision to initiate this next phase of development, of roughly 76,000 square feet, and we are in preliminary discussions with specific targeted tenants for the property.

So in conclusion, I would say fairly similar to my comments last quarter, that leasing activity remains fairly sporadic, the economy continues to present a challenge for the companies, all companies, but as well as companies within our niche to grow, and so our charge continues to be to do our very best to remain focused and exercise our unique network to convert these real and valuable requirements that are in the marketplace.

OK, I want to ask Peter Nelson to make a few comments on a number of accounting and other financial performance issues as well.

Thanks, Joel. I just have a few highlights this quarter and a few things to amplify from Joel had said. You will notice that we have our computation of FFO in this quarter's press release, similar to prior quarters. We have no significant changes in the way we present it or disclose the FFO information under the new SEC disclosure requirements for non-GAAP financial information, item 10 of Regulation SK, and Regulation G. We have substantially enhanced the footnotes to describe how the reconciliation works, but our FFO calculation has always been fairly simple here, and you'll see that it's consistent with the way we've done things previously.

With respect to the same property results, Joel mentioned for the first quarter for '03, on a GAAP basis, our same property pool was up 1.7% for NOI, 3.7% on a cash basis. Virtually all of this increase is due to an increase of rental rates at the properties in the pool. Same property occupancy, as of March 31, average for the pool was 97.7%. A year ago, it was 97.4%. And as Joel mentioned, that pool was impacted by one property in particular, with significant rental decline. It's in the San Francisco Bay market. Excluding that one property, the same property performance would be 2.3% on a GAAP basis, 4.2% on a cash basis. Our guidance for same property results for '03 remains in the 2% range.

As Joel also mentioned, the operating expenses for the company, as well as for the same property pool, were impacted quite dramatically by the tough winter conditions back East, in particular our properties in Massachusetts. Substantially all the costs that were incurred were recoverable, but you'll see the increase in operating expenses there for the same property pool up 18.9% for the same period last year.

Termination fees as historically for us, are excluded from the same property performance pool, and there were virtually none this quarter anyway, but we've done that consistently, as we have in the past.

Operating margins for our company continue to be strong -- 78.2% for the first quarter of '03, slight downtick this quarter, seasonal decline, due to the severe winter conditions. As I mentioned, 78.8% for the fourth quarter of '02 was our margins, but we expect to continue to operate in that 78%, 79% range for '03.

With respect to discontinued operations, this is a technical point -- we continue to apply the provisions of FAS 144. We continue to have two properties, as reported, in the discontinued operations line item, the same two as we reported in the fourth quarter of '02. One property in the San Francisco Bay market, which was actually sold in the first quarter of '03, at a price of $6.8m, and the remaining property, located in Massachusetts, which we've designated as held for sale, and we intend to close on the sale in the third quarter of '03.

Turning now to the secured loan that we closed during the quarter, right at the end of the quarter, we did close on a $34m loan, 6.21% interest rate. It was a 10-year loan with 25-year amortization. We were very pleased with the results of that negotiation and closing. The closing of this loan is consistent with our overall program to convert some of our variable rate borrowings to fixed-rate debt -- we've mentioned this in the past -- and approximately balance the fixed and variable rate components of our debt structure.

One comment, one side comment -- ARE continues to be recognized by the lending community for its overall corporate quality and the premiere nature of our assets, so identifying lenders to lend to Alexandria and its property type has not been an issue.

With respect to our interest rate swap agreements, the press release details the existing swaps, as of the end of the quarter. It is part of an overall program, well-thought-out program. As of the end of the quarter, we have $200m in swap agreements to hedge a portion of our variable rate debt, at rates between 3.12% to 5.36% We do this with laddered maturities running through June of '06. And as Joel mentioned, about 60% of our outstanding balance on our line of credit is hedged on the swap program. And just a brief comment on FAS 141, I'm happy to say, we've had no impact of FAS 141 in our portfolio. The '02 assets we acquired, the leases were virtually at market and in discussions with our auditors, [inaudible] no adjustment was necessary in '02 and no adjustment for 141 has been necessary in '03.

And I guess with that, I'll turn it back to Joel.

OK, thank you. Operator, I'd like to open it up for questions now.

Thank you, Mr. Marcus. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key, followed by the digit one on your touch tone telephone at this time. If you are on a speakerphone, please be certain to turn off your mute function to allow your signal to reach our equipment. We will proceed in the order that you signal, and take as many questions as time permits. Once again, please press star one on your touch tone telephone to ask a question.

We'll take our first question from Brian Legg with Merrill Lynch.

Hi, guys. Just looking at the leasing activity, the 190,000 square feet. I mean, that's-- I know you're saying that leasing conditions are soft, but it obviously was a unusual quarter, given the war. But the pace last year, you were doing, on average, about 230,000 square feet. Do you expect the pace to accelerate through the second half of the year?

I'm not sure we have a strong view of the pace. I think our focus, as Jim said, is really on the specific rollovers by specific building and space, and that really is how we look at it, and I think he well characterized kind of where we are with respect to those rollovers. I'm not sure I can give you any more guidance then, you know, kind of how he broke it down.

OK, that's fine. There was a recent-- I don't know if you saw the recent New York Times article about the lab office market in Boston, saying that there's a lot of-- 1.1 million of spec coming on line, and the availability rate was up to 28% Can you talk about that submarket and the potential impact on your portfolio.

Yeah, I'll make a couple of comments, and I'll ask Jim to comment maybe more in depth. I did see the article. There are a number of outlying assets and properties that people have targeted for, I guess, the telecommunications industry and other such uses that they're frustrated and they're looking at where they may find, you know, better-- a way to lease those properties, so you're seeing some of that, and I think they will not be successful in this sector, because the sector really isn't the answer to all ills. It has its own issues. But I'll ask Jim to specifically comment, you know, with respect to kind of the Boston/Cambridge market.

Yeah, I think, Brian, first of all, we have relatively, I wouldn't say nominal, but low exposure in that market to begin with. Our assets are generally leased and well-located. We, as I've indicated previously, do a real good job of tracking potential supply coming to the market, subleased space, existing current supply, and with kind of the overall malaise in all sectors, you know, a lot of folks are trying to figure out others ways to dig themselves out of a hole. As a result of that, there's a lot of rumored potential planned product that we don't believe will ever come to fruition. That said, there's clearly a softness in the Cambridge submarket that we've not seen before, so what I think that's going to mean is we're going to see tenants gravitating towards the highest quality locations, but remember, the way these spaces are built out is pretty important. And it's gotta-- class A lab space will distinguish itself from lesser quality space, and so I think as it relates to our specific company, we're in pretty good shape and well-positioned at this point in time, relative to that. But I do think that there's some over-generalization that has been made in that article, as well as others.

And Jim, last quarter, you talked about the availability rate in your product type, lab/office, being closer to 10% versus the high teens for the office R&D market. Is that still the case, on a weighted average basis?

Yes, yes it is, Brian.

OK. And Joel, looking at your development that you acquired in Seattle, for $34.7m, how much more do you have to spend on that project, and is any of it pre-leased?

We have some pre-leasing, and you know, I won't say how much more is yet to develop, or to budget, for that project, but the project is a long-term development project, well-located, and we have a comfort level based on a variety of facts and circumstances with it, but don't want to make much more comment than that.

OK, is it located close to some of your other assets?

Yes-- the answer is yes.

OK. And what type of pre-leasing overall do you have on your development and redevelopment pipeline?

Yeah, generally we don't really focus on a pre-leasing, because this is not a product type that lends itself well to that, so you can generally assume, you know, minimal.

How about on the redevelopment pipeline?

Similarly. I mean, I think-- do you want to give just a little bit of view of where that is?

Yeah, Brian, I think we've got- I don't have it front of me, we have roughly 380,000 square feet that's available within the redevelopment properties, and just kind of in rough order here, about 1/3 of that space is either leased or in process, and 2/3 is either too early in the cycle to be at that stage, or in the process of being marketed.

OK.

But you have to remember, as opposed to kind of the normal company that's out there, doing projects, this company really have a very different view of how it tenants its projects and we really go after specific current tenant requirements, which parallel these developments and redevelopments, or targeted relationships that we have. They generally don't circulate in the market all that much, and so it's hard to equate this with what, you know, how other people do their development.

OK. And last couple of questions -- the asset you sold in San Francisco, was this a Google building?

No.

Was it an office building, just a pure office building that you sold?

Well, it was a redevelopment building on the East Bay where we were not able to get the entitlements we wanted.

OK. OK. And how large will the one asset sale be in the third quarter?

We're under confidentiality, so we won't comment. I did say I think last quarter that the impact would be about a penny a share per quarter, and that's why we then brought our guidance down a penny a quarter.

OK. And just lastly, just some clean-up questions for Pete -- what were the straight line rents in the quarter and capitalized interest and capitalized G&A?

OK, capitalized G&A is none. I think you asked that question, but I don't mind saying that. Straight line rent adjustment for the quarter is $1.791m, and capitalized interest is $2.8m for the quarter.

OK, thank you.

Thank you, Brian.

And we take our next question from Anthony Pallone of JP Morgan.

Actually, it's [Josh Peterman] here. A couple of quick questions. Do you have any update on what the leasing status is of the two developments to come on line this year?

No comment. We won't comment on those until we're ready. We-- I think we put out, you should generally assume minimal leasing.

OK. And it looks like the average lease length on the renewed leases was about just over two years. Seems a little short; can you give some color?

Yeah, I think if you go back to what James just said, I think in general, many requirements today are somewhat short-term and wanting to maintain flexibility, given the uncertain economic environment, so I think that's kind of where you get that from.

Yeah, I think they're also-- there were a number of leases, and so smaller leases, shorter term, is kind of more the trend that we saw.

OK. That's it. Thank you.

OK.

Our next question comes from Paul Adornato of Mercury Partners.

--give us some of the assumptions in the '04 guidance, particularly same-store performance, overall occupancy levels, and outlook for development and redevelopment projects coming online in '03 and '04, that's baked into those '04 guidance range?

OK, I'm going to ask Pete comment, but we generally will be very careful about kind of the range and nature of the assumptions we give you.

Yeah, I'll tell you this -- we do build it from the bottom up, and on a property by property, lease by lease basis. We have rental rate assumptions and very conservative rollover assumptions, but basically they kind of blend into that 2% same-store internal growth, on an overall basis, Paul.

Probably the most important assumption that you would need to know is virtually no new leasing from development and redevelopments in '04, but-- yeah, about $40m of external growth through acquisitions.

OK, no new leasing on development, no redevelopment?

That's correct. During '04.

During '04? OK, but you will have perhaps assumed some for the rest-- for what's coming online in '03, and those would obviously remain in the '04 numbers?

Yeah, we're really not, as Joel just mentioned, we're not commenting on the leasing activity on some of our developments, but there's a modest-- I would say it's a very modest level of leasing in our assumptions to our earnings estimates.

OK. And what kind of returns on acquisitions should we assume?

OK, Paul, you've covered us for a long time. You know we don't comment on the returns.

OK.

It hasn't changed.

Our next question comes from Gary Boston of Smith Barney.

Good afternoon. In terms of the-- a couple of questions on development and redevelopment. On the demolition reconstruction project, can you give us a sense on, one, how much that process that the demolition and the infrastructure work you did cost, and then how much the new construction is going to be on that asset?

In general, Gary, I think we would be reticent to give our real specific numbers, but maybe Pete, do you want to-

In the range of-- we're taking about-- we're taking a building offline and we're going to be spending maybe $12m to $15m more to redevelop that property, reconstruct, that building.

That includes all the infrastructure to the project overall?

That's correct -- we're loading up all the costs on to that new asset.

During the quarter, you spent $13m on redevelopment and about $7.2m on new development. And just in terms of run rates for that line of Capex, I mean, is that a pretty good range, or should we look for those numbers to move one way or the other?

I think they'll tail off. I'm just going to comment in broad stroke here, Gary. They'll tail off because our redevelopment pool is shrinking in size. If you go back over the last several quarters, last year or two, it's declined sequentially, quarter after quarter. So-- but I do think it will tail off over the next couple of quarters.

And development might kind of trail up, and then kind of like a U curve, and then trail down, as I described.

Right. In terms of-- you mentioned on the roll the balance of the year, 15% to 20% of that would go into the redevelopment pipeline. Any guidance on the portion of the '04 roll, which is, you know, another half million square feet or so, how much of that might also be pegged as redevelopment assets?

Yeah, too early to tell on that, I think, Gary, given the overall market.

OK, that does it. Great. I appreciate it.

Thank you.

We'll go next to Ralph Block of Bay Isle Financial.

Hey, guys.

Hi, Ralph. How are you doing?

Getting back to the redevelopment pipeline topic, it has come down a little bit. What do you see in terms of, say, the next 24 to 36 months? Will it ramp back up, or is this pretty much a function of trying to ascertain the demand of specific relationships?

Yeah, I think it's the latter, and my sense is, it will stay at or below the present level for the next, you know, 12 to 24 months. 36 may be too far out.

OK. And with the more difficult real estate markets, are you seeing any kind of pushback from tenants with regard to negotiating the specific terms of leases, or are they pretty much what you've been able to get in the past?

No, I think Jim characterized it, that, you know, the macro market, the office market, certainly has impacted, and they, tenants, certainly are pushing very, very hard. I think on the other hand, though, since we don't typically lease to just people who walk in the door, and we typically don't just have-- I don't know, we have a very different approach. I think that there are ways that both parties accommodate each other's needs to get to a common goal that, you know, work for us and work for that tenant. And where they don't work, we, you know, we're not shy to walk away from deals.

And I would say, Ralph, that there's no question, part of the reason that the process has lengthened out is that these companies have more time and so the leases are negotiated very carefully, specifically.

So, there's some issues there, but nothing of any major concern? I guess could you summarize it that way?

Yeah, I would say there's not been any kind of paradigm shift in the way these transactions are structured. I mean, I think, you know, most of the push is on the economic side.

Yeah, and I would say also that it's hard to, for us, to make comments broadly on kind of the lab market generally. I think we have a fairly unique set of locations, a fairly unique set of relationships, so I think anything we say, I would not translate that into kind of the broader lab market. I would view it as really very company-specific to Alexandria.

OK, thanks.

Thank you.

Next, we go to Francis Greywitt with McDonald Investments.

Hi. I was wondering if you could comment on the geographic breakout of your lease expirations for '03?

Yeah, we can do that. OK, Francis, in what sense? Francis?

Mr. Greywitt, please resignal. Your line is now open.

OK. Just in a sense of, on a percentage of square footage--

What were the significant? OK, understand. Yeah, the two areas where the predominant level of expirations represent about 60% of the portfolio are in suburban Maryland and eastern Massachusetts, and with the Bay Area comprising roughly 15%.

Do you expect there to be a material roll down that you've seen in the first quarter of '03, in the first quarter of '02, in those Bay Area leases?

For the Bay Area leases?

Yeah.

Oh, let me take a look here. Yeah, we'll definitely have a roll down relative to current market. It's hard to say exactly how severe that will be.

OK, thank you.

Next we go to Greg Ivan of Safeco Asset Management.

Thanks. Good afternoon.

Hi.

Hi, Greg.

Regarding the lease that was signed this quarter at substantially lower rates than the rest of the new leases in San Francisco, that I guess was 21,000 square feet, could you talk about that particular lease and why that was so much lower? Was that strictly an office space, or was that just a function of the weakness of the San Francisco market?

Greg, it was a combination of both. It was an office space lease that rolled over with a software company who was in the space on an interim basis, prior to redevelopment, and as the space is being redeveloped and released, we're in a market with lower-- with substantially lower lease rates. So although the rate that the prior tenant in was not extraordinarily above market, it was certainly above where market is today.

Yeah, I think it was signed in the '99 era, so you can see it would be naturally a lot higher.

Sure. So that space is going to be redeveloped, then?

Yes.

OK, so they obviously know they're there for the short term, so why would they want to pay up, is the logical conclusion, so I'm sure they had to get a lower lease.

You're right, and there's a lot of choices in the market for office space.

Yeah. Now, that particular space, is that included in the redevelopment portfolio today, or not?

No, because it's still leased, as of March 31, and that tenant moved out in April -- the existing office tenant, as Jim mentioned, so actually it's not in the redevelopment, and it will move to the redevelopment come next quarter.

OK.

We report on all leases signed on a real-time basis, on our leasing activity page.

OK. The operating portfolio is 4.9 million square feet, approximately. Of that 4.9, as you look at it today, how much of that do you think has the potential to be redeveloped in the next few years, just physically looks like it would be worth redeveloping?

Well, yeah, the answer to that question is, it kind of depends, because most- many buildings, and most buildings, really, aren't suitable for geographic location or structural integrity, but we do have-- let me make a comment. Portfolio-wide, we do have about a quarter of a million square feet that could be redeveloped that's not currently in the redevelopment pipeline.

About a quarter million? OK.

Correct.

And then finally, you were able to sign on some new fixed-rate debt for a ten-year term, at a lower average cost than your average fixed rate that you have for the bulk of your fixed rate debt. You anticipate refinancing a lot of that fixed-rate debt, calling it, or pre-paying it and refinancing it?

We're going to do some financing, Greg. As I mentioned, I think our goal is to kind of look at the variable and fixed-rate components of our debt structure and try to balance them, so I think we're a little shy of that now, and then look at the variable portion, and hedge a portion of that, more than half of that, through swap agreements. So that's been our stated program, and I think you'll continue to see us do that as well.

Yeah, I think there are a couple of fixed-rate debt-- fixed-rate loans on assets that we may have acquired where there are yield maintenance or other types of provisions or pre-payment provisions, that don't allow us to get out of those particular loans, so where we have that situation, you know, it's harder to deal with. We do have one that we may be dealing with coming up shortly, but you know, it's kind of mixture, where you have those higher situation loans and you're locked out from pre-paying, you just simply can't lower your rate.

OK, well, I'll leave it at that. Thanks a lot.

OK.

Thank you, Greg.

And having no further questions at this time, I'd like to turn the conference back over to Mr. Marcus for any additional or closing remarks.

OK, we thank everybody for joining us this quarter and have a good evening.

Once again, this does conclude the Alexandria Real Estate Quarterly Conference Call. Your participation is appreciated. You may disconnect at this time.