Alexandria Real Estate Equities Inc (ARE) 2008 Q2 法說會逐字稿

Good day, everyone, and welcome to the Alexandria Real Estate Equities second-quarter 2008 conference call. Today's call is being recorded. Now, for opening remarks, I would like to turn the call over to Ms. Rhonda Chiger. Please go ahead.

Thank you, and thank you for joining us. This conference call contains forward-looking statements, including earnings guidance within the meaning of the federal securities laws. 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 our Annual Report on Form 10-K and our other periodic reports filed with the Securities and Exchange Commission.

And now I would like to turn the call over to Joel Marcus. Please go ahead.

Thanks, Rhonda, and welcome, everybody. With me today are Dean Shigenaga, Senior VP and Chief Financial Officer, and Pete Nelson, Secretary. Jim Richardson is on vacation at the moment.

I want to take this opportunity to recognize and thank the entire team at Alexandria, what I always consider to be the best of the best, for a superbly solid quarter in a highly uncertain and financially challenging macroenvironment. The experience and expertise of this team is truly unmatched.

It pretty much was a picture-perfect quarter, with all operating and financial metrics really humming. And I continue to always believe here, and reinforced by the release on the operating and financial stats for the quarter, that ARE continues to be a safe haven and sanctuary for all investor styles.

ARE's unique niche strategy, which we pioneered, really concentrates us in the absolute best locations at the top end of the market, with significant barriers to supply and significant barriers to tenant exit. For example, in the San Francisco Bay area, we were pleased this week to have a major groundbreaking with Corey Goodman and the Mayor of San Francisco on the Mission Bay North, anchored by Pfizer's very innovative biotherapeutics unit.

And it also confirmed that our strategy in exiting the weaker secondary East Bay market in the first quarter in a successful fashion was really the thing to do. We did a very good price and at a $20 million gain.

We have also now brought kind of what we consider to be mission-critical research units of both Pfizer and Merck to Mission Bay. And I think at least the Mayor said on the podium on Tuesday that we did what we promised, and I would say stay tuned for more good things to come.

We concentrate on the highest quality and most flexible world-class lab space. We've stuck to our knitting with first-class, highly flexible and generic space, and we've generally tried to avoid highly specific tenant facilities and/or those that are very costly manufacturing facilities.

I think recently, other landlords have stumbled when they have sought these kinds of facilities or transactions, which we did not, and they -- recent stumble in San Diego and others potentially in Maryland and elsewhere. Our unique ability to underwrite our life science client tenants and our ability to keep our sectors within the broad and diverse life science sector, highly diversified, from institutional to government to not-for-profit, big pharma, biotech, and product and service companies has inured to the great benefit of the Company, and we continue to concentrate on very strong credits.

As I had said many times, and worth repeating here once again, Alexandria has performed extraordinarily well in good times, the number two total return, pro forma, among all publicly traded equity REITs, from the IPO through 12/31/07. And we do even better and continue to distinguish ourselves in more challenging environments.

I think the big news most recently in the life science industry continues to be the unabated M&A activity, which has positively impacted ARE, certainly in the first quarter and beyond. And as you remember, in the first quarter we indicated Glaxo bought our important client tenant Sirtris Pharmaceuticals, up in Cambridge. And Glaxo now has confirmed that they will keep that unit and essentially make it a mission-critical research hub at Tech Square. Clearly, the movement is away from big, big being better, and Mission Bay and the Pfizer unit also demonstrates that.

We also benefited greatly recently by AstraZeneca acquisition of MedImmune in Maryland, where they extended leases with us and strengthened the presence in that market when we had assumed they might; our operating assumptions would be they would not.

Now, most of you have read the key recent announcements, Roche tendering for Genentech, one of our top 10 tenants, for the remaining 44% of that company, clearly motivated by the weak dollar; upcoming Avastin data; the 2/15 end of the DNA product options; the need to closely collaborate and get rid of the so-called Chinese wall. Clearly, Roche wants to capture all of Genentech's very strong profits. There will be cost savings. And Roche has already indicated they will brand all their US operations and products under Genentech, under Genentech's trademark and, obviously, brand. Out of Roche's top 20 products, the top three are Genentech products -- Rituxan, Herceptin and Avastin.

You also noticed recently the Bristol-Myers tender offer for the remaining 83% of ImClone Systems in New York City. Obviously, Bristol is looking at fully controlling Erbitux for colorectal and head and neck cancer, a $1.3 billion per year product.

Our number one tenant, Novartis, announced double-digit profit increases in the second quarter and is expected to grow faster than its competitors in the second half of the year. Their two flagship products, Diovan, which is a cardiovascular drug, revenues up 22%, and its flagship Gleevec cancer product up 26%. We expect to expand our relationship with Novartis.

Moving now to earnings guidance and dividend policy, and Dean will highlight the quarter in more detail, FFO was up 6% to $1.51 per share diluted. We reconfirm our earnings guidance at $5.86 FFO per diluted share, $6.07 after the supplemental adjustments.

As you also noticed, the Board increased the dividend 3% to $0.80 per share this quarter. Our coverage remains very strong and our payout ratio among the lowest in the REIT industry.

Moving now to the operating and financial performance, and again, Dean will highlight the quarter in more detail, we did report our 44th straight quarter positive same-store growth, the only office or industrial company in the entire REIT universe to do so, at 3.7% on a GAAP and 7.1% on a cash, and very strong operating margins.

Second quarter was a back-to-back stellar leasing quarter with the first quarter. We reported 530,000 square feet, with very strong GAAP rental rate increases, over 19% for renewed and re-leased spaces, extremely low TIs, five-year average lease term, 15,600 square feet average lease, and well diversified among the ARE clusters, one-third of which leases were signed in the San Diego cluster market, where Alexandria has a very dominant market leadership.

We are in great shape for the remainder of the year, with about 333,000 square feet of rolls, including about 106,000 month to month. The largest roll was in Massachusetts at about 166,000 feet. We are reiterating our guidance at about 10% growth on lease rolls, with average lease rates rolling at a modest $23 per square foot.

For the balance of 2008, we've got 41% of the leases resolved, 26 additionally committed. So the total either committed, resolved or anticipated to be committed are 67%, so very, very good forward-looking situation on the leases, and about a third unresolved at this point.

I think we are very proud to report continued positive uptick in occupancy during this tough economic environment, to 95% on the operating assets. The two big markets in the Bay Area moved from 96.9% to 97.6%. Eastern Mass moved from 96.6% to 97%. Also strong upticks in Seattle, to 94.2%, and -- I'm sorry, Seattle to 98.7%, and in the Southeast, which was a great uptick, from 89.5% to 94.2%. The one downtick was a noncore market, suburban Philadelphia, which is a small secondary market, really due to one 40,000-square-foot roll, which we are working hard to resolve.

Leasing rollover projections for '09, we've got about 8% of the portfolio rolling at about $25.60 a square foot, 813,000 square feet. At the moment, 12% are resolved, 61% are anticipated to be resolved, aggregating 73%, and then 27% unresolved. So again, looking out to next year, very good forward-looking visibility guidance, about 10% rental rate increases. Maryland has the largest roll at about 28%, and I'm happy to report almost all those resolved or anticipated.

We delivered [186,000, almost 500] square feet leased related to development, redevelopment and previously vacant space. Again, very low TIs and commissions, almost a 7.5-year term, about 19% in Eastern Mass, 23% in the Bay Area and 25% in San Diego. UCSF at 41,000 square feet at 1500 Owens was the largest lease signed in that group.

Redevelopment update -- we are scheduled to deliver about 175,000 square feet out of the redevelopment program later in the year, and making consistent progress. With respect to the 124,000-odd square feet at Tech Square, part '08 and part '09 deliveries. We're making great progress and we will report that progress to you at our next conference call in the third quarter.

On the development update, 1500 Owens, we have leased two floors fully committed to UCSF, and the balance we're working on multitenant configuration since we are overflowing at 1700 Owens.

We have good news on our East Jamie Court, two building, 162,000-square-feet waterside view next to Genentech. 16% is now leased and we're actively negotiating leases for another 86,000 square feet, so good news.

130,000 square feet of development on Graham Avenue. No change there -- 55% leased, and the tenant has the option on the balance of the space, which we will know later in the year.

No update on our small development in South China, although our construction costs dropped a bit there, which is good. And our intense focus on development will remain domestic. And I think it is nice to know that we can regulate our overseas expansion in a way to match the capital environment, and that is good news.

Moving on to East River, we have got the first full floor user lease out for final deal term approval to Europe, and we are hoping that that does finalize. And we're intensively working on a negotiation on about a 110,000- to 125,000-square-foot commercial user with a client of ours in another market. This would be a new use, not moving from another market. Other demand is in the early stages.

And as the West Tower -- as you will know, the West Tower was not moved back in any way. It had always been anticipated. It is about nine months or more behind the East Tower, and that was due to the contamination and other extensive site work, which was heavily funded by the city and state of New York. So we just broke that out on page 17 to make it easier to follow.

Dean will talk a little bit about the dispositions, which are highlighted in the report. And then I guess finally, moving on to balance sheet, I think the second quarter evidenced a continuing strong and flexible balance sheet, which we've always tried to maintain, especially in this environment. We have significant and good sufficient dry powder to meet our growth and capital plan. We've resolved virtually all debt maturities for the balance of the year. And we are working really laser-focused on the favorable resolution about the $285 million of debt maturities in '09.

So without further ado, I will turn the call over to Dean.

Thanks, Joel. Let me review our second-quarter results. As Joel had highlighted, our second quarter of 2008 reflects the strength of our unique roadmap for growth and our continued ability to execute and deliver consistent and predictable results period after period.

The second quarter of 2008 represents our 44th consecutive quarter in growth in FFO per share diluted, 44th consecutive quarter of positive same-property growth on a GAAP basis, and outstanding progress toward our 11th full calendar year with positive leasing activity.

FFO per share for the second quarter was reported at $1.51 diluted, up 6.3% over the second quarter of 2007.

Let me next quickly cover a few important items, starting with our consistent and solid operating results, our balance sheet and our capital plan, and our guidance for 2008. Once again, our same-property results continue to reflect stable and positive results in an overall challenging macroenvironment. Same-property results have been positive quarter after quarter for about 44 consecutive quarters and were 3.7% on a GAAP basis and 7.1% on a cash basis, with the increase in same-property results driven by both increases in rental rates and occupancy. Same-property occupancy was solid at approximately 95.9% at quarter end, up from 95.3%.

Our policy has been to exclude 100% of properties under partial or full redevelopment from our same-property statistics. We believe that this methodology is appropriate in order to prevent significant increases in same-property performance as a result of redevelopment activities.

Our leases contain key provisions that contribute to our strong and consistent operating results quarter after quarter. As of quarter end, approximately 89% of our leases were triple-net leases and an additional 8% of our leases require our tenants to pay the majority of operating expenses.

Guidance for same-property performance for 2008 remains in the 3% to 4% range on a GAAP basis, and we continue to expect increases in same-property rental rates to be the primary driver of same-property performance, while we also expect same-property growth through an increase in occupancy.

Occupancy for our operating assets realized solid gains this quarter, to 95%, up from 93.8% as of year end. Our occupancy level and operating margins, as well as our operating stats, remain slightly impacted by significant vacant office space related to recently acquired properties, with future embedded redevelopment and development opportunities. We continue to forecast an opportunity to grow internally through an overall increase in occupancy through 2008.

Margins were solid and up for the quarter at approximately 74.3%. On a prospective basis, we're projecting margins to be in the 74% to 77% range.

As Joel mentioned, the six months ended June 30, 2008, represents the highest leasing activity to date for Alexandria. The 1.1 million square feet completed in the first half of '08 represents 2.2 million square feet on an annual basis, a 38% increase over 2007. In addition, our rent steps and our lease rolls for the quarter and the six months ended June 30 were 19.4% and 16.5%, respectively, again representing strong leasing activity for 2008.

Our leasing stats for 2008 exclude the 100,000-square-foot lease we just announced for Pfizer and represents a solid component for our third-quarter 2008 leasing activity.

Straight-line rent adjustments for the quarter were approximately $3.4 million. Going forward, $3.5 million per quarter is a good run rate. Capitalization of interest for the quarter was approximately $18.4 million and reflects our ongoing efforts with our important value-added development and redevelopment projects, including our strategic effort to move along our preconstruction activities for our embedded future developable square footage.

As of March 31, we had two assets held for sale. One of these assets were sold in the second quarter at a slight gain, and the other asset is currently held for sale and expected to close in the third quarter. Year to date, we have sold seven properties for a total of $84 million.

Turning next, I guess, to our balance sheet and our capital plan, as of June 30 we had approximately $1.1 billion outstanding under our $1.9 billion unsecured term and revolving facilities. Debt to total market cap was approximately 43%, and our unhedged variable rate debt was approximately 23% of total debt. Consistent with our ongoing policy to mitigate our risk to variable interest rates, we will continue to evaluate opportunities to execute additional interest rate swap agreements.

Moving next our capital plan, our construction activities are projected to average approximately $100 million per quarter in 2008, with construction spending increasing slightly in 2009. Consistent with prior quarters, our capital plan going forward will continue to include a variety of sources of capital, including opportunistic property sales as appropriate, joint venture opportunities, project financings and new secured debt financing.

We believe our balance sheet contains capacity in excess of $1 billion, consisting primarily of almost $800 million from our $1.9 billion credit facility. The remaining capacity will be derived from opportunistic asset sales, project financings, and again, new secured debt financings.

While we remain cautious about the overall debt markets, we're diligently moving along project financing for East River Science Park and several secured loans. Our $1.9 billion unsecured credit facility contains unique features that provide borrowing capacity for nonincome-producing assets like our land, our embedded development pipeline and our active ground-up development projects. The advance rate on our development projects under our credit facility is very similar to advance rates on traditional project financing.

We remain focused on our 2009 debt maturities and plan to refinance these loans ahead of their contractual maturities.

Lastly, let me briefly comment on our guidance. Our guidance for '08 after supplemental adjustments for noncash impairment charges is reflective of the ongoing strength of our core operations, as shown in the operating results for the quarter and the six months ended June 30.

We continue to generate consistent and predictable operating results, which is a key component to our guidance for 2008, from our solid leasing activity year after year to positive same-property performance quarter after quarter to our solid quadruple-net lease structure to our unique ability to underwrite the life science industry and client tenants. These key attributes have proven to be an important component to our strong and consistent operating performance and will provide for a solid base for our growth through 2008 and into 2009 and 2010.

Our guidance assumes no acquisitions and assumes the sale of one asset, which I previously mentioned is currently held for sale. Other opportunistic sales may occur over the next 12 to 18 months, but no additional properties qualify as held for sale as of quarter end.

Our guidance is based on various assumptions, including those that I've just pointed out for 2008, FFO per share of $6.07 after supplemental adjustments for noncash impairment charges and earnings per share diluted of $3.02. Our guidance for FFO per share diluted after our supplemental adjustments represents a solid increase of 7% over 2007.

With that, I will turn it back to Joel.

Operator, if we could go to Q&A, that would be great.

(Operator Instructions). Michael Bilerman, Citigroup.

It's Irwin Guzman. Michael Bilerman is on the phone as well. Can you talk about the -- you talked about the rents that are already committed or are in late stages for the second half of this year. Are there any significant leases where you expect the spreads to be wide? Because it looks like you are forecasting 10% spreads, but it has been about 6% year to date.

Well, you mean we've been 16% year to date and our forecast of 10% on the year I think is just our usual conservative projection on total steps. I think that it is reasonable to believe that we will be well ahead of the 12% mark when we get to the end of the year -- I mean the 10% mark.

Does that hold true for 2009 as well, considering I think you said you had 73% already sort of in process?

Yes. I mean, I think we're coming off a base of, I mentioned of about $25.61 in '09. If we look at Maryland, about 28%, San Diego 25%, Southeast 13%, Eastern Mass, 16%, again, we're trying to strike a reasonable balance of what we think a conservative rent roll will be.

Just to give you some highlight, the Maryland leases are rolling, which is the biggest, at $21.52, in clearly markets above that next year. San Diego is rolling at about $31.13, 205,000, 206,000 square feet, market is above that. San Francisco, 104,000 rolling at $30. Market is above that. And Eastern Mass rolling at 100,000 square feet at about $23.60. Market is well above that. So we think 10% is a conservative and baseline, but we hope to exceed that.

But does that mean -- I mean, if you look at the spread between GAAP and cash, right, so 16.5 goes down to 6.5, are you effectively saying these are flat to potentially negative cash rolldowns? I mean, if you are forecasting 10% and there's a 10% spread between your GAAP and your cash today, you're effectively saying cash rents are flat.

No. It is sometimes difficult to put a simple analysis between the cash and GAAP rents. I know we do that about every quarter to try to figure out what do the cash and GAAP statistics really say, every time we publish them. And I can tell you there is a good mix between the results on a GAAP basis and a cash basis. And a lot of it is due to the length of the lease and the mix of the leases that are executed during the period. So I would not project that cash rents will be flat. I would expect cash rents to stay up for the year.

On the Pfizer lease that you just announced, where are those brands relative to your sort of 12%-ish typical development yield?

They fall very well into that fairway. I think our total construction costs, ex land, will be roughly in the $300 to $350 a foot. So I think we will be able to achieve our 10% to 12% return on that lease. Plus Pfizer's committed, I think, something like $200 a foot on top of what we're putting in.

And lastly, can you just given an update on potentially bringing in a partner on East River Science Park and maybe weave in how much leasing you would like to get done in advance of actually getting that valuation?

Well, we certainly have a variety of discussions ongoing, but it is clear to us that what we have to attend to first is, as you just mentioned, is the leasing, because that is going to drive our ultimate decision -- well, it drives two critical decisions. One is our construction financing will be much -- the terms will be better, and obviously recourse versus nonrecourse will make a difference, depending upon the amount of preleasing we're able to sign. And then obviously, ultimately, a decision of go/no-go on a joint venture partner will be dependent upon the quality and character of the leasing.

From the beginning, we said if we could keep it on balance sheet and not do a JV, we would like to do that. But if the capital markets and the environment was such that it made sense to do it, we would certainly do it. So we have a number of discussions ongoing, and I think our options are open. And I think we will continue to keep them open until we tie down some significant preleasing, which we hope we are on track for, and then we will make a go or no-go decision at that time.

Joel, you also talked about that project, about it being the largest project in your pipeline, and doing a joint venture to sort of reduce that risk that you have. So I'm just trying to sort of think about that relative to your comment?

Yes. Well, I mean, the risks are, as you well know, obviously, the capital risk. Another critical risk is leasing risk. Another risk is clearly construction delivery and construction cost risk. And we think we've got the delivery and the construction cost risk in check. But in any joint venture, obviously, there are issues that the joint venture partner doesn't just assume those risks. So joint venture is not a panacea for everything.

But clearly, our decision would be based on really the capital environment and if it makes sense to bring in a partner for the capital reasons that we've stated. Again, this is a minority partner. This isn't a typical REIT JV where we would put up 20% or we would be a 20% partner and the JV partner would be 80%. This is more like a 55% on our side and 45% on the capital partner's side.

So I think we have a number of discussions. We have I think some folks that are highly interested in this. But we don't have to make any decisions yet. And I think we need to do two things. One is achieve substantial preleasing, and two, tie down a construction loan.

How much capital have you spent already on the project?

On East River, Dean will have to check that out, but $500 a foot -- I would say we are still early on in that, because the East Tower steel is just going up, and the West Tower, there is just site work going on. So we are early on the construction dollars.

Would you consider two separate construction facilities so you can get preleasing on East Tower first? You talked about --

I don't know. But that may not be so easy, because it is a single [Ulerp] entitlement. Everything is so bound together with state and federal or state and city obligations and financing and so forth. I think that would be practically very hard to do.

(Operator Instructions). Anthony Paolone, JPMorgan.

Joel, have you seen any changes out there leasing due to the economic backdrop, whether it be a longer time to get leases signed up or more concessions in the form of TIs or whatever the case may be?

I think, as Jim said last time, we still haven't seen any material or significant change. It is clear people are clearly mindful of the current capital and economic environment. You would have to be dumb and blind and deaf not to know that as a tenant out there. So I think everyone is aware of the current environment.

But I think the difference is, in this industry, and again, as I indicated, if you've got the best assets and the best locations, you are dealing with a level of tenancy and a level of decision-making that is pretty core and fundamental to the mission of these companies. It is not so economically driven, like a company deciding, gee, we want to save money. We're going to move to that office building rather than this office building. And I think we still have not seen anything that would be materially degrading in any of the markets vis-a-vis the characterization you just highlighted. That doesn't mean it won't happen, but we haven't really seen it in any dramatic fashion at all.

Have you seen any impact from the consolidation that you talked about earlier? It goes to upgrading your credit quality on some of your tenants, maybe, but what about just reducing some demand in different markets?

Well, I mean, I think if you look -- so far, we have been very, very fortunate. Again, great assets and great locations and great tenants tend to make the difference between secondary markets, secondary-quality tenants and maybe secondary-quality assets.

I think if you look at Roche's announcement and tender on Genentech, they did announce that they were going to consolidate some of their Bay Area assets more down on the peninsula or space in SG&A and research in and around the Genentech campus as opposed to having multiple locations. So I think you may see some fallout from that. And that is down much farther south.

I don't know whether that would mean any incremental increase for South San Francisco, because Genentech still has a lot on campus that they've got in hand. But I think that is the one dramatic item we have seen.

I think if you go to ImClone in New York City, it's certainly a client we have talked to about the East River Science project. The tender by Bristol, which actually isn't all that surprising -- I kind of thought it would happen earlier than now -- but that could mean a number of different things. I think the Carl Icahn response indicated that not only was the offer too low, but there may be a thought of splitting up the company, one, spinning off the Erbitux franchise, and two, the development pipeline.

That has been done very successfully in a number of other biotech companies with actually pretty great value. So if that is the case, there may be some opportunities for us in New York City, because they currently occupy some pretty awful space on Varick Street.

So I think on balance, what we've seen out there so far has been generally pretty good. MedImmune in Maryland was a huge boost to us last quarter, when we signed some lease extensions we actually assumed were going to roll. But who knows about the future, although I think we are well positioned because the tenants that we tend to focus on and that make up our tenant base tend to look like the survivors as opposed to the ones that might be more irrelevant.

Okay. On the development side, what is your appetite to start new projects without any preleasing at this point?

We don't have any appetite to do that. But where we are committed, we are committed, and if we aren't, then we clearly would try not to do that. But again, this industry is a little different because it is sometimes hard to sign a lease for a mission-critical unit before you have done any work on a site, as opposed to office tenants or industrial tenants. But in general, we're not looking to create a more -- further pipeline development with no preleasing.

Okay. And what about in Toronto? You talked about that project a few times in the past, but hasn't made its way onto your development sheet yet.

Right. It probably will over the next quarter or two, when actual construction begins. We're still doing a lot of presite work and a lot of final plans and specs on that. But that obviously will come into the development at some point, probably later in the year. And we are working very hard. Our team up in Toronto's working very hard to tie down a significant lease as we speak, in fact, which we may have some news next quarter on.

Last question, for Dean, can you just give us some details on the types of debt terms that you are seeing in the market right now, loan to value and rates in the context of some of your maturities in the next 18 months?

Yes. I think, Tony, it is difficult, as most would probably describe, to broadly talk about terms, because until you are done, you are really not done. But maybe if I could comment at all, I guess what I would expect to see is that, whether it is project financing or fixed rate financing, that I would imagine that the all-in rate would probably fall in the 6% range. And that is just very broadly speaking.

We all know that leverage, whether it is loan to cost or loan to value, whether project or stabilized fixed rate secured debt, have come in from the relative highs about 24 months ago. But I'm still pushing pretty hard on pricing and leverage, given the quality of the projects. It's development or stabilized income-producing assets.

So I guess stayed tuned. We're working ahead of our schedule of maturities for 2009. We've got about $280 million or so maturing, and we're working very diligently to take care of those much earlier than their maturities.

Dave AuBuchon, Baird.

The Pfizer lease that you just announced, relative to your supplemental disclosure, where would that lease fit?

It would fit in the campus that's, Dave, I don't know if you recall, up at what is called Mission Bay North. So we've got the West parcel, which we have -- 1700 was the first building. 1500 is now under construction. This is across the other side of the UCSF campus, closest to the Giants ballpark. And it is a campus that could be somewhere north of 600,000 or 700,000 square feet in total. And that is where Pfizer has chosen to be.

But they are not leasing space at a project you already have on your supplemental?

That is correct.

Okay, got it. I have a few questions about the redevelopment pipeline. On the development supplemental, you talked about aggregated construction costs to date. Can you give that number on the 789,000 square feet that is undergoing redevelopment right now? And I guess your initial cost on those assets?

Yes, it looks like it is in the mid- to upper $200 a foot, roughly.

So in total you, spent $200 --

No, I'm sorry, let me clarify what I'm saying, Dave, because it is -- what I'm talking about is our all-in basis plus the dollars we've spent to date.

Okay.

So incremental costs tend to be around $100, $125 a foot. Costs incurred to date tend to be around maybe a little south of 50% of that.

Got it. And then can you talk, Joel, just about leasing progress that's in that pipeline in general?

Yes. I think if you look at the big ones -- there's a lot of small ones, but if you look at the big ones, we mentioned Tech Square, which is clearly a big one. I think we'll have a significant announcement next quarter to make on the favorable resolution there. That's really, I think, by far and away the biggest. And I think we're making good progress on most of the others. It's hard to pick out, because again, we have quite a few of the smaller ones. But I would say --

Let me add one other comment. The redevelopments actually are in pretty good shape. I think you could look at the square footage that we've actually leased over the last six months related to redevelopments. It's probably getting close to 150,000 square feet, if I'm not mistaken. And I believe also the leasing activity to what we have scheduled for 2008 is pretty much substantially resolved, where at least 75% of that I think for 2008 deliveries have been taken care of.

So '08 deliveries, 75% leased. Of the [789], you said 150,000 leased the last six months or in total?

About 150,000 over the last six months was leased on the redevelopments.

And then just looking at the entire bucket, do you have a number that is close to being either leased or committed?

On all of our redevelopments?

Yes, sir.

Give me one second. It looks like it's, I don't know, roughly 45% to 50% would be my guess about the remainder. Too early to tell.

And Joel, I forget, I'm sorry. On Tech Square, of the 124,000, is that -- the goal there was a multitenant strategy?

Oh, for sure. And it already is. We've got -- Sirtris is one of the anchors there. We've made a number of other leases, and then we'll have a big lease to announce next quarter.

Okay. And then my last question is, the convertible preferred balance increased to $250 million this quarter from last. What am I missing there, or --

That just had to do with the timing. I think our issuance in the first quarter straddled the quarter, where the [shoe] was just days into the next quarter. So we raised in the shoe probably about $30 million in net proceeds.

Philip Martin, Cantor Fitzgerald.

I guess I will start on the leasing front first, for Jim. But the better than the forecasted rent growth, is that -- how much of that is just the evolution of this portfolio and some newer assets out there, or is it different tenant mix? I mean, this is a pretty good beat versus forecasted. And knock on wood, hopefully it continues. But are you finding anything at the asset level where it is a different tenant mix? I know the last couple of years we've seen slightly different tenants come in, whether it's VC firms, etc. Or is it -- I'm just trying to nail down a little more specifically what might be driving this rent growth, besides the very good locations.

Yes, I think if you just look at '08 and '09, it just tends to be existing rents in place just are well below market. And some of that is historical, because we've had long-term leases at low lease rates that are beginning to roll. Some if it would be historical acquisitions with well under market leases. So it's kind of a combination of those factors.

And I think Jim's pretty conservative -- he's on vacation at the moment -- but when he's given 5% to 10% rent growth, I think he's being conservative generally, as we always try to do on guidance. But I think it's fair to say we're pretty comfortable with a 10% number obviously for the balance of this year and '09. And we think maybe that's even conservative.

So that's all kind of good news. And remember, this is in an environment where I would say vacancy rates in most of the markets are still, thank goodness, sub-double digit. There is not any dramatic rent growth going on in this economic environment. But we haven't seen rents fall dramatically in the best locations and the best assets. We just haven't seen that.

So again, kind of our thesis is stability is what is key here. And we're just benefited by historical leases rolling.

Are you also seeing -- and again, it's somewhat dependent, too, on where your tenants are in their lifecycle on research and development and other factors, but are you also seeing the tenants -- I lost my train of thought there.

Well, we're seeing better quality in -- if you look at some of the different markets, we're just seeing better quality tenants we're able to capture in some of the secondary markets. If you look at -- take out San Francisco and Massachusetts, which are the two dominant life science markets, and you go to Seattle, San Diego, Maryland and North Carolina, we're seeing much stronger -- we're actually able to capture much stronger tenants today than, say, over the past few years. Again, I think part of that is brand and reputation, franchise, asset location, asset quality. And I think that all augurs for good, solid rental rates on renewals.

Are you seeing greater tenant demand? Are you seeing more tenants chasing individual spaces, or has it been pretty consistent with historical averages?

Yes, so dependent on buildings and locations, because if you've got the right building in the right location, you do have that impact that you described. If you've got maybe not the AAA, but the AA location, I think it's normal demand.

It's interesting, because no matter what people say or write, it's clear to me, and if you were standing there with the Mayor and Corey Goodman, who was a -- he's a very famous member of the Academy, National Academy of Sciences, he's run two biotech companies, and then Pfizer asked him to become Head of Research, which he turned down, and they ultimately offered him to be Head of the Biotherapeutics and Bioinnovation Group, which he did ultimately agree to because of the entrepreneurial nature of that group.

It's pretty clear that decision and so many of the decisions by the more dominant entities around the country and the world, location matters a whole lot, because he could have stayed in South San Francisco, where they acquired Rinat. And it would have been all fine and happy, and they could have just gone on the freeway. But in his remarks, he said the ability to literally walk across the street and collaborate at Genentech Hall, at QB3, at the Neuroscience Center, the Cardiovascular Center made such a huge difference for Pfizer. That's why they made the decision. And I think we're seeing that in spades about great locations.

And shifting gears a little bit over to East River, in terms of the preleasing, are you satisfied to date with the amount of preleasing or the terms that are being negotiated? Is everything more or less in line with expectations? And again, from a tenant demand standpoint, are you dealing with still trying to figure out the proper tenant mix? Is there demand from multiple tenants? I'm just trying to get a sense of just that project, because it's a big project and it's an interesting one.

Well, let me say I'm never satisfied ever, because once I'm satisfied, then you lose your edge. So I would say, the challenge of New York is nobody has ever done this before. So it's not like having a great asset in Cambridge, where you've got an established market, you've got established clients or potential tenants, you've got an established rental rate scheme, you've got an established confluence of how a market just operates. This just is new. There are nine great world-class academic institutions in New York. They garner about the highest amount of NIH funding of any one location in any given year. So there are a lot of great attributes, plus New York is just a great place to be.

But the fact that nobody's ever done it before, there's no template that you can say, this is the way it should be or ought to be. But I think -- and again, we've done nothing yet, so I can't get on this call and say, gee, we should be proud of what we've done. We got selected. We got a ground lease signed. We got $40 million from the city and the state. We're under construction. We're on budget and on time. Those are all good things.

But at the end of the day, it's the cash flow that counts and the quality of the leases and the quality of the tenants. So we haven't accomplished any of that yet. So that's yet to remain. But we're working hard and we're trying to put together a highly talented team to execute that. So I guess I would say stay tuned, and it's a work in process.

Thank you for the additional comments.

Thanks for your questions, good as always.

Michael Bilerman, Citi.

Dean, just to follow up on the capital capacity that you outlined, what are the terms on the $500 million accordion feature on your credit facility, and how accessible is that next year? Can you --

That's a good question. All accordions that I am aware of are generally structured where the existing bank group approves the company's ability to raise their credit facility, meaning the commitments available, so from $1.9 billion to $2.4 billion, in our case. And that additional capacity would actually have to be raised either from your existing bank group or with new lenders. But the banks have approved the increase, but the commitments actually have to be raised. Does that --

Yes. And just on the redevelopment pipeline, could you tell us what your basis is to date on the 800,000 square feet, including land?

Yes. It's in the all-in, our allocated basis plus any dollars we spent is in the mid- to -- right about the mid-$200-per-foot range.

Including land?

Oh yes, all-in.

It may just be helpful, because these questions come up every quarter, just to add in a column. And we certainly appreciate the new addition on the leasing. It's just to add in investment to date for your redevelopment and your development so that we just capture the dollars being spent quarter to quarter.

That's a good idea, Michael. We appreciate your comments and suggestions on disclosures, and we'll take a look at that over the next quarter.

And that will conclude the question-and-answer session. Gentlemen, I will turn the conference back to you.

Okay, well, thank you very, very much. We did it in just a little more than 50 minutes, which is I guess a record. Thanks so much. Have a great rest of the summer. We look forward to talking to you on the third-quarter call.