Alexandria Real Estate Equities Inc (ARE) 2008 Q4 法說會逐字稿

Good day, and welcome, everyone, to the Alexandria Real Estate Equities' fourth-quarter and year-end 2008 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 Chiger. Please go ahead, ma'am.

Thank you. Good afternoon, and thank you for joining us today. (technical difficulty) conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include without limitation statements regarding our 2009 earnings per share diluted, 2009 FFO per-share diluted, and our redevelopment and development pipelines. Our actual results may differ materially from those projected in such forward-looking statements.

Factors that might cause such a difference include, without limitation, our failure to obtain capital, debt construction financing and/or equity or refinanced debt maturity, increased interest rates and operating costs, adverse economical or real estate developments in our markets, our failure to successfully complete and lease our existing space held for redevelopment and new properties acquired for that purpose and any properties undergoing development, our failure to successfully operate or lease acquired properties, decreased rental rates or increased vacancy rates, or failure to renew or replace expiring leases, defaults on or nonrenewal of leases by tenants, general and local economic conditions and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission. All forward-looking statements are made as of today and we assume no obligation to update this information. For more discussion relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements and risks to our business in general, please refer to our SEC filings, including our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q. At this point, I would like to turn the call over to Joel Marcus. Please go ahead.

Thank you very much, and welcome, everybody. With me today are Jim Richardson, Dean Shigenaga, Pete Nelson and Peter Moglia.

As we discussed on our third-quarter call on October 30th, the world has fundamentally and structurally changed, and we commented in that call on the depth of the economic perfect storm and the swift and immediate actions necessitated thereby. I think it's fair to say this historic, unprecedented, fundamental, and permanent structural change in the financial banking and credit systems and future implications now are only somewhat becoming better understood. We are all witnessing real-time the progressive, rapid, unrelenting, and continuing deterioration of the consumer-driven economy and massive job losses.

As I said on October 30th, we reported to you eight major actions we were compelled to take and are continuing at present. I want to update you on those.

First, substantial, meaningful, and positive progress on our balance sheet, liquidity, leverage and access to capital is ongoing. Substantial and continuing progress on major reduction of CapEx and also substantial and continuing progress and major reduction on operating costs, including the review by the CEO and CFO of every expenditure exceeding $250, kind of unprecedented. Successful extension of our 2008 debt maturities. Continuing focus on our tenant monitoring and collectability of now which are historically low tenant receivables.

Number six, continued laser focus on the solidity and durability of our unique business model, as fine-tuned for this new reality and new environment.

Number seven, continued laser focus on maintaining strong cash flow from our operating assets, maintaining high operating margins and a high return on invested capital.

And then finally, an ever-increasing focus on the enhancement and improvement of tenant quality. As I have said really continuously since our IPO, we have the best assets in this space and they are mission critical locations for our tenants, including many of our big pharma clients.

Our top 10 tenant list as of 12/31/08 is the strongest it has ever been and we welcome onto that list the largest US independent not-for-profit institute, the Scripps Research Institute.

Eight out of the 10 tenants would be deemed to be credit and all have equity market caps other than the institutions and government and equity market caps in excess of $1 billion other than two. And I want to give you a brief update on those two.

ZymoGenetics, its current market cap approximates $400 million. It recently signed a deal with Bristol-Myers Squibb, which has a price tag of about $1.1 billion and they will be receiving about $200 million in '09.

And then the only other top 10 tenant, which has an equity market cap under $1 billion is [Diax], which has $150 million market cap. It's in our Eastern Mass asset base. It recently received FDA advisory panel approval on its lead product and signed an $850 million deal with Biogen Idec. So we're very comfortable with the status of our top 10 tenants.

As all of you know, ARE has been and continues to be a unique safe haven and sanctuary for long-term total return investors. We are very proud of our 399% total return performance from IPO through the end of the year, placing us at the very top echelon of all publicly traded REITs.

We also reported, as you see from the press release, positive GAAP year-to-year lease rolls for our 10th consecutive year and positive GAAP same property growth quarter to quarter now for 42 consecutive quarters.

We have also greatly benefited from some of the changes going on in the life science industry. Big pharma has moved from the traditional in-house model to more innovative models, as witnessed by our leases with Pfizer, Merck, Glaxo and Novartis. And activity in the M&A and strategic alliance areas have greatly strengthened a number of our tenants as well, including Exelixis, ZymoGenetics, [Memory], which was acquired by Roche, and ArQule, among others.

Let me also comment briefly, and we will find out a lot more about this over the coming week, the mega stimulus package which is now before the Senate and appears to I guess be headed to the President's desk if they can get the Senate passage and then reconcile the House and the Senate bill. Potentially by a week from today, the NIH is slated to receive an additional $10 billion. The National Science Foundation an additional $3 billion. And clearly, the new federal government approach to stem cell research is positive.

Let me turn to the key highlights of the fourth quarter and the year ended 2008. We are pleased to report that our earnings were right on target regarding our guidance. We have a very fortunate situation of being able to model a variety of variables and we are pleased that we have been on target for both the fourth quarter and year end.

Dean will address in-depth our balance sheet, liquidity, capital plan, debt strategy and 2009 guidance. We are now working to extend one of our extendable loans, maturing in '09. Our share of that loan is approximately $28 million. And, as Dean will explain, we intend to de-lever the Company during the '09, '10 and beyond time period. But remember the Company has always operated with conservative leverage.

The core operations has, once again, confirmed the relative sanctuary and safe haven in very, very tough times. Our operating margins at year end were steady and tipped up a little bit to about 75%. And I believe they have exceeded 74% every quarter since our IPO. I think a feat not rivaled by virtually any other publicly traded REIT.

Our occupancy year-to-year was up by about 100 basis points, dipped about 80 from third quarter to fourth quarter due to some softness in San Diego and Maryland. We also have a historically low and very clean tenant receivables of about $6.5 million, which, amazingly, is only about 1.4% as a percentage of rents and recoveries. I believe that is the lowest it's ever been.

Same property growth, 42nd straight quarter of growth. Again, unique among, I believe, all office companies, at about 4.3% on a GAAP basis in the fourth quarter and 3.3% for the year. We continue very sharp focus to maintain occupancy even in this very difficult environment while protecting rental rates as best we can.

It's important to note too that 94% of our leases contain effective annual rental escalations. And over time, rent growth on assets should help offset higher cap rates.

Rental rate increases on renewed and released spaces, we're pleased to report the GAAP increase for the fourth quarter of 13.9% and for the year of 15%. And again, we believe unique among all office companies, posting positive GAAP year-to-year lease rolls for now our 10th year.

We had an amazingly solid fourth quarter, executing 34 leases for 513,000 square feet during I think it's fair to say the toughest financial reporting quarter any of us have ever seen. And in 2008, we executed the largest number of leases and the most square footage in the Company's history, 141 leases for over 2.16 million square feet, a remarkable accomplishment for our team.

Let me turn now to '09 and '10 lease rolls. In '09, we have lease rolls of about 982,000 square feet or about 9.5% of the operating portfolio. We are expecting, given our in-place rents, about a 5% increase in rental rates through '09. We have 16% now leased or committed; 49% negotiating or anticipated; only about 0.5% into redevelopment; and about 34.5% marketing or too early to tell.

Moving onto to '10, we have about 1,088,000 square feet, rolling about 10.5% of the operating portfolio. Again, we're looking at about 5% rental rate increases. 10% has been leased or committed; 46% negotiating or anticipated; 12% into redevelopment likely; and about 32% marketing -- being marketed or too early to tell.

On redevelopments, we have a very keen emphasis on leasing and a substantial reduction in our throughput. And on developments, as you know, we have a very low historical basis and our land, a big advantage for us in leasing. And this is among the most significant focuses of the Company.

Let me now turn to the development leasing update, page 19 of the supplemental. At 1500 Owens at Mission Bay, no change.

We are fully leased and committed to two credit tenants. At East Jamie Court in South San Francisco, South San Francisco has been a very quiet market. We have 16% leased. And one tenant that we were negotiating with has decided to postpone any decisions, so we have no positive leasing progress during the fourth quarter.

At our East Grande property, again, in South San Francisco, it's 55% leased to Exelixis, which extended its option through 12/31/2009. This is the Company's corporate headquarters, core research facility, and I think it's fair to say we reasonably expect them to exercise the option. They signed a very significant cancer deal with Bristol-Myers during, I believe, the fourth quarter with almost $1 billion upfront for two very important cancer molecules.

Moving to East River, we are negotiating a letter of intent with a very high quality anchor tenant for approximately a third of the space and we hope to have a positive report to you on our first-quarter call. This is the single highest priority for leasing in the Company.

And then in Seattle, no change. That property is 92% leased to our credit tenant, Gilead Sciences.

Dean will talk more about dispositions, but we did close one small operating or one small property that was in discontinued ops in the fourth quarter. And we did close three properties sold both to users, the one in December or the one in the fourth quarter to a user; and then the three operating properties sold in January for $14 million, at a again also to a user.

2008, Dean will cover the sales, but we do see and expect significant opportunities for opportunistic sale of assets to users during '09 and beyond.

Tenant matters, at the end of the year, we have a highest quality tenant base on the most diversified we've really ever had. You can look at our December 23 press release for a breakdown of those segments, but we are very comfortable with what we have at this point.

And then finally, before I turn it over to Dean for a number of detailed comments, I want to just comment on the dividend policy, since this is probably one of the hottest topics in the REIT world these days. Both management and the Board are intensely studying all of the issues surrounding this ever-changing area. And the Board will review and addresses this by mid-March '09 related to the first-quarter dividend. But we don't have anything to report at this point.

So let me turn it over to Dean for his detailed comments.

Thanks, Joel. Consistent with the required actions we described in our third-quarter earnings call, we have been appropriate, thoughtful, deliberate, and careful. I will provide an overview of our capital plan liquidity, balance sheet matters, key operating statistics, and our guidance.

Our capital plan includes management of our balance sheet capacity and liquidity over the next two, three, and four years; reduction of our outstanding balance on our unsecured line of credit and unsecured term loan over the next two to three years; and from time to time, equity capital, broadly speaking, including joint venture capital.

Our two primary uses of capital over the next two years include debt maturities and the wind-down of construction spending. Consistent with the strategy we've communicated during our last call, we have made significant reductions in our overall capital plan.

From the second quarter of '09 through the fourth quarter, we expect to reduce our construction spending to an average of approximately $60 million for the quarter, representing an approximate 40% reduction from our average construction spending in 2008. Our current forecast reflects less $40 million of construction spending in the fourth quarter of 2009 with a further and significant decline going into 2010.

Moving on to debt matters, we have two secured loans maturing in 2009. One loan has an outstanding balance of approximately $51 million and our share of this balance is approximately $28 million. This loan has extension options so it should take the ultimate maturity date of this loan to mid 2010. In 2010, we have a total of seven secured loans maturing of an aggregate balance of approximately $258 million, including the recent loan extension we completed in December related to $175 million secured loan.

Our primary goal for our upcoming secured debt maturities is to extend the maturity dates or refinance the loans with existing lenders.

Next, I want to provide a summary of our sources of capital and certain balance sheet matters. Our primary sources of capital over the next two to three years consist of approximately $120 million of cash on hand. Unused balances aggregating $475 million under our unsecured line of credit; greater than $100 million from opportunistic asset sales to users; loan extensions, refinancings, and new loans; and lastly, again, equity and broadly speaking including joint ventures. As of year end, we held approximately $70 million of cash and we also had approximately $50 million in restricted cash accounts that ultimately will be used primarily to fund certain construction activities.

Our unsecured line of credit continues to be an important source of capital for the Company. As of year end, our unused balance under our unsecured line of credit was approximately $475 million. Our maturity dates of our unsecured line of credit and unsecured term loan is October 2011 and October 2012, assuming we exercise our sole right to extend the maturity dates. The only requirement that we have is that we provide a formal notice to exercise our option and pay a typical extension fee.

While the current environment is challenging to execute asset sales to the traditional investor, we will continue to focus on opportunistic sales of properties to users. We have completed approximately $100 million in property sales from January of '08 through January of 2009. Additionally, we have completed approximately $175 million in sales over the past 24 months. That includes the $100 million that I just mentioned.

Going forward, we're focusing on a few ongoing early stage discussions with potential users that will generate proceeds in excess of $100 million, including gains upon sale. Beyond these few opportunities, we have no present amount for specific assets that are targeted for sale over the next couple of years. Each opportunity is evaluated as it arises. As such, it is too early to determine timings or pricing on asset sales, including the timing of the few in early stage discussions.

During 2008, we completed the extension of two loans with the relationship banks aggregating $256 million. One loan maturity was extended to 2010 the other maturity was extended to December of 2011. While we remain extremely cautious over the debt markets, we will be prepared to take advantage of financing opportunities, including extensions, refinancings, and new loans with our existing lenders, our relationship banks, and life companies. The majority of our assets are unencumbered, approximating 65% of total NOI, located in very best life science submarkets, occupied by high-quality life science entities, with high occupancy as noted by our overall occupancy of approximately 95%.

Additionally, most of our unencumbered assets have an average loan to value in the low 40% range. As such, future refinancings for the majority of our secured loans will result in net proceeds to the Company versus additional equity contribution from the Company. We have historically financed properties with CMBS lenders, life companies and banks. Approximately 65% of our loans are with life companies and banks, and, therefore, should provide a better opportunity to extend and refinance as compared to CMBS lenders.

Over the next five years, we have 35 loans maturing with an average balance of approximately $25 million. We believe our loan balances maturing in the next five years are sized appropriately given the challenges of financing large loans in this environment.

We reported FFO per share diluted of $5.85 for 2008, in line with our guidance. We also reported FFO per share diluted of $1.55 per share for the fourth quarter, which is also in line with our guidance for the year. Our FFO per share results were calculated in accordance with NAREIT's White Paper and Implementation Guidance. Our results on a normalized basis were $1.55 for the fourth quarter end $6.06 for the year. Our results included a few items that I want to highlight.

First, in December of 2008, we received a payment of approximately $14.7 million from Cell Genesys related to a modification of their lease. As a result, in December, we recognized 11.3 million of rental income related to the modification net of a deferred rent write-off. This lease with Cell Genesys terminated on January 2nd, 2009 and they were provided time through January 30 to move out with no further payments to Alexandria.

Additionally, our results for the quarter and year also included non-cash impairment charges related to other-than-temporary declines in the fair value of certain investments. As we are well aware, equities have been declining in value since mid '07 when the sub-prime crisis began and dropped significantly after the failure of Lehman. Unlike Bear Stearns and Lehman, our investments in life science companies have declined in value, while the underlying businesses of these companies generally remain solid. Unfortunately, the accounting rules require recognition of an impairment, given the steep decline in fair value of certain investments.

As a result, we recognized impairment charges aggregating $13.3 million in 2008, including $2 million recognized in the first quarter.

Consistent with each quarter close process, we perform a detailed impairment review of our operating non-income producing and assets held for sale. Our impairment review was performed in accordance with 144 and consisted of a review of the plans for each asset and undiscounted cash flows, including cash flows related to future expenditures for operating and non-income producing assets. The assets held for sale as of year end were reviewed, based on fair value less cost of sale. These assets were sold at a gain in 2009. Based on a detailed review, we concluded that no impairments were required for the real estate assets.

During the fourth quarter, we capitalized about $19.2 million of interest related to qualifying construction activities, including construction at our project in New York related to the overall site, plaza, garage and underground infrastructure work. The primary reason for the increase in capitalization is due to the amount of construction spending in the third and fourth quarter of 2008. We definitely hit the peak of capitalization of interest in the fourth quarter, and for 2009, we're projecting an overall decline in the amount of capitalization of interest.

During a period of time when all of us have been unable to predict the depth and length of this unprecedented financial, banking and economic crisis, our team has been focused on critical areas of our business in which they can control. Our core operating results for the quarter and year are reflective of the focus of our team on key operating metrics.

Again, for the year, we reported -- in our press release, we reported our 46th consecutive quarter in growth in FFO per share diluted to $1.55 per share. We've reported positive GAAP same-property results quarter after quarter and positive leasing stats on renewed and re-leased space for over 10 years. 2.2 million square foot leased, about 37% up over 2007. GAAP rental rate increases were up 15% for the year on renewed and re-leased space. And we leased about 630,000 square feet from our redevelopment and development projects. We also completed and delivered 335,000 square feet of redevelopment space, with that space being about 88% leased. We also reported strong occupancy at approximately 95% and steady operating margins at about 75%. Additionally, as Joel had mentioned, Accounts Receivable was very low at approximately $6.5 million, with no reserve for doubtful accounts as of year end.

Moving lastly but most importantly to our guidance, I would like to remind everyone that our guidance includes various abroad assumptions and we do not comment on the details included in our guidance. Our guidance also reflects our cautious outlook, given the overall financial, banking and economic outlook for the country.

Our guidance for 2009 FFO per share diluted and EPS diluted is $6.26 and $2.73, respectively. Our FFO guidance is based upon NAREIT's White Paper. Due to the recurring nature of new accounting literature effective January 1, 2009, for our convertible debt and the impact of unvested stock awards on our per share calculations, we will continue to focus on NAREIT defined FFO and we encourage everyone to do so, as well. Otherwise, we will be tracking adjustments for these accounting matters in each reporting period going forward. With that, I'll turn it back over to Joel.

Operator, we can go to Q&A, please.

(Operator Instructions). Jamie Feldman, UBS.

Thank you very much. So Joel, you had mentioned the 80 basis point occupancy decline in the fourth quarter. Can you talk a little bit about what's in there and what's included? How you are thinking about it going forward, I guess the assumption in guidance for occupancy? And also, what are you guys assuming for Cell Genesys, that space as '09 progresses?

Okay. I think when you look at occupancy in this world, it is hard to predict virtually anything. I think some of the weakness in San Diego and Maryland, it is not surprising those have historically been markets that have been softer historically over the last few years compared to the other markets that we are in. And so we saw the same thing; we did have one space that came back to us in Maryland, which contributed to some of that softness in the occupancy.

But I would say that's probably, of all the factors going forward, the one that probably we have the least best crystal ball. It just is very difficult. I think you know, our -- you can tell by the amount of space we leased this quarter, 513,000 square feet, it's pretty remarkable, and it's unbelievable in a sense, given, again, the worst quarter in the financial history of this -- certainly our reporting quarters.

So I would say we are working very hard to maintain occupancy in each of the markets, but it's hard to give any absolute numbers. I think if you go back to '98 and 2001 maybe as some kind of a proxy, if you look at how Alexandria compared to office companies during those two years and you look at overall same-store, obviously, made up of both rate and occupancy components, we did decline in those time periods, but far less than generic office. And fortunately, we stayed positive. We've stayed positive every quarter. So we hope that will continue. So that's kind of the view on occupancy.

On Cell Genesys, we are working hard. As I think that we said, I don't want to make any comments publicly at this point. But we are working hard to re-lease that building as we speak, and again, we hope to have very positive news on that.

Great, thank you.

Mark Biffert, Oppenheimer.

Good afternoon. Joel, first question for you. You guys had mentioned that you are expecting a 5% rate increase. Is that a net effective rent or are you including concessions that you may be offering? And if you are offering concessions in your leases, what are they? And then, in terms of length of terms, are you seeing or are you signing with renewals or new leases?

Yes, that's net effective. And I think one of the reasons we are pretty comfortable, if we look at our annualized base rent in some of the big markets that turn in D.C., our current annualized base rent is in the $20 range. And so that makes us feel pretty good. In the San Diego market it's about $30, which is probably kind of closer to market. The Bay Area is probably more or less market. And the Southeast, we are somewhat under market. Massachusetts, we seem to be pretty well under market. And Seattle, way under market. So I think, again, it varies by market, and we feel pretty good. And those are net effective rents.

You had asked a question about I'm sorry -- the second? No, no, beyond the concessions, you asked a next question --?

It was the length of lease terms that you are signing on renewals. Have you seen that shrink and in terms of --?

Yes, we've seen I think -- we typically -- and I think we've said this for many years, in both up cycles and down cycles, this is a structural change cycle. But typically, shorter duration leases are for smaller spaces. Medium-duration leases tend to be for medium spaces. And larger spaces tend to have longer-term leases. That's just the way it works in this industry.

So if you look at the quarter, there was no surprise there. We had renewed or re-leased space almost five years. That can run anywhere between three and seven years. And then on developed and redeveloped, we had about six years. And that, again, runs between four -- three, four, five, six, seven. Sometimes it varies.

I think where you get the longer-term leases are in the larger spaces, either developments or just big blocks of spaces. So those are very much in line with what we have seen historically.

Okay. And then when you look at the mergers that you've been hearing being announced in the large pharma and the biotech space, in terms of addressing some of the layoffs you are seeing and some of the R&D space, what are you seeing from your tenants or from other assets that they own in those markets in terms of subleased space coming back? And have they discussed that with you? And what's the potential threat for new supply?

Yes, that's a really good question. And, as I said in the prepared remarks, we've been very, very fortunate, because of the really phenomenal location of virtually all of our assets, and I think the very high quality of those assets. And our leases to big pharma by and large are critical research components of big pharma. They're not SG&A outposts. They tend not to be manufacturing, and they tend not to be main campus operations, where in case of an acquisition or a major restructuring, those things get closed down.

If you just look at a couple of the ones I mentioned, to give you a little bit of color on that, bear with me one second. Let me just go back to the couple that I mentioned.

Yes, if you look at the four that I mentioned, Pfizer's, as you know, with the Wyeth acquisition, which we think is probably a pretty smart acquisition, has closures in a number of different locations. We don't think those are typically going to hurt us in the AAA core life science markets, if you are in the right location. If you aren't, then you can get killed.

But the Pfizer locations, they opened an operation at Tech Square, which was a critical operation of their Capsugel division. And also, signing up for Mission Bay, which is a new bio-innovation and bio-therapeutics focus. That's the very thing that they are trying to do, is to move outside of the traditional campuses. The same thing with Merck. We were benefited by their acquisition of Sirna in Mission Bay, and that's a mission critical research location. We don't see any space affecting us at Mission Bay, particularly.

Glaxo, they are our second-largest tenant, and through a number of acquisitions, they are, again, in a number of locations, but including Cambridge, which has now been enhanced to one of their primary research focal points that was mentioned specifically by Andrew Witty. And they cut another kind of comparable -- not on the same science comparability -- but another group. I believe it was not in -- I think it may have even been England or another location that didn't impact us, and same thing with Novartis.

So by and large, we have been substantially benefited. And I don't think in any of the markets we're going to see -- again, in great, core markets we are going to see a lot of subleased space come onto market. That's just the nature of these assets and these unique locations.

Okay. And for Dean, a couple of accounting questions. I did not see the property-related CapEx for the quarter and leasing costs in the release. Do you have that by chance?

I don't, but it will be dropped into our 10-K for the disclosure that we include on a five-year average basis.

Okay. And then related to your guidance, was the expectation for the APB 14-1 costs, is that going to be equivalent to the '08 amount of roughly $0.23 a share? Is that your expectation? Is it in that guidance of $6.26?

Correct. I believe our -- yes, that is right. $6.26 is forward looking for '09 as to what we expect, including the impact of APB 14 for our convertible debt. And we gave you a footnote on the prior-period impact. It's in that range of $0.20, $0.23.

Okay, great. Thanks.

Anthony Paolone, JPMorgan.

Thank you. In terms of the land for future development, I think it's somewhere around $700 million, $800 million. How much money do you have to spend on that in 2009, whether it's related to development staff, property taxes, engineering, etc. -- just those sorts of costs?

Yes, it's a good question, Tony. It really depends project by project and the nature of the preconstruction activities. Because each project is going through a different set of activities to move it along.

One example is our large land effort in Cambridge, which is going through the city as we speak. And we've incurred a small amount, but meaningful number of preconstruction-related dollars, related to moving along our basic design and architect work. And then all the consultants that are involved in that process to move the project through the entitlements with the city to other projects that maybe smaller in scale and less involved.

So Tony, I actually don't have a number in total for our spending across our preconstruction projects. It's not extremely significant, but at the same time, it's definitely north of a few million dollars.

And is it something do you think in the tens of millions?

No, no, no.

Okay. And then north -- I think Mission Bay North, where you signed, I believe previously, 100,000 square-foot lease with Pfizer, I didn't see that on the active construction schedule.

It's not in vertical construction yet, but it will appear in the first quarter.

Okay. So there hasn't been any changes to that or --?

Correct.

And then in terms of your 2010 expirations you laid out this quarter, the markets where they are in on your leases, it seemed like Cambridge, San Francisco, San Diego had the bulk of them. Any comments as to particular leases that are coming up in 2010 to watch for?

Yes, in 2010, I guess, we've got broken down about 140,000 in the Maryland market, about almost 200,000 in San Diego. The Bay Area has got about 200,000. Eastern Mass almost 300,000 and Seattle about 100,000. So it's a pretty good amount. It's about 10%.

In normal times, we would relish the lease rolls. I think in these times, we're obviously more cautious, but we still see upside from our net effective current rents there.

No particular color I can give you at this point on those specific lease rolls. But we clearly -- if you go back to the comments that I made, we are clearly addressing them in a fairly focused fashion. And as I said, we have about 10% leased or committed and almost 50% negotiating or anticipated. So that's 55% to 60% at this point almost over a year out. So we feel pretty good about that and almost less than a third that we believe is too early. So we feel pretty good about that, I think. And with a 5% kind of internal projection on rental rate increases. So I think we feel pretty good.

Okay. And then just last question for Dean on your swaps. You've got some that go out to like 2014 and that's beyond where your line and term debt is in place till. Is there another variable rate debt that goes out to that point? Or is it just the anticipation that you'll have some level of floating-rate at that point?

Correct, Tony. It is in anticipation that we have some floating-rate that goes out. But beyond the maturity of 2012, there's only about a couple hundred million that goes out that far. So do you think that's a -- we wanted to have a safe assumption going out that far. We obviously don't want to carry $1 billion of swaps beyond our extended maturity date.

Okay. Thank you.

Michael Bilerman, Citi.

Good afternoon. Irwin Guzman here. Dean, you mentioned the percentage of your secured debt that's CMBS. Can you break that down for us in terms of 2009 and 2010 expirations?

Let me see if I've got -- how close I have that schedule to me. Hang on, Irwin. Do you have another question that we can go to and we can come back to you on that while I --?

Sure. What's the -- on the South San Francisco developments, the two that come in this year, what's the timing that those inter-service?

Well, our current forecast is -- the 2009 South San Francisco assets and development, our current forecast is late '09.

Late '09. And has there been any change to, as you're negotiating these leases, what your overall yield expectations are relative to sort of the low double-digit returns that you've spoken about in the past?

No change.

And just one more question on the redevelopment pipeline. Can you tell us what the leased rate is on specifically those projects that deliver this year for the redevelopment piece? Or maybe another way of asking that question would be --

That's a -- you would have to go to every single lease at every single property so that would be very difficult to tell you. But we still are targeting by and large, right now, Tech Square, I think we have it about 87% leased. And I would say that we are on track to beat our projected assumptions back when we bought that property in '06. So we feel pretty good about the rental rates we have achieved, even during the fourth quarter as we have signed leases there.

Can you give us a sense as to how much leasing, even just on a total volume basis for those redevelopments? Because that's a big (multiple speakers)

Oh, on the redevelopments?

Right, on the redevelopment portion, how much leasing is left to hit your guidance number?

Oh, to hit guidance? You know, unfortunately, Irwin, I don't actually have that with me. Most of our redevelopments take a conservative view from what we present in our model. And we've been doing that historically, where -- and I know sometimes this causes some challenges with the models you guys run. But we give the in-service dates and then we tend to give a conservative view in our model beyond that to give us some cushion on our guidance. So I think you can use that as a general guidelines.

As it relates to your prior question, Irwin, on CMBS maturities for 2009, we only have really two loans maturing. One is a life loan and one is a bank loan. And beyond that, they are just principal -- normal debt service payments in '09.

Joel, it's Michael speaking. Can you just talk a little bit about -- you obviously went out international and started trying to plant seeds in Scotland and a little bit in India and, obviously, China which you reverted back a little bit last quarter. Can you talk about how much G&A you're having and building out an international pipeline and whether there's additional capitalization from some of these other things that you are pursuing outside the US?

Yes, I think it's very minimal.

Is that any bit of a focus at all? Or has that just been completely ramped down?

Well, actually, one way to think about it, Michael, is our basis in our international efforts beyond North America, meaning our cost basis, it's fairly nominal, meaning we don't have any significant US dollars invested into China quite yet and we don't have any significant dollars invested in Scotland or anywhere else for that matter beyond North America. So, there's really, from a capitalization perspective, not a lot there.

I just didn't know, [depending] on the G&A front, as you build out those platforms or whether all of it was sort of running through the P&L already.

There's a little bit, but not much being capitalized related to the international efforts. It's small relative to our US operation.

And do you expect to start any of these things internationally this year? Or there won't be any capital deployed?

Yes, I think the answer is, as you just suggested, that given the structural change in the capital markets, it's very difficult to imagine that.

I may have missed this. There was -- on your future development square footage -- there was a ramp at about 400,000 square feet in the other category, sequentially; went up from 516,000 to 905,000. What does that represent?

That's the second tower for our project in New York.

Oh, so the movement of the tower from current to future?

Right. The west tower of ERSP.

Okay. That makes sense. Thank you.

Philip Martin, Cantor Fitzgerald.

Just in terms -- maybe, Joel, you could speak to this, but just a little more insight into the mood of your underlying tenant base. How much have the tenants slowed their plans? And maybe in terms of how it would relate to or impact their real estate needs? Can you just go into some of the conversations you're having with the tenants and what their mood is?

Yes, that's a good question and a tough question to answer because it's so variable. About three weeks ago, I will give you kind of one end; you wouldn't imagine this, but I participated in a lunch meeting with Gavin Newsom, who is the mayor of San Francisco; Jeff Kindler, the CEO of Pfizer, and a number of senior people at UCSF, together with our senior team up at Mission Bay. And it was kind of a roundtable luncheon discussion regarding -- and this was before Wyeth was announced. But Jeff had taken the time to come out to Mission Bay to look at the site where this building will be built, and also meet up with Corey Goodman, who is president of this effort and who Pfizer is staking a lot of political capital on. And he was basically talking about Pfizer's overall restructuring efforts, but that this particular matter represented a critical function of what I said before, and that is the restructuring of big pharma, really to get out of the main campuses and to go to much more innovative and almost biotech-like model.

Corey was a professor at UCSF. He also ran a couple of biotech companies, and so he is ideal. He actually, I think, had turned down overall head of research at Pfizer, I had heard. So, that's one kind of anecdotal kind of commentary.

We, a bunch of us met with some of the Glaxo team up in Cambridge and they are very focused on creating a new set of pipeline opportunities for Glaxo there and doing some expansion. So I think when we look at big pharma, we are right in the sweet spot of where they want to be at the heart of the clusters adjacent to the great institutions. If you are out in the suburbs or you are in a secondary location within a market, those aren't going to be the places they want to be.

So I think if you look at that segment of the market, we benefited, but clearly, there is a lot of restructuring and a lot of cost-conscious efforts going on there. But we have stayed in the sweet spot, as I indicated.

If you may now, institutions, a big part of what we do is institutions. I think institutions have found themselves more capital constrained because they're having tougher times selling bonds. There are big opportunities in that sector to do things, but capital right now is the principal constraining factor. And so we are working with a number of folks in a number of locations with some local entities to hopefully be in the Q4 future financing when it comes to either bond or even infrastructure funding that may come out of the stimulus package.

Remember, too, going back to big pharma, big pharma has got pretty good balance sheet situation and pretty good liquidity. It's just they're going through gut-wrenching restructuring.

On the product and service company side, that is one that just kind of is bread and better if they need Quest or LabCorp or people like that, if they need a new site, they can generally do it because they've got good revenues. But they are not in major expansion mode, so we try to deal with those as they need them.

On the private biotech side, we spend a lot of time with those companies and are very sensitive to their backers and their need to conserve capital. But we've signed a number of good leases over the past quarter or two, where we have had high-quality venture firms that have raised $20 million and $30 million and are moving forward with a modified plan to really get to -- into the clinic and get through the clinic in a much more expedited fashion, and to position themselves for future M&A or whatever.

And then on the public biotech, as I said in the past, kind of, while I don't mean to make this such a long-winded answer, you've got the haves and the have-nots. The haves are the ones that have product revenues or that have big market caps due to the fact that they've got imminent product approvals or big deals signed. And those people -- clearly, everybody is watching their wallet. Everybody is taking more time, but you see activity there.

And on the public companies that are cash constrained and balance sheet liquidity constrained, those are the ones that have the most problems, Cell Genesys being a great example. But fortunately, we were -- we had a great relationship with those folks and through some pretty great relationship negotiations, we were able to come out with a good result I think for everybody.

So that's kind of the landscape as we are seeing it. It's different. It's structurally different. But, that's what we are in and we have to deal with the reality. So I don't know if that's helpful.

No, that was very helpful. I think, to an extent, is one of the overlooked opportunities here for an Alexandria -- and maybe it's probably more of a 2010 at least opportunity and maybe '11. But, as all of these groups look to restructure, gain greater efficiencies, etc., do they look toward an Alexandria and its portfolio and opportunities within that portfolio to gain some of those efficiencies due to locations or better use of space, etc.?

Right. I think the answer is most definitely yes, heavily due to AAA locations and obviously high-quality facilities. But also we have been asked -- we've had a number of strategic meetings with a number of major companies who have asked us to come in and actually consult with us much like a McKenzie would do, although we're not charging like McKenzie. But to come in and help them rationalize what they're doing on the innovation side. So we think those are interesting opportunities. But the real problem at the moment is, again, the credit market seizure.

And when you have AAA institutions telling you they've got buildings ready to go that they need for their own use and they can't get bond financing, you know we are in a climate that no one has ever really experienced before.

Yes. Yes. And then, that kind of goes to my next question, which actually you just answered, but the last question just more a -- in terms of the leasing front, obviously, leasing has gone -- continued to go pretty well here, but how are those discussions? And I know you brought up some of this, but again, with many of the tenants that you are discussing on '09 and '10 maturities, it sounds like from your opening remarks, that those conversations are going pretty well with the majority of your tenant base.

Yes, I think the answer is they're going pretty well. I think the one area that we are very mindful of is, again, some of the public biotech companies that are caught in this, I've used the term kind of valley of death, where they can't get to product revenues yet. They can't get to the FDA soon enough because the FDA is somewhat overwhelmed at the moment, much like maybe the SEC is overwhelmed. And the markets are not open for either debt or equity financing. So there, they've got to rationalize what they're doing. They have got to potentially slim down their lease commitments and they've got to refocus on what they're doing and how their company is organized and positioned.

And those are the ones that I think we're most focused on, on the downside. And so those are ones that clearly anybody in this business has to pay attention to. I think that's the area that we would pay most attention to and be most sensitive to.

Okay. Thank you for the added insight.

Yes, thank you for your good questions.

David AuBuchon, Baird.

Thank you. Dean, I think when you outlined your sources of cash, you had $100 million in asset sales and then you had another bucket of equity, J.V. and refinancing. Was that correct?

Correct.

What sort of secured debt are you thinking about right now to help kind of fill that funding gap or the funding uses that you need?

Well, I think like we have done over the last year, we are extremely focused right now on extending our maturities to the extent possible and then possibly refinancing certain maturities with our existing lenders.

As it relates to new secured debt, we are as cautious as everybody else is in this marketplace. The larger your needs are, the more complicated they are. But, we are working through opportunities and we are really going to take advantage of any movement in liquidity on the debt side. So I really don't have a target for you. All I can tell you is that we're trying to do our best like everybody else, to extend, refinance, and capture some portion of new loans over the coming years.

And you did say 65% of your NOI was unencumbered as of Q4?

Correct. As of year end.

Any thought to selling some land? I think that you guys mentioned that as a possibility. Is that within the asset sale $100 million bucket or just in addition to that?

Yes, I think there is one -- the one we highlighted in the last call was included in there. But as far as timing goes, and exact amount, we don't have a good estimate yet.

And then the construction spending, you mentioned from Q2 '09 through Q4 '09, I believe, the construction spending would fall $60 million per quarter. Was that correct?

Yes, it would average $60 million per quarter.

It would average. Okay.

Yes.

And where is it, kind of Q4 '08?

I think it's 40 in -- I'm sorry, what was it in --?

Correct. So if it's going to average $60 million in '09, kind of where was it --?

Yes, well I think on average for the year of '08, we probably spent right about $100 million a quarter.

Okay, got it. That's all I had. Thank you.

George [Arbach], Banc of America.

Good afternoon. Joel, you mentioned the potential $10 billion of additional funding for the NIH in the stimulus package.

Yes.

In your opinion, how soon would this funding become available for research grants? And I guess more importantly, for your business, how quickly would those grants translate into increased leasing demand?

Yes, that's a hard question to answer because probably the Senators and Representatives don't even know. As best we know, there is an allocation. It's kind of like a lot of buckets. If you've ever seen -- I don't know, the New York Times did a chart of all the kind of buckets that the stimulus is going to go into. And we know note that there is a -- I think the Senate added $6.5 million (sic) onto what was already $3.5 -- I'm sorry, billion from the House. But we think probably there's a high likelihood that that is going to be passed. My guess, it wouldn't be all in one year. It might be over a period of two years.

And where most of that money goes, I think you will see the big benefit going into the institutions, the universities and the research institutions. NIH money doesn't typically go directly into companies. They generally go into scientific research organizations. So we will see, I think, that stimulate that part of the sector.

And it's hard to say exactly how that will translate into space, but it's clear it will, because it always has, and I think that's good. And what that does also then is create new opportunities for the public sector. I should say the commercial sector, to access new technologies being developed. And I think a lot of that might go into the stem cell area too. So we think it's a real big plus.

Okay. And as you mentioned, the House bill was for $3.5 billion, of which I think $2 billion was for infrastructure and redevelopment of sort of current research facilities?

Yes.

Would you have any interest or I guess would you come in as a third party to help do some of that redevelopment and --?

Yes, I mean we were asked recently to be a fee developer, because we obviously don't want to necessarily do a joint venture with debt on our balance sheet, but as a fee developer to do some construction for a site that would have -- that was maybe governmentally controlled and that would be built for a -- kind of a quasi-governmental agency, and that we might be a fee developer for that. So we would book the income as other income as opposed to have it on our books as a real project where we had at risk -- we were at risk for it. So I think there will be some of those opportunities.

In normal times, we would not have looked to do those, but I think in extraordinary times that we're in, I think those are a good use of our time and expertise.

Sure. That makes sense. Okay, thank you.

This concludes today's question-and-answer session. Gentlemen, I'll turn it back over to you for any additional or closing remarks.

No, we just thank you for your time and we will look forward to talking to you at the end of the first quarter. Thanks, everybody, very much.

This concludes today's conference. Thank you for joining us and have a wonderful day.