Alexandria Real Estate Equities Inc (ARE) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to the Alexandria Real Estate Equities second-quarter 2009 conference call. At this time for opening remarks and introductions, I would like to turn the conference over to your host, Ms. Rhonda Chiger. Please go ahead, ma'am.

Thank you and good afternoon. Thank you for joining us.

This 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 attributable to Alexandria Real Estate Equities' common stockholders, 2009 FFO per share diluted attributable to Alexandria Real Estate Equities' common stockholders, and our redevelopment and development projects.

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 or refinance debt maturities; increased interest rates and operating costs; adverse economic 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 non-renewal 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. Now I would like to turn the call over to Joel Marcus. Please go ahead.

Thank you, Rhonda, and welcome, everybody. I'm here with Dean Shigenaga, Pete Nelson, and Steve Richardson.

We are proud that this is our 48th reporting quarter, and as of the benchmark year-end 12-31-08, we were the number four total return performer out of all publicly-traded equity REITs.

Let's get right to the 2000 -- or the second quarter 2009 operational and financial report. At Mayor Bloomberg's press conference on July 22 with the CEO of Eli Lilly, our anchor tenant at the Alexandria Center in New York City, the mayor got into a heated discussion with several reporters about the need to invest in this downturn.

We agree with the mayor and have moved along several domestic and international projects with a funding target as non-dilutive government infrastructure money with high-quality credit tenants. This is true in each of our worldwide markets.

We're also having a series of discussions with a number of world-class institutions regarding monetization of selected assets, and you may also see the return of some fee development income.

We have substantially revamped our quarterly supplemental and -- thanks to Dean and his superb team -- to assist analysts and investors in more clearly understanding the significant underlying value of ARE's assets, much of which are held at very low underlying basis, which provide the -- which enable future growth, essentially. And these are true both on the operating and the important value creation pipeline.

We hope, also, that the supplemental puts to rest any issues regarding the health, strength, and flexibility of ARE's balance sheet and its ability to grow earnings and dividends over the long term. We are in excellent shape to handle all of our debt maturities through at least 2013.

Looking at our world-class client/tenant base, led by Novartis, Glaxo, and Roche, I think you will also appreciate that we will be welcoming Pfizer and Lilly in the not-too-distant future, in the coming quarters, and we clearly have one of the strongest and most credit-worthy client/tenant bases of any publicly-traded REIT.

If I go back to a comment that Mort Zuckerman likes to make, when you have the undisputed best regional teams, the highest quality assets, the best adjacency locations, success in leasing will be more achievable in varying cycles. That we are witnessing with almost 1 million square feet of leasing achieved in the first two quarters of 2009.

We are also making great progress on bringing our redevelopment and development projects online to generate future net operating income for the Company.

And, again, we are pleased to report continued positive same-store property revenue, the only office REIT never to have a negative same-store quarter. Likewise to continue for 2009, our unbroken streak, unique again among all office REITs, of year-to-year positive rental rate increases.

Our margin continued strong at 74%, and over 60% of our NOI is unencumbered.

We also put into discontinued operations during this quarter one asset held for sale to a user, life science user, and there may be others that will follow suit.

Let me talk a little bit about occupancy, since that's a key focus during these particular times. Steve Richardson, Senior VP who runs the San Francisco Bay region, will detail San Francisco in a little more detail in a moment, but fortunately, San Francisco is one of the two large anchor markets. Has held pretty steady with only a very slight decline to 96.5% on occupancy, and Massachusetts, the other really big anchor region, has had a slight tick up to about 95.7%.

Very good gains in suburban DC and Maryland on the back of -- substantial increased NIH funding and the large stimulus package passed by Congress in the first quarter.

Unfortunate weakness has been evidenced in San Diego, and we are hoping that that turns around over the coming quarters, but it is a noticeable weak market for, I think, all life science space in that market.

We continue to see strong continued occupancy in Seattle and internationally.

We are still in a very dangerous and volatile macroeconomic environment with unemployment continuing to rise and debt markets still pretty challenged in a number of sectors.

Coming back to the balance sheet for a moment, we are working to manage and contain the cost of debt, our critically important debt, capital, in a variety of ways as the cost of borrowing for all borrowers is on the rise from previous levels. This will be a very key focus of the Company during the coming quarters.

Turning to leasing for a moment, we -- it's pretty clear we have real high-quality demand for our best-in-class spaces. The second quarter was a very strong leasing quarter, with 473,000 square feet leased at about a 3.3% increase in GAAP rental rates, and about 936,000 square feet for the first two quarters at about 4%.

We still expect rental rate increases to be in the 5% range for 2009 and 2010, due to low expiring lease rates.

For the balance of 2009, we've got about 557,000 square feet. Essentially, two-thirds are spoken for and about one-third still too early to call and put in the bank.

We still do have lower expiring rents on this set of rules at about $28.

For 2010, our rollover is about 990,000, but we are very lucky again -- very low expiring average rents at about $24.99. 51% we expect to get done, 13% goes into redevelopment, which is not currently life science use, and 36% still a little too early to call.

Turning to development leasing, which has been a key focus for analysts and investors, I would say we are very comfortable with the great progress we've made on our development pipeline. But remember, this is deliberate, steady, and consistent.

And it's important to keep in mind that lab space is a much more complicated product to build and to deliver to a very highly sophisticated audience than traditional generic office, and as a consequence, instant gratification is not the order of the day.

We are fortunate, though, ARE has a premium-priced non-commodity product which is far more steady than generic office in these very tough macroeconomic times.

When you take a group of highly talented people in a great Company like ours and deliver superior results over the long term, patience and belief in the consistency of that differentiated business model and strategy is required. The intervention of a structural economic earthquake should not shake the foundation of that belief.

If you turn to the page 27 of the supplemental and the development summary, I think we are very pleased to take you through that list in a little more depth. The first one is a property that we've talked about before, now fully leased and committed to UCSF and a large-cap life science company. And that will start to bear net operating income in the coming quarters.

The second building is the one that has received a lot of attention. It is the Mission Bay building we built, or are building, for Pfizer. Pfizer, as you know, -- this is the parent, Pfizer Inc. -- has a 15-year lease with an out after 10 years, and that is fully committed for that period of time.

They are looking to sublease and we understand they may be very close to achieving their goal there. But we still will have Pfizer cash and Pfizer credit on the lease for a 10-year period.

But the second building is the second half of the combination building that we were building. This will be a little bit different than the shell delivered to Pfizer. This will be a robust lab building. We are currently marketing it and we have significant -- one significant dialogue, or at least proposal going on, with a credit tenant, and we will keep you posted on that as that works through the future quarters.

The next building is the 162,000-square-foot two-building complex we built, and Steve will give you more color on that. But we think that that is essentially done.

The next building is the 130,000-square-foot building in South San Francisco leased to Exelixis. They have an option through the end of this year, and we'll have to wait another couple of quarters to see what will come out of that. But they've done very well, and run by one of the top CEOs in the industry, George Scangos.

As many of you know, obviously with our press release and the Mayor's news conference on the 22 July, we have seen signed the anchor lease that we have been working on for quite a while with Eli Lilly. This is a very sophisticated program with a very sophisticated company that completed a very sophisticated acquisition. They'll be essentially housing the core of their oncology practice at East River, and we will be building the cluster around that.

We are in lease negotiations right now on significant space with a world-class brand-name food group. Also, we are working with a conference coordinator for the world-class conference center and, of course, services, which will be taken up by many of the tenants in the office.

We are also working on a number of pretty important additional requirements for office lab space. So we feel very good about where we are on the East Tower.

In Seattle, as most of you know, no change there. We'll deliver, in the first quarter, that building more or less fully leased, except for a little bit of additional space and a small retail to Gilead, which is one of the top-tier life science companies that has done very, very well over the past few years.

So I think when it comes to a snapshot on the development pipeline and looking at how we've done, I think hopefully the report card this quarter will be very encouraging. But, as I say these are all -- take a lot of work over a long period of time.

Then finally, before I turn the call over to Steve Richardson for his detailed comments on the Bay Area, I want to also acknowledge and welcome Krupal Raval, who, many of you know, kind of an ace buy-sider and sell-sider, who will join the Company after Labor Day as Vice President of Capital Markets.

We think landing Krupal will be a huge addition to the Company. He was much sought after by many other companies, and we feel honored to have him join us.

So, without any further ado, let me turn the call over to Steve Richardson.

My name is Steve Richardson and I have the responsibility for the San Francisco Bay Area region as Senior Vice President and Regional Market Director.

During the next few minutes, I will provide an overview of the Bay Area's life science market and how aspects of Alexandria's overall corporate strategy, as outlined by Joel and Dean, are being implemented on the ground in this region.

First, let me set the context of the Bay Area's life science market against the broader office and R&D markets. As many of you know from senior management team earnings calls, such as Boston Properties and others, the office and R&D markets in the Bay Area have weakened since their peak several quarters ago, with increasing vacancies and declining rents. There are signs that this weakening is at or near a bottom, but I'll leave those predictions to other experts in the field.

The life science market, in contrast to these office and R&D markets, did not experience the steepness of the significant run-up in rental rates and trading values during 2006 to early 2008, nor has it experienced the severity of the decline these past few quarters similar to 1998 and the 2000-2002 era.

As an example, the vacancy rate in the region's core life science corridor, which stretches from San Francisco, anchored by UCSF's Mission Bay campus, to South San Francisco, which is anchored by Genentech and Roche, all the way down to the Stanford Research Park anchored by the university -- that corridor is currently at a 12.8% vacancy rate. We are now tracking demand in this corridor that should drive this vacancy rate down to approximately 8.8% by the end of 2009.

This rough equilibrium in the market will help stabilize rents and enable them to return to their historic norms during 2010 and into 2011.

The East Bay life science market, in stark contrast, which stretches from Richmond to the north to Ardenwood and Newark and the South, however, has been experiencing severe vacancy rates in the range of 28%. And the free rent and broker giveaways have now hit high-water marks.

Fortunately for Alexandria, we asked this East Bay market entirely during 2007 at a strong cap rate, and high quality tenants from our core corridor rarely consider a relocation to the East Bay markets, except for a few in manufacturing.

Alexandria's Bay Area asset base, as in our other key cluster regions, is characterized by the highest quality assets and the best AAA adjacency locations. These premier locations and facilities have enabled the regional team to consistently maintain high occupancy rates, even during challenging market conditions.

We have also seen the life science industry's acquisitive nature directly and positively manifest itself in our asset base and provide us with high-quality tenants over time. For example, our top tenants in the region now include Pfizer, Roche, Merck, and Celgene, all multibillion pharma enterprises, as well as world-class institutions such as UCSF, as these entities have acquired and/or displaced other life science entities.

These quality tenants represent a testament to the excellence of our team on the ground, and the regional team is also making significant progress on our modest amount of vacant space. We have lease negotiations underway for 75% of the 24,000 square feet currently vacant.

We also have over 60% of the 34,000 square feet in the 2009 rollover in process. As much as 85% of the 300,000 square feet in the 2010 rollover is also in process, and most importantly, to echo Joel's comment, the 180,000 square feet in the development and redevelopment pipeline in South San Francisco are making solid progress as we speak.

Looking forward, we are poised to capture future growth in our core clusters with key substantial pre-construction activities that enable us to meet a wide range of timing needs for prospective tenants. And finally, we have also implemented the unprecedented cost-control measures in the region. Now over to Dean.

Thank you, Steve. Let me jump right into our guidance for 2009. Our guidance for the year was updated from $5.43 per share diluted to $5.63 per share diluted, really for the $7.2 million payment we received in the second quarter of 2009.

This cash payment related to an asset acquired in late 2007 and effectively was a purchase price adjustment on the original purchase accounting, resulting in a gain. Items like this are included in FFO pursuant to NAREIT's white paper on FFO, and we have treated this nonrecurring item accordingly.

Our guidance also includes a final calculation on the gain associated with the early extinguishment of debt. In April, we repurchased $75 million of par value of our 37 notes. We engaged a third-party firm to assist in the valuation of the gain, and recognized a gain of approximately $11.3 million.

During our first-quarter 2009 earnings call, I mentioned that an estimate of the gain was included in our guidance of $5.43. Our actual gain was approximately $0.01 lower than the estimate we provided in our first-quarter conference call. Even so, we made no reduction in our full-year 2009 guidance for FFO per share diluted.

Our press release and supplemental package include two tables on FFO. The first table, on page nine, shows the rollforward of our full-year 2009 guidance, as reported at various dates in 2009. It highlights the key changes in our full-year 2009 guidance has been related to capital transactions and, most recently, a purchase price adjustment paid in cash on the asset acquired in 2007.

The second table, on page 10, highlights our fourth-quarter 2008, first-quarter and second-quarter 2009 FFO per share diluted results. As reported, and as adjusted for certain items, this table should help in the clarification of certain items included in our reported FFO per share diluted results this year. It also highlights results without nonrecurring transactions, as noted in the table, and takes account of the full weighting of our 8% convertible notes.

The sum of our quarterly FFO per share diluted results will be higher than our full-year 2009 FFO per share diluted results, due to the partial weighting of our shares from the capital transactions this year. The sum of FFO per share diluted results for the four quarters of 2009 is expected to be approximately $0.14 higher than our guidance for the full year of 2009 of $5.60.

We reported $1.89 and $1.59 for the first and second quarter of 2009, respectively, leaving approximately $1.13 per share diluted for each of the last two quarters in the last half of 2009.

Let me provide additional clarity on our guidance for the full year of 2009. At this point, I want to remind everyone that our guidance is based on various underlying assumptions. Some of these assumptions include the following: Same property results are projected to be in the 2% range. Leasing activity is projected to generate 5% steps in rental rates on new and renewals on previously leased space. Margins are projected to be in the 73% to 74% range. G&A expenses are projected to decline over the next two quarters, and capped interest is projected to decline to approximately $16.5 million in the fourth quarter of 2009. Other income is projected to be approximately $1.5 million per quarter.

Next, moving to our value-added investment and related activities, as of June 30, our value-added investments and related activities totaled approximately $1.4 billion and represents all of our construction in process. This consists of approximately $150 million related to redevelopments; $410 million related to developments; $597 million related to important and significant value-added reconstruction activities, primarily associated with our entitlement efforts at Mission Bay and Cambridge; and approximately $249 million related to new markets and other projects.

Certain projects, like our redevelopment and development projects, are forecasted to deliver significant revenue and NOI contribution to offset the reduction in capitalized interest associated with these projects. Over the last couple of years, we have delivered redevelopment and development projects substantially stabilized and we are working diligently to deliver our current projects substantially stabilized as well.

Our entitlement efforts, focused primarily at Mission Bay and Cambridge, include regulatory approval, mapping, conceptual design, schematic design, permitting, construction drawings, costing, and many other critical items. Due to the significance of the entitlement efforts at Mission Bay and Cambridge, we expect these efforts to continue into 2010 and 2011.

Additionally, we have certain construction activities ongoing in certain new markets. We also have other projects, including two aboveground parking structures at Mission Bay that will generate parking revenues, and certain ongoing activities at the Alexandria Center For Science and Technology in New York City surrounding the first building, including underground parking, site plaza, park-related construction activities.

Certain value-added activities are scheduled for completion over the next few years. Our projection for capitalized interest, as noted earlier, will be approximately $16.5 million in the fourth quarter of 2009 and a quarterly average in 2010 of approximately $14 million.

Next, briefly, let me comment on taxable income and dividends. During the quarter, our Board of Directors authorized a reduction in our quarterly dividend to $0.35 per share. This dividend rate is projected to meet our distribution and taxable income requirements to maintain our REIT status.

We are fortunate to have an asset base with significant cost bases that we can accelerate through cost-segregation studies, resulting in significant additional tax deductions over the next seven to 10 years. Consistent with historical dividend increases, our core operations will provide for growth in quarterly dividends at the appropriate time in the future and as authorized by our Board of Directors.

We continue to have a low payout ratio within the real estate sector, allowing us to retain and reinvest precious capital.

Next, let me cover sources and uses of capital. As you know, in 2009 we've made significant progress in executing our capital plan, including deleveraging, extending or refinancing debt obligations, completing -- as well as completing new long-term debt.

Our execution on our capital plan clearly highlights that it is inappropriate to assume that all debt maturities will be repaid versus extended or refinanced. A more realistic and appropriate strategy for our business and capital structure assumes we continue to execute on our multiyear capital plan, including refinancing, extending, and sourcing new loans over the next few years; opportunistic sales of assets, including non-income-producing land parcels, primarily to users; and broadly speaking, equity capital as appropriate, including possible JV capital.

Our balance sheet capacity and forecasted sources and uses of capital, assuming reasonable assumptions for the extension, refinancing, and new debt, will allow us to manage our balance sheet capacity through 2012 and beyond.

As of June 30, we had approximately $557 million outstanding under our unsecured line of credit, or almost $600 million of availability. Additionally, as noted in our supplemental package, we had approximately $100 million of cash on hand, including $29 million of restricted cash related to construction projects.

Two-thirds of our secured debt is non-CMBS debt with insurance companies and banks, and the remaining is traditional CMBS. We believe these are positive attributes of our maturing secure debt, as CMBS loans are difficult to extend or refinance in this environment.

We are projecting that we'll be able to extend or refinance a significant portion of our secured debt maturities through 2013.

As a reminder, since January of 2008 we have extended or refinanced quite a few loans, aggregating well north of $400 million. We are also diligently working on extending or refinancing remaining debt that is maturing in 2010 and 2011, while we will also work on several new loans, including several that may generate aggregate proceeds in excess of $200 million. This includes a loan for approximately $120 million with an insurance company with a term of approximately 10 years.

We also have another loan following this, in the range of $75 million to $120 million, at early stages with insurance company lenders.

A key attribute of our asset base is that it consists of very high quality, very well located real estate with first-in-class client tenants with north of 60% of our asset base unencumbered as of June 30. This asset pool will provide opportunities for us to secure new financings in the future.

In summary, our sources of capital over the next several years include approximately $70 million to $80 million of free cash flows; approximately $600 million of availability under our credit facility; approximately $100 million of cash on hand today; approximately $120 million related to the new secured loan from an insurance company that I just mentioned; approximately $100 million, or plus $100 million, related to additional secured loan proceeds, which again is under discussions with various insurance companies; approximately $50 million of asset sales this year; and additionally, we anticipate being successful in closing additional secured loans over the coming years, as well as additional asset sales.

A reasonable and conservative estimate going forward is approximately $50 million of secured debt each year and approximately $50 million of asset sales in each of the following years.

Obviously, these are very conservative through 2013. These sources of capital aggregate up to about $1.55 billion.

But most importantly, I want to keep in mind that this list is not exhaustive and other sources of capital may be utilized to meet our capital plan, in addition to making appropriate adjustments to our capital plan from time to time as necessary.

Moving to uses of capital over the next five years, we have approximately $177 million of committed construction costs for redevelopments and developments and other projects. Approximately $125 million of secured debt obligations. This is net of approximately $255 million that we anticipate refinancing or extending.

We also have assumed the successful renewal of our credit facility at approximately two-thirds to three-quarters of its current capacity. We are also assuming repayment of our 3.7% convertible notes, with some repurchases being completed at a discount.

Through 2013, these uses of capital are meaningfully less than estimated sources of capital, as I just highlighted. We believe there are a couple of large credit facility amendments nearing completion, and the general sense of these deals is that the renewals/amendments will be positive signs for the borrowers, with significant increases in commitments from relationship banks. This is clearly a positive move in the right direction for banks and a positive sign for our ability to successfully amend our credit facility in the future.

Let me quickly cover our credit metrics. Debt to gross assets were solid at approximately 47.5%. Fixed charges were solid at almost three times today, based on traditional calculations used by many real estate companies.

Facility covenants are very specific to each company and dependent on the specific terms and definitions of each facility agreement. As such, covenant calculations and actual compliance will vary company to company.

As expected, we have operated over many years in compliance with our debt covenants. We believe that our credit metrics related to our facility covenants are solid for our business. Leverage for the quarter, or as of quarter end, was solid at the low 40% range. Our facility covenant limit is 65%.

Our secured debt percentage has been below 15%. The facility limit is 55%. Fixed charges are solid for our business at approximately two times pursuant to the definitions under our credit facility, and the facility covenant limit is 1.4 times.

Lastly, let me cover our core operating results for the quarter. Our first-in-class team continues to deliver across key areas of our business and have generated solid operating statistics during a very challenging macroeconomic environment.

We continue to report positive same-property results quarter to quarter and have reported positive leasing activity year to year for over 10 years. Same-property results were up 2.2%. As Joel had mentioned, leasing activity was very solid at 473,000 rentable square feet with GAAP increases of 3.3%.

Combine these results with our leasing stats for the first quarter of 463,000 square feet, our leasing for the six months in 2009 totaled 936,000 rentable square feet and up 4% for the year.

On an annualized basis, this is approximately 1.9 million square feet, up over the 1.7 million square feet of average leasing activity over the last four calendar years. This is truly an amazing accomplishment in this very tough macroeconomic environment.

Margins were 74% for the quarter. Accounts Receivable was the lowest, really, it's been since approximately mid-2006, at about $4.7 million, with no allowance for doubtful accounts.

We are forecasting the delivery of various spaces in our redevelopment and development projects over 2009 and 2010, which will add to our revenues and cash flows from operations. Our development projects that are scheduled for delivery in 2009 and 2010 aggregate approximately 770,000 rentable square feet at approximately 92% leased or committed.

Our construction in progress for value-add activities was approximately $1.4 billion, which is consistent with the balance as of March 31. However, our weighted-average interest rate required under GAAP increased by approximately 40 basis points, resulting in an increase in the amount of capped interest for the second quarter to approximately $18.2 million after the assumed conversion of our 8% notes.

We continue to forecast the gradual reduction in capped interest as we complete various construction activities, again, which will generate significant revenue and NOI. With that, I will turn it back to Joel.

Okay, Operator, if we could go to Q&A, please.

(Operator Instructions). Will Marks, JMP Securities.

I wanted to dig a little deeper into a couple of your markets. First, your comments on San Diego, the softness there. Can you talk about -- my understanding is that there are considerable barriers to entry with land. And just talk about potential supply there as a benefit to you.

And second, on the Mission Bay and South San Francisco markets, can you comment also on what Shorenstein and others have in terms of availability? I know there's not a whole lot of construction.

And then, lastly, on -- in South San Francisco, what -- if there is any action there? I know the Amgen sublease is -- puts -- keeps some pressure, maybe a cap on rents there. Any thoughts? Is there action on that space?

Actually, three good questions. I'll take the first, and ask Steve to take the two San Francisco questions.

I think what we're seeing in San Diego is there is not particularly a large excess supply and there is obviously a highly constrained land situation. What I think we are seeing much more -- and rental rates aren't plunging. They've really kind of settled down from where they were, much like what happened in San Francisco. The lab market hasn't seen the uptick as steeply as office did, nor has it seen the downtick as steeply as office has.

But I think it's fair safe what's missing in San Diego that we see in the other clusters, although they are each a little bit different, is big pharma really is not growing or focused on San Diego for the past number of years. Pfizer has slimmed down, Merck has exited that market, and a number of others who are there -- J&J, Novartis, and so forth -- have maintained presence, but clearly not expanding. That's substantially different than you've seen in the Bay Area or the Massachusetts area.

I think, secondly, the biotech side of the equation has been pretty tepid -- or, I should say, pretty quiet in the San Diego area, partially due to, I think, the lack of robust venture capital that you see more traditionally in the Bay Area and in the Massachusetts area.

And then, I think, finally, the institutions, who are actually the backbone of the market -- our presence is heavily in Torrey Pines and University Town Center, the two best submarkets where you want to be. But the institutions have not seen a lot of expansion. UCSD, Scripps, Burnham, etc.. We did sign a big lease with Burnham in the fourth quarter, about 76,000 square feet.

But a number of those entities have spent a lot of growth time in Florida over the past couple of years. There is a big Orlando expansion for Burnham, a big Jupiter expansion for Scripps, due to a lot of money that was given to them, both by the state of Florida under Jeb Bush and then the County of Palm Beach and I think the local folks in Orlando.

So, that's really -- I think the San Diego side of things is really more from a demand side, and then, two tenants are clearly in the news a lot. They've done very well. Their stocks have done well. Both Amylin and Biogen Idec, both tenants of ours, but again, they are not in substantial expansion mode.

So that, I think, is the differentiating factor in San Diego. Steve, do you want to talk about Mission Bay and South San Francisco?

Yes, starting with your last question first. As I pointed out here, I think we've got a reasonably healthy vacancy rate of 12.8% and we're seeing legitimate activity in the market that should drive that to single digits by year end.

That's really a function of a couple of things. You do have capital continuing to flow to promising companies from a variety of sources, as well as institution and big pharma just increasing their presence in both Mission Bay and in South San Francisco.

As far as your comment on Shorenstein, in South San Francisco they have a multiyear entitlement process there, so that's quite a bit further out into the future, and right now that's really just industrial product that doesn't compete with us at all.

And then in Mission Bay, those buildings are either occupied or tied up with options that, again, do not present a significant competitive product for us.

On specifically Amgen, I don't know if you can make a comment, but my understanding is that there is still 250,000 or 300,000 square feet available in your South San Francisco market of sublease space. Do you consider that competitive? Any thoughts on if there is activity there?

Sure, yes, it's most definitely directly competitive space. It's the largest block of space out there in that market. And again, there is activity.

I think we will be capturing our fair share, if not more, and ultimately they will capture a piece of the market as well. Once that happens, we will end up being in a very tight market, probably approaching 5% or so.

Yes, and I guess just to keep things into perspective here, the Amgen sublease space has been in the market for a little while now, and we did backfill the property that we rolled over in the fourth quarter with the large termination payment and leased it to a credit tenant, and they took down the 155,000-square-foot building.

I think, as Steve had pointed out, sublease space does pop up from time to time, does become competitive product, but I think we have quite a bit of advantages throughout our markets by the locations of our real estate and the demand that comes from the quality locations that we generally have in most of our markets.

And as I mentioned, also, just to finish this question, the Pfizer space in Mission Bay that's leased, I think that will probably be off the market fairly soon as far as any sublease competition for us. So that's good news as well.

Mark Biffert, Oppenheimer & Co..

I was wondering if you could quantify how much sublease space is in your portfolio -- of the occupancy that you have, is considered sublease space?

We don't have the information with us, Mark.

Then, I guess, maybe you can tell me, in order to be competitive in this market, what type of concessions are you offering to attract these tenants?

I don't think there are any particular -- well, where are you asking about?

I mean, in terms of the New York lease with Eli Lilly, maybe some of the things that you are looking to lease up in San Francisco. Are you giving six months free rent or are you giving -- helping with the buildout?

The buildout is an issue that -- we generally like to do the buildout because that infrastructure, obviously, is a long-term, high-value asset and we get a very high-quality return on that.

The Pfizer building, they chose not to have us do the buildout, so in that case, they get a shell. But in many cases, we would like to try to do the buildout. But again, that depends on the negotiation.

I wouldn't call that any kind of a concession. That is actually something we'd like to get. You know, when you talk about brokered giveaways or things like that, you have to remember we really haven't had to do that because of the rather modest vacancy rates in most of our markets. We are not in any submarkets where vacancy rates are in the mid- to high teens or in the 20s, like some of the East Bay markets and others that Steve alluded to.

And Steve can talk more about concessions. I think, also, GAAP rates are straight-line and these are all-in numbers as well. Dean, you may have a comment.

Yes, I was just going to point out that if you look at our leasing statistics on page 20, it shows the six months for 2009, and you can see that the TIs and leasing commissions per square foot really haven't varied significantly from reported amounts in prior years for 12-month periods.

And then the GAAP rents, if you -- you asked about any significant concessions on the free rent side, that would be buried and included in the GAAP rent statistics, so to the extent you give away too much free rent, it will impact your overall GAAP rent numbers.

And as you can tell, we've delivered 4% rental rate changes on 600,000 square feet year to date in 2009.

Okay, great. Thanks for the added color on the preconstruction pipeline. I'm just curious if you can talk a little bit more about the projects that were added that weren't on the previous quarter. I believe the only ones that were on there before were Eastern Massachusetts and San Francisco.

What are the other projects? Is that just pure land?

They have been on -- if you go back historically, they've been -- we've had schedules on there historically where these have been broken down. I think we tried to put out a more detailed CIP analysis this time, based on requests from investors and analysts.

But I think the page 28 spreadsheet is -- we've kind of enhanced it, but it has -- it was not there last quarter, but was there in previous quarters, because we were trying to figure out how best to present it in a way that could be clear.

But we've owned virtually all of that land for a long period of time. The big ones being -- this is page 28 -- obviously Mission Bay. We have a large holding in the South San Francisco -- I think we're the largest landholder there -- of to-be-built land, and then obviously, our big project in Cambridge, and then the others kind of devolve from there. But nothing new has been added.

Okay, and then, Dean, I may have missed this. What was the carry costs on those projects?

We did break it out. It's on page 25. So for the $5.6 million preconstruction square footage, you can see there was about $597 million of basis associated with that.

And remember to keep in mind that if you look at -- by and large, we have pretty low bases, even compared to a market comp today, in each of these locations.

Sometimes, if you go back to last sales during -- before the market kind of collapsed after September, in some of the markets we still have, maybe, bases that would be one-third or one-quarter of what the previous fair market value rates are. So even with a pretty big haircut, we are still in very good shape.

And then in Massachusetts, as we pointed out, in the East Cambridge aggregation, which is really the last big set of parcels that can be built on there, we have a pretty, pretty modest basis -- about $100 a foot. We've got about, I think, $6 million of cash flow coming from lowrise buildings on some of those sites. None of that being picked up in income, but going to reduce bases.

So I think for future growth and for value, people can be comforted by the fact that we've got pretty low bases here.

Okay. Then I just had one other question on the gain that you guys booked during the quarter. How did you assess that valuation to book that gain? And where was that recorded in the income statement?

This is on the --

The $7.2 million gain.

The $7.2 million was valued at the cash price, cash amount that was paid to us. So it was a very straightforward calculation, and it shows up in other income.

Anthony Paolone, JPMorgan.

It's actually Joe Dazio here. Question about bad debt expense. From the 2008 K, it looks like it's been running at zero for 2007, 2008. Do you see any reason to change that at this point?

No, no. I'd say -- my comments, I had highlighted that we don't have any allowance for doubtful accounts on our books as of June 30. So, no, I don't see any surprises on that front coming down the pipe.

Okay. And then, Joel, a question about the mark-to-market. I think you said that in 2010, you are also expecting a 5% increase on the lease expirations.

That's correct.

If you look at the schedule, I think the 2010 expirations are maybe $3 to $4 below where they are in 2009.

That is correct.

And even further below kind of a low to mid 30s, where you've been signing leases today. Is that just a matter of market mix, or is there something else?

No. That's just historical. If you look at that, we thought that that would be helpful. It's just a matter of historical leases in place, and we're benefited, obviously, by that, so that's -- that's page 21. That's just a helpful factor in the marketplace, which would allow us to -- when we re-sign leases.

If you look at the bigger ones, San Francisco at $26. That's pretty decent to be able to go into 2010 with. And then, Massachusetts at $29.90, again, pretty good. So we feel very good about that -- being able to reasonably achieve that 5% number.

Okay, and then a couple of questions on development. The Eli Lilly lease at East River, you had been negotiating that for a while. Did the rent change during that negotiation period at all as the market deteriorated?

No, actually Peter [Mowgli], who negotiated that lease, is sitting right here, and no, actually it was one of the least combative and most, I think, most pleasant leases to negotiate, but it's a very, very complicated lease and a very complicated building in a market that has never had real life science users.

So -- and also, the requirements of big pharma sometimes are pretty extraordinary when you get into programming and timing, and it just takes a whole lot of time.

Okay, then, a couple of questions (multiple speakers)

Nothing unusual and, no, there was no retrade on the economics at all. It was actually a very -- I think when you deal with a lot of the companies -- our experience and we -- virtually all of them are our tenants.

Lilly comes from Indianapolis. We spent a lot of time back there. We have historical relationships with Lilly in another market and also on some strategic initiatives. And when you go back to Indianapolis, it's kind of the salt of the earth kind of people, and that's why Peyton Manning is their hometown fan.

It's just they're good people, and it isn't the kind of thing you sometimes see with, maybe, financial institutions in New York, looking at the market every day and retrading rent every moment. It just didn't happen that way.

Then a couple of things on the 162,000-square-foot development in South San Francisco. Is that being leased to one tenant that's currently being negotiated? Or are there -- is that multitenant?

It's one.

Last quarter, it was listed as 16% preleased? Did that tenant just decide to take down the whole building or is it a whole new tenant?

A whole new tenant.

Okay, and how does the returns on those two developments in South San Francisco kind of compare to your, I guess, typical developments? Was it about in-line, or a little more, a little less?

I would say a little less than our traditional 10% to 12%.

Michael Bilerman, Citigroup.

Just sticking on the construction in progress, the $1.4 billion, did you not have any capital outside of that that's not being capitalized? For land and other things?

Yes, the $1.4 billion represents our cost basis that is under construction activities and represents, as of June 30, the applicable basis that would be used under FAS 34 for interest-capitalization calculations.

Right, but you look on the balance sheet, it's the same $1.4 billion. Effectively, which is -- the property is under development and land. Effectively, you are capitalizing on your entire bank, right? So there's not, like, another $100 million or $200 million (multiple speakers)

If you go to page 28, Michael, I think we've tried -- we kind of fiddled around with this a little bit. We tried to kind of lay out -- so if you look at the first column, you've got those that are actually in pretty substantial activity, and then you've got kind of the land in -- the total's almost $5 million -- the $4.8 million.

Right, and the first column is $597 million and the second column is the $250 million that relates back to page 25.

No, no, no. Let me walk you through that, Michael. The $597 million on page 25, titled preconstruction projects, is associated with, on page 28, the very first column under development preconstruction, totaling $5.6 million.

The $4.8 million right next to it, land, is not part of the $1.4 billion on page 25. That land is not undergoing any construction activities and is sitting on our balance sheet outside of the $1.4 billion.

Right, so no capitalization on that.

Okay, so how much is that and where is it on the balance sheet on page 6?

It's included in rental properties.

You are including land in the rental properties' net number?

Yes, it is in there net. Short of putting a separate line somewhere in other assets or something else, that's where we are holding it.

So how much do you have non-income-producing, outside of this $1.4 billion?

In basis?

Yes.

I don't have that number with me, Michael.

$100 million? $200 million? Just to get a little goalpost around it.

Yes, I don't even -- I don't want to guess, Michael. We'll think about getting that out there in our next quarterly supplemental, so you've got that information.

And then, what does the $250 million, then, relate to, specifically, then?

That's a good question, Michael. And you are referring, just so I can -- ?

On page 25, this $250 million called new markets and other projects.

It is highlighted. I know you probably haven't had a chance to read through the entire note here, but in page -- just so you have it for reference, on page 31 (multiple speakers), there is a description of what's included in there.

But basically, it includes two parking lots in Mission Bay. These are aboveground parking structures to support the operating assets that will be there shortly. Will generate revenue. You've got two buildings in south -- in China, and you have a component of our New York project, which is the Plaza and the West Tower site, etc..

All these projects will be delivered over time as they get through their construction activities.

Okay. And the additions to the supplemental were extraordinarily helpful. So I do thank you for that.

Not to look a gift horse in the mouth, but it would be great to get the CIP listed on the development page, so we actually understand how much is spent and to be spent, and on the redevelopment, to be able to track those returns more accurately would be helpful.

Going back to East River, and there's been some discussion because it's -- because ImClone is a New York-based tenant already, that it fell short of one of the goals of some in the city to really bring new tenants to New York. And I'm just curious, Joel, how you sort of react to some of that criticism.

Actually, that was the first question asked of Mayor Bloomberg, and if you were there, he would've jumped down your throat.

He actually -- that was the very first press question, and there was a pretty decent press contingent, and they asked that exact question, and he did jump down the guy's throat. And he reminded them that, number one, they are in pretty shabby quarters down on Varick Street, which is more like a quasi-garment district area.

They are going to be consolidating the oncology group of ImClone, which has a pretty robust pipeline, together with a selected group of Eli Lilly oncology folks coming out of Indianapolis. And over time, we hope that will grow significantly.

An easy choice for them would -- could have been, and short of the takeover of -- by Lilly, ImClone was scheduled to go to Branchburg, New Jersey. They have a manufacturing campus, therefore Erbitux, and they have plenty of land on which to build. They could've built traditional suburban office lab buildings at a fraction of the cost of East River.

That was the game plan before Carl Icahn got involved in the takeover side, and so I think it's a testament to Eli Lilly and to ImClone. ImClone's -- most of their people come from New York City, their research staff. Very few of them wanted to go to New Jersey.

So in a sense, if East River did not exist, New York would've lost virtually all of these jobs. So I think the win is an absolute win. I think people coming from Indianapolis to supplement ImClone will be good, and over time, I'd love to see Eli Lilly oncology headquartered there.

And I think one big footnote that we haven't said much about, but that has been public a bit -- there is going to be a rather large investment arm that Eli Lilly is setting up that will be housed at East River, and it may be a combination of both office and labs, for a large investment in the tune of north of $100 million that we'll be putting together, just very pre-IND clinical and clinical-stage candidates to basically take through the clinic. And that will be headquartered in New York at East River also, and that's a big win also, I think, for New York.

We were there with Bloomberg. So I just wanted to get your reaction.

You're lucky you weren't asking that question with him. I'm much nicer. He -- I would actually -- John Lechleiter -- this is kind of a funny sidelight -- who was standing next to me, who is the CEO of Eli Lilly, when Mayor Bloomberg jumped down this guy's throat, he grabbed my arm and said, gee, we don't see this in Indianapolis. So, it was a pretty interesting back-and-forth.

Just looking over to Mission Bay for a second, on the Pfizer base, I think you mentioned that they were pretty far along in getting a sublease done. How do those rents compare on the sublease basis to where your lease is? And if they are close enough, is there a desire for you to sort of do a transaction where you're going to step in and just have a direct lease to the tenant?

Yes, I think, number one, our lease with Pfizer yields us a very handsome return on our shell cost. Very, very strong. So we have no incentive to do that.

Plus, we've got a 15-year lease, at least, in the bank; for 10 if they choose to terminate at the 10-year mark. And obviously, Pfizer Inc. credit.

So there's no incentive for us to do that. But Steve can comment, not so much on the sublease rate, because I don't think -- I'm not sure that we know. I'm not sure that we can say. But just generally how that's going.

Yes, again, there is quite a bit of activity in both the Mission Bay market and the South San Francisco market.

Pfizer has hired a broker. They have very aggressively pursued active tenants out there in the market. We don't have any insight as to where the sublease rate might end up.

But again, they've taken the steps in a very short order, right after their announcement about not occupying this space, to try to backfill that, so our expectation with the real-live activity out there is that they will be successful here in the near term.

And we understand that Jeff Kindler is personally involved in that effort.

Okay, and that's not dragging any competition away for your -- the sister building?

No, not necessarily. I think we are chatting with a few different people now. And it's going to be beneficial to us to have some smaller spaces available to accommodate tenants because there really is virtually no other laboratory space available in that kind of medium-sized increment.

So, I think it will complement us very well going forward. And that space doesn't get delevered until well into Q1 2010.

I was talking to the UCSF people the other day. Pfizer has continued -- they have made a large venture investment in an effort that UCSF is heading there. So they are not totally exiting the market, sub-market, and forgetting about it.

They have -- at a lunch that Steve hosted with the mayor and Jeff Kindler back, I don't know, it seems like an eon ago, but last year in the summer maybe, he committed to invest in this venture fund that UCSF has, and I just asked the question the other day of the general partner there, who is running it, and he said, no. They have ponied up and they are on board.

So that's a good sign as well, even though they physically won't have presence at Mission Bay.

Michael Bilerman My last question, just on the line of credit, I think you talked about being -- assuming two-thirds to three-quarters of the line availability, and I think you talked about it in the [South] but your lead lenders at least expected that's where you'll be able to get to. How much do the lead lenders have of the 1.9? How confident, I guess, are they and at what point will you start those negotiations?

Yes, I will let, maybe, Dean answer. Let me just give you a top-level view.

I think the way lending will be done in the future, there will be fewer overall members of the bank groups. I think that's not only for us, but I think for probably most of the REITs up there, and I think you'll see more lenders step up to bigger levels for the clients that they choose to want to associate with and do business with.

So I think that will be a big differentiating factor and I think there's a number of pretty sizable deals on the market today that are kind of evidencing that very fact. But Dean can give you some further specifics.

Real good question, Michael. Really, what's going on in the market right now is the banks are looking to do three-year terms on credit facilities, so the renewals give you full three years, and you'll see some outliers short of that, obviously. If you look back over the last nine months, there have been some accretive deals done on the short-term basis.

But three-year facilities -- in other words, it's not a two plus one. It's a full three. And if you think about our timing on our maturities, that's kind of -- doesn't do us a whole lot of good right now to take a three-year extension. And that's three years from today, not three years from our current maturities.

What has been clear, I think, is that we are going to see banks step up in a big way and increase their commitments. Generally speaking, you will see probably new banks come in as well. It's not too hard to envision.

If you think about how far ahead of the game a couple of the top-tier banks have advanced their position within the investment banking community -- a lot of banks got left behind in the first part of 2009 on transactions this year and so they are very hungry and aggressive in enhancing their relationships in order to capture some of the fees that are available out there.

So I think that's really playing into the market. And I think you will get a sense for it as these couple of deals unfold in the near term.

To give you an idea -- to answer one of your first questions that led into this discussion, our top lenders typically hold a position ranging from $75 million to $100 million generally on our credit facility, and as you get a sense from some of the deals that are likely to get done in the near term, I wouldn't be too surprised to hear banks putting in $200 million of commitments into facilities.

Now I don't know that that necessarily translates into the size of commitments that we need to complete from our top banks, but I think the trend that we are hoping to see unfold in the near term here is significant increases from top relationship banks.

And also, I'd say we are highly confident that the numbers that Dean put out there are what we can achieve.

(Operator Instructions). Jamie Feldman, BAS-ML.

I was hoping you could talk a little bit more about -- if you break up your tenant base by their sector, whether it's research institutions or big pharma or biotech, kind of what's the mood in the second quarter versus the first quarter, and even as we head into the third quarter? Which are kind of getting back to business? Which are still on hold? And how do you think about whether your sector in particular is nearing a bottom?

We put out -- I guess, if you go to the page 22 and then the pie chart at 23, which is maybe hyperlinked, I would say it's a little hard to say by general category, but I -- because it is company-specific.

Because, in one case, you have Roche announcing the movement of their U.S. headquarters from Nutley to Genentech's campus at South San Francisco. You have other companies who are expanding pretty greatly -- AstraZeneca, after their acquisition of MedImmune announcing the Gaithersburg area is going to be a big base for them, and then, on the other hand, you've got Pfizer who has decided to, because of the Wyeth pipeline fill, they've exited San Diego. I mean, that was previously, before, not in total, but they've slimmed down there, and they clearly turned on moving to Mission Bay.

So I wouldn't say it's big pharma as a category. It really is very company-specific. And I think that's true throughout.

But I would say, in general, we are seeing much more activity with big pharma in a number of the markets, certainly the two big markets. We are seeing decent activity on the private, high-quality side. We signed a couple of big leases over the last couple of quarters with some very well-financed private life science companies, so they have garnered some pretty good money.

The public biotech companies that you see -- Gilead is expanding. Obviously, Amgen is more on hold, so it is very -- Celgene has been expanding and we have been expanding with them. So, again, it's pretty company specific.

And then, I think, institutionally, institutions have -- they have two problems. On the one hand, they've got more money through the NIH if they are a top-tier group, but on the other hand, they've got endowments and other pressure points that have caused them to maybe look more inward, and so that's presented a great opportunity for us really on both sides.

So I would say it really is almost institutionally specific, and then, obviously, submarket specific, if that's helpful.

Okay. And then, as you talk about the government and the NIH funding, what kind of impact do you see on your 2010 business plan from that?

I think substantial. We clearly have had the benefit, direct benefit, on the stimulus package and the NIH money in the Maryland market. You have seen the occupancy pick up. I think you'll see more of that in the coming quarters, virtually directly related to those two aspects and, certainly, some in the hinterlands of the various other markets, primarily out of NIH money, and then we will see.

I think we are trying to access some stimulus money for a project that we are looking at up in the Bay Area, which is kind of a unique project. So, stay tuned for that.

But I think you will see more and more of that. But again, the endowment side of things has been kind of a downside. As you know, there's been a lot written about Harvard's taking some pretty big hits, and they are stopping a very large life science development project, some 700,000 square feet in the Allston area across from their main Cambridge campus. Again, because of the financial downturn and the decline in the value of their endowments.

So that presents an opportunity for landlords who are leasing or want to help finance them with some creative opportunities.

And then, finally, for Dean. The change in your capitalized interest outlook from 2009 to 2010, is any of that coming from land in process that you will no longer be capitalizing?

Not in any big way. As I mentioned in my call, the preconstruction activities up in Mission Bay, and you can also tell by the square footage on the preconstruction table near the back of the supplemental, that there is a significant amount of square footage up in Mission Bay and Cambridge that's going to go through construction activities through 2010 and into 2011.

There may be a small parcel that gets completed, but I also give you guidance as to what might what my outlook was on average on a quarterly basis into 2010. You could tell, based on that, my guess is -- I haven't broken down the numbers, but most of it is probably coming from deliveries of redevelopment and development space. And then, maybe a small or parcel or two coming to completion on the preconstruction activities.

Dave AuBuchon, Robert W. Baird & Company Inc..

Sorry if I missed it. But Dean, could you talk about expected rates and loan to values on the secured loans, the two big chunks that you have right now?

Good question, Dave. I forgot to add that into my comments, but I would say that our discussions of late are very consistent with my comments in the last quarter call, which I believe I may have highlighted, were generally in the seven -- mid to high seven range.

Loan to value, I'll say it with caution because the value component is buried in that term. But generally speaking, in the 50% to 60% range.

Okay, and then, so -- I'm sorry, $100 million you have letter of credit? Is that right?

Well, $120 million deal that we are working to close that we've got a signed deal -- signed term sheet on.

And then, Dean, I think you said in your comments that there was another loan on the way, or no?

Yes, there is another pool of assets that are in early-stage -- the early-stage process.

And the reason why I used a big range is to give you an idea of when we put together this first pool that's now sized to $120 million, we started actually below $100 million, not knowing the appetite with the lending community, and we were then asked to size it even larger. We did, and as we firmed up the package, we settled at $120 million.

What I had highlighted in my call notes was a range somewhere between, I believe, $75 million and maybe $120 million, and it'll be sized to the appetite for the specific lender we decide to do business with.

And we are also actively looking at opportunities and we've been presented with a whole bunch of multiple opportunities on Tech Square.

And that's outside of the two loans that you are talking about here?

Correct.

Okay. And then, just timing on these two (multiple speakers)

And we also did have a meeting with TALF. It was inaccurately reported, and then I guess they corrected it. But we decided that five-year money just wasn't worth it. We hardly did the convert, and people were either pleased we got the money or unpleased because of the nature of the instrument or the timing or the structure.

So we clearly moved away from shorter-term kind of debt and moved to long-term debt.

And then, just timing on the term sheet you signed, and then, the second deal?

I would assume that would probably close this quarter. And then, the other one, maybe in the fourth quarter. Hard to say. But that would be our general expectation.

Then, just, obviously asset sales. I guess pricing right now, Joel, it's going to be pretty challenging for asset sales. Just (multiple speakers)

This -- our sales are likely to be to users, and the one we have that has been put into discontinued ops is really based on a cost per square foot, and we'll have a very nice gain on that. So it's not really so much on a cap-rate basis.

Last question is on the redevelopment pipeline. Can you talk about what's actually preleased?

Let me go to that page. So the two smaller ones in San Diego will come out of redevelopment this year. We are working on a couple of smaller requirements. But nothing is leased at the moment.

The larger San Diego, we are working on some pretty sizable deals there. But nothing has been leased.

The South San Francisco, where we are converting -- actually, let me just take you through these for a second because it's worth [it]. The top one was a total gut of a pretty old office building, the big one in San Diego, and the other two were guts of, partial guts of -- one was a complete gut, but the other one was partial gut of older product and single-tenant use in one of them.

The San Francisco one is single tenant that we are creating multitenant, and we think we'll -- we're working on a lease there for at least part of that.

Tech Square, which is in here, I think we have one floor left that we will deliver this year. A new one in Massachusetts that we just kind of cleared out. It was office and kind of other assorted space. That's the, I think, the 90,000 one. That's -- we just kicked all the tenants out.

And so, the balance, I think, pretty much, we are working through guts of those. So no leasing, but we're working on some things.

And then, the 98 -- let's see, the 50,000 square foot in Maryland, we are actually working on finalizing a lease on that. So I think -- I don't know if I've covered those right, but -- .

Yes, and let me -- the 58,000, which -- let me just fill a couple of the holes here. The 58,000 in suburban DC is leased, 100% leased, and that is going to go through -- it's actually a pretty interesting project. Some of the space is in pretty nice shape, but they're also expanding on the building there, which will take a little bit more time to complete. But that one was leased.

That's the 58, right?

That's the 58,000.

Right, and that's pretty substantial rental rate increase there, and the 50,000 below it is -- we have essentially signed a deal and it's working through the government for -- on their end, so essentially it's leased.

So the two suburban DCs is our least. Florida is partially leased. As I mentioned, the Cambridge is pretty much done except for one floor, and then I think I've given color on the others. So hopefully, that's a little bit of help to give you a sense of what's out there.

Right, just to try -- I'm trying to model this into numbers. It sounds like, on balance, you are probably 30%, 40% preleased at this moment?

Yes, I'd say maybe in the 40%-plus -- 40 -- maybe even -- yes, 40%-plus.

Anthony Paolone, JPMorgan.

On page 25, the $177 million you note that is required to finish up all the CIP there, is that all-in or do you have to put -- or is that just like hard costs and cap interest would be in addition to that? What's -- ?

That's a construction cost. So it excludes capped interest.

Okay, so if we look at the one, the three years that you kind of outline there to get it all done, and the kind of cap interest numbers you outlined, the kind of all-in for basis purposes would be, like, another -- is it close to $300 million in total?

No, no. Most of that $177 million will be spent over the coming four quarters. Stuff that goes out to three years is really a small component of that $177 million.

Okay, so it would take about four quarters' worth of cap interest, plus the $177 million, and that's kind of the number, I guess?

Sure, sure. That's a fair estimate, Tony.

Just to clarify on the $250 million of kind of other items on that sheet, on that page where you got, like, parking garages -- like, for instance, with a parking garage, is that -- when you mentioned that those are produced revenues, do they actually produce revenues or it just means, as part of the enhancement of the office building, it just adds to the value of that asset?

No, it does generate revenues. It does generate revenues.

This does conclude our question-and-answer session. I would like to turn it back over to Joel Marcus for any additional or closing remarks.

Okay, just thank you for taking time today, and we'll look forward to talking to you to report third quarter. Thanks, everybody.

Once again, ladies and gentlemen, this will conclude today's conference. We thank you for your participation.