Alexandria Real Estate Equities Inc (ARE) 2010 Q3 法說會逐字稿

Good day and welcome, everyone, to the Alexandria Real Estate Equities Inc. third-quarter 2010 results 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 Rhonda Chiger. Please go ahead.

Thank you. Good afternoon. 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 2010 earnings per share attributable to Alexandria Real Estate Equities' stockholders; 2010 FFO per share attributable Alexandria Real Estate Equities' stockholders; the business plan of certain tenants; and the expected impact of retirement or conversion of our unsecured convertible notes.

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 maturities; increased interest rates and operating costs; adverse economic or real estate developments in our markets; a failure to successfully complete and lease our existing space held for redevelopment and new properties acquired for that purpose and any properties undergoing development; or 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 a 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 the date of this call, 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. And now, I would like to turn the call over to Joel Marcus. Please go ahead.

Thank you, Rhonda, and welcome, everybody, to the third-quarter conference call. With me are Dean Shigenaga, Krupal Raval and Steve Richardson.

So before we get into the quarter, I wanted to make a few macro comments as I always do. One of the most hostile Main Street versus Wall Street times in the history of the country is ongoing, and the so-called recovery, which has fallen flat, is continuing.

I think a great example of this is if you look at Friday, October 15, Wall Street Journal op-ed by Ken Langone, founder of Home Depot, quoted, "If we tried to start Home Depot today, it's a stone cold certainty that it would never get off the ground." This is an unfortunate message in today's environment.

I think the message of yesterday's election is simple -- help businesses, hire people, cut taxes and spending. In light of this continuing tough macro environment and the reality around it, our Alexandria's creation of our mission-critical labspace niche and the adherence to our unique strategy both in good times and bad has served us well. We successfully managed and consistently implemented our multifaceted strategy focused heavily on a number of critical areas -- positive same properties growth and positive mark-to-market on lease rolls to ensure safety and stability of cash flows; a strong effort at positive leasing of vacant space; management of expenditures, both G&A and CapEx in a disciplined fashion; a strong focus on return on invested capital from redeveloping non-labspace into labspace; and a same keen focus on a high return on invested capital from development of labspace.

And on a go-forward basis, you will see us really with a slower throughput of redevelopment and development on a spec basis. The world has changed considerably; so has our business plan. And then, also, selective acquisitions.

Pleased that our total return from IPO in May 1997 to September 30 approximates 512% and compares very favorably with other great performers such as Boston Properties at 556%. We're pleased with this long-term positive performance and confirms our disciplined risk management by focusing on high-quality facilities and the best AAA adjacency locations and the best life science submarkets, and also in the most favorable supply constrained locations with significant barriers to tenant exit as well.

A few words about our unique differentiated and consistently applied strategy -- we have and will continue to selectively acquire key assets, which increase our penetration in our selected markets, importantly increasing our NOI with a solid return on invested capital, and with a, where appropriate, a value-add component.

We have, in a highly disciplined manner, really avoided lower quality assets lower quality assets in secondary locations. We've tried to avoid way above market leases with near-term lease rolls; questionable tenant concentrations; and purchase prices substantially above market or too high a cost per square foot; and also, obviously, avoiding buying any land at above market prices.

Our shift from pre-cash speculative development to a kind of post-crash build-to-suit with quality tenants is underway. We continue to pursue sales of non-income producing land parcels.

We've maintained a high quality and well-diversified client tenant base in the only industry which really has the potential to manage and lower overall health care costs; and that shouldn't be left unnoticed by all of us -- a critical, critical point -- obviously, to ensure the stability and growth of our dividend, and to continue to enhance our balance sheet through our access to a variety of capital sources.

Two final comments -- one, big pharma is in fact now winning the war on drugs. Aggressively bridging patent cliff and pipeline gaps, in-house R&D is beginning to turn the corner and productivity is improving. Late-stage development has more than a 1 in 3 chance of reaching the market versus a 1 in 4 in 2007. And a greater use of process outsourcing could triple returns on investment.

It's also important to note the therapeutic discovery tax credit of about $1 billion this year, which was enacted in the Obama Health Care Law, allocated $281 million to California companies and $129 million to Massachusetts companies.

So onto the third-quarter operating and financial results, we really had about everything this quarter -- some acquisitions, some development, some strong leasing, good fundamentals, continued deleveraging, and sales of important land parcels. And Dean will detail a lot of this.

We did report $1.11 FFO per diluted share excluding the loss on debt extinguishment.

On the balance sheet, as we previously stated, the Company is making good progress on its focus and deliberate debt payoff and pay-down strategy and will continue to operate in the future at a lower leverage level, although we've always been pretty conservative over time. Dean will update you on this call on the amendment process to our line of credit.

And we continue important joint venture relationship discussions to tap an additional important source of capital to deploy [away] our multifaceted growth platform.

On the internal growth related metrics, we had a positive third quarter in a continuing tough environment, a 0.1% positive GAAP on Same Property. And again, while many companies have really struggled, we've been fortunate enough to be able to maintain the positivity in this area.

On occupancy, relatively stable operations on the operating property of about 94% -- 89.3% for all. If you look at an historical average, operating properties, our average ten-year occupancy has been about 95.2%, so we're below that a bit and right on the money overall at 89.3% over a ten-year period, including all properties.

If you move to or if we move to various markets on occupancy, let me make a couple of comments. In San Diego, we had a nice pickup in occupancy. And now with our stellar team led by Dan Ryan, we're optimistic about the long-term future in San Diego as the dominant life science landlord of choice.

It's also important to note that San Diego is in a major transition from a therapeutic-oriented life science cluster to a device, diagnostic, med tech tools, services, biofuels cluster, with quite a number of multi-billion dollar enterprises now taking the lead is the strongest and fastest growing enterprise, replacing the classic FIBPC, which were the fully integrated biotech pharmaceutical companies of the '80s and '90s. And this is a, I think a dramatic change, much like The Googles and Facebooks have emerged really to become top performers in the IT space versus kind of the historical Microsofts, etc.

In the Bay Area, Steve will talk about that. We had strong leasing this quarter, positive pickup. Eastern Mass, again, positive pickup there, and we continue to view it as -- and expect continued positive forward trend; good leasing this quarter.

And then in New York, New Jersey, and suburban Pennsylvania markets, again, we did have and expect continuing solid pickup as we bring online substantially all of the New York City project, which will be virtually fully leased over the next couple of weeks.

In the Southeast, we lost occupancy in a market which has and continued to exhibit overall weakness. In the suburban DC market, we lost some occupancy in a market exhibiting somewhat of a static situation, holding its own but looking for momentum post stimulus, but we do have a couple of good, early government-related opportunities brewing. In Seattle, it's remained really solid with continuing very strong occupancy.

On the leasing front, we are pleased with our team's superb leasing this quarter. 640,000 square feet, really dramatic and remarkable. GAAP was up over 8%, and cash almost at a 1% level on renewed and re-leased space, strong from the Bay Area. And 300,000 square feet from development and redevelopment and vacant space, again, strong in the Bay Area with almost a 9-year duration, which we're very pleased about.

The remaining lease rolls for this year, about 428,000, about 29% are leased already. Same as second quarter -- 10% are negotiated -- are being negotiated and anticipated, up from 5%. About 30% into redevelopment, up from 22%. 31% marketing, down from 44%. And we expect about a 0% to 5% increase in GAAP rents.

Next year, we've got about 1.4 million square feet rolling. 11% is leased to date, up from 6%, about 26% anticipated or in negotiations, down from 35%. Redevelopment, about 32%, up from about 30%; the big one being 400 Tech. Square, and we already have several full-building user possibilities we're in discussions with. And 32% marketing, up from 29%, with 5% plus on GAAP rental rates.

On the redevelopment side, we're pretty disappointed with our leasing progress to date, but this will be the key laser focus of the Company in the fourth quarter. And as I said before, in the future, the Company will shift its strategy and do less speculative change of use redevelopment than we historically have. Our client tenant base continues to be stellar and as strong as it's ever been, well diversified and not overly concentrated.

Moving to external growth on the development side; Steve will update you on the three San Francisco developments. We delivered more than half of the New York City project. The remaining half will be delivered shortly. The schedule updates you on the highlights. And virtually all of the remaining space is in two final lease negotiations that we hope to bring to conclusion almost in the next -- hopefully next few days or next week or two.

We're not initiating a speculative development in Maryland, as may have been erroneously reported by some press, but we did initiate one new build-to-suit in Research Triangle Park, North Carolina, 100% leased on a 15-year lease; half funded by a DARPA grant for vaccine production; and on land we own with a pretty nominal basis.

On the land side, as Steve and Dean will update you on the mission-based sale -- and we are very pleased that we are able to have that announced just this week. We think it is an important financial and strategic accomplishment of the Company, in a macro environment still that's very tough, especially for land. And it was I think a great credit to Steve and the entire team.

On future development opportunities, we have some great opportunities in Mission Bay, and Dean and Steve will talk about that; still about 300,000 square feet, approximating almost 2 million square feet in Cambridge, and over 800,000 square feet in New York City. And I think it -- the sale confirms that many people have really substantially undervalued our value-add landholdings.

On acquisitions, on the selected acquisitions front, we continue to believe the current acquisition environment is right for unique opportunities to deliver strong NOI, good return on invested capital and create a future value while, at the same time, not overpaying.

We closed on two acquisitions during the third quarter in San Diego and suburban DC market, both solid off-market deals.

As most of you know, we reported -- we closed on October 1 on the Nobel Research Park Campus, which was a sale to us, chosen among a number of buyers on the basis of relationship and track record. Really a unique and best-in-class campus in one of the best submarkets in San Diego.

And I think this will attract a different caliber of tenancy; really a big user that might be within San Diego or outside San Diego who is looking for a unique campus environment, not the traditional mid-level kind of labspace that you seek more in the markets there.

We paid about 50% of replacement cost. It was, I think, a truly great purchase at about $300 -- a little over $300 a square foot, with about $50 a foot on land. And those really bear pretty strong comps to some other recent comps in the market.

We understand the clock starts now as far as our repositioning of this asset. It's going to take pretty minor CapEx. We have the ability to create substantial value there. We're on a 15-month lease with Biogen Idec, which announced this morning a major reorganization. They're sitting on a ton of cash. The company is very healthy and they're focusing under their new leadership of George Scangos really on kind of the Boston area and their franchise in the neuroscience area.

We have several large users both inside and outside the city, and we think the allocation of capital here will result in a re-lease and a successful re-lease with the yield substantially above our cost of capital.

The San Diego market has been tough for pedestrian mainstream, midsize range labspace, and we understand that is not this property.

In other key initiatives, before I turn it over to Steve, our signature University not-for-profit development has moved sites due to the cost issues. So we've lost some precious time, but we hope to report significant progress in 2011, and we hope to incorporate a crucial clinical trial component here, which I talked about in our last call.

Healthcare IT stimulus money of about $36 billion, coupled with the high-tech Act of 2009 and major incentives for electronic health records and e-prescriptions are going to drive some of the activity in some of our submarkets, which presents us with some unique opportunities as well.

And finally, on the dividend, the Board is likely to consider a dividend increase for the fourth quarter in order to share the Company's increase in free cash flows with the shareholders. So let me turn it over to Steve Richardson on an in-depth Bay Area report.

Hello. This is Steve, the Senior Vice President and Regional Market Director of the San Francisco Bay Area. My comments will touch on both the life science and the broader technology market in our region.

As many of you are aware, the technology companies in the greater Silicon Valley have been doing quite well the past few quarters. Exciting companies in the technology sector now also include San Francisco-based companies such as Xanga, Twitter, and salesforce.com.

On this note, Alexandria was pleased to announce that salesforce.com had identified Mission Bay as a highly desirable and unique intellectual center, and we have completed an all-cash purchase of $278 million for approximately 2 million square feet of entitlements, as well as associated parking spaces and related construction infrastructure with salesforce.com, to establish their iconic headquarters campus.

Alexandria, subsequent to the sale, will maintain its dominant market position in Mission Bay's life science sector, and currently has three facilities totaling approximately 555,000 square feet, approximately 98% leased or under negotiations.

The company also retains the ability to provide nearly 300,000 square feet in Mission Bay, as Joel mentioned, to build-to-suit users, as well as another 700,000 square feet of fully entitled facilities in the South San Francisco cluster.

Suffice it to say, Alexandria is well positioned to capitalize on future growth opportunities with an ample development pipeline in these two key clusters as we see expansion underway from both the biofuels and clean tech industry driving demand as well as our core life science cluster.

The core San Francisco Bay Area life science market, stretching from Mission Bay in San Francisco to Stanford University and the Palo Alto area, is now solidly in the single-digit vacancy range. Alexandria's Class A facilities in this cluster have both attracted and retained industry bellwether companies as we leased or renewed approximately 320,000 square feet during the quarter.

First, we were pleased to welcome Onyx Pharmaceuticals to its new 129,500 square foot corporate headquarters lab office facility at 249 East Grand in South San Francisco. Onyx discovers and develops novel therapeutics based upon the genetics of human disease with an emphasis on cancer. The company has a market cap of $1.7 billion and annual revenues in excess of $0.25 billion. The East Grand location will provide Onyx with an opportunity to consolidate its operations, and also the ability to expand in a logical fashion as it might require over time.

Second, we were also pleased to secure a significant endorsement from Theravance, as they renewed their long-term relationship with Alexandria in South San Francisco in their corporate headquarters facility of 130,000 square feet in a two-building complex. Theravance has a market cap of $1.5 billion and a significant ownership stake by GlaxoSmithKline.

This leasing activity was supplemented by a number of other transactions across the region that have enabled us to maintain an attractive occupancy rate and reduce our near and mid-term rollover. We are also attracting solid activity both in Mission Bay and at our East Jamie Court project in San Francisco. Specifically, 1500 Owens St. in Mission Bay is currently under negotiations with the tenant that will effectively bring it to nearly full occupancy.

455 Mission Bay Blvd. South is welcoming Bayer this week to the opening of their laboratory facility. And additional ongoing lease activity in this project is expected to drive occupancy above 95%.

Finally, East Jamie Court, after our disappointment a while back with a full project user stepping back from the facility, is aggressively moving forward in a multi-tenant direction with activity on a number of floors.

I do want to take a moment to acknowledge the regional team in the leasing operations and construction realms as dedicated and accomplished professionals, [reaching] to supporting the success of our tenant clients every day. This on-the-ground team provides an industry-leading level of service and is an important part of what sets Alexandria apart from its competition.

In summary, the region has performed very well this past quarter in its core markets, and we are pleased to extend an enthusiastic and warm welcome to salesforce.com as the vision of Mission Bay as an unrivaled intellectual center is becoming fully realized. We believe it will be a benefit to all stakeholders involved, and serves as a national model for creating clusters fostering innovation and entrepreneurship.

With that, I'll turn it over to Dean.

Thanks, Steve. Let me jump right into our very recent sales of land parcels in Mission Bay, an update on acquisitions, balance sheet matters, operating results, sources and uses of capital, and our 2010 guidance.

Several quarters ago, we reviewed certain parcels for sale and identified a parcel adjacent to the future UCSF Hospital campus as a potential site to sell, along with a few other parcels in various markets. Our basis in this parcel is in the low $70 per square foot range, and our expectation was that the value was significant relative to our cost basis, a price not quite, but approaching, something relatively close to 2 times our investment.

Different parties expressed interest in land at Mission Bay, including salesforce. Ultimately, salesforce required a large campus setting, and we completed the sales of several land parcels in Mission Bay aggregating approximately 2 million square feet -- developable square feet. The sales included land, parking spaces, and above-ground parking -- in an above-ground parking garage and certain infrastructure. The total purchase price was approximately $278 million. Net proceeds that will be used to repay outstanding debt is approximately $262 million, and we expect to recognize a gain of approximately $60 million.

The net proceeds will eventually cover certain payments to a third party over the next several years if certain development milestones are not achieved.

We have not made any milestone payments to date and did not anticipate any payments in the near future. As such, our investment to date does not reflect any potential milestone payments. We do, however, as a result of the sale, expect certain milestone payments to be made resulting in a reduction in our gain to approximately $60 million.

These sales will reduce our pre-construction square footage by approximately 2 million square feet, a reduction in our aggregate cost basis under preconstruction of approximately $161 million, and a reduction in our investment in a parking garage classified in rental properties of approximately $18 million.

Additionally, capitalization of interest related to preconstruction activities for parcels sold aggregated to approximately $1.9 million on an annual basis, representing the reduction in capitalization of interest going forward. I think if you divide that by 4, that will get you a quarterly run rate going forward.

Most importantly, the net proceeds from the sale aggregated -- I'm sorry guys -- the $1.9 million adjustment in cap interest is a quarterly adjustment for your run rate going forward from the sale of these land parcels.

Most importantly, the net proceeds from the sale aggregated $262 million, and will be used to reduce outstanding debt.

Our book basis for the land parcels sold range in the low $70 per square foot range to low $80 per square foot range. And that basis varies due to the different dates of acquiring each parcel over a two-year period and the difference in costs incurred related to entitlements, design, site work and infrastructure.

Post sale, our cash yields and our total investment in our Mission Bay project, upon stabilization, is approximately 12%. This includes the buildout of the remainder of the future development potential of approximately 290,000 square feet, and the benefit of a $60 million reduction in our total investment related to the gain on the land sales. The cash yield on our total investment in Mission Bay excluding any benefit from the gain on sale remains solid at approximately 10%.

In connection with these sales, we do not anticipate a special dividend to offset the taxable gain from this transaction. A portion of the gain will be offset by tax losses from the retirement of our unsecured notes earlier this year. We will also defer a portion of the gain through a 1031 exchange transaction.

Let me briefly provide an update on acquisitions that were in process as of September 22, the date of our recent common stock offering. As a reminder, we had two properties under contract related to our purchase of certain assets from Veralliance that are subject to loan assumptions. We expect to complete the loan assumptions shortly. The total purchase price for these properties will consist of approximately $12 million in cash, plus the assumption of approximately $15 million of secured debt.

On September 22, we also estimated the total of $156 million of additional acquisitions. On October 1 of 2010, we completed an all-cash purchase of the best campus project in University Towne Center at San Diego for about $128 million. We also expect to complete a purchase of a smaller property for approximately $6 million.

Moving next to credit metrics, our net debt to gross assets was about 38% as of 9/30. Net debt to adjusted EBITDA was approximately 7.3 times as of 9/30, and approximately 6.7 times on a pro forma basis -- pro forma for the acquisitions that we have completed and to pay-down the debt related to the sale of land parcels.

Going forward, we expect to continue to improve this ratio through the growth of EBITDA, and an overall reduction in total outstanding debt.

Unencumbered NOI represents a large and growing portion of our operations at about 58% of total NOI. Going forward, we expect this ratio to increase with an increase in NOI from the delivery of spaces from our development and redevelopment program.

We remain in compliance with our facility covenants. Leverage is solid in the sub 40% range. The facility limit is 65%. Secure debt percentage remains below 15%. The facility limit is 55%. Then fixed charges are solid for our business at approximately 2 times and our facility covenant is 1.4 times.

Moving next to various balance sheet matters, during the quarter, we exercise our extension option to extend the maturity date of our unsecured line of credit from October 2010 to October 2011. We still have an option to extend the maturity date of our unsecured term loan from October of 2011 to October of 2012. And we are currently reviewing a proposal for our amendment of our $1.15 billion unsecured line of credit. Based on ongoing discussions with our important lending relationships, we have a high level of confidence that we will successfully amend our line of credit later this year, and are optimistic that we will have the opportunity to renew our revolving line of credit close to or at its current size of $1.15 billion.

Lender appetite for traditional secured loans remains solid for our assets; the quality adjacent to locations to key drivers in each of our top life science submarkets; tenancy and Alexandria sponsorship.

Our tenant receivable balance was about $4.9 million, and it's up slightly due to a spike in utility expenses from the unusually warm weather in several of our markets in the third quarter. The spike in utility expenses will be recovered after year end pursuant to each lease agreement, and until it's billed in the first quarter of 2011, these receivables will remain classified as unbilled A/R.

Billed A/R for monthly rent and budgeted operating expenses remain collectible and very clean as of 9/30.

Our top 20 tenants were recently enhanced with the delivery of space to Eli Lilly and Company in the third quarter of 2010. We are confident that our top 20 tenant roster represents a stellar list of tenants, especially when you compare it to other highly regarded, publicly-traded REITs.

Moving next to operating metrics, our strategy includes our consistent focus on top-tier life science cluster destinations with our properties located adjacent to the life science entities driving growth, and technological advances within each cluster. We also remain focused on solid operating metrics through our favorable lease structure. 97% of our leases are triple net; 94% provide for annual rent escalations; and 92% provide for the recovery of major CapEx.

Our leasing activity approximated 1.7 million square feet year to date over 2.2 million square feet on an annualized basis, representing one of our highest leasing years in the history of the Company.

It also highlights the strength of the demand for high-quality life science space in the best adjacency locations.

Rental rate adjustments were up over 5% on a GAAP basis. We reduced the remaining lease expirations in 2010 by 50%, down to only about 135,000 square feet where we also took back some space in the fourth quarter related to one lease in the San Diego market, which remains in the 2010 remaining expiring lease category.

Our occupancy percentage remained solid at 94%. As of 9/30 and over 95% on average since 1998.

Same property performance was positive for the 49th consecutive quarter. Operating margins remain solid for the nine months ended September 30 at approximately 73% and down slightly to 72% for the quarter. Over the past several years, margins have declined primarily due to the impact of certain additional ground leased assets, including Technology Square in Cambridge.

Please keep in mind that approximately 97% of our leases are triple net and therefore the majority of our operating expenses, excluding ground rents, are recoverable from our tenants.

We continue to advance important preconstruction activities on several strategic land parcels, including our 1.9 million square foot life science development in East Cambridge. The diversity of high-quality life science entities in Cambridge provides a great opportunity to prerelease due to development projects. Our land parcels are strategically located in the best adjacency locations in each of the key life science cluster markets. And these assets will be monetized through the lease-up to high-quality life science entities with significant revenue and cash flows with the potential for selective sales of certain parcels over the coming quarters.

Going forward, future sales of land parcels along with other sources of capital including free cash flows will provide important capital to repay outstanding debt. We have several ongoing negotiations and plans for the sale of land parcels ranging in size from $5 million to $75 million, again, each at a gain.

Moving to sources and uses, as of September 30, we had $600 million of availability under our credit facility. That increased it to $720 million of availability on a pro forma basis for the sales of land and the acquisitions that were completed in October. $111 million of cash on hand, $80 million of annual free cash flows, and most importantly, increasing to approximately $125 million in 2011.

Over the next 12 months, we expect to sell other land parcels generating proceeds of approximately $100 million while still retaining strategic value-add opportunities for future development. The proceeds from future land sales will be used to reduce outstanding debt.

Turning to uses of capital, our estimate for construction spending for the remainder of 2010 is approximately $75 million. We anticipate the repayment of secure debt maturities as they come due, and repayment of our 3.7% unsecured notes in early 2012. Also, we anticipate the successful renewal of our line of credit here later on this year.

Over the next several years, our goal will be to balance key debt and balance sheet metrics with capital from debt and equity broadly defined. To be clear, equity capital will include reinvestment of free cash flows, selective sales of income and non-income producing assets, opportunistic J.V. capital and common equity.

J.V. capital will continue to include key opportunities to work closely with institutional users with strong capital positions and other partners on the development of our strategic land parcels.

We also expect to continue to improve credit metrics over the coming quarters and into the next few years.

In the near term, significant EBITDA will be generated from delivery of our development and certain redevelopment projects.

Lastly, it's important to keep in mind that sources and uses of capital may be adjusted from time to time. For example, future acquisitions are very specific and impossible to forecast but certainly over a multi-year period.

Lastly, turning to our guidance, our guidance for 2010 FFO per share diluted was $3.57 and $4.40 excluding an $0.83 per share loss related to the retirement of our 8% unsecured notes.

Our guidance for 2010 EPS diluted was $2.29. Again, our guidance is based on various underlying assumptions and reflects our outlook for 2010. Some of the assumptions include the same property results projected to be positive, up to 2% both on a GAAP and cash basis for the fourth quarter with stronger same property performance forecasted for 2011.

Straight-line rents are estimated to be in the $6 million range on a quarterly basis. G&A expenses are projected to be -- to remain in the low $30 million range this year.

By the end of this year, we anticipate almost all of our active development projects to be completed or leased with some space committed. This forecast also assumes that we continue to work on the lease-up and delivery of our 162,000 square foot project in South San Francisco.

Capitalization of interest for 2010 is expected to decline from 3Q into fourth quarter, and from fourth quarter into the first quarter of 2011 and will reflect the delivery of significant square footage from our redevelopment and development programs and the reduction of preconstruction activities from the sale of our land in Mission Bay.

Lastly, our guidance going forward will continue to assume that we selectively sell both land [non-income producing] assets as well as income-producing assets over the next several years.

With that, I will turn it back to Joel.

Thank you very much. And before we go to Q&A, I just received a good bit of news. Our Chief Investment Officer, Peter Moglia, has advised that we do have a signed lease with a neuroscience translational research institute for approximately 70 plus thousand square feet in New York, so we're very pleased with that. And with that, I would like to open it up for Q&A.

(Operator Instructions). Michael Bilerman, Citi.

Good afternoon. Quentin Velleley and Mark Montandon on the phone with me as well.

Dean, you talked a little bit about this 12% return on Mission Bay, assuming you built up a 290,000 square feet and 10% pre the gain, again building out the space. If you were to look at just your return on what you have developed, on your -- I guess what you have invested net of the proceeds you have gotten, from the land sale, and just put the land that you have remaining, which I think probably has got a book value of $25 million, $30 million, what would that return be?

Well, Michael, I didn't run that analysis. I don't have the answer handy, but the simple answer is that it will impact the yields that I provided to you because you are assuming the in-place NOI, for the reduction of -- I'm sorry, an increase in our cost basis which will impact the yield modestly. But, I would be surprised if it moved the needle more than one point, in that range. That's very high level. That's a high-level guess with --

Right. Because the calculation you are using is -- you are assuming is current NOI and then you build out this feature space to probably the same number -- to a 12% or to a 10%?

It assumes the buildout of the future space. So it includes assumptions to construct the remaining space. It includes lease-up assumptions for both the existing product that has -- is vertical today in the development pipeline as well as lease-up of the approximate 300,000 square feet of future development potential. So it's all in, stabilized NOI over total investment, every dollar we have spent on Mission Bay.

Okay. And then just going -- go ahead sorry.

No, I was going to say, and Steve, maybe today cost of construction and rental rate in Mission Bay.

Yes, as I -- I think we've talked about a number of times, we're in the low to mid 40's on rental rates, and total construction cost below that, in that $350, $400 a foot range. So, I think that's where the 10% yield holds up.

And then just from an accounting perspective and balance sheet, how will you treat -- I think, Dean, you said that there's potential future payments; I guess you will receive all the cash today. Is there going to be some sort of contingent liability on the balance sheet? How should we be thinking about that money that's being held back and --?

Yes, you are right, Michael, on the accounting there, we will accrue what we believe is the estimated payments that will occur over multiple years. And, and so the accounting is, we do get the cash to pay down debt over a number of years, which will span the number of years; as those payments are made, cash will go out the door. But it will take a number of years.

But, in fact, they may not be made.

Right. And then -- oh okay. And then just on --

The amount and timing is hard to predict.

Right. But then you can just offset -- you'll just have a gain, but you can probably offset that at the time with other --

Yes, but we're getting down the road there. We put together really our best estimate of the potential payments in -- it will take a number of years for clarity to come through on exactly how much will be paid. So we won't know for a number of years until --

And then, just trying to get a sense of, on the Biogen facility in San Diego, the $128 million, how much of that was allocated to the existing building versus the future development? And how should we think about I guess the redevelopment expense and what the rents would be in that marketplace to start thinking about the return on that capital and future capital spend?

Yes. If you look at the overall purchase price, about 300 and maybe between $300 and $310 per square foot for the building, which is -- and this is a truly first-class, absolutely premier campus, considerably below replacement cost. And the land allocation was $50 (technical difficulty) foot. Recent comps in the market are as high as $80, so we feel very good about that allocation.

We think that we're looking at a full campus user, not a multitenant environment. We think the CapEx to get there is pretty minimal, so this is a -- really a relatively brand-new campus, first in class, really just outstanding when in all of its regard. And there's a possibility for a build-to-suit potentially, which could yield us some nice dollars as well. Rental rates for that campus could be in the range of about $36 triple net would be kind of an average.

That's helpful. Thank you.

Anthony Paolone, JPMorgan.

On the Biogen space, did you guys expect them to leave, or was this something that was just probability weighted in your thinking?

Well, the lease was for 15 months, so going into it, it was pretty certain that they were going to depart. The question is, and we didn't know at the time, precisely what their reorganization plan was, but it was pretty clear they were undergoing reorganization. And they also were hiring a new CEO, who came from a client of ours, Exelixis; actually I've known George Scangos for probably two decades. He was at Bayer in the Bay Area before he joined Exelixis. He's quite a talented guy.

And so when he came on board, it was at virtually certain that he would be making some substantial re-organizations because they really want this company to grow and become a truly great biopharmaceutical company. So our game plan all along had assumed that they would exit that campus and we would be looking for a large user, which is good in the sense that in San Diego, the strength of that market is really to some extent, on the small end and on the large end, it's really the middle area that's -- over the last couple of years that's really suffered and where we've struggled with a bunch of our spaces.

What kind of timeline should we think about? And what kind of timeline have you thought about in terms of when they exit the space, when you may have to do some work on it and when you think a new tenant should reasonably be expected to start paying rent again?

Yes, I think that they will be there for the full -- more or less for the full 15 months would be my guesstimate. Our goal is to have a lease in place as soon as possible, and I would assume that the CapEx for that new tenant would be actually pretty minimal.

Okay. On Mission Bay, we were under the impression that the land sales you were looking at there were likely in the MOB category. So just wondering if you can give us a little background on how salesforce.com ended up there, and did you guys have the option to be involved as a developer, even a build-to-suit? Or just a little bit more about the color around the transaction itself.

Yes, I'm going to have Steve give you the details, but when we started early in the year, we had really keyed up about $500,000, $550,000 of the south MOB -- targeted MOB and hospital office for sale. But then, one thing led to another and Steve can carry the story on from there.

Yes, hi, Tony. As we brought the MOV project to market, we had been having ongoing discussions with salesforce.com for well over a year. They intensified in the spring and into the summer. And it became clear to them as they saw their expansion plans over the next several years and their goal of establishing really a unique campus and stabilizing occupancy costs for the long term, that they needed a larger footprint than what we had always imagined in blocks 29 through 32 of let's say 1 million, 1.2 million square feet. So as it unfolded, it initially included the MOB parcels and then ultimately included the two parcels along Third Street as well to get us up to that nearly 2 million square feet. So it was really driven by their executive management team as well as their board.

I would say that it wasn't our intent -- as Steve said, we thought they would take the East parcels, which is the million-square-foot campus. MOBs might go separately but then they kind of wanted those. We didn't necessarily want to sell the remaining site on the north parcel, but it became pretty mission-critical to them, and so was folded into the transaction.

Okay.

And the CEO recently gave $100 million gift to UCSF's Hospital right there, so he's very invested in Mission Bay.

I see. And then just my last couple questions on the redevelopment pipeline, two things, one, when I look at the remainder of 2010 and 2011, it's about I guess a little under 600,000 square feet slated to go into redevelopment. I was wondering, what portion of that is conventional office that will become some sort of a life science space for the first time versus something that's already life science related, but will undergo a change of use just within life sciences?

Yes, well, if you go to page 31 of the supplemental, the space -- the big space for 2010 that will go in, the 93,000 square feet, is kind of an old industrial building in Seattle, so that is what it is. It's just old industrial. It's got a good location, and we think that there's an opportunity to create a labspace there.

If you look at 2011, where the larger amount of redevelopment is coming from, really the two big ones are Eastern Mass; that's made up of the big 400 Tech Square, which is about 178,000 square feet; you may have seen it on some of the tours. It's kind of a quasi carbon copy of 200 Tech Square, which we've redeveloped very successfully. It's occupied now by Forrester Research. They are moving to a new campus in the burbs. They are solely an office tenant. That will likely be redeveloped.

There is a chance potentially for that to go either to lab or to health IT. I don't know at the moment, but we have some pretty intensive ongoing discussions. That is, as I said, old labspace.

And then, the Seattle amount, almost 180,000 square feet, that's the Gates Foundation building in Seattle on Lake Union. It's a beautiful site. That's right now, fully -- it's a pretty amazing building, but it's fully office. There isn't a labspace, and we're working on a series of leases as we speak to redevelop that as labspace. So those are the kind of three major ones, Tony.

Okay, got it. And then just last question on the redevelopment for Dean, there's a couple projects that look like they get put in service in 2010 where there is no leasing or negotiating going on at the moment. Do those just come in as a drag on earnings, or what happens there?

You're referring to page 38.

Yes.

We had (technical difficulty) going top down --

It's the Eastern Mass. 113,000 square feet and 30,000 square feet?

So you're most of the way -- you are two-thirds of the way down, a little more than half the way down on page 38?

Correct.

You know, I think it's too early to tell how successful we will be in actually delivering that by the end of the year. There is some chance that we actually pull in a portion of this into our operations by the end of the year. And, depending on what we decide to do on the larger one, near term, there's also a chance that that comes in as well.

They're both suburban locations, Tony, so they're not kind of necessarily our sweet spot in Cambridge. And there's always a chance on the bigger one, there may be a user sale that we might be looking to pull off there.

Okay, got you. Thank you.

But otherwise they would be a drag assuming they get pulled in.

Okay.

Jamie Feldman, Bank of America Merrill Lynch.

Thank you. Joel, I was hoping you could talk a little bit about the bigger picture thought process for the land sale in Mission Bay. I mean this is a submarket where you effectively could have controlled it for a long period of time; and kind of what the readthrough is for the opportunities that you would see in your other markets at this point.

Yes, well I think the goal is obviously to make sure after this structural collapse and near collapse of the financial system, that we are deploying as much of our asset base into income-producing properties as reasonably feasible. And so, as Steve described, we initiated because we thought it would be a -- nothing is ever easy these days with undeveloped land -- but we thought the south parcels would be very attractive to MOB developers, etc. But, as he described, one user emerged over a period of time that really had kind of a dominant view.

We always viewed the East parcel, which is a million-square-foot block on the water as really likely -- and I think we said this many times -- likely a technology destination, just given the nature and feel of it.

And so, when we got very, very engaged with salesforce, again, it was clear that they needed more than we were offering. And it became one of those situations that either you do the deal with them or they look elsewhere. There aren't a lot of choices, but there are some, and we decided that the better part of decision-making was to forego the additional site on the north parcel that they really needed to scoop up into this.

We still have, as we said, about 300,000 square foot remaining, so our total footprint there would be 700,000 to 800,000. Not super large, but also not insignificant by any means.

But as I said before, I think we have great opportunities in the best submarket in Cambridge. It's the tightest. It's got the highest rents. We've got almost 2 million square feet there.

And in New York, it looks like, as I said, although I guess we're five years behind the eight ball here, five years later, but -- when we first got designated, but I think you will see that site is fully leased by year end with rents that will be approaching $80 a foot. And, I think you will see us look very seriously when we can secure anchor tenants for the West Tower that we look at that. We've got an ability to build 800,000 square feet.

So, we've got land parcels in other value add in each of the markets. So we're not light on that. In fact, the biggest criticism from the Street over the last few years is we got too much. So I think all those things were important.

And clearly the continued deleveraging is very, very critical to the Company's future securing of additional sources of capital. And that really drove this decision.

Okay. I find your commentary on healthcare IT opportunities interesting. Can you elaborate a little bit more about what's really out there, and then kind of what kind of returns you would think you could get?

Yes. And this is true on a worldwide basis, but let me focus on the US, and maybe both -- and I could have Steve talk a little bit about San Francisco.

But I think in Cambridge and surrounding areas, it's clear there is a movement and an integration of a variety of technology firms in kind of what has historically been known as a life science cluster and the combination of IT, healthcare, life science and obviously telecommunications, is becoming pretty inextricably brought together because one of the critical mandates of the recent legislation and just for good medical practice is an ability to have good medical records and immediate access to healthcare information in dispensing treatments, etc.

So, we have a number of locations where we have firms that are either dedicated to this area or firms that have significant divisions that are dedicated to this area looking at kind of Class A locations in the best of class submarkets. This would be kind of heavy office. It's office, but it's a fairly heavy infrastructure for what they want to do, but it is an office use.

And as I said, 400 Tech Square, we've got a potential health -- or potential office use that could be health IT use or an e-records use or e-pharmaceutical use that could be very valuable to us.

The returns -- I mean if you look at putting in -- redeveloping the lab, you have an equation that we've told you about, 200 Tech Square -- we've shared the numbers there. I think the infrastructure would be a lot less for this use, and the returns I think would be pretty darn good.

So if you could put in $100 or $150 a foot and you could achieve $40 triple net rents compared to maybe $60 plus on labspaces are pretty good numbers.

I don't know, Steve, in the Bay Area, you could comment on kind of the technology (multiple speakers) and --

Yes, I would echo that. It's just such a large vertical industry that we've seen a number of the larger IT companies with different devices, different software look more closely at the clusters and how they can be adjacent to their customers. So I would echo what Joel has said.

So I guess is there any -- is there any real synergy -- I'm sorry.

(multiple speakers) synergy? No, go ahead.

No, I mean is there a synergy with your core business, or has it really been you're just competing against typical office developers?

Well, it's synergistic in the sense that the dispensation of drugs and the maintenance of medical records really are part of the integrated healthcare system which drugs and pharmaceuticals are a part of. It really is an extension of what we do. And we see that really big time overseas as well. So we think it's a natural extension of what we do. It's kind of unique infrastructure for a service-related business.

Okay. And then actually, my final question is just an update on international and your comments on the university development getting pushed off. Has something changed in this quarter in terms of bigger picture demand?

No. We have a situation. We hope this will be kind of our case study for doing this work. It's moved from a main campus of a major university to a corporate campus, where the university will be a partner in this effort, and so that's kind of the ongoing situation. We've lost a lot of time, unfortunately, but it is what it is.

It would be on land owned by a nonprofit institution, and we would be the developer on that. And it would be kind of an integrated campus that would be pretty unique with the very major university component.

The reason the deal on campus didn't work is the trustees wanted a building that was designed to a certain standard and given the rents there, they didn't make economic sense, so we had to look for an off-site -- an off-campus location.

And on international (multiple speakers) I'm sorry?

I'm sorry.

And on international, just a quick update, we continue to move forward our development in northern China. We have two clients that we actually met with last week. We hope they will be our first tenants in our two buildings that are moving along really the first in class for-lease buildings to the biopharmaceutical industry in all of China. So we feel very pleased about -- and hopefully we will have that come to fruition in 2011.

Okay. And then back on the university, can you just remind us -- was that a fee development or you would actually have a piece of the building?

No, we would be owner.

You would be owner. Okay, thank you.

Sheila McGrath, KBW.

Good afternoon. Joel, you had mentioned 10% returns at Mission Bay, and with the land sale, about 12%. I was wondering if you could give us some insights on your returns at East River and versus your original pro forma?

Yes. Again, I think that what we have tried to do over time is, and I've said this a number of times, our original estimate of rents back in 2006 were kind of low Cambridge rents, about $45 triple net, and I think every lease we have signed have been increasingly well north of that. Kind of the benchmark rents; it's not a comparable place, but benchmark rents are still Cambridge, and then an incubator up at Columbia. And I think over time, we've been able to get really great rents there.

I think if you look at overall hard and soft costs of about $500 a foot and then you add in various tenant improvements and so forth, I think it's pretty fair to say that on most of the space that we are delivering over the coming quarters, I think we will have a close to a double-digit return on that. So I think we feel really, really good.

We've obviously had to sink some money into, on our nickel, into the buildout of the restaurant and the conference center, so that when we leased it to the operator, they could take those with the improvements in place, so that tends to drag down the overall yield of the space. But I think one lease we've just signed, which is maybe our highest rental rate to a company, is close to the numbers I've given you. And I think when we look at our overall basis, it reflects very favorably in that about 10% range.

Okay. And also on the land sale at Mission Bay, if we look at what you have entitled in Cambridge, maybe you could give us your thoughts on how you look at the land values at Mission Bay versus your Cambridge entitlements.

Well, different markets from the standpoint of what a buildable foot in each of the markets would be priced at if you were to monetize something in Cambridge today. So, you've got a higher run environment in Cambridge over Mission Bay. And you have similar land constraints I think in both markets, limited opportunities, which would probably attract a little bit of a premium.

So, I would say, Sheila, in answer to your question, that the land price in Cambridge would definitely be north of our price point in Mission Bay. Exactly what that is, I don't know how to answer that because there hasn't really been any comp in the market that would give you that, but I would not be surprised to find it somewhere approaching $200 a foot.

Yes, and our basis is well south of that, so if you look at construction costs maybe in the $350 range and rents around $60 triple net, those are pretty good economics for that location. So we feel pretty good about that.

Okay. And last question, Dean, you mentioned a number of times unencumbered NOI, and I was just wondering if you could talk to us about your plans potentially. Are you thinking about pursuing an investment-grade rating, and what you would have to do with the capital structure to achieve that at this point.

Yes, one thing that continues to be highlighted at least since the debt markets opened up off the bottom of the financial crisis here, is that the bond markets have proven to be extremely efficient when wide open as they have been from time to time of late. And the company, Alexandria's business getting to the size and profile that it is, I think having access to the bond market is a prudent goal to pursue. And so, it's an important objective I think of the company to add the bonds to our capital structure going forward.

Exactly from a timing perspective, I think that's -- we're not prepared to describe whether that's -- we would like to get to it as soon as possible, but is it going to be tomorrow versus a few quarters from now or a little bit longer, that's probably premature to speculate on or give you an estimate.

But we've spent a lot of time over the past quarters looking at a number of kind of the boxes you have to fit in, and so we've spent a lot of time in that analysis and in that [gaining] scenario. So we kind of know where we need to be, but it's a process and -- but we expect it to be successful.

Okay, thank you.

Suzanne Kim, Credit Suisse.

Hi. I also have some questions regarding Mission Bay and some other questions. Were the parcels that you sold -- were they -- did they have any horizontal pad improvements like pylons, or were they just completely straight land sale without you having to put any money into it?

And then, secondly, do you have anything else -- I heard that you are looking into some dispositions and other land potential dispositions as well, and I'm wondering if you are actively marketing anything. And if so, do you have anything under LOI at this point?

Okay, well I'll have Steve maybe address a little more specifically, but in some locations, we had driven piles and there was a lot of work that has gone on, on site work. There was obviously parking built at Mission Bay -- infrastructure. Steve, you could describe some of it broadly. So it wasn't just foul land in the middle of [campus].

Yes. There's a whole entitlement process in Mission Bay, and the San Francisco Redevelopment Agency was the governing authority. So, a number of the parcels had proceeded through design entitlements. Two of the parcels had proceeded through a permit set of construction drawings. One of the parcels actually did have the entire set of production piles driven. We didn't have any concrete slabs or any infrastructure such as that, but we did have the piles in place. So it was a continuum of different pieces that had been put in place to bring it to this point.

And we do have a number of parcels that we are looking at selling. And we may have one or two that have some kind of a contractual documents signed, but I don't want to detail where those may be at the moment.

One last question, with the remaining parcels in Mission Bay, do you have an opportunity to increase your SAR, or is that pretty much set at this point?

Yes, it's pretty much set at this point with the design for development guidelines that are in place.

Yes, so that building would be one more on the west parcel probably at about -- approaching 290,000, 300,000 feet.

Okay, great. Thank you so much for that information.

John Stewart, Green Street Advisors.

Thank you. Dean, just if you don't mind, wanted to kind of go back through the numbers on Mission Bay. I was a bit confused. Specifically, I thought you said your basis was $70 a foot, but if you just, in round numbers, if you sold it for $280 million and back out a $60 million gain, you are at $220 million over 2 million feet, sort of $110 a foot. So what's the delta between the $110 and $70?

Yes, first off, I think maybe to start the answer to your question, if we look at our average cost basis, it's really I think I gave you $171 million coming out of pre construction. This is just the land. There's another $18 million associated with the parking spaces that were sold, which is not comparable on a land per square foot basis, but is a part of the transaction. That piece is coming out of rental properties.

But the land itself, at $171 million, is about $83 a foot on average. And my comment there earlier was that the range of investment to date per square foot by Alexandria ranges from a low $70 up to the low $80 parcel by parcel, but when you blend it altogether, you end up at $83 on an average basis.

The difference between $278 million, that's the gross purchase price, or $137 [million] -- (technical difficulty) per square foot, and a gain of $60 million, or about $30 per square foot. The biggest component is our basis at about $83, $84 a foot or $170 million.

You have about $18 or $9 to $10 associated with the parking spaces. That's our cost on that. And then you obviously have transaction costs from commissions, transfer taxes and the payments that I described netting out the remainder of that roughly $20 million in order to reconcile all the numbers I provided.

Okay, that's helpful. Thank you. Can you give us a bit more color on the payments? I guess specifically, I wasn't aware there was a third-party earn-out. Is that a Catellus legacy issue, or what's the nature of that?

Yes, it's not an earn-out, but I can't get into the nature of the payments. We did not expect to incur any payments at least in the near term with our plans for building out Mission Bay. But, we fully anticipate that payments will be due under the proposed schedule for buildout.

Okay. And then, Joel, I hear you on -- wanting to redeploy proceeds as much as possible into income-producing properties, but, you are essentially taking half the proceeds from Mission Bay here and redeploying into a San Diego campus that won't be income-producing in 15 months. Can you kind of help -- and I guess particularly, I'm also curious --

Why wouldn't it be income-producing in 15 months?

I thought you said that Biogen was moving out in 15 months?

Oh yes, but we fully expect to have the campus re-leased by then.

Okay. But, could you also just speak philosophically to the trade from the cluster concept at Mission Bay to San Diego? And in particular, your comments earlier about San Diego being a market that's going through an evolution. And it sounded to me like you basically made the analogy that San Diego is the tech equivalent of a Microsoft, and Cambridge is the Google, which makes you feel good about your land position in Cambridge. But can you help us think through redeploying out of Mission Bay into San Diego?

Well, I don't think that's what we did. So if you came to that conclusion, I think that's a misconception. We aren't deploying out of Mission Bay. We're using those proceeds actually to pay down debt.

I think if you look at our acquisition in San Diego, it's part of an expansion of our really dominant footprint down there. This is a very highly unusual situation. We've never been faced with an opportunity to buy a first-in-class unique campus that caters to a very different kind of clientele, and so that's what attracted us, together with the economics of the transaction. It's rare when you could buy a first class, like buying on Fifth Avenue type of building in our space, at such a low percentage versus replacement cost; some 50% to 60% of replacement cost, which is really unheard of.

And I think my comments, I wouldn't -- again, I think you've kind of got the wrong impression. There was no impression to say that San Diego was a Microsoft and Cambridge is a Google.

What I said is San Diego is going through a transition from really a FIBPCO biopharmaceutical market of the '80s and '90s really, I think, to what is the future of healthcare, and that is, if you look at the company as you go through the companies down there, some of the top diagnostic companies; prognostication companies; med device companies; product and service companies; it's really moved into a much more of a tack and information-related healthcare environment as opposed to classic hard-core chemistry, etc. And I view that as actually a positive because that workforce is very abundant in San Diego. I mean, that's why some of the great IT companies down there have been able to grow.

In fact, if you look at Amylin, which is a pretty big tenant down there and a pretty big company, and one that will ultimately have some pretty big market opportunities, it does already, although it had a little bit of a clinical delay, that -- they had a hard time -- and I knew the CEO very well there for many years. They had a hard time recruiting the development expertise and the process -- downstream process expertise in San Diego. There just weren't enough of those people. So I think San Diego is a huge opportunity really for the next-generation of the kinds of companies that I mentioned integrated with the IT and telecommunications down there.

And don't forget, they still have the great anchors of the four major institutions up on Torrey Pines. So I think don't assume from what I said this is a Google versus Microsoft. It isn't at all.

Okay. That's helpful. Thank you.

Jamie Feldman, Bank of America Merrill Lynch.

Thanks. Joel, just a follow-up here, the Biogen Idec news out this morning, can you give us a sense of whether you see more of that to come in terms of maybe an even tighter focus on cluster markets? Or just how should we be thinking about these type -- because I think we expected this from pharma, but to see it from biotech at this point is a little surprising.

Yes, I think you have to go back and remember the history of this company. The history of the company was Biogen was a pretty successful biotech firm in kind of the Boston/Cambridge area. Idec grew up as kind of a cancer franchise in San Diego. When the acquisition was done, most of us -- I had 25 years in the biotech and pharma industry -- you know, knew many of the people in Idec well; certainly knew many of the Biogen people well.

It was an odd combination. I think the Street at the time and many people who had been in the industry thought that's a really weird combination. Why would you go buy a company in a different therapeutic area, CNS and cancer, on the other side of the country and try to manage them in a coordinated, integrated fashion.

So I think the company got pretty low marks for a number of years after the acquisition, and it seemed like an odd combination. It seemed to me that the better combination would have been at the time, I thought, Genentech, which had the premier cancer franchise to go buy Biogen -- I mean go buy Idec because Idec -- obviously they had one of Idec's products.

But anyway, I think the announcement -- and George, who is a very smart guy, clearly saw that it is infeasible to manage operations on each coast and ones that are pretty different than the core operation of the main survivor, which is Biogen.

So I wouldn't translate this into an industry trend. I would look back and say, hey, the origin of this kind of odd combination was odd and now this is just the end result. And it's not -- frankly it's not surprising to me at all.

Okay, thank you.

We have no further questions in the queue at this time. I would like to turn the call back over to Joel Marcus for any additional or closing remarks today.

Well, thank you very much. Sorry it's been a bit long and we look forward to talking to you guys in early February on year end and fourth quarter. Thank you again very much.

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation.