Alexandria Real Estate Equities Inc (ARE) 2011 Q3 法說會逐字稿

Good day, everyone, and welcome to the Alexandria Real Estate Equities Incorporated third-quarter 2011 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 Ms. Rhonda Chiger. Please go ahead, ma'am.

Thank you. Good afternoon, and welcome. This conference call contains forward-looking statements within the meaning of the federal securities laws. The Company's actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the Company's annual report, on Form 10-K, and its other periodic reports filed with the Securities and Exchange Commission. And now, I would like to turn the call over to Joel Marcus. Please go ahead.

Thanks, Rhonda, and welcome, everybody, to the third-quarter earnings call. With me today are Dean Shigenaga, Steve Richardson, who was just elected by the Board to Chief Operating Officer, [Grupal Rabel], and Amanda Cashin. As you know, the current macro environment is highly volatile. It is mixed across the country, and our assumption is that it is not going to get noticeably better in 2012.

Let me start with guidance, since there's been a lot of focus on that. Dean will address guidance in detail. He'll discuss the current range, the detailed assumptions behind that, with our stress-test analysis. He'll also focus on the fourth quarter 2011 NOI and FFO run rates and the fourth quarter 2012 NOI and FFO run rates. We'll update guidance again on Investor Day, and in retrospect, I think in the future, we'll provide a wider initial guidance range for future years and narrow as we go through the quarters and assess our performance as we go. I think that will be a lot easier for all of you.

Our 2012 growth rate could be in the mid-single digit range. The environment is obviously different, but many of the metrics that are evident today show interesting similarities to the post-Internet crash years of 2002 through 2004. Substantial effort is under way to move legacy suburban assets into key adjacency urban assets, and you'll see the results of that in the coming quarters. We do have continuing solid demand from our [Aries E] urban adjacency locations, notwithstanding substantial negative headlines, San Diego, Cambridge, and New York City as examples.

Let me talk about, good, bad, ugly, and the misunderstood. On the good side, the achievement this past quarter of our investment grade rating has substantially derisked the Company's balance sheet. We transformed from 2008 as an unrated niche REIT to today as a investment-grade niche REIT with a broad set of capital sources with the best-in-class adjacency assets. Those enable us to attract high-quality tenants, which really are transformational, have large addressable markets, have solid growth prospects, and are category leaders with competitive barriers and attractive business models.

We're making very good progress leasing space, vacant, re-lease, redevelopment, and hopefully development as we go forward, with reasonable economics given the current macro environment. We're maintaining, on an annual basis, solid core operating metrics within a range of reasonableness, again, given the current environment. We made -- and we've seen dramatic positive progress made on the lease-up of the assets in the redevelopment pipeline. And the 2 new assets coming into the redevelopment pipeline, 400 Tech Square, we may be almost fully leased there shortly. And also, Steve will report a little bit about our 1551 Eastlake, the former Gates Foundation headquarters building, making great progress there. On the -- that was the good.

The bad, while we're generating operating metrics which vary quarter to quarter, and we had a very strong leasing volume this quarter of almost 1 million square feet, our GAAP NOI was slightly negative for the first time in the Company's history, but luckily, cash NOI has been healthy. GAAP rental rate decreased for the third quarter. As you saw, it was primarily due to a step-down where we signed original leases. On significant renewals on those which were signed, I remember actually some of the negotiations 10 years ago at the top of the Internet bubble, 1 in San Francisco Bay and 1 in Cambridge.

On the ugly or the misunderstood, I think it's pretty clear the drivers underlying our Life Science thesis remain intact, despite headlines to the contrary. The biopharma industry has undergone a really thorough transformational change, and the prospects for significant size, as well as growing biopharma companies requiring quality space in the best adjacency locations, have actually increased, not decreased, due to their transformed business models. And their need to move more critical functions from isolated Soviet-style silo campuses to the heart of the innovation centers and our business model, our best-in-class assets, and our locations really provide the sweet spot for us in this transformational process.

We will continue to concentrate on these key adjacency urban locations. Pharma is very profitable, has over $200 billion in cash on the balance sheet as of the end of the quarter, and total biopharma R&D remains very healthy at well north of $60 billion. We believe the business case remains intact, that the US is and will remain the heart and center of entrepreneurial and novel discovery innovation in medical and scientific research. But companies will continue, as evidenced virtually every day, to continue to cut costs to better their top- and bottom-line results, and clearly pricing and reimbursement is a key pressure point. Just a couple of recent cuts. Noticed that there's been a continuing trend to offshore process R&D, not discovery R&D.

Clinical trial work is broadening into quite a number of countries, and things like data management and other office efforts can be offshored. And it's up to, I think, the people in this country to provide a high-quality and effective and efficient workforce. But clearly, innovate discovery in R&D is headquartered and situated here in the US. The industry transformation is well on its way. The modernization of business of models is evident. Innovation is the key to continuing success, and it's clear both North American and European biopharma companies have the attributes to continue their global leadership with pretty solid growth.

The NIH has been a huge headline of late, about $30.9 billion for this past year. 2012 is unknown. The House has a bill that it could increase more than $1 billion. The Senate has a bill that it could be down $190 million, but not bad considering the environment we're in, and there's no real opposition to strong NIH budget in government. It just is a function of getting caught up with the really big items in defense, entitlements, et cetera, and just overall spending. 2013, there is a scenario, if these guys don't get together, guys and gals, by I think November 22, there would be a 7.9% automatic budget cut to the NIH budget for fiscal 2013.

Clearly, the strongest recipients will survive. These are 5-year grants. So those grants that are in the hopper now won't be affected. It's not only my opinion, but I think most people's opinion that are familiar with the NIH, that lower-tier recipients would be negatively impacted by lesser new grants. Be about $2 billion less. But I think the great grant recipients will continue to garner their fair share. I think one good sign this year is the FDA as of September 30 has already approved more drugs in the US, 26, than in all of 2010, which were at 24.

Moving on to operations and leasing, we're very pleased with the second-highest leasing quarter in the Company's history at almost 1 million square feet. Very strong momentum in Cambridge, where we have a great position in the market. 29 leases at 402,000 square feet on renewed and re-leased. Cash down about 3%. Cap up 3%. San Francisco and Mass renewals, the 10year ones that I just told you about, were really the big contributors to those.

On the development, redevelopment, and vacancy side we had 27 leases at 583,000 square feet, including the 307,000 square foot build-to-suit for Biogen Idec, which just announced their Phase III results for the oral multiple sclerosis drug somewhere, which is likely to garner something like $2 billion to $4 billion per year, and their stock price has been on fire this year. The 15-year lease we hope to deliver in the last half of 2013. We have a joint ground-breaking tomorrow, I think, with the governor of Massachusetts, the mayor of Cambridge, the Company, Boston -- Biogen Idec, and in conjunction with a companion building developed by Boston properties.

The remaining 2011 lease rolls, 572,000, 150 are leased or expected to get done here shortly. 294 in 2 redevelopments, we're talked about, 400 Tech Square and 1551 Eastlake, which leaves 128,000 for the remainder of the year. Not so bad, given the amount we started with. The amounts are pretty small, about 40,000 in San Diego, which should be kind of a positive, about 24,000 in Maryland, which is likely to be negative, about 40,000 in Mass, which is maybe kind of neutral, 21,000 North Carolina, neutral, and just a small amount in Seattle.

In 2012, we've got about 10% of the asset base rolling or portfolio operating at about 1.3 million square feet. 25% is leased or expected to be leased. 10% is into redevelopment on change of use, and 65% is marketing. 240,000's square feet in San Diego is likely to be positive. About 125,000 in San Francisco, likely to be positive. 135 in Boston, could be by and large neutral, depending upon the location, if they're in the suburbs. We've got the biggest 258,000 in Maryland, likely to be slightly down, and about 64,000 in Seattle, which could be kind of break-even. So with that having been said, let me turn the call over to Steve Richardson, who's going to highlight some of the details on the West Coast, and then we'll go to Dean.

Hello, this is Steve, and today I'll review the key trends on the West Coast, Seattle, San Francisco, and San Diego cluster markets. Starting north to south, Seattle, the University of Washington continues to expand, and they've broken ground in South Lake Union on 450,000 square feet of life-science space. This is on the heels of Amazon's very significant expansion in the same area, which includes job openings now for more than 3,000 workers. As we've seen in our other core cluster markets, the life-science and technology companies are converging with one another in the absolute best location to attract the highest quality talent possible.

This area, the South and East Lake Union area, where we've historically aggregated our assets, is a very strong, vital, and dynamic cluster compared to other sub-markets, where lab buildings have struggled and remained vacant for a long period of time and are actually forcing landlords to pursue desperate measures in the market. The key CBD life-science clusters remain solid with lease rates for new space in the mid-40% triple net range and vacancies of just 1.5% in the Lake Union area and little vacancy in the [First Hill] area. Finally, the 1551 East Lake project that Joel referenced is proceeding very well, and we're pleased to report we've got 51% pre-leased as of today.

Moving down the coast to San Francisco, the technology sector continues to drive top-line growth and absorption into the third quarter, stretching from the Soma area, south of Market, down to Silicon Valley. UCSF continues to make significant investment in Mission Bay, with the hospital steel structure clearly defining the magnitude of this multi-billion dollar investment. The Stanford submarket is now quite strong, with single-digit vacancy and lease rates in the low 30%s to low 40%s for second generation space. Additionally VMware's purchase of the Roche site in the Stanford Research Park removed a total of 1 million square feet of life-science product from the inventory, and that will further tighten the metrics.

South San Francisco, as we've reported in the past, continues to lag with a 14% vacancy rate, and we do remain cautious as lease rates continue to hover in the low to mid-30%s. Steady progress, fortunately, is being made at our East Jamie Court project, with approximately 44% leased now and 20% in serious discussions. And specifically with East Jamie Court, we have 3 separate letters of intents with tenants. They're evaluating those closely. The regional team is in constant contact with the decision makers and the brokers involved in the process. And we do have an existing tenant who is already interested in exploring expansion possibilities based upon a partnering transaction that they're getting very close to.

Moving up to Mission Bay, we have a 1% direct vacancy, excluding a couple small retail suites, and the details there included 1500 Owens. We're now fully leased with UCSF's expansion for the fourth time in the building. We're finalizing an expansion for 4,000 square feet on the first floor of 455 Mission Bay Boulevard South. And finally, we're finalizing an expansion for 24,000 feet in that building where a tenant will look to pay for an option to keep the space off the market until early 2013 as they await an important milestone. 499 Illinois is in full marketing-campaign mode and tours, and preliminary discussions include the following.

We just had a tour with a very strong technology company and their advisors. They're closely evaluating 499 as an alternative. We do expect fuller tours with their teams and advisors during the next month or so. We just received an RFP from an emerging-stage technology company. We'll be carefully reviewing that as well. And then finally, we have ongoing preliminary discussions with 2 institutional quality life-science users. These are very serious users. They have limited options in the market for large blocks of life-science space and have acknowledged and recognized the value of 499 Illinois.

Finally, moving southward to San Diego, the market, as we've noted recently, again, is very healthy, particularly in the Torrey Pines cluster. Vacancy is in the 9% range, and lease rates have improved by 10% or 15% during the past 12 to 18 months to the mid to high 30%s triple net. We really see demand being driven there by two segments. One, industrial biotech including the biofuels segment. And two, maturing biotech companies. Right now, we're tracking approximately 300,000 square feet of requirements in the market and expect to capture a little more than our fair share of this demand. With that, I'll hand it over to Dean.

Thanks, Steve. Real quickly here on our guidance, was updated or 2011 to FFO per share diluted of $4.38 and EPS diluted of $1.72. Our guidance for 2011 implies a target of FFO per share diluted of $1.10 for the fourth quarter of 2011, and this represents a good run rate going forward for 440 on an annualized basis. Our range of guidance, which Joel touched on earlier for 2012, was $4.50 to $4.54 for FFO per share diluted and includes among other assumptions the following operating and asset base assumptions. And I'm going to pass on commenting on sources and uses since it's included on page 13 of our supplemental package.

Our guidance assumes FFO per share diluted approaching $1.20 per share in the fourth quarter of 2011. I think one of the challenges, given the significant amount of NOI coming on this year, is giving some clarity to -- I'm sorry, FFO per share approaching $1.20 in the fourth quarter of 2012. But given more clarity on NOI growth, like to walk through our reasonable assumptions and really highlight some of the upside included in the range of our guidance. Our press release projected an increase in NOI of approximately $47 million. When comparing 3Q 2011 annualized NOI of approximately $100.8 million to the fourth quarter of 2012 annualized NOI of about $112.5 million.

The projected growth in NOI is back-end weighted due to timing of deliveries and is related to significant pre-leasing for committed spaces. This results in an approximate 30% contribution of that NOI growth down to bottom line FFO after offsetting the reduction of capitalized interest as we transfer these assets into service. The historical cost basis or GAAP basis of our qualifying basis, which we expect to transfer into service related to this NOI, is in the high $400 million range.

Let me walk through each line item which is really contributing to the growth of NOI. And for reference I think you can follow along on page 46 or 47 of our supplemental package, because I'm going to start with development -- redevelopment and development assets and the contribution. 1119 North Torrey Pines is an 82,000 square foot project under redevelopment. The fourth quarter run-up in NOI of the $47 million, you're going to see $1.2 million on an annualized basis contribute to this, but it purely is related to the 20% that's leased today, and so there's really meaningful upside, because we've assumed no further occupancy in our guidance assumptions through the fourth quarter of 2012. And to frame this redevelopment NOI component, it approximates about $18 million of that $40 million-some-odd of NOI growth.

John Hopkins Court, which is the next 90,000 square foot asset, the NOI growth here will be $4 million, based on executed leases. So really no risk to the assumption other than a couple weeks on construction deliveries. Campus Point is 204,000 square feet. That's about a $9 million contribution. 43% of that is executed. 47% of that is under negotiation. So we're in pretty good shape with that.

6275 Nancy Ridge is about 47,000 square feet. We get about $800,000 contribution on annualized basis. That assumes 63% occupancy by the fourth quarter of 2012. And keep in mind half of the 63% is already pre-leased. 400 Technology Square is about 210,000 square feet in total. A portion of it will roll in October, and the entire building will be under redevelopment. At the moment, the disclosure only shows 49,000 square feet. The assumption here for our model has meaningful upside because net-net, we're reflecting a neutral impact on an annualized basis, and that assumption assumes only 50% of the building is stabilized at that point. And I should point out that we have an anchor tenant under negotiation for that space.

On 215 First Street we'll contribute about $1.2 million in NOI, partly through redevelopment, partly through previously delivered space on that redevelopment project. Quadrangle's a small asset at about 30,000 square feet. We get about $0.5 million of NOI contribution. 61% of that is pre-leased, and we're projected to be 100% by the end of 2012. 1551 Eastlake is a future redevelopment project that comes in in the fourth quarter. It's neutral but represents upside to our NOI assumptions and our guidance. 51% of this is pre-leased, and we're only projecting lease-up assumptions to 69% by the fourth quarter of 2012, clearly providing room to beat that metric. The other projects, which add up to about $1.3 million, get us to about $18 million for redevelopment contributions.

Turning to the development schedule on page 47, 4755 Nexus, we've taken a very conservative view on NOI contribution, that we would not have occupancy by the end of 2012. I have a feeling that we'll be ahead of that schedule, given the dynamic that we're executing at in San Diego. 5200 Research is the build-to-suit for Illumina. You'll get $4 million of NOI contribution. Keep in mind this is 100% leased with a target delivery in the fourth quarter of 2012. 455 Mission Bay, it's only 40,000 square feet. 76% of this is committed at about $1.6 million of NOI. A little bit might be contributing from previously delivered space in that number as well.

On Illinois, 219,000 square feet, we're expecting consistent modeling with our underwriting from acquisition at about two-thirds of the project being leased on average by about October 1, which would generate at least a $4.8 million amount of NOI. And keep in mind, I should have pointed out, these are GAAP numbers. East Jamie Court, 107,000 square feet to go. 16% of it's pre-leased. We're assuming an additional 25% of that 107,000 is leased in the third quarter, and another third quarter of 2012, and another 25% in the fourth quarter of 2012, contributing $3.6 million of NOI by the fourth quarter of 2012.

A couple other smaller projects, 1 of which is leased, that are potential developments. 1 is pre-leased today. They aggregate approximately 140,000 square feet, will contribute, by the fourth quarter, about $1.4 million in NOI, bringing us to about $16 million of development NOI contribution annualized by the fourth quarter of 2012. 7 Triangle was a development project we just delivered in the quarter, [with the] incremental add between the third quarter and the fourth quarter of 2012, although this will come in next quarter. In the fourth quarter, it was $1.9 million of incremental NOI.

Recently delivered redevelopment and re-leasing of the other half of the project at 500 Arsenal will generate about $2 million of NOI. When I say re-leasing, it's re-tenanting the space, because it's the other half is currently occupied. Fourth-quarter acquisitions included in our sources and uses of capital of about $20 million will contribute about $1.1 million of NOI growth. Same property annualized, NOI growth contribution will be about $5.9 million on a GAAP basis.

Turning next to straight line rents for 2012, we're expecting $6 million per quarter, about $24 million for the year, fairly consistent with the total straight line rents we're expecting for 2011. FAS 141 revenue is projected to be about $800,000 per quarter, starting in the fourth quarter of 2011, continuing through the fourth quarter of 2012. Occupancy is projected to increase slightly, averaging in the 95% range in 2012. Same property NOI growth on a -- is expected to be about 3% to 5% on a cash basis, and 0% to 2% on a GAAP basis. Let me try to highlight where the contribution is coming from.

On a GAAP basis, San Francisco, the Bay area is actually going to provide a meaningful component of same-store performance, really from the lease-up of some vacant space. Most of this is under negotiation or renewals that we -- or targets that we expect to move into that space. It's a little early. It's not quite what I would classify as a negotiating stage. If you turn to New York, Seattle, Canada, we're getting pretty good contribution from those markets, primarily driven by lease-up of vacancy or lease renewals. The down side in the same-store happens to be in the Boston market, primarily because there is a bit of space in Cambridge that will go dark, at least in our model, for a period of time as we re-tenant the space.

Turning to cash, same-property performance, I think the general theme here is there is a significant spike in cash of rents, primarily driven by leasing that occurred this year, which had a little bit of free rent involved in the leasing transaction. For example, San Francisco will contribute meaningfully, the suburban DC market, as well as New York. And New York obviously has to do with the lease-up of a brand-new development project, so a little more relevant from a free-rent perspective. The down side from same-store, again, appears in the Boston market, primarily due to the same situation with a temporary vacancy in Cambridge as we re-tenant some space.

Moving on to rental rates and the expectations for lease renewals and re-leasing of space. We're projecting 5% on a GAAP basis, up to 5% on a GAAP basis, and a range of slightly negative to slightly positive on a cash basis. First, on the cash statistics, it's really been weighted by just a few leases, 1 in Boston as we relocate a tenant in some nicer-quality space into some less-expensive space, but we anticipate, because of the time this lease was executed, there would be a step-down in that particular re-leasing. We have some office space up for rollover renewal in Maryland, and that market from an office perspective remains challenging. And we also have -- actually the positive here is positive leasing in San Francisco, of all places, due to the low expiring rate on the lease expiration.

As we turn to G&A, G&A's projected to increase 5% to 8% over 2011, primarily due to the growth in the breadth and depth of our operations. Capitalized interest is projected to decrease in 2012 when compared to 2011 to approximately the $54 million to $60 million range and is quite dependent on the timing of deliveries and new construction. Moving next, importantly, to sources and uses of capital. Due to the tough capital markets since receipt of our investment-grade ratings, we have not had the opportunity to announce our debut bond transaction. However, completing the rating assessment was a significant turning point for the transition of our capital and balance-sheet strategy.

It's important to note that we prepared a very broad range of stress tests, capital sensitivities, for our 2012 guidance, including some assumptions that were more punitive to guidance. We have no plans to open the bond market for REITs. Pricing today for a debut issuance would result in all-in rate of 6%, and we are waiting for a more stable environment to issue bonds, since we project ample liquidity and want to be patient. So we have pushed back our bond offering to the latter part of 2012 and increased our all-in rate on our debut bond offering by 75 basis points to 5.75%.

We remain focused on match-funding our capital needs, and our uses of capital assume no acquisitions and our focus purely on construction outside of debt repayments and dividends. The equity component of our capital needs can only be achieved through net cash flows, recycling of capital from asset sales, joint ventures, and common equity. Given the market environment, we expect to look more aggressively at asset dispositions. However, until we finalize and execute on our strategy, we are not prepared to include it in our guidance beyond the modest $112 million projected dispositions through the fourth quarter of 2012.

We are committed not to raise equity at the price of our stock of late. However, we have assumed $200 million of other capital in our guidance spread over multiple quarters. The key here is that the assumption can be viewed as various asset sales, preferred equity, or an ATM program, all with fairly similar impacts to FFO results. Let me briefly comment on credit metrics and our refinancing of our term loan here. We remain committed to our investment-grade credit portfolio, including debt-to-EBITDA targets close to the 6 to 6.5 times, except temporarily as necessary, fixed-charge coverage ratio greater than 2.5 times, and then maintaining adequate liquidity on balance sheet through significant availability on our line of credit and through cash.

As it relates to our new unsecured term loan, we're anticipating closing a $500 million term loan shortly. The term will be about 5 years, probably a 4 plus 1, pricing at 1.5% over 1-month LIBOR. The proceeds of this will go to reduce the outstanding balance under our line of credit, providing significant amount of liquidity and availability. Ultimately, either unsecured bonds or liquidity under our unsecured line of credit will allow us to retire the $250 million outstanding under our 2012 unsecured term loan. With that, I'll turn it back to Joel.

So if we could go to Q&A, operator, please.

Absolutely.

(Operator Instructions)

Jonathan Habermann, Goldman Sachs.

Hi. Good morning, everyone. A question here on dispositions. Dean, you'd mentioned possibly raising above the $112 million in guidance, but can you give us some sense of the magnitude that you're anticipating, perhaps beyond that original forecast?

Yes, let me -- hi, Jay. This is Joel. Let me comment on that. It would be our goal to see that maybe approaching $200 million to $250 million, if we're successful. But clearly, we can't assume that.

Okay. And just switching to 499 Illinois, can you give us some sense of the tenants looking at the space? What their timing would be for actually taking use of that space?

Yes, this is Steve. You know, we're on track. We're in the full marketing campaign mode, as I noted. We've had tours. There is live, genuine activity in the market. We do need to complete the warm-up process. So I think we're talking about a mid-2012 occupancy target.

Okay. And just final question, can you give us any update on New York City and Phase II?

Yes. We continue to view New York as a really strong market. We had 1 opportunity this week that had a time issue that was pretty sizable and pretty exciting that we did have to let pass and not take on, but it was quite interesting. We do have 2 requirements that are external that are both institutional and 1 internal for the substantial expansion for New York when we decide to kick off the West Tower, which is 400,000 square feet. So that's really -- what will determine that is really the capital that will fund it, and we clearly would want to move those opportunities to signed leases and have over 50%. At the moment, none of that is in our current 2012 plan.

Okay. And just to clarify on the dispositions, what portion of that would be assets versus possibly liquidating some land?

The majority of that would be assets.

Thank you.

Anthony Paolone, JPMorgan.

Thanks. Good afternoon. First question is on Illumina, and they pre-announced and had a tough time. Just curious if you could give a sense if there are any outs for them in either their main lease or with the building you all are building for them, the expansion part at that site.

No, and in fact, we've had discussions with them as late as yesterday. Some things we can't share with you because they aren't public. They did file an 8-K today on their small layoff. We know where that's coming from, but it is not affecting their operation that we're involved with. I'll ask Amanda to comment on Illumina, because I think there's certainly a misunderstanding about -- broadly about what's going on there.

Sure. So, as you mentioned, Illumina had announced their earnings and had announced a pre-guidance to their earnings in response to some reductions that they've seen from some of their academic customer spending. And a lot of that they're attributing to the uncertainties that the academic researchers are seeing from federal funding from research grants. So that has slowed customer spending down and that has also been impacted from the roll-offs from the stimulus funds that had a peak in 2010. So they're kind of seeing reduction in revenues, a 1% decrease in third quarter 2011 from third quarter 2010.

But remember, this is a profitable Company that has a $3.7 billion market cap and continues to be committed to growth and innovation and investing in research and development. So I think we still feel pretty comfortable that while their stock price may have dipped, it may have been in response to perhaps an over-valuation in the market due to the really, really high expectation folks have, as they really are a top-notch DNA-sequencing company that has a lot of potential to really impact the market in the long term for genome sequencing.

I think, Tony, as far as the space that they're taking, they've reiterated the time schedule and the space, and we don't see any change in that whatsoever.

Okay. And the $3.3 million of -- I calculated that in terms of the fourth-quarter GAAP NOI on that project, is that the full amount, with the exception of the $4 million that would then come in from the additional property you're building there?

Yes, that's correct.

Okay. And if I -- if I just look at that, just to understand the bridge from where Biogen was there and where Illumina is there now, you said the roll-down sequentially, I think, is $1.7 million, so it suggests that Biogen was running at about $5 million a quarter in NOI or about $20 million a year. Is that right, in terms of GAAP?

Yes, from a GAAP perspective, you're right. Roughly speaking, if you add $1.7 million on top of roughly I think the GAAP rate was around $36. Effectively, what happened was as -- when we originally purchased the property, it was subject to a 15-month leaseback. As you are well aware, 45 days later, we executed the lease with Illumina for the campus, and they had the desire to be in the project much sooner. So we went back to Biogen and tried to figure out how to get space back sooner so we can meet an accelerated delivery for Illumina's benefit.

We were able to achieve that not all at once but over time, and so the 15-month shrunk. From a pure accounting perspective, it required the re-estimate of the amortization period of the 141 revenue under a shortened time frame, which resulted in $1.7 million of higher GAAP rent income in the third quarter. That really worked through the process as we were trying to figure out exactly what that estimated delivery date would have been for Illumina to take the space. And as we took the space back from Biogen, we were able to figure out the exact time frame, which really is the reason for not a whole lot of clarity until it happened.

And so I'm just trying again, maybe another way to look at this. If my numbers here are close, in hindsight, does the Biogen yield on a GAAP basis work out to have been something like 15%-plus, and now with Illumina in there, you kind of get to your 10% that you've kind of guided to for a while on the space? Is that kind of the --?

Tony, I didn't do the math but something a little unusual from a yield perspective on a GAAP basis during Biogen's occupancy. It was not originally targeted that way, because we thought we had a 15-month deal. But you're right, the acceleration, or shortening, of their lease term resulted in an increase in GAAP rent, resulting later after Biogen rolled out and Illumina took occupancy in a normalized run rate going forward, and I think I provided that number as $38 and some change in the supplemental.

Okay. And then question for Steve on the Illinois Street properties. You talked about a couple of institutional life-science tenants that were looking at it. Just curious as to what their alternatives would be, like what other types of things would they be looking at when they consider that space?

Yes, again, I did use the word preliminary, Tony, so I do want to say that again. But right now they have no other alternatives. I mean, 1700 Owens is essentially fully leased. 1500 Owens now is fully leased with UCSF expanding for the fourth time. 455 is now fully leased or committed. So as far as high-quality life-science space for laboratory users, there really is no other alternative down there in Mission Bay.

But would tenants or prospective tenants like that consider other markets, or what would be their mindset? Or is it a matter of maybe we'll go into new space, maybe we won't do anything at all? Sounds like they don't have an option.

No, these particular types of users really don't have an option. Going down to south San Francisco isn't particularly viable, so I think it's just a matter of time.

Okay. And then just a couple questions on the development side. Between now and the end of next year, about $83 million of funds to China and India. Curious as to, a, how many projects does that encompass? B, is that all of the spending? Is that just part of -- is that half to get certain projects done? And then c, what are the returns like on something like that?

Yes, actually, it's -- just to clarify -- you're right, Tony, in total $83 million over five quarters. It's about $20 million in the fourth quarter, and then $62 million projected for next year. And we are anticipating delivery of some space soon, so you do see some dollars, maybe at a little higher rate than what we had incurred on average for 2011. So you'll see that soon. And that'll probably come out of both markets soon, both India and China.

I'll ask Steve to comment broadly on China and then I will on India. Generally about kind of where we are in leasing.

Yes, we're making good progress there. I just returned on Friday from both of our projects there in China. We're having serious discussions with a significant anchor tenant for the south China project that we're feeling optimistic about, and then have continued, detailed conversations with a couple of key users for the north China project. More to come on those, but these are substantive discussions with real users with requirements.

And the north China project, we're working to try to finish that and there will be additional investment in the build-out. What's emerged is a possible institutional and/governmental entity that could take a floor more in north China together with potentially a North American client. And then in south, as Steve said, we are on the precipice of having a major anchor tenant there that's a Credit Western pharma kind of company. Probably the bulk of those funds will flow into India, primarily into 2 submarkets.

1 submarket with 1 major tenant, which is 1 of our top tenants who's doing -- we're in the process of delivering a project to them right now, and there will be several follow-on -- well, actually, [phases]. And so that's been the bulk of our focus in India, and we continue to invest in trying to have a number of key land parcels and a build-to-suit approach. As we said, I think, on previous calls, our benchmark for on an after-tax basis is to try to be about 500 basis points above what we could get on a development here in the US, and we think we will be able to achieve that. China, it's hard to say at this point. I think India, we're still in that target area.

Okay. And last question, just on Toronto. Can you give us the economics there and what your book basis is on that right now and just when that income comes in?

Sure, Tony. I think this has come up in this supplemental, as well as the last, and it was almost in a transition right over our second-quarter earnings, so we were able to provide limited information at that time. But basically Mars, a nonprofit entity in Toronto that did Phase I -- an affiliate of Mars will be moving forward with Phase II, Phase II development in Toronto that we had originally anticipated doing. Can you actually find their press release on their own website, so this information's available. But basically we executed a ground lease with an affiliate to allow them to move forward. Mars has announced commitments with 2 institutional anchor tenants, along with attractive financing from Infrastructure Ontario. So from Alexandria's perspective, we have no financial obligations related to the construction or the financing of the project, and we expect ground rents to commence with the completion of construction of the building.

And what's your all-in basis for that land, and what's the ground rents? Like what's the return on that?

We have -- help you -- give you a brief description on what we actually had invested into the project. The original structure was a ground lease from Mars. We then invested into design and soft costs, as well as a lot of hard construction to go below grade for a parking garage, the foundation, and structure to support the building. And we capped it off right at street level. Mars will finish the project from that point. So we had roughly somewhere in the $80 million range invested in the project, and the way this works is we had a basically a 99-year lease. We get it back roughly in 49 years. And rent will begin upon completion of the building and step over time. Ultimately, we get a modest return on this ground rent. I wouldn't say it was the most attractive ground-lease structure, but we do get a nice single-digit return on our investment. But again, it won't happen for a few years, probably 2013 or later.

We don't have future payments on the original ground lease, which is --

Yes, everything's being passed through. So no, we're no longer responsible for operating costs or the ground rents.

I see. Thank you.

Yes. Thank you.

(Operator Instructions)

Michael Bilerman, Citi.

Guys, good afternoon. Dean, thank you for the details regarding the redevelopment and development NOI. If we can go into detail in terms of the ins and outs of how that -- the cost associated with those, with that amount. I think you broke out -- between the development and the re-development was about $34 million out of that call it $45 million of NOI, and then there was some that had been recently completed. But can you walk through -- you really compared this 4Q to 4Q. What percentage of that NOI comes online in the fourth quarter, and then first, second, third, and fourth? It sounded like some of it was coming earlier than the fourth quarter of next year.

Yes. You know, Michael, I don't have that schedule in front of me, but let me try to -- if we turn to page 46 and 47, I'll try to give everybody some better depth to the question you asked. John Hopkins is 100% leased, and it's a second-quarter 2012 delivery date. Campus Point is a little bit of a split between 4Q, 1Q over the next one or two quarters, with the other half being fourth quarter of 2012. Nancy Ridge, which is the next asset on the schedule, is a -- at least the first half 2012 on the lease component.

400 Technology Square is late in the year for 2012. 215 small, let me pass on that. Basically that one'll be delivered shortly. Quadrangle's first half of 2012. 9800 Medical Center is a fourth quarter of 2012. As you move off to the development schedule, 5200 Research Place is a fourth-quarter delivery. Illinois was a fourth-quarter assumption for the lease-up. And East Jamie, I believe I gave 25% and 25% in 3Q and 4Q, so it's really back-end fourth-quarter weighted.

And then as you total this, so it was $34 million, and then you had 7 Triangle and recently developed stuff was another $4 million. So $38 million in total. And then the balance was same-store and acquisitions. What does that NOI, upon full stabilization, grow to? Because I think you had also talked that let's say for Torrey Pines, you're only assuming it's 20% leased. It was only $1.2 million. Obviously, the full NOI contribution is going to -- if you lease it up, is going to start hitting later years. But I'm trying to understand the magnitude of this NOI.

Yes, that's a real relevant question, Tony. Let me see if I've got a schedule that goes out beyond that. And it's not perfect, because I've got a development schedule that looks at all development.

Let me ask it a different way. You talked about that these projects comprise high $400 millions of [sunk] cost. What is the yield, or the ultimate stabilized yield? So if it's just $38 million that you're talking about today and it relates to the same high $400 millions, it's about an 8% yield.

Yes, it is right in that 8% range, and I would say if I had to guess just looking on the deliveries I provided you, somewhere approaching 20% has yet fully to come in. And that number could be bigger. We could just run these estimates mid-quarter assumptions on the information I provided. I just don't have that breakdown with me.

And then how much -- when you're talking about $500 million or high $400 million of cost investment, when you look on page 43 of your supplemental, you have $604 million that you've spent on development and redevelopment. Is that not -- the high $400 million that you're talking about, is that all captured in that $600 million? Or has some of it already been transferred to operating? Or vice versa, is money to be spent over the next 12 months that eventually will contribute NOI to next year? Just trying to put all the pieces together.

No, you framed it well, Michael. It's the latter. So the $300 million, I'm on page 43, $300 million of active redevelopment basis, development basis of $190 million. The basis I'm referring to sits in there, but it also includes spend to complete.

And so how much spend to complete to generate that $45 million, or that $38 million of NOI is still left to spend?

Yes. Unfortunately, Michael, I don't have that breakdown with me, but we can chat about it later.

And that spend is included effectively in this capital budget that's on page 45.

That's correct.

You have $460 million. Part of that is part of this high $400 million delivery that you're talking about.

That is correct.

Is there dilution in terms of the timing of when something gets delivered versus when it contributes NOI that could also be affecting your numbers next year? Effectively the project gets delivered in the first quarter. You stop capitalizing interest, but the NOI is not being recognized until the fourth quarter. Is that also playing a part in this earnings valley or dilution that's happening?

That is true on a few of the assets. But I think where it's probably more relevant -- even if you think back over the last 3, 4, 5 years, Michael, we've ceased capitalization on a variety of projects and brought them back into an operating mode where all the carry costs go to the P&L. We talked a little bit about China as an example today. 1 of the projects will likely cease capitalization shortly, which will absorb the carry costs to the P&L. Part of it, the building will be leased as well. So not all of it will fall to the bottom. And so there are small assets like that that will contribute a little bit to a hit to FFO as the operating costs drop to the bottom line.

Okay. Moving to the balance sheet for a moment, I think you referenced in a couple of comments stress-testing the model. China put very conservative assumptions from a financing standpoint into the guidance range that you've put out. And I think you talked about $200 million of other capital, whether it be preferred, asset sales, or ATM, which I assume is carrying a probably 7% to 8% cost in your model ratably throughout the year. And that's just going to pay down the line. Is that what's embedded in the numbers currently?

That is correct. That is correct, Michael.

And then in terms of the unsecured debt issuance, I want to make sure I heard you correctly. Did you say you moved that to the end of next year or the end of this year?

We pushed it out from 2011 on our debut bond offering, Michael, to the back half of 2012.

So shouldn't that be massively accretive, relative to where people's mindset? And if you go back to last quarter when you talked about the bond issuance, and there's two pieces happening, right? You issue the bonds at a high rate. Your weighted average cost of debt goes up. What you capitalize at, you effectively have higher capitalized interest from a GAAP perspective, even though it's cash dilutive, but that was call it a $0.13 drag on an FFO basis. Are you effectively saying now even though estimates have come down, and that's what came out of the last quarter's call, is estimates were high, given the fact that the unsecured bond issuance wasn't in there, that effectively they should now go back up for that $0.13?

It is -- pushing back the bond assumption is positive, a positive or accretive adjustment to FFO. The impact -- if you were to move this up to January 1 of the year, if I recall correctly, it's not quite $0.13, Michael. Maybe we can go through the math offline, but I believe it's closer to something like -- oh, I guess what I should be saying -- the difference between your analysis at $0.13 and I think our underlying assumption is that the latest -- there's another assumption that goes with a bond offering in our model. And that is the retirement of our 2012 term loans. So those two go hand-in-hand. The net impact of those two assumptions moving, I think, net out a few pennies a quarter, maybe $0.03, $0.035.

Okay. But the term loan that you're going -- [against] your term loan that LIBOR 150 over for 5 years, that one is effectively going to pay down your line, so that's a net neutral event for your guidance, right?

Relatively. Relatively, yes.

Because it's the same -- it's effectively the same rate.

The line is a little more expensive, but ultimately, Michael, one of two things will occur with the $500 million new term loan. Initially, we'll retire the line balance outstanding and reduce it. That pricing is about 2.3% over 1-month LIBOR, so there is a benefit there. Ultimately, it will either take out $250 million term loan or bonds will take out the $250 million term loan. But short term, you'll get a -- roughly an 80 basis-point benefit.

This last question before I yield the floor, the 120 that you're talking about fourth quarter of next year, that's still going to -- if you end up issuing the bonds at that point, the 120 is going to come down, right? That's still going to have dilution from refinancing and doing your debut bond offering.

Oh, I'm sorry if I wasn't clear. Guidance includes the unsecured bond offering assumption.

For the full fourth quarter of 2012?

Correct.

So when you look at the Street right now, which is at $1.21 for the fourth quarter, the lower guidance, effectively, in your guys' eyes, is more a reflection of the development and redevelopments not contributing until later in the year versus earlier in the year, in which case the run rate into 2013 should stay relatively the same, and you should feel relatively comfortable where the Street's at for 2013.

Yes, by and large, and I think just broadly speaking, the different mix of capital until we get to the fourth quarter.

And then for the supplemental I think one of the things that would help going forward to bridge this gap is on pages 46 and 47 is to actually have the cost invested to date, your gross potential investment, targeted yield and that way -- and also, a little bit more clarity as to when in the year those projects are coming online, so that going forward there won't be this disconnect between what the Street is thinking and what you guys are thinking in terms of development and redevelopment, given that it's such a substantial part of your business. And I'll get off my soap box.

Yes. No, no, no. We agree.

We agree.

I think it would be incredibly helpful.

Philip Martin, Morningstar.

Good afternoon. I think my model's done. But thanks for -- that was very good insight, actually, on the model and a lot of the information you provided in your opening remarks, Dean, was helpful. Joel, would you characterize your larger high-quality tenant base as compared to let's call it the less-established tenants to be less concerned with a potential 7.9% NIH budget cut? And in your opinion, could a potential reduction in the budget drive increased M&A, or do you feel venture capital would fill that potential shortfall or void?

Yes. That's a good question. I just pulled out the top 20 tenants, and at the risk of elongating this call a little bit, let me just run through. I think the answer is we don't have real exposure in a real meaningful sense. Novartis is 1, Lilly is 2, Roche is 3. [Fibergen] just moved to 4. They're a very well financed private company with a potential huge blockbuster drug that is a new mode of administration. Illumina is number 5. Amanda's talked about that. The government is 6. Those are long-term, non-cancelable leases, other than 1 lease which comes to an end next year. Bristol-Meyers, Glaxo, MIT. Even if the NIH budget is cut, MIT will still dominate with very high-quality opportunities. NYU's neuroscience research institute it's been fully endowed by a huge billionaire hedge fund, so it has no exposure. Alnylum's a public biotech Company. Iliad, Amylin, they are really not NIH-based.

Pfizer, 14. Theravance, 15. 16 would be the one that might, Scripps Research. They garner a lot of NIH money. Remember, I said it's 5-year grants, so if something happened in fiscal 2013, what they have today would be fine through a number of years, but then new grants starting in 2013 and beyond might impact them, so they would potentially downstream. Quest Diagnostics, 17, no. Forrester's 18. They're moving out, so they're out of there. Infinity is a public biotech company, not subject. And the regents of the University of California, I would say these are -- the bulk of these are like clinical and non-NIH grant type uses that we have. So I'd say out of the top 20, probably the only 1 that would have real exposure would be, beyond Illumina, you've seen, although Illumina's competitors have far less exposure, Life and [Kyogen]. And my guess is Illumina will work itself into that position where it has I think today, Amanda, 25% NIH exposure, something?

It's about a third of the revenue.

Okay. My guess is they're going to work that down, so they're going to have a lot less, like the others do. But I would say description would Scripps would be the only one.

Do you find that the budget cuts, and -- the potential budget cuts I should say -- are delaying any lease decisions on the parts of your existing tenant base, new potential tenants, et cetera? Or are they really -- or are they not?

Yes, in our world, in each of the critical submarkets we're in, they're not, that we can tell. I think the 1 area that could be would be Longwood Medical Center, which the multiple Harvard hospitals there garner a large amount of NIH budget, so that could be 1 area. But in the rest of our markets that we know of, we have very few tenants that really garner huge amounts that are dependent on leasing facilities as it relates to NIH budget cuts. And remember, the 2012 budget should be at least -- if it's down, it's only going to be down, what, $190 million?

Not much.

Yes. So the 2013, and my guess is, even if this automatic budget cut happens because these guys can't agree by November 22, my guess is the government -- Obama's been on this soap box and a lot of people have, they're going to probably find a way to restore that because of the need for leadership in this area for the country. So it's not a controversial issue. It just happens to get caught up in this budget debacle.

Yes, and that's what I'm confronted with when we talk to investors is that it's more confusion than anything. When you understand the real fundamentals, there's probably a better story than what's being perceived out there. The last question I have, with respect to leasing trends, does the Alexandria portfolio -- does the larger and higher-quality tenant base limit rental-rate growth a bit for the Company over the next call it 12 to 24 months? Obviously, the potential offset is a higher-quality tenant, which is certainly very important in this environment where there's global and economic uncertainty. But is it somewhat limiting your rental-rate growth because the percentage or proportion of smaller tenants isn't there? Just want to get some insight into that.

Yes, I think actually it kind of works the opposite way. To the extent that a tenant has big pricing power, they're more likely to be stringent on rental-rate increases. Give you an example, both ourselves and Boston Properties are building state-of-the-art facilities for Biogen Idec in Cambridge. They're really tough. They had 2 companies not so much competing, but they were doing similar projects, and so they had some pricing power.

They could go -- they could have stayed where they are or done some other things. So they kind of worked both parties against each other in a sense. And so where you've got the bigger base and the bigger pricing power, sometimes you have a tougher time negotiating more upside on the annual steps. But I think where you've got a multi-tenant building, and you've got floor users or smaller spaces, actually, it's much easier to achieve that 3 or 3-plus. I don't know, Steve, you can comment what you see in your market.

Yes, I think that tenants really, and we alluded to this with the institutional tenants in Mission Bay, I mean, they need to be next to UCSF. They need to be next to MIT. They want to be on the Torrey Pines bluff. They want to be in South Lake Union. To the extent you've got relatively healthy or tight markets, even though they're a large credit tenant that would try to exert their creditworthiness for lower lease rates, their desire to be there versus some markets that may have sublease space at distressed lease rates, they're going to choose the location versus the economics. So I think that really provides a nice floor, and as Joel said, maybe we don't necessarily have higher annual steps, but we end up with longer lease rates as well. So you've got the security of a long-term lease rate and then the obvious GAAP benefit of that annual increase.

Okay. So it's really a have to -- it's a great location and a have-to situation for these tenants, large and or small. Okay. I appreciate it. Thank you very much.

Yes. Thanks.

John Stewart, Green Street Advisors.

Thanks. I'll try to be quick. Joel, was hoping you could give us a bit of perspective on Steve's new role. Sounds like maybe doing a bit more travel to China than previously. But otherwise wanted to get some perspective on what he's -- what his responsibilities are going to be going forward and who's going to be back-filling what he had been doing in San Francisco. And then just lastly, if you could give us some comment in terms of how we should think about this in the context of longer-term succession planning.

You didn't get the recruiting letter yet? Yes, Steve's initially -- well, will continue to manage the Bay area, and over time, we will look to have a new market leader there. So that's something we have to work on during the coming quarters. And much as Jim's role was, and Jim and Steve are not related, for your reference. Really the first initial focus is really detailed effort in each of our regions, because we spend a lot of time in each of the regions. We're a very hands-on management team. I think that's why we've been able to I think execute on developments, redevelopments, leasing, things like that and keep a very stable workforce. But I think that's -- that's a big part of what Jim did, and I think you'll see initially, that's where Steve's effort will be.

I think it's pretty clear, Steve's been with the Company more than a decade. The Board is very comfortable with him. Obviously, I am too, and so we view Steve as a very important person on a go-forward basis. But I think what distinguishes Alexandria from most other companies -- maybe there's a few at the very large end that have pretty large management teams. But I think in the mid-cap, and certainly for others, I think we have a senior management team, maybe a dozen to 15 people, virtually all of whom who have been with the Company more than a decade, which is pretty unusual, who operate very -- operate both in an independent but in a real effective reporting fashion. And I think that's very unusual to have that depth and quality of management. And there's any number of people who could step up and take on much more heavy lifting. And so we're very fortunate and blessed, I think, with that.

Okay. That's very helpful. Thank you. One last one. Just coming back to the dispositions, and not at all focused on 2012 guidance, but just a little bit of color, please. I presume that what you're talking about, aside from maybe a couple of assets in the Boston suburbs, I would presume we're talking about North Carolina and suburban New Jersey or Philadelphia. And so if you could comment qualitatively in terms of what might be non-core and broadly speaking, in terms of cap rates you might execute at. Thank you.

I think that's a question that is something that I think we're not prepared to make public at this point. I think it would be imprudent to do so. So the best I would say is stay tuned, and we clearly have a sizable effort going on to look at the ability to monetize suburban assets and move them in -- and move that capital into our urban CBD. We have this ground-breaking tomorrow in Cambridge. We have 1.7 million square feet there. I think Mort Zuckerman on the call today at Boston Properties mentioned that of all the markets, he viewed Cambridge as the top. We do, too. So it behooves us to use our capital, which is both precious and tough these days to get, in the sense of the general markets, to move them into those kind of irreplaceable locations. So I think you'll see us do that. But let me not comment on that for a whole variety of reasons.

Fair enough. How about just the cap rate? The cap rates?

Well, I think you also -- yes, I don't think you can assume anything. I think we're looking at a variety of structures. And so again, let me beg off by saying stay tuned and hopefully over the next quarter or so, we'll be able to elucidate that in a more detailed fashion.

Okay. Thank you.

Yes. Thanks, John.

Dave Rodgers, RBC Capital Markets.

Yes, Dean, real quick, on the financials that you talked about for next year, did you give a development start number that's embedded in your guidance for 2012 and or a capitalized interest number for 2012, relative to 2011?

Not on the development start side. But we do have -- let me think. In Cambridge, we have the Biogen building that was going to be breaking ground here shortly. So that development will be added into ground-up developments. And then I mentioned in NOI growth there's 2 potential developments, 1 of which is executed, and they aggregate somewhere around 140,000 square feet in total, but 2 separate projects with creditworthy -- credit tenants behind it. As it relates to capped interest, I provided guidance in the $54 million to $60 million range for 2012.

Okay. Thank you. And Joel, just on the asset sales again, sorry to kind of belabor the point. But just to get a better sense, how would you rank order your preference for selling assets or other capital initiatives next year? Obviously, cost is one issue but also moving the portfolio is another. So does that rank at the top of that list, and how would you view that?

In the sense of ranking against what else?

You'd have preferred as an option, common equity. More strategic decision to sell assets or deleveraging initiative.

Yes, fair enough. I'd say it ranks at the top.

Okay. Thanks.

Yes. Thank you.

Ross Nussbaum, UBS.

Hi, guys. It's Gabe [Himmel] here with Ross. Sorry, just a real quick one. Sorry if is missed this, but did you guys give a yield on the Biogen developments at [Kendall]?

We did not, but I think you can assume that -- I think on a call or two ago, we basically said we're in the mid to high 7%s, and that's where it is. So if we were to turn around, build that building, and sell it, we think -- although that wouldn't necessarily be our favorite kind of development yield, we think we could achieve a 6% or a sub-6% on that asset, so there is a decent spread there.

All right. Thanks.

But don't interpret that as our standard development yield, I think, on new construction generally.

Hey, Joel. It's Ross. I might have missed this earlier, but with respect to a Alexandria center, realistically, are we talking about that being still years away? Or is there a possibility that a big fish could come in 2012 and we see an announcement there sooner rather than later?

Oh, you mean in New York?

No, I'm talking -- sorry, in Kendall Square, on the big redevelopment project.

I'm sorry, okay. The big one. Well, as maybe has been said, I think on the Boston Properties call, there is at least 1 and maybe more big tech users that are looking for sizable space. There's a big pharma user that's looking for sizable space. There are a number of big players, so the answer would be we certainly don't have that in our 2012 go-forward game plan, but something could emerge that would be sizable as opposed to people looking for a floor or two. And this is maybe one of the only places they could go that would make sense. So I would say we're working on those things, but we have nothing that's definitive at this point.

Do you have all of your required zoning approvals at this point?

Yes, I mean, we have virtually -- we're working on the final 2 building design. We're working on infrastructure. So, we can move very quickly.

Okay. So the city and state are okay with the density at this point?

Oh, yes. Everything's been -- yes, we're way beyond that.

Okay. Thanks.

Yes.

And at this time, I will turn the conference back over to our speakers for any additional or closing comments.

Okay. Well, sorry we ran a little over today, or a lot over today. Thanks for the very, very good questions, and we appreciate your time and attention. Thanks again.

That does conclude today's teleconference. Thank you all for your participation.