Alexandria Real Estate Equities Inc (ARE) 2015 Q1 法說會逐字稿

Welcome to the Alexandria Real Estate Equities Incorporated first quarter 2015 earnings conference. My name is Felicia and I will be your operator today. (Operator Instructions) Please note today's event is being recorded. I will turn the call over to Rhonda Chiger.

Thank you and good afternoon. This conference call contains forward-looking statements within the meaning of the Federal Securities Laws. The Company's actual results might 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 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 our first quarter 2015 call. With me today are Dean Shigenaga, Peter Moglia, Steve Richardson, Dan Ryan and Tom Andrews. And we finally decided to hold this call with investors despite what Larry thinks [said]. The story of, I think, the first quarter is strong leasing in our development pipeline. And needless to say, very proud of our entire team's very strong first quarter performance across the entire Company.

Our long-term strategic optionality planning is paying off -- paying significant dividends. We're in the best sub markets with the assets and operations, and taking advantage of really timing of exceptional market demand, giving us significant pricing power. There's really a perfect confluence of significant science and technology demand for our urban innovation campuses.

It's really all about acquisition, retention of talent, and ten years from now, 2025, millennials will make up 75% of the workforce so companies are very, very attuned to location. With what we just said about demand, the very limited supply coupled with our timing of deliveries of our embedded development pipeline, which is highly leased and with very strong yields, equals really a compelling internal and external growth story.

We're pleased to say that 52% of our ABR is from investment grade client tenants and when you combine that with our average lease duration, the top 20 tenants comprising 50% of our ABR, more or less, gives us -- is about nine years, that gives us strong cash flow and high quality long-term tenants. Dean will talk about guidance.

We updated the midpoint of guidance at $5.22, approximating 8.5% growth plus a 3% dividend, which gives an investor double-digit growth for 2015. Science and technology entities are really at the forefront of growth and leadership in this innovation oriented economy, as I said, competing for the best talent and the best innovations in [upmarkets]. If we go to the life science industry, it's clear there are a number of pretty compelling factors at work, including veteran faster FDA approvals as we discussed, in fact, in the first quarter there were ten new drug approvals and 50% were ARE tenants, and in fact today Biogen CEO, George Scangos, a long-time friend and client of ours announced that Biogen was committing $2.5 billion to Alzheimer's research in their R&D budget.

More NIH funding is coming. Next generation of big biotechs have emerged and really have become very dominant. Very strong venture-backed companies have emerged with much longer runways than previously. Big pharma is in very good shape and migrating to urban corridors, personalized medicine, and effective targeted therapies have really come of age, and increasingly the life science industry is turning to tech platforms to derive new insights and bolster business.

Commentary on yesterday's sell off a bit, biotechs were broadly down, especially the small and mid cap, about 3% to 5% but the group has been up 15% year-to-date, 50% over the past year and has tripled over the last three years, so the sector remains a market leader. No specific catalyst, and trading volumes were certainly not alarming. On the tech sector, the tech sector's PE is about 5% lower than the S&P market. The favorable earnings growth certainly is a part of the tech sector, favorable long-term secular trends driving growth including corporate networking security, which is in everybody's mind.

Smart mobility, explosive eCommerce growth, adoption of cloud computing and importantly digital health, to name a few. On the internal growth, operations on the leasing side, we had a very strong quarter of about 1 million square feet leased, with strong rental rate increases. Of the square footage leased, 40% was from greater Boston, 31% from San Diego, and 84% of the cash increase was from greater Boston leases. Occupancy, Dean will comment on, will likely stay flat or decline just a bit in the next quarter due to two move-outs Dean will mention, and we had very good same property NOI growth.

On the external growth side, it's clear to say we have more opportunities than we can undertake. Our current pipeline, 60 Binney, 250,000 square foot, we really are now down to two prospective tenants and expect, I think, leasing progress in the second quarter, hopefully above pro forma. 100 Binney in the near term, near term pipeline, we've -- we're about to secure an anchor lease. We signed an LOI for more than half the building and we expect to kick off construction here in the not too distant future.

It's also important to remember our current future development opportunities plus additional FAR that may be embedded there is worth noting, approximately 3.2 million square feet. Seattle, with about 452,000 square feet, San Francisco,1.1 million square feet, San Diego, about 1 million square feet, greater Boston about 150,000 and New York City about 420,000. I'll leave Dean's comments on balance sheet and guidance, and then finally on the dividend. We're clearly going to increase cash flows that will be shared with shareholders, so look for continued dividend increases through the year based on board decisions. And I'll turn it over to Peter.

Good afternoon. I think I will make some comments on the investment market and cap rates. The national investment market has continued to be healthy through the first quarter of 2015 illustrated by a further compression in cap rates to 5 basis points from the fourth quarter of 2014. Or a national average of 6.11%, according to the PwC [CORPAX] investor survey.

Alexandria's strategy to focus our allocation of capital into the innovation gateway coastal cities of Boston, Cambridge, New York City, San Diego, San Francisco, and Seattle, continues to drive our NAV higher as the year-over-year cap rate compression in those markets was two times that of the year-over-year national average at 34 basis points. According to the PwC survey, the office sector in particular is expected to lead the industry in terms of value growth, followed by warehouse, lodging, apartments and retail. Which is mostly attributed to a continuation of improving fundamentals and the focus on office investment from foreign capital and pension funds.

There was one notable lifetimes trade report in the first quarter which occurred in the Seattle region, where 307 Westlake in South Lake Union traded for a 5.6% cap rate and a record price per square foot of $859. This outfit is very similar to another lab office asset in South Lake Union, 401 Terry, which traded in the first quarter of 2014 at a 6% cap rate and $755 per square foot. Given that the assets are within a couple blocks from each other and occupied by similar non-credit tenant research institutions on long-term leases, these trades are a good barometer for the cap rate compression that lab/office assets have experienced over the past year.

During investor day we noted an office sales comp at 25 First Street in Cambridge, Massachusetts, also known as the Davenport Building. That sales comp originally speculated at 4% has been confirmed at 4.55%, and a price per square foot of $637. A follow on to that was the closing of 1 Memorial Drive at a 4.9% cap rate and a healthy $1,096 per square foot. Also noted during investor day but repeated here for those who may have missed it, was a comp that gave some long-awaited price discovery in (inaudible - background noise) San Francisco.

701 Gateway, an office building which is in close proximity to a number of Alexandria assets, traded to Prudential in September 2014 at a 5.5% cap rate. There are a number of projects being teed up there that were affirmed by this comp. Adjacent to Mission Bay, tech office building 444 De Haro Place in Potrero Hill, traded to ARE's Management for a 4.5% cap rate and $669 per square foot. This asset had just been stabilized with major leases executed in 2014 for 75% of the building.

To wrap up my comments, I want to acknowledge that we continue to monitor movements and interest rates and still believe that although recent data shows that leading indicators appear to have turned higher on a month to month basis, consensus investors sentiment remains negative on the rate outlook that appears to be validated by ten-year Treasury yields remaining near lows and the Fed's lower rate path forecast during the last FOMC meeting. With that, I'll hand it over to Steve.

Thank you, Peter and good afternoon, everybody. The San Francisco to Stanford clusters theme is really one of broad and deep demand, as life science requirements total in excess of two million square feet, which is up significantly from six months ago, and another eight plus million square feet of tech office demand, of which 2.7 million square feet is in the City of San Francisco alone. Alexandria's leadership position in developing creative and collaborative urban campuses is creating tremendous interest in the market as we are fully engaged with deep and trusted C-Suite relationships across both the science and technology industries, with at least five users seeking unique big blocks in excess of 200,000 square feet.

A deeper dive into the market shows the robust leasing activity in the mid range size as well this past quarter. Uber leased 300,000 square feet at 555 and 685 Market Street. Lending Club has doubled its footprint to 252,000 square feet with a lease of 112,000 square feet comprised of eight floors at 595 Market. Advent Software renewed its lease of 129,000 square feet at 600 Townsend Street, just down the road from our 510 Townsend project. DocuSign leased 120,000 square feet at 221 Main Street. [ReWorks] has leases pending for 91,000 square feet at 995 Market and 1161 Mission, while Mixpanel leased 65,000 square feet at 405 Howard, and Omnicon has leased another 45,000 square feet at 600 California.

With all this activity, we anticipate lease rates for new products will be pushing beyond the mid 50s, trip net, and into the mid 60s triple net, given the mix of high demand and limited availability. More particularly, we have no availability in Mission Bay, and just 3.4% in the Soma district, down 300 BPS from the 6.4% during 1Q 2014. At 510 Townsend Street we are on track for securing entitlements during late summer of this year, and have signed a long-term full building lease with a disruptive technology company, Stripe. We expect to break ground later in the year and will provide further color in the coming months on timing and delivery. Mission Bay, as we've noted, is very healthy with continued inbound interest as well as existing tenants seeking expansion.

With the Warriors breaking ground later this year and our JV with Uber on track, this has become truly a unique urban destination. Our regional team's 30 years of experience and relationships across the political, governmental and brokerage realms as well as the science and tech industries, has positioned the Company for continued out performance in the San Francisco market.

Moving a bit south, we're seeing quite a bit of resurgence of activity in south San Francisco, with just 1% vacancy. We have seen our Amgen Onyx campus just brought to market for sublease, but we do have in place long-term leases at the campus with an investment grade tenant there. Lease rates are now pushing well into the mid forties and higher for existing product, and finally, the 98.5% regional occupancy reported in the sub has already been resolved so we're back at 100%, and the mark to market over in-place leases provides for further growth with approximately 10% cash and 15.2% on a GAAP basis. With that, let me hand it over to Tom.

Thanks, good afternoon, everyone. It's Tom Andrews, I'll be talking about the greater Boston region. So the greater Boston life science market continues to enjoy very favorable supply demand characteristics in the highly desired east Cambridge and Kendall Square sub market where ARE's assets are concentrated. Class A lab vacancy is around 3%, and office vacancy is around 5%, and overall Cambridge vacancy is sub 10% for all categories of both office and lab space. We're tracking about two million square feet of lab demand and nearly 2.5 million square feet of office demand focused in Cambridge and that's in an approximately 18 million square foot total market.

Demand is coming from multi nationals, both life science and technology companies entering the market, to new republic clinical stage drug companies, to well capitalized venture-backed firms, all are desiring a close proximity to MIT and the amenity rich Kendall Square neighborhood surrounding the campus. Overall ARE's occupancy in the region ticked up about 140 basis points to 98.9% occupancy in our 4.3 million square foot operating portfolio.

As one would expect, the tightness in the market has resulted in a substantial increase in asking rents for both laboratory and office space. Class A lab asking rents have moved from the mid to high 50s, triple net, into and through the sixties and we're now seeing some offers in the seventies, triple net. In the office market, current asking rents for class A Kendall Square office space solidly in the fifties and sixties on a triple net basis, which equates to seventies and eighties on a gross basis.

This has created a sense of urgency among tenants of all sizes and when possible, we're using this market dynamic to lock down early renewals, as with the 83,500 square foot office renewal with MIT at 600 Tech Square where we were able to achieve a near doubling of the net rent compared with expiring rent. We're pleased to welcome Sanofi to our Alexandria Center at Kendall Square project as they've committed to a long-term lease of 251,000 square feet at 50 Binney Street.

We are now in active negotiations as Joel mentioned, with multiple users for the approximately 270,000 square foot 60 Binney portion of that project which is now under construction. And also as Joel mentioned, we've signed a letter of intent for about half of the approximately 417,000 square foot near term development project at 100 Binney Street which is the only shovel-ready commercial development site in Kendall Square at this time.

So based on this, we expect to be able to announce one or more additional large lease deals in the coming quarters at Alexandria center at Kendall Square. In March, also at ACKS we delivered the 388,000 square foot 75-125 Binney project, which is 99% leased to Ariad Pharmaceuticals . Ariad as we've been tracking over the past several quarters is entertaining a handful of possible sublease scenarios for up to about 40% of that project. They continue to work on design of their own tenant improvements and we expect them to occupy a significant portion of their space early in 2016.

At our -- at Longwood center in Boston, which is our joint venture development project in which we're a 27.5% owner, we are in negotiations with prospects representing over 103,000 square feet of additional space, and if completed, these leases would bring us to 63% occupancy in this 413,000 square foot project, with three full floors remaining to lease in the nine story building. We're encouraged here by a modestly higher level of tenant activity in this submarket in recent months. Finally, I'd note that we're expecting an on time delivery in early May of a fully leased 112,000 square foot redevelopment project at 200 -- at 225 Second Avenue in Waltham. And I'm going next to Dean.

Thanks, Tom. Dean Shigenaga here. Good afternoon, everybody. I just want to cover three important topics. First off, our continued strong performance in the first quarter, second, our disciplined allocation of capital and access to diverse sources of capital, and lastly, an important NAV-related matter. As you know our strategic focus on unique collaborative science and technology campuses in urban innovation clusters drove very strong results in the first quarter. We reported FFO per share of $1.28, up 9.4% over the first quarter of 2014. Up $0.05 or 4.1% over the fourth quarter of 2014.

Our FFO per share results exceeded consensus by $0.02. We refined our range for FFO per shared guidance for 2015 from $0.20 to $0.10, and increased the midpoint of our guidance $0.02 to $5.22, directly reflecting continuing strong rental rate increases on lease renewals and releasing of space. As Tom had mentioned, we executed several leases in greater Boston, with significant cash and GAAP rental rate increases, driven significantly by a lease for about 84,000 rentable square feet at Technology Square, with cash rents increasing from $25 triple net to approximately $53 triple net.

A significant portion of this rental rate increase was anticipated in our guidance, and we achieved a higher increase than anticipated, which drove a portion of the increase in our guidance for 2015. We are well positioned with a high quality asset base, located in key coastal gateway cities, with high barrier to entry, extremely limited supply of existing Class A space, and very limited future development product in comparison to the significant demand. Our overall mark to market for in place leases today in San Francisco and greater Boston generally range from 10% to 20% with opportunities for significant steps on a select number of early renewals.

As noted at investor day in December of 2014, we have two single tenant properties with expirations in the second quarter of 2015. One lease for about 128,000 rentable square feet at 19 Presidential Way in Woburn, Massachusetts, expires on May 31st of 2015. At a rental rate of $25 per square foot triple net. We have another lease for about 82,000 square feet at 2525 NC Highway 54 in Durham, North Carolina, that expired on April 24th at a rate of $13 per square foot triple net. And we are currently marketing both spaces for lease. As Joel had hinted, this will result in a temporary decline in occupancy by about one-half of 1% in the second quarter, as these expirations are offset by lease-up of some vacancy in our asset base. And we remain on track to hit our target range of occupancy from 96.9% to 97.4% by year-end.

Our balance sheet is in excellent shape, and I'll review our capital plan in a moment. We remain very disciplined in our development activities, with highly leased development projects and our non income producing assets are now 12%. We continue to execute on our long-term strategy to deliver growth and FFO per share and NAV while also improving our net debt to adjusted EBITDA to less than seven times by year-end. Leverage as of quarter end was 7.5 times and represents the high point for leverage for 2015 and will decline in the third quarter and the fourth quarter. Moving on to our disciplined allocation of capital and access to diverse sources of capital, 86% of our capital for 2015 is focused on highly dynamic and collaborative campuses in key coastal science and technology gateway cities that inspire innovation, including Cambridge, Mission Bay, Soma, Manhattan and Torrey Pines in the UTC market.

Our capital plan for the year at the midpoint of our guidance includes approximately $1.15 billion with approximately $490 million or 43% expected from net cash provided by operating activities after dividends, incremental debt, and a non-cash acquisition in the form of a tax deferred structure. The remaining midpoint of $655 million or 57% of the $1.15 billion is detailed on page four of our supplemental package. We have identified asset sales aggregating $475 million, and are working on the remainder of our capital plan of approximately $180 million. We expect to expand our access to capital with the sale of an interest in 225 Binney Street to a top tier JV partner by near year-end.

We have completed -- or we have three dispositions for the year keyed up including two single tenant Class A buildings, one in south San Francisco and one in Cambridge, and a residential project located in Cambridge. All three dispositions are at various stages of negotiations and are expected to close this year. Accordingly, our comments on these transactions will be limited until each sale is completed. At the midpoint of our guidance, these three sales are projected to generate roughly $370 million in proceeds, based upon $16 million of cash NOI, and this includes 80% of the NOI for 225 Binney Street at the midpoint of our target JV interest.

The proceeds from the sales are weighted toward the latter part of 2015. As for the remainder of the capital, roughly $180 million that we're [solving] for over the next quarter or so, approximately 40% will be sourced from real estate sales to be identified over the next several months, and the remainder of approximately $100 million may be sourced through additional asset sales or through very limited use of our ATM program. We prefer not to speculate on potential sales that have not been identified but we will continue to focus on sales at both operating properties and land.

More importantly, we will continue to provide disclosures of specific sales when they are identified and classified as held for sale. Briefly, our ATM program has about $150 million remaining, and is scheduled to expire in early June. We do expect to refile our program later this year and do not expect to utilize any significant amount under this new ATM program. This is a perfect time to remind everybody about our desire to utilize various options to fund our highly leased value creation development projects in a manner that will allow us to deliver long-term value to our shareholders while remaining prudent and disciplined with the issuance of common equity.

Asset sales are an important component of sources of capital, and we will continue to focus in growth in FFO per share and net asset value while we fund our highly leased value creation projects. Briefly on debt transactions for the rest of the year, really consists of the following. Partial repayment and extension of the maturity of our $375 million, 2016 unsecured term loan. We expect to extend the maturity date to 2021. Our goal remains the same. We will continue to reduce our outstanding term loan balances over the next few years. This partial repayment and extension of the maturity date provides flexibility for our capital structure while extending our weighted average maturity.

After extending the 2016 maturity date, we will focus on reducing the outstanding balance under our 2019 unsecured term loan. As noted in prior calls, we do expect to issue unsecured bonds this year before any meaningful increases in all in pricing settles in. We believe all in pricing today for ten-year bonds to be in the range of 3.5% to 3.7%. We are also considering a secured construction loan for 50-60 Binney Street in Cambridge which will cover a portion of our funding for this project later this year. We're also considering a secured construction loan for a JV development at 1455/1515 Third Street in Mission Bay, and this loan will cover funding needs that really begin in 2017 after both the Company and our partner fund initial construction cost.

Lastly, on an important NAV matter, on March 24th, we delivered 99% of 75-125 Binney Street, to Ariad Pharmaceuticals. From an NAV prospective, most models likely value this 99% leased property above our investment to date, but likely at a discount until placed into service. Cash rents commenced immediately upon delivery, however, about a year and a half of free rent on a 15-year lease, really, were spread over the first two years of the lease. As a result, about 80% of the annual rent of about $30 million represents straight line rent. Accordingly, 80% of the value of this property will likely be eliminated in models that back out straight line rent in order to derive value based on a capitalization rate on in place cash NOI.

Full cash rents of $76.50 begin on April 1st of 2017. So we encourage investors to carefully review the full valuation of this Class A property in their NAV models as they update them. Lastly in closing, the detailed assumptions underlying our updated guidance for 2015 are included on page three and four of our supplement at package. We truly are in a unique position with strong demand for our Class A assets in key coastal gateway cities. Our capital plan has grown for value creation opportunities, primarily in Soma and in Mission Bay, while we strategically fund our growth through additional asset sales.

We also continue to focus on our strategy of generating growth in FFO per share and net asset value. We believe we have the right assets and the right locations and the best roster of client tenants and remain focused on continuing to build our best in class franchise. With that, I'll turn it back to Joel.

Thank you, Dean. Operator, let's go to Q&A, please.

Thank you. (Operator Instructions) We'll go first to Smedes Rose of UB-- I'm sorry, of Citigroup.

Hi. Thank you. I was just wondering if you could talk a little more about your rationale for selling a majority interest at 225 Binney, why that asset and kind of maybe your thoughts around that.

Hey, Smedes. Dean Shigenaga here. I think as you look through capital planning being very fluid, as you look at trends in the marketplace as well as different sources of capital, given our needs to fund about $1.1 billion, roughly, $1.1 billion, $1.2 billion, of needs this year, we've laid out a capital strategy, I think, that has been somewhat dynamic but also prudent and disciplined in tapping a variety of sources of capital to blend our cost of capital. And I think in prior calls we've mentioned, as well as in the general market, you get a good sense that pricing for high quality real estate is attractive capital for the Company.

And as a result, JV interest in a project like 225 Binney, fully leased, modest steps in rents over time, will allow us to really tap the value we created on this project which, keep in mind, was initially delivered at probably seven-five to seven-seven initial yield when we completed this project. And if we can tap a market cap rate today which we'll describe when we complete the transaction, we'll be able to monetize some of the value creation and reinvest that capital into value creation projects. So hopefully that helps.

It does. And then I just wanted to ask you, I know you noted that the Amgen space has just been brought to market in south San Francisco. What's your thoughts, I guess, on demand for that and the kind of mood, the pace of subleasing it?

Hi, Smedes, it's Steve Richardson. You know, again, there's really a resurgence of activity in the south San Francisco market. You've got just 1% direct vacancy. So as we've got a number of second cohort companies that are maturing there, I think the possibility of subleasing looks brighter than perhaps it did on their other projects along Oyster Cove. So we're in constant contact with the Amgen team, as we have been for years, and we'll see how it unfolds, but I'm encouraged.

Okay. All right. Thank you.

Thank you.

We'll go next to Nick Yulico of UBS.

Thanks. A couple questions. One, on the sale of the residential site that's planned in Cambridge, could you remind us what the cost was -- is to build that project?

We're probably in somewhere just -- just around $40 million, low $40 million probably at the point where we'll be completed with the project.

Okay. And so you expect to sell it at some sort of premium to that, I imagine?

Well, I think the way to think about the residential site is that it was a component of a larger entitlement effort component of our overall Binney Street development. There is a component to have lower priced space -- units within the residential development. So I'd say that we expect to break even to a slight gain on the transaction, but keep in mind that it's a component of the larger development, and since we don't want to be long-term holders of the resi site, we've chosen to sell it and recycle that capital.

The number of buyers for it, really, is astounding, in the several dozens.

So if we're trying to figure out the possible cap rate on the stable sales, if we allocate somewhere above costs or around that for the residential, that would be, you know, good enough math?

Yes, that gives you a very good sense for an estimate on the cap rate on average for the two transactions that we're talking -- looking at selling, and as we mentioned, we'll provide more color when we complete each of the sales.

Okay.

This is Peter Moglia. I just wanted to add one thing, that the rents, as Dean touched on, are significantly impacted by an affordable component, which was part of the entitlement agreement we had with the city of Cambridge, so if you applied market rent to the whole thing and then applied a cap rate to that, you might be off, so I think roughly about 40% of it is limited to affordable. But we fully expect a market cap rate on that NOI.

Okay. That's helpful. Thanks. And then just turning to the -- you know, these possible acquisitions of additional sites in Mission Bay and Soma, can you just talk about, what -- it sounds like it's one of the deals in OP unit deal and then also whether these might be life science, office projects, possible yields, and whether these, you think, would fall under Prop M allocations. Thanks.

Yes, I think we will not, if you don't mind, comment on that anymore. We'll comment in detail and obviously our disclosure will have chapter and verse on that when the time comes, but I think, given pending transactions, it's better to say nothing. I think Steve could give you a 60-second primer on Prop M, though.

Hi, Nick, it's Steve Richardson. Prop M right now, there is supply in the pipeline. We anticipate that winding down with two large projects that will probably garner allocation, and then certainly 510 Townsend and Summers, we discussed, so, really, seeing the impact of Prop M in the latter half of 2016, and then beyond into 2017.

Okay. Got it. Thanks. Just when you talk about this non-cash acquisition as a source of capital, is that -- is that an OP unit deal or is that something else?

In essence, yes.

Okay. Thank you.

Yes.

We'll go next to Jim Sullivan of the Cowen Group.

Thank you. Back in December, at the analysts day, you had noted that your leasing [expired] expectations for the year were in the 14% to 17% range on a GAAP basis. First quarter was obviously well ahead of that. And that result, I think, you attributed in part to the locations where the leases were made. You talked Cambridge of course, and California. And I just wonder if you could kind of update us on your expectation for the spreads for the year. Is it still in that same range, 14% to 17%, number one, and number two, kind of as a part of that, I wonder if you could kind of review your sense of the mark to market in the portfolio outside of Cambridge and San Francisco, San Diego.

So, Jim, it's Dean Shigenaga here. I think when you think of our leasing steps this quarter, almost 31% on a GAAP basis, and our range of guidance of 14% to 17%, I would first highlight that the challenge with updating the range in an extremely healthy environment that we're in today, with tremendous demand and very limited supply, is it's hard to forecast the upside that is possible. And I would also add that this is only the first quarter, that represents only 25% of our activity for the year. It was a home run quarter. I would imagine that on average the rest of the activity is going to be closer in line with our guidance, with the caveat that we're in a very strong market that presents some upside on the leasing activity that we execute on going forward. And I forget what the second question was.

On the mark to market on other regions.

Jim, hi, it's Steve Richardson. So as you look at Cambridge roughly at 15.9% cash, roughly 10% in San Francisco, San Diego, we've got about nearly 5% in Torrey Pines, maybe 2% overall, given some limited rollover there, and then in New York we're at about 2% as well. We obviously have a lot of recent deliveries there so just hasn't matured to a point. And then Maryland, we're in positive territory as well on a cash basis, 2%, 3.3% on a GAAP basis. And then in Seattle, looking solid on a GAAP basis, 10.6% and 2.0% on a cash basis. RTP, similarly, 12% on a GAAP basis and 7.8% on a cash basis. So across the board, you know, certainly positive mark to market. I think, you know, certainly seeing Maryland and RTP recover, stabilize and now move into positive territory is an encouraging sign.

Is it kind of fair to conclude, Dean and Steve, based on all of those comments, that as we look over the expiration schedule, looking out not just for 2015 but for 2016 and 2017, given that the average base rent on expiring and talking in total here is fairly low, either in the high twenties or the low thirties, that, you know, very strong lease spreads there, it's not just a 2015 event or likelihood but I'm sure you would have a good deal of confidence in 2016 and 2017 as well at this point. Admitting that this is a very dynamic market.

Yes, I would say first off, Jim, it's a very dynamic market. I would say it's hard to incorporate the speed of change in rental rates in the summary that we just -- that Steve just rattled off, but as you look out this type of environment, very strong market should provide ongoing very solid leasing statistics going into 2016 and 2017.

Great. Thanks.

Thank you, Jim.

We'll go next to Jamie Feldman at Bank of America Merrill Lynch.

Thank you. Can you talk a little bit more about the actual requirements to get the permits and approvals done for the leases you signed or I guess to start construction at 510 Townsend, 10300 Campus Point and 400 Dexter? I think in the press release you said -- I was impressed you signed the leases and then you have some hurdles you need to get over to start construction?

Yes. So Steve will talk about 510 Townsend. I'll ask Dan to talk about Campus Point and then I'll talk about Seattle.

Jamie, hi, it's Steve. Yes, we started the entitlement process a number of quarters ago. You've got submittals, environmental impact review, and then traffic studies. Those three pieces have essentially been completed or nearing completion. We do have a target date in August now with the Planning Commission and expect that we are right in the middle of the fairway with the project itself, no variances. All of the underlying traffic in EIR conclusions are consistent so we would expect a pretty seamless move here to August and then receiving the entitlements at that time.

And break ground, Steve?

Break ground shortly thereafter in the fall.

Dan, on Campus Point?

Hey, Jamie, it's Dan. Yes, so the way Steve described it is exactly where we are in San Diego on our Campus Point project. We've cleared all the hurdles. We're now out to public notice. And we expect to wrap all that up in July. So we're targeting a final approval in July for us but everything seems to be going smoothly.

And groundbreaking?

Would be at the same time.

This is Peter Moglia. At 400 Dexter our master use permit, or MOP as it is referred to in Seattle, is expected within the next 60 days or so, but we are going full force on design and the city is very, very supportive of this effort because they wanted to capture Genotherapeutics in the city proper. So we're got full support and we're running with it.

And expect to break ground potentially even this quarter.

And did you say for 510 Townsend you have Prop M approval or you need it?

No, that will happen with the Planning Commission in the summer, Jamie. August.

Okay. All right. And then I know you didn't provide us a total dollar amount for 50-60 Binney but can give us maybe a ballpark of how to think about the total cost of that project?

You're probably -- Jamie, it's Dean here. You probably directionally not too far off from our recent project at 75-125 Binney. I say this cautiously. Let me just caveat this because the challenge with estimates for construction right now is what we do know is, we have a lease with Sanofi. We are working through terms to lease 60 Binney. The exact split between our investment and the tenant's investment plus the design, some design aspects, will determine the ultimate cost. But you're probably in that figure that's approaching all-in, about $1,000 a foot.

You're saying that's a combination of your spend and their spend or that's just your spend?

That's our investment into the project.

For both.

All-in. That's fully loaded, all-in. And then rents, you could imagine, would be at the absolute upper end and then you can imagine what the yields would be. So a nice spread to what cap rates are today.

Okay. That's helpful. And then my final question is more strategic. So, it sounds like, you know, you pulled back on your disposition guidance. You increased your acquisitions. But you spent a lot of time talking about how great the pricing is for sales. What -- how do we think about that? How did you then that rather than maybe you'd think you'd want to do the opposite which is sell more and buy less given the --

Actually, Jamie, sorry to point that out but that's actually what we are doing. We're selling -- we increased our disposition program this quarter, so we have $200 million of incremental dispositions on a cash basis.

I thought you took down your sales guidance. No?

No. No. Dispositions increased. Net 200 on a cash basis over acquisitions.

So we have about a net -- we have about a net $65 million of a cash increase on an outlay for acquisitions. And about a $265 million at the midpoint increase in dispositions. Which nets about --

My confusion, I'm sorry about that. Thank you.

Yes. Thanks, Jamie.

We'll go next to Sheila McGrant of Evercore.

Yes, good afternoon. I was wondering, on Tech Square, that rent you mentioned was $25, was that a really old lease? And are there other leases at Tech Square that are also well below market?

The lease was a 2010, so just coming out of the recession, it was a renewal of an existing MIT lease at market, and it was a gross rent. And so that's -- that's the -- that shows how much the office market in particular has moved since that trough in 2010. And there are not a lot of other which will below market leases at Tech Square. It's at pretty minimum.

Yes and just to clair-- Sheila it's Dean here. Just to clarify, the original lease rate that rolled was gross. The numbers I gave you converted the gross rate to a net rate so you had apples to apples, it is a net lease today.

Okay. Great. And then on the option property in New York, this seems to be moving more quickly now. I know the last time you negotiated the ground lease for 29th Street it took quite a while. Is this something that you think is years away or could this be nearer term, and maybe if you could just comment on the potential to upzone on there.

Yes, well, Sheila, the city -- this is Joel. The city announced, actually, in a press release, announcing the two venture funds that they are essentially helping fund to the -- to the tune of about $150 plus million, and in that press release a couple of weeks ago, they stated the need for additional lab space in New York because the demand there is emerging. And they cited the Alexandria Center for Life Sciences having the additional north parcel on which we have a long-term option as one immediate relief valve, at least in the foreseeable future, and the city has encouraged us, we've had several direct meetings. They've even encouraged us to think about upzoning it. And so we will be working with them hands-on and right now our thinking is we could break ground potentially by the end of next year with the delivery in 2018. So that's very realistic.

The ground lease is negotiated. This is just an add-on for the development.

Oh, so the terms of this ground lease would be similar --

It would be an amendment to the existing for the development of this site, so it's actually fairly easy to do compared to a brand new ground lease that, you know, we had never negotiated back in 26 and 27 when we were doing it.

Okay. But pricing, even though it's an amendment to this ground lease, pricing could vary.

When you say "pricing," meaning --

Meaning the rent that you're going to pay on this option parcel versus --

Oh, well that's one of the key issues because obviously we want to make it as favorable to the tenants because that's a pass-through so we want it to be as favorable to the tenants to induce them to make New York City their headquarters. And the city is aligned with that view. So, yeah, that's not so much of an ARE cost, that's a tenant cost and it's in the best interests of the city to make that affordable.

Okay. Great. Thank you.

Yes. Thank you.

We'll go next to Michael Carroll of RBC Capital Markets.

Say, Joel, could you give us some color on the acquisition guidance? What's the breakout between stabilized assets and then the value creation assets that was mentioned in the press release?

I'll ask Dean. He's got --

I think you should think of most of them, other than what we've completed which you already have, the stuff that's pending, you should think of as value-added opportunities. There may be a little bit of in-place for existing cash flows, but for now, just assume it's nominal.

Yes, I think as we said last time, the MIT transaction involving the Memorial Drive property really was kind of an opportunistic situation we didn't really plan on. They brought it to market. They bundled it with the -- or not bundled it but encouraged us to bid on it together with our repurchase of Tech Square, so it's not something we had really planned on. And generally we aren't in the market to buy stabilized acquisitions in general.

So the value-add acquisitions that you're looking at, then how much capital can you invest in those properties going forward? I guess what's the (inaudible - multiple speakers) 2015 bucket?

A lot of that depends on what the -- what the ability to build on based on local permitting, et cetera. But I think we've laid that out in the pipeline chart on page 30. If you go to that, that's the best way to visualize and think about each of the projects. The ones that are currently in development and the ones that are really near term, I think if you look at the square footage there, that's the easiest way to kind of think about it.

And Michael, I'd say it doesn't impact, and your question might be longer term-related but it doesn't really impact our construction spending for this year. As you noticed, our guidance remains consistent with last quarter.

Okay. Great. Thank you.

Yes. Thank you.

We'll go next to Rich Anderson of Mizuho securities.

Thanks. Good morning out there.

Barely. Yes.

So, just maybe a potentially stupid question to start. Is anything about 225 Binney have a lesser audience because it's part of the broader Alexandria center? Is there a smaller audience because of that, do you think?

No, I don't think so at all, actually, it's probably a broader audience. As you know, that area of Binney is very -- has great adjacency to Biogen's main cluster campus there. That's why they chose that site down at 225 Binney. It's a pure office lease. It's their headquarters. It's a long-term lease, it's a credit tenant, a tenant that has a market cap of almost $100 billion doing great things. So it's actually an ideal asset.

Okay. Just wondering, just because it's within a -- you know, the broader center there. Anyway, moving on, the mention of the two leases, one that has vacated and the one that's going to on May 31st, is there anything in guidance about releasing them at this point?

Modest assumptions, we do expect some downtime, Rich, to re-tenant these. Could go either single or multi-tenant. We do have a number of showings, but nothing to report at the moment.

We're a little -- go ahead.

I was just going to say, where does 25 for Massachusetts and 13 for North Carolina compare to market right now, in your opinion?

Yes, hi, this is Tom Andrews. That property is in Woburn on the route 128 inner beltway north of Austin. It's -- we think that 25 is right -- right pretty much where market is. So we'd expect to be -- and the building, it was acquired as a sale leaseback ten years ago, and we're -- the building was designed to be a multi-tenant building, and we think we'll have no trouble at all multi-tenanting it and leasing it up over time. It will take some time to lease up, but, you know, we've got good activity with multi-tenant prospects, and a potential single tenant prospect as well but we think it's at market. The expiring rent is probably close to market.

Got it.

And in the North Carolina property, it was a property we bought quite a number of years ago. The EPA was in the property. They've moved on. And rents there probably are in the low twenties on a triple net basis, so we see, I think, some good opportunity for roll-up there.

Okay. Dean, you mentioned the use of the ATM. By my calculations, you're trading right now below consensus NAV. Any comment on that as it relates to the strategy to deploy the ATM?

Yes well, I think we didn't actually say we were going to deploy the ATM per se. We have not used -- I think the last time we used it was back in 2012, 2013. We haven't used it since. $150 million more or less remains. That expires, as Dean said, in June. We're going to refresh that so we always have it available, but I don't think we have committed to use it at this point.

Fair enough.

Rich, my comments focused primarily on sourcing sales but we wanted to make it clear that we would refile the program just to have it available for the future.

Fair enough. Last question. I don't know if you have this at your fingertips but do you have a number, a percentage of your portfolio that's backed by VC funding?

Yes. If you look at -- we have a pie chart at page 21 of the supplement, and in there you'll see private biotechnology at about 6.8%.

Okay.

And that's by ABR. That's a good, good cut of estimation.

So that's in the range of what the VC number would be. Okay. Great. Thank you.

Yes. Thank you.

(Operator Instructions) We'll go next to Kevin Tyler of Green Street Advisors.

Hi, guys, good afternoon. Just one quick one for me, a high level question. How do you think about lab space fundamentals today -- rents, tenant demands, etcetera -- versus the last peak in the 1990s?

Yes, I think it's fairly fundamentally different. If you go back to my opening comments, I think that kind of says it all. What we saw in the 1999, 2000, 2001 era really was more a market-driven peak where companies and valuations kind of emerged, but I think business models and drug approvals and just sheer focus on drugs coming to market was not the same. This is truly, I think, an unusual Renaissance that I think has got a lot of legs and will continue to last for quite a long time.

I think the better and faster FDA is fundamentally changed since then. I think the new generation of biotechs led by companies like Biogen, Celgene, et cetera, they didn't really exist then. You just had Amgen and Genentech more or less. Big pharma was really hiding out in -- in really campuses that were more suburban and really acquired and built over many years, really with a different business model in mind. And then the -- kind of focus on the targeted therapies didn't exist. So I think it's a pretty -- this is kind of a Renaissance period. I don't think it's -- sure there's a lot of testimony on the biotech side with the market valuations, but fundamentally, the companies are incredibly well -- way better positioned.

Okay. I appreciate the color. Thank you.

Yes.

We'll go to Dave Rogers of Baird.

Hey, guys, just a couple left for me. Joel, a couple questions for you on the dispositions minor how you're thinking about it. I guess the first would be, can you comment on India, the decision to sell the asset and impair it this quarter and anything that speaks to your longer term plans in India or Asia, and the second would be, with regard to using joint venture capital in Cambridge, any other markets that you'd consider really bringing in joint venture partners and how did you think about that as you went down the road?

Yes. So two quick -- two quick answers. On India, we have a -- several assets that are really unproductive assets. Land or land and some kind of structure that we -- you know, this is pre-layman. We had intended essentially to develop and bring to market. Those plans changed because of allocation of capital issues. And so the asset that we sold was a -- kind of a shell of a building at a very high quality location in Hyderabad, and we had not achieved permits for the MOB and so we felt, by selling it to an MOB operator, who would actually operate it and be able to do secure those approvals, would be the best course. And so that's why we entered into that transaction. And we're happy to have monetized a non-income producing asset.

On the other question about selection of locations, I think our thinking there is driven by a whole bunch of considerations that Dean kind of covered in his remarks, but I would say that the ability to extract value from assets that we have created and really developed s high value, given today's cap rate environment, seem to be best targets of opportunity. The Forbes asset, 500 Forbes, is an ideal one because of where it's situated, cap rate situation. And the 225 Binney is one that also seems kind of ideal, again given it's at the end of the Binney Street corridor, it's a pure office building and it's got all the attributes that really make a joint venture, a partner very excited about participating in that ownership with us. So those were kind of the driving forces, I think, behind them.

Okay. Great. Thanks.

Yes. Thank you.

And currently there are no other questions in the queue. I'll turn the conference back to management for any additional remarks.

Thank you, everybody. We appreciate your time and we're just about one hour on, and we'll look forward to talking to you on the second quarter call. Thanks again.

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