Alexandria Real Estate Equities Inc (ARE) 2015 Q4 法說會逐字稿

Welcome to the Alexandria Real Estate Equities Inc. fourth-quarter 2015 earnings conference call.

(Operator Instructions)

Please note that this conference is being recorded.

I will now turn the call over to Paula Schwartz, Rx Communications. Please go ahead.

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, Paula and welcome everybody to the fourth-quarter and year-end 2015 call.

With me today are Dean Shigenaga, Peter Moglia, Tom Andrews, Steve Richardson and Dan Ryan.

I wanted to, first of all, start off with really huge kudos to the entire ARE family for an excellent fourth-quarter and year-end 2015. I think the results and accomplishments are highlighted well in our press release and in the supp and they really speak for themselves.

On the other hand, we actually mourn the loss of an Alexandria family member, Jeff Newton, who passed over the last week or so and will be sorely missed in the family.

Moving to the core, and Dean will highlight some of this, we had strong fourth-quarter and year-end 2015 results, and I think evidenced by the strong continuing guidance of our core for 2016. I think it's important to keep in mind, we have a very high quality tenant base, which provides stability in a volatile market, which we're clearly in.

54% of our investment -- 54% of our ABR is generated by investment grade tenants, and 81% of our ABR is generated by our investment grade tenants from our top 20, generating almost half the ABR. For the top 20, we have 8.3 years of average lease duration, which gives us a nice long runway for almost half of our annual base rent.

We also have a strong and diversified tenant base with only 3% exposure to really pure office or tech office on our operating properties. And 20% of our ABR is from the San Francisco region, which has gotten a lot of headline news these days, but we're happy to say in our three strong sub-markets we're 100% occupied, and we have very limited rollover this year of about 120,000 feet and below market expiring rents. So I think we're well positioned.

On the leasing side, on our operating assets, we have a very manageable 1.2 million square feet rolling this year, which is about 7.6% of the asset base, operating asset base. 32% or almost 400,000 square feet has already been re-leased. And our largest block is about 125,000 at Campus Point when Lilly vacates in San Diego, and that's high quality space.

On the development side, regarding leasing of our 2016 deliveries, 89% is leased, 91% leased or in negotiation. We expect New York to become fully leased in the not too distant future.

Longwood, which is our joint venture, remains at about 63%, but we expect with the $2 billion increase in the NIH funding that should help increase academic demand in that sub-market. And we look for multiple multi-tenant users to populate the rest of the science park project in San Diego which is about 81%.

So of the 2016 deliveries, 1.5 million square feet at an average cash yield, initial cash yield of 7 plus, we feel that we're in very good position, and we've got approximately $75 million to $80 million as you know from the supplement of additional NOI to on-board. With respect to the 2017 and 2018 deliveries, we're 67% leased and 87% leased or under negotiation.

At 100 Binney, we did have one floor lease request by an important tenant that actually has now been terminated, so that leaves us with five floors. We have two floors under active negotiations, and several parties are discussing the remaining three floors and we look forward to resolving that in this year, for sure.

At 400 Dexter, the remaining 34% is expected to be picked up by Juno for hard options they have, and if for some reason they didn't lease it, we actually have demand today that would take that space.

Two new projects, 9625 Town Center, we have seven potential tenants looking at space there. And at 10151 Barnes Canyon, we have three potential tenants looking at space there.

On the tech side, our largest tech tenant is Alphabet, which was up something like 5% today. They remain the anchor in our Mountainview project. Total ABR on tech today is less than 3%.

I think it's important to note that really the financial model of the strong, private tech companies is really shifting from building platform to profitability, and I think that's a good thing.

On the life science side, we see strong continuing R&D numbers, $100 billion plus generated by or to be invested this year by both pharma and biotech, which are not generally capital market dependent other than at the venture level for the smaller tenants. The NIH is receiving an increase of $2 billion, and the President announced the cancer moon shot, which may generate another $1 billion if he can get that through Congress this year.

With respect of to the center for Medicaid services, the projections through 2024 show based on all we know today and the predicted assumptions that the rate of increase in drug prices will roughly be in line with the rate of increases in overall healthcare. Medicines, after all, certainly help prevent disease and many cases treat disease and avoid much higher costs downstream.

Some drugs are costly, but treatment of disease is a lot more expensive. Innovative treatments for diseases where there are few other options will still continue to command solid pricing, and innovative drugs that cure disease are clearly not the enemy as the political storm is out there. They really are the solution.

I expect that after the election this will essentially die down, and it will become much more of an outcomes will bear more on pricing, the longer and healthier life will command higher pricing, and where you can prove offset to future healthcare expenses, which is in many of the cases, again, strong pricing will be expected. Part of the problem, also, is that you can't -- drug manufacturers can't really discuss with payors information about products before they're approved under current FDA guidelines, and so there may need to be some further looking at that issue, because that would help, I think, start to mute this pricing discussion.

Buyer demand for our ARE core assets, as you can see from the press release and supplement, is strong. We expect to tap this market with land sales and non-core asset sales during 2016, as well.

On the balance sheet, we've guided to leverage between 6.5 and 6.9, so moving downward nicely for the end of 2016. For 2015, we maintained our strategic optionality with respect to the balance sheet and continue to manage our leverage down with our goal to get an investment grade rating upgrade over time.

As I said on our investor -- at Investor Day, generally we don't want to issue common equity below net asset value, but as we were negotiating the partial interest sale of 409/499 Illinois, we were able to really run across a great opportunity to sell some common equity in the fourth quarter without lowering either 2015 or 2016 per share earnings, and that was an awfully nice thing. And at the same time we were able to decrease the proceeds needed from the partial interest sale from the buyer at Illinois. So all good results.

Page 49 of the supplemental disclosure on investments evidenced continuing solid built-in gains on our investment portfolio, and we executed some very good sales with good gains in December

And with that let me turn it over to Dean.

Thanks, Joel. Dean Shigenaga, here. Good afternoon, everybody. I've got three important topics.

First, just want to highlight our strong results for 2015 and briefly comment on same property performance. Second, I want to highlight a few key points on the significant value realized through the sales of partial interest in three core Class A assets. And third, I want to cover our funding strategy and prudent management of our balance sheet. We've got about $2 billion of liquidity, very limited maturities and an improving credit profile.

First, on our strong results for 2015. The fourth quarter and the full year 2015 we reported FFO per diluted share of $1.33 and $5.25, respectively, and in line with the latest consensus estimates. Importantly, our FFO per share for 2015 of $5.25 represented 9.4% growth over 2014, and our second consecutive year of FFO per share growth of over 9%.

Same property NOI growth for 2015 was 1.3% and 4.7% on a GAAP and cash basis respectively and relatively in line with our solid 10-year average same property NOI growth of approximately 2% on a GAAP basis and 5% on a cash basis. Our same property NOI growth for the fourth quarter was 1.3% on a GAAP basis, 2% on a cash basis and was lower than our run rate due to a couple nonrecurring items.

On a recurring basis same property NOI growth for the fourth quarter would have been about 1.8% on a GAAP basis and 3.9% on a cash basis. This growth is more consistent with our 10-year average of same property growth and relatively in line with our very solid same property growth projected for 2016 in a range from 2% to 4% on a GAAP basis and a range from 3.5% to 5.5% on a cash basis.

Occupancy was strong at 97.2% as of year-end, and overall occupancy is expected to remain strong in 2016 due to the solid demand and lack of supply of Class A space in our core urban markets. While we do expect overall occupancy to remain solid, we also expect a temporary decline in occupancy in San Diego and Research Triangle Park, which are both connected to be offset by occupancy gains in other markets, primarily greater Boston.

In San Diego, in the first quarter of 2016, we have two spaces that will be temporarily vacant at ARE Nautilus and 3985 Sorrento Valley, which aggregate about 60,000 rentable square feet related to two tenants that expanded into larger spaces. Also in Research Triangle Park, in the first quarter, we expect to receive back about 20,000 rentable square feet that is relatively lower rent space generating about annual cash rents of about $225,000 per year. Again, overall occupancy is expected to remain strong and in line with 2015 year-end occupancy of 97.2%.

Quickly on our JV transactions. The sales of partial interest in three core Class A assets really highlighted the significant value creation we were generating from our development of Class A facilities in key urban innovation clusters. The value we created on 100% of these assets was almost $250 million.

The margins on these sales ranged up to almost 60% on 225 Binney Street, which, as you know was a ground-up development project under a long-term lease to Biogen.

Each of these sales involved unencumbered properties, and therefore, each sale generated more equity capital than a typical sale of real estate subject to a secured mortgage. The aggregate sales price of these three transactions was approximately $453 million. The proceeds resulted initially in a reduction of debt with about two-thirds of the sale price or approximately $300 million representing attractive cost of efficient equity capital to fund our highly leased value creation growth pipeline.

Moving on to our disciplined management of balance sheet and our funding strategy, we continued to execute on our strategy with a disciplined management of our balance sheet. Our ratio of net debt to adjusted EBITDA for the fourth quarter annualized was 6.6 times. Excluding $7.7 million of investment gains in the fourth quarter, our leverage was 6.9 times.

Timing of dispositions and deliveries of highly leased development projects will also impact the ratio of net debt to adjusted EBITDA. And we typically do not adjust for these partial quarter events, since they occur from time to time.

We remain focused on continuing improvement in our ratio of net debt to adjusted EBITDA with normal variances quarter to quarter during the year. Specifically for 2016, we expect the ratio of net debt to adjusted EBITDA to increase in the first half of 2016, then decrease in the second half as we complete and place into service approximately 1.5 million square feet of highly leased development and redevelopment projects.

Our range for the ratio of net debt to adjusted EBITDA for the fourth quarter annualized, fourth quarter 2016, annualized is a range from 6.5 to 6.9 times. Ultimately our leverage goal remains to be less than 6 times, which will also improve our overall credit rating and reduce our long-term cost of capital.

Our liquidity as of year end was approximately $2 billion. This liquidity allows us to be patient and flexible in the timing of the issuance of senior unsecured notes. Additionally we have very limited debt maturities in 2016, 2017 and 2018. Additional liquidity is anticipated as we finalize a construction loan for 100 Binney Street in the low $300 million range over the next few months.

During the first half of 2016, we anticipate amending our $1.5 billion senior unsecured line of credit and our 2019 senior unsecured term loan. The amendment will focus primarily on extending the maturity date of each facility from 2019 to 2021, which will ultimately further extend our weighted average maturity of our outstanding debt.

During the fourth quarter, we raised approximately $75 million at about $90 per share under our ATM program, leaving approximately $375 million available. While $90 per share is below consensus NAV, we believe the blended cost of long-term capital we selected to fund our highly leased development pipeline will generate significant value. Overall our strategy is to remain disciplined in funding growth through our highly leased development pipeline with various sources of long-term capital.

In November of 2015, we completed our offering of senior unsecured notes. These notes bear interest at 4.3% and matures in 2026. Again, balance sheet liquidity provided us the ability to be patient and flexible for the appropriate window to execute a solid issuance of unsecured notes.

Briefly, on sources and uses of capital, as detailed on page 3 of our supplemental package, we have complete disclosures on sources and uses for 2016. We updated our construction spend for 2016, resulting in a decrease of $100 million at the midpoint of our guidance. The overall decrease was driven by approximately a dozen projects as our team refined budgets, timing of spend, and favorably reduced the scope of certain projects.

We also updated our disclosures to provide more visibility into internally generated sources of capital, representing 44% of our projected uses for construction.

The 44% or $375 million consists of cash flows from operating activities after dividends of about $125 million, plus $250 million of debt funding from growth in EBITDA.

As of December 31, 2015, we had one small R&D building located in Maryland classified as held for sale. While we have dispositions targeted in our 2016 guidance, no additional assets met the criteria for classification as held for sale. We do expect to provide additional color in specific dispositions in the next quarter or so. Keep in mind, we just closed on dispositions aggregating almost $600 million in 2015 with about 84% of this completed in the fourth quarter.

There is still significant capital looking to invest in high quality core assets and gateway cities. These locations provide great long-term value. These locations are also highly sought after, since it's difficult for real estate investors to reach their desired investment allocation into key gateway cities.

Lastly on guidance and closing, the detailed assumptions underlying our guidance for 2016 are included on page 3 of our supplemental package. We believe we are well positioned with a high quality asset base of Class A assets in Triple A locations that attract high quality and innovative entities. 54% of our total ABR is from investment grade rated tenants, again a REIT industry leading statistic.

We have a favorable triple net lease structure with annual rent escalations, which, combined with our high quality tenancy drives solid and increasing cash flows. We have one of the most visible, multi year highly leased development pipelines that will generate about $180 million to $190 million in incremental, annual NOI, and we will continue our disciplined approach to funding our value creation pipeline with a combination of long-term capital, including significant internal sources of capital.

Growth and cash flows from the completion of our development pipeline, and disciplined management of our balance sheet will drive further improvement in our credit profile, including a reduction in net debt to adjusted EBITDA to less than 6 times, ultimately improving our long-term cost of capital. We believe we have the right assets in the right locations that will inspire productivity, efficiency and creativity and success from our highly innovative client tenants. Our team remains focused on continuing to build the Best-in-Class franchise.

With that I'll turn it back to Joel.

We'll open it up for Q&A, please, Operator.

Thank you.

(Operator Instructions).

First, we'll go to Manny Korchman with Citi.

Hi, guys, good afternoon.

Hi, Manny.

When you sat down and said we think an ATM is an appropriate sort of way to raise some equity right now, how did you come up with the $75 million sort of sum, given that you had a significant amount of capital that you were going to have to raise this year? Was it a matter of where the stock was trading or was there some other magic in that $75 million number.

Manny, I'd say overall, our capital plan is fairly fluid throughout the year, and we remain flexible in our execution at any given point in time. I would say the facts and circumstances that we were looking at, at that point in time, drew us to the conclusion with a variety of matters that we were considering.

I guess it's also fair to say, if you look back with hindsight today, it's easy to say that you would have raised more capital. But that's hindsight, 2020 vision, so.

In terms of disclosure, wondering why you guys sort of limited the amount of disclosure given on future development projects. In the past you had given at least a book value breakdown and sort of a list, a deeper list of projects. Now you've condensed that.

Are you referring to future land opportunities?

Yes, yes, exactly.

We didn't intend to delete any meaningful information. We had, as you know, Manny, one of the best disclosure packages in the industry. If there's information you find useful we can definitely look at adding back disclosures that you found relevant. We'll take a look at that for next quarter.

That's it from me for today. Thanks, guys.

Thank you.

Moving on, we'll go to Sheila McGrath with Evercore ISI.

The construction spend in 2016 looks down by $100 million. I was wondering if you could give us some insight where those savings are coming from.

Sheila, no real magic there, other than the fact that when we have a pipeline as robust as we have, when we have the chance quarter to quarter, we take a deep dive and as these projects, I mean, look at the deliveries for 2017 and 2018. We're on the front end of those projects.

So diving deep into the timing of spend over roughly a two year timeframe has allowed us to adjust downward some of the initially projected spend that would have been incurred in 2016. And then we also had a number of projects where the scope was refined based on the requirements that are looking at the project. And so we think the landlord dollars going into the project will be meaningfully less, and the tenant will take the space with less dollars going in.

Okay. Great. And then on the sale of the investments in fourth quarter, either that was a good surprise in terms of using those funds for the development. How should we think about that other investment bucket as a source of proceeds to monetize for the development in 2016?

I would say, Sheila, the thing to think about here with the equity securities that we have in primarily life science companies, we'll continue to monetize our holdings, because we have a tremendous amount of unrealized gains. And the number that we'll probably generate from a proceeds perspective, if I had to guess, today, would probably be between 50 -- north of $50 million in 2016. And ultimately what we monetize depends on future gains that might be realized from the private securities that we hold today as well.

Okay. Last question. Joel, you mentioned at 100 Binney a tenant changing their mind on locating there. Could you just talk about what the driver was that? Did they go to a competitor building or did they rethink expansion?

That's a sensitive question, so let me ask Tom to answer it. It didn't go to a competitor building, and it's a current client.

There was a tenant that we negotiated a letter of intent and negotiated a -- it's an anchor tenant to the building and they wanted to expand. They exercised, gave us a notice that they were going to expand, and before the lease event was executed they changed their mind and withdrew. It was an expansion of the existing anchor tenant of the building.

Got it. Thank you.

Thanks, Sheila.

Next we'll go to Jamie Feldman with Bank of America-Merrill Lynch.

Great. Thank you.

You talked about a target of leverage below 6 times. Can you just walk us through the path to get there, and how long you think it would take?

It's not 2016. Our 2016 guidance was 6.5 to 6.9, so it's definitely beyond 2016.

A lot will depend, Jamie, as we make our way through 2016. But suffice to say that it's a 2017 -- it's a post 2016 event.

Ultimately, you've got tremendous EBITDA growth being a primary factor. Our ability to recycle capital from the proceeds of property sales will also contribute. But keep in mind, our goal is to drive that end result which ultimately will improve our long-term cost of capital so it's an important component of our strategy going forward.

So in your capital plan, you talk about adding leverage to your growing EBITDA. What's your appetite to just avoid doing that and push leverage even lower, in a faster timeframe?

I don't know that -- well, just to clarify something, Jamie, I think I heard. We don't expect to -- our plan does not anticipate leverage going up other than normal quarter-to-quarter variations. We are looking at, on average, driving leverage downward and below 6 over time.

Yes, I guess I -- so I meant just not adding more debt, maybe not your leverage level, but if you don't add incremental debt, your leverage will go down, and your capital plan you talk about adding more debt against your growing EBITDA. Do you think about just not adding more debt, and that will get you there faster or you're just very comfortable at this number by year-end 2016.

I'd say, Jamie, let's focus on getting to the end of 2016. It's not a matter of driving our business with no incremental debt.

I mean, by definition with the EBITDA growth we have, we can support incremental debt without impacting leverage. So what you are talking about is taking a mix of overall capital sources and taking advantage of the factors that drive leverage down, whether that's saving some of the EBITDA growth to reduce leverage, recycling a few more assets that will you allow us to further reduce leverage. We have a variety of levers to actually pull to drive our end result. But it's not something that we're intending to execute on this year. It's something that over the next couple years you'll see us migrate in that direction and ultimately get sub-6, Jamie.

Okay. Thanks.

And then for Joel, you had talked about the $2 billion of incremental funding in the NIH and then maybe the President's plan. When you talk to industry leaders and they're looking at that side of the coin and then you look at what's happening with down VC funding, at least in tech, just can you maybe fill us in on just the latest thought process among your largest tenants and clients and how they're thinking about the world and their decision making?

Well, I think it's important to remember that when you get to pharma and big biotech, pretty good size publicly traded companies, given our roster is heavy credit, those guys are not dependent on the capital markets and honestly haven't been for a long time. So the ups and downs in the capital markets don't really influence their decision making, and I think we're still seeing a trend of moving from isolated silo locations to the core.

In fact, I think somebody just sent us a flyer, Bristol-Meyers, who is our anchor tenant in 100 Binney, is now selling their amazingly gorgeous campus at Wallingford, Connecticut. So, I think pharma and bio are continuing to invest strongly. You've got a $100 billion plus this year in R&D spend to a great host of great opportunities in cancer, neuroscience, and a range of other metabolic diseases, et cetera. So I don't see that -- people haven't looked at the market as interrupting that pace of R&D spend.

And on the government side, I think for the first time in a long time with the uptick of NIH, we're actually seeing way more demand in Maryland, as just one benchmark, than there is supply available. We haven't seen that in maybe a decade.

So I think in general the outlook is stable, and I think when it comes to companies that are going public, we'll know in the next day or so. But there are four biotech IPOs right now ready to price, one of which we're involved with, and I would say that assuming pricing goes well, this could be the opening of -- the selected opening of the biotech IPO market for 2016; because, as you know, there were no IPOs in January.

I would always say on the venture side, don't count out the pace of venture capital formation and investment. We know of a handful of companies or entities that are raising large, large funds this year. I know, personally, several are heavily over-subscribed by institutional investors, and so I think the capital formation for venture capital and life science will be pretty good this year.

Okay. That's helpful. Thank you.

(Operator Instructions).

Moving on, we'll go to Dave Rodgers with Robert W. Baird.

Joel, I just wanted to follow up on that last comment a little bit.

I think in your guidance for the year, $125 million was available for sale securities, maybe there was an other attached to that too. How much of that comes out of either IPOs or some kind of capital transaction that you're dependent on to monetize those investments this year?

Hi, Dave, it's Dean here. That question came up a little bit earlier. I think it's for 2016. It's probably fair to say we probably have at least $50 million in proceeds from those securities.

That was the dependency part of it. Okay, Got it then.

I guess with regard to 2016, Dean, you made a comment earlier about where the stock is today, or maybe it was Joel. But at the Investor Day, I thought you talked about maybe using more ATM and equity capital in the coming year, but given where the stock is, are you still feeling comfortable doing that in some of those other line items in your guidance sheet?

I think the way to think about the ATM program, and this is probably true just not for Alexandria but all companies, and I think you'll all agree, is the ATM programs really represent a great tool that every REIT should have in place, and when appropriate, it's prudent to use it because it's really cost effective. The fees associated with it, it's fairly nominal. It's generally 1% to 1.5%, and it needs to be used prudently and I would say that applies to Alexandria as well. We'll be very disciplined in how we execute raising capital to fund our business. But keep in mind, we've got a tremendous amount of growth in net asset value to generate in this highly leased development pipeline, and so we'll remain disciplined in how we execute that.

Okay. On the accounting side, how did you account for the asset sales in the fourth quarter? Were those all now taken off balance sheet? Just wanted to be clear on that.

That's a good question. As some of you may know, the consolidation rules today are a little more complicated than they were 10 years ago.

The three joint ventures we executed on remain on balance sheet as consolidated JVs. So they were counted as more of an equity or a financing transaction. So there's no GAAP gain associated with those transactions, but we did take the proceeds. The adjustment, the amount that is effectively the GAAP gain was booked through APIC, not through earnings.

That's helpful. Saw that footnote.

Last question, I guess, from me, maybe to Joel, construction spending about $850 million at the midpoint. Two questions. One, I guess, how much of that is related to additional starts in 2016, or getting ready for additional starts? And I guess the second question is how good do you feel today relative to 60 or 90 days ago about putting new shovels in the ground for new projects?

I think if you go back to Investor Day, I think we said that we didn't have, other than what we had in the pipeline at that point, which included both the Town Center and the Barnes Canyon, we didn't have any new projects in the pipeline to break ground on or to move forward. Because our pipeline right now is a pretty stellar pipeline and our focus is full lease-up on both the 2016 and the 2017-2018. At the moment, we don't have anything new in planning.

The only other project we've talked about is for Vertex down in San Diego.

That we disclosed at that time.

Anything further, Mr. Rogers?

No, thank you.

Thank you. And next we'll go to Karin Ford with Mitsubishi UFJ.

Ms. Ford, if you would please check your mute button. We're unable to hear you. Ms. Ford, please proceed with your question.

Let's move on.

And next we'll go to Jim Sullivan with Cowen Group.

Okay. Thank you.

Joel, when you talked about what's happening in terms of the, call it the demand variable for life science, generally you painted a picture of an industry where demand is really non-cyclical, not really impacted by what's happening in the economy, overall, to a great degree.

But I do have a question. We do seem to be seeing a higher level of M&A transactions among some of the larger life science companies, and I'm just curious, as you think about that, number one, do you based on your understanding and discussions with your tenants, do you think we're going to see continued high level of M&A activity, and do you anticipate it would have a negative impact on demand at all?

That's a good question. I think that historically, well, maybe 2015 is the high watermark for M&A, broadly speaking, and a lot of the M&A, as you know, has been in the payer sector. It's been in the generic space. It hasn't necessarily been purely in the ethical pharmaceutical or biotech area, although there have been, clearly, some selected opportunities in that world.

But I think, when we've seen M&A in general, I mean, it's not always the case, but in general, the target is usually looked at, unless it's a single product purchase, in which case, a good example of that is when Onyx was bought by Amgen, they were looking at, there was a suite of products, but primarily the main multiple myeloma product was the main target. And Amgen also had a lot of extra space in south San Francisco, so they looked to sublease that, and we're on the precipice of that being fully subleased, but we still have Amgen credit for 10 years.

I think that's more the exception where we've seen M&A of companies that have a platform of opportunities with multiple shots on goal, or they're looking to essentially get a cadre of very high quality researchers which often happens when pharma buys M&A. Those locations are generally preserved and they're preserved because they tend to be in the core locations where you've got the collaboration and the innovation at its best. And I don't think that's going to change at all.

So if we think about that collectively in your core markets, you've had this very favorable tailwind now for, oh, five years or so, where you had a very strong increase in demand relative to the ability of the market to supply product. Is it your view, in spite of the slowdown in the economy, that very favorable supply/demand condition will be sustained over the next couple of years?

Yes, I feel pretty good about it, because if you go to the best locations, you go to a New York City, you go to a Cambridge, you go to a Mission Bay, you go to a Lake Union in Seattle, there is virtually no new supply. There is highly constrained environment for new development, let alone things like prop M or whatever. And I think that's going to be a big check.

And I think even if demand moderates because, I mean, no one knows where this market's going, the macro market in the sense of how severe or not severe it is. But most people feel that it's not a replay of 2008, 2009, when I remember in one quarter I think, it's kind of funny. I remember this quarter well. I think it was the, maybe first, second quarter of 2009, there was maybe a 40,000 square foot lease in all of New York signed, and actually we signed two leases in Cambridge during those first two quarters for well over 100,000 square feet.

So we feel good about, I think being positioned in a very defensive posture in the best locations where you have real constrained supply and the demand we still see in virtually all the markets is still good.

Okay. Then the final question from me. You obviously have some significant tech tenants signed up for space under development in San Francisco, and I wonder if you could give us an update on your views as to that source of demand, in that market, what do you expect to unfold over the next year or two?

I guess the good news and the bad news is, we've got 100% occupancy. So we can't field much in the way of demand, but I think when it comes to our tenants, the three that we've underwritten and spent a lot of time with, I think Uber continues to be just a transformational change in the way we do a number of things including transportation, but well beyond that. And we certainly see that they're going to be a big force for many years to come.

Look, today, we started with Google back in 1998 in their first campus, and they were at Series A, and today they're now the largest company in the world, I guess by equity market cap.

We also feel very good about Pinterest. Pinterest was just highlighted by Fortune as one of the three so-called unicorns that are most likely to succeed. We think their business, both on the personal side, but extending to the commercial side has huge opportunities. And then on Stripe, I think we continue to view Stripe as a great company, and it continues to be the backbone of the medium sized B2B business community.

So I think we feel good about our situation. I think, overall tech, as I said, I think you're going to see some shakeout. Clearly there's a valuation transformation going on. Based on what I know and my conversations with venture guys up in the Bay area which we have all the time, the model is, as I mentioned earlier, Jim, moving from building platforms to building profitable businesses. And that's something -- that moves them from being less dependent on either the private or the public capital markets and that's by intentional design.

So I think you'll see the really high quality companies continue to do well and move away from the need to do private or public financings when the markets are not receptive and the ones that just simply can't do that will, I'm sure, go away.

Great. Thank you.

Thanks for your good question.

And next we'll go to Michael Carroll with RBC Capital Markets.

Thanks. Joel, given the volatility in the capital markets, do you expect life science companies will be more cautious making long-term real estate decisions, or is this not really a driving factor for these types of tenants?

I think everybody is, no one is immune to the larger markets, and people pay attention, obviously, when a radical transformation in the economic environment like 2008 and 2009 happens. Obviously, everybody pays attention to that. I think in this market people will make good decisions, good business decisions. Yes, they may be a lot more careful, but I think essentially, their valuations are based on, in the life science industry, the quality of their pipeline, and I think they're going to make good decisions on that, and again, they're not by and large dependent on capital markets.

Okay. And then can you give us some color on your planned asset sales in 2016? Will these sales be similar to the ones completed in 2015, and are there any specific markets you're focused on?

As my comments earlier, Michael, we're going to be looking carefully and provide more color in the next quarter or two on our dispositions. But keep in mind, we just completed a tremendous amount, almost $600 million this year, most of it in the fourth quarter or in December for that matter. So we've been active in the market, and we'll provide more color here soon.

And then Dean, you completed a lot of the non-core sales already, right, so this will still be kind of like the core JV type sales?

No, I think the simplest way to think of it is that we look through the asset base from time to time, and I think almost any category of assets we hold is fair game. There's a little bit in every bucket that could be executed on so stay tuned there.

Okay. Great. Thank you.

Thank you.

And next we'll go to Manny Korchman with Citi.

Hi, it's Michael Bilerman from Citi.

Dean, just a methodology sort of question as you think about your debt to EBITDA, which you sort of just present, sort of whatever EBITDA is annualized and clearly this quarter with the amount of gains that you successfully liquidated some of your holdings, that created a big bump in EBITDA which is not really sort of recurring EBITDA, it creates a lot of capital but it's not a recurring number. I'm just curious in your targets that you have, does that include some level of gain that you're annualizing? Is that, I guess you're thinking about it also from a GAAP perspective, not cash. I'm just curious when you put out these forecasts, what's in and what's out.

Keep in mind, Michael, for the fourth quarter of this year, at the beginning of the year I think we stayed pretty close to target. We were anticipating to be sub-7, and we ended up at 6.9 as we reported, without the 7.7. So I don't think that 6.6 came about just because we executed some sales of securities. We're not looking for anything lumpy in our guidance, and that's consistent with how we presented the numbers this year.

I think your question does provide a great opportunity to discuss one of the things that I think people should consider, although we don't bake this into our numbers, is that we have a tremendous amount of contractual cash rents that have not commenced as a result of recent deliveries of development and redevelopment projects. And the contractual rents are under leases so they will kick in. The simplest way of looking at is if the world, not the world, really, but if things came to an end and we stopped building product, the cash flows would kick in and significantly reduce our leverage metrics.

And so, as much as we try to think about making [pereta] adjustments for dispositions or deliveries, there's also that other component of contractual cash flows that aren't in place, yet, and that's really significant. And so there's a variety of things that move back and forth, Michael. We just try to keep it simple and report the numbers the way they fall out and be clear on what the number consists of so investors can make adjustment as appropriate.

How should we think about that $75 million of equity. It's basically 0.2 turns on debt to EBITDA and got you from 7.1 to 6.9 on a full-year basis. How should we think about when that was executed? Did it replace other cash that you were going to raise to get your debt to EBITDA down to that target below 7 times level?

Yes, I think Michael, in my opening comments, I alluded to that, that it allowed us given the timing and given we were working with the sale of 409/499 Illinois, allowed us to take less equity from that or less proceeds from that transaction by doing the ATM, and also, we didn't have to either lower 2015 or 2016 guidance (inaudible). So it turned out to be kind of a good thing, even though.

And when was that equity raised during the fourth quarter, just from a timing perspective, relative to Investor Day?

December, Michael.

So post Investor Day.

Yes. Yes, our Investor Day was early December.

Yes, after that. The transactions closed after that, as well. So we were looking at all the interplay of those various things together with the security sales.

Last one. I know, Dean, you referenced the hindsight 20/20. You wish you could have sold more knowing what you know today, in terms of where the stock market has gone, and specifically your share price.

I guess maybe just walk us through the internal debate when you think about your company with obviously, a very highly leased development platform, but it is development so it always carries risk even if it's pre-leased. Certainly a tenant base that is high credit, but certainly a different segment of the market in terms of healthcare, biotech, and technology and then leverage. You think about those three risks. How much did you -- which provides opportunity as well, I'm not trying to demean the opportunity set. But I guess collectively, was there a discussion to sort of say, you look at what ACC did last night in terms of their equity raise, a very large equity raise, had you discussed internally; saying you know what, let's just do a large equity raise. It will be a little bit earnings diluted, it's not going to be that dilutive given where our stock price is. Was that debated at all in December?

I'll tell you, the answer is, we felt because one of the compelling factors, Michael, is with 2016 deliveries and a very large set of 2017 and a little bit into 2018 deliveries, as opposed to a lot of companies who don't have a development pipeline and on-boarding, NOI that would be literally maybe 25% of what our current NOI is, that wasn't such a compelling opportunity.

We felt that we could take a small slice of equity, meet all of our goals, continue to de-leverage, and there are a bunch of companies that are much higher leveraged than we are. So we feel good about our path, and we have options because of the big pipeline. So sure, you can always think about, a big rip the Band-Aid off, but we didn't feel it was necessary or appropriate at that point. Still in hindsight, don't feel that, as well.

Okay. Thank you.

Thank you.

Next we'll go to Rich Anderson with Mizuho Securities.

Thanks. I just want to clarify. The ATM was announced the day after Investor Day, right? I think I remember that correctly.

I think that's correct.

Okay. I just wanted to make sure I understood that timing. My only question is to what extent, Dean kind of alluded to stop building if the world comes to an end, or business comes to an end, dramatic way to say it, but I get the point.

To what extent is delaying 2017, 2018 deliveries to further out years kind of on your mind right now? I mean, given where the world is and your stock price is, or is it just that's just too far out to be considering at this point?

I don't think we have to think about that, because I think we have a path to fund them. We have a path to get to a sub-6 leverage number, and those become important deliveries.

They're also contractually required when you sign a lease, you perform under the lease, and we've got the brand reputation in the area, and why we've been able to attract the partners we have for the leases we've committed to, put under contract, so I don't think that's part of our calculus And I think based on most economists' view of the world, this is not a structural banking failure situation. There's tough times due to oil and China and maybe the high yield market, et cetera, but I don't think we're in the same position.

I mean, when we, I remember Dean and I, when we, after Lehman collapsed in September of 2008, literally within six weeks, we had cut CapEx 50%. I don't think we're in that environment today.

And so, in some ways, the continuation of the longer out development business is a necessary part of your deleveraging process.

I think it is, especially given that it's a highly leased development pipeline. If it wasn't, I think we would be thinking very differently.

Fair enough. Thank you.

Thank you.

There are no further questions. I'll turn it back to our presenters for any closing comments.

Thank you all for your time, and wishing everybody a happy and healthy new year. Thank you, again. Look forward to talking to you on the first-quarter call.

And that does conclude today's conference. We'd like to thank everyone for their participation.