Alexandria Real Estate Equities Inc (ARE) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Alexandria Real Estate Equities third-quarter 2016 earnings conference call. My name is Katherine, and I'll be your operator for today's call.

(Operator Instructions)

I will now turn the call over to Paula Schwartz. Please go ahead, ma'am.

Thank you. Good afternoon, everyone.

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.

I now would like to turn the call over to Joel Marcus. Please go ahead, Joel.

Thank you Paula, and welcome, everybody to the third-quarter call. With me today is Dean Shigenaga, Tom Andrews, Steve Richardson, Peter Moglia, Dan Ryan, and Monica. Thank you and congratulations to the entire Alexandria family for a truly strong operating and financial performance in the third quarter.

A couple of the key themes that we'd like to stress, one would be our continuing strong core. Dean will speak to that. Secondly, our continuing strong leasing, bolstered by strong demand and a constrained supply in our urban cluster markets, and solid rent growth. And we're pleased to say that in the third quarter, our rent growth was heavily driven by our Greater Boston region. Maintaining strong occupancy, strong tenant credit. Also a strong pipeline with deliveries with increasing yields, as you saw and number five, superb execution of our capital plan.

Let me give you a couple of macro thoughts, as I like to do each quarter. Alexandria's business focuses on two of the most important global issues facing humanity, disease and hunger. Life science fundamentals remain strong, and as I stated in the last quarter, 10,000 diseases are identified to date, and only about 500 of those have been medically addressed.

We're seeing more patients today, especially with the implementation of the Affordable Care Act, about 36 million more here, and we're likely to see quite a number -- quite a large growth worldwide over the coming couple of decades, and the emerging markets growth have been double digits over the last couple of years. We see more drugs, 19 approvals to date in 2016, 68% are Alexandria tenants.

More revenue opportunities, multiple disease areas, with large market potentials, including immuno-oncology, the hepatitis world, liver disease, and eye diseases. And clearly more innovation, including cures and therapies, that really address a better quality of life.

Demand is driven really by three key factors in our world: We focus on the R in R&D, which is research. $154 billion biomedical R&D worldwide, which is he very substantial, $34 billion NIH, funding basic research, and surprisingly $30 billion of medical philanthropy funding basic research, as well.

There's a lot of rhetoric these days regarding drug pricing and drug spending, and it's pretty clear the rhetoric is much worse than the reality. Retail drug spending has not meaningfully exceeded 10% of total healthcare costs over the last 50 years. Real drug prices increases, other than some abusive cases, are much smaller than perception, if you look at the rebates. Brand drugs that go off patent and get genericized typically see their sales drop 95% plus. 9 out of 10 prescriptions filled in the United States today are generic.

And the hysteria over unsustainability of drug spending is not new. There was an uproar in HIV treatment cost back in 1989.

President Obama has been quoted in his State of the Union address last year, healthcare inflation is at its lowest rate in 50 years, and the Center for Medicare and Medicaid Services, better known as CMS, stated in The Wall Street Journal recently that US expenditures for most Rx drugs grew by an average of 2.7% from 2007 to 2013. The three poster children for bad behavior, Valeant, Turing, and Mylan, really none of those are R-driven biopharma companies.

So what's the reality, and how does it play into the election? Well, two big reforms at the federal level that's worth talking about. One would be both supported by Trump and Clinton, allowing Medicare to negotiate drug prices directly. Basically it won't work, because Medicare is legally prohibited from negotiating drug pricing, and it would be wildly unpopular not to give the beneficiaries access to certain drugs due to price.

On constraining price increases, there is, in the Clinton plan, a request to try to justify price hikes for long-available drugs. While that's possible, but unlikely, it really applies to older drugs, but still would be a difficult pathway.

Reforms at the state level, some of you have seen both in California and Ohio. There's an attempt for state drugs or drugs in states to be subject to caps, and it unfortunately it doesn't distinguish between new or old or impactful or marginally impactful drugs, and it's not likely to work, because they tie it to the prices that the Veterans Administration charges, and those [are] public, and the VA has more leverage than Medicare or other state payers. And even if states mandate more transparency, it will be hard for them to regulate and implement the initiatives.

And then secondly, under state law there's a move to get transparency, which is the naming and shaming, and that certainly could happen, and is happening.

I think if you look beyond the rhetoric, I think there is some great near term news for the sector. The 21st Century Cures Act on September 28, a bipartisan leadership from both the House and Senate pledged support to move the 21st Century Cures Act to a bill during the lame duck session of Congress, and it would be the first long-term signing of sweeping biomedical research funding, before the end of this year. And Mitch McConnell has been quoted as saying it's the most significant piece of legislation that we've passed in the whole Congress, in the last year. It provides for a substantial increase in funding to the National Institutes of Health and to the FDA, and also a number of key initiatives, including Vice President Biden's Cancer Moon Shot.

The key to success in biopharma will be true cures and unique treatments, which greatly increase the quality of life, and even more reason today to be in key urban innovation cluster markets, to access the talent pool and the innovative technology and products.

So moving beyond that to a number of concerns have been raised about the health of life science tenants. We're very pleased to say, you can see from the press release and the supplemental, 54% of our annual base rent are from investment grade tenants. 78% of our annual base rent from our top 20 tenants which is a very high, about almost half of our annual base rent. And also coupled with an almost nine-year lease duration which gives the Company great long-term, high-quality secure cash flows. And 77% of our annual base rent these days is from Class A properties, in our AAA urban cluster locations.

There have been strong recent inflows into life science venture capital firms, a number of firms, several, maybe up to about five or six are in the process of raising between $0.5 billion and $1 billion in funds. There's been a decent IPO window, that's been more selective this year, and I think a good climate for M&A. And if you notice that 65% of new drugs from 2011 to 2016 were really developed by the biotech industry, it's clear that big pharma will continue to be on a shopping spree.

Before I turn it over to Dean, just a comment on external growth. We had three Cambridge deliveries substantially pre-leased in the third quarter, including 50 Binney, 60 Binney and 11 Hurley, with strong yields. And we were able to save substantially on project costs, which increased the yields. We have a number of fourth-quarter deliveries including University Town Center in San Diego, to a great Company focused on the ear, and our 10290 Campus Pointe lease redevelopment to Eli Lilly.

Longwood, we've got two floors left to lease, our 27.5% interest, and our progress for the 2017 and 2018 pipeline, 100 Binney, we're negotiating a number of floors, and we hope to conclude those negotiations in the not too distant future, and as well on additional floors on Dexter. So with that, let me turn it over to Dean for more color.

Thanks, Joel. Dean Shigenaga here. Good afternoon, everyone.

Alexandria is in a very solid operating and growth position, with our unique business strategy and strength across three important areas: First, we have solid market fundamentals in our key urban centers of innovation, including Greater Boston, San Francisco, New York City, San Diego and Seattle.

Second, we have solid internal growth, including same-property net operating income growth and rental rate growth on lease renewals and re-leasing the space. Third, we have solid external growth as we build new Class A properties to meet the demand from some of the most innovative entities, producing new and transformative therapies and solutions to improve quality of life.

We are unique in the REIT sector today with positive attributes in these key areas, that allows our best-in-class team to deliver growth in earnings, cash flows and common stock dividends. Market fundamentals in our dynamic urban centers of innovation today generally consist of very limited supply of available Class A space, and limited capacity for developers to build new properties adjacent to key drivers of innovation. Solid internal growth, also known as our same-property net operating income growth, is on track to hit the upper half of our guidance range for 2016.

90% of our third-quarter 2016 net operating income is generated from a consistent pool of quality properties, operating for the entirety of comparative periods, otherwise known as our pool of same properties. We pioneered a favorable lease structure that consists of one, annual contractual rent escalations that average about 3% today and drive solid contractual growth in cash net operating income. Two, triple net leases that allow Alexandria to recover operating expenses from our tenants. And three, a unique ability to recover from our tenants' major CapEx, like roof replacements and major heating and cooling system upgrades.

Solid market fundamentals, consisting of limited supply of available Class A space, and solid demand has driven continued improvement in our outlook for rental rate growth on leasing activity, projected up 21% to 24% on a GAAP basis, and up 8% to 11% on a cash basis, and same-property net operating income growth, projected up 3% to 5% on a GAAP basis, and up 4.5% to 6.5% on a cash basis. We continue to execute on our strategy to deliver new, high quality Class A properties through ground-up development and redevelopment.

As the landlord of choice, our team is working diligently to build inspiring real estate solutions to drive collaboration and innovation for some of the top biopharma entities focused on making life better for people throughout the world. We have made excellent progress on completion of our current pipeline, consisting of new Class A buildings, aggregating 3.5 million square feet, 81% highly leased, and we are on track to generate approximately $200 million of incremental annual net operating income, representing a significant 35% increase in net operating income over 2015.

Returns on our investment are solid, and average approximately 7% on this 3.5 million square foot pipeline. We are very pleased to report strong improvement in cash returns on our investment by 40 basis points to 7.7% at 50 and 60 Binney Street in Cambridge, due to 5% savings in total project cost. We also improved our cash returns by 90 basis points to 8.8% at 11 Hurley, also located in Cambridge, due to cost savings of approximately $4 million.

We are aligning solid market fundamentals, solid internal growth, and solid external growth with our balance sheet management goals. Our non-income producing real estate consists of current projects under construction, and a great pipeline of well-located land for future ground-up development of Class A properties, was approximately 12% of gross real estate as of September 30, 2016 and expected to be in the 10% range by December 31, 2016. Our development sites have and will continue to serve the future innovation requirements of high-quality biopharma entities, focused on discovery of important and transformative new therapies.

Our leverage goal, net debt to adjusted EBITDA, remains firm, and on track for the fourth quarter of 2016, and also on track to be sub-6 times by the fourth quarter of 2017. Additionally, our debt plus preferred stock to adjusted EBITDA is also on track for significant improvement as we continue to repurchase our 7% Series D convertible preferred stock.

In October of 2016, we match funded open market repurchases of 1.5 million shares of 7% Series D convertible preferred stock, with $53 million of proceeds from the issuances of common stock under our at-the-market common stock offering program. As of October 31, we had $125 million par value of Series D preferred stock outstanding, and hope to repurchase additional shares in the fourth quarter.

In the 10 months to date, we are pleased to report that we have raised approximately $324 million from real estate dispositions that have closed or that are under contract today. This includes good progress on our disposition of real estate investments located in India, including the sale of a portfolio of operating properties in October of 2016. We expect to complete the exit of the remaining investments in India, consisting of two land parcels over the next couple of quarters. In connection with the progress on dispositions of these investments in India, in the third quarter, we recognized additional real estate impairments.

Briefly, a quick update on our acquisition of One Kendall Square. We expect to obtain approval from the lender for the assumption of the $203 million secured loan and expect to close the acquisition and the forward sale equity offering agreements in the next few weeks. Even though we do not currently own One Kendall Square, our team has already advanced efforts to significantly increase revenue and cash flows with early renewals and expansion negotiations. We will also quickly advance the design and site work for our fully-entitled land parcel on this campus, in order to capture demand for a new Class A 173,000 square foot property.

I should point out that the weighted average shares outstanding for the third quarter included 751,000 additional shares, due to the application of the Treasury method of accounting for the outstanding forward equity sale agreements.

Lastly, on our guidance update, we provided updated guidance for 2016, as detailed on page 7 of our supplemental package. Our updated guidance for 2016 net loss per diluted share attributable to Alexandria's common stockholders, is a range of a loss of $1.13 to $1.19. This net loss reflects real estate impairments, a loss on early extinguishment of debt, and a preferred stock redemption charge.

We narrowed our range of guidance for funds from operations as adjusted on a diluted per share basis for 2016, to a range of $0.03, from $5.50 to $5.52 with no change in the midpoint of the range of $5.51. As mentioned earlier, we increased our 2016 outlook for same property NOI growth and rental rate growth from leasing activity, as a result of continued solid fundamentals in our key submarkets.

Key credit metrics remain solid, and are forecasted as follows for the fourth quarter of 2016: Net debt to adjusted EBITDA, very solid in the range of 5.9 times to 6.3 times. Our fixed charge coverage ratio, also very solid at 3.5 times to 4 times. Our value creation pipeline, consisting of new Class A properties currently under construction, through our development and redevelopment programs. And land providing a future pipeline of new Class A properties, aggregating 10% to 12% of gross real estate, and we expect to be closer to the 10% range by year end.

A few key remaining items for sources and uses for November and December of 2016 include the following. $142 million of real estate dispositions is highlighted on page 4 of our supplemental package. $140 million of acquisitions also was highlighted on page 5 of our supplemental package. And this amount is related to the purchase of 88 Bluxome, located in South of Market in San Francisco. We anticipate the seller deferring closing of this acquisition into 2017. And $168 million of capital from our at-the-market common stock offering program, or from additional asset sales.

In closing, we look forward to meeting many of you at our annual Investor Day on November 30, when we will cover our business strategy, our outlook, and provide detailed guidance assumptions for 2017. With that, let me turn it back over to Joel Marcus.

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

(Operator Instructions)

Our first question will come from Sheila McGrath with Evercore.

Joel, I was wondering if you could talk about the San Diego acquisition, how that opportunity came about? If there was a lot of competition on the acquisition?

Yes, let me turn it over to Dan and he might give you a little bit of highlights.

Good afternoon, Sheila. This was three buildings that Pfizer had vacated, approximately 4.5 years ago. It had been acquired by a private equity group that had substantially repositioned the asset with new leasing, I would say got to a 75% completion level, and as these things go, the time ran out and they went to market to sell it.

As you can imagine, a campus of 300,000 square feet in Torrey Pines is a highly desirable asset. All the expected players were heavily participating in the processes. I think ultimately we prevailed, probably most notably because of our ability to close. I think there was great confidence, certainly as you look at the universe of other life science REITs and other private equity, Alexandria certainly has a reputation for being able to close, and there is some disruption with these other REITs that gave us the opportunity to step in.

Sheila, this is Peter Moglia. I just wanted to add a couple things. Currently, the availability in Torrey Pines is only 3.5%, and rents have grown since 2011 by 32% there. With the low availability and the opportunity to get inventory with the trend that we saw in rents, it looked like a really good opportunity, and we're really excited about it.

Coupled with the fact that there is leasing yet to do. There is mark-to-market on rents as they roll, and conversion opportunities from office to lab. All those things were factored into our decision to go after this asset.

Okay. Great. And one last question. On the South San Francisco market, was just wondering if he we could get an update. We see HCP is starting another project there, just want to get your view on demand there, at this point.

Sheila, it's Steve Richardson. I think as we reported for the past couple of quarters, we do see demand very strong in South San Francisco. Vacancy rates have dropped below 5%. The increases in rental rates have been very substantial, second-generation space has probably increased 25% over the past 12 to 18 months.

So we consider that a very healthy market. We recently completed the big campus with Verily, the Google subsidiary. So we're very bullish on South San Francisco.

Okay. Great. Thank you.

We'll go to Manny Korchman with Citi.

Joel, appreciate the comments on drug pricing, but it seems like headlines are becoming more prevalent, just in general. Is there any impact in just the way that both maybe old tech drug companies and even newer companies are thinking about their growth plans, or how they approach this space, given all the scrutiny, and given all the negative press?

So we haven't really seen that on the ground, in actual practice at this point. I think, as I said in my prepared remarks, I think increasingly, if older drugs are going to command less pricing power, there's going to be a much stronger need to bring new molecular entities, whether they be chemical entities or biological entities to the market, that really have curative effects, or really positively impact therapy or treatment. And it seems to me that's going to even drive people more strongly into the urban cores, to access the talent and the innovation.

And so I think you're going to see continually more of that, and people -- if Company's growth rates -- if you look at Illumina, Illumina's growth rate is moving probably from a 30% growth rate to a 10% growth rate. I think you'll see companies reach out and look at greater opportunities to bring, to widen their product portfolio and their technology platform, and where can you do that?

You can't do it in isolated campuses in suburban locations. You've really got to do it in the heart of innovation. We feel pretty good about that, but haven't seen any actual changes on the ground in any of the markets. You look at our stats and the demand, we haven't seen it roll back at all.

Maybe that's a good segue. If we look at that demand, and the limited amount of supply, are you at all changing the way that negotiations are going, and trying to get tenants to put in maybe only the people that are best facilitated of the cluster market, and telling tenants don't take as much space as you want, take smaller space, but put in the people there that need to be in the cluster market? Or is that not something that you're interested in doing.

Well, I think it's very Company specific and I think it's very hard to generalize, and I don't think we would be telling management teams or Board of Directors, do this or don't do that. They can determine that factor based on their own analysis of their own G&A, their own requirements, their need to access innovative platforms or technologies. But I think we just haven't seen that on the ground yet. Some people want large groups of employees on the ground who might have office uses for development side, and other people are putting key research facilities in these clusters.

But I think as a percentage of overall spend, remember that rent is just not a significant part of the spend in our world, and our sector, as compared to, say, financial services, law firms, accounting firms and so forth. And remember too, if whoever wins the presidency, or however the House and the Senate go, there's one thing they could do that could absolutely dramatically generate growth in the economy, and that would be to do a one-time tax on repatriation of overseas cash, which I think if you look at corporate America, that's something between $2 trillion and $3 trillion.

If you could imagine a 15% or 20% tax, one-time tax on that, and then use that tax for infrastructure, that would really move this country in a pretty dramatic way, and it can't be too controversial. But we just have seen positive impact on the ground in the clusters, not anything negative, and I don't think we're giving advice to these teams.

And then Dean, a quick one for you. Looked like you had a non-real estate impairment this quarter. What was that related to?

Yes, Manny. In the quarter, we recorded an impairment of about $3.1 million. It really was to recognize a reduction in the net book value of an investment of a privately-held biotech Company.

The charge was classified in other income in the income statement, and in this case, Manny it's clearly a valuation matter. We expect this company to continue to execute on their solid business model. This biotech company is widely recognized as a leader in the chemical industry, and providing solutions to produce chemicals from alternative feedstock.

Not a traditional biopharma tenant.

Yes, so a good Company still, but we had to reduce the value of our investment, and so that was recognized in the third quarter.

Thanks.

Thank you. Our next question comes from Tom Catherwood with BTIG.

Question for Tom and Steve. Can you guys talk a little about the demand pipeline that you're tracking in Cambridge and San Francisco, and any changes you've seen versus last quarter?

This is Tom Andrews in Cambridge. We have -- we're tracking right now about 3 million square feet of tenants in the market on the lab side and another 1.5 million square feet on the office side. These are tenants who are looking for space in Cambridge, are in the market looking for space in Cambridge.

Some of them are in the market already, but others can have expirations, but others are growth requirements. And that's been pretty steady and stable. We've got new actors coming in, who weren't there a few quarters ago, both outside the market companies who are looking to enter into the market, and we've got new Company formation going on.

Joel mentioned the fundraising that's going on in venture, announced this week was a $600 million new fund for Third Rock Ventures, which has been one of the most prolific companies forming new -- one of the most prolific firms forming new companies, and very Cambridge and San Francisco focused. So we have benefited from new company formation there. And again, it's still a relatively reasonable IPO market, which has enabled companies to raise capital, continue their clinical progress, commercialize new therapies. So we feel very good about the level of demand that we continue to see.

Tom, it's Steve Richardson. Similarly, there's probably three different dimensions to the demand here. One is continued very healthy and robust demand. We've been experiencing about 2 million square feet of demand, not for just the past quarter, but two or three years now. We don't see any drop off.

About half of that is credit tenants out in the market, looking for additional facilities. The second piece is that we're also seeing continued sense of urgency, so the early renewal discussion continues. We've had good success with that the past 12 months, and we see that happening in the foreseeable future.

And then finally, we have very high profile entities coming into the clusters. Most recently, the Chan-Zuckerberg Initiative which is pooling together the resources of UCSF, Stanford, and UC Berkeley, so actually very continued exciting developments in our clusters in San Francisco.

That's great. One follow-up on that. Just given the fact that there is such limited availability and new supply in both of those markets, have you seen any trends towards tenants looking beyond the core East Cambridge area or the core Mission Bay/SOMA area, in order to find the space that they need? Are they really just staying in those core markets?

This is Tom. Yes, we have certainly seen some of the companies who are in the ecosystem saying, all right, if we really are going to take down space, and there's none here in East Cambridge right now, and we need the space right now, we're going to have to look in nearby submarkets. And there have been a very limited number of companies who have at this point committed to do that.

I would expect that we'll see some more, because there's just not at the moment enough space in East Cambridge to accommodate all who want to be there. But as we've mentioned earlier, we've got our own 170,000 square foot development about to -- or in the pipeline for One Kendall Square, that we hope to start construction on next year, and we actually have some real prospective activity on that space right now.

We've got some RFPs that we're responding to, so I think we'll see a significant level of pre-leasing there. So that's a piece of supply that's not yet in the market, but is expected to be created.

This is Peter. I just wanted to underscore the demand in East Cambridge. JLL just came out with a lab space report that said that the ratio of demand to supply right now is 9 to 1. So we've never seen anything quite like that in our history, and thus, that explains the very high increases that we've been seeing in rents.

Tom, it's Steve again. I would say it tends toward the latter. These companies really do want to be in these clusters, so we're seeing continued demand, which is leading us to be able to push rents. We've registered a 9.6% increase in the mark-to-market for the rental rates that we have in San Francisco.

One more from me. Just in a market where we're seeing construction costs increasing substantially in some areas, how was it that development costs came down this quarter in the two Cambridge deliveries, and is there any read-through there for your remaining active pipeline?

Not really. I think, Tom, Dean Shigenaga here. You've got to keep in mind on a very large project, for 50 and 60 Binney as an example, you have to appropriately budget your cost of completion. And we ended up with conservative underwriting that realized a 5% cost savings. And so those opportunities do exist in the portfolio, and in this case, on a project of that size, it has a meaningful impact.

Got it. Thank you.

(Operator Instructions)

We'll go to Michael Carroll with RBC Capital Markets.

Can you discuss how the Company is thinking about breaking ground on new development and redevelopment projects? What do you need to see in those projects? And would you want to deliver some of your in process deals before you start one, or does that come into play?

I think we've said, Mike, on past calls and in our commentary, if you go to page 41, that's the future project page, and we're very pleased it's really high-quality locations that I think will attract a lot of interest. But I think, given the size of our pipeline that we're delivering this year, next year in particular, and then into early 2018, at the moment, we don't need to really worry too much about the future. We've got great sites and shovel-ready access to respond to really compelling opportunities, and we'll do that as appropriate. But at the moment, we're not prepared to announce anything.

Okay. And then can you discuss your acquisition strategy going forward? What type of deals are you looking for, and are there more value-add opportunities that you're currently pursuing?

Well, as we said at the beginning of the year, we didn't know that One Kendall Square would come to market. We certainly didn't know that the Torrey Ridge campus would come to market. So we underwrite, Peter and his team underwrite everything that's out there, but we typically aren't aggressive acquirers.

Unless we see something we think is just so compelling, where we saw One Kendall and we talked about that last time. I think those are situations that we pull together our analysis and our you view of the market and take stock of that. But those are really eclectic or ad hoc situations, but overall we're a developer rather than an acquirer in most cases.

Yes. This is Peter. I just wanted to underscore that we're still pursuing value-add, even when we're doing acquisitions of existing properties. I mean, the property at One Kendall has 30% of the space rolling over the next few years, with a similar mark-to-market. Same thing with the San Diego property.

But the thing that these two acquisitions have in common is that they're in very high barrier markets. If you look at Torrey Pines, you look at Cambridge, there are very few owners. When something comes up, if we don't get it, somebody else that competes with us will. So we do our best to find the value, and we've done it so far.

But if something -- there was I think it's 245 First that came to market, which sits right next to our Athenaeum project at 215 First, we looked at that, and decided there was really no immediate opportunity to add value to that project, an office tower and a lab building, and so we didn't enter the bidding. So we try to be very disciplined in how we think about deploying capital, and we think we'd rather create value, as Peter always says, rather than pay somebody else for their value.

This is Peter. I misspoke, it's 55% of the leases are rolling in the next couple years at One Kendall, and 30% mark-to-market opportunity, thank.

Thanks.

We'll now hear from David Rodgers with Baird.

Joel, I don't know if you want to take this, or maybe Tom and others can address it. But I guess on 100 Binney and 400 Dexter, you said you're negotiating a number of floors. Maybe just go into the type of tenant that you're talking to. They sound like they're smaller, going to be multi-floor users. Are these tech tenants, lab tenants, expansions, or new flags for the portfolio?

I think at 400 Dexter we have discussions with the current occupant, Juneau Therapeutics. They represent probably the best of breed in the cancer immunotherapy area, and at 100 Binney, we have several companies, including big pharma and biotech. We don't have any office or any tech requirements looking, I think, at either of those buildings, that I know of at the moment.

Great. That's helpful. And then maybe I don't know if this is for Steve or for Dean. It sounded like the $140 million acquisition included, or was upside the entirety of the 88 Bluxome site. Is that going to be pulled on as land, as a building, as redevelopment? How do you characterize that? If it's land, does it go in the land number that you quoted earlier, Dean? And if not, I guess that doesn't matter.

It is in our future pipeline of projects that we can build on, on page 41 of our supplemental, Dave. There may be a short leaseback by the club on that site. It may be up to a year. But anyway, it really represents important product for the future growth.

Okay. Dean, maybe sticking with you, you planned for the secured maturities in 2017, and when those are up?

Sure. That's scheduled on page 49 of or supplemental package. We have about $290 million in total maturities in 2017. The bulk of it sits in two loans.

One is a $76 million secured loan that actually is scheduled for repayment in December of this year, and that's included in our sources and uses on our guidance disclosures. And then we also have another secured loan of $210 million. I'm sorry, that's a construction loan, $210 million, that we have an opportunity to extend it, but we haven't yet committed to the extension or repayment. We hope to have more color for you on Investor Day.

Okay. Great. Thanks.

Thank you. Our next question comes from Rich Anderson with Mizuho.

First question, Joel, is there any opportunity beyond the east side of Manhattan that you are looking into? You're so clustered there, I just wonder if there's anything where we could see a more expanded platform some day in the distant future?

Well, I think we look at New York City as a great market. Each of these clusters takes about a generation, 25 years to mature, San Francisco certainly after Genentech was founded, and certainly the Cambridge cluster, really hastened by some of the early companies, and then highlighted by, well, obviously anchored by MIT, and highlighted by Novartis' move of their R&D headquarters to Cambridge.

Remember, we're still at the end of the first decade in New York, so we think there's, I think, great opportunities for expansion. We view that market as a great market. But to some extent, it's going to be driven by a lot of early Company formation out of the universities. I don't think you're going to see big companies move thousands of people into Manhattan, but we have been very successful in recruiting unique units.

We did at Roche. We've done it at Nestle. We've recruited the key oncology group at Lilly. Pfizer's Center For Therapeutic Innovation.

We think we can bring a number of unique research boutiques to New York City, and we think that the East Side medical corridor is the best location. But we clearly would look at other -- I don't think we would go to the West Side, because the crosstown traffic to the East Side, to the medical corridor is pretty tough. I don't know, that's just how we hook at it. But over time, I'm sure we'll have a number of sites there.

All right. Great. Speaking to Cambridge and understanding this humongous demand opportunity, mentioned the 9 to 1 ratio, sounds great, always and likely will continue to be a fantastic market for you. But 40% of your portfolio now, at what point does even great growth like that become a concentration risk for the Company, longer term?

That's a question that's certainly come up in a number of discussions, and we pay close attention to that. We think that, again, Cambridge is the center of the universe on the life science industry, and that gives us good feelings. When you're adjacent, or within a stone's throw of MIT we feel it's really long-term great real estate.

We do think, though, that you'll see continued growth in the Bay area. Dan has done a fabulous job of expanding San Diego. I think over time, we'll see more activity in Seattle and in New York City. So I think you'll see those five clusters continue to grow.

We hope that Maryland will, with new injection of funds into the NIH and the FDA, we hope some of our key campuses are anchored by the NIH in Maryland. And then over time we hope that the ag tech world will grow dramatically, down in North Carolina. So we feel that we'll manage that risk, and we do pay attention to it, for sure.

Okay. Is 40% your ceiling or could you go higher, do you think as a Company, at this stage?

I don't know that we have any necessary target, but I think as we look at capital allocation each year, we'll pay close attention to that, to make sure we don't have an undue risk in any single market. But we feel good about where we are, and what's in the pipeline. And I mean, if you look at page 41, for example, which we -- I just alluded to, we've got significant development opportunities in San Francisco, obviously New York, San Diego and Seattle to name a few. So I think we're pretty well balanced in that regard.

Okay. Fair enough. And then maybe a final question for Dean. And more of a modeling thing. You raised same-store by 50 basis points, but FFO was reiterated. Anything -- was there an offset there, or is it just not enough, it was too much of a little bit of a rounding error, didn't move the needle at the FFO line?

Two things to consider there, Rich. One, as I mentioned, the forward equity sale agreements actually brought in some additional shares into the third-quarter weighted average share count of about 751,000 shares. That's the equivalent of about $0.01 dilution to the quarter.

But importantly, a lot of the leasing activity that we've executed on this year is capturing early renewals. As an example, the top six or so leases executed in the third quarter, none of the expirations related to 2016. Most of it was 2017 or later. In fact, two of the six went out to 2021 and 2022.

So most of the upside in that quarter activity will be captured by mid-2017. So it doesn't drop to a direct FFO impact for the third and fourth quarter. But again, I think, keep in mind the fundamentals remain solid. Limited supply of Class A space, and really strong demand. And so we're in a pretty sweet spot, as we look forward.

Okay. Fair enough. Thank you.

Thank you. Mr. Marcus, with no additional questions, I'd like to turn the floor back over to you for any additional or closing remarks.

Okay. Well, thank you very much for your time. We appreciate that. We'll look forward to talking to you in the early February time frame, for fourth-quarter and year-end results. Thanks so much.

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