Alexandria Real Estate Equities Inc (ARE) 2013 Q1 法說會逐字稿

Welcome to the Alexandria Real Estate Equities, Inc first-quarter of 2013 earnings conference call. My name is Aaron and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Ms. Paula Schwartz. You may begin, ma'am.

Thank you. Good afternoon. This conference call contains forward-looking statements within the meaning of the federal securities laws. 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 Form 10-K, annual report, and other periodic reports filed with the Securities and Exchange Commission.

Now I would like to turn the call over to Mr. Joel Marcus. Please go ahead.

Thanks, Paula, and welcome, everybody. We'll try to be somewhat short in format hopefully to leave more time for Q&A and efficiency on a busy earnings day. Starting on the macro, we're obviously fortunate that ARE has a very good business with the highest-quality team, class A assets, cluster hub locations, really world-class tenants, and I hope that continuing really great disclosure. We're blessed to have significant opportunities to grow in our core CBD cluster markets and likely don't need to stray away from world-class locations. I think it's fair to say that we have finally achieved a renaissance for life science R&D in the best cluster submarkets where ARE dominates.

If you read Baron's April 29 edition, there was a great quote in there and let me share it with you. We could be witnessing a substantial re-rating where instead of a discount on R&D, a premium could ultimately be awarded for the potential option value of curing disease. And therefore really our focus is and has been bio and pharma in core cluster markets. Important to note too that ARE has only 7% -- about 7% of AVR exposure to those specific universities and nonprofits in the tenant sector which are much more heavily dependent on government financing, and we seek to be doing business with those that have large endowments in this center of the clusters. On internal growth for a moment, let me just transition there. We had a very solid leasing quarter of over 700,000 square feet. We've only got about 568,000 square feet left to lease in the balance of 2013 on lease rolls and about 309,000 unresolved so this is actually pretty minor compared to the usual.

Strong effort is being made to lease up purely vacant space by our first in class regional teams and that should positively impact occupancy across all regions both starting in the second quarter and beyond. On occupancy, the trend for the balance of 2013 will clearly be positive. San Francisco, as expected, experienced a temporary decline due to some moves but we expect to recover nicely starting in the third and into the fourth quarter and primarily attributable to the Onyx move. San Diego decreased a bit due to some vacancy, a newly operating properties, but once again our strong domination of the San Diego lab leasing market will move that very positively through the balance of 2013. And we feel very comfortable with our year-end forecast -- occupancy forecast of 93.9 to 94.3 and certainly hope to beat that. On the external growth side, we had very solid leasing quarter for redevelopments and developments of almost over 450,000 square feet, heavily attributable to the ARIAD and Onyx leasing. And we hope that you like the new and improved disclosure on developments and redevelopments. That should make it very clear to follow these projects and visualize the high quality and the details of what we're doing in those value added programs.

On the development leasing, we have signed a 131,000 square foot fourth floor LOI with a credit tenant at the Alexandria Center For Life Science in New York City and several other LOIs are in process. We actually have quite a number of active prospects, probably more than six who we're actively engaged with and heavily, interestingly enough, coming from both Japan and Europe from pharma. We expect to be hopefully close to 50% leased as we head into the summer months. We expect in the June and July timeframe to have 499 substantially fully leased and result so stay tuned. On the balance sheet, and Dean will speak about this a bit, we're on target to hit our leverage targets by the end of the year and we refer you to the details on or in the press release. On the expected sales we've got $45 million of non-income-producing assets under negotiation right now. $65 million projected from a partial sale into the joint venture from 75/125 Binney which is ongoing and the remainder would be about $125 million coming from additional domestic and potentially a sale or two internationally of non-income-producing assets so we think it's imminently achievable, and Dean can highlight the EBITDA onboarding through the end of the year.

On the sales of income producing assets and our recycling program, we're mostly done for 2013 for income producing assets. Very modest amount for 2014. Total NOI loss at a maximum for 2013, 2014. The balance would be probably less than $2 million. And then we hope we would refer you to the land undergoing preconstruction. We've got some new and hopefully very helpful disclosure so that over time we can restore the evaluation for those great projects that are well deserved. And then finally on the dividend side, I would expect that the Board would continue to look at sharing increasing cash flow with our shareholders, so stay tuned on that.

Let me turn it over to Dean.

Okay. Thank you, Joel. Let me just start with our balance sheet. We made good progress in the first quarter and I'd like to provide an update on important initiatives through the remainder of the year. Cash flows from operating activities after dividends are on track at $130 million to $150 million. We're basically done with the sale of income producing assets. We completed $124 million in sales in the first quarter. We have three properties held for sale as of quarter end with a net book value of approximately $7 million, including about $4 million that was sold in April.

Briefly on our unhedged variable-rate debt, over the near term we expect our unhedged variable rate debt to range up to approximately 30%. Our strategy includes having an amount outstanding of unhedged variable rate debt to allow us to opportunistically issue unsecured bonds and repay outstanding unhedged variable rate bank debt. Moving on briefly to our guidance on our unsecured bond offering, clearly our first priority is our 10-year bonds as far as 10-year goes to extend our maturity profile and transition variable rate debt to fixed rate debt. Pricing for a 10-year paper for Alexandria is approximately in the mid 3% range and to just give you some other data points, 7-year paper is roughly 2.75% for the Company. We expect to prudently manage our maturity profile 10 years from now so our midpoint target for our 10-year unsecured bond offering this year is in the $400 million range. We also look -- we'll look opportunistically to issue additional unsecured bonds to reduce our unhedged variable rate debt to less than 18%.

As Joel highlighted, we remain focused on reducing our leverage to approximately 6.5 times targeted by the end of the year. The majority of the improvement in leverage will occur in the second half of the year and we expect our EBITDA growth from the first quarter to the fourth quarter to range from $10 million to $13 million. Moving on to our construction forecast for 2013, you probably noticed that it's up about $25 million at the midpoint. Our current range is $570 million to $620 million. $13 million of the increase related to the commencement of our build-to-suit project for Onyx Pharmaceuticals at 269 East Grand, and we also had about a $10 million increase attributed to the timing of construction and the completion of our joint venture transaction for the project for ARIAD Pharmaceuticals at 75/125 Binney Street.

Briefly to update on two construction loans we have in process. The first is for 269 East Grand, the project for Onyx Pharmaceutical. We expect the closing to occur in the second quarter. It's about a $36 million loan at about 70% loan to cost and pricing is probably about 140 over one month LIBOR. The other loan that's in process is for 75125 Binney. Again, that's construction financing in the low $200 million range. The loan to cost in the 60% to 70% range and pricing somewhere in the upper 2% range over one month LIBOR.

Moving on to same property performance, we really delivered our fourth consecutive quarter of upward trend and cash NOI growth, 2%, 4%, 6%, and now 8.8% for each quarter from the second, third and fourth quarter of '12 through the first quarter of '13 respectively. You probably noticed that we provided two other calculations for same property performance in comparison to our historical same property performance as shown on page 16 of our supplemental package.

From 2008 through 2012 including the first quarter, our same property performance was generally consistent over this period with the other calculations. For the first quarter of 2013, our same property performance included -- including our redevelopment properties would have been meaningfully higher as shown in the chart at approximately 11% on both a GAAP and a cash basis in comparison to 0.4% on a GAAP basis and 8.8% on a cash basis. Same property performance including redevelopment properties will from time to time have significant growth in net operating income as a result of completion of the conversion of non-laboratory space, generally with lower net operating income to laboratory space, generally with higher net operating income through our redevelopment process. We believe our traditional method of reporting same property performance is a more useful presentation since it excludes the potential significant increases in performance as a result of completion of significant redevelopment projects.

Same property expenses for the quarter were up about 6%, driven by an increase in recoverable property taxes and colder weather this year in '13 versus 2012 and as a result we had higher snow removal costs and steam utility expenses. Lastly on our guidance, our guidance for '13 was updated to reflect the tightening of our range by $0.02 for both the upper and lower end of the range. EPS diluted was given at a range from $1.43 to $1.59. FFO per share diluted was given at a range from $4.46 to $4.62. And lastly, our assumptions detailed out in our guidance for 2013 are included on page 3 through page 6 of our earnings release and supplemental package.

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

Operator, we're ready to open it up for Q&A.

(Operator Instructions)

Emmanuel Korchman, Citigroup.

With so much capital activity included in your guidance for this year, could you give us a better idea of timing of perhaps the ATM in unsecured bond issuance and why not do the bond issuance now given attractive rates in market?

Well, I guess that's a question you could ask of almost any offering one does. I think we've been heavily focused on a number of other things in the first quarter completing our asset sales. Certainly in the second quarter, we're pretty heavily focused on the financing -- the bank financing of the construction loan financing of the two projects that Dean referred to. We'll probably look to tap the ATM a little bit over the coming 2Q, 3Q, into 4Q and we'll look probably as we start to get into early summer at the bond market. We're pretty comfortable with the state of the overall bond market.

We don't think the Fed is moving in any different direction but we will clearly tap it and as Dean outlined, our goal is to reach the targeted numbers that we said likely of $400 million bond offering and obviously term that out. So I think I'd stay tuned. We don't want to necessarily commit to any particular time but as we get closer to the summer months and finish up some of the other critical priority transactions, especially non-income-producing sales we will clearly turn to the bond a bit.

Joel, it's Michael Bilerman. You just never know what external forces could have an impact on the bond market or the equity markets for that matter.

For sure.

Internal spreads, but moving out, so even if you have a desire to wait till the summer, I guess would you at least do a rate lock so that you can sort of lock in where you stand? And rather than take any sort of risk or just issue it? You can make up tomorrow morning and issue bonds. It's not like you need to do a lot of work to do that. Construction financing or mortgage loans take a lot more time but doing an unsecured issuance seems to be pretty simple.

Well, everything takes time and as allocation of resources. I think on the rate lock, my own view is I think the economy's actually going to get worse not better so I think you actually may see rates come down even more than they are today. So I think I would watch the rate lock pretty carefully. I'm not so sure that we're going to see rates move against us. But clearly, we're paying close attention to that for sure.

Thanks for that, guys.

Jamie Feldman, Bank of America Merrill Lynch.

Can you talk a little bit more about your increased confidence on leasing at 499 Illinois and also at the West Tower?

I can't on 499 Illinois other than to say what I said. We're I think, relatively comfortable after a long period of waiting almost two years here that we will substantially fill the building and I would say just stay tuned for an announcement. I don't want to say more than that. And that's to relatively fill the building. On the New York project, I think I gave color on that. I'm not sure what else you want to know but feel free to ask it specifically.

You had talked about European and Japanese pharma tenants. What's the average size of some of these leases and then where do you think rents are on both that versus your underwriting on both that project and 499?

Yes. On 499 I don't want to make any comment at the moment. On New York, as I said we've signed a 1 LOI with rental rates very much along the lines that we expected. And it would not negatively impact our yields. In fact there might be some bump coming up over time. That's four floors, 131,000 square feet. We've got another half a floor under active LOI negotiations. Another half got put back a few months due to a financing so we're waiting on that. And we have a number of LOIs that are out waiting for responses. I would say on Japanese interest and European interest, there seems to be substantial from something like half a floor and as much as a floor but again, it's early on and I can't say too much but we've got a number of European firms and a number of Japanese firms, one whose already a sizable tenant of ours in another market actively looking. So we feel pretty good about things. I don't know, Peter if you want to make any comment overall on yields.

I guess the only thing I would say is that the rental rates are holding very well to what we've underwritten and put into the disclosures. I would say that where we're doing better is an absorption. We had a much more conservative absorption period in our numbers. So we're looking to improve on that and if everything goes as planned, we should.

So hopefully that's helpful. Sorry I can't say more on 499 but I'd say, stay tuned.

Okay. And can you talk about any change in appetite for the asset class, the life sciences office asset class. We've seen with CMBS improving you've just seen more capital flowing into either secondary markets or just different property types in core class A office. Has anything changed in the last three months in terms of appetite?

As far as for acquisition or financing, Jamie?

People more interested in your assets?

Sure. Well, we're kind of done with the income producing assets sales but we did have a cadre of folks that were kind of in each and every deal that we were looking at that were interested in the repositioning of the assets and maybe taking on some of the capital that was going to be needed to reposition them or to potentially be a lab owner in suburbia. So I can't really tell you if anything's changed recently because we haven't really marketed much of anything outside of the one property that we closed this last quarter in Pennsylvania. And that was sold to a company that was actually purchasing the main tenet of that property so that was more of a user sale. So I'm not sure I can give you any more color.

Okay. Thank you.

Matt Rand, Goldman Sachs.

Thanks for adding the detail this quarter on the land bank. Looks like two-thirds of your preconstruction and future development land is in four parcels in Cambridge and the San Francisco Bay. Can you talk through those four parcels that make up that value and what your timeline is for starting developments there?

Yes. Let us turn to those for a second. Yes. So I guess 33 and 34 you may be referring to. So on 33, the two important parcels and they are pretty well highlighted as to geography, square footage, et cetera, is 100 Binney and 50 Binney. We've talked about each of those a little bit on past calls and in conferences. Our timeline I think would be to try to monetize those in a one to three-year period. We think that demand in Cambridge would allow us probably to move forward with 100 Binney probably sooner and then potentially 50 Binney. We are also looking at doing two buildings at 50 Binney potentially. We're looking at some other opportunities there but I would say monetizable our goal is within a one to three-year range and hopefully even sooner.

On the right-hand side, you see the Illumina campus. There are two additional buildings totaling almost 400,000 square feet. We are moving forward with certain San Diego permitting as requested by Illumina there. In fact their stock and their earnings have been pretty strong. So as they decide if and when they need to expand, we'll be ready. We've just delivered a number of buildings to them, so we think over the short to medium term, those are imminently monetizable by building for them. But we'll wait to hear further from them. On the next page, Campus Point, which is virtually full at the moment, we've got one existing tenant and potentially two clamoring for more space.

So we're working on getting the San Diego entitlements to build something up to close to 150,000 square feet. We think this is imminently monetizable in the more near term and actually the construction cost that we mentioned down below there is one typo. It's $450 to $505 -- yes. $450 to $505, not $550 to $605, so we think that is a near term opportunity with one to two existing high quality tenants here. And then on the South Lake Union land, we've got a number of opportunities both from potentially institutions and potentially even tech tenants which are seeming to take over that market. And we're doing some entitlement work and working hard to see if we can monetize, which we expect on at least one or two of these parcels, probably in the relatively near term as well. So we feel pretty good about that.

If you flip over to page 36, once we put 499 to bed, our attention will turn to 1600 Owens because we think there is some pent-up demand down in Mission Bay, certainly institutionally we think with the coming on of the three hospitals and the demand for a variety of uses that that then becomes center stage. We've had a number of inquiries, one in particular from a major hospital system looking at that. So we think that's maybe a little bit more out beyond a year but hopefully maybe sooner than we think. Again, once we finish with 499 and then on page 37, we've highlighted the Onyx campus and what else we can do we can build another building their north of 100,000 square feet.

We feel that there are probably a fast-growing company. Their stock has been on fire. Their cancer products have really been well received in the market so we fully expect to build that project. And then finally 9800 Medical Center. We really have two great buildings there but I think given the market in Maryland at the moment, and until that market further strengthens, we likely wouldn't be building that so I think that's more out beyond the near to medium term. So hopefully that's helpful.

Yes. Thank you. It was. And then there's just one more parcel in South San Francisco. The $73 million at Rossi Eckels. Can you give any color on that?

Yes. Those are -- we originally aggregated a series of parcels right after the time when Genentech -- this is pre-Roche acquisition, filed their overlay to the South San Francisco planning district in which they then, I can't remember the year but it probably was right around '07-'08. They expected to double the size of their campus in South San Francisco so what we tried to do in working closely with them was to align a series of properties. It's pretty clear that that's not going to happen. And so I think we would probably look to either find users for those where we could build or potentially exit those assets.

Okay. Thank you. And one last quick one. There's been some talk in the industry about the opportunity to do on-campus university deals. How do you look at that model generally and is that an opportunity set for you guys?

We looked at it. We were involved with some. I think it's practically very hard because of 501(c)(3) rules so I don't think the opportunity is as great as one would imagine. I think also one has to look today again with the challenges of federal funding unless you're dealing with credit strength of universities like MIT or others, Harvard. Going to outlying universities could prove to be very challenging because their financial situation certainly under government budget pressure is going to be tougher so that's not something we're particularly pursuing.

Okay. Thank you.

Sheila McGrath, Evercore Partners.

Joel, I was wondering if you could talk about acquisition opportunities in your markets. Is there anything noteworthy that you're looking at? Or that you attempted to bid on and weren't the winning bidder?

Yes. So far this year we really haven't been active in bidding. We do have a pipeline in each and every of our every one of our core cluster markets. We've been really stringent in not going outside of those. So we're focused on the best markets in downtown Seattle. Clearly the West Bay of San Francisco, Torrey Pines, we did buy one great set of assets up there last year in the spring, which we will redevelop here hopefully over the coming year, down in Torrey Pines. Clearly, Massachusetts in the more CBD area we are looking at opportunities. And probably maybe in and around New York in the city potentially if we have a large firm that comes from overseas that we couldn't accommodate at the Alexandria Center. We might look for another Manhattan site. But we kind of really carefully stayed out of the suburbs because we're certainly trying to avoid as many of these suburban assets as possible because we think the best growth highest-quality cash flow's going to be in the CBD cluster markets. Peter, you could comment probably, too.

I just tell you Sheila, that I think we've been out of the acquisition game for a little bit. But in looking around at all the different regions, as Joel said, there are probably as many opportunities today as there were the last time we were in the market so that's encouraging. And there's some really interesting high-quality assets that could be immediately accretive if we were able to get them at the right price. So we're keeping our eye out and but focused on all the other goals we have right now.

Okay. And then, Joel, I noticed in your annual report you mentioned that NYU Neuroscience is a tenant at Tower Two. And I was just wondering if you could give us a little more detail on that and where there -- .

Yes. They're in Tower One.

Okay. I thought it said -- .

Yes. That's in Tower one. And they are funded by the Druckenmiller family. So it's actually a specific funding from an outside funding source and they hired a world-class -- actually he's pictured in the annual report, Richard Chen, his brother is a Nobel Prize winner who is heading up -- really searching for answers and ultimately pathways and products to unlock some critical diseases including dementia, which is probably the biggest market opportunity that exists, so yes, they're in a couple of floors in the East Tower.

Got it. And then Dean, on Tower Two, it is slated to come on line in fourth quarter. Is that really late in the fourth quarter? Or --.

As you can imagine, we had a pretty good short timeline in order to deliver Roche. So the space to Roche, so we're really looking for a December -- early to mid-December delivery of the first space in the second tower.

Yes. We're on track to do a TCO by December 15, Sheila, and actually tomorrow I'll be in New York for a topping out ceremony at the West tower. It's moving as fast as I think any vertical construction has literally ever moved in New York and we expect to have Roche starting to move in there hopefully in December.

That's great. One last question. On leasing spreads in the quarter on a GAAP and a cash basis were ahead of your guidance and pretty strong. Were there one or two standout leases or markets that we should know about that move the numbers there?

Yes. I think San Francisco was importantly important in that number and I think San Diego was as well. So it varies. But those were I'd say the standout markets this quarter.

Okay. All right. Thank you.

Jeff Theiler, Green Street Advisors.

Just a question about the long-term potential of the Mission Bay area. You've obviously got some good near-term traction with 499 Illinois or at least starting to get some good traction there. What's the timeframe for that market to fully develop? And does the hospital, once that is in, does that give the market critical mass or do you still need some additional tenants to move in there to really build a long-term sustainable cluster? And how do you expect to be working with sales force going forward to maintain your presence in that market?

Well, I would say that is a viable ongoing vital cluster today. I think -- have you've been done there, Jeff?

Yes, I have.

If you go down there you see the UCSF's research campus is relatively fully developed. Housing is amazing. We're seeing increased retail. Obviously we've got a number of commercial centers there. The hospital when it comes on in late '14 early '15, three of them will really create an explosion of people down there. The Third Street light rail is in, so I don't think there's anything left to do except continue to build it out. I think this cluster's moved. If I think about Cambridge in the early days and University Park where Forest City really pioneered, that took about a 10-year effort. This is really taking a lot less in a sense. Susan Desmond-Hellmann, who is the new chancellor of UCSF, she used to run Genentech's product division, very heralded person. She's building her headquarters building if you will down there. So it's great.

I think the only thing that is really missing is probably an even more robust tech presence but I think with Cisco down there, I think you'll see some other great entities. And again you'll hear about some of those coming down there. I think it's a thriving, fully integrated cluster, and we're very appreciative to have the really the ground floor opportunity there. I think we'll continue to monitor sales force. If they continue to grow, who knows? They may end up building some stuff down there. And if not, maybe we'll have a chance to do some things further down there as well. But luckily it's off our balance sheet for the moment.

Okay. That was great color. Thank you.

George Auerbach, ISI Group.

Joel, thanks for the color on the land sales and the asset sales this year. If we could focus on the $125 million of non-income-producing sales that have yet to be identified. Can you break down for us as your thinking through that bucket, how much is land and how much is under leased or empty buildings?

Well, there might be a little bit of the latter but mostly if you could imagine if we joint venture one of the Binney projects, 50 or 100, that would more than enough take care of that amount. And we have active discussions on that right now. We have some active tenant discussions going on. So if we do what we did or what we're planning on doing, and Peter's really hitting up this project with Tom Andrews, if we JV either 100 or 50 Binney, we're done.

Okay. So we would shouldn't be surprised if part of that source of capital is JVs of developments?

That's correct.

Okay. And to tie back to Jamie's question, any thoughts about increasing the income producing asset sales target for the year just given where assets -- .

I don't think we have to, because I think what we've tried to do is we've tried to exit some of the submarkets as Peter had talked about last time. First Hill in Seattle, we wanted to exit Worcester. We've got two other assets out there that we'll probably exit next year that are under option. So that will move us out of that market totally. We've wanted to lighten up but not exit the Maryland Gaithersburg market so we've kind of done what we wanted to do. I don't see us doing anything more there. We're comfortable with our position. We're getting more fully leased there and rental rates are finally taking hold and we're not having to sign rolldown leases, so that's a good sign.

We like our asset base in North Carolina, by and large, in the triangle. We'd like to exit New Jersey and you'll probably see us do that but those are minor assets. We're trying to exit Pennsylvania. You've seen one this quarter and maybe another I think we maybe have one asset left. And we might lighten up a little bit in San Diego as you see in the discontinued ops in Sorrento Mesa on a couple of assets where we think would like to put that money more in University Town Center and Torrey Pines where have they lot of activity and our leasing has been pretty much superlative. So I think we don't have anything more than that to go. We're pretty much done, by and large.

Okay. That's helpful. And one last question. It looked like some of that is yet to be identified. It sounds like some of that might just be potential JVs but other assets that you might identify for sale, at what point in the year do you have to identify those assets by just given the timing to sell land or to sell assets?

My guess is over the next several months, George, because it does take time to execute on the transactions, so if we're not there in the next three to five months, I think we would have a challenging time to complete it by the end of the year.

Great. Thank you.

Emmanuel Korchman, Citigroup.

Just a couple follow-ups from me. If we look at your leasing schedule, it looks like the renewal leases were done at shorter terms than typical and also at higher TIs. Could you help us compare those two numbers and figure out what was going on there?

I would say don't read anything into any particular quarter. Shorter term leases sometimes we've had them bounce around two, three, four years whereas development or redevelopment tends to be 5, 10, 15 plus so I didn't don't think there's anything you could read as a big trend. And then I think on TIs and so forth again, I think I wouldn't read anything special. They're kind of run-of-the-mill. I don't think anything, I'm asking Dean, I can't remember anything this quarter that was particularly unusual so it's a pretty average quarter.

And I think on page 17 we've added trailing 12 months disclosures on leasing activity to give you a sense that a quarter can be an anomaly because it's a relatively small amount of activity. But on a trailing 12 you can see the statistics are pretty similar over the last several years.

Sure. Thanks. Joel, in your opening remarks you mentioned that some of the non-income-producing sales could be international, which I assume means India.

Well, yes. We have a non-income-producing land parcel or an unoccupied building. We might choose to monetize that because we've got some great locations so those would be I think relatively easily achievable but I think the bulk of what we're talking about is domestic. So don't hold your breath on that.

Great. Thanks for the clarification.

Sure.

(Operator Instructions)

Michael Carroll, RBC Capital Markets.

Joel, from off that last question, I know you indicated previously that you might want to find a partner for some of your China and India assets. Is that still the plan?

Yes. We think that it's important because capital allocation, as you clearly see from our schedules, is heavily weighted to large-scale developments and to the extent that we see opportunistic acquisitions that make sense, we want to look at those from time to time in our core cluster markets. And so we clearly would like to have a partner who could help us finance those operations. And we think there's a strong group of international folks who would like to have high-quality assets with good quality tenants, much like here in the US. So that's kind of our game plan.

Have you started those discussions yet?

Yes.

Okay. And you can you give us any timing as a'13, '14 event?

Not yet.

Okay. Great. And then my last question on 499 Illinois. Maybe you can't talk about it but could you kind of tell us where you're seeing more of the activity from? From the lab tenant or from the traditional office tenants?

Yes. We're not currently engaged with -- we have requirements from office tenants but that's not what we're moving with.

Okay. Great. Thanks, guys.

Anthony Paolone, JPMorgan.

So where are cap rates for, say a lease A, life science asset in your key cluster markets?

Tony, it's Peter. It's going to vary but I would say that in Cambridge right now you're probably sub-six if you've got good credit behind the tenant. New York would probably be around five to maybe even less than that considering what I've been looking at through some of the market reports from brokers. Then you go down to San Diego and it's a very strong market too but cap rates don't tend to go that low so you'd probably be something with a six handle but low there as long as you had a high-quality building. Something like a Campus Point though, or the Illumina campus. I wouldn't want to sell because it's so valuable but if I did, I would definitely look for something sub-six.

Maryland and RTP in the suburban markets, it goes up quite a bit and you're probably talking about 200 basis points above the clusters. Nothing that we've sold that you've seen recently can really be a good comp because of things we sold have really been coming off of leases so income was not behind those values. But I would imagine that if we sold something like a West Watkins on Clopper that was sold last quarter and those the income was perpetual. We would have been able to sell those something around mid-sevens to eight.

Okay. Thank you. And just on the idea of joint venturing 75/125 Binney and just perhaps some other stuff, I'm curious how you landed on that asset versus say some others that might be either a development or redevelopment or even an existing asset that might be a bit more stabilized at this point?

Well, it's a good opportunity for balance sheet purposes to do that. There's a huge amount of interest in Cambridge class A assets with strong tenants. So the numbers are sizable. And we've got a sizable construction pipeline so it made sense to look at that. If we did an Onyx, which is much smaller, a lot of brain damage for not a lot of pop. So that's the one that makes eminent sense. And there's some risk of future lease up that we can take advantage of I think as well.

Okay. Thank you.

And we have no further questions at this time.

Okay. Well, thanks, everybody. We did it in less than 45 minutes so we'll look forward to talking to you on the second quarter. Thank you.

That does conclude today's conference. We thank you for your participation. ]