Alexandria Real Estate Equities, Inc. (ARE) Q1 2012 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the First Quarter 2011 Alexandria Real Estate Equities Incorporated Earnings Conference Call. My name is Karris, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now I would like to hand the call over to your host for today, Ms. Rhonda Chiger. Please proceed ma’am.

Thank you. Good afternoon. This conference call contains forward-looking statements within the meaning of the Federal Securities laws. Actual results to 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. And now, I would like to turn the call over to Mr. Joel Marcus. Please go ahead.

Thanks, Rhonda, and welcome everybody to our actually 60th quarterly conference call as an NYSE listed company and the 15th anniversary this month of our IPO on May of ‘97. With me today are Dean Shigenaga, Steve Richardson, Peter Moglia and Krupal Raval. It actually struck me driving into work today as I was listening to sports radio on The Dan Patrick Show that yesterday has gone and it’s all about today and tomorrow. So we’re going to focus with that as our theme focus on today and tomorrow. So 1Q was actually a pretty solid quarter and we have the much work to do through the rest of 2012 and that’s really our laser focus. And I’m going to start-off really with balance sheet and capital allocation thoughts. We did have, I think, a very productive first quarter when it comes to the balance sheet as you saw from the both the press release and supplemental. The consummation of our debut bond offering, the perpetual preferred, the line credit, which we just closed and the – I think really hallmark, high quality JV capital or JV transaction with JV capital. We’ve got much more to do through the balance of 2012 focused on suburban asset sales and as well as non – other non-core asset sales for our capital recycling program. Dean is going to talk referred to that. Obviously we’re focused on land sales and we’ll be reporting some in the quarters to come and potentially in other potential JV relationship that we are exploring. But as you know or should know, asset sales on a lapse based world are more complex and time consuming then simple generic offers and that’s important to keep in mind. So as we think about some of our markets and this recycling program obviously Seattle, San Francisco, Merlin, Massachusetts are one areas that we’re focused on. As many of you know from our press release and then the previously, we did complete a very high quality joint venture in the key Longwood Medical submarket, market we’ve held a critical probably one of the best locations in all that submarket highest concentration and density of research hospitals and really teaching platform. And we consider our main and main location truly a triple like location, which we’re always focused on and we will once we open the Longwood center we’ll be the best-in-class building there by far. We’re looking and we’ll report next quarter at a strong yield and no net future capital outlay, which we were pleased about. We completed partial sale of the land at a gain and we match funded the future capital with both the construction loan and our JV capital as you know. We did make one small acquisition in a really one of the best locations in all of Research Triangle Park with a solid yield. It wasn’t something we were necessarily looking to do, but it was a very opportunistic situation and we took the opportunity and it will create that kind of a platform for other things we’re doing down there. One key new build-to-suit that Steve is going to discuss a little bit more in South San Francisco which help moves another key parcel from our land bank in South San Francisco which has been a challenging submarket into development process for cash flow at a solid yield. It’s really one of the best locations in South San Francisco and it’s certainly is a best-in-class tenant. Steve will tell you a little bit more about that with whom we have very close relationship and we’re proud that they chose Alexandria over numerous other potential landlords in land sites down there or up there. We continued to be very focused on attracting high quality tenants to key land parcels for NOI creation or liquefied certain land holdings and clearly our target is to lower non-income producing land as a percentage of GAV to about 15%. When we move really to operations for the first quarter, it’s important to remember as many other teams have reported, the macro market still remains challenging and the political climate clearly in disarray. Following our fourth quarter highest volume leasing quarter in the history the company as well as the highest leasing year in the history of the company in 2011, we’re very pleased to report really solid leasing demand in the first quarter, 63 leases signed for 912,000 square feet and really balanced by region, 19% coming from San Diego, 24% from San Francisco, 15% from RTP, 13% from Maryland and 27% from Boston. This really confirms the solid life science demand really for our best-in-class properties and our best-in-class submarket adjacency locations. There are lower quality lab spaces overhanging some submarkets which are keeping somewhat of a lid on rents and some of those landlords are making in some cases hard to understand deals. But when you have the best locations and best quality assets, we feel good about the outcomes that will we have and we’ll be having. On the development side, we’ve got six projects that are in development. Steve will talk to you somewhat in depth about 499 Illinois. But our 225 Binney with Biogen Idec, our Onyx deal in South San Francisco, Illumina in San Diego another small build-to-suit in UTC with 100% occupied tenant and our small Canadian development with GlaxoSmithKline are all 100% leased. And we know our challenge at 499 Illinois and as I say, Steve will highlight that in some detail. On the redevelopment leasing, we’ve made, I think very good progress on for principle urban redevelopments, 400 Tech Square. We’re almost 40% leased. We have two or three prospects that we have a good dialog going on. We expect to have some good results in the coming quarter or two. John Hopkins is now in move-in mode so that’s put to bed. At Campus Pointe, we actually have 17,000 or 18,000 square feet on lease and that’s under a hard option to Celgene. And then finally at our 1551 Eastlake, the former Gates Foundation, we’re almost half leased and we expect to have good progress over the next quarter or two. Steve will update East Jamie for you and I think it’s important to remember that a very significant portion of active development and redevelopment are actually leased and make up much of the projected NOI ramp up for the fourth quarter. So we think we go into the rest of the year with a good momentum and I’m going to ask Steve to have comment on detailed leasing activity.

Hello, this is Steve Richardson and I’ll go ahead and comment on the significant key trends, primarily focused on the Greater Boston, San Francisco Bay Area cluster markets. From a broad pattern perspective, we’re really seeing the life science sector in these markets experiencing demand from a critically important segment of the industry’s ecosystem and that is an emerging second cohort of companies that are driving towards commercialization and significant product revenue sales. Large biopharma enterprises historically that provided a foundation of excellence for the industry Genentech, Amgen, Biogen are now being followed by companies that have been working diligently for many years in product research and development with the promise of delivering novel therapies and that promise is now becoming fulfilled. Commercialization from these companies is a very exciting and compelling evolution in the industry as the roster of biotechnology companies joining the ranks of the aforementioned giants with significant product revenue is growing in on the move. So with that backdrop focusing on Cambridge’s Kendall Square district, we really see the lab market demand today dominated by companies in the second cohort. There really organic growth from home grown enterprises at the cost of commercialization and this demand ranges between 1 million and 1.5 million square feet today. The companies are seeking to consolidate in high quality headquarters facilities that will provide a platform as a commercial company moving forward. The lease rates today in Kendall Square range from the mid-50s, triple net to low 70s triple net for existing space and build-to-suite opportunities respectively. And has a market vacancy rate of approximately 15%. Alexandria’s asset-base in Kendall Square is performing very well with a 4.4% vacancy rate. And as Joel mentioned, we’re in the midst of good activity in the 400 Tech Square redevelopment project although we are experiencing some competition from chronic vacancy in other projects in the market. Turning to San Francisco, and in particular the South San Francisco cluster, we’ve consistently indicated our caution regarding this important cluster as we’ve exercised discipline and restrain regarding capital allocation for acquisition opportunities during the past few years and focused exclusively on our existing asset base in build-to-suit opportunities. With that, we’re pleased that this discipline and focus has been rewarded as we are announcing the execution of a long-term lease with Onyx Pharmaceuticals for 171,000 square feet at 259 East Grand Avenue. This is Onyx’s second facility on Alexandria’s fully integrated East Grand Campus and brings their footprint up to approximately 300,000 square feet. Onyx really represents one of the best of the second cohort of companies mentioned before, as they are enjoying significant product revenues today and have great promise with additional products and their pipeline and we are delighted to grow our partnership with the company. The overall South San Francisco lab market is incrementally improving with a vacancy rate at approximately 9.4%, lease rates remain in the low to mid 30s triple net for existing space. And our asset base in this submarket is performing well with a vacancy rate of 3.2%. We continue to be engaged in negotiations within an existing tenant and a new tenant at out East Jamie Court development for a total of 4.5 or approximately 40,000 square feet in its 163,000 square foot facility. And we’ll be targeting Q2 to Q3 to consummate these transactions. Moving north a bit up to Mission Bay, it remains a tight market with vacant in our portfolio of just 1% or so when excluding a couple of retail suits. The 499 Illinois project represents the only block of space available for life science use as the China Basin building has been fully observed with tech users. Given the high quality water front location, we are exercising patience as we continue dialog with institutional life science users. We’ve been here before in Mission Bay and brought 1700 Owens, 1500 Owens and 455 Mission Bay Boulevard South to the market in a similar state in ultimately secured excellent anchored tenants. Salesforce.com is in a pause mode as they’re evaluating their options during the next six months that we – as we mentioned before, but UCSF continues to make very significant and meaningful investments in Mission Bay with a grand opening of their 2,237,000 square foot Neuroscience Center on their campus and rapid progress on the $1.6 billion medical centers hospital complex. Moving for a moment to the 2012 rollovers, we’re making steady progress in that room as well. At the end of Q4 2011, we reported 694,000 square feet of remaining leases to be resolved and are pleased to have reduced that figure to 352,000 square feet. We signed 36 leases in the rollover category totaling 275,000 square feet during Q1 at lease rates that provided a cash basis increase of 1.1% and a GAAP basis increase of 7.6% when excluding the one lease in the secondary Sorrento Valley submarket of San Diego. The remaining 167,000 square feet of space that’s rolled this quarter is concentrated about 50% in Cambridge and very high quality assets. So we expect to define 33% in Maryland, which may present some challenges and just 13% in San Francisco where we should also define. The forecast for the balance of the year at this time from a lease rate perspective is consistent with guidance that was provided at the end of 2011 cash basis of relatively flat and a GAAP basis up to 5%. Thank you and I’ll turn it over to Dean.

Thanks Steve and good afternoon everyone. Our results for the quarter really reflects a $0.01 increase in our interest expense net for one month related to our debut 4.6% unsecured bond offering and approximately one-half of $0.01 increase in preferred stock dividends related to the overlap of our 6.45% Series E preferred stock with our 8.375% Series E preferred stock. Additionally our results included a loss on early extinguishment of debt of approximately $623,000 or $0.01 per share related to the write-off of unamortized loan fees from the early retirement of our 2012 term loan. Our results also included a D-42 preferred stock redemption charge of approximately $6 million or $0.10 per share upon calling for redemption or 8.375% preferred stock. NAV read FFO including these items aggregating $0.11 was approximately $0.97 per diluted share and FFO per share as adjusted was reported at $1.08. Earnings per diluted was $0.41 before the loss on early extinguishment of debt and the preferred stock redemption charge. Turning to core operating metrics, the first quarter of 2012 NOI was as expected at $101.6 million and consistent with fourth quarter ‘11 NOI of $101.8 million. Last quarter, we highlighted 2012 occupancy declines in South San Francisco, Greater Boston and the Suburban Washington D.C. markets. The San Francisco Bay overall occupancy declined from 96.7% to 93.9% primarily due to the 54,000 rentable square foot move out at Oyster Point. Occupancy should increase in the second quarter from leases scheduled for delivery at 951 Gateway and a couple of other properties. Additionally, occupancy is also projected to continue to increase in the second half of 2012. Greater Boston occupancy declined from 93.9% to 91.7% primarily due to move outs at 300 Technology Square and 790 Memorial Drive. We expect occupancy to increase to the 93% to 94% range in the second quarter from executed leases and expected deliveries at 790 Memorial Drive, 99 Erie Street and 6-8 Preston Court. Lastly, Suburban Washington D.C., as you recall from our last conference call, we have one large user of approximately 95,000 rentable square feet at Virginia Manor that is planning to move out in May at the end of their lease term. These spaces are both part lab and part traditional office and we expect the space to require some time to release. Another user of 105,000 rentable square feet at 1413 Research Boulevard that was evaluated in which research groups to remain in occupancy recently confirmed that they will be vacating the space in May of 2012. We get assume a 50% chance of renewal previously, so this change was partially included in our guidance. This tenant at 1413 Research has been in the building since the ‘90s and the older brick building is currently planned for future development or redevelopment. Looking forward, NOI is expected to increase in the second quarter and the third quarter in our estimate for NOI for the fourth quarter remains in the range of $111 million to $113 million. Our same property growth in NOI was approximately 1.7% on a cash basis and a decrease of 0.7% on a GAAP basis. The cash performance was primarily driven by contractual rent steps, rent commencement on a development project at 249 East Grand starting on April 1 of 2011. And rent commencement on significant amount of space in the East Tower at in the Manhattan project in New York. Same property performance also reflects the impact of anticipated rollovers in Cambridge at 300 Technology Square and 790 Memorial Drive in the first quarter resulting in a reduction in both rent and recoveries. We are expecting an increase in occupancy in Cambridge related to deliveries in the second quarter from executed leases. Same property operating expenses increased 1.3% reflecting an increase in property tax expenses offset by a reduction in steam and snow removal expenses due to the mild winter in the first quarter of ‘12. Briefly on our leasing stats, rental rate changes from new or renewal of previously leased spaces increased 3.3% on a GAAP basis and decreased 2.8% on a cash basis. We actually had one lease for about 18,000 rentable square feet driving the statistics down for the re-leasing of the space to a new tenant in the Sorrento Valley market. And this particular submarket by the way is the lowest rental rate submarket in the San Diego lab market region for Alexandria. If you excluded this one lease, the rental rates would have been up 1.1% on a cash basis and up 7.6% on a GAAP basis. Our G&A run rate has moved ahead of schedule with the hiring of additional personnel and continued build out of our fully integrated regional operations. Since December of ‘11, we have added 6% to our number of employees, additionally Joel’s employment contract was amended in April and now includes a total stock return performance and other key changes to retain in Joel for performance will also closely aligning with the interest of the shareholders. G&A expenses are expected to be fairly consistent for the full year of 2012 with 2011 at 7% to 8% of total revenues. Moving next to our balance sheet, as clearly highlighted in our press release and supplemental, we had a very strong quarter of balance sheet management milestones. Briefly, the 4.6% unsecured notes resulted in higher interest expense on a net basis in the first quarter by $0.01 related to been outstanding for about one month in the quarter and is expected to result in additional interest expense net in the second quarter by an additional $0.02. The 6.45 series E perpetual preferred issuance did overlap with the outstanding series E until the redemption in – on April 13th resulting in an increase in preferred dividends in the first quarter in the range of one-half of $0.01. The second quarter will not realize a benefit from this refinancing due to the overlap of the two securities for a couple of weeks in April. In the third and fourth quarter this refinancing will reduce preferred stock dividends by approximately $0.01 per share again in each of the third and the fourth quarters of ‘12. The amendment to our unsecured line of credit reduced pricing by over 1% from 2.4% over one month LIBOR plus 40 debt fee for unused commitments. For an annual rate of approximately 2.55% the new pricing under the amendment is 1.2% plus an annual facility fee of 25 debts. This amendment will reduce interest expense net by approximately $0.01 per quarter. In summary, in the first four quarters at 2012 we have been very successful in cap in the variety of sources of capital, going forward we expect to close another small but important construction loan for approximately $50 to $55 million. This loan is currently under negotiation for a recently announced development in South San Francisco at 259 East Ground Avenue. We will also actively pursued asset sales to meet or exceed our targeted dispositions for 2012. We are currently 42% through our targeted dispositions for the year. We remain committed to lower library general well required capital to balance our incremental construction spending over time, some of this capital will come from land and operating asset sales and we may consider implementing the modest ATM program. Our debt EBITDA will also benefit from the significant amount of NOI and EBITDA contribution beginning in the third quarter of 2012 and ramping up into the fourth quarter from the delivery of our significantly leased redevelopment and development projects. Again our goal overtime is to improve debt to EBITDA to sub 6.5 times. Turning to page seven of our press release, I’d like to radial through some key assumptions underlying our guidance. Same property NOI performance, targets for cash and GAAP have not changed from previous guidance. On a cash basis we’re expecting it up 3% to 5% on a GAAP basis up zero to 2%. Out expectations on rental rate steps have not changed as well and we expect the renewals and re-leasing of space to be up – up to 5% on a GAAP basis and slightly negative, slightly positive on a cash basis. Straight-line rents have not changed in our projections and our expected average about $6.5 million per quarter FAS 141 at 800,000 per quarter has not changed either. G&A expenses are expected to be up meaningfully at 12% to 14% over 2011. Capped interest has been adjusted downward slightly to a range of $55.5 to $61.5 million and it’s somewhat depended on timing of construction activities and the decline is really reflective of our lower interest rate on our line of credit. Similarly, our interest expense net has also declined in our forecast to $73 million to $79 million. Moving to page eight of our press release, we continue to make progress on our target NOI growth for the fourth quarter, a significant amount of this NOI growth is contractual pursuant to executed leases. We updated key assumptions for the fourth quarter and reconfirmed the range of NOI expected at $111 million to $113 million. Updated G&A slightly to $11 million to $12 million also updated interest expense to $20 million to $23 million, preferred dividends reflective of our preferred refinancing down to $6.5 million and reconfirmed FFO at $71 million to $73 million and FFO per share of $1.15 to $1.17. Importantly, let me turn to the sources and uses table on page eight of our press release, and just highlight what we’ve completed and what has changed since our last guidance that was reported on February 22. Our asset sales remain at $112 million for full target and as I mentioned, we’re 42% of the way through that target. Our unsecured senior notes was updated for the final offering increased by $50 million. We continued to negotiate our secured construction financing for the project in South San Francisco and there is no changes to the estimated proceeds from that but the total loan will aggregate closer to $50 million to $55 million. We’ve updated our sources for the Series E Preferred Stock offering at $125 million of net proceeds. And our debt, equity and JV capital increased from $238 million to $247 million just slightly. The remaining projected number at $331 million for the last three quarters of the year includes about $130 million of borrowings under our line of credit to redeem our Series E Preferred Stock. Turning to uses of capital. Our construction spending has increased from $584 million to $612 million for the full year of ‘12 really up about $28 million, primarily related to acceleration of timing of construction payments from ‘13 into 2012 combined with some expansion construction spending related to luminous expansion requirements. And a little bit from our Longwood project that we intend to reinvest some of our proceeds that we cashed out. Acquisition assumptions are up slightly, it still very minor number for the year and no other changes other than updating our Series E Preferred Stock redemption in our uses of capital. So in closing, our range of guidance to 2012 was reported as follows: normalized FFO per share diluted remains unchanged at $4.37 to $4.41, NAV read FFO per share diluted was provided at $4.23 to $4.27 and earnings per share diluted was reported at – are provided at $1.6 to $1.46. And just keep in mind our guidance for 2012 was updated to reflect $0.14 of charges, $0.03 of it related to the write-off of a portion of loan fees related to the modification of our line of credit, $0.10 for the D-42 preferred stock redemption charge and previously we had provided a guidance charge of $0.01 related to the write-off of unamortized loan fees from the early retirement of our 2012 term loan. With that I’ll turn it back to Joe.

Okay. Operator, if you would open it up for Q&A.

[Operator Instructions] And your first question comes from the line of Ross Nussbaum with UBS. Please proceed. Ross Nussbaum – UBS: Hi, good afternoon everyone. Couple of questions from me. First I understand the language regarding the increase to the budget for G&A expense this year. What I’m trying to understand that was, why wasn’t any of that known or contemplated when the guidance was given just a few short months ago?

Well that’s actually pretty easy that’s because the effort to, if you – well actually maybe the easiest thing to do is, refer you to our proxy. We spent good deal of time in the proxy outlining the process that we undertook to what kind of look at kind of the ISS issues and that took the study of two independent comp groups plus the board plus the comp committee plus myself on the Joel side. And then on the expansion side, we’re always looking at opportunities in the market and we’re actually pretty somewhat busier than we thought in a number of markets with the activities we had. So those are things that just evolve overtime as you know Ross. Ross Nussbaum – UBS: Okay. Fair enough. In your very expensive supplemental, I think its page 20, that’s the same question I asked last quarter, the yields on the suburban redevelopment, are those still targeted in the mid to high-single digits?

Yeah, I think they vary by individual projects. Some at the upper range actually are north of 10 and some at the lower range or like in the mid-single digits. Ross Nussbaum – UBS: Is there any reason for the second quarter in a row that those numbers got left out from supplemental?

I don’t know that they’re left out but they’re not all that material to the other projects that are much bigger. Ross Nussbaum – UBS: $234 million, so leave that one [indiscernible]. Same – similar questions on India and China, looks like it was about $7 million spent in the first quarter, $38 million budgeted for the remainder of the year it looks like. Can you give us a sense of exactly what kind of activity is going on there and I notice the square footage also looks like it changed a little bit.

Well as you know we have two projects that we’re working on China small one in the south and the little bit larger one but by and large they’re not super material projects in China and we continued to enhance the buildings and working on leasing in those markets and we’ll report over time on that our success although China we said, publicly is a tough market for a lot of reasons. In India, our footprint is larger. We think it’s a big future market but as we’ve said both at Investor Day where you attended and then certainly on the fourth quarter call that we had cut our capital allocations to India based on just overall spend this year by of about 50% but we’re primarily working with credit tenants who are at the top of our credit tenant roster to fulfill their needs over there. So we’re pleased about that as well.

And Ross, it’s Dean here, to close out your last question on that change in the square footage in Asia under construction, had to do with the completion of some preconstruction activity on a land parcel, so it dropped off capitalization and is sitting at an idle land today. Ross Nussbaum – UBS: Okay. So just to be clear on the $152 million that’s budgeted to be spent, $114 million has already been spent. Is there actually anything physically there or is that all moving dirt and predevelopment work?

No, they’re actual operations, buildings et cetera. Ross Nussbaum – UBS: And but nothing is leased at this point?

Nothing leased at this point, no, considerably leased actually.

And the stuff that’s under construction has some pre-leasing on it.

And we’re all also operating properties with some top tier pharma that are already in operations. Ross Nussbaum – UBS: Okay.

And over time when that operation becomes more material, we’ll probably even tour people out there, so if you want to fly to India over the coming year too we’ll take you there. Ross Nussbaum – UBS: Okay. I appreciate that.

You’ll be amazed. Say again? Ross Nussbaum – UBS: There is there on the leasing in terms of the percentages that’s why the question comes from.

Yeah, no we have actually considerable leasing. Ross Nussbaum – UBS: Okay. It might be helpful.

Our model for India is not to do spec of element by and large, our model in China was to see if we could build in China. We know we can do a great job. But as I said, I think many times our challenge in China is when we bring one of our pharma tenant over there, they end up with 30 bids from local economic development groups, economic zone cities, provinces that creates a real distraction. So we’ve kind of figured out how to overcome that but we’re not sure we want to commit more capital with the Chinese market certainly in the short-term. Ross Nussbaum – UBS: Thank you.

Yeah, thank you.

Paolone with JPMorgan. Please proceed. Anthony Paolone – JPMorgan: Thanks. Are you seeing any lift in lab rents in the Bay Area given just how much rents have moved for conventional office from all the Tech demands?

Yeah, hi Tony, it’s Steve. In Mission Bay again we’ve got the only lab facility there. So I think consistently as we’ve said in the past, we pro forma the project at rents that we’ve already completed at 1500 Owens, at 455 Mission Bay. So I think we’ll certainly do that or better. And then moving to the South San Francisco, we are seeing some incremental improvement. I would say it’s modest at this point though, there are still are a couple of sublease opportunities that need to be burned off. But I think we’re finally turning the corner over the next – it’ll be a few quarter, it’s not going to be the next couple of weeks. But we will see some uplift in rental rates there towards the end of year and in the beginning of next year.

Yeah, I think Tony what really and Steve and I were talking about this earlier, what really has fundamentally changed the Bay Area at least the mid and inflow which would be South San Francisco market is really the acquisition by Roche of Genentech the full acquisition that power house of spin-outs, spin-offs expansion just has changed fundamentally because Roche being a big pharma just operates very differently even far differently than Novartis which is another Swiss company. And I think until things settle down with that, I don’t think at least in the South San Francisco sub-Mission Bay aside, I don’t think you’ll see dramatic increases there, I think Palo Alto remains very strong there is virtually no space available down there. And then Mid-peninsula is not so much a huge lab market other than the Cluster at San Francisco, and I think East Bay is the same thing. Anthony Paolone – JPMorgan: Is there – in Mission Bay with your Illinois Street assets, would you consider leasing those to Tech and is their demand for Tech other than just lab space at this point there?

Yeah, well we, I think we’ve commented before and I’ll let Steve expand. We clearly have looked at and had a lot of interest from Tech users if not like in Cambridge, its not our primary focus, but if somebody is willing to pay us a significant amount of money and it makes sense on that opportunistic situation. We would look at it much like we did Google’s First Campus I’d mentioned, but Steve can give you a sense of how Tech is viewed at.

Yeah we have had serious discussions with the couple of Tech groups, Tony, and the way we are warming up the building, we’re able to accommodate that use and not over invest in the building. So I think we’re providing flexibility from that perspective and to the extent a floor or two out of the six-story building ends up becoming a Tech use and then further downstream becomes a life science use. We’ve seen that happen occasionally in the portfolio. But it’s not necessarily that top priority at all for us. Anthony Paolone – JPMorgan: Okay. And then Steve, did I catch this right in Cambridge you said it was 1 million to 1.5 million square feet of demand, did I hear that?

Yes that is accurate.

And that’s lab Tony, that’s not including tech. Anthony Paolone – JPMorgan: And what’s availability across the whole market?

I think you would have a mix of existing facilities and build-to-suite opportunities. And there is a 15% vacancy rate, but as far as large blocks of space that provide flexible expansion opportunities, you really don’t have too many of those at all. Anthony Paolone – JPMorgan: Yeah I guess it seems like a lot of demand. Is there – do these folks have options or is it going to be really a requirement that stuff will have to get built?

Yeah, more likely a build-to-suite – correct – for the bigger requirements. Anthony Paolone – JPMorgan: Okay. And then just last question, Joe. You mentioned exploring potentially some other joint venture relationships, just was curious whether that was for perhaps development or existing assets or just any color there?

Yeah, I think primarily development we’ve thought about it for existing assets, but that’s an almost like creating a preferred equity structure. So I’m not sure that’s what we wanted. We’ve spent time thinking about that, but I think on the development side if we’re fortune that in the land some significant developments that are out there, we might look much like we did on the Longwood project at a creative structure. Anthony Paolone – JPMorgan: Okay thanks.

Yeah, thank you.

Your next question comes from the line Quentin Velleley with Citi. Please proceed. Quentin Velleley – Citi: Hi, thank you. Just in terms of the build-to-suite, 259 East Grand, the speculation at Bayer supposedly bringing talks of a takeover of Onyx. If that was to eventuate, what might that mean for that project and some of the other space that you have Onyx in?

Yeah, I’ll let Steve comment again on the ground, but from a pharmaceutical perspective and a biotech perspective, we would expect given the nature of Onyx their platform and their operation that they would leave that fully intact and operate out of South San Francisco. It certainly wouldn’t change Bayer’s research presence in Mission Bay release separate and apart from that. I think for us it would be credit enhancement and frankly it might be interesting from the standpoint that they would use that to further expand in the South San Francisco area as well so that could be very good, but Steve can comment on the ground.

Yeah I think that’s exactly right. We have a long-term lease commitment from Onyx. They worked very hard on the design to build out a fully integrated operation. And the trend in the Clusters over the past couple of years has been for pharma to keep the operations intact and grow the operation. So I would be hopeful we’d see the same thing here.

Yeah I think you have to be careful too not to generalize every big pharma really stands on it’s own and Bayer is one that would be looking for a bigger footprint where others who hardly have a very large footprint might want – might not have the same view of maintaining as bigger base or expansion, each one really is kind of considered separate and apart. Michael Bilerman – Citi: Joel, its Michael Bilerman speaking. Is it a – just quick follow-up, you mentioned having income from India and China, but looking on page 38 of the supplemental, there is no sort of – the only international assets are listed here are from Canada. And so, I guess the question is, when you look at page 42 and the $767 million growth that’s been spent on the development pipeline of which you have $114 million spent in India and China. Is there any income coming off of that today? That’s been recognized in NOI?

All right. On the projects in Asia, Michael, that are under construction there is no income associated with those projects. There is a small amount of completed space in India that’s probably generating…

Maybe about $1 million.

In that range, it’s $5 million in revenues at the moment. Michael Bilerman – Citi: Yeah, on a quarterly or on an annualized basis?

On an annual basis. And I suspect over the next four quarters, we’ll be able to complete some of the build-to-suite projects build-to-suite released credit projects and you’ll start to see some additional information on projects in India. Michael Bilerman – Citi: So what else is again at least my impression was everything that’s in CIP, the $767 million that you spent is earning [indiscernible] in zero on it right now. Is that not the case? Are you actually earning income from this capital?

That’s true Michael. The basis in CIP is not earning any revenue, its all under construction. Michael Bilerman – Citi: So the – in India that you’re referring to – we wouldn’t be able to pick that up anywhere because that’s not in the property listing that’s separate from the money that you spent in CIP in terms of what million dollars that you’re talking about?

Yeah that’s correct Michael. It’s a small piece of real estate that’s operating in rental properties today. Michael Bilerman – Citi: And you’re still earning some income, if I remember correctly, off of some of the Benny Street stuff from those existing buildings correct?

A little bit and it shows up in our AFFO reconciliation and it’s about just shy of 500,000 for the quarter. Michael Bilerman – Citi: Okay. And then I pause and I jumped on late and Joel I caught you the end of the sentence where you said something about not understanding other landlord deals and I just didn’t know what that was in reference to.

I think in some markets you find somebody who has got chronic vacancy that’s willing to make such a sweetheart deal that doesn’t make necessarily market sense or when you talk to brokers or you go out they set a, I mean this happened at San Diego up on Torrey Pines, a landlord leased a building that had chronic issues for $1.50, this is about two years ago, when the lowest price ever leased in for similar quality properties where at least $1 higher than that. So we see some of that around and until that chronic vacancy is absorbed ultimately that does tend to not allow rents to lift as much as possible. We see a little bit of that in South San Francisco a little bit of in Cambridge, a little bit of in few markets in Seattle so that’s something that’s out there. Michael Bilerman – Citi: And on 409, 499 Illinois have your, I understand you’re being conservative in sort of pushing out the initial occupancy by six months. But I guess have your return expectations changed at all or your capital needs for that project changed at all in how you’ve looked at it?

Michael, it’s Dean here, no. The capital investment has not changed and our return expectations have not either. Michael Bilerman – Citi: Okay. Thank you.

Yeah. Thanks Michael.

And your next question comes from the line of Conor Fennerty with Goldman Sachs. Conor Fennerty – Goldman Sachs: Thanks, good afternoon. Joel, just you mentioned the redevelopment conversations you guys are having. How much of that potentially could come in 2012 and how much have you guys included in your guidance if any?

Guidance, there is no incremental redevelopments like I think of beyond what’s on our schedule that could come into guidance. Conor Fennerty – Goldman Sachs: No I meant what Joel reference conversations you guys are having with potential tenants for redevelopment assets.

Yeah I mean…

I think the only one that has some incremental NOI potential for delivery is really the 400 Tech Square project in Cambridge where we’ve got a few discussions with prospects that could deliver in the fourth quarter. And that’s not a meaningful component of our NOI ramp up. It probably represents maybe 300,000 of potential NOI from that project in the fourth quarter of ‘12. Conor Fennerty – Goldman Sachs: Okay. And then just looking at the $934 million left of land on the balance sheet. I realize a bulk of that’s the West Tower and Kendall Square. What else is included in there?

Hang on. I’m turning to go to the page. Okay, so the $934 million of book value is really two buckets, $550 million of land undergoing preconstruction activities and $387 million of land held for future development which is not under capitalization and that detail actually for both buckets shows up on the last page of our supplemental, a couple of pages beyond the table you were just referring to. And it provides the break out land undergoing preconstruction activities which is part of our CIP category and under capitalization, the bulk of that is are development site in Cambridge, 1.6 million square feet. 250,000 square feet roughly in San Diego and then the second tower in New York City is the third component. Land for future development is really spread across multiple markets, a little bit in Boston, a little bit up in Mission Bay about 1 million square feet in San Francisco, 1 million is Suburban Washington D.C. and 1 million in Seattle, other markets about 1 million and internationally about 6 million square feet of potential development product. Conor Fennerty – Goldman Sachs: Okay. And then just lastly on the balance sheet, is any of the secured debt that comes to in ‘13, ‘14 pre-payable?

Generally ‘13 and ‘14 debt maturities on the secured side only have the standard prepayment window of roughly 90 days. Conor Fennerty – Goldman Sachs: Okay.

So I do not expect any early retirement of any of the secured debt. Conor Fennerty – Goldman Sachs: Okay, thanks.

Thank you.

And the next question comes from the line of George Auerbach with ISI Group. Please proceed. George Auerbach – ISI Group: Great, thanks guys. Dean, you mentioned in your comments that you used this ATM program. I guess can you quantify how large you could see that program being and I guess would you be using potential equity to fund the 2012 development or redevelopment spend?

Yeah, I think most companies typically saw is their ATM programs roughly not that every company does the same. But roughly at 10% of their equity market cap just to limit the size of the program. For a company like Alexandria, you probably see no reasons for it be much outside of the 250 to 350 range in size. And it’s not intended to replace a traditional follow on offering but in smaller needs for equity capital you can raise in a much more cost effective manner is we’re all aware of over time. George Auerbach – ISI Group: And just on the timing of use, I guess would you sort of – maybe see yourself using that over the next 12 months to fund development?

Yeah, I’d say over the next 12 months. It’s fair to say that without any significant news in a big way on the asset disposition front, we would likely use an ATM to raise some equity capital. George Auerbach – ISI Group: Right. And I guess just lastly in terms of the disposition program, I know you sold the Longwood property and maybe another property on the market were under contract. Can you kind of quantify above the 64 mainly show here is additional disposition planned for this year kind of what’s on the market, how interested in those assets? And maybe in terms of pace of sales how you see the rest of the year playing out?

Yeah, I think beyond the few that are under contract which gets us to 42% of the way, the $65 million you’re referring to is the remaining of the $112 million. I would say that we have some early discussions on a couple of assets that could close over the next two, three, four quarters that could aggregate a little north of $100 million. I’m cautious about banking on that number because those discussions are still early and there is not contract in place. We continue to evaluate a number of assets for potential disposition. I think our product type is a little different than the traditional assets that go to the market. We are very careful about which assets we sell and the buyers that ultimately we want to sell these assets to. So it sometimes takes a little more time to execute.

But I think two points, George. One would be, I think you’ll definitely see more activity on the sale side both at the asset level and we would have to be careful what we say here for disclosure purposes both on the land and even some, as I said, buildings both non-core and suburban. And then on the ATM, I would say the way to think about that is, we will over time probably put an ATM in place. We probably will think of it is a very modest program. And I think we think of it is, our goal is to try to keep guidance where it is for the year while maintaining our credit metrics where they should be. So we’re obviously focused on minimization of dilution very laser like, so that’s kind of how to think about that. George Auerbach – ISI Group: Great, thank you.

And your next question comes from the line of Phillip Martin with Morningstar. Please proceed. Phillip Martin – Morningstar: Thank you and good afternoon.

Hi. Phillip Martin – Morningstar: I wanted to just follow up with Steve on the second cohort. These tenants now that are playing a larger role that would appear in your going forward and leasing plans. What sort of differences, challenges, benefits does the second cohort means for in terms of square footage demands, costs, lease terms et cetera?

Yeah, let me take a first crack and then I’ll ask Steve to comment Phillip. I think Steve really put his finger on one of the, I consider to be principal future growth engines of this industry. You’ve got pharmas kind of reinvention of itself as one and we’ve seen a big movement out of there unacquainted and isolated facilities into the hubs and that’s been well documented. We’ve seen a lot of product and service companies, the aluminous of the world and others who are out there pretty aggressively marketing new generation products. We’ve seen the institutional side obviously grow to some extent, but I think that in the biotech industry if you look that separate and apart from pharma, this so called second cohort that Steve referred to, really is the generation of companies that have been around some 10, 15, 20, even some I can think of more than that heavily based in the Cambridge Boston area and in the San Francisco Bay area although there are some in other markets. And what they’re doing is they’re creating kind of many Amgen’s, if you will, smaller more nimble fully integrated companies that will that have done research they’re now moving from R to D and now B to C and they’ll have strike forces of sales operations, they have more targeted products. Ultimately they maybe picked up one by one or from time to time by big pharma, but these are companies that really have and we’ll maintain fully integrated operations in more likely the Cluster markets and Onyx is a good example. There are several now that have significant requirements that have come to market in the Boston Cambridge area and I think that’s gives you a sense of who these companies are. Steve, you can talk further about what you see in the Bay area there.

I was actually meeting with the CEO of one of these companies yesterday and he was very enthusiastic about having four products in the clinic, $0.5 billion in cash in the bank and the ability to really build out to the next phase. So I think it’s a combination of the large blocks of space they’ll be requiring that credit foundation that they have now and the potential for, in this industry, some very significant meaningful growth. So that’s what we’re excited about in our core clusters with the availability we have of different build-to-suite opportunities in particular to offer to these types of companies. Phillip Martin – Morningstar: Are the square footage demands pretty similar to what this portfolio – Alexandria’s portfolio has experienced historically? Are they a bit smaller? Can your existing portfolio handle most of this demand or are we going to see a ramp up in development and redevelopment potentially over the next 12 to 18 months to meet this demand?

Yeah I think many of these companies and I can think of a half a dozen right now Cambridge based and San Francisco based that are looking to have small fully integrated campuses that could run from 0.25 million square feet to potentially 1 million square feet, hard to piecemeal those together, the new generation of leaders who want to be as close to each other as possible, meaning, different functions of the company. And I think if you look at what’s available trying to piece together in a hodgepodge way multiple buildings in a particular market probably not ideal, I mean know a number of these management teams for more than a decade or so. And I think many of them will be forced to go to development. Philip Martin – Morningstar: Okay. So is it fair to say that at least in the Cambridge market, we could see the development ramp up over the next 12 to 18 months potentially?

I think there is no doubt that as Steve described the – currently mark deals on the market that range from 1 million to 1.5 million square feet development will be one of the primary vehicles, yes absolutely. Philip Martin – Morningstar: Okay. Thank you very much.

Yeah. Thanks Philip.

[Operator Instructions] And your next question comes from the line of John Stewart with Green Street Advisors. Please proceed. John Stewart – Green Street Advisors: Thank you. Joel, how many square feet are the three assets that are under contract for sale?

Dean?

Give me one second. It shows up… John Stewart – Green Street Advisors: Sorry if I missed it in the supplemental.

Bear with us a moment.

It’s about 100,000 square feet. John Stewart – Green Street Advisors: Okay. And now that they are under contract, can you let us know which markets those are in?

I believe two up in Seattle.

One in Pennsylvania.

And one in Pennsylvania. John Stewart – Green Street Advisors: Okay.

And more to come, as I describe, John, there are at least four markets we’re looking at and pretty actively engaged in this process of identifying assets per sale I think I mentioned Seattle, San Francisco, Maryland and Massachusetts. John Stewart – Green Street Advisors: Okay.

Again on-core and suburban primarily. John Stewart – Green Street Advisors: Right, wonderful. And how about the markets where you added headcount?

Yeah, Seattle, San Francisco, San Diego, Massachusetts, New York. John Stewart – Green Street Advisors: Okay.

At Sedona, forgot. John Stewart – Green Street Advisors: Okay, got it.

To keep up with the supplement disclosure demands at the street in which we’ve expanded our accounting group in measurably. John Stewart – Green Street Advisors: It’s definitely appreciated.

Yeah, no thank you. John Stewart – Green Street Advisors: To housekeeping ones for Dean if I may. Dean just the language in the press release, it wasn’t quite clear is the preferred redemption charge, is that was original issuance costs or if you paid above part or retire that?

Well it was the original issuance cost. We redeemed it at par, John. John Stewart – Green Street Advisors: Okay. And can you clear up for us what the current status? What’s going to happen with the milestone payments at Mission Bay with the sales force campus in pause mode?

Nothing changes from our view of the world. We, in transaction, when we sold those parcels, the sales force, the company recognized the liability for an estimate of potential payments. And so if those – if the estimates pan out to be true to the T, those payments will be made over the next several years. And that’s from what we understand with sales force nothing at the moment has changed our review on the timing of this potential payments. And quite honestly, it’ll be a few years, John, before we really know what happens. John Stewart – Green Street Advisors: Right. Which from memory was on the order of $30 million, right?

No, it was closer to $14 million, John. John Stewart – Green Street Advisors: Okay, sorry if I got that wrong. Okay. And then one last one for Joel if I may. Obviously just a lot has changed in terms of the capital structure and balance sheet just in the last 90 days. And so it’s been a while, since I remember hearing an update in terms of the long-term strategy in India, can you give us an update there based on where you are today which is obviously a much different situation then where you were a year or two years ago?

Yeah, that’s a good question. And I think Michael was asking about that as well and maybe Ross as well. I guess there are two thoughts. One is my desire and our desire as a company but I personally have had a vision for Asia as a pretty big market over time. But clearly post-Lehman and post the financial, I guess the deep recession we’ve had here, obviously we’ve had to rethink the pace and the scale at which we could really build out in India in particular. And so we’ve done that and then even more recently when we looked at I mean 2010 was a pretty strong year up until the U.S. I think got downgraded kind of late July, early August when we were about to go to the bond market. We remember those dates well. Clearly, we refocused our capital allocation pretty substantially and cut our spend in India by about 50%. We think India is a big market. There are a lot of different aspects with the life science industry that can go on there. There is not only pure health care life science; there is industrial biotech which is big there. Companies like DuPont and others that use a similar platform. But I think – and ultimately the goal was to try to get to critical mass to take an entity public on the Singapore Exchange that would be publicly traded and self-finance that operation in which Alexandria would have up on that share and hopefully a liquidity event and value. But I think our pace have seen that come to fruition, post-Lehman and then just post given where the world is today that period is just elongated unfortunately and we’re just doing what we do in a much more measured and careful pace as opposed to one that would be more optimistic. I mean that you listen to Mort Zuckerman on Boston Properties call and he has got a pretty stem view of the world economic situation. I think that’s how most people think today. It’s – things are pretty good in the U.S. but they could get a lot better hopefully and the rest of the world is challenged. John Stewart – Green Street Advisors: Yeah and that’s exactly what I was getting at. So the Singapore listing would still be the long-term game plan but the timeline has changed.

Absolutely. We thought we could probably do it by 2014 now it’s clearly a couple of years later but that is our goal because we think that’s the most effective and efficient way and also represents the best liquidity path for our investment. And we’ve got – we hope to do a tour there. I would say over the next 12 to 24 months and we welcome, I think you’ll be blown away by the quality of what we’ve done and the quality of our team, but clearly the pace of what we can do and how we can at just capital allocation wise and certainly now that we’re in an investment grade company just have to be much more measured. John Stewart – Green Street Advisors: Understood. Well I look forward to the property tour.

Okay, excellent. John Stewart – Green Street Advisors: Thank you.

And at this time there no further questions in queue. And I will like to hand the call back over to Mr. Joel Marcus for closing remarks.

Okay. Well thank you. We’re 67 minutes in call, so I appreciate your attention. We’ll see you at May REIT and then we’ll be reporting I think towards the end of July. Thanks everybody.

And ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a wonderful day.