Q3 2019 Earnings Call

Good day and welcome to the Alexandria Real estate equities third quarter 2019 conference call all participants will be in a lift.

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Please note. This event is being recorded I.

I would now like to turn the conference over to publish Schwartz with Investor Relations. Please go ahead.

Thank you and good afternoon. This conference call contains forward looking statements within the meaning of the federal Securities laws.

Actual results may 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.

Okay, then the company's periodic reports filed with the Securities and Exchange Commission and I would like to turn the call over the Joel Marcus Executive Chairman and founder. Please go ahead Joel.

Thank you Paul and welcome everybody to work third quarter call and with me are.

Dean Shigenaga, Steve Richardson, Peter Moglia, and Dan Ryan like to start out by highlighting a alexandrias cluster markets remaining strong and vibrant.

Our first mover advantage is a huge competitive advantage to all the aspects of our business or high quality cash flows are really based on best locations best assets best tenants and by far the way the best teams.

When it comes to external great.

Our disciplined allocation of capital to a visible highly leased value creation pipeline is highlighted pretty in pretty great detail in our supplement you'll be able to see the pipeline we placed in service, but this quarter and recently on the near term growth of our annual net operating income and be involved.

Probably a little bit of detail.

It confused a couple of people, but we didn't miss in or any other why numbers this quarter.

We commenced development and redevelopment of a pretty significant pipeline, which is also detailed and we were successful on our leasing up development and redevelopment space and.

Steve and Peter and Dean will highlight all of that when it comes to the Mercer Mega block, which I think the team will highlight I just want to say, we won that really irreplaceable development opportunity because there is no other group with 20 years or more experience on the ground with the.

Expertise and the experience, we really have been South Lake Union.

And I think it's pretty obvious that our team completely understands the integration of that kind of the development with the community. Today. There is no longer opportunities just to simply build a great asset you have to be able to build with not only your tenants in mind, but really a great.

Impact in integration with the communities in which we work and live in play and Steve will talk in some detail about 88, Luxembourg and again, we've won that because and we've gotten approvals because we're a trusted partner with the city San Francisco, it's important to remember we ever.

Industry, leading high quality tenant roster, 53% of our annual revenues are investment grade and our average lease term today's over eight years couple of comments about industry fundamentals, which continue to me.

Maintain themselves is strong and vibrant.

The biggest cost driver of the health care system today as chronic disease and there are a bunch of.

And patience in that categories of chronic disease account for a whopping, 85% to 90% of bone health care spending and collectively those diseases or the leading cause of death and disability in the United States. So this industry the biopharm industry as a huge opportunity to impact and make great cost.

Savings when it comes to chronic disease.

When it comes to diagnose diagnosis studies in high income country show that treatment cost for early diagnosis of Asians generally or two to four times less expensive than treating those diagnosed with advanced stage cancer is a good example, so again another great opportunity for this industry to him impact.

The cost of health care.

The industry itself.

Venture capital continued to be robust with over $19 billion raising the first three quarters in over two thirds of those flowing into Alexandria cluster markets public markets on the other had are becoming more selective and risk adverse making it more difficult for both life science and tech companies to go public. Despite this five lifestyle.

Companies and seven Tech companies, we're able to go public this past quarter, raising a half a billion dollars and $3.5 billion respectively.

Obviously part of that is due to some of the unicorn challenges that we've seen.

Trying to go IPO, the third quarter was an active quarter at the FDA with 13, new drug approvals by the which were received by Alexandria tenants. It was interesting quote in the Atlantic which did have a good article feature to good article on is this a tech world today in any way shape.

Perform like the tech bubble of the.

2000, 2001, there and I thought I'd just leave it or give you a quote the problem with tech today in so much software it'll be the world bet that most of the celebrated unicorns weren't actually software companies. What we're seeing today isn't that dotcom bubble if anything it's a non dotcom bubble.

A period of inflated expectations for companies that have no real business being valued like pure tech companies in the first place.

And then finally on market fundamentals that continue to remain strong and vibrant the team will talk about that.

And it's comforting to know that virtually almost 80% of our annual rental revenue is from class a assets.

And our AAA campuses and our best cluster locations. So tenant demand in our leasing continues to be very solid.

There is best in class franchise.

Yes.

Mentioned, the safety give Seattle selected Alexandria, as its partner of choice.

To develop approximately 800000 square feet at one of the highest profile sites in the entire city, the nurse or Mega block.

This was undoubtedly a highly competitor process and speaks volume to the National recognition Alexandria has achieved for its distinctive urban science and technology campus platform.

Stanford University also selected Alexandria at its partner of choice to redevelop approximately 92000 square feet in the life Science District of this Stanford Research Park, establishing a flagship destination to accelerate and really Invigorates Stanford's life science cluster and finally.

As Joe had referenced as well, we're very pleased to receive our entire prop M allocation at 88 blocks and anchored there with a very exciting company pinch risk.

Our team is really not only able to identify and execute upon high quality growth opportunities in its clusters on the open market, but importantly, we're able to bring our strong brand and multifaceted resources to bear in partnership with generate show institutions like Stanford University City governments.

Like Seattle, and others to advance mutually desirable and purposeful economic and societal goals.

I will just sit on a couple abroad companywide metrics.

Really highlight the strong core results in our operating urban campuses, what's really a theme and an emphasis on the continued positive momentum in the market.

We had 1.2 million square feet of leasing this quarter and 3.3 million square feet year to date, which places us on track near the 10 year average at the Q3 Mark.

Q3, 11.2% cash and 27.9 gap increases and importantly here the drivers were across a number of regions, San Francisco, Greater Boston, Seattle, San Diego and Maryland.

Year to date, 16.2% cash in 30.6% GAAP increases I.

I think it's important to take a step back when you look at these type of increases.

Weve averaged 25.4% gap in 13% cash over the past five years since 2015, a truly remarkable stat.

A sense of urgency continues with our year to date.

Q3, 2019 leasing comprising 69% in early renewals.

Our guidance for GAAP increases initially at 26.5% at Investor Day. During late 2018 is now at 29.5%. We've increased this each quarter our guidance on same property was 2% at Investor Day, We've now increased it to 2.5% this quarter, which is a big in.

Packed on the revenue base, we have today and being driven by rental rate increases not occupancy gains.

The Mark to market is now at 20.1% on a GAAP basis, the highest level in recent quarters and finally, we're extremely well positioned moving forward into the future with the lease expirations of just 1.1% for the balance of the EUR, 6.6% in 2020 and 5.8%.

In 2021.

In conclusion.

A big Shout out to the Alexandria team for a great quarter and with that ill hand, it off to Peter Thank you, Steve I'm going to spend the next few minutes updating you on or near term pipeline our acquisition of the Mega block in Seattle briefly touch on or partial interest sales and highlight a material move in our and Navy for a new methodology rolled out by Green.

Industry.

So by reading the press release I'm sure you were immediately informed about how busy we have been and the delivery of development and redevelopment projects is no exception during the third quarter. We placed a noteworthy 1 million 261419 square feet into service from six different projects in six different submarket.

It's in year to date, we've leased 1.2 million square feet of development and redevelopment space highlighting the strong demand president and all of our markets.

At 399 Binney Street, the commercial space is now 100% leased and our final cash stabilized yield of 7.3% is 10 basis points higher than what we reported last quarter and significantly above our acquisition underwriting, which demonstrates our disciplined approach to underwriting and managing complex projects.

We also completed 279 east Grand in South San Francisco, delivering the last 35797 square feet. In this project anchored by alphabet his life science subsidiary Virally.

We delivered another 39372 square feet at 188 explain our new flagship property on Lake Union in Seattle, and we made significant leasing progress at that project during this quarter.

30900 square feet was delivered at phase one of the Alexander Center for AG Tech our class a highly differentiated multi tenant project in the research triangle market.

And rounding out the high the highly active quarter. It was the delivery of two significant San Francisco Bay developments held an unconsolidated joint ventures 593765 square feet at 16, 55, and 17 25 Third Street Mission Bay delivered under long term least Hoover.

And 520988 square feet was delivered under long term lease to Facebook in the greater Stanford market.

Before I move on.

Be remiss in updating you on our development so that congratulating the real estate development team and all the business units here at Alexandria that supported for being named ne out 2019 developer of the year through its prestigious National Awards program Nap annually honors the development company that best exemplifies leadership in India.

Nation, Alexandria was chosen from an impressive slate of nominees and was evaluated by a team of season developers on the falling criteria the outstanding quality of projects and services financial consistency and stability ability to adapt to market conditions active support of the industry through nap.

And support for the local community.

Joel and Steve have already mentioned the.

Award that we got for the Mega block and why it I'll give you a few details about it.

Our planned approximately 800000 square foot commercial project will be a premier Multiuse campus located at the intersection of Dexter Avenue, North and Mercer Street, and South Lake Union, the purchase price of $143 million fully allocated to the commercial space resulted in a price per airfare foot of approximately.

We are $179, which is inline with the most recent land trading South Lake Union and reflects the current market rental rates in the area.

At closing the project will combine with current development pipeline assets six so one and seven our Dexter to form the nucleus of an unparalleled assemblage of 1.2 million developable square feet in the heart of the Lake Union Submarket.

Moving on to asset sales, we concluded our partial interest sales program for the year by selling a 49% interest in the alumina campus in the UGC Submarket of San Diego to a new high quality institutional partner and by selling a 90% interest in 500 Forbes Boulevard in South San Francisco.

One of our existing high quality institutional partners the cap rate for the alumina campus at 4.7% reflects current and Hawaii, which does include free rent, but the buyer was given credit for all remaining free rent against the purchase price.

The cap rate for 500, Forbes was 4.4% and reflects the high desirability of the central South San Francisco market at this time.

I'm going to wrap up my commentary by noting that Green Street published a revaluation report on October 15th titled a Big change in our pricing model, where they discuss the replacement of and Avi with intrinsic in Avi as the most important determinant of warranted share price. The report noted that there is support for our and.

Being 31% higher under that methodology, and we encourage all of our investors to read it with that I'll pass it on the Dean.

Thanks, Peter Dean Shigenaga here good afternoon, everyone I'll cover four key topics today, including third quarter results and continued strong cash flows from internal and external growth continued execution of long term capital to fund strategic growth initiatives and further improvement.

And then in our already solid balance sheet and an update on our corporate responsibility business vertical.

And lastly, an update on our 2019 guidance.

Total revenues for the third quarter were 380.5 million or 1.6 billion annualized and really was up significantly about 14.2% over the third quarter 2018, reflecting continued an outstanding execution by our best in class team. We continue to generate solid cash flows from a high quality tenant roster with 53.

<unk> percent of annual rental revenue from investment grade rated or publicly traded large cap companies core operating metrics remain very strong.

No I was on track with our expectations.

As a reminder, 88% of the 1.3 million rentable square feet of value creation deliveries in the third quarter related to unconsolidated joint ventures. The related earnings from these jvs is classified in equity in earnings of unconsolidated real estate joint ventures.

End of life from the unconsolidated Jvs for the third quarter was 5.7 million up 3.2 million over the second COVID-19, and please refer to page 44 of our supplemental package for additional information.

Our adjusted EBITDA margin continues to remain near the top of margins in the read industry at approximately 68% for the third quarter.

The margins should increase to 69% next quarter and the temporary decline in the in the current quarter was driven primarily by seasonality with higher utility expenses related to both higher rates and consumption due to warmer summer weather. This resulted in higher recoverable expenses, but also a larger pool of operating.

Fences, which results in a minor decline in adjusted EBITDA margins same property NOI growth for the nine months ended third quarter of 19 was solid and up 3.3, and 8.1 on a cash basis as compared to the nine months ended the third quarter of 18, and our same property NOI growth outlook for the full year 2019 remains very.

Solid.

Our outlook for yearend occupancy also remained solid at 97% at the midpoint of our range of guidance occupancy as of September Thirtyth.

96.6% reflects a slight temporary to climb in occupancy as we have been reporting for many quarters now 117000, rentable square feet square foot lease expired in the third quarter at 30 545 create court in San Diego.

Our team commence renovations and we have 55% of this space are ready at least.

Additionally, some of our operating properties that we acquired this year as vacancy representing.

It's up opportunities that will drive growth in occupancy and cash flows.

DNA expenses remained consistent and solid as a percentage of net operating income.

Third quarter of 19 was approximately 10% of NOI, which is consistent with our five year average and really solid relative to other office rates.

Turning to our venture investments in the third quarter, we recognize realized gains.

In losses.

Really we had realized gains a 14.1 million.

Impairments at 7.1 million netting to a net realized gain of about 7 million for the quarter. The write downs really related to three privately held investments. We also recognize 70 million of unrealized losses.

Now importantly through Friday October 25th.

Unrealized gains were up just in the 25 days 2020 7.1 million related to our publicly traded non real estate investments.

Now as a reminder, Warren Buffett as stated in his two most recent annual shareholder letters that he expects unrealized gains from investments to generate over $10 billion in swings in earnings every quarter and sometimes more than 2 billion in a single day.

We have invested in companies that we believe will generate solid return on our investment and while we hold these investments we will have volatility in earnings from unrealized gains.

Moving onto our balance sheet. Our team just continued to execute on long term capital to fund strategic growth.

As you've noted our weighted average remaining term of debts now 10.7 years and this is up significantly from 5.9 years at the beginning of this year.

Now exceeds the solid weighted average remaining term of our leases of 8.3 years. Our term loan was repaid in full in the quarter. We now have no interest rate swaps outstanding and we have no consolidated debt maturities until 2023, we have about 3.5 billion of liquidity, including about 1 billion.

And then related to forward equity sales contracts that we expect to settle later this year.

It's important to highlight how we have utilized our line of credit we use our line of credit for funding really between execution of long term capital and strategically and each year with very limited balances outstanding on average outstanding balance at the end of every year going.

Going back a few years now under our line of credit has been approximately $95 million.

I want to touch on key highlights from our two bond deals and third quarter, which is disclosed on page three of our press release.

It was really quick and opportunistic execution as interest rates declined.

Our aggregate issuance of 1.85 billion was done at a weighted average effective rate of 3.51% and an amazing term of almost 19 years.

As truly awesome execution by our team here and thank you guys.

This included the reopening in September of our 30 year bond that price at a yield to investors have an amazing 3.5%.

We repaid 1.65 billion of debt at a weighted average rate of 3.73% and a term of 2.9 years, which was through a tender of our 2020 and 2022 bonds and repayment of unsecured term loan.

Now it's important to recognize that while the weighted average interest rate was lower for the new debt issuance, we raised $190 million of additional debt for fuel for the future, resulting in a slight increase in recurring annual interest of approximately $3 million.

Now in connection with both the tender and the repayment of our term loan we recognize a loss on early extinguishment of debt of about 40.2 million and a loss on the termination of interest rate swap agreements at 1.7 million.

In October we exercised our right to convert the remaining outstanding series B convertible preferred stock with the book value of 57.5 million into common.

And in September we added a 750 million dollar commercial paper program, which is backstopped by our line of credit and this will replace a portion of our short term borrowings available under our under our line of credit.

And we began first using this program in October .

So in summary, our balance sheet is even stronger we continue to focus on long term capital to fund growth short term borrowings under our line of credit and our commercial paper program will be used in a disciplined manner as we strategically focus on long term capital to fund our business and minimize short term debt outstanding at the end of each year.

As a mission driven urban office REIT focused on making a positive and lasting impact on the communities in which we work and live in the World. We're honored to highlight our teams achievement of the highest rating from gradually are five star rating. Our team also continues to focus on other important SG initiatives, including progress towards our 2025 goal.

Sales, but really focused on how we manage energy consumption water usage waste diversion and carbon emissions.

Turning to our guidance, we updated our guidance for 2019, EPS to a range of $1.83 to $1.85 and FFO per share diluted as adjusted to a range from $6 in 95 cents to 697 with no change in the midpoint AFFO per share as adjusted at $6 a 96 cents.

Please refer to page six of our supplemental package for further details on our guidance assumptions for 2019, I just want to highlight a few very important key items.

The guidance for rental rate increases was really up 1% this quarter up 3% in aggregate since our initial guidance on November 20, Eightth of 2018.

These cumulative adjustments resulted an upward pressure on the midpoints of our guidance for same property net operating income and straight line rent revenue, resulting in increases in both mid points by.

Half a percent and $4 million respectively. This quarter. Additionally, since our initial 2019 guidance on November 28, the midpoint of our guidance for AFFO per share as adjusted increased by one cents.

The upside of core operations generated in the current quarter was only a portion of the changes in our guidance and was offset by the slight increase in interest expense from our strategic an opportunistic bond offerings in the third quarter again with an average term of 18.5 years and and included 190 million of extra debt capital as it.

A minor were unable to respond to detailed questions about 2020 guidance until we issue our guidance along with the usual detailed underlying assumptions with that let me turn it back to Joel.

Operator, we can go to questions are answered please.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to our first question today will come from Manny Korchman.

Citi. Please go ahead.

Hey, everyone Maria.

On there.

Earnings call Kilroy talk about strength moving too.

Their new construction project.

Was wondering what your conversations ability with stripes, if they say we will be coming out of your asset.

Many high it's Steve here as you might imagine we have ongoing discussions with all of our tenants and again. It was just did decision that they made they were looking at.

Expansion opportunities in the near term so.

Decided to expand down in the South San Francisco market I think it's still TBD on.

What they'll do with 510 towns in but it is truly one of the more iconic in.

Probably the highest quality buildings in San Francisco now so either way we're in very good shape, there, yes I think.

The move is unique to that company.

And so I think.

Just keep that in mind.

Yes.

Does that mean that you don't think that other companies will approach. It from the same perspective that they're having a tough time growing and sort of San Francisco proper and might have to look out so there, especially if they want to keep one facility rubber and have satellite offices.

I think it's a more complicated issue, we're under confidentiality and not able to share, but I think if say it's a one.

One companies situation that.

I was just unique in the Collinson brothers.

Yes, just made a decision.

But that's all we could say about it so I wouldn't I wouldn't take it as a.

As a trend suddenly that everybody in the city of San Francisco's heading to south suited.

Hi, Thanks for that and then on me on the Mercer Mega Block you guys.

Several times referred to it as a win I guess what was the city looking for in finding the right developer for our project and is there anything that you either have to be cognizant of or sort of target as you think about building and tenanting about project.

Yes, so I think the as I said and all that Peter come in as well I think one of the most important things in this is true.

Major urban cities today, certainly cities on the West coast that have a variety of.

Impacts from.

Whether it be homelessness or other issues.

I think city is today, we're looking more than a developer developing an iconic building for tenants I think theyre looking for.

In integration with the strategic desires of the city when it comes to economic and social issues and I think they're also looking for.

A integration with the community around as well Peter you can comment as well, yes, Hey man its Peter.

They certainly did like our track record of creating ecosystems in New York for example.

The fact that we have life science expertise, which is something the city's interested in expanding so.

All of the examples we've been able to point to as far as being able to bill.

Yes, thriving cluster with amenities and.

Other types of attractive features.

Let them to choose us.

And move forward, so we're really proud of it.

Thanks, and also on the promise that Peter will not go back and manage the Seattle region.

There's a de restriction.

Okay.

Our next question will come from Sheila Mcgrath with Evercore ISI. Please go ahead.

I guess.

We have grown the cluster on the Stanford campus with some recent acquisitions this year and one this quarter just wondered if you could talk a little bit about your plans for building out that opportunity and Stanford still attended the building.

So he Sheila this is Joe will I'll, let Steve comment on the particulars, but I think it's important to remember.

No Stanford is being the leader in that in that part of the world with iconic tech companies spinning out and certainly the old HP garage kind of model and I think over the years there have been a number of major life science presences in that Submarket that have actually departed and.

Hi Tech companies took over those spaces. So I'd say over the past number of years, maybe the last 10 years Theres been a net decrease of life science companies in that particular, Submarket and I think stanford's.

Desire is can maybe reignite in re energize the life science industry, there and I think that was one of their motivations specifically on the property itself, we're not ready to kind of get into all the details of what we're doing but Steve could give you a high level comment.

Yes, Hi, Sheila it's Steve No, we're really enthusiastic to be engage with Stanford Weve been in the research Park for 20 years. So to continue to build out this life Science District, and then really when you look into greater Stanford area.

Theres been no new class a product delivered their in 20 years, so as Peter highlighted we're making very good progress on the pipeline there and uniquely with the intersection of science and technology would Stanford's engineering background.

It's it's just a wonderful cluster very vibrant and we look forward to working closely with them.

Okay, Great and then as a follow up on the dispositions in San Diego and South San Francisco can you talk about the thought process on which assets you choose to monetize the interest level and.

And those assets and was the greater disposition number in guidance as a result of achieving better than expected pricing.

Hey, Sheila this is Peter I'll, let dean.

Finished the question up on the.

On the amounts, but the what we look forward when we're selling.

Property is where have we.

Fully realized value.

For.

For a great period of time.

And.

What is maybe more one off although we don't really have a lot of one off things anymore, but.

What is not necessarily part of an integrated campus in these two assets tenant illustrate that the illumina campuses well leased for another 12 years, there's really nothing else. We can do outside of developing the last building seven.

Which is an important thing that we're looking to do down the road, but.

We were able to raise quite.

A lot of capital from that one transaction in the.

Percentage of upside to the amount of proceeds we got that we gave away was minor.

For 500 Forbes it is in great market that has a lot of investor interest, but it is not necessarily close to a number of our assets along east Grand.

Or other.

Yet addresses that we hold their gateway for example, number buildings that we hold there. So we looked at that and said great location, but not necessarily integrated into our two campuses. There. So it was a good one for us too.

To do a partial interest sale and of course, we.

The word partial is important we still own.

Big Big chunk of the Illumina campus, and a minor position and 500, Forbes and we'll continue to manage those.

Assets and.

Hold on to for the long term.

Sheila it's dean here.

I believe our initial guidance for dispositions this year started out.

Fairly meaningful is probably close to 750 million at least looking back to the end of.

18.

So we did end up with a little bit more capital on that front I think we're getting close to a little over 900 million by the time, we finished this year.

So that additional capital just went to funding broad broadly our needs. This year most of it as you know is going into construction, but we did have a fairly robust acquisition deal flow this year as well.

Okay. Thank you.

Our next question will come from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.

Great. Thank you I guess, just sticking with the investment market can you talk more about the appetite from buyers.

Across all the markets and then.

What do you think in terms of cap rates are cap rate compression.

Hey, Jamie its Peter.

Yes, it's obvious I have to do is.

Open up a story in any of the markets that we're in and it's headlining with life Sciences being something people are are interested in or or raising money.

To invest in so theres theres a very.

Robust market for acquisitions and.

Not a lot of things have traded but for example, there was a portfolio of.

B assets that came to the market in research Triangle Park in set a pretty could cap rate comp.

For that market.

That being sub six which was well below what anyone had anticipated but illustrates the appetite for the for the asset class.

Sorry, what was the other part of that question.

Cap rate.

Capterra, Kevin that just said no.

Cap rates, just nationally and on the office side have not moved in core in a number of quarters. If you read the different publications from real capital analytics, and and others that track these things in detail.

And with interest rates going down recently, but also going up last year.

Fairly remain the same and I'd say, there's really no different in the in the cap rates for lab. They've also been very stable over the last two to three years.

Okay.

And then I guess, just that maybe take a step back at the legislative environment anything that you guys are watching our tar investors need to be watching that either more or less risk than the last time, we discussed that.

I didn't realize any probably that partly as discussed on last conference call.

What do you kind of watching out the what do you watching on the road ahead that it's most concerning to you.

So Jamie.

Well everybody is watching Washington for almost everything that happens and there is generally nothing happening it's all talking no do.

But it's pretty clear that.

Both the Democrats and Republicans would like to have going into election year. Some when in the area of drug broadly they call it drug pricing, but.

My own view is it's more like health care costs, because drug pricing is.

Now 10, 12% of the pie and so you can't really impact.

Healthcare caused by trying to impact tend to 12% only you've really got to have a much bigger.

Stroke.

And as you know, it's a complicated chain you've got manufacturers, you've got middle man you've got.

The insurance companies, you've got users why drugs have.

Core therapies, better said get more notice is when you go to hospital you have surgery you come out 100000 dollar Bill.

And you don't even look at it because everything's covered assuming you have insurance, but you may get a bill for 1000 2000 somewhat dollars for pharmaceuticals that you took can you wonder why the heck of my paying so much win.

You spent.

100 times more than that on or the insurance covered so somehow they are trying to figure. It out I don't think anybody has a a easy fix there's things that are being talked about to tweak Medicare and I've talked about those on past calls, but at the moment I would say, we don't see anything dramatic happening on the horizon at the moment, but.

Clearly watching carefully.

Okay, and then finally.

Given your commentary on unicorns, and what's going on in the private equity markets, an IPO market, what's your appetite to put fresh capital to work in your investment portfolio have you slowed that at all or do you expect to.

While we you know we don't have any target investment amounts were opportunistic.

Day to day week to week month to month quarter to quarter. So and we certainly are trying to harvest gains and recycled capital, where we see it I think to some extent we've been pretty cautious for a good part of the year because of valuations I was in one meeting personally.

Encouraged by a.

Investor actually Softbank was a lead investor in this deal and the valuation was approaching $1 billion and we.

Thank them for the meeting and.

Passed on so we've been very disciplined and very careful about what we do and how we do it I think if the market declines actually that's a better time to invest into that a peak. So you kind of have to be agile disciplined I think thats. The word I think we always try to use both on the real estate side and on the investment side, we try to make.

Okay, great discipline, and what we do.

Okay. Thank you.

Our next question will come from Michael Carroll with RBC capital markets. Please go ahead.

Yes. Thanks.

He has done a pretty good job I guess sourcing on future development projects and it looks like there's three sizable projects.

Currently in the pipeline to be acquired in San Diego, San Francisco, Seattle can you discuss how management thinks about the timeline in these types of deals and is there a limit to how big you want to have the land bank.

So I think we would not want to comment on deals in process either what they are.

On the timing on that but I will ask being to comment on the land bank because it's clearly an issue.

We hold near and Dear to our Hearts.

And.

Having been through the 2008 2009.

Really market crash.

It certainly important that were we try to be there we held a lot of land we more than we do today.

But we were disciplined about about not disposing of it in mission Bay, and then in Cambridge, but Dean can comment on kind of how we think about targets.

So so Michael what we've done on page two of the press releases given.

A bit.

That have a breakdown of our land holdings as a percentage of gross real estate.

So what what is committed an under construction plus flux on which will be under construction. Hopefully soon represents about 7% of gross real estate and it's important to keep in mind. Most all of that is.

Vertical under construction extra except for bloxom, but we've made a lease commitment there.

And it's 64%.

At least.

Today and then.

We also have land beyond that which I think is really where investors are probably focus because this is stuff that we havent made a commitment to but represents the future growth opportunities and thats about 5% of gross investment in real estate.

And so I think thats, a modest number that we're carrying and keep in mind much of what we're we've talked about in the 7% bucket is targeted to be delivered by 2020 with the exception of bloxom that will go beyond that.

And this is Peter I mean, you should also realize or just look at our statistics, we've been delivering well over 1 million square feet per year into all of our Submarket. So we're not just buying space and are buying land and sitting on it we're putting it to work pretty closely.

Two after acquiring at.

I mentioned on the comments like just year to date, we've already Pope we've already at least 1.2 million square feet.

And then space so.

We're acquiring things, but we're putting it to work on this as quickly as we're closing.

Okay, Great and then Peter can you talk a little bit about the competitive environment for I guess some of these I guess the acquisitions just in general how has that changed over the past few years are you seeing the same type of players.

Have you seen pricing kind of increase some lead to try to land sites.

I think pricing, it's just a function of.

Real estate in general.

Five spaces certainly attractive.

But all asset types outside of retail.

We've been gaining significant value and I think we're just along for the same ride.

There are few more buyers in the 10 for things that are stabilized.

But a lot of the same people are still are still there and.

As you can see just by the activity that we've published in this report we're coming out ahead and many of these bids.

Okay, great. Thank you.

Our next question will come from Rich Anderson with NBC. Please go ahead.

Thanks, Good afternoon.

So you touched on this in your comments, but the third quarter, releasing spread is kind of brought down the average from a year to date perspective.

Still in insane growth, but I'm curious.

Is it fair to say that 30 ish type gap spreads for the long term is not something that investors and analysts should be should be thinking of or when you look line of sight into what you have in front of view, including early renewals that growth of that order of magnitude not to give us guidance.

It is something that isn't sort of off the table or starting to sort of weather.

Hey, rich it's dean here.

If you look back at page 21 of our supplemental you you do have.

Two and three quarter years.

Worth of historical information on rental rate growth on leasing activity.

Now I'll just read a lot some stats, but the GAAP numbers or 24% to 30%.

And cash numbers anywhere from high Twelves up to 16%.

So that may be a little bit of a barometer for range, it's all healthy extremely healthy.

Even the stats that we published for the quarter, So you're talking about.

A different mix of leases leases that are being executed every period and every year.

So I think as.

Being able to address a healthy real estate environment like we have in front of us.

Should give us some solid rental rate growth as we think about the future.

But I can't tell you today, it's too early to predict on guidance rich So stay tuned for Investor day for 2020, Yes, and I'd also say too rich.

I was actually the Investor meeting yesterday, and one of the kind of leading investors.

Name him, but talked about the macro environment going forward and created a range that if.

A progressive on that Democratic side, one versus a trump reelection, but the market could swing literally 50%. So down 30 and may be up 10, 15 or 20.

On just policies, obviously depends a lot on how Congress would shape up from the.

House and the Senate, but I think that you know, we're all subject to.

That fluctuation or that kind of mindset going forward into 2020, so thats not specific to us in particular, so if it turns out.

Predictions or whatever happens turned out to be positive than us can be a lot more positive for our business into the turns out to be negative will be negative for our business. So I think that's a factor that is way beyond our control for sure sure no problem. Thank you for that.

And another sort of kind of recurring theme is there early renewal element to your leasing activity, 69% this quarter.

You've really been into the future exploration schedule, I think something like 12% expiring in 20 and 21 combined.

To that and is there a finite next to the quote unquote pipeline of early renewal activity in your mind or can extend well beyond 21 into 22 and and forward such that the early renewal activity will continue.

For some time to come yes, I think I mean, my own view is and I'll. Let these guys comment is not only early renewals, but movement you know growth of companies, where somebody leaves I mean stripe might be a good example, unexpected move by somebody and then the backfilling that space.

If they do give it up don't know if they will or not speeds.

Comment on that but so therere a number of situations that continue to come up one happened yesterday that we've got we're innovating in greater Boston and somebody wanting to do something kind of unexpected but at the end of the day, you say Wow, if we are that space back or could share.

Rent on that space and would be a big a big plus because its.

An older lease in place so I think those things skilled permeates throughout the asset base.

Great. Thanks, Deane, Gary you're right that the volume on early renewals as a percentage of our leasing activity has been very high but it's been hi for a number of years. So I think.

Given real estate fundamentals.

Just a lack of general supply in the markets in our tenants needing to continue to grow.

You should probably continue to see healthy renewal rates as a percentage of leasing activity our volume in explorations are relatively light.

5% of here for the next few years, but we still have tremendous.

Early renewals that will drive leasing velocity on top of that okay. Great and then quickly Dean for you just so I have the model right. All the forward equity taken down in the fourth quarter and zero preferred dividends.

We just had a little bit of dividends do through the closing of series D. In October and then it goes on way after that and.

The bulk of a forward I think the question came up last quarter settles in Fourq you.

Sure, we have a little bit coming in in Threeq here as well okay. Great. Thank you.

There are no further questions on the question Q. This will conclude the question and answer session and I would like to turn the conference back over to Mr. Marcus for any closing remarks.

Thank you very much are betting we're looking to look forward to talking to you on fourth quarter and year end take care.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.