Q1 2020 Earnings Call
dead dead dead dead.
Dead dead dead dead.
Dead dead dead dead dead.
Thursday
Thursday
Good afternoon. Welcome to Alexandria real estate equities first quarter 2020 conference call. All participants will be in listen-only often. Should you need assistance, please signal a comfort specialist by pressing the star key followed by zero after today's presentation. There'll be an opportunity to ask question to ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press * then two.
Please note that this event is being recorded. I would not like to turn the conference over to polish or from investor relations, please go ahead.
Thank you and good afternoon. Everyone this conference call contains forward-looking statements within the meaning of the Federal Security flaws. The company's actual results might differ materially from those projected in the forward-looking additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission, and I would like to turn the call over to tell Marcus exactly chairman and founder, please go ahead troll. Thank you Paula and welcome to everybody and with me today virtually wage, I think our very first virtual quarterly call and order a presentation is Jenna foger Steve Richardson Peter moglia and Dean chicken Asia, and we're pleased to present the first quarter earnings call. This will forever be known as the covid-19 quarter for all public reporting companies. And as always do I want to thank our entire team for a truly wage.
Operationally excellent.
Order 20 20 under extraordinary late difficult covid-19 circumstances are current and go forward operating and financial status is excellent job on the fourth quarter and 2019 year end earnings call on February 4th. I commented on the novel coronavirus Global health emergency and What Alexandra in our client tenants took already working on astoundingly. It was not until March 11th 2020 that the World Health Organization declared covid-19 at pandemic the covid-19 virus is a tiny hundred twenty nanometer particle. Roughly the wavelength of ultraviolet light that is rippled and replicated across the globe with very eleventh Ultraviolence and More Than 3 million cases worldwide to date tiny things have immense impact, especially when everything and everyone is so interconnected and vulnerable and some have kind of dubbed this China's wage.
In a few minutes, I'll ask Jenna to update you on the covid-19 fight regarding testing Therapeutics and vaccines which is moving forward in a rapid Pace. Literally every day. We had Alexandra laser-focused and enormously proud of our Collective accomplishments during this very challenging first quarter, which none of us will ever forget our teams tireless and truly outstanding performance really by all metrics and we are staying lean mean and Laser focused on a mission with no ego our teams Acquired and delivered over 35,000 individual pieces of PPE mostly in ninety-five mask Sanford those two hospitals and six cities New York City Boston Seattle or our top priorities. We also deliver them to Dayton San Diego and La hospitals.
And we consider this to be a truly great execution of our corporate responsibility. Alexandra is among the industry leaders and total shareholder. Return Alexandria has Best in Class tenants Alexandria has Best in Class assets and a powerful and inspiring cluster Market presence design and placemaking really second to none of them. We have world-class trusted relationships and importantly our Fortress balance sheet gives us great flexibility and optionality going forward.
We in the life science Industry or at the Forefront of this multi-faceted fight against covid-19 while still innovating each and every day novel Technologies and new products to also train cancer or cardiovascular metabolic neurological and other serious serious diseases While most REITs compare their business today to the covid-19 in the covid-19 pandemic is a great financial crisis of 2008 and 2009. I think for us. We like to look at four years after that time really in 2013 this industry an agent evasion really catapulted its capabilities and impact starting in 2013, which really was the start of the great Bull Run of this industry. And as we sit here today, the life science Industry is really the true solution to winning the battle against the covid-19 pandemic.
a return to the days when
And then CEO Angelo's where the most admired company and the most admired CEO in America the first quarter of 2020 set an all-time record quarterly wage I of eight point 1 billion dollars invested in Venture back life science companies a very high level and accelerated Pace over eighty of biopharma R&D collaborations took place in the first quarter, including the Blockbuster 483 million moderna and bar. Government funding to expand moderna being one of our important Tenenbaum to fund at to Advanced and scale clinical testing and the manufacturer for a novel covid-19 19 vaccine really the key to the solution here biopharma continues to outperform the broad market and the first quarter admits the covid-19 reality While most Industries are adversely affected by acute changes in consumer demand.
It's not the case for biopharma as the need for new medicines is fundamental to our Human Condition. This discrepancy is one of the reasons why biopharma out performed other sectors during the great financial crisis and the tech bubble crash of 2001 NIH funding support remains, very strong with the 7% budget increase for fiscal 2020 up to forty one point seven billion a very favorable regulatory environment continues with the FDA, especially in light of covid-19 and 11 new product approvals were achieved the first quarter medical research philanthropy is also hit an all-time high as well.
I think it's fair to say that the much like slang was before and after nine-eleven things will never again be quite the same as they were pre covid-19 and that it's International pandemic how quickly we return to what will be a new normal depends on how we solve the public health situation restore public confidence and safety mode.
Jim Collins the famous business author and writer research clearly evidence is to be built to last you have to be built to change and more importantly in Jim's introduction to his book built to last. He States real focus is quote. It is really about building something that is worthy of lasting. It's about building a company of such intrinsic Excellence that the world would lose something important if that organization cease to exist Jim Collins further stated. We are more convinced than ever that building an enduring great company one that is truly worthy of lasting is a noble cause and our mission that Alexandria is now more important than ever and we are in the fight each and every day making a tangible and positive impact and we're we're great. We met by Jim Collins quote on the cover of our 2016 annual report where he he indicated quote Alexandria has achieved a three outputs that Define a great company Superior Reserve.
distinctive impact
And Lasting endurance and with that let me turn it over to Jennifer.
Thank you so much Jo Land. Good afternoon, everyone against that backdrop and the backdrop at the unprecedented economic public health and social impact of This Global coronavirus condemned as Jewel eloquently described by science fundamentals remain strong as the biopharma industry represents the Beacon of Hope in the fight against covid-19 effective diagnostic therapies and vaccines absolutely mission-critical resolving this crisis and we truly owe a debt of gratitude to the heroic work being spearheaded by so many of our tenants help tests or treat and prevent covid-19 the countless efforts Tracking not to mention the many philanthropic initiatives across our cluster Campus Community providing medical supplies and protective equipment to neighboring hospitals is profound and inspiring we're currently talking over sixty tenants across our cluster markets with publicly disclosed covid-19 programs with dozens of intercompany and public-private collaboration to inspiring across our portfolio our tenants position.
At the Forefront of fighting covid-19 reflects the strength quality and fortitude are kind of Base as you all know, we take tremendous pride in the tenants. We attract Each of which is strategically under written by our Science and Technology team, which I have a profound honor of being a part of a long side plenty of our colleagues to keep background in science and business. So I would like to briefly highlight the mission critical work of our tenant companies across three major categories one improving testing quality capacity to advancing new and repurpose treatments and three developing production of vaccines. So in the area of improving testing quality capacity off and companies including Abbott Labs LabCorp Quest Diagnostics Thermo Fisher UCSF color genomics and several others are working to enhance the quality and capacity for rapid and accessible testing to determine who actively has a virus who had been exposed and who has developed immunity against it the availability of widespread screening and serological testing of this nature will be instrumental for track and Trace birth.
And of course the safe and healthy, reopening society and return to work in terms of therapies and vaccines over a hundred eighty potential drug treatments and vaccines are being studied and more than 250 clinical trials around the world with well over a hundred preclinical State programs and development as you can imagine a substantial number of these programs are sponsored by our tenants headlining efforts among them include Gilead Sciences rep. The beer which is in late-stage studies for the treatment of moderate and severe covid-19 patients, which is positive will likely form a basis for the first FDA-approved treatment for covid-19 canning company affected biotechnology is partnered with Amgen to identify and develop their feed from the blood of stick or recently recovered covid-19 patients.
Other tenant beer biotechnology has announced Partnerships with fellow tenants on island Biogen and others to develop new and existing antibodies that could be used as therapeutic or preventative options to come back covid-19. Another coronavirus has several other tenants including a beeline Lily fiber and Novartis are similarly endeavoring to develop novel therapies and repurpose existing drugs to provide near Friedman for moderate and severe covid-19 patients and those at highest risk and lastly vaccines. So clearly a prophylactic vaccine represents the effective end of the global covid-19 pandemic month or tenants moderna and the National Institute of allergy and infectious diseases nyad Partners Fast Track in the darkness. MRNA base vaccine is the clinic last month subsequently is Joel mentioned bar to commit adultery 483 million dollars to support the clinical development and Manufacturing scale off of modernity vaccine candidate help expedite FDA approval over the next nine to twelve months and unprecedented Pace wage.
the productivity and facilitate
The supply of tens of millions of doses of That vaccine per month thereafter other tenants including Johnson & Johnson medicago, novavax fiber GF can sanofi are leveraging their vaccine development expertise platforms with the goal of Expediting the delivery of a safe and effective vaccine to the public in 2021.
He's Noble expedient efforts across our tenant-based. So in large part to the fact that is a new coronavirus made itself known to the world. These companies were already well equipped with the R&D infrastructure resources and talent in place. That they were able to mobilize it nearly a moment's notice to come back this unprecedented Global Health Emergency. And with that I'll turn it over to Steve.
Thank you, Janet. Good afternoon. Everyone Steve here. We've discussed the mission critical nature of our laboratory office facilities since our Inception twenty-six years ago is clearer. Now more than ever that Alexandria is the proven leader in providing mission-critical and indispensable strategic National Health infrastructure in these unique facility that has Joel and Jenna outlined earlier. We have sixty companies directly engaged in the fight against covid-19. Our unique platform is leading to healthy activity at Alexandria a laboratory facilities during q1. We least 700,000 rentable square feet and very strong rental rate increases actually the highest during the past ten years with 22.3% on a cash basis and 46.3% on a gaap basis led by a largely Sandra Flagship Tech Square campus in Cambridge.
Or mark-to-market continues to be strong at 15.8% Gap in 14.3% cash lab supply constraints continue with New Jersey zero left sublease is coming to Market since the Inception of the pandemic and continued strong occupancy at 97.5% in our campuses when excluding the vacancy of the recently-acquired campuses in San Diego and South San Francisco that will provide future growth opportunities executed leases now for the month of April are on Pace with 51 leasing velocity and important to note that we do have ongoing demand in the form of serious interest in negotiations with tenants on renewals expansions and some new ground up development and Redevelopment projects.
It's also important to highlight that Alexandria has long been a Pioneer an early adopter and the discipline of Designing and constructing state-of-the-art healthy facilities. We currently have 39 total fit well and well Hearth well health certification initiatives with 12 projects completed and another twenty seven projects underway, 1,000 facilities and Cambridge. In fact receive the highest score fit. Well ever awarded or mission-critical facilities already feature many state-of-the-art mechanical and filtration attributes off and are easily adaptable as may be needed going forward Guided by our skilled operational teams who are well-versed in the types of measures needed to deliver enhanced environments find Alexandria is fully prepared and well positioned at all strategic and operational levels to protect the inherent value of our unique Class A facilities and continue to grow wage.
The trusted partner to the life science Industry to beat this pandemic.
With that. I'll hand it off to Peter.
Thank you, Steve. I'm going to quickly update you all on our development pipeline Acquisitions closed in 1q and touch on some Capital markets activity coming into 2010-11 development Redevelopment projects in our pipeline that are 61% leased with another 7% under negotiation. One of the many things that we'd like about our pipeline is that it is spread among six markets and nine submarket, which really shows that the ecosystems we built and all of our clusters are contributing to our growth and our story is not just about any particular region.
Despite the shelter-in-place orders reducing our ability to tour potential tenants. There is good activity on the partially leased assets that are progressing at various levels from initial on Thursday presentations to paper being traded to Steve mentioned. We are still seeing healthy activity in our markets and these leasing percentages should accelerate given the pent-up demand the new covid-19 related requirement.
As you may have noted by looking on page 38 at a supplemental seven projects have had a temporary pause and construction. But three of them have restarted as they've been deemed essential.
Delays, related to shelter-in-place orders or referred to as sip are not day-for-day. They are likely between day-for-day and two days per day of delay depending on how long it takes to remobilize the subcontractors back on site and where we were in the staging of the work. We do not anticipate any material supply chain issues. The amount of delay is really going to depend upon the subcontractor labor and what other work they are performing elsewhere in general. We anticipate about 1/4 Delaney on average for those projects that are in temporary work stoppages due to sit borders and assuming construction recommence is upon lifting of the current orders and they are not further extends.
We do anticipate or we do not anticipate any material movement in yields at this time due to these delays.
In the touching on Acquisitions in the first quarter, we closed on two projects we discussed on last quarter's call to 75 Grove in the Route 128 Corridor wage and the JV with Boston properties and self San Francisco. In addition to those we closed on 9808 and 9868 Scranton Road in Sorrento Mesa and 33 Thursday and 3412 Hillview in the Stanford research part, the Scranton Road assets total 220000 square feet and are located directly across the street from and will be incorporated into our Tech campus. They are currently 88% least with the predominant tenants being investment-grade company. The assets present us the opportunity opportunity to achieve a strong 6.8% stabilized cash yield by leasing the vacant space and future value creation opportunities as they are convertible to lab.
a 50% interest in the
The assets with subsequently sold into a joint venture and we received fifty one point 1 million dollars from that asset sale.
As mentioned in addition we closed on 3330 and 3412 Hillview in the Stanford Research Park for a hundred and five million these two high-quality Class A office properties total approximately 106000 square feet and are fully leased a credit tenant. The rents are considerably under market and offer near-term value Creation in an Irreplaceable location. The buildings are also convertible to lab offering us long-term optionality and further value creation opportunities down the road.
Subsequent to the end of the quarter we closed on 975 to 175 Commercial Street and 9:15 to 1063. Old County Road a 12.7 Acre Site. That is the fourth and final piece of our 25-acre assemblage branded as the Alexandria District in st. Carlos. This campus is in close proximity to the Caltrain station will reach two million square feet upon full development. The first phase of a little over five hundred thousand square feet is currently under construction and has been well received as the only purpose-built clap clap campus in the greater Sanford cluster Illustrated. It illustrated by it being 56% pre-leased with a not another 9% under negotiation.
A wrap up by mentioning that conversations with a number of Brokers indicate that there is still strong interest in lab office assets from a diverse set of investors that end wage supposed foreign 26,000 square-foot campus in Waltham Massachusetts closed on April 2nd at a 5.1% cap rate. The lowest Suburban cap rate. We know life in a reliable source has told us another life science transaction in the Boston area has gone under contract while in the shutdown with a positive light shining on the industry wage is not surprising that demand for our product type remains robot. And with that I'll pass it over to Dean. All right. Thanks Peter Dean second. I'll get here. Good afternoon everybody. I'm just going to age quickly rattle through my commentary kicking off with really outstanding results for the first quarter revenues were up 22.6% over the first quarter of nineteen and a while was up twenty years.
.9% as well over the first quarter adjusted ebitda margin was very strong at 68% contractual annual rent escalations average almost 3% today or value creation pipeline is 61% leased and will generate significant revenue and cash flows and I'll come back to this topic in a moment. We also have about thirty-seven million of Jack Daniel Cash Net operating income that will commence Us free rent Burns off primarily over the next 4 quarters related to recently placed into service development and Redevelopment project. Same property. Noi growth was very solid at 2.4% and 6.1% on a cash basis rental rate growth as you heard from Steve earlier on lease renewals and release in a space was very wage up 46% and 22% on a cash basis.
and our properties are
Open and operating today and and through this environment, you know, our business is not absolutely an immune from this unusual and unprecedented environment, but is doing very well on a relative basis the NASDAQ biotech index as some of you may have noted was up 5.8% year-to-date as of yesterday and our stock is out performed on a relative basis roughly down about 7% year-to-date again through as of yesterday or team is working diligently on our annual corporate responsibility report which we expect the issue around mid-year name is Joel at highlighted our balance sheet really remains in the best shape in the history of the company we had about four billion of liquidity. We have an excellent maturity profile with no debt maturities until 2023 off the top we rank roughly in the top ten percent on a relative ranking of with our credit profile when compared to all publicly traded REITs. We have a real high-quality Thursday.
Foster etc. Etc. I mean these are just some of the best statistics in the industry today and we remain committed to our strong and improving credit profile our dividend as well covered with an ffo ratio just under 60% today. This strategically allows us to use a portion of our cash flows from operating activities after dividends, which is just above two hundred million today for investing into our value-creation ground up development projects now briefly on rent deferrals and in an update on rent collections, we've we've only received a handful of requests for rent deferrals, which is primarily on the back side of our tenancy and we've really taken these requests one by one and will review each review these each one month at a time. The total rent referrals were dead in the low $600,000 range for the month of April. Now, we're very proud of our research and Property Management teams are really building an outstanding and high-quality tenant roster and for really taking care of the dog.
Long-term relationships we've collected 8 ninety 8.4% of our April rent and expense recoveries, which is just outstanding are are are balance as of Friday. April 24th was seven point three million dollars representing the lowest balance since 2012 and our team has successfully decreased RAR balance off both of them. We look back to the depths of the great financial crisis short goal was clear from the beginning of April that we would continue to make this a prior to each month. We're feeling really good now that we're at the end of April we've collected almost all of our accounts receivable balances. Our business is doing really well again relative to other REITs. However, this is an unprecedented environment Thursday. We have forecasted a relatively minor impact to our outlook for the last three quarters of 2020 or four cats in about an eight Cent or 1% reduction in ffo proshares adjusted at the midpoint of the range of Arthur's.
and this is really related to
Very limited retail tendency that we have as well as transient and short-term parking of the $0.08 60% of this is related to retail and the remainder is primarily related to Transit and thousand parking to put this into perspective. This $0.08 is roughly 60 to 70 basis points of our annual rental revenue, and we believe this will only be about a 50 basis-point declined to our year-end occupancy as a March 31st. Our annual rental revenue from retail was about ten point four million. We recognized an allowance of about 3.8 million months related to Anna Li for the second third and fourth quarter of 2020 and most of the impact to retail Revenue will will really occur in the second quarter since Gap requires Cash basis Revenue recognition related to these leases that now have specific allowances or reserves and our retail related occupancy declines, which we expect to be very minor may not occur right away since the wage.
Pieces are still in effect today and keep in mind retail is a very minor part of our operating results. But we hope these details are useful parking income for is primarily from Urban or Thursday. It's in these markets have very limited parking service tenants and daily parking needs. For example, Juno Therapeutics in Seattle has about six hundred employees, but they only have parking for about 15% of that employee base. So these really dense Urban CBD submarkets generally have lower risk of a major decline in parking income due to the very limited supply of spaces in the markets wage or outlook for same property performance for 2020 remains, very strong down only about fifty basis points the eight cents of ffo per share related to retail and parking Revenue transmission to about 60 to 70 basis points the same property results, and this was offset by our same-property results in our forecast running at the upper end of the range prior to this guy down.
Adjustment now turn into real estate and impairments. We spent quite a bit of time analyzing options for one of our unconsolidated retail joint ventures to put this into perspective. This deal came and came together back in 2015 as we were looking for opportunities to monetize certain assets including this land parcel. Now, in this case, we found an opportunity to contribute our land into a joint venture with a local retail developer and Maryland and this project was really doing well, you know on its way to solid stabilized Anna Li until covid-19 arrived and almost every ten. It was required to comply with executive orders and close their business. Now, we concluded that we're not going to recover our bases and wrote off our investment of approximately 7.6 million dollars.
Turn into our Venture Investment Portfolio. The portfolio is done really well to date for example, or Venture Investments aggregate about 1.1 billion months, but this includes unrealized gains of 384 million dollars during the first quarter. We did recognize impairments aggregating about 19.8 million primarily related to three privately held down payments. One is focused on Parkinson's and ALS another in the Dermatology area. And the third is a SmartGlass technology-related company. Now, each of these companies are really have a great Innovation and Technology. However, we do not expect to recover entire investment on the positive note realized gains for the first quarter. We're 15.1 million recent quarterly gains were put off for 2020 really are on track to exceed the Fifty Point three million in realized gains recognized in 2019 turning to our value-creation pipe log.
we're uniquely positioned with
Ability to be prudent during this unprecedented time while we're also very well positioned to address future demand now construction has been impacted in urban markets with more of a Suburban markets having limited to no impact covid-19 and other projects continue while following appropriate guidelines. Now we felt it was prudent to significantly reduce our 2020 Capital plan with a reduction of 640 million in a fraction spend and three hundred million of Acquisitions both at the midpoint of our guidance. Now remaining construction spend for 2020 is now primarily focused on construction that is committed to Tenenbaum importantly though. We remained uniquely positioned for opportunities on a project-by-project basis to meet the demand for a well-located pipeline of future ground-up development projects. Now, we update our 2020 guidance to arrange for EPS dilutive from a dollar sixty-nine to a dollar 79 and for ffo per share diluted as adjusted from $7.25 to suck.
Dollars and thirty-five cents as usual. Please refer to the detailed underlying assumptions included in our 2020 guidance beginning on page nine of our supplemental packaged. Let me pause there and take back to Joel operator. Let's open it up for Q&A, please.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the key to withdraw your question, press * then two at this time. We will Mom and pause momentarily to assemble our roster.
Our first question is from Sheila McGrath from evercore is I go ahead. Yes. Good afternoon Joel. I was wondering if you could talk big picture your thoughts on research funding for life science tenants in The Race for the Cure. Do you think the laser focus will have some positive outcome for R&D funding for your tenants? And I also mentioned sixty tenants working on covid-19. Are they dominated in any one or two single markets or across the portfolio?
Hi Shayla, welcome to the call. So the I talked about NIH being up 7% this year. Who knows where Congress may decide to additional Focus. There was $25 billion dollars and the recent care bill this I think the second edition focused on testing fact. I was on a call the other day where there's going to be a roll out of some pretty amazing novel testing. So a lot of money is going into that sector and fact it may be that there's the the nasal swab will actually be home technology at some point and people will be using there's some research out of practical research out of Rutgers and Yale indicating that you can actually off virus in spit and if you could imagine you could do that simply on a daily basis and be alerted on your smartphone that you are aren't able to go to work. That would be a pretty unique solution wage.
so we see a fair amount of
Both from Pharma from bio from The Venture side, obviously from philanthropy and from the government. I think the deal that I mentioned Jenna mentioned almost a half a billion dollars to try to ramp up testing and the vaccine with moderna is is one example of I think extraordinary Focus wage in this area. So I think it's broad-based and really across multiple a multiple regions.
Okay, great. And then on leasing spreads for the corner quarter, I think Steve mentioned they're the strongest in ten years. I was wondering if you could give us more detail on the mix of the wage increase is geographically and if there was anyone lease that was well below Market that might have impacted the numbers. Yeah, I'll have Steve comment. It was somewhat based. One of the important leases was a a renewal in Tech Square don't want to get into the details of that but that was certainly an important part of driving but Steve any any further comments.
Hi, she let Steve know that that's exactly right. We do have as we said mark-to-market strong across most of the Region's and it is typically broad-based for this particular quarter. We did have that one lease at Tech Square. That was a particular driver, but in general, you know, we do have nice Mark Market opportunities.
Okay, last question the North Tower your tank you mentioned that that project would be postponed. I'm just wondering if that in your is that indefinitely postponed or what's the status of that future development? Right as as you maybe even have seen on television when some of the news
Media reports go to that site, which is right next to our two towers the pad that was the location off. The office of County Medical Examiner was occupied for many many years of the white tent with the unidentified remains of the World Trade Center victims. They vacated that site and then we began a diligence there. They reclaimed that site for a temporary. Just a number of weeks ago. They have mobile mortgage there because of the number of people dying in the New York City area, we would expect them to probably vacate that by you know, the summer or the fall and then we would we would look to see where we are with the economy and so forth, but the don't think it's going to be an indefinite postponement in the sense of how long they'll be there. We just don't know what this point Pub.
Okay. Thank you. Sure. Thank you.
Our next question is from Anthony Powell loan from JP Morgan. Go ahead.
Yeah, thank you. You talked about just the continued demand for space from your life science companies and you know reading these headlines about Google may be changing some of their space place. And so I was wondering if you could talk about when you met all of this that the maybe what's happening on Tech and what's happening in life science together. And what do you think is happening with your rents? And what do you think will happen occupancy on the ground and some of your markets?
Well, I'll ask Steve to come in a minute. But I think in general we're a dominantly life science focused a business is you know, Tony Furr a long long time. We do have a number of important single-tenant buildings where we have companies like Google they have the original campus. They started in a Facebook page Etc. We don't typically have multi-tenant office buildings that have lots of different tenants and lots of different in the office vein. So we don't think that's going to have any particular impact on us it may, you know, brought more broadly. But Steve you could comment what you're seeing on the ground.
Tony Steve, yeah broadly, when you look at just the overall vacancy in these markets, they're typically mid single-digits and even low single-digits, you know life Cambridge 1.8% vacancy San Francisco 2.2% availability and on with other regions as well. And then my comment is life, you know, there has not been really any significant sublease space that's come to Market since the pandemic. So you do have again a constrained Supply situation. We think you know pricing power will be maintained the level of demand continues to to be strong again. April's activity was consistent with what we saw during June of this year. So the markets are in fact a healthy at this point and you know, we're very very close to them as well with our installed tenant base.
Yeah, I think the bigger question Tony that you may be asking too is Will these companies somehow decide to put people in more remote locations or even at home and that's something you know, we we just don't know yet. They're obviously a number of office tenants have indicated that you know, they will have a new way of working maybe in shifts or in fact, maybe we'll wait and do telecommuting until there's either an effective therapeutic or you know, hopefully an effective vaccine as well. So we haven't seen that roll out. But again in the office world, most of our leases are really full building leases with the the the major tech companies. We don't have lots of spaces rolling and smaller spaces to to deal with so that's a good thing on the office side.
okay, and then
In terms of the acquisition you you walked away from in the quarter. Can you have a sense of to the size of it and what changed or what your view of Life value was and maybe is now to to prompt, you know, leaving the ten million bucks on the table. Yep. So maybe I'll have Dean comment and then maybe Steve as well.
Hey Tony, Dean here. So the the size of the deal is roughly 150 to 160 million in that range and it really came down to economics at the end of the day during during the diligence. Tony. We constantly revisit the cash flow analysis and our views on the performance of the holding in the near-term was meaningfully different and when we took it in totality with our business today, and where we wanted to put a capital it was a pretty simple decision, even though we don't take these decisions lately cuz you're talking about ten million dollars, but it's the only transaction I can think of in the history of the company where we've had to do Thursday and it was well thought through and I think the prudent decision for for us as well as our investors to the paws and and terminate the deal was keep in mind. It was an office.
An office has set in the city of San Francisco Steve anything else you'd want to add?
No, Dean really covered it there. Thank you.
I guess just to make sure I sent was it more. You just saw your your Capital better situated somewhere else, you know given what's unfolded or was there some okay. It wasn't a matter of the fact of crapped out or something. Well, I think in in this remember what I said, this was a office asset a multi-tenant office asset so you can imagine your first question really went to the heart of that month as we saw things unfolding and the office sector our underwriting, you know changed and so that kind of alerts you to is this where you would want to deploy your Capital this particular kind of environment in the answer was no
Okay, I understand. Thank you. All yep. Thanks, Tony.
Our next question is from Tom catherwood from btig. Go ahead. Thank you and good afternoon. Everyone Peter thought it was helpful your comments on the the 7 active construction projects that that had been delayed in the three that had been restarted. But you also have another two point five million square feet of near-term development opportunities, and I'm sure Capital spending plans impacted these projects and there's some that you're prioritizing over others this point. Yeah, so maybe let me ask Dean to kind of take first shot at that. So the way we thought about of our capital and this is true for many years. Now with a large portion of our Capital spend is in the category that we always have the flexibility to moderate like we did just now with our earnings release these authors
Future projects in the pipeline that have not yet.
Vertical construction not committed to tenants yet. We moved them along to shrink the time to deliver which means everything from entitlement to be a slight work. We could be doing anything below grade which could include a obviously infrastructure but a parking garage if necessary just the strength of time to deliver. Now, there's still important costs continuing but the bulk of the spend has been temporarily paused because we think that's the most prudent thing to do in this environment and I think as we get clarity g82 covid-19 out and things getting closer to normal. I'm pretty confident. We're going to see opportunities that will print project themselves e tenants looking for expansion capacity within this portfolio of land Holdings that we have and we could do these deals one deal at a time Tom. I think that's the yep.
Of the position. We're in we can moderate the spend like we have but we also can be opportunistic when appropriate and and I think that's what we really want to convey the projects by and large remain in the priority the way they've been disclosed from near-term medium and future and that's how we rank them generally but the specific ones that will pull the trigger on it would be more demand-driven and keep in mind as we said in our guidance Tom one of our overriding goals having lived through the great financial crisis was to give ourselves maximum optionality so that we adjusted our spend and our go-forward business plan almost on a dime pivoting very quickly so that we don't need any firm to raise any further Capital this year to accomplish what we present at here on the call.
Got it that makes total sense. I guess that kind of follow on to it then would be so I assume then you get those projects that are near-term to a level where?
There aren't start up significant start-up costs again. I guess we're thinking longer-term for yield impacts and obviously it's very early to be able to tell on that but I would imagine if it was shut down Midstream without full entitlements or without full approval that there would be kind of restart up costs or delays, right? So all that is part of the calculation. Yeah. Yeah, and I mean we we talked to some extent did something similar was different but yet there is a kind of a similarity during the great financial crisis when we continue to build the East Tower in New York and wage cut down the West Tower having finished the foundation, but we didn't go vertical and it turned out to be, you know, a really great call.
Understood and over to Acquisitions obviously Acquisitions came in higher than expected over the past two years. The lower guidance twenty-twenty makes sense as you talk through your Capital allocation plans, but I want to get more color on the transaction Market in general is part of the lower guidance that you're seeing sellers pull their properties because they're not getting the pricing they want and on the flip side of that. Sorry. Go ahead. You'll I was going to say, let me just respond quickly know I think that's part and parcel of giving ourselves maximum optionality where we don't have an assumption of as many Acquisitions as we had earlier so that we don't have to tap either the debt or the equity markets at all or even raise money through a partial interest sales or whatever so.
That was had nothing to do with the outside.
You know state of the market it had to do with giving ourselves, you know, total and maximum optionality here. That was the driving force got it. I was just wondering as far as if if there were opportunities out there that need that you might like that we missed out on because of the lower guidance, but it doesn't sound like that is the driving force know although given where we are today and our balance sheet as being articulated we have optionality to do a lot of things that maybe we wouldn't have had to do in a different environment. So it really puts us in a in a unique and I think excellent position which is where you want to be if you can be
Got it. Thanks guys. Thank you.
Our next question is from many quarts from City. Go ahead. Hey, good afternoon everyone in your press release you talked about the fact that a lot of the new ground of development in your pipeline is supportive of covid-19 research that would obviously imply that that's a shift as to the work that's happening in those facilities. So one is that simply an overlap with the tenants that were ready signed up and now they're going to be doing that type of work in those facilities and to does that mean that there should be more shadowed demand for all the other stuff that they thought they would be doing in those spaces free.
Say in the buildings. These are companies who are already focused in you know, areas of therapeutic need in the antiviral areas in life, you know certain testing areas certain infectious disease areas. I mean, there is a good example that was their business before and to be able to move from a particular focus in infectious disease or in you know, Therapies in the antiviral side to a covid-19 is not much of a stretch because the basic capabilities and technology and Manpower has already there. So there isn't a lot of big living among tenants who were working at I mean the office East Lake development for adaptive. I mean they are, you know all over the covid-19 area, but it was a natural progression from where they were but the second birth
Yes, we we've been already contacted I can think of personally about a half a dozen emails. I've got from individuals from companies where they are looking for additional capability, you know additional facilities for their ramp-up on covid-19, whether it be vaccines Therapeutics or in fact in testing and so we do think there will be some pent-up demand wage.
I'm great and then you know on your on your comment about sort of the the retail environment within your your assets. Um, what is that retail look like on the other side of it? Is it going to be a different mix of retail needs to be not retail at all. Try to help help us get it out that crystal ball with those retail spaces of what we look like. Yeah, that's really hard to say my sense is that given that were not a heavily retail oriented, uh, you know developer and operator. We think that you know, one by one we're going to look at the retail operations and see you know, does this make sense in a new environment people are going to want, you know, clean pre-packaged probably not so quickly, you know to sit down so I think there's going to be some shift. Some operators will be, you know, pretty facile at being able to do that and others probably won't and I think those will just be done on a one one-by-one basis luckily wage.
I mean said we don't have immense numbers of retail tenants. So for us, it's will be pretty pretty methodical to try to go through that that analysis, but I think it's fair to say until they truly effective vaccine. People are not going to be socializing and eating the way they used it. I think she'll thank you.
Our next question is from Jamie Feldman from Bank of America. Go ahead. Thank you. I was hoping you could talk about the the Life Science Center. I'm not involved in covid-19. I mean are those tenants basically still open for business or and any any pushing for rent relief or any kind of issues on wage earnings or Revenue know I think what's happening is many of the office type people are working virtually because you've got a component in every company depending upon size of people who are just office users and then people in the labs, you know Labs by their very nature are essentially you've got good spacing, you know between people when we've done tours on the path, especially I remember in San Diego people saying, oh my God, are there anybody working in the labs? You know, so because on a beautiful day a lot of times people work through the night club
During the day but they I think people have adapted pretty well. So they have you know, essential cruise going into do continue experiments and mission-critical work and those and they she came around on days and weeks and then those who don't need to be there aren't there until the stand Place orders are are lifted, but everything is essentially open and working on a new rules and new rules of the road. If you will and then you think about long-term building design. Do you think you know, there's a lot of talk about what might be different in the office sector, but if you think about it sector do you think this is catalyst for any changes in space design? Yeah. So Peter you want to maybe comment
Sure.
To Jamie one of the things that we used to get asked about was identification transfer office going to affect lab and the answer was always no because for one month lab spaces as much about equipment as it is about people so the way that just research is done right now with people kind of that every other bench with equipment filling in Social distancing is really already factored into the design. I don't there may be some things that can be done with circulation within a lab that will examine um to you know, make things even safer but by and large we've already been studying this our traditional lab product is probably dead already saved in this environment. We're looking at some of our proprietary products that might be a little bit more dense and we've already got birth
It's a place for some practical reconfiguration. That will not be costly but we'll just create a little bit more safety.
Okay, and there's a lot of talk about air quality just for traditional office. I know the things in your lab development business that you think are, you know, strategic assets or knowledge assets that might actually help em even more in the office business or that, you know, if you think how that design might change going forward.
Well that that you're running up a if you don't mind you often you rent out a really good point you bring up a really good point. We actually even have one of our large tenants which I won't name cuz I'm not sure they would want that publicity but it has come to us they were put into one of our large lab buildings and as the only non lab tenant, they really have fallen in love with the high floor to ceiling and the 100% fresh air. This is pretty covid-19 way that they yeah, they had such great experience in such great feedback from their employees that when they go out now with our keys for new space. They're asking for these same or two floors the same air filtration are changes that we we provide so, you know, look everything that we have that is office with potentially.
A couple minor exceptions is built for laboratory. And therefore it does have high ceiling. It may have MBP design that is a bit more efficient for for office. But we have thought about and put in infrastructure that would enable it to be lab in the future. So we do have the ability to provide a an atmosphere from a mechanical standpoint that mirrors lab and I think to the extent that office tenants are growing and expanding we'll see when that happened but that they will look at buildings like ours like they have been because we have that advantage and Stephen mentioned the fill the fit well and the Welsh standards which factor in such things as the amount of natural light that comes into the space the amount of actual space people have to move around with the building the outdoor space people has to work log
All of those things in this environment are going to be really important people.
Like where they want to office and and so our fourth two to getting into these well and fit well designed the standards is going to pay off not only on our lab. Is that for anybody who is leasing office from us as well?
Okay, that's helpful. And then finally for me as you look across the competitive landscape are there buildings owned by landlords that have balance sheets that may not be so strong and you kind of see you could distress opportunities or do you think the the better quality buildings that would fit with your portfolio are pretty well owned at this point.
I would say it's possible. So stay tuned. Okay. All right. Thank you. Thank you, Jamie.
Our next question is from Rick Anderson from SMBC. Go ahead. Hey, thanks and good afternoon. So, you know this this question is kind of been asked in kind of answered but not not quite and so I wanted to sort of ask a different way, you know, sixty ten inches in some way shape or form involved in the in the process here and doing you know, the awesome things to to try to move things along but is there a and no one's suggesting they shouldn't be doing that of course, but is there a short-term potential impact on their own profitability as a pack? Some amount of resources are are you know, redirected towards covid-19 and and their own core drug research business. Perhaps gets a little bit of a delay is is that a is that a reasonable way to think about this or am I completely off base on well, I think for those that you know, certainly for the bigger Farm or Pharma and bigger biotech who actually report quarterly earnings,
I think that's a possibility. So a little bit of that in Merck's report today where it's pretty clear that you know, when people can't go visit. The doctor can't go into the hospital for our normal procedures and you're stuck kind of in your home, you know, your access to Medical Care and fact Pharmaceuticals is a little more, you know, problematic I think for the private or the biotech companies that haven't reached profitability. I don't think that's such a big issue because it's the pipeline and the value of the pipeline that really counts. I don't know Jenna. Do you want to make any other comments off and then the other thing that I would add hi Rich, you know is really that the, you know, the platforms themselves that they're optimizing. So in the case of beer or moderna the learnings and the you know, it's pure or you know, in fact that they're getting by optimizing the platform in this rapid speed and Rapid notion is actually incredibly valuable for the company overall. Hopefully, they'll be successful. But even if they're not so I think that's a way to think about Iraq.
I think you know I still mentioned clearly the large Pharma folks, you know, will you know our will have some trouble of their own as far as clinical trials and progressing but as far as a refocusing efforts to covet it's actually not all that, you know expensive for them to do that. So if they're successful, I think it's great and we'll come back to them and if they're not, you know, it's really not that much cuz a lot of it is either in collaboration with other biotech companies that are doing the work or you know using a repurposing old drug. So I think that's the overview. Okay great. Thanks. And then the author's earlier in the call was sort of different utilization of office space, you know in the in the longer-term aftermath of all this but when I think of your lab buildings perhaps in you know, maybe the building office and lab space. Do you think that that 50 that's on the office side that you know your tenants might start thinking about a work-from-home type of strategy or or is it just two age?
soon to to sort of make that call even for the life science, you know component of your business not the pure office well
Think at the moment and when they reintegrate into the whatever will be the new opening and that's going to be different, you know, city-by-city state-by-state and even Company by company wage. I think you'll find people working maybe shifts to begin with those who can work from home over time will probably be brought back into the system cuz I think it's pretty clear. You said it's hard to build a culture when you have people or maintain a culture when you have people working from home consistently and especially a number of those people are Senior Management of a lot of these companies. I don't think that's going to be a big issue but I think it will be a time frame issue but you know, there's a light at the end of the tunnel cuz once there's a if there is and we think there probably will be an effective vaccine. Hopefully that goes away although the age-old habit of shaking hands hugging being close to people probably will be rethought a lot dead.
White people and that may never change except in you know, family settings or things like that. So there will be some long-term changes, but I think you know as I've described the reintegration, I think that's what would happen on the on the office side, right and lastly sure if you don't mind, this is Peter. Yeah, the people off of that office space is actually the office space for the people working in the lab. So they do their experiments in the lab and then they go back to their office and write things up and communicate thoughts about those things. So you actually can't work from home you have that office has to be next to the lab because you're going in and out of that and the majority of our space is is Georgia Avenue producing space its research and development. It's not has nothing to do with back office. I'm sure there's a few companies that we have that may have some backup. It's in there, but you know by and large the majority.
That office space or people that are actually working in the labs. That can't be brought home. All right, kind of question for me is on the VC side. Obviously Some Noise, you know, not not to be unexpected this quarter but has it caused you to rethink or tweaked that strategy at all in the answer could be completely know or or practice lately know. Yeah. I've got the three the three items that Dean mentioned are all very unique situations. Yeah one has to do with just the market. It's more of a consumer kind of product home. Another one has to do with actually the other two are really primarily due to management issues and not fundamental underlying, you know, business issues. And so, you know in any Venture portfolio, you're going to expect some, you know, some don't perform and you know, yeah no change whatsoever. You got it. Okay. Thanks very much. Yep. Yep.
Our next question is from Michael Carroll from RBC Capital markets. Go ahead.
Yes, thank you. I wanted to see if we can talk a little bit about the Mercer mega block. It seems like that asset was delayed. I'm not sure if it was delayed because of the current covid-19 or if there's something unique that that needs that's going on right there. So how's that? Um acquisition going right now and and is there any changes within expectations? Yeah, I don't think there's any delays. Other than that, it's just hard to get where in diligence and it's hard to get things done. Sometimes when you know cities are shut down when you know, we shut down to the extent that you know, we have to be and when you're working virtually and Moberly so I don't see any we were the anticipation is too close that either toward the south end of the year or early twenty one, and I don't think that's materially changed.
Okay, great. And then can we talk a little bit about the leasing activity? And I know you made several comments throughout this call and seems like leasing Trends are are still very healthy, but has it changed I guess in the in the current environment compared to three months ago. Is it harder for people to see certain assets and is that potentially delaying transactions but not stopping those Transmissions to guess. What's a good way to think about that? Yep, Steve you can take that but I don't think there's any huge delays and people are virtually looking at assets.
Yeah. Hi, Michael and Steve know that's that's right. I mean the demand continues the need for lab space as Peter's outlined is qualitatively different than office space long as people's programs and the funding that Joel highlighted in the beginning come to fruition, you know, they want to keep moving forward. They want to lock down lab space. The markets are very tight again. No, you know major subleases have come to the market. So people are still acting, you know, with a a sense of life, you know the need to move forward and and do that deliberately and diligently we have been able to you know, go into the market. These are all essential service building in the orders. They are very clearly and explicitly defined, you know, biotech and Pharma buildings as essential services, so they are so we continue to wage
Healthy demand and as you saw from the press release and supplement, we announced that we had considerably up zoned our asset at 3:25 Benny and that's a good point during this last month or two of Copa shutdown. We still seen a remarkable amount of interest in you know in that development as a good example.
Okay, and then last name for me, I guess I know that it seems like there's been a lot of funding coming into the space. I mean in that post covid-19. And do you think it's logical to assume that there's going to be more funding coming in the biotech that could drive I guess incremental demand, um, or as the demand that you've seen is is already pretty at record levels and that's a pretty good Pace. I think there's going to be more and I don't know how things are going to sort out with China whether they really open up the what really happened in Wuhan, I mean, there are a lot of different theories as you guys know off but whether it was pure research whether it was maybe a biological weapon, I don't think the web markets were necessarily the exact cause of life, but you know, I'm not the expert but I think there's going to be a much more intense federal state and a local effort to try to stockpile medicines therapeutic dog.
testing capabilities
Vaccines and remember there are more than one strain of the coronavirus and we don't know what other ones are out there and do to come so I think this is with us maybe for the history of humanity here.
Okay, great. Thank you. Yep. Thank you.
Our next question is from Dave Rogers from there. Go ahead.
Yeah, good afternoon everybody and maybe following up on Mike's question and some things that will Stephen Peter mentioned earlier, you talked about the activity and the proposals consistent with prior prior quarters, and that's pretty consistent with what we talked on the private Market as well. But leasing new leasing activity in the first quarter was just slower. So maybe that you could just address that specifically was it always going to be a little slower just the way the pipeline was materializing and then maybe take that question to the Future and say, you know second quarter do we see a spike in covid-19 says third-quarter, maybe the core portfolio fourth-quarter, we start to see people committing to kind of multi-year developments or do you think happened more quickly than that? Can you give us maybe just a little bit more color on and kind of how you're feeling today, but some of the timing around that you know, I'm not sure anybody really knows given, you know, so many different state local wage in even stats, you know commentary on what to do in different locations, but Steve you could take a crack at them Steve here. Yeah.
Again, you know the activity remains consistent. It is consistent across all of the regions. So I think you know, we're very well positioned to capture the demand will just have to see exactly the intensity of the velocity and the the magnitude of it. It is high quality demand, but I think it is still a little bit TBD off but nevertheless again, you know, April was very encouraging were in the full throes of the pandemic and it was consistent with what we saw during q1.
In terms of the the covid-19 thing or the activity that you're seeing there. Would that be a notable Spike that will see coming or just kind of incremental to the demand that you've already been seeing dead. I think it's hard to say I think you know, it's possible that it when you say spike. I mean if there's an additional building or two requirements or half-a-dozen, I mean, they don't know if that's considered a spike or you know, a natural evolution of you know of a pandemic response, but you know, we would expect that they're going to be a range of requirements out there given the amount of money flowing into testing Therapeutics and vaccines. I think you have to believe that don't know if it's a tsunami or you know a wave, but it'll it's going to happen.
Last for me Dean your comment if I heard it right was that you thought games this year the realized gains from your Equity Investments would would be last year's 50.3 million talk about the confidence in the liquidity around. Those are those largely already identified and and likely to be public market sales that gives you kind of the confidence in the liquidity for that market. Any thoughts would be helpful. Thank you.
Sure.
So my comment is really just driven by the historical trend of of realized gains. So if you look back over the last number of quarters, it's been wage, you know roughly in that 14 million dollar a quarter range this quarter about 15. And so if I think over the last number of quarters, I've always mentioned I think the best way of thinking about Iraq watch the historical trend of where we're headed in at that run rate at 15 a quarter just as an example, you know, we're ready ahead on an annualized basis to the 58th and that we recognized in 2019.
All right, great. Now there's there's a tremendous amount of unrealized gain study in the portfolio 384 million dollars today. So there's good value still to be tapped.
Yeah, sure. That makes sense. All right. Thank you everyone.
Our next question is from Tayo from security. Go ahead.
Yes, good afternoon, everyone. All right, just one quick question. I was curious if you know there was any other interest in other markets you currently not in right now with that was more interest in some of those markets or less. I think at the investor day. They had been some conversation about in the stock market, so you could potentially be looking at outside your your current core birth clusters today. Well, I think in this environment that's not something that we're thinking about at this time, but I think over the long term there will likely be other markets, but probably nothing we could comment on it this point Thank you. Thank you.
Our next question is from many quarts from City. Go ahead.
It's like a belly midnight had two questions one and you talk a little bit this deal that you walked away from the multi-tenant office building. Do you have sort of broader sort of perspective on how you sort of think about your capital investment going forward whether you view that 100% targeted towards lab and life science where a lot of the office opportunities you've been involved with have been a by-product of the market that you've been in and the relationships that you've developed. Does this whole pandemic change the sort of civil use Office either for single user or multi-tenant building going forward where the where you could see the company being going back to being exclusively focused on life sciences and labs.
Well, I think Michael one thing is for sure. We have always put are always allocated Capital to our core which will never change which is the life industry. But as you know, the intersection of life science and the whole you might call it the whole it world is Jose is really booming. And so I mean telemedicine went from something that Millennials or you know, gen Z or gen xers would occasionally use cuz there's a healthy too right now. It's I think I've got a note cuz we're involved with the company. That's kind of at the Forefront that it's spiked up 85% of what it was, you know two months ago. So I think if you can't ever forget I mean and tenants of ours Google barely Microsoft others there, you know are heavily heavily involved.
in the healthcare sector
So the two overlap in ways that are pretty fundamental so that that will always be of great interest. I don't think we'll have as much interest in pure Tech Office Buildings, but I think where we see a building as Peter described that maybe a office tended today, but it's in a great location that we can convert in the future that I would still be of interest and I don't think we've ever really had interest in owning lots of office, you know, buildings multi-tenant Office Buildings per se that's never really been a focus of ours. So I think we we continue our focus and then you talked a little bit about sort of all the focus on covid-19 right now from your tenant base and that you know, there may be clearly some effects from other activities that are not occurring for those tenants. How do you sort of think about the Academia side with schools potentially not opening up in the fall clearly a lot of your building birth?
Are in close proximity to key academic institutions, whether it's m i t Harvard ucfs. How do you think about that aspect and what potentially could come off of that of schools? Don't physically reopen. Yeah. Well, I think number one. Those are mostly for undergraduates. If you look at MIT a lot of the professors and a lot of the labs are still open there. They've covid-19 it operations where you know, people are cycling in not at all that the same time but labs and a lot of The Graduate students and and professors are dead so working. So in that sense, that's we're not so tied to the undergraduate populations. We don't we aren't kind of just out there being near, you know, University campus kind of not our business model, but what we are focused on our being close to the fundamental institutions in the United States that have pretty you know, strong computational birth.
Biological chemical all the you know, all the right kind of areas where they're going to continue to work and people will continue to, you know, visit labs and work in Labs. I think that changes anything we're doing, you know any Iota. Okay. Thank you. Yep. Thank you.
This concludes our question-and-answer session. I would not like to turn the conference back over to Joe Marcus for closing remarks. Okay. It's been a long call. So sorry for that. Thank you, ma'am, and look forward to talking to you on the 2nd quarter call and most importantly stay safe.
The conference has now concluded thank you for attending today's presentation. You may now disconnect.