Q3 2020 Alexandria Real Estate Equities Inc Earnings Call
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Good day and welcome to the Alexandria Real estate equities third quarter Twentytwenty Conference call. All participants will be in listen only mode should you need assistance you signal a conference specialist by pressing the Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to.
The last question.
I asked the question you May Press Star then one on your telephone keypad withdraw. Your question. Please press Star then two please note. This event is being recorded.
Now I'd like to turn the conference over to Paula Schwartz with Investor Relations. Please go ahead.
Thank you and good afternoon, everyone. This conference call contains forward looking statements, but in the meaning of the federal Securities law. The company's actual results might differ materially from those projected in the forward looking statement.
Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission and now I'd like to turn the call over to Joel Marcus Executive Chairman and founder. Please go ahead Joel.
Oh, Thank you Paula and welcome everybody to Alexandrias third quarter call with me today.
Our Dean Shigenaga, Steve Richardson, Peter Moglia, Amgen a poker.
Like to welcome everybody and from the Alexandria team and family wishing, hoping you're all well safe uncoated free.
As all of US know 2020 has been astounding year of the never imagine confluence of.
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A deep or shut down recession civil strife, coupled with a heated and complex election upcoming hearing next week.
2020 started off very sadly with the untimely death of Koby Bryant not.
Not only a great AFE athlete, but especially human being.
And I want to make just a brief quote from one of his great things. He's he often said that great things come from hard work and perseverance.
And those of you who are new or watched are admired cobi always he was the last guy to finish up in the first guy to start and that was one of the hardest working people anyone could ever imagine and that really exemplifies our team.
I want to thank our team from the bottom of our Hearts My heart and our.
Seems hard for doing such a great job Alexandria has really uniquely achieved three outputs that are very rare in corporate America today that deploying a truly great company.
Continuing superior results, continuing distinctive impact and lasting endurance and again, we want to thank our entire team for a stellar third quarter.
As we are all building the future of life changing in or Big innovation literally during COVID-19, one could never imagine that.
So a couple of different comments I wanted to comment on the recent Blackstone transaction.
Where Blackstone announced the recapitalization of its life science real estate business and.
And it only serves I think to reconfirm once again, the great vote of confidence in the life Science real estate niche, we pioneered and 1994.
The transaction implies an approximate $1070 price per square foot for that 13 million square foot portfolio, and I think compared to where Alexandria trades more or less today at about $950 a square foot I think that's I think very good benchmark for.
For Us Blackstone.
Blackstone time did side I think 2015 purchase really quite ideally as the biotech industry was emerging from about a five or six year bear market in the 2013, and 2014 timeframe and at that time when they acquired the assets are.
They were by and large.
Most of the buildings were older than Alexandrias and they were not in as strong a locations as we were they.
Clearly enhanced that portfolio sense, and kudos to them for doing that.
I want to take particular mention on third quarter activity on our research triangle acquisition, which is really a particular node.
A large acquisition about 590 million dollar purchase price about $265 a square foot.
2.2 million square feet over about 300 acres 20 buildings with very high credit tenant, but also significant value add.
This acquisition substantially increased our footprint in research triangle.
And particularly was motivated by our need to accommodate numerous inbound substantial tenant requirements, both who needed existing solutions and build to suit capabilities. We now have three mega campuses in the triangle. This newly branded campus the Alexandria Center.
Life Science Durham, The Alexandria Center for AG Tech in the Alexandria Center for advanced technologies.
We see continuing strong demand for life science base across our markets.
Particularly pointed are the many requirements from our own tenant base within.
Also it's important to remember to keep crews have really been revealed by COVID-19, one is the resilience of and the need for domestic medical supply supply chains.
To be here based in the United States crucial for National security and for medical supply and I think it only reinforces that complex medicines are really the future of health care and I guess, the famous COVID-19 antibody cocktails would be a good example of that.
I wanted to mention a little bit about operation Warp speed. This was.
Initiated by the Trump administration and supported by more than $10 billion in funding through the cares Act.
Operation Warp speed led by really a legendary probably one of the most skilled vaccine develop.
Developers in the entire world months of Slowey aims to deliver 300 million doses of a safe and effective COVID-19 vaccine in the first quarter as part of a broader strategy to accelerate the development manufacturing and distribution of COVID-19 vaccines.
Therapeutics and diagnostics really all in tandem very different than the government has ever operated before and really a great credit to public private partnerships.
The outward speed partnership is between selected Biopharma companies and key federal science agencies, including BARDA CDC Deo, the FDA HHS and the NIH as of October 21st the initiative announced funding decisions totaling over $13 billion for 10 companies more than 10.
Companies to support vaccine therapy and manufacturing efforts. These included virtually all of which maybe except one our tenants of Alexandria, Moderna GSK Santa fee, Pfizer Novavax, Astra Zeneca, JNJ, Merck Regeneron emergent bio and Fuji film.
Took quite a quite a humongous feed I think.
Given.
The onset of this.
Pandemic in a pretty a pretty odd fashion I think to this date. There is certainly speculation that this was not a natural occurring buyer.
Virus, but one that was manmade in a lab and move on.
A couple of comments about the life science industry, and again, a real shout out to the great private.
Private public partnerships that have been formed in so many different fashions.
Hi, its fundamentals throughout 2020 have remained fundamentally strong, especially given the critical nature of the fight against COVID-19. This has helped lead to substantial.
Progress and acceleration, including late stage vaccine trials and therapeutics, along with improved and expanded testing.
The life science industry has not slowed down its pace, it's important to remember.
Of investment in innovation, well beyond COVID-19, the industry's commitment and investment in innovation, along with the FDA as ability to continue to operate at a high level. Despite the pandemic has led to 40, new drug approvals as of the end of September which puts us on a pace to meet or exceed.
51 average of the past couple of years was on a call last week with Commissioner Hall on and its a great credit to he and the entire professional workforce at the FDA for their really 24 seven effort in this in this time.
Life Science venture funding has continued to flow at a strong pace in the third quarter setting new quarterly records at almost 12 billion with more than 30 billion raised through the first three quarters really surpassing all previous annual totals.
It's important to remember that most of the disinvestment, 80% comes from Alexandrias core markets, and especially our greater Boston, San Francisco, which capture about 60% capital flows to early stage companies in the public markets continue at a fast pace there have been 47.
Pharma and biotech ipos in the first three quarters of this year are raising almost $9 billion larger than any previous year.
And the companies have been able to access capital markets at historic levels approximating almost 35 billion and follow on offerings, surpassing the previous high of about 29 billion in 2015. So all in all it's been a pretty a pretty strong.
A tailwind for the industry and what we're doing so with that I'd like to turn it over to Jennifer Boeger.
Our senior VP of our science and Tech team.
And as she is going to talk about the latest developments in the vaccine therapeutic area. So Janet please.
Thank you Phil and good afternoon, everyone.
This unprecedented pandemic redesign, giving rise to a new record high research and all the cases across the country are doing an indelible mark on the global.
Hi, Bill.
Imminent need for safe and effective treatments and that's all come back Thats correct.
I know skepticism and in patients with that at all.
Every one of us navigate and comfortably Discomforting Simonich label never before has the work of our tenants and a late night for even more important the.
The mission critical an athlete central effort are nearly 110 with meaningful corporate programs represent the beacon of hope for an.
And Michael pandemic.
Aggregate our tenants in the life science industry also represent the solution for the longer term impacting the conflict coconut Ark stuff also repaid an increased focus on prevention overdue innovation and infectious disease and other neglected therapeutic area as a new paradigm R&D collaboration next generation manufacturing supply chain efficiency and a predictor.
You should have access to new medicine, clearly safe and effective vaccine to help bring about the fact that ended the coke, making pandemic athlete record that can meaningfully reopened society and restore the global economy.
Researchers around the world are working with unprecedented collaboration on at least 135 distinct kind of virus vaccine programs of which nearly 50 vaccine candidates are already in human trials as John mentioned, a cornerstone of the government's effort to expedite the development manufacturing and distribution of Coke and 19 treatments in vaccine.
And of course, the operation Warp speed initiative with the vast majority of it.
Turning to Alexandria tenants so.
Among these efforts I want to call your attention to for the most advanced vaccine programs from Pfizer and the Governor Astrazeneca Novadaq H, a top tenant for Alexandria in their respective regions and each apply it slightly different underlying technology and approach the vaccine development.
Each one of these companies have reported clinical data that suggest initial safety and efficacy and eight are currently conducting later phase three study in the tens of thousands of subjects around the world key data readouts on each of these companies are expected in the fourth quarter of this year spanning between now probably November and December.
Together. These four companies alone are building capacity to provide over 6 billion doses next year.
So what do we make of all up estimates a constant flow of headline it.
It is highly likely that at least one and likely more than one of these initial phase three trial will report interim efficacy result.
In November and December of this year if.
If they do the FDA could grant emergency use authorization by year end or very early into 2021, which would enable the highest risk population like healthcare workers and others to begin to receive the vaccine over the coming months.
The FDA that the minimum standard efficacy threshold for all Covance vaccines at 50%, meaning that a vaccine will have to protect at least 50% those receiving it tresiba emergency use authorization and based on some of the data that's come out to date and the time taken for companies like Pfizer Mcgurn and others to report their data healthcare analysts have.
Gun to predict efficacy more likely in the range of at least 70%, but all obviously remains to be seen.
More data becomes available in the vaccines begin to be distributed if safety and efficacy profess these companies and others could receive FDA approval on the first half of 2021 with widespread distribution of safe and effective vaccines that public sometime.
Sometime mid next year, given the addressable population pretty much the entire world. This will not be a winner take all opportunity I know one company alone will supply the global demand in the near term overtime. The most effective vaccines will likely have more upside of.
Of course, many questions remain and we'll continue to learn more in the coming months as more data rolls out yes.
Just as it remains unclear how long natural immunity laugh at our person becomes infected koeppen 18. Similarly, the durability of our COVID-19 vaccine, it's still a wide open question.
Could it be a pandemic like stars emerge that will subside over time or will it be more endemic our flu like creating a longer term market opportunity for the current treatments in development. In addition to safety and efficacy question challenges related to capacity access distribution logistics in early adoption are all being navigated in real time meaningful strides are being taken by our.
Talent and life science industry to preempt as many of these complexities of Pocs.
And of course in the meantime, new antibody therapy by companies that a tenant beer and collaboration with GSK, Eli Lilly and Astrazeneca could serve as a bridge to a vaccine picking prophylactically and or to help reduce the severity of Coca 19, especially have taken early in the course of disease now with Eli Lilly the antibody.
Key data Readouts will be forthcoming over the next few months white walls, Eli Lilly's single agent antibody and run counter antibody cocktail have filed further east opportunity Gen approval.
Well advances in the treatment of Carbonite team included at these first cobot specific or ball of tenant gilliatt anti viral drug back lorry or rem density or for the treatment of COVID-19 patients requiring hospitalization. The FDA has also granted emergency use authorization for the use of convalescent plasma in hospitalized patients with severe disease and the NIH has also.
Included within the guidance these adapt the methodology there or steroids.
In hospitalized patients requiring supplemental oxygen.
He is notable and expedient efforts across our tenant base and life science industry or large part to the fact that as the krona virus made itself known to the world almost a year ago now.
These companies were already well equipped with the R&D infrastructure technology platforms resources and talent in place such that they were able to mobilize quickly and meaningfully to come back as global health crisis.
Our honor to continue to serve at the Vanguard of the central Lifesize industry and to support the heroic work of our tenants and campus community is focused on bringing an end to this pandemic addressing the 10000 plus diseases already known to us today and innovating the feature of drug discovery to cell tomorrow rest of human health and with that I'll turn it over to Steve. Thank you.
Thank you Jennifer good afternoon, everyone.
Very strong results we've achieved during the third quarter are a testament to both the clear vision. The company has had since its inception more than 25 years ago.
And the highly creative and entrepreneurial team that has skillfully adapted to this tumultuous time.
Thanks, Andrea as Mega campuses are now not only essential and mission critical but they are also especially desirable and capturing a significant majority of the life science growth in the marketplace.
Thanks, Andrea brand is highly valued across the entire lifecycle life science ecosystem.
Right, well learn trusted relationships impeccable integrity and unparalleled expertise and experience. These timeless elements are the foundation for our tenants decisions to continue to seek out a collaborative and mutually beneficial multi dimensional platform further growth with Alexandria as it is.
LNG is only increase for navigating success and the quest to eradicate disease and improve nutrition globally, particularly with a once in a century pandemic upon us Alexandria stands out and as Rick nice as an innovative insightful and unique partner as the following results clearly demonstrate.
In the realm of operational excellence. The company has collected 99.7% of its accounts receivable during the third quarter and 99.7% during October the 24, seven nature of these labs and the fundamental value. They provide to our tenants is clearly evident with these operational statistics.
Sticks and.
On the leasing front, we have continued outperformance during the third quarter, we outperformed the second quarter leasing activity with a total of 1.2 million square feet leased which brings us to nearly 3 million square feet leased year to date during 2020, which is pretty impressive considering our tenure leasing averages.
3.9 million square feet Alex.
Alexandrias team is fully engaged in our tenant base is thriving and continuing to grow.
Underscore the leasing outperformance this quarterly run rate during the time of Covance is approximately equal to or better than the leasing run rate during the first quarter, the second quarter and the third quarter of 2019.
A particular note is the 80% leased or negotiation status of the development pipeline for the same set of projects detailed in our Q2 supplemental so very solid progress with our on balance sheet growth engine and Peter will provide further details during his remarks.
Our core continues to be strong with rental rate increases.
30.9% cash and 39.9% GAAP for renewals and re leases and early renewals for the third quarter or above our historic levels reached 86%. So the sense of urgency remains strong for tenant base, our mark to market is at 16.4% cash.
90, Bips increase from the second quarter, and 17.1% gap up 120, bips over the second quarter.
Occupancy continues to be solid at 94.9% across 31.2 million square feet in the operating portfolio.
And after taking into account the recently acquired lease up opportunities, we would otherwise be at 97.7% occupancy up 60, bips from the second quarter Mark.
Market health continues to be strong with robust laugh demand of 3.2 million square feet in the Bay area, San Francisco, two and a half million square feet in the greater Boston region, and 2.1 million square feet in San Diego, but importantly, there was a market acceleration to high quality covance sales campuses.
As evidenced again by our ability to capture a dominant market share promising and strong credit life science companies. So in conclusion Alexandria is pioneering efforts have placed the company at the actual and virtual intersection of science in global health the.
The team is entrepreneurial creative and fully prepared to meet and decisively capitalize on this opportunity.
With our tenants for the benefit of health across the globe.
With that I'll hand, it off to Peter.
Thanks, Steve I'm going to briefly update you all on our development pipeline the impact of crop 15 on Alexandria, and touch on our recent third party asset sales on one of our Submarkets.
So as with developments overall, the leasing activity was very robust we had over 300000 square feet of leases completed an approximately 490000 square feet of space put under ally in the development and redevelopment pipeline during the quarter and that was led by significant demand at our to bear.
[noise] area projects to one half skin and the Alexandria District project in San Carlos.
There's been a few adjustments to the development redevelopment pipeline from last quarter.
975 market Street, and Soma was sold for $198 million as noted in our dispositions disclosure accepting the unsolicited offer really made a lot of sense to us as an opportunity to really recycle that capital into our already robust pipeline.
No for Quince Orchard Road begins with Maryland, and nine 880 campus point drive in San Diego were successfully completed during the quarter and put into operation.
So as those assets were removed from the pipeline to new assets have been added including the Parmer campus in research triangle that Joel reference that was acquired in the third quarter and has been rebranded as Alexandria Center for life Science Durham.
Approximately 650000 square feet of the 2.2 million square foot campus is slated for redevelopment into research and development lab space for manufacturing space.
And it has already been 50% pre leased.
The second asset Alexandria Center for advanced Technologies is also the triangle and features research and manufacturing sneaks in two buildings that are a combined 40% pre leased.
We have also disclosed three new pre leased projects in our San Diego region.
3115, Merrifield Road also referred to as spectrum three is 146456 square foot ground up development that will be the fourth and final phase of our spectrum.
Our spectrum campus and Torrey pines.
The project has considerable interest 80% of the building is already under letter of intent.
Alexandria point, we have pre leased a 100% of a new ground up one ground up 171, one or two square foot development on that Mega campus.
To a credit tenant and at the San Diego Tech by Alexandria project, we've kicked off our first ground up development with a 59% pre leasing of 176428 square foot Bill Bill.
Building two unexciting genetic sequencing company a technology, that's really a major strength in the San Diego region.
On the product 15, we're sure everybody is aware of the details of California's proposition 15 ballot measure that would overhaul the states property tax limitation of 2% increases per year and replace it with market value assessments every three years for commercial properties that have values in excess of 3 million.
$1 if proposition 15 is past.
The property taxes for some of our properties in California could substantially increase our current assessment is that we're in pretty good position to absorb the impact of this proposition should it pass as our California asset base is relatively young with approximately 60% of our California properties purchased or device.
I'll have to redevelop over the past 10 years, and our triple net leases allow us to pass through among other cost substantially all real estate and rent related taxes to our tenants in the form of additional rent tenant recovery.
Consequently, as a result of having triple net leases and a relatively new asset base, we do not expect potential increases.
The property taxes, resulting from tax reassessments to significantly impact our operating results and they will have almost no impact on the line.
Moving to the asset sale I mentioned.
So over the past few quarters, we discuss strong interest in lab office assets from a diverse set of investors mentioning help peaks purchase of the post in Waltham at a 5.1% cap rate and a healthy price per square foot at $751 a foot for a suburban asset their purchase 35, Cambridge Park.
For almost $1500 a square foot.
In a 4.8% cap rate and beacons purchase and the reference last quarter.
27, dry docked subjects were very onerous ground leases and seaport area of Boston at 4.8% cap rate and a $960 per square foot value. It is still a good time to be in the market with assets in life Science markets.
During the third quarter Ventas purchase Genesis towers, and 4000 shoreline in South San Francisco.
Were $1.02 billion or $1301 per square foot and a 4.75% cap rate, we were somewhat surprised by that valuation as the towers that oddly in alone on the west side of the one on freeway and the South tower is an actual converted office building which has.
We've been talking about at a number of recent meetings can cause less than ideal conditions for tenants for instance, the low clear height of the base building design.
Led to lower finished Steve Hey, lower finished ceiling than what you would normally find in a class a lab building and since the building had an office tenant and the top floors. During its conversion much of the ducting resides on the exterior of the building, making for less than ideal us Fedex and the freight elevator does not reach the buildings ever floors all of these.
Things really.
But the project at a competitive disadvantage to others in the rental market.
Look despite the exuberance of our product we are going to continue to maintain our highly disciplined approach to underwriting and those that are deep knowledge expertise and experience will continue to provide us with great opportunities to grow our asset base at reasonable valuations and with that I will pass it over to deep.
Hey, Thanks, Peter Dean Shigenaga here good afternoon, everyone our.
Our essential real estate portfolio continues to provide highly innovative entities with mission critical research facilities really focused on acceleration of innovation to advance human health, we're very proud to be the key partner to leading entities across pharma biotech and AG Tech and have a highly experienced team delivering operational excellence quarter to quarter and year to date.
Sure.
Our high quality class a properties and future development site should combine with our stellar tenant roster continues to generate high quality and growing cash flows our growth and cash flows from operating activities continue to allow us to increase our common stock dividends. Most recently a dollar six per common share for $4.12 per share on an annual basis.
And that was up 6% over the previous 12 months, we are on track to retain over 200 million in cash flows from operating activities. After dividends in 2020 for reinvestment into our highly leased development pipeline.
Our third quarter results were very solid in 2020 is wrapping up as a strong year for our central real estate business total revenues for the third quarter were up almost 17% over the third quarter of 19, excluding the termination fee payment from Pentrust really highlighting continued solid execution on both internal and.
External growth.
Adjusted EBITDA margin was very strong at 67% for the third quarter remains one of the top stats within the REIT industry.
The slight temporary decline in the third quarter was due to two items about one third of which was related to temporary vacancy for space that will be delivered for occupancy in the fourth quarter.
And about two thirds of that decline related to seasonal increases in utilities no. The increase in utility expenses are recoverable from our tenants and did not impact net operating income then.
Importantly, our adjusted EBITDA margin is expected to improve that 68% in the fourth quarter rent collections have been very strong as Steve highlighted at 99.7 for both Threeq you and for October.
And in line with our expectations for our mission critical central real estate and.
Occupancy has been solid this year 97.7 before the impact of vacancy from recently acquired properties and please refer to page 24 of our supplemental package for a detailed list.
Of vacancy that was acquired recently now the key takeaway is that recently a corporate properties vacancy will provide growth and cash flows as our team executes on these lease up opportunities now our operating results continue to benefit from contractual annual rent escalations, averaging approximately 3% from one of the highest quality tenant roster.
It's in the REIT industry as highlighted on our second quarter earnings call tenants took occupancy in the third quarter closing out temporary vacancy as of June thirtyth and contractual fence commenced in Threeq you pushing through third quarter same property results in line for expectations for 2020.
No same property NOI growth was 2.9% and 4.9% on a cash basis for the third quarter.
We reported continued and very strong rental rate growth on lease renewals and releasing a space at almost 40% and almost 31% on a cash basis.
For the third quarter and quick comment on leasing activity for the quarter and for the nine months.
Two leases due to.
Impact the amount of Ti and leasing commissions related to lease renewals and releasing a space one lease executed in the quarter related to re tenanting of an older building that was occupied by a single tenant for 15 to 20 years and the infrastructure was not really our traditional generic lab improvements also consistent with our.
Assumptions related to recent acquisition, we successfully released a portion of the property along with the Ti allowance to bring the space up to Aerie standard really for high quality facilities. Now. These two leases are unusual and did impact our quarterly average for Ti and leasing commissions. Excluding these two leases are at.
Rich T.I.s analyses for the three months and nine months ended September Thirtyth with <unk> would have been in line with historical amounts had approximately $17 and $20 per square foot respectively.
During the quarter, our general counsel resigned for family reasons. She really was one of our top leaders in the company. She built it really great team.
And had an amazing two decade career at Alexandria, we truly wish her well in connection with her departure, we recognized a $4.5 million a.
Compensation expense in the third quarter.
Now turning briefly to venture investments over the past year or so we have been taking advantage of the strength of the portfolio and overall capital markets are.
Our net cash flows from have.
Have been about neutral for the first three quarters of 2020, highlighting that we have been strategically monetizing certain holdings unrealized gains have grown significantly to 542 million as of September thirtyth and realized gains have averaged about 16.1 million per quarter over the last four quarters and was 17.4 million.
For the third quarter.
Our team has been working diligently on our active and near term development and redevelopment projects Peter touched on a lot of the details but.
Key highlights included 4.1 million square feet of active in near term projects that are highly leased or negotiating at 74% that will generate significant cash flows. This consisted of.
Great progress on the active pipeline that we presented last quarter, which is now 80% leased and or negotiating we added over 900000 square feet to our active pipeline in the quarter, which is now those projects or 54% leased to negotiating.
And we also have an additional 500000 square feet of near term projects, which are 80% leased or negotiating.
With vertical construction starts ranging from the fourth quarter to the second quarter of 21.
So huge thanks to our entire team for their outstanding execution on our development and redevelopment pipeline moving.
Moving to our balance sheet, just want to say, thank you to our relationship lenders and her team for completing an amendment to our unsecured senior line of credit provide an aggregate commitments of 3 billion up $800 million and extending the maturity date by two years to early 2026 week.
We completed a record low 12 year bond deal at 1.875% in August of 2020, the all in rate for 10 year bonds today for Alexandria remains very attractive at approximately 2%.
We remain committed to our strong and improving credit profile and are on track to hit our yearend goal for net debt to adjusted EBITDA of 5.3 times and we're very proud to highlight one of the strongest balance sheets in the read industry ranking in the top 10, among all publicly traded Reits, we have liquidity of about 3.9 billion reflecting.
The increase in commitments from our October 2020 Amendment to our line of credit and our weighted average remaining term of outstanding debt was very solid at 10.6 years with very minimal debt maturities until 2024.
We updated our 2020 guidance and narrowed the range for EPS diluted from $3 to $3.11 and AFFO per share diluted.
As adjusted from seven to 29 to 731 now our targeted dispositions for the remainder of 2020 include two key transactions both of which are moving along very well with one expected to close real soon both of those deals are in process and subject to confidentiality agreements and therefore, we are unable to comment on either transaction until after closing.
Now as usual please refer to detailed underlying assumptions included in our 2020 guidance beginning on page 10 of our supplemental package. Additionally, consistent with prior years, we plan to provide our detailed guidance assumptions for 2021 later on it at our annual Investor Day on December one and therefore, we are unable to comment on 2021.
Until then.
We turn it back over to Joel.
Thank you we'll go to question and answer operator please.
Yes, Sir we will now begin the question and answer session.
Ask the question you May Press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
The first question comes from Anthony Paolone of JP Morgan. Please go ahead.
Okay. Thank you I think Peter you'd mentioned some of the challenges with some of the the conversions to lab, but.
With a lot of the capital circling some conversions new sub markets and new markets can you just comment whether you think there is enough demand to go around for everybody.
[noise] well, Yeah, let me, let me jump in before Peter comments Tony.
I think you have to look at where these are happening.
And where the demand wants to be and those don't always match up I mean, I think if you look at Cambridge.
The ability to add supply there.
Pretty pretty tough.
And the demand is strong same thing I think in different parts of San Francisco. So I think you have to isolate.
You know, where these where these either are or might be converted and you heard a little bit about the.
The downside of conversions, they oftentimes don't work out all that well.
And where the demand is coming from and where they want to go but Peter you can comment.
Yeah I'm not just.
Just yesterday in article came out in the is now website in San Francisco.
Idled too low to fragile to short term life science conversions are popular but hard to pull off by.
Authors and was deemed born or.
And I think it just it.
It's a pretty summary level article, but like we've been talking about for the last.
A couple of quarters.
Office buildings, just don't have the.
The infrastructure needed for a laboratory that will be efficient and flexible at the end of the day. So you know.
In her wine you can but the tenants are going to have to make sacrifices in order to occupy that space and they could be very much.
Material as far as like how many chemicals, they can store, where they can put equipment. It's it's very inefficient compared to Alexandria portfolio, which was purpose built for labs. So we feel like any requirement in any of our submarkets that comes around.
We're going to be the first choice, we're going to have.
Building, that's flexible that works.
And has the staff that knows how to run it and that's the other thing there is it's more of the bricks and mortar here there is operational expertise.
And that can get very technical and these are mission critical facilities can't our companies can't really afford to go into a building site. He doesn't know what they're doing because time is money, especially lifestyle.
Life Science industry.
Okay. Thanks for that.
And then my second question Joel I think it was either last quarter or maybe the quarter before you made some comments about the election in it and it sounded like a blue wave would be bad can you can you give some updated thoughts on if we did a super cold we waived what the near term impact might be on the business.
Well I think first of all the ideal is always in government that there is a balance government and balanced.
Between the parties.
I think it's hard to speculate on a blue wave and what it means because.
The Democratic Party is really a pretty.
Hi, Lee I would say.
A party that encompasses pretty broad spread spectrum of of slots from socialized medicine to free.
Free market with some guidance. So it's hard to know what that really means I think there are two areas that.
You know so called biting aligned groups said early on if there were things they could do pretty quickly what would they do.
One might be too.
Try to get Medicare too.
Negotiate for those drugs administered by doctors, that's one that.
They might likely try to go after a pretty quickly and then another one is.
If they could show that intellectual property was created outside of the company, maybe a more revenue sharing basis with say federal lab or a university or whatever so those are two ones that I've heard that they might go to but I think it's hard to predict and hard to speculate and.
[music].
Anyway, So that's kind of my knee jerk reaction at this point.
You think in that scenario, there's there's any pause in leasing news and tenants trying to just figure out what the environment might hold.
No.
Great. Thank you.
Yep good to talk to you Tony.
The next question comes from Jan.
The Feldman of Bank of America Merrill Lynch. Please go ahead.
Thank you I guess, just sticking with the supply topic.
Are there any markets, where you are kind of second guessing are thinking twice about new starts given how much capital is flowing into them.
Well I think and maybe I'll have Steve comment, but I think one that weve certainly flagged over the past couple of years, which certainly has turned out to be.
Way better than we thought we tend to be pretty conservative in our thinking was south San Francisco.
When Kilroy, CNO announced the least or point and a number of other groups have built there I.
I think help because.
Done a good job of building and so has black stone and it looked like there might be a tip, you know more or the potential for more over supply than demand, but it's turned out that the demand has been healthy and the supply issue is been pretty pretty in check.
So we we had been pretty careful there over the past couple of years, but we certainly have a very very strong position that I think as.
Either Peter or Steve mentioned, we're making great progress on our two or one house comes a project, but Steve you could comment.
Yeah, I would add that Jamie that art sales San Francisco portfolio for the lab product is essentially 100% leased at Haskins now we're at 88% leased in negotiating so very well positioned there the entirety.
Phase one of kill Rice project is 100% leased.
Next stone is substantially at least a peak is substantially leased so we didnt monitored is as Joe mentioned, a couple of years ago, but you know there has been very robust demand you have a combination of.
Big pharma coming into South San Francisco, that's anchored it would.
Probably four or five global pharma companies coming in that were not there before the second cohort of companies that have matured to commercialization. So we continue to see that very healthy and no new.
Do monitor supply is certainly very closely but not overly worried as as we might have been a couple of years ago, Yes, Steve maybe mention straight moving there to the Kilroy project because that that that's kind of an interesting trend that we haven't really seen before a little bit like Ms.
In Bay was in the early days when it was life science and suddenly tech came in in a big way.
Right, Yes, I think that was really a unique situation as the market was extremely tight when they were making that decision. They were looking for opportunities to help fund additional buildings for expansion. So they didnt make the move to sell tempered.
Cisco.
A particular tax regime, and San Francisco that might have been troublesome as well so you know that.
We'll see if that's a harbinger for future.
You know tech locations, which will only increase demand in south San Francisco, but it is.
It was an important and kind of unique situation.
Okay. Thank you and are there any other markets you're thinking about it.
Bin monitoring as high risk for supply.
Well I think you always think about.
Research triangle, because there is a lot of land in and around the triangle, but thats. The reason we've gone to a mega campus strategy because people don't want to just be an isolated locations.
And many tenants.
Including one were.
Under Ela why with right now in a pretty big expansion.
We're looking for existing solutions so.
I think that's one we're always we always have historically been watching but we're pretty comfortable given our recent dollar commitment there.
Okay. Thank you.
Yep Thanks, Jamie.
Question comes from Manny Korchman of Citi.
With that.
Hey, guys. Thanks for the commentary on the amount of capital on looking at the space just in that light you guys have also increased from of acquisitions are doing and there's a couple of big deals out there I.
I know you don't really talk about future deals, but how interested would you be in.
Big deals, especially in a market like Cambridge.
Yes, So let me maybe react to that first of all it's always hard at the beginning of any year to now, especially this year of 2020, I mean, my gosh in March and April we had you know.
Cut and were planning to cut further capex because no one knew if this was going to be a repeatable weighed on nine in this sounds.
By by May It was pretty clear that that wasn't the case it was a different kind of.
Market shock so nobody knows at the beginning of any year during the year, what assets might come to market for what reasons. So I think it's always hard to speculate on acquisitions and we're always looking for ones that have an ability to satisfy internal tenant demand.
We have now we have hundreds and hundreds of tenants that.
We know where what they want to do going forward. So that gives us a huge competitive advantage.
And I think trying to match that up with solutions that.
That either exist or we can create.
I think when it comes to big portfolios I mentioned Blackstone before.
I think they're recapitalization and move from one fund to another.
And I guess, if there was an offer out there we know we know that the base portfolio well back in 2015 I described that there would be we didnt have interest then and we wouldn't have interest now.
It doesn't do anything for us.
Particularly.
And adding gigantic scale doesn't really make sense.
But I think they've done a great job of.
You know, calling that portfolio, and then really adding quality buildings.
Which were there some much many years ago.
And I think on the other big portfolio in Cambridge, we don't have any comment on that.
But I would say that's kind of an a minus b plus location, we have three mega campuses in the heart of Kendall square, which are AAA locations. So I think that gives you some insight on how we think about that.
Great and.
Joe maybe maybe I'll take this one as well how are you guys thinking about maybe the amount of manufacturing space. That's in your portfolio now and how much that might.
Ramp over time, one of the pictures you highlight in the supplemental the time around was a manufacturing facility, which I don't think you've done in the past it's.
Kind of curious how much of your space might not be labs, our office the more manufacturing.
Well, we have done manufacturing before we don't do remote manufacturing with somebody wants to build a plant in Puerto Rico, or you know, Iowa, Kansas or West, Virginia or some place.
We don't go to locations, where we think that.
There was no long term inherent value in the real estate. It's just an investment it's amortized over the term of the lease and then when it's gone you've kind of written down your assets. So that's never of interest, but I think given today remember what I said in my comments there are really two fundamental things going.
Things that have been evidenced by COVID-19, one is and whether it's the Trump administration or Bidens push is kinda parotid, what Trump has said.
Whether he can do it or not I don't know whether they'll have the chance are not don't know, but it's pretty critical that we do repatriate as much research development.
In manufacturing in the medical in the critical medical Arena and health care Arena back to the us for obvious reasons.
And where are those become either adjacent sees or in close proximity to headquarters in core R&D than we clearly have interest if they're in really random remote locations. There would be no interest and you have to also remember.
There was a new generation of companies today, particularly in cell and gene therapy.
And those those.
Those manufacturing capabilities, whether they'd be at the clinical level or at the full scale come.
Commercial level.
Are to a large extent.
Worth more than the company's research and so those become mission critical you can think of any number I mean Bluebird is a good example, any number of companies that have highly specialized.
[noise] manufacturing for these complex medicines in the future. So we think it becomes an integral part of our D C and now.
And I think it's a huge opportunity I think it's a huge opportunity for everybody in the United States because I hope it comes true I think the one negative thing that sits on the horizon is if if biden happened to win and you happen to be able to increase corporate taxes, he's going to do the very thing that weve sought not to do it.
Sales force companies overseas.
Move company's cash overseas.
Why would you want to operate in a high cost us environment, where you could operate overseas at a reduced price and so that would undermine the purpose of bringing back manufacturing. So we hope that doesn't happen.
Hey, Jordan.
Michael Bilerman here with Manny had one other one for you as you talked about overseas can you talk about the highly competitive nature for buildings here in the U.S. either acquisitions development deals conversion plays.
Have you.
Since your thinking at all about putting incremental dollars outside of the U.S. at all and I recognize you've you've had fits and starts on global and the message pre Cove. It was.
Yes on the core markets here in the U.S. I'm just wondering if the returns have been driven down to such low levels here and there. So much competition, whether that you have an advantage of going global given your operational and investment expertise.
Yeah. So that's a really good question and you know a little bit of the history of back in the old five or six or seven there a pre pre crashed we entered both China and India.
After getting into India became pretty clear the Indian Supreme Court invalidated. The Gleevec patent it was pretty clear that novel research wasn't going to India, and it's a tough place to operate from a.
Foreign crop private practices Act. So we terminated we sold our operation there China, we have but we only did two projects. We sold one we have one remaining the problem in China is and we refuse to tie up with a local partner, even though that was kind of recommended by what happen.
And is is this government build.
Crappy buildings around your nice building it'd be putting like.
You know something like eight.
Many storage unit next to a first class lab, and then telling the Chinese to go in there and operate a lab, which they do at pre ramp because of government told them to do it and so that's a hard business model to follow but I think November 3rd or thereafter, we'll we'll be revealing of the answer to that question I don't think I could answer it at the most.
But yeah.
If if it turned out there was a blue wave.
I'm.
And it turned out that they dramatically increase corporate taxes, then I think the answer is you'd have to look at the possibility of thinking overseas because the government would have just done the exact opposite of what makes.
Compelling sense to keep companies in this country it competitive tax rates and keep their critical operations here. So I think November 3rd or thereafter, we'll be revealing about question yeah.
Yeah, I was thinking more so Europe, UK, Canada, rather than going back to China.
China, India, but we can certainly have the discussion at Investor day. So thank you so much and if we go into New Zealand I'm sure I'll be down there to help start that off.
[laughter].
The next question comes from Sheila Mcgrath with Evercore ISI. Please go ahead.
I guess good afternoon on the acquisition in RTP that went to market. You previously had a smaller present then I was wondering if you could talk about the market dynamics. There that may have changed you to be more bullish details on demand drivers and any insights on the embedded growth opportunity at that.
That.
Yes, so what we have been in the triangles. Since 1998, we were early in there and we've always been attracted because.
In the early days North Carolina was very aggressive in providing incentives to companies wanting to move down therefore in the biotech space in particular.
And we really like that market anchored by Duke.
You can see an NC state Duke.
Do can you and see in the healthcare Arena and then see stay more in the AG Arena.
And I think we saw that the market, though have pretty slow growth and in fact lost rental.
Rate increased momentum for quite a long time during the year.
From like Oh, eight through you know say 2016 or something so almost a decade, it really struggled and when the urban cores were.
Kind of being the most popular people didn't want to go down to kind of sleepy.
Research triangle and hang out in a wooded beautiful area by a lake that is a little bit reversed its course as you could imagine given what's going on in New York and some of these other cities that have seen you know a lot of both rising crime and.
Obviously the impact of co bid.
And homelessness and things like that so we have as I mentioned in my comments, we have a large number of certainly an important number large square footage of existing tenants, who have expressed interest in creating either expansion or.
New space down in research triangle, and so that really motivated us in a substantial way also our market share. There now is moved to about 40%, which gives us the scale of three mega campuses, where we have a lot of existing solutions and a lot of to be built solutions. So thats.
Kind of where we want to get too.
Okay, Great and then could you give us your updated thoughts on the downtown San Francisco market. The plans for 88, Loxam and insights on strike.
Stripe subleasing it stays.
Yes, Steve.
Yes, Hi, Sheila it's Steve here, yes stripes or plans for sub leasing I think we're always the case with the relocation in South San Francisco.
You know they haven't done anything official yet I.
I think they're just playing feelers out so that's very much a TBD and then with eight blocks and you know we have but important preconstruction activities.
That will be undertaking the next several quarters here.
When you look at that building. It is a lab ready shell. So as Peter was total highlighting that contrast between the office products in lab product yes.
We will have the Florida, Florida live load the capability shipping and receiving on so when you start looking at you know mid rise facility a lot of outdoor space or the capability to go lay out you know, we think it's going to be an extremely desirable products. So that we will see a this time next year.
Where we're at.
Okay, great. Thank you.
Thanks Sheila.
The next question comes from Rich Anderson SMBC Nikko. Please go ahead.
Thanks, Good afternoon, everyone.
Peter.
Further process team and you know the triple net nature of your leases pass through a tenant recovery increases and all that sort of stuff but.
Someone's gonna be left holding the bag. If this thing passes and I'm wondering how you guys might feel about the vulnerability of California in general it's kind of a complicated state to begin with it. If you think that propped 15, passing ultimately does kind of slow down rent growth or create some sort of motivation for companies to exit.
At an increasing pace or someplace else.
So let me, let me make a comment before.
Yes.
Ask Peter to answer that question Rich I think everybody is looking carefully at California Health peak, just announced the relocation of their headquarters I guess from a.
Long beach area or wherever it is too I think Denver fund not my memory serves me up the founding shareholder of our company.
Who put in the principal amount of money when we started Jacobs engineering left Pasadena for our Plano, Texas, a couple of years ago, obviously tax motivated. So there is a historic number of companies and people looking at California. The day and wondering is the state can save itself.
And are the cities going to save themselves. Obviously homelessness has been a big problem in a number of cities. Obviously, you've got fires you've got earthquakes, you've got the natural disasters different than other parts of the country, but everybody has got something but more important is relate governance sensible governance.
Were working pretty intensively in fact, we had a long call it.
Internally yesterday on trying to assist the city of San Francisco on you know homeless solutions thinking about could we bring the 115 date and solution for opioid addiction to homeless.
No in San Francisco as a model to try to help solve that problem.
So the numbers show something like over 70 or 80% of homeless people.
Generally have some kind of addiction or mental health issue. So just putting them somewhere doesn't work you've really got to bring intensive services. There. So I think all companies are really really looking at California and fairly realistic in important ways, but with that you know.
End of long winded intro Peter fire away.
Yes, sure rich and it's obviously a great question.
Look.
Would it be much better if if this doesnt pass.
It would be because it would just.
Maybe give people confidence that California isn't necessarily going to continue.
Continue to search for revenue sources from business.
That said.
You know.
As I mentioned, we pass through the cost and and you inferred well eventually offer your occupancy cost is getting it is going to go up it will but our analysis is that it would be in the slow or low single digits.
Overall for the company and.
And I would take you back to a you know a lot of questions. We get about just when when rents are rising in a market very quickly for always like while at what point is it going to just get so expensive people go elsewhere and the answer as well it really well because these companies need to be anchored where they are because.
Typically located where they are because of.
Institutions that they collaborate with so.
So.
The increase in operating expenses is not something anyone wants to see is it going to cause them to move we would think probably not and then you know the overwhelming amount of annual revenue.
You know comes through Alexandrias from very large pharma.
Pharma and biotech where.
Opex or.
That rent and operating expenses.
In the context of their overall cost structure is like 1% to 3%. So it's not going to move that needle.
It's going to be an annoyance, but again wanting to be near the institutions, which is why we're in these markets is going to really win the location selection at the end of the day and on an alliance of the property tax increase will ultimately be absorbed okay.
And the interest of time I, just have a real quick yes, or no one on the Pentrust building well that now will be redesigned for lab use or how will that be modified since you haven't gone vertical yet.
[noise] Rich hi, it's Steve I again from the very outset, we design that is a lab ready shell. So we do not need to make any modifications and we have the ability to both accommodate lab and technology users. Okay. Thanks, very much Steve thanks, everyone.
Thanks Rich.
The next question comes from Michael Carroll of RBC capital markets. Please go ahead.
Yes, [laughter] touched on the research triangle acquisition again, I think you and Joe you mentioned a little bit this earlier in the call, but let's see the derm site, how different is that from the AG Tech side in the advanced technology campus I mean, I know the AG buildings have a different build out but are each individual campuses.
You have down in North Carolina, better suited for different tenants or.
Or could they could each can you take.
The types of tenants that either of these campuses.
Well the AG Tech campus will and they're all in pretty close proximity.
The AG Tech campus is really dedicated to AG Tech.
And the advanced technology campus.
It will be primarily life science and it also sits next to a.
A a building we have that is chock full of small growing tenants. So there's a natural a growth trajectory there and then the Durham campus. We just bought and are in the process of doing quite a bit of retrofitting and redeveloping, a will be primarily life science as well.
Okay, and the demand that you've seen in the research triangle market. I mean is it from the life science demand or the AG Tech demand and I know you have a lot of space under construction right now but is that.
Enough demand to support another ground up development or you just want to complete that you guys had going on today.
[noise] well, it's primarily life science, although there is AG tech activity, it's not quite as broader his deep obviously, because the industry is just a very different structured industry.
But we do have.
Two developments on our advanced technology campus going up and we've got pretty robust demand from existing tenants there.
And one build to suit that we're doing and then on the Durant campus. We are accommodating a number of existing tenants or relationships that have expressed they want.
Media existing solutions, which we really didnt out and that was a big motivator for us. So we hope to do both and we think there is.
Good pent up demand hopefully the tax if there are tax changes they wont screw it all up.
Because obviously some companies who might expand here in in the USA today, maybe next year if things go in a different fashion. They might go overseas, we would be sad to see that happen.
Okay, great. Thanks, Joe.
Yeah. Thank you.
The next question comes from Dave Rodgers of Baird. Please go ahead.
Yeah, maybe first question for Peter and Steve just with regard to San Francisco, you talked specifically about 88, but maybe go back to your comments Peter on 975 market just with respect to you said it made a lot of sense for a lot of reasons to sell that but there's a pretty quick turnaround for you and obviously price maybe wasn't the motivation so.
If you could talk about why after that and then why that doesn't have an implication on how you think about block some that would be helpful.
Yes, Steve you want to take that.
Sure Hey, David Steve.
Yeah, when we looked at that.
As said you know to receive an unsolicited offer and then also to look at you know its location along market Street was somewhat of a one off kind of at the edge of the cluster at best of Selma.
It really didn't make sense to go ahead and exit thanks.
Just think that scale and the size of 88 Bloxom now is much much different and qualitatively you know in a different position.
Really at the edge of the mission Bay there. So I do think we have the opportunity at scale to help life science or technology, whereas the market Street location was just a ultimately a smaller project there.
We weren't really going to build a cluster adjacent to that and again as Peter said, receiving an unsolicited offer and recycling that capital with these other opportunities just made great sense.
Thanks for that and I would just add.
I'd just add that 80 at bloxom as much.
Closer extension of mission Bay and market Street. So it makes a lot more sense to be our.
Huh.
Our next development to.
Build on that cluster.
That market Street would.
[noise] and is that I mean, the sales just indicative and you have your mind at maybe a I don't want to be shrinking San Francisco market, but obviously the lab market is going to be one component of it but but office maybe in a deterioration mode here is that indicative of that thinking.
Is that how we should think about it.
I think you just have to look at that in isolation named in those circumstances that led us to make that decision.
Okay.
Thank you for that and then maybe Dean just on the.
Aerie ventures investments that you guys had $1.3 billion, including the unrealized gain do you just anticipate continuing to want to sell more of that I mean, do you want to manage that with certain size of the portfolio and with the gains.
Embedded in there do you want to try to get that portfolio size down in any particular way I guess, maybe not necessarily guidance on quarter by quarter or 2021, but how you want to kind of manage the gains in there to realize those as quickly as you can.
David Dean here I'd say, the overall strategy for the venture portfolio has been delayed.
To carefully.
Manage that aspect of our business.
You look back over several years now I think.
The aggregate dollars invested from a cost perspective has actually declined as a percentage of total assets or assets have grown.
On the real estate side over time and like I shared in my commentary we.
Cash flow perspective, the venture portfolio, it's been about neutral this year.
So still always careful about selective new investment opportunities.
Yeah, but you know.
Given what Joel that mentioned, if you look back over since 2013, there's been a real.
Acceleration of innovation, so we're seeing a lot of exciting opportunities, but still being very selective Dave.
I think we've commented that the size of the venture portfolio will always moderate in size somewhere in that 3% to 5% from a cost basis perspective, and it's you know closer to 3.5% today down.
From where it was a couple of years ago.
Okay that makes sense. Thank you I appreciate it.
Next question comes from Tom Catherwood of BTI Ji. Please go ahead.
Great. Thanks, and good afternoon, everyone. Just a quick clarification on the RTP acquisition.
I.
Believed that the Parmer Park also had a few office assets and it didn't look like they were part of your acquisition of the 16 buildings is that correct.
Hey, Peter you want to talk to that.
Yeah No I.
There are.
I think it's.
I don't have the exact number but there are a few.
You assets that are currently.
Used his office.
And lease as office that we consider.
Future upside, there's either one or two storey buildings that could be converted the labs. So.
All of the assets that were on the campus where.
Sold to us and we own all of them.
Got it kind of got it got it okay.
The shoe then switching over to Cambridge, Joel you you had mentioned you know how hard it is to bring supply on in that market.
And this quarter you move 325, Binney from the intermediate development bucket into near term and you were able to add another 48000 square feet of density.
How soon do you think you can get to that site and begin that project. If you have a tenant and are there differences between the types of tenants or tenant requirements that are looking at your Cambridge site versus 15, Neko in the seaport or 57 Coolidge in Watertown.
Yeah, So maybe I'll give a job.
Intro to that and maybe let Peter talk about it but we.
We got a we had substantially ups owned I think about two acts from what was the as of right now.
The square footage I think the square footage Weve got is north of 400000, we just got design approval just the other night. So we're moving full steam ahead, we have a handful of existing tenants who are looking for expansion space. So were.
Likely this building will be a little bit like what we did in Seattle at 188.
Or 18 18.
Eastlake when 88, Blaine I forgot the exact address there where we create an almost 200000 square foot building multi tenant life science building and accommodated you know most of our many of our existing tenants who needed more space I think that's what's going to happen to three to five binney.
I think companies that are in Cambridge would prefer to be in Cambridge.
The seaport I think offer some.
Nice opportunities, but I think Cambridge would be first choice, but Peter you could comment.
Yeah, absolutely I mean can't Cambridge is still the place everybody wants to be.
The opportunities there are very limited.
We Fortunately have one.
We've been very proactive to figure out where.
People could go that need to be in close proximity.
Watertown was one of our strategies working out very well the demand there has been strong.
Stronger than we were matching and it makes a lot of sense that the C Corp would also be as attractive.
In a in a way maybe a bit more to those that are more Cambridge centric because it is linked by the Red line you.
You can get from South station to Kendall square and about 12 to 15 minutes and obviously the amenities and that's four point channel area.
Mimic what you can find in Cambridge as well. So we think it's good natural extension. So those that may not have the ability to be in Cambridge, but need to be close by.
Got it thanks, everyone.
Thanks, Tom.
Your next question comes from tell you well.
Yes.
Maam. Please go ahead.
Hi, Yes. Good afternoon, everyone I just wanted to go back to the door her Mack <unk> and <unk>.
Trying to understand a little bit better tenant base in that building you need from a new versions of the product maybe to do you can you and he is a major reason on Viasat and I'm, just curious as to kind of more kind of traditional life sciences or does it have an aspect of kind of the university be R&D based life.
Sciences, I often have changed.
And on that and you know and Brandywine talk about Philadelphia.
It is that just kind of as you know.
Why you're not going to find that type of lifetime attractive or not.
Okay, I'm not I'm not sure I could hear you. When you described about Philadelphia could you repeat that.
I think again, we've been talking Brandywine and then often talk about Philadelphia University based life Sciences.
And again I think with some other comments around that by being close to do.
Hi, I'm just kind of curious didn't do you also consider the university he's.
Lifepoint Oh, yeah.
Yeah, I don't Yeah, we don't we don't think like that this is not.
Yeah that that's just a different I don't know way of thinking. This is a you know a this is originally the glaxo campus that was bought and.
Redevelop to I think the timing and the job that was done by the the seller was really good.
We came in there are.
Strong number of existing credit tenants, among which is Duke.
Duke has a important lab presence there that that's attractive to us but that wasn't the major reason for the major reason was it had good existing solutions and a number of future solutions that would accommodate up existing tenants expansion and growth of ours that we had.
And it gave us a three camp, but three mega campus opportunity down.
Down in the triangle.
This is in the park the park is not adjacent to Duke it's not adjacent to you and see it's some miles away or NC state.
So I wouldn't compare that all too it's nothing like Philadelphia, just totally different ballgame.
Yeah Joel.
I can I mean, there's there are a total of six tenants there five six or our credit tenants the six ones actually crop.
Probably also a credit tenant now and.
And only Duke is a university related so I'll Echo what Joe said this is nothing like a university play that dentists would have done.
Yes. The challenge if you do universities is if you're entirely dependent on the University and universities, you know can be up and down and so forth and you have no commercial tenant base you really at the Mercy of the University, which we've never wanted to be that's why we've never really.
We've gone after that business model.
[noise] you comment if not international would you actually consider a new market or within the U.S.
[noise] up Yeah, we said we might I think our hands are full in our existing markets because they're so vibrant and.
Keeping us busy we have a.
You know a big budget this year to fulfill and so at the moment, we're not focused on.
Or ready to announce any any expansion markets, because we're pretty occupied and where we are but you know.
Who knows what the future may have given you know post election, what may happen there.
Right. Thank you yep.
Yep. Thank you.
And the last question today will come from Daniel Ishmael Oh. Please go ahead.
Great. Thank you I just a few quick ones for me.
Another good quarter on a cash releasing spreads so I'm curious on a portfolio wide basis were in place rice said relative to markets.
[noise], so dean maybe a comment.
[noise] yeah. So.
I just wanted to be sure. It was off mute the overall portfolio I think over the last number of quarters have been.
The you know up or.
Teens on average both GAAP and cash.
So I think the continued overall constraints and supplying good fundamentals in our core markets I think is.
Told us.
The upside on the overall portfolio.
[noise], Okay, and you I appreciate the clarity on the concessions and leasing costs, but can you frame how net effective rent growth say year over year across your portfolio are we talking 5% to 5% up 10% up.
[noise] [noise] you know it turns out.
I don't have that specific analysis for this quarter.
But if I think back to the last several quarters net effective rents have trended nicely.
I think the only the only change in.
That I can see that might make that picture a little bit harder to to see as we go forward is you've got to you know through the acquisitions, we've got a broader mix of assets in the portfolio, including this research triangle.
Project.
As well as the Arsenal on the Charles is couple examples.
But net effective rent generally it's been trending very well for the last number of years as well as the last several quarters.
I can't tell you specifically for this quarter right now though.
Okay, and just last one for me the each one is easy to program and potential changes have.
Been more highlights what the potential impact to the tech industry, but can you comment on.
On the potential impact it might have in life science industry in terms of employment hiring.
Yeah I think.
You know I'm not an expert in that but I think it's pretty clear that there are quite a number of sites.
Scientists from other countries, who have unique skill bases that are here under that visa.
Category or designation and it would be positive to keep that to keep that going for sure I know there is some sensitivity.
On and there have been a bunch written about.
People coming over from China, working in universities with professors and may be.
There being some national security issues, there that I know the government has looked pretty carefully up but set that aside I think it's been a very positive.
A positive program and certainly very helpful to the life science industry.
Great. Thanks, everyone.
Thank you very much.
This concludes our question and answer session I would like to turn the conference back over to Joel Marcus for any closing remarks.
Okay. Thank you very much sorry for a long call. During this third quarter co, but look forward to talking to you on fourth quarter and year end. Thank you and everybody. Please stay safe.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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