Q4 2021 Alexandria Real Estate Equities Inc Earnings Call
[music].
Good afternoon and welcome.
Speaker 1: Good afternoon and welcome to the Alexandria Real Estate Equity's fourth quarter 2021 conference call. All participants will be in line.
To the Alexandria real estate equities fourth quarter, 2021 conference call.
All participants will be in listen only mode.
If you need assistance.
Speaker 1: If you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Thanks, Mike.
Zero.
After todays presentation, there will be an opportunity to ask questions.
Speaker 1: After today's presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
Speaker 1: To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.
Your question. Please press Star then two.
No.
Please note this event is being recorded.
I'd now like to turn the conference over to Paula Schwartz of Investor Relations. Please go ahead.
Speaker 1: I would now like to turn the conference over to Paul Schwartz of Investor Relations. Please go ahead.
Thank you and good afternoon, everyone. This conference call contains forward looking statements within the meaning of the federal Securities laws. The company's actual results might differ materially from those projected in the forward looking statements additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements.
Speaker 2: Thank you, and good afternoon, everyone. This conference call contains forward-looking statements within the meaning of the federal securities laws. The company's actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's 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.
And 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.
Thank you Paula and welcome everybody to our fourth quarter and 2021 year end call.
Speaker 3: Thank you, Paula, and welcome everybody to our fourth quarter and 2021 year-end call. With me today are Peter Moglia, Steve Richardson, and Dean Shigenaga. And with that welcome, I wanted to thank you for joining and wish everybody a happy Chinese New Year, starting today, the Year of the Tiger.
With me today are Peter Moglia, Steve Richardson, and Dean Chicken Naga and <unk> with that welcome I wanted to thank you for joining and wish everybody a happy Chinese new year, starting today the year of the Tiger.
We at Alexandria River, very honored and pleased to report on a truly historical historic and remarkable.
Speaker 3: We at Alexandria are very honored and pleased to report on a truly historical, historic and remarkable fourth quarter and 2021 year-end results, really demonstrating operational and strategic excellence by really each and every metric. And what I think is truly unique and audacious is that Alexandria has operated during this past two years, the 2021.
<unk> fourth quarter, and 2021 year end results really demonstrating operational and strategic excellence by really each and every metric and what I think he is truly unique in our nations is that Alexandria has operated during this past two years the 2021.
2020 in 2021 will be known as the Covid era really at the highest operational tempo ever.
Speaker 3: 2020 and 2021 will be known as the COVID era, really at the highest operational tempo ever and at a sophistication and scale that few REITs could ever accomplish. And in the words of Jim Collins, Alexandria has truly achieved three outputs that define a great company. Superior result.
And it is sophistication and scale that few Reits.
Could ever accomplish and in the words of Jim Collins, Alexandria has truly achieve three outputs that define a great company superior results.
Stinker of impact and the lasting endurance and I want to thank profoundly each and every one of the extraordinary Alexandria family team members on a sensational performance during 2021.
Speaker 3: distinctive impact and lasting endurance. And I want to thank profoundly each and every one of the extraordinary Alexandria family team members on a sensational performance during 2021.
Napoleon <unk> strengthened growth come only through continuous effort and struggle.
Speaker 3: Napoleon once said, strength and growth come only through continuous effort and struggle. And over the last 25 years, we came public in May 97, so we'll have our 25th anniversary in May. We took this small company public three years after we started it with $19 million Series A. And as of the end of the year, December 31, 2021, we had reached a phenomenal total market cap of $44 billion.
And over the last 25 years, we came public in May of 97. So we will have our 25th anniversary in May we took the small company public three years. After we started it with $19 million series E and as at the end of the year December 31, 2021, we had reached a phenomenal total mark.
Get cap of $44 billion.
For the period of Covid. The 2020 in 2021, Alexandria T. S. R. Approximated 45 plus percent exceeding by a wide margin. The office index with the total return of minus <unk>, 5%.
Speaker 3: For the period of COVID, the 2020 and 2021 Alexandria's TSR approximated 45 plus percent, exceeding by a wide margin the office index with a total return of minus 0.5 percent.
And since our IPO 25 years ago in May 97.
Speaker 3: And since our IPO 25 years ago in May 97, we've been proud and fortunate that our total shareholder return has exceeded 2,500%, significantly outperforming the S&P 500 and office REIT indices at 939% and 552% respectively. And we're always playing the long game.
Been proud and fortunate that our total shareholder return has exceeded 2500% significantly outperforming the S&P 500, and office REIT indices at 939% and 552%, respectively and were always playing the long game.
Speaking about fourth quarter and year end.
Speaker 3: Speaking about fourth quarter and year end, very robust results. Our life science markets as evidenced by our fourth quarter and full year results truly were a blowout in many respects and most of which, as clearly highlighted, has been leasing. And that really sets us up nicely for a very strong 2022 and beyond.
<unk> robust <unk>.
<unk>, our life science markets as evidenced by our fourth quarter and full year results truly were a blowout in many respects and most of which.
Huh.
Clearly highlighted has been the leasing and that really sets us up nicely for a very strong 2022 and beyond.
The continued robust demand from really one of the most innovative and transformative industries in the United States. The life science industry, one, which is not really cyclical, but which is event driven.
Speaker 3: The continued robust demand from really one of the most innovative and transformative industries in the United States, the life science industry, one which is not really cyclical, but which is event driven.
I think does set us up and enables us our brand and our.
Speaker 3: I think does set us up and enables us our brand and our.
Talented and special.
Special operational lab space affords us a very <unk>.
Speaker 3: special operational lab space affords us a very.
Very strong pricing power in each of our cluster markets and really in many ways.
Speaker 3: very strong pricing power in each of our cluster markets, and really in many ways sets us up to have a very strong earnings growth year here in 2022 and into 23 and 24. We continue to create highly accretive value creation opportunities to meet the current demand of over our 850 innovative tenants and importantly provide a path for future growth.
Sets us up to have a very strong earnings growth year here in 2022 and into 'twenty, three and 24, we continue to create highly accretive value creation opportunities to meet the current demand of over our 850 innovative tenants and importantly provide a path for future growth.
Although we've reiterated 2022 guidance and Dean will speak more about that in a moment.
Speaker 3: And although we've reiterated 2022 guidance, and Dean will speak more about that in a moment, the 826 to 846 FFO per share, we will clearly revisit and update that in the first quarter earnings release. We have very strong momentum at our back.
The <unk> 26 to 846 F O per share, we will clearly revisit and update that in the first quarter earnings release, we have very strong momentum at our backs.
As most of you know when we often comment with 10000 knows known diseases to humankind less than 10% really have addressable therapies today and we are truly in the early days of the Golden age of Biotechnology and biology.
Speaker 3: As most of you know, and we often comment, with 10,000 known diseases to humankind, less than 10% really have addressable therapies today, and we are truly in the early days of the golden age of biotechnology and biology.
Advances in innovation are happening it happening at unprecedented speed and driving human health and quality of life in a positive direction, Steve jobs commented many years ago. When he predicted he thought that the biggest innovations of the 20 <unk> century would be the integration of biology and technology.
Speaker 3: Advances in innovation are happening at unprecedented speed and driving human health and quality of life in a positive direction. Steve Jobs commented many years ago when he predicted he thought that the biggest innovations of the 21st century would be the integration of biology and technology.
We've achieved we've achieved historic milestone in many respects and hopefully you enjoyed the press release and supplement where we tried to highlight those in our in both graphical and word form.
Speaker 3: We've achieved historic milestones in many respects, and hopefully you enjoyed the press release and supplement where we tried to highlight those in both graphical and word form.
Truly and others will speak about this in a moment the highest leasing volume in the company's history $9 5 million square feet, just an awesome achievement.
Speaker 3: Truly, and others will speak about this in a moment, the highest leasing volume in the company's history, nine and a half million square feet, just an awesome achievement.
Doubled annual revenues at our 2017.
Speaker 3: Doubled annual revenues at our 2017
Investor Day, we gave a framework that we would hope to do.
Speaker 3: uh... investor day we gave a framework that we would uh... hope to
Double annual rental revenues in five years, and we exceeded that about a year and a half ahead of time. We also concluded the largest acquisition in the company's history. During 2021 our entry into the Fenway Submarkets and over 1 million square feet was leased to our long time tenant and.
Speaker 3: double annual rental revenues in five years, and we exceeded that about a year and a half ahead of time. We also concluded the largest acquisition in the company's history during 2021, our entry into the Fenway sub-market.
Speaker 3: And over 1 million square feet was leased to our long-time tenant.
Very close relationship Madonna.
Speaker 3: very close relationship, Moderna. And I would say probably most importantly, and I think Dean, Peter, and Steve will probably all comment on this, our historically high and strong leasing value creation pipeline really foreshadows outside growth coming for the, coming into the.
And I would say, probably most importantly, and I think Dean Peter and Steve will probably all come on on this are historically high on strong leasing value creation pipeline really for shadows outside growth coming for the coming into the.
Upcoming years, including 2020 to nearly 8 million rentable square feet under construction are expected to commence over the next six quarters to generate over $610 million of incremental annual revenue.
Speaker 3: upcoming years, including 2022. Nearly 8 million rentable square feet under construction are expected to commence over the next six quarters to generate over $610 million of incremental annual revenue. We think really sets us up in an extraordinary fashion. So with that, let me turn it over to Steve for some important commentary.
We think really sets us up in a in an extraordinary fashion so with that let me turn it over to Steve for some important commentary.
Thank you Joel and good afternoon, everyone, Steve Richardson here.
Speaker 4: Thank you, Joe, and good afternoon, everyone. Steve Richardson here.
2021 was indeed, a Europe historic demand installs just outlined in the life science industry.
Speaker 4: 2021 was indeed a Europe historic demand, and Joel's just outlined in the life science industry. And for leasing milestones from the Alexandria team, the nine and a half million square feet of total leasing was a record shattering figure, and the 4.1 million square feet during Q4 alone doubled the previous highest quarterly leasing run rate.
For leasing milestones from the Alexandria team, the nine and a half million square feet of total leasing wasn't record shattering figure.
And the $4 1 million square feet during Q4 alone doubled the previous highest quarterly leasing run rate.
The highlight however may have been the three 8 million square feet of leasing in the value creation development and redevelopment pipeline with the emphasis on quality. We had two large scale ground up class a plus facilities featuring long term leases to credit tenants.
Speaker 4: The highlight, however, may have been the 3.8 million square feet of leasing in the value creation development and redevelopment pipeline with the emphasis on quality. We had two large-scale, ground-up Class A plus facilities featuring long-term leases to credit tenants.
462000, rentable square foot.
Speaker 4: The 462,000-runnable square foot facility at 325 Binney leased to Moderna for their lab headquarters, and the 231,000-runnable square foot facility at 751 Gateway for Genentech Roche's lab facility were ably led by our teams on the ground in Greater Boston in the San Francisco Bay Area. And important to note, both Moderna and Genentech Roche are longtime lab tenants of Alexandria.
<unk> at three to five binney leased to <unk> for their lab headquarters and the 231000 in front of both square foot facility at 751 Gateway.
Genentech Roche's lab facility, where ably led by our teams on the ground in greater Boston and San Francisco Bay area and important to note, both <unk> and Genentech Roche, our longtime lab tenants of Alexandria.
A hearty shout out as well to our teams for a superb year during 2021.
Speaker 4: And a hearty shout out as well to our teams for a superb year during 2021.
We also look to the metric we don't normally analyze but consider the following the 9.5 million square feet of total leasing provides in excess of $6 billion of contractual triple net base rents.
Speaker 4: You know, we also looked at a metric we don't normally analyze, but consider the following. The 9.5 million square feet of total leasing provides in excess of $6 billion of contractual triple net base rent.
$6 billion of contractual base rent already significant financial metric, but maybe more important is in the market reality of this leasing success.
Speaker 4: $6 billion of contractual base rents are a significant financial metric, but maybe more important is the market reality of this leasing success.
The meaningful expansion of their formidable moat. The Alexandria team has carefully and strategically created since the company's inception 28 years ago.
Speaker 4: the meaningful expansion of the formidable moat the Alexandria team has carefully and strategically created since the company's inception 28 years ago.
Also consider that this nine and a half million square feet of total leasing comprised 318 lease transactions with 280 different life science tenants in our core clusters.
Speaker 4: Also, consider that this 9.5 million square feet of total leasing comprised 318 lease transactions with 280 different life science tenants in our core clusters.
This dynamic activity could not the historic or contrast, with other entities.
Speaker 4: This dynamic activity could not be a starker contrast with other entities.
And random groups, who may be less than 25% to 50000 square feet and occasionally a 100000 square feet here and there to a handful of life science tenants oftentimes outside of our core clusters as an investor the value proposition offered by Alexandria is very clear we are laser focused on the life science industry.
Speaker 4: and random groups who may be leasing 25,000 to 50,000 square feet and occasionally 100,000 square feet here or there to a handful of life science tenants, oftentimes outside of our core clusters.
Speaker 4: As an investor, the value proposition offered by Alexandria is very clear. We are laser focused on the life science industry. This is not a side car or a new initiative for the company. As we continue to execute on creative and long-standing relationships to drive growth in our core markets.
This is not a sidecar or a new initiative for the company as we continue to execute and creative and long standing relationships to drive growth in our core markets.
The dominant presence of our brand and Mega campuses, providing singularly compelling story in the life science real estate market with our stellar reputation for delivery of high quality on time and on budget infrastructure and.
Speaker 4: The dominant presence of our brand and megacampuses provides a singularly compelling story in the life science real estate market with our stellar reputation for delivery of high quality, on time and on budget infrastructure in an incomparable complex lab operation.
And incomparable complex lab operations.
Now let me elaborate on a few additional highlights for a milestone late in 2021.
Speaker 4: Now let me elaborate on a few additional highlights for a milestone late in 2021. The core continues to outperform with impressive renew and releasing spreads of 22.6 cash and 37.9% gap during 2021.
Core continues to outperform with impressive renew when re leasing spreads of $22 six cash and 37, 9% GAAP during 2021.
We have significant embedded upside with mark to market now with 31% plus this is nearly double the mark to market of 17% at the end of Q4 2020.
Speaker 4: And we have significant embedded upside with mark-to-market now at 31% plus. This is nearly double the mark-to-market of 17% at the end of Q4 2020.
For 2021 with 99.9%.
Speaker 4: AR for 2021 was 99.9%. Huge kudos to our best in class operations teams for their continued close relationships with our tenants throughout COVID these past two years.
Huge kudos to our best in class operations teams for their continued close relationships with our tenants throughout the Covid. These past two years.
Early renewals during 2021 were 82% compared with our historical 71% rate.
Speaker 4: Early renewals during 2021 were 82% compared with our historical 71% rate. In the exceptional health of Alexandria's value creation pipeline at scale, 7.4 million square feet is one of the largest and highest quality pipelines amongst all REITs.
And the exceptional health of Alexandria as value creation.
Pipeline at scale, seven 4 million square feet, and it's one of the largest and highest quality pipelines amongst all rights.
Increase the lease negotiating percentage to 83% and Peter will comment on the details later and significantly derisked the delivering of the incremental revenues of $610 million noted on page 34 of this up.
Speaker 4: We've increased the least negotiating percentage to 83% and Peter will comment on the details later. And significantly de-risk the delivering of the incremental revenues of $610 million noted on page 34 of this sub.
Let me turn to supply and demand for a moment on demand as we've highlighted throughout the recent investor day presentation. In these fresh statistics, clearly indicate alexandria as compelling value proposition for our tenant base and our unique mega campuses has enabled us to capture not only a very large market share.
Speaker 4: Let me turn to supply and demand for a moment. On demand, as we've highlighted throughout the recent Investor Day presentation, and these fresh statistics clearly indicate, Alexandria's compelling value proposition for our tenant base and our unique megacampuses has enabled us to capture not only a very large market share, but also the highest quality tenants in our core cluster.
But also the highest quality tenants in your core clusters.
As we analyze supply again, we do not foresee any major supply disruptions during 2022 and 2023.
Speaker 4: And as we analyze supply, again, we do not foresee any major supply disruptions during 2022 and 2023.
And the delivery of large scale supply actually materializing is highly uncertain during 2024 and beyond for other potential new entrants.
Speaker 4: And the delivery of large-scale supply actually materializing is highly uncertain during 2024 and beyond for other potential new entrants.
<unk> entitlement risk.
Speaker 4: They face entitlement risk, operational risk for tenants considering unproven landlords, capital market risk with the recent increased volatility related to construction start.
Operational risk for tenants, considering the improvement landlords capital market risk with the recent increased volatility related to construction starts.
Supply chain risk because they considered plunging into a new technical and complicated product type.
Speaker 4: chain risk as they consider plunging into a new technical and complicated product type and the very significant underwriting risk posed by the nature of the biotechnology industry.
And the very significant underwriting risk posed by the nature of the biotechnology and your street.
So we are monitoring supply closely but consider these risks to be very strong headwinds for others.
Speaker 4: So we are monitoring supply closely, but consider these risks to be very strong headwinds for others.
In conclusion, as we start 2022 with enthusiasm for the highly disruptive therapies for huge unmet medical needs on the horizon by our more than 850 innovative tenants we look.
Speaker 4: So in conclusion, as we start 2022 with enthusiasm for the highly disruptive therapies for huge unmet medical needs on the horizon by our more than 850 innovative tenants, we look forward to updating you on our progress in the coming months.
Forward to updating you on our progress in the coming months.
With that I'll hand, it off to Peter.
Thanks, Steve I'm going to update you all on the value creation pipeline I'm going to discuss what we're seeing with construction cost and supply chain issues and summarize our fourth quarter asset sales, which should bring to life. The great opportunity investors have right now to benefit from the disconnect between our stock price.
Speaker 5: Thanks, Steve. I'm going to update you all on the value creation pipeline. I'm going to discuss what we're seeing with construction costs and supply chain issues and summarize our fourth quarter asset sales, which should bring to light the great opportunity investors have right now to benefit from the disconnect between our stock price and NAV due to overlooking the strength of our fundamentals and the reality on the ground in favor of macro.
And then a V due to overlooking the strength of our fundamentals and the reality on the ground in favor of macro theme.
Our quarterly and annual performance, even in volatile times, we've been able to post exceptional results less than a handful of Reits can operate at that scale of operational excellence.
Speaker 5: Just look at our quarterly and annual performance. Even in volatile times, we've been able to post exceptional results. Less than a handful of REITs can operate at this scale of operational excellence.
And even fewer have a dominant share of each of their major markets, our high quality tenant base and own the vast majority of a scarce asset class investors seem to be missing. This.
Speaker 5: Even fewer have a dominant share of each of their major markets, a high-quality tenant base, and own the vast majority of a scarce asset class.
Projects that are either under construction are expected to commence construction in the next six quarters are projected to deliver greater than $610 million in incremental rental revenues, primarily from the first quarter of this year through 2024, what Joel and others termed as the Golden age of biotech.
Speaker 5: Projects that are either under construction or expected to commence construction in the next six quarters are projected to deliver greater than $610 million in incremental rental revenues, primarily from the first quarter of this year through 2024. What Joel and others termed as the golden age of biotech today and during Investor Day, due to the accelerating discovery and development of effective new modalities such as cell, gene, and RNA and DNA therapies,
Today and during Investor day, due to the accelerating discovery and development of affected new modalities, such as Celgene and RNA and DNA therapies continue to accelerate demand for life science real estate throughout the year and especially in the fourth quarter, resulting in Alexandria, shattering a number of leasing records.
Speaker 5: continue to accelerate demand for life science real estate throughout the year, and especially in the fourth quarter, resulting in Alexandria shattering.
Speaker 5: a number of leasing records including the total annual and quarterly leasing volumes of our development and redevelopment pipeline.
Including the total annual and quarterly leasing volumes of our development and redevelopment pipeline.
In addition to this outstanding leasing our best in class development teams have done a tremendous job continuing to deliver high quality purpose built laboratory space to our tenants on time and on budget, even in challenging environments, which I'll touch on in a moment.
Speaker 5: the mission is to set our best class consist your capaz Bob
Speaker 5: have done a tremendous job continuing to deliver high-quality purpose-built laboratory space to our tenants on time and on budget, even in challenging environments, which I'll touch on in a moment.
During the year, we delivered a little over 2 million square feet and 14 projects with at least one project located in each of our core markets illustrative of the depth and breadth of demand we see in all of our markets.
Speaker 5: During the year, we delivered a little over 2 million square feet in 14 projects, with at least one project located in each of our core markets, illustrative of the depth and breadth of demand we see in all of our markets.
During the quarter.
We delivered 600000 square feet spanning 10 of those markets.
Speaker 5: delivered 600,000 square feet spanning 10 of those markets.
Which when fully delivered will add approximately $34 million in NOI to our bottom line.
Speaker 5: Which, when fully delivered, will add approximately $34 million in NOI to our bottom line.
Stabilized yields for these projects averaged six 2% on a cash basis, which is a very healthy spread to the cap rates, we're seeing in our partial interest sales, which I will also discuss later.
Speaker 5: Fabilized deals for these projects average 6.2% on a cash basis, which is a very healthy spread to the cap rates we're seeing in our partial interest sales, which I will also discuss later.
Our current projects under construction are largely pre committed with 75% of the space leased and 82% leased or under negotiation.
Speaker 5: Our current projects under construction are largely pre-committed with 75% of the space leased and 82% leased or under negotiation. Near-term projects expected to commence construction in the next six quarters total 10.2 million square feet and are already 67% leased.
Near term projects expected to commence construction in the next six quarters totaled $10 2 million square feet and are already 67% leased and 83% leased or under negotiation. These projects include ground up development at Arsenal on the Charles developed in the Seaport Submarket of Boston at fifth.
Speaker 5: and 83% leased or under negotiation. These projects include ground-up development at Arsenal on the Charles, a development in the Seaport Submarket of Boston at 15 Necco, which is fully committed, two ground-up projects at Torrey Pines that will aggregate properties on North Torrey Pines Road and adjacent streets into our new 1 Alexandria Square mega-campus.
15, necco, which is fully committed to ground up projects at Torrey Pines that will aggregate properties on North Torrey Pines Road and adjacent streets into our new one Alexandria square Mega campus to fully committed ground up developments at Alexandria point Mega campus in the U T C and three ground up.
Speaker 5: fully committed ground-up developments at Alexandria Point Megacampus in the UTC, and three ground-up developments at our Alexandria Center for Life Science Shady Grove Megacampus that are 89% committed in aggregate.
It meant that our Alexandria Center for life Science Shady Grove Mega campus that are 89% committed in aggregate.
Truly a remarkable pipeline to fuel earnings growth for years to come.
Speaker 5: truly a remarkable pipeline to fuel earnings growth for years to come.
We continue to monitor our construction costs and supply chain disruptions with a laser focus.
Speaker 5: We continue to monitor construction costs and supply chain disruptions of the laser folks.
As reported in past calls 2021 was a very challenging environment with overall cost indexes, indicating a full year inflation of 13 plus percent driven largely by materials costs and a lack of available labor.
Speaker 5: As reported in past calls, 2021 was a very challenging environment, with overall cost indexes indicating a full-year inflation of 13-plus percent, driven largely by materials costs and a lack of available labor.
Conversations with general contractors and examination of industry reports are consistent and concluding that things are improving and it's expected that as factories ports and logistics issue settled down materials pricing will become favorable.
Speaker 5: Conversations with general contractors and examination of industry reports are consistent in concluding that things are improving, and it's expected that as factories, ports, and logistics issues settle down, materials pricing will become favorable.
Expectations are things will remain elevated in 2022.
Speaker 5: Expectations are things will remain elevated in 2022, but we will see a return to normal in 2023.
We will see a return to normal in 2023 for.
For example, according to IHS global insight steel increased by approximately 27% in 2020 , one but is expected to increase by approximately 14% this year before decreasing by 13% in 2023 and again by 9% in 2024.
Speaker 5: For example, according to IHS Global Insight, steel increased by approximately 27% in 2021, but is expected to increase by approximately 14% this year before decreasing by 13% in 2023, and again by 9% in 2024. Almost every material line item tracked by IHS is expected to start decreasing in price by 2023, with the remaining items increasing at historic inflation rates.
Every material line item tracked by IHS is expected to start decreasing in price by 2023 with the remaining items increasing at historic inflation rates.
The bigger risk we face is delay caused by supply chain problems a poll of our project managers indicated that although we have some problems with items. We typically include in our core and shell development, such as generators being delayed by six to eight months, we are by and large able to mitigate delays by making early commitments on designing and.
Speaker 5: The bigger risk we face is delay caused by supply chain problems.
Speaker 5: A poll of our project managers indicated that although we have some problems with items we typically include in our core and shell developments, such as generators being delayed by six to eight months, we are by and large able to mitigate delays by making early commitments on design and equipment specifications, a luxury we have because of our years of experience in developing life science buildings, enabling us to make quick decisions based on proven standards we have developed over two decades.
Equipment specifications of luxury we have because of our years of experience in developing life science buildings, enabling us to make quick decisions based on proven standards, we have developed over two decades.
A status few others have.
Speaker 5: that as few others have, and the result has been no material delays in the core and shells delivery of our project. Experience matters. However,
<unk> has been no material delays in the core and shell delivery of our projects.
Variance matters.
However.
It's a different story with assets of knee, which puts most of the burden on our tenants things like benches and other fixtures such as glass watching equipment are tough to get right now.
Speaker 5: like benches and other fixtures such as glass washing equipment are tough to get right.
Natalie we're able to leverage our scale and relationships, where our tenants and ensure the advantages we have and nurture their benefit so they can get up and running with little inconvenience.
Speaker 5: Fortunately, we're able to leverage our scale and relationships for our tenants and ensure the advantages we have in order to their benefit, so they can get up and running with little by little.
In the fourth quarter, we completed the previously disclosed recapitalization of 1500 islands at four O Nine 499, Illinois in mission Bay and completed partial interest sales at 50, 60, Binney and Cambridge 455 Mission Bay Boulevard in $1700 in mission Bay.
Speaker 5: In the fourth quarter, we completed the previously disclosed recapitalization of 1,500 owens at 409,499 Illinois and Mission Bay and completed partial interest sales at 5060 Benning and Cambridge, 455 Mission Bay Boulevard and 1,700 owens in Mission Bay.
With the Binney assets, raising nearly 800 million in proceeds at a sub 4% cap rate realizing a profit of approximately $450 million over cash invested in the mission Bay assets, raising nearly $400 million of capital, while achieving a 3.8% cap rate.
Speaker 5: with the Binney Assets raising nearly $800 million in proceeds at a sub-4% cap rate, realizing a profit of approximately $450 million over cash invested, and the Mission Bay Assets raising nearly $400 million of capital while achieving a 3.8% cap rate.
We also sold our 49% interest in our Menlo Gateway Tech office project generating almost $400 million in proceeds and achieving our profit of a little over $100 million.
Speaker 5: We also sold our 49% interest in our Menlo Gateway Tech Office project, generating almost $400 million in proceeds and achieving a profit of a little over $100 million in just under a five-year hold period.
And just under a five year hold period.
Overall these sales generated 1.97 million in proceeds at an average cap rate of four 3% and a per square foot value of.
$1497.
Speaker 5: $1,497.
When you put that into the context of yesterday's $194.84 closing price.
Speaker 5: put that into the context of yesterday's $194.84 closing price.
Our stock, which implies a per square foot value of our operating assets of only $906.
Speaker 5: our stock, which implies a per-square-foot value of our operating assets of only $906.00
It supports my earlier statement about a disconnect between the stock price and the reality on the ground.
Speaker 5: It supports my earlier statement about a disconnect between a stock price and the reality on the ground.
High quality life science assets with high quality tenants are scarce and we have hundreds of them.
Speaker 5: High quality life science assets with high quality tenants are scarce. And we have hundreds of them. We are a bargain.
We are a bargain right now.
With that I'll pass it over to Dean.
Great. Thanks, Peter Dean here good afternoon, everyone.
Speaker 6: Hey, thanks Peter. Dean here. Good afternoon everyone. 2021 was a historic and record year financial and operating performance for Alexandria. We're very well positioned for another exceptional year. We are the go-to brand. Our team delivers a very high level of operational
21 was a historic record year of financial and operating performance for Alexandria.
We're very well positioned for another exceptional year. We are the go to brand our team delivers a very high level of operational excellence.
We benefit from our important and strategic life science industry relationships plus over 850 tenant relationships we.
Speaker 6: We benefit from our important and strategic life science industry relationships, plus over 850 tenant relationships.
We generate strong core growth through staying the same property NOI growth, we have tremendous visibility into future growth with $610 million of incremental annual rental revenue from our value creation pipeline.
Speaker 6: We generate strong core growth through same property NOI growth. We have tremendous visibility into future growth with $610 million of incremental annual rental revenue from our value creation pipeline.
Our team has delivered consistent execution of bottom line <unk> per share growth year to year, and we have one of the strongest balance sheets in the REIT industry.
We reported total revenues of $2 1 billion up 12, 1% over 2020 and <unk> per share as adjusted per diluted share of $7.76 for the full year outperforming our initial outlook for 2021 by six cents per share.
2021 generated many financial metrics that reflect outperformance relative to our initial guidance for the year, which I'll cover throughout my commentary.
Core growth in key financial statistics were exceptional growth in cash NOI of $280 million to $1 4 billion for the fourth quarter annualized was supported by one of the highest quality tenant rosters in the REIT industry with 51% of our annual rental revenue from investment grade rated or large cap public companies.
We have an industry, leading EBITDA margin of 71% highlighting efficient execution by our team.
We had 100 basis points growth in occupancy for the full year of 2021, excluding the impact of vacancy from recently acquired properties now.
Now importantly, 48% of the $1 8 million rentable square feet of vacancy. This from recently acquired properties is expected to commence occupancy and rental revenue over the next two quarters.
That's pretty amazing execution by our team now.
Now turning to 2022, the midpoint of our occupancy guidance of 95, 5%, which is 150 basis points higher than occupancy of 94% as of 12 31 21 now.
Demand for space from our life science industry relationships and tenant relationships drove record leasing volume with over $9 5 million rentable square feet executed double the rentable square feet of leases executed annually in recent years, and we achieved record rental rate growth of 37, 6% and 22, 6% on a cash basis.
Now rental rate growth outperformed our initial outlook for 2021 by 740 basis points and 510 basis points above the midpoint of the range of our guidance again pretty spectacular results.
And importantly for 2022 we expect continued strong rental rate growth on lease renewals and releasing of space at roughly 32, 5% and 20% on a cash basis at the midpoint of our guidance.
Now the same property NOI growth was very strong for 2021 at four 2% and seven 1% on a cash basis GAAP rental rate growth was about double and cash results were up about 40% above the midpoint of our initial outlook for 2021.
Our outlook for 2022 same property NOI growth at the midpoint of our guidance is also very strong at six 5% and seven 5% on a cash basis.
Above our strong performance in 2021 and reflects a 170 basis point growth in same property occupancy for 2022 now.
Leasing activity in the fourth quarter continued to reflect a very favorable environment for Alexandria.
Occasionally, though there is a lease or two that skews. This particular statistic in the quarter.
The fourth quarter included lease extensions with two tenants with higher tenant improvement allowances and leasing commissions.
But the key takeaway is that net effective rent, which is GAAP rent less the impact of tenant improvement allowances and leasing commissions is up 50% on average for these leases now.
Ti's and leasing commissions for lease renewals and releasing of space. Excluding these leases was about $34 per square foot and consistent with historical amounts.
Now we are in our outstanding position today with tremendous visibility for future growth in annual rental revenue of over 610 million from 7.4 million rentable square feet of development and redevelopment projects that are 80% leased or under executed LOI or advanced lease negotiations.
Now what truly stands out as exceptionals that 94% of the $7 4 million rentable square feet that is leased or negotiating is from existing relationships highlighting the strength of our brand operational excellence, our mega campus offerings and many other features.
Now during 2021, we completed a record level of leasing with $3 9 million rentable square feet of development and redevelopment space leased including a whopping 1.8 million rentable square feet in the fourth quarter.
We delivered about 2 million square feet of development and redevelopment projects in the year with about $1 6 billion in basis.
It was on average completed in July of 2021 .
Now looking forward NOI from development and redevelopment projects is expected to increase significantly in 2022 in comparison to 2021 and we expect significant year over year increases in NOI from development and redevelopment projects to continue into 2023.
Turning to venture investments the investments performed really well in 2021 and generated $216 million in realized gains, including a $106 million that was included in <unk> per share.
No unrealized gains as of December 31 was almost 800 million up about $44 million from the beginning of the year and looking forward into 2022 venture investment gains that we expect to include <unk> <unk> per share should be relatively consistent with 2021 at roughly flat to up 10%.
Turning to our balance sheet looking back you actually it was about 10 years ago that our team completed our debut investment grade bond offering of 10 year notes at 4.66% now.
Now 10 years later, our team is very pleased with Alexandria corporate rating that ranks in the top 10% of the REIT industry. So congratulations team.
Thinking about where rates are today, we could issue 10 year bonds at all and at an all in rate just under 3% today, highlighting very attractive long term fixed rate debt for our company.
October S&P upgraded our credit rating outlook to positive highlighting our unique and differentiated business model strong brand and execution high quality cash flows and strong credit profile among many other items now.
Now, we met or exceeded our strong balance sheet goals with net debt to adjusted EBITDA at five two times and our fixed charge coverage ratio at five three times and.
And we ended 2021 with over $3 8 billion in liquidity.
Now turning to guidance there were no changes in the detailed disclosures for 2021 guidance, we reaffirmed our strong outlook for 2022 Oops 2022 included EPS diluted ranging from $2 65 to 285 and <unk> per shares adjusted diluted ranging from 826 to 846 now.
Now as a reminder, please refer to page eight of our supplemental information for detailed underlying assumptions included in our guidance for 2022 and with that I'll turn it back to Joel.
Thank you very much and let's open it up for questions. Please.
I will now begin our question and answer session.
You asked a question you May press.
Star then one on your telephone keypad.
If youre using a kicker.
Please pick up your handset.
To withdraw your question please.
Thank you.
At this time.
Sure.
Well our roster.
Hmm.
And our first question will come from Sheila Mcgrath Evercore ISI. Please go ahead.
I guess good afternoon I was wondering if you could go into a little bit more detail on some of the recent acquisitions and your vision or the opportunity you see specifically the land purchases in research triangle.
And maybe comment on the demand drivers in our T. P. The acquisition of the strip Center in San Diego and finally, Texas what drove this new market decision.
Yeah, Hi, Sheila.
Let me start.
Couple of questions in North Carolina.
We have.
Substantially increased our holdings there in a number of ways.
And recent land parcels are aimed at creating and expanding actually expanding the mega campus.
Which was the former Glaxo campus there that we bought.
And have turned into kind of a mega campus. If you will that will be well over a million square feet leasing has been very very strong there and we're adding some adjacent land to expand that campus and the capabilities. There you asked about what's driving.
The demand in North Carolina, particularly in our in the triangle and I think you could argue it goes back to our thesis when we started the company.
At clusters are really driven by four factors one you got to have a there's there here's here so to speak so that triangle is that they're there here's here anchored by North Carolina.
UNC, Duke and North Carolina State.
The talent base is a second critical factor and one as you know theres kind of a war for talent across America in corporate America.
Even in just you know average.
Individual owned companies small businesses I guess as you would call them with so many people, leaving the workforce and North Carolina has an amazing blend of great talent and highly trained skilled people, especially for life science.
Agricultural Tech and certainly technology industries.
The third factor is risk capital Theres, good abundance of capital in that market that are fueling.
Companies and then finally, there is a real plethora of scientific and technical.
You might say technology, where translational work is coming out of the labs and moving into a into companies. So those are the four things that are really driving and also next gen manufacturing is bound North Carolina to be an important place I think Lilly announced today they're building.
<unk> billion dollar campus I think just outside Charlotte.
Little surprised it wasn't closer to the triangle, but they also have operations there.
But that's what's driving North Carolina.
In San Diego I think you asked about San Diego was the second location.
Thank you.
You acquired a strip center, there to redevelop or something.
That that is a Dan has been working on that for quite a while that is a really great location in the heart of University Town Center, which has been a hallmark of our presence down there since probably 1998 and an attempt to create a mini.
Many campus there in a really great location driven by heavily by Great transport and obviously you know the history of the San Diego market, San Diego has really emerged as one of the top markets with a you know.
Great talent base, and really a strong capital base.
Strong scientific prowess and obviously the land there has been a very cherished and I think the final.
<unk> market you asked about was Texas so far.
For a variety of legal reasons I can't say anything until the first quarter.
And we'll talk about that but much like New York when we started in New York.
We really spent before we opened the Alexandria Center for life Science in 2010, we have started an effort in New York back in 2001 as part of Sandy Weill effort to bring commercial life Science to New York City, where none literally existed and I would say the same is true of Texas.
Literally no real presence of commercial life science down there too.
Today, but our intent is.
To create a market and really bring.
Early stage commercial life science to Texas much like we did in New York, So with that hopefully long winded answer no. That's great. Thank you.
Okay.
The next question comes from Jamie Feldman.
Please go ahead.
Thank you for taking my question.
Alexandria recently put out a press release, saying that you are the number one most active corporate investor in Biopharma in terms of that new deal volume and I believe it was for the last five years.
I just wanted to get your thoughts on your appetite for investment now.
Our economists are calling for seven rate hikes. This year no fed funds rate hikes. This year and more next year I want to get your thoughts on both what how he thinks about putting capital to work in a rising rate environment and just what your sense is of.
Deal flow and capital raising will see.
Biotech and Biopharma in.
In this environment.
Yeah, Jamie Thanks for your question so really good question so.
Remember and I said in my earnings commentary, just a few minutes ago. The industry is not a cyclical industry.
The mature companies have.
Large amounts of revenue and operate.
At scale and arent really influenced by the cyclicality in any way quite like you know the very interest rate sensitive industries are.
So that's number one number two you have to remember that this industry hopefully the compression time for bringing new therapies to market to address so many really terrible things that we don't currently have therapies for.
It takes a number of years, it's not like Tech, where you can create a software program and bring it out instantaneously. So when we met and began our work with Madonna was 2011.
That was a pretty tough year as I recall, we were just getting our investment grade rating.
As I remember Steve.
Always said, we didn't have a single tour at mission Bay for maybe 18 months and the capital markets were pretty pretty bleak. So we think long term so investing now for the future there is.
This is a good time to do it, especially as Peter said the new modalities.
We will change the face of I think.
Health care of the future. So we're very bullish on that.
And I'm not sure what more I can say, but.
Interest rates and.
The economy really or you have to obviously pay attention and we're very mindful. We've we've certainly lived through a number of ups and downs. The 99 2000 Tech bust and then the <unk> nine financial meltdown. So we're pretty judicious about what we do and how we do it but we're you know we're out there looking for the next <unk>.
Okay. Thank you and have you sensed the change in the market.
Competitive investment market given the pullback we've seen in the stocks I know it hasn't been very long, but.
Sure I mean, yes.
It certainly is well recognized that the public markets have.
<unk> had major adjustments in valuations over the last say three quarters.
I think thats starting to leak into the private market because the number of companies who have clinical programs are selling at cash which is a bargain today. So investors are looking at those.
With big appetite, so I think youll see some of that.
<unk> go out of the private markets.
My guess is youre seeing the same thing on the tech side as well public markets are resetting valuations in the private markets, but truly great companies are going to get funded there's a huge amount of venture that's been raised over the past couple of years gigantic amounts historic amounts and those are investable dollars for the coming here.
A handful of years that those arent running out anytime soon.
So in terms of demand for your portfolio.
Do you think it will be a noticeable change you know well.
Well I don't know, if we'll be able to repeat the high watermark of $9 5 million square feet for 2021.
Over 4 million square feet for <unk>, but.
As I think Peter and Steve has said we have a huge winded our back we've got you know over 850 innovative tenants most of whom we service for their current demand and future growth. So we're pretty comfortable about where we are and certainly our value creation pipeline Super highly leased so I don't think we're at.
Risk, but we're mindful I mean if.
If Russia invades the Ukraine then.
Things are going to change pretty rapidly for everybody right.
Okay. Thanks for your thoughts sure of course.
Our next question comes from Rich Anderson.
Please go ahead.
Afternoon, everyone.
So early on in the call I think Joel you mentioned that.
This incredible quarter and year of leasing and that you'll take another look at guidance not making any commitments of course.
Following quarter, but is it not true that you see.
When you issued your guidance.
First you'd already seen what was happening at that point or was it was part of what you are reporting today are surprised you even from.
The beginning of December hence you could have like an earn in type of event for 2022 is the success in the fourth late part of fourth quarter rolls into the coming year.
Well I think I'll, let dean answer that but I think the commentary as we tried to be conservative with how we project the future until we start to see things roll out December was a record breaking leasing year, we have.
A lot.
A good amount of leasing.
On the precipice of happening and I think we feel pretty good we gave a range and I.
I think you'll see US go forward in the first quarter and give you a.
Fulsome update, but dean do you want to make any comments on that.
Yeah, maybe just somewhat reiterate what you said Joe rich the way to think about it we had good tailwind behind US last year. This time last year.
As we started 21, and we were able to outperform a lot of our underlying guidance assumptions, including overall bottom.
Bottom line up for vote per share we're off to a great start with the very beginning of 2022 with a good tailwind behind us.
So we're pretty optimistic but stay tuned I guess I guess the answer is no record December which didn't happen until after the earnings Investor day. So.
Next question.
Maybe Peter you mentioned the $906 per square foot.
Valuation on the stock can you.
Bookend that for me because there are a few ways to skin that.
<unk>.
Depending on what you have in the denominator so yes.
Low end range, depending on some of the assumptions you've put into that math.
So again, it's a it's the same back of the napkin formula we use a while back when I was commenting on this.
Kind of once the stock.
Or or implied per foot doesn't match up with our asset sales and you just take our total market cap.
At the close or I'm, sorry at the end of the year of about $39 5 billion and then you take out our our CIP from our developments, our venture assets and our cash and restricted cash.
And that gives you the estimated value of our properties divided by.
Our operating square footage so that.
That's.
Plus or minus I'm sure, it's not completely specific but it's in the ballpark, okay. Even if even if it was way off there's still a huge disconnect. Yes, I got you.
And then following on the on the investment side for you.
A lot of times when you guys make acquisitions, there is a component of operating assets.
Very often our future development or redevelopment opportunity.
To your credit.
When you would you allocate total cost to those types of transactions that have kind of multiple layers of opportunity and then how do you do that I mean is there a rule of thumb of how much the operating assets get versus the development assets in a given transaction.
I'm just curious how that how we should think about that yeah. So dean maybe.
Yeah, Rich I wish there was a simple answer to help for.
For your modeling.
But as you can imagine every transaction is very unique and specific.
And the component of operating relative to value creation is also very unique so.
Theres nothing general that I could guide you towards.
We did include though for modeling and our acquisition disclosures in the footnote there there is a breakdown of how much NOI.
It was brought on board for the current quarter acquisitions, and the exact date on a weighted average basis that that.
It was added for the fourth quarter. So that should at least you have the NOI to model, but the basis is much harder to get too rich okay.
Thanks very much.
Hey, rich.
Our next question comes from Manny Korchman of Citi. Please go ahead.
Hey, it's Michael Bilerman here with Manny Peter I wanted to come back on this valuation question and I recognize this is a drum that you see for a little while as the stock has traded below where you've been able to sell assets and certainly where private market values are how do you think about you know the last two years, you've issued I think.
It's about 30% of your share base clearly at pretty significant discounts to what you perceive market to be.
We're obviously investing that capital accretively into highly pre leased development and redevelopment as well as acquisitions, but at some point.
If your view is that the stock should be worth.
Significantly more than its trading today, you're issuing that equity.
NASA discount, hence you need the things you're investing in to offset the dilution that youre.
Putting on the company from issuing at such a low value below what do you think any ideas. So can you just sort of step back from it because if.
You'd issued 5% of your share base, that's one thing, but you've issued 30% over the last two years.
So how do you sort of put all that together as you're thinking about capital allocation and racing.
Yes, so maybe let Ian do you want to comment on that first and maybe let Peter give color.
Yeah.
Sure Joel So Michael I think.
What you described at a Super high level generally has been a challenge there.
A growing company like Alexandria has faced.
As you know as we grow cash flows pretty consistently quarter to quarter take the macro environment away.
Our stock price.
It should be higher the next quarter, if we wait too long because your stock then we have an equity overhang. So I think.
What we've tried to do Michael has to be balanced here.
Think Peter's commentary from time to time, it's just the highlight.
The opportunity on the stock price performance, hopefully catch the attention of investors.
While we do our job to execute the business and do it as best we can to grow cash flows in a prudent way and funded and reasonable way with both on the debt equity as well as.
Proceeds from dispositions so yeah.
I think on average we've done a pretty good job of being mindful of that overall challenge and opportunity in front of US we are making money.
As we invest our capital at the <unk>.
Price points that we have raised both debt as well as recycling capital from dispositions. So.
There is a balance we need to navigate that I think you're pointing out.
Yeah. So deane could you maybe just highlight the historical equity level compare it does say a lot of companies.
Oh, Yeah, that's important too and Michael you might remember this from an Investor day.
We had touched on just looking back at how much equity do we common equity do we used to fund our growth.
We all know that our leverage profile at a stabilized basis, an asset might require 65 plus percent.
Of equity the remainder being debt funded.
And if you compare that to what we've done historically, we're actually only using about 40% to 42%.
Hum com.
Common equity to fund growth and what that is highlighting is tremendous cash flows being reinvested in the business, which grew 22 is north of $300 million, but we're also taking advantage of recycling capital from disposition.
High value low cap rate partial interest transactions.
And then EBITDA growth gives us some incremental benefit as well so so I think that.
Also just highlight that we're being very disciplined in our approach trying to minimize the amount of common equity we issue while being mindful of we want to keep our balance sheet in a super strong position.
Yeah, and I get all I get all of those things and certainly tapping the asset sales and joint ventures over the last number of years.
It has been another source of capital, but you've also enlarged you were acquisition opportunities both development, that's what wall Street strip.
Straight transactions.
It just strikes me that sometimes Peter when you get on and you say were a bargain where a bargain and throwing out $500 a foot I think people start to.
Really trying to get into your head of what do you perceive an ATM.
We recognize the most recent sales are indicative of where the market is for life Sciences, but I don't think that's what we're trying to guide people towards that Youre entirety of your portfolio is worth 500 Bucks a foot and $300 per foot is I'll call. It almost 20 Bucks a share of any sort.
Trading at 900, you know what is the value that you have in your mind, you must have a sense of when you're issuing a couple of weeks ago right. You issued a billion seven in 186, you must have had a view whether that equity in your view is worth $2 50 to 75, you're saying well I think yeah.
I think Michael the point of that is we were at an all time high and we felt very comfortable and taking the market risk of issuing equity, especially before a pretty what's likely to shape up as a pretty volatile year N V is.
A little bit like beauty, it's in the minds of the Beholder and I think that we felt at that point we were.
We're very comfortable issuing equity at that level, let's just put that point.
Point to rest.
Yeah, I was just trying to get them to understand how the company thinks about its cost of the cost of equity and when it puts into what you're using it for just how you're thinking about the accretion dilution from that especially if you're telling investors at the stock is cheap I'm just trying to get a sense of.
You're right about it but yeah I didn't say that.
Peter giving a a view on an asset by asset basis better than the all time high issuing the equity we did we felt very good about what we're doing and the accretive uses we could put that equity to paragon.
Okay, Greg he in Florida.
The next question comes from Michael Carroll of RBC capital markets. Please go ahead.
Okay, great. Thanks, So I wanted to dive into the leasing stats a little bit I know volumes were pretty high in the fourth quarter, both in the operating and development portfolios.
In the operating portfolio I'm trying to connect the dots with the strong volume, but occupancy depth, albeit very slightly is this in part due to leases being signed but not yet commenced or is it explained by the lease extensions that Dean mentioned in his prepared remarks.
I think it's primarily acquisitions, but gain you could comment.
Hum.
So the acquisitions.
<unk> had been driving almost every quarter.
Right.
Declines in reported occupancy, but if you strip that out Michael pretty consistently every quarter or two we're driving growth in overall occupancy as an example, we highlighted in 2021, we had 100 basis point increase in.
In occupancy if you exclude vacancy.
They can see from recently acquired properties.
And I think I highlighted in my commentary that we do expect if you've put any future acquisitions to decide that.
We can't model, because we're not aware of them, we're expecting 150 basis point growth in occupancy in 2022.
And I would suspect that you know given the tailwind.
For our business in our portfolio here.
Continue looking out beyond 'twenty, two as well.
Okay, no great that that makes a lot of sense.
And also I like the new disclosure at least the highlight disclosure that about 63% of your operating properties and Mega campuses.
Is there a way to quantify the importance of having these larger campuses do those buildings and these campuses drive stronger revenue growth in buildings outside of those campuses.
Yeah, I think our if you remember back to Investor Day, Dan gave a specific example in San Diego where are our.
Our Mega campus leasing effort was substantially above on a lease rate above a nearby building, which was owned by another REIT.
And demonstrated you know that is just kind of a sheer.
Happily the apples and one of the reasons. It makes a big differences because it provides not only the eylea monetize and tailored.
Services and and facilities for four tenants, but it gives them a space for growth right now, but a path for future growth in our industry today that kind of credit mission critical.
Okay, and then just within the development pipeline I guess do you have the percentage of the buildings that further build out your existing campuses or create new campuses.
We do I don't think we have that in any specific disclosure place, but if we go campus by campus clearly we do.
Okay, great. Thank you yep. Thank you.
Our next question comes from Tom Catherwood of BT.
Please go ahead.
Thanks, everyone Steve.
Steve I appreciate your commentary on the new supply in your markets and demand is obviously strong given record leasing volumes this quarter and year.
With that said, though can you provide some additional color on the demand in your markets and maybe how that demand is split between your core and emerging clusters. If you have that information.
Yeah, Hey, Tom it's Steve here.
Certainly on the demand side and we've said this now probably for a couple of years that it is broad based in each of our core clusters.
So it's not just one or two clusters with the with it at a proportion contribution so Joel touched on what's happening down in research triangle, that's very encouraging and very healthy demand in Maryland in Seattle as well and then certainly San Diego San Francisco and.
Greater Boston very healthy there so on the demand side.
Absolutely broad based and we continue to see that going forward in the future as well.
Yeah.
It makes sense and given that you've added some of these emerging or new cluster locations.
Is it a case of if you build it they will come where you've seen demand move as you have moved or has it the demand kind of remain consistent from before and now after a year in those markets as well.
Yeah, I'm not sure I would characterize it as new market, Tom I think what we've done is either one double down literally in our core markets and we look at.
<unk> any as an example here in Cambridge, certainly what's happened Peter referenced the projects down in San Diego in Torrey Pines.
And then the second aspect of it is really expanding through adjacent expansions, but.
No real kind of new Greenfield core markets.
As Bill talked about this broad based demand.
Got it makes it makes it makes sense and last one for me.
In the supplement you laid out your next I think 11 developments and Redevelopments that are slated to start over the next six quarters and their 89% leased or in negotiation outside of those or are there others that could commence in the same timeframe. If pre leasing gets done or are you.
Limited by entitlements or design or or local approvals.
Tom It's Dean here, there are projects and beyond.
That two point.
6 million square feet that is currently disclosed that 89% leased negotiating.
So those are the projects that could start over the next six quarters. In addition to be real clear here, we expect the potential for other starts.
But we just wanted to highlight in these disclosures here that we've got a very active pipeline.
Either leased or advanced negotiations.
It just highlights how much we're working closely with our relationships to meet their current and future space needs.
Got it thanks guys.
Thank you Tom.
Our next question comes from Vikram Malhotra.
Please go ahead.
Hi, Thanks for taking the question.
Just maybe two questions first just on.
This pricing power across your markets you referenced really good rent spreads it seems like the sustainable given you a guidance, but I'm wondering if you can just talk about how.
How do we think about the sustainability of these spreads.
Maybe from two different perspectives one just.
In your view, what's sort of the mark to market of the portfolio today.
In your various clusters, but also just maybe dropped down can you talk about just you know what life science tenants are being in rent as a percent of their own revenue is it they're just a elongated runway given where that is today.
So.
The answer to your first question I think Steve addressed.
Generally on a mark to market basis, the portfolio would be about 31% up.
So that gives you a good a good sense of.
How are how that would play out and then when you look at life science companies pharma Biopharma.
Small medium.
Rent is generally a smaller part of.
I think Steve or Peter you guys may have the stats, but a fairly small part of the overall.
G&A, whereas if you go to service companies.
Loft firms securities firms.
It's a much larger part, but I don't know, Steve or Peter do you have that percentage in mind. It is sub 5% I believe.
For our large cap bio and pharma companies is actually 1% to 2%.
Then the.
Kind of the mid caps is in the 5% to 6% range.
Okay. That's that's helpful. And then just to clarify on some of your newer developments.
Or in general one of your office peers, I should say referenced seeing kind of a lot of demand even for life science assets from other categories deck, especially given.
The need for newer buildings and amenities are you seeing just unsolicited interest from just other groups given sort of where your buildings are.
Yeah, we've seen that for a decade or more I mean.
Steve maybe just.
Tutorial on mission Bay for a moment, which is kind of where a lot of this started.
Sure.
In mission Bay.
You might know.
We had a significant influx of technology with Uber.
Establishing a four building 1 million square foot campus there so.
The combination of not only UCSF.
Center of learning there.
Location now that Chase center on.
Really did make that very desirable for technology companies and a lot of those other elements are true when you look at all of the attributes of our Mega campuses.
San Diego Seattle.
Certainly, Cambridge in greater Boston as well so.
And then you have and Joel mentioned this to you get the integration of science and technology.
Really spawning new companies new growth in those wrong on it happening in you know in each of our clusters.
Okay, great. Thank you.
Thank you.
Our last question comes from Dave Rodgers of Baird. Please go ahead.
Yeah. Good afternoon. Thanks, Joe I just wanted to ask about New York most of my other questions were answered with the New York cluster I know over time, you've talked about it in terms of the long term development track for some of these clusters I think historically demand was one side, but also crowding out of investment capital and things in New York City with an impact on that.
Cluster with a weaker New York City office market are you seeing either more tenants interested or are you seeing more capital or are you more interested in kind of moving more aggressively in new York to take advantage of the weak office market like you see maybe in our San Diego or is that just not really afoot.
Yeah, I don't think that's happening I think we.
One the RFP for the first commercial life Science campus in 2005 under Mayor Bloomberg's direction, we delivered our first building in 2010 and at that point there was only a single.
Commercial.
One incubator up in the northwest side of Manhattan that had commercial life science tenants and that was it everything else was clinical academic.
But not not commercial and so over the past decade, we've built New York.
We have our campus today over 800000 square feet and we.
We have the prospect of going.
Significantly more we've got.
Some 60 plus companies, they're only one of which really existed before we started the campus in the city.
And so.
The New York City market is still it's a small company market. It's a small market. We felt that it was a good one to enter because of our our.
Our cluster model and the drivers, but if you look at last year. There were only about 250000 square feet of new leases. So in Boston Thats, probably a day's work. So you have to look at it.
With respect to all of the clusters and it still is it's a 25 year gestation period as I've said to build a cluster and we're just now entering the second decade, So new York's got a long way to go in over the past couple of years.
<unk> has been a tough slog with crime and.
Disturbances and things like that so that's been a that's been a challenge big companies aren't going to go to New York, New York State because of high taxes. So it remains a small company market we're committed.
And.
You build it from the ground up.
Alright, thank you.
Thank you.
This concludes our question and answer session I would like to turn the conference.
Joel Marcus for any closing.
Mark.
Well. Thank you everybody we look forward to updating you on our first quarter call.
Be safe take care.
Okay.
Thank you for attending today's presentation and you may now disconnect.
Yeah.
Yeah.
[music].
Yeah.
Yes.
[music].