Q1 2023 Alexandria Real Estate Equities Inc Earnings Call
[music].
Good day and welcome to the Alexandria Real estate equity first quarter 2023 conference call.
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I'd now 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 within the meaning of the federal Securities laws. The company's actual results might differ materially from those projected in 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 would like to turn the call over to Joel Marcus Executive Chairman and founder. Please go ahead Joel.
Thank you Paula and welcome everybody to Alexandria, as first quarter 23 earnings call with me today are Peter Dean Heller and Dan and first of all I want to send a big Thank you to our entire Ara family team for an operationally and financially strong first quarter in a tough continuing.
The macro environment.
As you know Alexandra is truly a one of a kind S&P 500 company and we're very pleased that we just received new news one of Newsweek's Most trusted company awards, we have no.
Here's where I'm kind of a pure play in.
Our field, we first identified pioneered the lab space niche back in 1994, and then through our disciplined execution of our original vision using this strategic architecture of our cluster model, which we customized for the life science industry. We have brought the mission critical real estate infrastructure on the life science industry and integrated it.
With an unparalleled in World class 24, seven operational excellent service component.
Aimed to protect the hundreds of billions of dollars of leading edge science, which is conducted $24 seven within our asset base.
And we have brought this to a highly respected and recognized real estate product type today.
Exaggerate, there's definitely not a health care service facilities company, nor a generic office company our disciplined core focus is our.
Patented.
And trademark lab space, it's a premium priced non commodity product generally characterized by high barrier to entry markets.
Where we have a dominant franchise and where we exercise pricing power, especially in our highly sought after Alexandria branded mega campuses and those markets exhibit deep science base deep life Science talent base, a rich abundance of risk capital and also are ones that are generally.
Safe and excellent transportation access.
And what we saw in 1994 in the embryonic days the life science industry is multiplied geometrically today 30 years later as Steve jobs said, the 20 <unk> century will be the century of the intersection of biology and technology innovation.
We have 10000 known diseases wreaking havoc on human beings, each and every day and the personal and economic cost of sickness illness, and the day the mental health crisis is continuing to skyrocket kantar.
Continued innovation in medicine is the absolute national priority and the transfer of the transformative work of our tenants in the industry is critical to addressing the massive unmet medical need literally every day, we hear of great progress and today for example, one of our greater Boston tenants Morphic therapeutic candidate which has.
As an oral drug addressing moderate to severe ulcerative colitis, and if you've ever had it. It's it's a it is a tough.
Condition and major Gi indication announced that it hit its phase Iia clinical trial endpoint in their stock has been up 75% this year.
The 10, most prevalent diseases in the U S heart disease cancer, chronic cough, chronic respiratory disease obesity, Alzheimer's diabetes substance abuse infectious disease, chronic kidney disease and mental illness are not being solved.
To date, we have a large mountain decline and the industry is really in its formative days.
Weathering, a tough macro environment <unk> posted a very solid first quarter, our funds F. F O per share is up 7% as you see in revenues topline revenues up almost 14% and Dean will go into the metrics, but almost a 100 per cent collections, which is bodes well for our continue.
<unk> strength and stability.
Stability of of the company, we've maintained strong guidance, while lowering uses and sources of capital are we've had very solid leasing with the highest ever rental rate increase and we have had continuing strong operating and EBITDA margins. All all stakeholders should recognize and appreciate this management team took a highly <unk>.
Discipline disciplined approach over a multiyear period to create a fortress balance sheet to successfully weather.
What now is the current self inflicted economic storm by the various policies that we implemented over the last many years.
We have taken judicious measure to cut our capex, while at the same time, making strong progress on fun on our funding plan for 2023, and Youll hear more about that from Peter So without any further hesitation, let me turn it over to Hal who is going to give you.
Some birds eye view of our view on the life science industry. So Alex.
Thank you Jill and good afternoon, everyone. This is halligan senior Vice President of Science and technology and capital markets.
I'm going to comment on the life science industry. Following the collapse of Silicon Valley Bank.
The health of Aries Best in class Life Science tenant base and innovation as a long term driver of life science industry growth.
Beginning with SBB there remains some misperceptions on a long term impact of its collapse on the life science industry.
FCB certainly was the go to provider for banking needs of many venture backed companies, particularly in the tech industry.
While SBB had created a niche serving this segment. It was also cultural early stage startups to work within a very tight knit community and many U S. B b because that's what everyone else. He is not necessarily because there were no other options.
And many banks, including G. Sibs have been working for years to carve out their own share of this market.
For our own private biotech tenants in the days following the collapse, we had conversations with over 100 companies some of which she is SBB, but many of which did not or had multiple banking relationships importantly.
Importantly, within approximately 72 hours from the start of the bank run companies had access to all deposits and the near term risks such as making payroll were mitigated.
As for long term risk driven by instability of regional banks. Unlike some tech companies that maintain a significant cash and deposit accounts.
Our tenants are largely rely on safer third party custodial and sweep accounts to minimize cash deposits.
Biotech is also not reliant on venture debt to the same extent as the tech industry.
For those that do you think ventured that SCB is by no means the only option.
We expect that the life science sector will be minimally affected going forward as evidenced by venture financing rounds that closed in March as expected and continue to do so in April which I will touch on in more detail shortly.
Before transitioning to the health of our tenant base. One quick reminder, on the differentiation of our life Science real estate products from traditional office.
Importantly, the office component of our life science buildings directly supports researchers in the lab.
I anticipate not spend all day at the bench, but spends time moving back and forth between lab and adjacent office in order to for example, analyze data plan. The next set of experiments and meet with colleagues.
That's the office component cannot be broken out our compared to traditional office, but isn't adjacent highly integrated and critical component of laboratory design in work flows.
Of course. This is also not work that can be done from home.
Now transitioning to the health of our World class diverse life science tenant base, perhaps the best way to frame the current environment. It's the old adage in God, We trust all all spring data.
Starting with pharma, which makes up 18% of our air or this segment continues to operate from a position of strength.
With strong balance sheets and significant free cash flows.
It is less sensitive to rising rates.
In 2022, Biopharma deployed an estimated 267 billion into R&D.
The result is tenants like Eli Lilly that continue to translate this R&D into transformative medicines.
Mount Gyro, which aims to treat obesity and type two diabetes is predicted to eclipsed 50 billion per year globally and revenue.
And to put this in perspective, nearly one out of every $4 of U S health care spend is deployed to care for people with diabetes.
And obesity is estimated to account for over 480 billion indirect health care costs in the U S with an additional $1 two trillion in indirect costs due to lost economic productivity.
To that end therapies, such as mantaro safe and extend lives and have the potential to significantly drive down the cost of health care more broadly.
Transitioning to private venture backed biotech, which makes up 8% of our total are are we continue to see a reset adventure deployment.
Two pre 'twenty 2000 22021 levels.
Which while down from peak remains just as.
Strong by historic standards.
Venture capitalists are more discriminate disciplined and demanding of current and future investments and.
And the companies with tenured management teams and strong differentiated technologies and near term value inflection milestones are the ones that rise above the fray.
We continue to underwrite and monitor all tenants closely and our private biotech tenants remain healthy compared to the.
Compared to the broader market.
In fact across this tenant base.
They have raised over $1 9 billion from D C and pharma partnerships since the beginning of the year of which $800 million has closed following the collapse of SCB.
As a testament to this point with a weak remaining in April private biotech tenant rent collection is at 99, 7%.
Next to public biotech are tenants with marketed products make up 14% of our air are generated 150 billion in revenue in 2022 and include names such as Amgen, Gilead vertex and mud or not.
Terna continues to highlight the potential of novel platforms to deliver innovative new medicines to patients.
This month, the Companys personalized mrna cancer vaccine in combination with an immunotherapy drag from tenant Merck demonstrated promising clinical trial results and aggressive form of skin cancer.
Companies also continue to set high bars for continued innovation and product launches for.
For example, Alexandria tenant Gilead has laid out an ambitious plan to achieve 20, new drug approvals by 2030, which will entail advancement of their current pipeline, particularly in oncology supplemented by additional M&A.
For our preclinical and clinical stage public biotechs, comprising 10% of our air our compelling clinical data remains king.
Tenants, such as backside and biomass infusion for example have recently raised additional capital off promising clinical data.
Prometheus Biosciences will not a tenant exemplify how data drives the lifeblood of the industry.
The company announced stellar data in December driving their stock up over 6%, 600% in the past 12 months.
And culminating in a $10 8 billion dollar acquisition by Merck.
To be clear in the process of developing novel medicines, there will always be somewhat fail no matter, what the market conditions, but this is baked into our model with a deep tenant base relationships across every facet of the industry and the highest quality space in operations. We can get ahead of potential tenant challenges to backfill and further optimize our 10.
That base.
Reflecting this in April we've collected 100% rent from our preclinical and clinical stage public biotech biotech tenants.
Next transitioning to academic and institutional tenants, which constitute 12% of our air or it's an opportunity to remember that the life science industry is cornerstone is innovation, which is not slowing.
Bipartisan support for life Science research remains strong at $47 5 billion. The NIH is 2023 budget is a 21% increase over 2019.
Academic and medical institutions continue to be highly productive a key metric being the pace of new intellectual property.
In 2021 U S academic institutions accounted for 20000 invention disclosures and nearly a thousand new start ups.
And this activity and return is an important long term funding mechanism for these institutions for.
For example, Prometheus bio with originally spun out of Cedars Sinai, which is set to receive nearly 800 million from the recently announced M&A.
In sum with the majority of our academic and institutional air are from investment grade tenants and funding cycles that are based on multi year Grant funding timelines. This segment continues to be sheltered from larger macroeconomic conditions.
Staying on the topic of innovation, a few final data points to Orient the growth of the life science industry beyond the next few quarters, but to the decades to come.
According to the American Society of cell and gene therapy. There are over 3700 gene cell and RNA therapies in preclinical and clinical development.
For chronic diseases, which drive the bulk of health care spend in the United States. There are over 800 medicines in clinical development. The culmination. If continued FDA approvals in 2023 has started out at a fast clip.
Year to date 2014 novel therapies have been approved including a novel therapy for a L. S developed by tenant Biogen just announced this morning.
And altogether for the year nearly 60 novel medicines had been scheduled for FDA approval review, which mirrors 2000, Eighteen's record year of 59 novel FDA approvals.
Two and I want to reiterate that we are acutely aware of the years of abundance and easy capital that have passed and that the separation of haves and have nots will continue to widen as the industry drills down on the technologies and medicines that bring the most value to patients and investors.
But as Winston Churchill once said never let a good crisis go to waste. While this market is and will continue to warrant extreme prudence it as an opportunity for the best companies, Tony and other long term fundamentals and thrive and that's what our tenants and Alexandria exemplify with that I'll pass it off to Peter.
Thanks Sally.
I just had my 25th anniversary with the company.
In addition to that milestone reminding me of how fast time moves by brought about in Nostalgically look back on my time at Alexandria IRA.
I recall my interview with Joel where I learned about this novel idea, forming a real estate company to serve the life science industry, which made me both nervous because nobody had ever done it before and equally inspired to help enable an industry that was held bent on changing the world.
After serious contemplation I decided that if I was going to make a difference in the world. This was a heck of an opportunity to do it.
Plus after having been in real estate for about eight years to that point I could see a tremendous value in offering mission critical facilities over commodity product could not have made a better decision as it all proved out.
Alexandria has played a critical role in the evolution of the life science industry over the last three decades by creating and growing the ecosystems and clusters that ignite and accelerated the world's leading innovators in their pursuit to advance human health, which is our solemn mission.
In addition, we've built an era.
Replicable World class asset base of robust and highly differentiated properties and campuses that attracted diversified best in class tenant base, who values, our expertise and operational excellence by providing 75% to 85% of our leasing quarter to quarter.
The result of all this is we have built a brand with out here that puts us in a position where we don't rely on third parties to bring us tenants they come to us directly as we are a trusted partner with a long successful track record of developing and operating mission critical facilities. This is an important distinction in any part.
The cycle, but perhaps even more when things have slowed down.
Our results prove it out.
Thank you for indulging me on that retrospective.
Go and briefly touch on our development pipeline construction cost leasing and asset sales and then hand it over to Dean.
In the first quarter, we delivered 453511 square feet and five projects into our high barrier to entry Submarkets annual NOI for these deliveries totaled $23 million and the initial stabilized yield is strong at seven 3%.
At quarter end projects under construction and near term projects expected to commence construction over the next four quarters totaled $7 6 million square feet and are 74% leased or under negotiation.
This is very similar to last quarter, but in response to the uncertainty and volatility in the markets. We have made a strategic decision to reduce 2023 construction spend of 200.
<unk> $250 million by pausing or delaying projects that had been classified as under construction. So we can focus our capital on the most strategic projects that have the most attractive terms, enabling our highly vetted and vast tenant base the reduction in spend results in NOI from deliveries.
Primarily commencing from the second quarter of 23 through the first quarter of 2006 to be approximately $610 million.
After commenting on construction costs for the past two years I can say I can still say they remain volatile but are on their way to stabilizing the availability and price of commodities such as steel copper aluminum and concrete continue to fluctuate due to shortages of raw materials low yields for mines high demand from electric.
<unk> or low capability, Utah utilization rates in the mills and fabrication shops due to labor shortages.
Cost of materials and supply chain volatility, where the initial drivers of construction inflation, but now the primary driver driver is labor with a triple whammy of wage increases a shortage of workers and the inefficiency of the remaining labor force due to the retirement of older more skilled labor there are 300.
30000 open construction jobs today and the time it takes to train the new entrance to be highly skilled as measured in years. So these inefficiencies will be with us for a while.
Specific to life science buildings, the availability of switch gear and equipment such as HVAC units.
Generators are has slightly improved but their lead times are still extraordinarily long with custom air handlers, taking 27 weeks longer to get than before Covid.
And switch gear and generators, an astounding 64 weeks longer even worse is the availability of large transformers provided by the utility companies, which can take as long as three years now to get.
What's driving these delays our chip shortages and demand from electrification projects happening all over the world as investors governments and end users end users' demand improvement in carbon emissions as.
As you can imagine the cost of this equipment is reflective of the shortages and paired with high labor cost is making new laboratory office projects more expensive to build than ever before.
The upside for us is that 84% of our cost for our active development and redevelopment projects are under GMP or other fixed contracts with contingencies behind that so we are largely locked in.
Anyone contemplating a speculative development. These days will have to contend with these delays and associated high cost, which will put the feasibility and building and financing the project at considerable risk. One reason, we will likely not see the supply and many are expecting beyond what is under construction today.
Transitioning to leasing our strong brand loyalty Mega campus offerings and operational excellence continue to drive strong leasing numbers in a challenging market. The one 2 million square feet leased in the first quarter is above our five year pre 2021 average and is the 12th consecutive quarter.
With leasing volume above 1 million square feet.
We achieved we achieved attractive economics, primarily from our vast tenant base accounting for 85% of the leasing this quarter, resulting in a rental rate increase of 48, 3%, which was the highest in company history and a strong cash rate of 24, 2%.
As we've noted previously demand has normalized from the record year of 2021, depending on who you ask demand is at slightly below or slightly above pre COVID-19 levels.
There are less tenants actively seeking space in the market today, which we believe is being significantly driven by uncertainty in the economy as hallie put it. This market is and will continue to warrant extreme prudence. However.
However, we're not dependent on <unk>.
At all on brokered deal flow there.
Our pending opportunities from our fast tenant base that the broader market likely does not see due to our direct relationships with company management teams such relationships are a huge differentiator for us and will continue to drive solid leasing even in tough environments.
Some private in preclinical clinical stage companies are making do with the space. They have today until they can better understand their ability to raise capital and its cost.
Capital is available, but as Sallie mentioned vcs are more discriminant discipline and demanding of future investments in companies with tenured management teams strong differentiated technologies and near term value inflection milestones are the ones that will rise above the fray.
Those are the haves, who buy in larger Alexandria tenants, which we have underwritten and place into our world class asset base differentiated from the have nots tenant base of others, who take on any tenant that can fill space with hope is they are underwriting strategy.
On the supply side, we track high quality projects, we believe are competitive to ours and the high barrier to entry Submarkets. Accordingly, we're tracking direct vacancy in greater Boston to be two 8%.
On lease sublease space is at three 9% and only supply directly competitive with our AAA locations in building quality to be one 5% to be delivered in 2023, and five 1% to be delivered in 2020 for a one 3% total increase in.
Ability from last quarter.
San Francisco direct vacancy is three 5% sublease space is at five 8% and <unk> supply directly competitive with our assets continues to be the highest in all of our markets at six 6% and eight 9% due to be delivered in 23 and 'twenty four.
Our respectively.
This is an increase of three 4% and total availability over last quarter, largely largely driven by spec building in south San Francisco.
In San Diego direct vacancy is at four 1% sublease spaces at two 3% and on lease competitive supply is three 2% in 2023 and five 4% in 2024, a slight increase of 2% over last quarter.
Supply in all Submarkets is very likely to be muted beyond what is under construction today due to high construction costs that I referenced higher cost of capital and the lessening of generic tenant demand, we focused primarily on high barrier to entry markets, where supply is inherited Lee limited.
We focus primarily on high barrier to entry markets and brand.
Mega campus offerings in those triple a.
High barrier to entry market locations and operational excellence enables us to continually mine are vast and deep tenant base to drive our leasing activity, which will likely lessen the impact of generic supply.
I will end with some commentary on our value harvesting and recycling progress.
As we all know the rapid rise in interest rates have not only increased investors cost of capital for created a lot of uncertainty, causing a number of investors to remain on the sidelines.
Adding to the difficulty to execute in this environment is the increasing desperation of a number of office building owners trying to raise cash to stay afloat by offering quality long term leased assets with credit tenants at six five to seven 5% cap rates. Despite these challenges the demand for high quality life science.
Assets, which is vastly different from office assets continued in the quarter as noted in our press release, we were pleased to transfer an 18% interest in our current JV at 15, Necco, which we control and owned 90% prior to the sale.
The asset is under construction and will not be delivered until the end of this year with cash flow commencing in mid 2020 for the buyer will fund the remaining construction cost to deliver the property to our tenant until they reach a 37% ownership, which is expected to be the remainder of the cost to deliver.
The project.
Given that the receipt of cash flow is over a year away, it's difficult to translate the valuation to an operating cap rate, but to give you. Some color. The parties agreed to evaluation at closing to be $576 million or $1665 per square foot.
Which is an initial yield of 525% on their investment based on in place NOI at closing.
But we also agreed to credit our partner five and a half million in fees payable.
Because we sold 33% of the total 37% our partner purchased those fees equate to approximately $15 million in value.
Stripping that $15 million from the purchase price gets you to a total valuation of $561 million, increasing the cap rate to five 4%. If you want to tie that to the supplemental the $66 million price for the 18% and the other if you add the other.
$119 million to be funded to completion and divided by the 33% we sold you get $561 million.
This was a great outcome for Alexandria, as we were able to partner with a world class investor to monetize the value creation and secure the capital for the remaining spend in an accretive manner, while retaining control of the asset and all management fees.
We have not yet closed on the other transaction, we signed an LOI on in the fourth quarter, but we expect to do so in the second quarter. In addition to this transaction, we have signed letters of intent or purchase and sale agreements for a number of assets, including the office campus referenced in the press release.
Aggregating to a total sales price of $799 $3 million.
These future transactions and 15 necco account for approximately 57% of the progress needed to meet the midpoint of our disposition guidance with that I'm going to hand, it over to Dean.
Alright, Thanks, Peter Dean <unk> here. Good afternoon, everyone. We reported excellent operating and financial results that exceeded consensus with strong core results and our team is off to a strong start towards a solid growth for 2023 are client tenants continued very timely payment of rent and year to date through April we have a very.
Strong balance sheet, we have meaningfully reduced uses of capital for 2023 made excellent progress on dispositions and sales of personal interests.
Have a conservative <unk> payout ratio and a growing dividend.
And are the Goto brand for life Science real estate.
We have a very strong balance sheet with $5 3 billion in liquidity no debt maturities until 2025, our team made excellent progress on our dispositions and sale of a partial interest only four months into 2023 as Peter highlighted we've advanced transactions aggregating $865 million.
Completed or subject to executed LOI for purchase and sales agreements, including the new JV partner for a build to suit project for Eli Lilly many of the in process transactions are targeted to close on or about June 30th.
We have also identified other dispositions and sales of partial interest to bring our total for the year to $1 5 billion, while the macro environment remains challenging we are reasonably optimistic that we can execute on our disposition plan for 2023 at attractive values and cap rates, we will provide values and cap rates quarter to quarter as we closed.
<unk>.
Since we are unable to do so sooner while transactions are in process.
In addition to the $1 5 billion of dispositions and sales of partial interest new JV capital forecasted for the full year of 2023 will contribute over $300 million towards construction spend this year <unk>.
Including most of the $119 million of contributions for the new partner, we just added to our build to suit projects Eli Lilly no JV contributions to construction spend including forecasted joint ventures were added towards detailed disclosures on page 48 of our supplemental package.
Turning to outstanding financial and operating results, we had really strong growth of $342 9 million or up 13, 9% in total revenues for the first quarter annualized in comparison to the first quarter of 2022.
Adjusted EBITDA on a trailing 12 month basis was up $246 2 million or 15, 4%.
Really strong growth of six 8% and <unk> per share for the quarter in comparison to the first quarter of 2022 again.
Again off to a very strong start and on track for six 4% growth in <unk> per share for 2023 now.
Key highlights of our continued strong operating and financial performance strong growth in revenues adjusted EBITDA and <unk> per share was driven by the continued strength across key areas of our unique and differentiated business.
Continued strength in timely payment of rent from our client tenants 99, 9% for the first quarter.
99, 7% for April that was through April 21, only three weeks into this month pretty amazing.
Continued strength in same property NOI growth of three 7% and 9% on a cash basis and really reflects the benefit of strong rental rate growth on leasing in recent quarters.
Our actual annual Escalations in rent and the burn off of some free rent.
Our outlook our strong outlook for 2023 same property NOI growth is 3% on a GAAP basis, 5% on a cash basis and generally consistent with our strong 10 year average for same property growth.
Now turning to record rental rate growth on strong leasing volume.
Strong rental rate growth continued into 2023 at 48, 3% on GAAP basis, 24, 2% on a cash basis from lease renewals and releasing of space in the first quarter. Now this was an exceptional rental rate growth gap at the highest in the company's history, both GAAP and cash rental rate growth higher than the strong rental rate growth for the full year.
Year of 2022 and 2021 now.
Our leasing volume for the first quarter was strong at $1 2 million rentable square feet slightly ahead of the strong quarterly average of leasing volume prior to the exceptional record level of leasing volume in both 2021 and 2022 now the key takeaway is that the scale of our high quality tenant roster combined with operational excellence from our team puts us in an edge.
<unk> positioned to benefit from the unique pool of demand from our client tenants even in this unusual macro environment.
Now our strong office occupancy was in line with our expectations occupancy was 96% to 93, 6% as of March 31, and.
And really in line with expectations and the comments I provided on our year end earnings call.
There are three key takeaways here first occupancy is expected to improve in the back half of the year.
371000, rentable square feet of the recent vacancy has significant rental rate growth of 110% on a GAAP basis, and 115% on a cash basis.
And third 29% of this 371000 rentable square feet has already been leased with occupancy of some of the space beginning in the third quarter of 23. Please.
Please refer to footnote one on page 26 of our supplemental package for more information.
We also absorbed 71000 of vacancy from a building located in Texas. This is one or two buildings that were undergoing redevelopment last quarter. One building aggregating 131000 rentable square feet is currently 36% pre leased and undergoing redevelopment we decided to hold on further redevelopment of the second building aggregating 71.
<unk> thousand rentable square feet until we lease up the remainder of the 131000 rentable square foot building.
The 71000 rentable square foot building is vacant and is classified in operating properties.
We continued with very strong adjusted EBITDA margin of 69%.
Briefly on our high quality tenant roster.
Alexandra really as the brand for life Science real estate.
Has built long term trusted relationships and as a true partner to the life science industry, 90% of our top 20 tenants are investment grade rated or large cap publicly traded companies.
And we highlight the continued strength of timely payments of rent from client tenants at 99, 9% of rent that was due on the first quarter really reflects the strength of our high quality client tenants important tenant relationships on the high quality underwriting from our research team.
Briefly on venture investments realized gains from the venture investments included in SSO averaged about $25 8 million per quarter for the last eight quarters through the end of 2022 in comparison to Tony <unk> 7 million for the first quarter of 2023 now we do expect to realized gains each quarter from our venture investments for the remainder.
There are 23 to be more consistent to slightly up from the historical quarterly average of $25 8 million that I just highlighted.
Gross unrealized gains on our venture investments as of March 31 were $459 million on a cost basis of $1 2 billion.
No. We've got continued consistency and growth in dividends from really high quality cash flows that we generate in our business. We've got a very low and conservative <unk> payout ratio, 55% for the first quarter annualized was five 3% increases in common stock dividends over the last 12 months, we're projecting 375.
And net cash flows from operating activities after dividends for reinvestment at this rate. This represents over $1 1 billion of capital for reinvestment over the next three years briefly.
Briefly on external growth, we have $610 million of incremental net operating income from our pipeline of $6 7 million square feet that is 74% leased approximately 30% of this NOI will commence in the remaining three quarters of 2023 about 40% will commence in 2024 about 26% in 2000.
<unk> 25, and the remaining 4% thereafter.
Now turning to guidance, we updated our underlying guidance assumptions for 2023. These assumptions are disclosed on page four of our supplemental package our per share outlook for 2023 was updated to plus or minus <unk> <unk> of a range from the midpoint of guidance down from the plus or minus 10% range last quarter our range of guidance.
For EPS is $2 21.
To $2 31, and our range for <unk> per share diluted as adjusted is $8 91.
To $9, one with no change at the midpoint of $8 96.
Now this represents a strong six 4% growth in <unk> per share for 2023, following excellent growth last year of eight 5%.
Now key updates in the underlying detailed assumptions included the following a significant reduction of $325 million in both sources and uses of capital, including a $75 million reduction in the midpoint of acquisitions to $225 million and a $250 million reduction in construction spend to $2 75 billion.
We also gave updates on significant dispositions and partial interest sales and an $865 million, including significant transactions that are under executed LOI and purchase and sale agreements.
Now rental rate growth on lease on lease renewals and releasing of space was increased 1% for both GAAP and cash to a range of 28% to 33% for GAAP and 12% to 17% on cash and occupancy was suggested 20 basis points to reflect vacancy from 170000 rentable square foot building located in Texas.
That is on hold while we lease up the adjacent building under redevelopment that is currently 36% lease importantly occupancy is expected to recover in the second half of 2023 with that let me turn it back to Joel Marcus Thank you.
So operator can we go to questions. Please.
Sure.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
The first question today comes from Steve Farquhar with Evercore. Please go ahead.
Yes. Thanks, Good afternoon, Joe look I can appreciate that you still haven't closed a lot of these deals, but I think the market would certainly appreciate just any range of commentary you could provide on sort of how to think about cap rates.
I realized not singling out individual deals, but is there a way to sort of bracket them or bucket them kind of again, maybe where your implied cap rate is today or maybe against the deal that Peter discussed.
Well I think the way and I'll have Peter certainly and Dan may want to come in as well.
I think it's fair to think about we were posting.
Low 4% cap rates again on class a facilities over the last couple of years and Peter just went through I thought a pretty clear explanation of the transaction in.
In greater Boston, which is.
Essentially a five four so you might think about an adjustment of cap rates maybe over this transition.
Transitioning economic time, but maybe 100 basis points. So that's maybe a way to frame it but I think youll be pretty impressed.
I think people will be impressed when we do our second quarter call, but Peter any any comments.
Yes, I agree with with that assessment.
I would say that.
We will see things that are still lower than 5% potentially win.
There is a good mark to market opportunity that can be monetized.
Monetize.
But if it's stable.
Our high quality assets, you're going to have a five handle on it just.
Just like this one did.
Dan any other comment you would throw out.
Yes, no I think Peter said it perfectly.
Okay, Steve hopefully that's helpful. Yes.
Yes, no that's great. Thanks, and then Joe maybe you.
You and.
Hal you could just comment I saw.
I guess in the last supplemental you talked about sort of dealing with 1000 tenants at this time, you kind of mentioned in the 50.
My sense is half of that is retail tenants it may be a lead them.
For an asset, but I suspect that maybe some of them are not retail and.
That really just speaks to how are you changing maybe your underwriting and the tenants that you are sort of willing to do business with today versus maybe tenants who were willing to do business with either post Seb are.
A couple of years ago, we didn't have 150 failures, but dean do you want to highlight that for a moment.
Yes, so Steve.
So.
Huge majority of the change was really due to a simple.
Future Mega campus development project that we acquired.
Retail project known as the shops at <unk>.
That was.
Almost all of the change in the tenancy from roughly 1002.
850.
You are right.
Beyond that like we highlighted not just during this call but over the last couple of quarters.
We've had as you would always expect some normal lease explorations that occur at the end, where the tenant doesn't choose to extend and thats fairly normal activity and then we've also had.
A few tenants that have come back as you guys are well aware.
And have come back to in the release, a little bit early but that was really.
A handful of leases over the last couple of quarters.
I think the big takeaway, though is look you know that we do a really good job at selecting really high quality locations in the core of these.
Life Science cluster markets.
So great great locations great facilities.
And I think our operational excellence on our brand puts us in a great position to capture a mark to markets on most of these spaces that have come back I mean the comments.
Provided on the vacancies that came up just in the first quarter alone with Mark to markets, both GAAP and cash north of a 100%.
And 29% of that space already been leased.
If you go back to my comments in the fourth quarter I believe I gave similar comments pre leasing on space that had just rolled as well so we've got good activity.
And again going back to the crux of your question, Steve almost all of that change in the tenancy was retail related at that shopping mall.
And let me maybe put a footnote on that Steve you asked about the nature of underwriting I think kind of how he said it all that.
When we look at private companies or we look at preclinical public companies or even companies in the clinic that are public so that group of tenants you're always looking now even much more so for much nearer and nearer term value inflection milestones and really good data and the.
Fortunately large unmet medical needs I mean, we've always done that but I think now it just goes to show that.
They're going to be the haves and the others are have not so that's really I think where the mindset is.
Great and just one last question Dean do you have like an overall mark to market on kind of what you think the portfolio kind of lost the leases on the overall assets today.
Meaning if we were to mark to market the rental rates, Steve on the whole portfolio.
Yes.
Yes somewhere around.
I think last quarter, it was somewhere around 27% this quarter, it's closer to 22%.
Overall on the whole portfolio.
Great. Thanks, that's it for me.
Yep Thanks, Steve.
The next question comes from Anthony <unk> with Jpmorgan. Please go ahead.
Thank you.
You guys talked about.
Driving our Audi or leasing from just internal relationships in your existing tenant base and so I was wondering if it I don't know if theres, an alexandria dashboard, so to speak or what but can you maybe give us a sense as to what either like leasing traffic rate or just the aggregate amount of demand that's coming out of your portfolio today, it looks like versus say.
I don't know 234 quarters ago.
Yes.
That is almost.
It's hard to do generally and it's so sub market and building specific Tony.
Clearly demand is overall down from the peak of 2020, one you see that.
Just everywhere and you certainly see it on more of a normalization of our historical leasing which has bounced around over the last either five year benchmark or 10 year, but maybe the thing to say is.
Companies that are active are.
Pharma.
And I think Peter alluded to this bigger biotech product and service companies.
That are so much focused on the manufacturing side.
Or the supply side, and then clearly biotechs.
Whether they'd be public or private that have got.
Good data coming I think that's where you see it but I'm not sure we could give you a.
No.
Numerical characterization of that.
Well I guess, maybe a different way to ask it is.
If you think about the next couple of years, you see where the growth is within your portfolio and you also know space Thats coming due in your development pipeline do you see enough demand today to absorb the space that's coming online in the next couple of years or do you think we should expect.
Some some moderation in occupancy levels as the demand is lower.
Yes, I'll, let maybe Peter come in on that as well, but I think it's fair to say if you look at our pipeline, which is pretty highly leased I think we have a.
Reasonably high level of confidence that we can.
Fully leased those projects and there are demand it doesn't even show up today on projects that may be on the future drawing board that we're also comfortable with I don't think we see demand dropping off a cliff here at all but Peter you want to comment and Dan you could come in as well.
Yes.
There is.
There's been a slowdown in activity.
Due to the fact that boards and companies are really just trying to figure out.
Where the economy is heading there's definitely expansion needs.
We're just not going forward.
With some of them, which is contributing to the reduction in demand. So I would say that there is a nice.
Amount of pent up demand building.
And.
I would say in a couple of years from now that that's definitely going to be in the market if not sooner.
Okay, and then just one second question.
Maybe a bit of detail in the supplemental package on page 34, you break out the.
Portfolio between the operating assets in the various buckets of future opportunities I guess.
Just make sure if I'm, putting a cap rate on <unk>, NOI and getting a value.
What from that slide do I need to add to that to kind of capture the totality. So just trying to understand if in some of these future opportunities buckets.
Theres some operating assets in those are.
I'm just trying to piece that altogether, so either we're capturing everything or not double counting something.
Yes, Tony it's Dean here, so you're referring to the.
Page 34 for others on the call, which is in the bottom right hand corner.
This page highlights square footage of our operating but most importantly, the different categories of our pipeline.
Everything from construction to the future.
There is no significant.
Cash flows.
From <unk>.
Assets that are sitting in the pipeline.
I just want to make clear that there is a line item that.
Just the future pipeline.
For square footage Thats sitting in operations, but those cash flows are in the operating portfolio of Tony as you would pick up the NOI at a value of the company.
We just don't want you to double count the square footage as you go towards the future pipeline, but from an NOI perspective, if that's your fundamental question.
The future pipeline.
It doesn't have any significant NOI being generated at the moment.
So that $4 2 million square feet, there's not an appreciable amount of NOI from that that we would be picking although we'll wait a second a $4 2 million in rental properties today. Its an operations Tony I thought you were asking about the $38 million right above it.
Okay 30 789.
Right Okay.
So the $4 two does have some meaningful NOI associated with it that's that wed be counteract so you don't want to double count the square footage there.
Okay.
Understand thank you that's why we net down to square footage and that disclosure to 30 roughly $34 million.
Right right.
But the book value has that.
That $4 $2 million in there.
The book value.
Would only have it to the extent it is not related to the operating component Tony.
Okay. It's in operations the book value would be sitting in the operating component.
Yes.
Camp, if a larger campus had two operating buildings and a path to support two buildings.
The pad to support the future buildings would be in the future pipeline the book basis.
But the cost basis related to the operating buildings would be in an operation is not in the pipeline.
Okay, I think I understand that and that's helpful. Thank you.
Thanks, Tony.
The next question comes from Nick Joseph with Citi. Please go ahead.
Thanks.
Maybe just on the sources and uses obviously, there's a disposition for the partial interest sales.
That are continuing to come at different points in the cycle right now.
But as you think about the ability to flex that going forward, if the transaction market stalls, even more how are you thinking about the flexibility on your end and where could equity play into that.
Yes, so dean.
Well I don't know that its interesting the way you pose the question maybe I'll start from the back end of your question flexing our capital.
Plan and turning to equity as a solution is not really <unk>.
<unk>.
We are contemplating.
I think the way to look at our capital plan is what we are doing internally like we did.
In the current quarter for earnings as well as over the last several quarters and prep for initial guidance for Investor day. This year.
Was to really challenge our uses of capital.
I think one thing to keep in mind is that.
Our pipeline of $610 million of incremental net operating income.
From projects that are highly leased today theres so much.
The equity type capital that's invested in CIP today, there's very little incremental equity needed to fund that pipeline.
And so we're looking at spend across.
Other projects as we look forward over into 'twenty four and beyond.
Be sure were.
Prioritizing the things that we should be investing into and.
Maybe holding on things that we shouldn't be.
Just given the macro environment so.
Hopefully that gives you some color on how we're thinking more broadly about it I think as I mentioned on the call earlier, we're mindful of the macro environment.
We're also.
In a position, where we know where we are.
Here at the end of April with a lot of good activity on the pipeline.
So you know.
We're reasonably.
Comfortable with our outlook into 2023, and we'll obviously provide an update as we go quarter to quarter, but.
A bulk of what we have under executed LOI or PSA agreements today.
Slide into close here fairly soon plus or minus mid year.
So.
We feel good about it and we will keep an eye on things as we go through the next two quarters.
Absolutely.
It's helpful. And then maybe just on that kind of reduction in development spend how does that play into capitalized interest and interest expense in 2023.
Yeah, well, it's all reflected in our guidance, we just gave.
So you saw there was no no changes and kept interest.
Down in the details obviously.
<unk>.
We did on a number of projects.
Review strategically we wanted to do.
And a number of them were.
Tim put on temporary hold if you want to look at it from that perspective.
Redevelopments were placed into operations as vacant assets.
Development projects for the future.
They have been paused on a few circumstances, which basically.
Were left in the future development pipeline from a capitalization perspective that operating building that went in.
Oh, I'm sorry, the redevelopment building thats vacant that went into operations capitalization ceased immediately.
The other projects.
Half activities that are winding down as we speak meaning capitalization will cease over the next months.
Number of months going forward.
But theyre all basically shutting down in the near term.
In the scheme of things they are relatively small so we've been able to absorb.
It sits within our range of guidance sits within a range of <unk>.
<unk> with other assumptions offsetting those changes.
So we are able to pick up.
Some improvement to offset those.
So hopefully that gives you a sense I mean, we look at qualifying activities carefully.
Across all of our projects that are undergoing.
Construction activities and kept interest and shut them down accordingly, So you will see some of that but they are fairly small in the scheme of things.
Thanks, that's helpful. And then just on the transaction market and then you touched on cap rates will be up about 100 basis points each asset very different though.
Is there anything youre seeing from a buyer.
Or kind of a bigger pool of buyers.
Cool.
Kind of change relative to what you've seen really over the last 12 months just given I think we're finding that the costs have moved up.
Institutions, either fallen out or have you seen kind of any.
Institutional interest that you haven't seen before.
Okay.
Yeah, Hey, it's Peter I'll take that.
Yes.
We actually have.
A number of choices still in the market.
But there are definitely some folks that are on the sidelines that.
Are facing redemptions.
And so they're interested in accumulating more life science product, but they can't necessarily play right now.
But thats.
That's been filled in by some other new folks coming in that want exposure that are also high quality institutional investors.
And.
So yes.
We have liquidity.
I'm not too concerned about that at this point I think it will get better.
<unk>.
There is more certainty and where the.
The terminal rates going to land and where cost of capital is so people get comfortable.
Spending their allocations for 'twenty three.
Thank you very much.
The next question comes from Michael Carroll with RBC capital markets. Please go ahead.
Yeah. Thanks, Peter can you talk a little bit of balance.
Fly comments that you're making in your prepared remarks, I mean are you seeing developers being more cautious pursuing new projects I know, there's a few data sources out there, saying that developers are still pursuing life science projects, specifically in Boston I mean would you agree with that statement.
Yes, certainly there are.
There have been there has been spec building, especially in Boston.
What we're seeing is in the areas outside of our.
Core Submarkets, where we don't own product.
There are vacant buildings sitting there.
It's.
We're hearing that Theres no tours theres no activity.
So we don't necessarily think that that those buildings are competitive to ours.
There are a few projects, obviously that we do believe and Thats, where those percentages are coming in.
So obviously 'twenty three.
Sort of stuff.
As already been delivered there's some more coming in 'twenty four there's more coming we are seeing very little that is starting new today.
There was one project in South San Francisco that has started recently which is just.
Beyond comprehension.
But outside of that we believe that anything that would compete.
In.
Of our quality is in our numbers and that we don't think many if any people will stop.
Start new projects.
From here on out at least not in a material manner, but who knows.
Okay, Great and then just last on 15 necco, what's the reason for selling that specific I guess development stake I mean is there any something about that building that you didn't like or that was more particularly attractive to certain investors I guess why why that property.
Well.
Yeah.
It was a.
Fairly low yield.
So, we're giving away not too much upside.
By selling part of it right.
<unk>.
And.
Or the investor that we attracted really really like building.
It was an opportunity to fund something that was in near term dollars. So it made a lot of sense.
Yes, I mean, it's a world class building with a world class tenant. So it certainly is one of those opportunities that would attract a variety of capital sources.
And we continue to.
To be the dominant owner as well so it's kind of meets all the.
All the requirements that we have for monetization.
Okay, great. Thank you.
Yep.
The next question comes from Rich Anderson with <unk>. Please go ahead.
Hey, Thanks, good afternoon.
So on the $7 6 million square foot pipeline, how much what does that imply in terms of development spend in 2024 and how much.
Of that is is potentially someplace.
Someplace, where you can sort of tap the brakes like you kind of did this quarter.
In deference to the current capital raising marketplace.
Rich, it's dean chicken nugget here so.
You said seven point.
$6 million.
You use any pipeline in place.
<unk> you want.
I am curious as to what you've committed to in terms of development spending.
I see what number you're referring to so you were referring to the pipeline that's under construction $5 5 million square feet plus another $1 2 million in near term those are all 100% pre lease projects. So.
That ties to the $610 million for others.
Incremental net operating income we haven't broken out that number for 2000 and forward to spend just related to that but that's not.
Within that bucket now we slimmed down.
The focus of.
What is continuing to generate the $610 million of NOI and for the most part rich for the most part those are.
Either 100% leased projects.
Or.
Multi tenant projects most of which have some level of pre leasing.
Some that don't have pre leasing today are multi tenant projects.
Anywhere from a building to multiple buildings.
So.
Right sized for.
Delivery requirements in the market. They are not lumpy large build to suit opportunities that could be more specific to larger requirements. So I guess long way of saying rich I think we feel comfortable with what we have right sized for the pipeline of activity.
The construction spend.
Plus or minus will play out like a normal curve for spend over that pipeline.
Roughly.
Two years from the start of new projects. They have good pipelines partway through that already so.
What you're really focused on though in your question is.
Spend outside of that which goes to.
Quite a bit of activity.
At work advancing site work as well as entitlements entitlements are important to add a lot of value.
Site work shrinks, the time to deliver buildings to a tenant.
Which.
If you looked at US two years ago, We said, let's move that along if you looked at us today, we'd say.
Well, let's let's think carefully about site work given cost of capital.
Considerations with the macro environment today.
Unless just hold on that.
Until the right time, and so I think we're going to look hard as I mentioned earlier over the next couple of quarters.
Continue to refine our plan for 2024.
Because as I mentioned earlier $610 million of pipe that pipeline does not require much more equity capital at stabilization because we have so much already in CIP.
The incremental EBITDA will allow us to debt fund leverage neutral.
The wide majority of the incremental capital for that pipeline.
And our renovation costs that arent part of development and redevelopment that we need to scrutinize all of our business.
The critical message.
Yes got it thanks and then.
Second question for me is.
And the success that youre, having from asset sales and partial partial interest.
It's obviously.
The best way to one of the best ways to raise equity capital right now for you guys today.
Pointed it become too much where you are parting ways with your pre eminent assets yet.
You only want to do that to a certain degree before.
<unk>.
Youre, giving away so if you'd rather own 100%. So is there is there a sort of a number you can point to that this is how much we can raise from a disposition standpoint still be in a range where were comfortable with our ownership position in these in these fantastic assets longer term.
And here I think the way to think about at a high level as we've just closed a common conversation about the pipeline.
$6 7 million square feet.
Under construction are including one two to start in the near term here, that's a lot of product.
And we just completed a lot of product over the last two or three years.
So we have.
<unk> added a lot of high quality assets to our portfolio in recent years as well as coming online here over the next two to three years.
So cordoning off a piece of the portfolio makes sense and we're mindful of your question, but we have so much coming online and that we have completed in recent years I think we feel pretty good shape.
Okay, great. Thanks, very much yes, thanks rich.
The next question comes from Tom Catherwood with <unk>.
Please go ahead.
Thank you good afternoon, everyone.
Just following up on Michael's previous question about Boston can you provide some more insight on the decision not to redevelop $2 75 growth Street and is there any read through to other recent acquisitions in greater Boston Lake Gatehouse driver presidential way.
Yes, I think Peter can come in as well I think the way we're trying to think about it is.
Two I mean, we have a very significant.
<unk> position in the greater Boston market 14 to 15 million square feet and I think in a tougher macro environment, it's kind of a thought too.
Prune and right size you see what we've done last year would be a good example of.
We sold a set of really good high quality work horse assets, but we felt in locations that were not necessarily high barrier to entry markets, but.
Good good good economics for buyers as well and good economics for us and I think as we think about different assets, we're trying to make sure that were.
More focused on the highest barrier to entry markets, rather than less and I think.
<unk>.
Thats, probably the Best example, I could maybe sure Peter but you could give your color.
Yes, there was one nuance to kind of focus us on 275 Grove, which was when we acquired that there was a.
An opportunity to expand our holdings.
In that neighborhood.
In fact adjacent to it.
So we.
In addition to high barrier to entry.
High barrier.
To enter we also really are.
We are focused on aggregating into mega campuses.
And the opportunity to do that wasn't attractive enough for us to move forward. So we ended up with this kind of a standalone asset which is a really good office asset.
But.
You have to start prioritizing and that one just kind of.
Lost some of its shine when the opportunity to expand kind of went away.
Yeah.
Got it thank you guys.
Sticking with you.
I appreciated your comments on availability rates, when including 2023 and 'twenty four deliveries.
When it.
Comes to upcoming lease expirations, you have typically in conversations with tenants.
A year or multiple years in advance.
Are you getting any sense that tenants are engaging less on their 24 explorations or space needs given the large amount of expected deliveries between now and the end of 'twenty four.
That's a hard question to answer because it's pretty would be pretty granular for me to.
I understand when I'm looking at leasing reports.
Remembering what is.
What is expiring today versus in the future, but I believe our.
Our <unk> are.
Early renewal statistics have been fairly strong.
Recently, so I guess the short answer is I don't I haven't noticed anything.
We we are constantly in communication with the regions about.
Their upcoming.
Renewals.
A year to two years, even three years ahead at times.
What's the status.
Of the company and are they expanding and do we want them.
And the portfolio or not and so we're pretty aware and if I think if there was some weakness there I think I would have probably noticed it right.
Bye now.
Got it thanks, everyone.
Thank you Doug.
The next question comes from Joshua <unk> with Bank of America. Please go ahead.
Yes, Hey, guys.
I just wanted to follow up on some of those supply comments, particularly the.
San Francisco supply it sounds like that's where the biggest incremental change was when youre looking at 2023 and 2024.
On leased new supply.
What in particular kind of changed on that front, new new supply coming on line or was it.
Projects that were previously signed and then kind of the least went away.
Just just some new recent starts.
One one large one in particular in South San Francisco.
Made up most of that.
Most of that change.
It.
It is this uncanny that people are.
Still trying to put new projects into the queue in a market that has a lot of vacancy.
We're fortunate we have one project moving that as kind of a good niche for earlier stage companies mid stage companies. So we don't have to go out on elephant Hunt too.
Police have really large project that there's a lot of folks out there that are that are going to be in a lot of trouble because of.
What I would think is fairly reckless investing.
Well and also historically if you go back to my comments I said we.
We have tried to shape the company and allocate our capital as much as possible the high barrier to entry markets and Mega campuses.
South San Francisco, we've never had a dominant position we chose not to win.
<unk>.
Britannia assets came for.
For sale quite a number of years ago and in those days HCP bought that I think almost $3 billion, we valued at about $1 seven $1 7 billion. So we decided to pass on that but what's changed in South San Francisco is.
Transportation is now a bit of an issue.
<unk> transitioned to Roche, which.
He is a great company, a world class company, but theyre not company, creating in that market like Genentech was like a factory.
Spinouts much like <unk>.
Some of those aspects of what would otherwise be a high barrier to entry market don't exist. There. So you saw some of the moves we made last year in South San Francisco exiting a number of assets passing on.
We passed on an option we had to do a development and so we're being pretty darn cautious there and youll see that continue.
Thank you and then one other question I saw you revised upward the leasing spread guidance.
What was that a function of just the market rent growth or just recently you actually signed in <unk>.
Okay.
Alright.
Selective of where we usually start at the beginning of the year.
If you look back over time, I think we've enjoyed the opportunity to.
Move rental rate growth and same property performance north toward as we make our way through the year.
And so a combination of settling in on activity this quarter.
As well as our continued outlook for the remainder of the year.
So slight improvement overall.
Yes.
Got it thanks, everyone.
Thank you.
Your next question comes from Dillon, President <unk> with Green Street. Please go ahead.
Hi, guys. Thanks for taking the question and I. Appreciate the color that you guys have provided thus far on sort of demand and the normalization on that front, but just curious from a geographic perspective are there certain markets or submarkets, where the normalization is a little bit more onerous.
Okay.
Well I think I think.
Maybe south San Francisco might be not so much for us but may be others.
Yes, that's a good example, and we've tried to.
Minimize limit our exposure there and.
No.
Transaction that we did on a build to suit was really.
It seemed to south San Francisco sub market, but it's a little bit out of there but directly on transportation. We felt was a huge competitive advantage and landed a world class.
Tenant to 100% occupied.
That development. So I think that's one example.
And I guess just on that line of thought like our.
Our markets like in the non cluster markets like RTP.
Suburban, Maryland had those sort of seen similar.
Normalization demand trends.
San Francisco versus maybe like your core Mark Submarkets, like Cambridge, PTC Torrey Pines San Diego.
Yes, I think we're still seeing decent activity, maybe RTP or T I should say.
Has slowed maybe a bit more than we would have guessed, but part of that's due to.
My guess is the.
The mix of tenants down there in the not so much our tenants per se, but the.
The mix of life science components of life science tenants in that market.
And I think we see a maryland still pretty good.
Slower than it has been because obviously <unk> 2020 one.
Peak times, and obviously Covid dollars, we're heavily focused on that market, but we're still seeing pre.
Pretty decent activity.
I would say matches our historical.
Numbers. So that's just two examples.
Okay. Thanks I appreciate it.
The next question.
Question comes from George <unk> with Mizuho. Please go ahead.
Hi, Thank you for taking my question could you. Please provide more color on the internal leasing pipeline that comes home.
And how does demand compressed with a broader industry.
Yes, I don't think you can compare that because <unk>.
No one has.
The scale and depth of the tenant base that we do and we know.
Pretty pretty instantaneous Lee about the needs of those tenants versus if you are just in the market using brokers and you're kind of hearing hearsay or second hand, so the two are pretty fundamentally different.
Understood and apologies if I missed it but did you have.
Any lease termination fees this quarter and if so how much.
Dean.
Yes, nothing significant in the quarter.
Great. Thank you so much appreciate it yeah. Thank you.
Okay.
The next question comes from Jamie Feldman with Wells Fargo. Please go ahead.
Great. Thanks, Hey, everyone can you talk about the credit watch list today, and just what that looks like as a percentage of your revenue versus say six months ago, and how that number has changed.
Yes, I don't know that I mean, we don't call. It a credit watch list I think Holly indicated we have a pretty methodical deep and <unk>.
<unk> approach that has always been there and I mean, if you looked at say the Ruby a situation.
Yeah.
Sure.
We would say that if there was a management change that then.
You look at or you put that scrutiny at a higher level when it happens and then as.
Technology developments or lack thereof.
Take hold that you are informed about.
And rumors sometimes when you're dealing with public companies.
You have to sometimes we have confidentiality agreements, sometimes we don't so.
Information comes in different.
Waves in different fashions, we just have a more much more hands on.
Work approach with clients, but I think the bottom line is the simple bottom line. If you look at Holly indicated if you look at the tenant collections by segment there.
<unk>, 99% to 100% so we've I think done an extraordinary job.
Managing.
Rent collections and monitoring all of our tenants in a in a way that I don't think anyone else could even imagine so I don't know if thats a helpful way to characterize it Jamie.
No that is helpful.
I mean, I guess, the big picture, it's like everyone kind of sees the headlines on what's going on in life Science clearly you are.
Flying above the clouds, you just have a better portfolio of better <unk>.
Tenant base, but it's so hard to handicap just.
How bad the cycle could get for you.
Usually if you look I mean, if you look at the tenant base and where we again Holly went through each of the segment or a number of the segments and I think you could always say to me. The privates are in pretty good shape, because they're not exposed to the public markets and they generally assuming we've underwritten them.
Well and we have they generally have good and deep factors, whether its debenture institutional.
And then you look at public which are preclinical or in the clinic, but don't have near term milestones I think thats. The area that everybody is really focused on.
And we have very limited exposure there I mean for example.
We turned down a lease with the Sorrento therapeutics down in San Diego some years ago because we.
Kind of like Elizabeth.
Oh.
<unk> forget our last name, but Elizabeth Holmes.
I know people, who did diligence and they said they could never look at the Edison machine well if you can't look at the Edison, how it works and so forth you can't underwrite the tenants.
Kind of how we looked at Sorrento, we couldnt understand the science not that we had.
Some ability to say hey, this is going to fail or not Phil, but we simply could not understand the science. So we passed on the.
On the tenancy and.
That's just how we do things.
Okay.
Okay. No. That's helpful. And then I guess Dean just back to your comment on the $25 8 million of gains you might show I mean whats. The maximum you think you could do in that number on that line item.
Well I mean, a couple of years back now I think it was two years ago alright.
All right Jamie.
We took the market was.
Able to.
To deliver on some unique liquidity events within the portfolio and we.
We had something just north of $200 million in realized gains.
Now our policy has been.
These large.
Significant unusual items.
There are one off there aren't events that we control.
And.
Those as you go back about $100 million of that was excluded from <unk> per share.
These are individually very significant.
Gains, but that's just one example is our historical data point Jamie is.
But if you look back for now I think this would be the third year that were.
And to this run rate right at about 100.
100 million $105 million on average I think for the last couple years and.
That's kind of the general outlook other than having a slightly lower number for the first quarter.
Okay, alright, thanks for taking the question.
Yes, Thank you Jamie.
This concludes our question and answer session I would like to turn the conference back over to Joel Marcus for any closing remarks.
Just simply thank you very much and we look forward to talking to you on second quarter call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
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