Q2 2023 Alexandria Real Estate Equities Inc Earnings Call
All participants will be in listen only mode.
If you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone telephone.
Your question. Please first started them too.
Please note today's event is being recorded.
I would 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 the forward looking statements.
Additional information concerning factors that could cause actual results to differ materially from Merck and forward looking statements.
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 second quarter earnings call. Our one of a kind company, which pioneered the lab space niche continues to perform well in both good times and tough times, demonstrating the resiliency of our unique business model and are now post pandemic world in fact.
COVID-19, really reap reaffirmed the sustained strength of our life science industry fundamentals and the need for our essential lab space infrastructure. This favorable backdrop for this for this nation one of the nation's most mission critical industries, which we serve continues to underpin our business.
Driving demand for our World class brand and highly differentiated assets and the operations want to thank each and every member of the Alexandria family team front operationally and financially excellent second quarter, a big shout out to the finance and accounting team for winning the 2023 NAREIT NAREIT gold.
Award awarded by NAREIT in June for the best REIT reporting and transparency.
And amazingly and unprecedented eighth award in most ever by any re.
Alexandria is truly a best in class reach REIT, which pioneered the lab space niche and which I believe has made a metamorphic an innovative and transformational impact on our life science industry for the last 29 years, we're very proud of the stellar balance sheet rebuilt since the days of the great financial crisis.
When we were small and unrated REIT.
Upon the closing of our 1 billion line of credit accordion add on one of the bank set of Alexandria quote congratulations on the successful expansion of your credit facility to $5 billion. This is a significant accomplishment in any environment, where many real estate owners are struggling to source that capital. It is.
As a testament to the strength quality and endurance of the Alexandria platform.
So let me turn to some highlights of the quarter Dean I'll cover in detail, but I wanted to just give a little better perspective.
<unk> quarter was a very strong reporting quarter generally in line with our five and 10 year historical run rates.
Rafe financial financial metrics, and certainly outside of the rocket ship performance during Covid.
We had strong F F O per share growth in both the second quarter and the first half approximating, 7%, especially in a continuing challenging macro and nicely, beating consensus strong leasing quarter at $1 3 million rentable square feet ahead of the historical run rate of about 1.1 million square feet.
And NOI was up nicely almost $200 million.
For the quarter positive rental growth stable occupancy and solid same store NOI increases also posted.
The continuing strength and.
Overall, our solidity of our fortress balance sheet continues our ability to reiterate and maintained strong guidance Ray all the metrics should demonstrate our continuing confidence in our tenants demand for our central lab space, coupled with our ability to operate successfully in a moderately elevated supply.
Dynamic environment.
And then let me make a couple of comments on the life science industry, which general detail in just a moment couple of high level observations M&A a critical part of the capital recycling continues to.
To increase mostly with bolt on product deals, which is a good and positive sign a series a round in 2023 so far have averaged about $60 million, an all time high and biologics not surprisingly have attracted the majority of early stage investments and with that kind of a brief intro, let me turn it.
Jennifer.
Thank you so much Joe and good afternoon, everyone. This is Jennifer <unk> Senior Vice President and co leader of our science and technology here at Alexandria today, I'm going to comment on our solid fundamentals and the secular really growing life science industry fundamentals contribute to the continued vitality and health and Alexandria as best in class Wifi in front of me I know.
And as a long term driver of life science industry growth.
The second really growing life science industry, which had an estimated market value of over $5 billion and approximately 450, Gilead and estimated 2023 R&D funding.
Continuing demand from Alexandria essential at 24, seven lots based infrastructure across our cluster markets.
Industry is driven by the achievement of scientific clinical and commercial milestones and did not significantly impacted by market cyclicality, nor by some of the macro trends impacting commodity today.
With over 10000 diseases known to humankind are less than 10% the basketball with current therapy incredible innovation, taking place within our lab facilities is and will remain a national imperative.
Taking a closer look at the health of our tenant base like any like multinational pharma, which makes up 17% of our air Art. This segment continues to operate from a position of strength in 2022, Biopharma deployed an estimated 267 billion into R&D, representing a 57% increase in Biopharma R&D spend over the past 10 years.
They continue to increase given.
Given the amount of capital firepower on the balance sheets of large cap pharma in excess of 300, Gilead and the healthy pressure on pharma to continue departed late stage pipeline, let's start with new revenue Theres been a significant uptick in M&A as Joe mentioned, the first half of 2023 M&A deals value has already totaled 28 have already totaled 97 billion surpassing total.
I'm in a transaction valued for full year, 'twenty, one and 'twenty two pumping additional liquidity into the sector.
We also see increased pharma partnering activity across our retail ecosystem as well.
Transitioning to private venture backed biotech, which makes up 10% of our total IRR. We continued to see healthy lifestyle center activity with a significant $17 7 billion invested in the first half of 2023, which while down from the record pandemic period peak lifestyle center activity remains quite strong by historic standards and in line with 2018 I'm finding.
<unk> levels.
Given the record high years I venture fund raising by life science venture funds in 'twenty, one and 'twenty two there's still plenty of dry powder to deploy both of course, given the broader capital market contacts in a very narrow IPO window venture capitalist, they're more discriminate disciplined and demanding of new and future investments with the expectation the company may need to stay private for a longer private biotech.
With tenured management team strong differentiated technologies and clear line of sight to value inflection milestones consistent with our own tenant underwriting selection criteria are the ones that continue to rise above the fray.
As for public biotech are public biotech tenants with marketed products make up 14% of our era and include companies such as Amgen Gilead vertex a motor or now. This is also a very healthy segment of our tenant base with substantial revenue.
And continues to be a critical contributor to innovation and partnerships across our ecosystem for our preclinical and clinical stage public biotech comprising 10% of our air our compelling clinical data remains in this segment of our tenant base continues to perform tenants such as Black Diamond Medicine backside of biomass fusion to name a few have recently raised substantial.
Follow on public equity financings on the heels of promising clinical data.
We always have our science and technology team continues to meticulously underwrite and monitor all of our tenants very closely notwithstanding in the process of developing novel Medicine. There will always be found that fail in every type of macro market environment and this is of course baked into our model with a deep tenant base relationships across every facet of the industry and in each of our regional.
And of course, the highest quality infrastructure and operations, we get ahead of potential tenant challenges to backfill and further enhance our tenant roster, reflecting the health of our current tenant base and two to 'twenty three tenant rent collections were at 99, 9% and we've already collected over 99, 7% of July right.
Now a word on innovation.
Catalyzed by groundbreaking technologies, new modality massive unmet medical need and strong fundamentals the life science industry remains uniquely positioned to tackle and solve our most persistent a major health care challenges.
<unk> are a new golden age of biology, only bolster the strength and growth potential of this vital industry. In this new historic age. The FDA has approved over 450, new drug over the past decade, and 2023 is on track to be a near all time record high year of new drug approval is starting the year off with over 60 Paducah date set on the F D a calendar to review.
New drug application.
Collectively reflecting that productivity and impact of the life science industry to bringing new medicines to patients. Many of our tenants are at the forefront of innovation to name a few Pfizer and GSK each received new approvals this year for their respective RSV vaccine, an incredible feat given our long history of failed vaccine development and RSV and Biogen's Tau firsthand also resonates.
Vanguard approval for E. L F. A debilitating neurodegenerative treatment locking credit excuse me the debilitating neurodegenerative disorder lacking current treatment.
These trends reaffirm the fundamental truth Alexandria recognized nearly three decades ago, our fully integrated mission critical lab space infrastructure centered in core hubs of innovation is a central bar attendants dead band scientific discovery that improve human out.
Through every market cycle Alexandria tenants rely on our central lab based infrastructure for the intended purpose to provide 24 seven compliant fully integrated and workflow optimized facilities.
<unk> operate advance and help safeguard in aggregate billions of dollars of scientific research specialized equipment pipeline programs and commercial assets. It is the advancement of the science and related industrial property in Alexandria lots based building that drives the utilization of and demand for space much like a data center that is constantly and consistently capturing in stores.
Data throughput the volume velocity and value of the scientific throughput occurring in our spaces at any point in time is not correlated with the volume of people flowing in and out of our buildings and campuses as such a more relevant metric for measuring the utilization of Alexandria lapses asset by our tenants as energy consumption and we have seen consistent same store electricity.
Energy consumption it.
Same store electricity consumption across Alexandria, Lafayette Avenue lab space asset base today, as we did in pre pandemic years.
Equally as important to note within Alexandria, as lapses assets, the laboratories and adjacent non technical space cannot be decoupled, each tenant base floor and building plan is fully integrated and intentionally designed to enable us to enable seamless workflows between a laboratory and non technical spaces within our lease premises remember the.
D attendant employees in our lapses asked that interact with the science and the lab in some way, including to conduct experiments analyze and interpret data planned new experiment make business decisions about the data or engage in other related activities. This is the nature of life science companies research workflows critical aspects of which clearly cannot be performed from home.
Lastly collaboration.
Collaboration is also fundamental innovation and overall life science industry productivity and really critical for translating discoveries from academia into treatments diagnostics I'm curious by biotech and pharma companies. It is also a key reason why 17 of the top 20 multinational biopharma as lease space from Alexandria across our regional markets to access this early innovation.
And I point to the recent example from Bourbon Lilly collaboration and greater Boston pipeline therapeutic and J&J collaboration in San Diego as two recent examples of collaboration across our campuses.
Now given the proprietary and regulatory considerations. These collaborations are of course intentionally and tightly manage my executive team and employees from one company or not wandering back and forth between discrete tenant spaces to collaborate at Hawk, clearly more or less people in a building or a campus is really not correlated with more or less collaboration to drop my comments while today's.
Broader macro environment will continue to warrant extreme prudence it as an opportunity for the best life science companies reflected across Alexandria kind of base to benefit from the secular really growing life science industry solid fundamentals and to continue to advance the technologies and medicines that will bring them value to patients and with that I pass it all computer.
Thanks, Jenna a few days ago when reading at capital markets report I came upon the line uncertainty is arguably the harshest enemy of investing.
It was a very concise way of describing what we have all been seeing in the broad economy over the past couple of years.
It is even hit somewhat insulated life science industry over the past few quarters manifested by slower decision, making and the tightening of budgets by executive teams and boards.
Nonetheless progress continues in the labs milestones are being achieved and success is being rewarded the golden age of biology will not be stopped the flywheel is starting to turn again and we're excited to see the life changing innovations, it's inertia will bring and Alexandria is perfectly positioned to capitalize on.
It does.
Briefly touch on our development pipeline leasing supply and asset sales and then hand it over to Dean.
In the first quarter, we delivered 387076 square feet and four projects into our high barrier to entry sub markets, bringing total deliveries year to date to 840587 square feet covering seven projects.
The annual NOI for this quarter's deliveries totaled $58 million, bringing the year to date total incremental additions to NOI to $81 million. The initial weighted average stabilized yield is six 4% influenced by a build to core project in East, Cambridge housing the next generation of companies from the.
Investors, who brought the world Madonna.
Development and redevelopment projects saw an uptick in activity for the quarter with approximately 142000 square feet of leases signed covering six multi tenant projects as of quarter end, we have another 42000 square feet under negotiation during the quarter, we placed a lab conversion opportunity at 401 Park drive and the ground up.
Of neighboring for 'twenty, One Park drive both located in the greater Boston Submarket of the Fenway into near term projects expected to commence construction in the next three quarters stabilizing in 2025 and beyond a portion of the $4 21 Park drive project is in process of being pre sold.
To a research institute, which will be a highly complementary which will be highly complementary to the development of the Mega campus and the proceeds will help fund the remaining 392000 square feet of the development. This transaction along with the joint venture that will fund the remainder of 15, necco, which closed in April .
Are great examples of the Optionality Alexandria has to fund its value creation pipeline.
At quarter end, our pipeline of current and near term projects is 70% leased and is expected to generate greater than $605 million of annual incremental NOI, primarily through the second quarter of 2026, the decline from 72% leased last quarter was due to.
The addition of the new Fenway projects, excluding those additions to the pipeline would've been 74% leased.
Transitioning to leasing and supply once again, our strong brand loyalty Mega campus offerings and operational excellence continue to drive strong leasing numbers in a challenging market. We are pleased to report leasing volume of one 3 million square feet achieved in the second quarter, which again exceeded our five year pre 2000.
21 average and is the 13th consecutive quarter, where we've achieved a leasing volume above 1 million square feet.
Rate increases were 16, 6% and eight 3% on a cash basis reflective of leasing volume heavily weighted towards Seattle research triangle in Maryland.
Despite spreads coming down from the Covid rocket ship numbers net effective rents remained strong in our operating assets due to their generic buildout, which enables renewals in the releasing of vacant space with minimum capex.
Another positive realized this quarter was a notable increase in demand ranging from 15% to 20% in our top three markets a sign that perhaps investors are seeing the light at the end of the tunnel when it comes to economic uncertainty, but also likely driven by significant dry powder they need to put to work.
There have also been an increase in 100000 square foot plus requirements in a few regions driven by large pharma and biotech anticipated venture accretion investments now.
Alexandria is well positioned to capture this demand because many of these opportunities are coming from existing relationships, which typically account for a significant amount of our leasing in the first half of the year, we have leased 255 million square feet of which 82% was generated from existing tenants.
In addition, our Mega campus offerings, providing the ability to scale in a wide variety of amenities are the clear choice of high quality companies.
We spent considerable time during our June NAREIT meetings discussing supply and recently covered in our white paper the data presented in those meetings and the white paper was from the first quarter of 'twenty, three and we will update it for you here as a reminder, we perform robust on the ground.
Building by building analysis to identify and track new supply from high quality projects. We believe are competitive to ours and our high barrier to entry Submarkets, we focused primarily on high barrier to entry markets and our brand Mega campus offerings in AAA locations and operational excellence enables us to.
Continually mine, our vast deep and loyal tenant base to drive our leasing activity, which will likely lessen the impact of generic supply.
In greater Boston on least competitive supply remaining to be delivered in 2023 is estimated to be one 6% of market inventory, a slight increase 0.01% over last quarter.
In 2024, the least competitive supply will increase market inventory by 5%.
0.3% reduction due to the lease up of that inventory during the quarter.
In San Francisco on lease competitive supply remaining to be delivered in 2023 is estimated to be six 6% of market inventory, which is unchanged in 2024, the least competitive supply will increase market inventory by eight 8%.
A 3% reduction due to a downward revision of estimated square footage to be delivered during the year.
In San Diego on lease competitive supply remaining to be delivered in 2023 is estimated to be 3.5% of market inventory, which is a decrease of <unk>, 8% due mainly to projects being delivered with on lease space now reflected in direct vacancy in 2020 for the analysts.
<unk> supply will increase market inventory by four 9%, a 4% reduction due in part to a pause conversion project and a decrease in scope of another one.
Direct and sublease market vacancy for our core Submarkets is updated as follows greater Boston direct vacancy stayed stable at two 8%, but sublease vacancy increased by one 5% to five 4% for a net increase in available space and operation of one 5%.
San Francisco direct vacancy stayed stable at two 3%, but sublease vacancy increased by two 7% to a total of six 2% for a net increase in available space and operation of two 7%.
San Diego direct vacancy increased from four 1% to four 8% largely due to delivered unleash new supply and sublease vacancy increased by one 8% for a net increase in available space and operation of two 5%.
We are tracking new supply to be delivered in 2025, and we will update you on those statistics next quarter for our current read is that volume will be below 2024 deliveries likely due to high construction costs higher cost of capital a lack of available debt financing and adequate supply currently under construction.
<unk>.
Yes.
I'll conclude with an update on our value harvesting asset recycling program, we are quite proud and fortunate to own assets in a scarce asset class as.
As you all know the past few months have had little transaction out transactional activity in the broad markets, but because of the attractiveness of our product type Alexandria has been able to make great progress towards reaching our value harvesting goals at quarter end, we had closed $701 million of sales, including the 15 necco sale.
All announced last quarter and have another $175 million pending for a total of $876 million.
Which is a little over halfway to our midpoint guidance, we have a number of other efforts in progress or soon to be launched that would exceed our guidance. If we choose to execute on all of the opportunities. The vast majority of those identified assets are non core non campus assets, we plan to fully dispose of them.
And reinvest the proceeds into our value add pipeline.
Notable sales closed in the first quarter include the sale of a 100% interest and 11119, North Torrey Pines road for $86 million or $1186 per square foot at a strong four 6% cap rate.
There is there is a significant mark to market on the asset when the lease expires and approximately four and a half years, but a fair amount of capital will be needed to execute on that opportunity. This asset was a one off for us and there was no opportunity for us to aggregate a campus around it.
We sold 21% of our joint venture interest in 90, 625, Towne Centre drive an asset jointly owned with an institutional partner, who wanted to exit their position and initiated the sales process for their interest only.
Given the strong demand for this University town Center asset.
Asset, we decided to participate in the sale, which captured $32 million in proceeds and a strong four 5% cap rate reflective of the high quality building tenant credit and the future Mark to market opportunity, we will participate in with our continued ownership.
Our portfolio of noncore assets inclusive of our second Avenue assets and wall Fam and our legacy non Mega campus affiliated 780 790 Memorial drive asset located in mid Cambridge sold for $365 2 million or $852 per square foot at a combined cash.
Cap rate of five 2% reflective of a mix of credit quality, some vacancy and term.
We also completed the sale of pure office asset $2 75, grocery Newton, Massachusetts, originally planned for conversion to lab as part of an assemblage of adjacent assets into a mega campus with Green line access the opportunity did not come to fruition. So we made the prudent decision to sell this non core.
The office asset the $214 per square foot price reflects at 70% occupancy the negative sentiment of office buildings outside of clustered locations and a significant amount of capital needed to reposition the asset.
Overall, we are very pleased with the results achieved thus far in our value harvesting asset recycling program as mentioned, we have identified more than enough noncore opportunities to achieve our goals to fund our 2023 growth primarily through dispositions with that I'll pass it over to Dean.
Alright, Thanks Peter.
So you can argue here good afternoon, everyone.
We reported very solid operating and financial results for the second quarter and six months ended June 32023 total revenues for the second quarter were $713 9 million up 10, 9% over the second quarter of 2022.
NOI was up 12, 2% over the second quarter of 2022, driven primarily by the commencement of $58 million of annual net operating income related to the 387000 rentable square feet of development and redevelopment projects that were placed in service in the second.
The second quarter.
The significant NOI growth from completion of pipeline projects was the key driver of our outperformance this quarter in comparison to consensus.
Additionally, we slightly beat other key line items relative to consensus.
<unk> per share diluted as adjusted was $2 24 up six 7% over the second quarter of 2022, and we're on track to generate another solid year of growth and <unk> per share growth of six 4% at the midpoint of our guidance for the year.
No high quality life science entities continue to appreciate our brand Mega campus strategy in operational excellence by our team.
49% of our annual rental revenues generated from investment grade or large cap publicly traded tenants in this statistic represents one of the highest quality client rosters in the REIT industry today.
Our collections remain very high at 99, 9%, our adjusted EBITDA margin remains very strong at 70% same property NOI growth was very solid and in line with guidance for the full year.
Same property results for the second quarter or 3%.
Up 3% and up four 9% on a cash basis.
For the first half of the year of three 4% and up six 5% on a cash basis.
Minder, our outlook for 2023 same property NOI growth remains very solid at a midpoint of 3% and 5% on a cash basis.
Turning to leasing quarterly leasing results are driven by a relatively small volume of and mix of transactions that drive the overall rental rate growth related to lease renewals and releasing of space now for the second quarter leasing volume was $1 3 million rentable square feet and rental rate growth on lease renewals and releasing the space was up.
16, 6% and eight 3% on a cash basis, no rental rate growth for the second quarter was driven by transactions.
Just out of the Seattle region, Maryland in research triangle in comparison to record rental rate growth in the first quarter of 48, 3% and 24, 2% on a cash basis, which was driven by transactions out of greater Boston and San Francisco Bay area and Seattle.
Our outlook for rental rate growth on lease renewals and releasing of space remains solid at the midpoint of 35% in 2014, 5% on a cash basis.
The overall mark to market for cash rental rates related to in place leases for the entire asset base remains very strong at 19% now.
Capital expenditures generally fall into two key categories. The first category is focused on development and redevelopment and redevelopment specifically is the first time conversion of non lab space to lab space through redevelopment.
Now the second category is non revenue enhancing capital expenditures and are non revenue enhancing capital expenditures over the last five years have averaged 15% of net operating income and has been trending lower for 2022 at 13% for 2023. This is closer to 10% based upon the second quarter 'twenty three.
Net operating income on an annualized basis tenant improvement allowances related to lease renewals and releasing of space have been very modest at about $16 per square foot for the first half of the year and these costs are included in the non revenue enhancing capital expenditures that I mentioned earlier.
Second quarter occupancy was in line with expectations at 93, six consistent with first quarter occupancy.
Our outlook for 2023 reflects flat occupancy from the second quarter to the third quarter and occupancy growth in the fourth quarter, the midpoint of occupancy guidance of 95, 1%.
And occupancy as of June 30th of 93, 6% included vacancy of two 2% or approximately 900000 rentable square feet.
From properties that were recently acquired in 2021 and 2022 now.
Now 23% of the recently acquired vacancy is already has already been leased and will be ready for occupancy over the next number of quarters.
An additional 14% is under negotiation.
A huge thank you to mark <unk> and his entire team and our important relationship lenders under our $5 billion line of credit during the quarter, we increased aggregate commitments available under our line of credit to $5 billion up from 4 billion. Now this has allowed us to increase liquidity on our balance sheet to over.
$6 3 billion as of June 30th.
During the first half of 'twenty three we had remained very flexible with our strategy and pivoted toward outright dispositions versus sales of partial interest.
Our team has made excellent progress on dispositions and sales or partial partial interest for the first half of the year and are working on a number of transactions for the second half focused primarily on outright dispositions. There are more details on page seven of our supplemental package for your reference.
Now turning to consistent growth in dividends from our high quality cash flows we have a low and conservative <unk> payout ratio of 55% for the second quarter annualized with five 2% increase increase in common stock dividends over the last 12 months.
We're projecting $375 million, representing a three year run rate of over $1 1 billion in net cash flows from operating activities after dividends for reinvestment.
Turning to venture investments realized gains from our venture investments included in <unk> for the second quarter was $22 $5 million and has averaged about $25 million per quarter for the last eight quarters gross unrealized gains on our venture investments as of June 30 were $373 million on a cost basis of just under <unk>.
$1 2 billion.
Now on external growth, we have $605 million of incremental net operating income from our pipeline of $6 7 million rentable square feet now projects aggregating $3 7 million rentable square feet is expected to reach stabilization in 2020, and the remainder of 2023 and 2024 and these projects are 94 per.
<unk> leased and will generate $277 million of incremental net operating income.
Additionally, we have another $3 7 million rentable square feet that is expected to reach stabilization after 2024 and will generate another $328 million of incremental net operating income.
Turning to guidance are detailed updated underlying guidance assumptions are disclosed beginning on page four of our supplemental package our per share outlook for 2023 was updated to a range plus or minus three.
From the midpoint of guidance.
Down from a range plus or minus five last quarter now a range of guidance for EPS from $2 70 to $2 78, and a range for <unk> per share diluted as adjusted is $8 93 to $8 99 with no change in the midpoint of $8 96.
This represents a strong six 4% growth in <unk> per share following excellent growth last year of eight 5%.
Our strategy for dispositions and sales of partial interest for 2023 reflects our focus on enhancement of our overall asset base through outright disposition of properties no longer integral to our Mega campus strategy with fewer sales of partial interest now. This is reflected in the transactions. We have completed to date in 2023.
And our target transactions for the second half of the year. This strategy did result in an update to sources and uses of capital due to the replacement of a potential sale of a partial interest with an outright sale of properties now while this change did not result in a change in gross construction spend it did reduce funding from it.
For construction spend by a potential JV partner that was replaced with funding from an additional $225 million and dispositions of real estate.
So let me stop there and turn it back over to Joel to open it up for questions.
Thank you.
We will begin the question and answer session.
If you'd like to ask a question. Please press Star then one on your Touchtone phone.
If you are using a speaker phone we ask that you. Please pickup your handset before pressing the keys.
To withdraw your question. Please press Star then two.
And our first question today comes from Steve <unk> with Evercore. Please go ahead.
Thanks, Hey, good afternoon.
And I was wondering if you could just provide a little bit more color on that occupancy build that you talked about it sounds like things are flat Q2 to Q3, but.
Get to the midpoint is a pretty big uplift I guess from 93, 6% to 95, one so are there a bunch of signed leases that are just not commenced yet or is that based on kind of incremental leasing you think youre going to do just kind of help us walk through that bridge. Please.
Sure Steve So.
The growth in occupancy anticipated in the fourth quarter.
Some of it is from signed leases we have.
<unk>.
400000 square feet of executed leases.
That will commence in time for the occupancy growth by the end of the year.
That includes some of the spaces that I mentioned.
In the recently acquired vacancy.
Yeah.
We also anticipate some leasing activity that we need to complete in order to drive that occupancy growth.
And then we also have some.
Key space is being delivered out of our development pipeline, which.
By the time, they are delivered should be pretty much close to 100% leased and that doesn't have quite the same impact of delivering space.
To tenants out of the operating portfolio, but there is a slight benefit from that as well.
So just as a quick follow up could you just help frame maybe the spec leasing that you think you need to get done maybe it's a range.
The team needs to complete over the next five months to hit that target.
Okay.
I don't have that figure right.
Fingertips, Steve but.
Look if you look at our volume of leasing activity that that we've averaged pre the record period of leasing in 'twenty, one and 'twenty two.
'twenty two.
We're back to that run rate of leasing activity on.
On a quarterly basis, which as you know.
$101 3 million rentable square feet.
A portion of that as you know it comes out of the value creation pipeline development redevelopment and previously vacant stuff.
So our run rate on renewals and releasing the space probably.
On average about a million square feet per quarter.
And only a portion of that is stuff that we need to complete related to fourth quarter deliveries as you can imagine most space probably for for any real estate company.
Sometimes it's ready for delivery immediately.
But only a portion of that of that million square feet can actually be delivered that quickly. So it's not a big.
Number Steve but to be fair, we do have to get some leasing done.
Uh huh.
So we've got to work through that opportunity.
Okay. Thanks, and just a second question I know that you had talked about the the toast.
Termination.
I think theres, just maybe some confusion or uncertainty over kind of the dollar amount maybe when it hits, how it might've been in guidance or not in guidance. So could you just maybe walk through the space take back maybe some offsets to the termination fee and maybe what flowed through in Q2, and what we should expect in Q3 from.
That transaction.
Sure Steve. So this is a pretty good example of space that we Opportunistically took back in the second quarter.
The background.
For this tenant.
There was this was an in place lease.
It related to an acquisition that we completed in January of 2021.
Toast was at four one park in the same way some market for reference.
And during our due diligence for the acquisition. Our team has identified multiple floors of this office building that will be suited for conversion to lab space through redevelopment.
These floors were targeted for redevelopment.
Obviously after our successful lease up of 201 Brook line now if you remember two in Brooklyn that was a development site at the <unk> campus.
The seller had commenced construction on and it was only 20% pre leased.
At the time, we acquired it our team quickly leased the remainder of that project. The construction development project at rental rates that were well exceeded our initial underwriting.
And so when we had the opportunity to take back space from Toast I think it was about 133000 rentable square feet in total we're going to get about 111000 rentable square feet back in <unk> here to commence our redevelopment and.
And the remaining 22000 rentable square feet, we get back at the end of 2024.
The bottom line the way to think about this arrangement we entered into with post is that net of the write off of deferred rent.
We will earn.
The remaining of.
The revenue from toast overtime.
And this really covers the quarterly rent that was due to <unk> from <unk> is about $1 5 million a quarter.
And so this arrangement allows us to earn our revenue through the end of 2024 and the way to think about this is the net benefit we're going to earn.
As a slight pickup relative to the prior run rate of rent.
So for 2023, we might pick up about two.
$2 million.
And then in 2024, there is a similar expected benefit of a couple of million bucks or so.
The key takeaway is that we were able to move up the timing of new lab space at four one park after our successful lease up of 201 Brookline.
And so we were excited to be able to get access to that earlier to start the redevelopment sooner than later.
Great. Thanks, that's it for me.
Thank you and our next question today comes from Joshua <unk> with Bofa. Please go ahead.
Yeah, Hey, guys I appreciate all the color.
Maybe a follow on.
Based on the occupancy question earlier.
Or what about the lease rate growth. It looks like your guidance is still assuming an acceleration in the second half of the year off of <unk>.
<unk> growth rates like what gives you the confidence that youll see that reacceleration.
Can you clarify were you asking about occupancy or rental rate rental rate growth.
So.
Our our outlook just to remind everybody our outlook for rental rate growth for 2023 is a range of 28% to 30% call. It a midpoint of 28, 5% 12% to 17%.
With a midpoint of 14, 5% on a cash basis.
Our record of rental rate growth for the first quarter just to remind everybody was.
Pretty record at 48% and 24 on a cash basis.
And most of that was driven by greater Boston, San Francisco Bay area, and Seattle, It's important to recognize that the second quarter.
It was a very different subset geographically.
Which consisted primarily of Seattle, Maryland and research triangle.
You think about rental rate growth of 16% on 16, 6% on a GAAP basis $8 three on a cash basis.
Pretty outstanding in this type of market and when you think across the REIT sector. Today. So we're very pleased with the rental rate growth that we actually delivered on the quarter.
Feel comfortable as we look out that we're on track.
To hit the range of guidance that we gave.
It gives us that comfort I think you've heard us talk about.
We have a unique brand.
Our Mega campus strategy and our operational excellence I think puts us at an advantage.
To capture opportunities in the marketplace.
Okay.
Not based on stuff that's already signed.
Kind of just what youre seeing in the pipeline.
<unk>.
Well, we're only three weeks or three five weeks after quarter end, so there's very little active.
Activity relative to what we're going to sign for the full six months as we look forward. So you'll have to stay tuned.
Okay, Okay and then.
Sure.
I think I heard you mentioned potential sales above your disposition guidance range, because what would give you. The go ahead to make those additional sales.
We're going to market in a very targeted way so that we don't overdo. It if we don't need to but.
If we end up with values that are highly attractive we will definitely consider.
Selling that amount over what we need.
And apply that towards next year's program.
Any other question there.
No I'm good.
Hi, guys.
Okay. Thank you. Our next question today comes from Anthony <unk> with Jpmorgan. Please go ahead.
Great. Thank you.
First question I think Dean I think you mentioned, 19% mark to market across the portfolio.
And I think that number was about 27 coming into the year. So I'm. Just wondering can you talk to how much of that is just from moving rents higher and the bumps closing some of that gap versus maybe what's happened in the market thus far.
Hey, Tony It's Dean here, yes, so 19% is our current outlook for where we are today on the mark to market last quarter, you're correct. It was 22% the.
A quarter before that was 24% in the quarter before that was 27%.
So we have made our way through some of the mark to market with leases that we've executed over the last.
A number of quarters.
So it's primarily driven by that may be a slight adjustment here and there on.
Our outlook on specific spaces.
But most of the move is related to actual leases we've executed.
Okay.
And then.
I guess, you talked a bit about four one and $4 21 Park drive in that.
The reason for kind of moving forward with that but just in general.
Think about incremental development and redevelopment. So for instance in 2024, it looks like you've got another million, one or so teed up coming out of explorations for that but just what's the hurdle to start new projects, whether it's pre leasing returns just.
How should we think about just what what's coming at us in the next 12 to 18 months, whether it's the stuff expiring that will go into redevelopment or just new ground up.
So Tony let me start with your first question first part of your question.
On the exploration front.
What we're really looking at is.
If you look at 2024 as an example.
We do have a number of spaces that are coming up for contractual exploration and keep in mind. These are all related for the most part.
Two recently acquired.
Opportunities, where we saw this play in this case these projects that are in place leases that from acquisition.
The are burning off here only a portion of the <unk>.
The overall number is something that we expect.
To actually tackle in the near term.
It's roughly.
It's about 600.
84000 square feet of that is actually development opportunities for the future. So $1 one $1 two millions expiring in 'twenty four that's been targeted for future development or redevelopment at 684 that has future development.
And that's not going to start immediately on vertical construction because it needs to go through entitlements design.
Possibly some site work and these are really associated with Mega campus opportunities.
The remainder of that so.
So roughly.
400000 square feet or so.
Four to 500000 square feet as redevelopment opportunities those are more near term.
Speed to market.
Less time to build out the projects.
And we will look at those but our current view as we sit here today would be.
<unk> to start those because of opportunities we can tackle.
So the number is much smaller.
As far as your other question Tony.
Do we look at it.
Youre going to find that we need to remain.
A very disciplined with our approach to new redevelopment and development projects given the macro environment.
We're going to focus primarily on projects that are concentrated in our mega campuses.
And we really have well located land for future development and it's important to keep in mind, we have the flexibility and not the requirement to address these expansions expansion needs from our clients.
And maybe as you think about.
Development opportunities.
On our future pipeline it is important to recognize that.
But we are going to continue to advance preconstruction activities on the future pipeline projects.
Entitlements for large campuses and mega campuses required.
Years to fully entitled.
They require design.
And oftentimes the sites are so large they do require infrastructure before we can actually commence vertical construction and these preconstruction activities add value to the sites ultimately reduce the time from commencement of vertical construction to delivery of class a space to our clients. So.
Again, just getting back to where we started with your question Toni we will have to remain very disciplined in our approach given the macro environment, maybe just a little more color Tony we have won.
New Mega campus.
We're entitling on the West Coast and one on the East coast and in both cases, we have.
In one case, a current tenant in the other case, a former tenant who have approached us to take.
A significant portion of those campuses. So we're actively pushing entitlements and thinking about site design and all those things, but before we would kick something off as Dean said and as Peter said many times, we want to make sure that our spread to our cost of capital is.
<unk> and long term.
<unk> to be.
Certainly positive.
Okay, and if I could just ask one last one just can you remind us.
Just in the discussion around perhaps scientists working from home as well just what's the split between lab and.
Workstation office type space in your buildings today, and do you think that changes over time.
Hey, Tony It's Dennis here.
So I guess a comment on that so again, you know as I mentioned in my earlier comments.
And our lives.
Of course, the the <unk>.
Laboratory in the non technical space cannot be decoupled.
You know historically <unk>.
About a 50 50 split between the lab the non political fee in some cases.
Kind of go off of that.
Five or 60% lab, that's mostly attributable to platform company is kind of you know kind of propagating local platform and pipeline programs at one.
But yeah, I guess, that's probably that's probably a high level.
Yeah, and remember Tony too and as we've pointed out before.
Covid certainly.
Enabled and caused a lot of companies to repatriate.
Overseas processes.
Back into the.
Kind of the home lab and also with the sophistic much more sophisticated new modalities cell therapy gene therapy et cetera.
The enhancements and the complication of work environments have been.
<unk> as well so those are two kind of big.
Big macro forces that have made a big difference say over the last.
Three to five years.
Okay. Thank you.
Thank you and our next question today comes from Michael <unk> with Citi. Please go ahead.
Thanks, Nick Joseph here with with <unk>.
Just starting up.
Follow up I guess on the lease termination with close just wanted to clarify was once a $16 million in guidance initially or is that incremental.
So Nick the way to think about.
The arrangement with toast is that.
What was.
Okay.
The total consideration was something in the $15 million range of deferred rent number was written down to take that down I don't have it.
Brent in front of me, but.
$5 million to $6 million or something in that range.
The net number.
Is earned out over time effectively replaces rent or cash flows.
That were.
In place prior to that arrangement with toast.
And so net net.
At least through 2020 floor there is very little.
Upside.
I mentioned, it's a couple million bucks in each year.
So.
It's not really changing net <unk> in any big way. So in response to your specific question.
The revenue that we're going to generate from that.
Lease with toast.
In guidance it was because it was iridium lease in our business remember this building was acquired with the lease in place back in 2021.
What did change.
For 2023, a couple million dollars pickup.
<unk>.
Got it thanks, Bert Thanks for that clarification, and then just on the capital plan, obviously, the pivot I guess from <unk>.
Selling <unk> to wholly owned asset sales can you just expand on that.
Is that more of a pricing decision was it more strategic in terms of improving the portfolio about maybe selling some non core but.
How do you think about that broadly.
Yes, im going to have this joel.
I'll have Peter kind of respond to that but I think think about.
The company has.
Garage startup back in 94 silver many years is it kind of grew grew its regions.
We've had a variety of assets, we did not start a mega campus strategy, we didn't start even our campus strategy, we couldnt, even afford to go into Cambridge in those days.
So the nature of a set of our assets really very very solid workhorse assets.
In solid locations with solid tenants and with solid cash flows now as we move to this or as we've been moving over the last couple of years to this Mega campus strategy and core really high barrier to entry markets has enabled us.
To let go of those noncore assets, so that's kind of the fundamental frame, but Peter.
Nick It was very tempting to bring somebody in to complete the funding of.
That JV.
Development, just like we did at nacco, but it.
At the end of the day. It is part of the Mega campus. It is one of the best assets in that.
Likely in the world as far as.
Long duration of value.
And then.
Reexamining, our portfolio and seeing that we still had a number of assets that we could substitute.
And do just as well as far as getting the proceeds needed to fund our pipeline and just made it.
A much better story for us to keep 100% of that of that other development asset sell the non cores and really continue to improve our overall asset base towards concentrating it into mega campuses in.
Lessening the one off assets.
Hey, This is Michael Griffin on here with Nick just one question around VC funding. So there was a report recently that you had some incremental positivity in VC funding in Boston.
As you all know expectation for us to translate some of your other markets and kind of where do you need to see BC capital pick up in order to see incremental demand.
Well I think I'll have Jen I'll kind of give you her take on venture capital, but remember we've returned to kind of the high run rates pre COVID-19. So it still is healthy what you've seen is a slower allocation.
And greater reserves, just given the macro market, but Jen maybe some numbers yeah. That's absolutely true so as I mentioned in my comments.
And one <unk> tanker.
So far about $17 $7 billion. So this is right in line slightly.
Slightly above 2018, 2019 level and this is really across our markets, obviously with greater Boston being kind of the center of Lifetime's interactivity youll kind of leading the charge, but we arent kind of thing across our ecosystem.
And again as Joe mentioned, I mean, theres been a disciplined allocation of capital as we see a potential opening maybe a little bit towards the end of the year, but into next year and the IPO window, and then kind of a rationalization of follow on financings on the public side.
<unk> also that kind of trickle down to venture in terms of the pace, increasing but certainly no dearth of investment opportunities to be had and like I mentioned in my comment with 'twenty, one 'twenty, two and even kind of early 'twenty three life Science Center fund raising really being at all time highs there continues to be dry powder to deploy yes and remember.
The comment that I made.
Series, a $60 million this year all time high that's.
Pretty astounding when you think about it.
Alright, thank you.
Yes. Thank you.
Thank you and our next question today comes from Michael Carroll of RBC capital markets. Please go ahead.
Yes, Thanks, I wanted to jump on I guess, Peter in your prepared remarks, you did mention that the biotech flywheel is starting to turn again can you provide some additional color on that did the flywheel slow down in the past year or so and now it's improving or were you mentioning that like tenants were just delaying decisions.
Now or just being more active I mean, what can you provide some color around that comment.
Yes, so Mike I'll ask Peter to answer that in fact, but just keep in mind.
The central thesis is the industry has been on a AA.
A bull market tear since maybe 2013 2014.
Through early 2021, it was the longest.
Kotek Bull market that I've seen in <unk>.
The days of Amgen, and Genentech and Biogen when they were started late <unk> early <unk>. So that says something and then remember the rocket ship years with the huge amount of funding in just activity.
21, and 'twenty, two 2021 and into 'twenty two.
And remember kind of the first quarter of 'twenty one.
You saw the biotech index start to move.
Now remember biotech as a sub segment of all of the life science, but it started to move as a leading indicator of the macro but Peter Yeah, Michael last quarter in my prepared remarks, I had mentioned that we had seen a weakening in demand and.
One of the positives that I pointed out in this quarter's comments is that we actually have had I would call a significant uptick 15% to 20% and demand in our top three markets that coupled with some knowing financings that are happening.
As companies have been getting good news to me it just feels like the wheel starting to turn again momentum is building and.
I am confident that is going to continue and I would say as a footnote I know personally that there are a number of companies preparing for an IPO in 2024.
And that just have not been possible over the last say.
Say.
For extraordinarily rare exceptions on the public markets.
For the sector.
That's a really good sign I think people are looking at the fed action may be today or tomorrow I forgot what that is.
Where they think it's kind of going to peak and obviously the strength of farm activity M&A and partnering as all at significant upticks.
So that means pretty darn good activity and I think Peter said or genocide.
Theres always clinical failures and all across all modalities and therapeutic classifications, but theres been some awfully. Good news these days in the diabetes and obesity area in neuro degenerative area.
<unk>, which is one.
One of our former directors had a young daughter died of that disease, we're seeing some remarkable advancements here.
Okay, Great and then like what is driving I guess that uptick in tenant activity. I guess today is it just people are more comfortable with the overall market and are willing to make decisions are they more comfortable and are actually trying to execute and get financing, allowing them to kind of expand their research process I guess.
What is driving that right now and do you think that will cause incremental demand growth over the next few quarters, assuming can we read that into your comments.
Yes, I mean, what's happening is and I touched on the theme of my comments I think that uncertainty has really held back the entire economy. It has held back.
Science industry and that uncertainty is starting to go away and people are starting to realize that there is a lot of dry powder or they need to put to work. So that we think that the investing of things that were not.
Investment in before New company formation is going to occur. The science continues to move forward when clinical milestones are met we're seeing companies be able to raise a lot of money.
And.
On top of that we're seeing big pharma and biotech.
Position themselves in our markets to grow so that is what is giving us the.
You know positive outlook.
Okay, Great and then last question for me on the supply front have you seen a slowdown of some of those non dedicated life science developers stopped breaking ground on new projects is that occurred over the past quarter or so.
With a couple of exceptions that are inexplicable.
Yes.
We're not seeing much of anything new breaking ground, but there are some folks that have decided.
To move forward, which will be in the numbers for next quarters update on 25.
Okay, great. Thank you.
Yes, Thanks, Mike.
And our next question today comes from Vikram Malhotra.
Please go ahead.
Thanks, So much. Thank you question I just wanted to go back and get some more color you talked about the <unk>.
The new requirements for expansion in those top three markets.
And then if you look into the second half.
We think about the sustainability of the $1 3 billion leasing can you just give us color on the pipeline in terms of maybe color qualitative or quantitative comments around kind of how the pipeline of deals are developing in the second half.
Well, yes. This is Joe <unk>.
Well, let me say maybe this regarding your first question.
No.
I think.
We probably don't want to say given just the proprietary nature of what we do and how we do it.
Not too much about requirements. Some are sole sourced rfps some are broader rfps some are <unk>.
<unk> tenants that come from our own tenant base that out that arent in the market. So I don't think we want to make any comments, particularly about.
I think when it comes to leasing.
We can only give you the best judgment, we have based on deans affirmation of guidance.
Both.
When it comes to the issue of <unk>.
Rental rates occupancy et cetera.
We haven't given our.
Our view of 2024, yet we will do that toward year end.
But I think it's fair to say that remember, we've got a long history and Peter cited some of the numbers of quarterly leasing the vast majority of that comes from our own tenants and so we have a.
I think we have our.
Finger on the pulse and the ear to the ground in a way that very few people or groups could have and I think that gives us the confidence that we can achieve our business plan for this year that by the way we articulated last November and we'll do the same I think beyond that I'm not sure week, we can have.
I want to give any further color.
Okay I was just talking about like the second half of 'twenty three.
In terms of the pipeline to hit the second half run rate.
A million or whatever $1 2 million feet in leasing but.
I'm happy to clarify that offline I guess, just dean on the quarter.
You mentioned, the very modest pick up some thoughts, but you did beat.
Street estimates and I'm wondering if you can just clarify if from your vantage point.
Source of that beat and then why that beat did not translate into.
Picking the guide is there something offsetting in the second half that.
Kind of reduces the magnitude of the beat in Tokyo.
Not as it relates to NOI vikram.
I think that was just a timing difference I can't speak to the various sell side models on what drove the timing differences, but from our view of the world. Our deliveries were by and large on track with our expectations. So that would be it doesn't translate to upside there.
And there were there wasn't they own a line item that there was a variance on it if you look across consensus.
There were some other line items.
I think the G&A as an example, we were lower on G&A and consensus across our coverage.
But the key driver was at the.
NOI line item.
Okay. That's helpful and then just last one.
Specifically I think one of your top tenants maybe.
Maybe I'm pronouncing them wrong.
<unk> they called out reduction of real estate, that's part of their cost reduction plan overall.
Into into the next year or so called out one or two specific projects.
Their call and I'm wondering do you have any update in terms of your exposure with them.
Yes, so I'll make a comment remember alumina is still is a pioneer and a leader.
In their category.
They did have a activates the tag from Carl Icahn.
Regarding some more.
Management strategies kind of weirdly enough a lot to do about Grail, the EU and the FTC took.
Took issue with Grail, sorry, alumina acquiring Grail will the weird thing is Grail was started and spun out of alumina and it made no sense, but yet here's a ideological kind of.
Thing going on alumina is as strong as ever they have a.
They've got a lot of their market that they can still left to penetrate but I'll ask Dan Ryan who run San Diego.
And who has been very involved in aluminum that maybe give you a.
Kind of a broad view of what's going on on their campus.
Yes.
So.
What you saw in the headlines as they are currently sub leasing they leased about 300000 square feet and not on our campus, but in the UTC area for <unk>.
For pure office space, they have put that on the sublease market.
They continue to advance with us discussions about adding a building or two to the campus, which would be more of their laboratory.
Laboratory life science and manufacturing space, they looked at their desk in desperate need of to continue to innovate.
So that's really what we're seeing from them and then I think Dave.
They've had bits and pieces of real estate up in the Bay area that they no longer deem as critical so.
So we expect to.
Our pull back to San Diego and I do expect to engage with them later in the year.
On additional laboratory office space on campus. The two the two sites that they announced they were retrenching from were not owned by and operated by Us.
Thank you.
Uh huh.
Thank you and our next question today comes from Tom Catherwood with BTG. Please go ahead.
Just one for me.
Peter.
Appreciate all your commentary about continuing to focus.
On Mega campuses and allocate capital there in the past you've talked about how these campuses garner.
Rental rate premiums do you have a sense of kind of the level of premium you're getting compared to market and then maybe a little bit more broadly do you have a sense of how your 19% Mark to market is split between your mega campuses in the noncore assets that you're bringing to market.
Yes, as far as the premium goes Tom.
Our study indicates that it's about 20%.
More in net effective rent that youre going to get versus a one off project.
Companies are going to pay for the amenities and pay for the scalability and the desirability of the asset.
What else today not cover on your question there.
Just trying to see if you have a breakdown with what you are selling as you are looking at that 19% Mark to market that Dean had referenced is what youre selling 5% zero percent and what you are holding in the Mega campuses is that 25% to 30% when it comes to mark to market or is it more consistent kind of across your portfolio.
Yes.
Yeah, I don't have the breakdown of each and every asset we are selling and what the mark to market is but.
By and large the.
Best Mark to market opportunities arent in the Mega campuses and we are holding on to those assets. So what we are selling.
Would be the one off that would not garner those types of premiums yeah, and I think we've historically said on a number of the asset sales. We've had to date a typical mark to market has been 15 to 20.
20% somewhere in that range, which as you know.
Pretty good.
Got it appreciate it thank you.
Yep.
And our next question today comes from doing Brzezinski with Green Street. Please go ahead.
Hey, guys. Thanks for taking the question and I appreciate the comments on sort of net effective rents for the operating portfolio, but just curious we're hearing that concessions are higher today for new leases, particularly on the development side. So you guys expect that you might start to feel pressure in terms of net effective rent impacting development.
Moving forward.
Yes, you are.
You're correct on the development side new leases.
Tenants are conserving cash they are looking to the landlord to provide more tenant improvement. So that is creeping into the ether there we will be.
In some instances able to push the rents to make up for that some of that or all of that.
The good news is on the operating side.
Because the spaces are built out because they are built out generically.
We have.
Very few concessions and Ti as we need to.
To.
Put out in order to lease or renew that space.
Yes, I would also say.
If you look at the bigger the credit and the bigger the company.
The landlord contribution to build out is not as essential and in fact.
The.
One of the big pharma build outs that we're working on and one of the top markets.
Contribution.
The farmers.
About $750 a foot so oftentimes the.
Configuration, or triangulation or architecture of a deal oftentimes is base to some extent on credit and need to put in.
Unusual situations unusual features that only that tenant.
Would want and Thats that would be on the tenant's Bill not something we would do so that's something else you have to keep in mind.
That's helpful. And then I guess, just one more going back to sort of occupancy and realizing that you guys are still targeting call. It low 95% in terms of occupancy at year end.
And as we think about the trajectory over the intermediate term I mean do you guys think that you can continue to grow on this front or should we sort of view. This as you guys are approaching structural vacancy.
No I don't think so I think look historically at how we've grown I'll ask Dean to comment, but then also think about.
Over time, we have an asset base, where we can almost double the size of the company. So I don't think we've reached any plateau in any way shape or form.
Yes, it's dean here doing I agree you've seen occupancy.
Our asset base and the way we.
The manager business.
Really strong relationships with our tenants.
And really deliver a level of excellence.
In operating our buildings are.
Our occupancy can grow to 300 basis points from.
Or more than that above above our bogie two years or 300 above our midpoint bogie for the end of 'twenty three so at 95, one is the midpoint you referenced I mean, we've been in the 98% occupancy range.
So there's plenty of room to grow there.
Joel It also mentioned as you guys are well aware our pipeline is set to bring on a tremendous amount of NOI.
And that gives you visibility all the way into.
25, and 20, a little bit going out to 2016.
Yes.
Yes, the number of arc.
And remember a number of our acquisitions.
That.
Happened over the last couple of years in greater Boston involved.
One was mentioned a whole fenway area.
You know existing vacancy.
As part of say Aye.
A conversion to a first time lab space and those give I think great opportunities for occupancy gains.
Great I appreciate the comments.
Yep.
Thank you and ladies and gentlemen. This concludes our question and answer session I would like to turn the conference back over to Joel Marcus for any closing remarks.
Just wanted to say thank you everybody wishing you a great summer and look forward to our third quarter call.
Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation.
May now disconnect your lines and have a wonderful day.