Earnings Call: Q1 2021

Apr 26, 2021

Good day, and welcome to the Alexandria Real Estate Equities First Quarter 2021 Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would like now 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 those in the forward looking statements is contained in the company's periodic And now I'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel. Thank you, Paul, and welcome everybody to our Q1 call. And with me today are Dean Shigenaga, Steve Richardson and Peter Moglia. And we want to wish everybody a safe and healthy go forward year. We want to welcome all to this 1st quarter call as well and recognize and thank the entire Alexandria family team for the operationally excellent and truly stellar first quarter Earnings report by all metrics and measures. We collectively continue to operate at an outstandingly high level into this 2nd year of the COVID-nineteen Pandemic. And as I'm often fond of quoting Jim Collins of good to great fame commented on Alexandria, it's a feature in our annual report. Alexandria has achieved the 3 outputs that define a great company, superior results, and we believe the Q1 is emblematic of that Distinctive impact, and we believe that our social responsibility programs have truly made a difference And lasting endurance. And with respect to lasting endurance, we sit here at Literally several decades after we were founded in 1994, And I'll talk more about that in a moment. We're particularly proud of the 6 pillars of our highly impactful and longstanding social responsibility efforts, Accelerating groundbreaking medical research to advance lifesaving treatments and cures, harnessing the entire agri food ecosystem to combat hunger, improve nutrition and support human health at its most fundamental level. Thirdly, bolstering the resilience of our military, our veterans and their families. 4th, conquering the opioid epidemic Revolutionizing addiction treatment, the 5th pillar that we've spent a tremendous amount of time in over the last year and For a good part of the last decade, educationally empowering underserved students to achieve long term success and reach their potential as important principled leaders in the community and then finally, building a model for comprehensive February 2021 NAREIT Magazine showcasing that we have pioneered a novel data driven comprehensive care model to overcome The opioid epidemic launched in Dayton, Ohio. We're now focused on adopting A similar model, but in different respects to the homeless problem, which has really become Pretty out of control in many urban cities and it is fraught with a lot of complex Stratified issues and actually is more of an issue of healthcare than it is simply of one of housing. We've been recognized as a leader and continuing and we continue to enhance our leadership in the area of sustainability, And we're on pace to achieve our 1st net zero energy building in South San Francisco, One of our important submarkets and only one of 70 of such buildings in the entire world. So we're very proud of that Achievement when we finally get the designation. I always try to think about a theme on each quarter, and they are so different given macro and micro And I would say the theme for the Q1 has to be exceptional core and internal growth And really stellar value creation and external growth, both of which have driven our continued outstanding earnings results And as the absolute go to landlord in life science real estate, leasing demand for Alexandria's owned and operated 1st in class assets Is at a historical high. And as I alluded to a moment ago, Q1 of 1994, 27 years ago this quarter, we completed our Series A financing led by Jacobs Engineering for $19,000,000 and here we sit 27 years later to the quarter, with a total market cap of $32,500,000,000 and among the top 10 of all REITs. I remember attending the 1st REIT conference, I think it was in New Orleans in 1994, and I didn't know a single soul, so we've come a long way. And we still are in our 4th consecutive quarter of COVID-nineteen, something none of us will ever forget. The stellar results by any measure metric is we're very proud and we thank each and every one of our great team members. Dean will speak to the outstanding core and internal growth results, driven in part by strong rental rate growth, And particularly featured this quarter in the San Francisco Bay region among others, One of our highest leasing quarters ever. And Steve and Peter will also speak to our stellar value creation growth, in part driven by our collaborative Fenway Blockbuster transaction, and we greatly appreciate and recognize the team that put that together. A very highly leased valuation creation pipeline, which will provide continuing growth for Alexandria, and so we're very proud of that. Also important to note, and I think Steve, Peter and Dean will also allude to this, our partial interest sale this quarter I think set a True benchmark valuation for Alexandria owned and operated 1st in class lab space in the South San Francisco submarket Led by both Steve and Peter, and Peter in particular, who we brought here in 1998, who had special and unique Joint venture talents and a stellar network, and we've been at it under his guidance there for 20 years. So we thank Those 2 very much for that execution and the teams that supported them. We completed our Q1 with a very strong balance sheet, Dean will talk about that, With no debt maturities until 2024. And as some of you are aware, we filed an S-one with the to raise $250,000,000 for an Alexandria sponsored SPAC, importantly, because we believe there was a real need for this in our core agri food tech industry. And as we are in a quiet period, we won't be discussing this at all. Moving on to life science industry for a moment, the velocity and continuing demand for Alexandria lab space across our cluster markets is as strong as we've ever experienced. The pace of FDA approvals during the Q1 remained very strong with FDA approving 14 new drugs, 36% of those were Alexandria client tenants. We also note strong bipartisan support And a proposed whopping 20% increase for the budgets of NIH, CDC and HHS. We don't know about FDA at this moment, and hopefully, the administration will select in the not too distant future A true great leader there and we're hoping for that. Public markets continued their strong pace with $4,500,000,000 raised in 29 IPOs This past quarter and $12,600,000,000 raised in follow on offerings, truly Kind of a stellar capital markets quarter. Biopharma continues to invest heavily in its own R and D, likely north of $225,000,000,000 for all of 2021. Let me comment a moment about some proposed corporate tax changes that were announced by the Current administration, which if enacted into law, would foolishly and directly hurt U. S. Manufacturing, US R and D and the repatriation of crucial supply chains that became evident in the pandemic that we were Really, woefully unprepared and relied on 70% of our Supply chain efforts outside of the United States. I would say mission critical sectors, including biopharma, certainly will not In essence, the threat to the American competitiveness is way bigger and way more important than the everyday life of Americans And higher rates than higher rates and a sad commentary on poor public policy. It's interesting to note the paradox of this pandemic moment. Large corporations have oftentimes been politically villainized, Divided by the left and the right, yet the main and perhaps only reason COVID-nineteen scourge is easing is the vaccines that were developed by Biopharma and some in connection with the government in a groundbreaking With the warp speed effort, and we're very thankful for that. I think to quote Alex Gorski, CEO of J and J, he made a Pretty important quote recently and said, We fundamentally believe that having a market based, innovation based biopharmaceutical industry As well as the medical technology environment is critical to long term it's critical long term to produce the best overall outcomes For healthcare, and I think that absolutely reigns true. So as I do each quarter, let me finish with a I did last quarter and will each quarter a quote, kind of a timely quote. I quoted Confucius last quarter. Let me quote this Steve Prefontaine, one of the world class runners of his time. To give anything less than your best is to sacrifice the gift. And with that, let me turn it over to Steve Richardson. Thank you, Joel, And welcome everybody as well. As we presented during the last quarterly call, 2020 represented an exceptional year of high quality Growth for Alexandria as we increase the asset base by 27% to nearly 50,000,000 square feet. Now the Q1 of 2021, a truly blowout quarter by all metrics, has clearly signaled the continuation of this Exceptional growth trajectory and definitively affirms Alexandria's leadership role in the now core life science asset class And its highly valued status within the broad life science ecosystem, the company's 27 year commitment to operational excellence At every level fuels the following outperformance highlights for Q1. Accounts receivable, We've collected 99.4 percent of our April AR billings as of today. And again, Alexandria's labs are essential infrastructure and have been operational from day 1 of the pandemic. Some detail on leasing outperformance. During Q1, we leased approximately 1,677,000 Square Feet, which notably represents the 2nd highest quarterly leasing activity during the past 5 years, an amazing statistic Considering the broader turmoil in the office market, Peter will touch on this in more detail, but the current and near term development pipeline continues to Deliver value in a derisked manner as we are at 76% leased and negotiating even while adding 1,000,000 square feet of new starts during this quarter. The core in particular is exceptionally strong. Continue to highlight and bring everyone's attention to the embedded growth and value within the core operating comprise now of nearly 34,000,000 square feet with cash increases this quarter of 17.4% And GAAP increases of 36.2 percent. And occupancy also very, very solid with 94.5 percent, which has grown in excess of 2,000,000 square feet this quarter compared to Q4 through our strategic acquisition activity. And we want to continue to bring to everyone's attention the near term opportunity for increasing cash flows through the lease up of 1,200,000 square feet of inventory provided by these recent acquisitions. Overall on market health, demand continues to be robust in our core clusters And our mega campus offerings provide a significant competitive advantage to the company. Importantly, subleases are a Tight check, as since the start of 2021, just 2 subleases have been brought to market in one of our clusters And both of those subleases have already been put under LOI. Supply more broadly is constrained for 2021 across all of our markets And in the 2 largest markets for 2022, we see nearly 50% of the supply is pre leased in Greater Boston. In the San Francisco Bay Area, we're monitoring just 2 projects for potential vertical activity in 2022. And as we've stated before, Alexandria's mega campus high quality Class A product offerings continue to outperform The year 2020 was truly an amazing year for Alexandria at the vanguard and heart of the life science ecosystem, And now the Q1 of 2021 has exceeded those accomplishments with stellar performance. And in conclusion, I'd like to add to Joel's Shout out to the entire Alexandria team for this quarter's achievements. And with that, I'll hand it off to Peter. Thanks, Steve. I'm going to update you all on our development pipeline, comment on construction cost escalations and discuss a couple of life science sales. We continue to work at a very productive pace, delivering 6,645 Square Feet during the quarter, including the full delivery of 9,804 Medical Center Drive in to a high quality cell therapy company at an 8% cash yield, which was 80 basis points above our initial disclosure. The project's outperformance was the direct result of our best in class team who were able to drive down overall cost savings through a combination of adept schedule management, Alternative construction techniques and highly effective coordination with the tenant. In addition, we fully delivered the 100,086 Square Foot 1165 East Lake Avenue East Building in Seattle to Adaptive Biotechnologies, a cutting edge public immune Medicine Company on the front lines of fighting COVID-nineteen. This building is highly unique as it sits on the edge of Lake Union, offering expansive views of the Lake Queen Anne in Downtown Seattle. Leasing activity on our pipeline continues to be robust with approximately 789,000 Square feet leased during the quarter and another approximately 450,000 square feet in executed LOIs. Highlights include completing the lease up of 3,115 Merrifield Road, well in advance of its 2022 delivery date Incremental progress at Alexandria Center Long Island City, which is approaching being half leased and committed and a surge of activity in both SD Tech And our newly acquired 201 Brookline asset in the Fenway area of Boston. At SD Tech, we executed LOIs increasing its lease negotiating status by 37%, as tenants affirm the attractiveness of our transformation of this historical midsized tech campus Into a highly amenitized science and technology mega campus. As impressive as that is, the response by the market to our Fenway transaction in 201 Brookline Has been even more remarkable. When we closed on that transaction in late January, the asset was 17% leased. As we sit today, we have letters of intent That when converted to leases will bring that percentage up to 84%. This is a testament to the trust life science companies have in our best Class brand as these opportunities came to 201 Brookline in large part because of Alexandria. Overall, with the addition of 5 new projects And the full delivery of 9,804 Medical Center Drive, we now have approximately 4,000,000 square feet under construction that is 66% pre leased And 76% committed when including signed LOIs. That is only 2% below the committed leasing percentage from last year's or from last quarter. And as Steve alluded to, despite the fact that we've also added 1,000,000 square feet of new projects. Given the recent news on anticipated inflation, we wanted to give you guys an update on construction cost escalations as it relates to our pipeline. Before we get into what is happening in the construction market, we want to note that the projects listed on Page 42 that make up the 4,000,000 square feet under construction are largely subject to guaranteed maximum price contracts, which protect us from any escalations not already negotiated into the pricing. Under construction projects that are still in negotiations, those that well, the ones that are still in negotiations have been conservatively underwritten With a conservative escalation range applied in our underwriting, the 80 basis point yield beat at 9,804 Medical Center Drive That I spoke about earlier is a testament to our conservative underwriting and outstanding budget management. As we all know, coming into 2020, we all expected growth in the real estate sector to continue and we were all taken by surprise when the global pandemic created disruption spent 7 projects during the quarter due to COVID-nineteen. But with life science being deemed an essential business, we were able to restart relatively quickly. That wasn't so for many other developers and a large number of projects were put on hold or canceled altogether. That caused general and subcontractor backlogs to And for a moment, in the middle of the year, most major contractors assume the worst and laid off workers. Demand for materials also diminished and for a brief period of time, overall construction costs trended lower than pre COVID levels. We know in California that costs dropped as much as 2% during that time. However, as news of the effectiveness of vaccines came to light towards the end of the year, the construction industry experienced a V shaped recovery led by residential had to pivot quickly and today is still spending 10 hours a week on hiring as backlogs grow. In addition to the shortage of labor, costs are being materially influenced by a shortage of subcontractor shop capacity. The makers of glazing, ductwork and other prefabricated materials have more work than they can handle, so many are increasing pricing to control their backlog. On top of that, the demand for raw materials is putting pressure on steel, copper, lumber and plywood. Steel is up twenty from April 2020 to February of this year. Copper is up 37% and lumber and plywood are up 62% over the same period. Although these percentages are high, materials are only 30% to 35% of the total cost stack. So we've been advised plan for 5% to 6% annual escalations in the aggregate over the next 12 months. Rest assured, Alexandria constantly stays in front of this data. Factors that end to our underwriting and employee strategies to mitigate its impact. As a major developer with a number Major contractor and subcontractor relationships, we are able to leverage preferred pricing and priority in the queue. We have a great reputation among our vendors as we treat them like partners, and that enables us to continue to deliver on time and I'll conclude my commentary by talking about some private cap rates that you should factor into your NAV models. Our own partial interest sale of the 300,930 Square Foot 213 East Grand Building in South San Francisco was executed at a record 4% cap rate and translates to A value of $14.29 per square foot. This should be very impactful to our overall Valuation at South San Francisco is one of our largest submarkets as we hold 3,300,000 square feet in operation or under development. Despite the fact that the rent is approximately 20% to 25% below market on that asset, The lease goes for another 12 years, so we believe the yield is very reflective of what investors are willing to pay today For 1st in class Alexandria owned and stabilized assets. We'd also like to report that Blackstone sold the 454,000 Square Foot 96 Percent Lease Science Technology Park at Johns Hopkins to Ventas For $272,000,000 or $600 per square foot, which is a 4.8% cap rate. Although the asset has strong tenancy, the neighborhood is tough. So this was a positive outcome for Blackstone and another testament to the high demand for life science assets today. With that, I'll pass it over Hey, Peter, thanks. Dean Shigenaga here, and good afternoon, everyone. I just want to kick off with a huge congratulations to our entire team Just a spectacular quarter of exceptional execution, the Q1 of 2021 when you compare it to the Q4 reflects one of the strongest operating and financial Results in the company's history with our unique and differentiated life science real estate platform really at the core of this very strong growth. Our highly experienced team, trusted partnership to the life science industry and high quality campuses in key centers of innovation And I want to kick off with, allocation and sources of capital. We continue to remain very disciplined with the allocation of capital into projects that have and will generate significant long term cash flows Tremendous value for our company and shareholders. Now let me take a moment to highlight again the exceptional execution by our team. During the Q1, we strategically increased our current and Future pipeline of development and redevelopment opportunities went with $1,900,000,000 in acquisitions. These value creation related acquisitions also included in place Cash flows that contributed to very strong NOI growth in the quarter. Importantly though, through these acquisitions, we added a number of very high quality Current and future development and redevelopment projects to our pipeline. Another key driver of strong NOI growth in the Q1 was the delivery Completion of development and redevelopment projects aggregating 376,000 rentable square feet that were 100% leased And on average, these were delivered mid quarter. As of March 31, we had 4,000,000 rentable square feet of some of the best laboratory space under construction that was Highly leased negotiating at 76%, and this included 1,000,000 rentable square feet of projects that were added in the Q1. Now importantly, over the last four quarters, our team executed leases aggregating almost 1,800,000 rentable square feet related to the development And redevelopment projects, and this included 789,000 rentable square feet of leases that we executed in the current quarter. Now these are truly spectacular stats highlighting that we are the trusted partner to the life science industry. Now we are very pleased With our allocation of capital to these value creation projects as these projects are on track to generate significant value as highlighted by the partial We completed in the Q1 at a spectacular cap rate of 4%. We have a great pipeline of near term and intermediate term projects Aggregating 9,200,000 rentable square feet and we're in a strong position to meet the demand from our broad and diverse network of life science and agtech relationships. We have also been very strategic and disciplined with sources of capital and have for many years been taking advantage of the continued exceptional growth in private market Valuation for our properties. As Peter highlighted, we completed a 70% partial interest sale at $301,000,000 in a Class A property located in South San Cisco that is leased long term to Merck. Now this transaction, as Peter highlighted, sold at a record cap rate of 4% at $14.29 per square foot and really generated a spectacular profit margin of 53%. Now this transaction highlights continued tightening of cap rates and growth in price per square foot for our high quality life science properties. Proceeds from real estate dispositions remain an important low cost component of our sources of capital each year, And we have completed real estate dispositions aggregating $324,000,000 to date and have several transactions moving along that will allow us to hit our real estate disposition forecast range from $1,250,000,000 to $1,500,000,000 and we expect to provide more details on real estate dispositions next quarter. Now additionally, we expect to generate capital for reinvestment from our venture investment program and more on this topic in a moment. Next, I wanted to really turn to real estate, which is at the core of our strong growth. We reported total revenues in the Q1 of $480,000,000 Or $1,900,000,000 annualized, up 9.1% over the Q1 of 'twenty and over double total revenues Reported 5 years ago in the Q1 of 2016. Now we continue to report exceptional real estate financial and operating results, Excuse me, resulting in solid growth in our outlook for 2021. We delivered the following outstanding results in the quarter. Very strong cash net operating income growth of 10.3%. And again, congratulations to our leasing team for truly awesome execution of leasing. We hit the 2nd highest quarter of leases executed in the history of the company at 1,700,000 rentable square feet, continued strong rental rate growth on lease renewals and release in the space at 36.2 percent 17.4 percent on a cash basis. And we're in a great position today and updated our outlook Rental rate growth for 2021 by 100 basis points to a range from 30% to 33% and from 17% to 20% on a cash basis. And again, record leasing on the development and redevelopment projects over the last four quarters at 1,800,000 rentable square feet. That includes the 789,000 square feet that we executed on in the Q1. Now we're off to a great start And we're on track for strong same property NOI growth for 2021. 1st quarter same property NOI growth was strong and up 4.4% and 6.1% on a cash basis. And the strength of our real estate vertical drove improvement in our outlook for same property NOI growth for 2021. We increased our outlook by 50 basis points to a range from 1.5 percent to 3.5 percent and 30 basis points on a cash basis to a range from 4.3% 6.3%. Our EBITDA margin was very strong at 69%, one of the best in the REIT industry, and our occupancy remains very strong at 94 point 5% and represents a key area that will drive growth in cash flows in 2021 2022. And please refer to Page 25 of our supplemental package for details on the recently acquired vacancy aggregating 1,200,000 rentable square feet. 26% of this 1,200,000 rental square feet of vacancy is leased with most of this 26% taking occupancy over the next two quarters. And we're forecasting solid occupancy growth in 2021 of 100 basis points with half of this increase forecasted In the Q3 and the remaining growth in the Q4. We're also forecasting stronger occupancy growth into 2022. Now Now briefly on venture investments, our venture investment portfolio continues to perform exceptionally well and as of March 31 had unrealized gains of 7 $29,000,000 on an adjusted cost basis of $912,000,000 Now our adjusted cost basis represented only 3.2 percent of gross assets as of March 31. Realized gains on our venture investments included in FFO per share We're at $24,300,000 up only $2,700,000 over the Q4 of 'twenty. Now looking forward to the rest of 2021, realized gains from our venture Investments should be in the $25,000,000 to $27,000,000 range per quarter. Now importantly, we also realized an additional gain of $22,900,000 that related to an investment in a privately held clinical stage biopharmaceutical company focused in the oncology area that was Acquired by a large equity cap biopharma company. Now this significant gain related to one transaction and was excluded from FFO per share as adjusted. We have significant unrealized gains of $725,000,000 in our venture investment holdings, and we hope to have additional opportunities to generate capital And reduce a portion of our future equity capital needs by approximately $100,000,000 in 2021. Now turning to our very strong and flexible balance sheet, which really supports our strategic growth initiatives. We're very proud of what our team has accomplished over recent years. Our overall corporate credit ratings from Moody's and S and P ranks within the top 10% of all equity REITs. Over the past 9 quarters, our team has Issued $6,200,000,000 of unsecured senior notes payable, representing 72% of our total outstanding debt at a weighted average effective rate of 3.26 And a term of almost 16 years. Now the debt capital consists of both growth capital and refinancing capital that significantly extended our weighted average remaining term of standing debt to 13 years and locked in very attractive long term fixed rate debt. The February 2021 bond offering was a key example. We took Took advantage of very attractive interest rate environment and they opportunistically issued $1,750,000,000 in unsecured notes With a portion of the proceeds used to refinance $650,000,000 of notes that were due in 2024, now these new notes were issued at an amazingly low rate of 2% for 11 year notes, 3% for 30 year notes. Also, we just wanted to highlight other balance sheet statistics for the quarter And the year, we remain on track for continued improvement in net debt to adjusted EBITDA to 5.2x by year end. Our fixed charge coverage ratio is very And has increased to 4.7 times for the Q1 annualized, and we continue to maintain significant liquidity of $4,300,000,000 And as Joel, I touched on earlier, no debt maturities until 2024 and only $184,000,000 coming due in 2024. By touching on guidance here as we wrap up, as a reminder, just want to refer you to Pages 11 and 12 of our supplemental package Our improved outlook for 2021 over the prior guidance captures the strength of our real estate performance, including an improvement in rental rate growth and growth in both same property and overall net operating income. Now, EPS diluted was updated to a range The midpoint of that range for FFO per share of $7.73 is up $0.03 over the prior guidance And represents projected growth of about 5.9 percent over our strong FFO per share results for 2020 of $7.30 With that, let me turn it back over to Joel. Thank you. So operator, if we could go to question and answer, please. We will now begin the question and answer session. Our first question will come from Manny Korchman with Citi. Please go ahead. Hey, good afternoon, everyone. So maybe this one's for Steve or maybe this one will go to Steve. As you speak to your tenants About the markets that they're looking in, it looks like you're going out of your sort of core cluster markets, expanding close by, but out of those core clusters. Is that tenant driven or is that just where the opportunity for this company now lies? Yes. Well, this is Joel. So maybe let me address that in a macro way. I don't think you could say we're going after our core cluster markets. The core cluster market you're referring to maybe Fenway is really If you look at the Greater Boston market, Cambridge has been the hallmark, but there have been a set of inner Suburbs, if you will, that are somewhat have somewhat adjacency to the Cambridge area that have been attractive. Seaport has been there for quite a while and many others have Had life science activities, so I think it's a part of just growth overall and we're very selective about where we go and how we do it. And Fenway was a natural. I think I said last quarter, we've been eyeing Fenway for more than a decade as it is kind of a connection From to Longwood, where we've had activity and certainly one of the core Markets, core cluster markets at Cambridge, but I don't think I wouldn't characterize it out of the core market by any means. I don't know, Steve, if you want to comment on that. Yes. I would add to that, Manny. It's Steve here. It is an expansion incremental Expansion of the core clusters, so it's not new markets or new clusters. I would Thanks. And Dean, I know you mentioned that you gave more detail on dispositions in the coming quarters, but should we expect those to be similar to what you've done this quarter with a JV sale or do you think you actually hedges some assets outright? Manny, it's Dean here. The bulk of the Dispositions that are targeted for the remainder of 2021 are focused on Bulk of the dollars are focused on partial interest sales. So these will be high value, low cap rate, extremely attractive cost Capital transactions, there's it's possible we have some amount over the next year or 2 of outright Yes. And I would say, let me add a footnote to what Dean said. I think, Manny, You saw us make a move to sell the Stripe and Pinterest buildings, which we developed early on Starting in 2014 circa in San Francisco, opportunistically and made a sale of those entire buildings, And there are some assets that we are eyeing for that. So it could well be a combination. Thanks everyone. Thank you. Our next question will come from James Feldman with Bank of America. Please go ahead. Great. Thank you. I guess my first question, can you just talk about market rent growth? I mean, I know the condition is very tight. You guys are talking about very strong fundamentals, but what have you seen across the markets year to date? Yes, I think I'll ask Steve to comment, but I think it's fair to say that across almost all the markets, maybe New York City would be the exception. We've seen, as I say, exceptional demand for Alexandria owned and operated 1st in class assets, and I think that's really cut across all markets, but Steve, you could give some macro color. Yes. I do want to underline that it has been across all markets. Certainly, Research Triangle in Maryland, we've seen nice rent Growth there as well as Seattle, San Diego, Cambridge, San Francisco. And I guess, Jamie, When you look at our re leasing and renewal stats this quarter at 17% plus cash and 36 percent GAAP in the last four quarters 2020 in entirety was in that range as well. I think That really speaks for itself as you see rent growth over time here in these Class A assets. So can you like quantify how much of the rents were up today over a year ago? I know you're talking about leasing spreads, but the actual market rents. I guess, I'm curious based on the rising construction costs and pricing power, just how it's holding up. Yes. I would broadly say that lease rates are exceeding the anticipated Construction cost increases, so it's all positive. Hey, guys, it's Peter. I can just give anecdotally, our analysis showed that just quarter over quarter, So 4Q to 1Q market rents were up over 3.5% just for the quarter. So you could annualize that in double digits. All right, great. That's helpful. And then can you talk about the business plan at Watertown Mall, and why focus on that submarket versus some of the other Boston submarkets? Yes. So the answer is we won't talk about that specifically, but we've been in Watertown For maybe as much as 20 years, we've felt that that was an attractive adjacent Submarket to the Cambridge market, life science has always enjoyed going there. We clearly made a big move with the arsenal on the Charles And that campus and what we're doing to redevelop and develop that, the Watertown Mall is kind of an adjacency and what you're looking at is A mega campus in Watertown. We're seeing some great R and D Continuing to favor that market, I think if you look at that versus some of the submarkets in and around the Greater Boston market, Where transport is really, really difficult, I think Watertown is one which is, I think easier to both ingress and egress, and that's been a real attractive thing as well. But as far as the specific asset, I don't think we want to comment. Thank you. And then finally, you guys had commented on Constraint supply in 'twenty one and 'twenty two, I think you were talking mostly about new construction. Can you just talk about conversions And what do you think will be competitive in 'twenty one, 'twenty two and even into 'twenty three, if you look across the major markets? Yes. I mean, Steve can comment on a macro way. We just haven't there's a lot of smoke, but not a lot of fire, and we Have some anecdotal evidence of even some that have been attempted that have really kind of totally failed, and they're not an attractive Alternative to for 1st in class companies that are looking for high quality space, we just haven't seen the tsunami Of conversions that people are talking about, but Steve, you could comment broadly. Hi, Jamie. It's Steve. Look, you can put a flyer out. You can send out blast emails and say your This building is going to accommodate lab users, but until you go ahead and actually start making investments In the base building infrastructure and advancing that, tenants are not going Be attracted to that type of offering and that type of entity with a one off building. Again, they're in kind of So as Joel said, I think there's a lot of Talk out there, but we don't see a lot of action. Inevitably, there will be a handful of 50,000 to 100,000 square foot offerings, But nothing that really competes with the 1,000,000 plus square foot mega campus that's Fully amenitized with brand new or newly redeveloped Class A product that we're offering. We monitor every market very closely. This is Peter. I'd like to add, purpose built, which is what we have, Trumps a conversion every day of the week. Conversions generally are going to require Compromise to the tenants' plans. There are areas in the building where the structure is not going to work for heavy equipment, The plumbing or the shafts won't be available because there's another tenant in the way. I mean, it is just a very challenging We've done it ourselves a number of times. We know the challenges. We've been able to overcome them and provide great product. But at the end of the day, purpose built We'll always be much more attractive than an office conversion. Thanks, Jamie. Our next question will come from Sheila McGrath with Evercore ISI. Please go ahead. Yes, good afternoon. I was wondering if you could give us a little bit more detail on the 1 Investors Way transaction in the Route 128 submarket. Just what kind of yield that should be since you brought the tenant with you and just the plans for that expansion as well? Yes. So I think the Dean, correct me if I'm wrong, I think yields will likely come out in future supps. I'm not sure we want to Quote anything at this point, but I think, Sheila, Moderna has turned out to be one of those Monumental Companies and Vaccines were really almost nonexistent or a sideshow in their business plan For the last decade, but it's pretty clear that we own the adjacent Location where it is mission critical manufacturing for the vaccine. And as you can imagine, they're looking at lots of opportunities to expand that because the vaccine is not a 1 or 2 and done. This is likely to be like the flu where you're going to have to get boosters on a fairly regular basis. So this is really part of their Strategic plan to be able to supply both the United States and part of the world with Much needed vaccines now and into the future, and it's going to be iterating because the variants are going to cause changes in what the vaccine needs And so we felt that as the go to landlord for Moderna, this was in both of our interests To make happen. So I hope that's helpful as just kind of a framework. But you can expect yields to come out, I guess, either next quarter or Okay, great. And I was wondering if you could comment on 2 markets, Research Triangle Park Following Apple's announcement, just remind us what your holdings are there and how approximate you will be to Apple's expansion, Number 1. And then number 2, just, you haven't touched on New York City in a while. Just wondering If you could update us on life science demand and that third building that you have. Yes. So let me maybe take those in reverse and maybe speak to New York City. So as everybody knows, many on this Call either live or work in New York and have seen over the last year what's happened there. Still a somewhat tough place to be. Security is still an issue. Unfortunately, crime rates and shootings have gone up, really skyrocketed in enormous fashion. So We're very focused on the security of our campus. Our campus is almost full, although we're creating some additional space in the existing 2 buildings and moving a number of tenants around to accommodate growth, and we're also filling up Long Island City, which is kind of a nice relief valve. We're in discussions with the city on the North Tower. We are going to break ground here over the past many months, but clearly because of what's going on there and The change in the macro environment, we didn't go forward instantly. We had to rejigger What we're thinking about, but we're in discussions with the city to see how best we can move that forward. I think you have to remember, New York, Growing a cluster is like having a baby for 25 years, and it's painful, right? And we're just finishing the 1st decade, and literally New York, when we came and launched our first building there in 2010 and then in 2011 and beyond, literally no research, life science research was done there. World class academic work, world class clinical work, one incubator Up on the Columbia campus, but by and large Pfizer had a headquarters there, but by and large, no research. Since then, We've made enormous strides. We've gotten venture capital off the ground there. A lot of companies have started, But we don't see big companies that are reluctant and haven't really been successful in moving any big companies there. The recent tax efforts by the state certainly are regressive to, I think growth in New York, adding on to the tax burden, New York City, New York State, etcetera, and then a federal is kind of hurtful. So New York has a range of issues. It's great substrate, great NIH money, venture is formed, but It's going to take another decade or part of a decade and a half to really grow that into a real life Secondary market like some of the others that you know much better. So it's a work in process. We see some company formation. There's certainly institutional demand and so forth, but it's different than the other markets. So maybe moving to Research Triangle, and I might have either Peter or Steve give any macro comments as well, but We made a move last summer. We felt that Research Triangle was an important part of the life science landscape. It has been for many years. We have both several mega campuses, both on the life science side and now the first one of its kind here in the U. S, maybe in the world on the agri food side, Agro FoodTech. And so we think it's a very, very good location. It's attracted a lot of brains from Many places around the country anchored by the 3 great universities, UNC, Duke and NC State, and it's been just a really, really good place to be. It used to be looked at as kind of a manufacturing or kind of a tertiary kind of location. I think today it's moved up and become one of the hot and truly important places and people like to live there. I think that's going to be important Going into the future, is it a good place to live? And if you compare walking around in the Triangle versus New York City, New York City is tough these days. You What's going on in the subways and hopefully governance will get better, security will get better and improve and hopefully COVID will recede. But walking around with the triangle is like being in heaven. So I think that's why a lot of companies Have been moving there, and we've increased our footprint pretty dramatically. But Steve, you really started a lot of our efforts down there. So maybe a comment or 2 for you. Yes. Hi, Sheila. It's Steve. Yes, the Apple footprint, I think, will be Formative for the park for sure. And we do have one of our campuses in the Kit Creek area, with a number of buildings that are In close proximity there. So we think that will help continue to really invigorate the campus forward as Joel has been outlining and in particular really help these specific assets. So we're very enthusiastic Our next question will come from Richard Anderson with SMBC. Please go ahead. Thanks. Good afternoon. Joel, you mentioned your frustration with the corporate tax sort of narrative going on and Impact on repatriation. Were you seeing any tangible evidence of kind of the on shoring of the Supply chain impacts positively to tenants that could actually reverse course if this were to I'm wondering if it's more of a storyline as opposed to something concretely underway at this Well, no, I think it's been dramatic and not just in the biopharma industry and the medical technology industry. There was pretty dramatic tax reform in 2017, where multinationals previously charged with full U. S. Corporate tax rates, And they kept much of the cash overseas. They kind of it's called the GILTI tax, GILTI. They kind of opened that up, lowered that dramatically, and you saw a lot of companies, including a lot of big pharma and companies like Apple, Facebook, Google, others, Microsoft, other Big Tex bringing back large amounts of capital to invest in this country. So we had a couple of years of really positive Repatriation, not only of capital, but reinvestment in the United States, which was really positive. I think COVID then Shown a very bright or shined a very bright light on the medical supply chains where, as I said, 70% of Medical supply chain, many of it intermediates to create pharmaceutical products, etcetera, even just normal Plastic gloves and all the stuff that we call PPE, 70% of that was sourced overseas and we were seeing dramatic movement of that Back to the United States, it's not just pills and stuff like that, it was very broad. And I think To reverse that or even to put out the word that you're going to start to shift that, I think is one of the worst things you could do in the middle of a pan or Midway in the pandemic, I'm not sure what in anywhere in, I'd have to ask Fauci or some of those folks based on what they see. But I think it's fair to say, I was in a Zoom call with a company, just getting off the ground here in the United States, and the first thing they did was Set up operations and IP in Ireland, which has a 12.5% tax rate, where we're going to be Going to, I don't know what it will be, 28 or something like that. China is at 25 and most of the world is sub-twenty 8. There's only a handful that are above that. So that's not a good place to be if you want to create jobs and want to really Jolt this economy forward given the damage that we've suffered over the past year from the pandemic. So I don't know, I have pretty strong feelings and I think Many, many people who are in Corporate America believe that there are better ways to do that than become And I competitive and I think the administration's comments about, well, they're going to try to arrange a Kind of a global tax kind of arrangement where everybody is charging the same rate. It's done through what's called the Organization For Economic Cooperation and Development, a global minimum tax. Well, okay, that's a total joke. There's no one that's going to sign on to that, but so yes, bad news. Okay. So I guess my question it sounds like it was having a tangible impact on Business even clearly it was happening, but you were seeing an increase in the quarter. Yes, it's way broader than BioPharma. I mean, keep that or not, way broader. Yes. Second question I have is, Absent from today's presentation was Jenna, which no offense to her, kind of makes me feel like things are getting better because she wasn't giving her update. But I do have a question for the team there and maybe she's around. The vaccine success It's wonderful. You mentioned this is not there's more to come treating it more like a flu. But I wonder If the shift will turn maybe more to therapies as opposed to vaccines in the sense that if we feel like we can be treated for it, even if we If this is an annual event, we know there's a thorough flu out there to take care of it beyond remdesivir. I'm just wondering if you can comment on that Yes. So if by popular opinion, we'll bring Jena back next quarter maybe, but we decided not to do that just because Vaccines are kind of in the at the forefront. The country is making, I think, good progress. We'll see how that goes, but you are seeing India has hit an all time high. And if you look at pictures of what's going on there, it literally breaks your heart. We've got some severe outbreaks throughout the United States. Michigan, which has been one of the toughest shutdown states, So go figure that out is having some tough time. So we're still, I don't know, we may be in the 5th inning, something like that. I don't want to be a Doctor. Fauci here, But we got a long way to go here and it's going to be with us. This just doesn't go away. It comes back in various forms. I think when it comes to your question on therapies, I think if people rely on therapies like Flu therapies or other kinds of therapies for COVID, I think that's a huge mistake, and we'll next quarter address that. I'll ask Jenna to Specifically address it. But what I think is the challenge is, if you get COVID, there is a cohort of patients. Right now, people, if you ask Scott Gottlieb Right now, it's maybe 10%, 15%. Don't know if that number is too low or too high, but my guess is it could be Right about right and could be higher, who are experiencing the long haul symptoms. If you ever look at some of the articles on COVID attacks almost every system in the body and it's something that you would not want to get and just get over because you don't know what the long haul Results are to the brain, to the immune system, to circulatory, all the systems of the body. So I don't think The therapy is the answer. I think it's immunization and hopefully herd immunity, although there's a A cohort of people here in the United States who simply won't take the vaccine, which there may be medical reasons, there may be religious But I think it is hard to understand the assumption of the risk for oneself and others If you don't have those issues, not to take the vaccine. So long winded answer. I hope that's helpful, Rick. That is well said. Thanks very much, everybody. Thanks, Joel. Yes. Our next question will come from Michael Carroll with RBC Capital Markets. Please go ahead. Yes, thanks. I wanted to touch on the repatriation of the drug supply chain real quick again. I know it's important, I guess, for the industry and the country. I mean, does that Drive the demand in cluster markets at all? I mean, does it impact your business materially one way or another? Well, I think it's incrementally. I was talking more macro because to bring back supply chains for intermediates For pharmaceutical products, so we don't have to rely on India or China or Ireland or other places. That's critical. That's national security, it seems to me. And yes, there's been certainly impact to the demand, Especially in the manufacturing, in the next gen manufacturing, I think people are not going to put cell therapy, gene therapy and a range of next gen Manufacturing, which are so tied to R and D in the biopharma industry overseas unless tax rates absolutely Force them to do that, which would be stupidest policy I ever heard. So yes, the impact has been Clearly in a positive fashion, and we hope that doesn't get reversed. Okay, great. And then just, I guess, last question for me. Can you Talk a little bit about, I guess, the mention in the earlier prepared remarks about the model to help combat homelessness in Seattle. How far along is this process? And I guess what type of timeline do you have in mind? Or when you'll be able to provide us more details on what that Standing homelessness, much like drug addiction, is hard. There are if you imagine the homeless population, it's highly stratified. There are those that are Down on their luck have financial issues. There's a large cohort that have serious addiction issues. There's a large cohort that have Serious mental illness, etcetera. So it's not just saying, okay, let's just find housing. That's a solution that many jurisdictions are Pursuing, but it doesn't help. It's like detoxing somebody who's addicted to opioids and then putting them back on the Great. Okay. That doesn't work more than 28 days. So we're trying to adopt this or adapt, I should say, not adopt, The 115 model, the continuous the continuum of care, the complete care, data driven, But with deep research, and so we're in the feasibility stage. I'm not sure I can give you yet, maybe over the next quarter or so, I'll be able to give you more details. But we think it's an imperative that we attack this problem, and I think we may have a model that will help a lot of people here. But it's no easy thing. It isn't like putting up a few simple apartments. It's way, way more complicated than that. Okay, great. Thank you. Yes. Thank you. Our next question will come from Dave Rodgers with Baird. Please go ahead. Yes. Good afternoon. On the leasing front, I wanted to ask a question about, you have 2 really good quarters of leasing and a number of quarters strung together. Curious if you're seeing any slowdown like there was some backlog maybe that had built up through COVID and that maybe it's metering out a little bit more. Is that more a function What you're offering in development? Just curious on kind of the pace of leasing into the Q2? And then maybe the flip side, what's missing from the leasing pipeline, if anything, in terms of kind of Okay. I'm not sure I fully understand the first part of the question. I think earlier you made the comment or Peter made the comment about demand and some of Lowdown that was related to just not being able to build, right, for a little while. I know it was a little bit slow in development. Okay. I don't think we said that. Are you Who said that? Just in terms of new anyway, I guess the question was, have you seen a change In leasing going from kind of the Q1 into the Q2, any evidence of a slowdown or any evidence that there had been a backlog from COVID That might be dissipating at any point? No. I think our comments should address that pretty directly, Dave. No, We don't see any of that. Okay. And then, not specifically related to SPAC, but is there anything in your own guidance at Alexandria that would be Our next question will come from Daniel Ismail with Green Street Advisors. Please go ahead. Great. Thank you. Joel, appreciate all the comments relating to ESG. There are a variety of Taxes or fines on greenhouse gas emissions proposed or in discussions across your markets. It seems like lab buildings are generally lumped in with office buildings in these Proposed or enacted regulations despite the difference in use and potential energy intensity. Is that a fair characterization? And then does this come up And tenant discussions about the potential for, say, higher taxes or fines on building greenhouse gas emissions? Yes. I think it has not at the moment. It doesn't seem to be a significant issue for tenants at this moment, although they're looking for, Obviously, very green and environmentally positive sustainable buildings, both inside and outside. And I think We've kind of been a leader here in the U. S. And maybe even worldwide in the whole fit well, clean or healthy environments inside. But Dean, do you want to comment because you're closest to that? Yes. So Danny, I agree with what Joel highlighted. Our tenants Haven't focused on your specific question, but they have focused on really environmentally friendly, sustainable Real Estate Solutions, if you look across their business, if you take just a sample of our top 20 tenants as an example and look at their ESG initiatives, sustainability is a high priority across their entire business, real estate being a Very small component. They actually touch on real estate a little bit on a few of the top 20 tenants. And as Joel highlighted, Carbon Neutral Energy Neutral buildings, etcetera, just beyond lead today is super important. Most of these biopharma companies today have set Carbon neutrality goals that are well inside the broad 2,050 type of target dates That's Tom have put out there. And so I think overall it's super important. I think for us When we think about building green and sustainable buildings, it plays not only strategically important to our business, but plays right into the Strategies of our tenants as well. So I think it works well. Danny, I think you point out the obvious challenge that All companies are facing today is how do you reach carbon neutrality today at a pace that needs to be faster than Maybe possible at the moment given technologies and dilutions that are available. But if we don't put our best foot forward to We won't get anywhere close to some of the debt lines in different jurisdictions, but they're all different. So it's hard to comment on broadly across the portfolio. Okay. And then just last one for Peter. On the Cap rate on the South San Francisco trade, how would you compare that cap rate across market cap rates Excuse me, how would you compare market cap rates across San Diego, South San Francisco and Cambridge? Are cap rates heading to parity in these markets? Or are there Yes, I actually think Your comment on heading to parity, that's actually when you started asking your question, I was like, the geographic differences that used to The obvious are being blurred. Once you get down to Four caps, I would not be surprised obviously, 4 cap It is being achieved in Cambridge. I would not be surprised to see it go below 4 In Cambridge at some point soon, a high quality asset in San Diego Was probably a 5 low 5 cap 2 years ago, And I would expect that to be a low forecast today. So things are starting to or the difference the geographic Difference that cap rates had before are really starting to narrow. And it's probably obvious that there's so many people out there looking for Exposure to life science that the geography doesn't matter as much as it does to get the exposure to life science. Great. Thanks, everyone. This concludes our question and answer session. I would like to turn the conference Back over to Joel Marcus for any closing remarks. Just say thank you, everybody, and please stay safe. We'll talk to you next quarter. Thanks, everybody. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.