Good day, and welcome to the Alexandria Real Estate Equities second quarter 2020 earnings conference call. All participants will be in listen- only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Paula Schwartz in 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 reports filed with the Securities and Exchange Commission. Now I'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.
Thank you very much, Paula, welcome everybody to Alexandria's second quarter earnings call and our first full quarter done virtually. As I always do, I want to thank the entire Alexandria family for an outstandingly executed second quarter, really in all respects and by all metrics. As I said, our first full reporting quarter virtually. It was once said, a couple of notes about change, everything changes but change. As I've quoted before, the award-winning visionary author Jim Collins noted, "To be built to last, you must be built to change." Stephen Hawking said, "Intelligence is the ability to adapt to change." Alexandria has always been, I think, resilient and very responsive to a changing environment. We're all blessed compared to many who are struggling during this pandemic, and my heart goes out and wish everyone both safety and good health here.
Dean will talk about this, but huge kudos to the entire accounting and finance team on our win of Nareit's Best Communications Gold Award once again. In our first quarter call, or on our first quarter call, I should say, we dialed back our growth in light of the uncertainties of the COVID-19 onslaught, in all realms. Now that we've gotten through that quarter and gotten through the second quarter certainly, and into the third quarter, we have a much clearer, I think, view of the landscape, going forward. I want to say a couple things about corporate responsibility. It's a lot in the press. We're not new to this. We've included in our press release the panoply of corporate responsibility initiatives we've worked on very hard, over many, many years.
Many longstanding and impactful activities in our regional communities, our truly positively impactful sustainability initiatives, including our pioneering zero carbon building in South San Francisco. More recently in response to the COVID pandemic, we are in fact at the vanguard of the life science industry in advancing the search for solutions to COVID-19. I want to also harken you back to our Project OneFifteen with Alphabet, the subsidiary of Alphabet, Verily. 72,000 Americans died last year. Hard to imagine half of the number that have died of COVID this year, but an enormous number and more than in the entire Vietnam War, of opioid addiction. 2020 deaths are up 13%, and one could imagine why that may be.
Last year, we announced our OneFifteen project in Dayton, Ohio, to serve as a unique and complete care model, comprehensive care model, really, to attack the opioid crisis in America. Our hope was we would build a model that other communities could copy. We pioneered the design and development of the almost 60,000 sq ft campus, and thank you to the great team that worked on this, on about four acres, which opened to outpatients in the fall of 2019. This month, we completed OneFifteen Living , the residential housing component of the campus. This facility is the so-called sober living facility for patients suffering from opioid addiction to live while accessing full on-campus treatment that will come over time, and really the first full treatment care facility from detox to job placement.
Let me shift gears here for a moment and talk about the life science industry, and then I'm going to have Jenna speak after I finish and talk specifically about the three most advanced vaccine projects. As we all know, we're living in truly unprecedented times in history with the onslaught of a pandemic, the resultant recession, and civil strife in many of our cities. We've seen a significant uptick, however, in demand this quarter across all of our markets, both from new and existing tenants, and that's given us, I think, good comfort. There's been strong bipartisan government support for life science R&D to solve COVID-19. For example, $10 billion has been committed to Operation Warp Speed. They brought together some amazingly talented people.
Of that amount, or in addition to that, there is a large number, over $7 billion for CDC, over $6.5 billion to the so-called BARDA group, over $3.6 billion to the NIH, and over $160 million to the NIH, all supporting COVID-19 pandemic. So far this year, the FDA has approved 25 new drugs. Last year, they approved 48, so we are on our way to maybe a beating of the 2019 number. During the first half of 2020, funds raised by life science companies via IPOs and follow-ons almost matched all of 2019. This is amazing because this happened despite COVID. Venture capital was strong to the tune of about $9.5 billion and 10% more than 1Q this year. We are pleased to say 80% of all venture capital funding in 2020 has been in Alexandria's region.
Before I turn it over to Jenna, let me make a comment. Life probably won't return to normal until we have a widely distributed COVID-19 vaccine. The good news is this may happen sooner than expected, thanks to years of private investment and new cooperation between U.S. government and drug companies. This taxpayer money could not have been spent better, even if some vaccine candidates may actually end up failing. The potential return from resuming normal life is far greater than from all the transfer payments Congress has spent so far, and we hope that this combination of private innovation with faster regulatory action truly pays off. With that, let me turn it over to Jenna Foger, our Senior Vice President who co-leads our life science team.
Thank you so much, Joel, and good afternoon, everyone. Against the backdrop of this COVID-19 pandemic that has made an indelible mark on our society, the economy, and the future of public health, as Joel noted, life science fundamentals remain strong as the biopharma industry represents the beacon of hope and absolutely essential in the fight against COVID-19. We are currently tracking over 80 tenants across our cluster markets who are advancing solutions for COVID-19, and we owe a tremendous debt of gratitude to their heroic work. Clearly, as Joel mentioned, a safe and effective vaccine should help bring about the effective end of the COVID-19 pandemic and is a prerequisite to fully reopen society and restore the global economy. As a reminder, given the global demand for a vaccine, multiple vaccines by multiple company sponsors are absolutely required.
As such, researchers around the world are working with unprecedented speed and collaboration on at least 165 distinct coronavirus vaccine programs, of which nearly 30 vaccine candidates are already in human trials. As a cornerstone of the U.S. government's effort to expedite the development, manufacturing, and distribution of COVID-19 vaccines, as Joel mentioned, the administration has allocated $10 billion to its Operation Warp Speed initiatives and has awarded grants to a handful of company partners, almost all of which are Alexandria tenants, including AstraZeneca, Emergent BioSolutions, Johnson & Johnson, Moderna, Novavax, and Pfizer. Among these efforts, I want to call your attention to the three most advanced vaccine programs from Moderna, Pfizer, and AstraZeneca, each a top tenant for Alexandria in their respective regions.
Each of these companies has reported early clinical data that points to initial safety and efficacy, and all three company vaccine programs have now officially enrolled major late-stage pivotal studies in tens of thousands of patients around the world. Moderna, in partnership with NIAID, and Pfizer, partnered with German biotech BioNTech, are both developing messenger RNA-based vaccines. These vaccines contain instructions that tell our cells to effectively build the same spike protein that is found on the coronavirus, which helps the virus invade human cells. Our immune system then makes antibodies to latch onto and neutralize the vaccine-induced spike proteins, such that when a vaccinated person encounters the virus in the future, those vaccine-stimulated antibodies should prevent the virus from infecting healthy cells.
Moderna was, of course, the first U.S.-based company to enter its vaccine into human trials, marking an extraordinary and historic fast-tracking of a vaccine construct into the clinic. To date, Moderna has received just shy of $1 billion from BARDA to expedite the clinical development and manufacturing of its lead vaccine candidate. After reporting positive initial safety and efficacy data from their phase I and II studies earlier this month, demonstrating that healthy volunteers receiving their vaccines produced significant neutralizing antibodies against the coronavirus, as well as downstream T cells implying some degree of lasting immunity, both Moderna and Pfizer began to enroll 30,000-plus patients late stage phase II, III studies just this past week.
Pfizer stated that they should have efficacy data to report as soon as October, and they've also received a $1.95 billion contract from the U.S. government to help deliver over $1 billion of their vaccine by the end of 2021. Finally, AstraZeneca, in partnership with the University of Oxford, uses a slightly different approach to their vaccine development effort, using a genetically engineered viral vector to deliver coronavirus genes into cells, which similarly encodes the coronavirus' signature spike protein and provoke an immune response. Based on results announced last week, AstraZeneca also shows a relatively safe vaccine with only mild to moderate side effects that successfully engages the immune system to fight the coronavirus. AstraZeneca has received up to $1.2 billion from the U.S. government to deliver up to 2 billion doses of their vaccine in 2021.
Where are we now? Though it is challenging to predict exactly when a vaccine will become widely available, we do expect interim data readouts from each of these three pivotal programs and potentially others over the coming few months, which should directionally inform us about the broad safety profile of each vaccine candidate and/or whether each shows continued signs of efficacy. If results are positive, there is, of course, the potential for emergency use authorization by the FDA for any of these vaccine candidates by year-end 2020 and into early 2021. Given that each of these companies is already scaling its manufacturing capabilities to be able to deliver at least a billion doses of each vaccine next year, there is a clear path towards the widespread availability of a safe and effective vaccine in the first half of 2021.
However, just as it remains unclear how long natural immunity lasts after a person becomes infected with COVID-19, the durability of a COVID-19 vaccine also remains an open question. Also yet to be determined are the anticipated frequency and cadence at which we will need to get vaccinated, which segments of the population may respond better or worse to the vaccine, and what proportion of the population needs to get vaccinated to ultimately drive herd immunity and eradicate COVID-19 altogether. In the meantime, new antibody therapies by companies such as tenants Eli Lilly and Vir Biotechnology and others, could serve as a bridge to a vaccine and help reduce the severity of COVID-19 in infected patients.
There are an additional 300+ new and repurposed therapies in clinical development, and in parallel with increased widespread testing and continued socially responsible behavior, we're hopeful that this virus will become more manageable and less fatal overall. Needless to say, we look forward to continuing to support the mission-critical work of our tenants to overcome this global pandemic within the coming year. With that, I'll turn it over to Steve.
Thank you, Jenna. Steve Richardson here, everybody. Good afternoon. As we stated during the Q1 earnings call, Alexandria's role as the proven leader in providing mission-critical and indispensable strategic national health infrastructure is only becoming more important as the COVID-19 pandemic continues to challenge our country. I'd like to acknowledge with a loud shout-out to our full operations team, the stellar work they're undertaking as they've been on the job 24/7, providing exceptional and high-quality service to our tenants at Alexandria's essential services facilities, which have been open and fully operational every day throughout this difficult time. The increasing complexity of construction, delivery, and ongoing operations of this mission-critical infrastructure is formidable and not an easy task, and requires the highly skilled and talented team that Alexandria has carefully built since its inception.
We are pleased to report a healthy, dynamic, and positive operations end market reality for the company, and I'll tick through a number of pieces of that. Brand loyalty is evident as Alexandria's tenants garner great value in our delivery of excellence in all operational matters. As such, the company has collected 99.5% of accounts receivable during the second quarter and 99.3% during July so far. Truly a testament to both the quality of the companies we serve and the great work by our operations team. Outperformance. During Q2, we outperformed our Q1 leasing activity with a total of 1,077,000 sq ft leased. As we've noted now the past several quarters, this contribution is coming from all regions, with this quarter's significant leasing statistics highlighted by San Diego's activity. Great kudos to the team there. Strong core.
The rental rate increases continue to be strong with 15% cash and 37.2% GAAP during Q2. Early renewals year to date are consistent at our historic levels of 69%, and during Q2, we exceeded that with a figure of 78%. Mark to market is at 15.6% cash and 16.1% GAAP, which is pretty amazing when you consider the large number of new Class A facilities we've delivered during the past few years in core markets. Solid occupancy. We are at 94.8% across 28.8 million square feet in the operating portfolio, and taking into account lease-up opportunities at two recent key projects in San Diego and South San Francisco would otherwise be at 97.1%. Finally, market health.
Alexandria's core clusters have experienced no significant lab subleases coming to market during the pandemic, an important harbinger for Alexandria's ability to continue solid occupancy levels and consistent cash and GAAP rental rate increases for the balance of the year. As an additional data point, the lab demand has remained steady in the San Francisco Bay Area, with 2.3 million square feet today versus 2.2 million square feet during Q2 2019. A few requirements were in fact on pause during Q2, but we are actively touring prospects again. Tech demand, however, is weaker, falling by approximately 50% compared with one year ago, and we will be closely monitoring this segment over the coming months. In conclusion, the Alexandria team is fully engaged, providing operational excellence.
Importantly, Alexandria's long-term and historic commitment to the life science industry is evidenced by the fact that the vast majority of leasing this quarter is with executive management teams who we have worked with as a trusted partner for many years, and in some instances, decades. This is a truly unique and irreplaceable competitive advantage, and one we relentlessly pursue in an honorable fashion each and every day. With that, I'll hand it off to Peter.
Thanks, Steve. This is Peter Moglia. I am going to briefly update you on all of our development pipeline activity, acquisitions closed in the second quarter, and touch on some capital markets activity. Coming into 2020, we had 11 development, redevelopment projects, and we added two this quarter, including the second phase of our 5 Laboratory Drive project in the Research Triangle and 9877 Waples in the San Diego submarket of Sorrento Mesa, which is 100% pre-leased. These development projects are spread among a number of regions and give us a great mix of Alexandria branded projects to meet the growing demand in all of our regions. Whenever possible, tenants want to locate their mission-critical operations in our high quality and expertly managed assets.
Although we achieved 196,000 sq ft of leasing in our development pipeline during the COVID-impacted quarter, the leasing percentage remained 61% as the new leasing was offset by the additional project we added in the Triangle and a positive development at our Arsenal on the Charles project, where we were able to take back a poor performing leased retail space that will be converted to high value lab office space. Our redevelopment of Arsenal on the Charles, of that project, has met our high expectations for it to date. We have signed three LOIs for approximately 144,000 sq ft. Remember, we only closed on this asset in mid-December, and we have a number of prospects for more. Tenants really like this location and our development plans for it. Despite the continuing overhang of COVID-19, we had an uptick in activity at many of our development / redevelopment projects.
In Long Island City, we are in serious negotiations with groups representing 86,000 sq ft of demand. At The Alexandria District in San Carlos, we have solid interest from a number of companies aggregating in excess of 200,000 sq ft of demand. Up the 101 at 201 Haskins, we're working with six companies for space ranging from 20,000 sq ft to 100,000 sq ft. COVID-19 is causing some companies to move deliberately. Last quarter, we mentioned that seven of our projects experienced temporary pause in construction, we're pleased to report that all of them are going forward with no current delays. We reported that we expected about a one-quarter delay on average for those projects did not anticipate any material movement in yields.
That assessment has been confirmed in our 2Q numbers and is due to the remarkable job of our highly experienced real estate development teams that have done an amazing job managing the impact of delays and other COVID-19 related costs, which include the impact of social distancing, which has reduced our construction efficiency, added costs for safety measures such as the procurement of PPE, a dedicated COVID-19 safety officer required in many locations, and added security. In addition to the contribution by our highly skilled, seasoned team, the minor impact of our yields can also be credited to our highly disciplined underwriting, starting at the acquisition of these opportunities through the development and leasing phases.
In the second quarter, we closed on 987 and 1075 Commercial Street project we discussed last quarter. We added a prime parcel in the UTC submarket of San Diego across from our 9363 and 9393 Towne Centre Drive project that will be developed into a class A 200,000 sq ft lab office project with the potential of making it larger through an upzoning process. As far as sales activity goes, last quarter, we discussed the strong interest in lab office assets from a diverse set of investors, mentioning Healthpeak's purchase of The Post in Waltham at a 5.1% cap rate and a healthy price per sq ft for a suburban asset of $751. We have since learned that Healthpeak has also paid a significant price for the 224,000 sq ft, 35 Cambridge Park Drive asset in Alewife for a reported $1,484 per sq ft at a 4.8% cap rate.
We also mentioned last quarter that a reliable source had disclosed that a transaction in the Boston area had gone under contract while in shutdown. We can confirm that sale occurred. 27 Dryd ock, a 286,000 sq ft lab office project in the Seaport area of Boston, was acquired by Beacon Capital Partners at an estimated cap rate of 4.8% and a price per foot of $916. This pricing was somewhat surprising as the asset is subject to a very onerous lessor favored ground lease. It's really a good time to be in the market with assets in life science sub-markets. We will continue to maintain our highly disciplined approach to underwriting. We're going to keep you informed of our opportunistic acquisitions and dispositions over the coming quarters.
Before I pass the baton, I would, or we would like to encourage everyone to read Chip Cutter's article that appeared in Friday's Wall Street Journal titled "Companies Start to Rethink Remote Work Isn't So Great After All." As an alternative to all the press speculating that the office market is headed for the crypt. Laboratory office is not part of the work from home trend, but nonetheless, we believe traditional office product is not going anywhere. There will likely be some shifts in use, such as workers not coming in every day and a reverse of the densification trend that permeated over the last decade. There are a lot of reasons to have people physically together, and this article goes into some of them. With that, I'll pass it over to Dean.
Hey, thanks, Peter. Dean Shigenaga here. Good afternoon, everyone. Our national essential real estate platform, really combined with our trusted partnerships with some of the most innovative entities in the world, continues to generate high-quality growth and cash flows. 51% of our annual rental revenue is generated from investment-grade rated or large-cap publicly traded companies. Really highlighting that our team has curated one of the best tenant rosters in the REIT industry. This high-quality tenant base continues to support growth in our common stock dividends that is currently at $1.06 per common share, or $4.12 per share on an annual basis, and was up 6% over the previous 12-month period.
We remain in a great position and continue to benefit from a very strong and flexible balance sheet, the best in the history of the company, really to support our strategic growth initiatives, and more on this in a moment. In June, we published our annual corporate responsibility report, which along with our supplemental package, highlights our longstanding commitment to ESG, our focus on making a positive and meaningful impact on society, and Alexandria's critical role at the forefront of the life science ecosystem, advancing solutions for COVID-19. Thank you to our ESG team for an outstanding job over the last year. Before jumping into the second quarter, I also want to share a shout-out with a huge thank you to our entire team for their five-time recognition as Nareit's Gold Award winner for communication and reporting excellence. Congratulations, team.
The second quarter results were solid and in line with our expectations. Rental revenue was up almost 20% over the first half of 2019. NOI was up approximately 19% over the first half of 2019, and adjusted EBITDA margin was very strong at 69%, continues to be one of the top within the REIT industry. Rent collections are now over 99.5%, and our outstanding AR balance as of June 30th represents the lowest balance in the last 12 years. Occupancy trends have been positive this year. However, this is hidden by the 2.3% of vacancy from recently acquired leases. Please refer to page 23 of our supplemental package for details of this acquired vacancy. Occupancy as of June 30th was reported at 94.8% and included 2.3% of recently acquired vacancy. Occupancy before this vacancy was 97.1%, actually up 30 basis points since December 31st.
In addition to this key takeaway, it's important to highlight that recently acquired vacancy will provide growth in cash flows as our team executes on these leasing opportunities. On internal growth, our operating results continue to benefit from contractual annual rent escalations averaging almost 3% today. Continued strong same-property NOI growth remains on track with our 2020 midpoint guidance of 5.5% on a cash basis. We also reported continued strong rental rate growth on lease renewals and re-lease space of 37.2% and 15% on a cash basis for the second quarter. Our rental rate growth has been amazing since 2015, and has averaged 29% and 15% on a cash basis. While our outlook for 2020 same-property NOI growth remains strong, the second quarter same-property performance was slightly impacted by two items.
The second quarter results was impacted slightly by temporary vacancy of about 152,000 rentable square feet from leases primarily located in Cambridge and South San Francisco. About two-thirds of this square footage, or 100,000 rentable square feet, has been leased with occupancy commencing in the third quarter. If we normalize for this temporary vacancy, the second quarter same-property NOI growth would've been 1.6% and 4.2% on a cash basis, and closer in line with our outlook for the full year. Additionally, we also have other contractual rent increases that will begin in the second half of 2020 for leases at properties located in Greater Boston, San Francisco, and Seattle that will bring same-property NOI growth on track with our 2020 midpoint guidance of 2% on a GAAP basis and 5.5% on a cash basis.
The second item to highlight that impacted same-property NOI growth for the second quarter was retail and transient parking. As a reminder, retail represents only 0.7% of annual rental revenue. Approximately half of our retail is paying rent monthly. About half is not paying rent at the moment, and this drives a slight reduction to both GAAP and cash same-property NOI income growth. As I wrap up my comments on same property, I just want to reiterate that we are on track for solid same-property net operating income growth for 2020. Switching briefly to our venture investments. Over the past year or so, we have been taking advantage of the strength of the capital markets. Our cost basis has remained about the same over the past year, really highlighting that we have been strategically monetizing certain holdings.
Over the past year or so, unrealized gains have grown significantly to $556 million as of June 30th. Realized gains have averaged about $15.3 million per quarter over the last four quarters and was $17.7 million in the second quarter of 2020. Moving on to external growth. Our team completed approximately 200,000 sq ft of leasing related to current and future development and redevelopment projects located in our San Diego market. Our active pipeline of development and redevelopment projects consists of 2.3 million rentable sq ft and is 65% leased and negotiating today. We also have important near-term and intermediate-term development and redevelopment projects aggregating an additional 7.6 million rentable sq ft. Congratulations again to our team for transforming our balance sheet over the past decade. Our overall corporate credit rating ranks in the top 10% among all publicly traded REITs.
We have one of the highest quality tenant rosters that is driving growth and cash flows. We remain committed to our strong and improving credit profile. Liquidity was about $3.7 billion as of June 30th, and even higher after consideration of our $1.1 billion forward equity offering that we completed in early July. Our debt maturities are well-laddered with no maturities until 2023. The bond market today is extremely attractive. Long-term fixed rate debt for Alexandria is in the sub 2% range for 10-year bonds. This is really amazing when you compare it to cash yields on our development projects in the 6%-7% range or higher. Concurrent with our common stock offering on July 6th, we provided key updates on our sources and uses of capital for 2020. This update reflected continued demand for our well-positioned development and redevelopment projects and our solid outlook for 2020.
Our construction spend outlook moved closer to our initial guidance for 2020 and is now $1.35 billion at the midpoint. Additionally, our updated guidance on July 6th, that was also reaffirmed yesterday, reflects a strong outlook for acquisition opportunities and builds upon our strong initial outlook that we gave for 2020. Now the midpoint of the range of our acquisition guidance is $1.8 billion. On July 6th, we also announced our target for real estate dispositions, including partial interest sales at an aggregate midpoint guidance of $1.25 billion. Now more details on this will be provided over the next quarter or so. We updated our 2020 guidance to a range for EPS diluted from $3-$3.08, and for FFO per share diluted as adjusted from $7.26-$7.34.
As usual, please refer to our detailed underlying assumptions included under 2020 guidance beginning on page nine of our supplemental package. With that, let me turn it back over to Joel.
Okay, we're ready for questions from the group.
Operator, we're ready for questions.
Apologies. We will now begin the question- and-an swer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble the roster. Our first question today will come from Manny Korchman with Citi. Please go ahead.
Hey, good afternoon, everyone. Dean, if we think about the accelerated disposition program, a couple questions there. Maybe just if you could help us figure out how you're weighing or thinking about doing dispositions versus even more equity than you've already done. Maybe helpful in that would be to talk about what types of assets or maybe what markets you're thinking about selling those in, and also timing of those sales.
Manny, let me kick off with a little color. If you look back over probably five to seven years now, we pretty much have been consistent with our sources of capital being from a range of opportunities to blend our long-term cost of capital in, and dispositions have been a component going back to 2014, 2015 now. A lot of them have ranged from a partial interest sale. These are high-value core assets that we want to retain an ownership in. I would say, without getting into a whole lot of details because the deal flow is in process right now, we're looking at opportunities from an outright sale to partial interest sales. These are high-value assets in order to generate some equity capital that we invest in the business. Then, Manny, just touching on the difference between dispositions and equity capital.
There obviously are considerations to be taken when you consider both. I think for us, it's always been a blend of capital, and our cost of equity has been fairly attractive over the time period that I was chatting about since 2014, 2015. Looking forward, our multiple has only improved, which has improved our cost of equity capital. I do think, though, it's still prudent to consider dispositions from time to time. As a result, our program for 2020, given the needs for our business this year, we felt it was prudent to balance the equity needs with some dispositions. I think as we give some color to that program over the coming quarter or so, it'll help bring a little more clarity to what we're focused on here. I think you'll have to stay tuned for market information and details for at least a quarter.
Right. Thanks, Dean. Maybe just thinking about how tenants, especially the ones that are so involved in searching for the treatment, the cure, the vaccine, whatever it be, how are they thinking about their growth and real estate needs? Is that on the back burner, or is it just that they're separate teams that are doing one versus the other, and so those are the same entities that are looking to lease more space from you or others?
Steve, you want to maybe field that?
Sure. Hi, Manny, it's Steve. Yeah, Manny, I'd say it's a combination of both. You have existing platforms that the capital markets are very liquid. As Joel was mentioning, and Jenna, the strength of the venture and IPO markets. We know of a company that did a virtual roadshow and went public during this time. They're using that capital both for their existing platforms and for any COVID initiatives. In addition to that, we're also seeing manufacturing become a real and viable dimension as well, which is further driving demand. You've really got two elements. The COVID R&D, and then the COVID kind of very early manufacturing as well, continuing to drive demand. That is broad-based across a number of markets.
You could also note, Manny, that there was an announcement yesterday that the U.S. government would loan Eastman Kodak, a company that failed to adopt Jim Collins' notion of change, $765 million as part of a wider attempt to bring pharmaceutical ingredient manufacturing back to the United States. I think you're going to see a lot of activity in the entire supply chain issue when it comes to biopharma.
Thanks, everyone.
Thank you.
Our next question will come from Sheila McGrath with Evercore. Please go ahead.
Yes, good afternoon. I was wondering if you could give us more insight on the Sorrento Mesa leasing that you mentioned. Did you have a tenant in hand before you purchased 9877 Waples? Just some more color on that.
We did. Yes, Sheila. It was a COVID-related requirement. The answer is yes.
Okay. On the quarter, I was surprised that you had over a million square feet of leasing activity. Was that just other activity that spilled into the quarter, or were there any new requirements during 2Q?
Steve, you could give color, but I hope you weren't surprised that we had 1 million square feet. We weren't. We thought it would even be bigger, but anyway. Steve?
Sheila, a couple of things there. It has, as we've talked about for a number of quarters, been broad-based across nearly all markets. As I did highlight, San Diego in particular was kind of a standout there. Nevertheless, all markets were contributing. No, not necessarily surprising. The impetus for space, the sense of urgency is still there. Literally 78% were early renewals during this Q2 time period. We have very close, long-standing relationships with these tenants. This was to be expected during this quarter.
Okay. Last question. You did just mention, I think, Steve or Joel, on the manufacturing being a new source of demand. Would Alexandria be interested in owning any of the pharma or vaccine manufacturing facilities?
Well, we already do. Some of them are embedded in assets we own. Some are dedicated manufacturing, others are pilot manufacturing or other clinical trial scale manufacturing. It kind of spans the gamut. Yes, we're finding that there is a need. I think hopefully that we can bring a bunch of the critical manufacturing and other supply chain needs of biopharma products back from overseas, including China, for our own protection. Yes, we are very interested. Now, we wouldn't be interested in a random manufacturing in the middle of nowhere. If they're in strong submarkets that are tied to core markets, that's a good thing.
Okay. Thank you.
Yep. Thanks, Sheila.
Our next question will come from James Feldman with Bank of America Merrill Lynch. Please go ahead.
Thank you. I wanted to just get your thoughts on the election and even with Prop 13 coming up before we know it. What are you concerned about most if it's a Biden win, and how do you think about the risks?
Yeah. I'm not sure I want to comment out about 100 days. I think on the third quarter call, it'll be better. We'll have a more triangulated view. Who Biden's vice president is, we don't know that yet, is very important. Who may be in the cabinet. To me, it's a worry for everybody because to elect somebody who may not be in the best of health would be a worry there. That's unfortunate. It's too bad we don't have two 45 or 50 year olds running. That's the way it worked. I think I'll reserve comment until the third quarter, and we'll have a better view on things. The other part of your question, I'm sorry, I forgot.
Oh, just you guys are sitting in California, just your thoughts on Prop 13?
Oh, yeah. I don't know, Peter or Steve, you guys want to talk about Prop 13?
Yeah. Sure. This is Peter. I have sat in on some calls with a committee that is running the campaign against it. They feel like there's a better than 50% chance it does not pass. I'm sure it's tight enough to make everybody a little bit nervous. I think we're in good shape because a number of our assets in California were developed by us in the last few years. Plus we have a triple net lease structure, so we would fare better than others. Given the current economy, I don't think it would be good news to help California out of its troubles by making it harder to do business.
Okay, that's helpful. Peter, you had mentioned the Wall Street Journal article. I just want to get your thoughts. I know that tech is a smaller part of your business, but you do have Facebook, Uber, and Stripe on your top tenants list.
When you think about the Bay Area specifically, from your vantage point on the ground there, what do you think changes in terms of how people use office space and especially more among the tech companies? Do you think they will be doing more work from home or more flexible work arrangements which will have a longer-term impact? Or even satellite offices? I'm just curious what you guys are hearing on the ground.
I think Steve can talk to the San Francisco specifics. I think there's been a lot of talk over whether or not office is going away or not. I think the consensus is that things are going to work differently, that the majority of people, 75%-90%, depending on the survey you look at, want to go to work. They want to separate their home life from work. I know I personally do because it just becomes very odd to live your life in a constant state of work. The advantages are becoming more and more apparent. It's very difficult to train people when they work from home. You're onboarding people on a Zoom. Very difficult to transfer your culture. How do you celebrate a win? How do you commiserate a loss?
You're not going to just get on Zoom and say, "Hey, let's celebrate." You're in the office, something great happens, you high-five your colleagues, everybody goes and gets a cup of coffee or whatever, and talks about it and just develops a bond. That does not work on Zoom. Same thing when you lose a deal. The debrief, the commiseration. What did we do wrong? How can we do better next time? Ideas, strategies in front of a whiteboard. One of my rare trips into the office recently was to meet somebody so we could get on a whiteboard because we needed to storyboard a presentation, and you just couldn't do it on Zoom. I think companies are going to realize that for retaining employees, they're going to have to establish a culture with those employees, because otherwise it just becomes a battle of salary and benefits.
If people don't really feel connected to the company, why should they stay there if somebody else is offering a few more shillings? I think you're going to hear more and more about that as I think we've done really well as a business community in the U.S. in managing productivity and keeping it going. I think cracks are starting to appear, and that's what that article kind of goes into. I don't know, Steve, if you want to talk about the tech companies.
Thanks, Peter. James, Steve here. If you look at tech demand from San Francisco down to the peninsula, say Palo Alto, as I referenced, it has fallen by about half. We had a little over 7 million sq ft of demand this time last year. Now it's about 3.5 million. I think a lot of that is as a result of exactly what Peter is saying. People are navigating this. In the scheme of things, it's still kind of early innings as to the outcome. We're certainly monitoring it closely. Having said that, the context is, SoMa, for instance, now has a 4% vacancy rate versus 1.3% vacancy rate. When you've got big floor plates, kind of lower mid-rise construction in those areas, which is probably more desirable COVID-wise. The peninsula has gone from 7%- 9.9%.
In a relative context, it's still healthy there. I talked with somebody this morning who had a little bit of insight into Google's stay at home till summer 2021, and their understanding, chatting with people at Google was it's really primarily driven by the school year. They were trying to provide certainty to families as the next school year is still highly uncertain. Ultimately it's voluntary at this point. We're monitoring it closely. We are getting direct intel. I think it's still kind of early innings, and we'll keep everybody updated as it unfolds.
Okay. Thank you. Congratulations on the quarter.
Thank you, James.
Our next question will come from Anthony Paolone with JPMorgan. Please go ahead.
Okay. Thank you, and nice quarter. On the tech demand side, you mentioned down 50%. Can you talk about whether that has any impact on how you're looking at any of the developments in your pipeline? Was anything dual track, or does it make you change directions on anything that you were planning if that piece of the demand picture pulls back?
Yeah, I think in general, no.
Okay. In terms of you all increasing your net investment activity as you look to the back half of the year, but you also talked about just the amount of capital out there that has paid some big numbers for deals, and it just seems anecdotally that there's a lot of folks that certainly like your business right now. How did you think about just increasing the capital deployment, returns, and what have you been seeing in terms of competing to buy product, whether it's land or existing assets in this environment?
That's a pretty broad question. I don't know. Maybe try to be more specific if you could, because I'm not sure we want to get into acquisition pipeline discussions or things like that until we can actually disclose something.
Yeah, just trying to bridge sort of what seems to be more capital being pointed towards your markets and your space.
Well-
At the same time.
Yeah, I mean, I think.
driving up activity.
Yeah, I think, the three sectors generally people are seeing today that have been fairly COVID resistant or resilient is obviously logistics, data centers, life science. There are others, but those have been the primary ones. It's natural for people to think about, how do I do this? It's a lot more difficult in a sense because it's not like a company is moving into a generic office. These are fairly mission-critical facilities for companies and entities, and they're pretty picky about locations. They're pretty picky about the details of the improvements and the deliveries and the certifications and things like that, and how they're going to operate. There may be money and so forth, but if people mess up, they won't be given a second chance by tenants, that's for darn sure.
When you have millions of dollars of experiments at stake, it's different if you're JPMorgan in an office versus a COVID therapeutics company and something goes wrong. That's kind of a perspective.
Okay. Thank you.
Our next question will come from Tom Catherwood with BTIG. Please go ahead.
Thank you. Good afternoon, everybody. Following up on Tony's question on acquisitions. Joel, last quarter, you had been, maybe we'll call it a little cagey on the potential for acquisitions to ramp back up, especially with maybe more product coming to market. My question, given that obviously you acquired a bunch this quarter and there's more to come and you raised guidance. The additional acquisitions, were those primarily ones that you were already looking at prior to COVID, or were those acquisitions that have come up kind of since COVID? The second part to that is, what do you think the opportunity set looks like moving forward? Is there a chance for kind of more assets coming on? Is there any chance for distress out there in the acquisition field?
Well, first let me correct the characterization. I don't think I was being cagey. I think, honestly, when we reported the end of April, I think, in the first quarter, think about we had only been shelter in place for 45 days. When the executive management team looked at our balance sheet, which is in great shape, and looked at our prospects, our pipeline, we wanted to be really careful having lived through 1999, 2000, having lived through 2008, 2009. We wanted to be very careful about, really reining back our commitments, we did do that in a very thoughtful and careful way. I don't think it was caginess at all. It was really one out of concern that we don't know what this thing is. We know what it is, we don't know what damage it can do, COVID-19.
We had no real information from China as to what went on there in places that were hard hit and so forth. It just was a very non-transparent situation. None of us had any idea what it was going to happen. We had to be very conservative about our go-forward game plan. I think as time wore on into the second quarter, and it was clear that the industry was really being marshaled to really come up, as Jenna talked about, whether it's testing, the diagnostic side, therapeutic side, and importantly, the all important vaccine side, the government's real ramp up, especially on this Warp Speed project on the vaccine or Warp Speed project. I think it gave us better confidence that we could ease our concerns and go back to a more growth plan, but still, I think, carefully guarded.
Some of the acquisitions don't hang on for months and months. I'm not sure there were a lot that were before that we may be still looking at, and there are processes that go on. I think, from time to time, people see a pretty buoyant real estate market. Peter cited pretty low cap rates on secondary location assets that are pretty strong. People are thinking of maybe trying to exit, or other people are trying to come in. I think we've just tried to be super thoughtful and super smart and disciplined, most importantly. We learned that from the teachings of Jim Collins about what we do and how we do it. The Arsenal that, I think, Peter, Steve alluded to, campus that we bought last quarter in Watertown is a great example.
I think that's how we have journeyed through this last couple of months.
That's completely fair, the conservative classification is much better than the one that I gave, and you're absolutely right with that. Along those lines, Joel, Seattle has obviously been a key area of growth for you guys over the last few years. Most of your portfolio has been focused in the South Lake Union submarket. This quarter, you disclosed some previous acquisitions in the Pioneer Square submarket, and it looks like you've added a substantial development site outside of your core markets in Seattle as well. Can you kind of speak to your investment strategy in Seattle and maybe what's driving you or what you're seeing in other submarkets that's increasing your interest?
Well, let me say overall in Seattle, we have an important presence there. We started back in 1996, so we've been in that market for a long time, and it's an important market for us. It is one of the markets that, thankfully, has taken advantage of the confluence of life science and information technology. We just topped out Adaptive's building on the lake at East Lake Union, 1165. We're building for them, and they have a big joint venture with Microsoft focused on COVID-19 issues. We have a very small presence in Pioneer Square that we kind of put our toe in the water a couple of years ago. I think the most recent acquisitions are south of that, so they're really not in Pioneer Square. They're more really in the stadium area, and those are more long-term kind of thinking.
We just want to be careful because Seattle's been one of those hot spots for civil unrest, and some people have attacked, I think, without any real fair balance. They've gone after Amazon and Starbucks. Starbucks certainly is one of the most heralded and great companies. Amazon certainly is. Starbucks in particular has done a great job for, I think, people. You see some of that stuff that's pretty disconcerting. We hope that comes under control and that the city and the state really try to really go forward with a very positive game plan. I think it's a little bit of a wait and see on some of those things. That was a little bit forward-thinking. I'm not sure those wouldn't be coming into development in the near term for sure.
Understood. Thank you, Joel.
Yep.
Our next question will come from Rich Anderson with SMBC. Please go ahead.
Thank you. Good afternoon, everybody. I just want to make sure I kind of understand this. When we talk about a vaccine and the duration by which it would maintain antibodies and thereby protect people from the disease. I've heard in spots that it could be maybe six months where you'd have to go twice a year to get another kind of booster. Correct me if I'm wrong on that, number one. Number two, would that be a good thing from your tenant's perspective or a bad thing? I'm trying to sort of triangulate how permanent a condition COVID-19 will be for the underlying workings of your tenants. If a vaccine happens and it's like a measles vaccine, it's good for life, maybe things go back to normal in that regard. I'm just curious if you can sort of, kind of explain that logic to me.
Yeah. I'll have Jenna answer that in a second, but let me just say that each of the three most advanced candidate cases that she talked about each have varying antibody immunity. I think Moderna probably is shown among the best, no one really knows at this point the duration. Remember, much like everything in life, there will be, and certainly in the biotech and pharma area, there will be dramatic improvements. There'll be vaccine two point oh, three point oh, four point oh. I wouldn't get too hung up about one point zero. Jenna, you want to maybe comment on Rich's question?
Sure. Hi, Rich. Yeah, on the booster question, I think, the idea is there likely will need to be a booster for some of these vaccine programs. I don't think that that is necessarily a bad thing. I think Joel kind of hit the nail on the head that we really just don't know. This virus has only been known to us for six months, seven months, eight months. We really need to learn more. I think, as far as these vaccines in general, I do think that this will be, if approved, they will be a revenue stream for our tenants for the foreseeable future. I also think that the knowledge that has been gained and the approach to vaccine development in general that has been gleaned from this experience will be absolutely lasting.
Will poise a lot of these companies to develop additional products thereafter.
Great. Thanks, Jenna. I kind of asked a version of this last time. Let me ask it again. Have you seen a change in how your tenants are sort of attacking the situation, reallocation of IP, or hiring more people? Is there more demand for space because of COVID-19 juxtaposed to their core drug research business that was near and dear to them before COVID-19? I'm just curious if this has all created more manpower within your buildings.
Yeah. I think the answer is a simple yes. I think it's an add-on. It's a bolt-on. Some companies, it's dramatic. Other companies, it may not be existent. In other companies, it may be more minor. The answer is yes. The amount of money going into this, because think about there's testing, all kinds of diagnostics. You've got the holy grail of therapeutics and vaccines. Remember, COVID-19 isn't likely to be the last infectious disease agent that we see. I think people worry about. The big worry would be, would somebody try to weaponize these things? You get into a whole government need to prevent or to stockpile anti-biological agents. This is a big thing that's going to go on for quite a while here.
Okay. Then to Peter, last question. You mentioned some of the investment activity happening around your portfolios. Are you seeing any different money come in capital-wise, looking at these life science assets? Or is it pretty much the same players, just being perhaps a little bit more aggressive in the space?
There's been a pretty large cohort of investors that we've been tracking ever since we started selling assets in 2013. I don't think the mix of them has changed much. It's just they're probably a little bit more aggressive today.
All right. That's all I got. Thanks very much. Great quarter.
Thank you very much.
Our next question comes from Dave Rodgers with Baird. Please go ahead.
Hey, Peter, you mentioned earlier that construction timing was really not having a big impact on your yield returns, expectations, costs, et cetera, which was great. Maybe take it a step further. Is there anywhere where this kind of work at home environment for cities is causing zoning or entitlement issues? How do you look at construction costs and the impact on kind of zoning entitlement and construction costs on that next wave of development? Any thoughts on that?
Yeah, it's funny. It's like two things that just offset each other. On the one hand, there's less staff, and we are submitting plans for permits and things, and they're going to people that are working from home. That would say, geez, inefficiency, timing delays. On the other hand, nobody else is developing really much anymore. The activity is down. I think that net, we're going to be fine as far as getting our permits and things like that. To the extent that something needed to be done in a public hearing or something, it could get a little tricky, but so far, we've been able to get through those hurdles.
On the construction cost side, any early reads on where that might be as you're buying kind of the future jobs?
Yeah, we actually have been analyzing that in detail. I know Dean and I have both been looking at it. It's all theoretical right now, that the pace of work could slow down, taking pressure off material and labor costs. I will say we haven't seen it yet. It wouldn't be unreasonable to think that at least costs would flatten out.
Fair enough. I think in your release, there was a comment about maybe a project that you guys had written off that you were acquiring, that you decided not to acquire. I read it as maybe being incremental to the one you discussed on the last call. If it's the same, then it doesn't matter. If it was incremental, any details? Does that have maybe more of an office component or more retail to it that just you couldn't get comfortable with?
I think it was the same thing. We just did that one.
Yeah, it was the same one.
Right.
Okay. I wanted to double-check. Thank you for that. Dean, moving on to you. I think $29 million of free rent burn-off you mentioned, coming from leases that have started but not burned off that free rent yet. Is that in the second half of this year? We get that next year?
I think for the most part, it is being absorbed over about four quarters, Dave. Generally, those numbers we update every quarter, and on average, almost all of it's rolling in over four quarters. The number is updated the next quarter because some has come in, and some deliveries may have occurred. Over time, it's a different mix. Historically, it's generally been burning off over four quarters.
Great. Lastly, Dean, maybe with you again on maybe guidance around the realized gains for the second half. I know it's really what you guys choose to sell. It's how you get there. You've made a lot of money in the business. You give really good disclosure about it in the supplement. It's running about, if you annualize the second quarter, it's about $0.55 a share of earnings. Any thoughts on how that would kind of play out in the second half with the strong market that we've seen so far? Do you anticipate continuing to sell?
Yeah, I think pretty consistent, Dave, with what I've mentioned over the last few quarters. The portfolio's done well, and I think you pointed that out. The run rate I touched on specifically, it's averaging $15.3 million per quarter, maybe a little bit upward this quarter at $17 million, approaching $18 million. That run rate historically, I think, is a good view for how you should think about the run rate over the next number of quarters. I think it's prudent for us to monetize some of these investments at this point. We've made money. Some of them, we believe strongly in, will make more money, so we're going to hold a number of them. I think it's prudent to prune. You should have a decent run rate looking forward.
Okay, thanks for that. I don't know if this last one maybe for Steve, I'll just throw one more in. I think you have about, and I might ask something similar to last quarter, but 420,000 sq ft of leases still expiring this year that are negotiating, it looks like, or that maybe have an unclear resolution yet, another 1.1 million next year. I realize that you have a lot of small leases in there, and it's kind of hard to get visibility far out on those. In terms of what's yet to be committed, is there anything known to be moving out besides those redevelopment assets? Are you feeling really good about the remaining renewals?
Hey, Dave, it's Steve. We've just got about 3% to resolve back in the second half of the year here. We started at 6.7%, we're already 60%-70% through that. We've really just got three different suites, San Francisco, Boston, San Diego, that are in excess of 70,000 sq ft, nothing overly challenging. I think we're making good progress on one of them. Another one, I think we'll be able to reposition successfully. Nothing to be too concerned about there in 2020, for sure. 2021, again, when you look at the early renewals, we've only got 5.7% of rollovers happening in 2021. We'd expect kind of consistent with what we've seen historically with early renewals and just a handful of any size over 70,000 sq ft, just a couple there.
Thanks for the added detail. Appreciate the answers, everyone.
Yep, thank you.
Our next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.
Yeah, thanks. Peter, can you provide some color on the recent and the pending acquisition? I guess specifically, there's a fairly large pending bucket, I think totaling about $780 million. How far along is the company on these negotiations? Have these deals already been awarded to ARE and it's just a timing issue right now?
Yeah. Let me jump in and say, I think we'd prefer not to comment on those. Just, I think Dean mentioned, stay tuned for third quarter. I just can't do it at the moment.
Okay. I guess, on some of the assets that you've acquired, obviously the recent acquisitions, there's a lot of future developable sites. I guess, what's the timing typically on these types of properties, and when do you expect to start breaking ground? Is there a plan there?
Yeah, every one is totally different. If you looked at two examples I mentioned, the question on Seattle, that's more a into-the-future development site. If you compare that to, say, the Watertown, that would be maybe more in the near to medium term. Each one is different based on the campus, the location, what's going on, demand, what's going on in that market. There's no general way to generalize. Each one is highly specific and kind of cultivated.
I can confirm that we know that going into it. We put a lot of carry costs into our future basis as we underwrite these things.
Okay. I think that you did a pretty good job, I think in the supplement, you talked about the % of, I guess, covered land plays that you have. Is a lot of these deals that you're looking at now, too, that you're willing to have maybe a little bit of longer development time till you have the covered land plays?
Yeah. Again, each one is different, so let us not characterize anything at the moment. Sorry about that.
Okay, great. Thanks.
Yep, thank you.
Our last question today will come from Tayo Okusanya with Mizuho. Please go ahead.
Hi. Yes, good afternoon. Congrats on a great quarter. I just wanted to kind of talk a little bit about acquisitions going forward. In the past year or two, a lot of acquisitions have kind of focused very heavily on purchasing assets that have a lot of future development potential. Is that the way we should still be thinking about acquisitions going forward? Do we kind of start to see acquisitions of kind of more operating assets going forward?
Yeah. I think Mike Carroll just asked that question maybe in a different way. I think every situation is different. We don't want to characterize anything at this point. I'm not sure it's good to think about one way or another. Just they'll be what they'll be, and they'll stand on their own. Let's just wait for each one to unfold as appropriate.
Sure. Thank you.
Yep, thank you.
This concludes our question and answer session. I'd like to turn the conference back over to Joel Marcus for any closing remarks.
Yep. Just thank you, everybody. Please stay safe and be well, and we'll talk to you on the third quarter call. Thank you again very much.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.