Earnings Call: Q1 2018

May 1, 2018

Good day, and welcome to the Alexandria Real Estate Equities First Quarter 2018 Conference Call. All participants will be in listen only mode. Please note, today's event is being recorded. I would now like to turn the conference over to Paula Schwartz with Investor Relations. Please go ahead, ma'am. Thank you, and good afternoon, everyone. This conference call contains forward looking statements within the meaning of the federal securities laws. The company's actual results might differ materially from those projected in the forward looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission. And now I'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel. Thanks very much, Paul, and welcome everybody to Alexandria's Q1 call. And with me today are actually much of our executive management team, including Steve Richardson, Peter Moglia, Dean Shigenaga, Tom Andrews, Jennifer Banks, Larry Diamond, Dan Ryan and Vin Ceruzzi. Congratulations to the entire team on a really outstanding Q1 by all metrics and another quarter of truly operational excellence. In the November December 2017 issue of the Harvard Business Review, they had an article entitled Turning Potential Into Success. And the article and the research on which it was based focused on companies that are overwhelmingly failing on one key metric of success, which is leadership development. In contrast, I'm proud to say Alexandria is not failing on this key metric for success. In fact, our intense focus on nurturing, teaching, training and developing unit leaders at each and every level has paid exceptional dividends and fostering our culture of mutual respect, idea meritocracy, long tenured and high performance teams, dear friendships, all within a highly focused mission driven culture. In July 2016, we initiated world class intense leadership and management training effort under the leadership of Jim Collins. A new succession planning strategy was also begun at all unit leader levels as well as at the executive management level. As you know, some of these efforts culminated in a series of press releases in March April, and there are some yet to come. The same starting team remains on the field, as I've said before, albeit at different positions and not a single unit leader or executive manager ever considered departing. When it came to the most senior executive leadership, the process was uniquely holistic and the outcome is evidence of the continuation of the Alexandria culture vision and intended successful accomplishment of our 5 year growth plan 2018 through 2022. Let me turn to our ecosystem for a moment or 2. The 5 fundamental drivers impacting the life science demand. First one being basic research funding, the new omnibus spending bill allocated an additional $3,000,000,000 to the NIH, up 9%. So for the fiscal year ending 2018, it will be about 30 $7,000,000,000 plus On the regulatory side at the FDA, they're working very positively to expedite and increase drug approvals under the superb leadership of Scott Gottlieb and the omnibus spending bill allocated almost $500,000,000 or up 10% in FDA funding. Medical Research Philanthropy sits at an all time high north of $33,000,000,000 Global commercial R and D funding sits at an all time high approaching $200,000,000,000 And on a very unique note, I'm proud to say the U. S. Venture capital funding in life science for the Q1 hit 6,700,000,000 for life science venture funding. And among the life science companies doing mega rounds, 2 were TCR2, which did $125,000,000 Series B and is in our 100 Binney project in Cambridge, next gen immuno oncology company and Rubius, dollars 100,000,000 Series C. They're going to be at 399 Binney next generation cell therapy. Also San Francisco and Boston continue to garner the largest venture funding amount, San Francisco at 1.7 $1,000,000,000 and Boston at 1 $600,000,000 Venture funding is seeing a new wellspring in a diverse set of players that go well beyond traditional venture firms including public crossover investors, Asian venture funds, sovereign wealth funds and ultra high net worth family offices. Worldwide prescription drug therapy market is growing at about 6.5% compounded annually and will reach $1,060,000,000,000 by the last year of our 5 year growth and operational excellence plan in 2022. Companies which were startups now account for an amazing 63% of all new prescription drug approvals over the last 5 years. And it's no wonder that pharma has now established venture arms and incubators to invest in these promising startups working on new drug technologies. Finally, I want to make a comment about ARA Investments and Dean will give you granular analysis of this. This effort and key pillar of our business was started when we were private in 1996. Our single best investment today was our Series A and Google in 1998. Today, this pillar continues to be strategically core to what we do at Alexandria. On unlocking the secrets of ALS, a disease which killed Lou Gehrig and remain shrouded in mystery even today. As I've stated before, there are about 10,000 known diseases to mankind today and only about 500 or 5% have addressable therapies. So we're in the real early innings of the biology revolution. And with that, let me turn it over to our new Co CEO, Steve Richardson. Good afternoon, everybody. Let me talk a little bit about the vision for 2018 2019. As we continue building our dominant franchise well into 2019, the path is clear and compelling. Alexandria's business model based upon Michael Porter's cluster theory of creating dynamic ecosystems upon its Class A Science and Tech Urban Campuses is providing exceptional value for our client tenants and our investors. Let me take a step back and share a bit of the philosophy behind our strategy and exciting path forward as it's comprised of 3 essential elements: great people, a passion for excellence, and engaging with purposeful companies. The first element, great people. The entire team at Alexandria possesses unique skills and talents to acquire, entitle, design, construct, underwrite, lease and broadly operate these technical and complicated mission critical facilities. And the following sentiments from our clients speak volumes about their dedication and passion for our mission. From a large pharma company, We're excited to be working with ARE, integrated teams committed towards common goals and optimal design for our science in a high quality facility. From an exciting high growth life science company, ARE has been a great partner as the company has grown from 3 founders to over 250 employees. And from a leading tech company, Ari has ensured our vision of a tasteful workplace environment was achieved as a wonderful partner. We could not be more proud to serve the company's mission of advancing human health, overcoming hunger and improving the quality of people's lives alongside one another together. So for us, job number 1 is ensuring we continually enhance our differentiated and proprietary products and delivering high touch unparalleled service to our clients. A passion for excellence. As we're building brick by brick the ecosystems in our core clusters, it demands an intensity that can only be fueled by a passion for excellence in all realms. It's important to emphasize here that 2,300,000 square feet in our urban campus development pipeline is 81% leased and the client tenants range from the best of the best tech tenants to investment grade pharma companies to exciting emerging stage life science companies. A bit of a deep dive here during 2018, these Class A facilities include the 164,000 square foot facility fully leased to Takeda in San Diego, an inspiring and cutting edge facility. The exceptional pre leasing success, we're now at 75% at 399 Binney, also 164,000 square feet, providing a platform for well financed emerging stage companies. And in the Southeast region in RTP 5 Laboratory Drive, our very unique 175,000 Square Foot Flagship AgTech Facility featuring state of the art greenhouses. As we look forward well into 2019, the high quality Invisible Growth continues and is well distributed across a number of key clusters. Menlo Gateway's Phase 2 comprised of 520,000 square feet, fully leased long term to Facebook, which just posted a strong earnings beat with $12,000,000,000 in quarterly revenue, up 50% year over year and a market cap of $510,000,000,000 In San Francisco, Uber's 590,000 square feet at the championship Golden State Warriors, go Warriors, Chase Center in Mission Bay, a transformational urban campus and transformational company featuring a bright future with its new well regarded CEO. In South San Francisco, 213 East Grand, cutting edge innovation center totaling 300,000 square feet fully leased to Merck. And just down the road, a 4th building now totaling 211,000 square feet at 279 East Grand anchored by Google's Verily division as part of their 600,000 square foot campus alongside East Grand Avenue in South San Francisco. At 681 Gateway, 126,000 Square Feet anchored by an expansion with an existing client Twist Bioscience as they're at the intersection of science and technology with its creation of synthetic DNA. Further north in Seattle, our spectacular waterfront 205,000 square foot facility at 18/18 Fairview and importantly in Maryland, a 49,000 square foot facility at 9,900 Medical Drive and the remaining 58,000 square feet at 704 Quince Road. And finally, the essential ingredient, engaging with purposeful companies. All of us here at Alexandria are honored to be a trusted partner and regarded as one to leading edge companies working to improve human health, including Juno Therapeutics, which was recently purchased by Celgene for $9,000,000,000 during the Q1. Our first our anchor and full building tenant at the 290,000 square foot facility in Seattle and our promising CAR T cancer treatment. Joel just mentioned Curalis, a company launched by notable Harvard professors taking a precision approach to treat ALS. And back on the West Coast Vir Biotechnology seeking to transform the care of people with serious infectious diseases. I can speak for our entire team when I say that we're energized by the absolutely clear and compelling vision of our future as we continue to build dominant positions in these core clusters for the benefit of our clients, communities and investors. I'll hand it over to Peter now. Thanks, Steve. I'm looking forward to working with you for another 20 years. Really appreciate those comments. We'd like to briefly touch on our acquisitions last quarter. And as a reminder, our investment philosophy has been and will continue to be a strong preference to add value rather than paying for another company's value creation. Our acquisitions this quarter reflect this philosophy and our historical track record of building dynamic communities through urban campuses. Alexandria Park is a multiple building generic office project in Palo Alto, the heart of the Greater Stanford cluster that will undergo a transformation to a fully amenitized life science and tech campus, creating a highly desirable collaborative destination. 704 Quince Orchard Road in Gaithersburg, Maryland will create a highly differentiated set of laboratory suites from a generic office building. Summers Ridge in San Diego is a rare opportunity for Alexandria to acquire a multi tenant life science campus that is stabilized with credit tenancy, providing immediately accretive income plus the additional opportunity to create value with additional FAR for future campus expansion. 100 Tech Drive in the Greater Boston market is a 200,000 square foot facility leased by a fast growing high quality existing Alexandria tenant and also provides for future value creation with an additional 300,000 square feet to create a fully integrated 500,000 square foot campus. In addition to our acquisitions, it is important to note 2 recent laboratory office transactions that illustrate the property values and institutional demand for our product continue to be very strong. The Real Reporter in Boston reported last Monday that 4 Black Fan Circle, a 270,000 square foot life science research facility in Boston's Longwood Medical Area sold to investment advisor InterContinental Real Estate Corporation for $275,000,000 We understand that the cap rate was in the high 4s, which is particularly impressive since the real estate is held in a somewhat complicated condominium structure. The article mentions that the asset was aggressively pursued by investors from across the globe. This is the first time we've heard of InterContinental being a bidder for a life science asset, but it's further proof that strong returns and credit profile of life science assets continue to attract global institutional capital. We have also recently been made aware of a sizable laboratory office transactions in the Cambridge market that has recently closed at a mid-four cap rate and expect details to come out shortly. A metric we'd like to highlight this quarter is the continued strength of our cash NOI and leasing spreads. Cash rental rate growth increased by 19% this quarter, primarily driven by the successful execution of our strategy to re lease below market rents at our Alexandria Center at 1 Kendall Square Campus, where the team continues to outperform the expectations we set at the time of acquisition. To finish up, we'd like to comment on the potential impacts of tariffs on the solid development pipeline Steve described earlier. With GMP contracts in place for all of our large projects to be delivered in 2018 2019, we will not have any exposure to increasing costs from tariffs unless there is scope change involving those materials, which is not anticipated. And although we source all of our steel domestically, our contractors have reported cost creep of 6% to 10% or $100 to $300 per ton as domestic providers have raised prices. This would translate to an overall 1% increase in total project costs if applied to our current projects. We also have adequate contingency to cover anything that comes along. We have not seen price increases in aluminum yet. We sourced most of it domestically and the rest comes from Canada, which is currently exempted from tariffs. Overall, our conservative underwriting has historically factored in construction cost increases and we continue to monitor the trade policy closely. And with that, I'll pass it over to Dean. Thanks, Peter. Dean Shigenaga here. Good afternoon, everyone. I just want to cover 4 key topics today. 1st are 1, Q1 results 2nd, review of the new accounting rule for equity investments 3rd, our venture value creation pipeline and our balance sheet and 4th, our 2018 guidance. As you know, we are off to a great start this year strategic priorities, on track to achieve another solid year of FFO per share growth of approximately 9%, and our team continued to execute quickly and efficiently. FFO per share for 1Q was $1.62 up 9.5% over the Q1 of 2017. Net operating income was up $34,600,000 or 17.8% over the Q1 of 2017. Comparing 1Q 2018 to 1Q 2017, the key drivers of the 17.8% growth in net operating income included almost 70% from development and redevelopment deliveries, about 20% from internal growth or same property performance and the remaining 10% primarily from acquisitions. Same property growth has been consistently strong and net operating income growth was up 4% 14.6% on a GAAP and cash basis, and we're on track with our overall 2018 guidance of up 3.5% and 10% on a GAAP and cash basis, respectively. Continued constrained supply and strong demand drove solid rental rate growth of 16.3% and 19% on a GAAP and cash basis, respectively, on leasing activity for the Q1. As Peter had mentioned, our 1 Kendall Square campus located in Kendall Square was a key driver of leasing activity for the quarter. Cash rental rate growth was ahead of expectations as our team executed on lease renewals and releasing a space at 1 Kendall Square, capturing significant cash rental growth related to below market leases that were in place at acquisition. However, GAAP rental rate growth was below cash rent growth this quarter since most of the GAAP rent growth was recognized in the initial purchase price accounting at the acquisition date. As a reminder, the beginning of 2018, we had very limited contractual lease expirations of approximately 5.8% of total leases in effect. As anticipated, we adopted new accounting rules around financial instruments, which applies to our equity investments, primarily in life science and a handful of technology entities. The new rule requires that we measure investments at fair value, recognize changes in fair value in net income. And prior to 2018, we did not recognize unrealized gains or losses in net income. As noted by Warren Buffett in his 20 17 annual letter, this new accounting rule will likely generate $10,000,000,000 swings in net income that will swamp truly important numbers for Berkshire's operating performance. Buffet also stated that what counts most is their normalized per share earnings power. We agree and we will clearly disclose the impact of our equity investments on our financial statements and normalized operating performance. We have 3 categories of investments from an accounting perspective. 1st, we've got publicly traded securities reflect at fair value based upon the closing stock price with changes in fair value recognized in net income. There are 2 categories of privately held or investments in privately held entities without readily determinable fair value. First, there are investments in entities that report net asset value and are carried at approximately fair value based upon net asset value as a practical expedient required under GAAP with changes in fair value recognized in net income. We also have investments in entities that do not report net asset value and are only adjusted upward or downward for observable price changes subsequent to 2017. These upward and downward adjustments are recognized in net income as well. Reflected in net income for the Q1 is $85,000,000 of investment income. Dollars 72,200,000 represents changes in unrealized gains, which was excluded from FFO per share as adjusted. We also had a large realized gain of $8,300,000 from an investment in the life science entity. And consistent with prior years, large and individual realized gains like this one have been excluded from FFO per share as adjusted. So only $5,100,000 in realized gains in the Q1 was included in FFO per share as adjusted. Looking forward, some of our investment gains are invent driven and therefore it's hard to forecast our gains for the future. However, I do recommend looking back over recent years in order to have some sense of the amount of potential gains for 2018 and beyond. In most of the recent years, the run rate for investment gains and other income has generally been between $10,000,000 $25,000,000 per year. In this quarter, the $5,100,000 in ordinary course realized gains included in FFO per share as adjusted, when you look at it on an annualized basis, falls within maybe on the upper end of this historic range of investment gains and other income. From a balance sheet perspective, it's important to note the following under the new accounting rule. We hold $724,000,000 in investments on our balance sheet, consisting of cost basis of $511,200,000 and unrealized gains of $213,100,000 Importantly, only $250,500,000 or 49 percent of our cost basis has been reflected at approximately fair value with unrealized gains aggregating $213,100,000 or really an amazing 85% of unrealized gains on our total investment. Now the remaining $260,700,000 or the remaining 51% of total cost basis in our investments are still classified on our balance sheet at cost. So it's probably inappropriate to extrapolate the 85% in unrealized gains to this half of our equity investments, but we believe there is significant value embedded in these investments. And please refer to footnote 2 and footnote 6 of our 10 Q that we will file shortly and Pages 4350 of our Q1 supplemental package for additional information. Now turning to our value creation pipeline and our balance sheet. Our pipeline for deliveries in 2018 2019 now consist of 2,600,000 rentable square feet, including 2,100,000 rentable square feet targeted for delivery in 2019. These are about 80% leased, represent about $1,800,000,000 at completion and $1,000,000,000 remaining to fund and will generate very strong cash yields and our total investment approaching 7%. We also have a pipeline for potential delivery in 2020, approximating over 900,000 rentable square feet that our team is currently marketing for lease. As for funding, keep in mind that our in the Q1, we completed our $817,000,000 forward equity offering, including $714,000,000 that will settle over the next three quarters. Additionally, in April, we raised $94,000,000 under our ATM program and now have addressed 75% of our equity needs anticipated in 2018. Over the next three quarters, we will address the remaining $300,000,000 of equity that we need for the year. Our approach with our ATM program is to remain disciplined. Putting aside macro considerations for the moment, given the tremendous growth in cash flows, our stock price generally has grown on a relative basis to other REITs. While we take this into consideration, we also remain disciplined in our approach with our ATM program and generally have used the program over time through each year, allowing us to blend our cost of equity capital. Turning briefly to credit metrics. We remain very committed to continued improvement in our credit metrics each year, including net debt to adjusted EBITDA, while we also focus on delivering solid FFO per share growth. Our goal remains focused on continued improvement in our relative long term cost of capital. As a reminder, our detailed assumptions for our 2018 guidance are included on Page 5 of our supplemental package. We updated our guidance for EPS to a range of $2.88 to $2.98 and FFO per share as adjusted to a range of $6.52 to $6.62 The range of our per share guidance for 2018 was narrowed from $0.20 to $0.10 per share. Importantly, the midpoint of our 2018 guidance for FFO per share as adjusted was increased $0.02 at the midpoint. The key drivers for 2018 that we considered in our updated guidance included the continued strength of the real estate and life science industry fundamentals, which we expect to continue to drive strong internal growth in 2018 and then value creation opportunities for delivery beyond 2018. Our outlook is reflected in our 2018 guidance for same property NOI growth. However, due to the size of our same property pool today, which generates $700,000,000 to $800,000,000 of net operating income, dollars 0.02 growth in FFO per share only moved same property NOI growth by about 30 basis points. As a result, our outlook for same property performance remains strong and within the prior range of guidance for 2018. With that, let me turn it back to Joel Marcus. Thank you, everybody. We'll open it up, operator, for Q and A, please. Thank you. We'll now begin the question and answer session. Today's first question comes from Manny Korchman of Citi. Please go ahead. Hey, good afternoon, everyone. Peter and Steve, just as you sit there in the co CEO role, how do you each think about the differentiation and also overlapping your roles and how you manage through those situations where it seems like there is an overlap in what the CEO should be deciding? Okay. This is Joel, and I'll let each of them comment. But I think that the fact that the team has worked together for almost 2 decades and the fact that we don't have an org chart and we aren't bureaucratically organized make it very easy to move between issues and manage in a way that is highly effective. So I'm not sure they can give you or want to give you any granular detail, but it's a pretty seamless operation. Steve, you could comment. Manny, hi, it's Steve. Yes, it is important for everybody to remember, Peter and I have worked together for 20 years and frankly that's the same across the executive team as well as the number of people in the organization. In addition to that for 7, 8 plus years, Peter and I in the roles we've had as COO and CIO have been involved with the breadth and depth of the company as we will be as co CEOs. And we've actually been doing exactly this for a number of years. So there's nothing substantially different. We've worked through these issues and we'll continue to work through them with Joel and with the team and with each other. I have nothing left to add. My distinguished colleague from San Francisco has nailed it. That's what the coal roll is all about, right? Peter, while I've got you there, the pending acquisitions that you guys show in the supplemental, are those similar sort of flavor as the stuff that you've identified as closed or closer? Yes. It's a combination of existing assets with value creation embedded in them and then development, redevelopment types of properties. And just likelihood of close on that 268,000,000 dollars Highly likely to close all of that. Okay. Thanks everyone. And our next question today comes from Sheila McGrath of Evercore ISI. Please go ahead. Yes, good afternoon. I was wondering if you could discuss the other investments and talk about the strategic value of that arm for Alexandria, just the competitive advantages that it gives Alexandria either in underwriting or discussions with tenants. And then Dean, if you can just clarify the $5,100,000 in that flowing through, that's just the realized gains and that's the determinant? So let me have Dean address that first, Sheila, and then I'll talk about the strategy. So Sheila, the $5,100,000 that we kept inside of FFO per share as adjusted is realized gains and it's the normal realized gains that we have any given year, maybe slightly higher this quarter compared to the last couple of quarters, but on average, write down the fair write down what we normally have. Yes. And the item that Dean mentioned, the $8 plus 1,000,000 was the recognition on the sale of Juno to Celgene. So strategically, as I said in my comments, Sheila, going back to 1996 when the company was still private, we felt that it was important for us to do a couple of things in using our balance sheet to invest directly in entities that made a big difference. And Steve alluded to these differentiators. And that is 1, to really understand maybe most importantly where the science is going. And if you don't understand that, it's hard to even begin to think about the tenant base, how you underwrite, who you underwrite. So that's number 1. And I think number 2 is to be able to develop relationships with big winners and companies you can grow with over time. And so that becomes very important. Knowledge of the industry is critical. And so that's another bedrock piece of the investment strategy. Clearly, financial gains is also paramount. We don't do this as a hobby. We do it as a very serious financial both, I think methodical and judicious approach that we always want to ensure we're making money on, on a net basis. And I think also importantly, it brings us a level of, I think, respect and knowledge in our ecosystem that we're not just a minor player. We are in fact, one of the central players of the life science ecosystem. Next for Alexandria, New York? How far along is the option parcel? And are there any other locations or opportunities on the radar? So, we still have a little bit of space. We're moving people around there, but by and large, it's relatively fully leased. We are in late stage negotiations with the city on the letter of intent for the North Tower. We hope to maybe make an announcement over coming period of time. And then I think we clearly are looking at expansion in New York City and I would say stay tuned on that. Thank you. Yes. Thanks, Sheila. And today's next question comes from Tom Catherwood of BTIG. Please go ahead. Excellent. Thank you, guys. Following up on Sheila's questions on the investment book, I know it's only 4% of total assets, but the cost basis of this has increased roughly 40% over each year over the past 2 years. What's the ultimate size of this book in your mind, Joel? Or are there any restrictions on how large it can get as a percentage of total assets? Yes, I think you'll see the cost basis hover in the 4% to 6% of total assets. I think that's where it logically is and probably will remain and will certainly continue to recycle investments. They naturally recycle themselves to some extent, as Dean said, that really isn't a quarterly run rate that we've had for a long, long period of time. So I think that's kind of where you should think about it. Got it. Thank you. And then for Steve and Tom, probably the 2 of you, thinking of Cambridge, Kendall Square specifically and San Francisco, Mission Bay and probably even South San Francisco now, what are tenants doing in these tighter submarkets when they need to expand? And is there any material sublease space that can serve as a buffer for these companies? Tom, hi. This is Tom. Stephen, why don't I grab Cambridge first? Sure. So, yes, in Cambridge, companies are scrambling. I mean, they're having some challenges there. There's not a lot of subway space available. There's a little bit. And there are there's not a lot of space under construction. We've got a building 399 Binney where we've just finished negotiating a letter of intent for the balance of that building. We've had some tenant reconfiguration happening at Tech Square. And on the 1 Kendall Square Campus, we've benefited from the tightness, Tom, by virtue in the case of 1 Kendall Square, where we've had a number of spaces where we've been able to early terminate some tenants or reconfigure their leases so that we can access space for the many tenants who are looking for space in the market right now. And there has been some movement to other submarkets as relief valve space, Watertown, the Alston section of Boston and some on the Route 128 Beltway and a couple to the Seaport. But there continues to be very strong demand. We continue to take meetings with groups that are looking out 3 4 years now because that's when the next delivery opportunities for new construction are occurring and people are cognizant of the tightness of the market and therefore they are planning further and further ahead. Yes, I would echo very much what Tom said. We see certainly a strong impetus for early renewals. That's just an imperative for these companies to lock down space. Oftentimes, they've invested significant capital into the space. We've also seen that they are locking down adjacent blocks of space after the existing tenant lease expiration date. So forward committing to space 2 3 years down the road. And then finally, for the tenants that are ultimately displaced, we've been able to relocate a number of them in other facilities. South San Francisco is a good example at 681 Gateway to relocate and expand companies. So we're in daily contact with these tenants through our operating teams. And it's a high class problem, but it is something we work hard at every day. Hey, Tom, it's Peter Moglia. Just anecdotally, when you asked that question, the Seattle life science market is super tight as well. And one thing that we've seen is Juno continues to grow even after being acquired by Celgene and they actually have moved back into the building they moved out of as a strategy to expand. So just another thing that you can do today with new product being delivered is reoccupy your old product. Got it. Thanks guys. Thank you. And our next question comes from Rich Anderson of Mizuho Securities. Please go ahead. Thanks. Good afternoon. So I might have missed this, but what precluded providing at least an estimate of a return for a few of your Q1 acquisitions? If it was said, I apologize, but I missed the rationale there. The disclosures in our supplemental package on acquisitions are included on Page 4. Yes. Most of the returns that are available have been disclosed. I could tell you that we're working up the returns on the Greater Stanford asset as well as Quince Orchard. They are in process And I think What about those specific investments make them a little bit less visible at this point in time? We are looking at multiple scenarios in the Stanford asset, which could modify the returns just a tad. Lab or office. You'll find that the returns are going to be in line with what you would expect for that market. And then 704 Quince Orchard, same thing. We're working through different alternatives there, but I think you'll find that the returns are solid. And we will publish them at the right time, so stay tuned. Okay. Dean, you and I had a little conversation about this earlier in the week, but I thought I'd just put it on the record a little bit. In terms of the same store pool, can you talk about how that collection of assets is adjusted from one period to the next? And if you could provide any sort of data on how that might actually move the number around if it does at all by virtue of the fact that it's not a consistent pool from year to year? Yes. I think this goes back to Manny and Michael in the report that Citi issued probably about 6 months ago talking about I did not read that report. No offense to Manny and Michael. It wasn't that good actually. It was highlighting best practices around reporting and they did touch on a lot of great things we did, but what they did highlight broadly for the REIT sector is that there is some disparity in same property methodology. I do want to first say that we've been very consistent on how we report our same property pool, including a full reconciliation of the properties that are included and excluded. In fact, we did that one step further for multiple years. We actually showed the same property performance calculation on 3 different methods just to give the investment community some sense that there are alternatives. And we think we've chosen the most conservative, meaning the least inflated type of methodology, meaning that will drive the least amount of spikes upward in performance. Now getting to your question, the same property pool, we've looked at it consistently in the reporting period, Rich. And that period could be a quarter or it could be a year to date or a full year period. And it's applied in the sense that the asset has to be operating consistently for the entirety of the full period. Okay. Now the way I think the investment community and Michael and Manny highlighted it in their report was there was they were asking the question, if you take the sum of 4 quarters, if the quarterly pools are slightly different than the annual pool, do you get the same results for the full year? We looked back just out of curiosity to see what would change. It turned out there would have been a slight difference to 2017 same property performance, slight, very slight, directionally the same message. And coincidentally for 2016 and 2015, absolutely no change in the overall performance for cash and GAAP. So long way of saying, I think we're looking carefully at the question you've posed, Rich, to be sure that not only do we develop best practices in our disclosure here, but it also that the market evolves to a methodology that just makes sense for same property performance. So we're monitoring it and stay tuned is the best thing I could say. Okay. Last question. Joel, you alluded to more announcements to come. I'm not asking you to front run those announcements, but could you maybe give us a timeline and any kind of teaser on that at all? They will be probably over the in let's see, we're in the Q2. So during the Q2 would be a fair timeframe. Okay, great. Thank you. Yes. Thank you. And our next question comes from Jamie Feldman of Bank of America Merrill Lynch. Please go ahead. Great. Thank you. I know you had commented on the management changes and you guys have all worked as a team for a long time. But can you just give a little bit more clarity on the division of responsibility across the different levels in the C suite? So the if what you're asking is and I think we've shared this with probably we spoke to almost every analyst, I think, after the announcements came out. I think we said that just generally speaking, Steve would take over the bulk of my responsibilities on the investor outreach and so forth and team with Dean on that. And he would be granular in certain specific regions beyond San Francisco, which he does now. And Peter would be focused heavily as he is now in his role at CIO with all of the leasing and much of the internal growth as well as acquisition and obviously on the underwriting. And so I think that's broadly and he would be focused on a set of separate regions. So if you look at those things that take up the bulk of our time, that's kind of where the allocation of responsibility is. Okay. And then what about at the President level? Does anything change there? Yes. I think we said that both Dean and Tom would broaden their responsibilities and spend additional time in other regions for Tom and for Dean who would be more granular with some of the regional teams than he has been strictly in his role as Chief Financial Officer. Okay. And then it sounds like there's more to come. As we think about this year and even next year, just incremental costs from the plan by the time all the dust is settled and all the changes we've made? Yes. So I think yes. So I think we've said, we've shared with the analysts and we've certainly shared with a number of investors who followed up with us. And I think Dean has been very, very I thought pretty good in trying to explain it. There is virtually no change in G and A for 2018. What I did was, I reduced my long term incentive stock comp by 50% and much of that was allocated between Steve and Peter, so that there would not be any direct increase or hit to G and A. And I think Dean, is that a fair statement that literally there's no change. And I think G and A as a percentage of revenues today still remains in broadly the 8% range. So I think, Dean, do you have any comment? Yes. It's G and A has been pretty consistent, guys. It's roughly in the 60 basis point range as a percentage of total assets, as an example. And yes, no real significant G and A impact from the announcements of the executive changes. So I think the way to think about it too is if you have to go outside and bring in a CEO, that's where you actually load up and hire an additional executive to the team, which also somewhat suggests that compensation at the executive level for the front runners would be far off the mark for them even to step into that role. So we're uniquely situated here with highly experienced executives, as you guys well know. And so there wasn't a big step up on comp matters here across the board. Yes. And in my case, I thought Steve was probably worth it and Peter was not, but that's just the way it ended up. The government already took mine. All right. That's helpful. Thank you. And then just to focus on some of the 2018 deliveries and even the 2019 deliveries that when you look at lease plus negotiation, you're still looking at kind of less than 50%. So 5 Lab Drive, 9,900 Medical Center and 279 East Grand. Can you just give us an update on leasing there or at least tenant interest there? Yes, Jamie, it's Steve. Again, out of that 2,300,000 square feet 2018 2019, we are 81% leased. So maybe drilling down on 279 East Grand, Verily has taken 49% of the project. We're fielding multiple offers for the property. So the demand is very high. I would expect we'll be very selective and throughout the year have that fully resolved. 681 Gateway in South San Francisco similar situation, Twist Biosciences anchored the project, fielding multiple offers as well. And it's a range of small tenants as well as additional pharma companies looking to enter the market. So overall, I'd say, we're very bullish there. And then looking at 2018, 2018 Fairview up in Seattle, the negotiations are going well as well as groups behind that kind of leading beginning anchor there. And on 5 Laboratory, I would say there's a fair amount of interest. We don't deliver that till the end of the year, and we expect it is unique in that part of the world, kind of the center of AgTech in the United States, and there's virtually no available first class campus for office, lab and greenhouse. I'll finish up. 399 Binney has more demand than the space we have. That last 11% is highly competitive right now. So we're settling on who's going to take that. And then last one would be 9,900 Medical Center Drive, a redevelopment that we have now 58% under negotiation. So progressing as we believe they would. Okay. All right. Thanks and congratulations to everyone. Thank you. Thank you. And our next question today comes from Jed Regan with Green Street Advisors. Please go ahead. Hey, good afternoon guys. Just a follow-up on Sheila's question from earlier. 1 of your office REIT peers spoke this morning about their plans to target life science tenants for a development on Manhattan's Far West Side near Penn Station. Just curious if you think there's legs to lab demand in that part of the city and are you studying expansion into that part of town? Yes. I think that you have to remember, and the group probably is a very noteworthy developer. But I think the thing that you learn is New York is really an early stage life science cluster. It really originated out of academic and clinical expertise, but lacked really the it doesn't have lots of management teams that have done this before. It's got much better risk capital, venture capital in the early stage than it had when we started about a dozen years ago there. But still, you can't compare it even in the world to San Francisco or Cambridge. So primarily the New York market as it turns out and we've been at it now 8 years and to build a cluster like that to be a secondary cluster, it will never be a primary cluster, is about a generation, it's about a 25 year process. And the real thrust there is really very early stage seed and Series A stage companies spinning out of academic medical centers. Those are the companies where there is activity. You aren't going to bring a big pharma like you do into Cambridge with 100 of 1000 of square feet. It just will not happen in Manhattan. So I think that people may tell what they're trying to do, but unless they understand the market, unless they're able to handle the market, I think it's going to be hard going for them because it's just a very different market and a very different ecosystem in which it grows. And that's why you find virtually no other places in the United States outside of the Seattle, San Francisco, San Diego, Cambridge, New York in its early stage, the Maryland, North Carolina. A lot of places want to do this, but it's very, very difficult. It's literally next to impossible and people want to be in clusters where they can actually ramp up and hire people and hiring in New York City is possible, but it's still hard. That's very interesting. Thank you for that. And there were media reports recently that Alexandria was bidding for Santa Monica Business Park before one of your peers acquired it. To the extent you're able to discuss it, was there a potential lab conversion play there? Or were you interested in that asset more from a creative office perspective, sort of tech office perspective? And maybe in general, what's your appetite to grow in LA? And do you see any momentum in that market from a life science perspective? Jed, it's Peter. Look, that is a great asset and we definitely felt it was worth a look. I mean, it's in our backyard. But to refute some of the press, we were not in the best and final round. We dropped out before it got to that. But yes, we were looking at it as a potential laboratory play for a portion of it. LA is an interesting market as Joel just said, it can take a decade to build something. We've been working on L. A. Actually since the 90s. And we've seen some positive signs that there could be something afoot. So just to be ahead of the game, We're going to look at things like that, especially in locations that we think our client tenants would like to be in. Okay, great. Appreciate the comments. Thank you. And our next question today comes from Karin Ford of MUFG Securities. Please go ahead. Hi, good afternoon. Can you update us on what the current space requirements are in the market in Cambridge, San Francisco and San Diego? When you say space required, you mean just what the demand looks like? Yes. Karen, hi, this is Steve Richardson. Yes, in San Francisco right now, we're tracking about 2,300,000 square feet of lab demand. Cambridge is somewhat similar at about 2,500,000 square feet of lab demand. Dan in San Diego, we've got a 1,000,000 square feet up in Seattle about 650,000 square feet. Maryland, as we've been talking about for a while now, has been recovering strongly. We have about 500,000 square feet of demand there. So overall, very consistent healthy demand with prior years. Great. Thanks for that. And we would throw a footnote in New York City, for example, there is really no waiting line for lab space. It really is you have to take the spinouts 1 by 1. And if you're going to go after any more established companies to put outposts in New York, you actually have to go after them and pitch them, but there's no really established waiting line. Great. Thanks for that. Have you started to see any positive impact from the tax cuts on your tenants? Well, I think that a number of the companies, both pharma and biotech, have obviously had favorable impacts from tax reduction and repatriation that I'm sure has fueled some of the M and A we've seen here in the Q1 and probably we'll continue to see that. So I think in a sense that the margins, we don't see any big demand coming out of that per se, because I would say that big pharma through their normal course of going after products when they have a product that's going through the pipeline and it looks very promising, that tends to be the spur for expansion. And I think a lot of those companies will use they'll invest in their R and D and we'll see some expansion in the markets they're already in, but I don't think we'll see anything hugely dramatic from that, but it's all positive. That's for darn sure. Great. Thank you very much. And this concludes our question and answer session. I'd like to turn the conference back over to Mr. Marcus for any closing remarks. Okay. Well, thank you everybody. We did it within an hour and appreciate it and talk to you next quarter. Thank you, sir. Today's conference has now concluded and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.