Alexandria Real Estate Equities, Inc. (
Q2 2011 Earnings Call
July 28, 2011 3:00 PM ET
Rhonda Chiger – IR, Rx Communications Group, LLC
Joel Marcus – Chairman, President and CEO
Dean Shigenaga – SVP, CFO and Treasurer
Peter Moglia – VP, Real Estate & Finance
Amanda Cashin – Assistant VP, Life Sciences
Anthony Paolone – JP Morgan
Quentin Vellely – Citi
Sheila Keefe Mcgrath – Bruyette & Woods
Jay Habermann – with Corner
John Stewart – Green Street Advisors
Philip Martin – Morningstar
Previous Statements by ARE
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Good day, and welcome to the Alexandria Real Estate Equities Incorporated Second Quarter 2011 Results Conference Call. Today’s call is being recorded.
At this time, for opening remarks and introductions, I would like to turn the call over to Rhonda Chiger. Please go ahead, ma’am.
Good afternoon and welcome. This conference call contains forward-looking statements within the meaning of the federal securities laws. The company’s actual results may differ materially from these 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 annual report on Form 10-K and its other periodic reports filed with the Securities and Exchange Commission.
And now, I would like to turn the call over to Joel Marcus. Please go ahead.
Thank you, Rhonda, and welcome everybody to the second quarter conference call. With me are Dean Shigenaga, Peter Moglia, Krupal Raval and Amanda Cashin.
Maybe starting with the one quote that kind of firms up the current state of affairs in the macro world with Steve Wins recent statement about both the administration and politics, the greatest web blanket to business progress and job creation, and that is, it looks like the environment we’re working in.
From the President’s address to the nation on Monday evening where the debt feeling debate, I think there is one hopeful commentary on a micro basis for our sector. We all want a government that lies within that means, but there are still things we need to pay for as a country, things like new roads and bridges, weather satellite, food inspection, services to veterans and medical research. So I think our collective view internally is that the NIH’s $31 billion annual budget run rate will likely be preserved, if we get a budget.
Also note that the FDA, it’s also positive to note that the FDA drug approval rate for 2011 is on pace to well exceed that of 2010. 20 new drugs approved to date and just one shy of the 21 approved in all of 2010. I think another very interesting article is the July 2011 Journal of American Medical Association, I think it portends well for the biopharma industry.
The study found, which really confirms one of our overall key macro pieces that the Medicare Part D drug coverage actually lead to a substantial cut in other healthcare spending by about 10% of our patients. So that drugs were actually saving money in the other sectors of the healthcare pie, which we have stated for a long time as really I think this sectors stick with web and it just needs to be made clear to Congress.
Moving on to the state of the business – our business today, probably the most significant item is the successful achievement in our – of our initial investment grade credit rating committees in S&P. It is a significant and important milestone for the company. It’s gratifying to know that the agencies highlighted Alexandria’s high-quality tenant based stability of occupancy strength of cash flow, quality of location of our assets, experience and expertise and management and our leadership in the life science real estate space.
Moving on to leasing, we did have among the second highest quarter or about the second highest quarter leasing in the company’s history was about 728,000 square feet. GAAP rates increased about 3.1%, and we believe, for the balance of the year, we’ll be in the same range. And we have solid Maryland activity this quarter, but have some rental rate pressures there. We didn’t get strong leasing activity in a positive fashion from Greater Boston. And also on the occupancy front, we had one new route in our Route 128 59,000 square foot building, which will pick up our occupancy back in the next quarter as that has been our release. That was just a timing item with the quarter.
We also had a solid 148,000 square foot development, redevelopment leasing quarter, this – during the second quarter. I think we’re making solid progress on the lease up of redevelopment assets. You can look at page 45 of the supplement and expect more lease up in the third and fourth quarters particularly strong from San Diego and Massachusetts.
We’re also likely to see some more development asset pickup, page 46 of the supplement, in the third and fourth quarter, and certainly, we have a very heavy corporate focus on Mission Bay and (audio gap) and the East Jamie Court assets.
East Jamie Court were nearing completion on suites for four new tenants occupying through the six floors as the project activity is really moderate and we’re tracking a number of emerging stage companies with upcoming needs with tours and meetings as we continue to press our case to provide high-quality facilities is the key differentiator from second or generation sub-leases.
And mission bay continues overall it’s star PL as we’ve recently completed a transaction with Pfizer’s CTI entity at 1700 Owens and it’s important to note that the former innovation engines are highly selective in their locations much like their and now Pfizer coming back in Mission Bay with their CTI group, which we also have as a key tenant in our New York property.
499 (inaudible) has initiated its formal marketing campaign, renegotiated and we are receiving positive reception in the market as we’ve expected from a variety of user groups including life science, clinical, medical and technology towards the began, and we expect to be very selective in working with these types of entities over the coming quarters. We also see an opportunity to push rental rates greater than our performance.