Aug 8, 2008
Executives
Rhonda Chiger – IR Joel Marcus – CEO Dean Shigenaga – CFO
Analysts
Irwin Guzman – Citigroup Michael Bilerman – Citigroup Anthony Paolone – JP Morgan Dave Aubuchon – Robert W. Baird Philip Martin – Cantor Fitzgerald
Operator
Good day, everyone and welcome to the Alexandria Real Estate Equities second quarter 2008 conference call. Today's call is being recorded.
Now for our opening remarks, I'd like to turn the call over to Ms. Rhonda Chiger.
Please go ahead.
Rhonda Chiger
Thank you, and thank you for joining us. This conference call contains forward-looking statements, including earnings guidance within the meaning of the Federal Securities Laws.
Actual results may 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 annual report on Form 10-K and our other periodic reports filed with Securities and Exchange Commission.
And now, I would like to turn the call over to Joel Marcus. Please go ahead.
Joel Marcus
Thanks, Rhonda and welcome everybody. With me today, are Dean Shigenaga, Senior VP and Chief Financial Officer; and Pete Nelson, Secretary; and Jim Richardson's on vacation at the moment.
I want to take this opportunity to recognize and thank the insider team in Alexandria that I always considered to be the best of the best for superbly solid quarter, in a highly uncertain and financially challenging macro environment. The experience and expertise of this team is truly unmatched.
Pretty much was a picture perfect quarter with all operating and financial metrics really humming, and I continue to always believe A.R.E. can reinforced by the release on the operating and financial stats for the quarter that A.R.E.
continues to be safe haven and sanctuary for all investor styles. A.R.E.'
s unique new strategy which we pioneered really concentrates us in the absolute dislocations at the top end of the market with significant barriers to supply and significant barriers to tell and exit. For example on the San Francisco Bay area, we were pleased this week to have a major ground breaking with Corey Goodmen and the mayor of San Francisco on the Mission Bay North anchored by Pfizer's very innovative bio-therapeutics unit and it also confirmed that our strategy in exiting the weaker secondary East Bay market in the first quarter in a successful fashion was really the thing to do.
We did it at a very good price and it did $20 million gain. We have also now brought, kind of, what we consider to be mission critical research units of both Pfizer and Merck to Mission Bay and I think, at least the mayor said on the podium on Tuesday, that we did what we promised and I would say stay tune for more good things to come.
We concentrate on the highest quality and most flexible world class lab space. We've stuck to our knitting with first class highly flexible and generic space and we've generally try to avoid highly specific tenant facilities and there were those that are very costly manufacturing facilities.
Recently, other landlords have stumbled when they sought these kinds of facilities or transactions which we did not and they recent stumble in San Diego and others, potentially in Maryland and elsewhere. Our unique ability to underwrite our life science client tenants and our ability to keep our sectors within the broaden diverse life science sector highly diversified from institutional, the government and not for profit, big pharma biotech, and product and service companies has emerged [ph] to the great benefit of the company and we've continued to concentrate on very strong credits.
As I've said many times, and worth repeating here once again, Alexandria has performed extraordinarily well in good times, the number two total return performer among all publicly traded equity reach from the IPO through 12/31/07 and we do even better and continue to distinguish ourselves in more challenging environments. I think the big news, most recently in the life science industry continues to be the unabated M&A activity which have positively impact A.R.E.
certainly in the first quarter and beyond and as you remember in the first quarter, we indicated Glaxo bought our important client-tenant searcher's pharmaceuticals up in Cambridge and Glaxo now has confirmed that they will keep that unit and essentially make it a mission critical research hub at Tech square. Clearly the movement has a way from big—big being better and Mission Bay and the Pfizer unit also demonstrates that.
We're also benefited greatly recently by Astro Zeneca's acquisition of Metamune [ph] in Maryland where they extended leases with us and strengthened the presence in that market when we had assumed they might, our operating assumptions would be they would not. Most of you have read the key recent announcements.
Roche tendering for Genentech, one of our top ten tenants, for the remaining 44% of that company clearly motivated by the weak dollar, Upcoming Abasta [ph] data, the 215 end of the D&A product options, the need to closely collaborate and get rid of the so-called Chinese wall. Clearly, Roche wants to capture all of Genentech's very sub-strong profits.
There will be cost savings and Roche already indicated that brand other U.S operations and products under Genentech's trademark and obviously, brand. And Adorocious [ph] top 20 products, the top three are Genentech products for Rituxan, Herceptin and Avastin.
You also notice recently that Bristol-Myers tender offer for the remaining 83% have been in ImClone systems in New York City. Obviously, Bristol's looking at fully controlling Urbatech for colon rectal and head-neck cancer, a $1.3 billion per year product.
Our number one tenant, Novartis announced double-digit profit increases in the second quarter and is expected to grow faster than it's competitor's in the second-half of the year. Their two flagship products Diovan, which is a cardiovascular drug, revenues up 22% and it's flagship liver cancer product, dipped 26%.
We expect to expand our relationship with Novartis. Moving now to earnings guidance and dividend policy and Dean will highlight the quarter with more detail.
FFO was up 6% to 151 per share diluted. We reconfirmed our earnings guidance at 586 FFO per diluted share of 607 after the supplemental adjustments, and as you also noticed the board increased the dividend 3% to $0.18 per share this quarter.
Our coverage remains very strong and our pay out ratio among the lowest in the REIT industry. Moving now to the operating in financial performance, and again Dean will highlight the quarter in more detail.
We did report our 44 straight quarter of positive, thanks to our growth. The only office or industrial company in the entire REIT universe to do so.
Up 37 on the GAAP and 71 on the cash and strong – very strong operating margins. Second quarter was a back-to-back stellar leasing quarter with the first quarter, we reported 530,000 square feet with very strong GAAP rental rate increases up over 19% for renewed and released spaces.
Extremely low TIs five-year average lease-term 15,600 square feet average lease, and well diversified among the area clusters, 1/3 of which leases were signed in the San Diego cluster margin where Alexandria has a very dominant market leadership. We're in great shape for the remainder of the year with about 333,000 square feet of rolls, including about 106,000 month-to-month, the largest rollers in Massachusetts, and about 166,000 feet.
We're reiterating our guidance at about 10% growth on leased rolls with average lease rates rolling at a modest $23 per square foot. For the balance of 2008, we've got 41% of the leases resolved, 26 additionally committed, so the total, either committed, resolved, or anticipated to be committed are 67%.
So, very, very good forward-looking situation on the leases and about a third unresolved at this point. I think we're very proud to report continued positive uptick in occupancy during this tough economic environment to 95% on the operating assets.
The two big markets in the Bay area moved from 96.9 to 97.6, Eastern mass moved 96.6 to 97 also strong upticks in the Seattle to 94.2 and – I'm sorry, Seattle to 98.7 and in the Southeast which was a great uptick from 89.5 to 94.2. The one downtick was a non-core market suburban Philadelphia which is a small secondary market really due to 140,000 square foot roll which we are working hard to resolve.
Leasing rollover projection as per '09, we've got about 8% of the portfolio rolling at about 25.60 a square foot, 813,000 square feet. At the moment, 12% are resolved, 61% are anticipated to be resolved, aggregating 73%, and then, 27% unresolved.
So again, looking out to next year, very good forward looking visibility. Guidance about 10% rental rate increases.
Maryland has the largest roll, about 28% and I'm happy to report, almost all is resolved or anticipated. We delivered 186,000 almost 500 square feet leased related development, redevelopment, and previously vacant space, again, very loss TI's and commissions, almost 7.5 year term, about 19% in Eastern Mass, 23% in the Bay area and 25% in San Diego, UCSF at 41,000 square feet at 1500 Owens was the largest lease signed in that group.
Redevelopment update were scheduled to deliver about 175,000 square feet out of the redevelopment program later in the year and making consistent progress with respect to the 124 up thousand square feet of tech square. Part '08 and part '09 deliveries.
Were making great progress and we'll report that progress to you at our next conference call in the third quarter. On the development update, 1500 Owens, we've leased two floors fully committed to UCSF and the balance we're working on multi-tenant configuration since we're overflowing at 1700 Owens.
We had good news on our East Jamie Court. Two building, 162,000 square feet, waterside view, next to Genentech, 16% is now leased and we're actively negotiating leases for another 86,000 square feet, so good news.
130,000 square feet of development on Graham Ave., no change there, 55% lease and the tenant has the option on the balance of the space which we'll know later in the year. No update on our small development in South China although our construction cost dropped a bit there which is good, and our intense focus on development will remain domestic and I think it's nice to know that we can regulate our overseas expansion in a way to match our – match the capital environment, and that's good news.
Moving on to East River, we have – got the first full floor user lease out for final deal term approval to Europe and we're hoping that that does finalize and we're intensively working on a negotiation on about a 110,000 to 125,000 square foot commercial user with the client of ours in another market. This would be a new use, not moving from another market.
Other demand is in the early stages and as the West Tower – as you all note, the West Tower was not moved back in any way. It has always been anticipated in just about 9 months or more behind the East Tower that was due to the contamination and other extensive site work which was heavily funded by the city and state of New York.
So we just broke that out on page 17 to make it easier to follow. Dean will talk a little bit about the dispositions which are highlighted in the report., And I guess finally moving on to balance sheet.
I think the second quarter evidenced the continuing strong and flexible balance sheet which we've always tried to maintain, especially in this environment. We have significant and good sufficient dry powder to meet our growth and capital plan.
We've resolved virtually all debt maturities for the balance of the year, and we're working really laser-focused on the favorable resolution about the $285 million of debt maturities in '09. So without further a do, I'll turn the call over to Dean.
Dean Shigenaga
Thanks Joel. Let me review our second quarter results and as Joel highlighted.
Our second quarter 2008 reflects the strength of our unique road map for growth, and our continued ability to execute, and deliver consistent, and predictable results period-after-period. The second quarter of 2008 represents our 44th consecutive quarter in growth and FFO per share.
Diluted 44th consecutive quarter of positive same property growth on a GAAP basis, and outstanding progress toward our 11 full-calendar year with positive lease and activity. FFO per share for the second quarter was reported at $1.51, diluted up 6.3% over the second quarter of 2007.
Let me next quickly cover a few important items starting with our consistent and solid operating results, our balance sheet, and our capital plan, and our guidance for 2008. Once again, our same property results continue to reflect stable and positive results and an overall challenging macro environment.
Same property results have been positive quarter-after-quarter for about 44 consecutive quarters and with 3.7% on the GAAP basis, and 7.1% on the cash basis, with the increase in same property results driven by both increases in rental rates and occupancy. Same property occupancy was solid at approximately 95.9% a quarter end up from 95.3%.
Our policy has been to exclude 100% of properties under partial or full-redevelopment from our same property statistics. We believe that this methodology is appropriate in order to prevent significant increases in same property performance as a result of redevelopment activities.
Our leases contain key provisions that contribute to our strong and consistent operating results quarter-after-quarter. As of quarter end, approximately 89% of our leases were triple net leases, and an additional 8% of our leases require our tenants to pay the majority of operating expenses.
Guidance for same property performance for 2008 remains in the 3% to 4% range of the GAAP basis, and we continue to expect increases in same property rental rates to be the primary driver. Same property performance, while we also expect same property growth through an increase in occupancy.
Occupancy for our operating assets realize solid gains this quarter to 95%, up from 93.8% as of year end. Our occupancy level and operating margins, as well as our operating stats, remain slightly impacted by significant vacant office space related to recently acquired properties with future indebted free development and development opportunities.
We continue to forecast an opportunity to grow internally through an overall increase in occupancy through 2008. Margins were solid and up for the quarter at approximately 74.3% on a perspective basis, we're protecting margins to be in the 74% to 77% range.
As Joel mentioned, the six months ended June 30th, 2008 represents the highest leasing activity to date for Alexandria. The 1.1 million square feet completed in the first half of '08 represents 2.2 million square feet on annual basis, a 38% increase over 2007.
In addition, our rent stats and our lease rolls for the quarter in the six months ended June 30th were 19.4% and 16.5% respectively. Again, representing strong leasing activity for 2008.
Our leasing stats for 2008 exclude the 100,000 square foot lease we just announced with Pfizer, and represents a solid component for our third quarter 2008 leasing activity. Straight line rent adjustments for the quarter were approximately 3.4 million and going forward 3.5 million per quarter is a good run rate.
Capitalization of interest for the quarter was approximately $18.4 million and reflects our ongoing efforts with our important value added development and redevelopment projects including our strategic effort to move along our pre-construction activities for embedded future develop rule [ph] per footage. As of March 31st, we had two assets held for sale.
One of these assets were sold in the second quarter at a slight gain and other asset – excuse me, and the other asset is currently held for sale and is expected to close in the third quarter. Year-to-date, we've sold seven properties for a total of $84 million.
Turning next, so I guess, to our balance sheet on our capital plan. As of June 30th, we had approximately $1.1 billion outstanding under our $1.9 billion unsecured term and revolving facilities.
Debts total market cap is approximately 43% and our unhedged variable rate debt was approximately 23% of total debt. Consistent with our ongoing policy to mitigate our risk to variable interest rates, we will continue to evaluate opportunities to execute additional interest rates swap agreements.
Moving next to our capital plan. Our construction activities are projected to average approximately $100 million per quarter in 2008 with constructions standing, increasing slightly in 2009.
Consistent with prior quarters our capital plan going forward will continue to include a variety of sources and capital including an opportunistic property sales as appropriate, joint venture opportunities, project financings, and new secured debt financings. We believe our balance sheet contains capacity in excess of $1 billion consisting primarily of almost $800 million from our $1.9 billion credit facility.
The remaining capacity will be derived from opportunistic asset sales, project financings, and again new secured debt financings. While we remain cautious about the overall debt markets, we are diligently moving along project financing for East River Science Park and several secured loans.
Our $1.9 billion unsecured credit facility contains unique features that provide borrowing capacity for non-income producing assets like our land, our embedded development pipeline, and our active ground up development projects. The advance rate on our development projects, under our credit facility, is very similar to advanced rates on traditional budget financing.
We remain focused on our 2009 debt maturities and plan to refinance theses loans ahead of their actual maturities. Lastly, let me briefly comment on our guidance.
Our guidance for '08 after supplemental adjustments for non-cash impairment charges is reflective of the ongoing strength of our core operations as shown in the operating results for the quarter, and the six months ended June 30th. We continue to generate consistent and predictable operating results which is a key component to our guidance for 2008, from our solid leasing activity year-after-year deposit of same property performance quarter-after-quarter to our solid, quadruple-net lease structure to our unique ability that underwrite for life science industry and client tenants.
These key attributes have proven to be important components who are strong and consistent operating performance and will provide for our solid base for our growth through 2008 and into 2009 and 2010. Our guidance assumes no acquisitions and assumes the sale of one asset which I previously mentioned as a currently held for sale.
Other opportunistic sales may occur over 12 to 18 months but no additional properties qualifies held for sale as of quarter end. Our guidance is based on various assumptions including those that I've just pointed out.
For 2008, FFO per share of $6.07 after the supplemental adjustments for non-cash impairment charges and earnings per share diluted of $3.02. Our guidance rent FFO per share diluted after our supplemental adjustments represents a solid increase of 7% over 2007.
With that, I'll turn it back to Joel.
Joel Marcus
Operator, we could go to Q&A. That would be great.
Operator
Thank you. (Operator instructions) And we'll turn first to Michael Bilerman with Citi.
Irwin Guzman – Citigroup
Alright, good morning, it's Irwin Guzman. Michael Bilerman is on the phone as well.
Joel Marcus
Hey there.
Irwin Guzman – Citigroup
Can you talk about the – you talked about the rents that are already committed on or in weight stages for the second half of this year, are there any significant leases where you expect the spreads to be wide? Because it looks like your forecasting 10% spreads but it's been about 6% year-to-date.
Dean Shigenaga
Well, (inaudible) within 16% year-to-date and our forecast of 10% on the year, I think, is just our usual conservative projection on total steps. I think that it's reasonable to believe that well ahead of the 12% mark when we get to the end of the year.
I mean the 10% mark.
Irwin Guzman – Citigroup
And that hold true for 2009 as well? I mean, considering like you said you have, 73% already sort of in process.
Joel Marcus
Yes. I think we're coming off the base of – I mentioned about 2,561 in '09 and if we look at Maryland (inaudible) 25%, Southeast 13, Eastern mass 16.
Again we're trying to strike a reasonable balance of what we think a conservative rent roll will be. Just to give you some highlight, the Maryland leases are rolling which is the biggest at $21.52 and clearly market's above that next year.
San Diego's rolling at about $31.13, 205,000 square feet to 206,000 square feet market is above that. San Francisco 104,000 rolling at $30.
Our market is above that in Eastern mass, rolling at 100,000 square feet at about 2,360 market is well above that. So we think 10% is a conservative and baseline but we hope to exceed that.
Irwin Guzman – Citigroup
But does that mean – I mean if you look at the spread between GAAP and cash, 6.5? Are you respectly saying these are flat, potentially negative cash roll – cash roll down?
If you're forecasting 10%, and there's a 10% spread between your GAAP in your cash today, you're respectively saying cash runs are flat.
Joel Marcus
No. It's sometimes difficult to put a simple analysis between the cash and GAAP rents, I know we do that – about every quarter to try to take a– what do the cash and GAAP statistics really say every time we publish them and I can tell you there's a good mix between the results on a GAAP basis and a cash basis and a lot of it is due to the length of the lease and the mix of the leases that are executed during the period.
So, I would not project that cash rents would be flat. I would expect cash rents site for the year.
Michael Bilerman – Citigroup
On the Pfizer lease you just announced. Where are those rents relative to your sort of 12%-ish typical development yield?
Joel Marcus
They fall very well into that fairway [ph]. I think our total construction cost, ex-land will be roughly in the $200 to $350 a foot.
So, I think we will be able to achieve our 10% to 12% return on that lease plus Pfizer's committed I think something like $200 a foot on top of what we're putting in.
Michael Bilerman – Citigroup
And lastly, can you just give an update on (inaudible) partner on East River Science Park and maybe weave in how much leasing you're going to get done in advance that actually getting an evaluation.
Joel Marcus
Well, we certainly have a variety of discussions ongoing but it's clear to us that what we have to attend to first is, as you just mentioned, one is the leasing because that's going to drive our ultimate decision. Well, it drives two critical decisions.
One, is our construction financing will be much– the terms will be better and obviously, recourse versus non-recourse will make a difference depending upon the amount of pre-leasing we're able to sign and then obviously, ultimately a decision of go-no-go on a joint venture partner will be dependent upon the quality and character of the leasing. From the beginning, we said if we could keep it on balance sheet and not do a JV, we'd like to do that, but if the capital markets and the environment was such that it makes sense to do it, we would certainly do it.
So we have a number of discussions ongoing and I think our options are open and we'll continue to keep them open until we tie down some significant pre-leasing which we hope we're on track for and then we'll make a go-or-no-go decision about that.
Michael Bilerman – Citigroup
You also talked about that project– about it– being the large– largest projects in your pipeline and doing a joint venture test that are [ph] reduce that risk that you have, so I'm just trying to think about relative to your just promise.
Joel Marcus
Yeah. Well, I mean the risks are as you well know, obviously the capital risk, the– another critical risk is leasing risk, another risk is clearly construction delivery and construction cost risk, and we think we've got the delivery and the construction cost risk in check.
But in any joint venture obviously there are issues that the joint venture partner doesn't just assume those risks so, joint venture is not a panacea for everything But clear our decision would be based on really the capital environment and as it make sense to bring in a partner for the capital reasons that we stated again – this is a minority partner. This isn't a typical REIT JV where we would put up 20% – we'd be a 20% partner and the JB partner would be 80.
This more like a 55 on our side, a 45 on the capital partner's side. So I think, we have a number of discussions, we have, I think some folks that are highly interested in this but we don't have to make any decisions yet and I think, we need to do two things.
One is achieve substantial pre-leasing and two, tie down the construction loan.
Irwin Guzman – Citigroup
And how much capital have you spent already on the project?
Joel Marcus
On East River, Dean will have to check that out. But $500 a foot were – I would say we're still early on in that because the East Tower seal is just going up and the West Tower, there is just site work going on.
So we're early on the construction dollar.
Irwin Guzman – Citigroup
Would you consider two separate construction facilities so you can get pre-leasing on the tower first?
Joel Marcus
I don't know. That may not be so easy because it's a single Europe [ph] entitlement.
It's – everything is so bound together with state and federal, or state end city obligations and financing and so forth. I think that would be practically very hard to do.
Irwin Guzman – Citigroup
Okay. Thank you.
Joel Marcus
Yes. Thanks, Guys.
Operator
(Operator instructions) Now, well turn to Anthony Paolone with JP Morgan.
Anthony Paolone – JP Morgan
Thank you. Joel, have you seen any changes out there leasing due to the economic backdrop whether the – on longer time to get leases signed up or more concessions in the form of TIs or whatever the case maybe?
Joel Marcus
I think, as Jim said last time, we still haven't seen any material or significant change. It's clear, people are clearly mindful of the current capital and economic environment, if you'd have to be dumb and blind and deaf not to know that as a tenant out there.
So, I think, everyone is aware of the current environment but I think, the difference is, in this industry and, in again as I indicated, if you got the best assets, and the best locations, you're dealing with a level of tenancy and a level of decision making that is pretty core and fundamental to the mission of these companies. It's not so economically driven like a company deciding, “Gee, we want to save money, we're going to move to that office building rather than this office building”, and I think we still have not seen anything that would be materially degrading markets in the – you know, vis-a-vis the characterizations you just highlighted.
It doesn't mean it won't happen but we haven't really seen it in any dramatic fashion at all.
Anthony Paolone – JP Morgan
Have you seen any impact from the consolidation that you talked about earlier? It goes upgrading it credit quality on some of your tenants maybe but what about reducing some demand in different markets?
Joel Marcus
I think if you look, so far we've been very, very fortunate again, great assets, and great locations, and great tenants tend to make the difference between secondary market, secondary quality tenants, and maybe secondary quality assets. I think if you look at the Roche's announcement and tender on Genentech, they did announced that they were going to consolidate some of their Bay Area assets more down on the peninsula or space in a SG&A and research in around the Genentech campus as opposed to having multiple locations, so I think you may see some fall-out from that, and that's down much farther south.
I don't know whether that would mean any incremental increase for south San Francisco, because Genentechs don't have a lot on campus that they've got in hand, but I think that's the one dramatic we seen. I think if you go to ImClone in New York City it's certainly a client we've talked to about the East Riverside's project, the tender buy Bristol [ph] which actually isn't all that surprising.
I kind of hit that thought it would happen earlier than now, but that could mean a number of different things. I think the Corral Icon response indicated that not only was the offer too low, but there may be a thought of splitting up the company, once spinning off the Urbatech's franchising to the development pipeline, that's been done very successfully in a number of other biotech companies with actually pretty great value, so if that's the case, there may be some opportunities in New York City because they currently occupy some pretty awful state on Barac Street.
So I think on balance, what we've seen out there so far has been generally pretty good and Metamune in Maryland was a huge boost to us last quarter when signed some lease expansions, we actually assumed we're going to roll But who knows about the future, although I think we're well-positioned because the tenants that we've tend to focus on and that make up our tenant base, tend to be– look like the survivors as opposed to the ones who might be more irrelevant.
Anthony Paolone – JP Morgan
Okay. On the development side, what's your appetite to start new projects without any pre-leasing at this point?
Joel Marcus
We don't have any appetite to do that but when we're committed, we're committed and if we are, then we clearly would try not to do that. But again, this industry is a little different because it is sometimes hard to sign a lease for a mission critical unit before you've done any work on a site as oppose to office tenants or industrial tenants.
But in general, we're not looking to create a more further pipeline development with no pre-leasing.
Anthony Paolone – JP Morgan
Okay and what about in Toronto, you talked about that project a few times in the past but hasn't made it to – into development sheet yet?
Joel Marcus
Right. It probably will over the next quarter or two when actual construction begins.
We're still doing a lot of pre-site work and a lot of final plans and specs on that, but that's obviously will come into the development at some point, probably later in the year. And we're working very hard, our team, up in Toronto is working very hard to tie down a significant lease as we speak, in fact which we may have some news next quarter on.
Anthony Paolone – JP Morgan
Okay. Last question for Dean.
Can you just give us some details on the types of debt terms that you're seeing in the market right now, loan devalue and rates? Look in the context does some of your maturities in the next 18 months?
Dean Shigenaga
You know, Tony, it's difficult as most as would probably describe to broadly talk about terms because until you're done, you're really not done but I – maybe if could comment at all, I guess, what I would expect to see is that whether it's project financing or fixed rate financing that I would imagine that deal and rate would probably fall in the 6% range. And that's just very broadly speaking.
We all know that leverage, whether it's loan to cost or loan to value, whether project or stabilized fixed rate secured debt, is – have come in from the relative highs about 24 months ago. But I'm still pushing pretty hard on pricing and leverage given the quality of the projects' development or stabilized income producing assets, so I guess, stay tuned, we are working ahead of our schedule of maturities for 2009, we've got about $280 or so million maturing, and we are working very diligently to take care of those much earlier than their maturities, so–
Anthony Paolone – JP Morgan
Okay. Thank you.
Joel Marcus
Thank you.
Operator
Now, we move to Dave Aubuchon with Baird.
Dave Aubuchon – Robert W. Baird
Thank you. The Pfizer lease that you just announced well to do [ph] your supplemental disclosure, where would that lease step?
Joel Marcus
It would step in the campus that, Dave, I don't know if you recall of that what's called Mission Day North. So we've got the West parcels which we have 1,700 was the first building, 14 or 1,500 is now under construction.
This is across the other side of the UCSF campus closest to the Giants Ball Park, and it's a campus that could be somewhere north of 600,000 or 700,000 square feet in total, and that's where Pfizer has chosen to be.
Dave Aubuchon – Robert W. Baird
But it's not– But if they're not leasing space at the project you already have on your supplemental?
Joel Marcus
That's correct.
Dave Aubuchon – Robert W. Baird
Okay. Got it.
I have a few questions about the redevelopment pipeline. Can you (inaudible) on the development supplemental, you talked about A.R.E.
construction cost today. Can you give that number on the 789,000 square feet that is undergoing redevelopment right now?
And then, I guess you're initial cost on those, on that, on those?
Joel Marcus
Yeah, it looks like its in the mid to upper $200 a foot, roughly?
Dave Aubuchon – Robert W. Baird
So in total you spent 200 –.
Dean Shigenaga
I'm sorry, let me clarify what I'm saying, Dave, because it is – what I'm talking about is are all in basis plus the dollars we've spent to date.
Joel Marcus
Okay.
Dean Shigenaga
So we increment our cost tend to be around $125 a foot, cost on crude to date tend to be around maybe a little south of 50% of that.
Dave Aubuchon – Robert W. Baird
Got it and then, can you talk, Joel, just about leasing progress that's in that pipeline in general?
Joel Marcus
Yes. I think, if you look at the big ones, there's a lot of small ones.
But if you look at the big ones, we mentioned tech square which is clearly a big one. I think, we'll have a significant announcement next quarter to make on the favorable resolution there.
That's really, I think, by far and away, the biggest and I think, we're making good progress on most of the others. It's hard to pick out because, again, we have quite a few of the smaller ones.
But I would say –.
Dean Shigenaga
I'd say, let me add one other comment. The redevelopments, actually in pretty good shape but I think if you look at the square footage that we've actually leased over the last six months related to redevelopment is probably getting close to 150,000 square feet if I'm not mistaken.
And I believe also, the leasing activity to what we have scheduled for 2008 is pretty much substantially resolved where at least 75% of that for 2008 delivers up and taken care of.
Dave Aubuchon – Robert W. Baird
The '08 delivery's 75% leased of the 789, you said 150,000 leased the last 6 months or in total?
Joel Marcus
About 150,000 over the last 6 months was leased on the redevelopments.
Dave Aubuchon – Robert W. Baird
And then just looking at the entire bucket, do you have a number that is close being either leased or committed?
Joel Marcus
On all of our redevelopments?
Dave Aubuchon – Robert W. Baird
Yes sir.
Joel Marcus
Give me one second. Yes.
It looks like its – I don't know roughly 45% to 50% would be my guess. About the remainder, too early to tell.
Dave Aubuchon – Robert W. Baird
And Joel, I forget sort on Tech square, Joel, of 124,000 square feet is that the goal that it was multi-tenant strategy?
Joel Marcus
Oh, for sure. And in RDS we've got Sirtrust [ph] is one of the anchors there and we've made a number of other leases and than will have a big lease to announce next quarter.
Dave Aubuchon – Robert W. Baird
Okay. And then my last question is, convertible preferred balance increased to 250 million this quarter from last?
What am I missing there?
Joel Marcus
Yes. That just had to do with the timing, I think our issuance on the first quarter straggled the quarter where the shoe was just days into the next quarter.
So we raised in the shoe probably about $30 million in net proceeds
Dave Aubuchon – Robert W. Baird
Got it. Thank you guys.
Joel Marcus
Yes. Thanks Dave.
Operator
Now we'll move to Philip Martin with Cantor Fitzgerald.
Philip Martin – Cantor Fitzgerald
Good morning.
Joel Marcus
Hey there.
Philip Martin – Cantor Fitzgerald
I guess I'll start on the leasing front first and for Jim [ph] but the better than the forecasted rent gross is that is just the evolution of this portfolio and some newer assets out there, or is a different tenant mix? This is a pretty good beat versus forecasted and “knock on wood” hopefully, it continues but are you finding anything at the asset level where it is a different tenant mix I know, the last couple of years, we've seen slightly different tenants come in whether it's the c-firms [ph] etc., or is it – I'm just trying to nail down little more specifically what might be driving those rent throws [ph].
Besides the very good location.
Joel Marcus
Yes. I think if you just look at '08 and '09, Philip, it just tends to be existing rents in place, just our well below market, and some of that is historical because we've had long term leases at low lease rates that are beginning to roll.
Some of that would be historical acquisitions with well under market leases. So, it's kind of a combination of those factors and I think, Jims pretty conservative, he's on vacation at the moment, when he's given 5% to 10% rent growth, I think, he's being conservative generally as we always try to do on guidance.
But I think, it's fair to say, we're pretty comfortable with the 10% number obviously for the balance of this year and '09. And we think maybe that's even conservative.
So that's all kind of good news. And remember, this is in an environment where I would say, they can see rates in most of the markets are still bank in sub-double digit.
There is not any dramatic rent growth going on in this economic environment, but we haven't seen rents fall dramatically in the best locations and for the best assets. We just haven't seen that.
So, again, kind of, our thesis is stability is what's key here and we're just benefited by historical leases rolling.
Philip Martin – Cantor Fitzgerald
Are you also seeing and again its so much dependent to on where your tenants are in their life cycle, on research and development and other factors, but are you also saying that the tenants – I lost my trend of thought there, but–
Joel Marcus
Well, we're seeing better quality in– if you look at some of the different markets. We're just saying better quality tenants where we're able to capture in some of the secondary markets.
If you look at– takeout San Francisco and Massachusetts, the two dominant life science markets and go to Seattle, San Diego, Maryland and North Carolina, we're seeing much stronger we're actually able to capture much stronger tenants today than, say over the past few years, again I think part of that is brand and reputation, franchise, asset location, asset quality and I think that all augers for good solid rental rates on renewals, and–
Philip Martin – Cantor Fitzgerald
Are you seeing greater tenants demand? Are you seeing more tenants chasing individual spaces or is it then, pretty consistent with historical averages?
Joel Marcus
Yeah. So dependent on buildings and locations because if you got the right building in the right location, you do have that impact that you described.
If you've got maybe not the AAA but the AA location, I think it's normal demand.
Philip Martin – Cantor Fitzgerald
Okay. Okay.
Joel Marcus
You know, it's interesting because no matter what people say or write, it's clear to me and if you were standing there with the mayor and Corey Goodman who was a– is a very famous member of the Academy– the National Academy of Sciences. He's run Biotech companies and then Pfizer asked him to become Head of Research which he turned down and they ultimately offered him to be Head of the Biotherapeutics and Bioinnovation group which he did ultimately agreed to because of the entrepreneurial nature of that group.
It's pretty clear that decision and so many of its decisions by the more dominant entities around the country in the world, location matters a whole lot. Because he could have stayed in South San Francisco where they acquired Renault [ph], and it would have been all fine and happy and they could have just gone on the freeway.
But in his remarks, he said the ability to literally walk across the street and collaborate a Genentech hall at QB3 at the Neuroscience Center, the Cardiovascular Center made such a huge difference for Pfizer, that's why they made the decision and I think, we're seeing that in spades about great locations.
Philip Martin – Cantor Fitzgerald
Okay. And shifting gears a little bit over to East River.
In terms of the pre-leasings, are you satisfied to-date with the amount of pre-leasing or the terms that are being negotiated? Is everything more or less inline with the expectations, and again, from the tenant demand standpoint, are you dealing with – still trying to figure out the proper tenant mix?
Are you – is there demand for multiple tenants – I'm just trying to get a sense of just that project because it is a big project and its an interesting one?
Joel Marcus
Yes. Well, let me say I'm never satisfied ever because once I'm satisfied, then you lose your edge.
Philip Martin – Cantor Fitzgerald
That's right.
Joel Marcus
I would say, the challenge of New York is, nobody's ever done this before, so it's not like having a great asset in Cambridge where you got an established market, you've got established clients or potential tenants, you've got an established rental rate scheme, you've got on established confluence of how a market just operates. This just is new.
There are nine great world class academic institutions in New York. They garner about the highest amount of NIH funding of any one location, in any given year, so there are a lot of great attributes plus New York is just a great place to be, but the fact that nobody has ever done it before, there is no template that you can say, “This is the way it should be or ought to be.”
But I think, and again, we've done nothing yet, so I can't get on this call and say, “Gee, we should be proud of what we've done.” We got a ground, we got selected, we got a ground-lease signed, we got $40 million from the city and the state, we're under construction, we're on budget, and on time.
Those are all good things, but at the end of the day, its the cash flow that counts and the quality of the leases, and the quality of the tenants. So we haven't accomplished any of that yet, so that's yet to remain but we're working hard, and we're trying to put together a highly talented team to execute that.
So I guess, I would say, “Stay tuned and it's a work in process.”
Philip Martin – Cantor Fitzgerald
Okay. Alright.
Thank you for the additional comments.
Joel Marcus
Yeah, thanks for your questions. Good as always.
Operator
Now go back to Michael Bilerman with Citi.
Michael Bilerman – Citigroup
Dean, just a follow-up on the capital capacity that you outlined. What is the churns on the $500 million accordion feature on your credit facility and how flexible [ph] is that next year?
Joel Marcus
That's a good question. All accordions that I am aware of actually are generally structured where the existing bank group approves the company's ability to raise their credit facility, meaning the commitments available, so from $1.9 to $2.4 billion in our case, and that additional capacity would actually have to be raised either from your existing bank group or with new lenders.
But the banks have approved the increase, but the commitments actually have to be raised.
Michael Bilerman – Citigroup
And just on the redevelopment pipeline. Can you tell us what your basis is to date on the 18,000 square including lands.
Joel Marcus
Yes. It's in the all land – you know our allocated basis plus any dollars we spend is in the mid to just right above the mid $200 per foot range.
Michael Bilerman – Citigroup
Including land?
Joel Marcus
Yes. All in.
Michael Bilerman – Citigroup
It may just be helpful because these questions every quarter just add-in a column and we certainly appreciate the new addition on the leasing. It's just to add in investment to date for your redevelopment, and your development, so that we just capture the dollars being spent quarter-to-quarter.
Joel Marcus
That's a good idea Michael. We appreciate your comments and suggestions on disclosures and we'll take a look at that over the next quarter.
Michael Bilerman – Citigroup
Thank you.
Joel Marcus
Thanks guys. Operator?
Operator
And that will conclude the question-and-answer session. Gentlemen, I'll turn the conference back to you.
Joel Marcus
Okay. We'll thank you very, very much.
We did it in just a little more than 50 minutes which is I guess a record. Thanks so much.
Have a great rest of the summer. We look forward to talking to you on the third quarter.