Feb 9, 2009
Executives
Rhonda Chiger - Investor Relations Joel Marcus - Chairman, Chief Executive Officer Dean Shigenaga - Chief Financial Officer
Analysts
Jamie Feldman - UBS Mark Biffert - Oppenheimer Anthony Paolone - J.P. Morgan Irwin Guzman - Citigroup Michael Bilerman - Citigroup Philip Martin - Cantor Fitzgerald & Co.
David Aubuchon - Robert W. Baird & Co.
George Auerbach - Bank of America
Operator
Good day and welcome, everyone, to the Alexandria Real Estate Equities fourth quarter and year end 2008 conference call. (Operator Instructions) At this time for opening remarks and introductions I would like to turn the call over to Rhonda Chiger.
Please go ahead, ma'am.
Rhonda Chiger
Thank you. Good afternoon and thank you for joining us today.
This conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements regarding our 2009 earnings per share diluted, 2009 FFO per share diluted, and our redevelopment and development pipeline.
Our actual results may differ materially from those projected in such forward-looking statements. Factors that might cause such a difference include, without limitation, our failure to obtain capital, debt construction financing and/or equity, or refinance debt maturities, increased interest rates and operating costs, adverse economic or real estate development in our markets, our failure to successfully complete and lease our existing space held for redevelopment and new properties acquired for that purpose and any properties undergoing development, our failure to successfully operate or lease acquired properties to increase rental rates or increase vacancy rates or failure to renew or replace expiring leases, defaults on or nonrenewal of leases by tenants, general and local economic conditions, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission.
All forward-looking statements are made as of today and we assume no obligation to update this information. For more discussion relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements and [inaudible] business in general, please refer to our SEC filings, including our most annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q.
At this point I would like to turn the call over to Joel Marcus. Please go ahead.
Joel Marcus
Thank you very much and welcome, everybody. With me today are Jim Richardson, Dean Shigenaga, Pete Nelson and Peter Moglia.
As we discussed on our third quarter call on October 30th, the world has fundamentally and structurally changed and we commented in that call on the depth of the economic perfect storm and the swift and immediate actions necessitated thereby. I think it's fair to say this is an historic unprecedented fundamental and permanent structural change in the financial, banking and credits systems and future implications now are only somewhat becoming better understood.
We're all witnessing real time the progressive, rapid, unrelenting and continuing deterioration of the consumer-driven economy and massive job losses. As I said, on October 30th we reported to you eight major actions we were compelled to take and are continuing at present.
I want to update you on those. First, substantial, meaningful and positive progress on our balance sheet, liquidity, leverage and access to capital is ongoing.
Substantial and continuing progress on major reduction of CapEx and also substantial and continuing progress and major reduction in operating costs, including the review by the CEO and CFO of every expenditure exceeding $250 - kind of unprecedented. Successful extension of our 2008 debt maturities, continuing focus on our tenant monitoring and collectibility of now which are historically low tenant receivables.
Number six, continued laser focus on the solidity and durability of our unique business model as fine-tuned for this new reality and new environment. Number seven, continued laser focus on maintaining strong cash flow from our operating assets, maintaining high operating margins and a high return on invested capital.
And then finally, an ever-increasing focus on the enhancement and improvement of tenant quality. And as I have said really continuously since our IPO, we have the best assets in this space and they are mission critical locations for our tenants, including many of our big pharma clients.
Our Top 10 tenant list as of 12/31/08 is the strongest it has ever been and we welcome onto that list the largest U.S. independent not-for-profit institute, the Scripps Research Institute.
Eight out of the 10 tenants would be deemed to be credit and all have equity market caps - other than the institutions and government - in excess of $1 billion other than two. And I want to give you a brief update on those two.
Zymogentics, its current market cap approximates $400 million. It recently signed a deal with Briston-Myers Squibb which has a price tag of about $1.1 billion and they'll be receiving about $200 million in '09.
And then the only other Top 10 tenant which has an equity market cap under $1 billion is Dyax, which as a $150 million market cap. It's in our Eastern Mass asset base.
It recently received FDA advisory panel approval on its lead product and signed an $850 million deal with Biogen Idec. So we're very comfortable with the status of our Top 10 tenants.
As all of you know, ARE has been and continues to be a unique safe haven and sanctuary for long-term total return investors. We're very proud of our 399% total return performance from IPO through the end of the year, placing us at the very top echelon of all publicly traded REITs.
We also reported, as you see from the press release, positive GAAP year-to-year lease rolls for our 10th consecutive year and positive GAAP same-store property growth quarter to quarter now for 42 consecutive quarters. We have also greatly benefited from some of the changes going on in the life science industry.
Big pharma's move from the traditional in-house model to more innovative models as witnessed by our leases with Pfizer, Merck, Glaxo and Novartis, and activity in the M&A and strategic alliance areas have greatly strengthened a number of our tenants as well, including Exelixis, Imagenetics, Memory, which was acquired by Roche, and [Arquel], among others. Let me also comment briefly - and we'll find a lot more about this over the coming week the mega stimulus package which is now before the Senate and appears to, I guess, be headed to the President's desk if they can get the Senate passage and then reconcile the House and the Senate bill potentially by a week from today.
The NIH is slated to receive an additional $10 billion, the National Science Foundation, an additional $3 billion, and clearly the new federal government approach to stem cell research is positive. Let me turn to the key highlights of the fourth quarter and the year ended 2008.
We're pleased to report that our earnings were right on target regarding our guidance. We have a very fortunate situation of being able to model a variety of variables and we're pleased that we have been on target for both the fourth quarter and year end.
Dean will address in depth our balance sheet, liquidity, capital plan, debt strategy and 2009 guidance. We're now working to extend one of our extendable loans maturing in '09.
Our share of that loan is approximately $28 million and, as Dean will explain, we intend to delever the company during the '09 - '10 and beyond time period but, remember, the company has always operated with conservative leverage. The core operations has once confirmed the relative sanctuary and safe haven in very, very tough times.
Operating margins at year end were steady and tipped up a little bit to about 75%, and I believe that have exceeded 74% every quarter since our IPO, I think a feat not rivaled by virtually any other publicly traded REIT. Our occupancy year-to-year was up by about 100 basis points.
It dipped about 80 from third quarter to fourth quarter due to some softness in San Diego and Maryland. We also have historically low and very clean tenant receivables of about $6.5 million, which amazingly is only about 1.4% as a percentage of rents and recoveries.
I believe that's the lowest it's ever been. Same property growth - 42nd straight quarter of growth - again, unique among, I believe, all office companies, at about 4.3% on a GAAP basis in the fourth quarter and 3.3% for the year.
We continue a very sharp focus to maintain occupancy even in this very difficult environment while protecting rental rates as best we can. It's important to note, too, that 94% of our leases contain effective annual rental escalations and over time rent growth on assets should help offset higher cap rates.
Rental rate increases on renewed and re-leased spaces, we're pleased to report the GAAP increase for the fourth quarter of 13.9% and for the year 15%, and again, we believe unique among all office companies posting positive GAAP year-to-year lease rolls for now our 10th year. We had an amazingly solid fourth quarter, executing 34 leases for 513,000 square feet during, I think it's fair to say, the toughest financial reporting quarter any of us have ever seen.
And in 2008 we executed the largest number of leases and the most square footage in the company's history - 141 leases for over 2.16 million square feet, a remarkable accomplishment for our team. Let me turn now to '09 and '10 lease rolls.
In '09 we have lease rolls of about 982,000 square feet or about 9.5% of the operating portfolio. We're expecting, given our in-place rents, about a 5% increase in rental rates through '09.
We have 16% now leased or committed, 49% negotiating or anticipated, only about 0.5% into redevelopment, and about 34.5% marketing or too early to tell. Moving on to '10, we have about 1.088 million square feet or about 10.5% of the operating portfolio.
Again, we're looking at about 5% rental rate increases; 10% has been leased or committed, 46% negotiating or anticipated, 12% into redevelopment likely, and about 32% marketing, being marketed or too early to tell. On redevelopments, we have a very keen emphasis on leasing and a substantial reduction in our thru-put, and on developments, as you know, we have a very low historical basis in our land, a big advantage for us in leasing, and this is among the most significant focus of the company.
Let me now turn to the development leasing update, Page 19 of the supplemental. At 1500 Owens at Mission Bay, no change; we're fully leased and committed to two credit tenants.
At East Jamie Court in South San Francisco, South San Francisco has been a very quiet market. We have 16% leased and one tenant that we were negotiating with has decided to postpone any decision, so we have no positive leasing progress during the fourth quarter.
At our East Graham property, again in South San Francisco, it's 55% leased to Exelixis, which extended its option through 12/31/09. This is the company's corporate headquarters, core research facility, and I think it's fair to say we reasonably expect them to exercise the option.
They signed a very significant cancer deal with Bristol-Myers during, I believe, the fourth quarter with almost $1 billion upfront for two very important cancer molecules. Moving to East River, we're negotiating a letter of intent with a very high quality anchor tenant for approximately a third of the space, and we hope to have a positive report to you on our first quarter call.
This is the single highest priority for leasing in the company. And then in Seattle, no change.
That property's 92% leased to our credit tenant, Gilead Sciences. Dean will talk more about dispositions, but we did close one small property that was in discontinued ops in the fourth quarter and we did close three properties sold both to users, the one in the fourth quarter to a user and then the three operating properties sold in January for $14 million at a gain also to a user in 2008.
Dean will cover the sales, but we do we and expect significant opportunities for opportunistic sale of assets to users during '09 and beyond. Tenant matters at the end of the year, we have the highest quality tenant base and the most diversified we've really ever had.
You can look at our December 23rd press release for a breakdown of those segments, but we're very comfortable with what we have at this point. And then finally, before I turn it over to Dean for a number of detailed comments, I want to just comment on the dividend policy since this is probably one of the hottest topics in the REIT world these days.
Both management and the Board are intensely studying all the issues surrounding this ever-changing area, and the Board will review and address this by midMarch '09 related to the first quarter dividend, but we don't have anything to report at this point. So let me turn it over to Dean for his detailed comments.
Dean Shigenaga
Thanks, Joel. Consistent with the required actions we described in our third quarter earnings call, we have been appropriate, thoughtful, deliberate and careful.
I will provide an overview of our capital plan, liquidity, balance sheet matters, key operating statistics, and our guidance. Our capital plan includes management of our balance sheet capacity and liquidity over the next two, three and four years, reduction of our outstanding balance on our unsecured line of credit and unsecured term loan over the next two to three years, and from time to time, equity capital, broadly speaking, including joint venture capital.
Our two primary uses of capital over the next two years include debt maturities and the wind down of construction spending. Consistent with the strategy we communicated during our last call, we have made significant reductions in our overall capital plan.
From the second quarter of '09 through the fourth quarter, we expect to reduce our construction spending to an average of approximately $60 million for the quarter, representing an approximate 40% reduction from our average construction spending in 2008. Our current forecast reflects less $40 million in construction spending in the fourth quarter of 2009 with a further insignificant decline going into 2010.
Moving on to debt matters, we have two secured loans maturing in 2009. One loan has an outstanding balance of approximately $51 million and our share of this balance is approximately $28 million.
This loan has extension options, so it should take the ultimate maturity of this loan to mid-2010. In 2010 we have a total of seven secured loans maturing with an aggregate balance of approximately $258 million, including the recent loan extension we completed in December related to a $175 million secured loan.
Our primary goal for our upcoming secured debt maturities is to extend the maturity dates or refinance the loans with existing lenders. Next I want to provide a summary of our sources of capital and certain balance sheet matters.
Our primary sources of capital over the next two to three years consist of approximately $120 million of cash on hand, unused balances aggregating $475 million under our unsecured line of credit, greater than $100 million from opportunistic asset sales to users, loan extensions, refinancings and new loans, and lastly, again, equity broadly speaking, including joint ventures. As of year end we held approximately $70 million of cash and we also had approximately $50 million in restricted cash accounts that ultimately will be used primarily to fund certain construction activities.
Our unsecured line of credit continues to be an important source of capital for the company. As of year end, our unused balance under our unsecured line of credit was approximately $475 million.
Our maturity dates of our unsecured line of credit and unsecured term loan is October 2011 and October 2012 assuming we exercise our sole right to extend the maturity dates. The only requirement that we have is that we provide a formal notice to exercise our option and pay a typical extension fee.
While the current environment is challenging to execute asset sales to the traditional investor, we will continue to focus on opportunistic sales of properties to users. We have completed approximately $100 million in property sales from January of '08 through January of '09.
Additionally, we have completed approximately $175 million in sales over the past 24 months. That includes the $100 million that I just mentioned.
Going forward, we are focusing on a few ongoing early stage discussions with potential users that will generate proceeds in excess of $100 million, including gains upon sale. Beyond these few opportunities, we have not present amount or specific assets that are targeted for sale over the next couple of years.
Each opportunity is evaluated as it arises. As such, it's too early to determine timing or pricing on asset sales, including the timing of the few in early stage discussions.
During 2008 we completed the extension of two loans with relationship banks aggregating $256 million. One loan maturity was extended to 2010 and the other maturity was extended to December of 2011.
While we remain extremely cautious over the debt markets, we will be prepared to take advantage of financing opportunities, including extensions, refinancings and new loans with our existing lenders, our relationship banks and life companies. The majority of our assets are unencumbered, approximating 65% of total NOI, located in very best life science submarkets, occupied by high-quality life science entities with high occupancy, as noted by our overall occupancy of approximately 95%.
Additionally, most of our unencumbered assets have an average loan-to-value in the low 40% range. As such, future refinancings for the majority of our secured loans will result in net proceeds to the company versus additional equity contribution from the company.
We have historically financed properties with CMBS lenders, life companies and banks. Approximately 65% of our loans are with life companies and banks and therefore should provide a better opportunity to extend and refinance as compared to CMBS lenders.
Over the next five years we have 35 loans maturing with an average balance of approximately $25 million. We believe our loan balances maturing in the next five years are sized appropriately given the challenges of financing large loans in this environment.
We reported FFO per share diluted of $5.85 for 2008, in line with our guidance. We also reported FFO per share diluted of $1.55 per share for the fourth quarter, which is also in line with our guidance for the year.
Our FFO per share results were calculated in accordance with NAREIT's white paper and implementation guidance. Our results on a normalized basis were $1.55 for the fourth quarter and $6.06 for the year.
Our results included a few items that I want to highlight. First, in December of 2008 we received a payment of approximately $14.7 million from Cell Genesys related to a modification of their lease.
As a result, in December we recognized $11.3 million of rental income related to the modification net of a deferred rent write-off. This lease with Cell Genesys terminated on January 2, 2009, and they were provided time through January 30 to move out with no further payments to Alexandria.
Additionally, our results for the quarter and year also included non-cash impairment charges related to other-than-temporary declines in the fair value of certain investments. As we are well aware, equities have been declining in value since mid-'07, when the subprime crisis began, and dropped significantly after the failure of Lehman.
Unlike Bear Stearns and Lehman, our investments in life science companies have declined in value while the underlying businesses of these companies generally remain solid. Unfortunately, the accounting rules require recognition of an impairment given the steep decline in fair value of certain investments.
As a result, we recognized impairment charges aggregating $13.3 million in 2008, including $2 million recognized in the first quarter. Consistent with each quarter close process, we perform a detailed impairment review of our operating, non-income producing and assets held for sale.
Our impairment review was performed in accordance with 144 and consisted of a review of the plans for each asset and undiscounted cash flows, including cash flows related to future expenditures for operating and nonincome producing assets. The assets held for sale as of year end were reviewed based on fair value less cost to sell.
These assets were sold at a gain in 2009. Based on our detailed review, we concluded that no impairments were required for the real estate assets.
During the fourth quarter we capitalized about $19.2 million of interest related to qualifying construction activities, including construction at our project in New York related to the overall site, plaza, garage and underground infrastructure work. The primary reason for the increase in capitalization is due to the amount of construction spending in the third and fourth quarter of 2008.
We definitely hit the peak of capitalization of interest in the fourth quarter and for 2009 we are projecting an overall decline in the amount of capitalization of interest. During a period of time when all of us have been unable to predict the depth and length of this unprecedented financial banking and economic crisis, our team has been focused on critical areas of our business which they can control.
Our core operating results for the quarter and year are reflective of the focus of our team on key operating metrics. Again, for the year we reported well, in our press release we reported our 46th consecutive quarter of growth in FFO per share diluted to $1.55 per share.
We reported positive GAAP same property results quarter after quarter and positive leasing stats on renewed and re-leased space for over 10 years; 2.2 million square foot leased, about 37% up over 2007. GAAP rental rate increases were up 15% for the year on renewed and re-leased space.
And we leased about 630,000 square feet from our redevelopment and development projects. We also completed and delivered 335,000 square feet of redevelopment space, with that space being about 88% leased.
We also reported strong occupancy at approximately 95% and steady operating margins at about 75%. Additionally, as Joel had mentioned, accounts receivable is very low at approximately $6.5 million, with no reserve for doubtful accounts as of year end.
Moving lastly but most importantly to our guidance, I would like to remind everyone that our guidance includes various broad assumptions and we do not comment on the details included in our guidance. Our guidance also reflects our cautious outlook given the overall financial, banking and economic outlook for the country.
Our guidance for 2009 FFO per share diluted and EPS diluted is $6.26 and $2.73, respectively. Our FFO guidance is based upon NAREIT's white paper.
Due to the recurring nature of new accounting literature effective January 1, 2009, for our convertible debt and the impact of unvested stock awards on our per share calculations, we will continue to focus on NAREIT-defined FFO and we encourage everyone to do so as well. Otherwise we'll be tracking adjustments for these accounting matters in each reported period going forward.
With that, I'll turn it back over to Joel.
Joel Marcus
Operator, we can go to Q&A please.
Operator
Thank you. (Operator Instructions) Your first question comes from Jamie Feldman - UBS.
Jamie Feldman - UBS
So, Joel, you'd mentioned the 80 basis point occupancy decline in the fourth quarter. Could you talk a little bit about what's in there and what's included - how you're thinking about it going forward, the assumption in guidance for occupancy?
And then also what are you guys assuming for Cell Genesys, that space, as '09 progresses?
Joel Marcus
Okay. I think when you look at occupancy in this world, it is hard to predict virtually anything.
I think some of the weakness in San Diego and Maryland is not surprising. Those have historically been markets that have been softer historically over the last few years compared to the other markets that we are in, and so we saw the same thing.
We did have one space that came back to us in Maryland which contributed to some of that softness in the occupancy. But I would say that's probably, of all the factors going forward, the one that probably we have the least best crystal ball.
It just is very difficult. I think you can tell by the amount of space we leased this quarter - 513,000 square feet - it's pretty remarkable and unbelievable, in a sense, given, again, the worst quarter in the financial history of certainly our reporting quarters.
So I would say we are working very hard to maintain occupancy in each of the markets, but it's hard to give any absolute numbers. I think if you go back to '98 and 2001, maybe, as some kind of a proxy.
If you look at how Alexandria compared to office companies during those two years and you look at overall same-store obviously made up of both rate and occupancy components, we did decline in those time periods, but far less than generic office. And fortunately, we stayed positive; we've stayed positive every quarter, so we hope that will continue.
So that's kind of the view on occupancy. On Cell Genesys, we are working hard.
As I think we said, I don't want to make any comments publicly at this point, but we are working hard to re-lease that building as we speak. And, again, we hope to have very positive news on that.
Operator
Your next question comes from Mark Biffert - Oppenheimer.
Mark Biffert - Oppenheimer
Joel, the first question, you guys had mentioned that you're expecting a 5% rate increase. Is that a net effective rent or are you including concessions that you may be offering and, if you are offering concessions in your leases, what are they?
And then what, in terms of length of terms, are you seeing or are you signing with renewals or new leases?
Joel Marcus
Yes. That's net effective and I think one of the reasons we're pretty comfortable, if we look at our annualized base rent in some of the big markets that turn in D.C., our current annualized base rent is in the $20 range, and so that makes us feel pretty good.
In the San Diego market it's about $30, which is probably kind of closer to market. The Bay Area is probably more or less market, in the Southeast we're somewhat under market, in Massachusetts, we seem to be pretty well under market, and in Seattle way under market.
So I think, again, it varies by market and we feel pretty good and those are net effective rents. You had asked a question about - I'm sorry, just a second - beyond the concessions, you asked a next question.
Mark Biffert - Oppenheimer
It was the length of lease terms that you're signing on renewals. Have you see that shrink?
Joel Marcus
We've typically - and I think we've said this for many years in both up cycles and down cycles, this is a structural change cycle, but typically shorter-duration leases are for smaller spaces. Medium-duration leases tend to be for medium spaces, and larger spaces tend to have longer-term leases.
That's just the way it works in this industry. So if you look at the quarter, there was no surprise there.
We had renewed or released space almost five years. That can run anywhere between three and seven years.
And then on developed and redeveloped we had about six years and that, again, runs between three, four, five, six, seven. Sometimes it varies.
I think where you get the longer-term leases are in the larger spaces, either developments or just big blocks of spaces. So those are very much in line with what we've seen historically.
Mark Biffert - Oppenheimer
And then when you look at the mergers that you've been hearing being announced in the large pharma and the biotech space, in terms of addressing some of the layoffs you're seeing in some of R&D space, what are you seeing from your tenants or from other assets that they own in those markets in terms of sublease space coming back? Have the discussed that with you and what's the potential threat for new supply?
Joel Marcus
Yes, that's a really good question. And as I said in the prepared remarks, we've been very, very fortunate because of the really phenomenonal location of virtually all of our assets and, I think, the very high quality of those assets.
And our leases to big pharma by and large are critical research components of big pharma. They're not SG&A outposts, they tend not to be manufacturing, and they tend not to be kind of main campus operations where, in case of an acquisition or a major restructuring those things get closed down.
I mean, if you just look at a couple of the ones I mentioned to give you a little bit of color on that bear with me one second; let me just go back to the couple that I mention - if you look at the four that I mentioned, Pfizer, well, Pfizer, as you know, with the Wyeth acquisition, which we think is probably a pretty smart acquisition, has closures in a number of different locations. We don't think those are typically going to hurt us in the triple A core life science markets if you're in the right location; if you aren't, then you can get killed.
But the Pfizer locations, they opened an operation at Tech Square which was a critical operation of their Capsugel division. And also signing up for Mission Bay, which is a new bio innovation and bio therapeutic focus.
That's the very thing that they're trying to do, is to move outside of the traditional campuses. Same thing with Merck.
We were benefited by their acquisition of Sirna in Mission Bay and that’s a mission critical research location. We don't see any space affecting us at Mission Bay particularly.
Glaxo, they're our second-largest tenant and, through a number of acquisitions, there again in a number of locations, but including Cambridge, which has now been enhanced to one of their primary research focal points. It was mentioned specifically by Andrew Witty.
And they cut another kind of comparable - not on the same science comparability, but another group; I think it may have even been England or another location that didn't impact us. And same thing with Novartis.
So by and large, we've been substantially benefited. And I don't think in any of the markets we're going to see - again, in great core markets we're going to see a lot of sublease space come onto the market.
That's just the nature of these assets and these unique locations.
Mark Biffert - Oppenheimer
And for Dean, a couple accounting questions. I did not see the property related CapEx for the quarter in leasing costs in the release.
Do have that, by chance?
Dean Shigenaga
I don't, but it will be dropped into our 10-K for the disclosure that we include on a five-year average basis.
Mark Biffert - Oppenheimer
And then related to your guidance, was the expectation for the APB 141 cost, is that going to be equivalent to the '08 amount of roughly $0.23 a share? Is that your expectation?
Is it in that guidance of $6.26?
Dean Shigenaga
Correct. Yes, that is right, $6.26 if forward-looking for '09 as to what we expect, including the impact of APB 14 for our convertible debt.
And we gave you a footnote on the prior period impact. It's in that range of $0.20 - $0.23.
Operator
Your next question comes from Anthony Paolone - J.P. Morgan.
Anthony Paolone - J.P. Morgan
In terms of the land for future development, I think it's somewhere around $700 - $800 million, how much money do you have to spend on that in 2009, whether it's related to development staff, property taxes, engineering, etc., just those sorts of costs?
Dean Shigenaga
Yeah, that's a good question, Tony. It really depends project by project and the nature of the preconstruction activities because each project's going through a different set of activities to move it along.
One example is our large land effort in Cambridge, which is going through with the city as we speak. We've incurred a small amount, but meaningful number preconstructionrelated dollars related to moving along our basic design and architect work, and then all the consultants that are involved in that process to move the project through the entitlements with the city.
Two other projects that may be smaller in scale and less involved. So Tony, I actually don't have a number in total for our spending across our pre-construction projects.
It's not extremely significant, but at the same time it's definitely north of a few million dollars.
Anthony Paolone - J.P. Morgan
And is it something, do you think, in the tens of millions?
Dean Shigenaga
No. No.
No.
Anthony Paolone - J.P. Morgan
And then Mission Bay North, were you signed, I believe, previously 100,000 square foot lease with Pfizer, I didn't see that on the active construction schedule.
Joel Marcus
It's not in vertical construction yet, but it will appear in the first quarter.
Anthony Paolone - J.P. Morgan
Okay, so there hasn't been any changes to that?
Joel Marcus
Correct.
Anthony Paolone - J.P. Morgan
And then in terms of your 2010 expirations you laid out this quarter, the markets where they're in on your leases, it seemed like Cambridge, San Francisco, San Diego had the bulk of them. Any comment as to particular leases that are coming up in 2010 to watch for?
Joel Marcus
Yes, in 2010, I guess, we've got broken down about 140,000 in the Maryland market, about almost 200,000 in San Diego. The Bay Area's got about 200,000, Eastern Mass almost 300,000, and Seattle about 100,000.
So it's a pretty good amount. It's about 10%.
In normal times we would relish the lease rolls. I think in these times we're obviously more cautious, but we still see upside from our net effective current rents there.
No particular color I can give you at this point on those specific lease roles but, if you go back to the comments that I made, we're clearly addressing them in a fairly focused fashion. And, as I said, we have about 10% leased or committed and almost 50% negotiating or anticipated, so that's 55% to 60% at this point, almost over a year out, so we feel pretty good about that, and almost less than a third that we believe is too early.
So we feel pretty good about that, I think, and with 5% kind of internal projection on rental rate increases. So I think we feel pretty good.
Anthony Paolone - J.P. Morgan
And then just a last question for Dean on your swaps. You've got some that go out to like 2014 and that's beyond where your line and term debt is in place until.
Is there other variable rate debt that goes out to that point or is that just the anticipation that you'll have some level of floating rate at that point?
Dean Shigenaga
Correct, Tony, it is in anticipation that we have some floating rate that goes out. But beyond the maturity of 2012, there's only about a couple hundred million that goes out that far.
So we wanted to have a safe assumption going out that far. We obviously don't want to carry $1 billion of swaps beyond our extended maturity date.
Operator
Your next question comes from Irwin Guzman - Citigroup.
Irwin Guzman - Citigroup
Dean, you mentioned the percentage of your secured debt that CMBS. Can you break that down for us in terms of 2009 and 2010 expiration?
Dean Shigenaga
Let me see if I've got - how close I have that schedule to me. Hang on, Irwin.
Do you have another question that we can go to and we can come back to you on that while I -
Irwin Guzman - Citigroup
Sure. On the South San Francisco developments, the two that come in this year, what's the timing that those enter service?
Joel Marcus
Well, our current forecast is the 2009 South San Francisco assets in development, our current forecast in late '09.
Irwin Guzman - Citigroup
And has there been any change to, as you're negotiating these leases, what your overall yield expectations are relative to the low double-digit returns that you've spoken about in the past?
Joel Marcus
No change.
Irwin Guzman - Citigroup
And just one more question on the redevelopment pipeline. Can you tell us what the lease rate is on specifically those projects that deliver this year for the redevelopment piece?
Or maybe another way of asking that question would be -
Joel Marcus
You'd have to go to every single lease at every single property, so that'd be very difficult to tell you. But we still are targeting, by and large, right now at Tech Square, I think we have it about 87% leased, and I would say that we're on track to beat our projected assumptions back when we bought that property in '06, so we feel pretty good about the rental rates we've achieved, even during the fourth quarter as we've signed leases there.
Irwin Guzman - Citigroup
Can you give us a sense as to how much leasing, even just on a sort of total volume basis, for those redevelopments? Because that's a big piect.
Joel Marcus
Oh, on the redevelopments?
Irwin Guzman - Citigroup
Right, on the redevelopment portion how much leasing is left to sort of hit your guidance number?
Dean Shigenaga
Oh, to hit guidance? You know, unfortunately, Irwin, I don't actually have that with me.
Most of our redevelopments take a conservative view from what we present and our model, and we've been doing that historically where - and I know sometimes this causes some challenges with the models you guys run, but we give the in service dates and then we tend to give a conservative view in our model beyond that to give us some cushion on our guidance. So I think you can use that as a general guideline.
As it relates to your prior question, Irwin, on CMBS maturities for 2009, we only have really two loans maturing - one's a life loan and one's a bank loan. And beyond that they're just principal normal debt service payments in '09.
Michael Bilerman - Citigroup
Joel, it's Michael speaking. Can you just talk a little bit about - you went out international and started to try to plant the seeds in Scotland and a little bit in India and obviously China, which you reverted back a little bit last quarter.
Can you talk about how much G&A you're having in building out an international pipeline and whether there's additional capitalization from some of these other things that you're pursuing outside the U.S.?
Joel Marcus
Yes, I think it's very minimal.
Michael Bilerman - Citigroup
Is that any bit of a focus at all or has that just been completed ramped out?
Joel Marcus
Well, actually, one way to think about it, Michael, is our basis in our international efforts beyond North America, I mean our cost basis, it's fairly nominal, meaning we don't have any significant U.S. dollars invested in China quite yet and we don't have any significant dollars invested in Scotland or anywhere else beyond North America.
So there's really, from a capitalization perspective, not a lot there.
Michael Bilerman - Citigroup
I just didn't know if there was anything on the G&A front, as you sort of build up those platforms, or whether all of it was sort of running through the P&L already.
Joel Marcus
There's a little bit, but not much being capitalized related to the international effort. It's small relative to our U.S.
operation.
Michael Bilerman - Citigroup
And do you expect to start any of these things internationally this year or there won't be any capital deployed?
Joel Marcus
Yes, I think the answer is, as you just suggested, that given the structural change in the capital markets, it's very difficult to imagine now.
Michael Bilerman - Citigroup
I may have missed this. There was on your future development square footage, there was a ramp with about 400,000 square feet in the other category - sequentially went up from 516,000 to 905,000.
What does that represent?
Joel Marcus
That's the second tower for our project in New York.
Michael Bilerman - Citigroup
Oh, so move another tower from current to future?
Joel Marcus
Right, the West Tower of ERSP.
Operator
Your next question comes from Philip Martin - Cantor Fitzgerald & Co.
Philip Martin - Cantor Fitzgerald & Co.
Just in terms - and maybe, Joel, you could speak to this - but just a little more insight into the mood of your underlying tenant base. How much have the tenants slowed their plans, and maybe in terms of how it would relate to or impact their real estate needs?
Could you just go into some of the conversations you're having with the tenants and what their mood is?
Joel Marcus
Yes, that's a good question and a tough question to answer because it's so variable. About three weeks ago - I'll give you one end; you wouldn't imagine this - I participated in a lunch meeting with Gavin Newsom, who's the mayor of San Francisco, Jeff Kindler, the CEO of Pfizer, and a number of senior people at UCSF together with our senior team up at Mission Bay.
And it was kind of a roundtable luncheon discussion regarding - and this was before Wyeth was announced but Jeff had taken the time to come out to Mission Bay to look at the site where this building will be built and also meet up with Corey Goodman, who is president of this effort and who Pfizer's staking of political capital on, and he was basically talking about Pfizer's overall restructuring efforts, but that this particular matter represented a critical function of what I said before and that is the restructuring of big pharma really to get out of the main campuses and to go to much more innovative and to almost a biotech-like model. Corey was a professor at UCSF.
He also ran a couple of biotech companies and so he's ideal. He actually, I think, had turned down overall Head of Research at Pfizer, I had heard.
So that's one kind of anecdotal kind of commentary. A bunch of us met with some of the Glaxo team up in Cambridge and they're very focused on creating a new set of pipeline opportunities for Glaxo there and doing some expansion.
So I think when we look at big pharma, we're in the sweet spot of where they want to be at the heart of the clusters adjacent to the great institutions. If you're out in the suburbs or you're in a secondary location within a market, those aren't going to be the places they want to be.
So I think if you look at that segment of the market, we've benefited, but clearly there is a lot of restructuring and a lot of cost-conscious efforts going on there. But we've stayed in the sweet spot, as I indicated.
If you move now to institutions, a big part of what we do is institutions. I think institutions have found themselves more capital constrained because they're having tougher times selling bonds.
There are big opportunities in that sector to do things, but capital right now is the principal constraining factor, and so we're working with a number of folks in a number of locations with some local entities to hopefully be in the queue for future financing when it comes to either bond or even infrastructure funding that may come out of this stimulus package. Remember, too, going back to big pharma, big pharma's got a pretty good balance sheet situation and pretty good liquidity.
It's just they're going through gut-wrenching restructuring. On the product and service company side, that's one that just kind of is bread and butter if they need [Qwest or Labcorp] or people like that, if they need a new site they can generally do it because they've got good revenues, but they're not in major expansion mode, so we try to deal with those as they need them.
On the private biotech side, we spend a lot of time with those companies and are very sensitive to their backers and their need to conserve capital, but we've signed a number of good leases over the past quarter or two where we've had high quality venture firms that have raised $20 and $30 million and are moving forward with a modified plan to really get into the clinic and get through the clinic in a much more expedited fashion and to position themselves for future M&A or whatever. And then in the public biotech, as I said in the past - I don't mean to make this such a long-winded answer - you've got the haves and the have-nots.
The haves are the ones that have product revenues or that have big market caps due to the fact that they've got imminent product approvals or big deals signed, and those people - clearly, everybody's watching their wallet, everybody's taking their time, but you see activity there. And on the public companies that are cash constrained and balance sheet liquidity constrained, those are the ones that have the most problems, Cell Genesys being a great example.
But fortunately we had a great relationship with those folks and through some pretty great relationship negotiations we were able to come out with a good result, I think, for everybody. So that's kind of the landscape as we're seeing.
It's different. It's structurally different.
But that's what we're in and we have to deal with the reality. So I don't know if that's helpful.
Philip Martin - Cantor Fitzgerald & Co.
No, that was very helpful. I think to an extent is one of the overlooked opportunities here for Alexandria - and it's probably more of a 2010 at least opportunity and maybe 2011 but as all of these groups look to restructure, gain great efficiencies, etc., do they look toward an Alexandria and its portfolio and opportunities within that portfolio to gain some of those efficiencies due to locations or better use of space, etc.?
Joel Marcus
Right. I think the answer's most definitely yes, heavily due to triple-A locations and, obviously, high quality facilities.
But also we've had a number of strategic meetings with a number of major companies who've asked us to come in and actually consult with us, much like a McKenzie would do, although we're not charging like McKenzie, but to come in and help them rationalize what they're doing on the innovation side. So we think those are interesting opportunities, but the real problem at the moment is, again, the credit market seizure.
And when you have triple-A institutions telling you they've got buildings ready to go that they need for their own use and they can't get bond financing, you know we're in a climate that no one's ever really experienced before.
Philip Martin - Cantor Fitzgerald & Co.
That kind of goes to my next question, which actually it just answered, but the last question, just more of in terms of the leasing front, obviously, leasing has continued to go pretty well here, but how are those discussions - and I know you've bought up some of this, but again, with many of the tenants that you're discussing on '09 and '10 maturities, it sounds like from your opening remarks that those conversations are going pretty well with the majority of your tenant base.
Joel Marcus
Yes, I think the answer is they're going pretty well. I think the one area that we're very mindful of is, again, some of the public biotech companies that are caught in this - I've used the term kind of the Valley of Death - where they can't get to product revenues yet.
They can't get to the FDA soon enough because the FDA is somewhat overwhelmed at the moment, much like maybe the SEC is overwhelmed, and the markets are not open for either debt or equity financing. So there they've got to rationalize what they're doing, they've got to potentially slim down their lease commitments, and they've got to refocus on what they're doing and how their company is organized and positioned.
And those are the ones that I think we're most focused on the downside, so those are ones that clearly anybody in this business has to pay attention to. I think that's the area that we would pay most attention to and be most sensitive to.
Operator
Your next question comes from David Aubuchon - Robert W. Baird & Co.
David Aubuchon - Robert W. Baird & Co.
Dean, when you outlined your sources of cash you had $100 million in asset sales and then you had another bucket of equity, JV and refinancing. Was that correct?
Dean Shigenaga
Correct.
David Aubuchon - Robert W. Baird & Co.
What sort of secured debt are you thinking about right now to help kind of fill that funding gap or just the funding usage that you need?
Dean Shigenaga
Well, I think, like we have done over the last year, we're extremely focused right now on extending our maturities to the extent possible and then possibly refinancing certain maturities with our existing lenders. As it relates to new secured debt, we're as cautious as everybody else is in this marketplace.
The larger your needs are, the more complicated they are. But we are working through opportunities and we're really going to take advantage of any movement in liquidity on the debt side.
So I really don't have a target for you. All I can tell you is that we're trying to do our best, like everybody else, to extend, refinance and capture some portion of new loans over the coming years.
David Aubuchon - Robert W. Baird & Co.
And you did say 65% of your NOI was unencumbered as of Q4?
Dean Shigenaga
Correct, as of year end.
David Aubuchon - Robert W. Baird & Co.
Any thought to selling some land? I think that you guys mentioned that as a possibility.
Is that within the asset sale $100 million bucket or just in addition to that?
Dean Shigenaga
Yes, I think there is one; the one we highlighted in the last call is included in there. But as far as timing goes and exact amount, we don't have a good estimate yet.
David Aubuchon - Robert W. Baird & Co.
And then the construction spending, you mentioned from Q2 '09 through Q4 '09, I believe, that construction spending would fall $60 million per quarter. Was that correct?
Dean Shigenaga
Yes, it would average $60 million per quarter.
David Aubuchon - Robert W. Baird & Co.
And where is it at Q4 '08?
Dean Shigenaga
I think it's $40 in the fourth - oh, I'm sorry, what was it in -
David Aubuchon - Robert W. Baird & Co.
Correct. So if it's going to average $60 million in '09, kind of where was it?
Dean Shigenaga
Yes. Well, I think on average for the year of '08 we probably spent right about $100 million a quarter.
Operator
Your last question comes from George Auerbach - Bank of America.
George Auerbach - Bank of America
Joel, you mentioned the potential $10 billion of additional funding for the NIH in the stimulus package.
Joel Marcus
Yes.
George Auerbach - Bank of America
In your opinion, how soon would this funding become available for research grants and, I guess more importantly for your business, how quickly would those grants translate into increased leasing demand?
Joel Marcus
That's a hard question to answer because probably the Senators and Representatives don't even know. As best we know, there's an allocation.
It's kind of like a lot of buckets. If you've ever seen, I don't know, the New York Times did a chart of all the kind of buckets that the stimulus is going to go into and we just know that there is a - I think the Senate added $6.5 billion onto what was already $3.5 billion from the House, but we think probably there's a high likelihood that that is going to be passed.
My guess, it wouldn't be all in one year; it might be over a period of two years. And where most of that money goes, I think you'll see the big benefit going into the institutions, the universities, and the research institutions.
NIH money doesn't typically go directly into companies. They generally go into scientific research organizations.
So we'll see, I think, that stimulate that part of the sector. And it's hard to say exactly how that will translate into space, but it's clear it will because it always has and I think that's good.
And what that does also then is create new opportunities for the public sector - I should say the commercial sector - to access new technologies being developed. And I think a lot of that might go into the stem cell area, too.
So we think it's a real big plus.
George Auerbach - Bank of America
And as you mentioned, the House bill was for $3.5 billion, of which I think $2 billion was for infrastructure and redevelopment of current research facilities?
Joel Marcus
Yes.
George Auerbach - Bank of America
Do you have any interest or, I guess, would you come in as a third party to help do some of that redevelopment?
Joel Marcus
Yes. I mean, we were asked recently to be a fee developer - because we obviously don't want to necessarily do a joint venture with debt on our balance sheet - but as a fee developer to do some construction for a site that was maybe governmentally controlled and that would be built for kind of a quasi-governmental agency and that we might be a fee developer for that, so we would book the income as other income as opposed to have it on our books as a real project where we were at risk for it.
So I think there'll be some of those opportunities. In normal times we would not have looked to do those, but I think in the extraordinary times that we're in those are a good use of our time and expertise.
Operator
This concludes today's question-and-answer session. Gentlemen, I'll turn it back over to you for any additional or closing remarks.
Joel Marcus
No, we just thank you for your time and we'll look forward to talking to you at the end of the first quarter.