Alexandria Real Estate Equities's CEO Discusses Q1 2013 Results - Earnings Call Transcript

Apr.30.13 | About: Alexandria Real (ARE)

Alexandria Real Estate Equities Inc. (NYSE:ARE)

Q1 2013 Earnings Call

April 30, 2013 3:00 pm ET

Executives

Paula B. Schwartz – Senior Vice President

Joel S. Marcus – Chairman, Chief Executive Officer and Founder

Dean A. Shigenaga – Executive Vice President - Chief Financial Officer and Treasurer

Analysts

Emmanuel Korchman – Citigroup

Michael Bilerman – Citigroup Global Markets

Jamie Feldman – Bank of America Merrill Lynch

Matthew Rand – Goldman Sachs

Sheila McGrath – Evercore Partners Inc.

Jeff Theiler – Green Street Advisors

George Auerbach – ISI Group

Michael Carroll – RBC Capital Markets

Anthony Paolone – JPMorgan

Operator

Welcome to the Alexandria Real Estate Equities, Inc., First Quarter 2013 Earnings Conference Call. My name is Aran and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Ms. Paula Schwartz. You may begin ma’am.

Paula Schwartz

Thank you, good afternoon. This conference call contains forward-looking statements within the meaning of the federal securities laws. Actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company’s Form 10-K, Annual Report and other periodic reports filed with the Securities and Exchange Commission.

Now, I would like to turn the call over to Mr. Joel Marcus. Please go ahead.

Joel S. Marcus

Thanks, Paula, and welcome everybody. We’ll try to be somewhat shortened format hopefully we leave more time for Q&A and efficiency on a busy earnings day. Starting on the macro, we’re obviously fortunate that ARE have the very good business with the highest quality team, Class A assets, cluster hub locations, really world class tenants and I hope that continuing really great disclosure. We’re blessed to have significant opportunities to grow in our core CBD cluster markets and luckily don’t need to stray away from world-class locations.

I think it’s fair to say that we have finally achieved the renaissance for life science R&D in the best cluster sub markets where ARE dominates, if you read April 29, addition, there was a great quote in there, let me share it with you, we could be witnessing a substantial re-rating where instead of a discount on R&D premium could ultimately be awarded for the potential option value of curing disease and therefore really our focus is and has been bio and pharma in core cluster markets.

Important to note, two of that area has only 7% about, 7% of ABR exposure to those specific universities and non-profits in the tenants sector which are much more heavily dependant on government financing and we seek to be doing business with those that have large endowments in the center of the clusters.

On internal growth for a moment, let me just transition there, we had a very solid leasing quarter of almost over 700,000 square feet, we’ve only got about 568,000 square feet left to lease in the balance of 2013 on lease rolls and about 309,000 unresolved.

So this is actually pretty minor compared to the usual strong effort is being made to lease up purely vacant space by our first-in-class regional teams and that should positively impact occupancy across all regions, both starting in the second quarter and beyond.

On occupancy, the trend for the balance of 2013 will clearly be positive. San Francisco as expected experienced a temporary decline due to some moves, but we expect to recover nicely starting in the third, into the fourth quarter and primarily attributable to the Onyx move.

San Diego decreased a bit due to some vacancy and newly operating properties but once again our strong domination of the San Diego lab leasing market will move that very positively through the balance of 2013 and we feel very comfortable with our year-end forecast, occupancy forecast of 93.9% to 94.3% and certainly hope to beat that.

On the external growth side, we have very solid leasing quarter for redevelopments and developments of almost over 450,000 square feet heavily attributable to the area than Onyx leasing. And we hope that we would like to know an improved disclosure on developments and redevelopment that should make it very clear to follow these projects and visualize the high quality and the details of what we’re doing in those value add programs.

On the development leasing, we have signed a 131,000 square foot for fourth floor LOI with the credit tenant at the Alexandria Center for Life Science, New York City and several other LOIs are in process. We actually have quite a number of active prospects probably more than a half dozen, who are actively engaged with and heavily interestingly enough coming from both Japan and Europe from Pharma. We expect to be hopefully close to 50% leased as we head into the summer months. We expect in the June and July timeframe to have 499, substantially fully leased and resolved, so stay tuned.

On the balance sheet and Dean will speak about this a bit. We’re on target to hit our leverage target by the end of year and we refer you to the details on – are in the press release. On the expected sales, we got $45 million of non-income producing assets under negotiation right now. $65 million projected from the partial sale into the joint venture from 75/125 Binney, which is ongoing and the remainder would be about $125 million coming from additional domestic and potentially favor to internationally of non-income producing assets. So we think it’s imminently achievable and being highlight the EBITDA on boarding through the end of the year.

On the sales of income producing assets and a recycling program we’re mostly done for 2013, for income producing assets very modest amount for 2014, total NOI loss at a maximum for 2013, 2014 the balance would be probably less than $2 million and then we hope we would refer you to land undergoing pre-construction, we’ve got some new land and hopefully very helpful disclosure, so that over time, we can restore the valuation for those great projects that are well deserved and then finally on the dividend side, I would expect that the Board would continue to look at sharing increasing cash flow with our shareholders.

So stay tuned on that. So let me turn it over to Dean.

Dean A. Shigenaga

Okay. Thank you, Joel. Let me just start with our balance sheet, we made good progress in the first quarter and I’d like to provide an update on important initiatives through the remainder of the year. Cash flows from operating activities after dividends are on track at $130 million to $150 million.

We are basically done with the sale of income producing assets; we completed $124 million in sales in the first quarter. We have three properties held for sale as of quarter with the net book value of approximately $7 million, including about $4 million that was sold in April.

Briefly on our unhedged variable rate debt, over the near term, we expect our unhedged variable rate debt to range up to approximately 30%. Our strategy includes having an amount outstanding of unhedged variable rate debt to allow us to opportunistically issue unsecured bonds and repay outstanding unhedged variable rate bank debt.

Moving on briefly to our guidance on our unsecured bond offering, clearly our first priority is our 10 year bonds as far as ten year goes to extend our maturity profile and transition variable rate debt to fixed rate debt. Our pricing for a ten year paper for Alexandria is approximately in the mid 3% range. And to just give you some other data points, seven year paper is a roughly 2.75% for the company. We expect to prudently manage our maturity profile ten years from now. So a midpoint target for our ten year unsecured bond offering this year is in the $400 million range.

We will look opportunistically to issue additional unsecured bonds to reduce our unhedged variable rate debt to less than 18%. As Joe highlighted, we remain focused on reducing our leverage to approximately 6.5 times targeted by the end of the year. The majority of the improvement in leverage will occur in the second half of the year and we expect our EBITDA growth from the first quarter to the fourth quarter to range from $10 million to $13 million.

Moving on to our construction forecast for 2013, you probably noticed it’s up about $25 million at the midpoint. Our current range is $570 million to $620 million, $13 million of the increase related to the commencement of our build-to-suite for Onyx Pharmaceuticals at 269 East Grand. And we also add about $10 million increase attributed to the timing of construction and the completion of our joint venture transaction for the project for ARIAD Pharmaceuticals at 75/125 Binney Street.

Briefly to update on two construction loans we have in process, the first is for 269 East Grand, the project for Onyx Pharmaceutical. We expect the closing to occur in the second quarter to about $36 million loan at about 70% loan to cost and pricing is probably about 140 over 1 month LIBOR. The other loan that’s in process is for 75/125 Binney, again its construction financing in the low $200 million range, the loan to cost in the 60% to 70% range and pricing is somewhere in the upper 2% range over one month LIBOR.

Moving onto same property performance, we really delivered our fourth consecutive quarter of upward trend in cash NOI growth, 2%, 4% 6% and now 8.8% for each quarter from the second, third and fourth quarter of 2012 through the first quarter of 2013 respectively. Probably notice that we provided two other calculations for same property performance in comparison to our historical same property performance as shown on Page 16 of our supplemental package.

From 2008 through 2012, including first quarter, our same property performance was generally consistent over this period with the other calculations. For the first quarter of 2013, our same property performance including our redevelopment properties would have been meaningfully higher as shown in the chart at approximately 11% on both the GAAP and cash basis in comparison to 0.4% on a GAAP basis and 8.8% on a cash basis. Same property performance including redevelopment properties will from time to time have significant growth in net operating income as a result of completion of the conversion of non-laboratory space generally with lower net operating income to laboratory space generally with higher net operating income through our redevelopment process.

We believe our traditional method of reporting same property performance is a more useful presentation since it excludes the potential significant increases in performance as a result of completion of significant redevelopment projects. Same property expenses for the quarter were up about 6% driven by an increase in recoverable property taxes and colder weather this year in 2013 versus 2012, and as a result we had higher snow removal cost and steam utility expenses.

Lastly on our guidance, our guidance for 2013 was updated to reflect the tightening of our range by $0.02 for both the upper and lower end of the range, EPS diluted was given at a range from $1.43 to $1.59, FFO per share diluted was given at a range from $446 to $462. And lastly, our assumptions detailed out in our forward guidance for 2013 are included on pages three through six of our earnings release and supplemental package. With that, I will turn it over to Joel.

Joel S. Marcus

Well operator, we are ready to open it up for Q&A.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And we’ll take our first question from Emmanuel Korchman with Citigroup.

Emmanuel Korchman – Citigroup

Hi guys good afternoon.

Joel S. Marcus

Hi.

Emmanuel Korchman – Citigroup

I was just wondering with so much capital activity included in your new guidance for this year? Could you give us a better idea of timing of perhaps the ATM and unsecured bond issuance and kind of why not the bond issuance now given try to break some of the market?

Joel S. Marcus

Well I guess that’s a question, you could ask of almost any offer in one does. I think we’ve been heavily focused on a number of other things in the first quarter completing our asset sales certainly in the second quarter, we’re in pretty heavily focused on the financing, the bank financing of the construction loan financing of the two projects that Dean referred to. We’ll probably look to tap the ATM a little bit over the coming 2Q, 3Q into 4Q, and we’ll look probably as we start to get into early summer at the bond market.

We’re pretty comfortable with the – the state of the overall bond market. We don’t think the Fed is moving in any different direction, but we’ll clearly tepid it and as Dean outlined, our goal is to reach the targeted numbers that we said likely of $400 million bond offering and obviously turn that out. So I think I’d stay tuned. We no longer necessarily commit any particular time but as we get closer to the summer months and finish up some of the other critical priority transaction especially non-income producing sales we’ll clearly turn to the bond there.

Michael Bilerman – Citigroup Global Markets

Joel, its Michael Bilerman. You just ever know what external forces could have an impact on the bond market or the equity markets for that matter and – moving out. So even if you have a desire to wait till all the summer. I guess would you at least do a rate lock so that you can lock in where you stand and rather than take any risk or just issue it. You can wakeup tomorrow morning and issue bonds, it’s not like you need to do a lot of work to do that construction, financing or mortgage won’t take a lot more time but doing at unsecured issuance seems to be pretty simple.

Joel S. Marcus

Yeah well everything takes time and its allocation of resources. I think on the rate lock I mean my own view is I think the economy is actually going to get worse not better. So I think you actually may see rates come down even more than they are today. So I think I would watch the rate lock pretty carefully and I’m not so sure that we are going to see rates move against us but clearly we’re paying close attention to that for sure.

Michael Bilerman – Citigroup Global Markets

Thanks for that guys.

Joel S. Marcus

Yeah. Thank you.

Operator

We will take our next question from Jamie Feldman with Bank of America Merrill Lynch.

Jamie Feldman – Bank of America Merrill Lynch

Great, thank you. Can you talk a little bit more about your increased confidence on leasing at 499 Illinois and also at West Tower?

Dean A. Shigenaga

I can’t on 499 Illinois other than to say what I said, we’re, I think relatively comfortable after a long period of waiting almost two years here that we will substantially sell the building and I would say just stay tuned for an announcement, I don’t want to say more than that and that is to relatively sell the building. On the New York project, I think I gave color on that, I’m not sure what else you want to know, but feel free to ask it specifically.

Jamie Feldman – Bank of America Merrill Lynch

And you talked about European and Japanese former tenants, what’s the average size of some of these leases and then where do you think rents are in both that versus your underwriting for that project in 499?

Dean A. Shigenaga

Yeah, on 499 I don’t want to make any comments at the moment on New York, as I said, we’ve signed a 1 LOI with rental rates very much along the lines as we expected and they would not negatively impact our yields, impact there might be some bump coming up over time that fourth floor is 131,000 square feet, we’ve got another half of floor under active LOI negotiations, another half floor got put back a few months due to a financing, so we’re waiting on that, and we have a number of LOIs that are out waiting for sponsors.

I would say on Japanese interest and European interest there seems to be substantial from something like half of floor and as much as a floor, but again it’s early on and I can’t say too much, but we’ve got a number of European firms and a number of Japanese firms one who is already a sizable tenant of ours and another market actively looking. So we feel pretty good about things. And I don’t know, Peter you want to make any comment overall on yield?

Peter M. Moglia

I guess the only thing, I would say is that the rental rates are holding very well that what we’ve underwritten and put into the disclosures. I would say that we’re doing better is in absorption. We had a much more conservative absorption period in our numbers. So we’re looking to improve on that and if everything goes as plan, we should.

Jamie Feldman – Bank of America Merrill Lynch

That’s helpful.

Peter M. Moglia

Sorry, I can’t say more on 499, but I’d say stay tuned.

Jamie Feldman – Bank of America Merrill Lynch

Okay. And then can you just talk about any change in appetite for the asset class, the life science office asset class, we’ve seen with CMBS improving, you’ve just seen more capital flowing into either secondary markets or just different property types in core Class A office. Is anything changed in the last three months in terms of appetite?

Joel S. Marcus

As far as for acquisition or financing, James?

Jamie Feldman – Bank of America Merrill Lynch

Its sales of your – people are more interested in your asset.

Joel S. Marcus

Sure.

Dean A. Shigenaga

Well, we’re kind of done with the income producing asset sales. But we did have a cadre of folks that we’re kind of in each and every deal that we were looking at that we’re interested in the repositioning of the assets and maybe taking on some of the capital that was going to be needed to reposition more to potentially be a lab owner in Suburban.

And so I can’t really tell you if anything is changed recently, because we haven’t really marketed much of anything outside of the one property that we closed this last quarter in Pennsylvania and that was sold to a company that was actually purchasing the main tenant of that property.

So that was more of a user sale. So I’m not sure, I can give you any more color.

Jamie Feldman – Bank of America Merrill Lynch

Okay, thank you.

Dean A. Shigenaga

Yeah, thanks Jamie.

Operator

We’ll take our next question from Matt Rand with Goldman Sachs.

Matthew Rand – Goldman Sachs

Hi. Thanks for having the detail this quarter on the land bank. It looks like two-third of your pre-construction and future development land is in four parcels in Cambridge and the San Francisco bay. Can you talk through those four parcels to make up that value and kind of what your timeline is for starting developments there?

Joel S. Marcus

Yes, (inaudible) for a second, yeah, so I guess 33 and 34 you may be referring to. So on 33, the two important parcels and they are pretty well highlighted as to geography square footage etcetera, 100 Binney and 50 Binney. We’ve talked about each of those a little bit on past calls and then in conferences. Our timeline, I think would be to try to monetize those in the one to three year period. We think that demand in Cambridge would allow us probably to move forward with a 100 Binney, probably sooner and then potentially 500 Binney. We are also looking at doing two buildings at 50 Binney potentially we’re looking at some other opportunities there. But I would say monetizable, our goal is within a one to three year range and hopefully even sooner.

On the right hand side, you see the Illumina campus. There are two additional buildings totaling almost 400,000 square feet. We are moving forward with certain San Diego permitting as requested by Illumina there. In fact their stock and their earnings have been pretty strong. So, as they decide if and when they need to expand we’ll be ready, we’ve just delivered a number of buildings to them. So, we think over the short- to medium-term, those are eminently monetizable by building for them but we’ll wait to hear further from them.

On the next page, Campus Point which is virtually full at the moment, we’ve got one existing tenants and potentially two kind of clambering for space, so we’re working on getting the San Diego entitlement to build something up to close to 150,000 square feet.

We think this is eminently monetizable in the more near term and actually the construction path that we mentioned down below there is one type of 452 to 505 yeah 450 to 505 not 550 to 605. So we think that is a near-term opportunity with the one to two existing high quality tenants there.

And then on the Salt Lake Union land, we’ve got a number of opportunities both from potentially institutions and potentially even tech tenants which are assuming to take over that market and we’re doing some entitlement work and working hard to see if we can monetize which we expect on at least one or two of these parcels probably in the relatively near-term as well.

So we feel pretty good about that, if you flip over to page 36, once we put 499 to bed, our attention will turn to 1600 because we think there is some pent-up demand down in Mission Bay certainly institutionally, we think with coming on of half the three hospitals and the demand for a variety of users that then becomes center stage.

We’ve had a number of employees, one in particular from a major hospital system working at that, so that could, we think that’s maybe a little bit more out beyond the year but hopefully maybe sooner than we think. Again once we finish with 499 and then on Page 37, we’ve highlighted the Phoenix campus and what else we can do, we can build another building there north of a 100,000 square feet, we feel that they will probably fast-growing companies, their stocks been on fire, their cancer products have really been well received in the markets, so we fully expect to build that project.

And then finally in 9800 Medical Centre, we really have two great buildings there, but I think given the market in Maryland at the moment, and until that market further strengthens, we likely wouldn’t be building that. So I think that is more out beyond the near to medium-term. So hopefully that’s helpful.

Matthew Rand – Goldman Sachs

Okay. Yes. Thank you. Just one more parcel on South San Francisco to $73 million had I guess roughly echo, can you give us any color on that?

Joel S. Marcus

Those are, we originally aggregated a serious of parcels right after the time when Genentech business, pre-Roche acquisition filed there overlaid to the South San Francisco planning direct and in which day then I can’t remember the year, but it probably was right around ‘07, ‘08 they expected to double the size of their campus in South San Francisco, so what we try to do and working closely with them was to align a series of properties, it’s pretty clear that that’s not going to happen. And so I think we would probably look to either find users for those where we could build or potentially exit those assets?

Matthew Rand – Goldman Sachs

Okay thank you. And then one last quick one, there’s been some talk in the industry about the opportunities that do you kind of on-campus university deals, how do you look at that model generally and that is an opportunities that for you guys?

Joel S. Marcus

Yeah, we had looked at it, we were involved with some, I think it’s practically very hard because of 501(c) rules, so I don’t think the opportunity is as great as one would imagine. I think also one have to look today again with the challenges of federal funding and lesser dealing with credit strength of universities like MIT or others, Harvard. Going to outline universities could prove to be very challenging because their financial situation certainly under government budget pressure is going to be tough. So that’s not something we are particularly pursuing.

Matthew Rand – Goldman Sachs

Okay. Thank you.

Operator

We will take our next question from Sheila McGrath with Evercore Partners.

Sheila McGrath – Evercore Partners Inc.

Yes, good afternoon. Joel, I was wondering if you could talk about acquisition opportunities in your markets. Is there anything noteworthy that you’re looking at or that you attempted to bid on and weren’t the winning bidder?

Joel S. Marcus

Yeah. So far this year, we really haven’t been active in bidding. We do have a pipeline in each and every one of our core cluster markets. We’ve been really stringent not going outside of those. So we are focused on the best markets in downtown Seattle, clearly the West Bay of San Francisco to refines. We did buy one great set of assets up there last year in the spring which we will redevelop here hopefully over the coming year, down into refines.

Clearly Massachusetts in the more CBD area, we are looking at opportunities and probably may be in and around New York in the city potentially if we have a large firm that comes from overseas that we couldn’t accommodate at the Alexandria center. We might look for another Manhattan site, but we vigorous or really carefully stayed out of the suburbs because we are certainly trying to avoid as many of these suburban assets as possible because we think the best growth, the highest quality cash flow is going to be in the CBD cluster market. Peter, you could comment broadly too.

Peter M. Moglia

I just – Sheila that I think, we’ve been out of the acquisition game for a little bit, but in looking around at all the different regions as Joel said, there are probably as many opportunities today as there were the last time we were in the market. So that’s encouraging. And there is some really interesting high quality assets that could be immediately accretive if we were able to get them at the right price. So we’re keeping our eye out and but focused on all the other goals we have right now.

Sheila McGrath – Evercore Partners Inc.

Okay. And then Joel, I noticed in your annual report you mentioned that NYU Neuroscience is a tower too and I was just wondering if you could give us a little more detail on that and where...

Joel S. Marcus

Yeah they are in Tower One.

Sheila McGrath – Evercore Partners Inc.

Okay, I thought it’s…

Joel S. Marcus

Yeah that’s in Tower one and they are funded by the Druck and Miller Family. So actually its a specific funding from an outside funding source and they hired a world-class actually he is pictured in the annual report, Richard Jen, his brother is a Nobel price winner who is having, really searching for answers and ultimately halfway some products to unlock some critical diseases including dementia which is probably the biggest market opportunities that exist. So there are in couple of floors in the East Tower.

Sheila McGrath – Evercore Partners Inc.

Got it. And then Dean on Tower 2 it is stated to come online in fourth quarter. Is that really lay the fourth quarter or?

Dean A. Shigenaga

Yeah. As you can imagine, we had a pretty short timeline in order to deliver Roach, the space to Roach. So we are really looking for a December, early to mid December delivery of the first phase in the second tower.

Joel S. Marcus

Yeah, we get or we’re on track to do a TCO by December 15 Sheila, and actually tomorrow while be in New York for the topping out ceremony at the West Tower. It’s moving as fast as I think any vertical construction is literally ever moved to New York and we expect to have Roche, starting to move in there hopefully in December.

Sheila McGrath – Evercore Partners Inc.

That’s great. One last question on leasing spreads in the quarter on a GAAP and a cash basis were – ahead of your guidance and pretty strong whether one or two stands out leases or markets that we should know about it that move the number as fair?

Dean A. Shigenaga

Yeah, I think San Francisco was importantly – important in that number and I think San Diego was as well. So it’s varies, but those were – I’d say it is standup markets this quarter.

Sheila McGrath – Evercore Partners Inc.

Okay, all right thank you.

Dean A. Shigenaga

Yeah, thanks.

Operator

We’ll take our next question from Jeff Theiler with Green Street Advisors.

Jeff Theiler – Green Street Advisors

Just a question about the long-term potential of the Mission Bay area, you’ve obviously got some good near term traction with 499 Illinois or at least starting to get some good traction there. What’s the timeframe for that market fully developed and does that – does the hospital once that and that gives the market critical maths or you assuming some additional tenants to move in there to really build a long-term sustainable cluster? And how do you expect to be working with sales force going forward to I guess maintain your presence in that market?

Joel S. Marcus

Well, I would say that is a viable ongoing on vital cluster today. I mean think if – have you been down there Jeff?

Jeff Theiler – Green Street Advisors

Yes I have.

Joel S. Marcus

Yeah, I mean if you go down there, you’ll see the UCSF’s research campus is relatively fully developed, housing is amazing, we’re seeing increased retail, obviously we’ve got a number of commercial centres there, the hospital when it comes on in late 2014, early 2015 three of them will really kind of create an explosion of people down there, The Third Street Light Rail is in.

So I don’t think there’s anything left to do, except continue to build it out. I think this clusters has moved, if I think about Cambridge in the early days and University Park for the city really pioneered that took about a 10 year effort. This has really taken a lot less in a sense. Susan Desmond-Hellmann who is new chancellor of UCSF, she used to run Genentech’s product division very heralded person. She is building her headquarters building if you will down there.

So it’s great. I think the only thing that is really missing is, probably and even more robust tech presence, but I think with Cisco down there, I think you’ll see some other great entities and again you’ll hear about some of those coming down there. I think it’s a thriving fully integrated cluster and we’re very appreciative to have the really the ground floor opportunity there. I think we’ll continue to monitor sales force, I mean if they continue to grow who knows, they may end up building some stuff down there, and if not, may be we’ll have a chance to do some things further down there as well. But luckily it’s off our balance sheet for the moment.

Jeff Theiler – Green Street Advisors

Okay that’s great color. Thank you.

Joel S. Marcus

Yeah.

Operator

We will take our next question from George Auerbach with the ISI Group.

George Auerbach – ISI Group

Great thanks guys. Joel thanks for the color on the land sales and the asset sales this year. I guess if you could focus on the $125 million of non-income producing sales that have yet to be identified?

Joel S. Marcus

Yeah.

George Auerbach – ISI Group

I guess, can you breakdown for us as you’re sort of think through that bucket. How much is land and how much is I guess under leased or at the buildings?

Joel S. Marcus

There might be a little bit of the latter, but mostly I mean if you could imagine if we joint venture, one of the Binney projects 50 or 100 that would more than enough to take care of that amount and we have active discussions on that right now. We have some active tenant discussions going on. So if we do what we did or what we’re planning on doing and Peter is really heading up this project with Tom Andrews if we, JV the 100 or 50 Binney were done.

George Auerbach – ISI Group

Okay, so we shouldn’t be surprised if part of that in source of capital is JVs of developments?

Joel S. Marcus

That’s correct.

George Auerbach – ISI Group

Okay. And I guess maybe to tie back to Jamie’s question, I guess any thoughts about increasing the income producing asset sales target for the year. Just given where…?

Joel S. Marcus

I don’t think we have to, because the thing what we’ve try to do is we’ve tried to exit some of the submarkets as Peter had talked about last time, First Hill in Seattle, we wanted to exit or still we’ve got two other assets out there but we will probably exit next year that are under option. So that will move us out of that market, totally, we’ve wanted to lighten up but not access the Maryland (inaudible) market.

So we’ve kind of done what we’ve wanted to do. I don’t see us doing anything more there. We’re comfortable with our position. We’re getting more fully lease there and rental rates are finally taking hold and we’re not having design roll down leases, so that’s a good sign.

We like our asset base in North Carolina by and large in the triangle. We like to exit New Jersey and you’ll probably see us do that. But those are kind of minor assets. We’re trying to exit Pennsylvania. You’ll see more in this quarter and maybe another, I think we maybe have one asset left. And we might lighten up a little bit in San Diego, as you see in the discontinued ops in Sorrento Mesa on a couple of assets where we think we’d like to put that money more in University Town Center in 20 times where we have a lot of activity and our leasing has been pretty much superlative. So I think we don’t have anything more we have to go, we’re pretty much done by and large.

George Auerbach – ISI Group

Okay. That’s helpful. And I guess just one last question. Some of that has were yet to be identified, it sounds like some of that might just be potential JV’s, but other assets that you might identify for sale, I guess at what point of year do you have to identify those assets by just given the timing to just sell assets?

Joel S. Marcus

Yeah, my guess is over the next several months George, because it does take time to execute on the transaction, so if we’re not there in the next three months to five months, I think we would have a challenging time to complete it by the end of the year.

George Auerbach – ISI Group

Great, thank you.

Joel S. Marcus

Yeah. Thanks very much.

Operator

We will take a follow-up from Emmanuel Korchman of Citigroup.

Emmanuel Korchman – Citigroup

Hey guys. There is a couple of follow-ups from me. If we looking at your leasing schedule, it looks like the renewal leases were done sort of shorter terms than typical and also at higher TIs, can you help us kind of compare those two numbers and previously on there?

Joel S. Marcus

Yeah, I would say don’t read anything into any particular quarter, shorter term leases, sometimes we’ve hadn’t bounce around two, three, four years whereas development, redevelopment tend to be five, 10, 15 plus, so I don’t think there is anything you could read as a big trend. And then I think on TIs and so forth. Again, I think I wouldn’t read anything special. They’re kind of one of the mill, I don’t think anything and I ask in Dean, I can’t remember anything this quarter that was particularly unusual. So it’s a pretty average quarter.

Dean A. Shigenaga

And I think on Page 17, we’ve added trailing 12 months disclosures on leasing activity. To give you a sense that a quarter can be anomaly because it’s relatively small amount of activity, but on a trailing 12, you can see the statistics are pretty similar over the last several years.

Emmanuel Korchman – Citigroup

Sure, thanks. And then Joe, in your opening remarks, you mentioned that some of the non-income producing sales could be international, which actually means India…?

Joel S. Marcus

Yeah, we have a non-income producing land parcel or an unoccupied building. We might choose to monetize that, because we’ve got some great location. So those would be I think relatively easily achievable. But I think the bulk of what we’re talking about is domestic. So I wouldn’t, don’t hold your breadth on that.

Emmanuel Korchman – Citigroup

Great, thanks for the clarification.

Joel S. Marcus

Yeah, sure.

Operator

(Operator Instructions) We will take our next question from Michael Carroll with RBC Capital Markets.

Michael Carroll – RBC Capital Markets

Yeah. Thanks. And Joe, I guess from of that last question, I know you indicated previously that you might be want to find a partner for China and India asset, is that simplifying?

Joel S. Marcus

Yeah, we think that it’s important, because capital allocation as you clearly see from our schedules is heavily weighted to large scale development and to the extent that we see opportunistic acquisitions that makes sense. We want to look at those from time-to-time in our core cluster markets. And so we clearly would like to have a partner who been help us finance, those operations and we think there is a strong group of international folks who would like to have high-quality assets with good quality tenants, much like you’re in the U.S. So that’s kind of our game plan.

Michael Carroll – RBC Capital Markets

Have you started those discussions yet?

Joel S. Marcus

Yes.

Michael Carroll – RBC Capital Markets

Okay. Can you give us any timing as if whether ‘13, ‘14 event?

Joel S. Marcus

Not yet.

Michael Carroll – RBC Capital Markets

Okay great. And then my last question on 499 Illinois maybe you can talk about it like could you kind of tell us where you’ve seen more of the activities from for the last tenant or from the traditional office tenants?

Joel S. Marcus

Yeah, we’re not currently engaged with what we have requirements from office tenants, but that’s not what we’re moving with.

Michael Carroll – RBC Capital Markets

Okay, great thanks guys.

Joel S. Marcus

Yep.

Operator

We’ll take our next question from Anthony Paolone with JPMorgan.

Anthony Paolone – JPMorgan

Thanks. So where our cap rates for – say roughly a life science asset and your key cluster markets?

Peter M. Moglia

Hey Tony its Peter. It’s going to vary, but I would say that in Cambridge right now you’re probably sub six if you got good credit behind the tenant. New York would probably be around five to maybe less than that considering what I’ve been looking at through some of the market reports from brokers. Then you go down to San Diego it’s a very strong market too, but cap rates don’t tend to go that low.

So you probably be something with the six and all, but low there as long as you had high-quality building, something like the Kansas point though or the Illumina, Kansas. I wouldn’t want to sell, because it’s so valuable, but if I did, I would definitely look for something sub six. Maryland and RTP in the suburban markets, it goes up quite a bit. You’re probably talking about a couple of 100 basis points above the clusters.

Nothing that we’ve sold that you’ve seen recently can really be a good comp, because of things we saw that really been coming off leases, so income wasn’t behind those values. But I would imagine that if we sold something like a West Watkins or Clopper that was sold last quarter and those – the income was perpetual, we would have been able to sell those something around mid 7s to 8.

Anthony Paolone – JPMorgan

Okay, thank you. And just on the idea of joint venturing 75/125 Binney and just perhaps some other stuff, just curious how you landed on that asset versus say some others that might be either development or redevelopment or even an existing asset that might be a bit more stabilized at this point?

Joel S. Marcus

Well, it’s a good opportunity for balance sheet purposes to do that. There is a huge amount of interest in Cambridge Class A assets with strong tenant. So, and the numbers are sizable and we’ve got a sizable construction pipeline. So it made sense to look at that. I mean if we did an Onyx, which is much smaller, lot of brain damage for not a lot of [pub]. So that’s the one that makes eminent sense and there is some risk of future lease up that we can take advantage of I think as well.

Anthony Paolone – JPMorgan

Okay, thank you.

Joel S. Marcus

Yeah, thanks Tony.

Operator

And we have no further questions at this time.

Joel S. Marcus

Okay, well, thanks everybody. We did it in less than 45 minutes. So we’ll look forward to talk you on the second quarter. Thank you.

Operator

That does conclude today’s conference. We thank you for your participation.

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