Biomed Realty Trust's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb. 6.14 | About: BioMed Realty (BMR)

Biomed Realty Trust Inc. (NYSE:BMR)

Q4 2013 Earnings Call

February 6, 2014 01:00 PM ET

Executives

Rick Howe - IR

Alan Gold - CEO

Kent Griffin - President

Matt McDevitt - EVP, Real Estate

Greg Lubushkin - CFO

Analyst

Vance Edelson - Morgan Stanley

Gabe Hilmoe - UBS

Brendan Maiorana - Wells Fargo

Tayo Okusanya - Jefferies

Jeff Theiler - Green Street Advisors

Daniel Bernstein - Stifel

Jordan Sadler - KeyBanc Capital

Rich Anderson - BMO Capital Markets

Operator

Welcome to the Q4 2013 BioMed Realty Trust Inc. Earnings Conference Call. My name is Cherie and I'll 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.

Now, I'd like to turn the call over to Rick Howe. Rick, you may begin.

Rick Howe

Thank you and welcome everyone. Today’s fourth quarter and full year 2013 earnings call includes a slide presentation to accompany our prepared remarks. If you are not currently viewing the slides and would like to do so, please go to www.biomedrealty.com, click on the Investor Relations tab on the left and then click the Q4 2013 BioMed Realty Trust Inc. Earnings Conference Call link. We have also posted these slides on the Investors Relations tab of our website under the title Investor Presentation - February 2014.

Presenting today are Alan Gold, Chief Executive Officer; Kent Griffin, President; Matt McDevitt, Executive Vice President, Real Estate and Greg Lubushkin, Chief Financial Officer.

Before we begin, I'd like to remind everyone of the Safe Harbor statement included in yesterday’s news release. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements, including statements made during the course of today's conference call. These forward-looking statements are based on the Company’s current expectations and involves significant risks and uncertainties, some of which are beyond the control of the company and are subject to change based on various factors. Actual results may vary materially from those expressed or implied by the forward-looking statements. For a detailed discussion of some of the ongoing risks and uncertainties of the Company's business, I refer you to the news release issued yesterday and filed with the SEC on Form 8-K as well as the Company's other SEC filings, including its most recent Annual Report on Form 10-K and the quarterly reports on Form 10-Q. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I will now turn the call over to Alan Gold. Alan?

Alan Gold

Thanks, Rick, and welcome everyone. Now, when Gary and I started this business over 20 years ago, we recognized that the Life Science industry required something unique and specialized that a standard commercial real estate company could not provide. As I sit here today, our vision has become a reality. Life Science companies are relying on expertise of BioMed Realty for their real estate needs and appropriately focusing their resources on their important science. We’ve come a long way, now in our tenth year as BioMed Realty Trust. The most exciting thing is that I see us only with beginning of the amazing growth and innovation to come in Life Sciences and BioMed Realty's opportunity to continue to bring the scientific, academic and financial communities together. I look back at 2013 with pride, at the strong foundation we’ve built and optimism for adding to our track record of success.

Our fourth quarter results announced yesterday, which reflect yet another strong performance and tremendous leasing execution, 442,000 square foot of gross leasing in the fourth quarter, generating 187,000 square feet of net absorption for the quarter. The strong quarter results provide an excellent capstone to our record 2013 results, which included 2.3 million square feet in 2013, the highly yearly gross margin in our Company’s history. And our record breaking leasing volume continues to provide the catalyst for additional operating and financial milestones. Our total operating portfolio reached 91.4% leased, very strong same property cash NOI growth of 6.6% and record yearly revenues of $637 million.

The continued strength in core FFO and AFFO allowed us to increase our dividend, up almost 6.5% to $0.25 per share. Our operating successes were partly the result of our portfolio investment strategy, but ultimately our testimony to tested experience and unmatched expertise of our team, more than 230 professionals across the U.S. and U.K. collecting over hundreds of years of experience in all aspects of leasing, development, facilities management and property management which has allowed us to build enduring tenant relationships, now totaling over 300 touching all segments of the Life Science community and providing a source of our repeat business which comprises approximately 70% of our leasing activity.

The U.S. Life Science industry enjoyed a very strong conclusion to 2013 and has started 2014 very positively as well. Capital access in the Life Science industry has been extraordinary. Some of you may recall our past comments where we celebrated the pace of capital raising in 2013, which had been nearly on par with the blockbuster 2012 activity levels. Now that the fourth quarter numbers are in, I’m very happy to report that the fourth quarter capital raising was tremendous, in excess of $32 billion, helping produce an progressive $89.8 billion full year total of 9.3% over 2012, the fifth consecutive year of accelerating capital flows into this vibrant industry.

Taking center stage continues to be the IPO activity, which totaled over $1 billion in fourth quarter. The full-year total of 52 transactions represented a total value of $7 billion, more than five times more than the 2012 total, by some measures, the strongest ever IPO environment for the Life Science industry. In our tenant roster, we’ve seen seven IPOs in 2013 including Bind Therapeutics, Nanostring Technologies, Receptos, Epizyme, Tetralogic Pharmaceuticals, Ambit Biosciences and Intrexon and we know there are number of candidates in the queue for potential IPOs in coming months.

Biotechnology stocks continue their upward path with the Amex Biotech index advancing over 50% year-over-year after rising over 40% in 2012, easily outperforming the broader S&P 500 index and the NADAQ index and even with the recent market pullback in 2014, the Amex Biotech index has outperformed both broader indices as year-to-date it is actually all up almost 5% while the S&P 500 and NASDAQ composite are up are approximately 5% and 4% respectively for the year. The fourth quarter and full-year results for 2013 demonstrated length [ph] of our business model of institutional investment in Life Science real estate in our singular focus on serving unique needs of the Life Science industry.

Before turning the call over to my colleagues, I also want to mention that we are honored to welcome Dr. Bill Brody to our board of directors, an internationally recognized leader in the Life Science industry and academia. Bill is currently the President of Salk Institute of Biological Studies, one of the preeminent research institutions in the world. He brings his vast Life Science experience, expertise and relationships to an exceptional and highly accomplished board and has already begun to provide valuable wisdom and guidance in investing in the growing Life Science industry.

With that, I will now turn it over to Matt to review the fourth quarter leasing results in more detail.

Matt McDevitt

Thanks, Alan. The strong leasing activity and results in the fourth quarter were generated from both coasts with 34 leasing transactions and growth volume of approximately 442,000 square feet of space. This resulted in approximately 187,000 square feet of positive net absorption. I want to congratulate and thank our leasing team throughout the company on their extraordinary achievements in 2013, by far our best year ever, and nearly doubling our five [ph] quarter to leasing goal to 2.9 million square feet. Well done.

The fourth quarter included a lot of new leases, 27 transactions representing over 352,000 square feet of space. Our premier properties in Cambridge Massachusetts continue to lead the way. The Broad Institute is a tenant at 301 Binney dwelling and has been subleasing space from the Whitehead Institute at 320 Charles Street property, which we acquired in June of last year. In December we executed a new pre-lease with the Broad Institute for 100,000 square feet, all of the 320 Charles Street property, which will commence in September. In going direct with us for 100,000 square feet at 320 Charles, the Broad Institute will return an approximately 80,000 square feet of space at our 301 Binney site at the end of August. The net effect of the transaction will be a net increase of 20,000 square feet, but more importantly, as a strong tenant relationship resulted in a direct long-term 10 year lease for 100,000 square feet with one of the world’s leading research institutes.

Also in Cambridge during the quarter we signed a new 44,000 square foot lease with Moderna, a rapidly growing leading biotechnology company pioneering RNA therapeutics at the 320 Bent Street property. At 60 Hampshire we leased 36,000 square feet to iZotope, an audio and technology company. Now 60 Hampshire was a property that we had planned to redevelop following its acquisition in 2012. But based on the strength of the office market and were able to defer the cost of redevelopment and enjoy attractive triple net office rents compared to our original underwriting for lab rent and of course without the time and cost of redevelopment. We also concluded a 28,000 square foot early renewal with Metabolics at our 21 Erie Street property in Cambridge. On the West Coast we signed 44,000 square feet with Asterias Biotherapeutics at our Dumbarton Circle property in the San Francisco Bay area.

As we start in 2014, the level of activity across all of our markets remains very healthy and we are enthusiastic about the balance of supply and demand as well. Our full-service realty team in all of our markets are focused in meeting the needs of our 300 plus tenant relationships. As we did in 2013 with the likes of Regeneron, Bristol-Myers Squibb, Momenta and Washington University, and establishing trusted relationships with many Life Science organizations as we did in 2013 with Life Technologies, Ipsen, and Momenta. We understand that success in this business is predicated on delivering on our commitments to re-earning the confidence from tenants and prospective tenants every day.

With that, I’ll now turn the call over to Kent.

Kent Griffin

Thanks Matt. Looking back on our goals for 2013, we indicated that our primary focus would remain on leasing, which was and continues to be the primary driver creating value for our shareholders and maximizing cash flow and value from our properties. We were confident that we could deliver in 2013, given the steady increase in our lease percentage, same property cash NOI, and cash flow per share cash flow per share over the previous few years, and deliver we did.

Matt took you through our 2013 leasing success. Critical to the success and highly impactful to our business was number of new releases, extensions and early renewals that we did with existing tenants. 83 transactions in 2013, totaling 1.5 million square feet came from repeat business with existing relationships. This is the success measure which I’m most proud of our team, because it is a testimony to their expertise and ability to build trusted relationships with leading Life Science organizations worldwide. This tremendous leasing success drove our operating portfolio lease percentage up to 91.4%, up 420 basis points from where we stood just two years ago.

Moving on to our portfolio, starting with our development pipeline; we completed the initial build out of two major development projects during the fourth quarter ahead of schedule. The larger of the two was 476,000 square feet at the Piedmont Triad Research Centre located in the Wake Forest Innovation Quarter, and it’s 83% leased, anchored by Wake Forest and Inmar. The project is a complete transformation of two historic Tobacco factory buildings into research facilities with both wet and dry labs and office space.

The two buildings 525 at Vine and 635 at Vine are terrific examples of our Wexford team’s inability to improve urban neighborhoods and advance local innovation economies. These projects were scheduled for delivery in Q1 but were completed it in December on a very efficient schedule and though the projects were initially designed to achieve LEED Gold status, we unveiled a couple of weeks ago that both buildings recently earned LEED Platinum designation.

The second development delivery, Heritage @ 4240 in St. Louis is an 184,000 square foot property which is 61% leased anchored by Washington University. We are targeting LEED Platinum for this project as well. You may recall from last quarter that we announced a new lease with Cambridge Innovation Center at the property, which is indicative of the appeal of the area and the level of leasing demand.

Also worth nothing, we have secured the adjacent parcel, which provides us with additional growth and expansion opportunities associated with our @4240 development. So at December 31, we had three active developments in the pipeline; the 297,000 square foot build-to-suit project for Regeneron in New York, which is scheduled for delivery in second half of 2015, the 3737 Market Street project, which will be a 334,000 square feet addition to the University City Science Center, located next to UPenn and Drexel. This project is 55% pre-leased to Penn Medicine and its partners with an estimated in-service date at the end of the year. And 450 Kendall Street in Cambridge, a 63,000 square foot lavatory and office space in the heart of Kendall Square to be delivered in the third quarter of 2015

We’ve increased our total land bank to approximately 4.9 million square feet and we are focused on a few specific projects which we think will attract a highest level of tenant interest over the next 12 to 24 months. The Gateway Pacific development at the entrance to South San Francisco, the Centre for Life Science San Diego, the premier site in UTT submarket and our 500 Fairview property in Salt Lake Union. We have also recently acquired the Chesterfield building site in Durham, North Carolina.

Including all of the investment activity in 2013, we have developed a portfolio that is ideally positioned for growth in 2014 and beyond. That position has been built on a foundation of contractual rent escalations, lease-up opportunities, high quality well located properties, a development pipeline approaching 5 million square feet and proven investment acumen, supported by strong flexible balance sheet.

2013 was a truly extraordinary year for BioMed Realty. We pride ourselves on a history of accomplishing more than we set out to do by raising the bar for ourselves and for the industry and this past year was no exception. Our company achieved great success by continuing to focus on building strong valued relationships with existing and new tenants. We successfully enhanced our team with the strongest, deepest pool of talent in the industry. In 2013 we executed our largest portfolio addition, our largest new development, our largest single lease transaction and our largest total leasing volumes in our Company’s history. We are very excited by the opportunities that lie ahead and look forward to more in 2014.

With that, Greg will now review the fourth quarter and full year results.

Greg Lubushkin

Thanks, Kent. Reviewing the top line results for the fourth quarter, starting with revenues. Our on-going leasing success continues to drive revenues with total revenues up 14% from the fourth quarter of 2012 to $158 million and rental revenues up 13.5% to $118 million, once again setting new company records.

Turning to bottom line results for the fourth quarter, leasing results drove cash basis same property net operating income up over 6.5%. In fact same property cash NOI was up almost 8% if you take out the two Oyster Point properties in South San Francisco which were leased to Life Technologies after receiving a $46.5 million termination payment from a loan. We reported FFO and core FFO per diluted share of $0.34 per share and AFFO per share of $0.31 in the fourth quarter while net income was $0.05 per diluted share and we raised our common stock dividend in the fourth quarter by roughly 6.5% from $0.235 per share to $0.25 per share for an annualized dividend of $1 per share.

Financial results for the full year 2013 were truly outstanding with total and rental revenues up over 2012 by 23% and 14% respectively, core FFO rising 14% and AFFO per diluted share increasing 10%. As of December 31st, our total consolidated revenue backlog on a GAAP revenue basis is approximately $42 million, associated with previously signed leases. This comprises almost $22 million in future annual GAAP revenue commencements related to our operating portfolio and roughly $20 million of future annual GAAP revenue GAAP commencements associated with our development properties.

On a cash basis, the rent backlog aggregates to roughly $43 million. On this total approximately $26 million comes from the operating portfolio with almost $17 million from our properties under development. 2013 was a significant year of growth for BioMed Realty, with our gross assets growing 24% to $6.8 billion. We remain committed to prudent balance sheet management of this growth, financing, leverage neutral mix of debt and equity that resulted in us ending the year with a continued strong credit position. Our fixed charge coverage ratio improved to 3.5 times compared to 3 times at the end of 2012. Debt, as a percentage of total growth assets continues to be sub 40%. Net debt to EBITDA was 6.7 times. Secured debt to total gross assets remained at 10.5%.

Unencumbered rent stands at 77%. Our un-hedged variable rate debt was 12% of our total debt and less than 5% of total assets. And the capacity on our unsecured line of credit, which you will recall was upsized from $750 million to $900 million last quarter, was nearly $800 million at year end. In considering our current strong credit position, I want to highlight and call your attention to three key transactions on the horizon. First, our 73.25% mortgage secured by Center for Life Science Boston matures at the end of the second quarter. We expect to prepay this loan in early April, after which our secured debt as a percentage of gross assets drops in half and unencumbered rents will increase to more than 85% of our total rents.

Second, we expect to [indiscernible] loan with a current balance of $152 million to be repaid by September 30 of this year. And third, we expect to convert the $180 million in outstanding exchangeable note in early 2015. The pro forma effect of these last events drops our total net debt to gross assets to less than 35% and our net debt to adjusted EBITDA drops to 6 times. These three transactions taken together would improve our fixed charge coverage ratio to over four times. This all illustrates the strength of our capital structure today, which when coupled with our liquidity position provides the foundation to support future growth.

As for our 2014 guidance, we’ve kept the range of our previously announced 2014 FFO guidance unchanged at a $1.37 to $1.47 per share, which keeps the midpoint at a $1.42. Assumptions underlying guidance remain consistent with those we discussed last quarter and while we continue to target new investment opportunities, this estimate does not reflect the impact of the any future new investments or related financing activity.

I’m now going to turn the call back to Alan.

Alan Gold

Thanks, Greg. As we entered 2014 and approached the 10 year anniversary of our formation, I cannot help but reflect on what our team has achieved together. Starting in 2004 with a very small portfolio, balance sheet and team, we’ve build BioMed Realty into position of strength, a position of leadership, with a deep diversified property portfolio, an outstanding investment grade capital position and the best people in the industry. I’m really excited about the future of BioMed Realty, a leading real estate focusing on Life Sciences.

I’ll now turn the call over to the operator for questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instruction] Our first question comes from Vance Edelson of Morgan Stanley.

Vance Edelson - Morgan Stanley

So given the strong uptick in the leased rate, just looking for an update on how comfortable you’d feel with a longer term target of 93% to 94%, let’s say and whether two to three years sounds like an increasingly realistic timeframe for that.

Matt McDevitt

That’s a fair assessment. We’re obviously in a really healthy environment with our tenants and we’ve been in the strong environment for couple of years now and the enthusiasm and interest from our tenants has continued into the first quarter. Particularly on capital raising front, we continue to see IPO activity and all that are healthy elements that support our leasing program.

Vance Edelson - Morgan Stanley

Okay. Fair enough. And on the Market Street development in Philly, it looks like the leasing didn’t progress on those 334,000 square feet during the quarter, held steady at about 55%. Was that expected and any reason it can’t climb from here?

Matt McDevitt

No reason it can’t climb. In fact we’re very bullish on Market Street as a whole and that project specifically we are in discussions with a variety of potential tenants there and so we are optimistic about the leasing that we expect to progress potentially even before construction is completed. Remember, we typically expect these anchor projects to be anchored at the start of construction but lot of the leasing typically occurs after you complete balance of the building but we’ve had success and we’re having active discussions on a lot of these projects to continue to do lease of them while we’re in construction, which is again another healthy sign for the market.

Vance Edelson - Morgan Stanley

Okay. Good to hear. And then last question from me. A couple of quarters now without any acquisitions, what are the prospects for bolt-on middle of the fairway type deals, given the strong balance sheet? Is there any pipeline to speak off?

Alan Gold

This is Alan Gold. I think the pipeline continues to be very strong and we are looking at many opportunities in the market. We’ve had continued success. We did over $700 million to $800 million last year and we believe that there is still opportunities for acquisitions going forward in this highly competitive market.

Operator

Thank you. And then our next question comes from Gabe Hilmoe of UBS.

Gabe Hilmoe - UBS

Hi. Thanks. Just a couple of questions on The Broad Institute deal 320 Charles. Can you talk a little bit about what the new direct rents are compared to what Whitehead was paying? And is there still any type of redevelopment planned here? And then maybe what are the prospects for backfilling the vacated space at 301 Binney later this year?

Alan Gold

So you broke up a little bit, but I think what I heard the question to be was to talk a little bit about the Broad transaction and what the economic looks like there and what the redevelopment plan there is.

Gabe Hilmoe - UBS

Right.

Alan Gold

So we’re extremely excited about how that played out. So as Matt mentioned, Broad is moving into 230 Charles asset, last summer when we bought that. So that’s our most recent acquisition. And when we acquired that, we indicated we would expect when that lease expired to do some repositioning to multitenant the asset, a little bit of work to convert it for other tenants. But what we’ve been able to do is to lease the entire project to The Broad Institute with no downtime and no redevelopment cost and at attractive rents. So remember our base is there, is in $500ish per square foot range. So it’s a very attractive cash yield.

But more importantly, what’s exciting about it is, as Matt mentioned, we’re taking them out of 301 Binney and we’re letting them off the lease there in August. And so we really get 80,000 square feet back at 301 Binney. The space that they’re giving us back is space that they were renting on a rent schedule that was going to be in the 30s shortly and so that’s basically, we’ll be able to lease, what we think is going to be in the 50s. So that’s the real excitement. Not only are we leasing the 320 Charles asset immediately, with no downtime and no redevelopment cost but we’re also enabling us to increase the rents of 301 Binney. It’s another testimony to our ability to leverage lasting relationships with high quality organizations like The Broad Institute in a way that creates value for them and for us.

Gabe Hilmoe - UBS

Okay, maybe just a follow-up to that. The lease with Broad Institute, does that positively benefit the absorption number in the quarter, given they’re moving out in August of this year?

Alan Gold

The question was does it positively increase the net absorption for the quarter? No, it’s a prelease.

Gabe Hilmoe - UBS

And then maybe just one quick one for Greg. I don’t know if you’ve given this but do you have a forecast for what the straight line rents are in ’14?

Greg Lubushkin

Nothing updated. I mean, I believe we gave some level of guidance. I don’t recall if I discussed it specifically with some of you or whether we’ve announced at the quarter. But we did talk about it last quarter. I don’t have an updated number and I’m happy to talk to you about it further offline.

Operator

Thank you. Our next question comes from Brendan Maiorana of Wells Fargo.

Brendan Maiorana - Wells Fargo

Question to start with I guess, Greg. The timing, it’s very helpful in the detail and cash rents and the GAAP rents. Do you have a sense of on the operating portfolio; I think its 26 million of cash you’ve mentioned and maybe 22 million of GAAP. How that is likely to come through into the NOI? Is that a two year process? Is it over the next 12 months? Can you give us a sense of color there?

Greg Lubushkin

First of all, recall that those numbers are annualized rents. So the actual amount that will come in 2014 will be dependent upon the timing of those rents commencements. In general looking, at the split, you’re looking at roughly two-thirds of the rents coming in in ’14 and the remainder starting in ’15.

Brendan Maiorana - Wells Fargo

And are there any, I know we’ve got the King of Prussia asset that moved out, but anything else in ’14 that are big known move-outs that would impact the results relative to the 250,000 to 500,000 square feet of net absorption that you expect?

Kent Griffin

Brendan, this is Kent. Aside from J&J move out, the balance of the space, we are in active discussions on really almost every significant exploration with potential tenants to backfill. With probably 5% to 10% of those we’re in active discussion to potentially renew. So there aren’t any significant explorations that we’re not actively engaged with the opportunity to backfill.

Brendan Maiorana - Wells Fargo

Okay, but there is -- out of remaining expirations in ’14, the renewal rate, I know you guys tend to do very early renewal. So the renewal for the rent on the remaining ’14 expirations I guess is pretty low is how we should think about it?

Kent Griffin

That’s correct. And that’s typical. That’s right.

Brendan Maiorana - Wells Fargo

Yes, I understood. And then last one probably for Greg. The capitalized interest in the quarter, I think it’s a little over $4 million. It’s close to kind of 17 million annualized. What is being capitalized in there because if I look at just kind of what’s in development and redevelopment, it seems like that’s a much lower overall balance than what I would think would be around $17 million of annualized cap interest?

Greg Lubushkin

Yes, in last quarter we gave guidance on cap interest, suggesting it would range between $16 million and $19 million for 2014. So your $17 million number is spot on within that range. In addition to capitalizing on redevelopment projects, we are also capitalizing on projects that are in pre-development, where there is active development work going on. In some cases this last quarter we demoed buildings for example, where we’re in entitlement work on some of those projects. So we capitalized interest on those projects. And then as well given the volume of leasing that we’ve done, the success we have had on the leasing front, there is a lot of PI work going on and we are able to capitalize interest on that as well.

Brendan Maiorana - Wells Fargo

Okay. So, I guess if I think about the $42 million of cap rent that comes in or $43 million of cash, is it fair to sort of think that most of that backlog is tied up by what’s being protected by capitalized interest, so is kind of the net impact going to the bottom line would be that caused the $42 million minus the $17 million of cap interest?

Greg Lubushkin

That’s correct. But recognize that on the PI projects, we are capitalizing only on the incremental dollars as opposed to capitalizing on the entire basis in the case of development or redevelopment.

Brendan Maiorana - Wells Fargo

Okay.

Greg Lubushkin

I’d also direct you to Page 26 of the supplemental where we detail out the cap interest and the investment upon which we are capitalizing interest.

Operator

And the next question comes from Tayo Okusanya of Jefferies.

Tayo Okusanya - Jefferies

A couple of things. On Page 33 of the supplemental, at the end of year, I’m looking at the net absorption number and the gross leasing activity was about 441,000 square feet, the net was about 186,000. Trying to understand that delta. I know you explained about 80,000 of it but I’m trying to figure out what the rest of the fallout was from gross to net?

Greg Lubushkin

It probably will be best, this is Greg. It’d probably be best if I try to walk you through the specific math offline because the pre-leasing activity impacts, what you might think is the logical math to come up with that net absorption number.

Tayo Okusanya - Jefferies

Okay. So, it’s an offline conversation, all right. Then the second thing, is there anything new with Vertex at this point and the space that going to be giving up when they move to Saint-Pierre, kind of what your plans are for that space?

Matt McDevitt

I don’t think that there is anything new. Maybe the new thing is that they just announced that they have located into their new corporate headquarters there in Saint-Pierre. It is a very successful move for them and they are very excited about their new space and lease is continue to -- they continue to lease the space through 2016, and for a portion of the space in 2018 and another portion. We think based on our proven track record of success in releasing space in the Cambridge area that we are going to be very well positioned. We are very excited about having that space available to us to take advantage of what’s going on in the broader Life Science market and specifically the Life Science market there in Cambridge.

Tayo Okusanya - Jefferies

Is there any opportunity to get the space back early and just pay the termination fee if you do have someone who wants to move into it?

Matt McDevitt

That’s based on our very strong relationships with Vertex. We are always in those type of conversations about trying to maximize the value for our shareholders and deal with issues that they may have with excess space. I think that goes to many of the things that we -- or many of opportunities that we see within our portfolio and why are we trusted in long and lasting relationships with our tenants is so valuable. When these tenants lease these spaces and need our help, we are there to provide that help.

Tayo Okusanya - Jefferies

And then just two more. The first one is the acquisitions that were made in the quarter, the kind of pre-development space. I am assuming that’s all Wexford related. Just wondering what the thought process around that acquisition was, what the longer term plans are and then also for the fairly large shadow pipeline as well, we’re seeing kind of the pre-development pipeline, when could we start to see some of that stuff become actual development projects?

Matt McDevitt

So those are two type of questions and I will try to tackle them separately. On the additions to the land bank in the quarter, really two different transactions. The first is the Chesterfield site in Durham which is an opportunity. It’s actually a site -- it has an old historic tobacco warehouse, somewhat analogous to what we’ve done [indiscernible] with Lake Forest, but it’s in Durham, a very vibrant market where we have been, obviously the research triangle has significant amount of research academia but also biotech and pharma. And we have been tracking a number of sizable requirements in that market and by securing this site; it gives us an opportunity to potentially capture some of the demand that’s out there today. So we are excited about that. And it is a Wexford type transaction in that there is an opportunity to get both historic and new market tax credits as well, which again makes for a much more economically attractive opportunity.

The other site the other land position was really in addition to -- it’s the adjacent parcel near 4240 in St. Louis and really that’s just securing future growth at a very low basis. I think we’re less than $20 per square foot on a land basis. But it gives us much more flexibility to not only pursue larger tenants but also to as we fill up the existing site, to entertain and support large requirements and ultimately the growth of the existing tenant. So it’s a little bit more of a longer term focus with respect to that land site. So much like in New York when we acquired the land at the Landmark several years ago it was really thinking forward about what the potential tenant needs might look like down the road and that’s what enabled us to grow with Regeneron this past year. So that’s really the concept with respect to that addition.

I guess your other question was really about looking at our predevelopment pipeline and what that timeline might look like. Each of the projects that we’re highlighting, we’re highlighting for very specific reason and the reason is that we are in discussions with potential tenants on each of those prospects and so we do think that they have -- each one independently has a reasonable prospect of getting kicked off within the next 12 to 24 months. Obviously the likelihood of kicking off all four in one 12 month period is probably not high but each of them is independently very active discussion.

Operator

And our next question comes from Jeff Theiler of Green Street Advisors.

Jeff Theiler - Green Street Advisors

I’ve been reading some news articles lately indicating that Brandywine isn’t too happy about your progress in the King of Prussia asset. Could you give us quick update on where that stands and what the timetable is going forward?

Alan Gold

Sure. Well, first of all, the King of Prussia transaction is a very exciting opportunity for us. It’s an asset that we purchased for just under $90 million over 10 years ago and we’ve already generated close to $116 million of total revenues from that asset. It’s helped us develop a very strong and deep relationship with Johnson & Johnson and it’s just a Class A location and we believe that, because we’ve been in the market working on that transaction for a long period of time, that there is over 600,000 square feet of demand just specifically for that specific location and we’ve been working on those.

Jeff Theiler - Green Street Advisors

Okay, and do you have any kind of rough timetable on that?

Alan Gold

Well, with or without the entitlements, we have a shot at achieving those tenants but we are working very closely with the community and we believe that we’ll have some sort of resolution in at the end of the first quarter, middle of the third or second quarter.

Jeff Theiler - Green Street Advisors

Okay.

Kent Griffin

This is Kent. I would say that we think it’s a great site. We think it’s a site that can be very additive to the community and it’s not surprising that the competition isn’t excited about it because I think this site is going to attract a lot of attention from potential users.

Jeff Theiler - Green Street Advisors

Question on the Chesterfield asset in Durham, I know in the past that’s been evaluated as a mixed use property by John Parker who is with Wexford now. Can you comment on how much of that property you’d expect to be labs and how much might be some other areas?

Kent Griffin

So yes, I think it’s premature to comment because it’s going to be driven by the initial anchored leasing but if you look at what we’ve done in [indiscernible] the first project is a full lab research building, the next one is a mix of lab and office. I think our intent would be primarily lab but we would entertain office requirements as well.

Jeff Theiler - Green Street Advisors

Okay and then just a numbers question here. Can you -- just what the average lease terms were for the different categories of leases signed, the renewals first generation new leases and second generation new leases?

Greg Lubushkin

Yes, Jeff, I’ll have to talk to you about that offline. We don’t have those numbers right at hand.

Operator

Thank you. Our next question comes from Daniel Bernstein of Stifel.

Daniel Bernstein - Stifel

This is good afternoon for me good morning for you. Jeff actually just asked the question I have on the leases and we might have to talk offline about that as well. Really the only other question I had is that earlier you talked about getting your debt to close book down or 35% of it. Are you seeking credit upgrade or I mean is there a specific purpose to bring down the leverage of the company [indiscernible] something else that you want to plan for?

Alan Gold

Dan, we’ve got our investment grade rating back in April 2010 and at that point in time we stated that the goal was to continue to move up the credit curve to ultimately achieve that upgrade. We have diligently worked towards that end since and in June of last year received notice from Standard & and Poor’s that our outlook had been upgraded to favorable. We’re going to continue to work towards the goal of getting that upgrade as part of our overall plan to low our cost of capital. We really don’t have a timetable for achieving that goal but the key goal is to continue to maintain our overall flexibility to match fund on a long term basis and on leverage neutral basis for long term investments that we end up and make. Again that said, we are over the longer term looking to move up that credit rating scale.

Daniel Bernstein - Stifel

Okay. And then are your competitors having little a bit lower cost there -- is that part of the incentive to move up the scale? I’m not sure where you stand relative to your competitors in terms of cost of debt but is that part of the incentive there as well? I don’t know if you’re at a disadvantage or you want to be at an advantage but you finally need that [indiscernible].

Alan Gold

We’re always just focused on managing our own cost of capital and it’s in our best interest to keep that cost of capital as slow as possible, to continue to work towards keeping as slow as possible. We’re not necessarily focused on where our competitors may reside.

Kent Griffin

Yes. This is Kent. I would comment on that, I think our cost of debt is very much in line, if not better than most of the competition. I think our - Greg’s comments about our strategy and some of the events that are on the horizon are really part of a long term plan to manage the capital structure and frankly to create capacity to continue to grow the company and so we deleveraged ourselves essentially in 2013, which not only gives us some capacity to complete the developments that we have but also to continue to add and as Alan mentioned at the beginning of the call, we do have an active new investment pipeline of opportunities and part of the way we’ve been successful in securing those things over time is by maintaining liquidity and that’s an on-going permanent part of the process.

Daniel Bernstein - Stifel

Okay. And one last quick question. In terms of leased opportunities that you see going forward in 2014, are you seeing any change in the mix versus -- large tenants versus small tenant lease terms. I'm just trying to understand what the lease environment is out there going in 2014, not just the volume you’re going to do but maybe the kind of tenant that’s interested in the space today

Kent Griffin

Yes. I think the mix of tenants that we’re engaged with continue to be the types of tenants that we enjoy in our portfolio, folks like Broad and if you look last year, our tenant mix -- most of our business I think Matt mentioned over 70% of our business was with repeat business with the existing relationships. So I don’t expect to see any shift in the mix. I think we continue to see universities, research institutions, big pharma, big biotech and growing in smaller biotech as well. So, I don’t see any shift in mix, just continued velocity across the board.

Operator

Our next question comes from Jordan Sadler of KeyBanc Capital.

Jordan Sadler - KeyBanc Capital

I wanted to circle back to the Vertex discussion a little bit and center in on Boston, if I could. Curious about the opportunity as it relates to the Fan Pier loan. Would you guys like to be involved with the recapitalization of that asset in some way, given sort of your relationship with the tenant? What’s you interest level in the submarket.

Alan Gold

So, I think we obviously like -- we think highly of Vertex. That’s been a valued tenant relationship for many, many years. We think the project is a great project and we think it’s a great project. I think the development is been very successful. As far as our loan goes, Greg mentioned we anticipate, it is part of our expectations, part of our guidance that we are going to be repaid on that loan. So I guess that implies that that is our expectation. So we are not anticipating being a part of recapitalization as it relates to that loan. Does that answer your question?

Jordan Sadler - KeyBanc Capital

Well, recapitulation, yes, including potentially the equity. In other words, would you have interest in owning the asset. I don’t know if it’s for sale or what. I’m kind of curious, whether or not you’d be buyer in that submarket? Loaning against a great tenant credit is one thing but the Fan Pier -- owning in the Fan Pier is another.

Alan Gold

Yes. We don’t comment on potential acquisitions. Clearly we look at everything in the market. There have been number of trades in Cambridge this fall. And clearly we’re looking at all of our markets and so we evaluate lots of opportunities but we don’t really comment until transaction has happened.

Jordan Sadler - KeyBanc Capital

And that’s fair. I’m just kind of curious about appetite or interest in the Fan Pier, that whole Innovation Center versus Cambridge in terms of being a core Life Science market.

Alan Gold

I think the Fan Pier area is a vibrant - particularly a vibrant office market and lot of retail as many amenities have made that little stronger market as well. Our investment focus and our portfolio focuses continue to be Cambridge, that’s our largest market. It’s by far our largest market and we just -- our most recent acquisition was in Cambridge. So I guess we’ve historically voted with our feet with respect to Cambridge. I guess that’s what I would say.

Jordan Sadler - KeyBanc Capital

Okay, that’s helpful. And I guess also as it relates to Vertex in Cambridge, it does sound like that space will ultimately come back, but at some point I think it was uncertain whether or not they might need or want to retain some of that space in Cambridge. Is it your sense at this point, I mean -- have they been moving out as they make their way to the new headquarters?

Alan Gold

Yes, by and large, yes.

Jordan Sadler - KeyBanc Capital

Okay. And then as it relates to development opportunity, on the slide, I think its slide 11, I don't know, it looks like it's kind of in size order. I'm kind of I guess curious about -- it sounds like you would entertain any one of these individually or more to the extent that you had some preleasing. Is that a fair characterization or would you look to go spec on any of these developments?

Alan Gold

I think if we were choosing to go spec we would have kicked off and gone spec prior to now. Our inclination has been to hold off ongoing spec and wait for an anchor tenant or potentially anchor tenants before moving forward, and each project is evaluated independently based on the size and scope and relative density in the market.

Jordan Sadler - KeyBanc Capital

Last one. I think there was a question on the Broad transaction, the mark-to-market. Can you comment on where the 320 Charles rent will come in relative to the Whitehead rent, just so we can understand sort of the mark-to-market when that thing rolls?

Alan Gold

So basically remember, our solid basis was about 495 a foot on the project. The new rents are in the 30s which is higher than the cash rent that we were previously receiving. So it’s an increase in the cash rents. And more importantly, we think it enables us to collect even higher cash rents at 301 Binney.

Jordan Sadler - KeyBanc Capital

Can I ask one more? On Boston in general, what would you say your portfolio is relative to market? It’s an interesting opportunity here with Broad. Curious if there's others. Do you think you're significantly under-rented?

Alan Gold

We’re pretty full in lease. We’re I think 97% to 98% leased. But in terms of rents relative to market, I think we’re probably starting get back being below market again and depending on which optimistic projection you believe, we could be dramatically below market the way things have been setting up in terms of the absorption that’s occurred and the lack of availability that’s left.

Operator

Our next question is from Rich Anderson of BMO Capital Markets.

Rich Anderson - BMO Capital Markets

Did you give the leased percentage of the Wexford portfolio?

Greg Lubushkin

I didn’t. I don’t know if anybody has. I think we’re 90.5%, so up tick -- up another 14,000 square feet, most of which was smaller leases in Miami.

Rich Anderson - BMO Capital Markets

So there was a big jump in the third quarter, I believe, if I remember correctly. Is that kind of topping out now or where do you think the opportunity is in terms of the lease percentage?

Greg Lubushkin

I think we’ve communicated when we acquired it that we were targeting getting to 90% in the first 12 months. We got to 90%, we’re 90.5%. I think we’ll continue to step that up over time.

Rich Anderson - BMO Capital Markets

Okay. And then just a general question on development, so the competitive landscape for acquisitions and all the rest, do you sense that there might be a shift from an investing standpoint in your company to focus more on development opportunities versus acquisitions or no material change at this point?

Greg Lubushkin

I think if you look overtime, we developed a pretty significant portion of our portfolio. But we’ve done it in a very measured way. So we’ve never had a material overexposure to development at one time. So even today with even with $200 million invested in our land bank, broadly that’s less than 3% of our assets. So while we had five projects, we delivered two. So the active development drops to 3.

We’re optimistic that we’ll be to kick off a couple of more from some of the predevelopment activities that we’ve talked about. So I do think it’s a permanent part of our business capability set. Our interest in pursuing this development project obviously moves with the market demand. Right now, we’ve at a pretty strong demand cycle. So we are positioning ourselves and are positioned to capture some of those development opportunities.

Rich Anderson - BMO Capital Markets

Okay. And then one last, just kind of a big picture question here. You mentioned that the asset capital raising movement has been very positive in the industry. But there's been some talk about the lack of profitability in some of the new drugs that have hit the market. I'm wondering if you can comment about that, maybe generally or specifically for your tenants and if you're seeing any kind of lackluster profit generation from some of the more recent drugs that have been approved?

Alan Gold

I think you’ve seen, in some cases drugs being not as profitable as hoped at some point. But you’ve also seen a number of companies accelerate their development and delivery of drugs in a much more [indiscernible] way. So, in aggregate I think the best way to look at it is that the aggregate performance of the index was up 40 plus percent last year and it actually continues to outperform this year. You look at a company like Regeneron, that’s been very much exceeding the revenue expectations on some of their programs. In fact I think you also note, we’ve also seen pharma, recent I think a study came out last week, looking at pharma’s drug deliveries over the last three years and the successful drug approvals and while a majority of the drugs being approved ultimately came from pharma, the majority of their drugs being approved had their inception point coming from academia and the biotech sector. And so pharma continued to lean on academia and the biotech sector which is why we’re clustered where we are and why we are focused the way we are and that’s where I think the enthusiasm from the industry is focused.

Rich Anderson - BMO Capital Markets

Do you think the lack of some profitability actually motivates more research effort which is good for you guys?

Alan Gold

In many case -- it’s very much case specific. So you will find examples of companies whose drugs are not performing as well and in many cases the reason for the underperformance of company A is because company B has developed a new technology that may be more effective. So there is a permanent, the Life Science industry and the biotech industry has this permanent need to reinvent, to innovate in order to retain or more importantly capture market share.

Operator

And then our final question is a follow-up question from Tayo.

Tayo Okusanya - Jefferies

Yes, just along that same line of questioning. Alan could you talk a little bit, I mean in your opening comments you talked about the seven IPOs, that companies are within your portfolio. Could you just give us a general sense on what happened to their space needs since then and how you have been able to kind of manage that?

Alan Gold

I think the IPO, the wave of IPOs that occurred in 2013, have been very positive for the entire industry and is continuing here into the first quarter with even some new IPOs happening this last week and even yesterday. And the exciting aspect about these new IPOs is, these companies have the opportunity to be fully integrated biotechnology companies with a very large potential footprint, the next potential Regeneron or Gilliard or BioGen and whereas the activity historically might not have that capacity when you’re talking about some mergers and acquisitions, these new IPO companies have the desire to grow and also to be looked at as acquisition targets, but more to be standalone companies which will create much greater demand in our core markets if that comes to fruition.

Operator

And at this time I will turn the call back to Alan Gold for final remarks.

Alan Gold

Thank you. And again I want to thank the entire BioMed Realty team for their hard and smart work. And with that I would like to conclude the call. Thank you everybody.

Operator

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.

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