Call Start: 13:00
Call End: 13:58
BioMed Realty Trust Inc., (BMR)
Q2 2010 Earnings Call
July 29, 2010 01:00 pm ET
Executives
Rick Howe - Director of Corporate Communications
Alan Gold - Chief Executive Officer
Kent Griffin - President
Matthew McDevitt - Executive Vice President of Real Estate
Greg Lubushkin - Chief Financial Officer
Analysts
Bill Crow - Raymond James
Brendan Maiorana - Wells Fargo Securities
Mark Lutensky - BMO Capital Markets
Jordan Sadler - KeyBanc Capital Markets
Arun Nagarajan - FBR Capital Markets
John Guinee - Stifel Nicolaus
Suzanne Kim - Credit Suisse
Sri Nagarajan - RBC Capital Markets
Chris Catin - Morgan Stanley
Operator
Welcome to the Second Quarter 2010 BioMed Realty Trust Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference. (Operator instructions). I will now turn the call to your host for today, Mr. Rick Howe, Director of Corporate Communications; please proceed.
Rick Howe
Thank you Nikita and welcome everyone. Today’s second quarter 2010 earnings call includes a slide presentation to accompany our prepared remarks. If you are not currently viewing the slides and would like to, please go to www.BioMedrealty.com, click on the investor relations tab on the left and then click the Q2 2010 BioMed Realty Trust Inc. earnings conference call link.
We’ve also posted these slides on the investor relations tab of our website. Presenting today are Alan Gold, Chief Executive Officer, Kent Griffin, President, Matthew McDevitt, Executive vice President of real estate and Greg Lubushkin, Chief Financial Officer.
Now before we begin, I would like to remind everyone of the safe harbor statement included in yesterday’s news release. The Private Securities Litigation Reform Act of 1995 provides the 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 involve 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 differ materially from those expressed or implied by these forward-looking statements. For a detailed discussion of some of the on-going 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 quarterly reports on form 10-Q. The company disclaims any intention or obligation or update or revise any forward-looking statements whether as the result of information, future events or otherwise.
With that I will turn the call over Alan Gold; Alan
Alan D. Gold
Thank you, Rick, and welcome everyone to BioMed second quarter 2010 earnings call presentation. Now I am very pleased to report another outstanding operating and financial quarter for BioMed driven by the focused execution of our robust business model.
The second quarter results were underscored by higher revenue, key additions to our premier tenant base, expansion of our footprint in the core life science markets through selective acquisition, the promotion of Greg Lubushkin to Chief Financial Officer and additional measured steps to advance our capital plan.
Especially note worthy were our new investments in the second quarter and throughout the first half of 2010 during which we’ve added over a half a million square feet to our portfolio.
Transactions in the second quarter expanded BioMed’s footprint in core US life science markets along the IT 70 quarter in Maryland and our home base in San Diego with a number of high quality tenants including the J. Craig Venter Institute, a world renowned research institution and medical center drive in Maryland, MedImmune, a wholly owned subsidiary of AstraZeneca and an existing tenant at our Bridgeview Technology Park in the Bay Area, and now at our 55 West Watkins in the Mill road after the Maryland and in June, we broke ground on a new 176,000 square foot [indiscernible] research facility in San Diego, North County for Isis Pharmaceuticals, a valued tenant of us since 2005 and now one of our top ten tenants.
Now the team has lots to reports so at this point, I would turn it over to Kent Griffin who will review our second quarter highlights and walk you through the key events in the life science industry during the quarter, Kent
Kent Griffin
Thanks Alan. BioMed’s strong operating and financial performance continued in the second quarter as FFO came at $0.28 per diluted share. We saw 8% year-over-year growth in total revenues, primarily as a result of 10% growth in rental revenue over the second quarter of 2009 reflecting our ongoing leasing success and recent acquisitions.
Our leasing team delivered 150,000 square feet of leasing during the quarter resulting in positive net absorption for the quarter of 110,000 square feet and putting us at 90% of our five-quarter goal of 1 million square feet of total leasing with 2 quarters remaining. We continue to steadily and proactively manage our balance sheet and as we previously discussed, during the second quarter we received investment grade corporate credit ratings from both Moody’s and S&P and executed a $219 million following common stock offering and a $250 million unsecured senior notes offerings.
In aggreagate, we have completed over 650 million in capital raising transactions in 2010 today. And lastly, and not least obviously, during the second quarter, we announced the promotion of Greg Lubushkin to Chief Financial Officer. Many of you already know Greg who has served as our Chief Accounting Officer since April 2007. We are excited about Greg’s continuing contributions to our leadership team.
Now turning to the state of life science industry, in the capital markets, the AMEX Biotech index was off about 17% alongside the general decline in the equity markets. However, scientific advancement in capital raising remain rubout. Partnering transactions exceeded 8.9 billion in the second quarter, an increased about 11% versus the second quarter of 2009 and are up almost 18% to $15 billion for the first half of 2010.
Earlier this week, Regeneron announced another partnering success with Astellas Pharma, which extended their license agreement and paid Regeneron $165 million upfront with another $130 million in 2018.
Financing transactions reached 5.2 billion in the second quarter, an increase of roughly 22% versus the second quarter of ’09. This total includes IPOs which closed on the second quarter raising proceeds of 208 million and in fact completed IPOs for a first half of 2010 have totaled nearly 550 million versus no IPO activity in the first 6 months of 2009.
Follow on equity issuance exceeded 1.2 billion, up 17% over the previous quarter and over 2.2 billion in the first half of the year which is up 10% versus the first half of ’09. Venture capital activity continued to show some improvement in 2010 with investments in excess of 1.3 billion during the second quarter, a 57% improvement over the second quarter of ‘09. This capital raising activity is driven by scientific advances which ultimately drives the demand for space.
We saw a wide range of positive scientific advancements from our tenants and the industry in general this quarter including Human Genome Scientists, our largest tenants which reported positive phase 3 trial results for study on benlysta, their lupus treatment, which HGSI continues to push forward toward commercialization. JCVI, the Craig Venture Institute, published results describing their successful construction of the first self replicating synthetic bacterial cell. They believe that these results indicate proof of the principal and genomes can be designed in the computer, chemically made in the laboratory and transplanted into recipient cells.
Arena pharmaceuticals saw results published in the New England Journal of Medicine regarding a 2 year BLOOM trial showing that the company’s phase 3 candidate, Lorcaserin, showed significant weight loss and improved maintenance of weight loss.
In July, Arena announced that the company has reached an agreement with another BMR tenant, Eisai, to market Lorcaserin in the Unites States pending FDA approval for which an announcement is expected in the fourth quarter.
This agreement resulted in upfront payment of $50 million in the transaction with the potential value in excess of 1.3 billion based on milestone and sales targets.
Now returning to the BioMed second quarter highlights, we have increased our total property to 75, including 122 buildings representing 11.2 million total rentable square feet. Proforma for the 2 exciting new investments we completed after the quarter end, which Matt will discuss in a moment.
As of June 30, our total portfolio leased percentage increased 160 basis points from the first quarter of 2010, primarily as a result of positive net absorption during the quarter from leasing activity and the fully leased properties acquired. Our current consolidated operating portfolios weighted average lease percentage was 89.1% at the end of the second quarter.
Our strong tenant profile remains consistent, we continue to receive approximate 88% of rent from research institutions and public companies. Our weighted average remaining lease term continues to hold steady at approximate 9 years and still an average of only 3.3% of rents are due to expire per year through 2015. Greg will review our second quarter financial results after Matt walks you through our new investment activity and our leasing successes. So with that, I turn it over to Matt.
Matthew McDevitt
Thanks Kent. Our leasing activity for the quarter totaled 12 lease transactions for 150,000 square feet of space including 9 new leases for approximately 126,000 square feet and 3 year lease extension were approximately 33,000 square feet. Our headline leasing successes in the second quarter were generally in Pennsylvania and the Bay Area, which as we’ve discussed in the past, have been two of our toughest leasing markets and are a attribute to our ongoing efforts of our leasing team.
On the East Coast, we leased 35,000 square feet to Benton BioServices at Phoenixville Pike in Pennsylvania which brings the property to 100% leased moves it to the stabilized pool. The largest transaction for the second quarter was a 50,000 square foot lease to Soraa, a CleanTech company at our Kaiser Drive property in the Fremont/Newark sub market in the Bay Area. With this, Kaiser is now almost 60% leased.
The four leases reflect the increased activity we’ve seen in the Bay Area in recent months. To other transactions in this market include a new lease to Sierra Atlantic for 15,000 square feet of PRC, and a renewal extension with MedImmune, a subsidiary of AstraZeneca in the Hayward at our Bridgeview property for a total of 24,000 square feet.
Since the close of the quarter, we have continued leasing success in the Bay Area. First with an early renewal of 70,000 square feet at our Bayshore Boulevard property in Brisbane which was scheduled to expire in 2011 and a new lease totaling 25,000 square feet at the Bridgeview Technology Park in Hayward, which was previously released to Cell Genesys.
Now, subsequent to the quarter end, we terminated our lease with DayStar PRC. So we do anticipate the lease percentage of the property to take a set back in Q3. Though we continue to see positive momentum in this market as evidence via leasing success in the second and third quarters, we believe we continue to see incremental absorption in this market in coming quarters.
Now as Kent noted, our leasing results for the second quarter but us 90% of our five-quarter goal we announced in the third quarter on our 2009 conference call.
With the approximate 100,000 square feet of leasing activity already in the third quarter, we’ve now exceeded the five-quarter goal for leasing. Looking forward, assuming we continue to achieve a 100 to 200,000 square feet of quarterly leasing that we even experienced, we would expect modest negative absorption after considering the days of departure and 280,000 square feet of scheduled exploration.
Now let’s move on to new investments. During the quarter, we closed on two; the five Life Science Buildings on Medical Center Drive, representing 218,000 square feet in the Maryland market which were 100% leased to JCVI and 57,000 square feet only leased at 50 West Watkins also in the Maryland market.
Talking to the end of the second quarter, we closed on two additional investments. In July, we closed on the purchase of a life science campus on 4775 and 4785 Executive Drive in the University Town Center life science sub market in San Diego, which encompasses our development side representing 166,000 square feet, including a newly constructed life science comprising 63,000 square feet and a land [indiscernible] with plans and permits in place for second building totaling 103,000 square feet.
University Town Center, better know locally as UTC is home to be premier research institutes by technology and pharma organizations including Illumina, UCSD and Amylin pharmaceuticals and the La Jolla Institute for Allergy and Immunology. The initial investment for this development opportunity adjacent to the i805 totaled 27.2 million.
This acquisition increases BioMed’s total presence in the San Diego life science market to approximately 1.4 million square feet which is 88% leased on the performa basis. We are excited about this latest investment as it provides us with the available lead in the attractive UTC sub market where we’ve had zero availability for some time. We are in active discussions with a number of prospective tenants for the property driven primarily by the prime location in the limited first generation space currently available in UTC.
Now, also during the second quarter, we acquired 61,000 square foot property located on Paramount Parkway in research -- triangle sub market in North Carolina for approximately 17.5 million. The building is 100% leased to Bayer CropSciences, the subsidy of Bayer AG into 2015.
Our North Carolina has not been a core market for us given the quality of the property, location and the tenant. We are very pleased to make this investment which we believe will provide an attractive yield in total return over the long run. So year to date, we announced 6 new investments including our build-to-suit prices, adding approximately 655,000 square feet of very high quality, well located real estate at 87% lease to a very high quality tenant roster with an additional land bank of just over 100,000 square feet.
Now I’d like to turn the call over to Greg to walk you through the financial results for the quarter. Greg
Greg Lubushkin
Thanks Matt. Moving to our financial results for the second quarter, total revenues were approximately $93 million, up nearly 8% over the second quarter of last year, with rental revenues up over 10% from the second quarter of 2009 to $72 million. This growth was largely driven by prior quarter’s leasing activity at our landmark property most notably as well as our 2010 acquisitions.
Same property net operating income on a cash basis increased 3.5 % for the quarter compared to the same period in 2009. Excluding the properties for which lease terminations occured in 2009 net operating income on a cash basis increased 4.2% primarily due to contractual rent escalations and new lease rent starts.
Operating margins are 72% were in line with recent results and expectations while G&A expenses excluding acquisition related expenses were up slightly over the previous quarter. Starting this quarter, we are separately reporting acquisition related expenses to improve the visibility of this expense category.
Interest expense for the second quarter was $21.9 million, an increase of approximately 3% from the prior quarter. Although weighted average debt balances declined, we replaced shorter term variable rate debt with longer term higher cost fixed rate debt with the proceeds from our unsecured notes offered.
In addition, capitalized interest declined as our 201 Elliot redevelopment was placed into service. FFO was approximately $31 million or $0.28 per diluted share compared to $44 million or $0.48 per diluted share in the second quarter of 2009 slightly higher than expected. As a result of higher than expected net recoveries partially offset by the debt extinguishing costs associated with the repurchase of $18 million of the 2026 exchangeable notes.
We raised our second quarter dividend to $0.15 per share, an increase of 7% from the first quarter dividend which increased our FFO payout ratio to approximately 54% as compared to 42% in previous quarter. Our AFFO payout ratio remains at a comfortable 60%. Moving on to FFO guidance, we revised our 2010 FFO guidance since last quarter’s earnings release to a range of $1.15 to $1.20. We are comfortable narrowing down our guidance range and raising the midpoint based on our operating results through the first half of the year. Please remember our guidance does not include any assumptions related to any future financing or investing activities beyond our announced transactions nor does it include the impact of the potential conversion of our exchangeable notes.
As for the balance sheet, we continue to actively manage our capital structure in keeping with our long term strategy of maximizing liquidity and financial flexibility.
As we reported last quarter, after receiving the investment grade corporate credit ratings in April, we immediately completed two significant capital raising transactions. We had a follow on offering of common stock which generated net proceeds of $219 million and a $250 million 10 year senior unsecured notes offering used in part to repay the balance of the secure term loan and create more capacity under our $720 million line of credit in which we believe will support new investment activities and continued growth.
Then later in the second quarter, we repurchased approximately $80 million of principle amount of our exchangeable senior notes due in 2026.
As a result of all this activity, we reduced our consolidated total debt to approximately $1.3 billion and lowered our debt to total assets ratio to 37%, and our credit profile remains strong.
Our weighted average consolidated debt maturity moved to 7.4 years compared to 5.8 as of the prior quarter end. Our fixed charge coverage rate ratio remains north of 2 times. Our debt to adjusted EBITDA is 5 and half times. 65% of our rents remain unencumbered. Our secured debt as a percentage of total assets remains at around 19% and our unhedged variable rate debt is only 2% of our total consolidated debt. Our liquidity position remains very solid with our unsecured line of credit capacity at $550 million in addition to approximately $21 million of unrestricted cash.
To sum up, BioMed successfully executed over $650 million in capital raising transactions throughout the first half of 2010, all which has resulted in a significantly stronger balance sheet and enhanced liquidity position and as amply demonstrated in the second quarter is providing the means to finance our continued growth.
That concludes my remarks. I am going to turn it back to Alan for questions. Alan?
Alan Gold
Thanks, Greg.
And as always and very importantly, I want to again extend my thanks and appreciation to all of BioMed’s employees throughout the country for their extraordinary efforts and dedication in the second quarter in the first half of 2010.
Now, operator, I think we are now ready for questions.
Question-and-Answer session
Operator
Thank you. (Operator Instructions). Our first question comes from the line of Bill Crow with Raymond James. Please proceed.
Bill Crow - Raymond James
Hey, Good morning, Good afternoon guys. Paul is here as well, Couple of questions let’s focus on external growth for a second. It looks like the pace of acquisitions has picked up in the last couple of quarters. Is this a factor of what's on the market and available? Is it more a factor of how comfortable you are with fundamentals or with your balance sheet? What's driving that growth?
Alan Gold
I think that we have moved back to I think a steady and consistent pace of looking at acquisitions and we are seeing a good stream of acquisitions in our typical one off, smaller type of transactions and so we are focused on exploring those types of acquisitions.
Bill Crow - Raymond James
How's the pipeline look out there?
Alan Gold
The pipeline -- I don’t think -- I haven’t quantified it in terms of a top dollar amount. But I think, it’s been very consistent in new opportunities surfacing. So, I think that we are comfortable with where we are, I think that we are going to be -- continue to be focused on leased acquisitions in our core markets and any opportunistic opportunity that really makes sense for us where we need to focus on those.
Bill Crow - Raymond James
Do you feel comfortable enough, given all the balance sheet success you've had this year already, and given where fundamentals are, that you can now lever up a little bit more? Or do you feel like you need to kind of match fund with equity going forward?
Greg Lubushkin
I think -- I don’t think levering up has really been a part of our strategy. I think when we did raise equity earlier this year; it did provide us with some capacity to fund prospectively some additional investments and we have been making those. And I think we still have room to continue to do that. But more generally speaking, we are not targeting 40 + percent leverage levels. I think we like relative range where we are and have been.
Bill Crow - Raymond James
Alright. And then finally, on the just-announced acquisitions, third-quarter acquisitions, any comment on the yield on those? And any acquisition costs that we should look for in the third quarter results?
Greg Lubushkin
So as far as the acquisition cost I think our anticipation is that they are fairly modest, fairly nominal. And so I don’t know that those are terribly for including in your forecast. As far as the yield on the acquisitions, the North Carolina property is obviously 100% leased, and we keep regarding it an attractive yield, particularly given the quality of the asset and the importance of that specific location and the strength of that tenant. I think we got a yield that is higher than we would have gotten in our other markets for the same quality building, same quality tenant. So it is slightly above average yield on that acquisition. Now as far as the other properties, it is a development site and opportunity, so there is no yield obviously, day one.
Bill Crow - Raymond James
Right, okay. Alright, that's it for me. Thanks..
Greg Lubushkin
Thanks Bill.
Operator
Our next question comes from the line of Brendan Maiorana with Wells Fargo; please proceed.
Brendan Maiorana - Wells Fargo Securities
Thanks. Good morning. Just wanted to follow-up on the North Carolina acquisition. I understand -- it sounds like it's an attractive yield and probably a pretty good asset, but as you guys mentioned in the script, it's not in your core market, and part of the strategy has been to be focused on kind of core life science clusters, and that's sort of how you're creating additional value over time. Why does this investment kind of make sense for BioMed?
Greg Lubushkin
That is a good question. Thanks Brendan. I think you are spot-on. We have always communicated that we are very focused on our core markets and we have been focused and I think proven that through our actions over our history. But at the same time, we have also indicated that for the right opportunities which typical means the right tenant, right quality of asset and right location that we would take advantage of opportunities that we think are going to create value for our shareholders. And that occasionally means assets in other markets likes Colorado and North Carolina. And I think this asset very clearly falls in the category as an attractive asset and attractive returns with a risk we like.
Brendan Maiorana - Wells Fargo Securities
Are you guys thinking of this as a long-term type of hold? Or is this just sort of more into kind of might be something that you hold for a few years but then would look to exit at some point?
Greg Lubushkin
Our general strategy is buying assets to live under in for a long time. So it is a long time hold expectation from our perspective.
Brendan Maiorana - Wells Fargo Securities
Okay. And then, Matt, you mentioned that there's -- you've got 280,000 square feet of expiration in the back half of the year. If you do 100,000 square feet of leasing per quarter, then offsetting the DayStar expiration and the 280,000, you'd be a little bit of a negative net absorption. Can you give us a sense of what the likelihood of retention or renewal is on the 280,000 square feet? And then maybe any early reads on the 440,000 square feet or so of 11 expirations that you've got
Matt McDevitt
I think we are comfortable that we said that 280 is pretty much a majority of the departures. And we know them -- as of now being expiration. We are pretty comfortable that we know that square footage is coming back to us.
Brendan Maiorana - Wells Fargo Securities
Okay. And then any outlook on next year?
Greg Lubushkin
I think in 2011, I think it is premature to give our full guidance, obviously Matt mentioned we did just execute one early extension on what would have been am ‘11 maturity. But generally speaking as you get closer to the quarter in which the lease is expiring, the likelihood of the actual expiration is higher because we are always working on trying to extend them sooner as evidenced by the transaction matches concluded. I think it is premature to speculate on 2011 expirations but as Matt mentioned, we do have visibility on the 280 that’s expiring for the balance of this year and we do think the majority of that will depart, including some large industrial tenant.
Brendan Maiorana - Wells Fargo Securities
Okay. And then just lastly, with Human Genome, if they are able to get them listed as a commercially viable drug, can you give us a sense of what you think the likelihood may be that they would look for or need additional space? And you've got the, I think, roughly 525,000 square foot pad on the campus -- what the likelihood may be? And are there any early discussions about that?
Alan Gold
I don’t think we can talk specifically about HCS but in general, when companies have -- significant companies such as HCS have significant drug -- positive drug approvals, there is a new flurry of activity that occurs around the balance of their portfolio and there are needs to move other projects forward increase. And therefore the demand for laboratory spaces within that organization increases over time. So what we’ve seen is companies that have significant product approval is that their space needs increase significantly. Initially, it can be in office type needs but then over time increases into laboratory needs also.
Brendan Maiorana - Wells Fargo Securities
Okay, Thank you.
Operator
Our next question comes from the line of Mark Lutensky with BMO Capital Markets. Please proceed.
Mark Lutensky - BMO Capital Markets
I was wondering if you could provide an update on the leasing progress for Kendall Street? Is that proceeding at the pace that you thought it would?
Matt McDevitt
I think it’s probably more appropriate to talk about 301 Binney. I think in the last two quarters we have had some nice placing success. We now the last quarter the Ironwood expansion and then the quarter before that we announced the broad lease on the top floor, 80 -- 1,000 square feet. You know as I have always talked about in the East Cambridge market, we deal with very large tenants that take a long time to -- lease negotiations are usually larger and take longer. But we view the pace pretty good in that market.
Mark Lutensky - BMO Capital Markets
Sorry, Has Mercer reached out to you guys at all? In regards to its Cambridge --?
Matt McDevitt
We know the news you know. Not officially have reached out to us. You are talking about the state that 320 bend occupied in Cambridge?
Mark Lutensky - BMO Capital Markets
Right.
Alan Gold
Although it is our current expectation that they will likely attempt to sub-lease the space at some time. Although currently they are still occupying and using the space so it is not available for sub-lease.
Mark Lutensky - BMO Capital Markets
Okay. And are you guys -- in terms of transactions out there, are you feeling more comfortable about the possibility of taking on larger deals?
Kent Griffin
I think that’s something that always depends on -- it really depends on the nature of the deal. So it is hard to speculate. Every investment that we look at, with all the upsides has to be weighted -- the risks relative to the opportunity. So it would clearly have to be a transaction that would create value.
Mark Lutensky - BMO Capital Markets
Okay.
Kent Griffin
Next Question.
Operator
Our next question comes from the line of Jordan Sadler with KeyBanc Capital Markets. Please proceed.
Jordan Sadler - KeyBanc Capital Markets
Thank you, good morning out there.
Kent Griffin
Good morning Jordan
Jordan Sadler - KeyBanc Capital Markets
I just wanted to clarify on the acquisitions. I know one of them is there's no return, but I was just sort of curious what the targeted returns are for acquisitions -- maybe a range you could provide. I assume you would expect the higher end of the range for opportunities like the one in San Diego where you're taking more risk, and lease up, and maybe something a little lower on the lease to a credit tenant; but can you maybe just provide a little color there?
Kent Griffin
I think that is a good question and I think you hit the nail in the head. I think the return on expectations from our prospective are very much relative to the expected risks. So we do have higher return targets for assets to have either leasing risk or development risk.
In terms of the range, in addition the leased asset -- 100% leased asset in one market in one location can have a higher yield requirement or total return on requirement than another and in terms of trying to provide a range, I think the -- as we disclosed, I think last quarter we had achieved a blended yield in the mid to high 8’s on the acquisitions that we had executed at that point and so that you got -- gives you a pretty good indication of what we’ve been targeting from a yield perspective -- yield, not total return. In terms of a development asset, historically, we’ve indicated we are targeting 9-10 type yields on development assets. I think that’s the range, rough range.
Jordan Sadler - KeyBanc Capital Markets
So it's fair to say -- that's going in cash, so acquisitions could be conceivably in the 8's to 9's and developments where you take on a little more risk, 9 to 10?
Kent Griffin
And you talking -- just make sure that we are talking apples to apples, you are talking yields and yes, based on that.
Jordan Sadler - KeyBanc Capital Markets
Going in cash yield as supposed to you IRR?
Kent Griffin
Exactly.
Jordan Sadler - KeyBanc Capital Markets
And then just maybe just talking a little bit about lease-up specifically of a couple of opportunities. Could maybe Matt talk about activity at the Center for Life Science, you've seen in the quarter and subsequent to quarter-end? Or at Landmark at Eastview or maybe in Seattle at the Elliott or Fairview?
Matt McDevitt
That is a lot of info that I need to give, but starting with…
Jordan Sadler - KeyBanc Capital Markets
Center For Life Science, Landmark and then Seattle.
Matt McDevitt
Center for Life Science, we have the 18th floor and the Second floor available total about 60,000 feet. Activity has been steady in that market, we are seeing full floor users in that market. Vacancy is always, always very tight in that market. Moving on to Landmark, we’ve really had, in the fourth quarter, we did a lot of larger transactions; we did the Regeneron for building feet -- 130,000 feet for Genex for 150,000 feet and the moment of performance materials for 63,000 feet. So that has been a very active market for us.
Jordan Sadler - KeyBanc Capital Markets
Yeah, but any prospects on the 110,000 square feet of vacancy at Landmark or the 70,000 square feet of vacancy at Center for Life Sciences? I'm just more interested in sort of buttoning up the remaining opportunities you have in your portfolio.
Matt McDevitt
But try not to give it real specifics, but we are very happy with the level of activity we have actually on the Center for Life Sciences and also at Landmark. At Landmark, we have a great steady pace of leasing.
Jordan Sadler - KeyBanc Capital Markets
When you talked about 100,000 to 200,000 square feet a quarter of new leasing, is it conceivable -- over the course of the second half of the year, is it conceivable that we could see some new leases in this handful of assets that we're discussing?
Kent Griffin
Yeah I think, yeah absolutely, I think the leasing that we talked about was a gross leasing number but I do think that we would expect a lot of it to be a new leasing given that the most of the scheduled expirations we expect to transpire. So yeah -- you talking about assets that have had a lot of interest that we have had a lot of excess leasing over the past two or three quarters and nothing has -- certainly nothing has deteriorated that would discourage us from our ability to lease the balance of the space.
Jordan Sadler - KeyBanc Capital Markets
Okay. And lastly, just on the DayStar move out, will there be any write-off or lease termination fee, perhaps, in the numbers in 2Q or 3Q?
Kent Griffin
No. We started seeing issues with DayStar mid last year and the reserves against amounts that we were owed in the third quarter of 09. And went to a cash basis, revenue recognition on them and as we kind of come to 2010, I think we’ve recognized very little if any revenue that we received on a cash basis from them. We have no remaining balance sheet exposure to that lease.
Jordan Sadler - KeyBanc Capital Markets
Thank you.
Operator
Our next question comes from the line of John Guinee with Stifel; please proceed.
John Guinee - Stifel Nicolaus
John Guinee here. Thank you. We’ve all been talking a lot about acquisitions. But if you look at the flipside of the equation, Allan, you have got, I think an 8.7 average lease terms so you’ve got maybe 80% of your income producing portfolio, with leases that don’t mature until 2016. And as you probably know the private rates are sort of one dimensional in their underwriting in that they can get lease term. They’ll pay almost anything for it. And then the flipside is you are obviously carrying a lot of cost to carry vacant buildings and some assets that have been in lease up for a long time. Any thought of either selling your stabilized, long-term lease assets? Or the flip side, just biting the bullet on the buildings that are perpetually vacant?
Alan Gold
You know John, that’s a really good question, because it talks about our perception and how we view our portfolio. And with [baken] assets, I think the last couple of years have been very difficult; to sell assets that don’t have any occupancy in them.
And as you highlighted the potential buyers are highly focused on leased assets. We are going to explore, we continue to explore those opportunities and if something unique and it makes sense comes our way, we would certainly consider. In terms of assets that we have lease -- that are well leased on our portfolio, I think we are still trying to build and solidify our market shares in each one of our core markets. It just seems not to be the right strategy for us at this time to be selling well leased and highly creative assets on the market today.
John Guinee - Stifel Nicolaus
Great. Thank you.
Alan Gold
Thanks John.
Operator
Our next question comes from Suzanne Kim from Credit Suisse; please proceed.
Suzanne Kim - Credit Suisse
Good afternoon. Just calling about your leasing prospects. I'm wondering, because you're about 90% at your leasing target, what your thoughts are, given that fourth quarter is typically one of your larger leasing quarters?
Kent Griffin
Well, thanks for the question. I think we communicated that the current pace of a 100 to 200, 000 square feet per quarter, I think is a pace that we think is – we are comfortable with, it’s where we are and it’s consistent with our million square feet five-quarter goal that we’ve had over the past five quarters. So looking back and kind of where we are and looking ahead, right now we feel like that’s about the right pace.
Suzanne Kim - Credit Suisse
Even with the past couple of years where the fourth quarter has been kind of your big leasing quarter?
Kent Griffin
I think the ability to have -- the break out quarters that we periodically have, from time to time, I think those are situation dependent and in large leases that take time and happen occasionally, but from a day to day, blocking and tackling perspective, which is what we are focused on doing, that 100 or 200 seems to be something we are consistent with -- comfortable right now.
Suzanne Kim - Credit Suisse
Okay. And then with regard to the Executive Drive asset, so the asset currently, there is a smaller 60,000 -- 63,000 square foot asset, is that ready for somebody to move in? Is the shelf done at this point?
Kent Griffin
It is at shelf condition. So it is ready for tenants with the TRs.
Suzanne Kim - Credit Suisse
Is it for a single user or a multi-tenanted sort of building?
Kent Griffin
I think it’s a building that could go either way. Certainly would be appealing to a single tenant. But it would certainly be specially appealing to larger tenants.
Suzanne Kim - Credit Suisse
Okay
Kent Griffin
Which is consistent with the UTC market, the high quality, large tenant in that sub market.
Suzanne Kim - Credit Suisse
Okay. And then you talked about the Paramount Parkway asset in the Research Triangle cluster. And I'm wondering -- it wasn't discussed, but are you planning to expand your presence in that cluster or is that -- I know you were saying that it's a one-off sort of asset at this point, but what are sort of your long-term views on that cluster?
Kent Griffin
I think we are still primarily focused on our core – what we defined as our core markets.
Suzanne Kim - Credit Suisse
Okay
Kent Griffin
We think North Carolina obviously has a fairly sizable volume of tenancy and – and it clearly has some Life Sciences product, but I think we would be very selective about continuing to grow the portfolio.
Suzanne Kim - Credit Suisse
Okay. And just to clarify, you said that the assets -- was it in total for year-to-date that blended yield was mid to high-8's, including these assets?
Kent Griffin
No, that was through June 30.
Suzanne Kim - Credit Suisse
Okay, through June 30. Have you provided us with some type of yield that we could sort of understand ?
Kent Griffin
We haven’t
Suzanne Kim - Credit Suisse
Okay. Thank you.
Kent Griffin
Thanks.
Operator
Our next question comes from the line of Arun Nagarajan with FBR Capital Markets; please proceed.
Arun Nagarajan - FBR Capital Markets
Thank you, just following up on Jordan’s questions on traffic and lease-up, I was just wondering if you could give us some color on how rents are holding in these markets, where you guys are trying to lease. I mean, vis-a-vis two years ago, I mean, obviously, been through a huge crisis -- give us some indication of the direction that rents are taking, let's say over a year ago or two years ago.
Alan Gold
Well, I think Matt would confirm, but I think in the Cambridge area, Cambridge and the Longwood area, rents have kind of been holding pretty firm. I think in San Francisco and Pennsylvania, perhaps rents have been softening. Seattle, there hasn’t been a lot of activity.
We’ve been able to hold rent on certain spaces in the -- suburban area rent have softened. In San Diego, it really depends on the quality of the asset and if it’s first generation or second generation and where -- in its location. But in general, I would say that rents are pretty soft in the San Diego market.
Arun Nagarajan - FBR Capital Markets
With respect to the acquisition -- again, sorry to harp on the acquisition -- were these well-marketed deals or were the value acquisitions that you made in July, were they off-market? And can you give us some background on what the sellers were -- how motivated the sellers were and what the buyer interest was?
Kent Griffin
Obviously there are two different dispositions in different situations.
Arun Nagarajan - FBR Capital Markets
Right.
Kent Griffin
In the North Carolina acquisition, the seller was a very sophisticated, knowledgeable seller. But the product focus is not on the life science industry. So from a strategic perspective, I think it made sense. On the other asset, I think it was a unique – the development opportunity here in San Diego was clearly a relationship situation.
Arun Nagarajan - FBR Capital Markets
Okay. And just to kind of take a step back and talk about the Maryland acquisitions, obviously, MedImmune has its own headquarters here, and obviously, the earlier question that was asked on Human Genome Sciences expanding as well -- what do you think is the main driver in Maryland moving forward? Is it the NIH budget increases and smaller biotechs or are you seeing the slightly bigger midsize and bigger biotech/pharma also growing and expanding in Maryland?
Matt McDevitt
I think we are actually seeing kind of the effective NIH, National cancer, FDA all basically positioning and expanding their presence in Maryland. In addition– we have seen emerging -- the startups actually come back to that market so it’s really the top and the bottom spectrums that we’re seeing.
Arun Nagarajan - FBR Capital Markets
Okay. A couple of questions -- I mean, on the -- just remind us again on the existing Isis Pharma lease. Will they be moving out or are they simply expanding into Gazelle Court?
Kent Griffin
Expansion.
Arun Nagarajan - FBR Capital Markets
Okay. And obviously, I read somewhere that Nectar Therapeutics was moving out of San Carlos. What is the impact to South San Francisco and the overall health of the South San Francisco market?
Kent Griffin
I think they are on our lease for quite some time so I don’t know if it has any immediate impact. I don’t think that space is going to be available for some time. They’ve moved that.
Arun Nagarajan - FBR Capital Markets
Alright. Thanks a lot.
Kent Griffin
Thanks
Operator
Next, we have a follow up from the line of Jordan Sadler with KeyBanc Capital Markets; please proceed.
Jordan Sadler - KeyBanc Capital Markets
Can you maybe just give us some of the details surrounding the PRC lease that was signed in the quarter? I might have missed that.
Matt McDevitt
The 15,000 square feet leased to Sierra Atlantic it’s an all office space lease and it’s a lease in the low teens and with a -- I think TI in the 40 to $50 a square foot range.
Jordan Sadler - KeyBanc Capital Markets
And sort of the prospects on PRC? Have they been -- has there been an uptick or has it a bit slow or how would you characterize it?
Matt McDevitt
I’d characterize it as pretty steady. We continuously see activity out there and I think the addition of building out spec suite, spec lab suites has increased the activity kind of in the 20 to 30,000 square foot sized tenant range. So that’s been very positive and continues to be positive. The larger tenants – where we are – I think the activity, the tours have been pretty steady and we’re hopeful that there is going to be some resolutions to some of the space and some of the tenant needs in the coming quarters.
Kent Griffin
Yeah Jordan, I think the success we had lease in this quarter really highlights that there is activity. I think three of the four leases we highlighted were in the broader Bay Area markets, sub markets that have been perceived to be challenge, and the other one was in Pennsylvania, another soft market. Really all of our leasing success -- the majority of this quarter was really focused actually in the toughest markets.
Jordan Sadler - KeyBanc Capital Markets
I noticed that. I appreciate the color. And just sort of a little bit more color on that point, Kent. Is it -- were you seeing it from the lab space tenants, though or is it more sort of opportunistic tenants in that area who are taking advantage of sort of some opportunity in the market?
Kent Griffin
Right, I think Alan mentioned an office tenant, but majority of the leasing has been with life science tenant.
Jordan Sadler - KeyBanc Capital Markets
But wasn't one a CleanTech tenant as well?
Kent Griffin
One of the CleanTech -- that most recent extension that Matt mentioned was a life science tenant and obviously the tenant in Pennsylvania was another life science tenant.
Jordan Sadler - KeyBanc Capital Markets
Would a CleanTech tenant buildout look anything like a lab space buildout or would that be more akin to an office?
Matt McDevitt
It’s a combination. I mean they do have and do need laboratory type space and the significant amount of infrastructure HPAC system infrastructure, but in that sense it does look very similar to the office and lab portion of a laboratory. The CleanTech does have a further requirement for some manufacturing type space which fit perfectly with the Kaiser Drive building which was an R&D building and it had rolled up doors in the back of it. And so it allowed that tenant to fit right in there and utilize that space.
We are pretty excited about Soraa and their new clean technology; I think what it’s going to bring to energy saving in the lighting industry. It’s pretty exciting stuff.
Jordan Sadler - KeyBanc Capital Markets
Thank you.
Matt McDevitt
Thanks Jordan.
Operator
Our next question comes from the line of Chris Catin with Morgan Stanley. Please proceed.
Chris Catin - Morgan Stanley
We've talked on and off about the acquisition market. I think I understand how you approach pricing risk. A couple of questions is have you seen any yield compression kind of through the year as the overall markets -- the capital markets have improved? And then how is the competitive dynamic for assets; are you seeing additional bidders in the market shifted and are you losing out on price on any deals that you really wanted?
Kent Griffin
I think it’s a very good question. I think clearly from a year ago there has been compression as the credit markets firmed. If your question is really from January 1 to today has there been compression, may be less so. I do think there is a lot of interest in the high quality assets that are well leased as we are. I haven’t seen things trade yet but clearly, we’ve stopped pursuing some opportunities where the pricing has gotten ahead of us.
Chris Catin - Morgan Stanley
Thanks.
Kent Griffin
Thanks Chris.
Operator
It appears there are no additional questions. I will now turn the call to over to Alan Gold for closing remarks.
Alan Gold
I’d just like to thank everybody again and with that, we’ll sign off. Thank you everybody.
Operator
This concludes today’s presentation. You may now disconnect. Good day.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!