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Alexandria Real Estate Equities, Inc. (NYSE:ARE)

Q3 2011 Earnings Call

October 26, 2011 3:00 PM ET

Executives

Rhonda Chiger – IR

Joel Marcus – Chairman, President and CEO

Steve Richardson – EVP, Regional Market Director, San Francisco

Dean Shigenaga – CFO, SVP and Treasurer

Amanda Cashin – Assistant VP, Life Sciences

Analysts

Jonatnhan Habermann – Goldman Sachs

Anthony Paolone – JPMorgan

Michael Jason Bilerman – Citi

Philip Martin – Morningstar

John Stewart – Green Street Advisors

Dave Rodgers – RBC Capital Markets

Gabe (ph) – UBS

Ross Nussbaum – UBS

Operator

Please stand by. Good day, everyone, and welcome to the Alexandria Real Estate Equities, Incorporated Third Quarter 2011 Results Conference Call. Today’s call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Rhonda Chiger. Please go ahead, ma’am.

Rhonda Chiger

Thank you. Good afternoon and welcome. This conference call contains forward-looking statements within the meaning of the federal securities laws. The company’s actual results may differ materially from these projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company’s annual report on Form 10-K and its other periodic reports filed with the Securities and Exchange Commission.

And now, I would like to turn the call over to Joel Marcus. Please go ahead.

Joel Marcus

Thanks, Rhonda, and welcome, everybody, to the third quarter earnings call. With me today are Dean Shigenaga, Steve Richardson, who is just elected by the board the Chief Operating Officer, Krupal Raval and Amanda Cashin.

As you know, the current macroenvironment is highly volatile, it is mixed across the country, and our assumption is that it is not going get noticeably better in 2012. Let me start with guidance since there’s been a lot of focus on that. Dean will address guidance in detail. He’ll discuss the current range, the detailed assumptions behind that with our stress test analysis. He’ll also focus on the fourth quarter ‘11 NOI and FFO run rates and the fourth quarter ‘12 NOI and FFO run rates.

We’ll update guidance again on Investor Day. And in retrospect I think in the future, we’ll provide a wider initial guidance range for future years and narrow as we go through the quarters and assess our performance as we go. I think that will be a lot easier for all of you.

Our 2012 growth rate could well be in the mid-single digit range. The environment is obviously different but many of the metrics that are evident today show interesting similarities to the post-Internet crash years of 2002 through 2004. Substantial effort is under way to move legacy suburban assets in the key adjacency urban assets and you’ll see the results of that in the coming quarters.

We do have continuing solid demand from our ARE’s urban adjacency locations, notwithstanding substantial negative headlines, San Diego, Cambridge and New York City as examples.

Let me talk about maybe good, bad, ugly and the misunderstood. On the good side, the achievement this past quarter of our investment grade rating has substantially de-risked the company’s balance sheet. We transformed from 2008 as an unrated niche REIT to today as an investment grade niche REIT with a broad set of capital sources with the best-in-class adjacency assets. Those enabled us to attract high quality tenants which really are transformational, have large addressable markets, have solid growth prospects and are category leaders with competitive barriers and attractive business models.

We’re making very good progress in leasing space, vacant re-lease, re-development and hopefully development as we go forward with reasonable economics given the current macro environment. We’re maintaining on an annual basis solid core operating metrics within a range of reasonableness, again, given the current environment.

We’ve made and we’ve seen dramatic positive progress made on the lease up of the assets and the re-development pipeline and the two new assets coming into the re-development pipeline, 400 Tech Square. We may be almost fully leased there shortly. And also, Steve will report a little bit about our 1551 Eastlake, the former Gates Foundation headquarters building making great progress there. On the – that was the good. The bad, while we’re generating operating metrics which vary quarter to quarter and we have a very strong leasing volume this quarter, almost a million square feet, our GAAP NOI was slightly negative for the first time in the company’s history, but luckily cash NOI has been healthy.

GAAP rental rate decreased for the third quarter, as you saw was primarily due to a step down were we signed original leases on significant renewals on those which were signed I remember actually some of the negotiations 10 years ago at the top of the Internet bubble, one in San Francisco bay and one in Cambridge.

On the ugly or the misunderstood, I think it’s pretty clear the driver’s underlying our life science thesis remain intact despite headline to the contrary. The biopharma industry has undergone really thorough transformational change, and the prospects per significant size as well as growing biopharma companies requiring quality space and the best adjacency locations had been actually increased not decreased due to their transformed business models.

And their need to move more critical functions from isolated so be it style of campuses to the heart of the innovation standards and our business model, our best in class assets and our locations really provide the sweet spot for us in this transformational process. We will continue to concentrate on these key adjacency urban locations.

Pharm-aid is very profitable, has over almost $200 billion in cash on the balance sheet as of the end of the quarter, and total biopharma R&D remains very healthy at well north of $60 billion. We believe that the business case remains intact that the U.S. is and will remain the heart and center of entrepreneurial and novel discovery innovation in medical and scientific research. But companies will continue as evidenced virtually every day. They continue to cut costs to better their top and bottom line results and clearly pricing and reimbursement is a key pressure point.

Just a couple of recent cuts noticed that there’s been a continuing trend to offshore process R&D, not discovery R&D. Clinical trial work is broadening into quite a number of countries and things like data management and other kind of office kind of efforts can be offshored and it’s up to I think the people in this country to provide a high quality and effective and efficient workforce. But clearly, innovative discovery and R&D is headquartered and situated here in the U.S.

The industry transformation is well on its way. The modernization of the business models is evident. Innovation is the key to continuing success and it’s clear both North America and in European biopharma companies have the attributes to continue to do – continue their global leadership with pretty solid growth. The NIH has been a huge headline of late, about $30.9 billion for this past year. 2012 is unknown. The House has a bill that it could increase more than $1 billion. The Senate has a bill that it could be down $190 million but not bad considering the environment we’re in and there’s no real opposition, the strong NIH budget in government. It just is a function of getting caught up with the really big items in defense entitlements, et cetera and just overall spending.

2013, there is a scenario if these guys don’t get together, guys and gals, by I think November 2. There would be 7.9% automatic budget cut to the NIH budget for fiscal 2013. Clearly, the strongest recipients will survive. These are five-year grants. So those grants that are in the hopper now won’t be affected. If – not only my opinion, but I think most people’s opinion that are familiar with the NIH that lower tier recipients would be negatively impacted by lesser new grants. They’d be about $2 billion less. But I think the great grant recipients will continue to garner their fair share. I think one good sign this year is the FDA as of 9:30 has already approved more drugs in the U.S., 26 than in all of 2010 which were at 24.

Moving on to operations and leasing, we’re very pleased with the second highest leasing quarter in the company’s history at almost 1 million square feet. Very strong momentum in Cambridge where we have a great position in the market, 29 leases at 402,000 square feet on renewed and released, cash down about 3%, GAAP up 3%. San Francisco in mass renewals, the 10-year ones that I just told you about were really the big contributors to those.

On the development and redevelopment and vacancy side, we had 27 leases at 583,000 square feet including the 307,000 square foot build-to-suit for Biogen Idec which just announced their Phase III results for the oral multiple sclerosis drug somewhere which is – or likely to garner something like $2 billion to $4 billion per year and their stock price has been on fire this year.

The 15-year lease we hope to deliver in the last half of 2013, we have a joint groundbreaking tomorrow I think with the Governor of Massachusetts, the Mayor of Cambridge, the company Boston – Biogen Idec and in conjunction with the companion building developed by Boston Properties. The remaining 2011 lease rolls 572,000, 150,000 are leased or expected to get done here shortly, 294,000 in two redevelopments.

We’ve talked about 400 Tech Square in 1551 Eastlake which leaves about 128,000 for the remainder of the year not so bad given the amount we started with. The amounts are pretty small about 40,000 in San Diego which should be a kind of a positive, about 24,000 in Maryland which is likely to be negative, about 40,000 in (inaudible) which is maybe kind of neutral, 21,000 North Carolina neutral and just a small amount in Seattle.

In 2012, we’ve got about 10% of the asset base rolling at about – our portfolio operating at about 1.3 million square feet, 25% at least are expected to be lease, 10% is into redevelopment or change of use, and 65% is marketing. 240,000 square feet in San Diego is likely to be positive about 125,000 San Francisco likely to be positive, 135,000 in Boston could be by and large neutral depending upon on the location if there in the suburbs. We’ve got the biggest 258,000 in Maryland likely to be slightly down at about 64,000 in Seattle which could be kind of breakeven.

So with that having been said, let me turn the call over to Steve Richardson who’s going to highlight some of the details on the West Coast and then we’ll go to Dean.

Steve Richardson

Hello, this is Steve and today I’ll review the key trends on the West Coast in the Seattle, San Francisco and San Diego cluster markets. Starting north to south, Seattle, the University of Washington continues to expand and they’ve broken ground in South Lake Union on 450,000 square feet of Life Science space. This is on the hills of Amazon a very significant expansion in the same area which includes job openings now for more than 3,000 workers.

As we’ve seen in our other core cluster markets, the life science and technology companies are converging with one another in the absolute best location to attract the highest quality talent possible. This area, the South and East Lake Union area where we’ve historically aggregated our assets is a very strong vital and dynamic cluster compared to other submarkets were lab buildings have struggled and have been vacant for a long period of time and are actually forcing the landlords to pursue desperate measures in the market.

The key CBD life science clusters remain solid with lease rate for new space in the mid40 triple net range and vacancies of just 1.5% in the Lake Union area and little vacancy in the First Hill area. Finally the 1551 East Lake project that Joel referenced is proceeding very well and we’re pleased to report we’ve got 51% pre-leased as of today.

Moving down the coast to San Francisco, the technology sector continues to drive top line growth in absorption into the third quarter stretching from the Soma area south of market down to Silicon Valley. UCSF continues to make significant investment in Mission Bay with the hospital steel structure clearly defining the magnitude of this multi-billion dollar investment.

The Stanford submarket is now quite strong with single digit vacancy and lease rate in the low 30s to low 40s for second generation space. Additionally, VMware’s purchase of the Roche site in the Stanford Research Park removed a total of a 1,000,000 square feet of life science product from the inventory and that will further tighten the metrics.

South San Francisco as we’ve reported in the past continues to lag with a 14% vacancy rate and we do remain cautious as lease rates continue to hover in the low to mid30s. Steady progress fortunately is being made at East Jamie Court project with approximately 44% at lease now and 20% in serious discussions. And specifically with East Jamie Court, we have three separate letters of intents with tenants. They’re evaluating those closely. The regional team is in constant contact with the decision-makers and the brokers involved in the process and we do have an existing tenant who is already interested in exploring expansion possibilities based upon a partnering transaction that they’re getting very close to.

Moving up to Mission Bay, we have 1% direct vacancy excluding a couple small retail suites and the details there include a 1500 Owens where are now fully leased with UCSF expansion for the fourth time in the building. We’re finalizing an expansion for 4,000 square feet on the first quarter of 455 Mission Bay Boulevard South. And finally we’re finalizing an expansion for 24,000 feet in that building where tenant will look to pay for an option to keep the space off the market until early 2013 as they wait an important milestone.

499 Illinois is in full marketing campaign mode and tours and preliminary discussions include the following: we’ve just had a tour with a very strong technology company and their advisers. They’re closely evaluating 499 as an alternative. We do expect fuller tours with their teams and advisers during the next month or so. We’ve just received an RFP from an emerging stage technology company. We’ll be carefully revealing that as well.

And then finally, we have ongoing preliminary discussions with two institutional quality life science users. These are very serious users. They have limited options in the market for large blocks of life science space and have acknowledged and recognized the value of 499 Illinois.

Finally, moving southward to San Diego, the market as we’ve noted recently again is very healthy, particularly in the Torrey Pines cluster. They can see us in the 9% range and lease rates have improved by 10% or 15% during the past 12 to 18 months to the mid to high 30s triple net. We really see demand being driven there by two segments, one, industrial biotech including the biofuels segment and two, maturing biotech companies. Right now, we’re tracking approximately 300,000 square feet of requirements in the market and expect to capture a little more than our fair share of this demand.

With that, I’ll hand it over to Dean.

Dean Shigenaga

Thanks, Steve. Real quickly here on our guidance we’ve updated for 2011 to FFO per share diluted, $4.38 and EPS diluted of $1.72. Our guidance for 2011 implies a target FFO per share diluted of $1.10 for the fourth quarter of ‘11 and this represents a good run rate going forward or $440 on an annualized basis. Our range of guidance which Joel touched on earlier for 2012 was $450 to $454 for FFO per shares diluted. It includes among other assumptions the following operating and asset-based assumptions, and I’m going to pass on commenting on sources and uses since it’s included on the page 13 of our supplemental package.

Our guidance assumes FFO per share diluted approaching $1.20 per share in the fourth quarter of ‘11. I think one of the challenges given the significant amount of NOI coming on this year is giving some clarity to – FFO per share approaching $1.20 in the fourth quarter of ‘12.

But given more clarity on NOI growth, I’d like to walk through our reasonable assumptions and really highlight some of the upside included in the range of our guidance. Our press release projected an increase in NOI of approximately $47 million when comparing 3Q ‘11 annualized NOI of approximately $100.8 million to the fourth quarter of ‘12 annualized NOI of about $112.5 million.

The projected growth in NOI is back and weighted due to timing of deliveries and is related to significant pre-leasing or committed spaces. This results in an approximate 30% contribution of that NOI growth down the bottom line FFO after offsetting the reduction of capitalized interest as we transfer these assets into service. The historical cost basis or GAAP basis of our qualifying basis which we expect to transfer into service related to this NOI is in the high $400 million range.

Let me walk through each line item which is really contributing to the growth of NOI. And as for reference I think you can follow it along on page 46 or 47 of our supplemental package because I’m going to start with development – redevelopment and development assets and the contribution. 1119 North Torrey Pines is an 82,000 square foot project under redevelopment.

And the fourth quarter run up in NOI of the $47 million and you’re going to see $1.2 million on an annualized basis contribute to this but it purely is related to the 20% that’s leased today. And so there’s really a meaningful upside because we’ve assumed no further occupancy in our guidance assumptions through the fourth quarter of ‘12. And to frame this redevelopment NOI component, it approximates about $18 million of that 40-somewhat million of NOI group.

John Hopkins Court which is the next 90,000 square foot asset, the NOI group here will be $4 million based on executed leases so really no risk to the assumption other than a couple weeks on construction deliveries. Campus Pointe is 204,000 square feet. It’s about $9 million contribution. 43% of that is executed, 47% of that is under negotiation so we’re in pretty good shape with that. 6075 Nancy Ridge is about 47,000 square feet.

We get about 800,000 contribution on an annualized basis. That assumes 63% occupancy by the fourth quarter of ‘12 and keep in mind, half of this 63% is already preleased. 400 Technology Square is about 210,000 square feet in total, a portion of it will roll in October and the entire building will be under redevelopment. At the moment, the disclosure only shows 49,000 square feet.

The assumption here for our model has meaningful upside because we’re reflecting a neutral impact on an annualized basis and that assumption assumes only 50% of the building is stabilized at that point. And as you point out that we have an anchor tenant under negotiation for that space.

215 First Street will contribute about $1.2 million in NOI partly through redevelopment and partly through the previously delivered space on that redevelopment project. Quadrangle is a small asset at about 30,000 square feet. We get about half a million of NOI contributions, 61% of that is preleased and were projected to be 100% by the end of 2012.

1551 East Lake is a future redevelopment project that comes in in the fourth quarter. It’s neutral but represents upside to our NOI assumption and our guidance. 51% of this is pre-leased and were only projecting leased up assumptions to 69% by the fourth quarter of ‘12 clearly providing room to beat that metric. The other projects which add up to about $1.3 million get us to about $18 million for redevelopment contributions.

Turning to the development schedule on page 47, the 4755 Nexus, we’ve taken a very conservative view on NOI contribution that we would not have occupancy by the end of ‘12. I have a feeling that we’ll be ahead of that schedule given the dynamic that we’re executing that in San Diego. 5200 Research is the build-to-suit for Illumina. You get $4 million of NOI contribution. Keep in mind this is 100% leased with a target delivery in the fourth quarter of ‘12. 455 Mission Bay, it’s only 40,000 square feet. 76% of this is committed at about $1.6 million of NOI. A little bit might be contributing from previously delivered space in that number as well.

On Illinois, 219,000 square feet. We’re expecting consistent modeling with our underwriting from acquisition at about two-thirds of the project being leased on average by about 10.1 which would generate at least a $4.8 million amount of NOI and keep in mind I should have pointed out these are GAAP numbers.

East Jamie Court, 107,000 square feet to go, 16% of it is pre-lease. We’re assuming an additional 25% of that; 107 is leased in the third quarter and another third quarter of ‘12 and another 25% in the fourth quarter of ‘12 contributing $3.6 million of NOI by the fourth quarter of ‘12.

A couple other smaller projects, one of which is leased that are potential developments, one is pre-leased today.

The aggregate, approximately 140,000 square feet, will contribute by the fourth quarter about $1.4 million NOI bringing us to about $16 million of development NOI contribution, annualized by the fourth quarter of ‘12. 7 Triangle was a development project we’ve just delivered in the quarter for the incremental add between the third quarter and the fourth quarter of ‘12 although this will come in next quarter or in the fourth quarter as 1.9 of incremental NOI; recently delivered redevelopment and releasing of the other half of the project at 500 will generate about $2 million of NOI. When I say releasing, it’s re-tenanting the space because the other half is currently occupied.

Fourth quarter acquisitions included in our sources and uses of capital of about $20 million will contribute about $1.1 million of NOI growth. Same property annualized NOI growth contribution will be about $5.9 million on a GAAP basis.

Turning next to straight-line rents for 2012, we’re expecting $6 million per quarter, about $24 million for the year, fairly consistent with the total straight-line rents we’re expecting for 2011. FAS 141 revenue is projected to be about 800,000 per quarter starting in the fourth quarter of ‘11 continuing through the fourth quarter of ‘12.

Occupancy has projected to increase slightly averaging in the 95% range in 2012, same property NOI growth on a – is expected to be about 3% to 5% on the cash basis and 0% to 2% on a GAAP basis. And let me try to highlight where the contribution is coming from.

On a GAAP basis, San Francisco, the Bay area is actually going to provide a meaningful component of same store performance, really from lease up plus in vacant space. Most of this is under negotiation or renewals that we – or targets that we expect to move into that space. It’s a little early. It’s not quite that I would classify as negotiating stage. If you turn to New York, Seattle, Canada, we’re getting pretty good contribution from those markets primarily driven by lease up of vacancy or lease renewals.

The downside in the same store happens to be in the Boston market, primarily because there is a bit of space in Cambridge that will go dark at least in our model for a period of time as we tend at the space.

Turning to cash, same property performance, I thank you, the generally theme here is there’s significant spike in cash, rents, primarily driven by leasing that occurred this year which had a little bit of free rent involved in the leasing transaction, for example, San Francisco will contribute meaningfully the Suburban DC market as well as New York, and New York obviously has to do with the lease up of a brand new development project, so little more irrelevant from a free rent perspective. The downside from a same store again appears in the Boston market primarily due to this same situation with a temporary vacancy in Cambridge as we re-tenant some space.

Moving on to rental rates and the expectations for at least renewals and release in the space. We’re projecting 5% on a GAAP basis or up to 5% on a GAAP basis and arranged slightly negative to slightly positive on a cash basis. First on the cash statistics, it’s really been waited by just a few leases one in Boston as we relocate a tenant in some nicer quality space into some less expensive space, but we anticipate because of the time this lease would execute there would be a step-down in that particular releasing.

We have some office space upper rollover renewal in Maryland and that market from an office perspective remains challenging. And we also have – actually the positive year is positive leasing in San Francisco of all places due to the lower expiring rate on the lease expiration.

As we turn to G&A, G&A is projected to increase 5% to 8% over 2011 primarily due to the growth in the breadth and depth of our operations. Capitalized interest is projected to decrease in 2012 when compared to 2011 to approximately the $54 million to $60 million range. And it’s quite dependent on the timing of deliveries in new construction.

Moving next and importantly the sources and uses of capital. Due to the top capital markets since receipt of our investment grade ratings, we have not had the opportunity to announce our debut bond transaction. However, completing the rating assessment was a significant turning point for the transition of our capital and balance sheet strategy. It’s important to note that we prepared a very broad range of stress test capital sensitivities for 2012 guidance including some assumptions that were more punitive to guidance.

We have no plans to open the bond market for REITs. Pricing today for a debut is when it would result in an all-in-right north of 6%. And we are waiting for a more stable environment issued bonds since we project ample liquidity and want to be patient. So we have pushed back our bond offering to the latter part of 2012 and increased our all in rate on our debut bond offering by 75 basis points to 5.75%.

We remain focused on not expending our capital needs and our uses of capital assume no acquisitions and are focused purely on construction outside of debt repayments and dividends. The equity component of our capital needs can only be achieved through net cash flows, recycling of capital from asset sales, joint ventures and common equity. Given the market environment, we expect to look more aggressively at asset dispositions. However, until we finalize and execute on our strategy, we are not prepared to include it in our guidance beyond the modest $112 million projected dispositions through the fourth quarter of ‘12.

We are committed not to raise equity at the price of our stock of late. However, we have assumed $200 million of other capital in our guidance spread over multiple quarters. The key here is that the assumption can be viewed as various asset sales preferred equity or an ATM program, all with fairly similar impacts to FFO results.

Let me briefly comment on credit metrics and our refinancing those or term loan here. We remain committed to our investment grade credit for fund including debt to EBITDA targets close to six to six-and-a-half times except temporarily if necessary. Fixed charge coverage ratio greater than two-and-a-half times and then maintaining adequate liquidity on balance sheet through significant availability on our line of credit and through cash.

As it relates to our new unsecured term loan we’re anticipating closing to $500 million term loan shortly. The term would be about five years probably a four plus one pricing at 1.5% over one month LIBOR. The proceeds of this will go to reduce the outstanding balance under our line of credit providing significant amount of liquidity and availability, ultimately, either unsecured bonds or liquidity under our unsecured line of credit will allow us to retire the $250 million outstanding under our 2012 unsecured term loan.

With that I’ll turn it back to Joel.

Joel Marcus

So, if we could go to Q&A, operator, please.

Question-and-Answer Session

Operator

Absolutely (Operator Instructions) and our first question will come from Jonathan Habermann of Goldman Sachs.

Jonatnhan Habermann – Goldman Sachs

Hi, good morning, everyone. I guess the question here on dispositions, Dean you’d mentioned possibly raising above the $112 million in guidance but can you give us sense of the magnitude that you’re anticipating, perhaps, beyond that original forecast?

Joel Marcus

Yeah, let me – Hi, Jay, it’s Joel. Let me comment on that it would be our goal to see that maybe approaching to $200 million to $250 million if we’re successful. But clearly we can’t assume that.

Jonatnhan Habermann – Goldman Sachs

Okay. And just switching to 499 Illinois, can you give us some sense of the tenant looking at the space? What they’re timing would be for actually taking use of that space?

Steve Richardson

Yeah, this is Steve. We’re on track. We’re in a full marketing campaign mode. As I noted, we’ve had tours. There is live genuine activity in the market. We do need to complete the warm-up process. So I think we’re talking about a mid-2012 occupancy target.

Jonatnhan Habermann – Goldman Sachs

Okay. And just final question, can you just give us any update I guess on New York City in phase two?

Steve Richardson

Yeah, we continue to view New York as a really strong market. We had one opportunity this week that had a time issue that was pretty sizeable and pretty exciting that we did have to let pass and not take on but it was quite interesting. We do have two requirements that are external that are both institutional and one internal for substantial expansion for New York when we decide to kick off the West Tower which is 400,000 square feet. So that’s really – what will determine that is really the capital that will fund it and we clearly would want to move those opportunities to signed leases and have over 50%. At the moment, none of that is in our current 2012 plan.

Jonatnhan Habermann – Goldman Sachs

Okay. And just to clarify in the dispositions, I guess what portion of that would be assets versus possibly liquidating from land?

Steve Richardson

The majority of that would be assets.

Jonatnhan Habermann – Goldman Sachs

Thank you.

Operator

And our next question will come from Anthony Paolone with JPMorgan.

Anthony Paolone – JPMorgan

Hi, thanks. Good afternoon. First question is on Illumina and they’ve preannounced and had a tough time. Just curious if you could give a sense if there’s any outs of them and either their main lease or with the building you are building for them the expansion part of that site?

Joel Marcus

No. And in fact we’ve had discussions with them as late as yesterday. Some things we can’t share with you because they aren’t public. They did file an 8-K today on their small layoff. We know where that’s coming from but it is not affecting their operation that we’re involved with. I’ll ask Amanda to comment on Illumina because I think there is a certainly misunderstanding about – broadly about kind of what’s going on there.

Amanda Cashin

Sure. So as you mentioned, Illumina had announced their earnings and had announced sort of a pre-guidance to their earnings and move on to some reductions that they’ve seen from some of their academic customer spending and a lot of that they’re attributing to sort of the uncertainties that the academic researchers are seeing from federal funding from research grants. So that has slowed customer spending down. And also – that has also impacted from the roll off from the stimulus fund that had a peak in 2010. So they’re kind of seeing reduction of revenues, a 1% decrease in third quarter 2011 from third quarter 2010.

But remember this is a profitable company that has a $3.7 billion market cap and continues to be committed to growth and innovation and investing in research and development. So I think we feel so pretty comfortable that while their stock price may have dipped it may have been in responses perhaps in over valuation in the market due to the really, really high expectations both have, as they really are a topnotch DNA sequencing company that has a lot of conduct to really impact the market in the long term for genome sequencing.

Joel Marcus

Yeah, and I think Tony as far as the phase that they are taking, they have reiterated the time schedule and the space and we don’t see any changes in that whatsoever.

Anthony Paolone – JPMorgan

Okay and the $3.3 million I guess I calculated that as in terms of the fourth quarter GAAP NOI on that project. Is that the full amount with the exception of the 4 million that would then come in from the additional property you’re building there?

Joel Marcus

Yeah, that’s correct.

Anthony Paolone – JPMorgan

Okay and if I – I just looked at that just to understand the bridge from where Biogen was there and where Illumina is there now. You said the roll down sequentially I think is $1.7 million, so it suggest that I guess Biogen was running at about $5 million a quarter in NOI about $20 million a year. Is that right in terms of GAAP?

Joel Marcus

Yeah from a GAAP perspective, you’re right. Roughly speaking if you add 1.7 million on top, roughly I think the GAAP rate was around $36. Effectively what happened was when we originally purchased the property it was subject to a 15 month leaseback. As you are well aware 45 days later we executed the lease with Illumina for the campus and they had the desire to be in the project much sooner. So we went back to Biogen and try to figure out how to get space back sooner so we can meet and accelerate the delivery Illumina’s benefit.

We were able to achieve that not all at once but over time and so the 15-month shrunk. From a pure accounting perspective, it required the re-estimate of the amortization period of the 141 revenue under a shortened timeframe, which resulted in $1.7 million of higher GAAP rent income in the third quarter. That really worked through the process as we were trying to figure out exactly what that estimated delivery date would have been for Illumina to take the space. And as we took the space back from Biogen, we were able to figure out the exact timeframe which really is the reason for not a whole lot of clarity until it happened.

Anthony Paolone – JPMorgan

And so I guess, I’m just trying tie in – maybe another way to look at this if my numbers here are close, in hindsight, does the Biogen yield on a GAAP basis work out to have been something like 15% plus. And now, with Illumina in there, you’re trying get to your 10% that you’ve kind of guided to for a while in the space, is that kind of like...

Joel Marcus

Yeah. But...

Anthony Paolone – JPMorgan

...different?

Joel Marcus

Yeah. Something’s – Tony, I didn’t do the math but something a little unusual from a yield perspective on a GAAP basis during Biogen’s occupancy, it was not originally targeted that way because we thought we had a 15-month deal. But you’re right, the acceleration or shortening of their lease term resulted in an increase in GAAP rent resulting later after Biogen ruled out and Illumina took occupancy in a normalized run rate going forward, and I think I provided that number at $38 and some change in the supplemental.

Anthony Paolone – JPMorgan

Okay. And then a question for Steve on the Illinois Street property, you talked about a couple of institutional life science tenants that we’re looking at it. Just curious as to what their alternatives would be like what other types of things would they be looking at when they consider that space?

Joel Marcus

Yeah. Again, I did use the word preliminary, Tony, so I do want to say that again. But right now, they have no other alternatives. I mean 1700 Owens is essentially fully leased. 1500 Owens now is fully leased with UCSF expanding for the fourth time. 455 is now fully leased or committed. So as far as high quality life science space for laboratory users, there really is no other alternative down there in Mission Bay.

Anthony Paolone – JPMorgan

But would tenants or prospective tenants like that consider other markets or what would be sort of their mind set or is it matter of maybe we’ll go into new space, maybe we won’t do anything at all? I mean, it sounds like they don’t have an option?

Joel Marcus

No. These particular types of users really don’t have an option. Going down to South San Francisco isn’t particularly viable, so I think it’s just a matter of time.

Anthony Paolone – JPMorgan

Okay. And then just a couple of questions on the development side between I guess now and the end of next year about $83 million of funds to China and India, curious as to A, how many projects does that encompass; B, is that all of the spending, is that just part of half to get certain projects done; and then I guess, C, what are the returns like on something like that?

Dean Shigenaga

Yeah. Actually, it’s – just to clarify, you’re right, Tony, in total, 83 over five quarters. It’s about $20 million in the fourth quarter and 62 projected for next year. And we are anticipating delivery of some space soon, so you do see some dollars maybe at a little higher rate than what we have incurred on average for 2011. So you’ll see that soon and that’ll probably come out on both markets soon, both India and China.

Joel Marcus

Yeah. I’ll ask Steve to comment broadly on China and then I will on India, just generally about kind of where we are in today.

Steve Richardson

Yeah. We’re making good progress there. I just returned on Friday from both of our projects there in China. We’re having serious discussions with a significant anchor tenant for the South China project that we’re feeling optimistic about and then have continued detailed conversations with a couple of key users for the North China project. More to come on those but these are substantive discussions with real users with requirements.

Joel Marcus

Now in the North China project, we’re working to try to finish that and there will be additional investment in the build out. What’s emerged is a possible institutional/governmental entity that could take a floor more in North China together with potentially a North American client. And then in South as Steve said we are on the (inaudible) of having a major anchor tenant there that’s a credit western pharma kind of company. Probably the bulk of those funds will flow into India primarily in two submarkets.

One submarket with one major tenant which is one of our top tenants who is doing. Or in the process of delivering a project to them right now and there would be several follow on will actually paces.

And so that’s been the bulk of our focus in India and we continue to invest and try to have a number of key land parcels and kind of to build that suite approach. As we said I think on previous calls, our benchmark for on and after tax basis is to try to be about 500 basis points above what we could get on the development here in the U.S. and we think we will be able to achieve that. China is hard to say at this point. I think it can be – we’re still in that target area.

Anthony Paolone – JPMorgan

Okay. And last question just on Toronto, can you give us the economics there and what’s your, I guess, basis on that right now and just when that income comes in?

Joel Marcus

Sure, Johnny. I think this is filed out in this supplemental as well as last and it was almost in a transition right over our second quarter earnings. So, we were able to provide limited information at that time. But basically MaRS a nonprofit entity in Toronto that did Phase I and affiliate of MaRS where we moved in forward with Phase II and Phase II development in Toronto that we had originally anticipated doing.

And you can actually find their press release on their own website so this information is available, but basically we executed a ground lease within affiliate to allow them to move forward. MaRS has announced commitments with two institutional anchor tenants along with attractive financing from infrastructure in Ontario. So from Alexandria’s perspective we have no financial obligations related to the construction or the financing of the project and we expect ground rents to commence with the completion of construction of the building.

Anthony Paolone – JPMorgan

And what’s your all-in basis for that land and what’s the ground rent, or what’s the return on that?

Joel Marcus

Yeah, we have helped you – give you a brief description on what we actually had invested into the project. The original structure was the ground lease from MaRS. We then invested into design and soft cost as well as a lot of hard construction to go below grade for a parking garage. The foundation in structure to support the building, and we kept it off right at street level. MaRS will finish the project from that point.

So we had roughly somewhere in the $80 million range invested in the project. And, the way this work is – do we had a basically a 99 year at least, we get it back roughly in 49 years. And rentals begin upon completion of the building and step over time.

Ultimately we get a modest return on this ground rent. I wouldn’t say it was the most attractive ground lease structure, but we do get a nice single digit return on our investment. But again it won’t happen for a few years, probably 2013 or later.

Steve Richardson

And we don’t have future payments on the original ground lease, which is...

Joel Marcus

Yeah, everything is being passed through. So now, we’re no longer responsible for operating cost or the ground.

Anthony Paolone – JPMorgan

I see. Thank you.

Joel Marcus

Yeah. Thank you.

Operator

(Operator Instructions) And our next question will come from Michael Bilerman of Citi.

Michael Jason Bilerman – Citi

Good. Thank you. Good afternoon. Dean, thank you for the details regarding the redevelopment and development NOI. If we can just go into detail just in terms of the ins and outs of how that – the cost associated with that amount. And I think you broke out just between the development and redevelopment was about $34 million out of the call it $45 million of NOI and then I guess there were some that had been recently completed. But can you walk through – you really compared this 4Q to 4Q. What sort of percentage of that NOI comes online in the fourth quarter? And then first, second, third and fourth, it sounded like some of it was coming earlier than the fourth quarter of next year.

Dean Shigenaga

Yeah, Michael, I don’t have that schedule in front of me but let me try to – if we turn to page 46 and 47, I’ll try to give everybody some – a better depth to the question you asked. John Hopkins is 100% leased and it’s a second quarter ‘12 delivery date. Campus Point is a little bit of split between 4Q, 1Q over the next one or two quarters with the other half being fourth quarter of ‘12. Nancy Ridge was just the next asset on the schedule, is at least first half ‘12 on the lease component. 400 Technology Square is late in the year for ‘12, 215 is small and we passed on that. Basically that one will be delivered shortly. Quadrangle’s first half of ‘12, 9800 Medical Center is a fourth quarter of ‘12.

As you move off to the development schedule, 5200 Research Place is a fourth quarter delivery. Illinois with a fourth quarter assumption for the lease up and East Jamie, I believe I gave 25 and 25 in 3Q and 4Q. So it’s really back end of the fourth quarter weighted.

Michael Jason Bilerman – Citi

And then as you total this, so it was $34 million and then you had 7 Triangle and recent development stuff was another $4 million, so $38 million in total and then the balance was same-store and acquisition, what does that NOI upon full stabilization grow to? Because I think you had also talked that let’s say for Torrey Pines, you’re only assuming it’s 20% leased, it was only $1.2 million. Obviously the full NOI contribution is going to – if you lease it up, it’s going to start hitting later years. But I’m just trying to understand the magnitude of this NOI.

Dean Shigenaga

Yeah, that’s a real relevant question, Tony, let me see if I’ve got a schedule that goes out beyond that and it’s not perfect because I’ve got a development schedule that looks at all development.

Michael Jason Bilerman – Citi

I guess I’m going to ask it in a different way, you talked about that these projects comprise high 400 millions of cost. What is the yield or the ultimate stabilized yield is it just the 38 million that you’re talking about today and it relates to the same high $400 million which is about an 8% yield?

Dean Shigenaga

Yeah it is right in that 8% range and I would say if I had to guess just looking on the delivery they provided you somewhere approaching 20% has yet fully to come in and that number could be bigger. I mean we could just run these estimates mid-quarter assumptions on the information I provided. I just don’t have that breakdown with me.

Michael Jason Bilerman – Citi

And then how much when you’re talking about $500 million or high $400 million of cost investment when you look on page 43 of your supplemental you have $604 million that you’ve spent on development and redevelopment. Is that not that the high $400 million you’re talking about is that all captured in this $600 million? Or has some of it already been transferred to operation or vice versa? Is money to be spent over the next 12 months that eventually will contribute to NOI to next year? Just trying to put all the pieces together.

Dean Shigenaga

Yeah, you framed it well Michael, it’s the latter. So the $300 million on page 43 $300 million of active redevelopment basis – development basis of $190 million the basis I’m referring to sits in there. It also includes spend-to-complete.

Michael Jason Bilerman – Citi

And so how much spend-to-complete to generate that $45 million – or sorry $38 million of NOI is still left present?

Dean Shigenaga

Yeah, unfortunately Michael I don’t have that breakdown with me. But we can chat about it later.

Michael Jason Bilerman – Citi

And that spend is included and effectively in this capital budget that’s on page 45...

Dean Shigenaga

That is correct.

Michael Jason Bilerman – Citi

You have $416 million part of that is part of this high $400 million delivery that you’re talking about?

Dean Shigenaga

That is correct.

Michael Jason Bilerman – Citi

Is there a dilution in terms of the timing of when something gets delivered versus when it contributes NOI that could also be affecting your numbers next year effectively the project as delivered in the first quarter, you stopped capitalizing interest but the NOI is not being recognized until the fourth quarter, is that also playing a part in this sort of earnings value or dilution that’s happening?

Dean Shigenaga

All right. That is true on a few of the assets but I think where it’s probably more relevant. I mean even if you think that could be less, three, four, five years, Michael, we’ve seized capitalization on a variety of projects and brought them back into operating load where all the carry costs go to the P&L.

We talked a little bit about China as an example today. One of the projects will likely seize capitalization shortly which will absorb the carry costs to the P&L and part of the building will be leased as well, so not all of it will fall to the bottom. And so, there are small assets like that that will contribute a little bit to hit to FFO as the operating costs drop to the bottom line.

Michael Jason Bilerman – Citi

And maybe moving to the balance sheet for a moment, I think you referenced in a couple of comments stress testing the model, trying to put very I guess very conservative assumptions from a financing standpoint into the guidance range that you’ve put out and I think you talked about $200 million of other capital whether they be preferred as sales or ATM which I assume as carrying probably 7% to 8% cost in their model (inaudible) throughout the year and that’s going to pay down the line, is that what’s embedded in the numbers currently?

Dean Shigenaga

That is correct, Michael.

Michael Jason Bilerman – Citi

And then in terms of unsecured debt issuance, I want to make sure I heard you correctly. Did you say you moved that to the end of next year or end of this year?

Dean Shigenaga

We pushed it out from 2011 on our debut bond offering, Michael, to the back half of ‘12.

Michael Jason Bilerman – Citi

So shouldn’t that be massively accretive relative to where people’s mind set and if you go back to the last quarter when you talked about the bond issuance and there’s two pieces happening, right? You issued the bonds at a higher rate, you’re weighted average cost, that goes up so when you capitalized that, you effectively have higher capital interest from a GAAP perspective even though it’s cash dilutive. But that was a $0.13 drag on an FFO basis. Are you effectively saying now even though estimates have come down and that sort of what came down over the last quarter’s call was estimates were high given the fact that the unsecured bonds issuance wasn’t in there that effectively we should now go back up for that $0.13?

Dean Shigenaga

It is – pushing back the bond assumption is a positive or accretive adjustment to FFO. The impact if you were to move this up to one-one of the year, if I recall correctly, it’s not quite $0.13, Michael. May we go to the math offline but I believe it’s closer to something like – and I, oh, I guess what I should be saying the difference between your analysis at $0.13 and I think our underlying assumption is that the latest – there’s another assumptions that goes with a bond offering in our model. And that is the retirement of our 2012 term loans. So those two go hand-in-hand. The net impact of those two assumptions moving. I think net out a few pennies a quarter, maybe $0.03, $0.035.

Michael Jason Bilerman – Citi

Okay. So I guess the term loan that you’re going against your term loan that LIBOR 150 over for five years. That one is effectively going to pay down your line, so that’s a neutral event for your guidance, right?

Dean Shigenaga

Relatively, yeah.

Michael Jason Bilerman – Citi

Because it’s effectively the same rate?

Dean Shigenaga

The line is a little more expensive, but ultimately, Michael, one of two things will occur with the $500 million new term loan. Initially, we’ll retire the line balance outstanding and reduce it. That pricing is about 2.3% over one month (inaudible), so there is a benefit there. Ultimately it will either take out 250 term loan or bonds will take out the 250 term loan. But short-term you’ll get roughly 80 basis point benefit.

Michael Jason Bilerman – Citi

Okay. I have this last question before I leave the floor. The 120 that you’re talking about for fourth quarter of next year, that still going to – I mean if you end up issuing the bonds to that point, that 120 is going to come down, right? I mean that’s still going to have dilution from refinancing and doing your debut bond offering.

Dean Shigenaga

I’m sorry if I wasn’t clear. Guidance includes the bond secured bond offering assumption.

Michael Jason Bilerman – Citi

For the full fourth quarter of 2012?

Dean Shigenaga

Correct.

Michael Jason Bilerman – Citi

So when you look at the street right now, which is at $1.21 for the fourth quarter, the lower guidance effectively in your guys’ eyes is more a reflection of the development and redevelopments not contributing until later in the year versus earlier in the year in which case the run rate into 2013 should state relatively the same and you should feel relatively comfortable where the street is at for 2013.

Dean Shigenaga

Yeah, by and large. And I think just broadly speaking, the different mix of capital until we get to the fourth quarter.

Michael Jason Bilerman – Citi

Okay. And for the supplemental, I think one of the things that would help going forward to bridge this gap is on page 46 and 47 is they actually have the (inaudible) invested today, your gross potential investment targeted yield. In that way, and also a little bit more clarity on as to when in the year those projects are coming online so that going forward, there won’t be this disconnect between what the street is thinking and what you guys are thinking in terms of development and redevelopment given that it’s such a substantial part of your business and I’ll get off soapbox.

Dean Shigenaga

Yup. No, we agree. We agree. I think it would be incredibly helpful.

Operator

And our next question will come from Philip Martin of Morningstar.

Philip Martin – Morningstar

Good afternoon.

Dean Shigenaga

Hey there.

Philip Martin – Morningstar

I think my model is done. But thanks, that was a very good insight actually on the model and a lot of information you provided in your opening remarks, Dean, was helpful. Joe, would you characterize your larger high quality tenant base as compared to what’s called the less established tenants to be less concerned with a potential of 7.9% NIH budget cut? And then your opinion kind of potential reduction in the budget drive increased M&A or do you feel venture capital would still that potential shortfall or void?

Joel Marcus

Yeah. That’s a good question, then maybe I just pulled out the top 20 in some of the – at the risk of elongating this call a little bit. Let me just run through. I think the answer is we don’t have real exposure in a real meaningful sense. I mean Novartis is one, Lilly is two, Roche is three, FibroGen just moved to four. They are very well financed private company with a potential huge blockbuster drug that is a new motive administration. Illumina is number five. Amanda’s talked about that. The government is six. And those are long term non-cancellable leases other than one lease which comes to an end next year.

Bristol-Myers, Glaxo, MIT. Even if the NIH budget is cut, MIT will still dominated with very high quality opportunities. NYU-Neuroscience Research Institute. It’s been fully endowed by a huge hedge – a billionaire of hedge fund, so there’s no exposure. Alnylam’s a public biotech company. Gilead, Amylin all – and I think really are not NIH based. Pfizer 14, Theravance 15. 16 would be the one that Scripps Research, they garner a lot of NIH money.

Remember, I said it’s (inaudible) grants though it’s something happened in fiscal 2013, what they have today would be fine through a number of years but then new grant starting in ‘13 and beyond might impact them so they potentially downstream. Quest Diagnostics, 17 now. Forrester is 18. They’re moving out, so they’re out of there. Infinity is a public biotech company not subject and The Regents of the University California. I would say these are – the bulk of these are like clinical and non-NIH grant type uses that we have. I’d say out of the top 20, probably the only one that would have real exposure would be beyond Illumina that you’ve seen. Although Illumina’s competitors have far less exposure life cryogen and my guess is that Illumina will work itself in to that position where it has I think today amounted 25% NIH exposure or something.

Dean Shigenaga

It’s about a third of the revenue.

Joel Marcus

Okay. My guess is they’re going to work that down so they’re going to have a lot less like the others do, but I would say scripts would be the only one.

Philip Martin – Morningstar

Do you find that the budget cuts and the potential budget cuts I should say are delaying any lease decisions on the parts of your existing tenant base new potential tenants, et cetera or are they really or are they not?

Joel Marcus

Yeah, in our world in each of the kind of critical submarkets we’re in, they’re not that we can sell. I think the one area that could be would be long with medical center which the multiple Harvard hospitals there garner a large amount of NIH budget. So that could be one area, but in the rest of our markets that we know of, we have very few tenants that really garner huge amounts that are dependent on leasing facilities as it relates to NIH budget cuts. And remember, the 2012 budget should be at least – if it’s down, it’s only going to be down $190 million.

Philip Martin – Morningstar

That much.

Joel Marcus

Yeah. And so the 2013 in my guess is even if this automatic budget cut happens because these guys can agree by November 22nd, my guess is that government – I mean Obama has been on this soap box and a lot of people have, they’re going to probably find a way to restore that because of the need for leadership in this area for the country. So, if not a controversial issue, it just happens to get caught up in this budget debacle.

Philip Martin – Morningstar

Yes. And that’s what I’m confronted with when we talk to investors is that...

Joel Marcus

Yeah.

Philip Martin – Morningstar

It’s more confusion than anything when you understand the real fundamentals. There’s probably a better story than what’s being perceived out there.

The last question I have, with respect to leasing trends, does the Alexandria portfolios – does the larger and higher quality tenant-based limit rental rate growth a bit for the company over the next call it 12 to 24 months. I mean, obviously, the potential offset is a higher quality tenant which is certainly important in this environment – very important in this environment where there’s global and economic uncertainty but is it somewhat limiting your rental rate growth because the percentage or proportion of smaller tenants isn’t there? I just want to get some insight into that.

Joel Marcus

I think actually it kind of works the opposite way to the extent that a tenant has a pricing power they’re more likely to be stringent on rental rate increases. Give you an example, both ourselves and Boston Properties are building state-of-the-art facilities for Biogen Idec in Cambridge. They’re really tough. They had two companies, not so much competing but they were doing similar projects and so they have some pricing power. They could go – they could have stayed where they are or done some other things.

So they kind of work both parties against each other in a sense and so where you’ve got the bigger safe and the bigger pricing power sometimes you have a tougher time negotiating more upside on the annual steps but I think where you’ve got a multi-tenant building and you’ve got floor users or smaller space is actually much easier to achieve that three or three plus.

I don’t know. Steve, you can comment what’s in your market.

Steve Richardson

Yeah. I think the tenants really. And we alluded to this with the institutional tenants in Mission Bay, I mean, they need to be next to UCSF, they need to be next to MIT, they want to be on the Torrey Pines bluff, they want to be in the South Lake Union. So to the extent, you’ve got relatively healthier tight markets even though there’s a large credit tenant that we try to exert their credit worthiness for lower lease rates, their desire to be there versus the market that they had sub-leased space under lease rates.

They’re going to choose the location versus the economic. So I think that really provides a nice floor and as Joel said, maybe we don’t actually have higher annual steps but we end up with longer lease rates as well so you’ve got the security of a long-term lease rate, then the obvious gap benefit of that annual increase.

Philip Martin – Morningstar

Okay. So that’s really a half to – I mean it’s a great location and a half too situation for these tenants large and/or small so okay, I appreciated. Thank you very much.

Steve Richardson

Yes.

Operator

And our next question will come from John Stewart of Green Street Advisors.

John Stewart – Green Street Advisors

Thanks. I’ll try to be quick. Joel, I hope you could give us a bit of perspective on Steve’s new role. It sounds like maybe you’re doing a bit more travel to China than previously. But otherwise, I wanted to get some perspective on what his responsibilities are going to be going forward and he’s going to be back filling what he had been doing in San Francisco. And then, lastly, if you could just give us some comment in terms of how we should think about this in the context of longer term succession planning.

Joel Marcus

Yes. So he didn’t get the recruiting letter yet. Yes, Steve initially – while we continue to manage the bay area and over time, we will look to have a new market leader there so that’s something we have to work on during the coming quarters. And much as Jim’s role was and Jim and Steve are not related for reference.

Really, the first initial focus is really detailed effort in each of our regions because we spent a lot of time in each of the regions. We’re a very hands-on management team. I think that’s why we’ve been able to I think execute on developments, re-development leasing things like that and keep a very stable workforce.

So I think that’s and that’s a big part of what Jim did and I think you’ll see initially that’s where Steve’s effort will be. I think it’s pretty clear Steve’s been with the company more than a decade. The board is very comfortable with him, obviously. I am too and so we view Steve as a very important person on a go forward basis.

But I think what distinguishes Alexandria from most other companies, maybe there’s a few at the very large end that have pretty large management teams. But I think in the mid-cap and certainly for others, I think we have a senior management team, maybe a 12 to 15 people virtually all of whom who’ve been with the company more than a decade which is pretty unusual who operate very – operate in a – both in an independent but in a real effective reporting fashion and I think that’s very unusual to have that depth and quality of management. And there’s any number of people who could step up and take on much more heavy lifting and so, we’re very fortunate and blessed I think with that.

John Stewart – Green Street Advisors

Okay, that’s very helpful. Thank you. And one last one, just coming back to the dispositions and not at all focused on 2012 guidance. But just a little bit of color please. I presume that what you’re talking about, aside from maybe a couple of assets in the Boston Suburbs, I would presume we’re talking about North Carolina and Suburban New Jersey or Philadelphia. And so if you could comment just qualitatively in terms of what might be non-core and proudly speaking in terms of cap rates you might execute out. Thank you.

Joel Marcus

I think that’s a question that is something that I think we’re not prepared to make public at this point. I think it would imprudent to do so. So the best I would say is stay tuned and we clearly have a sizeable effort going on to look at the ability to monetize Suburban assets and move that capital into our urban CBD.

I mean, we have this groundbreaking (inaudible) in Cambridge we have 1.7 million square feet there. I think more Sacramento on the call today, and Boston Property has mentioned that maybe of all the markets, CBU Cambridge is maybe the top. We do too. So it’s (inaudible) us to use our capital, which is both precious and top these days to get in the sense of the general markets to move them into those kinds of irreplaceable locations. So I think you’ll see us to do that, but let me not comment on that for a whole variety of reasons.

John Stewart – Green Street Advisors

Fair enough, how about just the cap rate, the cap rates?

Joel Marcus

Well, I think you also – yeah, I don’t think you can assume anything. I think we’re looking at a variety of structures. And so let me beg of by saying stay tuned and hopefully for the next quarter or so we’ll be able to elucidate that in a more detailed fashion.

John Stewart – Green Street Advisors

Okay, thank you.

Joel Marcus

Yes.

Steve Richardson

Thanks, John.

Operator

And our next question will come from Dave Rodgers of RBC Capital Markets.

Dave Rodgers – RBC Capital Markets

Yeah, Dean, real quick on the financials that you talked about for next year. Did you give a development start number that’s embedded in your guidance for ‘12 and or a capitalized interest number for 2012 relative to ‘11?

Dean Shigenaga

Not on the developments starts side, but we do have a – let me think. In Cambridge, we have Biogen Building that was going to be breaking ground here shortly, so that development will be added into ground up developments. And then I mentioned in NOI growth there is two potential developments one of which is executed and they aggregate somewhere around 140,000 square feet in total but two separate projects with credit for the spread of tenants behind it. As it relates to cap interest, I provided guidance in the $54 million to $60 million range for ‘12.

Dave Rodgers – RBC Capital Markets

Okay, thank you. And I guess, Joel, just on the asset sales again, sorry to kind of belabor the point. But I guess just to get a better sense, how would you rank order your preference for selling assets or other capital initiative next year? Obviously, cost is one issue but also moving the portfolio is another. So, I mean, does that rank at the top of that list and how would you view that?

Joel Marcus

In the sense of ranking against what else?

Dave Rodgers – RBC Capital Markets

I guess you got preferred as an option, common equity...

Joel Marcus

Yeah...

Dave Rodgers – RBC Capital Markets

...deleveraging initiative?

Joel Marcus

Yeah, fair enough. I’d say it ranks at the top.

Dave Rodgers – RBC Capital Markets

Okay. Thank you.

John Stewart – Green Street Advisors

Yes, thank you.

Operator

And our last question will come from Ross Nussbaum of UBS.

Gabe (ph) – UBS

Hi, guys, it’s Gabe (ph), I’m only here with Ross. Just a real quick one, sorry if I missed this. But did you guys give a yield on the Biogen development, that kindle?

Joel Marcus

We did not, but I think you can assume that I think on a caller two ago we basically said we’re in the mid to high-seven and that’s kind of where it is. So if we were to turn around and build that building and sell it, we think although that wouldn’t necessarily be our favorite kind of development yield, we think we could achieve a six or sub-six on that asset, so there is a decent spread there.

Gabe (ph) – UBS

All right. Thank you.

Joel Marcus

But don’t interpret that as our standard development yield, I think, on new construction generally.

Ross Nussbaum – UBS

Hey, Joel, it’s Ross, I might have missed this earlier but with respect to the Alexandria Center, realistically, are we talking about that being still years away or is there a possibility that a big fish could come in 2012 and we can see an announcement there sooner rather than later.

Joel Marcus

Oh, you mean in New York?

Ross Nussbaum – UBS

No, I’m talking, sorry, in Trenton Square on the big redevelopment project...

Joel Marcus

Oh, I’m sorry, okay the big one, well as maybe has been said, I think on the Boston Property’s call there is at least one and maybe big tech users that are looking for sizeable space there is a big pharma user that’s looking for sizeable space. There are number of big players so the answer would be, we certainly don’t have that in our 2012 go-forward game plan but something had emerge that would be sizeable as opposed to people looking for a floor or two. And this is maybe one of the only places they could go that would make sense so I would say we’re working on those things but we have nothing that’s definitive at this point.

Ross Nussbaum – UBS

Do you have all your required zoning approval at this point?

Joel Marcus

Yeah. I mean, we have – virtually we’re working on the final two building design. We’re working infrastructure so we can move very quickly.

Ross Nussbaum – UBS

Okay. So instead you are working with the (inaudible) at this point?

Joel Marcus

Yeah, everything has been – we’re way beyond that.

Unidentified Analyst

Okay. Thanks.

Joel Marcus

Yes.

Operator

And at this time I would turn the conference back over to our speakers for any additional or closing comments.

Joel Marcus

Okay. Well, sorry we ran a little over today or a lot over today. Thanks for the very, very good questions and we appreciate your time and attention. Thanks again.

Operator

That does conclude today’s teleconference. Thank you all for your participation.

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