Alexandria Real Estate Equities' (ARE) CEO Joel Marcus on Q4 2015 Results - Earnings Call Transcript

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Alexandria Real Estate Equities Inc. (NYSE:ARE)

Q4 2015 Results Earnings Conference Call

February 02, 2016, 03:00 PM ET

Executives

Paula Schwartz - Rx Communications

Joel Marcus - CEO

Dean Shigenaga - CFO

Steve Richardson - COO

Dan Ryan - EVP

Tom Andrews - EVP

Peter Moglia - Chief Investment Officer

Analysts

Manny Korchman - Citi

Sheila McGrath - Evercore ISI

Jamie Feldman - Bank of America Merrill Lynch

Dave Rodgers - Robert W. Baird

Jim Sullivan - Cowen Group

Mike Carroll - RBC Capital Markets

Michael Bilerman - Citi

Rich Anderson - Mizuho Securities

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Alexandria Real Estate Equities Inc. Fourth Quarter 2015 Earnings Conference Call. My name is Pauline, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Paula Schwartz, Rx Communications. Please go ahead.

Paula Schwartz

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

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

Joel Marcus

Thanks Paula, and welcome everybody to the fourth quarter and year end 2015 call. With me today are Dean Shigenaga, Peter Moglia, Tom Andrews, Steve Richardson, and Dan Ryan. I wanted to first of all start off with really huge kudos to the entire ARE family for an excellent fourth quarter and year end 2015. I think the results and accomplishments are highlighted well in our press release and in the supp and they really speak for themselves.

But on the other hand, we actually mourn the loss of an Alexandria's family member, Jeff Newton who passed over the last week or so and will be sorely missed in the family.

Moving to the core and Dean will highlight some of this, we had strong fourth quarter and year end 2015 results and I think evidenced by the strong continuing guidance of our core for 2016. I think it's important to keep in mind we have a very high quality tenant base which provides stability in a volatile market which we're clearly in.

54% of our ABR is generated by investment grade tenants and 81% of our ABR is generated by our investment grade tenants, from our top 20 generating almost half the ABR. For the top 20, we have 8.3 years of average lease duration which gives us a nice long run-rate, almost half of our annual base rent.

We also have a strong and diversified tenant base with only 3% exposure to really pure office or tech office on our operating properties. And 20% of our ABR is from the San Francisco region which has got a lot of headline news these days, but we are happy to say in our three strong sub-markets we're 100% occupied and we have very limited rollover this year of about 120,000 feet and below market expiring rent. So I think we are well-positioned.

On the leasing side, on our operating assets, we have a very manageable 1.2 million square feet rolling this year which is about 7.6% of the operating asset base. 32% or almost 400,000 square feet is already been released. And our largest block is about 125,000 at Campus Point, when Lilly vacates San Diego on asset high quality space.

On the development side, regarding leasing of our 2016 deliveries, 89% is leased, 91% leased during negotiation. We expect New York to become fully leased in the not too distant future. Longwood which is our joint venture remains at about 63% but we expect with the $2 billion in the NIH funding, that should help increase academic demand in that sub-market. And we look for multi-tenant users to populate the rest of the science project in San Diego which is about 81%.

So of the 2016 deliveries, 1.5 million square feet add a average cash yield, initial cash yield of 7 plus. We feel that we are in very good position and we’ve got approximately $75 million to $80 million, as you know, from the supplement of addition NOI to onboard.

With respect to the 2017 and 2018 deliveries, we're 67% leased and 87% leased or under negotiation. At 100 Binney, we did have 1 floor lease request by an important tenant that actually now has been terminated. So lease of with 5 floors, we have 2 floors under active negotiations and several parties are discussing the remaining 3 floors and we look forward to resolving that in this year for sure.

At 400 Dexter, the remaining 34% is expected to be picked up by Juno for hard options they have and if for some reasons they didn't lease it, we actually have demand today that would take that space.

Our two new projects 9625 Town Center, we have 7 potential tenants looking at space there. And 10151 Barnes Canyon, we have 3 potential tenants looking at space there.

On the tech side, our largest tech tenant is Alphabet which was up something like 5% today. They remain the anchor in our Mountain View project. Total ABR on tech today is less than 3%. I think it's important to note that really the financial model of the strong private tech company is really shifting from building platform to profitability and I think that's a good thing.

On the life science side, we see strong continuing R&D numbers $100 plus billion, generated by or to be invested this year by both pharma and biotech which are not generally capital market dependent other than at the venture level for the smaller tenants. The NIH is receiving an increase of 2 billion and I guess, the President announced the Cancer Moonshot which may generate another billion if you can get that through Congress this year.

With respect to the center for medicate services, the projections through 2024 show based on all we know today. And the predicted assumptions that the rate of increase in drug prices will roughly be in-line with the rate of increases in overall healthcare.

Medicines, after all, certainly help to prevent disease in many cases, treat disease and avoid much higher cost downstream. Some drugs are costly but treatment of disease is a lot more expensive.

Innovative treatments for diseases where there are few other options will still continue to command a solid pricing and innovative drugs that cure disease are clearly not the enemy as the political storm is out there. They really are the solution I expect that after the election this will essentially die down and it will become much more of an outcomes will bear more on pricing.

The longer and healthier life will command higher pricing. And where you can prove offset to future healthcare expenses, which is in many the cases, again strong pricing will be expected.

Part of the problem also is that you can't - drug manufacturers can't really discuss what payers information about our products before they're approved under current FDA guidelines and so there may need to be some further looking at that issue, because that would help I think start to - view this pricing discussion.

By our demand for our ARE core assets as you can see from the press release and supplement is strong. We expect to tap this market with land sale and non-core assets sales during 2016 as well.

On the balance sheet, we've guided to leverage between 65 and 69. So moving downward nicely for the end of 2016. For 2015 we maintained our strategic optionality with respect to the balance sheet and continue to manage our leverage down with our goal to get an investment grade rating upgrade overtime.

As I said at Investor Day, generally we don't want to issue common equity below net asset value, but as we are negotiating the partial interest sale of 499 Illinois, we were able to really run across a great opportunity to sell some common equity in the fourth quarter without lowering either 2015 or 2016 per share earnings and that was an awfully nice thing. And at the same time, we are able to decrease the proceeds needed from the partial interest sale from the buyer Illinois, so all good results.

Page 49 of the supplemental disclosure on investments evidenced continuing solid built-in- gains on our investment portfolio. And we executed some very good sales with good gains in December.

And with that let me turn it over to Dean.

Dean Shigenaga

Thanks Joel. Dean Shigenaga, here. Good afternoon, everybody. I've got three important topics. First is I want to highlight our strong results for 2015 and briefly comment on same property performance. Second, I want to highlight a few key points on the significant value realized through the sales of partial interest in three core Class A assets. And third, I want to cover our funding strategy and prudent management of our balance sheet. We've got about $2 billion of liquidity, very limited maturities and an improving credit profile.

First on our strong results for 2015. The fourth quarter and the full year of '15, we reported FFO per diluted share of a $1.33 and $5.25 respectively and in line with the latest consensus estimates. Importantly our FFO per share for 2015 of $5.25 represented 9.4% growth over 2014 and our second consecutive year of FFO per share growth of over 9%.

Same property NOI growth for 2015 was 1.3% and 4.7% on a GAAP and cash basis, respectively. And relatively in line with our solid 10-year average same property NOI growth of approximately 2% on a GAAP basis and 5% on a cash basis. Our same property NOI growth for the fourth quarter was 1.3% on a GAAP basis, 2% on a cash basis and was lower than our run rate due to a couple of non-recurring items.

On a recurring basis, same property NOI growth for the fourth quarter would have been about 1.8% on a GAAP basis and 3.9% on a cash basis. This growth is more consistent with our 10-year average of same property growth and relatively inline with our very solid same property growth projected for 2016 in a range from 2% to 4% on a GAAP basis and a range from 3.5% to 5.5% on a cash basis.

Occupancy was strong at 97.2% as of year-end and overall occupancy is expected to remain strong in 2016 due to the solid demand and lack of supply of Class A space in our core urban markets. While we do expect overall occupancy to remain solid, we also expect to temporary decline in occupancy in San Diego and Research Triangle Park, which are both expected to be offset by occupancy gains in other markets, primarily greater Boston.

In San Diego in the first quarter of '16, we have two spaces that will be temporarily vacant at ARE Nautilus and 3985 Sorrento Valley, which aggregate about 60,000 rentable square feet related to two tenants that expanded in the larger spaces.

Also in Research Triangle Park in the first quarter, we expect to receive back about 20,000 rentable square feet that is relatively lower-rent space generating about annual cash rents of about $225,000 per year. Again, overall occupancy is expected to remain strong and in line with 2015 year end occupancy of 97.2%.

Quickly on our JV transactions, the sales of partial interest in three core Class A assets really highlighted the significant value creation we were generating from our development of Class A facilities and key urban innovation clusters. The value we've created on a 100% of these assets was almost $250 million.

The margins on the sales ranged up to almost 60% on 225 Binney Street, which as you know is a grand up development project under the long-term lease to Biogen. Each of these sales involved unencumbered properties and therefore each sale generated more equity capital than a typical sale of real estate subject to the secured mortgage.

The aggregate sales price of these three transactions is approximately $453 million. The proceeds resulted initially in reduction of debt with about two thirds of the sales of price or approximately $300 million representing attractive cost of the efficient equity capital to fund our highly leased value creation growth pipeline.

Moving on to our discipline management of balance sheet and our funding strategy, we continue to execute on our strategy with the disciplined management of our balance sheet. Our ratio of net debt to adjusted EBITDA for the fourth quarter annualized was 6.6x, excluding $7.7 million of investment gains in the fourth quarter and leverage was 6.9x.

Timing of dispositions and deliveries of highly-leased development projects will also impact the ratio of net debt to adjusted EBITDA and we typically do not adjust for these partial quarter events since they occur from time to time. We remain focused on continuing improvement in our ratio of net debt to adjusted EBITDA with normal variances quarter-to-quarter during the year.

Specifically for 2016, we expect the ratio of net debt to adjusted EBITDA to increase in the first half of '16 then decrease in the second half as we complete and place in the service approximately $1.5 million square feet of highly-leased development and redevelopment projects.

Our range for the ratio of net debt to adjusted EBITDA for the fourth quarter annualized -- fourth quarter '16 annualized is the range from 6.5x to 6.9x. Ultimately our leverage goal remains to be less than six times, which will also improve our overall credit rating and reduce our long-term cost of capital.

Our liquidity as of year-end was approximately $2 billion. This liquidity allows us to be patient and flexible in the timing of the issuance of senior unsecured notes. Additionally, we have very limited debt maturities in 2016, 2017 and 2018. Additional liquidity is anticipated as we finalize the construction loan for 100 Binney Street in the low $300 million range over the next few months.

During the first half of '16, we anticipate amending our $1.5 billion senior unsecured line of credit and our 2019 senior unsecured term loan. The amendment will focus primarily on extending the maturity date of each facility from 2019 to 2021, which will ultimately further extend our weighted average maturity of our outstanding debt.

During the fourth quarter, we raised approximately $75 million at about $90 per share under our ATM program leaving approximately $375 million available, while $90 per share is a below consensus NAV. We believe the blended cost or long-term capital we selected to fund our highly-leased development pipeline will generate significant value. Overall, our strategy is to remain disciplined and funding growth through our highly-leased development pipeline with various sources of long-term capital.

In November 2015, we completed our offering of senior unsecured notes. These notes bear interest at 4.3% and matures in 2026. Again balance sheet liquidity provided us the ability to be patient and flexible for the appropriate window to execute a solid issuance of unsecured notes. Briefly on sources and uses of capital, as detailed on Page 3 of our supplemental package, we have complete disclosures on sources and uses for 2016.

We updated our construction spend for 2016 resulting in a decrease of $100 million at the mid-point of our guidance. The overall decrease was driven by approximately dozen projects as our team refine budgets, timing of spend and favorably reduce the scope of certain projects. We also updated our disclosures to provide more visibility into internally-generated sources of capital representing 44% of our projected uses for construction. The 44% or $375 million consist of cash flows from operating activities after dividends of about 125 million, plus 250 million of debt funding from growth in EBITDA.

As of December 31 2015, we had one small R&D building located in Maryland classified as held for sale. While we have dispositions targeted in our 2016 guidance, no additional assets met the criteria for classification as held for sale. We do expect to provide additional color on specific dispositions in the next quarter or so.

But keep in mind we just closed on dispositions aggregating almost 600 million in 2015 with about 84% of this completed in the fourth quarter. There is still significant capital looking to invest in high quality, core assets and gateway cities. These locations provide great long term value. These locations are also highly sought after since it's difficult for real estate investors to reach their desired investment allocation into key gateway cities.

Lastly on guidance and closing, the detailed assumptions underline our guidance for 2016 are included on Page 3 of our supplemental package. We believe we are well positioned with a high quality asset base of Class A assets in AAA locations that attract high quality and innovative entities.

54% of our total ABR is from investment grade rate attendants, again a REIT industry leading statistic. We have a favorable triple net lease structure with annual rent escalations which combined with our high quality tenancy drive solid and increasing cash flows.

We are one of the most visible multiyear highly leased development pipelines that will generate about 180 million to 190 million in incremental annual NOI and we will continue our disciplined approach to fund in our value creation pipeline with a combination f long term capital including significant internal sources of capital.

Growth in cash flows from the completion of our development pipeline and disciplined management of our balance sheet will drive further improvement in our credit profile including a reduction in net debt to adjusted EBITDA to less than 6 times ultimately improving our long term costs to capital.

We believe we have the right assets in the right locations that will inspire productivity, efficiency and creativity and success from our highly innovative client tenants. Our team remains focused on continuing to build the best-in-class franchise.

With that I will turn it back to Joel.

Joel Marcus

We'll open it up for Q&A please. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And first we'll go to Manny Korchman with Citi.

Manny Korchman

When you sat down and said, we think in ATM's and appropriate sort of – raise some equity right now, how did you come up with the $75 million sort of sum given that you had a significant amount of capital that you were going to have t raise this year. Was it a matter of whether the stock was trading or was there some other magic there $75 million number?

Joel Marcus

Manny I would say, overall our capital plan is fairly fluid throughout the year and we remain flexible in our execution at any given point in time. I would say that facts and circumstances that we were looking at, at that point in time drew us through the conclusion with a variety of matters that we were considering.

I guess it’s also fair to say if you look back with hindsight today it’s easy to say that you would have raised more capital but that’s hindsight 2020 vision so.

Manny Korchman

And then just in terms of disclosure just wondering why you guys sort of limited the amount of disclosure giving on future development projects. In the past year you'd given, at least a book value breakdown and sort of a list of deeper list of projects, now you have condensed that.

Joel Marcus

Are you refereeing to future land opportunities?

Manny Korchman

Yes exactly.

Joel Marcus

We didn’t intend to delete any meaningful information. As you know Manny, one of the best disclosure packages in the industry if there’s information you find useful we can definitely look at adding that disclosures that you find relevant, so we will take a look at that for next quarter.

Manny Korchman

That's it for me for today. Thanks guys.

Operator

Moving on we'll go to Sheila McGrath with Evercore ISI.

Sheila McGrath

Good afternoon. Joel, the construction spend in 2016 looks down by 100 million, I was wondering if you could give us some insight where those savings are coming from?

Joel Marcus

Sheila no real magic there then in fact when we have a pipeline as robust as we have, when we have the chance quarter-to-quarter we take a deep dive and as these projects - look at the deliveries for '17 and '18 were on the front end of those projects. So diving deep into the timing of spend over roughly a two year timeframe has allowed us to adjust downward some of the - initially projected spend that would have been incurred in 2016.

And then we also had a number of projects where the scope was refined based on the requirements that are looking at the project. And so we think the landlord dollars going into the project will be meaningfully less and the tenant will take the space with less dollars going in.

Sheila McGrath

Okay, great. And then on the sale of the investments in the fourth quarter either that was a good surprise in terms of using those funds for the development, how should we think about that other investment bucket as a source of proceeds to monetize for the development in 2016?

Joel Marcus

Well, I would say Sheila the thing to think about here with the equity securities that we have in primarily life science companies will continue to monetize our holdings because we have a tremendous amount of unrealized gains. And the number that will probably generate from a proceeds perspective, if I to guess today would probably be between north of $50 million in 2016 and ultimately what we monetize depends on future gains that might be realized from the private securities that we hold today as well.

Sheila McGrath

Okay. Last question Joel you mentioned at a 100 Binney at tenant changing - changing their mind on locating there. Could you just talk about what the driver was at today go to a competitor building or did they re-think expansion?

Joel Marcus

Yes, that’s a sensitive question so let me ask Tom to answer it. It didn’t go to a competitor building and I’d say current plan but -

Tom Andrews

Yes, there was a tenant that we negotiated - lot of intent to negotiate there - the anchor tenant of the building and they want to expand the exercised, give us a notice that they are going to expand and before the - lease on them was executed they changed their mind and withdrew. So it was an expansion of the existing anchor tenant building.

Q – Sheila McGrath

Okay, got it. Thank you.

Operator

And next we’ll go to Jamie Feldman with Bank of America Merrill Lynch.

Jamie Feldman

Great, thank you. You’ve talked about a target of leverage below six times, can you just walk us through the past to get there and how long you think it would take?

Joel Marcus

Well, it’s not 2016, our ’16 guidance was 6.5 to 6.9 so it's definitely beyond ‘16 and a lot will depend Jamie as we make our way through 2016 but suffice to say that it’s a 2017, its post 2016 event.

Ultimately you got tremendous EBITDA growth being a primary factor, our ability to recycle capital from the proceeds of property sales will also contribute but keep in mind our goal is to drive that end result which ultimately will improve our long term cost to capital, so it's an important component of our strategy going forward.

Jamie Feldman

So in your capital plan you talk about adding leverage to your growing EBITDA and what's your appetite to just avoid doing that and push leverage even lower in a faster timeframe?

Joel Marcus

I don’t know that - well just to clarify something Jamie I think I heard we don’t expect to - our plan does not anticipate leverage going up other than normal quarter-to-quarter variations. We are looking at on average driving leverage downward and below 6 over time.

Jamie Feldman

So I meant just no adding more debt, may be not your leverage level but if you don’t add incremental debt your leverage will go down and in your capital plan you talk about adding more debt against your growing EBITDA. Do you think about just not adding more debt and that will get to the faster, you are just very comfortable with this number by year end 2016?

Dean Shigenaga

Yes I would say Jamie let’s focus on getting to the end of 2016. It's not a matter of driving our business with no incremental debt, I mean by definition with the EBITDA growth we have, we can support the incremental debt without impacting leverage.

So what you’re talking about it taking the mix of overall capital sources and taking advantage of the factors that drive leverage down whether that’s saving some of the EBITDA growth to reduce leverage, recycling a few more assets that will allow us to further reduce leverage.

We have a variety of leverage to actually pull the driver end result but it’s not something that we’re intending to execute on this year, it’s something that over the next couple of years you’ll see us migrate in that direction and ultimately get exchange.

Jamie Feldman

Okay, thanks. And then for Joel, you had talked about the $2 billion of incremental funding in the NIH and then maybe the President plan. When you talk to industry leaders and looking at that side of the coin and then you look at what’s happening with down BC funding at least in tech, just can you maybe tell us on just the latest thought process among your largest tenants and clients and how they’re thinking about the world and their decision making?

Joel Marcus

Well I think it’s important to remember that when you get to pharma and big biotech, pretty good size publicly traded companies given our roster is heavy credit, those guys are not dependent on the capital markets and honestly haven't been for a long time. So the ups and downs in the capital markets don’t really influence their decision making and I think we’re still seeing a trend of moving from isolated silo locations to the core. In fact I think somebody just sent a supplier Bristol-Myers who is our anchor tenant in 100 Binney is now selling their amazingly gorgeous campus at Wallingford Connecticut.

So I think pharma and bio are continuing to invest strongly. You get 100 plus billion dollars this year in R&D spend to a great host of great opportunities in cancer, neuroscience and a range of other metabolic diseases et cetera.

So I don’t see that people haven’t looked at the market is interrupting that phase of R&D spend. And on the government side I think for the first time in a long time with the uptake of NIH we’re actually seeing way more demand be in Maryland as just one benchmark than there is supply available, we haven’t seen that in maybe a decade.

So I think in general the outlook is stable and I think when it comes to companies that are going public, we will know in the next day or so but there are four biotech IPOs right now ready to price one of which we’re involved with and I would say that assuming pricing goes well, this could be the opening of the - selected opening of the biotech IPO market for 2016 because as you know there were no IPOs in January.

And I would also say that on the venture side, don’t count out the phase of venture capital formation and investment. We know about handful of companies or entities that are raising a large, large funds this year, I know personally several are heavily oversubscribed by institutional investors and so I think the capital formation for venture capital and life science will be pretty good this year.

Jamie Feldman

Okay. That’s helpful. Thank you.

Operator

[Operator Instructions] Moving on we’ll go to Dave Rodgers with Robert W. Baird.

Dave Rodgers

Joel, just wanted to follow-up on that last comment a little bit. I think in your guidance for the year $125 million was available for sale securities. Maybe there was another attached to that too but how much of that comes out of either IPOs or some kind of capital transaction that you’re dependent on to monetize those investments this year?

Dean Shigenaga

Hi, David, Dean here. The question came up little bit earlier, I think it’s for 2016 it’s probably fair to say, we’ll probably have at least $50 million in proceeds from those securities.

Dave Rodgers

That was the dependency part of it, okay, got it. I guess with regard to 2016, Dean you made a comment earlier about where the stock is today or maybe Joel but at the Investor Day, I thought you talked about maybe using more ATM in equity capital in the coming year, but given where the stock is are you still feeling comfortable doing that in some of those other line items in your guidance sheet?

Joel Marcus

I think the way to think about the ATM program, and this is probably true not just for Alexandria, but all companies and I think you'll all agree is that the ATM programs really represent a great tool that every REIT have in place. And when appropriate, it's prudent to use it because it's really cost effective. The fees associated with it is fairly nominal. It's generally 1% to 1.5%. It needs to be used prudently. And I would say that applies to Alexandria as well.

We will be very disciplined in how we execute raising capital to fund our business, but keep in mind we've got a tremendous amount of growth in net asset value to generate in this high-leased development pipeline.

So we'll remain disciplined in how we execute that.

Dave Rodgers

Okay. On the accounting side, how did you account for the asset sales in the fourth quarter? Were those all now taken off balance sheet? Just wanted to be clear on that.

Dean Shigenaga

Yeah. That's a good question. As some of you may know, the consolidation rules today are little more complicated than they were 10 years ago. The three joint ventures we executed on remain on balance sheet as consolidated JVs. So they were accounted as a more of an equity or financing transaction. So there is no GAAP gain associated with those transactions, but we did take the proceeds. The adjustment -- the amount is effectively the GAAP gain was booked through APEC, not through earnings.

Dave Rodgers

Okay. That's helpful. Saw that footnote. Last question I guess for me maybe to Joel. Construction is spending about $850 million at midpoint. Two questions. One, how much of that is related to additional starts in 2016 or getting ready for additional starts? And I guess the second question is that how good do you feel today relative to 60 or 90 days ago about putting new shovels in the ground for new project? Thanks

Joel Marcus

I think if you go back to Investor Day, I think, we said that we didn't have other than what we had in the pipeline at that point, which included both the Town Center and the Barnes Canyon.

We didn't have any new projects in the pipeline to break ground on or to move forward, because our pipeline right now is a pretty stellar pipeline and our focus is full lease up on both the '16 and the '17, '18. So at the moment, we don't have anything new in planning.

Peter Moglia

The only other project that we've talked is for Vertex, down in San Diego.

Joel Marcus

Right. And that we disclosed at that time.

Operator

Anything further, Mr. Rodgers?

Dave Rodgers

No. Thank you.

Operator

Thank you. Next we'll go to [Caron Ford] [ph] with Mitsubishi UFJ. Ms. Ford, if you will please check your mute button. We're unable to hear you. Ms. Ford, please proceed with your question.

Joel Marcus

Let's move on.

Operator

Next, we'll go to Jim Sullivan with Cowen Group

Jim Sullivan

Thank you. Joel, when you talked about what's happening in terms of the color on demand variable for life science. Generally, you painted a picture of an industry where demand is really not cyclical, not really impacted by what's happening in the economy overall to a great degree.

But I do have a question. We do seem to be seeing a higher level of M&A transactions among some of the larger life science companies. I'm just curious, as you think about that, number one, do you place your understanding and discussion with your tenants? Do you think we're going to see continued high level of M&A activity? And do you anticipate it would have a negative impact on demand at all?

Joel Marcus

Yes. It's a good question. I think that historically, well, maybe 2015 is the high-water mark for M&A broadly speaking. And a lot of the M&A, as you know, has been in the payer sector, it's been in the generic space. It hasn't necessarily been purely in the ethical, pharmaceutical or biotech area, although there have been clearly some opportunities in that world.

But I think when we've seen M&A in general, I mean it's not always the case, but in general, the target is usually looked at unless it's generally a single product purchase; in which case good example of that is when Onyx was bought by Amgen they were looking at - there were sweeter products, but primarily the main multiple myeloma product was the main target.

And so - and Amgen also had a lot of extra space in South San Francisco city looked to sublease that. You know we're on the percipience of that being fully sub leased, but we still have Amgen credit for 10 years.

I think that's more of the exception where we've seen M&A of companies that have a platform of opportunities with multiple shots on goal or they're looking to essentially get a cadre of very high-quality researchers, which often happens when a farmer buys M&A. Those locations are generally preserved and they're preserved, because they tend to be in the core locations where you've got the collaboration and the innovation at its bet. And I don't think that's going to change at all.

Jim Sullivan

So if we think about that collectively, in your core markets, you have had this very favorable tailwind now for five years or so where you had a very strong increase in demand relative to the ability of the market to supply product. Is it your view in spite of a slowdown in the economy that's very favorable supply-demand condition will be sustained over the next couple of years?

Joel Marcus

Yes. Pretty. I feel pretty good about it, because if you go to the best locations, you go to a New York City, you go to Cambridge, you go to a Mission Bay, you go to Lake Union in Seattle, there is virtually no new supply, there is highly constrained environment for new development - let alone things like Prop M or whatever.

And I think that's going to be a big check. And I think even if demand moderates, because no one knows where this market is going, the macro market in the sense of how severe or not severe it is, but most people feel that it's not a replay of '08-'09.

Well, I remember in one quarter, I think, it's kind of funny. I remember this quarter well. I think it was maybe first second quarter of '09, there was maybe a 40,000 square foot lease in all of New York side and actually we signed two leases in Cambridge during those first two quarters for well over 100,000 square feet.

So we feel good about being positioned in a very defensive posture in the best locations where you have real constrained supply and the demand we still see in virtually all the markets is still good.

Jim Sullivan

Okay and the final question from me. You obviously have some significant tech tenant signed up for space under development in San Francisco. And I wonder if you could give us an update on your views as to that source of demand in that market. What do you expect to unfold over the next year or two?

Joel Marcus

Well, I guess the good news and the bad news is we've got 100% occupancy so we can't feel much in a way of demand. But I think when it comes to our tenants, the three that we've underwritten and spent a lot of time with, I think, Uber continues to be a just a transformational change in the way we do a number of things including transportation.

But well beyond that and we certainly see that they're going to be a big force for many years to come. I mean look today, we started with Google back in 1998 in their first campus and they were at Series A and today they are now the largest company in the world, I guess by equity market cap.

We also feel very good about Pinterest. Pinterest was just highlighted by Fortune as one of the three so called unicorns that are most likely to succeed. We think their business both on the personal side, but extending to the commercial side has huge opportunities. And then on Stripe I think we continue to use stripe as a great company and it continues to be the back bone of the medium size B2b business community. So I think we feel good about our situation.

I think overall tech -- as I said, I think you're going to see some shakeup. Clearly there is evaluation transformation going on, but based on what I know and my conversations with venture guys up in the bay area, which we have all the time.

The model, as I mentioned earlier, Jim, moving from building platforms to building profitable businesses and that's something - and that moves them from being less dependent on either the private or the public capital markets and that's by intentional design.

So I think you'll see the really high-quality companies continue to do well and move away from the need to do private or public financings when the markets are not receptive and the ones that just simply can't do that will I'm sure go away.

Jim Sullivan

Okay. Great. Thank you.

Operator

And next we'll go to Mike Carroll with RBC Capital Markets.

Mike Carroll

Thanks. Joel, given the fall early in the capital markets, do you expect life savings companies will be more cautious making long-term real estate decisions or is this not really driving factor for these type of tenants?

Joel Marcus

Well, I think everybody is - no one is immune to the larger markets. And people pay attention obviously, when a radical transformation in the economic environment like 08/09 happens, obviously, everybody pays attention to that, but I think in this market, people will make good decisions, good business decisions.

Yes, they may be a lot more careful, but I think essentially their evaluations are based on in the life science industry, the quality of their pipeline. And I think they're going to make good decisions on that. And again, they are not by enlarge dependent on capital markets.

Mike Carroll

Okay. And then can you give us some color on your plan to asset sales in 2016. Will these sales be similar to the ones completed in 2015 and are there any specific markets you're focused on?

Joel Marcus

As my comments earlier, Michael, were that we're going to be looking carefully and provide more color in the next quarter or two on our dispositions. But keep in mind, we just completed a tremendous amount in almost $600 million this year, most of it in the fourth quarter or in December for that matter. So we've been active in the market and we'll provide more color here soon.

Mike Carroll

And then you completed a lot of the non-core sales already right. So those would still be kind of like the core JV type fill?

Dean Shigenaga

No. I think the simplest way to think of it is that we look through the asset base from time to time and I think almost any category of assets we hold is their gain. There is a little bit in every bucket that can be executed on. So stay tune there.

Mike Carroll

Great. Thank you.

Operator

And next we'll go to Manny Korchman with Citi.

Michael Bilerman

Hi, it's Michael Bilerman from Citi. Dean, just a methodology sort of question as you think about your debt EBITDA, which you sort of just present sort of whatever your EBITDA is annualized and clearly this quarter with the amount of gains that you successfully liquidated some of your holdings that created a big bump in EBITDA, which is not really sort of recurring EBITDA creates a lot of capital, but it's not a recurring number.

And I’m just curious, in your targets that you have does that include some level of gain that you're annualizing? Is that - I guess you're thinking about also from a GAAP perspective not cash. I'm curious when you put out these forecast what's in and what's out?

Dean Shigenaga

Well keep in mind Michael, for the fourth quarter of this year - at the beginning of the year I think we've stayed pretty close to target. We're anticipating to be sub 7% and we ended up at 6.9% as we reported without the 7.7%.

So I don't think that 6.6% came about just because we executed some sales or securities. We're not looking for anything lumpy in our guidance and that's consistent with how we presented the numbers for this year.

I think your question does provide a great opportunity to discuss one of the things that I think people should consider¸ although we don't make this into our numbers is that we have a tremendous amount of contractual cash rents that have not commenced as a result of recent deliveries, development and redevelopment projects.

And the contractual rents are under leases, so they will kick-in. A simplest way of looking at it is that if the world, not the world really, but if things came to an end and we stopped building product, the cash flows would kick-in and significantly reduce our leverage metrics.

And so as much as we try to think about making pro rata adjustments for dispositions or deliveries is also that other component of contractual cash flows that aren't in place yet and that's really significant.

And so there is a variety of things that move back and forth, Michael. We just try to keep it simple and report the numbers the way they fall out and be clear on what the number consist of so investors can make adjustments as appropriate.

Michael Bilerman

And how should we think about that $75 million of equity, because it's basically 0.2 turns on debt-to-EBITDA and got here from 7.169 on a full-year basis. How should we think about when that was executed? Did it replace other cash that you’re going to raise to get your debt-to-EBITDA down to that target below 7x level?

Dean Shigenaga

Yes. I think, Michael, in my opening comments I alluded to that that it allowed us given the timing and given we were working with the kind of the sale of 409-499 Illinois allowed us to take less equity from that or less proceeds from that transactions by doing the ATM and also we didn't have to either lower 2015 or 2016 guidance so it turned out to be kind of a good thing even though however maybe.

Michael Bilerman

And when was that equity raised during the fourth quarter just from a timing perspective relative to Investor Day?

Dean Shigenaga

December, Michael.

Michael Bilerman

So post Investor Day?

Dean Shigenaga

Yes. Our Investor Day was early, early December so.

Joel Marcus

After that and the transactions closed after that as well. So we were looking at all the interplay of those various things to get with the security sales.

Michael Bilerman

And just last one. Dean, your referenced the hindsight 20/20. We wish you could have told more knowing what you know today in terms of where the stock market has gone and specifically your share price. I guess may be just walk us through the internal debate when you think about your company with obviously a very high released development platform, but it is development so it always carry risk even if its pre-leased; and certainly a tenant base that is high credit, but certainly a different segment on the market in terms of healthcare, biotech and technology; and then leverage.

When you think about those three risks, how much did you - which provides opportunity as well, I'm not trying to demean the opportunity set, but I guess collectively was their discussion just sort of say and you look at what ACC did last night in terms of their equity raise, very large equity raised. How do you discuss internally saying, you know what, let's just do a large equity raise, it will be a little bit earnings diluted, it's not going to be that NAV dilutive given where our stock price is. Was that debated at all in December?

Joel Marcus

Well, I'll tell you, the answer is we felt because one of the compelling factors, Michael, is with 2016 deliveries and a very large set of 2017 and that little bit ended 2018 deliveries as opposed to a lot of companies who don't have a development pipeline and on boarding NOI that would be literally may be 25% of what our current NOI is.

That wasn't such a compelling opportunity. We felt that we could take a small slice of equity, meet all of our goals, continue to deleverage. And there are bunch of companies that are much higher leverage than we are so we feel good about our path. And we have options, because of those - because of the big pipeline.

So sure you can always think about a big, rip the band aid off, but we didn't feel it was necessary or appropriate at that time. It's still in hindsight, don't feel that as well.

Michael Bilerman

Okay. Thank you.

Operator

And next we'll go to Rich Anderson with Mizuho Securities

Rich Anderson

Thanks. I just want to clarify the ATM was announced the date after Investor Day, right? I think I remember that correctly.

Joel Marcus

I think that's correct.

Rich Anderson

Okay. I just wanted to make sure I understood that timing. My only question is to what extend, Dean, kind of alluded to stopping building if the world comes to an end or business comes to an end. Dramatic way to say, but I get the point. To what extend is delaying 2017, 2018 deliveries to further out years kind of on your mind right now. Given where the world is and your stock prices or is it just - that's just too far out to be considering at this point.

Dean Shigenaga

I don't think we have to think about that, because I think we have path to fund them. We have a path to get to a sub six leverage number and those become important deliveries. They're also contractually required when you sign a lease, you perform under the lease and we’ve got the brand reputation in the area and why we've been able to attract the partners we have for the leases we’ve under committed to and under – put under contract.

So I don’t think that’s part of our calculus and I think based on most economies view of the world, this is not a structural banking failure situation, there is tough times due to oil in China and may be the high yield market et cetera. But I don’t think we’re in the same position.

I mean when we – I remember Dean and I when we after Lehman collapsed in September of 2008 literally within six weeks we had cut CapEx 50%, I don’t think we’re in that environment today.

Rich Anderson

And so in some ways the continuation of the longer out development business is a necessary part of your de-leveraging process?

Dean Shigenaga

I think it is especially given that it’s a highly leased development pipeline. If it wasn’t, I think we would be thinking very differently.

Rich Anderson

Fair enough. Thank you.

Operator

And there are no further questions. I’ll turn it back to our presenters for any closing comments.

Joel Marcus

Thank you all for your time and wishing everybody a Happy and Healthy New Year. Thank you again. We look forward to talking to you on the first quarter call.

Operator

And that does conclude today's conference. We would like to thank everyone for their participation.

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