Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

BioMed Realty Trust Inc. (NYSE:BMR)

Q4 2007 Earnings Call

February 29, 2008 1:00 pm ET

Executives

Jon Klassen - VP of Legal and Assistant Secretary

Alan Gold - Chairman, President and CEO

Kent Griffin - CFO

Matt McDevitt - EVP of Acquisitions and Leasing

Analysts

Paul Puryear - Raymond James

David Cohen - Morgan Stanley

Jordan Sadler - KeyBanc Capital Markets

Omotayo Okusanya - UBS

John Guinee - Stifel Nicolaus

Dave Aubuchon - Baird

Chris Pike - Merrill Lynch

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2007 BioMed Realty Trust, Inc. earnings conference call. (Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Mr. Jon Klassen, Vice President, Legal. Please proceed, sir.

Jon Klassen

Thank you, Denise, and welcome, everyone. On the call today are Alan Gold, Chief Executive Officer; Kent Griffin, Chief Financial Officer; and Matt McDevitt, Executive Vice President, Acquisitions and Leasing.

Before we begin, I would like to remind everyone of the Safe Harbor statement included in yesterday's press release. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements including statements made during the course of today's conference call. Such forward-looking statements are based on the company's current expectations and beliefs concerning future developments and their potential effects on the company. There can be no assurance that future developments affecting the company will be those anticipated by the company. Actual results may differ materially from those projected in the forward-looking statements.

These forward-looking statements involve significant and uncertainties, some of which are beyond the control of the company, and are subject to change based upon various factors. These risks and uncertainties include general risks affecting the real estate industry, risks associated with availability in terms of financing and the use of debt to fund acquisitions, and risks associated with the failure to manage effectively the company's growth and expansion into new markets or to integrate acquisitions and developments successfully.

For a more detailed discussion of some of the ongoing risks and uncertainties of the company's business, I refer you to the reports filed by the company with the SEC, including the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

With that said, I would now like to turn the call over to Alan Gold. Alan?

Alan Gold

Thanks, John, and welcome, everyone. Well, we're very happy to report very strong results for the fourth quarter, a nice capstone to what was a very solid year for BioMed. I'm joined today by Kent Griffin, our Chief Financial Officer; and Matt McDevitt, our Executive Vice President, Acquisition and Leasing. We will walk through some of the highlights for the quarter and for the year, and after which we'll open it up for Q&A.

Well, as we look back on 2007, we've identified three key takeaways for the year. The primary takeaway was that BioMed remains the premier real estate management team, focused on the life science industry, and we had an absolutely exceptional year, executing on our very focused business model.

Starting with lease-up, in 2007 we executed leasing transactions representing more than 1.5 million square feet of space, including over 660,000 square feet of new leasing. This was a staggering accomplishment and serves as a further testimony to our preeminent and industry-leading professional real estate team. To put this in context, the 1.5 million square feet of leasing compares to just 1.2 million square feet that we completed in all of 2005 and 2006 combined.

In the fourth quarter of 2007 alone, we executed roughly 680,000 square feet of leasing transactions. Throughout the year, and particularly early in the fourth quarter, our leasing success has been very broad based, with leasing transactions in each and every one of our core markets, and in each and every part of our portfolio, including approximately 158,000 square feet in the Pacific Research Center submarket of the San Francisco Bay Area.

Now just looking at the fourth quarter alone, our stabilized portfolio remains static and solid at 99% leased, but we increased the occupancy for the properties in our lease-up portfolio and those in our redevelopment portfolio. And equally important, our development projects stands now at 72% pre-leased.

The strength of our leasing program is a tremendous testimony to the strength of our chosen market niche, our business model, and most importantly, our team. We are truly excited about the momentum we are building for 2008.

Acquisitions where we continued our aggressive and yet disciplined investment strategy for 2007, acquiring more than $650,000 million in well located high quality properties. This was highlight in April by our acquisition of the Lyme Portfolio in Cambridge through our joint venture with Prudential. This portfolio included 320 Bent and 301 Binney, the most recently completed Class A laboratory spaces in Cambridge, as well as 650 East Kendall, which will be the next Class A laboratory space in Cambridge, and we believe literally the only such space available for many years to come.

Now separate from the Prudential joint venture portfolio, we acquired five additional properties in three different markets representing approximately 550,000 square feet.

On the operations front, we continue to strengthen the depth and quality of our organization, highlighted at the beginning of the year by the appointments of Karen Sztraicher to Vice President, Finance and Treasurer; and Greg Lubushkin as Vice President and Chief Accounting Officer, and then, most recently, with the addition of Rick Gilchrist, President of the Investment Properties Group for the Irvine Company to our Board of Directors. We welcome Rick and look forward to his leadership and stewardship for the benefit of BioMed Realty Trust and our shareholders.

The second key takeaway is the validation of our investment and capitalization strategy. We have remained extremely focused and disciplined in our investment approach, and kept our commitment to properly capitalize investments upfront, mitigating our exposure to financial market shocks like the one we are currently experiencing.

In 2007, we continued to proactively diversify our capital resources and enhance our financial flexibility, highlighted by our preferred stock offering, the joint venture formation and the amendments to our unsecured credit facility and term loan.

Continuing this theme into 2008 and despite the credit crunch, just last week we obtained a 100% financing in the form of a construction loan from Wachovia and certain other lenders at LIBOR plus of 150. As a consequence we feel very fortunate to have a strong financial position and balance sheet flexibility, with $450 million of capacity on our credit facilities, 45% debt-to-total market cap, 67% of our portfolio unencumbered and less than $20 million in mortgage maturities in all of 2008 and none in 2009.

The third key takeaway is the institutional acceptance of the life science property type and our team. And while there were a whole series of transactions that demonstrated this, ranging from recent financing transactions, continuing resiliency of the cap rates, the really major milestone was Prudential's joint venture investment back in April. We are, of course, delighted about what this investment says about our underwriting of the portfolio and what it says about BioMed as a sponsor.

But the important takeaway from all of this is that the life science properties, as a property type, and BioMed as a sponsor continues to demonstrate attractiveness as a long-term investment opportunity. And we believe this trend will continue to result in continued value creation for our shareholders.

All of these factors combine to produce very strong financial performance for the company with $266 million in revenues for the year, up 22% over 2006. And after all was said and done, our FFO, funds from operations per diluted share of $1.91 reached the top-end of management's final guidance and exceeded the top-end of the range we initially provided over a year ago. But more exciting is the position we put ourselves to continue from a solid foundation to deliver growth into 2008 and beyond.

Now let's move on to the overall industry trends. Despite the overall slowing of the broader economy, the life science industry remains resilient from a long-term perspective. There has been no change to the demographics trends, such as the aging population, the greater life expectancy and rising healthcare cost which necessitate a steady and growing capital allocation to fund the research and commercialization of new products and solutions.

And looking at the availability of capital to the life science industry, the tightening of the credit markets is an important matter, but somewhat less relevant than it is for other sectors. This is particularly true for the tier two and tier three tenants, which we target as they are generally very lowly leveraged with large liquid positions of cash and short-term investments and marketable securities.

Capital remains available to the life science sector from a broad array of sources, from follow-on equity offerings and equity-linked issuances as demonstrated by Vertex last week, to partnering transactions as demonstrated by Regeneron's recent partnership with sanofi-aventis, and even from mergers and acquisitions as demonstrated by Schering's $11 billion acquisition of Organon BioSciences.

With just 2% of our rents coming from the start-up biotech group, we are less directly affected by VC fund flows but we do see the continuing surge of VC funding as a long-term positive for the industry and an indication of the opportunities for future growth in the sector. 2007 saw the highest annual total for venture capital investments since 2001, with $29.4 billion invested in more than 3,800 transactions across all sections, which represented a 10.8% increase in dollars and a 5% increase in transactions over the prior years.

Importantly, the life science sector remains the largest recipient of these fund flows, garnering an all-time high of $9.1 billion for 2007, representing 31% of all venture capital investments. Investments across all sectors for the quarter total $7 billion and 963 transactions, representing the fourth consecutive quarter with investments totaling more than $7 billion, an occurrence which has not been seen since 2001 and a strong indication of the robust VC fund flows into life science, even though the credit crisis.

Now, while these statistics are very encouraging when compared against the broader economic backdrop, 2007 like most years had more disappointment than positive breakthroughs as companies tried to develop and deliver new technologies, highlighting the tremendous challenges that companies in the life science industry face.

But probably the best way to demonstrate the state of the life science sector and the strength of our tenant base, based on our unique business model, is to walk through each of our top 10 tenants to look at the strength of our tenant roster, a tenant roster we're extremely proud of.

Our largest tenant is Human Genome Sciences. Human Genome Sciences is one of the premier biotech companies out there with a really broad based of intellectual property rights, targeting a variety of disease indications. They are fortunate to have three different products in late stage clinical trials. LymphoStat-B for lupus, Albuferon for hepatitis C, ABthrax, an anthrax vaccine or antidote These drugs are followed by two additional drug candidates, one for artherosclorosis and one for diabetes. They are each targeting Phase II results in 2008.

Further more in January, Human Genome Sciences and their partner Novartis, indicated they were reducing dosage levels in their Phase III Albuferon trials, based on higher than anticipated levels of adverse side effects at the higher dosage levels, which hurt HGSI share price. However, HGSI and Novartis are continuing the trials at the lower dosage level with expected results in late 2008. Now, ABthrax, their anthrax vaccine appears on track with more than $115 million in sales projected for 2008 for their government approved contract.

Human Genome Sciences have a series of collaborations and partnerships, including major partnerships with the above mentioned Novartis, in addition to GlaxoSmithKline. When you are looking at their balance sheet, Human Genome Sciences had a very health $600 million of cash and cash equivalent on the balance sheet as of the end of the year, which represents between three and four years worth of cash, based on our estimate of their current burn rate. So, we’re very excited about the future for Human Genome Sciences and were they stand today.

Our second largest tenant is Vertex Pharmaceuticals. Vertex currently has one approved product and 11 products in the pipeline, including partnerships with GlaxoSmithKline and Merck. And they have advanced Telaprevir, VX-950, targeting hepatitis C into Phase III clinical trials. Vertex shares have come under some pressure lately and recently it announced to revive dual track approach to their Phase III trial for Telaprevir that could extend the timeframe for launch into 2010 or 2011.

But as a really good example of the ability of these high quality companies to have continued access to capital, just last week, Vertex announced the completion of a common stock offering and a convertible notes offering, raising over $400 million in net proceeds, which when added to the $468 million in cash and marketable securities they had in the balance sheet at 12/31, gives them a staggering $850 million in cash. Also giving them close to three years worth of runway on hand.

Genzyme is our third largest tenant. They performed very well in 2007 with revenues increasing 20% at $3.8 billion. They are rated BBB+ and had a $1.4 billion of cash as of year end.

Centocor is our fourth largest tenant. And we'll talk about our leasing with them a little bit later. Centocor produces Remicade and is a subsidiary of Johnson and Johnson, which is a $180 billion company with a AAA credit rating.

Schering-Plough Corporation is our fifth largest tenant. Schering is a $35 billion pharmaceutical company, rated A- by S&P, with more than 50,000 employees worldwide and 2007 net sales of $12.7 billion.

Next is Array BioPharma Inc. Array BioPharma is a biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule drugs, primarily focused on the treatment of cancer and inflammatory disease. They have research collaborations with AstraZeneca, Genentech, Amgen and Eli Lilly. As of December 2007, they had cash and marketable securities in access of $140 million, around two years worth of cash on hand. But had six of their clinical stage products still un-partnered, representing even more potential partnership funding sources.

Seventh is Nektar. Nektar Therapeutics is a well known drug delivery company, with the unique drug delivery technologies, that can be combined with a wide variety of products to provide high value therapies to treat all sorts of disease indications. As a consequence, they have a lot of partnerships, including those with Bayer, Amgen, Roche, Schering and Novartis, among others. Now, their partnership on Exubera had significant setbacks late last year and they are doing some restructuring. We are estimating their 2008 burn rate at around $120 million, but again, as of year end, they had $480 million of cash and short term investments.

Next is Arena. Arena is a clinical stage biopharmaceutical company focusing on discovering, developing and commercializing innovative oral drugs. The company's leading independent developed drug candidate Lorcaserin hydrochloride, is patented for the treatment of obesity and is being evaluated in a phase III clinical trial program. The company also has a candidate for insomnia in phase II trials. And partnerships for other candidates with Merck and Ortho-McNeil Pharmaceutical, a Johnson & Johnson company. In November Arena completed a public offering, resulting in net proceeds to Arena of just over $100 million. As a consequence, they had approximately $400 million in cash and short term investments at year end. Again, representing two and three years of projected burn.

And then we have Regeneron. Regeneron is a biopharmaceutical company that has therapeutic candidates in clinical trails for the potential treatment of cancer, eye diseases and inflammatory diseases and has preclinical programs in other diseases and disorders. They have collaborations with sanofi-aventis Group and Bayer Healthcare. Earlier this week, on Tuesday, they reported fourth quarter results with more than $60 million in revenues, ahead of expectations for the quarter and a cash position of $840 million, which was of course well received by the market. But most excitingly, they then followed up that on Wednesday with the announcement that the FDA approved their Arcalyst drug for the treatment of inflammatory disorders. We're of course very excited for Regeneron and congratulate them on this success.

Tenth, and absolutely not least is Illumina. Illumina is a biotechnology tools company, with a unique approach to DNA diagnostic testing. They've had a blockbuster year, with revenues for the fourth quarter of 2007 reaching a $112.6 million an 86% year-over-year increase. As of December 31st, they had an excess of $385 million of cash and short-term investments.

Looking at our tenants you can see why we remain optimist about the health of life science industry and our company, based on our unique business model. That probably serves as a good segued for me to turn it Matt you can walk you through the highlights from our recent success. Matt?

Matt McDevitt

Thanks, Alan. Well, thanks to many of our top 10 tenants, 2007 was a tremendous year for us on the leasing front. As Alan mentioned, for the year we executed over 1.5 million square feet of gross leasing transactions. Importantly despite the slowdown in the economy, in the fourth quarter we had our largest leasing volume ever, with 18 leasing transactions representing almost 700,000 square feet or 6.5% of our entire portfolio.

Now two particular leases of note that I'd like to discuss are first, in what was our largest leasing transactions of the year, we executed a lease amendment for our King of Prussia property, whereby we amended a 331,000 square foot lease to Centocor, and extended the maturity date from March 2010 to March 2014. In addition, we also leased them an additional 43,000 square feet bringing the total lease with Centocor up to 374,000 square feet. The successful execution of this lease extension addressed a single largest exploration in our portfolio through 2018.

Now the second lease of note was a 102,000 square feet lease at the Pacific Research Center with RMS, Risk Management Solutions. As we mentioned on our last call, we are very optimistic that we've had our lease of the property executed by year-end, which we did. RMS is a leading provider of product and services for the quantification and management of catastrophic risk for the insurance industry. We lease them 102,000 square feet in building three on the north side of the campus, which they'll take down in stages. The lease term is through December 31, 2020.

We're excited about this new tenant, and it's very important to note that this lease validates the economic which we underwrote when we acquired the property. In fact, the triple-net rents are north of $20 and TR's are roughly $35 per square foot, which we will reach a 10% yield for this portion of the project, well ahead of our initial underwriting on 9% for non-Life Science tenants at TRC.

In addition, to validating our underwritings, this transaction demonstrates the appeal of TRC as a multi-tenant campus for top quality growth companies in the Bay areas. We're excited about the continued enthusiasm for the projects from local brokers and perspective tenants, and we remain confident in our remaining target of 400,000 square feet of leasing for 2008.

Now, looking forward at our rollover schedules. We have less than 5% of rent expiring in each of 2008 and 2009. In fact our lease extent with Centocor along with some other transactions enabled us to bring our rollovers in 2010, down from 12.7% to around 8.6% today. In 2008, the most significant exploration is the 152,000 square foot lease at our Eckles project in South San Francisco.

As you may recall, when we acquired the property back in December 2005, we identified this as a redevelopment project, which we can now get started. Also, as discussed several quarters ago, we finally got back the remaining 64,000 square feet at 201 Elliot Avenue in Seattle, which allows us to move forward on the redevelopment of this property. We are seeing continued leasing momentum throughout all of our market, and while we can expect to replicate 700,000 square feet of leasing every quarter, we remain very comfortable with our aggregate lease expectation for 2008.

Now, on to the acquisition side. For the year, we acquired more than $650 million in properties highlighted by the portfolio we acquired with Prudential in the second quarter of 2007. We continue to selectively pursue investment opportunities that provide above average risk adjusted returns to our investors. We are extremely pleased with the properties we've acquired and our ability to execute on these transactions and add value immediately. At the same time we're very pleased that our disciplined investment strategy has enabled us to avoid over-paying for properties as the cost of capital increases for all industry participants.

Now lastly on the dispositional front. We sold the third and the final of the three properties that we had identified as health for sale when we formed a joint venture with Prudential. Again well ahead of our initial plan.

And with that I'll turn it back over to Alan to walk through some of our re-development and development programs.

Alan Gold

Thanks Matt. Now given those stubbornly stable cap rate environment for new acquisitions and in contrast to increasing capital costs, we're especially fortunate to have high-quality, fully funded development and re-development pipeline, which we believe provides tremendous internal growth opportunities at a time when external growth is more challenging for everyone. Our development and re-development programs continue to make great progress on the construction and leasing side.

The company’s four construction projects are already 72% pre-released and we look forward to bringing these projects online in the near future. We're completing the core and shell for life science this quarter and moving onto tenant improvement work, and we expect all the current tenants to be in place during the third quarter. In the first quarter we expect to move the Eckles property into our re-development portfolio as Matt just described, and just as we're placing the Bernardo Center Drive and -- properties back in service. As some of you know we've recently completed the re-location of corporate headquarters to our Bernardo Center Drive property and we're very happy to have the first quality property that can fully accommodate our current and future needs, and we certainly welcome our investors to come and visit us at our new location.

Now with that, I'd like to turn the call over to Kent who will walk you through our fourth quarter results. Kent?

Kent Griffin

Thanks, Alan.

As noted in yesterday's press release, FFO for the fourth quarter was $31.6 million, up 2.5% versus the third quarter. On a per share basis, FFO was $0.46 per diluted share, bringing our full year 2007 total to $1.91 per diluted share, matching the top-end of our guidance.

Rental revenues were $49.6 million for the quarter, up 2% year-over-year and up modestly on a sequential basis as the effect of leasing and acquisitions more than offset the affect of Sun's departure of PRC and other lease terminations and expirations. Total revenues for the quarter were $64.1 million, up 1.7% from the $63 million of revenues in the year ago quarter for similar reasons.

Tenant recoveries declined versus the prior quarter, primarily as a function of lower reimbursable property operating expenses and property taxes. The reduction in property taxes was a function of additional successful tax appeals as well as the contribution of the remaining portions of PRC to our redevelopment pool, following Sun's departure in the third quarter.

Our operating expense recovery ratio was 91.5%, up from our run rate almost entirely as a function of some one-time adjustments to recoveries at our landmark property in New York. This one-time positive variance resulted in roughly $0.01 of FFO for the quarter. Excluding these true-ups, we would have been right at the midpoint of our guidance for the year at $1.90 per diluted share. Going forward, we expect the recovery rate to return to and remain closer to the mid 80s level where it has been for the balance of 2007.

Cash basis same property NOI for our operating portfolio was up 6.8%, owing largely to the 150 basis point increase in occupancy for the same-store portfolio, up from 93.7% to 95.2%, as well as a function of the higher recovery ratio at Landmark. Excluding the recovery true-ups, same store cash NOI was up 5.1%.

G&A for the quarter was $5.9 million, in line with our expectations. On December 31, we declared dividends of $0.46 per share on our preferred stock and $0.31 per share on our common stock. The common dividend represented 67% and 76% of FFO and AFFO respectively.

Now on to the portfolio, as of quarter end, the company-owned or owned interest in 67 properties representing approximately 10.4 million rentable square feet .This includes our operating portfolio, which consists of 55 properties, representing 6.6 million square feet that were 93.8% leased, up from 93.3% in the prior quarter.

Our portfolio also includes 1.8 million square feet of redevelopment and our construction projects that represent 1.9 million square feet. In addition, we have another 1.3 million square feet of developable land that could increase the size of our portfolio to 11.7 million square feet. As of yearend, our weighted average lease term had increased to 8.3 years as a result of the strong lease volumes.

Looking at our rollover schedule, in 2008 and 2009, our maturities represent only 4.2% and 3.5% of rents respectively. In fact, up to 2016, the only year in which we had more than 10% rollover was 2010 which was addressed with the Centocor lease extension. The quality and caliber of our portfolio and our tenants remains very strong and consistent with prior periods.

Geographically, Boston remains our largest market representing 25% of annualized based rents, while 59% of our rents continue to come from tier two and tier three biotechs consistent with our focus. 21% of rents are coming from tier one companies with roughly 2% of revenues coming from tier four biotech start-ups. And lastly, approximately 90% of our rents continue to come from government entities, research institutions and public companies, giving us excellent stability and visibility into our income stream.

Now on to the balance sheet and liquidity. Given concerns in the financial markets, I'd like to separate this discussion into four key areas. First, I'd like to very briefly review what we've done in 2007 and into 2008 from a capital structure perspective. Second, I'll address where that leads us today from a credit profile and capital position. Then I'll walk through what our capital needs look like going forward. And lastly, I'll touch on our maturity schedule.

So with that agenda, I'm not going to go through the state of the financial markets, as everyone is aware that 2007 was and 2008 continues to be a very challenging environment. We feel very fortunate to stand where we are, having executed a number of transactions that have helped us to maintain our strong financial position and actually continue to maintain or even lower our cost of capital.

But first, at the beginning of 2007, we issued 230 million of preferred stock as 7.375%, one of the largest preferred transactions with one of the lowest coupons ever among non-rated REIT issuers. Then in April, in conjunction with the Cambridge portfolio acquisition, we formed the joint venture with Prudential, wherein our partner provided 80% of the equity capital for that investment. And we can currently finance the investment with a $550 million secured acquisition and interim loan facility.

Then in August, just as the credit markets were beginning to deteriorate, we amended our $250 million secured term loan and expanded our revolving credit facility to $600 million. Just like many of REIT peers that quickly followed the suite, we were able to extend the term and increase the capacity under the facility. But unlike most of our peers, we were also able to lower the credit spread, as our lending partners recognized the quality of our assets, our solid operating results and sound execution and our strong credit profile. Consequently, we were able to lower the spread on our secured term loan by 60 basis points and our unsecured facility anywhere from 5 basis points to 10 basis points, depending on where we are on the leverage basis.

In September, recognizing the likelihood of utilizing a greater proportion of our line than we had in years passed, we executed a series of interest rate swaps that locked LIBOR in on $150 million of notional value at 4.68% and $385 million of notional value at 4.82%, resulting in an all-in cost right around 6%.

Most recently, well just last week, we announced through our joint venture with Prudential, we entered into a $245 million construction loan with Wachovia and a number of other lending partners that will provide 100% financing for the estimated total cost of construction at 650, East Kendall.

We also exercised our extension option for the balance of the joint venture loan facility, extending the maturity to April 2009. Pricing for the construction loan was LIBOR plus 150, and the joint venture concurrently entered into an interest rate swap agreement that enabled us to lock in LIBOR below 3% or approximately two-thirds of the total projected borrowings, representing an all-in borrowing rate of about 4.5% at closing.

Now, as you can imagine, obtaining 100% non-recourse construction financing, for a project with no pre-leasing, is almost unheard of in the current credit environment. The success of this transaction is a testimony to the continued strength and support of our lending partners, as well as, the sponsorship and stewardship of the project provided by Prudential and BioMed. And really ultimately, a testimony to the quality and location of the project itself.

And while I agree that credit costs are going up across the board for most companies and most industries, as a result of these financial crisis, we're very happy to have just last week financed 100% of spec construction project and what was a very attractive rate, really by any measure. With this transaction we've now expanded our base of lending partners to 38. We worked very closely with our lending partners for a long period of time to expand this network of capital sources and we very much appreciate their continued support.

So, next on to, as a result of these financing transaction, where does that leave us today? Looking at December 31st, and where we stand in our capital position, our credit profile remains very strong. Our consolidated indebtedness stands at just under $1.5 billion and as of year end our debt to total capitalization ratio was 45.1%. Including the effect of our interest rate swaps, 89% of our consolidated indebtedness bears interest at a fix rate of 5.8%. The weighted average term of our debt is approximately six years, before giving effect the fact to various extension options, which approaches our average lease term of eight years.

Our interest in fixed charged coverage ratios remained solid and our FFO payout ratio for the quarter was a healthy 67%.

Looking deeper, all but 15 of our consolidated properties are unencumbered, and our unencumbered asset pool represents more two-thirds of our annualized base rents, giving us tremendous balance sheet flexibility. As of December 31 we had more than 450 million of remaining capacity between our construction facility and unsecured credit facility.

Now, let's look at our capital plan, going forward. As disclosed in our supplement, we intend to invest in total just over $208 million in our construction projects, to complete them and on average approximately a $160 million in our redevelopment program. This includes our entire estimated investment in these real estate projects, including financing, tenant improvements, etcetera. And I want to make that clear again, that this includes everything we expect to invest, not just hard construction cost, not just core and shell but everything.

This is particularly important to consider, when looking at our repositioning and redevelopment investment plan, the largest component of that pool is the Pacific Research Center and the largest portion of that estimated spend is for tenant improvements that we don’t anticipate spending prior to leasing.

So, all of our development and redevelopment investments will be spread out over the next two to three years. We anticipate funding the balance of the Center for Life Science construction project, with the remaining capacity on our secured construction loan. We could fund all of the balance of the other construction projects and our redevelopment projects on our credit facility, but we also have the ability to obtain construction financing or permanent financing once these projects are complete.

None of the properties in our redevelopment pool or in our development pipeline are encumbered with the exception of Center for Life Science and Ardentech. So we have a lot of flexibility here in how we might tap additional capital resources.

After we've invested all of the total $368 million to fund our development and redevelopment projects, including all of the necessary TRs of PRC and everyone else to lease them up completely. That would bring our pro forma to debt-to-total market cap to right around 51%, assuming no asset sales, no joint ventures and no other forms of equity capital.

With that, lastly, I'd like to just touch on debt maturities schedule. Looking at our mortgages, we have two mortgages that mature in 2008 totaling $19.7 million and no maturities in 2009.

Looking through our joint venture, we had the one single facility which was scheduled to mature in April 2008, and again last week when we paid down a portion of that facility with the proceeds from the construction loan and we extended the balance of the facility to April 2009. So the joint venture we'll be looking to refinance the maturity toward the end of 2008, but our portion is only 20% and based on the success of our most recent transaction, we are very confident that we can get sufficient financing there as well.

And the only other refinancing on the horizon would be the Center for Life Sciences construction loan which matures in November 2009, a little less than two years away. We will reevaluate our financing alternatives there toward the end of this year, but we also have a one year extension on that facility which could enable us to extend the maturity to November 2010.

And just as we do with our lending partners, we will work to keep you well informed with respect to nay updates on our financing activities over the course of the year. Again we feel fortunate to have prudently managed our conservative capital structure since inception, and feel fortunate to have a very cost affective cost of capital. Most importantly, in this climate, we are very pleased to continue to have ample capacity to continue to execute on our investment program.

And before in turn it over to Alan, I do want to comment, we posted our supplement with no material changes probably for the first time in a year or so. But we did have a couple of minor revisions which we have reposted, just this morning.

Alan Gold

Thanks Kent. And before I turn it over for questions, I just want to thank our team across the country for all their hard and smart work and their continuing efforts as we continue to build what we believe is the premiere Life Science portfolio in the country.

So operator lets open the phone up for questions the audience might have.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question comes from the line of Paul Puryear from Raymond James. Please proceed.

Paul Puryear - Raymond James

Thank you. Good morning guys.

Alan Gold

Good morning, Paul.

Kent Griffin

Good morning.

Paul Puryear - Raymond James

Nice overview. Alan, when you came public, you were really focused on acquisitions and rightly so, then you switched and really went to a development, redevelopment platform. Are things changing sufficiently either from a yield perspective or a risk profile perspective to send to you back the other direction.

Alan Gold

No, I don't think so, I think we're , we went from an acquisition and maintained our acquisition program even while we were doing development and redevelopment project, and we still believe that there are potentially exciting acquisition opportunities out there. But as you can see our focus has moved more towards leasing our and generating the internal growth that even, I think five quarters ago, we were asked, where our internal growth will be coming from and now we have it and that's what we're producing now.

Paul Puryear - Raymond James

Is the acquisition market looking better to you either from, well I guess from a yield perspective first and then just more sellers in the market?

Alan Gold

I don’t think that there are more sellers, I think there is, there are sellers out there who don’t have to sell or are sitting on the sideline. What we are seeing is that because of the credit crisis that exist that buyers have to be well capitalized to be able to take advantage of what the opportunities that are coming to fruition. And we are seeing significant opportunities, we're just focused on making sure that we have our internal growth prospects in place and that the return that we can get from the acquisitions are going to be very accretive as we move forward.

Kent Griffin

Paul, just add to what Alan commented, if you look at all of the acquisitions we did this year, excluding the portfolio we did with prudential, they were all fully stabilized 100% leased type acquisitions which are I guess more akin to the acquisition program you are having that was more common couple of years ago.

Paul Puryear - Raymond James

Okay. Well switching to leasing, yet from the supplemental it looks likes the leases that you rolled over, they have rolled up 5% to 6%, are we calculating that correctly?

Kent Griffin

The challenges with trying to do that looking at the information on supplemental is the new leases and the acquiring leases are different spaces and different properties in different market. So, it's not possible to apples-to-apples using any sort of single quarter statistics.

Alan Gold

As an example, the new lease at Centocor was with a 25% increase from the old?

Kent Griffin

If we walk through what you probably want to know is, if you look at our new leasing and amendments and extensions, what was the mark-to-market on those transactions. On the extension activity it was generally fairly flat because the largest piece of that was Centocor, and that was just an extension of an ongoing lease that has fixed escalations, sort of typical type fixed escalations.

But on the new leases, the reason why we don't put the data in the supplement is because we think it could be misleading. If you look at the 200,000 square feet that we did in the quarter just over that about 40,000 of that there is no comparable lease because that space wasn't leased prior to us owning it. So there is no mark from which to market. But the 150,000 square feet for which there is something to compare it to, that pool was up 50%.

But again, that's misleading because that includes the Pacific Research Center lease where we were up 75% over the lease that we had with Sun. So let's back that out, and now you're down to kind of a small anecdotal set of leases, but that group of leases range from 0% to 25%, 25% being the portion of the new lease that was done at Centocor for an average of about 15%.

So if you had to parse through it all and try to come up with some number, you would say 15%. But I think by the time you parse through it all, you have few data points that it's hard to draw firm conclusions from.

Paul Puryear - Raymond James

Okay. Thanks. One more question. At the Life Science Center, Boston, Alan, I thought you said that the anchored tenants, so to speak, would be in place by the third quarter. The supplemental says that project will be put into service in the first quarter of '09. Is that right?

Alan Gold

Yeah. There is no change in either the plans for those tenants taking place or the construction plan. We do expect all of the existing tenants for the 80% pre-leased to be in place paying rent by the third quarter of this year. So for the balance, for the remaining 20%, subject to whatever leasing might occur between now and then, would otherwise be placed in service in the first quarter of '09 representing that one year anniversary from the date of core and shell completion which is expected to be this quarter.

Paul Puryear - Raymond James

You'll start recording the income on the property in Q3, is that right?

Alan Gold

For the portion that's delivered. For the 80% of tenants that are in place we would expect to be getting those rents recognized in net revenue and recognizing also that corresponding expense in operating cost, et cetera. It's only for the balance of the space that would still be in the TI build-out phase subject to leasing.

Paul Puryear - Raymond James

Okay. And I take that the four floors that are left there, you guys are still pretty optimistic?

Alan Gold

Matt, you can confer. But from the activity that we've seen and where we stand and the proposals that we are entertaining, we are very optimistic.

Matt McDevitt

I would obviously second that thought. It really is obviously a unique market that we're in. The Longwood Medical Areas is filled with a lot of sophisticated large institutions. So these transactions that you would imagine are going to be on the larger side and more complex.

Paul Puryear - Raymond James

Okay. Nice quarter. Thank you.

Alan Gold

Thanks, Paul.

Operator

And from Morgan Stanley your next question comes from the line of David Cohen. Please proceed, sir.

David Cohen - Morgan Stanley

Hey. Good morning.

Alan Gold

Good morning, David.

David Cohen - Morgan Stanley

Let me follow-up on the Centre for Life Sciences, if the economy impacting the number of negotiations that you are holding, meaning has anybody kind of said, you know what, we've got to have a wait and see attitude here?

Alan Gold

Not in the lease. That isn't what drives the institutional demand there. We haven't seen that at all.

David Cohen - Morgan Stanley

Okay. And you did kind of an exhaustive review of your top 10 tenants and their cash positions, some of them, obviously, had some bad news. But can you just talk about how the economy may be impacting their psychology? Obviously they have bad news, they probably won't be taking more space. Are you seeing any change in terms of their psychology as we have seen with some of the other traditional office tenants?

Alan Gold

Well, let me first deal with the bad news situations. I think, one, we have to remind everybody that these companies are in a high risk proposition where they are out trying to develop drugs, and they have 2 in 10 chance of success. So there is going to be 8 in 10 chance of some sort of negative news coming out. That does not necessarily relate to them not taking additional space, because they have multiple products in their pipeline and they partner those products, and as the products move through the pipeline, that's really where the demand for additional space comes from.

As to how the economy is affecting our tenants, our tenants do not really look for or are in the market looking at debt. That isn't just their vehicle or ways of funding their business. The way they fund their business is with true equity capital raises and partnering transactions and M&A activity. And that, as I described, continues to go on and continues to move forward in a very positive and accelerating basis. So, while some tenants maybe rethinking or are sitting back looking for additional opportunities, as other sectors potentially maybe consolidating, maybe creating additional opportunities for them to look at, tenants, their demand profile and the velocity of tenants continues to remain very strong in everyone of our core markets.

David Cohen - Morgan Stanley

Okay. And just going to the Pacific Research Center, you have a nice sized lease there, I guess my question is after that lease was signed have you seen a greater demand from office tenants or traditional office tenants, you've seen that move and say okay, we want to be in that space and how has that impacted the psychology of potential lab tenants, who could move into the community?

Alan Gold

I think the dynamic is that the momentum that we gather from, that we're garnering from the signing of the RMS lease is helping us just move all of the lease transaction opportunities forward. We were very excited about what's going on there at Pacific Research Center. I think that signing an office lease is a validation to the market that we will do office tenants and we will multi-tenant this project. And those were two questions hanging over us in the market and they are clearly been answered. And as we described in the prepared remarks that we're very excited about being able to accomplish the 400,000 square feet of additional leasing that we projected for Pacific Research Center in 2008.

David Cohen - Morgan Stanley

And if I ask you today, what would your guess be as to what you think you could do lab versus office. Obviously, you originally want to be more of a 70/30 lab, if I asked today, what you think you could accomplish what would you say?

Alan Gold

Well, I think we've always described that as a 50% probably a 50-50 type office and lab environment, and that means office tenants versus laboratory tenants, not to be confused that when you do a laboratory tenant, a laboratory tenant has a 65% to 70% lab component, with the balance being office. So, I think we still believe that that’s going to be the case over the long-term and/or over the short-term, and over the long-term we certainly hope to increase that percentage of laboratory type tenants in that specific project.

David Cohen - Morgan Stanley

Okay. And there was a change in the rentable square footage. It was small, almost 42,000 square feet, why was that?

Alan Gold

It goes from moving a single tenant type focus to a multi-tenant type focus, where we move the amenities building which is a 55,000 square feet building into the cam pool, therefore increasing our cam cost, but reducing the amount of rental per square footage, that’s the net effect. There was also an additional --

Kent Griffin

Some re-measurement as a part that. David, we had been looking at this as we were going to do redevelopment process, we knew this was a possibility, but until we signed the first lease and really committed to not being a single tenant we were holding off on formally changing the square footage. But once we signed that first leased, we were committed to contributing that building to the cam pool.

David Cohen - Morgan Stanley

Okay. And just final question, just to go back to cap rates. You said, you are finding some, you are seeing some opportunities, but you also said cap rates have being very sticky. When you are talking about the opportunities that you are seeing out there are those more kind of the redevelopment, building that was office that you could convert it life science or those traditional life science buildings are you talking about?

Alan Gold

The combination and I do agree that cap rates are remaining pretty sticky out there. But that’s the combination of the opportunities exist are from a broad range from redevelopment to sale lease back to multi-tenant type of fully leased projects.

David Cohen - Morgan Stanley

And when you see, when you look back at how those assets were, the recent transactions were financed or at least how they were maybe in the early 2007. Should we expect some amount of distress, where they kind of finance the same way some of these other high profile assets with 95% leverage or is it always lease finance to be kind of more conservatively?

Kent Griffin

I think the asset class has generally been financed a little bit more conservatively, but we are optimistic and hopeful and looking for those types of opportunities, unfortunately every time -- there have been a lot of trades, but the few things that do trade continue to trade at very stubbornly low cap rates.

Alan Gold

And even historically, several people who have been with us for a long period of time have heard the story were I would love to find the projects that's owned by a lender, because then buy it, but we've never been able to get one from a lender, because lenders never takes these property back.

David Cohen - Morgan Stanley

Great. Alright thanks a lot.

Kent Griffin

Thank you.

Operator

And the next question comes from the line of Jordan Sadler from KeyBanc Capital Markets. Please proceed.

Jordan Sadler - KeyBanc Capital Markets

Sorry about that.

Alan Gold

No problem.

Jordan Sadler - KeyBanc Capital Markets

Good morning. Could you maybe just give us a little bit of sense of and I may have missed this, the prospects that you're seeing versus short of the supply in the Cambridge market for starters.

Matt McDevitt

Well, I mean the type of prospects?

Jordan Sadler - KeyBanc Capital Markets

Yeah. What are the requirements in the market right now.

Matt McDevitt

We have and we continue to focus on the tier two and tier three type tenants, as our tenant base. So those are the type of prospects we're focused on. We are seeing some tier one companies looking out there that are looking for significant amounts of space, and as our tier one company is a big institution that takes a long time to make their decisions and move forward, and they think things through and they actually have the ability to plan foreign advances as opposed to the smaller type tenants that don't have that type of staff and ability to see that far in the future for themselves. So we are seeing a variety of different types of tenants.

Kent Griffin

I'd like to add that. In Boston if you look at our portfolio, aside from the three big projects every other building is 99% or 100% occupied or leased. So we have one building just completed, one under construction and CFLS are really those are the only opportunities that are available of any scale and they by definition target those larger scale users of 50 plus. We're not looking at the small single suite of even smaller tier three, tier four-ish type of tenant there.

Alan Gold

And just to remind everybody again that the market for Center for Life Sciences is a different market than the Cambridge market. Although the Center for Life Science Longwood Medical Area market is a very exciting market and a very tight markets, it's very institutionally focused, meaning that we are working with large institutions there for the remaining space. And then conversely at the Cambridge market it's -- we are looking at kind of the commercial firms and a large commercial firms are the type of tenants that we're focused on in the Cambridge market.

Jordan Sadler - KeyBanc Capital Markets

In Cambridge and I appreciate you breaking it down in terms of who’s looking tier two versus threes and ones. But if you were to take that segmentation and say there are two users with requirements greater than a 100,000 feet and maybe 5 to 7 users at the 25,000 - 50,000 square foot level. Could you give us kind of that sort of frame work that will make us understand what the demand prospects are like, because it's hard to get our hands on data points.

Alan Gold

No I haven’t quite broken it down that way and I don’t think Matt has had the time to break it down that way either. But I think what we’re looking at is, we are talking about demand in the Cambridge market that well exceeds the 300,000 square feet that we have. In other words there are tenants out there that are looking for in aggregate well over a 1.5 million square feet of demand in that specific sub-market, and so they are all trying to figure out what’s the right place for them to be and the long-term future for themselves to where they are going to be.

And the reason that there is so much consternation in picking out where they are is because, currently all 300,000 square feet of 301 Bennie is the only currently available large block of space available in that market. And the next available block of space is our 650 East Kendall Square asset, and then after that there's a very long time period when nothing will be coming online, and these companies have got to figure out their strategy for the next three to five years in making those decisions. And we can take you offline too I think we’ve a lot of data points that I think you're really looking for where we’ve dug into basically kind of the profile and size and then also kind of the absorption which you really kind of honing down in to. In other words how much supply versus

Jordan Sadler - KeyBanc Capital Markets

Yeah I know. That would be helpful.

Alan Gold

Yeah, how much absorption. We actually do have all those data points I just, I don't have number on my right tips right now.

Jordan Sadler - KeyBanc Capital Markets

Do you have any tenants under LOI right now just in terms of the spectrum of activity?

Kent Griffin

We don't discuss leases until they are done, we don't count until they are closed.

Jordan Sadler - KeyBanc Capital Markets

No I understand that, but are there any tenants under LOI?

Kent Griffin

We have a variety of tenant discussion at all different stages of the process but we’ve only closed the ones we’ve disclosed.

Jordan Sadler - KeyBanc Capital Markets

Okay, what are your asking rent rate now and at 301 Binney?

Matt McDevitt

Asking rents are in the $65 triple-net range, and as you may or may not know we are delivering that building as a lab shell and that lab shell essentially has a significant amount of infrastructure built in the shelve, so within that rent, we're also providing a TI allowance as well.

Alan Gold

But that's the interesting thing right now, I think the asking rent has become kind of the capped variable and the other or the fixed variable and the other part of that variable that's fluctuating is the amount of tenant improvement dollars where we've seen potential interest in tenant improvement dollar ranging from the $50 up to $150 range and all that and we're obviously pushing it down to the lower end of that size.

Jordan Sadler - KeyBanc Capital Markets

And are you gaining traction pushing it down?

Alan Gold

We believe we are.

Jordan Sadler - KeyBanc Capital Markets

Okay. And then, just moving on to Center for Life Science, can you maybe characterize what kind of touring is going on there, is it sort of the same few institutions from within Longwood that are continuing to try and figure out whether or not they want to take some additional space in that center or is it outside institution, because right now it's a smaller audience as you previously described.

Alan Gold

It is a smaller audience. And the existing major institution they don't need to do much touring because they are designing their space in the project. But we are seeing a lot of interest from other institutions that are already in the market and institutions that want to be in that market. And you have to remember the gasoline is just down. So, we just have the elevators kind of up and running to do tours.

Jordan Sadler - KeyBanc Capital Markets

Okay. Any asking rents there?

Alan Gold

They are high.

Jordan Sadler - KeyBanc Capital Markets

Are they in the triple digits?

Alan Gold

It depends on the floor we're talking about and really what we're talking there to is rents that don't have -- we quote rents there which is unique to the L&A. There is no tenant improvement dollars in the quoted rent. And rents are in the $75 to $85 range depending on what floor you are looking at. You got to remember, we have the top four floors available and the second floor available, and those top four floors tower 100 feet above all the other properties surrounding it and along with medical.

Jordan Sadler - KeyBanc Capital Markets

Is that held up or have you lower that a little bit to try and increase the velocity?

Alan Gold

Are you trying to take some space?

Jordan Sadler - KeyBanc Capital Markets

I'm just trying to get a sense of the market.

Alan Gold

No. That we have not and don't believe that there is a need to because we really have what we consider the premier space in that market. And we're really excited about it, very confident in what we have there, very comfortable that the demand for that space is there and will land there at their proper time.

Jordan Sadler - KeyBanc Capital Markets

Is there any risk of the [Jog 1] site coming online and being competitive space to your Center for Life Science project at all?

Alan Gold

So this is the Jog 1 site that the Boston Properties tried for five years to try to get under construction, and now another group is tied up and still hasn't done anything, hasn't got anything approved, hasn't got entitlements yet, that risk and how that's going to compare to our building that's already complete and up --

Jordan Sadler - KeyBanc Capital Markets

I think you are not worried about it.

Alan Gold

No.

Jordan Sadler - KeyBanc Capital Markets

Last question. Kent, what kind of impact should we expect to see sequentially from the space growing at Elliot Avenue and Eckles? I understand they are under redevelopment, but just maybe help me out debt versus capitalization.

Kent Griffin

Well, we expect to have these spaces go into our redevelopment portfolio, probably in the first quarter or so, so they will be coming out of our pool. If you're asking -- I guess I'm not sure exactly --

Jordan Sadler - KeyBanc Capital Markets

Eckles Avenue what is the current yield on it, how about that, versus what you're going to capitalize? I assume it's going to be lower.

Kent Griffin

I think we will have some dilution, if you will, in terms of when those properties come up offline, just like you would if you were selling the property. How much it is I don't have those dollars at the fingertips, but you could probably approximate a decent guess by looking at what our historical acquisition yields have been and applying $500 foot sort of rough boogie and comparing that to cost of capital and you can figure out the spread.

Jordan Sadler - KeyBanc Capital Markets

Okay. Thank you.

Alan Gold

Thanks.

Kent Griffin

Thanks.

Operator

And from UBS, your next question comes from the line of Omotayo Okusanya. Please proceed.

Omotayo Okusanya - UBS

Yes. Good morning, gentlemen. How are you?

Alan Gold

Good morning.

Omotayo Okusanya - UBS

Great. Good quarter. Congratulations.

Alan Gold

Thank you.

Omotayo Okusanya - UBS

I just wanted to dig a little bit more into what you are seeing on the acquisitions market. Alan, it sounded like it was something you really weren't considering at this point, but what are you generally seeing in regards to cap rates and what's happening to asset values at this point in time?

Alan Gold

I think like many of our peers, it's very difficult to describe what's going on with cap rates because there really just haven't been that many data points. There haven't been really any significant data points in the life science sector. I think the most recent sales were those of our competitors selling some of those assets that probably didn't fit in our portfolio.

Omotayo Okusanya - UBS

Okay.

Alan Gold

That's been it.

Omotayo Okusanya - UBS

Fine. Okay. So not that much data out there to really be able to make a comment?

Alan Gold

No. But if you talk to people, everybody is still saying cap things are trading at 7 or sub-7.

Omotayo Okusanya - UBS

Right.

Alan Gold

But there are just so few data points that it would be difficult to rely on that.

Omotayo Okusanya - UBS

Okay. Thank you.

Alan Gold

Thanks.

Kent Griffin

Thanks.

Operator

John Guinee from Stifel Nicolaus is on line with your next question.

John Guinee - Stifel Nicolaus

Hi, how are you?

Alan Gold

Hi, John.

John Guinee - Stifel Nicolaus

Two questions. The first question, can you limit everybody to two questions? And can you ask everybody not to ask questions that you guys very thoroughly already provide the answer for?

Kent Griffin

Yes and yes. That means you are done.

John Guinee - Stifel Nicolaus

Its time to raise the dividend, when you guys are raising it?

Kent Griffin

Well. That's a decision for the Board and if you look historically we've evaluated it, closer to the end of each quarter.

John Guinee - Stifel Nicolaus

Okay. Second; it looks like your square footage on PRC went down quarter-over-quarter from $1.432 million to $1.389 million, 43,000 square foot drop in square footage supplemental-to-supplemental, any reason for that?

Alan Gold

That was going from the single-tenant to a multi-tenant type of scenario, where we are moving the amenities building into cam pool, so now that we have committed to a multi-tenant type program there, we've taken that step and obviously it increases the cam cost to our tenants, so we haven't really lost the square footage, it comes back in the form of cam revenue.

John Guinee - Stifel Nicolaus

Okay. Third or second question for the fourth time, second, fourth question, fourth, second question. Your re-development and re-positioning portfolio book went from $352 million to $367 million or un-depreciated book capital spent went from $352 million to $367 million, how much of that is just capitalization of interest and capitalization of operating expenses versus real hard dollars going into the assets?

Kent Griffin

Yeah. I don't have the schedules of that broken out.

John Guinee - Stifel Nicolaus

Just a wild guess?

Kent Griffin

I'm sorry.

John Guinee - Stifel Nicolaus

Rough guess?

Kent Griffin

I wouldn't even want to venture, because each project is very different depending on how intense the re-development dollars are there. In terms of what you are get out is, how much you are spending on turning down malls versus your interest in OpEx. I don't have that all, I can certainly go back and try to dig into that for you.

John Guinee - Stifel Nicolaus

Alright, thanks a lot. That's it.

Kent Griffin

Thanks.

Operator

And your next question comes from the line of Dave Aubuchon from Baird. Please proceed.

Dave Aubuchon - Baird

Thank you. Can you elaborate on your lease strategy behind the Centocor deal a little bit more and again realizing that this is a 2010 maturity and maybe can you reconcile the average rent number on the third quarter supplemental, which I believe was $23.26 down, now its $22.40 and with regards to your comments about the 25% increase in the rent?

Alan Gold

Let's start with the fact that the project was a 427,000 square foot multi-building project located in King of Prussia of which Centocor basically occupies all of it, but one 50,000 square foot building. The idea there is that it's really Centocor's campus and they are very excited about it. It's been a very good relationship between Centocor, and BioMed, will be considered a win-win situation. We believe, that it was a very appropriate to extend the terminal lease, commit more dollars to the facility, they are actually doing the build out in the new 43,000 feet that they've taken.

Kent Griffin

And actually the rents on the space that they've taken is lower level of improvement and a lower rent, so it drags down the rent on the overall space. Although it is still up significantly from master lease payments we had previously, it’s up 25% from where it was

Dave Aubuchon - Baird

Okay, so versus the master lease.

Alan Gold

And then, this is, and again we should probably stop there talking about this because Centocor is very sensitive on, discussing their strategies and as far as leasing goes.

Dave Aubuchon - Baird

Would it make sense, you guys may be, explore a sale of this asset now?

Alan Gold

We really like the asset and so it is not an asset we are necessarily trying to sell.

Dave Aubuchon - Baird

Okay, can you comment on your leasing progress at your two other development projects, I don’t think I heard you talk about that yet, Fairview and then Eastview assets?

Alan Gold

Well, we announced, last quarter we announced a lease for Fairview and the Seattle market continues to remain very-very strong with a very limited availability. The project is doing very well, we have talked out. We are moving to put the HVAC equipment on the roof and getting the shell completed, we believe based on the activity that we are going to achieve our goals of a stabilized project by the fourth quarter or first quarter of '09. Fourth quarter '08, first quarter '09.

Dave Aubuchon - Baird

And the Landmark asset.

Alan Gold

Landmark asset, what an exciting asset, it is my favorite asset. 750,000 sq. foot existing project with that’s 95%-97% leased, really the frictional vacancy and there are spaces such as what we consider a high base space in that and which is basically a warehouse that we are converting or attempting to convert by double decking it, adding windows, and we have a lot of interest in that space alone. That's adding another 20,000 square feet just in the existing 750,000 square feet of space.

We've converted a cafeteria there and leased that cafeteria, which was un-leased space and we converted that to laboratory and lease that to Bayer Healthcare and we're really excited about that. And then on the 360,000 square feet of development, we've started out leasing I guess five of the nine floors to a Regeneron. Regeneron has expanded into a sixth floor and so taken basically two hold buildings, leaving us a third building that is still the shell store is not completed, and yet we have entertained proposals for two floors to 100% of that space, and are very excited about the activity that continues to come out of the city and come to our property based on the quality of the location and attractiveness of our rents.

Dave Aubuchon - Baird

So for both of those assets you feel like the leasing momentum is increasing. If you add on here again --

Matt McDevitt

Yes.

Dave Aubuchon - Baird

Okay. The last question I have is, are you sensing any hesitancy from tenants today, licensed companies regarding any potential change in the clinical landscape? Is that an issue at all?

Alan Gold

And I think that's a really good question, one that we've tried to answer over many years. Politics is just an interesting situation, and I think that we believe that the current focus on the healthcare cost in the country, I think is very appropriate because it's going to become a very staggering number. And the importance of the pharmaceutical and biotechnology industry to help mitigate and moderate those healthcare cost is extremely important, and I think we are watching that landscape or watching what's going on in the politics very closely as our all the pharmaceutical and biotechnology companies and all their laboring efforts. We believe that NIH funding which has increased this year will increase with either type of administration. So we're --

Kent Griffin

As we are probably funding for more Stem Cell research as well, internally.

Dave Aubuchon - Baird

And would it impact a particular type of tenant more than the others. So like for instance you are at the institutional type of tenant you maybe looking at Center for Life Science?

Alan Gold

Well, I think the increase in the NIH funding would really certainly help the institutional side. Would help the Dana-Farber Cancer Institutes and those type of entities. The increase in Stem Cell research funding is really increasing to the basic research. So once again that's institutional, and helps the universities in their type of programs. But the continued focus on what's happening in the overall industry helps our commercial tenants.

Dave Aubuchon - Baird

Very good. Thanks again.

Alan Gold

Thanks

Kent Griffin

Thank you.

Operator

And your next question comes from the line of John Clowney from Merrill Lynch. Please proceed.

Chris Pike - Merrill Lynch

Hi guys. It's actually Chris. Alan I will be quick. In terms of market opportunities in your own comments you talked about Boston being tightened, and there is really no land in Cambridge. Are there any markets where caps are less sticky or you may be seeing a little more opportunity than in others?

Alan Gold

In terms of acquisitions or in terms of --

Chris Pike - Merrill Lynch

Yeah, let's just talk about acquisitions first and then I'll get into development next.

Alan Gold

Not in our core markets. No.

Chris Pike - Merrill Lynch

Okay. And then I guess, second; in terms of new opportunities either acquisitions or development that you are looking into, are they focused in your current core market concentrations or are you at this point looking and seeking opportunities that may be new to BMR?

Alan Gold

And that’s another really good question, because I can't hammer it home any stronger, we are only focused in our core markets. We believe that that’s where the opportunity is, that’s where the least amount of risk is, that’s why we are focused in those core markets, that’s what we are doing and that’s where we are keeping our focus.

Chris Pike - Merrill Lynch

Okay. And then just really quickly back to your Tier one, two, three comments. Is it fair to assume that while the more institutionally focused tier one folks are slower to move, they maybe a little more resilient in this current economic environment, than the twos or the threes, or is it still a demand proposition for these twos and threes, where they need to get product done on their own accords, so they need space to do it.

Alan Gold

Well I think there are multiple answers to, I mean you've got multiple questions there. One, I think the tier one tenants have a lot of pressure on them to expand and grow their R&D efforts because their pipelines have been called into question, and many of their blockbuster drugs are coming off patent, and so there is tremendous demand from them to acquire and grow their R&D efforts and acquire R&D type companies. I think that the maturing of our tier two and tier three tenants increasing their demand for space overtime. I think the economy really has very little to deal with what's going on with those tenants, our tier two and tier one tenants. And what's more important to them is what's happening in their pipeline and what's happening with their Phase III trials. Whether the economy is slowing or not, a blockbuster approval is just going to accelerate everything for one of those companies.

Chris Pike - Merrill Lynch

Did you think there is more and more of the tier one institutional guys, let's say, they looked and reached out to the tier twos and tier threes as you put it, and fold them in to offset some of the issues that you spoke of, do you think that would be a net positive or a negative for otherwise to tier two and tier three space?

Kent Griffin

Well, it's a positive if you have a long-term lease to a tier two and tier three tenants that gets acquired by a tier one, that's certainly a positive. The positive in that, the reason they are acquiring them isn't just because they want to take their approved drugs because many of these, both tier two and tier threes, don't have approved drugs. What they have is have research programs and pipelines that they want to grow and expand and develop those technologies. So it's positive in that because they will grow those companies in that sense. But it's a negative in the sense that you lose the tier two or tier three, and now you are competing with a tier one company for their type of space with their type of capital.

Chris Pike - Merrill Lynch

Great. Thanks a lot guys.

Alan Gold

Thanks, Chris.

Operator

At this time, we have no further questions in the queue. I will now turn the call back over to Alan Gold for closing remarks.

Alan Gold

Well, I would like to thank you all for joining us here again today. And thanks to our team again for another great quarter. Thanks everybody.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: BioMed Realty Trust Inc. Q4 2007 Earnings Call Transcript
This Transcript
All Transcripts