Good day everyone and welcome to the Alexandria Real Estate Equities Incorporated Second Quarter 2013 Earnings Conference Call. My name is Rufus 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 conference over to Ms. Rhonda Chiger. Ms. Chiger, you may begin.

Thank you and good afternoon. This conference call contains forward-looking statements within the meaning of the federal securities laws. Actual results may 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 Form 10-K, Annual Report and other periodic reports filed with the Securities and Exchange Commission. Now, I would like to turn the call over to Mr. Joel Marcus. Please go ahead.

Yes, thanks, Rhonda, and welcome everybody to the second quarter 2013 conference call. With me are Dean Shigenaga, Peter Moglia, Steve Richardson, Marc Binda and Andres Gavinet. We’ll continue our shortened format today so there will be more time for Q&A and obviously give you guys more efficiency of the listeners' time. It's a pretty heavy day on earnings calls. As we think about the second quarter, I guess management’s take is, it seemed a little bit like the good old days; one of those really ideal quarters pre-Lehman when ARE was hitting on all cylinders. We hope we are back to doing that, and those were the days when we were among the top performers on a total return basis from IPO to Lehman. So we’d like to return to that at some point here. U.S. life science R&D spending is up this year to $82.7 billion, pharma performing well in the capital markets. They are obviously profitable with about $181 billion as of late on the balance sheet. The open innovation external research in key cluster markets continues to be the driver for pharma innovation, and ARE has signed over 16 significant leases with big pharma over the last several years. The IPO window for biotech is actually open big time for the first time truly in a decade with a big upswing in drug approvals as well. For 2013, there are 13 either new chemical entities or biologics that have been approved by the FDA through July 25, and an astounding 9 out of 13, or 69%, were ARE client tenants. So we’re very proud of that record. The NASDAQ biotech index is up about 27% for the first half, and some of our clients have really had astounding performance: Biogen Idec up 52% in 12 months, Celgene 99% in 12 months, Gilead 117% in 12 months, Onyx 70% in 12 months, Alumina 91% in 12 months. We really haven’t seen that kind of performance in many years. Scientists have been laboring for years to develop treatments that harness the body’s immune system to destroy cancer, so-called cancer immunotherapy. Bristol Myers, Roche and Merck have experimental treatments in their pipelines which could become the biggest new drug class in history, which is a very good thing; also a class of cancer stem cell companies are holding great promise. When we move from macro to internal growth, I think we’ll continue to see positive movement in occupancy in most of the markets. Probably Maryland is still showing some uncertainty, but we’re making steady progress. RTP is likely to recover nicely and positive moves in Seattle, particularly in light of this quarter which was a dip primarily due to the delivery of one of our Eastlake properties. Solid quarter on leasing 768,000 square feet in both cash and GAAP were up nicely led by the San Francisco cluster market and the 499 Illinois lease with Alumina that Steve can comment more on during Q&A. Moving to external growth, it was solid leasing with deliveries of about 22,000 of redevelopment, almost 250,000 square feet of development and about 167,000 square feet of previously vacant space. Over the next one to two quarters, I think we’ll see some positive leasing momentum continuing at 499 Illinois. We hope we’ll be leasing another one to three floors at the Alexandria Center for Life Science in New York. And then let me move to our Alexandria Center at Kendall Square, our Binney Street corridor property. I want to focus particularly on 50 Binney, which has probably the best water views of any of the sites there. We’re working on a substantial redesign as well as work going on to drive down costs to build, and we’re targeting now a very strong digital health and technology crop of tenants in the market; kind of a unique opportunity and time, with a kick-off potentially in the first quarter of 2014. We are tracking nice tenant demand in Lake Union in Seattle and Campus Pointe in San Diego for future developments. On the acquisition side, we get asked a lot about our philosophy on acquisitions. We’re always in the market and we are tracking every possible lab or lab conversion deal that comes to market. We hope we’re very discerning on that regard. There is quite a bit of product on the market today and we’re looking carefully. The top priority would be value-add, and obviously good submarkets where we have the ability to match tenants in hand with the acquisition and create value. If we acquire stabilized assets they must be at solid yields, not low yields in secondary submarkets. On the balance sheet, which Dean will have more to say about in a moment, clearly we continue to realize land sales of our non-income producing assets like the Mission Bay West, which has been announced this quarter. In India, we are working hard on new investment with respect to our platform and in China, we’re working hard on the potential contribution of our assets into a broad healthcare services platform. When we move to the dividend, I think you will continue to see the Board increase the dividend and continue to share, I should say increases in cash flow with investors, particularly as we bring on some major projects during the latter third or fourth quarter here this year. Let me turn it over to Peter Moglia for a few comments on internal growth on leasing.

So, our outlook for same-property performance for full year 2013 remains solid and up 5% to 7% on a cash basis and up 1% to 3% on a GAAP basis. Cash same-property performance at 8.3% for the first half of 2013 was driven primarily by the rent commencement for Alumina in San Diego in October of 2012 and the lease-up of some temporary vacancy in Cambridge at 790 Memorial and 300 Technology Square that had been vacant in the first half of 2012. Same-property expenses were up 6.2% for the first half of 2013 primarily due to an increase in property tax rates in Greater Boston, higher snow removal expenses, and higher repairs and maintenance expenses. 94% of our leases are triple net, and therefore the increases in these operating expenses are recoverable from our tenants. Rental rates on leasing activity have improved this year. Key drivers this quarter include better than anticipated rental rates primarily in Cambridge on releasing of space at 300 Tech Square and 215 First Street. Value-added development projects that will deliver in the second half of 2013 include the fully leased 225 Binney project that will deliver on October 1 and the West Tower at Alexandria Center, which is currently 44% leased and will deliver in mid to late December. Value-add redevelopment projects with targeted deliveries in the third quarter include three of the five projects in redevelopment: 100% of the 285 Bear Hill Road project in Greater Boston, 25,000 square feet of the 36,000 square feet of CIP at 343 Oyster Point and the Bay Area, and the entire 9800 Medical Center Drive project in Maryland. I’ll add that we also expect to deliver 79% of the 4757 Nexus in the fourth quarter. With that I’ll hand over to Dean.

Thanks, Peter. Real briefly here guys. Quickly to the balance sheet. Our debt to adjusted EBITDA was about 6.6 times and our fixed charge coverage ratio was about 2.7 times for quarter end. We’re projecting improvement in leverage to 6.5 times by the end of the year and our fixed charge coverage ratio to be about 3.3 times by year-end. Our unhedged variable rate debt is down nicely to approximately 11% of total debt. We’ve got a tremendous amount of liquidity today with $1.5 billion available on our line and $300 million in cash. Our outstanding debt under our three bank facilities was reduced by over $700 million or approximately 37% since January 1. Briefly some updates on our three bank facilities. In July, we completed an amendment to our 2016 unsecured term loan to reduce the interest rate to LIBOR plus 120 basis points. Our goal is to retire this $600 million term loan over the next one to three years, so we kept the maturity around mid-2016. At the end of August, we expect to close an amendment to our $1.5 billion line of credit and our $600 million 2017 unsecured term loan. The amendment is focused primarily on extending the maturities from 2017 to January 2019, reducing the interest rate for outstanding borrowings and minor adjustments in our favor to a few financial covenants. Aggregate commitments will not change. Pricing at the line of credit will be reduced to LIBOR plus 110 basis points, plus an annual facility fee up by 20 basis points, and our 2017 term loan will drop to LIBOR plus 120 basis points. Our guidance for the full year includes an estimated loss of $0.02 per share that we expect to recognize in the third quarter related to the write-off of a portion of unamortized loan fees related to these amendments. We also expect to close the secured construction loan over the next couple of weeks for 75/125 Binney Street with commitments of approximately 65% of the total cost to completion. The anticipated interest rate on the loan will be LIBOR plus 135 basis points. Lastly on guidance, we updated our guidance for earnings per share diluted to a range from $1.53 to $1.63. We reaffirmed our guidance for FFO per share as adjusted for 2013 to a range from $4.35 to $4.45. Our guidance for FFO per share as adjusted, as a reminder, excludes $0.03 of losses on early extinguishment of debt due to the write-off of unamortized loan fees, $0.01 was recognized in the second quarter and again $0.02 are estimated for the third quarter. And as a reminder, our detailed guidance assumptions for the year are included on page three of our earnings release. With that, I’ll turn it back over to Joel.

So, that’s it for prepared remarks. We did it in less than 15 minutes. So, let’s go to the operator for Q&A please.

Thank you, sir. (Operator Instructions) And for our first question, we go to Emmanuel Korchman with Citi.

Hey, good afternoon, guys.

Good afternoon.

Just you guys sort of breezed through but can you give more details on what exactly you said on China? It sounded like some kind of contribution into a services platform and also the continued build-out in India and how we should think about maybe size and scope and timing of that?

Well, let me say this about each one of those. With respect to China, we’re working on a pending transaction so I don’t want to say anything more but we’re looking at contributing our assets to a broader healthcare services platform, which we think has enormous value. We don’t plan to put any significant more capital into that, but this gives us a chance to add our assets to a larger pool and potentially earn some significant fees for helping manage some of that effort. In India, we’re involved in raising additional investment funds. We don’t again plan to put any significant or really any significant funds into India; it would be primarily through third parties, so there is nothing changing. According to our business plan, we just moved it ahead quite a bit as we’ve announced in the past. So, that’s about all I could say about it for the moment.

And Joel, I don’t know if you can talk about this or not, but in China would you still maintain some type of equity position or would you sell it completely?

We would maintain some kind of an equity position, but potentially that would be a liquid security.

Okay. And then just looking at the back half acquisition pipeline, it looks like from your disclosure you have $64 million of projected completed or in-process acquisitions. I was wondering kind of what stage that’s in right now and what those might be and just what the remaining asset acquisitions might look like?

Yes. So we have something in the range of $64 plus million in process today. We expect to close those this quarter. And then behind that, we have probably another $150 million of asset acquisitions that are in relatively near-term pipeline but not in a formal process yet. So, that kind of where we are at the moment. I’m not sure, I want to say anything else about where how, whenever. But if you listen to my comments about the attributes that we’re looking for, we’ll stay true to how we’re thinking about those.

So, just so I get this correct, those are unlikely to be sort of value-add opportunities and more likely to be sort of portfolio quality acquisitions?

No, I didn’t say that. I said we really are looking at two kinds of acquisitions and I think you’ll see whatever we end up acquiring this year will be either value-add or if it happens to be stabilized, it will have a good yield or strong yield, and it won’t be in secondary or tertiary markets. We’re not looking for those kinds of acquisitions, so that the parameters under which we’re thinking about things because we’re seeing a fair amount being brought to market these days as I shared over the past quarter or so.

Okay. That’s it from me. Thank you.

Yeah. Thank you.

And for our next question, we go to Gabe Hilmoe with UBS.

Hi, everyone. I just wanted to follow up on

Hi.

Just some pricing around the acquisitions and the yields I guess, when we were looking at kind of the conversion, redevelopment type plays versus core, how should we kind of be thinking about growing cap rates with that type of stuff?

Yes. This is Peter Moglia. I think that the way that we’re underwriting for the redevelopment properties that we’re looking at now they are obviously going to range depending on the market; something in a core market like Cambridge may price differently than something in a market in San Diego. But in general, we’re looking at redevelopment stuff that’s between 7% and 8% right now.

Okay. And just kind of on core, I mean for best of the best in Cambridge?

We are not actively pursuing new opportunities at the moment and are focused on developing the Binney Street projects to achieve high yields. We have a strong pipeline for that market and find it to be an active investment environment. If we were to shift from development to acquisitions in that area, we would notice that cap rates are very low. Therefore, we are quite satisfied with our current development projects. As Joel mentioned, we will seek out stabilized opportunities, but we want to remain cautious regarding cap rates and ensure that we are considering assets that are priced reasonably.

Yes. And ideally they would be in the high sixes or well above that. I don’t think you will see us buy anything in the six range or below or even mid-sixes unless it was something unusual, but we don’t have anything in our pipeline today that kind of is targeted there.

Okay. And then on the 50 Binney development Joel, I think you mentioned potentially starting that January of next year, did I hear that correctly?

First quarter.

What kind of pre-leasing do you need to have to go live with that?

Yes, I think stay tuned because we’re working hard on a number of requirements that seem to be unusual in the market and I don’t want to commit at the moment. I mean, we ended up, we’ve done 100% pre-leasing like Biogen Idec at 225 and in New York we did 15% and now that’s stepped up to much larger than that. So, I think it kind of depends. But we see an unusual interesting opportunity in the market; very little competitive product, which is very important and a surge in requirements in the Digital Health and Tech area. As you know on the lab side, we’re still looking at 100 Binney for one or more lab tenants but we’re also mindful that there is a lot of lab space not necessarily competitive, maybe second, third or fourth generation space that’s coming back over in 2014 from Vertex’s move to Fan Pier, so we’re mindful of that. But we see kind of unique opportunity in the market for a period of time, where we may be the only game in town and there are some pretty good sized requirements there at pretty good yields. So, let me just leave it at that.

Okay. And I guess, just one more for you, Joel. Just on the land sale in Mission Bay. I was wondering if you can give a little bit more color on the decision to do that because you have spoken in the past about your expectations being pretty sizable institutional demand kind of coming down to that part of the market after the hospital is done. I'm just looking for a little bit more color on the decision regarding that sale?

Yes, I'm going to ask Steve to comment; obviously it’s a pending transaction so he may just give you some broad brushes, but I think it’s fair to say that we have to think cleverly, in-depthly and flexibly; our balance sheet is now probably the best its ever been, but we’re mindful that we still have a bit more non-income producing property than we want and our targets are to bring that down even more over time. We’re looking at a ratings upgrade hopefully over the coming year from S&P and so we want to be mindful of that. And here was a very solid opportunity that came along; there was ownership desire and ownership that was desired by the acquirer and so we thought long and hard about it, but felt we have enough flexibility in the Mission Bay area over time that we felt that was not going to hurt us strategically to do that, but Steve can give you some further color.

Yes. Just to add to that, the ownership dimension was really an imperative. So, we had enough heading down that path and it will be a mix of the land and existing improvements as well, including parking spaces.

All right. Thanks, guys.

Yes. Thank you.

Our next question goes to Jeff Theiler with Green Street Advisors.

Good afternoon. I was wondering if you can just give a quick update on the cap rate environment and why did it rise in interest rates lately? Do you expect to see cap rates trend up? Do you expect certain markets to be more affected? Any additional color you can provide on that would be helpful?

Okay. We’re helping you with your next edition. Peter will talk to you about that.

Yes. I mean we’ve been discussing it; obviously we got to pay attention to a rising interest rates and how that’s going to affect our business. But, I’ve been in the business for over 20 years and doing acquisitions for much of that, and I think what I think that if the rates remain up a 100 basis points and we kind of stabilize here, I think there is plenty of room in the risk premium that cap rates have over treasuries to absorb it. So I wouldn’t think that we’re going to see much of any movement. I think if they continue to rise and it’s a rise in real interest rate, I mean rise in really yield that’s driving it then cap rates will ultimately have to adjust. However, I would say that there is going to be at least a 6 to 12 months delay before that happens because sellers are the last to understand that they need to lower their price. I’d say that if the rise is due to inflation, then maybe the effect would be muted a little bit because it’s a possibility that more funds will flow into real estate looking to hedge, but that’s basically how we feel right now, and I don’t think we’re going to see much of any movement.

Okay. And any markets - if you do see markets, any particular that you would be more worried about than others?

I mean the markets that have the weakest demand for products obviously are going to be the most sensitive to it, and we’re not really in acquisition mode in any of those markets.

All right. Okay, fair enough. Thank you.

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

Great, thank you. I just want to focus on internal growth a little bit. So you guys have had a pretty solid year for leasing spreads and same-store growth. Can you talk about the sustainability of both of those metrics as we roll on to the back half of the year and even into 2014?

Well I think Jamie, it’s Dean here. On same property, you can tell from our first half results being at least on a cash basis very solid at 8.3% and our guidance has remained for the full year at 5% to 7%, which is very solid results anticipated for the full year. It also implies that the first half as Peter had commented on had a few drivers: lease-up of some space in Cambridge that was vacant in the first half of 2012 that boosts the first half of 2013 cash performance. So I think you’ll see slightly smaller same property cash results on the back half of 2013, but still falling right in the core of our targeted 5% to 7%. I think if you roll these numbers forward to 2014, you’ll see statistics that should be big picture roughly in line with our current target for 2013. So I’d say somewhere in that north of 5% range on cash and GAAP same property results in that similar range up to 3%, but we’ll give you a better update as we get out into our Investor Day presentation in December. When you think about leasing, the leasing stats are very strong at 6.5 on a cash basis, 12.7 on a GAAP basis; those fall relatively in line with our guidance for the full year. Cash leasing stats at 3 to 5 for the full year slightly down there, but the GAAP numbers are going to be right down the fairway for the back half of the year.

So I guess focusing on rents, what are you guys thinking and what are you seeing in terms of just market rent growth?

Well, I think when you look at - you almost got to go market by market. We’ve been successful as you can tell from our commentary for the last two calls and in Cambridge and re-leasing our spaces. San Diego we’ve done well and Seattle we’ve done well, and I think Merrill Lynch been clear that rents have remained challenging in that market. So, I think our opportunity set remains in our core markets from Cambridge, San Diego, Mission Bay and up in Seattle.

Yes. Just to add to that Jamie, I mean when you look at vacancy rates and trends the direct vacancy in East Cambridge is dipped down pretty significantly 300 basis points from 9.9% to 6.9%. I mean, Joel mentioned that Vertex space becoming available, but that always is a little bit when you’re dealing with sub-leases. The Boston Office market has improved as well with the tax sector responding; availability dipped 40 basis points as well from 10.3% to 9.9%. San Francisco market burning off some of the availability at 99, Illinois, South San Francisco, San Mateo County we’re about in 9.5% vacancy. So the overall market stats are trending in the right direction as well.

Did you have a sense of where market rents are for your product year-over-year and maybe on the net effective basis what kind of growth you’ve seen?

Well, I think they are reflected here in the stats that we’ve been talking about with the cash and the GAAP increases.

Okay.

And Jamie, to fair, we don’t have the net effective numbers right in front of us. So I can’t give you an exact answer to your question.

And then turning to your comments on Digital Tech and Health, can you just help frame maybe how large that opportunity is? It sounds like it’s in Cambridge, but is that something we’ll see spread across other markets?

Well, it’s a big opportunity right now and we’re - we’ve signed one lease and we’re looking at some others in the San Francisco Bay area. I think the Bay area is really where the home of this is resident, but we see Cambridge, Boston and the San Francisco Bay area as really the major areas. Yeah, Digital Health is kind of an interesting area because it’s a very broad intersection of essentially the IT platform type companies and healthcare, and it’s one of those situations where there are going to be—and there already are—many opportunities for the convergence to take advantage of lowering healthcare costs. This isn’t so much in the pharma and drug area; it relates to a large extent to many of the other areas which are really big areas. And so it will happen in pharma and drugs to some extent, but the big opportunity are in electronic monitoring and a number of the service components; it’s quite a big area. If you want to read something that’s pretty stellar about this, read Eric Topol’s book. He is really the guru in this area. He is a professor; tenured professor down at UCSD and he has really predicted this to be the fastest growing area of the new economy over the next decade, and I personally believe it.

And then what kind of—how is the building requirement different for Digital Health versus your typical life sciences?

Well, it would be much more of a techie kind of building, but they meet our qualifications because most of those locations want to be in Mission Bay, for example, they want to be in Palo Alto, they want to be in Cambridge, they want to be in Boston; they want to be in really the CBD areas that we focused our Class-A, our AAA locations and Class-A product force. So, we see it as a natural kind of extension of what we’re doing. We’re not dramatically changing our focus, but it’s clear that a lot of demand we’re seeing in these markets is aimed in that direction.

And so you are saying it’s more like traditional office space, I know it’s Tech but—

I don’t think it’s traditional office. It’s really new generation high-tech, and we’re building out a space for probably the premier incubator backed by Kleiner Perkins in San Francisco called Rock Health, and it’s very cool, very techie, very cool space and it’s taken about a couple of thousand square feet in our 455 Mission Bay facility that was actually going to go retail interestingly enough. So, we see it as a natural complement to what we’re doing.

Okay. Their last component or no?

I’ll add to that.

Dean Shigenaga?

Jamie, the infrastructure you’re going to see in that type of use is you’re going to need a lot of air to keep the computers cool. You’re going to need a lot of power— a lot more power than you would supply in an office building. So, as Joel said, it’s not traditional office; it is an infrastructure play. It just doesn’t have the weight component to it.

And it’s not data centers either.

Okay. All right. Great.

Yes. The key is we want to be in the best AAA CBD locations where we have our anchor business and with Class-A assets and if we can do that and meet some of this demand that’s going to be great and meet our yield hurdles.

So, the yield is comparable to your traditional life science?

Well, I think it’s case-by-case. We don’t have enough experience there but certainly the cost of construction is less and so one would hope you could meet pretty good yields.

Okay. All right. Thank you.

We’re pretty comfortable in the yields we’re targeting in Cambridge.

(Operator Instructions) We go next to Matthew Spencer with Robert W. Baird.

Hey, guys, it's Dave Rodgers. I wanted to follow up on 499 Illinois and maybe kind of tie in the digital management question. I mean, is that kind of what you’re looking at for space out there, or is that going to be continued to be more traditional lab? And can you give us some of the color on the backfilling work you’re doing for that vacancy?

Yes. Hi, Dave. Right now we’re looking at a mix of technology, Digital Health and more traditional lab users as well as translational uses—so then core benefiting again from that location and a number of different demand drivers there. We do have 30,000 square feet for a lease that’s out for signature that’s more on the traditional lab or translational lab type of side, but we’re actively talking with people on the technology and Digital Health side as well.

And then I guess maybe a question for Dean or for Steve if you have it. How many assets do you expect to come out of the core of the operating portfolio maybe during the second half of the year and move into redevelopment either the number of assets or particularly I guess square footage of assets coming out in the second half?

Well, I think if you go to - if you go to the supplement I think it’s kind of—

Page 17.

Yes, page 17. I think clearly this year we don’t have anything targeted for redevelopment, and we’ve one or maybe two combined assets next year that are kind of a little bit older office-like properties in the suburban DC market that if they in fact will that we would likely try to enhance those and go for some kind of a laboratory use, but other than that we don’t have anything unless we buy something that we would be converting like the Barnes Canyon.

Okay. Thank you. And then maybe a question for Peter on the disposition side. It sounds like acquisitions remain competitive, but are heating up in terms of the number of offerings out there. Is that bleeding over to the dispositions you’d like to do and make you think a little bit broader about the disposition pipeline of assets that you think about putting out there?

Yes. Well, I think we’ve indicated we don’t have any plans for any significant dispositions. But we are continually looking at the asset base for non-income producing assets, much like Steve mentioned the Mission Bay West sale. You may see some more of that. We would hope that we would be able to lower our total non-income producing assets. But I think there may be here and there are small income-producing asset or so. There is a handful but nothing of any significance. But I think the place you ought to focus would be further sales of land assets.

Great. Thank you.

Yes. Thank you.

And we go next to Steve Sakwa with ISI Group.

Thanks. Good afternoon, Joel.

Hi there.

I was wondering if you could just touch on a little bit more about the New York demand. It sounds like you’ve got another use that might take one to two floors. I’m just curious kind of the pace of leasing now that you’ve got kind of the major anchor tenant and what are you seeing, what are happening with rents? And then second question, if you could just comment on the TI and leasing commissions figure this quarter, and I know that jumped quite a bit, and I’m just wondering if that’s tied directly into the leasing that you might have done in New York?

Yes. So, when you look at the floor plan of Roche is taking the top two floors. The floors are all about 30,000 plus square feet a piece. Our second anchor investment-grade tenant is taking floors two, three, four and five. The lobby will be, we’re actually moving our office. We’ve actually leased our office in which has great views and so forth at a great rate and we’ll be moving when the building opens to the ground floor the new building, together with the fitness center and so forth. But we’ve in process and we’re still at the exchanging LOI stage with one former tenant to potentially take one to two floors and this would be lab space. I’m pretty optimistic. It’s hard to know exactly the timing but third and fourth quarter I give it a plus 50%. We’re also working with a joint venture of a biotech and a big pharma for potentially a full floor, so that might take 12 and 14 and 9 in those two separate transactions. And then we have a biotech tenant that is actually in public offering mode right now that looks to take potentially the better part of maybe a half a floor more and then we’ve our accelerator effort, which we hope to get off the ground this quarter to take the other half of the floor. So, I say in the short-term we probably got three, four floors working; I kind of round down just to be conservative so maybe one to three is what I said on my commentary; those are all lab users. Rents have held very strong. We’re in the well within our targets in the upper 70s approaching $80 triple net. And as you know, I think the lease we signed leasing commissions in New York are just always higher than many other places, and our TIs are maybe a little bit more than because of the nature of the tenant. But I think our yields are holding; in fact, our yields might even have some room for growth and certainly the average stabilized yield, which we disclosed this quarter in New York is above seven. So, we feel pretty good about if we were to turn around and sell a first-class building in New York with credit tenants that are 10, 15, 20 years, my guess is we could do better than a seven cap rate on that by a long shot. So, I feel pretty good about the economics there and the demand is. It’s a market that there is not normal demand because it’s not a Cambridge or Boston established so we’ve created the demand and I think with the product type and the cluster ecosystem we’ve developed, I think we’ve done a really nice job of doing that. If you remember the East Tower when we built that it was a 100% spec pre-Lehman. We delivered it in the mid, well, in the fall of 2010. We had a three-year lease up and we actually finished leasing it up in 12 months. So, I’m not saying we can do that exactly but I think we’re on track maybe to come close to that.

Okay. And then, I know you guys have been working very actively to kind of whittle down the land bank and the kind of development pipeline. But as you start to get some of these other projects completed, whether it would be Binney or New York and obviously you are making progress in San Francisco. Have you sort of think about backfilling the development pipeline over the next two to four years?

Yes. That’s a really good question. I think though if you look at the supplement, which Dean and the team have I think masterfully developed; there is—we’ve quite a bit. I mean we—there is no shortage of opportunities. San Diego we’ve got quite a bit. We’ve got some in Seattle. We’ve got some in the San Francisco Bay area; probably isn’t going to happen. We’ve got another option parcel in New York and we still got over a million square feet in Binney. So, I think for the next two to four years, we’re probably in good shape but if we have an unusual requirement and we wouldn’t hesitate to try to go out and buy land to match, I don’t think we need to do that; I hope we don’t have to. But our goal is to get that rating up with S&P and ultimately both ratings up over the more medium term. So, we’re mindful of not carrying that land. But if we’ve opportunity in hand and we could snag a land parcel that would be a better way to go rather than keep it on balance sheet for an indeterminate time. We’ve certainly been beaten up over the last many years for that strategy, which worked so successfully pre-Lehman but we’ve obviously adjusted that strategy.

Okay. Thanks.

Yes. Thanks, Steve.

And we go next to Michael Carroll with RBC Capital Markets.

Yes. Thank you. When did you guys first notice the pickup in the acquisition opportunities that you are tracking in the market today?

They have seen that way for a while; we’ve focused. I mean we’ve never been out of the acquisition market. But remember our major focus was getting our balance sheet to an investment-grade level that would enable us to upgrade our BBB minus rating with S&P. We’re BBB flat with Moody’s; that’s been the focus. So, we’ve not wanted to put additional pressure on the balance sheet over the last couple of years. We’ve done some last year. We bought a great site in San Diego that we’re likely to start development on here in the coming couple of quarters. It looks like we may have some tenants there at the Spectrum project. So we’re in the market we see everything. We look at everything. We think about things. We looked at a big project in Cambridge that we have some real interest in, but it kind of waned and ultimately never got sold. So, I’d say we were always in the market.

Okay. And what’s the—is there more single type assets out there or are there portfolio deals with typical type of opportunity?

It varies. I would say larger portfolios no, but as asset or two or three or larger asset those are out there, and sometimes we go hunting. We don’t just wait for things to come to market. We actually look at opportunities that we’d like to be involved with and see if there is some way to create a win-win opportunity. So, it isn’t like we just wait for something to come across the fax machine or email; that isn’t how this business is done.

Okay. And then, are there stabilized lab assets, or should we expect more of these redevelopment type office assets like the one you completed this quarter?

Yes, I think you’ll see, I think somebody else asked that question. I think you’ll see a combination. I don’t think you’ll see high price, low cap rate assets in tertiary market; that’s not a business model that we would subscribe to.

Okay. Thanks.

Yes. Thank you.

And with a follow-up question, we return to Emmanuel Korchman with Citi.

Yes. It’s Michael Bilerman speaking. I may have missed this, but this one 1600 Owens, what’s your sort of all-in basis with the allocated parking and improvements for that land?

Yes. I think one thing we would say, Michael, is because it’s a pending transaction, allow us to complete the transaction then we’ll fully disclose that. I think at this point it would be better not to say make any comment on that, but we’ll have a gain on the transaction.

Is there a range of gain? Are we talking about 10%—just to understand how much of the non-income-producing bucket because it’s obviously an important part of your strategy of whittling that down and then creating capital for future growth?

Yes, Michael, to give you some idea, it’s inside of 10% of the transaction.

Okay. And Joel, just a question for you in terms of the shareholder vote and to Say on Pay, which arguably was probably disappointing to yourself and to the board of only getting 9% of shareholders to support Say on Pay and the compensation. I guess, what have you gone back? What has the comp committee you’ve gone back and sort of evaluated based on what shareholders have said and voted effectively? I recognize it’s not binding, but it’s clearly was a message, and so I’m just curious how you as well as the comp committee have reacted.

Well, I think that you have to put it into perspective. When I renegotiated my contract in 2012 with the company, it took many, many months to figure out a formula going from kind of what was the old and established and accepted contract, which had the bells and whistles that the folks at ISS and others ultimately didn’t like, and many CEOs were in that position. We worked long and hard; we probably spent about six to nine months on it because it’s a black box ultimately, because it’s a little different than going to the IRS, where you get an advance ruling and say if we do this transaction, can we get approval with ISS and other folks that overview that kind of stuff. You actually don’t have. You can’t get that ahead of time, and they are also looking at every company as the same. This company is a science-driven company. It’s a development company. It’s got a senior management team of 12 to 15 people who have been with the company for more than a decade. This is a complicated business; if not, let’s go out and buy suburban office and just kind of do that as a play. So, it’s a complicated set and I’m probably one of the only people that have technical experience both on the life science side and also on the real estate side. So, we ultimately ended up with a contract that actually got approved by—it was recommended for approval by ISS last year. They said you have made enough changes and you worked well, and they gave it a stamp of approval. And again, we couldn’t know that ahead of time, which was always kind of tough because you worked hard and it’s always give and take on both sides. So, this year, what really made the difference, I think, was a signing bonus that was vested over—I think, I forget the ratio, but let’s say it’s 50/50; it might have been 40/60, but part over a number of years, none of which vested in 2013 and then in a separate part that was based on total performance again, none of which vested in 2013. But the value of that signing bonus was $5 million, but all of which was downstream over many years; not a huge number if you compare to other CEOs out there, I’m sure. And ISS absolutely because of the way they stack and the way they measure—it’s not whether it’s realized; it’s whether it just comes to fruition by a reporting matter. So that was the thing that kind of tip the scales cryptically. And so obviously the company, myself independently, the comp committee and their advisors are looking how do we kind of fix that in a way that’s there and reasonable for everybody. So we’re working through that and that’s going to take a deal of time again; the challenge is one can’t go back to ISS and get some blessing; you kind of have to do your best and then hope that they bless it. But I’m also mindful that I don’t want to both as the CEO, a member of the board, the founder of this company; I don’t think that we ought to have some agency that has a lot of conflict that’s being investigated by Congress to actually order us or tell us what to do when we compensate; whether it’s media or senior executives. They can suggest things. They can set best practices, but I don’t think they ought to control the world. So, I think we have to take a balanced approach to that and I think the board, the comp committee, myself and the company as a whole are trying to do that. We have operated in good faith. We have always done the right thing. We certainly never done anything that didn’t make good sense and I think you’ll see that outcome in the 2014 proxy, so that’s kind of how we view it.

Well, I guess ISS and Glass Lewis— not everyone has to vote with them; you still had 52 million shares that were voted against the plan. They don’t necessarily have to vote upon those recommendations, and as sort of you and also from the shareholder's perspective, right? Because the shareholder can make their own independent determination?

For sure, but yeah, for sure, but they carry a lot of weight. I think the other thing that obviously trips has tripped the company; it didn’t trip them in approving last year, the nature of the contract, but this year I think our total return performance over the 1, 3, and 5 years has not been what it was pre-Lehman, and one of the reasons is if you look at we ended up the end of 2008 at one of the highest stock prices of any REIT. And then if you take that as a base going forward on a comparison of 1, 3, and 5 years, if you start at $60 a share, and a lot of guys were selling in single-digits, the performance over the next couple of years were going to be naturally devastated by that high stock price. And so, we just haven’t performed up to par and obviously we’ve been in a multiyear balance sheet transition. So, those things have obviously hurt us and hurt us in the eyes of shareholders as well.

Just a question on the acquisition. So, of the $200 to $300 that is in guidance, what sort of contribution to earnings do you have in there for the back half of the year?

Michael, it’s Dean here. It’s relatively smaller. It’s $0.02 to $0.03 in that range. And keep in mind it’s probably more impactful in the fourth quarter because what we’re doing is taking cash sitting idle on our balance sheet today and putting that to use.

It depends on the value added. You won't see returns on those value-added deals, whether it's just land or more focused on redevelopment spending.

Well, the one way to think of it, Michael, is it really depends on the transaction itself, but the Barnes Canyon transaction as an example, that one is really small, but it’s real and you can look at it. Our disclosures indicate that we’ll carry a 7% return. Short-term, while we’re able to do our planning and design for the redevelopment and with any luck, there is limited downtime to transition from a value-add 7% yield to a redevelopment return to be slightly viable.

And I guess, just lastly Joel, I guess the acquisitions—some have worked out in the past, some haven’t. You obviously have a great significant amount of redevelopment, new development, good internal growth going. I guess, when you sit back, do you see—what? I’m just going to forget about these acquisitions; I’ll keep my leverage; my leverage will be lower, or I have enough money to fund the development; I won’t have to really rely on ATM and really allow the stock to gain some momentum rather than trying to replenish or going out and doing other value-add or even higher cap rate, core assets. I guess, if you rethought, maybe saying what, forget about it, let’s just move forward on what we already have in our plate, which is quite substantial.

Well, I think that again you have to look at everything combined. It's not, it’s no binary. I think when we look at the acquisition we made last year in the Barnes Canyon, if we see a particularly good location that we like. We have targeted tenants that we are pretty interested in, and in both cases, we do. We feel like it makes sense. We’ve got pretty high occupancy in a lot of our key markets. So, I think, Peter said, we’re not necessarily looking for big Cambridge acquisitions because we’ve got a lot on our plate; then I think San Diego is a very interesting place, New York City represents an interesting opportunity to the extent that it makes sense in a market or two. So, I don’t think you are going to see us change dramatically from what we’ve been doing. I mean, we’ve been in the acquisition market as I say every quarter all the time and we try to be pretty discrete. So, I don’t think we’re trying to ramp that up in any unusual way. We may or may not meet those targets, but I think we’ll be able to hopefully meet guidance as best we can and I think we’ve got all the wherewithal to do that. I don’t think we’re changing our strategy and I think we’re committed to lower leverage. Our balance sheet is in great shape. But we want to grow and where we see the opportunity for to match tenants with product, and if we don’t own it, we can’t necessarily just go out and build everything. And as you see from the schedule, we don’t have anything targeted for redevelopment this year and only one or two assets that we currently own potentially for next year; maybe there was some other add-on. So, I don’t think you will see anything dramatic that we’re doing that would change what we done in the past.

Okay. Thank you.

And with that, ladies and gentlemen, we’ll end our Q&A session and therefore Mr. Marcus I’ll turn the conference back over to you for any closing remarks.

Okay. Well, we did it in less than an hour. We thank you very much. Great questions, and we look forward to talking to you in the next quarter. Thanks again everybody.

And ladies and gentlemen, this will conclude today’s conference. Thank you for your participation.