Good day, and welcome to the Alexandria Real Estate Equities Fourth Quarter and Year-End 2019 Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Paula Schwartz of Investor Relations. Please go ahead, ma'am.

Thank you, and good afternoon, everyone. This conference call contains forward-looking statements within the meaning of the federal securities laws. The company's actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission. And now I'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

Thank you, Paula, and welcome, everybody, to the fourth quarter and year-end 2019 conference call. And with me today are Dean Shigenaga, Steve Richardson, and Peter Moglia. We'd like to thank, first of all, most importantly, each and every single member of the Alexandria family from the bottom of our hearts for the stellar execution of our 2019 business plan, a real granular day-by-day execution with the highest level of operational excellence. We're very, very proud. As we celebrated our 25th anniversary in 2019 from our founding, we also achieved and passed the $25 billion total market cap level, for which we're also very proud. And we're proud to announce, as you see today, the highest leasing activity in the history of the company, with so many companies actually seeking Alexandria campuses, not just space anywhere. The highest rental rate increases in 10 years are really driven by the best locations and our assets, which have really driven that success. And our operating margins have really been outstanding, and they're driven by judicious management of our unique business plan. So thank you, everybody, for that. When we look at the industry, there's continued bipartisan support for NIH funding, which has remained strong. Congress has provided an additional $2.6 billion for the Fiscal Year '20 budget, totaling almost $42 billion. And this marks the fifth consecutive year Congress has provided the NIH with a multibillion-dollar increase. In 2019, there were 48 new therapies approved by the FDA, another historically strong year for bringing new novel therapies to patients, importantly -- most importantly. Several new therapies approved in 2019 included innovative modalities against novel targets and for diseases that have long needed treatments, such as sickle cell disease and postpartum depression. And we're proud to say that in 2019, Alexandria received 52% of its tenants' FDA new approvals. And of all those approvals, about 1/4 were cancer-related and 1/4 were central nervous system-related. Total life science venture investment continued strong at about $26 billion for 2019, the second-highest record over the past decade. And despite market volatility in 2019, capital continued to flow to public markets. In 2019, $5.5 billion was raised across 48 biopharma IPOs on United States exchanges, and 84% of that amount raised was in Alexandria cluster markets. Let me turn for a moment to the coronavirus. On January 30, the WHO declared China's novel coronavirus a global health emergency, and some of Alexandria's most important tenants are already working with the NIH on vaccines and hope that a vaccine will be ready for human trials by as early as April. In the interim, U.S. drug makers are donating large amounts of antiviral medicines that may help in the fight against the virus. As many of you know, some experts predict there may be as much as a 2% decrease in China's GDP due to this virus. Moving over briefly to policy. There's been an increased focus on both drug pricing and FTC review of M&A that has caught the attention of both private and public market investors, as they work to understand how this may impact valuations and interest in innovation by biopharma, and reevaluate which types of companies are primed for success in both the current and/or potential future environments. However, these issues have not led to a substantial change in the capital available to fund innovative life science companies, and M&A continues to be active with multiple deals announced at the end of 2019 and in the first month of 2020. And it's likely that when you look at -- there are now four bills in congress that are pretty much stuck relating to some focus -- give or take, the focus on drug pricing. But it's questionable, given that we're in a major election year whether these will ever see the light of day. And then finally, the Trump administration, in its own policy, is interested in potentially tying what Medicare pays for physician-administered drugs to a basket of economically similar products in other countries. And under such a proposal, Medicare would pay 126% of the average price paid in these countries. But I think it's fair to say it's a long way away. The White House is still reviewing a draft of the proposal. And once it's public, supporters and opponents have time to make their case before the administration long before it will be finalized. And even then, the idea will only likely be a temporary pilot program. Remember, too, that Medicare covers roughly 1/3 of the U.S. population. So with that, let me turn it over to Steve for some granular details on the quarter and the year.

Thank you, Joel. Alexandria is continuing clear leadership as a partner to the broad life science industry and a premier developer of world-class science and technology campuses, driving exceptional performance as evidenced by the highest annual leasing volume in its history of 5.1 million square feet and the highest leasing spreads during the past 10 years of 32.2% on a GAAP basis. It's important to take a step back as we start a new decade and assess what is driving this outperformance. One, our talented people across the entire company and a strong culture of meritocracy; and two, the strategy that we emphasized at a recent Investor Day. The ongoing creation and curation of unique mega campuses in the country's strongest innovation clusters. We are very well positioned for robust future growth with compelling mega campuses in each of our clusters. Peter will cover in detail the recent acquisitions that have added to these campuses, and the following high-level summary provides a clear framework for this high-quality growth opportunity. In Greater Boston, Arsenal on the Charles; in New York City, we are advancing the third tower negotiations with the city. In Maryland, the Shady Grove build-to-suits in a new large land parcel; in Research Triangle Park, the Research Drive and Davis Drive campuses. In Seattle, the Mercer Mega Block anchoring our dominant position along the Eastern portion of South Lake Union; and in San Diego, the San Diego Tech Center in Sorrento Mesa. And to present a particular highlight today the very creative and compelling joint venture with Boston Properties in South San Francisco. The campus totals 29.3 acres. Alexandria has contributed 313,000 square feet of operating properties comprised of a Class A lab facility, an office building and a state-of-the-art net zero mass timber amenity building with conferencing and a cafe anchored with tenancy from the California Life Sciences Association. Boston Properties has contributed 775,000 square feet in three office buildings. The existing facilities will eventually be on an approximate 50-50 basis and new development on a 51-49 basis. We jointly have the ability to unlock tremendous value on this site with the ability to develop three ground-up Class A facilities, totaling 637,000 square feet and redevelop one of the Boston Properties office buildings. So that approximately 50% of the campus offers value-creation opportunities over time and a transformation to a high-quality laboratory Mega campus. The site is really destined to become the premier life science location in South San Francisco as it features walking distance to the Caltrain, which is undergoing substantial renovation and upgrade, a reimagined master plan, and a unique amenity building that will be a magnet for the life science industry. Alexandria and Boston Properties share a high regard and mutual respect for one another's teams and accomplishments, and collectively, we are very enthusiastic about the future of the campus as we co-develop, with Alexandria as the lead developer, a highly amenitized mega campus featuring a total of 1.7 million square feet at completion. On a separate note, Proposition E in San Francisco is expected to be passed during the upcoming March election. Prop E will essentially provide yet another barrier to entry for development, as it ties the allocation of Proposition M office entitlements to the city's ability to deliver its state of California mandated requirements for affordable housing. The Prop M allocation of 875,000 square feet, or approximately 1% of the entire city's office inventory, could thus become further constrained and reduced. We are monitoring this ballot measure closely and anticipate its passage will make existing and entitled campuses even more desirable and valuable. Broad company-wide metrics include, again, 5.1 million square feet leased during 2019, the highest in the company's history. 2019 rental rate increases totaled 17.6% in cash and 32.2% on a GAAP basis, the highest during the past 10 years. On a mark-to-market basis across all regions, we're at about 17.1% on a GAAP basis. And finally, and importantly, a sense of urgency continues in the marketplace, as nearly 3/4 of our leases in 2019 were early renewals. Alexandria's strategy, the team, and strong brand are positioning the company well for sustainable growth in each of our markets. I'll hand it off to Peter.

Thank you, Steve. I'm going to spend the next few minutes updating you on our fourth-quarter deliveries, 88 Bluxome, the Mercer Mega Block, and 15 Necco progress, give an update on construction costs, and then given recent activity, highlight a couple of major acquisitions that occurred in the fourth quarter and one that closed in January. So as for developments, 2019 was a very busy year in many respects, but especially on the development and redevelopment front as we delivered over 2 million square feet at average initial yields of 7.4% on a GAAP and 6.9% on a cash basis. The fourth-quarter deliveries were light relative to the first three quarters at 131,000 square feet, but we closed out five projects during the quarter and ended the year with all 11 projects spanning 9 submarkets at 95% occupancy or higher, illustrating the strong demand present in all of our markets. Given the significant interest in 88 Bluxome in the SoMa submarket of San Francisco, the Mercer Mega Block in Seattle, and 15 Necco in the Seaport area of Boston, we wanted to provide a brief update on those three. As many of you know, the Bay Area team's significant community and municipal engagement resulted in our 88 Bluxome project receiving Prop M allocation on the entire project, as opposed to approval in phases as other developers received. We are pleased to report that we are now fully entitled as all challenge periods have expired and the Central SoMa plan litigation has been resolved. We expect to receive a permit for demolition and our site work in May, and we expect to commence those activities in the summer once certain required off-site work is completed. As you likely know, the 1,070,000 square foot project is 46% leased to Pinterest and 58% leased overall. The status on the Mercer Mega Block is that we're negotiating a prospective purchaser consent decree with the Department of Oncology that will essentially cap our environmental liability and should be resolved by year-end, and we should close shortly thereafter. Concurrently, we're preparing drawings for early design guidance and submission of a master use permit shortly after closing, which will perfect the entitlement to that project. As far as 15 Necco goes, we're redesigning the building to be a lab-ready shell, and it is currently in for review with the Boston Planning and Development Agency. We expect the entitlements to be complete and have a permit to break ground in the first quarter of next year. The location has been very well received by tenants in the market, and we've had preliminary discussions with a few of them. Moving on to construction costs. Given our proclivity for value-add activities, our underwriting process includes rigorous periodic updates of construction cost trends. The effective tariffs have been a constant theme in many of our investor meetings. And by and large, we've been able to manage through them by engaging our contractors early and leveraging our deep relationships with them to achieve the best pricing for steel and aluminum, buyout and cover any unexpected spikes with contingency. Despite recent positive developments in the trade war, we remain cautious and conservative in our underwriting of cost as manufacturers are quick to point out that pricing is subject to change based on trade negotiations. Our latest analysis, which we get directly from our contractors, indicates that the national average for escalations remains in the 5% range, consistent with 2019 and recent years. Most of our major contracting partners across our markets anticipate slowing towards the end of 2020 and into '21 and '22, which could ease pressure on pricing. Most of the pressure on pricing is attributed to skilled labor shortages. Although the construction industry continues to add jobs, most of the additions have been unskilled laborers, increasing the productivity gap, which has led to above-market pay scale for skilled workers and overtime to staff projects. The projected slowdown would mitigate this. Moving on to acquisitions. As you know, we executed a secondary offering in January, and use of proceeds includes funding a number of strategic acquisitions. Approximately $956 million of these were completed in the fourth quarter of '19 and include the following. Arsenal on the Charles, which was disclosed at Investor Day, is located in Watertown, an inner suburb of Cambridge and closed December 17 at a purchase price of $525.5 million. This acquisition is a terrific example of our focus on value-add investments. Upon full development, we contemplate a 12-building campus, containing 1,035,000 square feet that will provide unprecedented scale in Cambridge's inner suburbs. 3825 and 3875 Fabian Way closed in December at a purchase price of $291 million and is located in the Greater Stanford submarket of Palo Alto. This 478,000 square foot campus has been leased back to the seller and provides a similarly unique opportunity for Alexandria to achieve scale in a highly valued cluster location. The 598,000 square foot San Diego Tech Center will be rebranded as SD Tech by Alexandria and will ultimately be fully developed in phases into an approximately 1.3 million square foot life science and technology mega campus, which we own in a 50-50 joint venture. Although it's known as a premier technology campus in Sorrento Mesa, it has lost its luster in recent years and, therefore, offers us a great opportunity to leverage our redevelopment skills and long-term ownership horizon to create significant value through thoughtful repositioning. In addition to the 4Q '19 acquisitions, we completed three transactions totaling a little over $341 million in January, and I'll briefly touch on one of those as well. 275 Grove Street, also known as Riverside Center, is a 510,000 square foot office project with terrific access to Cambridge and Boston via its adjacency to the Riverside Green Line Station and location at the nexus of the Route 128 and Mass Pike interchange. It is also located in an area of the western suburbs where a considerable amount of executive talent resides. The project is in Newton, which is within 5 miles of our Waltham Cluster, and we see this acquisition as an extension of that. In addition to the transit advantages and proximity to decision-makers, Riverside Center provides optionality to incrementally convert the building to lab over time. So with that, I'll pass the call over to Dean.

Thanks, Peter. Dean Shigenaga here. Good afternoon, everyone. As a mission-driven real estate company, we're very proud of our team's exceptional execution of operating and financial results. Our team remains very focused on leadership in ESG, making a positive impact on society by executing in a thoughtful manner to minimize the impact that our business has on the environment and advancing human health, well-being, and nutrition. During 2019, our team earned a 5-star rating and an A disclosure score from GRESB. We issued $550 million in green bonds, with proceeds allocated to green eligible projects consisting of gold or platinum LEED-certified projects in addition to other bond issuances; continued the execution of our 2025 goals focused on how we manage carbon emissions, energy consumption, waste diversion, and water usage; and then continued leadership in health and wellness. November was a really exciting time period for our employees as 59 of them finished the 26.2 mile New York City Marathon in support of raising important funds for mission-critical research at the Memorial Sloan Kettering Cancer Center. This is pretty amazing since this was the first marathon for most of our runners. Our solid results highlight continued growth in high-quality cash flows, operational efficiency, and several key REIT industry-leading statistics. Total revenues were $1.5 billion, up 15.4% over 2018. Cash NOI was $1 billion for the fourth quarter annualized, and FFO per share, as adjusted, was right on track with our expectations at $177 million and $6.96 for the fourth quarter in 2019, respectively. High-quality cash flow growth was generated from one of the best tenant rosters in the REIT industry, with 50% of our annual rental revenue coming from investment-grade or large-cap tenants. Same-property NOI growth was strong for 2019 at 3.1% and 7.1% on a cash basis. And as Peter had highlighted, in 2019, we delivered 2.1 million rentable square feet of development and redevelopment projects contributing to significant growth in rental and net operating income. Now, occupancy came in very strong this quarter at 97.8% before consideration of vacancy in recently acquired properties. Now, vacancy from these recently acquired properties reduced occupancy in the fourth quarter by 1%, and when combined with acquisitions we completed in January of 2020, will in aggregate, reduce occupancy in the first quarter by 2.4%. Now this vacancy is primarily related to San Diego Tech that was acquired in the fourth quarter and the consolidation of buildings, and Boston Properties contributed to our joint venture with 27% vacancy. Now the important takeaway is that our occupancy across our core asset base remains very strong, and this vacancy represents opportunities to grow rental income and cash flows over the next 6 to 8 quarters. So please refer to the tabular disclosures at the bottom of Page 20 of our supplemental package for additional information. Now there has been recent attention on potential changes to property taxes for commercial real estate. Currently under Prop 13, commercial real estate in California is subject to property taxes that are assessed at 1% of the purchase price, subject to annual increases in fair market value capped at 2% and subject to assessment for new construction. Now it's too early to tell if there will be changes in property taxes for commercial real estate in California, but a few key points to keep in mind. Alexandria has a very favorable lease structure with over 97% of our leases providing for the recovery of operating and major capital expenditures. Therefore, there would be a very insignificant amount that we would not recover from our tenants if our properties were assessed at fair value. Additionally, most of our properties are relatively new from ground-up development and redevelopment, and therefore, we believe we are in a better position than the average property in our core markets. Importantly, the life science industry is extremely focused on the benefit of proximity to other scientists and innovative entities in order to develop new and innovative therapies versus the nominal amount of rent they pay relative to their annual R&D budget. Now a couple of points on impairments. During the fourth quarter, we recognized impairments aggregating $10 million, primarily to reduce a portion of our cost basis in 2 privately held investments. We still expect to recover a significant portion of our original investment. One company is focused on neurodegenerative diseases, and the other is a clinical-stage company focused on novel enzyme targets. Importantly, our overall venture investments continue to generate significant value. Our disclosures this quarter highlighted recent value creation aggregating almost $500 million, consisting of over $400 million of unrealized gains as of December 31 and over $70 million of net realized gains over the last 2 years. Now, on the real estate side, in the fourth quarter, we decided to commit to the sale of the only 2 legacy properties that we own in New Jersey and Florida, which resulted in impairment charges aggregating $12.3 million. We hope to sell these properties over the next 4 quarters. Now we remain on track with our disclosed goal of 5.2x for net debt to adjusted EBITDA by December 31, 2020. And we felt it was prudent to remain patient and execute our follow-on equity offering in early 2020 to fund 2 key acquisitions that were awarded and completed in December of 2019. Now, as a result, our net debt to adjusted EBITDA for the fourth quarter of 2019 was 0.4x higher than the 5.3x that we originally forecasted. It's really important, though, to highlight that our team deserves recognition for the achievement of our Baa1, BBB+ credit ratings, which ranks our credit profile at approximately the 90th percentile across 160 publicly traded REITs, and this excludes mortgage REITs. Now one brief comment regarding our ATM program. We do expect to file a new at-the-market offering program in the first quarter here. On guidance, we have reaffirmed our 2020 guidance for EPS and FFO per share adjusted at a midpoint of $2.22 and $7.38, respectively. And please refer to Page 7 of our supplemental package for detailed underlying assumptions included in our guidance. Let me turn it back over to Joel.

Operator, you can open it up for question-and-answer, please.

[Operator Instructions] Our first question will come from Jamie Feldman of Bank of America Merrill Lynch.

I guess, I just wanted to start on -- just thinking about the potential risk of excess supply in both South San Francisco and Boston Seaport. It seems like we've got several projects in the pipeline there. Can you just give us your latest thoughts on both those markets?

Jamie, it's Steve. Thank you for the question. We've talked about this for quite a while in South San Francisco, and I think we've been very pleased to see that the supply that's come on has been substantially absorbed. Kilroy with 650,000 square feet of Phase 1 is entirely leased, so that does not present a near-term opportunity. Blackstone has now resolved half of their 400,000 square foot building. So they just have 200,000 square feet available there. Lastly, HCP just has 65,000 square feet available in their project, a little further north in South San Francisco. So on an overall basis, that's very limited supply of available inventory. And we, in turn, feel like we're extremely well positioned with 201 Haskins. We've got 100,000 feet leased there and ongoing discussions for another big block of space. So as it may have been a concern and something we were watching closely a year ago, we're in very good shape. The future pipeline, I think, we'll take a look at that and continue to monitor that. But I think that will be metered over a number of years and not present a big supply shock. Moving out to Seaport, there are probably three other projects that could compete with our Necco site if you're looking for large blocks of space. A couple of them are about 200,000 square feet, and another one is about 500,000 square feet. So again, you may have a future supply that's a number of years down the road, but nothing in the near or intermediate term that we're overly concerned about. But we're always monitoring this extremely closely.

Okay. Can you talk about the demand pipeline for the Seaport? It does seem like there's several projects in the pipeline there beyond farther out as well.

Yes, I think as we look at the demand in the Cambridge market, it continues to stay healthy with 2.7 million square feet of lab demand. And when you start looking at a 2% vacancy in that market, we have discussed all along Seaport being a very strong natural outlet for that. So we are in early discussions with a very large tenant base that we have in our three mega campuses there in Cambridge. So we're very encouraged at a very early stage with the tenant interest in that site.

And this is Peter, Jamie. I can just give you some color that, obviously, the Seaport is a major tech destination. There are a number of big tenants going in there. Amazon is making a huge move and will likely gobble up a lot more space when you talk about the concern over supply. But also, it's starting to gain a lot of traction with life science companies. Vertex, which is already there, is looking to expand in a fairly big way, and there are a couple of other tenants that we'll keep to ourselves that are interested as well as Cambridge has very limited availability and people see Seaport as a great place to go in lieu of that.

Okay. And then last for me. I mean if you think about your acquisitions done to date and the pending, I think -- it looks like you're pretty close to your full year target. So how do we think about -- how should we think about the potential that you go well above that target? And if so, how do you finance it?

Well, Jamie, it's Dean here. I think what we found really interesting about the market today versus looking back several years ago is there is obviously a volume in the market, many deals of which we pass on. The other thing that's really interesting about the dynamics today, I would say that we're required to do diligence before we're even aware of being awarded as the winning bidder on a transaction. So I think what I'm trying to highlight is there is deal flow in the marketplace. We're very disciplined in what we choose to pursue, and there is a short fuse when it does come up as a winning opportunity. So we'll keep the market informed as we go through the year. As far as funding goes, whether it's construction, value-creation projects, or future acquisitions, I think we'll remain as disciplined as we have been historically, Jamie. Today, we've got a bucket of equity to solve for. We solved a big chunk of it, and we have an amount to resolve for the rest of the year. But I think you'll find us disciplined and preserving our optionality as we look forward to solving the rest of our capital means for this year.

Okay. How large is your noncore pipeline or noncore portfolio right now that you'd sell?

I think the way to simply describe it, Jamie, is we always prune the bottom of the portfolio. There's always a couple of assets we're selling every year that don't resonate to any meaningful capital. We did most of our heavy lifting back in 2012 and 2013 on the noncore side.

And our next question will come from Tom Catherwood of BTIG.

Steve, at the opening, you mentioned kind of the role of Alexandria as a partner to the life science industry. And then later, you mentioned the sense of urgency for your tenants across your markets, hence, the high leasing spreads and the early renewals. How do you balance this kind of almost dual mandate of the ability to push rents because vacancies are so low and tenant demand is so high with the fact that you have these long-term relationships with tenants? What's the kind of equation that goes into that? How do you make sure you're giving them the space they need while also pushing rents as far as you can?

Tom, it's Steve. Thank you for the question. I think it's been and it has been for the time since the company was started. It's a balance of respect for the clients that we're working with and the work that they're doing. These are multi-market relationships. They're multi-company relationships. So they are critically important. And I think we balance that respect with the reality of the marketplace and share that in an open and pretty transparent way so that ultimately, the companies and the decision-makers feel like they are gaining tremendous value in the facilities, tremendous value in the operations of the facilities, and really working with somebody who's a partner for the long term. So I think it's a balance between those two.

Got it. That makes sense. And I assume that there is kind of also helping them find space in other areas, which leads to my next question. Peter, it was really helpful when you provided more insight into the Riverside Center purchase in the Boston suburbs. Obviously, the Boston suburbs has been an area where you've been more active with acquisitions and redevelopments over the past few quarters. What are you seeing as far as demand dynamics beyond just executives living in the area? What are you seeing as far as tenant demand there? And how does this differ from previous cycles when the suburbs experienced much more volatility than your urban markets?

Yes. So Tom, this is Joel. Let me start off before Peter jumps in. I think one of the things you have to think about is there are a host of companies broadly in the life science area that actually don't want to be in the Cambridge location for a variety of reasons beyond where executives may live. And so we've seen certainly being the #1 life science market in the United States, there are a continual flow of companies that either started in Cambridge and choose to move out or have never moved there and are expanding. I think those are ones we see pretty regularly, a number of which are pretty great credit and a number of which are not. But I think there is a pretty good core of tenants. And then those tenants are pretty mindful of what Peter says is transit has become king.

And I think working with an owner-operator that both understands their needs and is pretty sophisticated about what they do and how they do things. But Peter can give you any further.

Got you. So it sounds like it is a little bit different in the suburbs than it used to be. So one last one for me.

And not all suburbs are created equal. So remember that.

Very fair. Last one for me, probably for either Dean or maybe Steve, a lot of redevelopments as part of the acquisitions that you guys did in 2019, whether it's stuff in Campus Point or SD tech or the Arsenal. Is it possible that earnings could kind of take some chunky hits as leases expire? And you go in to redo some of these either out buildings or parts of these buildings? Or are you planning to pull the projects out of service, so you end up capitalizing interest and FFO remains stable? How should we think about how those kind of roll on over the next 12 to 18 months?

Tom, it's Dean here. I'm trying to think about the redevelopment projects that we have on the horizon. At least if you look at our 2020 lease expirations as an example, in fact, '21 as well, we highlight that there are some redevelopment opportunities, as an example. So I think over the next two years, what we do have going into redevelopment is very, very modest. There is 75,000, 76,000 targeted for '20 and then another 79,000 targeted for '21, and that is related to the Arsenal and the Charles. So I think that gives you some visibility over the next 24 months, that it's not really going to have any impact.

And this is Peter. I think I'll chime in to remind everybody that some of these redevelopments are considered covered land plays. If you look at the camp at 1260 Campus Point Drive, 4161 Campus Point Court, we have Leidos occupying those properties as we do a build-to-suit for them just next door. So we're able to get the earnings while we build. And then once we deliver, one of those buildings will be converted to lab, the other will be demolished in favor of a new building, part of the overall 1.9 million square foot Campus Point development. 10 Necco St. in Seaport is very similar. It's a parking garage with good income coming off of it as we position it for redevelopment. So we have a number of things like that, and we're very aware when we buy something that could be redeveloped to the extent it has cash flow makes it more attractive.

And our next question will come from Rich Anderson of SMBC.

On the Boston Properties joint venture, I'm curious if you can speak about that in dollar terms a little bit in terms of -- do buildings get mark-to-market when they get contributed into the JV? What's the leverage on the JV? What's your equity investment? And what kind of capital are you kind of taking out-of-pocket and putting into this JV? I guess, mainly, I want to know what 1.7 million square feet means in dollar terms.

So Rich, it's Dean here. I think you asked a couple of points. First off, I think it's important to recognize this is a tremendous joint venture opportunity for Alexandria. The mark-to-market is actually fairly modest on the operating assets. So that really doesn't come into play here. As far as dollars going in, I'd say, stay tuned for the first quarter disclosures; we will get into a little more information that's required to be disclosed. But it was just a very recent transaction. So it is premature for us to get into the details right now.

Okay, fair enough. Now the -- this satisfies your two sort of objectives, which is mega campuses and buying vacancy. And so I agree, it seems like a really great setup for two really high-quality companies, so -- like all that. Wondering if there's a pipeline here, Boston Properties operates in a lot of your markets. Is there a chance that you -- the two companies could work more together in other areas around the country and do something similar? Or is this sort of a one-shot deal do you think?

Rich, it's Steve. This was a very unique opportunity. We were literally adjacent neighbors to one another for a couple of decades. There was actually one parcel in the heart of the campus that Boston Properties owns, and we had a long-term perpetual easement across it. There is additional parking with a parking facility that ends up unlocking another chunk of square footage. So you had presented to both of us a very unusual and unique opportunity. So we're very focused on this and don't necessarily see this being a pipeline, as you mentioned, but again, just a very unique and exceptional opportunity to create something that really will be transformational for nearly 30 acres in South San Francisco. So quite the scale when you think about it.

Okay, great. And then on your buying vacancy initiatives what is -- like the path, the cadence to cap rates, if you're buying at x? And how does that ramp, if you could speak in general terms when you look at these sort of half-vacant type of opportunities for the company?

Yes, I wouldn't say that we have a strategy to buy vacancy, Rich. I think it is unique to each transaction. So the San Diego Tech center, as we said, presented itself in a unique way, very undermanaged and really was not meeting what we think its aspirational capabilities could be. I don't think we went in there specifically because it had significant vacancy, same thing with Boston properties. I mean I think they were motivated by vacancy. I'm not sure we were. But we were motivated for the things that Steve pointed out, is the ability to, over time, create a very unique mega campus right at the gateway entry to South City. So I don't think I would intuit that as a light deliberative strategy.

Okay, I didn't mean to put words in your mouth there. So sorry about that. But nonetheless, good deals. And then finally for me, what is the timing of that $55 million burn off of free rent on the delivered developments?

Rich, it's Dean here. The majority of that $55 million of free rent that is now related to properties that are in service, generating revenue. So the free rent period will burn off substantially over the next four quarters.

And our next question will come from Sheila McGrath of Evercore ISI.

I wanted to first clarify on the Mercer Mega Block. Peter, did you say you don't expect that to close until the end of this year? And if so, when do you expect to have buildings open at that project?

Okay. Well, I will confirm that closing will be at the end of the year. We are concurrently, as I said, processing drawings for our early design guidance and, *MOP*. So that is a fairly long process. But I'd imagine our entitlements will be perfected sometime in '21. And then decisions will be made then based on market conditions. It's really hard to forecast where we'll go.

Okay. And then just following up on your comments on the mega campus strategy. Obviously, the flexibility for growing tenants is a key part of it. Just wondering if part of the economic benefit is spreading the cost as the amenity building across a larger campus, if that's part of your strategy? And on those dedicated amenity buildings, are you getting reimbursed for the amenity package from tenants?

Yes, Sheila, it's Peter. You're exactly right. The mega campus does allow the spreading of the cost, not only the cost of the amenities, but it actually gives us a lot of economies of scale in the operations of the buildings. So that's how we're able to get to that NOI premium in addition to higher rental rates. We have lower reimbursements, so the tenants feel that they can go ahead and cover those things. The amenities themselves are almost always included in the load factor. So we do get full rent on them as well as some -- the collection of operating expenses. So the larger the campus, the easier it is to do because, obviously, you want to manage your load factor.

Okay, great. And one last question. You mentioned the leasing spreads continue to be significant with 2019 at -- I think a record in the past 10 years. Just wondering if you have a rough estimate for us where in-place rents for the portfolio might compare to current market rents.

Sheila, it's Steve. Yes, we had talked about a mark-to-market of 17.1% on a GAAP basis and nearly that on a cash basis, and that's across all markets. And it is particularly strong, as you might expect in Boston, Cambridge.

Our next question will come from Manny Korchman of Citi.

It's Michael Bilerman here with Manny. So I just wanted to come back to potential other opportunities around the assets that you own, and it definitely sounded like from the BXP call that BXP approached you guys with this unique opportunity. And certainly, there's a lot of unique circumstances from that ownership of assets beside each other. But I'm just wondering, after you've now identified and been able to go through this process for what will be 1 plus 1 greater than 2. Have you sort of done a deep dive into every single one of your other assets and campuses to see whether there's other landlords that may be beside your assets that you could work with to create similar value, either by buying them out or entering into similar types of joint ventures like that?

Yes, Michael, this is Joel. We've actually been doing that for quite a while, thinking about our locations, the assemblages. Campus Point is maybe the best example of that where we grew a campus we acquired back in 2010. I can't remember exactly how big it was then, but in the hundreds of thousands of feet today. It's over -- almost 2 million square feet. And that's probably the best example where we have very deliberately gone after adjacent parcels or buildings or things like that, other owners and so forth. And I think that's something we always think about. It's not so much easy to do, oftentimes, especially if they're owner-users that are adjacent, but that clearly is part of our long-term strategy.

I guess, is there anything else sort of underway that got uncovered where arguably, this thing with BXP once you got into the negotiation and understanding what was there obviously had a lot of value to both parties. Is there nothing that sparked something of similar scope within the portfolio today?

The answer is yes, very much so.

And our next question will come from Dave Rodgers with Baird.

Maybe for Joel or Steve, I wanted to ask about just kind of the mega campuses versus the historical kind of clustering of slightly smaller buildings. I mean, as you move to these mega campuses, is it your expectation you would kind of move back toward maybe a smaller base of lab tenants? Would you prefer that versus maybe leasing a mega campus to a tech tenant? It just seems like maybe the tech tenants will be less likely to want to rent next door to competitive tenant versus the lab tenants. So just some thoughts maybe around how that -- what direction that takes you.

Dave, it's Steve. Thanks for the question. Yes, again, by and large, 90% or thereabouts of the NOI is from life science companies. And the industry, as it's growing and maturing -- and I think one of the most important slides we put out at Investor Day was the new modalities that the life science companies are pursuing to really get at intractable diseases. So what we see is these companies continuing to grow, the demand to be in these clusters and the footprints that they're looking to occupy and their colleagues are looking to occupy continue to grow. So we see the mega campuses as a natural response to the way the industry is growing and evolving in a very healthy, productive and sustainable way.

And then maybe just a second question. You have about a little over 2 million square feet of remaining expirations between '20 and '21. As you talk to those tenants, what are their maybe hesitations to have renewed already? I mean does it have to do with rent? Are you getting pushed back on rent? It doesn't sound like maybe you're getting a lot of the new modalities. Are they thinking of, 'Hey, I have to move to another cluster?' I mean how much of that is kind of weighing into these decisions of these smaller tenants in particular?

Very much case by case, I think. I think it's very hard to make a general observation there. Some are quite small and some are somewhat larger, but I think it's super case by case. So I wouldn't read anything into it, particularly.

And Dave, it's Steve. I would just emphasize Joel's point. We really don't have a number of large blocks rolling. It really consists of smaller tenants. And they would typically be looking at a different timeframe than larger tenants.

Our next question is a follow-up from Jamie Feldman of Bank of America Merrill Lynch.

I was just hoping you could talk more about the impairments. I think you had a $10 million impairment in the fourth quarter. And I think it was like $17 million for the year. Just what caused you to take the write-down? And then also just going forward, is that kind of a reasonable run rate based on -- obviously, not every investment is going to play out the way you think it will?

Jamie, so the $10 million impairments on the venture side were really related to two privately held investments. The impairment, as you -- well, let me just touch on the accounting rules because it will give you a sense of how the impairments do come up. On the public side, publicly traded securities, they're mark-to-market through earnings now based on the closing stock price for each security. So it's pretty straightforward. There's no impairments on the public portfolio. To the extent a privately held company provides net asset value, the FASB said, use net asset value as really effectively a practical expedient for fair value. And as a result, there's no impairments because you're just going to record those investments at net asset value. So it's the other privately held investments where there's no NAV, and you do have to mark-to-market from time to time for up rounds and down rounds in those companies. But to the extent there is some hiccup in their business plan that impacts the value -- the valuation for the company, the accounting rules will require you to take a look at indicators of impairment and recognize a write-down. I think, Jamie, when you have a portfolio of any assets, real estate or these venture investments, you will have an impairment from time to time. I don't think the historical run rate gives any perspective for the prospective charges that could occur because they're very specific to the companies. And most importantly, Jamie, we've got tremendous value that we've generated from this portfolio. As I mentioned, over $400 million of unrealized gains on the books as of December 31, and that's in addition to roughly $70 million of realized gains that were recognized over the last two years. So I'd probably focus on the upside here than the occasional write-down, which is inherent in a portfolio of assets.

Yes, the one -- I'll add a footnote, Jamie. The one similarity between the two companies is there were management changes in each of the companies that played into that impairment.

Okay. So both of these are investments you're still holding on to that you think still have upside?

Well, we're -- we wrote down only a portion of it, Jamie, which means we still have a significant amount of our original investment we expect to recover. As far as the future goes, it's too difficult to speculate whether we'll make more money downstream in the future on it than our current budget cost basis. So stay tuned on that.

Okay. And then as I looked at the development pipeline, it looked like there were several projects where your lease percentage declined, but the square footage increased. Was there anything specific that you did this quarter in terms of changing building sizes or adds to some of these projects? I'm just trying to make sure I understand what's new?

There's only one that I could think of, Jamie, that might have been a little more noticeable than anything else. I think in our project, the Alexandria district 56% -- it's 56% leased, 65% leased negotiating. And I think it's pretty close to where it was. It might have moved a little bit. I know there's one lease we had that we're not as confident in completing, but it's still in the works. I think that was the only meaningful change that may have been reflected, Jamie.

This concludes our question-and-answer session. I would like to turn the conference back over to Joel Marcus for any closing remarks. Please go ahead, sir.

Yes, thank you, everybody, and we look forward to chatting with you on the first quarter call. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.