Earnings Call Transcript
ALEXANDRIA REAL ESTATE EQUITIES, INC. (ARE)
Earnings Call Transcript - ARE Q1 2018
Operator, Operator
Good day and welcome to the Alexandria Real Estate Equities First Quarter 2018 Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note today’s event is being recorded. I would now like to turn the conference over to Paula Schwartz with Investor Relations. Please go ahead, ma’am.
Paula Schwartz, Investor Relations
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. I’d now like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.
Joel Marcus, Executive Chairman and Founder
Thanks very much, Paula, and welcome, everybody, to our Alexandria’s first quarter call. And with me today are actually much of our Executive Management team: including Steve Richardson, Peter Moglia, Dean Shigenaga, Tom Andrews, Jennifer Banks, Larry Diamond, Dan Ryan, and Vin Ciruzzi. Congratulations to the entire team on a really outstanding first quarter by all metrics and another quarter of truly operational excellence. In the November and December 2017 issue of the Harvard Business Review, they had an article entitled Turning Potential Into Success, and the article and the research on which it was based focused on companies that are overwhelmingly failing on one key metric of success, which is leadership development. In contrast, I’m proud to say, Alexandria is not failing on this key metric for success. In fact, our intense focus on nurturing key training and developing unit leaders at each and every level has paid exceptional dividends in fostering our culture of mutual respect, a meritocracy, long-tenured and high-performance teams, and dear friendships, all within a highly focused, mission-driven culture. In July 2016, we initiated a world-class intense leadership and management training effort under the leadership of Jim Collins. A new succession planning strategy was also begun at all unit leader levels, as well as at the executive management level. As you know, some of these efforts culminated in a series of press releases in March and April, and there are some yet to come. The same starting team remains on the field, as I’ve said before, albeit at different positions, and not a single unit leader or executive manager ever considered departing. When it came to the most senior executive leadership, the process was uniquely holistic, and the outcome is evidence of the continuation of the Alexandria culture, vision, and intended successful accomplishment of our five-year growth plan from 2018 through 2022. Let me turn to our ecosystem for a moment. The five fundamental drivers impacting life science demand are, first, basic research funding. The new Omnibus Spending Bill allocated an additional $3 billion to the NIH, up 9%. So for the fiscal year ending in 2018, it’ll be about $37-plus billion. On the regulatory side, the FDA is working very positively to expedite drug approvals under the superb leadership of Scott Gottlieb, and the Omnibus Spending Bill allocated almost $0.5 billion, an increase of 10% in FDA funding. Medical research philanthropy sits at an all-time high, north of $33 billion. Global commercial R&D funding sits at an all-time high, approaching $200 billion. And on a very unique note, I’m proud to say that U.S. venture capital funding in life sciences for the first quarter hit $6.7 billion, the largest quarter on record for life science venture funding. Among the life science companies doing mega rounds, two were TCR2, which did a $125 million Series B and is in our 100 Binney project in Cambridge, and Rubio’s, a $100 million Series C, they are going to be at 399 Binney for next-generation cell therapy. Also, San Francisco and Boston continue to garner the largest venture funding amounts, with San Francisco at $1.7 billion and Boston at $1.6 billion. Venture funding is seeing a new wellspring of diverse players, including public crossover investors, Asian venture funds, sovereign wealth funds, and ultra-high-net-worth family offices. The worldwide prescription drug therapy market is growing at about 6.5% compounded annually and will reach $1.06 trillion by the last year of our five-year growth and operational excellence plan in 2022. Companies that were startups now account for an amazing 63% of all new prescription drug approvals over the last five years, and it’s no wonder that pharma has now established venture arms and incubators to invest in these promising startups working on new drug technologies. Finally, I want to make a comment about ARE investments, and Dean will give you granular analysis of this. This effort and key pillar of our business was started when we were private in 1996. Our single best investment today was our Series A in Google in 1998. Today, this pillar continues to be strategically core to what we do at Alexandria. One recent investment focused on unlocking the secrets of ALS, a disease that killed Lou Gehrig and remains shrouded in mystery even today. As I stated before, there are about 10,000 known diseases to mankind today, and only about 500, or 5%, have addressable therapy. So we’re in the real early innings of the biology revolution. And with that, let me turn it over to our new Co-CEO, Steve Richardson.
Stephen Richardson, Co-CEO
Good afternoon, everybody. Let me talk a little bit about the vision for 2018 and 2019. As we continue building our dominant franchise well into 2019, the path is clear and compelling. Alexandria’s business model, based on Michael Porter’s cluster theory of creating dynamic ecosystems upon its Class A science and tech urban campuses, is providing exceptional value for our client tenants and our investors. Let me take a step back and share a bit of the philosophy behind our strategy and exciting path forward, as it’s comprised of three essential elements: great people, a passion for excellence, and engaging with purposeful companies. The first element is great people. The entire team at Alexandria possesses unique skills and talents to acquire, entitle, design, construct, underwrite, lease, and broadly operate these technical and complicated mission-critical facilities, and the following sentiments from our clients speak volumes about their dedication and passion for our mission. From a large pharma company, we’re excited to be working with ARE. Integrated teams committed towards common goals and optimal design for our science and a high-quality facility. From an exciting high-growth life science company, ARE has been a great partner, as the company has grown from three founders to over 250 employees. And from a leading tech company, ARE has ensured our vision of a tasteful workplace environment was achieved as a wonderful partner. We could not be more proud to serve the companies' mission of advancing human health, overcoming hunger, and improving the quality of people’s lives alongside one another. So for us, job number one is ensuring we continually enhance our differentiated and proprietary products and deliver high-touch unparalleled service to our clients. A passion for excellence is essential as we build brick by brick the ecosystems in our core clusters, demanding an intensity that can only be fueled by a passion for excellence in all realms. It’s important to emphasize that 2.3 million square feet in our urban campus development pipeline is 81% leased, and the clients range from the best tech tenants to investment-grade pharma companies to exciting emerging-stage life science companies. A bit of a deep dive here. During 2018, these Class A facilities include a 164,000-square-foot facility fully leased to Takeda in San Diego, an inspiring and cutting-edge facility. The exceptional pre-leasing success at 399 Binney has reached 75%, providing a platform for well-financed emerging-stage companies. In the southeast region in RTP, we've got 5 Laboratory Drive, our very unique 175,000-square-foot flagship ag tech facility, featuring state-of-the-art greenhouses. As we look forward well into 2019, the high-quality invisible growth continues and is well distributed across a number of key clusters. Menlo Gateway’s Phase 2 comprises 520,000 square feet fully leased long-term to Facebook, which just posted a strong earnings beat with $12 billion in quarterly revenue, up 50% year-over-year in a market cap of $510 billion. In San Francisco, Uber’s 590,000 square feet at the Golden State Warriors' Chase Center in Mission Bay is a transformational urban campus featuring a bright future with its new well-regarded CEO. In South San Francisco, we have 213 East Grand, an innovative center totaling 300,000 square feet fully leased to Merck. Just down the road is a fourth building totaling 211,000 square feet at 279 East Grand anchored by Google’s Verily division as part of their 600,000-square-foot campus alongside East Grand Avenue in South San Francisco. At 681 Gateway, we have a 126,000-square-foot project anchored by an expansion with an existing client, Twist Bioscience, involving the creation of synthetic DNA. Further north in Seattle, we have our spectacular waterfront 205,000-square-foot facility at 1818 Fairview, and importantly, in Maryland, a 49,000-square-foot facility at 9900 Medical Drive, and the remaining 58,000 square feet at 704 Queens Road. Finally, the essential ingredient is engaging with purposeful companies. All of us here at Alexandria are honored to be a trusted partner for leading-edge companies working to improve human health, including Juno Therapeutics, which was recently purchased by Celgene for $9 billion during the first quarter. Juno is our anchor and full-building tenant at the 290,000-square-foot facility in Seattle, providing promising CAR T cancer treatment. Joel just mentioned QurAlis, a company launched by notable Harvard professors taking a precision approach to treat ALS. In fact, on the West Coast, Vir Biotechnology seeks to transform the care of people with serious infectious diseases. I can speak for our entire team when I say that we’re energized by the absolutely clear and compelling vision of our future as we continue to build dominant positions in these core clusters for the benefit of our clients, communities, and investors. I’ll hand it over to Peter now.
Peter Moglia, CIO
Thanks, Steve. I’m looking forward to working with you for another 20 years; I really appreciate those comments. We’d like to briefly touch on our acquisitions last quarter. As a reminder, our investment philosophy has been and will continue to be a strong preference to add value rather than paying for another company’s value creation. Our acquisitions this quarter reflect this philosophy and our historical track record of building dynamic communities on urban campuses. Alexandria Park is a multiple-building generic office project in Palo Alto, the heart of the Greater Stanford cluster, that will undergo a transformation to a fully amenitized life science and tech campus, creating a highly desirable collaborative destination. 704 Quince Orchard Road in Gaithersburg, Maryland will create a highly differentiated set of laboratory suites from a generic office building. Summers Ridge in San Diego is a rare opportunity for Alexandria as we acquire a multi-tenant life science campus that is stabilized with credit tenancy, providing immediately accretive income, plus the additional opportunity to create value with additional FAR for future campus expansion. 100 Tech Drive in the Greater Boston market is a 200,000-square-foot facility leased by a fast-growing, high-quality existing Alexandria tenant. It also provides for future value creation with an additional 300,000 square feet to create a fully integrated 500,000-square-foot campus. In addition to our acquisitions, it is important to note two recent laboratory office transactions that illustrate the property values and institutional demand for our product continue to be very strong. Recently, a 270,000-square-foot life science research facility in Boston's Longwood medical area sold for $275 million. We understand that the cap rate was in the high 4s, which is particularly impressive due to the somewhat complicated condominium structure involved. The article mentions that the asset was aggressively pursued by investors from across the globe. Additionally, we have been made aware of a sizable laboratory office transaction in the Cambridge market that has recently closed at a mid-4 cap rate, with details expected shortly. A metric we’d like to highlight this quarter is the continued strength of our cash NOI in leasing spreads. Cash rental rate growth increased by 19% this quarter, primarily driven by the successful execution of our strategy to re-release below-market rents at our Alexandria Center at One Kendall Square Campus, where the team continues to outperform the expectations we set at the time of acquisition. To finish up, we’d like to comment on the potential impacts of tariffs on the solid development pipeline Steve described earlier. With GMP contracts in place for all of our large projects to be delivered in 2018 and 2019, we will not have any exposure to increasing cost of tariffs unless there is a scope change involving those materials, which is not anticipated. Although we source all our steel domestically, our contractors have reported cost creep of 6% to 10%, translating to an overall 1% increase in total project cost if applied to our current projects. We have adequate contingency to cover anything that comes along and we have not seen price increases in aluminum yet since we source most of it domestically with the rest coming from Canada, which is currently exempt from tariffs. Overall, our conservative underwriting has historically factored in construction cost increases, and we continue to monitor the trade policy closely. And with that, I’ll pass it over to Dean.
Dean Shigenaga, CFO
Thanks, Peter. Dean Shigenaga here. Good afternoon, everyone. I just want to cover four key topics today: first quarter results; second, review of the new accounting rule for equity investments; third, venture value creation pipeline in our balance sheet; and fourth, our 2018 guidance. As you know, we are off to a great start this year on our strategic priorities, and we are on track to achieve another solid year of FFO per share growth of approximately 9%. Our team continued to execute quickly and efficiently. FFO per share for Q1 was $1.62, up 9.5% over the first quarter of 2017. Net operating income was up $34.6 million, or 17.8% over Q1 2017. Comparing Q1 2018 to Q1 2017, the key drivers of the 17.8% growth in net operating income included almost 70% from development and redevelopment deliveries, about 20% from internal growth or same-property performance, and the remaining 10% primarily from acquisitions. Same-property growth has been consistently strong, with net operating income growth up 4% and 14.6% on GAAP and cash basis, thus keeping us on track with our overall 2018 guidance of up 3.5% and 10% on GAAP and cash basis respectively. Continued constrained supply and strong demand drove solid rental rate growth of 16.3% and 19% on a GAAP and cash basis respectively for leasing activity in the first quarter. As Peter mentioned, our One Kendall Square Campus located in Kendall Square was a key driver of leasing activity for the quarter. Cash rental rate growth exceeded expectations, as our team executed on lease renewals and re-leasing of space at One Kendall Square, capturing significant cash rental growth related to below-market leases that were in place at acquisition. However, GAAP rental rate growth was below cash rent growth this quarter, as most of the GAAP rent growth was recognized in the initial purchase price accounting at the acquisition date. As a reminder, at the beginning of 2018, we had very limited contractual lease expirations of approximately 5.8% of total leases in effect. As anticipated, we adopted new accounting rules around financial instruments which apply to our equity investments, primarily in life science and a handful of technology entities. The new rule requires us to measure investments at fair value and recognize changes in fair value in net income. Prior to 2018, we did not recognize unrealized gains or losses in net income. As noted by Warren Buffett in his 2017 annual letter, this new accounting rule will likely generate $10 billion swings in net income that will swamp truly important numbers for Berkshire’s operating performance. Buffett stated that what counts most is their normalized per share earnings power. We agree and we will clearly disclose the impact of our equity investments on our financial statements and normalized operating performance. We have three categories of investments from an accounting perspective. First, publicly traded securities that we reflect at fair value based upon the closing stock price. Changes in fair value are recognized in net income. Then there are two categories of privately held entities — those that report net asset value and are carried at approximately fair value based on net asset value as a practical expedient, with changes in fair value recognized in net income. The remaining investments in entities that do not report net asset value are only adjusted upward or downward for observable price changes subsequent to 2017, with these adjustments also recognized in net income. Reflected in net income for the first quarter is $85 million of investment income: $72.2 million represents changes in unrealized gains, which were excluded from FFO per share as adjusted. Additionally, we also had a large realized gain of $8.3 million from an investment in a life science entity, and consistent with prior years, large individual realized gains like this one have been excluded from FFO per share as adjusted. Thus only $5.1 million in realized gains for the first quarter was included in FFO per share as adjusted. While some of our investment gains are event-driven, making it hard to forecast for future gains, I recommend looking back over recent years for some sense of the potential gains for 2018 and beyond. Recently, the $5.1 million in ordinary course realized gains included in FFO per share as adjusted falls toward the upper end of the historical range, generally between $10 million and $25 million per year. From a balance sheet perspective, it’s important to note the following under the new accounting rule. We hold $724 million in investments on our balance sheet, consisting of a cost basis of $511.2 million and unrealized gains of $213.1 million. Importantly, only $250.5 million, or 49% of our cost basis has been reflected at approximately fair value, with unrealized gains aggregating $213.1 million. The remaining $260.7 million, or 51% of our total cost basis in our investments are still classified on our balance sheet at cost, so it may be inappropriate to extrapolate the 85% unrealized gains to this half of our equity investments. However, we believe there is significant value embedded in these investments. Please refer to the footnotes in our 10-Q that we will file shortly, and pages 43 and 50 of our first-quarter supplemental package for additional information. Now turning to our value creation pipeline in our balance sheet: our pipeline for deliveries in 2018 and 2019 now consists of 2.6 million rentable square feet, including 2.1 million square feet targeted for delivery in 2019. These are about 80% leased, representing about $1.8 billion in completion and $1 billion remaining to fund. This will generate very strong cash yields on our total investment approaching 7%. We also have a pipeline for potential delivery in 2020 of over 900,000 rentable square feet that our team is currently marketing for lease. For funding, keep in mind that in the first quarter, we completed our $817 million forward equity offering, along with $714 million to settle over the next three quarters. Additionally, in April, we raised $94 million under our ATM program and now have addressed 75% of our equity needs anticipated in 2018. Over the next three quarters, we will address the remaining $300 million of equity we need for the year. Our approach with our ATM program is to remain disciplined, putting aside macro considerations for the moment, given the tremendous growth in cash flows. Our stock price generally has seen growth relative to other REITs as well. While we take this into consideration, we also remain disciplined in our approach. Briefly on credit metrics: we remain committed to a continued improvement in our credit metrics each year including net debt to adjusted EBITDA, while we also focus on delivering solid FFO per share growth. Our goal remains focused on continued improvement in our long-term cost of capital. As a reminder, a detailed assumptions for 2018 guidance are included on page 5 of our supplemental package. We updated our guidance for EPS to a range of $2.88 to $2.98 and for FFO per share as adjusted to a range of $6.52 to $6.62. The range of our per-share guidance for 2018 was narrowed from $0.20 to $0.10 per share. Importantly, the midpoint of our 2018 guidance for FFO per share as adjusted was increased by $0.02 at the midpoint. The key drivers for 2018 that we considered in our updated guidance included the continued strength of the real estate and life science industry fundamentals, which we expect to continue to drive strong internal growth in 2018 and value creation opportunities for delivery beyond 2018. Our outlook is reflected in our 2018 guidance for same-property NOI growth. However, due to the size of our same-property pool today, which generates $700 million to $800 million of net operating income, $0.02 growth in FFO per share only moves same-property NOI growth by about 30 basis points. As a result, our outlook for same-property performance remains strong and within the prior range of guidance for 2018. With that, let me turn it back to Joel Marcus.
Joel Marcus, Executive Chairman and Founder
Thank you, everybody. We’ll open it up operator for Q&A, please.
Operator, Operator
Thank you. We’ll now begin the question-and-answer session. Today’s first question comes from Manny Korchman of Citi. Please go ahead.
Manny Korchman, Analyst
Hey, good afternoon, everyone. Peter and Steve as you sit there in a co-CEO role, how do you each think about the differentiation also overlapping your roles? And how you manage through those situations where it seems like there is an overlap and what the CEO should be deciding?
Joel Marcus, Executive Chairman and Founder
Okay. This is Joel, and I’ll let each of them comment. But I think that the fact that the team has worked together for almost two decades and that we don’t have an org chart and aren’t bureaucratically organized makes it very easy to move between issues and manage in a highly effective way. So I’m not sure they can give you or want to give you any granular detail, but it’s a pretty seamless operation. Steve, you could comment.
Stephen Richardson, Co-CEO
Manny, hi, it’s Steve. Yes, it is important for everybody to remember, Peter and I have worked together for 20 years. And frankly, that’s the same across the executive team, as well as the number of people in the organization. In addition to that, for seven, eight-plus years, Peter and I, in the roles we’ve had as COO and CIO, have been involved with the breadth and depth of the company as we will be as Co-CEOs. We’ve actually been doing exactly this for a number of years. So there’s nothing substantially different. We’ve worked through these issues and we’ll continue to work through them with Joel and with the team and with each other.
Joel Marcus, Executive Chairman and Founder
I have nothing left to add. My distinguished colleague from San Francisco nailed it.
Manny Korchman, Analyst
That’s what the color call is all about, right? Peter, while I got you there, the pending acquisitions that you guys have shown in the supplemental.
Joel Marcus, Executive Chairman and Founder
Yes.
Manny Korchman, Analyst
Are those similar sort of flavor as the stuff you’ve identified as closed or closer?
Joel Marcus, Executive Chairman and Founder
Yes, it’s a combination of existing assets with value creation embedded in them and then development, redevelopment types of properties.
Manny Korchman, Analyst
And just the likelihood of closing on a $268 million?
Joel Marcus, Executive Chairman and Founder
Highly likely to close all of that.
Operator, Operator
And our next question today comes from Sheila McGrath of Evercore ISI. Please go ahead.
Sheila McGrath, Analyst
Yes. Good afternoon. I was wondering if you could discuss the other investments and talk about the strategic value of that arm for Alexandria, just the competitive advantages that it gives Alexandria either in underwriting or discussions with tenants? And then, Dean, if you can just clarify the $5.1 million in that flowing through that’s just the realized gains, and that’s the determinant?
Joel Marcus, Executive Chairman and Founder
So let me have Dean address that for Sheila and then I’ll talk about the strategy.
Dean Shigenaga, CFO
So, Sheila, the $5.1 million that we kept inside of FFO per share as adjusted is realized gains and it’s the normal realized gains that we have in any given year, maybe slightly higher this quarter compared to the last couple of quarters, but on average right down the fair – right down what we normally have.
Joel Marcus, Executive Chairman and Founder
Yes. And the item that Dean mentioned, the $8-plus million was the recognition on the sale of Juno to Celgene. So strategically, as I said in my comments, Sheila, going back to 1996, when the company was still private, we felt that it was important for us to do a couple of things in using our balance sheet to invest directly in entities that made a big difference and Steve alluded to these differentiators. That is, one, to really understand where the science is going. If you don’t understand that, it’s hard to even begin to think about the tenant base, how you underwrite, and who you underwrite. So that’s number one. Number two is to be able to develop relationships with big winners and companies you can grow with over time, which becomes very important. Knowledge of the industry is critical. So that’s another bedrock piece of the investment strategy. Financial gains are paramount. We don’t do this as a hobby. We do it as a very serious financial, both methodical and judicious approach, ensuring we’re making money on a net basis. It also brings us a level of respect and knowledge in our ecosystem that we’re not just a minor player. We are, in fact, one of the central players in the life science ecosystem.
Sheila McGrath, Analyst
Okay, that’s helpful. And one quick follow-up. New York is now 100% leased. What’s next for Alexandria New York? How far along is the option parcel? And are there any other locations or opportunities on the radar?
Joel Marcus, Executive Chairman and Founder
So we still have a little bit of space. We’re moving people around there, but by and large, it’s relatively fully leased. We are in late-stage negotiations with the city on the letter of intent for the North Tower. We hope to make an announcement over the coming period of time. We clearly are looking at expansion in New York City, so stay tuned on that.
Sheila McGrath, Analyst
Thank you.
Joel Marcus, Executive Chairman and Founder
Yes. Thanks, Sheila.
Operator, Operator
And today’s next question comes from Tom Catherwood of BTIG. Please go ahead.
Tom Catherwood, Analyst
Excellent. Thank you, guys. Following up on Sheila’s question on the investment book, I know it’s only 4% of total assets. But cost basis of this has increased roughly 40% over each year over the past two years. What’s the ultimate size of this book in your mind, Joel, or are there any restrictions on how large it can get as a percentage of total assets?
Joel Marcus, Executive Chairman and Founder
Yes, I think you’ll see the cost basis, however, be about 4% to 6% of total assets. I think that’s where it logically is and probably will remain, and we’ll certainly continue to recycle investments as they naturally recycle themselves to some extent. As Dean said, there really isn't a quarterly run rate we’ve had for a long period of time, so I think that’s kind of where you should think about it.
Tom Catherwood, Analyst
Got it. Thank you. And then for Steve and Tom, probably to you, thinking of Cambridge Kendall Square specifically in San Francisco, Mission Bay and probably even South San Francisco now. What are tenants doing in these tighter submarkets when they need to expand? Is there any material sublease space that can serve as a buffer for these companies?
Joel Marcus, Executive Chairman and Founder
Tom, hi. Steve, go ahead.
Stephen Richardson, Co-CEO
Hi, this is Steve. Let me grab Cambridge first. In Cambridge, the companies are scrambling. They are having some challenges there. There’s not a lot of sublease space available, although there’s a little bit. There’s not a lot of space under construction. We’ve got a building, 399 Binney, where we’ve just finished negotiating a letter of intent for the balance of that building. We’ve had some tenant reconfiguration happening at Tech Square. On the One Kendall Square campus, we’ve benefited from the tightness of the market. We’ve had several spaces where we’ve been able to early terminate some tenants or reconfigure their leases to access space for many tenants looking for space in the market right now. There’s been some movement to other submarkets as lease-outs are made in Watertown, the Austin section of Boston, under the 128 Beltway, and a couple in the Seaport. Strong demand continues as we take meetings with groups looking out three and four years now, which matches when the next delivery opportunities for new construction are occurring. Companies are cognizant of the tightness of the market and therefore, they’re planning further ahead.
Joel Marcus, Executive Chairman and Founder
Yes, I would echo that. We see a strong impetus for early renewals. That’s an imperative for these companies to lock down space. Oftentimes, they’ve invested significant capital into the space. They are locking down adjacent blocks of space after the existing tenant lease expiration date, forward committing to space two and three years down the road. Tenants that are ultimately displaced have been relocated in other facilities. South San Francisco is a good example at 681 Gateway to relocate and expand companies. We’re in daily contact with these tenants through our operating teams. It’s a high-class problem but it’s something we work hard at every day. I’ll hand it over to Peter.
Peter Moglia, CIO
Hey Tom, it’s Peter Moglia. Just anecdotally when you ask that question, the Seattle life science market is super tight as well. One thing we’ve seen is Juno continues to grow even after being acquired by Celgene, and they have moved back into the building they moved out of, as a strategy to expand. So just another thing you can do today with new product being delivered is reoccupy your old product.
Tom Catherwood, Analyst
Got it. Thanks, guys.
Joel Marcus, Executive Chairman and Founder
Thank you.
Operator, Operator
And our question comes from Rich Anderson from Mizuho Securities. Please go ahead.
Richard Anderson, Analyst
Thanks. Good afternoon. So I might have missed this, but what precluded providing at least an estimate of return for a few of your first-quarter acquisitions? If it was said, I apologize, but I missed the rationale there?
Peter Moglia, CIO
The disclosures in our incremental package on acquisitions are included on page four.
Richard Anderson, Analyst
Yes.
Peter Moglia, CIO
Most of the returns that are available have been disclosed. I can tell you that we’re working up the returns on the Greater Stanford asset, as well as Quince Orchard. They are in process. And I think the…
Richard Anderson, Analyst
What about those specific investments that make them a little bit less visible at this point in time?
Peter Moglia, CIO
We are looking at multiple scenarios in the Stanford asset, which could modify the returns just a tad…
Joel Marcus, Executive Chairman and Founder
Lab or office…
Richard Anderson, Analyst
Okay.
Peter Moglia, CIO
You’ll find that the return is going to be in line with what you would expect for that market, and the same with 704 Quince Orchard; we’re working through different alternatives with that, but I think you’ll find that the returns are solid, and we will publish them at the right time, so stay tuned.
Dean Shigenaga, CFO
I did have a little conversation about this earlier in the week. But I thought I’d just put on the record a little bit. In terms of the same-store pool, can you talk about how that collection of assets is adjusted from one period to the next? And if you could provide any sort of data on how that might actually move the number around if it does at all by virtue of the fact that it’s not a consistent pool from year to year?
Peter Moglia, CIO
Yes, I think this goes back to Manny and Michael in the report that Citi issued probably about six months ago talking about…
Richard Anderson, Analyst
I did not read that report, no offense to Manny and Michael, so I just can’t.
Peter Moglia, CIO
So I just want to – it’s…
Joel Marcus, Executive Chairman and Founder
It wasn’t that good, actually. It was highlighting best practices around reporting, and they did touch on a lot of great things we did. But what they did to highlight broadly for the REIT sectors is that there is some disparity in same-property methodology. I do want to first say that we’ve been very consistent in how we report our same-property pool, including a full reconciliation of the properties that are included and excluded. In fact, we did that one step further for multiple years, showing the same-property performance calculation on three different methods just to give the investment community a sense that there are alternatives. We think we’ve chosen the most conservative methodology, minimizing spikes upward in performance. Regarding your question, we looked carefully at our same-property pool, in a reporting period, whether that’s a quarter, year-to-date, or full year. It applies that each asset must be operating consistently for the full period.
Richard Anderson, Analyst
Okay.
Joel Marcus, Executive Chairman and Founder
Now, the way I think the investment community and Michael and Manny highlighted it in their report was were they asking the question: if you take the sum of four quarters, if the quarterly pulls are slightly different than the annual pull, do you get the same results for the full year? We looked back just out of curiosity to see that what would change. It turned out there would have been a slight difference to 2017 same-property performance; very slight, directionally the same message. For 2016 and 2015, absolutely no change in the overall performance for cash and GAAP. Long way of saying I think we’re looking carefully at the question you’ve posed, Rich, to ensure that not only do we develop best practices in our disclosure here, but also that the market evolves to a methodology that just makes sense for same-property performance. So we’re monitoring it, and stay tuned is the best thing I could say.
Richard Anderson, Analyst
Okay. Last question, Joel, you alluded to more announcements to come. I’m not asking you to front-run those announcements. But could you maybe give us a timeline and any kind of teaser on that at all?
Joel Marcus, Executive Chairman and Founder
Oh, they will be probably over the – and let’s see, we’re in the second quarter, so during the second quarter would be a fair timeframe.
Richard Anderson, Analyst
Okay, great. Thank you.
Joel Marcus, Executive Chairman and Founder
Yep, thank you.
Operator, Operator
And our next question comes from Jamie Feldman of Bank of America Merrill Lynch. Please go ahead.
Jamie Feldman, Analyst
Great, thank you. I know you had commented on the management changes and you guys have all worked as a team for a long time. But can you just give a little bit more clarity on the division of responsibility across the different levels in the C-suite?
Joel Marcus, Executive Chairman and Founder
So the – if what you’re asking is, and I think we’ve shared this with probably every analyst after the announcements came out. We’ve said that just generally speaking, Steve would take over the bulk of my responsibilities on investor outreach and so forth. He would team with Dean on that and be granular in certain specific regions beyond San Francisco. Peter would be focused heavily as he is now in his role as CIO with all of the leasing and much of the internal growth, as well as acquisition and obviously on the underwriting. That’s broadly where the allocation of responsibility is.
Jamie Feldman, Analyst
Okay. And what about at the President level? Has anything changed there?
Joel Marcus, Executive Chairman and Founder
Yes, I think we said that both Dean and Tom would broaden their responsibilities and spend additional time in other regions for Tom. For Dean, he would be more granular with some of the regional teams than he has been strictly in his role as Chief Financial Officer.
Jamie Feldman, Analyst
Okay. And then it sounds like there’s more to come just as we think about this year and even next year, just incremental cost from the plan by the time all the dust has settled and all the changes turn out?
Joel Marcus, Executive Chairman and Founder
Yes, so I think – yes, we’ve shared with the analysts and certainly shared with a number of investors who followed up with us. I think Dean has been pretty good in trying to explain it. There’s virtually no change in G&A for 2018. What I did was reduce my long-term incentive stock comp by 50%, and much of that was allocated between Steve and Peter so that there would not be any direct increase or hit to G&A. I think Dean has correctly stated that literally, there is no change. G&A as a percentage of revenues today remains broadly in the 8% range. So I think, Dean, you had something to comment?
Dean Shigenaga, CFO
Yes, G&A has been pretty consistent, guys. It’s roughly in the 60 basis point range as a percentage of total assets, as an example. No real significant G&A impact from the announcements of the executive changes. The way to think about it is if you have to go outside and bring in a CEO, that’s where you load up and hire an additional executive to the team, but we’re uniquely situated here with highly experienced executives, as you well know. There wasn’t a big step up on comp matters here across the board.
Joel Marcus, Executive Chairman and Founder
Yes. And in my case, I thought Steve was probably worth it, and Peter was not, but that’s just the way it ends up.
Peter Moglia, CIO
The government already took mine.
Jamie Feldman, Analyst
All right, that’s helpful. Thank you.
Joel Marcus, Executive Chairman and Founder
You’re welcome.
Jamie Feldman, Analyst
And then just to focus on some of the 2018 deliveries and even the 2019 deliveries that when you look at lease plus negotiation, you’re still looking at kind of less than 50%. So 5 Lab Drive, 9900 Medical Center and 279 East Grand. Can you just give us an update on leasing there, at least tenant interest there?
Stephen Richardson, Co-CEO
Yes, Jamie, it’s Steve. Again, out of that 2.3 million square feet, 2018 and 2019 is 81% leased, so drilling down on 279 East Grand, Verily has taken 49% of the project. We’re fielding multiple offers for the property, so the demand is very high. I expect we will be very selective and throughout the year have that fully resolved. 681 Gateway in South San Francisco is in a similar situation, Twist Bioscience has anchored the project, and we’ve been fielding multiple offers as well. It’s a range of small tenants, as well as additional pharma companies looking to enter the market. So overall, I’d say we’re very bullish there. Looking at 1818 Fairview up in Seattle, negotiations are going well, as are groups behind that trying to get anchor there.
Joel Marcus, Executive Chairman and Founder
On 5 Laboratory, I would say there’s a fair amount of interest. We don’t deliver that till the end of the year. It’s unique in that part of the world, kind of the center of ag tech in the United States. There’s virtually no first-class campus available for office lab and greenhouse.
Peter Moglia, CIO
I’ll finish up. 399 Binney has more demand than the space. The last 11% is highly competitive right now, so we’re settling on who’s going to take that. 9900 Medical Center Drive, a redevelopment we have, now has 58% under negotiation. We’re progressing as we believe they would.
Jamie Feldman, Analyst
Okay. All right, thanks and congratulations to everyone.
Joel Marcus, Executive Chairman and Founder
Thank you.
Stephen Richardson, Co-CEO
Thank you.
Operator, Operator
And our next question today comes from Jed Reagan with Green Street Advisors. Please go ahead.
Jed Reagan, Analyst
Hey, good afternoon, guys. Just a follow-up on Sheila’s question from earlier. One of your office REIT peers spoke this morning about their plans to target life science tenants for a development on Manhattan’s Far West Side near Penn Station. Just curious if you think there’s legs to lab demand in that part of the city? Are you studying expansion into that part of town?
Dean Shigenaga, CFO
Yes, I think that you have to remember, the group probably is a very noteworthy developer. But I think the thing that you learn is New York is really an early-stage life science cluster. It really originated from academic and clinical expertise but lacked the management teams that have done this before. It has much better risk capital, venture capital in the early stages than it had a dozen years ago, but it still can't compare to San Francisco or Cambridge. Primarily, the New York market as it turns out, and we’ve been at it for eight years, to build a cluster like that, to be a secondary cluster, will never be a primary cluster. It’s a 25-year process. The main thrust is really very early-stage seed and Series A stage companies spinning out of academic medical centers, those are the companies where there is activity. You aren’t going to bring a big pharma like you do in Cambridge with hundreds of thousands of square feet; it simply will not happen in Manhattan. People may say what they’re trying to do, but unless they understand the market, it is going to be very difficult. It is literally next to impossible.
Jed Reagan, Analyst
That’s very interesting, thank you for that. There were media reports recently that Alexandria was bidding for Santa Monica Business Park before one of your peers acquired it. To the extent you are able to discuss it, was there a potential lab conversion play there or were you interested in that asset more from a creative office perspective, sort of tech office perspective? And in general, what’s your appetite to grow in LA, and do you see any momentum in that market from a life science perspective?
Peter Moglia, CIO
Hey Jed, it’s Peter. Look, that is a great asset, and we definitely felt it was worth looking into, and it’s in our backyard. However, to refute some of the press, we were not in the best and final round. We dropped out of that, but yes, we were looking at it as a potential laboratory play for a portion of it. LA is an interesting market as Joel just said; it can take a decade to build something. We’ve been working on LA actual since the 90s and we’ve seen some positive signs that there could be something afoot. We plan to look at things like that, especially in locations that our clients would like to be in.
Jed Reagan, Analyst
Great, I appreciate the comments.
Joel Marcus, Executive Chairman and Founder
Thank you.
Operator, Operator
And our next question today comes from Karin Ford of MUFG Securities. Please go ahead.
Karin Ford, Analyst
Hi good afternoon. Can you update us on what the current space requirements are in the market in Cambridge, San Francisco, and San Diego?
Joel Marcus, Executive Chairman and Founder
When you say space required, do you mean just what the demand looks like?
Stephen Richardson, Co-CEO
Yes, in San Francisco right now we’re tracking about 2.3 million square feet of lab demand while Cambridge is somewhat similar at about 2.5 million square feet of lab demand. Down in San Diego, we’re looking at a million square feet. Up in Seattle, about 650,000 square feet. In Maryland, as we’ve been talking about for a while now, there’s been a strong recovery; we have about 500,000 square feet of demand there. Overall, consistent healthy demand continues with prior years.
Joel Marcus, Executive Chairman and Founder
And I want to add that in New York City there is really no waiting line for lab space. You have to take the spin-outs one by one, and if you’re going to go after any more established companies, you need to pitch them. There’s no established waiting line.
Karin Ford, Analyst
Great, thanks for that. Have you started to see any positive impact from the tax cuts on your tenants?
Joel Marcus, Executive Chairman and Founder
Well, I think that a number of the companies, both pharma and biotech, have obviously had favorable impacts from tax reduction and repatriations that have surged around M&A we’ve seen here in the first quarter. It likely will continue in the process of seeing that. I’d say margins have improved but we don’t see any dramatic demand coming out of it per se. They may invest back in their R&D. We’ll see some expansion in the markets they are already in, but I don’t think we’ll see anything hugely dramatic; all of this is positive, that’s for sure.
Karin Ford, Analyst
Great. Thank you very much.
Operator, Operator
And this concludes our question-and-answer session. I’d like to turn the conference back over to Mr. Marcus for any closing remarks.
Joel Marcus, Executive Chairman and Founder
Okay, well thank you everybody. We did it within an hour and appreciate it and talk to you next quarter.
Operator, Operator
Thank you, sir, today’s conference has concluded, and we thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.