Earnings Call Transcript
ALEXANDRIA REAL ESTATE EQUITIES, INC. (ARE)
Earnings Call Transcript - ARE Q3 2013
Operator, Operator
Please standby, we are about to begin. Welcome to the Alexandria Real Estate Equities Inc. Third Quarter 2013 Earnings Conference Call. My name is Cathy, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the conference over to Rhonda Chiger. Ms. Chiger, you may begin.
Rhonda Chiger, Investor Relations
Thank you and good afternoon. This conference call contains forward-looking statements within the meaning of the federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company’s Form 10-K, annual report, and other periodic reports filed with the Securities and Exchange Commission. Now, I would like to turn the call over to Mr. Joel Marcus. Please go ahead.
Joel Marcus, Founder, Chairman, President and CEO
Thanks, Rhonda. And welcome everybody to Alexandria’s third quarter ‘13 conference call. With me today are Dean; Peter; Steve; Marc; and Andres. We’ll continue we hope a somewhat shortened format to leave adequate time for Q&A. I think management’s quick take of the quarter is that we are very pleased with an all-around solid third quarter by our entire Alexandria team. Let me comment a little bit about the biopharmaceutical industry. As you know, one of the nation’s most dynamic innovations. Business ecosystems built upon a robust foundation of company, academia, and clinical performance supported by medical and technological R&D, really act as a funnel and distribution engine for getting life-saving and quality of life improving therapeutics to the marketplace. The sector provides significant R&D, north of about $65 billion, yielding new treatments and potential cures and things that may prevent the onset of disease and ultimately reduce the socioeconomic cost and burden on society as a whole. In accomplishing the mission of bringing these treatments to patients, the sector has sustained a large scale supply chain ecosystem both in R&D and support, production, distribution, etc. The value chain continues to evolve, shaped by technological advances that open up opportunities for new goods and services, including the areas of molecular diagnostics and medical informatics we talked about before. The sector contributes to about 3.4 million U.S. jobs, directly and indirectly, and generates nearly $90 billion of take-home income, with compensation twice the private sector average in the U.S., which is pretty amazing. The industry accounts for almost $800 billion in economic output, nearly 3% of total U.S. output. The economic impact comprises about $375 billion in direct business and over $400 billion in indirect, along with about $40 billion in government taxes. So it’s a sizable industry with an incredibly important impact. Given the advent of healthcare reform, we may talk about that in future calls. Moving to operations and internal growth, we’re pleased with our number one tenant. Novartis has continued its global expansion by taking full building in Research Triangle Park and Steve will have more to say on the leasing side. I’m pleased to say that in the first in the 16-year history of ARE as a public company, now over half our annual base rent is generated from investment grade tenants. That’s significant milestone. We had a very strong leasing quarter with 830,000 square feet of solid cash and GAAP increases, and we’ve only got about 297,000 square feet of rolls left in the fourth quarter, which is very manageable. We continue same solid, same property performance, Dean will comment on, as we continue to enjoy increases in both rental rates and occupancy across most of our cluster submarkets, with margins holding steady and solid about 70%, and we are comfortable reiterating our internal growth guidance as Dean will highlight in a couple of minutes. Moving to external growth, we have a solid set of deliveries out of redevelopment in the third quarter, including San Francisco, Massachusetts, Maryland, and Seattle averaging about 83% occupied. This leaves our Genomatica project in San Diego as the only domestic active redevelopment, but we are teeing up some for value creation addition into the pipeline. I think the big news for the quarter on the delivery side was our first Binney Street quarter flagship facility delivered to Biogen Idec, 305,000 square feet on time and on budget with very solid yields. Additionally, as Dean will highlight, our non-income producing assets as a percentage of gross asset value dropped below 20%, as we have predicted. A couple of quick updates on development projects; Steve will discuss 499 Illinois and the 269 East Grand. As for our New York project, the Alexandria Center for Life Science, we are 48% leased to date with two credit tenants, and we are negotiating final agreements for about 20% more with a variety of users for approximately 84,000 square feet, which we believe are highly likely to close in the fourth quarter, bringing our total expected leasing to about 68% by the end of December, when we deliver row space again, a very solid yield for New York City. Our Longwood joint venture is negotiating additional space requirements, approximating about 90 additional spaces or 79,000 square feet, which would bring occupancy to about 68%. We are seeing nice resurgence in the integrated clinical sector over there. Moving to 75/125 Binney, a lot of attention has been given to that. To remind everyone, the lease does not give Ariad any termination or downsizing rights. Ariad has stated that they intend to occupy the premises, but we are confident we can satisfactorily address all potential eventualities, and we will be aggressive in managing this matter. Over the next two to three months, Ariad will modify their space plan and program needs to reflect the revised business and financial strategy, which they intend to announce on November 6, and they are also updating their details about the trial on November 7. If Ariad decides to sublease a portion of their premises, the project can easily accommodate multi-tenant lab or office configurations. Base building construction is at full speed ahead; the steel will be topped off next week, and base building is scheduled to be weather tight in April. The design of the tenant improvement is on pause pending completion of Ariad’s revised program. IT construction has not commenced at this time, and we continue to project that the base building completion and rent commencement will be achieved in the first quarter of '15. Steve will have more to say about demand in Cambridge. On the balance sheet side, land sales have been revised down about $75 million to $100 million from our original estimate at the beginning of 2013, but we hope to capture much of this in 2014. On the dividend, the Board policy is to continue to share increasing cash flows with investors as we still have a low dividend payout ratio of about 65%. Let me move to Peter Moglia, who will share a couple of highlights on the transactional side.
Peter Moglia, Chief Investment Officer
Sure. Thanks, Joel. There were two notable trades from other investors in the third quarter I’d like to highlight. The Heights at Del Mar, a 219,000 square foot office/lab building, two-building campus located in the Del Mar Height submarket of San Diego, was sold by Prudential for $126,350,000. The property, anchored by Neurocrine Biosciences, also included an 89,000 square foot developed pad. We estimate the cap rate to be 6.3% and the price per square foot of the improvements to be about $547. While we were admirers of this real estate and intimately knowledgeable of the project, it was Veralliance redevelopment, we chose not to pursue this investment based on the pricing and the nature of the tenant. Additionally, 320 Charles Street in Cambridge traded for $52 million or $523 per square foot. The property is currently occupied by the Broad Institute, but will become vacant when Broad moves to their new 250,000 square foot building at Cambridge Center in the middle of next year. We declined to pursue this opportunity based on the pricing expectations for this 1940s vintage building. With that, I’ll pass it over to Steve.
Steve Richardson, Chief Operating Officer
Thank you, Peter. I’ll start with a quick overview and then touch on specific leasing items and finish up with a couple of key trends of interest. Overall, Alexandria's life science cluster markets are very healthy. As we’ve been discussing, the Biotech Index has hit all-time highs, liquidity is very strong with 42 IPOs to date raising nearly $3 billion, along with large and small M&A activity, all driven by genuine clinical results. Alexandria’s fully integrated regional teams leased a total of 829,533 square feet across 57 leases during this past quarter at our outstanding assets, driving occupancy gains of our North American operating portfolio to 95%, up 40 bps from last quarter. Also noteworthy is the occupancy rate of 94.5% when including the company’s redevelopment set of facilities, which indicates our ability to attract and retain the highest quality client tenants. Cash and GAAP quarterly leasing spreads increased by 4.1% and 16.5%, respectively, with the major drivers including activity in Cambridge, Torrey Pines in New York, as well as the Greater DC market and South San Francisco. Finally, as Joel touched on, the redevelopment and development pipeline continues to make steady progress with 228,000 plus square feet leased this quarter and specifically increasing the lease and negotiating percentages to 68% at our New York facility, up from 56% last quarter, and now 82% at 499 Illinois, up from 73% last quarter. To touch on the markets, specifically, demand in Cambridge and the inner suburbs is very strong with 11 different life science tenants leasing space in the 5,000 to 15,000 square feet range in the mid to high 50s triple net. We are tracking approximately 1.6 million square feet of demand in this market, split roughly in half between life science and tech users, indicating a very dynamic and robust market. The Greater DC market appears to have hit its trough and is rebounding, as we leased 203,000 square feet, highlighted by a 42,000 square feet lease to an important institute at a 3% cash increase in a $32 triple net range. The market outlook has been further improved by our recently announced extension of an existing lease and a new long-term lease, totaling 135,000 square feet in the aggregate with the NIH at 9800 Medical Center Drive. Also, the Mission Bay market has tightened significantly, as UCSF leased 30,000 square feet on the sixth floor at 499 Illinois, while a high-quality public biotech company recently signed a lease for the entire fifth floor, comprising 43,680 square feet at the start of the fourth quarter. We have only 8,000 square feet on the first floor and 28,000 square feet on the second floor at 499 and are in active discussions for all of the remaining space with several tenants. Also, the South San Francisco submarket, the Bay area continues to improve, as we are nearly fully leased in the submarket after executing a lease for approximately 19,000 square feet with one of our second cohort companies in the mid-30s triple net range. A couple of key trends to highlight are the emerging company expansion formations in full swing in Cambridge, San Francisco, and San Diego. A recent Barron's article detailed the success of Third Rock Ventures portfolio companies, along with a recent liquidity event for venture firms, venBio and Novo, on the acquisition of a San Diego biotech company, all contributing to the creation of another platform for demand coming from the life science sector in the next one, two, and three years. Notably, the imperative for life science companies to remain committed to and expand their mission-critical facilities was evident as noted, especially in the leases consummated in the DC and RTP area. This remains both a strategic and operational necessity that positively impacts our franchise. Finally, with the Seattle market’s ability to capture demand from the tech sector, it continues the trend that started earlier in the year in the San Francisco Bay Area and positively highlights the desirability of our AAA locations in these key brain trust location clusters, supporting rental growth alongside our dominant life science client tenant base. With that, I'll hand it over to Dean.
Dean Shigenaga, Chief Financial Officer
Thanks, Steve. Same property performance for the year of 2013 is solidly on track for our target of about 5% to 7% on a cash basis and up 1% to 3% on a GAAP basis. Cash same property performance of 6.5% year-to-date ‘13 was driven primarily by contractual annual increases in rent and the lease-up of temporary vacancy in the first half of ’12, specifically in Cambridge at 790 Memorial and 300 Technology Square, along with rent commencement for Illumina in San Diego in October of 2012. We completed 461,000 rentable square feet of development and redevelopment projects. These are detailed on Page 26 of our supplemental package, including disclosure of NOI contribution for the second quarter, third quarter, and fourth-quarter for your models. On average, our initial stabilized yields on a cash and GAAP basis are up 20 basis points and 10 basis points respectively, and our average cash yields are up 10 basis points over our prior disclosures. Debt to adjusted EBITDA was 6.8 times, and the fixed charge coverage ratio was about 2.8 times. By year-end, we project improvement in leverage to approximately 6.5 times and our fixed charge coverage ratio of about 3 times. Non-income producing assets dropped to 19% of gross real estate, down from 23% at the beginning of the year. Outstanding debt under our bank facilities was reduced by over $800 million, or approximately 42% since the beginning of the year. In addition to the $55 million of land under contract for sale that starts to close in December of ’13, we have $30 million of additional land sales under negotiation that are targeted to close in 2014. The largest sale was approximately $20 million to a residential developer in Seattle. As Joel mentioned, we expect to continue to identify additional land parcels for sale in 2014. Our unhedged variable rate debt was 10% as of 9/30 and we anticipate executing additional interest rate swaps or caps in the fourth quarter to mitigate a portion of our future unhedged borrowings. We updated our EPS guidance on a diluted basis to a range of $0.54 to $0.58. We also narrowed our range of guidance for FFO per share as adjusted for 2013 to a range from $4.38 to $4.42, with no change in the midpoint of our guidance. Detailed guidance assumptions for 2013 are included on Page 4 of our earnings release. Our guidance includes our FFO per share target of $1.16 for the fourth quarter of ’13, representing a $0.10 per share growth over the third-quarter of ‘13, driven primarily by the following: the third quarter of '13 development and redevelopment deliveries, net of the impact of capped interest, as highlighted on Page 26 shows the NOI ramp quarter-to-quarter on an FFO basis driving about $0.05 of the growth going from third quarter to fourth quarter. We also have some fourth-quarter deliveries scheduled for late mid-December on the West Tower spaces and 4757 Nexus, that’s going to drive about $0.01 of FFO per share, the acquisition at about $0.01, early lease extensions at 455 Mission Bay Boulevard South driving about $0.05, and then some other items of about a penny, and lastly, the repayment of about $100 million of our term loan in the quarter with outstanding cash or cash we had on the balance sheet. Percentage rent at tax recorded in the fourth quarter, primarily from parking and the lease-up and delivery of space ahead of plan at 951 Gateway, drove about $0.015, so that’s about a $0.10 aggregate growth as we go into the fourth quarter. With that, I will turn it over to Joel.
Joel Marcus, Founder, Chairman, President and CEO
Operator, we are ready for questions if we could, please?
Operator, Operator
(Operator instruction) And our first question will come from Gabe Hilmoe of UBS.
Gabe Hilmoe, Analyst, UBS
Hi. Joel, just on 75/125 Binney and the potential increase to the cost basis in relation to Ariad’s expansion against the tenant improvements, just so I understand, none of the proposed costs for tenant improvements associated with that expansion would bring up the basis, the projects had been spent or planned to be spent at this time. Is that correct?
Dean Shigenaga, Chief Financial Officer
That’s correct, Gabe. It’s Dean here. We’re still working on the core and sell and none of the interior improvements have started yet.
Gabe Hilmoe, Analyst, UBS
Okay. And I guess, following up on that, is there anything within the base design that is specific or unique to Ariad using the space? I guess, at this point in time why even consider a design change with an increased cost? The ultimate tenant is somewhat of an unknown at this point?
Joel Marcus, Founder, Chairman, President and CEO
Yes. The answer is no.
Gabe Hilmoe, Analyst, UBS
Okay. Thank you.
Joel Marcus, Founder, Chairman, President and CEO
Yes. Thank you.
Operator, Operator
Our next question will come from Jamie Feldman of Bank of America Merrill Lynch.
Jamie Feldman, Analyst, Bank of America Merrill Lynch
Great. Thanks. I guess, just sticking with Ariad and 75/125 Binney. Can you just talk a little bit more about what happened with Ariad and how we should be thinking about the similar risk or risk to your portfolio or lack of risk?
Joel Marcus, Founder, Chairman, President and CEO
If you consider my earlier comments, 50% of our annual base rent comes from investment-grade tenants. I'm not aware of many REITs with that level of credit quality in their portfolios, particularly in the biotech and pharma sectors, and even among office REITs, it's quite remarkable. I don’t perceive any significant credit risk. Over the past year and a half, as Steve pointed out, we have experienced some of the best times in the biotech and pharma industries. While there are exceptions among certain companies, overall, this period has been the most favorable since the rise of the Internet in the late '90s and early 2000s. In the case of Ariad, the biotech field in general is challenging when it comes to creating, developing, and ultimately commercializing medicines. Most of the top-tier biotech companies have faced near-crisis situations at various points. Tom Andrews recently reminded me that Ariad's post-marketing safety issues were reminiscent of Biogen’s experience in the mid-2000s with Tysabri, which was approved in 2004, withdrew from the market in 2005, returned in 2006, and achieved nearly $1 billion in sales by 2012. My perspective on Ariad is that the final outcome is still uncertain. The narrative is still unfolding. Looking at the underlying science, it’s apparent that this product represents a significant scientific achievement because it not only targets CML and the so-called gatekeeper mutations but could also be effective against other critical cancers, such as GI, thyroid, and lung cancers, which have much greater potential. The substantial declines in stock value, of 75% to 80% that have occurred with many large companies, are noteworthy. The ultimate outcome will become clearer over the next weeks, months, and even over the next one or two years. However, we are prepared for any eventualities.
Jamie Feldman, Analyst, Bank of America Merrill Lynch
Okay. And then, can you also talk about your uncovered expirations; you give a lot of color on what renewal we do next year but just talk about some of the largest leases that may move out or you just haven’t settled yet?
Joel Marcus, Founder, Chairman, President and CEO
Are we talking about 2014?
Jamie Feldman, Analyst, Bank of America Merrill Lynch
Yes. 2014.
Peter Moglia, Chief Investment Officer
Yes. Fortunately, Jamie, 2014 only has a handful of leases; I think there are two leases that are north of 60,000 square feet and their range is 60,000 to 70,000 square feet. One space currently has subtenancy unit that will likely extend in that property. On the other space, we clearly expect a renewal on it. So again, the two largest roles for 2014 are in the 60,000 square foot range.
Joel Marcus, Founder, Chairman, President and CEO
And the total rolling about a million square feet is 7.4% of the portfolio. It’s well below the average we had. So we feel pretty good about that.
Jamie Feldman, Analyst, Bank of America Merrill Lynch
Okay. And then finally, what do you think your mark-to-market is on 2014 roll?
Joel Marcus, Founder, Chairman, President and CEO
I think we’ll talk more specifically on our Investor Day in December but very broad strokes, Jamie, I’d say directionally, relatively in line with our overall performance on leasing or at least our goals for leasing this year.
Jamie Feldman, Analyst, Bank of America Merrill Lynch
You mean leasing the spread similar to 2014?
Joel Marcus, Founder, Chairman, President and CEO
Yes. The mark-to-market on our leasing.
Jamie Feldman, Analyst, Bank of America Merrill Lynch
Okay. All right. Thank you.
Joel Marcus, Founder, Chairman, President and CEO
Yes. Thank you.
Operator, Operator
And next we’ll go to Anthony Paolone of J.P. Morgan.
Anthony Paolone, Analyst, J.P. Morgan
Thank you. Can you just step back and give us a little bit of context around Ariad in terms of the space? They're supposed to come out of how much of it, where it is and also what this may or may not do to just your plans for further projects in Cambridge over the short run?
Joel Marcus, Founder, Chairman, President and CEO
Yes, that's a good question. I don't know the exact amount of square footage they're coming out of space in Forest City. It's about what, 120,000?
Steve Richardson, Chief Operating Officer
It's about 120,000 in total and two spaces, and I believe their lease is currently set to go out to roughly 2019 on this space.
Joel Marcus, Founder, Chairman, President and CEO
I believe there are 26 Landsdowne located in the Forest City, University Park area. The main building, which has served as their headquarters for many years, is quite old and may not be functionally suitable for the company as it aims to progress and recover from recent challenges. The properties are well over 20 years old, so that's the backdrop for their current situation. The expansion is one aspect to consider, especially with safety concerns, despite the cancer-related issues and the shift in their clinical trial direction. They have announced an earnings call on November 6 to provide an update. A broader question arises regarding our two buildings. We're confident in their potential. If we were to assess those buildings independently of Ariad and offer them for lease in Cambridge, whether as single-tenant or multi-tenant spaces, we believe their prime location and functional layout would attract interest. The floor plates are particularly well-suited for lab office use. As for the Binney Street project, we prefer to see Ariad's situation resolved before moving forward with new starts, initially planned for 2014 at 50 Binney. We'll wait to see how that situation unfolds before proceeding. Additionally, Steve mentioned we're monitoring demand in the Cambridge area, estimated at around 600,000 to 800,000 square feet, with some demand even unrecognized by brokers, as we have insight from company CEOs who are interested but haven't yet approached brokers. There’s a larger shadow pipeline we are aware of beyond that.
Anthony Paolone, Analyst, J.P. Morgan
How would net rents stack up if you went multi-tenant with those buildings in order to get to the same economics that are penciled in for Ariad now?
Joel Marcus, Founder, Chairman, President and CEO
Well, now construction multi-tenant probably is in the low-to-mid 60s. That’s just where they are today. Ariad’s rent is north of that. So, there would be a difference but I’m presuming Ariad is not folding up its tent and going away. Very few companies do that. Beyond this drug, the company does have a pipeline, but I believe and I think others believe that this drug has some greater use than the CML use. If they are successful in treating other types of cancer, this could be a Tysabri story again. And I think again we’ll have to see.
Anthony Paolone, Analyst, J.P. Morgan
Okay. Thanks. On acquisitions and dispositions on the land sales, what was the reason for less of those occurring? And did that tie into the acquisition pipeline? Did those come down? Did one drive the other or are they for separate reasons?
Joel Marcus, Founder, Chairman, President and CEO
No. I think you know just in this business and in any business, selling land is extraordinarily difficult. We’ve had several sales throughout the year. I think we’ve done pretty well, and we’ve got a number teed up and others that we are looking to move forward. It’s just one of timing and diligence, and also where you have to repurpose the use. It just takes time. Buyers aren’t willing necessarily, especially if you’ve got a residential situation, to take the property without contingency. So we just have to be patient and I’m sure we’ll do a good job of hitting some important targets as we get through the fourth quarter and well into 2014.
Anthony Paolone, Analyst, J.P. Morgan
And on the acquisition side?
Peter Moglia, Chief Investment Officer
Hey, Tony, this is Peter. There are just two good opportunities. One in our TP was a credit tenant, a tenant that we have a great relationship with and want to build an even better one, at long-term lease, and pricing was very good.
Joel Marcus, Founder, Chairman, President and CEO
And they were actually very instrumental in getting us involved in this property, which is sometimes unusual when it comes from a tenant.
Peter Moglia, Chief Investment Officer
Right. So we really like that one, and then the Barnes Canyon one in San Diego was something that Dan Ryan had looked at a decade ago. It’s near the San Diego Tech Center. It’s a very vibrant area; there are a lot of tenants in and around there because of the amenities and the access to the highway. Dan really came in and said look, we could get this for a very reasonable price, and I’ve got plans to redevelop it. I think we could really hit a home run. And so far, that seems to be playing out. We have two tenants in that project right now, with one of them expiring by the end of the year, but we’re already talking to tenants about backfilling that space with nice incremental yield. So both projects were very good opportunities, and we wanted to capitalize on that.
Joel Marcus, Founder, Chairman, President and CEO
And we looked at, I mean if you look at, there is a large volume of projects in the market today. We have said on other calls, we kind of think strategic optionality is the best way to think about it. We look at everything and we should be aware of everything and it’s been a pretty active market issuance. Peter also highlighted two deals we looked at but didn’t pursue that ultimately closed.
Anthony Paolone, Analyst, J.P. Morgan
Yes. Thank you.
Operator, Operator
And our next question will come from Jeff Theiler of Green Street Advisors.
Jeff Theiler, Analyst, Green Street Advisors
Hi. Just quickly to follow up on that acquisition line of questioning. So it wasn’t necessarily that there weren’t opportunities out there? Was it just that the pricing was out of whack, or are there things that are still in negotiations that might end up closing early next year? Just trying to figure out the reduction in guidance and that kind of thing?
Joel Marcus, Founder, Chairman, President and CEO
I believe it's a mix of several factors. There could be acquisitions involved. Peter can tell you that we're on track for well over a billion dollars, and in several markets, we chose to decline a deal in San Francisco that was nearly $250 million. We're evaluating various options, but our perspective at the start of the year has certainly shifted based on developments throughout the year. Some opportunities have come onto the market only to be taken off again. Our main goal remains to allocate capital in the most accretive manner. Peter, feel free to provide additional insights if you'd like.
Peter Moglia, Chief Investment Officer
Yes. I want to make it clear that the reason we haven’t met our original guidance on acquisitions is not due to a lack of opportunities. It has been more about our careful consideration of when and where to invest our capital. As for what we will do next year, we will provide more clarity at our Investor Day, but there are many opportunities available across all our markets, not limited to just one or two.
Joel Marcus, Founder, Chairman, President and CEO
I think there’s a property that Peter will discuss next quarter, which is still in process and hasn't closed. I won't specify its location or details, but it's a property in Cambridge that we had some interest in. However, once we learned of the whisper number, which is for a sizable property that combines office and lab spaces, we decided to step back as it didn't seem sensible to us, and we chose not to bid on it. There was intense competition among several institutional investors and many pension funds for this property. When it came onto our radar, we were quite intrigued due to its location and the mix of spaces, but the whisper number set by the brokers made it clear that it wasn't something we wanted to pursue. That serves as a solid example of our decision-making process.
Emmanuel Korchman, Analyst, Citi
Thanks for that guys.
Operator, Operator
(Operator Instruction) We’ll go next to George Auerbach of ISI Group.
George Auerbach, Analyst, ISI Group
Great. Thanks guys. Dean or Joel, as you look into 2014 on the development spend number, if 50 Binney is kind of out of the running and I'd think that the third building in New York would be out just because of the leased up efforts on the second tower. How do you see development spend trending next year?
Joel Marcus, Founder, Chairman, President and CEO
Yeah, I think what we’ll do is let and what you just said is correct, we wouldn’t see starting the Third Tower in New York, a little too early. We’ve got some leasing to do and clearly until Ariad is resolved to our satisfaction, we wouldn’t kick-off another project on Binney. But we’ll update and we’ll give you very granular detail on the spend number for ’14 when we do our Investor Day. I don’t think I want to preempt at this point.
George Auerbach, Analyst, ISI Group
Okay. And maybe just a follow-up on, well, Tony’s question about the land sales.
Joel Marcus, Founder, Chairman, President and CEO
Yeah.
George Auerbach, Analyst, ISI Group
I think you mentioned that they sort of flip into next year, so we sort of expect a similar amount of land sales in 2014?
Joel Marcus, Founder, Chairman, President and CEO
Well, we do have under negotiation as what I commented on, which is the $30 million, but we have also broadly accommodated, George, that we are looking at different parcels and I think, we will provide more color over Investor Day and possibly the next couple of quarters on exactly what we might monetize next year.
Dean Shigenaga, Chief Financial Officer
Yeah. But it should, we would hope that it would be well north of that.
George Auerbach, Analyst, ISI Group
Great. Thank you.
Dean Shigenaga, Chief Financial Officer
Yeah. Thanks, George.
Operator, Operator
Our next question will come from Dave Rodgers of Robert W. Baird.
Dave Rodgers, Analyst, Robert W. Baird
Yeah. Good afternoon. Maybe Joel or Steve, for one of you. You have done a great job leasing up space; you have gone from 2.5 million square feet of availability on our numbers down to closer to about a million square feet? Currently, I guess, one of the questions I would have for you is, do you see more of a restricted ability to lease space just due to availability next year to that we should kind of expect as we think about 2014 leasing guidance? And can you perhaps talk about any kind of stubborn vacancies in that number where you are seeing a little bit better traction?
Steve Richardson, Chief Operating Officer
Dave, I think, again, looking at the 2014 rolls, and we have got probably a good 30% under negotiations there; only about 600,000 square feet remaining, half of that is in Massachusetts in the Bay area. So I think we will have plenty of quality leasing opportunities there. We have talked about near-term development and redevelopment opportunities whether they might emerge from acquisitions that Peters had talked about or that we have highlighted in the supplemental as well. So, I think we have plenty of near-term growth opportunities both in the operating portfolio and the development and redevelopment portfolio as well.
Dave Rodgers, Analyst, Robert W. Baird
And I guess just given where the leasing spreads are, given where the vacancy in the portfolio is and the demand profile you are seeing, the question before, I guess, was would you see accelerating more development starts? I guess take it more broadly and say do you have kind of a limit or a target as a percentage of enterprise value that you would like to see development get up to given your comments, Joel, about how strong the market is today relative to what’s been over the last five or ten years?
Joel Marcus, Founder, Chairman, President and CEO
Yeah. I think we look at it on a sub-market by sub-market basis. If you look at the supplement pretty closely, you can see us pushing forward a couple of parcels in Seattle. We have very robust demand up there and we have very little product to meet that demand, similar in San Diego. That’s also true. So I think you will see those two markets will be pushing ahead both development and redevelopments. New York no, obviously Cambridge no, until 75/125 is resolved. We have done a good job of leasing space up in Maryland. We are getting tighter there even in North Carolina. I was at a meeting the other day and there was an interesting immediate requirement for a fairly large amount of space. We can’t deal with it but we are hoping to capture the long-term opportunity through a development there. So, it’s a good conundrum where we have demand and we don’t necessarily have absolutely immediately available space of the size that they are looking for, I guess that’s a good thing. And remember too, I think, this sector and the sector obviously go through its own mutations, but is less dependent upon the general economic environment and much more dependent upon, it’s really event driven and so that’s what we have to be focused on. On chronic vacancy, you mentioned, do we have any spaces? We did have a few spaces in the suburbs say in Massachusetts over the past year or two that or three years that we viewed as chronic. We had trouble getting traction. We had one tenant we did something with and then it kind of flaked out on us. But we have been very successful, Tom, in the team of leasing virtually all of the chronic vacancy. I don’t know Peter or Steve if you know of anything out there that today we would say is just tough space. There are some buildings that may have like a basement level space of 5,000 to 10,000 that just happens that isn’t ideal, but short of that kind of minor rounding everything, I don’t think we have much.
Steve Richardson, Chief Operating Officer
We used to do, well, we’ve focused on that pretty much, but a lot of that was in the 495 corridor out in the outer suburbs of Massachusetts.
Joel Marcus, Founder, Chairman, President and CEO
Right.
Steve Richardson, Chief Operating Officer
So, we resolved those.
Joel Marcus, Founder, Chairman, President and CEO
Yeah. I think our dispositions that we made late last year and early this year helped not only to give us some capital to recycle, they helped resolve some of the submarket issues we just were in love with and I think that turned out to be a good thing for us.
Dave Rodgers, Analyst, Robert W. Baird
Great. Thanks. And then just final question. I guess touching on those dispositions or potential future dispositions, I know you’ve got the portfolio largely where you would like it? But given the pricing you talked about in the market today? You can kind of re-contemplate either some joint venture sales, where you would kind of maintain some management and ownership or just more outright sales to continue to improve the balance sheet?
Joel Marcus, Founder, Chairman, President and CEO
I think on the income-producing side there might be minor things in like a Pennsylvania asset, or this asset or that asset, but nothing that would be of almost any substance. We don’t have anything that we are targeting right now specifically. If somebody came by and gave us an offer, we might consider it in a secondary or tertiary submarket, but we don’t have a specific plan. I think on our game plan for 2014, Dean, is that a fair statement?
Dean Shigenaga, Chief Financial Officer
Yeah. That’s true. There might be a couple of very small things, very small things, very small in the fourth quarter.
Dave Rodgers, Analyst, Robert W. Baird
Okay. Great. Thank you.
Joel Marcus, Founder, Chairman, President and CEO
So from an analyst and investors who have told us to sell like the New York asset or some like that to establish a benchmark, but we are smarter than that. It doesn’t make any sense?
Dave Rodgers, Analyst, Robert W. Baird
Yeah. Don’t do that. Great. Thanks.
Joel Marcus, Founder, Chairman, President and CEO
Yeah. Thank you.
Operator, Operator
And next is Michael Carroll with RBC Capital Markets.
Michael Carroll, Analyst, RBC Capital Markets
Thanks. On page 29 of your supplement, how should we think about the near-term development projects, when could these be actually started and is there kind of a way we should think about that?
Joel Marcus, Founder, Chairman, President and CEO
Absolutely, as I just mentioned, Mike, we clearly, while 50 and 100 residential on Binney, obviously we are moving forward with a bunch of infrastructure and things like that we have to do. But as far as moving forward we certainly aren’t going to do that till the Ariad area is resolved. I think you will see us move Science Park pretty quickly. I think Illumina will move at some point here, Campus Point as well, New York will hold off, and then both Seattle’s will move. So I think of the ones I mentioned and I mentioned just a moment ago, San Diego and Seattle, I think you will see us move pretty rapidly in 2014. We are trying to make sure we have the entitlements perfected in any upzoning for increased FAR to get maximum advantage and then in Seattle we have, literally, tenants in hand who we know need space. So that would probably go very fast in San Diego. We know also Illumina has certain demands. We know down there, Lilly, UCSD have demand for space and in the Science Park, we have Dean circled a tenant or two. So I think on Investor Day we will give you a more detailed rollout on those, but I think you will see those move ahead aggressively in predevelopment and hopefully, as best as possible, in development where it makes sense where we have got a target of tenants. We clearly won’t do just random spec development, but we will make sure we have tenants soft circled or hard circled.
Michael Carroll, Analyst, RBC Capital Markets
Okay. And then as 50 Binney Street is still kind of your mark for a tech tenant and use one to delay that project to be conservative what happened to 75/125?
Joel Marcus, Founder, Chairman, President and CEO
Well, yeah, the answer is we are trying to get approval to divide that building into two buildings. We think one would be easy for tech because we have been approached on that by tech opportunities and the other potentially, it would be 200 and somewhat 1000 square feet building. So we are going through the design work and the approval work right now. But, yeah, we still would like to go maybe one tech and one lab there, but we wouldn’t start anything at all even if it was tech just until we resolve 75/125 to our satisfaction.
Michael Carroll, Analyst, RBC Capital Markets
Okay. Is there any update on the India transaction? Have you received any significant interest from those assets?
Joel Marcus, Founder, Chairman, President and CEO
Yeah. We are, as I said, looking for an investment partner to go forward with this platform. We think it’s a great platform; it’s led by our number one tenant, Novartis. We think it offers a great opportunity, and we are well into discussions. We hope that we can bring in a partner to really help us move that platform forward.
Michael Carroll, Analyst, RBC Capital Markets
Okay. Thanks.
Joel Marcus, Founder, Chairman, President and CEO
Yeah. Thank you.
Operator, Operator
And we have time for one final question and that will come from Emmanuel Korchman of Citi.
Emmanuel Korchman, Analyst, Citi
Thanks guys. Just one very quick question. Real capital analytics seems to picked up in acquisition, credited, do you guys of a Walgreen's in Anaheim. Was that...
Joel Marcus, Founder, Chairman, President and CEO
Yeah. We did it. That’s new headquarters. Now I don’t know anything about it. Let’s Peter have doing random; he has gone on the road.
Peter Moglia, Chief Investment Officer
Actually that was Steve, you’ve, it wasn’t a part of 1030.
Steve Richardson, Chief Operating Officer
Right. It was part of an OP unit transaction that we had consummated several years ago up in South San Francisco with a partnership there, and so as part of the recapitalization in the OP units, yes, we did acquire that Walgreen’s for this partner.
Joel Marcus, Founder, Chairman, President and CEO
Right.
Emmanuel Korchman, Analyst, Citi
Thank you for that.
Joel Marcus, Founder, Chairman, President and CEO
But we don’t know that.
Emmanuel Korchman, Analyst, Citi
Clear.
Joel Marcus, Founder, Chairman, President and CEO
Okay. Thank you.
Operator, Operator
This concludes today’s conference call. We’d like to thank you again for your participation.