Alexandria Real Estate Equities Inc (ARE) Q1 2019 Earnings Call Transcript
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Alexandria Real Estate Equities Inc (NYSE: ARE)
Q1 2019 Earnings Call
April 30, 2019, 3:00 p.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good afternoon and welcome to the Alexandria Real Estate Equities First Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Please also note today's event is being recorded.
At this time I'd like to turn the conference call over to Paula Schwartz with Investor Relations. Please go ahead.
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 differentially 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 SEC.
And now I would like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead Joel.
Joel S. Marcus -- Executive Chairman & Founder
Thank you, Paula and welcome everybody to the first quarter 2019 earnings call. With me today are Steve Richardson, Peter Moglia, and Dean Shigenaga. First quarter of 2019 was probably as close to a picture-perfect quarter as Alexandria has had in quite a long time, although we had many great quarters.
But in addition to stellar earnings results, we had stellar leasing results which will be talked about in stellar's same-store results. And I want to thank the entire team and make sure we're focused on continuing our relentless passion to further our human health mission each and every day with operational excellence in an ego-less and high-integrity environment really important.
At the grand opening of one of our latest developments the home -- West Coast home of research for Vertex Pharmaceuticals, Jennifer Ferguson the mother of two children with cystic fibrosis noted about Alexandria's unique world-class design of this building and said, this building is going to be more than steel and concrete. It is a life-saving cure for my kids. It is amazing to think about what is going on or what is going happen in this building. And that's how we feel about everything that we do day to day and how we take our charge and our mission very seriously.
The first quarter was also the 25th anniversary since the start of the company when we did a Series A round closing I think on January 5th, 1994 of $19 million with family and friends. We have grown methodically and steadily and try to learn every day and every week and every month and every year along the way to become an investment grade S&P 500 company with a total market cap as of the end of the first quarter approaching $22 billion.
We've got one of the strongest client tenant bases in the entire REIT industry with a whopping 50% of annual rental revenue from investment grade or large cap publicly traded companies. Our weighted average remaining lease term is approximately eight and a half years. High quality tenants with long lease duration and strong annual steps is certainly good.
I also want to make a couple of comments about -- and we've -- I think in the press release we've highlighted this the opioid epidemic and the issue of overdosing. The health and fitness -- this is the health and safety crisis of our lifetime. We've teamed up 50-50 with Verily, the life science subsidiary of Alphabet and I'll talk about this in a moment. But 115 deaths per day in the United States more than have died each year or more die each year than did in the entire Vietnam War. And I think it's pretty clear that we could not as a mission-driven company focus on human health stand idly by and not here critically need a call to action.
With a heartfelt undertaking, we've pioneered a comprehensive care model with Verily in a safe campus environment which has rehabs, sober living, family reunification, and community transition. The goal is to help people recover from addiction and live healthier lives while revitalizing the community.
We hope the scale of the components of this model will drive superior outcomes and be a model for the rest of the country. And the restoration of the health and well-being of the community is good business for sure.
We chose Dayton Ohio which has the highest per capita overdose death rate of any U.S. city. Many of you may know and many of you may not know more patents per capita in the first half of the 20th century were developed in Dayton, home of the Wright Brothers among 35 leading industrial cities in America, and was the site for many new companies forming in the first half of the 20th century were developed in Dayton, home of the Wright Brothers among 35 leading industrial cities in America and was the site for many new companies forming in the first half of the 20th century. It turned out to be a very prosperous transportation hub between or among Indianapolis, Columbus and Cincinnati.
From the late 50s to present, Dayton lost their manufacturing, they closed, GM closed. NCR closed, the number of Fortune 500 companies were reduced down to two and the population declined about half. So we've tried to -- our purpose is to -- there is to create a tech-enabled recovery ecosystem focused on helping people recover from the opioid addiction and live healthier lives while revitalizing the community and the team is developing a tech-enabled system of care that will offer treatment center, rehabilitation, housing, wrapped around services all in a state-of-the-art campus.
I want to move on to the life science industry for a moment and talk about our five drivers of demand that we track for life science industry all continuing strongly positive. NIH funding at an all-time high. FDA regulatory continuing positive. The new interim commissioner Ned Sharpless, who comes from the National Cancer Institute and who has a strong background in cancer research should maintain the pro-innovation environment.
Charitable philanthropy is continuing to reach all-time highs. Venture capital flows very strong at over -- approximately $6 billion in the first quarter and 70% of that has been to ARE clusters and biopharma R&D investment has been strong in their pipelines. I want to mention one of the topics of the day which is the Medicare for All fallacy.
Interestingly enough if you look at Bernie Sanders, home state of Vermont, they actually attempted a single-payer system and failed miserably because it would have taken an additional 10% increase for all state income tax in Vermont plus an additional 12% tax on all payroll for businesses and turned out to be totally unacceptable. So today, we've got about one-third covered by Medicare, two-thirds covered by private insurance and there is about 8% to 10% uninsured group that we're struggling to figure out how to bring them into the system. And it makes no sense to throw away the baby and not the bathwater so to speak.
So we can't have a government solution that excludes all other insurances and Medicare may not even be the right agency. And in fact conversations with the people at CMS they think it's an impossible task. And the veterans administration that's another very challenging government-run healthcare effort. What is really needed is expanded affordability, expanded access and portability. Even today, the challenge of having portable electronic medical records is a myth. It just doesn't exist in many cases.
Medical costs are actually much higher than pharmacy costs and these will be increasingly exposed. And often times pharmacy costs are embedded in hospital cost and recently there's been a whole rash of disclosures about drugs being marked up 10x by hospitals and then embedded in overall bills to cover big losses in emergency rooms. So little bit of a view of what's going on out there.
When we talk about future growth of Alexandria, it's fair to say, that Alexandria does not see the slowing of its own earnings growth. We've given a five-year framework to double the rental revenues from 2018 through 2022. And you can see from the 2019 pipeline, we have a strong highly leased very robust pipeline. In the coming months, we'll unveil details about 2020 and talk about starts and leasing velocity. And the team has included on Pages 41 and 42 some of the pipeline opportunities for 2021 -- 2021 and 2022.
So with that as kind of a background and intro let me turn it over to Steve for some details on the quarter.
Stephen Richardson -- Chief Executive Officer
Thank you, Joel. Good afternoon, everybody. I'd like to focus on Alexandria outperforming in all of its key clusters. The company is driven by its most important asset our best-in-class team used with our unique business model has and will continue to outperform in each of our key clusters. The life science industry we serve as Joel just highlighted and noted in our recently released annual report is undergoing a knowledge explosion.
And Alexandria is pioneering and now dominant position creating highly desirable world-class campuses and ecosystems in urban settings adjacent to the countries most productive life science research universities and institutions is providing excellent financial results.
I'll go ahead and run through the market and really highlight the outperformance with again significant contributions from each of the markets. In Cambridge, our franchise-leading campuses totaling 5 million square feet now are uniquely positioned to continue capturing growth in the immediate term.
Rents have grown to the upper 80s, with one in fact eclipsing $90 triple net. And market's 0.2 vacancy rate and three-point million square feet of demand, an increase over the 2.8 million square feet of demand last quarter provides ample opportunity for Alexandria to continue its strong renewal and releasing rent growth over the next several quarters, without having to wait several years or more to capitalize on this strong market.
The San Francisco region has an availability rate of 1.9%, down from 3% last quarter with demand up from 2.5 million square feet to 2.9 million square feet. The 480,000 square foot lease with Pinterest at 88 Bluxome highlights another superb example of the trusted partnerships we've created with our tenants, as we will embark together on the efforts to secure our Prop M allocation and create a world-class destination, a truly remarkable achievement and kudos to the entire San Francisco team.
In addition, two separate renewals totaling 83,000 square feet with rental rate increases ranging from 37% to 58% paired with modest tenant improvements contributed significantly to this quarter's record cash increase.
Moving down to San Diego, have a very healthy market with just 5% to 6% direct vacancy in the core UTC and Torrey Pines clusters and demand now of 1.6 million square feet has increased over the 900,000 square feet from last quarter. Another important renewal rate that was 20% higher for 54,000 square feet in this market also supported the cash increases.
Seattle's vacancy rate remains very low with 2.5% and demand ticked up to 611,000 square feet versus the 400,000 square feet from last quarter. And Peter will touch on the excellent leasing activity at our waterfront facility 188 East Blaine which positions the company well for future growth in this critical cluster.
And finally, Alexandria's unique product offerings are increasing in RTP as demand has grown from 277,000 square feet to 392,000 square feet. Maryland as well continues to be in a contributor with a 35,000 square foot suite released at 35% increase against the backdrop of a market vacancy of just 4.4% and demand now nearly 300,000 square feet.
So, in conclusion, as we look at these markets, our strong competitive advantage derived from our broad-based value proposition to the life science industry is clear from the financial results posted in each of our markets.
The future for our operating and near-term development pipeline is very robust and we are energetically reaching well into our intermediate pipeline with significant leasing activity, as evidenced by the large lease with Pinterest.
On this positive note, I'll hand it off to Peter.
Peter Moglia -- Chief Financial Officer & Chief Investment Officer
Thank you, Steve. I'm going to spend the next few minutes updating you on our near-term pipeline, recent lab office comps and provide an update on construction costs.
As we noted on page two of the supplemental, we've delivered 1 million square feet over the past two quarters, including 481,000 square feet in the first quarter. After a delay noted on our last call due to work performed by the city of Cambridge that interfered with our glazing installation and delay caused by the power company who were months late in hooking up permanent power, we delivered 123,403 square feet at the 399 Binney Street building in January, only one month over our pro forma delivery date.
More good news is that we've increased our stabilized cash yield to a 7.2% yield which is a solid increase of 50 basis points over our original pro forma of 6.7%. At today's cap rates for lab office in Cambridge, we believe we've developed to a value accretion margin in the range of 60% plus when comparing our current stabilized yield with current market cap rates.
Anchored by Alphabet's Life Science subsidiary Verily, we delivered 139,810 square feet or 66% of the 279 East Grand building in South San Francisco in the first quarter at a very healthy 8.1% yield. Green Street's current NAV model applies a 5.3% nominal cap rate to South San Francisco assets. So the 280 basis point spread over that benchmark makes 279 a significant new contributor to NAV.
188 East Blaine, our new flagship building on Lake Union in Seattle, delivered 90,615 square feet or 46% of the building at a 6.7% initial stabilized cash yield. Steady leasing progress continued as we move from 49% leased at the end of 2018 to 67% leased at the end of the first quarter. And the limited supply in the market has enabled us to push rents above $60 net for the first time in our history there.
As of the end of the first quarter, we've delivered 56,137 square feet or approximately half of Phase 1 of Alexandria Center for AgTech, also known as 5 Laboratory Drive in RTP. This project has been very well received by the market and has reached 97% lease within 15 months of the commencement of construction.
It is the latest of eight properties containing over 0.5 million square feet within our asset base that serves AgTech research and development and it will expand our leadership in the sector by providing a multi-tenant, multifunctional, amenitized research and development project that will serve as the center of gravity for the industry in RTP.
We delivered 66,000 square feet of the 142,400 square foot 681 Gateway building this past quarter and remain on target to meet our outsized yield of 8.5% for this redevelopment of office space allowed at our South San Francisco Gateway campus.
In Palo Alto we delivered 48,547 square feet at Alexandria Park completing the first phase of redevelopment there at a 6.2% yield, which was slightly higher than what was originally projected. Credit tenant Workday leased all of that space.
Rounding out the first quarter deliveries was 10,250 square feet at our multi-tenant 80,000 square-foot building at 704 Quince Orchard in Gaithersburg, Maryland where we are successfully targeting a growing cadre of early stage company there.
As we typically do, I'll discuss a couple of lab office sales comps that occurred this quarter. Both are in Cambridge and were reported to have had significant interest from several institutional investors, which correlates well with the enthusiasm we're hearing from brokers and investors about the demand for life science and real estate investments.
I'll also note a sale in Mission Bay of a pure office building that illustrates investor enthusiasm for that market. 610 Main Street North, 610 Main Street South and 710 Main Street were sold by MIT in April. The purchase price was $1.1 billion or $1,625 per square foot, representing a 4.3% cap rate for the approximately 677,000 square-foot campus, which includes a 650-car parking garage. The properties are subject to a ground lease and are anchored by Pfizer and Novartis.
1030 Massachusetts Avenue was sold by Bain Capital representing Harvard's endowment for $128 million, or $1,640 per square foot and a 4.7% reported cap rate. The 78,049 square-foot property is in mid-Cambridge between Harvard and Central Square and it's fully leased to a mix of life science tenants including Astellas and private biotech Obsidian Therapeutics.
I'll wrap up this commentary with a notation that 550 Terry Francois a 289,408 square foot office building leased to the Gap in Mission Bay was sold by Hines in December for $342.5 million or $1,183 per square foot, representing a 4.1% cap rate. The property is adjacent to our 1455-1515 Third Street and 455 Mission Bay Boulevard south properties in Mission Bay.
So a quick update on construction cost. They've remained stable in our markets, except for Seattle where our GCs are projecting 2019 and 2020 to escalate 0.5% higher than our previous projections and we've adjusted our pro formas accordingly. This is being driven by demand for skilled labor.
For our consultant in New York City, escalations may be growing -- or may be slowing there, but we're keeping them at our current levels of 4.5% to 5% until we see further evidence in our pricing. As for the impact of tariffs, we've accounted for them in current project budgets that are under GMP and are included in our escalation assumptions for those that are not. In addition to monitoring escalations, we're also assessing and including the impacts of increased project costs due to anticipated energy efficiency and resiliency programs both our internal goal and those that will be required from various regulatory agencies.
I'll go ahead now, and pass it on to Dean.
Dean A. Shigenaga -- Chief Financial Officer & Treasurer
Thanks, Peter. Dean Shigenaga here. Good afternoon, everyone. I'll briefly cover four key topics today, including our first quarter results and our strong start to 2019; second, lease accounting matters; third, our venture investment portfolio; and fourth, and last our updated guidance for 2019.
Our financial and operating results across the board were truly outstanding for the first quarter and highlights that our team is off to a strong start for the year. The first quarter highlights included continued strong leasing velocity and rental rate growth. 680,000 rentable square feet of development and redevelopment leasing that was executed.
Well, side almost 510,000 rentable square feet of lease renewals and releasing the space at significant rental rate increases of 32.9% and 24.3% on a cash basis and approximately 50% of this leasing volume related to contractual explorations beyond 2019. So rate of renewals continue to drive leasing velocity.
Our unique and differentiated business strategy focuses on high-quality cash flows from our collaborative life sciences and technology campuses in key urban innovation clusters. Class A properties in AAA locations generated 77% of our annual rental revenue. Additionally we have an industry-leading high-quality tenant roster with 50% of our annual rental revenue from investment-grade rated or publicly traded large-cap entities.
We reported solid growth and same property net of operating income of 2.3% and 10.2% on a cash basis for the first quarter. The strength and consistency of our same-property NOI growth was driven by among other items continued positive real estate in life science industry fundamentals, high velocity of leasing, and solid rental rate growth and our favorable lease structure.
Our adjusted EBITDA margin was very strong at 70% and represented another top statistics within the REIT industry. As expected, we adopted new accounting rules for leases effective January 1 of 2019. Key points that I will highlight include; income from rentals on our consolidated income statement include both tenant recoveries together with base rent.
We also separately provided disclosure of tenant recoveries in our same property results and in footnote five to our Form 10-Q that expect to file later today or tomorrow. As of March 31, 2019, our balance sheet includes $240 million of right-of-use asset and related lease liability, primarily for our ground leases, in which we are lessee.
G&A expenses include approximately $1 million related to internal leasing costs that under the new accounting rules no longer qualify for capitalization.
Now briefly on G&A expenses. Just want to remind everybody we have a very unique and differentiated business strategy. Importantly with a very unique and highly experienced and tenured team, it is simply inappropriate to compare a team and business to the average REIT today.
Our company is well more than just a typical real estate company is. Our core vertical is real estate, but we importantly focus on three other strategic verticals including venture investments, thought leadership, and corporate responsibility and we are a leader in each of these four core verticals. These verticals align well with the strategic business imperative of our client tenants.
It's also important to recognize when -- that when you review all-in G&A cost regardless of classification since it does vary from REIT-to-REIT and search for the best measure for how to how efficient a REIT is operating you'll likely end up reviewing EBITDA margins. We have an industry leading adjusted EBITDA margin as I mentioned earlier at 70% today.
Turning to venture investments. What began in the early days in the company's history really has developed into a unique and important component of our real estate business. Our venture investment business verticals strategically aligned with our real estate vertical with both focused on working with some of the world's most innovative entities, developing new therapies and technologies to improve quality of life for people throughout the world.
I give kudos to our science and technology team, we have one of the highest quality tenant rosters in the REIT industry and our team has proven track record for underwriting high-quality innovative tenants. When thinking about a run rate for gains, I always like to look back at what we have done. Looking back over the past three years, realized gains included in FFO as adjusted from our venture investments have been approximately $15 million, $10 million and $28 million and have averaged $8.9 million per quarter over the last three quarters.
As a percentage of range, looking at net operating income, and realized venture gains in 2018 as an example, 97% was generated from our unique and differentiated real estate vertical and 3% of our overall earnings was generated from realized gains on our venture investment vertical.
Moving to our balance sheet. We kicked of 2019 as you know with the strongest balance sheet in the history of the company. Our team has been busy again on liability management matters and extended our weighted average remaining term of debt to seven years. In our release yesterday, we announced the following, $850 million issuance of unsecured senior notes with a weighted average interest rate of 4.1 years, and a term of 14.6 years including the tranche consisting of 30-year notes, in support of our overall sustainability initiatives $550 million or 65% of this deal related to green bonds. We repaid two secure notes payable aggregating $300 million at a weighted average interest rate of 4.88% including one note with a rate of 7.75%. These repayments resulted in an increase in our unencumbered net operating income to 95% of total NOI.
Subsequent to quarter end, we entered into an agreement to extend the maturity date from 2024 to 2025 related to our unsecured term loan that should become effective later in June of 2019.
Briefly on guidance for 2019, we narrowed the range of guidance to $0.10 with EPS in the range from $2.65 to $2.75 and FFO per share as adjusted in the range from $6.90 to $7, with no change in the midpoint of our FFO per share guidance. We also increased our projected guidance for rental rate increases, up 1% and 2% on a cash basis at the midpoint of the ranges.
Page 6 of our supplemental package includes our detailed guidance assumptions for 2019 for your reference. I'll pause there and turn it back to Joel to open it up.
Joel S. Marcus -- Executive Chairman & Founder
Okay. Operator, if we could go to Q&A please.
Questions and Answers:
Operator
(Operator Instructions) And our first question today comes from Manny Korchman from Citi. Please go ahead with your question.
Emmanuel Korchman -- Citigroup -- Analyst
Hey, good afternoon, everyone. Steve, the Pinterest lease that you guys signed at Bluxome what happens if you don't get the Prop M allocation or -- I was making it more specific. What if you don't get that allocation this year or next year?
Stephen Richardson -- Chief Executive Officer
Yeah, Manny let me walk through the process again. The Central SoMa plan was approved by the Board of Supervisors in December of 2018. As we've talked about you had four challenges were filed at that time. Those parties continue to work with the city and work through a process and at the same time very consistent with what we've said all along. There are huge community benefits of value to all stakeholders here. So the city in fact has very affirmatively and proactively continued the approval process. We view this as another step in the process. We expect as we've said for a couple of quarters now to be in front of the Planning Commission in the late summer of this year.
We expect to secure our approvals and then would expect that the lawsuits will be resolved at the end of the year. So of course, there's a hypothetical out there, but it could take longer could be another quarter or two. But everything has pointed and we've seen this time and time again things do get delayed, but ultimately they would get resolved here. So Pinterest is working with us arm in arm and we expect to have a very successful outcome here.
Emmanuel Korchman -- Citigroup -- Analyst
Thanks. And maybe switching close to Boston, at NECO on the Seaport it looks like you've got it under development delivery schedule as an after -2022 event. When would you start construction there? And then, does that end up being a cluster or one-off or trial? Or how do we think about your concentration in Boston Seaport?
Dean A. Shigenaga -- Chief Financial Officer & Treasurer
Yes. So I think Manny at the moment, we'd prefer not to make any comment on that. There are a lot of moving parts and I think in the future quarter or so we could give better color on kind of our view of the world. But at the moment, I think we're going to not make any comment.
Emmanuel Korchman -- Citigroup -- Analyst
Okay Joel. Since I didn't get an answer on that one, can I ask another one?
Joel S. Marcus -- Executive Chairman & Founder
Sure.
Emmanuel Korchman -- Citigroup -- Analyst
The tech IPO market right now is pretty hot. Any impact on your tenants or markets or marketable securities balances from new IPOs?
Joel S. Marcus -- Executive Chairman & Founder
Well, I think Pinterest, we did have an equity investment there and that will get marked up to market when we report I guess next quarter. And I guess it was this quarter, we do have a stake in Uber, so when that goes public that will get mark-to-market. And we have still Google stock, we bought in 1998. Although Google was down -- Alphabet down 8% or something today, but -- so we've done some highly selected investing in certain technology companies and I would continue to imagine that most money managers view the tech sector as one of the most positive sectors these days in the general market. So I think its best we're viewing it things are pretty solid and we stuck to really high quality either big cap public companies or selected unicorns we feel have really legitimate business models and highly disruptive impact to the economy.
Emmanuel Korchman -- Citigroup -- Analyst
Thanks Joel.
Joel S. Marcus -- Executive Chairman & Founder
Yeah, thank you.
Operator
Our next question comes from Jamie Feldman from Bank of America Merrill Lynch. Please go ahead with your question.
James Feldman -- Bank of America Merrill Lynch -- Analyst
Great, thank you. Joel thanks for color on Dayton venture with Verily. Can you talk about -- I mean is this something you could see doing multiple ventures like this and expanding to more markets? Or is this more of a one-off? And then how do we think about the economics?
Joel S. Marcus -- Executive Chairman & Founder
Yeah our goal was not to get into the business of being a provider of real estate to the users here which are the dispensers of healthcare services. This is very unique. But what we did feel is we could make a difference and we spent a lot of time over a number of years trying to find the best place where we could make the best and biggest impact and that's Dayton for the reasons I enunciated. And we're trying to do a unique campus and a unique set of data-driven services that have never been done before from intake, literally from The Street to job placement. Not just you come in, you detox and you're out on the street in 28 days. I think the -- literally all those efforts fail wherever we've seen them.
I don't think were going to be doing lots of sites or multiple sites because that's not our core business. But what we do feel is this is a model for every community in America which is hit hard and we'll make it -- we're going to make our secret sauce as available possible to the -- to other communities. Because we think this is something that private industry and the government should be partnering to really build throughout the country. So we're trying to be the tip of the spear, but not the spear.
James Feldman -- Bank of America Merrill Lynch -- Analyst
Okay.
Joel S. Marcus -- Executive Chairman & Founder
And our -- we own the real estate 50-50 with Verily. Our payback period's about a 25-year payback period. So it's not fast. Our returns aren't as great as Peter's enunciation of our other things. But I do believe, this was a critical call to action where we have unique skills and Verily has unique skills. And I -- we could not have done it with something we really compelled to do.
James Feldman -- Bank of America Merrill Lynch -- Analyst
Okay that's helpful and I appreciate it. As we think about shifting gears, I guess to Dean on page 6. Your capital sources plan. So it looks like you've got the $438 million of sales done. But can you talk about some of these other buckets and the timing to get them done the debt the other and the common equity?
Dean A. Shigenaga -- Chief Financial Officer & Treasurer
Sure Jamie. It's Dean here. That's basically done if you look at the bottom of the table on the right side on page 6. We did complete the issuance of our unsecured notes. In fact, upsized it opportunistically, which allowed us to retire some additional secured notes on our balance sheet. So that's been taken care of.
What we are laser-focused on and that's pretty true every year. We've always had a component of dispositions going through. So on top of the 75/125 partial interest sale, we have another at the midpoint roughly $300 million of dispositions predominantly spread over two transactions that are in process, so stay tuned there. And then I assume you're also asking about common equity. We never really disclosed when that happens, but it's an open item for us to focus in on through the remainder of the year.
James Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. I mean, do you think asset sales could take the place of that or they have anything else in the pipeline?
Dean A. Shigenaga -- Chief Financial Officer & Treasurer
No, I don't -- not necessarily. It's possible that a little of it, but Jamie we already have $750 million at the midpoint of our asset disposition program for 2019. So it's a pretty healthy volume. As we make our way through the two key transactions that are in process, we can give you more color once we get through those too.
James Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. And then just finally, I guess, back to Joel or anyone on the team. Appreciate your thoughts on Medicare for All, but any thoughts on just the drug pricing legislation particularly maybe the international comparison pricing? How that might impact the business and tenants, if you have any latest thoughts?
Joel S. Marcus -- Executive Chairman & Founder
Yes. So that's actually a good question. I happen to see that in your note. We actually a group of us have actually been at Center for Medicare Services not just for pharma industry, but a wider group and we have been working pretty intensively with CMS on this issue. This issue would only cover the third of people covered by Medicare.
The international pricing mechanism is probably not the best, because the U.S. is supporting pricing to some extent overseas, which is kind of unfair. So not only the drug -- or the biopharma industry, but I think payers providers and a group of people all feel like there are some alternatives that are better and those are under intense discussion with CMS as we speak.
James Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. Thank you.
Joel S. Marcus -- Executive Chairman & Founder
Yes.
Operator
Our next question comes from Sheila McGrath from Evercore ISI. Please go ahead with your question.
Sheila McGrath -- Evercore ISI -- Analyst
Yes. On the other investment bucket, I'm just wondering if we should expect this year to be a little bit more elevated because so many of the companies that you mentioned are coming public and you would look to possibly sell just to get rid of some volatility in that line item.
Joel S. Marcus -- Executive Chairman & Founder
Yes. So I'll let Dean answer that. But I think as you probably know Sheila, on the IPO, there is a standard six months lockup for all IPOs so that despite whether we wanted to or not selling after the IPO was limited to all participants. But Dean, can give you his view on.
Dean A. Shigenaga -- Chief Financial Officer & Treasurer
Yes. Yes Sheila, so let me comment in two areas. First, as I mentioned in my prepared commentary, our run rate for last three quarters has been actually interestingly consistent averaging $8.9 million per quarter over the last three quarters. That might give you some sense of recent activity.
To the extent that this type of environment with the types of investments we do hold, it's not unusual as to see something with a really great multiple come out. And to the extent there is one individual transaction like that, we'll exclude it from our run rate as we have historically. But hopefully, the commentary and you just look back over the last few quarters though as far as what they expect may be a better barometer, since we actually haven't provided specific guidance on that line item in our results for 2019.
Sheila McGrath -- Evercore ISI -- Analyst
Okay. And then on the Verily announcement in Dayton. I'm sorry, if I missed this, but how much capital do you estimate that project will require? And do you envision hiring an outside operator? And then just when you say tech enabled, just curious a little more detail what that means?
Joel S. Marcus -- Executive Chairman & Founder
Yeah. Sheila, so the total investment is $20 million, split 50-50 between Verily and Alexandria. The operator is actually a consortium. We have put together a non-profit consortium. I don't want to get to details, because there is a kind of a big grand opening in public announcement kind of mid-June where the Governor of Ohio and the Mayor of Dayton will participate with us and the Verily folks.
But it is a -- when you think about tech or information driven, think about if you were able to understand the all of the data, human data from or as much as you can from everyone you intake, who has been impacted by opioid addiction or overdosing, and you build a database, the treatment mechanisms can be much more individually tailored if you have a set of data that is valuable versus just giving everybody the same detox schedule. It's like cancer.
And everybody knows, everybody has a cancer patient in their family, and literally virtually there are no two cancers that are identical. It's one of the most heterogeneous sets of diseases that you can possibly imagine. And so treatment has to be really tailored for each patient, and that's what we're trying to get to. So people are treated almost like cattle. They're just brought in detoxed and thrown back on the street. That's just a recipe for disaster, and that's why we have 115 people every day dying.
Sheila McGrath -- Evercore ISI -- Analyst
Okay. And one last quick question. Just on Launch Labs, you press released activity in Cambridge, and then another AgTech kind of Launch Labs in RTP. I was just wondering if you could update us on that product for Alexandria.
Joel S. Marcus -- Executive Chairman & Founder
Yeah. We think -- I mean think about what we have said on the call, half of our revenue is generated by investment-grade tenants, and/or big cap companies. And so we also believe in the Life Science industry that you have to really be a part of the entire ecosystem, which means from seed stage to grown-up stage. A good company example that I always like to use, we were involved in the Series A start-up of Alnylam up in Cambridge with our Science Hotel product.
I think they took 4,000 or 7,000 feet. Today, they occupy hundreds of thousands of feet, and are multiple billions of dollars in market cap. So it's good to be there at the beginning, so we can pick the winners of the future, especially given the amazing progress and disruptive technologies today. So that's our goal in dealing with that product.
Sheila McGrath -- Evercore ISI -- Analyst
Great. Thank you.
Joel S. Marcus -- Executive Chairman & Founder
Yep.
Operator
Our next question comes from Tom Catherwood from BTIG. Please go ahead with your question.
Tom Catherwood -- BTIG -- Analyst
Thanks. Good afternoon, everybody. Sticking with the question on RTP, and the AgTech Center down there, how does -- how do the companies and the lease structures in the AgTech world differ from what you would be doing in Cambridge or San Francisco? Is there any material difference?
Joel S. Marcus -- Executive Chairman & Founder
No, they don't. Tom, this is Joel. There are three products. One is lab -- lab office, and then the other is greenhouse, and they're all triple net leases and the lease structure is exactly the same. We just felt that -- and I think I may have mentioned. If I didn't, venture capital certainly is one indicator went from something like $8 billion over $16 billion over the last two years in the AgTech, and it didn't fall on deaf ears when we tracked those statistics to understand that more and more this world is about not only fighting disease, but it's about gaining good nutrition.
And this is an industry -- especially, given the huge consolidation among the big guys. Now there's only three, and the Chinese own one of them. That's really important for what we think is a huge launch of innovation in this area. So that's why we've kind of gone after that particular niche.
Tom Catherwood -- BTIG -- Analyst
Got you. And then when we think about the -- Steve I think you mentioned the 392,000 square feet of demand in RTP. Is that primarily private industry backed by those venture funds that you were talking about Joel? Or is this university-related tech transfer? Kind of how does that ecosystem round out?
Stephen Richardson -- Chief Executive Officer
Hi. It's Steve. That's a wide breadth of companies there. So as you annunciated it, it's all of the above.
Tom Catherwood -- BTIG -- Analyst
Okay. And then...
Joel S. Marcus -- Executive Chairman & Founder
In fact -- I mean, it's much like New York. We've got I don't know 50-plus tenants in our campus in New York. Not a single one of them other than one that I can remember did research in New York before we had the campus. So the -- some of the AgTech stuff in north -- in the Research Triangle region as we call it -- really these are new companies being seeded by venture people, sometimes institutional investors and sometimes the big majors to do things outside of the big corporations. And so a lot of these are very new companies. Some are big, big existing companies, but there's a broad range of demand that gives us comfort down there.
Tom Catherwood -- BTIG -- Analyst
Got you. Got you. Then one last one Steve. Demand in San Francisco, you mentioned that picking up at 2.9 million square feet. Is that demand concentrated in any specific submarkets? And how is it trending in your Greater Stanford cluster?
Stephen Richardson -- Chief Executive Officer
I think we're seeing it very well distributed. You have continued demand in Mission Bay. The challenge of course is the supply constraint there. Equally strong in South San Francisco and we are seeing very positive demand down in the Greater Stanford cluster just as we anticipated. So it is broad-based in each of these core clusters, Tom.
Tom Catherwood -- BTIG -- Analyst
Excellent. Thanks everyone.
Stephen Richardson -- Chief Executive Officer
Thank you.
Joel S. Marcus -- Executive Chairman & Founder
Thank you.
Operator
Our next question comes from Rich Anderson from SMBC Nikko. Please go ahead with your question.
Richard Anderson -- SMBC Nikko -- Analyst
Thanks. Good afternoon everyone. So Joel, you mentioned the 50% number that is rental revenue from IG or large cap. What makes that the right number? I'm curious, if you see that going up, because 77% of your portfolio is defined as Class A. I don't know why, but I would think that the 15 to 77 should perhaps be closer together. Is that the wrong way to think about it?
Joel S. Marcus -- Executive Chairman & Founder
Yes, because I mean if you look at Cambridge as an example and we are working day and night with tenants to try to direct them sometimes out of Cambridge most people want to be in Cambridge and our product is new Class A campus-like or rehab -- Class A rehab and that's where they want to be. They want to be in the best locations. And you have to remember that rental expenses aren't generally the biggest part of their budget. So I think that's why you see that that split.
They're a lot of NewCos, same thing in San Francisco where they want to be in the best locations for interaction with UCSF et cetera. Going out to the burbs or to concrete tilt up buildings in lesser locations just aren't of great interest. So I think that's why you see -- I don't know that there's any right answer for what our credit amount should be, but I think 50%-plus is where we've been for a long time and fairly comfortable given lease durations of what we have.
Richard Anderson -- SMBC Nikko -- Analyst
But in the extreme -- and it may be for anyone in the room, the extreme case of Cambridge where you have five million square feet or more of demand and basically no availability. I mean at what point do people just acquiesce and say, OK, I got to be in Boston or some place somewhat close. And if that were to happen to increasing degree would you be willing to follow that demand?
Stephen Richardson -- Chief Executive Officer
Well I think that relates to the question that was asked earlier about Seaport and some of the other locations. I think naturally you have to look at other locations, because doesn't matter how much capital you have there's a limited amount of land and limited amount of buildings in Cambridge. And so clearly people have to look at other locations in some fashion.
Richard Anderson -- SMBC Nikko -- Analyst
Yes. Okay. And last for me. You're putting off these huge mark-to-markets whether you look at cash or GAAP. I'm not asking for 2020 guidance or 2021 guidance, but when you think about the sort of the geographically where assets are going to be having lease expirations. To what degree can we maintain levels in these huge ranges?
Considering the fact that where leases expire is perhaps an important component to why you're getting the type of growth that you're getting?
Joel S. Marcus -- Executive Chairman & Founder
Well, I think if you just -- I'll ask Steve and Peter to comment as well because they're very granular with this. But if you look at the 2020 expirations, I think 24 we've got what 1.7 million square feet of -- which is about what 5.9% of the annual rental revenue.
But if you look at the rental rates on the right-hand side in the markets, many of these are well below market.
Richard Anderson -- SMBC Nikko -- Analyst
Yeah.
Stephen Richardson -- Chief Executive Officer
Yeah. Rich this is Steve. I mean when you start looking at the mark-to-market in Cambridge right about 21%, San Francisco you got Mission Bay at 18%, South San Francisco as much as 27%, San Diego and UTC 11%, Seattle about 10%. So, in each of those markets, the mark-to-market opportunity is pretty significant.
When you get into the individual sweeps that might be rolling, there may be a mix there. So that's not necessarily guidance for how it's all going to shakeout, when you roll it up. But I think across the board in those markets in particular, you can see it's pretty healthy.
Richard Anderson -- SMBC Nikko -- Analyst
Yeah.
Peter Moglia -- Chief Financial Officer & Chief Investment Officer
Yeah. This is Peter. I just want to add, that we're roughly a third Greater Boston, a third Bay area, and a third everywhere else. Of course there's been a great run in Greater Boston and San Francisco everybody knows about.
But I think what is going to help power -- it's an extended run like we're having is that these other regions like Maryland, Research Triangle region, New York City, San Diego are also doing very well, just given what Joel, set the stage for early on with the indicators of the industry.
There are positive. They've been positive. And as we roll or release in all the regions, they're just all contributing which we can't say has happened throughout our history but we're just happened in a great time where everything is clicking on truly also owners.
Richard Anderson -- SMBC Nikko -- Analyst
Okay great. Thanks and kudos on the Dayton project.
Peter Moglia -- Chief Financial Officer & Chief Investment Officer
Thank you very much Rich.
Operator
Our next question comes from Dave Rodgers from Baird. Please go ahead with your question.
Dave Rodgers -- Baird -- Analyst
Yeah, maybe for Steve or Joel just on the 88 Bluxome and the Pinterest lease. Do you anticipate or is there any discussion about the recapturing the existing Pinterest space? Or would this be purely expansion?
Stephen Richardson -- Chief Executive Officer
Dave, hi it's Steve. No, it is purely expansion. That was the clear intent. And that's the way this is a new expansions stand-alone lease. So they're very excited about that. And they are thoroughly enjoying their existing billing at 505 Brannan which has actually won a number of design awards. So that's an important facility for them.
Dave Rodgers -- Baird -- Analyst
Great and then on the 2020 delivery, I guess you haven't laid out in the supplement. You've got about $1.9 million square feet plus or minus, may be planned for delivery as you've got about 350,000 started under construction.
Do you anticipate delivering a larger number of maybe shells to tenants next year? Do you have the ability to kind of deliver some of these bigger buildings of 530,000 or 208,000 square foot buildings, in that kind of year to 15 or 16 month time frame? Any color on that?
Joel S. Marcus -- Executive Chairman & Founder
Yeah. So I said in the beginning we would give over the next couple of quarters more granular visibility into 2020, but maybe just keep it high level. I think it's pretty clear we'll be able to deliver way more than shells in 2020.
I think we've got a very robust pipeline. I think we have a lot of great activity. And will save it for another quarter but we have a lot of confidence in the 2020 pipeline. I think if you look at this year's pipeline, just think about that as continuing on into 2020.
Peter Moglia -- Chief Financial Officer & Chief Investment Officer
And this is Peter I'll just comment a bit about, how we're able to deliver in a timely fashion. We're pretty proactive when we put these assets into our land bank. And start entitlement work almost right away if not right away. So we'll be able to come out of the ground if we're not already out of ground pretty much at any time we need to this year.
Dave Rodgers -- Baird -- Analyst
That's helpful. Thank you. And then maybe last one just for Dean. Given the equity forward that you've done, I think last year maybe how do you view your experience of that? And whether that's on the table again this year as well?
Dean A. Shigenaga -- Chief Financial Officer & Treasurer
Dave, its Dean here. Every year we look at our capital line carefully. Each year is slightly different and the needs. And it's interesting it's only April. Well, it's almost May. It's a day from May and we've knocked down a good chunk of our capital needs which we're very pleased with.
The bond deal is very successful the JV sale 75/125 Binney Street was an outstanding transaction. And so over -- as we go through and look forward Dave we'll provide more color. We never really get into the weeds on timing and structure.
I think it's safe to say that we'll remain disciplined in our approach and we want to be prudent and disciplined in how we go about raising capital. Eventually we'll be able to lock-in great returns on the cost to capital here whenever we get to the race.
And then it will allow us to move on to whatever else remains open on sources and uses of that point probably. We talked about our dispositions but we're working on that as well. So, surely in the year but we're firing up on all cylinders right now.
Joel S. Marcus -- Executive Chairman & Founder
Yes. The big focus at the moment is on the two additional dispositions that Dean spoke about so that's kind of where our focus is.
Dave Rodgers -- Baird -- Analyst
All right. Great. Thank you all.
Joel S. Marcus -- Executive Chairman & Founder
Thank you.
Operator
And ladies and gentlemen at this time we'll conclude today's question-and-answer session. I would like to turn the conference call back over to Mr. Marcus for any closing remarks.
Joel S. Marcus -- Executive Chairman & Founder
Okay. Thank you very much. I appreciated and look forward to talking to on the second quarter.
Operator
Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.
Duration: 59 minutes
Call participants:
Paula Schwartz -- Investor Relations
Joel S. Marcus -- Executive Chairman & Founder
Stephen Richardson -- Chief Executive Officer
Peter Moglia -- Chief Financial Officer & Chief Investment Officer
Dean A. Shigenaga -- Chief Financial Officer & Treasurer
Emmanuel Korchman -- Citigroup -- Analyst
James Feldman -- Bank of America Merrill Lynch -- Analyst
Sheila McGrath -- Evercore ISI -- Analyst
Tom Catherwood -- BTIG -- Analyst
Richard Anderson -- SMBC Nikko -- Analyst
Dave Rodgers -- Baird -- Analyst
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