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spk12: Good day and welcome to the Alexandria Real Estate Equity second quarter 2024 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. And to withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn this conference over to Paula Schwartz. Please go ahead.
spk01: Thank you, and good afternoon, everyone. This conference call contains forward-looking statements within the meaning of the federal securities law. The company's actual results might differ materially from those projected in the forward-looking statement. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statement is contained in the company's periodic reports filed with the Securities and Exchange Commission. And now I'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.
spk10: Thank you, Paula, and welcome, everybody. With me today are Hallie, Peter, and Mark, and we welcome you to our second quarter earnings call. And thank you and congratulations to the Alexandria family team for another very solid second quarter operating and financial performance. given the continuing uncertainty of the backdrop as soaring U.S. debt and government spending problems continue pretty much unabated. And in thinking about our daily efforts, we all think about the Navy SEAL credo, the only easy day was yesterday. Also huge congrats to our team on the June 2024 release of our Corporate Responsibility Report, which reinforces our longstanding operational excellence across our one-of-a-kind lab space platform, and to the team for securing 100% of the electricity needs with renewable energy for 100% of our Alexandria paid accounts in our greater Boston cluster market, a phenomenal achievement. Thank you, team. In thinking about long-term strategic thinking since the bull market of the life science industry turned in February of 2021. I would say the market moved from a historical long bull run to a bear market in, as I said, February of 21. And we've worked every single day to re-engineer and fine-tune our long-term competitive advantages of this one-of-a-kind leading lab space platform. Our goal is much like it was, but very different, given the facts, of course. after the 2008-2009 great financial crisis and the bear market aftermath to position ourselves to come out of this sector bear market with the acumen and business strategy really to enable our life science industry and tenant growth much as we led the long historical bull market 2014 to 2021 with record-breaking earnings growth for our sector. So in thinking about our competitive advantages and what we choose to really emphasize, I think most importantly, our first mover advantage in the top life science clusters, we continue to refine and refocus our footprint. And you see that by our actions, you know, quarterly. Our high quality assets aggregated in desirable and well amenitized mega campuses We continue this monumental effort really driven to and by our redevelopment and development efforts in each of our massive mega campuses and our attempt to reduce and hopefully successful strategy, our non-mega campus pipeline, future pipeline, and obviously the sale of most of our non-core assets over time. That's going to be critical to our go forward business plan. high-quality cash flows and substantial embedded future net operating income will be even more secure given that platform focus. Our longstanding tenant relationships that demonstrate stellar brand loyalty continue. Lilly is a great example with multiple strategic relationships there. We continue to be backed by our Fortress balance sheet with significant liquidity, unique and deep life science expertise, which is a hallmark of this company from day one. And we're very proud of our long-tenured and highly experienced management team. And as I move from kind of our strategic thinking about what we need to do to be at the vanguard of the next bull market for the life science industry, I want to take a reflection on my take of the second quarter and our future planning. It goes without saying that we had a very solid FFO per share growth in this quarter, this past quarter, second quarter, of course, of 5.3%. and 6.3% for the six months this year, and especially, I think, positive given the backdrop. An astounding 74% of our ARR comes from the mega campuses, and we hope to push that over 90% in a short handful of years as our major moat, as the major moat of our business. 53% of our ARR is from investment-grade or big cap companies. The strong quality of cash flows and the 96% of our leases having contractual rental rate increases gives us great future protection. We've maintained stable occupancy with a very solid lease and quarter with solid economics, and we continue to have very solid cash same-store NOI growth. Our EBITDA margins are best in class, and we're also working hard to reduce go-forward CAPEX and GNA. We are anchored by our fortress balance sheet, as I've said, with strong liquidity, and almost one-third of our debt expires after 2049 with an average term of 13 years. Over the next few months, we are laser-focused on leasing the remaining 1 million approximately square foot rolling this year and getting a strong jump on the significant 2025 rollovers. Also, over the next few months, we are laser-focused on our 24 and 25 deliveries, and continue to increase our leasing on those well beyond the current 87% to drive NOI growth. We're making significant progress on our recycling of capital for 2024 and beyond. And finally, the life science industry, which Hallie will comment on in depth here, is the crown jewel in the cherished industry of our country and truly the world's leader in innovation in the discovery of new medicines. It is virtually the only industry which fundamentally enables better health, well-being, and longer and happier lives. We have built this one-of-a-kind company to be at the vanguard of this cherished life science industry as it recovers from the aftermath of the COVID rocket ship. And without further ado, let me turn it over to Hallie.
spk09: Thank you, Joel, and good afternoon, everyone. This is Hallie Kuhn, SVP of Life Science and Capital Markets. Today I'm going to review 2Q24 life science industry performance, demand across our strong and diverse tenant base, and the incredible innovation that is propelling the growth of the life science sector. As I walk through the details, there are two main points I want to underscore. First, the $5 trillion dollar secularly growing life science industry continues to command robust levels of capital from diverse funding sources. And second, that life science innovation is advancing at a historic pace, yielding new medicines that extend and save lives. Starting at the beginning of the life cycle of innovation, biomedical and government institutions, which account for 10% of our ARR, catalyze discoveries that fuel deeper understanding of disease biology and early development of new medicines. In addition to the NIH budget of $49 billion in 2024, $57 billion was contributed to biomedical research last year through philanthropic organizations. While institutions may be the engine for early innovation, private biotech companies, which represent another 10% of our ARR, are the fuel advancing research discoveries into potential new medicines. Private life science venture funding was robust this quarter, exceeding $12 billion. While down from the peak in 2022, This year is on track to be the third highest year in life science venture dollars ever deployed. Next are pre-commercial public biotech companies, representing 9% ARR. Remarkably, follow-on financings and private placements are at historic highs, eclipsing $10 billion in the second quarter, with 2024 financing already exceeding full-year 2023 levels. This activity is juxtaposed against limited IPO volume and the XBI, which is up moderately for the year but lags the broader markets. We caution that the XBI is an imperfect barometer for public biotech. The reality is a picture of have and have-nots. Biotechs that meet clinical milestones have ample access to liquidity and see positive stock performance, while those that lack meaningful inflection points are faced with a challenging market reality. Next are commercial stage biopharma and large multinational pharmaceutical companies, representing 17% and 20% of ARR, respectively. Biopharma continues to commit historic levels of capital to internal R&D and external innovation. 2023 R&D spend neared $300 billion, and the industry set records for M&A. driven by an estimated $200 to $300 billion of revenue at risk in the next five years due to patent expirations. In 2022, this pace has continued, with over $60 billion in M&A announced. On the ground, leasing from this cohort is driven by the need to recruit and retain scientific talent critical to developing new medicines essential to meeting near- and long-term growth targets. This is illustrated by the 127,000-square-foot lease we announced this quarter with a large multinational pharmaceutical company on our SD Tech by Alexandria megacampus in San Diego. Spanning the entire lifecycle of innovation is the life science product, service, and device tenant segment, which represents 21% ARR. Relevant to this segment is the Biosecure Act, which, if passed, will limit utilization of select Chinese contract manufacturing and research organizations. We view this legislation as largely positive. It includes grandfathering provisions to minimize near-term impact to biotech companies while creating an incentive for U.S.-based contract manufacturing and research organizations to onshore capabilities. The output of the entire innovation cycle are novel medicines that make it into the hands of patients. Through June, the FDA approved 21 novel small molecule and biologic therapies, and separately approved five novel gene and cell therapies. Of approximately 500 novel FDA therapies approved since 2013, 50% were developed by Alexandria tenants. Highlighting one recent approval, This month, the FDA approved Alexandria tenant Eli Lilly's novel antibody for treatment of early Alzheimer's disease. As many listening today have experienced firsthand, Alzheimer's is devastating, affecting one out of every nine individuals over 65 in the U.S. While recently approved Alzheimer's medicines can slow disease, they are still not a cure, and there remains much work to be done. In the same way that 10 years ago, obesity was considered too complex to treat with medicines, and now has been transformed by GLP-1 therapies developed by Alexandria Tenants, Eli Lilly, and Novo Nordisk. Ten years in the future, we may have medicines that completely alter the paradigm of diseases such as Alzheimer's, rendering them treatable or even preventable conditions. Coming full circle, the life science industry continues to demonstrate sustained strength, energized by this incredible pace of innovation and reinforced by diverse sources of funding. As the trusted partner to the world's leading life science companies that span the entire life cycle of innovation, our mission remains steadfast to create and grow life science ecosystems and clusters that ignite and accelerate the world's leading innovators in their noble pursuit to advance human health and cure disease. With that, I will pass it over to Peter.
spk04: Thank you, Hallie. Respected economists, recently made the case that pent-up demand from the pandemic has continued to be a key source of inflation, which is one of the reasons the raising of short-term rates has been ineffective, and that sectors of the economy with pent-up demand will continue powering the economy going forward in 2024, regardless of rates or who wins the election. Healthcare was one of the sectors mentioned. Patients returning to doctors' offices and hospitals, are releasing pent-up demand for therapies and medicines, which should send a strong signal to the industry to grow. We look forward to enabling that growth. I'm going to discuss our development pipeline, leasing, supply, and asset sales, and then hand it over to Mark. In the second quarter, we delivered 284,982 square feet, 100% leased, with 92% of the space contained in megacampuses located in our high barrier-to-entry submarkets. The annual incremental NOI delivered during the quarter equaled $16 million bringing the year-to-date total to $42 million. Development and redevelopment leasing of approximately 341,000 square feet was more than three times the volume of last quarter led by strong credit tenant leasing. The ability to execute on our development and redevelopment pipeline when others are clearly struggling is mainly attributed to our strong brand built on operational excellence and the attractiveness of our Make a Campus platform, which houses 69% and beyond our 40% lease or under negotiation because of our continuing strong execution during the quarter. Our development and redevelopment pipeline is expected to deliver very significant incremental NOI of approximately $480 million in the near to medium term. $187 million of this NOI is expected to be delivered through the fourth quarter of 25, and the remaining $293 million will be delivered from the first quarter of 26 through the first quarter of 28. To execute on this, we will only need to average approximately 61% of the leasing per quarter through the first quarter of 28 and we executed this quarter. Transitioning to leasing and supply. The leasing market is in a flight to quality. Failed projects are often in tertiary markets and operated by inexperienced entities with little to no know-how or capital to fund tenant improvements. The majority of fully vacant buildings in our markets are recently delivered buildings from these entities who majorly underestimated the skill sets needed to be successful in life science real estate and picked sites as if they were investing in office. High-quality locations in the core areas of innovation and high-quality sponsorship matters. Many of these new entrants are learning that the hard way. Alexandria sets the standard for sponsorship in life science real estate and our consistent occupancy, tenant retention, and strong tenant relationships, which accounted for 83% of our leasing during the quarter. Our reflections of that moat we have created with our high-quality mega-campus model residing in AAA locations, our operational excellence, and our fortress balance sheet. Although the search rings of the tenant bases have expanded with the delivery of new supply, the strike rings have tightened as quality tenants leery of inexperienced and undercapitalized developers choose the trusted brand. We leased 1,114,001 square feet during the second quarter, highlighted by the strong leasing in the development and redevelopment pipeline I noted earlier. Gap in cash rental rate increases were 7.4% and 3.7%, respectively. Over 90% of our renewals were either neutral or had a positive mark to market. On competitive supply, 2024 is going to be the peak year for new deliveries, and then it will begin to dissipate in 2025 to about half of what we'll deliver in 2024. we are likely to see little to no new deliveries from pretenders after 2025, unless projects currently under construction are delayed. I'll conclude with an update on our value harvesting asset recycling program. As mentioned on the last call, our value harvesting transactions will be heavily weighted towards the third and fourth quarters, but significant progress continues to be made. During the quarter, we closed on the $60 million non-income producing asset in New York and increased our pending transactions subject to letters of intent or purchase and sale agreement negotiations by approximately $549 million to a total of $806.7 million. This combined with our $77.2 million in closed sales and $27 million of forward equity sales agreements expected to be settled in 2024, brings our pending and closed transactions to $884 million, approximately 59% of the midpoint of guidance for dispositions, partial interest sales, and equity. Interest in our non-core asset sales remains consistent, and we believe the anticipated rate cuts and thawing of the financial markets will bring more buyers and have a positive effect on values. The lack of financing available to investors has been the driver of the widely reported lack of capital markets activity in the broad market. Capital flows have a major impact on valuations and commercial real estate debt has trended downward as a percentage of GDP for the last two years prior to the first quarter of 24. However, this appears to be reversing as new CMBS issuance for the first half of 2024 is up nearly threefold from the same period last year. which should provide positive momentum for our current and future efforts. With that, I'll pass it over to Mark.
spk17: Thank you, Peter. This is Mark Binda, CFO. Hello and good afternoon, everyone. We reported solid operating and financial results for the second quarter. Total revenues in NOI for 2Q24 were up 7.4% and 9.4%, respectively, over 2Q23 years. primarily driven by solid same property performance and continued execution of our development and redevelopment strategy. FFO per share diluted as adjusted for the quarter was $2.36, up 5.4% over 2Q23, and was ahead of consensus. We reiterated the midpoint of our full year 2024 guidance for FFO per share diluted as adjusted of $9.47, which is up 5.6% over the prior year, The key assumptions to FFO as adjusted generally remain within our prior guidance ranges, and so they remain unchanged, with the one exception being the change to our sources and uses for the tech square ground lease amendment, which I'll get to later. I'll start with internal growth. Our solid operating results for the quarter were driven by our disciplined execution of our mega-campus strategy, tremendous scale, long-standing tenant relationships, and operational excellence by our team. 74% of our annual rental revenue comes from our collaborative mega campuses. We have high quality cash flows with 53% of our annual rental revenue from investment grade and publicly traded large cap tenants. Collections remain very high at 99.9% and adjusted EBITDA margins continue to be strong at 72% for the quarter. Turning to leasing, Leasing volume was strong for the quarter in the first half of 2024 at 1.1 million and 2.3 million square feet respectively. The second quarter is up 27% over the average of the back half of 2023 and is consistent with our historical quarterly average for the period from 2013 to 2020. We continue to benefit from our tremendous scale, high quality tenant roster and brand loyalty with 79% of our leasing activity over the last 12 months coming from our existing deep well of approximately 800 tenant relationships, including the 127,000 square foot development lease that was executed this quarter with a multinational pharma company at our mega campus development in Serrano Mesa. The rental rate increases for the first half of 24 were strong at 26.2% and 15% on a cash basis. And our outlook for rental rate growth for the full year 24 remains solid at 11% to 19% and 5% to 13% on a cash basis. Rental rate growth for lease renewals and releasing of space for the quarter was 7.4% and 3.7% on a cash basis. As we've noted in the past, the rental rate increases can vary from quarter to quarter based upon a particular mix of lease expirations. Lease terms on new leases completed in the first half of 2024 were 7.7 years, which is consistent with five out of the last 10 years, which had lease terms in the seven to eight year range. The overall mark to market for cash rental rates related to in-place leases for our entire asset base remains solid at 12%. TIs on renewals and releasing of space for the quarter of $31.83 were consistent with our historical per square foot average since 2020 of $31.07. And the year-to-date amount is significantly below our historical average at $25.32. Our total non-revenue enhancing expenditures, including TI's on renewals and releasing of space, are expected to be in the 12 to 13% range as a percentage of net operating income in 2024. which is below our five-year average of about 15% and highlights the durable nature of our laboratory infrastructure. Same property NOI growth for 2Q24 was solid at 1.5% and 3.9% on a cash basis, driven by solid rental rate growth and leasing volume. Our outlook for full-year same property growth is consistent with our last update at 1.5% and 4% on a cash basis at the midpoints. Occupancy for the quarter was solid at 94.6%, which is consistent with the prior two quarters. Turning to lease expirations, our team has done a great job of addressing 2024 leasing expirations. Unresolved lease expirations remaining for the balance of 2024 are pretty modest of 637,192 square feet. to result, excluding the 350,000 square foot lease expiration related to the New York asset we disposed of in July. Looking ahead to the first quarter of 2025, we highlighted a few key lease expirations aggregating 600,000 square feet with 37 million of annual rental revenue that are expected to have 12 to 24 months of downtime on a weighted average basis, with more than half of that coming from a lease expiration with Moderna at Tech Square. which, as a reminder, recently expanded into 462,000 square feet at the recently completed 325 binning project. These spaces may require some time to release and or reposition the assets and are likely to remain as operating assets. Please refer to footnote number 5 on page 23 of our supplemental package for additional details there. Turning next to external growth, During the quarter, we continue to execute on our development and redevelopment strategy by delivering 284,982 square feet from the pipeline, which will generate $16 million of incremental annual net operating income. We also expect to see significant future growth in incremental annual net operating income on a cash basis of $80 million from executed leases as the initial free rent from recent deliveries burns off over the next seven months on a weighted average basis. As a reminder, this $80 million is for previously delivered projects and is not part of the projected go-forward $480 million of net operating income associated with current projects. We have $5.4 million of rentable square feet of development and redevelopment projects that are 61% leased or negotiating, and those projects are expected to generate $480 million of incremental annual net operating income over the next four years, including $187 million over the next six quarters. In July, we completed an extension of our ground lease at Alexandria Technology Square. This will require a prepayment of rent of two $135 million amounts, 4Q24 and 1Q25, and will be amortized into non-recoverable ground rent expense starting in 3Q24 through 2088 on a straight-line basis. We increased our guidance range for dispositions, sales, partial interest, and common equity to reflect the funding for the first ground lease payment due in 4Q24. A few key items to note. First, we view this asset, TechSquare, as a generational asset located adjacent to MIT and Cambridge at the center of Maine and Maine with several important relationships located on the campus. Second, since we acquired this mega campus in 2006, NOI has nearly quadrupled over our ownership period. And third, Even with the expected prepayment of rent, we believe this adjusts to a very attractive annual ground rent cost relative to market over the next 65 years. And ultimately, we believe that this extension enhances the long-term value of the campus. For all these reasons, we are very pleased with the outcome. I'll turn next to cap interest. We continue to focus on the completion of committed and or under construction projects, which are expected to generate 480 million of incremental NOI through 1Q28, as well as important pre-construction activities adding value and focused on reducing the time from lease execution to delivery. Capitalized interest has declined three quarters in a row, primarily due to the delivery of projects from the pipeline, which generated 187 million of incremental annual net operating income over that time. and a decline in average real estate basis subject to capitalization of $1.9 billion from a peak in 3Q23 to 2Q24. Our outlook for capitalized interest for 2024 is consistent with our previous guidance and continues to assume around a 10% decline in average basis subject to capitalization for the full year 2024 compared to 2023. Transitioning next to the balance sheet, we continue to have one of the strongest balance sheets amongst all publicly traded U.S. opportunities to continue enhancing our fortress balance sheet. Our corporate credit ratings are in the top 10% of all publicly traded U.S. REITs. Our leverage continues to remain low at 5.4 times for net debt to adjusted EBITDA on a quarterly annualized basis. And we have an attractive debt profile with fixed rate debt comprising 97.3% of our total debt and a weighted average remaining term of debt of 13 years. We also have tremendous liquidity of $5.6 billion supported by our $5 billion revolving credit facility. And we're very pleased with the recent agreement to extend our credit facility through January 2030. And we thank our fantastic banking relationships for the tremendous support to help us continue our mission. We remain disciplined with our strategy for long-term funding of our business and recycling capital from dispositions and partial interest sales to minimize the issuance of common stock. Our disposition strategy is heavily weighted towards outright dispositions of assets not integral to our mega campus strategy, allowing us to enhance the quality of our asset base. We may also consider reducing the size of our feature pipeline through asset recycling into the current pipeline and into our mega campuses. July 24, we completed the sale of a vacant non-laboratory building located in Manhattan for $60 million. This building was designated as held for sale in 4Q23 and was sold following the lease expiration for the full building in July of 24. The aggregate total of completed and pending dispositions under negotiation plus a small amount of equity we raised on the ATM aggregates 912 million or 59% of the midpoint of our guidance of 1.55 billion. While the macro environment remains challenging, We are reasonably optimistic that we can execute on our disposition plan in 2024 at values representing a reasonable cost of capital. Based upon our outlook as of today, we plan to pause on future issuances under the ATM program at least for the next quarter. We also expect to fund a meaningful amount of our equities with retained cash flows from operating activities after dividends of $450 million at the midpoint of our guidance for 2024. Our high-quality cash flows continue to support the growth in our annual common stock dividends, with an average annual increase in dividends per share of 5% since 2020, and we continue to have a conservative FFO payout ratio of 55% for 2Q24. Realized gains from venture investments included in FFO per share as adjusted were $33.4 million in the quarter and $62.2 million for the six months ended June. On an annualized basis based upon the first six months of 24, that would take realized gains towards the high end of our guidance range for the full year of 95 to 125 million. Gross unrealized gains in our venture investments as of 2Q24 were 284 million on a cost basis of 1.2 billion. We've updated our guidance for 2024 for EPS of $2.98 to $3.10, and we maintained our guidance range for FFO per share diluted as adjusted with no change to the midpoint of $9.47, which represents a solid 5.6% growth in FO per share for 2024. With that, let me turn it back to Joel.
spk10: Thank you, Mark. And operator, we'll go to questions, please.
spk12: Yes, sir. And as a reminder, if you'd like to ask a question, please press star then one on your telephone keypad. To remove yourself from queue, please press star then two. Today's first question comes from Joshua Dennerwein, the Bank of America. Please go ahead.
spk08: Hi, this is Farrell Granath on behalf of Josh. I quickly wanted to ask about, as you were mentioning, the Alexandria Technology Square Mega Campus, kind of that repositioning going from multi-tenant or going to multi-tenancy from single tenancy. I was wondering if you could discuss the driver of this change and if you're seeing any shift in the demand of the market for single tenants.
spk10: Well, I think there's no fundamental change. As I think Mark mentioned, Moderna has essentially or is moving out of that space in TechSquare 200 and moving to their new R&D and HQ headquarters at 325 Binney. So they leave behind laboratory assets in that space. or spaces, and our plan is to release those generally as a multi-tenant situation. So it's not really any change. We clearly knew for a long period of time that Moderna was leaving, and this is just part of their growth and something we've done time and time again. Just remember, Alexandria Technology Square sits right across the street from MIT's main science campus. you know, you've got the best location in the world when it comes to laboratory space.
spk08: Great. Thank you. And also, I noticed in between the 1Q, 2Q letters of intent and pending along with closed acquisitions that there was a slight kind of, I don't know, dropping off of the LOIs. So, any of you comment on that either if things are are coming out of the pipeline due to different circumstances, pricing, negotiations.
spk10: Peter, do you want to comment on that?
spk17: Yeah, I mean, go ahead.
spk10: Or Mark.
spk17: Oh, yeah, I was just going to say, yeah, I think what you're referring to is the lease percentage on the development pipeline. It wasn't that leases were leased and then, you know, weren't leased. What happened there was we actually added a little bit more square feet into one of the assets at 311 Arsenal. That was a project that has been coming back to us in phases, and so the project just got larger this quarter, and as a result, the lease percentage went down. So I don't know that there was any type of surprise there.
spk08: I think what I was referring to was on the acquisition page within the supplemental section, the pending acquisition signed letters of intent. I guess just when adding them together and taking out what was completed in 2Q24, I think there's a slight difference, just quarter over quarter. Is that what you're referring to for the purchase price for, I think, what is this, page five of the supplemental?
spk17: Yeah, no, I don't think there's – yeah, look, if you look at last quarter, the pending items that we were looking at, I think that number's come down a little bit. But I think that number came down by a pretty small amount, if I recall correctly. So I don't know that there's anything shocking or surprising from our end. I think we're focused on, you know, conserving capital and putting our capital into the active pipeline and focused on dispositions at the moment.
spk08: Okay, thank you. I appreciate it.
spk12: Thank you. And our next question comes from Anthony Paoloni with JP Morgan. Please go ahead.
spk14: Yeah, thank you. Can you talk a bit about just cap rates on the pending $806 million of sales or stake sales and just maybe even more broadly any updates across your markets as it relates to property values or cap rates?
spk04: Yeah, Tony, sure. Yeah, look, the things that will have cap rates to publish, I think you'll find to be in line with our commentary of, you know, good quality assets are still in demand. You know, I don't want to spoil any – any thunder for next quarter, but we do have a couple things that are going that are pretty good. Non-core assets, though, can certainly not necessarily be representative of our prime assets that we plan on holding in perpetuity. But, you know, cap rates are a tough thing to figure out these days, what people's returns, what they're looking for. largely depends on their cost of capital, which has been, you know, varied throughout, you know, the last few quarters. But I'm going to go ahead and wait until I think next quarter we'll have something to publish and you'll see the numbers.
spk14: Okay. And then just, you mentioned a couple of times in the prepared remarks about just the increased, you know, leaning into the mega campus strategy and and even shedding more non-core, is there like a percentage of the portfolio you'd characterize as kind of not fitting the long-term strategy at this point that you could provide?
spk10: Well, I think if you look at, you know, the percentage of ARR coming from the mega campuses and that's not, you have a series of assets. Remember, this company was built over decades on individual acquisitions and then individual redevelopments and developments. And then the first mega campus that we bought was Tech Square, in fact, in 2006. And that really kind of launched that strategy, followed by Campus Point in 2010, and then the New York campus, which was our first mega development campus. So I think you just have to think of it in terms, these are still really very, very good assets, and we've moved in many cases and shed many of our workhorse assets in the suburbs, and we still have quite a number of standalone assets, not really in the outer suburbs that we've transacted over the last handful of years, and I think we're looking at that. I'm not sure it's easy to give you exact percentages, but as I said, our main goal is to move our mega campus annual rental revenue into the high 80s or low 90s over the next short handful of years, Tony, if that's helpful. Okay, great.
spk14: Thank you.
spk12: Thank you. And our next question comes from Michael Griffin at Citi. Please go ahead.
spk07: Great, thanks. My first question was just on the leasing environment. I noticed for the renewals there was a decline in weighted average lease term relative to last quarter. Can you maybe give some insights? Was it specific to the renewals that were coming up? Is it more indicative of tenants maybe being unsure of their footprint? I realize that one quarter doesn't make a trend, but any commentary around that would be helpful.
spk10: Yeah, so I'll ask Peter to comment from his perspective, but I think if you think about Again, you said it, individual leases that, you know, come up quarter to quarter certainly drive those stats. I think it's fair to say, and Hallie's commented on this on a number of occasions, we're seeing more demand from, you know, the earlier stage companies and the, you know, revenue generating companies. It's the in-between the biotechs that are in the clinic waiting for clinical milestone achievement that, you know, I think has caused some of the disruption in the normal, you know, leasing, you know, leasing transactions that have gone on. And I think this quarter there was just more at the earlier stage. And those people can't commit to 10 or 15 year leases because they're likely to grow. And that's the reason to have them on a mega campus because we can provide them, you know, 5,000, 10, 20, 30, whatever they want. and we can double and triple their footprint on a mega campus, whereas in an individual building, oftentimes, you can't really do that.
spk04: Yeah, hey, Michael, it's Peter. Yeah, Michael, it's Peter. You know, great observation. It's one of the first things that I noticed when I started looking at the numbers, and Joel is absolutely spot on. It's serendipitous. We had just a... a large portion of the leasing was for early stage companies. And as Joel mentioned, those companies tend to sign shorter term leases because, uh, they expect to be much bigger in the future. And Joel's exactly right. It's one of the reasons that we adopted a mega campus strategy because we have these types of tenants that will grow within the mega campus. um, but yeah, no trend other than, um, just serendipity.
spk07: Peter, do those smaller tenants, I guess, require the larger TI packages? I noticed that free rent was stable quarter over quarter, but it seemed like TI's and LC's went up. So, you know, was that just a one-off maybe driven by one lease or what was driving that?
spk04: Yeah. Well, Mark mentioned in his comments that although it was higher than maybe the last couple handful of quarters, That TILC number was about our average since 2020. These are renewals, so the numbers will vary from quarter to quarter based on the work that needs to be done on the suite. You know, Mark mentioned in his comments the recycling, the durability of our spaces. We don't have to put a lot of CapEx to continue the lease and continue to, you know, leverage off previous investment. But, you know, in certain cases, you have a tenant that might need to do some reconfiguration or you might have a lease that's in a space that's, you know, 15 years old or so, so you've got to put more money into it. So, Again, it's not a trend. It's not a market trend like it would be. We've talked about things from Shell. The TIs have gone up considerably because tenants don't want to invest in the space like they used to have to. But in the case of renewals, it's just lease by lease. What does the space look like? What does the tenant need? But it's still, if you consider the inflation that has happened in construction costs, $30 is still not a lot of money to be averaging on renewals.
spk07: And then maybe just one more, if I could, on the development pipeline. I noticed that the 651 gateway project was pushed to 26. Is this just a function of maybe more tepid demand and South San Francisco and, you know, at what point would you have to stop capitalizing costs on this project and start, you know, having it flow into the income statement?
spk10: Yeah, that's exactly correct. Of all the markets, the submarkets, South San Francisco certainly, as we've highlighted, and Peter has talked about that for quite a number of quarters, has, you know, one of the most outsized supply issues. Remember, too, this is an old building. that we inherited in a joint venture. So the time and effort to get this redeveloped is just what it is. The good news is we have several transactions going on that weren't alive last quarter. So I think that's good news. Mark can comment on the termination of capitalization.
spk17: Yeah, hi, Michael. Yeah, there's not a magic number there in terms of, you know, when it would turn off. You know, there's continuing activities today on, you know, doing work on those floors that remain to be leased and delivered. But, yeah, if there was a situation where, you know, those activities ceased, where the demand just couldn't catch up, you know, with the supply there, then, you know, we would – you know, we would have to shut down those portions of the project that no longer have activity. So we'll continue to watch that very carefully.
spk07: Great. That's it for me. Thanks for the time. Thank you.
spk12: Thank you. And our next question today comes from Rich Anderson at Woodbush. Please go ahead.
spk02: Thanks. Good morning out there, or good afternoon, excuse me. So on the leasing front, you know, you had the mix issue this past quarter, but if you sort of look at what you did in the first half and compare that to what you're guiding to, which didn't change, that would imply like a gap number of eight average, 8% up in the second half and a cash average of about five. Is that about, is that right? Am I thinking about that correctly? If I just do a, some product of, of the, of the math or, or am I missing something?
spk17: Yeah, I can take that one. Hi, Rich. Yeah, it's not a perfect analysis, right, because volume can vary from quarter to quarter, particularly in that release and renewal bucket, right? That's only a fraction of the total leasing, so it's not a perfect analysis. But yeah, I mean, I think you're right that the first half of the year was very strong. It the numbers are actually above the high end of our midpoint. But, you know, we feel comfortable with our guidance we've got out there, which we still think is very strong in this environment, and that it does imply, you know, on average, slightly lower numbers than the first half. But I think we're still very pleased with where we expect to come out for the year.
spk02: Okay. And, Peter, I'm going to see if I can ask a cap rate question at a different angle. See if you shut me down as well. But do you have a differential between core and non-core assets in terms of cap rates? Is there a spread that you guys think about in terms of what you think is a long-term hold and what's not?
spk04: Yeah, I mean, I think about it in the way of long-term holds are going to be mega campuses in the prime core locations. And you've seen us put up really strong numbers there. And then, you know, we've got some good assets. We own them because they were good assets, but they're not mega campuses. They're typically not within the core mark, you know, core centers of innovation. But they were areas that supported research for differing reasons and, you know, might be 100, to 200 basis points spread between something prime and something not so prime.
spk02: Okay, great. Last question. You know, you're funding a lot of your development or most of it with dispositions. And I'm curious if you think, you know, by doing so, you know, you, I guess, expose yourself to impairments in this market. Do you kind of view this in some ways as a cleansing event? And I suppose you do, like you wouldn't necessarily be using dispositions if your stock was at $200 a share, but you are. Is that the silver lining to this long term, in your opinion, or is that not the way to look at it?
spk10: Yeah, well, I'll comment and then Peter can. I think the answer is yes, in the sense that we feel that the You know, the industry has been on a tear for, as I said, the 2014 to 2021, and then the rocket ship, and then kind of the drop-off from that. And it's pretty clear that in today's fairly, you know, way more disciplined allocation of capital from the life science industry, more and more it's clear to us, it's been clear for a long time, but even more so today, that the best prospects for leasing and either keeping a tenant or attracting a new tenant is to give them great optionality on a mega campus, great amenities, and that's where we want to refocus or double down our efforts. And we've gone a long way to bring that to reality, but we think that's where we want to be out a period of time. where we have fewer and fewer non-core assets because I think they don't give us the optionality to attract or grow with tenants the way we want to grow, not that the buildings aren't leaseable because some of them are absolutely great buildings and have great tenants.
spk04: Yeah, I think it is a bit of a silver lining, but I would say that it would have happened anyway because of our observation that the mega campus model was where we needed to be headed. So ultimately those assets, maybe it was, it would have been at a slower pace, but we would have been selling on those non-core non mega campus assets over time anyway.
spk10: Yeah. And we really have done that. If you look at greater Boston, I mean, we didn't have the money to get into Cambridge or even Waltham in the early days. So we started out in Worcester. And so the evolution of how we've looked at each of the sub-markets is we've gone from kind of outer burbs to kind of the inner core just as the company has grown. And now we just want to refine and, you know, hone that strategy. And, you know, we feel like we started that back as early as 2006, and now we're, you know, doubling down on it.
spk02: Okay. Great call. Thanks. Thanks, folks.
spk12: Thank you. And our next question today comes from Wes Galladay with Baird. Please go ahead.
spk06: Hi, everyone. Just looking at the dispositions, it looks like you have about 10 million square feet of non-Mega Campus development potential. How much of that would you like to, I guess, be part of your disposition program?
spk10: Yeah, I'm not sure we... Yeah, go ahead, Peter.
spk04: Yeah, look... I think Joel mentioned it earlier that, you know, our development pipeline, you know, may shrink in the future. And, you know, something that's non-income producing like land is very creative to sell and to use to fund, you know, our current pipeline and our future in-place pipeline. So, of course, we would like to, if we, You know, in certain areas, if we have land that we can market and sell, we will. So it will certainly be part of our strategy.
spk06: And then looking at the ground lease purchase, you did mention it was a generational asset. You did have a lot of term on it already before you extended it. Is there any other ground leases you're looking to extend actively at the moment?
spk04: Well, one thing I'd point out, I think, Mark, you absolutely can answer this, but one thing I want to point out is I think it was a really astute move for us to do that today because this was a situation where we had more leverage today than we would have in better times. So sometimes you have to make – make moves even if it's a tough environment because long-term, it's going to really set you up well. Mark, if you want to answer the other part of the question.
spk17: Yeah, sure. Hi, Wes. I was just going to say TechSquare, if you look at the ARR subject to ground lease, was far and away the largest ground lease that we have. It was about a third of the ARR subject to ground leases. The balance of that is spread across, I think, 29 different properties. And then if you think about where the lease terms are, you know, kind of on a pro forma basis once the amendment or now that the amendment's done, it's a little bit north of 60 plus years. So I think we've got a pretty good term in terms of the remainder of our ground leases.
spk06: Great. Thanks for the time, everyone.
spk12: Thank you. And our next question today comes from Michael Carroll at RBC Capital Markets. Please go ahead.
spk05: Peter, I wanted to follow up on Mike's question earlier in the call. I mean, is there a reason why most of the leasing activity is coming from early stage biotech companies? Is that a trend we should expect to continue over the next few quarters? Is that just kind of unique towards the activity this specific quarter?
spk04: Well, look, it is consistent with the way we've characterized demand. by and large across our regions there's been a barbell of early stage companies um being very active in large pharma being very active and you know not as much in the middle due to you know a lack or not necessarily a lack of wanting to grow but lack of confidence to grow so we do expect that the middle will fill in over time especially considering the metrics that hallie started to uh or had presented but um it's not a trend it just happened to be we had a number of earlier stage company leases rolling and it just was a coincidence
spk09: Hi, this is Hallie. I was just going to, you know, reiterate that, you know, certainly we see funding being strong across multiple data points. You know, venture certainly looks great this year. Follow-on financings have been very strong. And we, you know, continue to see demand across the diversity of our tenant portfolio. If you, you know, look at our tenant pie chart broken out by ARR, so we'll certainly, you know, demand may look different from quarter to quarter from any given segment. I don't think there is one specific trend that is driving demand from only one of these tenant segments. The beauty of the life science industry is the diversity of the types of companies we have in our portfolio.
spk05: Okay. And then can you guys provide an update on your supply outlook? I know on prior calls you provided some stats given the scheduled deliveries in 24 and in 2025 as a percentage of inventory in the top three cluster markets. I mean, have those stats changed at all, or can you provide us an update on how you're viewing that?
spk04: Yeah, look, we didn't want to bore you all with the same numbers over and over and over again. I'd say the only real material change was there was a lot of deliveries in San Francisco this past quarter. But it's progressing like we thought. We're in the under 5% of total inventory left to deliver in this year. And then next year, about half of that amount will deliver next year. The amount that is left to deliver in 24 is roughly half of what it was at the beginning of the year. It's progressing like we thought. It's the same amount of space. We don't see a material amount of supply dissipating. We also don't see a material amount of supply being added.
spk05: Okay. And then just last one for me. I know you already talked about the Gateway project, but I know you had two developments that were 100% leased at Winter Street and Harriet Tubman Way that got pushed out. It looks like roughly a quarter or so. Is that just delays in the construction, or is there any reasons why those stabilizations were pushed out a few quarters?
spk17: Yeah, I can take that one, Michael. Yeah, I mean, you're right. The project at 230, Harriet Tubman was pushed out, I think, a quarter. That project's, you know, 100% leased. Same with 840 Winter. Actually, it's a similar story on both of them, that they're 100% leased and that the tenant programming just, you know, ends up, you know, making the construction a little bit longer. So that just happens sometimes.
spk07: Okay, great. Thank you.
spk12: Thank you. And our next question comes from Vikram Mahotra with Vizubo. Please go ahead.
spk15: Thanks for taking the questions. I guess, Joel, maybe a bigger picture, you laid out a pretty compelling longer-term scenario for life sciences in the portfolio. I just want you to, if you could help us marry that with the near-term. It sounded like there's still some challenges, but also we're inflecting from a supply-delivery standpoint. So this help us? Like, what should we be watching for near-term inflection? Sounded like a little more tap in near-term than the long-term.
spk10: Yeah, thank you for the question, and I think it's a good one. I think you have to remember that we've seen, you know, the internet bubble crash in 2000, the GFC in, you know, 2008, 2009, and then kind of the blow up of the rocket ship of COVID as it kind of came down to earth. And each one is kind of different. I think this time, you know, we don't have financial institution problems. We don't have lots of companies that had kind of fake business plans failing like back in 2000, not so much biotech, but certainly in the dot-com bubble era. I think this time we've never seen supply in our particular niche. You know, supply has always been there, but it's never been oversupplied in a sense. And so when you combine that oversupply with more muted demand coming off just, you know, rocket ship demand of 2021, I mean, our leasing quadrupled during some of those quarters and years, which you just know can't be sustained. I think that's the overarching issue. The industry, and Hallie did a great job of articulating the segments, is mission critical. It's the crown jewel of this country. It's critical to the health of our citizenry and beyond. I think that in the funding factors and diversity is very, very strong. You know, how that translates into is the big question everybody wants answered, but there's no algorithm to do it. How that translates into a more consistent and robust demand. And I think that's what we're all, you know, kind of working through. And every cycle is just different. And so, you know, we're very optimistic about the future. Obviously, we wouldn't be in this business if we weren't. but we know that we have to make adjustments to our assets, our capital plan, and make sure that we're best positioning the company to help our 800 tenants grow and attract a whole lot more. And we think by selling more of the non-core assets, slimming down the future pipeline a bit, And doubling down on the mega campus is the right strategy till the market really turns. And I think whether the election, whether it's the executive branch or each of the houses helps reinforce a more robust economic environment, it's hard to say. As I said in my prepared remarks, debt service and the overall health of the economy given you know, debt to GDP and so forth. A lot of really smart people have, you know, pined on that issue. And, you know, we want to make sure that if there's a bigger shock out there to the system, we're extremely well protected. So sorry for the long answer.
spk15: No, that's helpful. And just maybe one more, I guess, maybe Mark, you can, or Peter. You know, you've done a bunch of repositionings or at least put properties into repositioning. I'm just trying to understand like bigger picture what the opportunity set is or how to split it between like this was office, we always intended it to reposition to lab versus, hey, we got to just redevelop. So like, for example, the Apple repositioning where Apple was, correct me if I'm wrong, I thought that was going to be a renewal originally. But now you're repositioning it. So I'm just trying to think about the opportunity set down the road and what the impact of numbers is.
spk17: Yeah, I can take that one, Vikram. Yeah, so on the Apple one that you mentioned, or really in Austin, we're renewing some of that space. If you look at the lease expiration, some of that's... being negotiated, the balance of that, the spaces we're getting back, our warehouse and R&D spaces. So those are, you know, that space we're marketing, we've got folks looking at that. It's possible that, you know, some of those, one or two of those buildings gets converted, but we'll have to stay tuned. When you talk about repositioning, that's more in the lines of what I think Joel or Peter talked about earlier for the TechSquare 200, where it's an existing laboratory building, but it's been single-tenant for a while, and it's an opportunity to be able to market that space to multi-tenant. So that's in terms of when we talk about repositioning, we're thinking of that as in the quote-unquote bad CapEx bucket. But again, if you look back over a long period of time, the amount of CapEx has been relatively small.
spk10: Yeah, and just maybe a footnote on that. So Apple is in the process of negotiating a renewal on the majority of the buildings, but they're giving back two of the buildings, which... mark highlighted i think the good news is one is um you know i think uh eminently releasable as r d uh and the other is warehouse which we do have a client who's actually very interested in that and you know based on what we've seen in the market there also could be some demand for uh data center activity there so we're not you know necessarily we had in our Forward model we had assumed this scenario that we would get back Two buildings that weren't adjacent to their campus where their other Buildings are and that they would take those forward and that's exactly how it played out.
spk12: So Thanks so much Thank you and our next question comes from Jim Timmer with apricor just go ahead and
spk13: Thank you. Apologies for a bit of a pedestrian math question, but you speak to 341,000 square feet or so of leasing activity in the development and redevelopment pipeline. But help me, where am I missing? If I go to page 37 of the supplemental and I kind of reconcile, you know, the net change in lease square footage percentages from the prior quarter to the second quarter, I'm coming up a little shy of 340,000. So I'm just trying to, where am I missing or where else should I look? Thank you.
spk17: Hey, Jim. This is Mark. Yeah, you're right. There was actually one project that was already leased where the tenant actually came back to us to actually add on additional term. That project has not been finished yet. It hasn't been completed yet. So a bit of a conundrum where you put that, but given that that project hasn't delivered, it's in the development pipeline. That's a project in San Diego, and we were happy to see that happen because we got an extra term out of it. So that's the reason for that. That doesn't happen very often.
spk13: I see. So it was basically almost a giveback, but then they came back with a longer requirement, so we just can't see that. It must be in the order of 100,000 square feet plus. Does that sound right?
spk17: That's right.
spk13: Okay. Thank you.
spk12: Thank you. And our next question comes from Peter Abramowitz with Jefferies. Please go ahead.
spk03: Thank you. Yes, most of my questions have been answered, but just one other on the mix in leasing this quarter. Could you just comment on the leasing spreads? Was there anything kind of Notable that stood out that dragged them down a little bit this quarter. I know you talked about how it can be lumpy, but just wondering if there's anything to call out there.
spk10: Yeah, the answer is no. And, you know, the mix of the different segments, whether it be product and device, multinational pharma, private biotech, all were actually pretty strong and, you know, A mixture of those. Public biotech was probably among the lowest. That's just how it works, given what we've said about the barbell. But nothing, don't read anything into, you know, if you look at first quarter was extremely strong. This quarter's, you know, more muted, but still pretty solid. And I think, you know, it kind of just is, you know, kind of down the middle of the fairway as we see it at this, you know, at this juncture.
spk03: Got it. Thanks, Joel. And then one other for me. I think you've talked about, you know, there's been a fair amount of activity and an increase in activity this year, sort of in that small to mid-sized tenant group. I guess as you look out into the market and the funding environment and the macro backdrop, any idea or a sense of what you think it would take for kind of larger, those, you know, 100,000 square foot and up tenants to to start to get more active?
spk10: Yeah, I'll ask Callie to answer, but the one thing that would make a huge difference would be the true opening of the IPO market, which signals that you've got long-term investors, crossover investors, and even earlier stage investors participating. The IPOs that have happened to date are kind of few and far between, and they've traded down on an average, pretty substantially. So that's one thing that would be very recognizable and has been something that has led some of the other bull markets. But, Hallie, you could comment more in depth.
spk09: Yeah, I would say taking a step back, generally those requirements, particularly from the public biotechnology tenants, are very milestone-based. And that is irrespective of the macro environment, whether or not a clinical trial has positive or negative data. It doesn't matter what the interest rates are. So I would say historically, as we look at those types of requirements, it's just really dependent on companies hitting those inflection points. And we certainly have some of those types of requirements in the pipeline as data comes to fruition. You know, and there's been some other examples as well. BackSite's a good example in our San Carlos campus. They've continued to expand off positive data. So, you know, I would, you know, kind of shift the focus more towards, you know, as these companies continue to show that they have value in their pipelines, that is really where the demand is driven from.
spk03: That's helpful. Thank you.
spk12: Thank you. And our next question comes from Dylan Brzezinski with Green Street. Please go ahead.
spk16: Good afternoon, guys. Thanks for taking the question. Just sort of wanting to touch on retention here. I know historically your guys' retention has typically been in call up to 75% to 80% range. But over the last six quarters, that started to trend down. I guess just curious as we sort of look out over the next year or so as the supply pipeline continues to deliver, should we expect that to continue to have an impact on your guys' retention? And I guess just looking at the last six quarters, I mean, is there something else besides supply that is sort of driving that lower retention rate?
spk10: Yeah. So, Mark, do you have the stats on that?
spk17: Yeah. Yeah. Dylan, I think if you're just looking at – renewals as a percentage of expirations, it's really hard to get the full picture. Case in point, you know, you've got, as an example, you've got Moderna and TechSquare that we talked about, right, where a large space that, you know, that they will not be renewing, right, but what's missing is, right, they signed a, you know, 462,000 square foot lease at a new development, so it's difficult just to take the retention rates, you know, right off the face of the leasing page. I mean, the way we look at it when we normalize for those sorts of things, we really haven't seen a drop-off in retention.
spk16: Got it. And so I guess, you know, given the mission-critical nature of life science facilities, it seems like for those tenants, new supply, like simply upgrading your facility may not be worth it given the downtime and the risk associated with moving landlords. Is that fair to say?
spk10: Well, I think it's way more complicated than that. People in this industry don't move for a buck a foot difference. That's just not relevant. And also, the sponsorship of who they lease from is critical because There have been a number over the last year of significant failures of others in this industry where labs have been shut down and major damages happened to the science or the people in the laboratories. So operating with the best of breed in the industry makes a big difference. We don't see anybody that's just going to move to a place for some small difference. That just doesn't happen. And if the tenants are decent, our mega campus strategy is aimed at always having inventory to allow these companies to grow and to retain them. So that's the big issue. Supply isn't really the big issue now. Supply does impact leasing in the sense that when somebody's looking at space, they could cite other locations. But if the locations aren't really you know, dead center comparable, then those comps don't really make a big difference. And people aren't going to pick up and leave for, as I say, you know, a few bucks cheaper rent. It just doesn't happen in this industry.
spk16: That's helpful details. Thanks guys.
spk12: Thank you. And our last question today comes from Omoteo Okusano with Deutsche Bank. Please go ahead.
spk11: Yes, good afternoon, everyone. I just wanted to focus on Boston a little bit. You do have a fair amount of leases that will be expiring in that market in the back half of this year and also in 2025. Try to understand what's happening with market rents in those markets relative to your in-place rents as we kind of try to estimate, guesstimate what mark-to-market could look like on a going-forward basis.
spk10: Yeah, so... Mark, you could comment on overall mark-to-market, and Peter, you could give some observations if you want.
spk17: Sure, yeah. I mean, you know, we talk about the in-place mark-to-market for our entire portfolio being about 12%. We typically don't break that down kind of market by market. But you're right, we do have a fair amount of space that's rolling. The good news is a lot of that's in Cambridge, um, which, you know, that's, that's where you're getting space back. That's a, you know, it's still a place where market rents have done pretty well, but, um, Peter, maybe I'll let you comment specifically if you want on, on market rents there.
spk04: Yeah. Um, you know, we've been looking at a lot of data around where face rates are and, um, you know, Boston is, uh, um, and the rest of our large markets are pretty consistent where rents have come off the peaks of 2021, 2022, but they're still well above the pre-pandemic rates. Of course, you still have more concessions today in the form of TIs for the newly built space, but we're pretty happy considering the supply dynamic that rents are still above the pre-pandemic levels.
spk11: Thank you.
spk12: Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Joel Marcus for any closing remarks.
spk10: Just want to wish everybody a safe and healthy summer, and we'll look forward to talking on our third quarter call. Thank you, everybody.
spk12: Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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