Healthpeak Properties, Inc.

Good morning and welcome to the HealthPeak Properties, Inc. third quarter 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 touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Andrew Johns, Vice President, Corporate Finance and Investor Relations. Please go ahead.

Welcome to HealthBeak's third quarter of 2021 Financial Results Conference Call. Today's conference call will contain certain forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations. A discussion of risk and risk factors is included in our press release and detail in our filings. With the SEC, we do not undertake a duty to update any forward-looking statements. Certain non-GAAP financial measures will be discussed on this call. In an exhibit to the AK we furnished to the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with the IG requirements. The exhibit is also available on our website. Also, last night we published a West Cambridge and South San Francisco transaction update presentation. This presentation can be found in the investor presentation section of our website. I will now turn the call over to our Chief Executive Officer, Tom Herzog.

Thanks, AJ, and good morning, everyone. On the call with me today are Scott Brinker, our President and CIO, and Pete Scott, our CFO. Also on the line and available for the Q&A portion of the call are Tom Clerch, our COO, and Trey McHenry, our Chief Legal Officer and General Counsel. Our Q3 operating and earnings results were favorable. Meanwhile, we have been very active and productive in our transaction, development, and leasing activities. Let me hit the high points. Starting with operations, our life science and MOV businesses, which represent close to 90% of our Q3 NOI, continued to perform above expectations, while our combined CCRC and sovereign wealth fund JV performance was roughly in line with expectations. On the transaction front, we closed our remaining $150 million of rental senior housing sales, bringing total sales since July of 2020 to $4 billion. And we redeployed the entirety of these sales proceeds into our core life science and MOB acquisitions and debt reduction. In life science, we announced a $625 million largely contiguous assemblage of operating and covered land investments in West Cambridge. With this strategic play, we have now captured the majority of the high-quality, developable land in this important sub-market and plan to develop multiple Class A life science properties over the next decade plus. In MOBs, we added three new acquisitions, bringing our year-to-date MOB acquisitions to approximately $780 million, which are primarily on campus. We were also awarded three new developments from HCA two traditional medical office buildings, along with a standalone nursing school that will be fully leased by HCA. As I mentioned last quarter, we expect to continue to focus our MLB growth on full business to leverage our platform, scale, and relationships, hitting accretive singles and doubles. Moving to development. Our life science development program continues to see positive momentum as fundamentals remain strong across our three core markets of San Francisco, Boston, and San Diego. A $1.2 billion active development pipeline is 87% pre-leased, with the remaining un-leased space in active discussions. Given this, yesterday we announced the commencement of our $393 million Vantage Phase I development in South San Francisco. With the scheduled closings of the remaining West Cambridge acquisitions, we will have aggregated 7 million square feet or 10 billion plus of embedded development and densification opportunities across our three businesses and all fully under our ownership and control. One final comment. This quarter, we added to our ESG recognition with the Gresby Green Star designation and inclusion in the FTSE for Goods Sustainability Index, both for the 10th consecutive year. We are proud that ESG has and will continue to be woven into the fabric of our corporate culture. With that, I'll turn it over to Scott.

Okay, thank you, Tom. I'll cover operating results, then discuss acquisitions and development. Starting with life science results, virtually our entire footprint is in the three hotbeds of biotech innovation, Boston, San Francisco, and San Diego. Over the past four decades, these markets have developed an unmatched ecosystem of academics, capital and scientific talent, placing them at the heart of the biotech revolution that's just getting started. We've purposely chosen to concentrate our resources and build a strong position in these markets, which is driving strong performance. Year-to-date, we've signed 2.2 million square feet of leases, which is two times our full-year budget from the beginning of the year. The leasing success was broad-based across all three markets and included new developments, renewals, and expansions. In the third quarter, we signed 406,000 square feet of renewals at a 20% cash mark-to-market. That's in line with the current upside across our entire life science rent roll. So, of course, the mark-to-market will vary from quarter to quarter and year to year. Same-store cash NOI growth for the quarter was 6.8%. bringing year-to-date growth to 7.7%. The results were driven by contractual escalators, leasing activity, and mark-to-market on renewals. Looking forward, we have a leasing pipeline of nearly 600,000 square feet under signed letters of intent, including new developments, renewals, and expansions with existing tenants. Our run rate, annual cash NOI for Life Science now exceeds $500 million, and is in the $600 million range, including development leases that have been signed but not yet commenced. Moving to medical office. Leasing activity continues to outperform our expectations. We had 700,000 square feet of commencements in the quarter. Market-to-market on renewals was 2.3%, and retention was strong at 80% for the trailing 12 months, both in line with historical averages. We're seeing strong demand in Nashville, Seattle, Dallas, and Denver, all markets where you've seen us grow in recent quarters. Thanks to our cash and LI growth, this quarter was 2.9% toward the high end of our historical range, driven by leasing activity, strong collections, and parking income. We're also benefiting from our green investments to reduce carbon footprint and operating costs. Hospital inpatient and outpatient volumes are strong, and hospitals continue to invest in our affiliated properties, benefiting our unique on-campus portfolio. Finishing with CCRCs. Our concentration in Florida is a long-term positive, but made for a more challenging third quarter as the state was hit hard by the Delta variant. This had a temporary impact on occupancy, especially in assisted living and skill. Consistent with the national headlines, labor is a headwind. As a result, same-store cash and OI growth is negative 1.7% for the quarter, excluding CARES Act funding. Independent living represents two-thirds of the total unit count at our campuses, and demand for those units is strong. The number of entry fee sales in 3Q was nearly back to 2019 levels, and entry fee cash receipts in the quarter exceeded historical levels. We have strong pricing power in most of our markets, supported by the housing market. Moving to medical office acquisitions. In September, we acquired two on-campus MOVs in Dallas affiliated with the Baylor Scott & White system for $60 million. This was an off-market acquisition and expands our number one medical office market share in Dallas. In October, we acquired an MOV in Seattle for $43 million. The building expands our footprint on the campus of Swedish Medical Center to 600,000 square feet. we see potential to significantly densify the site over time, taking advantage of the land-locked location next to one of Seattle's leading hospitals. Also in October, we acquired a 55,000-square-foot MOB on the campus of an HCA hospital in New Orleans for $34 million. Once again, this acquisition was done off-market. Turning to life science development, the lease-up is exceeding our underwriting on both rate and timing. Our active development pipeline is now 87% pre-leased, excluding Vantage Phase 1, which commenced yesterday. The final phase of the shore is now 100% pre-leased. The rate on the final lease was 32% higher than the initial lease we signed at the shore just three years ago. Staying in South San Francisco, with very strong leasing activity at our Nexus project next door, we chose to commence development at Vantage A picture can say a thousand words, so please take a look at the investment deck we published yesterday. On page seven, you'll see that the Vantage Campus sits in the heart of South San Francisco, adjacent to our Nexus and Point Grand campuses. Phase one will include 343,000 square feet and deliver in the second half of 2023. Upon completion of all phases, the Vantage Campus will include at least one million square feet of Class A lab, and potentially far more subject to entitlements, which are ongoing. Moving to San Diego, where we fully pre-leased our 540,000 square feet of active development. In the third quarter, we secured the next phase of our growth with a covered land play acquisition. The site sits between our existing Sorrento Gateway and Sorrento Summit campuses, all of which have excellent visibility and accessibility from Interstate 805. Once the site is developed, will have 700,000 square feet across these three campuses. In Boston, our 101 Cambridge Park Drive project in Alois delivered in 4Q22 and is now 88% pre-leased. The average lease rate is $99 per foot, or 27% above our underwriting. This project brings our footprint in the Alois sub-market of West Cambridge to 1.1 million square feet across 18 acres. And that brings us to the series of acquisitions we announced yesterday. In eight separate transactions, totaling $625 million of initial investment, we assembled 36 acres of largely contiguous land in the Alois sub-market of West Cambridge. We now have a significant development opportunity on the East Coast to balance our enormous development pipeline in South San Francisco. The blended year one FFO yield is 4.2%. with the potential for huge earnings and NAV upside in the future. Roughly one quarter of the $625 million investment represents stabilized cash-flowing acquisitions. The remainder are covered land plays, primarily single-story industrial and flex office that we intend to eventually replace with Class A lab buildings in phases over the next decade plus. We'll be working with the City of Cambridge on the development plan and have more to share in coming quarters. If you turn to page 4 of yesterday's investment deck, you'll see the assemblage is within walking distance to our existing holdings in Alois. Both sites have commuter access by train, car, and bike. In particular, we're within walking distance to the Alois train station and adjacent to Route 2 and the Minuteman bike path, all of which connect Cambridge, downtown Boston, and the western suburbs. These campus settings are a competitive advantage for leasing because we can provide world-class amenities, infrastructure, and flexibility for tenants to grow without relocating. This is very, very different than owning a single lab building in an isolated location. I'll turn it to Pete.

Thanks, Scott. Starting with our financial results. For the third quarter, we reported FFOs adjusted of $0.40 per share and blended same-store growth of 3.2%. Our strong results are driven by continued outperformance in both life science and medical office. And for the third quarter, our board declared a dividend of $0.30 per share. Turning to our balance sheet, we finished the third quarter with a net debt to adjusted EBITDA of five times. We expect to reach our mid-five times target leverage ratio by the end of the year, with the majority of our announced acquisition activity closing in the fourth quarter. During the quarter, we closed on an upsized $3 billion revolving credit facility, an increase of $500 million. The upsized revolver provides us with significant benefits. It increases our liquidity position, it extends our debt maturity profile, and it reduces our overall borrowing costs. We had 100 percent of our banking group re-up their commitments, which is a testament to their confidence in our company and our future. Also, during the quarter, we raised net proceeds of approximately $320 million of equity under our ATM program at a blended growth stock price of approximately $35.60 per share. all of the equity was raised under 18-month forward contracts. Pro forma, the settlement of our equity forwards, third quarter net debt to adjusted EBITDA is reduced to 4.7 times. Turning to our guidance, we are increasing our 2021 guidance as follows. FFO is adjusted, revised from $1.55 to $1.61 per share to $1.58 to $1.62 per share, an increase of two pennies at the midpoint. Blended same-store NOI growth revised from 2.25 percent to 3.75 percent to 3.5 percent to 4 percent, an increase of 75 basis points at the midpoint. The major components of our revised guidance are as follows. In life sciences, we have increased the midpoint of our same-store guidance by 75 basis points to 6.5%. In medical office, we have increased the midpoint of our same-store guidance by 25 basis points to 2.75%. For our significant non-same-store portfolios, we have tightened our guidance range to $85 million to $105 million, leaving the midpoint unchanged. Finishing with acquisition, year-to-date we have announced $1.6 billion of acquisitions that have either closed or are under contract. Accordingly, we have updated our acquisition guidance to reflect this activity. Please refer to pages 41 and 42 of our supplemental for additional detail on our guidance revision. With that, operator, let's open the line for Q&A.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. So that everyone may have a chance to participate, we ask that participants limit their questions to 1 and a related follow-up. If you have additional questions, please re-queue. The first question is from Rich Hill of Morgan Stanley. Please go ahead.

Hey, good morning, guys. Long-time listener, first-time caller. I wanted just to talk about your recent acquisitions and maybe get a little bit more detail into the Cambridge market, why you find that attractive. And if we can take a step back, your acquisitions are – a healthy amount above MSC. I was wondering if you have any other big land plays like this across the United States that you've maybe identified and what you can tell us about, not just 22, but 23, 24, as you think about your acquisition pipeline. Hey, Rich.

It's Tom Herzog. When you look at our land plays across the country, It does sum up to at this point for what we've acquired and we're in a contract to acquire seven plus million square feet across our life science business, 10 billion plus dollar opportunity. So it is a massive opportunity over the next decade plus. I would think in terms of maybe two and a half million square feet of that being on the East Coast now in the greater Boston area, primarily West Cambridge, and probably $4.5 million of it sitting in South San Francisco, Brisbane, and then some down in Sorrento Mesa. So we have an enormous opportunity without any need to purchase additional land for a long time. These are going to be in what we would think of as very substantial campuses that create strong clusters over time, which is obviously, I think as you all know, vital to success in life science. It takes advantage of the virtuous cycle of aging population and new biologics, live organism type drug discoveries, the FDA approval time, the heavy VC, NIH, IPO funding, which has quadrupled in the last decade. along with the ecosystem of research universities and scientific talent and, like I said, all this venture capital being deeply engaged in these markets. So we think that that's going to create an enormous opportunity for us across both coasts, and that probably lines us out now for quite a while with some very accretive opportunities with land that could not be replicated today. The land sites that we've picked up are in the heart of some of the best life science markets really in the world. And when we think about what we just acquired, this assemblage in West Cambridge, that was about a six-month effort. We did not think we could put something together that substantial during that period of time, and fortunately we were able to. So the vast majority of the strong developable land in that sub-market is going to pay great dividends to us, we believe. So Brinker, anything you would add on that and how you're thinking about it?

Yeah, maybe I'll try to also address that question about the location and what we found attractive about it. And it's a couple of things we point to. One is it does have the Cambridge address, which is obviously an important factor for the tenants. And yet it's $20 to $30 per foot cheaper than East Cambridge, which realistically is sold out anyway. but economically more attractive. It does have the strong accessibility, which is obviously important in a big market like Boston with Route 2, the Red Line, bike path. So really, no matter how you're commuting, you've got pretty good access to this location. And then it does have an established reputation. It's not like we're breaking new ground here. There's a strong life science history in West Cambridge, around 2 million square feet today, of which we're by far the biggest player And then the fact that we're able to develop something in scale was ultimately what was the deciding factor here. If it was just a single parcel with one building, it's not nearly as interesting. There's a lot of new entrants doing that. There's a lot of conversions that can do that. But the ability to put together 36 acres with a Cambridge address is pretty much unheard of. And that was ultimately the deciding factor in deciding to proceed. We put together eight separate transactions, but it was really two fairly big parcels that were the Lynchpin, the Mooney Street campus, and then the Concord Avenue campus. And then once we got clarity that we could get those, we went to work and put together the surrounding parcels as well. And who knows, there might be more to do in that sub-market.

Yeah, I would add one more thing is, when you think in terms of from the city of Cambridge's perspective, and these deals coming together to create an aggregate hole in the, or an aggregate for the overall assemblage that is worth a whole lot more than the individual pieces. Think in terms of having a huge cluster, being able to transfer FAR between the various parcels that we acquired, which really is going to give us a lot more developable capability. And then from the City of Cambridge's perspective, being able to have foot bridges across the tracks, multifamily development, vibrant mixed-use neighborhood, etc., a variety of goals that they've set forth that we can help them realize their dreams while we also take advantage of, I think, quite an opportunity.

Great. That's helpful, guys. And so if I just had to summarize all of this, this is a capital development pipeline over the next five to ten years. That doesn't require any additional acquisitions. It's just a matter of executing on that development.

Yeah, Rich, good point. I would describe it even a little bit slightly differently than We have enough land and densification, covered land plays on our books now at $10 billion plus to keep us busy, not even for 5 to 10 years, but probably 10 to 12 years going forward without acquiring another single land or covered land asset if we chose not to.

Thank you, guys. I'll jump back in the queue. I really appreciate the answer and the transparency. Yeah, thanks so much, Rich.

The next question is from Rich Anderson of SMBC. Please go ahead.

Hey, good morning, everyone. So more on the West Cambridge deal. Aren't you now kind of, at least as you take down these sites and do your work, you kind of also have to operate an office and industrial portfolio, right? You don't want these things to collect dust. Is that going to be kind of chilled out to somebody, or are you going to do that?

Yeah, I can address that, Rich. Most of the portfolio, although it's eight separate parcels, is property managed by groups that we already work with and that have been property managing these campuses already, so there's not a ton of execution risk. It's obviously not our business to lease to industrial or office tenants, but the intent is that as leases mature at these various campuses, we would not even seek to renew leases. So we don't have an expectation that we're going to operate these industrial or flex office buildings over the long term.

Okay. So are they going to be kind of teardowns or office conversions in the case that are office assets or a combination?

Yeah, it's a mix, Rich. There are a couple of buildings in the portfolio that we do not intend to to tear down, like the medical office building that's leased to an affiliate of Beth Israel. That's just one example. There's a lab building in the portfolio that's leased to an affiliate of Flagship. We don't have any intention of tearing that down. But virtually all of the flex office in industrial over the next couple of years, the expectation would be that we tear those down and rebuild something much different. Okay.

Yeah, Rick, one of the things you have to keep in mind is as we pulled together these individual transactions, to varying degrees, there was significant FAR in some of the smaller parcels that were underutilized, that that FAR, by right in the way that it's set up, can be transferred to other parcels within that master development, thereby increasing the density substantially and increasing the value of the greater whole assemblage that we put together versus the individual pieces. So that was a critical item.

Okay, great. And then my second question is just quickly, you called MOB a flow business, and I get that, singles and doubles. But I would think some of that flow would also come in the form of development with your health system partners. Do you see that becoming an increasingly part of your development pipeline in the future, or is it really going to be primarily an acquisitions game? Thanks.

You know, Rich, that's a good point. In life science, just based on the reality of the business, there's so much ownership in the three major markets between Alexandria and Biomed and us that the acquisition market is not nearly as strong, whereas our relationship is acquisition business with hospitals and health institutions is quite a bit stronger. So we have opportunities to grow accretively there as well. But Clerich and Justin Hill have been able to put together some quite strong development programs that do end up yielding in the low to mid sevens or sometimes even a little bit better. And so that is quite accretive. And these are on-campus developments that are oftentimes anchor leased and quite profitable. And Tom Clark, maybe you could give some insight into how you see the growth of that business and the sustainability of that business for us.

Yeah, I think we can have pretty decent growth in that area for a foreseeable future. We're working with HCA on a number of projects. Tom mentioned two of them on the call, two MOBs, one in Savannah, Georgia, one in Brandon, Florida, that we're pretty far along with them on. We're also in discussions with them on two or three others in other parts of the country. And we're always speaking with our other health system partners. We potentially will have some deals with some of our bigger partners in the next, probably in the next year, but we're not far enough along with those to really announce anything.

Okay, good enough. Thanks. Thanks, Rich.

The next question is from Juan Sanabria of BMO Capital Markets. Please go ahead.

Hi, good morning and thanks for the time. Just curious on yields today or cap rates, where do you see cap rates on kind of a stabilized basis across both the MOBs and life science and the cluster markets you're focused on?

Yeah, Juan, I can try to address that. Scott here. In life science, for the markets that we're in, which is almost entirely the big three. Class A product is probably in the 4% range, maybe a little bit higher, but it's in that range in any event, especially if you can acquire a controlling interest versus just selling non-controlling interest, even those if you've seen those trade in the low fours. Now, some of those buildings have mark-to-market built into them, but oftentimes that's pretty far into the future, so it's probably still a pretty realistic cap rate, that's probably down 50 basis points at least over the past 12 months given the strength in the marketplace and just the number of capital sources looking to invest and build a presence in life science. And then in medical office, I mean, similar forces given the interest in the sector, but the cap rates there for quality product are probably in the mid-fours to mid-fives, so a broader range because there's just more variability. in the building by building in terms of who the tenants are on campus versus off campus. But it's hard to find really high quality buildings that fit our criteria for anything more than a five cap in today's market. TK, anything you'd add?

No, it's pretty much spot on.

And then just on the West Cambridge acquisition, you talked to a low for FFO yield, but just trying to think through from a modeling perspective, How do you think about that from an NOI perspective? And if you could help us bridge the mechanics for how the two interplay or what's assumed to get to the FFO yield?

Yeah. Hey, Juan. It's Pete here. And it's a good question, and we recognize it's a bit unique to disclose an FFO yield as opposed to a cap rate. But, you know, given the unique nature of this portfolio, which is a combination of stabilized properties and covered land, we thought an FFO yield was most appropriate. So investors and yourselves on the research side could better understand the year one impact. If you refer to page five of our investor deck, it provides details on each transaction. So of the eight assets and $625 million purchase price, three of the assets we categorize as stabilized with a total purchase price of $187 million. That's 10 Fawcett, 725 Concord, and 25 Spinelli, plus the Concord Avenue campus, which we do categorize as covered land, and which we acquired for $180 million. That asset is currently 100% leased to Raytheon for six more years. So the stabilized asset plus the Concord Avenue Campus, which together totals around 370M dollars. The blended year 1 gap cap rate. So, from an ally gap and ally perspective. Is approximately a 5% yield across all of those. So, the balance of the portfolio, which we call. Covered land, which is around 255M dollars. We will capitalize interest on those assets at approximately 3%. That's our current weighted average debt interest rate. And since we started this effort about six months ago to assemble all of these assets, we're well underway on our internal and external design team, and we're working towards entitlement planning and ultimate design of this campus over time. So we're capitalizing interest on those assets. already, so if you add all that up, I know that's a lot, but I want to make sure you have all the pieces, that's around $370 million at a five cap, and then it's around $255 million at a 3% capitalized interest, which blends to a 4.2. Maybe I'll turn it over to Tom if you want to add anything to that.

The only comment I'd make, just so there's no confusion on the call, if we've got a covered land play that is also producing rental income. The cap interest ends up being recorded in accordance with GAAP, as we're required to do, but the income that's thrown off from those leases is treated as what's called ancillary income and reduces the basis of the assets. If there's not a doubling up of income, you probably know that, but I just didn't want to have any confusion on that.

Thank you, guys.

Thank you.

The next question is from Nick Ulico of Scotiabank. Please go ahead.

Thanks. So I guess in terms of the recent Development Star Advantage and even thinking about the future opportunity here in Alewife, I guess how should we think about how you guys are underwriting those new developments today? I mean, I know you do have that range of 6% to 8% you give on a development page, but Some of the rents, particularly you talked about with Alewife, it sounds like the recent development there at Cambridge Discovery Park is actually going to be over eight yield. So just trying to understand kind of where you guys are shaking out in terms of, you know, development yields being underwritten since rents are growing so much.

Yeah. Hey, Nick. Scott here. I think your note was correct for South San Francisco for Class A rents today, particularly for that location. You're probably in the low to mid-80s. Obviously, we're benefiting from our low land basis in that project, so keep that in mind. But the all-in cost, given our land basis today for Vantage Phase 1, is in the $1,100 to $1,150 per foot range. And the simple math on that is that it's a mid-7s return on cost. We'll end up getting a similar return on Nexus, it looks like. We're having really solid leasing momentum. We announced that project earlier this year. We were projecting more of a mid to high sixes return. It looks like we'll do quite a bit better than that. And then in West Cambridge, it is a bit more expensive to build there, not dramatically so, but the all-in cost for our underwriting is somewhere in the $1,300 per foot range. And I say range because it's still a little unclear exactly how much we'll be able to build, and that will obviously impact our land prices. But a decent estimate would be $1,300 per foot in West Cambridge if you were building today, given our land cost. And then obviously we just announced last night that we sign leases at $99 per foot on average within walking distance of that site. So the simple math on that one is a mid sevens return on cost as well. And Tom, you wanted to add something? Yeah.

Okay, great, thanks. Just one other question on South San Francisco. I mean, any update you can provide on when you think that the potential upzoning densification there could be addressed by the city?

Yeah, Scott Bone, you want to jump in?

Sure. Hi, Nick. Scott Bone. The city is working through the general plan update, and I think the current target is mid-next year to complete that.

And is that, I mean, the thought process there is similar to what you've talked about before in terms of the, is it a potential doubling of FAR? Is that right? Yeah.

Potentially, yes. It depends on location and where each individual project is located. As you get further away from the train station and the transit there, yes, there will decrease a little bit. But I think where we look at our projects, we expect those to fall in that range. Okay, great.

Thanks, everyone.

Hey, Nick, just to follow up on the first question that you asked, I think it's probably to repeat something that Brinker said and give it just a little bit more context, because I think it was an important question. When you talked about new supply in these two markets and how do we think about how they make money, and Brinker mentioned the $1,300 a foot in West Cambridge, $1,100 a foot to develop inclusive of land in San Francisco, West Cambridge, $100 rents, South San Francisco, $85 rents, producing something in the mid sevens. Those are obviously returns that are higher than what somebody would achieve in the market today if they bought land at market, which we've seen a solid 30 to 50% increase in high quality land as far as pricing, bringing those spreads down if one was to do a market transaction today, if you could find the high quality land probably more back to that 150, 200 basis point spread. In the mid sevens against our cost of capital, if that held, that's a solid 300 plus basis point spread in four and a quarter cap type assets. Do the math on that on the NAV accretion and on the earnings accretion. It's quite substantial. And I'm not trying to speak to returns that will be years down the road. But when you think in terms of the value of having locked up some of the best land in some of the best submarkets in the world, it really is going to allow us to be in a position where we're aware of new supply like everybody is. But if our land locations are in some of the hottest markets in the ecosystems with the greatest energy, we do think we'll get far more than our fair share of that leasing and that that's going to be a profitable outcome for us for years to come. I think if we were starting from scratch, we would have an absolutely impossible time replicating that potential outcome. So I think it's a very strategic point that you've raised.

All right, appreciate it, Tom.

Yeah, thanks, Nick.

The next question is from Steve Sakwa of Evercore ISI. Please go ahead.

Thanks. A lot of the questions have been asked, but I just wanted to get your thoughts on sort of the spec versus, you know, pre-lease, build the suit in the life science. And I realize, Tom, you know, you talk about the, you know, $7 million fee, $10 billion. You know, how do we sort of think about just sort of a metering out of that over the next, you know, even say five years? And, you know, sounds like demand's great today. Everybody's getting in the life science. But just, you know, what are your thoughts on, you know, kind of broad dollars per year over the next, say, five years?

Yeah, Steve, if we roll back a half a dozen years, we were spending, just on pure development, I'm not talking redab, about $100 million a year in development. That's ramped up. That's easily in the 400-plus range at this point. We would see that ramping up further to probably $600 million a year and maybe over time higher. But one of the things that we do pay a lot of attention to is the demand supply work that we're doing so that we can time it appropriately. We look at pre-leasing. We look at funding risk, being very clear on where our funding is going to come from. And Pete Scott has done a lot of work on that, that we've got internal work that we're glad to share at NAREAD as to how we think about that. But I would see that ramping up. I think it's realistic, Steve, that we're not going to be sitting at 99% occupancy at South San Francisco forever. That just won't happen. So you're going to have some diminution of occupancy over time, and that would be natural. So then it comes down to is the land locations that we have that we'll be providing our new product, Class A product, is that going to be highly sought after, which we think it will be? And if some of it If you return a little bit more toward a normal vacancy, is it still profitable? We've got so much cushion in our numbers that the answer is yes, it would still be profitable, very profitable. So those are things we're paying a lot of attention to. We spent a lot of time with our board over the last couple of board meetings going through the risks, how we mitigate those risks, and why we're comfortable that this is a very sound play. The other thing I'd point out is even though we're talking about $600 million a year of development. It could be $700 or $800 at some point, or $900, or it could drop back down to $300 or $400 million. It's not like we've got a gun to our head as far as timing on putting that product out. So pre-leasing, demand, and supply are something that we're working on on a monthly basis to have our thumb on the pulse of what's going on in the market.

Great. Thanks. And, you know, I know the CCRC is a pretty small you know, piece of the business. But, you know, I'm just curious what you can sort of comment on as it relates to just labor, how that's either impacting or maybe not impacting those assets and kind of what are your expectations for, you know, labor costs moving forward and the impact on margins?

Yeah, I can start with that one, Steve. You know, we have a little exposure to that business. It's about 8% to 10% of our NOI so not huge but you know big enough to to talk about for sure we have the big concentration in Florida which we think is a good thing it's primarily an independent living business so most of the economics in CCRCs are driven through the entry fee and fortunately the contracts there are really strong so the the fundamental demand for that business is good and the underlying profit center which is the independent living is strong as well but definitely we had headwinds on labor in the third quarter in particular. So we had a pretty significant increase in expenses. If you just look sequentially, we were up almost $5 million. That's about 5%, just sequentially. And most of that was driven by labor. Now there's a labor shortage nationwide, but in Florida, it's particularly acute. And then on the healthcare side, it's been particularly meaningful. So we don't see that changing overnight. At the same time, it's unlikely to last indefinitely. So for sure had a short-term impact on margin, We even had to reduce admissions in some cases. So it impacted revenue as well. But we do see that improving. But it's going to take some time. That's a year-plus process where I think it will slowly decline to more normalized levels.

Great. Thanks. That's it for me. Thanks, Steve.

The next question is from Nick Joseph of Citi. Please go ahead.

Thanks. Pete, you talked about the GAAP yield or NOI yield on the acquisition. What's the cash yield for the West Cambridge Assembly deal?

Yeah, I mean, it's probably about 100 basis points less from a GAAP perspective when you back out some of the market on rents and things like that. So that's probably the best guidance I can give you. It will depend upon each individual asset, but I'd say about 100 basis points less.

Yeah, it's kind of in the mid to high twos, Nick, would be the pure cash NOI yield.

And if you've got to recognize that some of the leases that we picked up were far below market at this point, and we're glad to have that in place while we're doing all the entitlement work and getting ready to do the expansion and densification that we're interested in doing. But if some of that space is released, it'd be at much, much higher rates.

Thanks. And then just looking at the map and the presentation, can you walk through kind of what else is existing that you don't own in the sub market? And is there any competitive life science supply already there?

Yeah, on the map that's in the investor pitch, you're looking north at the top of the page. And we obviously have the east and west side of that page pretty well covered all the way from Concord Avenue, which is what gives you direct access to Route 2. all the way up to the MBTA red line. And there's quite a bit in between. It's primarily lab today. There's some flex office as well, but it's two primary owners. Their names are all that relevant, but both companies that we have good relationships with. So I say it's possible that over time we could expand this footprint. Okay, Hurtog, it's Billerman. Just to come back on sort of understanding cash versus gap, So it sounds like going in on a cash basis, uh, you're saying high twos on the totality of the $630 million of initial investment. Um, and then obviously, you know, from a gap perspective, you're going to capitalize, but not count the income from those covered land plays. And so is it basically just a push on a cash basis, at least initially, until you actually start development and be able to earn those higher yields?

Yeah, I think that's right, Michael. It's Peter here. You know, as we think about it, you know, being able to acquire all this and from a cash perspective have it be essentially, you know, neutral or a push, we looked at that as something that was quite attractive. You know, when you think about, though, the actual FFO accretion as we go into next year, You know, we are funding this as well with debt capacity. So that's one thing to just mention there. So there actually is a little bit of a equation as you think about earnings from this year as we head into next year.

Hey, Michael, I'm going to add something. I think you're aware of this. I don't know if all the listeners are tuned into this, but keep in mind that cap interest is always an unusual thing. It is... It's kind of a quasi-cash, non-cash thing. GAAP has you take cap interest into GAAP net income. You do pay the cash out. One of the things that you have to keep in mind is that when you have interest expense that you're paying while something's under development, it is deemed to be a direct cost of development. And the reason is, is because it's been... It's been determined over the many, many years that you could have avoided that interest expense if you hadn't made that acquisition to develop that asset. So under GAAP, it is treated as a cash item. And throughout REIT world, the GAAP interest ends up being included in AFFL. I think you know that, but I just want to make sure that there aren't listeners that didn't catch that nuance.

Yeah, I think that's, and that's where I was trying to get at the difference between lining up our gap versus cash accretion. And obviously as a, you know, this transaction has a fair amount of future development and at least you're getting some income to be able to offset that cash interest that you are paying because you are borrowing to do the transaction. But the initial yield on the totality of that 625 million is, You said it was high twos, mid twos, just from a cash basis again?

Yes, in the high twos.

In the high twos, okay. And then when is the first sort of large capital outlay to start future development? Like next year, should we expect how much capital, more capital will be pushed towards this project? You know...

I would like to be able to answer that for you, but I'd be making predictions that could change because it's so dictated by supply and demand and timing of entitlement, which we're going to be working very closely with the City of Cambridge. The other thing I'd point out is if you were to go to the other map that we've shown in the deck that we provided on page seven, on that page you'll see the shore, you'll see the Cove, Peak Oyster Point, Nexus, Vantage, Point Grand. On the shore, we have very significant development opportunity in that vacant land space that we're able to pick up with Sarah Point Towers, and that's substantial. In Vantage, that's an enormous piece of land that we're going to be developing out. Nexus, we've got very, very strong traction, not quite enough to have announced it on this call, but As far as lease up of that space, which inspired us to kick off the Vantage project and Point Grand, we're going to be having a few of those buildings that are coming due at the end of 2022 on their leases, thank goodness, so we can start taking advantage of that huge densification opportunity asset by asset. I mean, that thing was built at a .5 FAR way back in the day, and that likely goes to, well, I won't throw the number out, but something much, much higher than So when you start looking at, and we have opportunities in San Diego as well, or Sorrento Mesa, so when you start looking at what we have in West Cambridge, we have in South San Francisco, we have in Sorrento Mesa, we have to look at pre-leasing, we have to look at demand and supply, we have to look at where we have tenants that are seeking to grow that need space sooner to be able to sequence as we move each of these projects forward and how quickly. I do think, Michael, to your point, we're going to get the entitlement work done as quickly as we can, a lot of the SOC work done, and move forward with West Cambridge. It's not something that's going to sit out there for a long period of time, but we may have some other projects that have more immediacy in their ability to meet the demands of our tenants and the demands of our non-tenants in those particular markets. So I don't know the answer to that yet, but I you can be sure over the next few years that we'll have clearer and clearer answers as the markets play out. Right. That's helpful.

And, Tom, just one last one for you in terms of, you know, as I think about these transactions and how much of the call has been focused on life science and the significant amount of growth opportunity you now have embedded within the company given all these land plays and development opportunities. Medical office obviously is, you know, you said singles and doubles. You've historically said M&A is not your cup of tea for a whole host of reasons. Is that still the case or, you know, are you sort of thinking about balancing out the portfolio to add more MOBs just given how much life science you now have potential to add over the next 10 years?

You know, I think, Michael, we're going to continue to have MOV growth through our relationship investing primarily with our hospital relationships and obviously the deep infrastructure scale reputation, et cetera. So I don't think it's going to be difficult for us to have annual accretive growth transaction by transaction in MOVs. I think it'll lose pace. to the life science business, naturally, over time. We're okay with that. But over time, all these businesses go in cycles, and there may be a period of time where MOV looks more attractive and we get even more aggressive on that side. But to your point, we do see, using our relationships, our off-market transactions, to hit singles and doubles, and as far as doing something very significant that could change kind of the landscape of what our portfolio looks like. I think you could feel rest assured we're not going to do that at this point. Never say never. Who knows what the conditions look like in the future, but that's where we stand today.

Right, because your relationships could also expand to capital relationships, right? If you were presented with some sort of opportunity, you can go to look for the best structure, capital partner, rather than just your relationships on the health system side. So something could work. I guess the perspective of it doesn't sound like you're highly attracted to wanting to go out on the spectrum right now on MLBs to make a big push, given your views of life science and maybe where the MLB business is. I'm just trying to understand the appetite if something was available, how aggressive you'd want to be at this juncture. If you can get the right partners and the right structure and things like that.

I'd go back to never say never because obviously at some point the economics can be so attractive that one can't ignore that. But in today's environment for the opportunity in front of us, I think our better place in life science and then continued slow, steady, accretive growth in MOBs. But it's always nice to have the optionality with really two big businesses and then one much, much smaller business as they'll all go through cycles to be able to have some growth in each and pivot as market conditions change. So you can see that happen at some point in the future, but we're not seeing it right now. So you're saying there's a chance. Okay. Have a great day. Your takeaway is there's a chance. I'm saying I wouldn't think there's a chance. at this point in time. Forever's a long time, Michael. All right. Have a good one. All right. Thanks.

The next question is from Jordan Sadler of KeyBank Capital Markets. Please go ahead.

Thank you. And good morning out there. I wanted to just follow up on Michael's question, but with a little bit of a different angle. And I'm kind of curious, you know, could you parse the relative returns or return hurdles you're looking at for MOBs versus LifeSci?

Yeah, we totally can. Brinker, do you want to start?

Yeah, can do that. Yeah, we spend a lot of time on that exact question, Jordan. You know, today, MOBs, high quality, probably come at a 50 to 100 basis point higher cap rate, so the initial yield. There is a little bit more CapEx drag on MLB in general, probably in the 20% range, just on average. CapEx, total CapEx is a percentage of NOI. Obviously, some billions will be higher or lower, but that's a decent average across the portfolio. And we've had two and a half type percent growth for a decade or more. So the economics of that business are pretty straightforward. And when we compare that to life science, if you're starting at a four cap, just as an example in today's market, high-quality building that would fit within our strategy and portfolio. The contractual escalators in that business tend to be in the 3% to 3.5% range, depending on which market you're in. South San Francisco being at the high end, Boston and San Diego being more in the 3% range. So the escalator is higher, just the contractual growth with lower CapEx. So just in theory, obviously, that would lead to a lower initial cap rate, which is exactly what you see. What has really turbocharged the life science returns over the past decade, of course, is the dramatic escalation in rents. They're up at least 10%, arguably closer to 20% over the past 12 months in our three core markets, which has obviously helped mark the market across the portfolio that today's in the 20% range. That's on a $500-plus million base, so that's a lot of upside to capture as leases roll over the next decade. or so. So you combine all of that, you start with a lower yield in life science, but obviously a much higher growth rate that today you probably come out to a higher IRR realistically in life science. But we're not assuming that rents are going to grow at 10 to 20 percent forever in life science. We think it's a great business. We think we have great locations, great team in a really strong market position. but it's probably not realistic to think that rents grow at 10 plus percent forever. So we do still like the stability of that MLB business, but we don't think all MLBs are created equal. So we're pretty careful about exactly what we put into the portfolio. And I think that is something that when you compare the different companies, you'll increasingly see that play out in the returns from that business. Can you give us a sense of what you are underwriting in terms of rent escalation over sort of like a five, 10-year period in life science? Because I think we know what it is in MOBs, as you referenced. Yeah, over the last decade, it's been more in the 5% to 7% range across our three markets. So that's the 10-year history. Obviously, it's been even stronger over the past couple of years. There is a fair amount of new supply coming into the marketplace, so that could potentially weigh on rent growth at the same time, the escalation in demand is equally off the charts. You know, we thought 2020 was a strong year for venture capital and IPOs. And on an annualized basis, it looks like 2021 is going to be 50% higher than 2020. And all of that capital leads to more real estate demand, obviously. It varies by company, but our math is that on average, every million dollars of VC and IPO that gets raised translates to about $400 square feet of additional space. So $100 million raise is another 40,000 feet of space. Obviously, some tenants will need more, some less, but on average, that's a pretty significant amount of real estate that's needed to meet the growing demand. And given the success that these VCs have had, they're obviously having equally enormous success raising their next funds, which will fund the next round of growth on top of the NIH funding, which just continues to grow. And that's really the first... wave of capital in the pipeline that over the next five to ten years, all that NIH funding that's really basic science will start turning into the next clinical candidate that is really the sweet spot for our business. Tom, anything you have?

I think you covered it. A couple things I'd add. When you look at the last three years, we've been following very closely the NIH-VC-SEO partnership funding, which helps drive life science It's quadrupled in the last decade, but in the last three years, it's up 50%, obviously driving a lot of funding to do lab work. We've seen 20% growth in supply during this time as far as space. Vacancy has obviously fallen to practically zero in most of the big three markets and the better locations. So no surprise that you've seen rent growth that has been in the 5% to 7% CAGR range, you've seen land rise rapidly in price, along with labor and construction costs, which will put some pressure on the spreads that these are developed at, unless you already own the land and you own it right. So we do think that that is probably our great opportunity within this, is this massive land holding. So I think that's just an add-on to the comments that Bricker made that are probably important.

Okay. And then just last as a follow-up, Tom, while I have you, you did sort of frame up, you know, 10 billion, 10 to 12 years, but it sounds like you're still interested in adding capacity in places like San Diego and maybe even incrementally in West Cambridge or maybe other submarkets. Could you see yourselves launching or starting upwards of a billion dollars a year of life science development?

You know, Jordan, it, Over time, certainly, we could. But it would take place over time. It's not like we're going to make some massive leap all in one year and create a whole bunch of dilution year over year. You're not going to see us bump it up to a billion dollars next year or the year after. But it's a very fair point. If we continue seeing this kind of demand, just look at what took place with the pandemic and vaccines and CRISPR technologies and all these cancer treatments and large molecule, live organism drugs that are curing diseases that you simply used to die from, that kind of demand is going to continue fueling, we believe, this continued growth in the biotech companies. And with that, there's going to be a lot of demand for space. And to be able to have these new startups especially and then grow within the hottest biotech markets where all the energy, all the All the scientific talent, VC, et cetera, are located. There's a big opportunity. It's almost hard to measure. So could it get bigger? I think it probably will get bigger over time. Maybe, because we're going to keep an awfully close eye on supply and demand and funding and everything else to make sure that we don't get over our skis. But there's certainly that possibility. Thank you. Yeah, thank you.

The next question is from Steven Valliquette of Barclays. Please go ahead.

Great. Thanks. Hello, everybody. So just a question here on measurable census in life science, which I know isn't really talked about that much, just given the strength in your life science portfolio with least occupancy in the high 90s. I guess I'm just curious, you know, when we do hear about traditional office REITs, talking about measurable census still only in the 20% to 50% range across major markets like San Fran and Boston. Do you have any data points you could share just on the percent physical occupancy of employees in person within your life science office space, or do you not even focus on that because of the strong supply-demand characteristics?

Yeah, Steve, just to make sure I understand the question, you're talking about utilization Versus occupancy? Yeah. Exactly. Yeah, it varies by market. On average, today we're probably in the 60% range. San Diego is probably at the higher end of that. San Francisco, because of the politics there, is probably more at the lower end. Boston is somewhere in the middle. But it's ramping up pretty significantly. Most of the scientists have been working on site throughout. with more of the back office still working from home, but that's starting to change. I know we're back in the office today, so that's good. And we're starting to hear that more of our tenants are doing the same. So the amenity centers are back open. The onsite dining is back open. So obviously there's more and more reason to come back to the office, and we are starting to see that happen.

Got it. Okay. One other real quick follow-up, and I know this has been talked about a lot on this call already, but just – With your current land bank of 7 million plus feet, obviously positive when thinking about future growth. When we hear about one of the largest public traditional office reed companies highlighting their 5 million foot land bank dedicated specifically to life science out of their 17 million total land bank, just curious on your latest thoughts on competition from just sort of traditional office reed competitors and also just attempts at converting land traditional office space to life science and kind of just the latest temperature on that as well.

Thanks. Steven, certainly there could be some competition from that. We don't believe that it's generally going to be in the main and main locations for life science. I won't repeat everything I just said about that and why the biotechs want to grow with the experienced landlord's that have the deep clusters, the deep experience. Certainly, there'll be more competition. And obviously, you can't have occupancy rates that sit at 98%, 99% forever. There will be competition. So then it comes down to who is able to provide the deliveries that create the purpose-built, experienced purpose-built product within the campuses in the areas that have the energy. that the biotech startups and the biotech companies that are growing want to build their businesses, and we think that we're going to get far more than our fair share of that type of business. So I'm not discounting that there will be some new competition. There will. Of course, if you have 99% occupancy in a market, there will be competition. We think we're well-suited to be able to do well in that environment. Okay.

All right. Thanks.

Thanks, David.

The next question is from Michael Carroll of RBC Capital Markets. Please go ahead.

Yeah, thanks. Tom, I know you've been mainly focused on the three largest life science cluster markets, but given the attractive backdrop and maybe the difficulty to find land in some of these markets, does it make sense to kind of look at some new clusters? Is that something that you're starting to look at right now, given the stronger trends over time?

I think it makes tons of sense. for somebody else to go do. I think if we didn't have such a massive competitive high barrier to entry position in these three major markets, maybe we'd be looking at that too, because I would imagine we could scrape another 50 basis points of yield. But it takes a long time to create a vibrant cluster that has the ecosystem of the scientists, the venture capital, the critical mass of land, all the different things that we've talked about. So from where we sit right now, that's not the play that we're seeking to make, but I'm quite sure others will.

Okay, then can you talk a little about your strategy in San Diego? I know you have a small acquisition you announced, I guess, today. When could you start that development project? I guess when does that lease expire? And then off of that, is there other sites in San Diego that you're looking at? Because I think we're kind of starting to run low on your land bank in that market.

Yeah, Mike Doris, I might ask you to jump in, and then I'm happy to add anything. Sure.

Thanks, Scott. Yeah, with respect to the acquisition we just announced, Realistically, you've got a design and permitting period that we'll spend a lot of next year going through. So it's probably more of a mid-23 type of start. And in terms of longer-term land bank in San Diego, you're certainly looking for opportunities to refill that pipeline, so to speak. Scott, do you have anything else?

Maybe I just... that our footprint in San Diego is really concentrated in Torrey Pines and Sorrento Mesa. So those are sort of key targets where we can build on our existing footprint. You know, we've had almost too much success in the development front, 540,000 feet that's already pre-leased in some cases before we even started construction. So we have been hard at work to try to find the next leg of growth for Mike and his team in San Diego. So hopefully this one that we announced yesterday is just the first step in doing more in that market, which really has been. seeing excessively strong demand.

And then just last one for me real quick on the recent San Diego acquisition. Is that a scrape and a ground up development? And how big of a project can you put on that site?

Yeah, that one is scrape and redevelop. As Mike said, that's probably a 2023 type event by the time leases mature and we seek entitlements. But We're doing some other things in and around that site that it probably ends up being a fairly material campus that hopefully we'll have more to talk about in the coming quarters.

Okay, great. Thank you. Thanks, Mike.

The next question is from Josh Dennerlein of Bank of America. Please go ahead.

Yeah. Hey, good morning, everyone. Just want to ask on the labor issue, just maybe broaden that out from the earlier question. How are you thinking about it as far as impacting G&A going forward and then any potential impact on life science or MOBs?

Yeah, Josh, very fair question. I imagine every decent-sized company in the country is talking about this one. Certainly from a personnel perspective, one has to look at the fact that there's been inflation, There are labor market pressures, and so I would imagine us and every other REIT that's thinking hard about it is going to be taking that into account. It's something we've been working on. In our CCRC business, it affects more so the SNF beds probably, as you know. CCRCs have a certain number of SNF beds to have the full continuum of care and provide those types of guarantees to the residents. We have had more contract labor than average by a long shot, and that created higher expense load, which weighed a little bit on our same store growth, which was to be expected, and that's a short-term item for us. It did cause us to pull back in a few assets on the admissions and SNF beds, because obviously as you're no longer making money on filling a bed, you get to go back and revisit whether you leave a few beds empty for a period of time. But we consider that to be a short-term issue and one that will resolve. But those are the types of things that we're looking at on the labor front. But it's a real problem. Labor costs and senior housing in general have been rising pretty dramatically. So you've got occupancy that one has to keep an eye on, but also you can't spend revenue. You can spend NOI at the end of the day. So one has to look to What is the NOI and what's the same store growth? And those are things that we're tracking very carefully.

And what about maybe internally on the G&A front? Are you seeing more pressure there than you would in prior years?

Well, yeah, there's more pressure because there's been an exodus from the labor market in part and across various different functions, you've had some inflation in wages across the country. And we and everybody listening to this call have been reading about this in the Wall Street Journal, New York Times, whatever, on a weekly basis. So that's no secret. So we're putting a lot of time into making sure that we approach this appropriately and that we have a fair response to our team on this front. And that applies to senior housing as well and CCRCs. You have to pay people appropriately for the conditions, and the cost of living has gone up, and the labor pool has shrunk some, and that's going to have some impact. So that's just the reality of doing business, and those are things that we're dialing into what we're forecasting. It's nothing unique to our business, but I think we and everybody else are dealing with that issue right now. Got it. Thanks, Todd. Thank you, Josh.

The next question is from John. Pawlowski of Green Street. Please go ahead.

Thanks for keeping the call going. Tom, just a follow-up to one remark you had on land values increasing 30% to 50%. What time frame were you referring to?

First of all, John, hello and welcome aboard to Health Creek, HealthPeak and Healthcare Reworld. TAB, Mark McIntyre, As far as the time period brinker I think we're talking over the last probably 2020 months or something like that, since coven began. TAB, Mark McIntyre, You saw. TAB, Mark McIntyre, A lot of demand coming during that period of time for this land, the office market started to slow down you there's just an awful lot of interest and we saw that kind of inflation and land it's so specific. TAB, Mark McIntyre, john you could have one particular location, where the land values might have gone up 10% you can have another. but they've gone up well over 50%. So it depends on the location and the particular transaction.

Okay, understood. And I appreciate the welcome to the sector. Maybe a final question, Scott, on the entitlement risk for West Cambridge assemblage. What percentage of parcels are already entitled for whatever the future kind of dream would be and what percentage of sites do you still need to work through?

yeah we'll be seeking entitlements on all the sites certainly we could build lab today on any of the individual parcels but not at the density that we would seek so we'll be undertaking a pretty comprehensive plan with the city which we think will be advantageous in that given our scale we have the ability to you know help deliver things to the city that a one-off owner wouldn't be able to accomplish In addition to the fact that with so many different parcels, we can move square footage around. Just as an example, if the city of Cambridge wants a multifamily to be included, obviously we wouldn't do that, but we could partner with somebody who's really good at delivering something like that. And we can place things like multifamily or parking or move streets in a way that would help the city accomplish its objective as well. And that's just something that a single owner simply couldn't do. Okay. Are there any other regulatory hurdles that are making you hold your breath that might need you to pivot the plan several years from now? Nothing unusual. I mean, it's the city of Cambridge, so that's one of the benefits of doing this. Once you actually develop the site, it's not an easy place to build, but we've actually been delivering a lot of development in some pretty high barrier markets for quite a while. with good success, so nothing unusual here, John.

Well, John, one other thing I'd add is the city of Cambridge has got goals as well. They labeled it Envision Alewife in their late 2019 blueprint, so they have aggressive goals of their own, and I can assure you we're going to try to help them achieve those goals.

Okay, great. Well, thank you for the time. Thank you.

The next question is from Mike Moller of JP Morgan. Please go ahead.

Yeah. Hi.

Just a quick one on, I guess, the West Cambridge covered land place. How quickly can you get to the real estate once you have projects that are ready to go?

I didn't know you mentioned Raytheon, one building with a six-year lease, but what about the others?

Yeah, there are some parcels where the remaining lease maturity is more in the one to two-year range, which actually coincides pretty well with the entitlement time period. So that's probably the fastest possible timeline to start construction anywhere. And is six years the outside? No, I mean, we would view this as a decade-plus opportunity. Depending on supply and demand, it could come quicker. That Raytheon lease is at the high end. So if you're just focused on the outstanding leases driving the timing, then yes, that would be the outside date. Yeah, that's what I was looking for. Okay, that was it. Thank you.

Thanks.

This concludes our question and answer session. I would like to turn the conference back over to Tom Herzog for closing remarks.

Okay, well, thank you, Kate. And thanks, everybody, for joining our call today. We appreciate, as always, your continued interest. Also, I think we'll be meeting with many of you at NAREIT. And we look forward to that. So good luck with the rest of your earnings seasons, and we'll talk to you soon. Bye-bye.

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