Alexandria Real Estate Equities Q4 2021 Earnings Call Transcript

Participants

Corporate Executives

• Paula Schwartz, Managing Director
• Joel S. Marcus, Executive Chairman & Founder
• Stephen A. Richardson, Co-Chief Executive Officer
• Peter M. Moglia, Co-Chief Executive Officer & Co-Chief Investment Officer
• Dean A. Shigenaga, President & Chief Financial Officer

Analysts

• Sheila McGrath, Evercore ISI
• Jamie Feldman, Bank of America Co.
• Rich Anderson, SMBC Nikko Securities America
• Michael Bilerman, Smith Barney Citigroup
• Michael Carroll, RBC Capital Markets
• Tom Catherwood, BTIG Research
• Vikram Malhotra, Mizuho Securities USA
• Dave Rodgers, Robert W. Baird & Company

Presentation

[Operator]

Good afternoon, and welcome to the Alexandria Real Estate Equities Fourth Quarter 2021 Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Paula Schwartz of Investor Relations. Please go ahead.

[Paula Schwartz, Managing Director at Alexandria Real Estate Equities]

Thank you, and good afternoon everyone. This conference call contains forward-looking statements within the meaning of the federal securities laws. The company's actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission.

And now I'd like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Thank you, Paula. And welcome everybody to our fourth quarter and 2021 year-end call. With me today are Peter Moglia, Steve Richardson and Dean Shigenaga. And with that welcome, I wanted to thank you for joining and wish everybody a Happy Chinese New Year starting today the year of the tiger.

We, at Alexandria, very honored and pleased to report on a truly historical -- historic and remarkable fourth quarter and 2021 year-end results, really demonstrating operational and strategic excellence by really each and every metric. And what I think is truly unique and audacious, is that Alexandria is operated during this past two years, the 2021 -- 2020 and 2021 will be known as the COVID era really at the highest operational tempo ever and sophistication and scale that few REITs could ever accomplish and then the words of Jim Collins, Alexandria has truly achieve three outputs that define a great company, superior results, distinctive impact and lasting endurance. And I want to thank profoundly each and every one of the extraordinary Alexandria family team members on a sensational performance during 2021.

Napoleon once said, strength and growth come only through continuous effort and struggle and over the last 25 years we came public in May '97. So we'll have our 25th anniversary in May, we took the small company public three years after we started with $19 million Series A and as of the end of the year December 31, 2021, we had reached a phenomenal total market cap of $44 billion. For the period of COVID, the 2020 and 2021, Alexandria's TSR approximated 45% plus exceeding by a wide march in the Office index with the total return of minus 0.5%. And since our IPO, 25 years ago, in May '97, we've been proud and fortunate that our total shareholder return is exceeded 2,500%, significantly outperforming the S&P 500 and Office REIT indices at 939% and 552% respectively. And we're always playing the long game.

Speaking about fourth quarter and year-end, very robust results. Our life science markets, as evidenced by our fourth quarter and full year results truly were a blow out in many respects, and most of which in as clearly highlighted has been leasing and that really sets us up nicely for a very strong 2022 and beyond. The continued robust demand from really one of the most innovative and transformative industries in the United States, the life science industry, one which is not really cyclical, but which is event driven I think does set us up and enable us our brand and our talented and special operational lab space affords us a very strong pricing power in each of our cluster markets, and really in many ways sets us up to have a very strong earnings growth year here in 2022 and into '23 and '24.

We continue to create highly accretive value creation opportunities to meet the current demand of over our 850 innovative tenants and importantly provide a path for future growth. And although, we've reiterated 2022 guidance and Dean will speak more about that in a moment, the $8.26 to $8.46 FFO per share, we will clearly revisit and update that in the first quarter earnings release, we have very strong momentum at our backs. As most of you know and we often comment with 10,000 known diseases to human kind, less than 10% really have addressable therapies today and we are truly in the early days of the golden age of biotechnology and biology, advances and innovation are happening it -- happening at unprecedented speed and driving human health and quality of life in a positive direction.

Steve Jobs commented many years ago when he predicted he thought that the biggest innovations of the 21st Century would be the integration of biology and technology. We've achieved historic milestone in many respects. And hopefully, you enjoyed the press release and supplement where we try to highlight those in both graphical, word form, truly and others will speak about this in a moment.

The highest leasing volume in the company's history 9.5 million square feet, just an awesome achievement, double the annual revenues, at our 2017 Investor Day, we gave a framework that we would hope to double annual rental revenues in five years and we exceeded that about a 1.5 year ahead of time. We also concluded the largest acquisition in the company's history, during 2021 our entry into the Fenway submarket and over 1 million square feet was leased to our long-time tenant and very close relationship Moderna. And I would say probably most importantly, and I think Dean, Peter and Steve will probably all will comment on this, our historically high and strong leasing value creation pipeline really foreshadows outside growth coming for the -- coming into the upcoming years, including 2022. Nearly 8 million rentable square feet under construction are expected to commence over the next six quarters to generate over $610 million of incremental annual revenue we think really sets us up in an extraordinary fashion.

So with that, let me turn it over to Steve for some important commentary.

[Stephen A. Richardson, Co-Chief Executive Officer at Alexandria Real Estate Equities]

Thank you, Joel, and good afternoon, everyone, Steve Richardson here. 2021 was indeed a year of historic demand, as Joel has just outlined in the life science industry. And for leasing milestones from the Alexandria team, the 9.5 million square feet of total leasing was a record shattering figure and the 4.1 million square feet during Q4 alone doubled the previous highest quarterly leasing run rate. The highlight, however, may have been the 3.8 million square feet of leasing in the value creation, development and redevelopment pipeline with the emphasis on quality.

We had two large-scale ground-up Class A plus facilities featuring long-term leases to credit tenants. The 462,000 rentable square foot facility at 325 Binney leased to Moderna for their lab headquarters and the 231,000 rentable square foot facility at 751 Gateway for Genentech Roche's lab facility were ably led by our teams on the ground in Greater Boston and the San Francisco Bay Area. And important to note, both Moderna and Genentech Roche are long-time lab tenants of Alexandria, and a hardy shout out as well to our teams for a superb year during 2021.

We also look to the metric we don't normally analyze but consider the following: the 9.5 million square feet of total leasing provides in excess of $6 billion of contractual triple-net base rents. $6 billion of contractual base rents are a significant financial metric, but maybe more important is the market reality of this leasing success, the meaningful expansion of the formidable moat the Alexandria team has carefully and strategically created since the company's inception 28 years ago.

Also, consider that this 9.5 million square feet of total leasing comprised 318 lease transactions with 280 different life science tenants in our core clusters. This dynamic activity could not be a starker contrast with other entities and random groups who may be leasing 25,000 to 50,000 square feet and occasionally 100,000 square feet here or there to a handful of life science tenants oftentimes outside of our core clusters.

As an investor, the value proposition offered by Alexandria is very clear. We are laser focused on the life science industry. This is not a side car or a new initiative for the company. And as we continue to execute on creative and long-standing relationships to drive growth in our core markets, the dominant presence of our brand and mega campuses provides a singularly compelling story in the life science real estate market with our stellar reputation for delivery of high-quality, on-time and on-budget infrastructure and incomparable complex lab operations.

Now let me elaborate on a few additional highlights for a milestone late in 2021. The core continues to outperform with impressive renewal and re-leasing spreads of 22.6% cash and 37.9% GAAP during 2021. And we have significant embedded upside with mark-to-market now at 31% plus. This is nearly double the mark-to-market of 17% at the end of Q4 2020. AR for 2021 was 99.9%. Huge kudos to our best-in-class operations teams for their continued close relationships with our tenants throughout COVID, these past two years.

Early renewals during 2021 were 82% compared with our historical 71% rate. And the exceptional health of Alexandria's value creation pipeline at scale, 7.4 million square feet is one of the largest and highest quality pipelines amongst all REITs. We've increased the lease negotiating percentage to 83%, and Peter will comment on the details later, has significantly de-risked the delivering of the incremental revenues of $610 million noted on Page 34 of the supp.

Let me turn to supply and demand for a moment. On demand, as we've highlighted throughout the recent Investor Day presentation and these fresh statistics clearly indicate Alexandria's compelling by proposition for tenant base at our unique mega campuses has enabled us to capture not only a very large market share but also the highest quality tenants in our core clusters.

And as we analyze supply, again, we do not foresee any major supply disruptions during 2022 and 2023, and the delivery of large-scale supply actually materializing is highly uncertain during 2024 and beyond for other potential new entrants. They face entitlement risk, operational risk for tenants considering unproven landlords, capital market risk with the recent increased volatility related to construction starts, supply chain risk as they consider plunging into a new technical and complicated product type and the very significant underwriting risk posed by the nature of the biotechnology in your street. So we are monitoring supply closely, but consider these risks to be very strong headwinds for others.

So in conclusion, as we start 2022 with enthusiasm for the highly disruptive therapies for huge unmet medical needs on the horizon by our more than 850 innovative tenants, we look forward to updating you on our progress in the coming months.

With that, I'll hand it off to Peter.

[Peter M. Moglia, Co-Chief Executive Officer & Co-Chief Investment Officer at Alexandria Real Estate Equities]

Thanks, Steve. I'm going to update you all on the value creation pipeline. I'm going to discuss what we're seeing with construction costs and supply chain issues and summarize our fourth quarter asset sales, which should bring to light a great opportunity investors have right now to benefit from the discount between our stock price and NAV due to overlooking the strength of our fundamentals and the reality on the ground in favor of macro themes.

Just look at our quarterly and annual performance, even in volatile times, we've been able to post exceptional results. Less than a handful of REITs can operate at the scale of operational excellence, and even fewer have a dominant share in each of their major markets, a high-quality tenant base and own the vast majority of a scarce asset class. Investors seem to be missing this.

Projects that are either under construction or expected to commence construction in the next six quarters are projected to deliver greater than $610 million in incremental rental revenues, primarily from the first quarter of this year through 2024. What Joel and others termed as the Golden Age of biotech today and during Investor Day, due to the accelerating discovery and development of effective new modalities, such as cell gene and RNA and DNA therapies, continue to accelerate demand for life science real estate throughout the year and especially in the fourth quarter, resulting in Alexandria shattering a number of leasing records, including the total annual and quarterly leasing volumes of our development and redevelopment pipeline.

In addition to this outstanding leasing, our best-in-class development teams have done a tremendous job continuing to deliver high-quality purpose-built laboratory space to our tenants on time and on budget, even in challenging environments, which I'll touch on in a moment.

During the year, we delivered a little over 2 million square feet in 14 projects with at least one project located in each of our core markets, illustrative of the depth and breadth of demand we see in all of our markets. During the quarter, we delivered 600,000 square feet, spanning 10 of those markets, which when fully delivered, will add approximately $34 million in NOI to our bottom line. Stabilized yields for these projects averaged 6.2% on a cash basis, which is a very healthy spread to the cap rates we are seeing in our partial interest sales, which I will also discuss later.

Our current projects under construction are largely pre-committed with 75% of the space leased and 82% leased or under negotiation. Near-term projects expected to commence construction in the next six quarters totaled 10.2 million square feet and are already 67% leased and 83% negotiation. These projects include ground-up development at Arsenal on the Charles, a development in the Seaport submarket of Boston at 15 Necco, which is fully committed; two ground-up projects at Torrey Pines that will aggregate properties on North Torrey Pines Road and adjacent streets into our new one Alexandria Square mega campus; two, fully committed ground-up developments at Alexandria Point mega campus in the UTC; and three, ground-up developments at our Alexandria Center for Life Science mega campus that are 89% committed in aggregate, truly a remarkable pipeline to fuel earnings growth for years to come.

We continue to monitor construction costs and supply chain disruptions with a laser focus. As reported in past calls, 2021 was a very challenging environment with overall cost indexes indicating a full year inflation of 13% plus, driven largely by materials costs and a lack of available labor. Conversations with general contractors and examination of industry reports are consistent in concluding that things are improving. And it's expected that as factories, ports and logistics issues settled down, materials pricing will become favorable.

Expectations are things will remain elevated in 2022, but we will see a return to normal in 2023. For example, according to IHS Global Insight, steel increased by approximately 27% in 2021, but is expected to increase by approximately 14% this year before decreasing by 13% in 2023 and again by 9% in 2024. Almost every material line item tracked by IHS is expected to start decreasing in price by 2023, with the remaining items increasing at historic inflation rates.

The bigger risk we face is delay caused by supply chain problems. A poll of our project managers indicated that although we have some problems with items we typically include in our core and shell development, such as generators being delayed by six to eight months, we are, by and large, able to mitigate delays by making early commitments on design and equipment specifications, a luxury we have because of our years of experience in developing life science buildings, enabling us to make quick decisions based on proven standards we have developed over two decades, a status few others have and the result has been no material delays in the core and shell delivery of our project. Experience matters.

However, it's a different story with FF&E, which puts most of the burden on our tenants. Things like benches and other fixtures such as glass watching equipment are tough to get right now. Fortunately, we're able to leverage our scale and relationships for our tenants and ensure the advantages we have in nurture their benefit, so they can get up and running with little and convenience.

In the fourth quarter, we completed the previously disclosed recapitalization of 1,500 at 409/499 Illinois in Mission Bay and completed partial interest sales at 50/60 Binney in Cambridge, 455 Mission Bay Boulevard and 1700 Owens in Mission Bay with the Binney assets raising nearly $800 million in proceeds at a sub-4% cap rate, realizing a profit of approximately $450 million over cash invested and the Mission Bay assets raising nearly $400 million of capital while achieving a 3.8% cap rate.

We also sold our 49% interest in our Menlo Gateway Tech Office Project, generating almost $400 million in proceeds and achieving a profit of a little over $100 million in just under a five-year hold period. Overall, these sales generated $1.97 million of proceeds at an average cap rate of 4.3% and a per square foot value of $1,497. When you put that into the context of yesterday's $194.84 closing price of our stock, which implies a per square foot value of our operating assets of only $906, it supports my earlier statement about a disconnect between the stock price and the reality on the ground. High quality life science assets with high quality tenants are scarce, and we have hundreds of them. We are a bargain right now.

With that, I'll pass it over to Dean.

[Dean A. Shigenaga, President & Chief Financial Officer at Alexandria Real Estate Equities]

Thanks, Peter, Dean here. Good afternoon, everyone. 2021 was a historic and record year of financial and operating performance for Alexandria. We are very well positioned for another exceptional year. We are the go-to brand. Our team delivers a very high level of operational excellence. We benefit from our important and strategic life science industry relationships plus over 850 tenant relationships.

We generate strong core growth through same-property NOI growth. We have tremendous visibility into future growth with $610 million of incremental annual rental revenue from our value creation pipeline. Our team has delivered consistent execution of bottom line FFO per share growth year-to-year, and we have one of the strongest sheets in the REIT industry.

We reported total revenues of $2.1 billion, up 12.1% over 2020 and FFO per share as adjusted per diluted share of $7.76 for the full year, outperforming our initial outlook for 2021 by $0.06 per share. 2021 generated many financial metrics that reflect outperformance relative to our initial guidance for the year, which I'll cover throughout my commentary.

Core growth in key financial statistics were exceptional. Growth in cash NOI of $280 million to $1.4 billion for the fourth quarter annualized was supported by one of the highest quality tenant rosters in the REIT industry with 51% of our annual rental revenue from investment-grade rated or large-cap public companies.

We had an industry-leading EBITDA margin of 71%, highlighting efficient execution by our team. We had 100 basis points growth in occupancy for the full year of 2021, excluding the impact of vacancy from recently acquired properties. Now importantly, 48% of the 1.8 million rentable square feet of vacancy from recently acquired properties is expected to commence occupancy and rental revenue over the next two quarters. That's pretty amazing execution by our team.

Now turning to 2022, the midpoint of our occupancy guidance is 95.5%, which is 150 basis points higher than occupancy of 94% as of 12/31/21. Now demand for space from our life science industry relationships and tenant relationships drove record leasing volume with over 9.5 million rentable square feet executed, double the rentable square feet of leases executed annually in recent years. And we achieved record rental rate growth of 37.6% and 22.6% on a cash basis.

Now rental rate growth outperformed our initial outlook for 2021 by 740 basis points and 510 basis points above the midpoint of the range of our guidance, again, pretty spectacular results. And importantly, for 2022, we expect continued strong rental rate growth on lease renewals and releasing the space at roughly 32.5% and 20% on a cash basis at the midpoint of our guidance.

Same-property NOI growth was very strong for 2021 at 4.2% and 7.1% on a cash basis. GAAP rental rate growth was about double and cash results were up about 40%, above the midpoint of our initial outlook for 2021. Our outlook for 2022 same-property NOI growth at the midpoint of our guidance is also very strong at 6.5% and 7.5% on a cash basis, above our strong performance in 2021 and reflects 170 basis point growth in same-property occupancy for 2022.

Now leasing activity in the fourth quarter continued to reflect a very favorable environment for Alexandria. Occasionally, though, there is a lease or two that skews this particular statistic in the quarter. The fourth quarter included lease extensions with two tenants with higher tenant improvement allowances and leasing commissions. But the key takeaway is that net effective rent, which is GAAP rent less the impact of tenant improvement allowances and leasing commissions, is up 50% on average for these leases.

Now TIs and leasing commissions for leased renewals and releasing of space, excluding these leases, was about $34 per square foot and consistent with historical amounts. Now we are in an outstanding position today with tremendous visibility for future growth in annual rental revenue of over $610 million from 7.4 million rentable square feet of development and redevelopment projects that are 80% leased or under executed LOI or advanced lease negotiations. Now what truly stands out as exceptional is that 94% of the 7.4 million rentable square feet that is leased or negotiating is from existing relationships, highlighting the strength of our brand, operational excellence, our mega campus offerings and many other features.

Now during 2021, we completed a record level of leasing with 3.9 million rentable square feet of development and redevelopment space leased, including a whopping 1.8 million rentable square feet in the fourth quarter. We delivered about 2 million square feet of development and redevelopment projects in the year with about $1.6 billion in basis that was on average completed in July of 2021. Now looking forward, NOI from development and redevelopment projects is expected to increase significantly in 2022 in comparison to 2021, and we expect significant year-over-year increases in NOI from development and redevelopment projects to continue into 2023.

Turning to venture investments, the investments performed really well in 2021 and generated $216 million in realized gains, including $106 million that was included in FFO per share. Now unrealized gains as of December 31 was almost $800 million, up about $44 million from the beginning of the year and looking forward into 2022, venture investment gains, we expect to include an FFO per share, should be relatively consistent with 2021 at roughly flat to up 10%.

Turning to our balance sheet. Looking back, actually, it was about 10 years ago that our team completed our debut investment-grade bond offering of 10-year notes at 4.66%. Now 10 years later, our team is very pleased with Alexandria's corporate rating that ranks in the top 10% of the REIT industry. So congratulations, team. Now thinking about where rates are today, we could issue 10-year bonds at an all-in rate just under 3% today, highlighting very attractive long-term fixed rate debt for our company.

In October, S&P upgraded our credit rating outlook to positive, highlighting our unique and differentiated business model, strong brand and execution, high-quality cash flows and strong credit profile among many other items. Now we met or exceeded our strong balance sheet goals with net debt-to-adjusted EBITDA at 5.2 times and our fixed charge coverage ratio at 5.3 times, and we ended 2021 with over $3.8 billion in liquidity.

Now turning to guidance, there were no changes in the detailed disclosures for 2021 guidance. We reaffirmed our strong outlook for 2022 -- oops 2022 included EPS diluted ranging from $2.65 to $2.85 and FFO per share as adjusted diluted ranging from $8.26 to $8.46. Now as a reminder, please refer to Page 8 of our supplemental information for detailed underlying assumptions included in our guidance for 2022.

And with that, I'll turn it back to Joel.

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Thank you very much, and let's open it up for questions, please.

Questions and Answers

[Operator]

[Operator Instructions] Our first question will come from Sheila McGrath of Evercore ISI. Please go ahead.

[Sheila McGrath, Analyst at Evercore ISI]

Yes, good afternoon. I was wondering, if you could go into a little bit more detail on some of the recent acquisitions and your vision or the opportunity you see, specifically the land purchases in Research Triangle and maybe comment on the demand drivers in RTP, the acquisition of the Strip Center in San Diego, and finally, Texas, what drove this new market decision?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yeah, hi, Sheila, let me start your couple of questions in North Carolina. We have substantially increased our holdings there in a number of ways and recent land parcels are aimed at creating and expanding -- actually expanding the mega campus, which was the former Glaxo campus there that we bought and have turned into kind of a mega campus, if you will, that will be well over 1 million square feet. Leasing has been very, very strong there, and we're adding some adjacent land to expand that campus and the capabilities there.

You asked about what's driving the demand in North Carolina, particularly in the Triangle. And I think you could argue -- it goes back to our thesis when we started the company that clusters are really driven by four factors: one, you got to have a there's there, here's here, so to speak. So the Triangle is they're there, here's here, anchored by North Carolina, UNC, Duke and North Carolina State. The talent base is a second critical factor and one, as you know, there's kind of a war for talent across America in corporate America, even in just average individual-owned companies, small businesses, I guess, as you would call them, with so many people leaving the workforce. And North Carolina has an amazing blend of great talent and highly trained skilled people, especially for life science, agricultural tech, and certainly technology industries.

The third factor is risk capital. There's a good abundance of capital in that market that are fueling companies. And then finally, there's a real plethora of scientific and technical, you might say, technology where translational work is coming out of the labs and moving into companies. So those are the four things that are really driving and also next-gen manufacturing is found North Carolina to be an important place.

I think Lilly announced today, they're building a $1 billion campus, I think just outside Charlotte, a little surprised it wasn't closer to the Triangle, but they also have operations there. But that's what's driving North Carolina. In San Diego -- I think you asked about San Diego was the second location?

[Sheila McGrath, Analyst at Evercore ISI]

Yeah. I think you acquired a Strip Center there to redevelop or something?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yeah, that is a -- Dan has been working on that for quite a while. That is a really great location in the heart of University Town Center, which has been a hallmark of our presence down there since probably 1998 and an attempt to create a mini campus there in a really great location, driven by -- heavily by great transport. And obviously, you know the history of the San Diego market, San Diego has really emerged as one of the top markets with a great talent base and really strong capital base, strong scientific prowess and obviously, the land there has been very cherished.

And I think the final market you asked about was Texas. So for a variety of legal reasons, I can't say anything until the first quarter, and we'll talk about that, but much like New York, when we started in New York, we really spent -- before we opened the Alexandria Center for Life Science in 2010 and we had started an effort in New York back in 2001 as part of Sandy Wild's effort to bring commercial life science to New York City, where none literally existed. And I would say the same is true of Texas. Literally, no real presence of commercial life science down there today, but our intent is to create a market and really bring early-stage commercial life science to Texas, much like we did in New York. So with that, hopefully, long-winded answer.

[Sheila McGrath, Analyst at Evercore ISI]

No, that's great. Thank you.

[Operator]

The next question comes from Jamie Feldman of Bank of America. Please go ahead.

[Jamie Feldman, Analyst at Bank of America]

Thank you for taking my question. Alexandria recently put out a press release saying that you're the number one most active corporate investor in biopharma in terms of new deal volume, and I believe it was for the last five years. I just want to get your thoughts on your appetite for investment now. Our economists are calling for seven rate hikes this year, fed funds rate hikes this year and more next year. I want to get your thoughts on both what -- how ARE thinks about putting capital to work in a rising rate environment and just what your sense is of deal flow and capital raising we'll see in biotech and biopharma in this environment?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yeah, Jamie. Thanks for your question. It's a really good question. So remember, and I said in my earnings commentary just a few minutes ago, the industry is not a cyclical industry. The mature companies have large amounts of revenue and operate at scale and aren't really influenced by the cyclicality in any way quite like the very interest rate sensitive industries are. So that's number one.

Number two, you have to remember that this industry, hopefully, the compression time for bringing new therapies to market to address so many really terrible things that we don't currently have therapies for, takes a number of years. It's not like tech where you can create a software program and bring it out instantaneously. So when we met and began our work with Moderna was 2011, that was a pretty tough year, as I recall. We were just getting our investment grade rating. As I remember, Steve, I always said, we didn't have a single tour at Mission Bay for maybe 18 months and the capital markets were pretty, pretty bleak. So we think long term. So investing now for the future, there's -- this is a good time to do it especially as Peter said, the new modalities will change the face of, I think, health care of the future. So we're very bullish on that.

And I'm not sure what more I can say, but interest rates and the economy really are -- you have to obviously pay attention. We're very mindful. We certainly lived through a number of ups and downs, the '99, 2000, tech bust and then the '08, '09 financial meltdown. So we're pretty judicious about what we do and how we do it, but we're out there looking for the next Moderna's.

[Jamie Feldman, Analyst at Bank of America]

Okay. Thank you. And have you sensed the change in the market -- competitive investment market, given the pullback we've seen in the stocks? I know it hasn't been very long, but any --

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Hope for sure. I mean, yes, the -- it certainly is well recognized that the public markets have had major adjustments in valuations over the last, say, three quarters. I think that's starting to leak into the private market because a number of companies who have clinical programs are selling at cash, which is a bargain today. So investors are looking at those with big appetites. So I think you'll see some of that froth go out of the private markets. My guess is you're seeing the same thing on the tech side as well. Public markets are resetting valuations in the private markets. But truly great companies are going to get funded. There's a huge amount of venture that's been raised over the past couple of years, gigantic amounts, historic amounts. And those are investable dollars for the coming handful of years that those aren't running out anytime soon.

[Jamie Feldman, Analyst at Bank of America]

So in terms of demand for your portfolio, do you think it will be a noticeable change or no?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Well, I don't know if we'll be able to repeat the high watermark of 9.5 million square feet for 2021 on over 4 million square feet for 4Q. But as I think Peter and Steve has said, we have a huge wind at our back. We've got over 850 innovative tenants most of whom we service for their current demand and future growth. So we're pretty comfortable about where we are. And certainly, our value creation pipeline super highly leased. So I don't think we're at risk, but we're mindful. I mean, if Russia invades the Ukraine, then things are going to change pretty rapidly for everybody, right?

[Jamie Feldman, Analyst at Bank of America]

Okay. Thanks for your thoughts, Joel.

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Of course.

[Operator]

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

[Rich Anderson, Analyst at SMBC Nikko Securities America]

Good afternoon, everyone. So earlier on the call, I was -- I think, Joel, you mentioned had this incredible quarter and year of leasing and that you'll take another look at guidance, not making any commitments, of course, the following quarter. But is it not true that you -- when you issued your guidance in the -- on December 1, you had already seen what was happening at that point? Or it was part of what you're reporting today, a surprise to you even from the beginning of December hence, you could have like an earn-in type of event for 2022 as the success in the fourth late part of fourth quarter rolls into the coming year?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Well, I think I'll let Dean answer that, but I think the commentary is, we try to be conservative with how we project the future until we start to see things roll out, December was a record-breaking leasing year. We have a lot -- a good amount of leasing on the precipice of happening. And I think we feel pretty good we gave a range, and I think you'll see us go forward in the first quarter and give you a fulsome update. But Dean, do you want to make any comments on that?

[Dean A. Shigenaga, President & Chief Financial Officer at Alexandria Real Estate Equities]

Yeah. Maybe just to somewhat reiterate what you said, Joel. Rich, the way to think about it, we had good tailwinds behind us last year -- this time last year, as we started '21, and we were able to outperform a lot of our underlying guidance assumptions, including overall bottom line FFO per share. We're off to a great start at the very beginning of 2022 with good tailwinds behind us. So we're pretty optimistic, but stay tuned, I guess.

[Rich Anderson, Analyst at SMBC Nikko Securities America]

I guess the answer is record December, which didn't happen until after the earnings Investor Day. So next question, maybe to Peter. You mentioned the $906 per square foot valuation on the stock. Can you kind of book in that for me? Because there are few ways to skin that analysis depending on what you have in the denominator. So is there a high and low end range depending on some of the assumptions you put into that math?

[Peter M. Moglia, Co-Chief Executive Officer & Co-Chief Investment Officer at Alexandria Real Estate Equities]

Well, it's the same back of the napkin formula we used a while back when I was commenting on this kind of once the stock implied per foot doesn't match up with our asset sales. And you just take our total market cap at the close -- or I'm sorry, at the end of the year of about $39.5 billion and then you take out our CIP from our developments, our venture assets and our cash and restricted cash, and that gives you the estimated value of our properties divided by our operating square footage. So that's what -- plus or minus, I'm sure, it's not completely specific, but it's in the ballpark. Even if -- even if it was way off, there's still a huge disconnect.

[Rich Anderson, Analyst at SMBC Nikko Securities America]

Yeah, I got you. Yeah. And then following on the investment side for you, when you -- a lot of times when you guys make acquisitions, there is a component of operating assets and very often a future development or redevelopment opportunity to your credit. When you -- would you allocate total cost to those types of transactions that have kind of multiple layers of opportunity in them? How do you do that? I mean is there a rule of thumb of how much the operating assets get versus the development assets in a given transaction? I'm just curious how that -- how we should think about that?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yeah. So Dean, maybe --

[Dean A. Shigenaga, President & Chief Financial Officer at Alexandria Real Estate Equities]

Yeah, Rich. I wish there was a simple answer to help for your modeling. But as you can imagine, every transaction is very unique and specific. And the component of operating relative to value creation is also very unique. So there's nothing general that I could guide you towards. We did include, though, for modeling in our acquisition disclosures, in the footnote there, there is a breakdown of how much NOI was brought on board for the current quarter acquisitions and the exact date on a weighted average basis that, that was added for the fourth quarter. So at least you have the NOI to model, but the basis is much harder to get to, Rich.

[Rich Anderson, Analyst at SMBC Nikko Securities America]

Okay. Thanks very much.

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Thank you, Rich.

[Operator]

Next question comes from Manny Korchman of Citi. Please go ahead.

[Michael Bilerman, Analyst at Smith Barney Citigroup]

Hey, it's Michael Bilerman here with Manny. Peter, I wanted to come back on this valuation question, and I recognize this is a drum that you beat for a little while as the stock has traded below where you've been able to sell assets and certainly where private market values are. How do you think about the last two years, you've issued, I think it's about 30% of your share base, clearly a pretty significant discounts to what you perceive market to be. You're obviously investing that capital accretively into highly pre-leased development and redevelopment as well as acquisitions. But at some point, if your view is that the stock should be worth significantly more than illustrating today, you're issuing that equity at a massive discount. Hence, you need the things you're investing in to offset the dilution that you're putting on the company from issuing at such a low value below what you think NAV is. So can you just sort of step back from it because if you had issued 5% of your share base, it's one thing, but you've issued 30% over the last two years. So how do you sort of put all that together as you're thinking about capital allocation and raising?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yeah. So maybe, Dean, do you want to comment on that first and maybe let Peter give color.

[Dean A. Shigenaga, President & Chief Financial Officer at Alexandria Real Estate Equities]

Sure, Joel. So Michael, I think what you described at a super high level, generally has been a challenge that the growing company like Alexandria has faced. As you know, as we grow cash flows pretty consistently quarter-to-quarter take the macro environment way, our stock price should be higher the next quarter. If we wait too long to use stock then we have an equity overhang. So I think, what we've tried to do, Michael, is to be balanced here. I think Peter's commentary from time to time is just to highlight the opportunity on the stock price performance. Hopefully, it catches the attention of investors. While we do our job to execute the business and do it as best we can to grow cash flows in a prudent way and fund it in a reasonable way with both debt equity as well as proceeds from dispositions.

So yeah, I think on average, we've done a pretty good job being mindful of that overall challenge and opportunity in front of us. We are making money as we invest our capital at the price points that we have raised both debt equity as well as recycling capital from dispositions. So there's a balance we need to navigate that I think you're pointing out.

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yes. So Dean, could you maybe just highlight the historical equity level incurred to say a lot of company?

[Dean A. Shigenaga, President & Chief Financial Officer at Alexandria Real Estate Equities]

Yeah, that's important, too. And Michael, you might remember this from Investor Day, we had touched on just looking back at how much equity do we -- common equity do we use to fund our growth. We all know that at our leverage profile at a stabilized basis, an asset might require 65% plus of equity, the remainder being debt funded. And if you compare that to what we've done historically, we're actually only using about 40% to 42% of common equity to fund growth. And what that's highlighting is tremendous cash flow is being reinvested in the business, which for '22 is north of $300 million, but we're also taking advantage of recycling capital from [Technical Issues] high value, low cap rate, partial interest transactions and then EBITDA growth gives us some incremental benefit as well. So I think that also just highlights that we're being very disciplined in our approach, trying to minimize the amount of common equity we issue while being mindful. We want to keep our balance sheet in a super strong position.

[Michael Bilerman, Analyst at Smith Barney Citigroup]

Yeah. And I get all those things and certainly tapping the asset sales and joint ventures over the last number of years has been another source of capital, but you've also enlarged your acquisition opportunities, both development as well as straight transactions. And it just strikes me that sometimes, Peter, when you get on and you say we're a bargain or a bargain and throwing out $1,500 a foot, I think people start to -- really try to get into your head off, what do you perceive in to be -- we recognize the most recent sales are indicative of where the market is for life sciences, but I don't think that's what you're trying to guide people towards that your entirety of your portfolio is worth $1,500 a foot and every $100 per foot is, call it, almost $20 a share of NAV. So trading at $900, what is the value that you have in your mind? You must have a sense of when you're issuing -- a couple of weeks ago, right, you issued $1.7 billion at $1.86. You must have had a view whether that equity in your view, is worth $2.50. Is it $2.75? Are you saying it should --

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Well, I think -- yeah, I think, Michael, the point of that is we were at an all-time high, and we felt very comfortable in taking the market risk of issuing equity, especially before a pretty -- what's likely to shape up is a pretty volatile year. NAV is a little bit like beauty. It's in the minds of the beholder. And I think that we felt at that point, we were very comfortable issuing equity at that level. Let's just put that point to rest.

[Michael Bilerman, Analyst at Smith Barney Citigroup]

Yeah, I was just trying to get to understand how the company thinks about is cost. The cost of equity and when it puts into what you're using it for, just how you're thinking about the accretion dilution from that, especially if you're telling investors that the stock is cheap. I'm just trying to get a sense of how you thinking about it -- but we can --

[Stephen A. Richardson, Co-Chief Executive Officer at Alexandria Real Estate Equities]

I didn't say that, Peter giving a view on an asset-by-asset basis, but at an all-time high, issuing the equity we did. We felt very good about what we're doing and the accretive uses we could put that equity too.

[Michael Bilerman, Analyst at Smith Barney Citigroup]

Okay, great. See you in Florida.

[Operator]

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

[Michael Carroll, Analyst at RBC Capital Markets]

Hey, great, thanks. So I wanted to dive into the leasing stats a little bit. I know volumes were pretty high in the fourth quarter, both in the operating and the development portfolios. In the operating portfolio, I'm trying to connect the dots with the strong volume, but occupancy dipped albeit very slightly. Is this in part due to leases being signed but not yet commenced or is it explained by the lease extensions that Dean mentioned in his prepared remarks?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Well, I think it's primarily acquisitions, but Dean, you could comment.

[Dean A. Shigenaga, President & Chief Financial Officer at Alexandria Real Estate Equities]

So the acquisitions have been driving almost every quarter, face rate declines in reported occupancy. But if you strip that out, Michael, pretty consistently every quarter or two, we're driving growth in overall occupancy. As an example, we highlighted in 2021, we had a 100 basis point increase in occupancy, if you exclude vacancy from recently acquired properties. And I think I highlighted in my commentary that we do expect, if you put any future acquisitions to decide that we can't model because we're not aware of them, we're expecting 150 basis point growth in occupancy in 2022. And I would suspect that given the tailwinds for our business and our portfolio here, that could continue looking out beyond '22 as well.

[Michael Carroll, Analyst at RBC Capital Markets]

Okay. No, great. That makes a lot of sense. And also, I like the new disclosure, at least the highlight disclosure that about 63% of your operating properties are in mega campuses. I mean, is there a way to quantify the importance of having these larger campuses? Do those buildings in these campuses drive stronger revenue growth and buildings outside of those campuses?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yeah. I think if you remember back to Investor Day, Dan gave a specific example in San Diego, where our mega campus leasing effort was substantially above on a lease rate above a nearby building, which was owned by another REIT and demonstrated that is just kind of a sheer apples-to-apples. And one of the reasons it makes a big difference is because it provides not only the highly amenities and tailored services and facilities for tenants, but it gives them a space for growth right now, but a path for future growth in our industry today, that's kind of mission-critical.

[Michael Carroll, Analyst at RBC Capital Markets]

Great. And then, Joel, within the development pipeline, I guess do you have the percentage of the buildings that further build out your existing campuses or create new campuses?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

We do. I don't think we have that in any specific disclosure place. But if we go campus by campus, clearly we do.

[Michael Carroll, Analyst at RBC Capital Markets]

Okay, great. Thank you.

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yeah, thank you.

[Operator]

Our next question comes from Tom Catherwood of BTIG. Please go ahead.

[Tom Catherwood, Analyst at BTIG Research]

Thanks everyone. Steve, I appreciate your commentary on the new supply in your markets and demand is obviously strong, given record leasing volumes this quarter and year. With that said, though, can you provide some additional color on the demand in your markets and maybe how that demand is split between your core and emerging clusters if you have that information?

[Stephen A. Richardson, Co-Chief Executive Officer at Alexandria Real Estate Equities]

Yeah. Hey, Tom, it's Steve here. Certainly, on the demand side and we've said this now probably for a couple of years that it is broad-based in each of our core clusters. So it's not just one or two clusters with a -- at a proportion contribution. So Joel touched on what's happening on a Research Triangle, that's very encouraging, very healthy demand in Maryland and Seattle as well and then certainly, San Diego, San Francisco and Greater Boston, very healthy there. So on the demand side, absolutely broad based, and we continue to see that going forward in the future as well.

[Tom Catherwood, Analyst at BTIG Research]

Makes sense. Given that you've added some of these emerging or new cluster locations, is it a case of, if you build it, they will come where you've seen demand move as you have moved? Or has the demand kind of remained consistent from before and now after you're in those markets as well?

[Stephen A. Richardson, Co-Chief Executive Officer at Alexandria Real Estate Equities]

Yeah. I'm not sure I would characterize it as new markets, Tom. I think what we've done is either one double down literally in our core markets. I mean, look at 325 Binney as an example, there in Cambridge. Certainly, what's happened, Peter referenced the projects down in San Diego and Tory Pines. And then the second aspect of it is really expanding through adjacent expansions, but no real kind of new greenfield core markets as we've talked about this broad based demand.

[Tom Catherwood, Analyst at BTIG Research]

Got it. Makes sense. And last one for me. In the summit, you laid out your next, I think, 11 developments and redevelopments that are slated to start over the next six quarters and their 89% leased store negotiation. Outside of those, are there others that could commence in the same time frame if pre-leasing gets done? Or are you kind of limited by entitlements or design or local approvals?

[Dean A. Shigenaga, President & Chief Financial Officer at Alexandria Real Estate Equities]

Tom, it's Dean here. There are projects beyond that 2.6 million square feet that is currently disclosed at 89% lease negotiating. So those are the projects that could start over the next six quarters. In addition, to be real clear here, we expect the potential for other starts. But we just wanted to highlight in these disclosures here that we've got a very active pipeline under either leased or advanced negotiations. It just highlights how much we're working closely with our relationships to meet their current and future space needs.

[Tom Catherwood, Analyst at BTIG Research]

Got it. Thanks guys.

[Stephen A. Richardson, Co-Chief Executive Officer at Alexandria Real Estate Equities]

Thank you, Tom.

[Operator]

Our next question comes from Vikram Malhotra of Mizuho. Please go ahead.

[Vikram Malhotra, Analyst at Mizuho Securities USA]

Thanks for taking the question. Just maybe two questions. First, just on -- just pricing power across your markets, you've referenced really good. Rent spreads seems like they're sustainable given your guidance. But I'm wondering if you can just talk about how we think about the sustainability of these spreads maybe from two different perspectives. One, just in your view, what's sort of the mark-to-market of the portfolio today in your various clusters, but also just maybe top down, can you talk about just what life science tenants are paying in rent as a percent of their own revenue? Is there just an elongated runway, given where that is today?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yeah. So the answer to your first question, I think, Steve addressed. Generally, on a mark-to-market basis, the portfolio would be about 31% up. So that gives you a good sense of how that would play out. And then when you look at life science companies, pharma, biopharma, small, medium, rent is generally a smaller part of -- I think, Steve or Peter, you guys may have the stats, but a fairly small part of the overall G&A, whereas if you go to service companies, law firms, securities firms, it's a much larger part. But I don't know, Steve or Peter, do you have that percentage in mind? It's sub-5%, I believe.

[Peter M. Moglia, Co-Chief Executive Officer & Co-Chief Investment Officer at Alexandria Real Estate Equities]

Well, for our large cap bio and pharma companies, it's actually 1% to 2%. And then the kind of the mid-caps is in the 5% to 6% range.

[Vikram Malhotra, Analyst at Mizuho Securities USA]

Okay. That's helpful. And then just to clarify on some of your newer developments or in general, one of your Office peers, I should say, referencing kind of a lot of demand even for life science assets from other categories, tech, especially, given the need for newer buildings and amenities. Are you seeing just unsolicited interest from just other groups given sort of where your buildings are?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yeah. We've seen that for a decade or more. I mean, Steve, maybe just a tutorial on Mission Bay for a moment, which is kind of where a lot of this started.

[Stephen A. Richardson, Co-Chief Executive Officer at Alexandria Real Estate Equities]

Sure. Yeah. In Mission Bay, you might know, we had a significant influx of technology with Uber establishing a four-building million square foot campus there, so the combination of not only UCSF as a center of learning there, but waterfront location. Now the Chase Center really did make that very desirable for technology companies and a lot of those other elements are true when you look at all of the attributes of our mega campuses in San Diego, Seattle, certainly Cambridge and Greater Boston as well. So and then you have -- and Joel mentioned this too, you've got the integration of science and technology, really spawning new companies and new growth, and those are all happening in each of our clusters.

[Tom Catherwood, Analyst at BTIG Research]

Okay, great. Thank you.

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Thank you.

[Operator]

Our last question comes from Dave Rodgers of Baird. Please go ahead.

[Dave Rodgers, Analyst at Robert W. Baird & Company]

Yeah, good afternoon, thanks. Joel, I just wanted to ask about New York. Most of my other questions were answered. With the New York cluster, I know over time, you've talked about it in kind of the long-term development track for some of these clusters. I think historically, demand was one side that also crowding out of investment capital in things in New York City was an impact on that particular cluster with a weaker New York City office market. Are you seeing either more tenants interested? Or are you seeing more capital or ARE more interested in kind of moving more aggressively in New York to take advantage of the weak office market like you see maybe in San Diego or is that just not really a foot?

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yeah. I don't think that's happening. I think we won the RFP for the first commercial life science campus in 2005 under Mayor Bloomberg's direction. We delivered our first building in 2010. And at that point, there was only a single commercial one incubator up in the Northwest side of Manhattan that had commercial life science tenants. And that was it. Everything else was clinical, academic, but not commercial. And so over the past decade, we've built New York. We have our campus today over 800,000 square feet, and we have the prospect of going significantly more. We've got some 60-plus companies there, only one of which really existed before we started the campus in the city.

And so the New York City market is still -- it's a small company market. It's a small market. We felt that it was a good one to enter because of our cluster model and the drivers. But if you look at last year, there were only about 250,000 square feet of new leases. So in Boston, that's probably a day's work. So you have to look at it with respect to all of the clusters. And it still is -- it's a 25-year gestation period, as I've said, to build a cluster. And we're just now entering the second decade. So New York has got a long way to go. And over the past couple of years, New York has been a tough slog with crime and civil disturbances and things like that. So that's been a challenge. Big companies aren't going to go to New York, New York State because of high taxes. So it remains a small company market. We're committed, and you build it from the ground up.

[Dave Rodgers, Analyst at Robert W. Baird & Company]

All right, thank you.

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Yeah, thank you.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Joel Marcus for any closing remarks.

[Joel S. Marcus, Executive Chairman & Founder at Alexandria Real Estate Equities]

Well, thank you, everybody. We look forward to updating you on our first quarter call. Be safe. Take care.

[Operator]

[Operator Closing Remarks]