Alexandria Real Estate Equities, Inc. (NYSE:ARE ) Q2 2022 Earnings Conference Call July 26, 2022 3:00 PM ET
Joel Marcus - Executive Chairman and Founder
Hallie Kuhn - SVP of Science & Technology and Capital Markets
Jamie Feldman - Bank of America
Richard Anderson - SMBC Nikko
Michael Carroll - RBC Capital Markets
Daniel Ismail - Green Street Advisors
Good afternoon, and welcome to the Alexandria Real Estate Equities Second Quarter 2022 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.
Thank you, and good afternoon, everyone. This 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.
Thank you, Paula, and welcome, everybody. Thank you for joining Alexandria's second quarter 2022 earnings call. With me today are Hallie Kuhn; Steve Richardson, Peter Moglia and Dean Shigenaga.
In a very challenging macroeconomic environment, for sure, we are very blessed and thankful to have a truly one-of-a-kind public company, which has a uniquely visionary mission to create and grow life science ecosystems and clusters that ignite and accelerate leading innovators to advance human health by curing disease, saving lives and vastly improving nutrition, our mission for sure.
We at Alexandria have worked tirelessly to earn the trust and have carefully and meticulously constructed our client tenant base within our best-in-class asset base. In 1994, we uniquely set out to be the trusted lab space real estate partner for life science companies. Today, 28 years later, we have earned the trust of over 1,000 diversified high-quality companies who have chosen our brand and rely on us to deliver on our reputation.
Daily, they entrust us with their most precious assets, their talent, thousands of hard-working science, technology and business professionals reliant on our lab space and on the life science ecosystems we cultivate to attract and retain the best talent to advance their science. We provide them with a truly inspirational and healthy place to work. Daily, they entrust us with billions and billions of dollars of research and development platforms to be safe, secure and operational. Daily, they entrust us to be aligned with their mission to partner together at the highest level of operational excellence to improve human health.
In this market, our results really stand out in the macroeconomic environment we're all experiencing, a slowing economy, the weakened consumer, higher interest rates and ranging structural inflation. Huge congratulations to our Alexandria family on a great 2Q '22 report. As Dean will talk about in a while, we've updated guidance for the second quarter to $8.41, FFO per share, representing an almost 8.5% growth for this year and combined with a 3% plus dividend. We think that's an excellent combination of 11.5% in this macroeconomic environment.
We've experienced very powerful continuing rental rate increases and leasing activity. It's important to remember, 87% of our existing -- of our leasing comes from our existing tenants. We have uniquely crafted our own demand driver and our more than 1,000 tenants and 92% of the first half of 2022 leasing comes from this tenant base. 2.3 million square feet were signed in the second quarter, a third all-time high. with cash all-time high of 34% rental rate increase, highest ever, and a 45% GAAP rental rate, truly epic and historic. And then keep in mind, 50% of our annual rental revenue is from investment-grade or big-cap companies -- public companies, and 80% of our tenants are not private or development-stage biotech companies.
Peter will discuss in detail our outstanding progress in capital recycling to the tune of about $0.5 billion in the second quarter as we harvest great value, which we have created over the last decade. He will also talk about strong external growth engine, which we fine-tuned in the new economic environment. Dean will discuss our fortress balance sheet and strong liquidity. More important now than ever with turbulent capital markets and fortunately, with our great team, we have no debt maturities until 2025. So no FFO dilution due to refinancings. Steve will discuss very strong internal growth and make sure to look at Page 33 of the supplement. And also Dean will mention the burn-off of free rent providing strong visibility for future growth.
Our margin continued to be strong at 70%, and we're very proud of our tenant collections at 99.9%. So no real credit issues whatsoever. Hallie will speak to our awesome and non-replicable tenant base of over 1,000 tenants and the continuing health of the broader life science industry. The life science industry is not phenomonous with simply early-stage biotech. Alexandria and its best-in-class tenant base is very well positioned and prepared for this shifting environment. With our best-in-class assets, decades-long relationship, we in fact, beat the so-called competitive product and much future theorized product, which will never be built.
Last but not least, I want to make a couple of comments about Steve Richardson, our retiring Co-CEO. I want to express on behalf of all the extended family here at Alexandria a profound thank you for the last 22 years, the best ever. Your humble service leadership has set the bar for all of us.
Queen Elizabeth recently talked about leadership at her birthday celebration in which -- and you exemplify these words precisely, finding ways of encouraging people to combine their efforts, their talents, their insights, their enthusiasm and their inspiration to work together. And if I may just finally make a quote from the famous movie Band of Brothers. Of course, it could be all genders, of course, and the requiem for a soldier, we're all one great Band of Brothers. And one day, you'll see we can live together when all the world is free, have you lived to see all you gave to me, you in fact have, you're shining dream of hope and love. We're all one great Band of Brothers.
And with that, I want to turn it over to Hallie Kuhn.
Thank you, Joel, and good afternoon, everyone. I'm Hallie Kuhn, SVP of Science & Technology and Capital Markets.
Today, I'm going to start by covering the bedrock of Alexandria's business. Specifically, as Joel mentioned, Alexandria's world-class and leading stable of over 1,000 tenants. As part of this review, I will cover the health of the life science industry and then pivot to a number of recent FDA approval that reflect the industry's collective drive to develop life-saving therapies. The life science industry is large, diverse and complex. Alexandria's tenant base reflects the diversity with over 1,000 tenants that span multinational pharma, public and private biotechnology companies, life science products such as enabling research tools and manufacturers of complex medicines and top-tier investment-grade companies and institutions.
So let's break this down segment by segment, starting with multinational pharma. Alexandria is proud to call 17 of the top 20 biopharma companies our tenants, including BMS, Eli Lilly, Sanofi, Takeda, Merck and Pfizer, just to name a few. Looking at large cap focused indices such as the Dow Jones U.S. Select Pharmaceutical Index, you'll see that these companies continue to outperform broader indices, including the Dow, S&P 500 and NASDAQ. Biopharma deployed over $200 billion into R&D in 2021 and the top 20 biopharma have an estimated $300 billion cash on hand to put towards M&A and partnerships as they look to bolster their pipelines with innovative new medicines.
Next, public biotech companies. With small and mid-cap companies have gotten outsized focus over the past several months as indices such as the XBI have tumbled, this segment contains many of the most innovative and well-funded large-cap companies in the industry with names such as Alexandria tenants Alnylam and Vertex.
Indeed, the majority of our ARR across public biotechnology companies is from those with marketed or approved products. Across pre-commercial companies, we have a deeply technical and experienced science and technology team that employs a rigorous underwriting and monitoring process to select the fastest-growing and most promising companies. Our over decade-long relationship with Moderna is a great example. Just three years ago, Moderna was in this pre-commercial category and is now a leading global commercial stage biotech.
On to private biotechnology. While funding has slowed across all industries compared to 2021 due to macro market conditions, venture funds continue to raise historic levels of capital and deploy it at a sustained pace. $30 billion was deployed into private biotechnology companies in the first half of 2022 compared to a record-breaking $39 billion in the first half of 2021, and still up over 50% compared to the first half of 2019 and 2020. Indeed, companies like incoming New York and Bay Area tenant, Icon Therapeutics, with a stellar management team and highly differentiated platform recently raised over $0.5 billion. This is not to say that investment thesis haven't shifted. With downward pressure on valuations and are refocusing towards the most innovative companies with experienced management teams, but market resets are ultimately healthy for a sector in the long run as companies are forced to double down in their core strength and talent is diverted to the most promising applications.
Now for life science products, services and devices. This diverse set of companies enable breakthrough research from the bench to bedside. It is the companies like Illumina developing cheaper, faster and more efficient research tools to understand the genetic underpinnings of disease. If company is identifying diseases at the earliest stages when treatments can be more effective, and it's the contract manufacturers producing complex medicines for next-gen therapies. As the picks and shovels, so to speak, of the industry, these companies' business models are not the same as those developing novel medicines with a quicker path to market and revenue.
So while there is no simple index or measure that is a perfect proxy for the strength of our top-tier tenant base, from the beginning of the year through the second quarter, the Dow Jones U.S. Select Pharmaceutical Index, which captures many of our top 20 tenants, outperformed the Dow by 11 points, the NASDAQ by 25 points and the XBI by 29 points. Moreover, the life science industry is less cyclical than other industries as products are developed over a longer period with novel medicines taking an average 10 years from early development to commercialization. Developing new medicines is not easy and market dynamics aside, companies will experience challenges and even failures along the way. But with 1,000 tenants and over 87% of leasing stemming from preexisting relationships, our unique model and deeply experienced team positions us to proactively manage potential risks and bumps in the road.
To end, I'd like to take a step back and acknowledge the mission-critical nature of the life science industry to our society. Each approval from the FDA marks the potential for a healthier, longer life for each of us listening on the call today and our loved ones. New therapies improve and extend quality of life, prevent costly hospitalizations and ultimately, reduce long-term health care costs.
We are proud and humbled that have novel therapies approved by the FDA in 2022, half by Alexandria attendants, a stat that holds true for the past decade. Approvals from tenants this quarter include an RNA-based treatment of hereditary transthyretin-mediated amyloidosis, a small molecule treating obstructive hypertrophic cardiomyopathy and a first-in-class immunotherapy targeting metastatic melanoma. To paraphrase Roger Perlmutter, former CFO of Merck and the CEO of the previously mentioned Icon Therapeutics, novel medicines can change the world and most have yet to be discovered.
And with that, I'll pass it over to Steve.
The second quarter of 2022 was an absolute blowout quarter in nearly every regard, the demand and really the intensity of the strong commitment to Alexandria's brand of highly differentiated mega campuses and operational excellence continue to provide for superior financial outperformance. I'd like to give a big shout out to the entirety of the Alexandria team as following the results are amongst the best in nearly every category. As Joel noted, Alexandria is truly a one of a kind company and hence definitively proven its ability to deliver excellent results throughout a wide array of macroeconomic condition.
As we've discussed and Hallie referred to as well a number of times over many years, the companies in the life science industry have a long-term horizon for their pursuit and commercial life-saving and life changing novel medicines and therapies. Research and discovery in the laboratory, multi-stage clinical trials, commercial rollouts can and do take a decade or more. Alexandria's unique capabilities and team have successfully identified the most promising life science companies and ultimately attracted the world's leading investment-grade pharmaceutical and big biotech companies to it's mega-campuses in AAA locations adjacent to the country's leading research institutions.
The second quarter exemplifies this powerful combination of trusted relationships with high-quality companies and their long-term horizons and some consider the following. 87% of the leasing activity overall was from Alexandria's existing relationship and absolutely essential and unique to Alexandria-only enabling success during turbulent macroeconomic quarters. And during Q2, 88% of the leasing activity in the development and redevelopment pipeline was from Alexandria's existing relationships. Consider how powerful that statement is for successfully growing the company's high-quality on-balance opportunities not only for a few quarters, but for many years. The stability and trusted nature with Alexandria has become a bedrock in value consideration for our tenants.
And as the company has grown to more than 1,000 tenants this past year, this presents an exceptionally powerful competitive advantage for the company's future growth and a substantial barrier for others to be dabbling in a highly sophisticated and technical nature of mission critical life science real estate. Beyond the ground reality for Alexandria this quarter is a vigorous and highly productive effort from across the entire company. The leasing activity of approximately 2.3 million square feet is in the third-highest quarterly leasing volume in company history. Record rate increases with renewal leasing spreads of 45% GAAP, 44% cash represent the second highest and the highest rental rate growth in the company's history, respectively.
The portfolio mark-to-market remains strong at approximately 7-point percent and as we noted in the last two quarterly calls this is significantly greater than the mark-to-market of 17% at the end of 2020 and in line with the end of 2021's 30.4%. Accounts receivable for the entire Q2 was a 100% including a 100% from our publicly traded biotech tenants and that continues as we've achieved 99.9% so far during July. Early renewals for this quarter were similar to Q1 at a rate of 50% of leasing, a strong validation again of the health of Alexandria's tenants and their long-term planning horizon that we noted at the start of my comments.
We have exceptional health of our value creation pipeline with a total of more than 900,000 square feet of leasing which contributes to a highly de-risk nature of the pipeline as 78% of the 7.8 million square feet which is projected to generate $665 million of incremental revenue is leased or negotiating, and Peter will provide additional detail and color during his comments as well.
Let's move on to supply and demand. Demand was consistent with the past two years with no significant drop in our quarters. We do see the demand in the market highly [technical difficulty] life science projects and end market, the actual each HVAC capacity, actual electric capacity, actual operational experience an operator might have [technical difficulty].
We continue to monitor supply at a very similar level, including the actual asset because differences between purpose built Class A facilities and Class B purpose-built we also look at the [technical difficulty] and if you look at capital sources they will actually the decision till we go forward [technical difficulty] the basis for this new [technical difficulty]. So let's build up the specific reality in the field and supply.
Current vacancy rates continue to be very tight with [technical difficulty] in our core clusters, [technical difficulty] less than 1% [technical difficulty] which is generally consistent with market conditions during the past several quarters.
There is not significant sub leases in the market which is in contrast [technical difficulty] and if they are of high quality, they are moved very quickly. As we look at 2022 the unleased new supply is adding very incrementally 1% to 2% of our key market, [technical difficulty] earlier comment on healthy demand. So we would expect to supply would be substantially leased by year-end.
If we look ahead to '23, again we drill down on each and every project at our core markets and determine which projects are actually vertical and well underway. The unleased 2023 deliveries will be [technical difficulty] 3% to 5% availability to the total market size. And again, we expect these deliveries will be further reduced during the next six quarters.
Beyond that, 2024 and beyond, we do closely monitor hand waving and flyers in the market that indicate creative tech space or life science space alternatives and as of today, we do not see any large disruptive set of Class A lab projects well underway in our core markets that are preparing to go vertical on a purely speculative basis.
Ultimately, Alexandria has significant differentiation in the market and as I mentioned at the outset of my comments, this group new projects is only becoming more intensive and accelerating as companies need a trusted and eminently capable operator for the mission-critical operations. So we actually see the difference between Alexandria's Class A facilities as part of our fully-amenitized mega campuses and one-off buildings and commodity locations becoming more highly valued.
So in conclusion, the first quarter of 2022 was a very strong quarter, and now the historic strength of the second quarter continues to definitively highlight Alexandria's positioned for the near term and the long-term. Life science companies intrinsically have a long-term horizon and their mission critical laboratory facilities are essential for their success. Alexandria has a combination of a tenant roster that has both a long-term horizon in high-quality investment-grade credit portends a very bright future for the company.
And as this is my last earnings call with the announcement of my retirement, I want to say, it has been the honor of my life to work shoulder to shoulder with the entire Alexandria family at this one of a kind company. I have the highest regard and deep affection for this incredible team. Our unique culture of respect for one another, high expectations for one another and a passion for the company's mission is a rare blend that has enabled us to thrive and work as a trusted partner with one of the country's most strategic and choice industries.
I also want to thank the broader investment community for your deep engagement and support for the company over these many years we worked with one another. And finally, it has been an exceptional privilege in particular to work so closely during the past 22-plus years with the team, an extraordinarily insightful and eminently capable leader, Peter, who is the ultimate Co-CEO, providing the heart and soul of the company and perfectly complementing my shortcomings with his formidable talents, and Joel, an inspirational leader, a genuine line of the industry and a once-in-a-generation Founder and American business. I have been truly blessed.
And with that, I will hand it off with energy and enthusiasm to my brother Peter.
I'd like to start by thanking you for teaching me so much about teamwork, managing people, operational excellence, the necessity of taking a deep breath every now and again, expanding my vocabulary and being a sounding board and confident throughout our partnership. I started this Co-CEO relationship with alacrity. The use of that word is an example of your influence, and I was not disappointed. I will greatly miss our regular chats, but I'm glad you will be around when a good talk is needed.
With that said, I'm going to update the audience on the progress being made on our value creation pipeline and related construction costs and supply chain trends then conclude with remarks on the dispositions completed this quarter. As Hallie referenced in her overview, our 1,000 plus tenant base is of the highest quality as it includes 17 of the 20 biopharma companies, the most innovative and well-funded large cap public biotech companies in the world and a stable full of the most promising and fastest growing private companies in the industry, which have been rigorously underwritten by a deeply technical and experienced team.
This highly curated tenant base provides opportunities that have been consistently fueling our external growth for over a decade. And if you connect the dots, it's no coincidence that 87% of our leasing activity comes from it. The best companies are those that grow and we have grown along with them. The past quarter, we completed over 915,000 square feet of leasing in our development and redevelopment pipeline which aggregates to an excess of 2.3 million square feet for only half a year at a time when people are worried about the product type we invented, because others pretending to be equals are struggling with their tenant base.
Our results in the wake of others struggling should tell you something. Life science real estate is not for everyone, success takes years of experience in designing and building the right product in the right location, deep relationships with the highest quality life science companies and company creators, operational excellence and most important during times like these, a very deep understanding of the industry.
We delivered 375,394 square feet in the second quarter spread amongst six projects including the full deliveries of the 8 and 10 Davis, part of our Alexandria Center for Advanced Technologies in the Research Triangle, and 5505 Morehouse Drive in Sorrento Mesa. The weighted average yield of these delivered projects was a healthy 7.8% and they will contribute over $20.6 million in net operating income moving forward.
The remainder of the pipeline that is either under construction or expected to commence construction in the next six quarters has decreased by approximately 200,000 square feet from last quarter, but is still projected to add more than $665 million in annual rental revenue over the same number of quarters reflecting higher revenue per square foot developed.
As of quarter end, 78% of this remarkable pipeline was either leased or under negotiation, meaning we have an executed LOI with 95% of the activity year-to-date coming from existing relationships, reinforcing the quality of our tenant base given that this category of leasing is typically driven by consolidation necessitated by growth. It also highlights the extraordinary loyalty of our tenants and the trust we have earned through many years of high-quality service.
I'm also pleased to report that despite continued volatility in construction costs and supply chain disruptions, our pro forma yields are neutral to slightly improving relative to last quarter and there have been no adjustments to our delivery timing.
That is a good transition to our construction costs and supply chain update. The bad news first. There are still upward pressures on construction and material prices stemming from high energy costs and now labor costs are becoming a bigger issue than in the past. As the U.S. exports more natural gas to Europe, it becomes more expensive here, and one direct impact has been an increasing glazing costs of 20% to 40%. In addition to a 35% increase in aluminum over the past 12 months, glazing is impacted by the cost of natural gas as it's heavily used in its production.
As mentioned last quarter, elevated diesel prices have a significant impact on construction costs as earthwork machinery runs on it and our contractors have been seeing fuel surcharges in the billings from these subs. Crude oil was up 71% from February '21 through February '22, and although pricing is slightly improved since then, it's not providing any significant relief. Other costs that continue to be overly elevated over the past quarter include construction machinery, which is doubled, Gypsum, which is up over 1500%, one of our contractors blames this on elevated housing construction, which uses about 50% of the supply, semiconductors are up 276% due to heavy demand by the automotive industry and switchgear and other industrial and electrical equipment is up 73% due partially to demand and partially to elevated cost of components that go into that equipment.
Labor which accounts for approximately 60% to 70% of construction costs has been relatively stable over the past couple of years due to pre-arranged wage increases negotiated into labor agreements, but many of those are now up for renewal and negotiations are reported to be intense. Due to career changes for many in the industry after layoffs caused by COVID-19 work stoppages, there is a smaller pool of labor, and combined with the higher cost of living wages are expected to be much higher in the future.
Supply chain issues remain despite improvements in transportation, mainly due to the war in Ukraine and a ripple effect from shortages in components. One of our surveyed contractors closely track supply chain related impacts to their jobs nationally and found that from September of 2020 through February 23 of this year, supply chain impacts averaged 5.89 per day. From the beginning of the war on February 24 through June 8 of this year, there have been 38.12 impacts per day. As a result, extraordinary lead times remain for equipment used in our product type, including generators, building controls, transformers, switchgear, electrical panels, air handlers and chillers, all of which have lead times that are double what they normally are, many exceeding a year. Much of the delay is due to a ripple effect of missing components, a generator can be 90% complete, but can take an additional six months to finish because of the missing component or two from a vendor with a huge backlog.
The good news is that despite the shortage in skilled labor productivity is improving. Contractors are starting to see cancellations or projects being put on hold, lightening their backlogs, which will eventually reduce demand and ease, both pricing and supply chain problems. This can be seen in expected escalations from one of our major GCs who projects them to be 6% to 8% this year with a bias towards the longer end but a reduction to 4% to 5% in 2023.
We continue to closely manage these conditions and approximately 80% of our cost for development and redevelopment projects under construction are subject to a guaranteed maximum or other contracts that enable us to mitigate the risk of inflation. We have contingencies behind those contracts to account for scope creep and unknowns, the other 20% is from projects that are currently pending guaranteed maximum contracts that are in process, and those projects include larger cost contingency allowances in their performance.
Moving to our asset sales. Interest rates are certainly influencing real estate pricing broadly and we've been told by our investment brokers that they are seeing a 25-basis-point widening and other hot product types such as industrial. So we may see it with lab office assets as well. It is certainly reasonable expect that may happen, but we do believe that the scarcity of well-located Class A lab office assets will help mitigate that. You can certainly find industrial product almost anywhere, but for sale Class A lab product is still very hard to find.
So despite the increasing interest rate environment, there continues to be strong demand for life science assets demonstrated by our partial interest sales in Cambridge and Mission Bay and our outright sale of 12 assets in the Route 128 and 495 suburbs of Boston. The partial interest sale of 300 Third Street in Cambridge closed at the end of the quarter and was sold to an existing partner relationship for a 4.3% cash cap rate at a price per square foot of $1,802, a $113 million gain over book value. As of as the sale date, we have achieved an 11.6% unlevered IRR on this asset.
The partial interest sale at 1450 Owens in Mission Bay was also purchased by an existing relationship and as a development asset that included reimbursement for infrastructure and pre-development costs. Parsing those reimbursements out, yields a land value of $324 per buildable square foot indicative of the high-value of our land bank.
Lastly, our 12 assets suburban portfolio sale in Greater Boston sold at a strong cash cap rate of 5.1% and the sales price per square foot of $542. Although these assets served our tenant base well for a number of years, we believe we can create more value long-term with the capital from this sale by reinvesting it into our development and redevelopment pipeline focused on the creation and expansion of our mega campus platform.
The great progress made on the construction and leasing of our high-quality value creation pipeline paired with our ability to realize strong exit cap rates during the quarter, once again demonstrates our ability to create significant long-term enduring value for our shareholders.
Thanks for listening. And with that I'm going to go ahead and pass it over to Dean.
All right, thanks, Peter. Dean Shigenaga here. Good afternoon, everyone.
Our team is very pleased for their 7th year of recognition as winner of the Large Cap NAREIT Communication and Reporting Excellence Award, 6-time Gold Winner plus one Silver Award, which is truly awesome. So congratulations team.
At the end of June, our team published our Annual ESG report highlighting key areas of our leadership in ESG and our focus on making a positive and lasting impact on the world. Key topics included in our ESG report include among many others, first, managing and mitigating climate-related risks, including continued development of our science-based targets to reduce emissions. Two, highlights of the design of what is expected to become the most sustainable lab building in Cambridge and to future all electric buildings in our San Francisco Bay Area market. And then three, our eight unique and important social responsibility pillars.
Now turning to the quarter and the first half of the year. Our first quarter and first half results were very strong and significantly beat consensus. We also raised our strong outlook since our initial guidance for 2022 by $0.05 including $0.03 with the second quarter results here. Our projected growth in FFO per share is very strong at 8% over 2021.
Total revenues for the first quarter and the first half of the year were strong and up 26.3% and 27.2% respectively over the same periods for 2021. FFO per share for the second quarter was strong at $2.10, up 8.8% over the second quarter of '21. Now huge thanks to our entire team for truly exceptional execution in 2022. We have generated one of the most consistent and strong operating and financial results quarter-to-quarter and year-to-year within the REIT industry.
Now, as you've heard from us today over 1,000 plus tenants and other life science industry relationships is really driving strong demand for ARE's brand. ARE is the go to brand and the trusted partner to the life science industry, we have the best team, the highest quality facilities, the best locations and tremendous scale for space optionality to address demand. Our EBITDA margin was 70% and is one of the best in the REIT industry. This strong EBITDA margin also highlights the efficient execution of operational excellence by our team.
We had strong occupancy at 94.6%, up 60 basis points since 12/31/2021 and our occupancy guidance range for 2022 from 95.2% to 95.8% highlights continued strength in occupancy growth. Record leasing volume and rental rate growth for the second quarter of 45.4% and 33.9% on a cash basis and really strong rental rate growth outlook for the entire year at 32.5% and 20.5% on a cash basis, highlighting the strength, again of our brand and execution.
We have very high collections of July rent at 99.9%, as of July 22, which was about three weeks into July and consistently low AR at $7.1 million as of June 30. These are pretty amazing statistics for one of the largest REITs in the industry and not surprising given the high credit and diverse tenant roster our team has curated over the years.
Our strong same-property NOI growth for the second quarter was 7.5%, 10.2% on a cash basis. This strong performance highlights the strength of our brand and trusted partnerships that continue to drive strong demand for lease renewals and re-leasing of space and expansion of space with ARE. Now, same-property occupancy was very exceptional for an asset base with consistently high occupancy, but it was up 140 basis points in the second quarter compared to the second quarter of 2021.
Now turning to our strong and flexible balance sheet. We have one of the top overall credit ratings in the REIT industry ranking in the top 10%. We've got no debt maturities until 2025. Over 98% of our outstanding debt is subject to fixed interest rates, we have $5.5 billion of liquidity. The weighted average remaining term of outstanding debt was 13.6 years and one of the highest in the REIT industry. Our net debt to adjusted EBITDA is on track to hit 5.1 times by year-end, really highlighting our focus on continuous improvement in our balance sheet and credit profile. Forecasted cash at the end of the year of about $250 million is expected to reduce our incremental debt capital needs for 2023, and this is really important in this higher interest rate environment.
And then we really have achieved really strategic execution in 2022 on our capital plan with only slightly above 10% of our overall growth sources of capital remaining for the rest of 2022. Now at the midpoint of guidance for this year on dispositions, we have $740 million remaining and we have the potential to exceed the midpoint of that guidance. Our updated capital plan reflects a significant reduction in uses of capital for the second half of the year aggregating about $635 million across both acquisitions and construction spend as we prioritize our allocation of capital.
On acquisitions, and it's important to recognize that activity has been and was expected to decline as a result of having a very attractive pipeline of land for future development in each of our key sub-markets, combined with the considerations for the overall challenging macroenvironment and capital markets.
Now briefly on our dividend policy. Our Board has been very consistent with our policy and really has focused on sharing our high quality growth in cash flows from operating activities with shareholders, while also retaining a significant portion for reinvestment into our highly lease pipeline of development and redevelopment projects. We are on track to reinvest about $2 billion of cash flows from operating activities after dividends over a 10-year period ending on December 31, 2022. Now this includes about $300 million in cash flows from operating activities after dividends at the midpoint of guidance for 2022.
Turning to our Venture Investments. This program and component of our business is really and consistently generating realized gains. Realized gains for the second quarter were $28.6 million and $51.8 million for the first half of the year and we are on track with projected realized gains for 2022 that should be consistent with the $105 million in realized gains in 2021 or almost $26 million per quarter.
Now, the mix of realized gains is varied period to period. However, on average over the last 5.5 years gains from our investments in publicly traded securities represented only 30% of our total annual realized gains and historical gains over the years, where most often triggered by traditional liquidity events including M&A activity and IPOs.
From a balance sheet perspective, we've got strong gross unrealized gains of about $565.5 million relative to our cost basis of $1.1 billion. Now, our team has delivered very strong operating and financial results in the first half of 2022 and our improved outlook for the year remains very strong with EPS diluted ranging from $2.14 to $2.20 and FFO per share as adjusted diluted from a range of $8.38 to $8.44. FFO per share is up $0.05 from our initial guidance provided at Investor Day on December 1 of '21, including the $0.03 increase with second quarter earnings here, and we expect strong FFO per share growth of 8.4% now for 2022 over 2021.
Now, we refined our capital plan for the back half of the year, including the following items. We're really just focused on real estate sales for the rest of the year. We have no equity required for the remainder of the year and we significantly reduced our forecasted uses of capital by $635 million really on the back half of this year, which is a reduction of forecasted acquisitions and construction spending. Please refer to Page 6 of our supplemental package for detailed underlying assumptions included in our outlook for the full year of 2022.
With that, I'll turn it back to Joel.
Thank you very much. And I want to apologize, Steve was on cell phone and his line cut in and cut out, we'll work with the transcript providers and make sure the blanks are filled in.
With that, we'd like to go to questions.
[Operator Instructions] And our first question will come from Anthony Paolone of JPMorgan. Please go ahead.
Thanks. And first best wishes to Steve and thanks for all the help over the years. So I appreciate that. My first question is, as it relates to just the demand you guys continue to see in the portfolio, do you think the $3 billion in development spending and effectively roughly about the same amount of deliveries is sustainable and how we should think about what things look like going forward or is the second half of the year drop in spending likely to persist into next year and kind of indicate just slowing the pipeline?
Yes. So Dean, do you want to take that?
Yes. Tony, it's Dean here. When we did look over the last couple of months here at our capital plan on around construction spend, we did announced a significant reduction in spend here for the back half of this year. But as you would expect, we look very carefully at spend for 2023. There were significant reductions there, but I don't want to get into the details of the capital plan specifically for next year, we'll get into that at Investor Day. What we are focused on though Tony as you can tell from our disclosures, the $665 million in incremental annual rental revenue as well call our priority focus, that's a fairly significant pipeline, both in revenue, but also 7.8 million square feet most of that, as you guys know is leased or negotiating at roughly 78%.
So I'd call it we've refocused where we're paying attention to on allocating capital this pipeline is super important to us. So there is dollars that we will incur as we look into '23 related to that, but we're being mindful and disciplined and scaling back where we can.
Okay, got it. And then just in terms of in the portfolio, can you maybe take us inside some of the spaces and give us a sense as to how tenants are utilizing their space and whether or not just their own funding environment being more challenging is slowing up their hiring or growth plans, or just anything you see on that side?
So when you ask about how they're using their space, do you mean, I'm not quite sure what you're asking. The laboratories are operating full time, we've said, as you know, many times, you can't do lab work from home. Most of the life science tenants have a flexible work from home schedule. So they are, yes white color folks are in several days a week and kind of move that around. I think that's kind of the norm. But there have been, I was at one of our mega campuses, not too long ago and the parking lot was jam, so people are back in a pretty important way. But I think the office part of the component still is kind of a hybrid work schedule, if that's what you're asking.
I'm trying to think through if capital was last point to fall and they have growth plans, do they slow up the need to take down as much space as maybe they would have otherwise right now?
Yes. Tony, you have to go back to what Hallie said, the industry is not a cyclical industry, the industry is event-driven and if one is working on a particular blockbuster drug or whatever, they're going to allocate capital obviously as prudently and as disciplined fashion as possible, but they're going to have to move forward, because that's where the value of the pipeline is part of the key value.
So I think it's different than other sectors, whether you're in a law firm or a financial sector where you can move a whole bunch of things around, because of just macroeconomics. But this is a very different industry. So I don't think you can kind of compare the two. Now tech tenants are well known, obviously, those guys clearly have slowed the pace of hiring, some of them have done some layoff work and so forth and so we see that, we've got what 8% or so, less than 10% of our portfolio is tech related. So that is, I think, well-characterized out there.
Okay. That's all I had. Thanks.
The next question comes from Jamie Feldman of Bank of America. Please go ahead.
You may be on mute.
Thank you. To start off, just congratulations also to Steve. It's been a pleasure to work with you all these years and we wish you the best going forward. I guess, we appreciate all the color, the additional disclosure on tenant segmentation, but can you talk maybe let's fast forward six months, nine months here and we look back and I'm sure there's going to be some distressed or something of some sort in your portfolio, like what do you think that actually looks like in terms of what the cycle does actually bring?
Well, I think it's pretty clear if you go back to the '08, '09 timeframe that there will be tenants and oftentimes they tend to be small publicly-held companies, either preclinical or into the clinic, who have a certain amount of cash that are trying to kind of manage their resources to get to value inflection milestone so they can either finance further or potentially reach a milestone that they could partner or sell either the company or the product to a bigger company.
And so, I mean that goes on all the time, and I'm sure we'll see that evolve from time to time. I mean, the great example that I like to use as a company that had that problem back in '08, '09, they moved out of a big -- actually, they had the entire building of 500 Forbes, they moved out on one day, the next day, Genentech-Roche took that entire space and I think that's what you see we've described, I think last time, Steve described on the last call a tenant in San Diego, or maybe we've done that on some of the analyst calls, that wanted to leave, I forgot 20,000 square feet or so. We brought in another tenant who wanted that space and the mark-to-market on the new lease was 50%.
So we expect to be able to manage those kinds of issues. But I think we're going to be much better well set than almost anybody else because of the discipline we've used in leasing space in the first place. Now if we buy an asset where we have an existing tenant, and that actually happened at 500 Forbes, then we have to just manage that in a way that is as best we can, because we haven't underwritten a tenant in a sense of choosing them, bring them in or not, obviously, as part of the acquisition. But so far, if you look at collections, receivables and just the general situation across the portfolio, we don't have any credit issues at the moment.
Yes, and Joel and Jamie, if I could add, it's Dean here, just to put things into perspective, just from one simple statistic. If you look at occupancy from the end of '08 to the end of 2009, occupancy only declined 70 basis points, if you brought in that time period, just a tad and you look at the end of '07 to the end of 2009, occupancy actually grew by 30 basis points. And I think the one fundamental difference between that period and today that the life science industry in particular, the biotech industry has really gone through this period where I think you can almost call it the Golden Age of the biotech industry today with tremendous innovation going on relative to 2008. So it's a much more exciting and vibrant environment for the biotech sector.
Great, thank you for that. And then I guess just thinking about the cap rates on the asset sales in the quarter. How are those or how are they not representative of the broader portfolio? We've heard from brokers that maybe life science could still be trading in the threes, I'm just curious if that's just no longer a fact or maybe the Binney asset in particular that you sold is not a great comp to talk about kind of the best of the best in the portfolio?
Yes well, I'll let Peter take that, but let me just say if you remember the Binney corridor and I think you've toured that Jamie. It took us about a decade to assemble in title and build over 2 million square feet there 303rd was a asset we purchased before all that it was actually an older building that had been built for Palm.
And a converted asset so it doesn't really represent what we developed along that corridor, but that corridor is I think representative of a big kind of mega Class A campus. So I think keep that in mind as you think it's not an one-off one, 100 Binney isn't just one-off Class A building. It actually represents all 2 plus million square feet there. But Peter you can give some details for sure.
Yes sure Jamie fair question, you saw the 3.5 print last quarter and this is 4.3 the buildings are next to each other locationally. I would assess the difference Joel touched on it may be starting from where I was in my comments I think they were a number of factors it would include interest rate creep since that trade certainly rates have gone up since the sale of 100 Binney so that I'm sure factored into it. The age of building - 303rd built in 2000.
And as Joel mentioned, it was a build-to-suit for Palm, 100 Binney was built in 2017. So 100 Binney is very new state-of-the-art where 300 was not purpose-built for lab. I've talked and - during other quarters, commenting on non-purpose-built buildings, and this one has similar challenges to others that we've seen in the market, namely because of their low ceilings there or the low floor-to-floors, there's 8.5 foot ceilings.
We typically have 10-foot ceilings in our space. So when you shrink the ceiling down like that, it's just not as nice of an environment. And it has some other weird things. There's, the parking lots on the second floor of the building, and that just creates some operational inefficiencies when you're dealing with chemical storage and things. So you have that and then I'd say, maybe one other item is that it's subject to a ground lease versus 100 Binney, which was a fee simple asset and there's certainly a little bit of discount for that.
So I think all of those things kind of aggregated to a 4.3 but I would also say in this environment of 4.3 is still pretty good really good if you factor and also that 300 Binney is subjective a long-term lease and the buyer is not going to be able to market-to-market for quite a long time. So they certainly saw great value in the future appreciation.
And a great tenant in Alnylam.
The next question comes from Michael Griffin of Citi. Please go ahead.
Thanks appreciate you having me on the call this quarter and Steve, congrats on a well-deserved retirement. Just wanted to touch on the suburban portfolio dispositions, can you maybe give some color as to why it made sense to sell these assets? And could you see potential sales from other similar properties in the future?
So I'll let Peter comment again on some of the specifics, but I would say - and welcome to the call. We aggregated those assets actually 60 Westview, if I'm not mistaken, was the first asset we ever bought in the Massachusetts cluster. And we aggregated those assets, many of which kind of early on in our attempt to try to build a presence in the Greater Boston region. In those days, we didn't have enough money to buy anything in Cambridge.
And we over -- as I say, well over a decade, we aggregated a nice group of suburban assets, well maintained, well operated, actually pretty good credit throughout the - those assets. But it comes a time when you see values there to harvest and to reinvest and also our move to the - really the mega campus strategy in the greater Boston region with our really big mega campuses.
That's where we wanted to focus our capital, and we have obviously a whole host of needs. So it was a pretty easy decision and the timing was, I think, pretty darn good. But Peter, you could comment. I don't know if there's anything specific.
Yes, I'd just say that I think the time was right. Those - there were 12 buildings in that portfolio. They were really good workforce buildings but relative to the rest of the assets that we have in our market that were on the lower spectrum of quality and given the appetite for life science real estate I think we were able to get the pricing by selling in today that was very attractive and as Joel mentioned and I said on the comments, great opportunity to reinvest that into our value creation pipeline. So I don't think there's really - I think it's just really that simple, just really opportunistic time to sell assets and get maybe more for on than you would in another era.
Yes and I would say, we don't also have a set of suburban assets like that really in - how they kind of originated and stuff really in any other market. So you can't really say oh, do you have other suburban portfolios. Like in the Bay Area, a portfolio, we would probably exit would be the East Bay, but we exited those before. So we don't have those kind of assets by and large.
Great. I appreciate the color on that. And then just maybe stepping back a bit, obviously given the continued demand for life science, are you noticing more entrants coming into your markets, particularly on the conversion side of traditional office to life science product?
Well, I think as Peter said, the reality is data centers have been hot. Obviously, resi has been hot. Industrial logistics has been hot, and life science has been hot. But life science is a very - it's a much, much smaller overall asset base countrywide. And so, the scarcity is an important part of things. And as Peter said, I think a number of important high-quality investors have sought to look at these scarcity assets. But obviously, sometimes people make a decision.
They don't like the asset they have. So they're looking at somebody else and saying, Gee, could we try to convert and do that and sure in markets there are those kind of people. But by and large, I mean, we heard pretty big core stories on some conversions in the Boston region by people who have no idea what they're doing and tenants who are desperate to get out. So that's a story that will unfold pretty sadly for those folks.
Got you, that's it from me, thanks for the time.
The next question comes from Rich Anderson of SMBC Nikko. Please go ahead.
Thanks and Steve, good luck honor and privilege to work with you. I'll look for you on Celebrity Row at Warrior Games going forward next season. So on the topic of conversion activities, it's interesting. A lot of your office peers have made that the bulk of their development or redevelopment business. Peter to your comments about development costs going up and all that?
And again, despite what you just said, Joel about some of the horror stories, do we expect the conversion business to start to whittle down or is it whittling down even though you don't consider it a competitive force for you guys? Is that something that could be an outtake from all of this disruption?
Yes, so Steve and Peter, you guys want to comment?
Steve, do you want to go first?
Yes, sure. Maybe I'll jump in here, Rich, and thank you for the kind words there. Yes, we're already seeing - that's why I tried to break it down in terms of the properties themselves. So you look at these conversions. And then you look at the operators who are new to this with a one-off building. And then ultimately, the capital partners, and we have seen now projects that have been put on pause that those will ultimately be put on ice.
And we just don't see capital that enthusiastic about committing significant dollars to these types of conversions given the overall macro environment, the complete lack of any tenant base mixed with a lack of operational experience. So I think more to come and more to unfold, but that's certainly the sentiment that we're seeing out in the market now and Peter can add to that too.
Yes I would say we do quite a number of meetings about strategy and market updates on a weekly basis. We're covering we never going to long before we covering what could be coming up what have we heard with all the different regions and I had - by and large we don't hear a lot about potential conversions outside of you might see announced in the press. Most of it is potentially new development, but as Steve mentioned in his comments.
We only see limited amount of that in 2022 and 2023 more has been announced, we'll see if it gets built. But I don't see or we don't see a lot of conversions outside of going back to the suburbs in Boston. We certainly know one of our - one of the office suites that has a lot of holdings out there I have talked about doing conversions and I'm sure are underway with a few, but we're not seeing - proliferate throughout our urban core very much at least at this point.
Okay, great. I'll yield the floor. Good long in the call here. Thanks very much team.
The next question comes from Sheila McGrath of Evercore. Please go ahead.
Guys good afternoon, congrats Steve and all the best. Just a quick question on the dynamics of rental rates for new construction. Assuming as Peter outlined construction cost continue to go up and you want to maintain development yields just curious if the new rents on new development to justify construction are like above prevailing market in various submarkets?
Yes so Peter do you want to talk about Blackstone's kind of market high they just are indicative.
Yes I mean, I think what Joel is referring to as I think they were at $137 a foot. And that's, by and large, one of the things that sets the market our new developments. And so, you get a rate like that and then a renewal comes up of another Class A property in the neighborhood and the landlord will ask for the same rent. So I would say that the new development kind of helps set the market and then the existing assets follow. So it's a good thing.
Okay great. And then on 1450 Owens, I thought that was an interesting structure. I guess, sort of to minimize construction spend. Just wondering if that something you would replicate on some of the pipeline going forward?
We've actually done it before. But Steve, you could talk about that.
Yes I think Sheila, that was a really great situation for both ourselves and the joint venture partner. We had the very left of sold, titled to go. So we have combination of a very attractive intrinsic land value plus preconstruction work that we done. And as we looked at partnering on that project just into the additional capital contribution to build to build will equaling the intrinsic value and the preconstruction work we had in there. So you're right. It's a very mutually rewarding way to move forward with that project.
The next question comes from Michael Carroll of RBC Capital Markets. Please go ahead.
Yes, thanks I just wanted to touch back on suburban Boston sales I guess Peter you indicated that portfolio was at the lower quality spectrum. So could you comment how the 5.1 cap rate would compare to the rest of the portfolio. I mean is there an easy way to understand the cap rate difference bet let's say newer buildings and the rest of the properties?
Yes the assets and the locations are even comparable but Peter you could answer.
Well I think what you're trying to get to Michael is I would say that if we had a - so these were more of one-off buildings. But if we were to sell something in the suburbs that was more campus like - I mean Santiago and itself is kind of suburban market. So you look at something like campus point right where you have this amenitized campus it's in a suburban spread out environment, but it's Class A and amenitized I mean that's going to have, that's going to be a low 4 cap rate.
If we had something in the suburbs of Boston, that was a similar type of development I would expect to similar type of cap rate. But these were lower quality these weren't really campuses they were one-off buildings of significant age and of credit tenancy in there was about a quarter when you looked over the spectrum of the tenant base.
So it just as I termed it before kind of workforce they'll be leased over time as tenants need 30,000/50,000 square feet which is about the average size of those buildings. But they're never going to have huge rent growths because they are just not that appealing to have somebody clamoring over it.
Okay great. And then just really quick and we ensure in time. I know about 80% I guess of your process development projects are protected in terms of I guess development cost increases. Can you kind of talk about the near term starts and how that's protected and if there is an risk to those budgets going higher or yields potentially going lower?
Yes so, look you can't do a - you get a gross maximum price contract until you actually have something to price. So whenever we start a project we obviously do a pro forma and then within that pro forma I believe that we have a very conservative approach with allowances for cost that should be adequate and then contingencies on top of that. And then we get the entitlements.
We get permits and then we're ready to go out and supplying out the project and it just take - you don't but it all out at once you buy out different trades at different times. So it's a process but we do it expeditiously and anything that we have that starts out. Again we have these underwriting contingencies that are in our pro forma so we have a really good idea what the yield would be and more often than not that initial yield can be done.
We can do better because as we start to buy things out we can start removing some of those allowances and contingencies and end up by the time it gets put in to the supplemental you know highly confident in that yield. It may not be completely bought out by then but it's very close and if it hasn't been bought out it still contains good contingency to cover any unknowns or unexpected cost increases.
The next question comes from Dave Rodgers of Baird. Please go ahead.
Hi Steve, thanks for the help over the years congratulations and good luck as well. Peter, just on the investment sales side, maybe you've touched on a lot of different ways about this question. But when you talk to your JV partners that have been the consistent buyers of a lot of your better quality assets?
Are they specifically asking for or indicating that they'd be interested in a different type of asset or a different price point at this point in time, just with respect to where debt costs are and their ability to kind of finance that spread?
So the nice thing that we have in our - in the base of our great partner pool, and it really truly is a great group of partners that we've established significant relationships with is that when we do these JVs. They're done on an unlevered basis. So they're not necessarily beholden to what the rates are for secured debt at the time. Now many of them may indeed finance their portfolios outside of asset specific financing, but it is at a very low level.
In fact, some of our partners though have so much cash to put out that they don't lever really at all. So it's been one of the things that I think has helped us achieve the cap rates that we've achieved and sell things at an expeditious manner because there is a hunger for those types of assets, and they're not those purchases aren't contingent upon financing. So we hear stories about deals falling out because the lender at the last minute decides not to fund.
That fortunately for us, we haven't had to deal with that. And if we did an outright sale, and we've had bidders that have put financing contingencies in their offers, but we've had enough bidders that were willing to not have that contingency that we just so far knock on wood. Everything that we've put out there we've performed on and haven't had any disruption because of debt market volatility.
That's helpful thanks. And then maybe just one unrelated question with regard to the Texas investments you detailed, I think, a little bit more this quarter versus last. And I think last quarter, Joel, you had made the comment that you'd want to wait. I guess just more curious in terms of your thoughts, if you can comment further? Are you bringing existing tenants? Are there tenants in that market that want to be in those locations? What's driving that decision and what's your kind of vision for the investment there?
Yes, so that's a good question. So when it comes to Houston, one of our campus acquisitions was, in fact, made because of a specific tenant. And that tenant will grow there and will be an anchor a larger project. When it comes to Austin, we have a cohort of important lab tenants, both credit and noncredit who want to be in that market. It is a new market. It is one that is not an existing cluster probably will take a decade to start to gel and then probably another 15 years beyond that to get to that 25-year mark.
But I think what intrigued us about Texas and Austin in general is - and I've made this statement before, if you look at what Steve Jobs said about the 21st century, it was the century the intersection of biology and technology. And so I think Texas is ripe for that intersection, and that's where this industry is really moving in an industrial fashion. So this is really kind of the first toe in the water with that thesis.
The next question comes from Tom Catherwood of BTIG. Please go ahead.
Thank you and Steve, thank you for everything and best of luck just one question from me. Hallie and Joel really appreciated the commentary on your different tenant segments at the onset. One thing that's always struck us though is the early insights that the company gets through the Alexandria investment platform and incubators like launch labs. On that early stage side of the business, are you getting any leading indicators suggesting a shift that could drive future changes in trends? And is that changing your investment strategy at all?
So thank you for that question. Not really I mean I think the - I mean technology, and you saw the - if you looked at the cover of the press release and sub, we've highlighted Eikon Therapeutics based on Nobel Prize-winning technology and headed by Roger Perlmutter, who was CSO at Amgen. He was also Chief Scientific Officer at and Head of Research at Merck. And this is a great example of a using to some extent AI in the development of new innovative therapeutics. So clearly that intersection that I just talked about that Steve Jobs described is, we're certainly seeing way more of that today than we did before, but I think our early stage efforts are really aimed at focusing on the next Alnylam's or the next Moderna's, two companies that we became associated with Alnylam in 2003 that started in 3,500 square feet in our Science Hotel and Cambridge and Moderna that started early on in Tech Square a couple of years after it had been founded by the flagship team, and our hope is to find those kinds of companies that have just totally disruptive technologies and lots of product opportunities and shots on goal, because those are the things that are going to move the dial and move the needle when it comes to human health, and by the way, both are huge, huge tenants of ours in many respect. So it all kind of works out, but that's kind of where our focus is, I don't know Hallie if you want to comment.
Yes, thanks, Joel. This is Hallie, and I think you covered it well and to kind of parrot some of Joel's comments from earlier earnings calls, we're really in the early innings so to speak of these next-gen type therapies, is that when we think about gene therapies, cell therapies, mRNA therapies, we've seen a handful approved. But when you look at the stable of clinical and preclinical technologies, it's really mind-blowing how exponential it is and just repertoire of types of different therapies and types of different clients that companies are working on.
So I would say we're early days and seen kind of what's the next generation of these therapies is going to look like.
Appreciate the color. Thanks everyone.
The next question comes from Georgi Dinkov of Mizuho. Please go ahead.
Hi, thank you. First, congratulations on the strong quarter. And Steve, good luck to you. I guess, just a couple of quick questions for me, can you please remind us how you assess credit risk in both the property and the investment portfolio.
How you assess credit risk in both the property and the investment portfolio.
Well that's, we could write a treatise on that, when it comes to the investment portfolio, if you're looking at early-stage, we're looking at the things Hallie and I just described, great management teams, strong financial capability to attack some really big problems that have major unmet medical needs. I think when it comes to the tenants. We have a much different kind of focus, focus on stability, credit, opportunity. So they're kind of different in that sense, but both are rigorous and we've had a pretty highly disciplined and highly skilled team in place for a long, long time, which is why I think we've been able to do a really good job at those underwritings.
Okay, great. That's helpful. Thank you. And just I guess my second question, you mentioned core office utilization is lower, and we see it in core office tenants giving back space. I'm just curious, have you seen any life science companies giving back like fewer core office?
I don't think so. But I'd asked. Peter or Steve, have you seen that, I don't think so.
Well, the laboratory, the office that is associated with our laboratories houses the scientists that are working in the labs and they need that space to do their work, they can't, it's not good lab practices to be in the lab writing things up. So it's typically not possible to just give back lab space -- sorry, office space because they need it, if they're working in the lab.
Okay guys, thank you so much. That is all from me.
Our last question will come from Daniel Ismail of Green Street Advisors. Please go ahead.
Great. Thank you. Steve, I'd like to echo the comments on that. Thanking you for your help over the years and best wishes in retirement. Joel, just a quick question on the comments you made about the Texas expansion. We haven't seen the migration of life science tenant to the Sunbelt like we've seen in the traditional office sectors. Do you think this is a trend that will likely pick up for starts or do you think this is more of a one-off and that the growth of the cluster market will take the time that you stated earlier?
Well, okay. Well, first of all, I think, by the way, we didn't have a slightly okay quarter, we had a really great quarter. So I would ask you to think about your comments on your review piece. Secondly, it's our intent like it was in New York, we started in New York, there was one incubator in New York alone, there was no other commercial companies really operating. There were a handful of companies, and we've either built or helped move or really helped create that market and so our intent is to do the same in Texas. We're not waiting for tenants just to haphazardly move there somehow, but we have a pretty strategic plan to work with tenants who want to move there.
Remember, a lot of cities these days, and you could pick out the names have governance problems, homeless problems, crime problems, high taxes, poor governance. So there are a whole lot of folks very interested. We've seen that in financial services and now Citadel just announcing a big move from Chicago to Miami. So you're going to see with the 1,000 tenants I can tell you we have a whole lot of folks that want to move.
That makes sense. I appreciate it. And is cost of living a concern for the tenants or the cost of by science rents in these life sciences customers.
So it's -- very compared to other business, a very small percentage of their overall cost structure.
Thanks. And then Peter, just the last question for you, in bidding terms in the last three months, I'm curious as you're out there acquiring assets or looking to sell assets, have those changed at, has become less competitive or more competitive or what have you seen in terms of bidding terms?
As far as acquiring things I think there has been fewer buyers in the last couple of months as we've been kind of winding up our program, but pricing is for great quality land that hasn't really been moving down at all. And then in the dispositions, we tend to go to -- we kind of select who we'd like to have purchase our assets or JV with us. So it's hard to say, but I would say the interest in those folks that we typically approach with our opportunities has not waned and they are still very eager to get more exposure.
Yes I mean, it's based on a pure scarcity of really high quality, well-located laboratory assets. I mean that's the equation Peters laid out.
Got it. Makes sense. Thanks a lot.
This concludes our question-and-answer session. I would like to turn the conference back over to Joel Marcus for any closing remarks.
Okay. Thank you everybody. And we'll look forward to our third quarter call. Be safe. Take care. God bless.
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.