Alexandria Real Estate Equities Inc

NYSE:ARE

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and welcome to the Alexandria Real Estate Equities Third Quarter 2021 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

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

[Paula Schwartz, IR]

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 may 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 would like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

[Joel Marcus, Executive Chairman and Founder]

Thank you, Paula, and welcome, everyone to Alexandria’s third quarter ’21 earnings call and our seventh consecutive quarter in the COVID-19, which for sure has forever changed our world and our lives in very fundamental ways.

With me today are, Jenna Foger, Peter Moglia, Steve Richardson and Dean Shigenaga. In honor of my favorite NCAA Basket Ball Coach and in his final year as Head Coach for Duke men's basketball, Coach K has said imagination has a great deal to do with winning. And I'd like to say to our extraordinary Alexandria family, thank you from the bottom of our hearts for a spectacular third quarter, and operational pace and execution tempo that really defines the terms operational excellence, and for your great imagination as Coach K said in all things big and small.

Moving on the keys to Alexandria's stellar third quarter performance by all metrics amid a historic demand environment, I think, and importantly, the best is yet to come. Continuing historic high demand for Alexandria's best-in-class lab space, the niche which we invented, and our mission-critical and operationally excellent lab operations.

Year-to-date, and others will talk about this, we've leased 5.4 million square feet and looking for a great fourth quarter to end the year. Alexandria is at the vanguard in the heart of meeting this historic high in an unprecedented immediate lab space demand from many of our over 750 client tenants. Moderna is a prime example, and another one which Dean will talk about, a big tenant in South San Francisco for a full building, as well as critical paths for future growth which is so needed.

Thus the need for acquisitions, redevelopment and developments, and has been repeated time and time again, by life science tenants and their brokers, if any other company is going up against Alexandria for leasing space, the tenant will almost always pick Alexandria.

We are proud to partner with Moderna on their Cambridge headquarters and core R&D facility. And as Dean and others will talk about, it'll be the most sustainable lab building in Cambridge with very strong economics and really great value creation. We're very honored and proud that Alexandria has had very strategically significant tenant relationships, and stellar brand reputation across all of our cluster markets. We're also very fortunate to continue to have to truly demonstrate pricing power in each of our core cluster markets.

And by the way, the war for talent, like other industries in the life science industry is creating an even greater space need, set of space needs and demands in the core key Life Science clusters and that is very good for Alexandria. And we see an accelerating leasing demand even above and beyond what we see this quarter in several of our key cluster markets continuing.

Rental rate growth continues strongly and excess supply is not a current threat. Alexandria's differentiated expertise and unique platform with its compelling internal and external growth drivers and outlook translates into genuine earnings power. As indicated in the press release and supplemental, our visible multi-year highly leased development pipeline is expected to generate approximately $615 million in future incremental revenue. And beyond that the future leasing prospects really look extraordinary as I've said.

The biotech boom and historic Life Science demand driven by the strong industry fundamentals is evident. The 21st century is really the biological century as biology is in transition from an empirical science of trial and error to really an [indiscernible 0:05:19.8] science with much more predictable and scalable outcomes. We're witnessing the industrial revolution in biotech. As we accelerate the application of new and innovative tools, we will see an acceleration in value creation. Products will come to market faster, for less capital and with fewer failures.

The Life Science industry and its ecosystem and its positive impact on humanity is truly a crown jewel of the United States, and a testament to the free enterprise system of innovation. I think it's important to remember politically, those who seek to create a cradle to grave entitlement society should not use this industry as if fully covered.

And then finally, I want to turn to the second anniversary of our OneFifteen Project in Dayton, Ohio, which this month we celebrate. Sad to say that overdoses have claimed a staggering 96,000 lives during the 12-months ended March of 2021, up 30% increase in the year before.

OneFifteen is an innovative data-driven non-profit evidence-based healthcare ecosystem dedicated to the full and sustained recovery of people with addiction and as I said, Dayton, Ohio, OneFifteen is revolutionizing the way addiction is treated through its tech enabled care platform, which applies analytics to measure the effectiveness of various treatments, and choices throughout the full continuum of care, and continuously evolves its approach based on insights derived.

Since its opening in 2015, OneFifteen has served almost 4,000 individuals struggling with addiction, and conducted over 9,000 telehealth visits since the start of COVID-19 pandemic. With our OneFifteen partners, we’re unwavering in our commitment to help people recover from addiction, live healthier lives, while revitalizing the community. We would like to see this model replicated across the country. But politicians seem wholly ineffective, even given the large amount of capital that came to the cities and states during COVID-19.

And our goal is not only to have OneFifteen be a model for the success against opioid addiction, Dayton, Ohio. We hope to bring that model in a varied way to address the homeless crisis on the Wes Coast.

And so, with that, I'd like to turn it over to Jenna Foger, who's going to comment on some important COVID-19 matters, the NIH and the FDA. Take it away, Jenna.

[Jenna Foger, SVP, Science and Technology]

Thank you so much, Joes, and good afternoon, everyone. As we begin to turn a new corner on this COVID-19 pandemic, which I'll speak to in a moment, life science industry fundamentals as Joes highlighted continue to be very strong, and provide the industry with the unique structural integrity to weather broader market volatility and cyclicality.

The confidence of these drivers and key advances in our understanding of biology and next generation modalities will continue to fuel life science demands well into the future. So, as we spoke about last quarter, owing to the expediency at which the industry and our tenants move to protect the country in the world, we now have the tools and a roadmap at our disposal to end this pandemic, while also ushering in a historic new era for biotech and scientific innovation are none.

So turning to our COVID-specific updates, by the numbers according to the World Health Organization, there has been a staggering 242 million confirmed cases of COVID-19 worldwide, about 20% of these reported in the U.S. alone, including over 4.9 million cumulative deaths.

In the U.S., the incidence of new COVID-19 cases has welcomingly declined over 55% from its recent September peak of over 160,000 new cases to now 70,000 new cases, and we hope to see this trend and decline continue, of course.

Three of the most widely distributed vaccines worldwide and authorized by the FDA has been developed by [indiscernible 0:09:36.3], Pfizer, Moderna and Johnson and Johnson. And roughly 67% of the vaccine eligible population in our country that's 12 and over have been fully vaccinated. So this is just over 57% of the total U.S. population. And we hope with boosters and expanding indications that this number of fully vaccinated individuals will continue to rise.

As we saw last week, the FDA authorized the use of Moderna and Johnson and Johnson boosters, in addition to Pfizer's already authorized booster shots, as well as the mixing and matching of booster doses between Pfizer Moderna and J&J in eligible populations.

In light of the evolving data on the duration of immunity and COVID-19 variants concerns, including the common Delta variant, and now the Delta plus variants hitting U.S. soil, it's highly likely that COVID-19 vaccines will be required long-term.

With regard to vaccine efficacy, in a study evaluating the real-world effectiveness of the Pfizer and Moderna vaccines at preventing symptomatic illness, the Moderna vaccine had an efficacy rate of 96% and Pfizer at 89%. So as we've all heard, breakthrough infections have occurred in a high single digit percentage of vaccinated population. But, while current vaccines may not entirely prevent transmission or contraction of COVID-19, they do significantly prevent severe disease and deaths, with over 90% of all hospitalized COVID cases represented by unvaccinated individuals.

With regard to vaccine safety, there have been very few vaccine related adverse events, less than seven per million reported overall, with nearly all cases resolving and without long-term side effects reported to-date. Given such a strong efficacy and safety profile, the FDA granted full approval for Pfizer's mRNA-based vaccine for people 16 and older, and Moderna’s mRNA-based vaccine is likely to achieve full approval for its vaccine for 18 and older in the fourth quarter.

With regard to pregnancy in women of childbearing age, based on the safety data generated to-date and how we know vaccines work in the body, the CDC and top health officials have encouraged any Americans who was pregnant, planning to become pregnant or currently breastfeeding to get vaccinated against the Coronavirus as soon as possible.

With regard to children, Pfizer reported that its COVID-19 vaccine for ages 5 to 11 was safe and nearly 91% effective. And on the basis of this data, the FDA is expected to authorize Pfizer's vaccine for this population in the fourth quarter. Moderna also just announced yesterday that its COVID vaccine is both safe and highly effective in children ages 6 to 11, which they will also submit to the FDA. For young children ages six months to four years, vaccine authorization will likely come in early 2022.

So despite these advances in vaccines, given that COVID will likely remain on the planet for the foreseeable future, albeit as an endemic virus, with seasonal and sporadic geographic peaks therapies are going to continue to be important in mitigating the severity of COVID-19. And so most notably this past month, Alexandria tenant Merck in collaboration with Ridgeback Biotherapeutics submitted an EUA application to the FDA for oral antiviral molnupiravir.

This drug demonstrated a 50% reduction in hospitalization or death in patients with mild or moderate COVID-19. If authorized, molnupiravir will be the first oral antiviral therapy for COVID-19 is a big deal. It's far easier and more cost effective to administer broadly compared to current antibody treatments in the mild and moderate COVID-19 population.

So despite the COVID fatigue that we all absolutely feel on the multitude of challenges that this pandemic has placed on our countries or society and the world, of course, the scientific advances achieved at an unprecedented speed is the one saving grace of this tragic period in our history. The scientific attitude and adaptability of so many of our tenants to translate their broad platforms, and decades of work into safe and effective vaccines, therapies and testing in really a year's time is remarkable.

And application of these tools will forever transform the way we develop vaccines against novel targets. It will also augment future surveillance testing and our nation's pandemic preparedness overall.

So, to touch on another topic on the NIH and FDA leadership, the pandemic has also underscored how critical these agencies are, and that solid support for these key federal agencies is paramount for national security, for ensuring that the U.S. maintains its leadership in advancing scientific and biomedical innovation, and for maximizing our ability to address current and future health challenges.

So interestingly, over the past several weeks the leadership positions at these two agencies have received increasing attention. On October 5, long tenured NIH Director Dr. Francis Collins announced that he would be stepping down as the Director of the agency by the end of the year. Dr. Collins is the longest serving presidentially appointed NIH Director, having served three U.S. Presidents over more than 12-years.

During his tenure, the NIH has received increasing bipartisan support, and the agency's budget grew from $30 billion in 2009, when he started to nearly $50 billion in the upcoming fiscal year. The Biden administration is undergoing a formal process to name Collins replacement, which is expected later this year or more likely early next, and we're optimistic that his successor will continue to bolster biomedical and public health research in this country.

As for the FDA, Acting Commissioner, Dr. Janet Woodcock has led the agency since the beginning of the Biden administration. Under her leadership in addition to the COVID-related emergencies authorizations that I just spoke about, the FDA’s CDER has approved 40 new molecular entities through the third quarter, putting the agency on pace in the 2020s near record high of 53 approvals.

So because Dr. Janet Woodcock sort of fires on November 15, the administration now needs to select and appoint a new Commissioner in the coming weeks. So similarly, on October 14, the Biden administration announced that it’s likely to nominate Dr. Robert Califf as the next Commissioner of the FDA. Dr. Califf is a Cardiologist by training, and current Head of Clinical Policy and Strategy for Verily and Google Health.

Dr. Califf also served as FDA Commissioner from 2016 to 2017, end of the Obama administration after being appointed Deputy Commissioner in 2015. Dr. Califf is also very well-known and dear to us at Alexandria as a regular participant in the Alexandria Summit for the past several years, and a partner in our OneFifteen Project to address the opioid epidemic, as Joes just spoke about. Dr. Califf's nomination would be viewed very favorably by the life science industry, key investors and stakeholders.

Clearly, the strength of the FDA is instrumental for ensuring the continued pace and vitality of biomedical innovation in our country. And I just wanted to highlight, in addition to the COVID-19-related updates that we'll likely see in the fourth quarter, the FDA will also announce a handful of major approval decisions before the end of the year. Decisions that have positive will bring critical new drugs to patients as well as billions of dollars of additional revenue to the sector.

For example, Eli Lilly is expected to submit an application for accelerated approval of an Alzheimer's therapy, known as donanemab. And given all the controversy surrounding FDA’s positive approval of Biogen's Aduhelm in the same application, the approval of Lilly's drug would likely inform future approvals in this area.

There's also a major decision regarding a new class of drugs for severe atopic dermatitis from Pfizer and AbbVie, and several other awaited approvals for growing biotechs, including the approval of [indiscernible] for the treatment of bipolar disorder from longstanding Alexandria attendant and investment intracellular therapies.

So just to wrap up, before I turn it to Steve, I wanted to share a quote from former FDA Commissioner Dr. Scott Gottlieb in his new book, uncontrolled spread by COVID-19 cross death and how we can defeat the next pandemic. In his book, Gottlieb writes, the brief history of COVID shows that innovation can't always be predicted, we don't know which platform will yield answers for future threats. As part of our national preparedness, it will be important to stockpile countermeasures to some of the known risks. But it's equally important to support the development of novel technology platforms that have broad applicability over a range of potential threats.

The use of mRNA to customize synthetic vaccines show the value of having agile competencies at the ready. These are the technologies we will need to produce our nation's vulnerability. So does this opportune focus and unique ability and responsibility as a life science industry that continues to reaffirm why Alexandria has dedicated our business, our passion and our purpose to help drive this mission-critical industry forward.

And with that, I'll turn it over to Steve. Thank you.

[Steve Richardson, Co-CEO]

Thank you, Jenna. Good afternoon, everyone. Alexandria’s brand power in the market is not only delivering the exceptional results today that you've seen, but also provides clarity for the potential trajectory of the company's future growth and enhanced dominant position in the life science ecosystem.

Peter and I just completed an intensive on the ground tour through a few of our cluster markets. And the energy and enthusiasm for Alexandria's entirety of offerings as an integral part of the life science ecosystem was abundantly evident. The Class A plus quality and the mission-critical nature of the facilities that is so important during this time of COVID-19, coupled with the creation of true renaissance, like science centers on our mega campuses, provides for a set of highly desirable and sought after destinations. And the numbers the team are posting bear out this leadership position.

The highlights include superb leasing milestones, year-to-date leasing is 5.4 million square feet. The highest annual leasing run rate in the company's history achieved during just these first three quarters of 2021. And as noted earlier by Joel, featuring the largest lease in the company's history to Moderna at 325 Binney Street for their 462,000 square foot state-of-the art headquarters.

It's critical to note two important aspects of this leasing activity. One, it is occurring in our core sub-markets where we have high barriers to entry, low vacancy and a first mover advantage. And two, it is also occurring in the development and redevelopment pipeline at an accelerated rate, with the 1 million square foot of leasing in the segment during Q3 reaching the second highest leasing level for development and redevelopment projects, further validating Alexandria’s strategic and robust acquisition activity during 2021.

Let's turn to the strategic expansion of our asset base. Q3 was a very productive quarter with completed acquisitions totaling 5.6 million square feet. And a number of key aspects of this expansion of our asset base include the following: 4.9 million square feet of this total were highly accretive value creation opportunities. We are also able to continue either doubling down in our course of markets, as evidenced by 325 Binney Street or strategically expanding the boundaries of these sub-markets.

These critical decisions on acquisitions are informed by our unrivaled network of 750 tenants to meet their current needs and provide a path for future growth. And in total, we have now increased the total asset base from 47 million square feet to 64 million square feet during the past four quarters, a significant increase of 36%.

The core is also outperforming as renewal in releasing spreads of 19.3% cash and 35.3% gap during Q3 are impressive. But I also want to underscore and highlight that our mark to market across the portfolio has moved up to 25% on a cash basis today, nearly doubling and significantly up from 13.6% in Q1 of 2019.

AR balance of 99.4% in October, continues our hard work there. And we really do have a dream team in the operational realm. And a big shout out to the folks who make this happen every day.

Occupancy is increasing. As we've noted throughout the year, we expected occupancy to increase excluding the recently acquired projects with vacancy, we've delivered on those goals. We were at 97.1% as of June 2020, and we're now at 98.5%.

Turning to market health, on the demand side, Joel and Jenna highlighted the key components driving demand in the life science industry. However, the seasoned executive Life Science management teams driving this demand are requiring high quality facilities and deeply experienced operational teams, as clearly evidenced by our leasing volume and velocity. These companies are investing hundreds of millions of dollars in life changing therapies, and require exceptional performance from a world-class team and technically sophisticated facilities.

Downtime or mistakes that may destroy experiments in years of work are unacceptable risks. Alexandria, as a pioneer of this life science niche has earned a reputation as a trusted partner to provide operational excellence for these mission-critical facilities.

On the supply side, as I mentioned earlier, Peter and I recently toured a few of our regions firsthand to also evaluate the competitive supply on a granular level. And it is clear that there is no aggregation of disruptive large scale projects delivering during the 2020 to 2023 timeframe. There are in fact a handful of one-off buildings in the market. But we have seen our qualitatively superior mega campuses compete very well against this type of offering.

We are also closely monitoring the potential for projects beyond this timeframe that definitively advances genuine Life Science competition, but in many cases, they require many quarters or even years of entitlement, permitting, and horizontal infrastructure work before any decision to go vertical might be made.

So in conclusion, as we close towards the end of 2021, the first three quarters of this year have yielded a tremendously productive foundation to continue the company's integral and indispensable role in the life science ecosystem.

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

[Peter Moglia, Co-CEO & Co-Chief Investment Officer]

Thanks, Steve. Hello, everybody. I'm going to update you all on our high value creation development pipeline and construction cost trends. And then I'm going to comment on our recent partial interest sale in Mission Bay, and some market activity that we believe represents overzealous behavior by new entrants in the life science real estate market that should lead to challenges for such groups.

As Joel mentioned in his opening, historic demand for our differentiated life science campuses has continued in the third quarter, and we expect this to continue to at least the near to medium-term, as record levels of government, venture capital and biopharma investment continues to disseminate into Alexandria's cluster markets to discover, develop and manufacture new modality, such as cell, gene and RNA and DNA therapies.

The resulting growth of our underlying industry gives us high conviction to continue as an elevated pace of development, redevelopment and to acquire assets to backfill the pipeline we're advancing today. This historic demand paired with our long tenure development experience and expertise, resulted in another outstanding quarter for Alexandria.

We delivered 238,163 square feet spread over six assets, including Arsenal on the Charles in Watertown, which continues to be one of the hottest markets outside of Cambridge, 3160 Porter drive, which is now materially oversubscribed with tenants looking to tap into this unique partnership we have with Stanford, and our two ground up developments in Research Triangle, which are capitalizing on strong demand for research development, manufacturing space from therapeutic and agricultural technology companies. These deliveries will contribute $14.3 million in NOI over the next year.

And as Joel and Steve noted in their comments, during the quarter we were very excited to add 325 Binney Street to our under construction pipeline. This new 462,000 square foot high performance development targeting LEED Zero Energy certification showcases Alexandria’s climate resilient design solutions, as well as our mission-critical efforts to catalyze positive change to benefit human health and society.

It is 100% leased to Moderna, an example of a highly disruptive and visionary company that has grown with Alexandria since shortly after it was founded. Early on, we identified the team and the transformational potential of its mRNA platform, and we have both invested and provided the company with mission-critical real estate over the past 10-years. This is truly a testament of our ability to recognize and become a trusted partner of the most impactful life science companies in the world.

Including three to 325 Binney, we have added over 1.1 million square feet of new development to our pipeline, and net of deliveries increased assets under construction from 3.4 million square feet to 4.3 million square feet. This increase in our pipeline is warranted by the demand I mentioned previously, and evidenced by the tremendous leasing activity of over 1 million square feet for the quarter, truly a historic demand from the life science industry and tremendous execution by our leasing professionals.

I’ll now comment on cost trends, as reported over the past two quarters, construction costs remain elevated, driven by supply and demand dynamics for material. But two other factors have begun to exacerbate the problem, labor shortages and supply chain problems. Nine months into 2021, previous year projects that had been put on hold due to COVID and new 2021 projects have created a double barrel demand for construction resources at a time when fabrication shops are struggling to procure raw material and restart due to labor shortages.

The result has been record escalation for concrete, steel, wood, aluminum and glass. Most of these commodities are sourced from the United States. But there are still a number that come from foreign sources such as steel from Canada, Asia, Mexico and Brazil, glass from Thailand and resins used for pipe and specialty products such as benchtops for labs from Asia and Europe.

As we all know, there have been significant supply chain disruptions around the world, none more apparent than the backlog of cargo ships in Southern California, which last Tuesday reached an all-time high of over 100 ships waiting to unload thousands of containers outside the ports of Long Beach and Los Angeles, a bottleneck that is expected to continue into next year.

In addition to supply disruptions, construction costs are being impacted by labor shortages. There is a lack of skilled workers to keep up with the accelerated demand caused by a number of factors including GC, finding that some of the workforce laid off or furloughed during COVID are not returning because of retirement or finding other jobs. And it could get worse, if OSHA adopts vaccine mandates, as the construction industry is one of the highest unvaccinated workforces.

Unfortunately, higher costs are not the only consequence of material and labor shortages. Material shortages caused longer lead times that can delay deliveries. Based on our deep experience and expertise, lead times have generally increased by six to eight weeks for most common materials. Even longer for materials that are comprised of metal and PVC or have a need for computer ships, such as building control.

Alexandria is employing a number of mitigation measures to offset these impacts. And to-date, we've been very successful in staying on budget and schedule the vast majority of our projects. Increases in rents have enabled us to maintain our yields, but future projects may trend slightly lower as escalations and longer lead times impact our underwriting.

However, we are fortunate in that the demand for Life Science real estate investments continue to drive lower cap rates for stabilized buildings, allowing us to maintain our spread. And speaking of cap rate compression, during the quarter, we sold additional interest in our 409 and 499 Illinois and 1500 Owens assets, while recapitalizing them with a new partner.

In our original recapitalization done in December 2015, we achieved a total valuation of $1,021 per square foot, and a blended cap rate of 4.6%. In this transaction, we achieved a blended cap rate of 4.2% and a price per square foot of approximately $1,362, representing 33% appreciation over the whole period. To-date, we've achieved a healthy unlevered IRR of 10.4% on those assets.

Finally, an observation on those clamoring to position themselves to capture the growing Life Science real estate demand, I referenced earlier. City office REIT sale of two parcels in Sorento, Mesa to Sterling Bay and Harrison Street for $576 million illustrates a gold rush mentality proliferating across our markets. City REIT’s announcement stated that the south portion of the site was allocated $181 million of purchase price. A rendering of the site shows a very tight 2.0 FAR density of development that would imply a purchase price of $261 per square foot of land.

To give you some context, our basis in the recently acquired land at 6250 to 6460 Sequence Drive a far superior location in the same Sorento, Mesa sub-market would have a basis of approximately 25% of that, if we were to build it to the same density. Our plans contemplate a much more inviting campus with open space and amenities, so our basis will be more like 50% of theirs, but you get the point.

This is a great example of why we are in an incredibly advantageous position to capture any tenant requirement we want to capture. We are highly disciplined and have superior locations, superior basis, superior execution and the superior brand.

And with that, I'll pass it over to Dean.

[Dean Shigenaga, President and CFO]

All right, thanks, Peter. Dean Shigenaga, here. Good afternoon, everyone. Year-to-date 2021 really has been an exceptional year of financial and operating performance for Alexandria. Our brand trusted partnerships with some of the most innovative Life Science entities combined with operational excellence has allowed our team to generate strong results. Our internal growth has been very strong. Statistics from our pipeline of development and redevelopment projects are record breaking, and provide visibility for growth into the future.

Total revenues, net operating income and adjusted EBITDA for the third quarter were very strong, and were up 20%, 21% and 22%, respectively, over the third quarter of 2020. All really amazing and impactful results. And I should point out that these stats exclude the impact of the termination fee that was recognized in the third quarter of 2020.

Now internal growth and operating results continue to reflect the strength of our unique and differentiated business model and strength of our brand. Our same property performance represents one of the highest quality growth engines within the REIT industry, of which we are immensely proud. We have one of the highest quality tenant rosters in the REIT industry with 53% of our annual rental revenue from investment grade or large cap publicly traded companies, and an important statistic that should be noticed.

And occupancy has been very strong and improving this year to 98.5% about 80 basis points from the beginning of the year, excluding the impact from vacancy and recently acquired properties. Now importantly, 1.4 million rentable square feet of vacancy from recent acquisitions represents about 4.1% of our operating rentable square footage, and is a significant opportunity to increase cash flows.

Additionally, 41% of this 1.4 million rentable square feet of vacancy is leased or under lease negotiations. And as Joel has stated earlier, we are seeing increasing leasing demand in a number of our key Life Science cluster markets.

Now same property NOI growth was strong at 4.1% and 7.3% on a cash basis, and headed toward the upper end of our ranges for 2021 guidance. Same property NOI growth projected for the full year of 2021 is very solid, and is up 100 basis points and 70 basis points on a GAAP and cash basis respectively, from our initial guidance for 2021, really highlighting the improvement in our outlook since the beginning of the year. And once again, very proud of the strong internal growth engine we have.

Leases executed in the nine months ended September 30 at over 5.4 million rentable square feet, another company record and this leasing volume was completed with exceptional rental rate growth up 39% and 22.3% on the cash basis.

Now let me take a moment to highlight the seasonality of operating expenses related to higher utility expenses. With warm summer weather, we had higher repairs and maintenance in the summer months versus what might occur during the winter months, and higher property insurance premiums were their policy renewal which took effect June 1. Now with 92% of our leases being triple net these increases are generally recoverable from our tenants, and therefore have minimal impact on net operating income.

However, the increase in operating expenses has a slight and only temporary negative 1% to 2% impact on operating and EBITDA margins for the quarter. Additionally, vacancy from recent acquisitions also slightly reduced margins. But it's important to recognize that our adjusted EBITDA margins remain one of the top within the REIT industry, and we expect the favorably resolved vacancy from recently acquired properties over the next number of quarters.

Now turning to real estate, our trusted partnership with key Life Science entities, our brand and operational excellence among many other items is really standing out today as highlighted by strong demand for our pipeline of development and redevelopment projects. We have 7.7 million rentable square feet either under construction or construction commencing over the next six quarters, with projects approximately 80% leased or under negotiation, highlighting continuing historic demand, 93% of which represents transactions with existing relationships, including a number of deals coming from our tenant base of over 750 entities.

Now the 7.7 million rentable square foot pipeline is up 731,000 rentable square feet over June 30. And some of the key highlights in the quarter included that we commenced construction on 1.2 million rentable square feet that is on average 60% leased or under negotiation, including 325 Binney Street, which is 100% leased, and 751 Gateway in South San Francisco, which is 100% under negotiation. These are pretty amazing leasing statistics, and we just commenced construction. And in both cases, stellar existing relationships resulted in full building users.

Now we added approximately 480,000 rentable square feet of space targeted to commence construction over the next six quarters, that’s about 20% of the space is under LOI negotiations today. And importantly, our team executed 1 million rentable square feet of leasing in the third quarter related to the development and redevelopment space, including the 462,000 rentable square foot lease with Moderna for 100% at 325 Binney Street. And we expect demand from our development sites and projects will provide us the opportunity to commence construction of other development and redevelopment projects.

Now turning to our venture investments, just want to shout out a huge thank you to our science and technology team for their leadership in underwriting life science industry trends, and high quality investment opportunities. Now our venture investment cost basis only represents about 3.2% of gross assets, and unrealized gains were $930 million on a cost basis of about $1 billion.

In the third quarter, we realized individually significant gains from three separate transactions aggregating $52.4 million. And year-to-date through September 30, we realized individually significant gains from six separate transactions aggregating $110.1 million. Now this represents over $100 million of capital that we did not anticipate at the beginning of the year that we were able to reinvest into our business.

Our team is very pleased for recognition of the overall improvement in our corporate credit profile, S&P just upgraded our rating to BBB plus with a positive outlook, highlighting our unique and differentiated business model, strong brand and execution, high quality cash flows and strong credit profile among many other items. So thank you to our entire team for continued solid execution across all areas of our business.

We remain on track for net debt to adjusted EBITDA at 5.2 times, at fixed charges greater than 5 times by the end of the year. As we close in on the end of 2021, we are focused on wrapping up several key partial interest sales and high value low cap rate transactions and other dispositions. Each transaction is moving along as expected and we are targeting completion of the sales later this year, which will generate about $1.7 billion in capital.

The timing of a couple of the key dispositions were subject to lease negotiations before we were able to put the deals in front of potential investors, and therefore are targeted to close in the fourth quarter.

As our team continues to focus on making a positive and lasting impact on the world, they were very pleased for continued recognition of leadership in ESG. MSCI just released results highlighting an A rating for Alexandria, representing one of the top ratings within the REIT industry. GRESB also recently released results of the 2021 assessment, highlighting Alexandria as a global sector leader and a five star rating in the diversified sector for buildings and development, and one of the top two in the science and technology sector for buildings and operation.

And our team commenced construction the 325 Binney Street, which is the ground up development fully leased to Moderna and is designed to be the most sustainable laboratory building in Cambridge. Now, key items of the design include use of geothermal energy for heating and cooling and innovative building envelope and building management system, and other sustainable attributes that is designed to eliminate 95% or more fossil fuels and achieve LEED zero energy.

Now this building has also been designed to mitigate risk associated with flood precipitation under a business as usual scenario. And we are extremely excited to be an important strategic partners to Moderna for about a decade now, and super pleased that they select their team to assist them with their strategic priorities, including development of their next super innovative and sustainable lab building.

Now turning to guidance, we updated our conservative guidance for 2021 including narrowing the range for EPS and AFFO per share from a range of $0.08 to a range of $0.02 per share. Our 2021 guidance for EPS diluted is ranged from $3.91 to $3.93. And FFO per shares adjusted diluted to a range of $7.74 to $7.76, with no change in the midpoint of $7.75.

Now, continue strong demand for space and our asset base has increased our outlook for rental rate growth on lease renewals and release in a space by 2% and 1% on a GAAP and cost basis, respectively. And we also updated our 2021 guidance for dispositions, and have four transactions in process that will generate $1.7 billion, as highlighted a moment ago.

We updated construction span for an increase of about $200 million at the midpoint, primarily due to acceleration of leasing and tenant space requirements related to our development and redevelopment projects. And as a reminder, we are about five weeks away from issuance of our detailed guidance for 2022, and therefore, we're unable to comment on 2022 guidance related matters.

Let me end there and turn it back to Joel.

[Joel Marcus, Executive Chairman and Founder]

So, operator, if we could go to Q&A.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Manny Korchman with Citi. Please go ahead.

[Manny Korchman, Citi]

Hey, good afternoon, everyone. The topic of labor and materials potentially being an issue has come up, I think a couple of times in this call. I was wondering just from your tenants perspective, is labor an issue there? Certainly, this is a hot spot within the economy. And these companies are doing well. But are there enough scientists and other talented staff members to staff all these up incoming companies?

[Joel Marcus, Executive Chairman and Founder]

Yeah. So Manny, welcome. This is Joel. And so, I alluded to that in my comments that there is in fact, truly across the U.S. for many industries kind of a war for talent. And this is true in the life science industry. So far, we haven't seen any egregious shortages.

But what I did say is that if somebody is going to not only create a company, but try to scale a company, you've got to be in the critical key existing clusters. You can't wander off and try to scale a company in Chicago or Denver or someplace like that in a way that you could otherwise do say in Boston or San Francisco. It just doesn't work that way. The pool of talent doesn't exist if you look at R&D, commercial, clinical, et cetera.

So, at the moment, the existing clusters things seem okay. But there clearly is a war for talent.

[Michael Bilerman, Citi]

Joes, just taking that one step further, it's Michael Bilerman here with Manny. Good afternoon. As you think about sort of just the overall space in the life science facility, outside of people, there's obviously an increased use of robotics and other things that have just gotten smaller over time. I think about our PCs that used to be the hunks on our desk that are now in our pocket. How do you think about sort of just the evolution of what's being done in your labs and life sciences buildings, just from an efficiency standpoint? And could you see that evolve, like the law libraries went out the window? Is that at all a risk? I'm not trying to undermine the demand of the business, I understand that side of it very well. But I'm just trying to think about the use of space and the use of robotics and all that to do more in less space.

[Joel Marcus, Executive Chairman and Founder]

I think that trend has been going on for quite a while. There is a whole lot of innovation that have made things that are repetitive, and by nature lend themselves to a more automated approach. But, science is in fact executed by people with pretty sophisticated backgrounds, and so forth. And so the need, not only can't you do science at home, but you can't do science purely robotically. You've got to make a lot of judgments and a lot of insights.

And I don't know, Jenna, you've worked at the bench. So maybe you can comment directly.

[Jenna Foger, SVP, Science and Technology]

Yeah, I think on that point, I was just going to say that I think, robotics innovation broadly, I think, allow a lot these companies to build larger and broader and more robust platforms. So companies are working more efficiently, but they're working on kind of parallel streams at once. So I don't really think that that -- I think robotics has enhanced what companies are looking for, but not really change necessarily real space needs, I think just the whole because the track of the entire industry. I don't think that's like a real thing,

[Michael Bilerman, Citi]

A real threat that you're sort of mindful of.

[Jenna Foger, SVP, Science and Technology]

Yeah,

[Joel Marcus, Executive Chairman and Founder]

No.

[Michael Bilerman, Citi]

Okay. Thank you.

[Jenna Foger, SVP, Science and Technology]

Yep.

[Operator]

Our next question will come from Rich Anderson with SMBC. Please go ahead.

[Rich Anderson, SMBC]

Hey, thanks. Good afternoon, everyone. So I want to ask my first question on CapEx, and I looked at your supplemental looks like it's a lumpy number, TIs have been running anywhere from $20 million to $50 million in the past five quarters. I'm wondering, when I think about the triple net nature of your portfolio, the relative newness of your portfolio born from your own development largely, and just the strength of life science marketplace, do you feel as though that CapEx which seems to be all over the map, from the sell side perspective too is trending down? Or, relatively speaking to the size of your company?

[Joel Marcus, Executive Chairman and Founder]

So, Dean, you want to take on that? Peter, and Steve, you can chime in there.

[Dean Shigenaga, President and CFO]

Hey, Rich, it’s Dean here. I would say there's one overlay to your question, Rich, I think what you're highlighting is the newer assets may have a little longer time before it starts to generate some requirements for capital. But our portfolio has a range of assets generally, much on the newer side.

But if you look back over an extended period of time, our CapEx, I'll call it the bad bucket of CapEx, anything except for redevelopment and development CapEx has ranged anywhere from 10% to 13%, maybe just a tad beyond that in a given year. So, I don't think it has generally moved in any one particular direction in the last five or eight years. It's been relatively consistent in that direction, Rich.

[Rich Anderson, SMBC]

Okay. And Dean, while have you the $1.7 billion of dispositions targeted for the fourth quarter is a key variable to getting to your leverage target, I assume. What is the risk that one or some of that can kind of fall off completely or delay into next year, you'll have to sort of explain a little bit higher, at least temporary leverage position until they get done?

[Dean Shigenaga, President and CFO]

Well, I mean, the reality is there's always some risk, but I think we've moved the transactions along in a good fashion and have expressed expectations from both sides really, to bring closure to these transactions this year. So we feel comfortable, Rich, but we need to get them done as you point out.

[Rich Anderson, SMBC]

Okay. And just a quick one maybe for Joel. Dr. Califf, new incoming FDA Commissioner, sort of a friend of the firm. Obviously, he's going to do his job, not play favorites, I'm not suggesting that. But what is his awareness of Alexandria? Is there anything beneficial that can come to you as a result of that relationship that you have? Or, is it just business as usual?

[Joel Marcus, Executive Chairman and Founder]

No, I mean, I think that's something we would never even think about or have a mindset about. I think the relationship we have, I mean, Rob, was a practicing cardiologist, he worked at Duke for many years. So he has a wide network across the United States. And I think how we look at him is, he's served in the position before he's well liked. He's a very smart guy, he’s a very compassionate.

And I think that nomination -- or if the nomination happens, he seems to be at the top of the administration's list, I think, would be very good for the industry as a whole, not singling us out in any way, shape, or form. Because he's been there, he's been at the FDA, he knows how to get things done, and I think that's the big benefit for the industry as a whole.

[Rich Anderson, SMBC]

Okay. Thanks very much.

[Joel Marcus, Executive Chairman and Founder]

Yep. Thanks, Rich.

[Operator]

Our next question will come from Anthony Paolone with JP Morgan. Please go ahead.

[Anthony Paolone, JP Morgan]

Yeah. Thank you. My first question relates to just the mark to market, just listening to Steve's comments about how that's changed and also just looking at your guidance for cash leasing spreads over the last several quarters. It seems like the market rents have been moving the last couple of years high single digits annually. And so, my question is, one, do you think it continues at that pace? And then two, it would seem that we haven't seen your peak mark to market leasing spreads yet. Is that fair?

[Joel Marcus, Executive Chairman and Founder]

Yeah. So maybe, Steve, do you want to comment on that, because I think there's some pretty good observations there.

[Steve Richardson, Co-CEO]

Sure. Yeah, Tony, Steve, here. Look, this is across the entire portfolio. So this, number one is very broad based. I think that's important to emphasize here. And, as we've been seeing, when you see these leasing statistics, and the acquisition work we're doing, it's responding to the industry. So, with that, we'll see what's to come in the future. But, we do have a lot of confidence based upon our network of what the future holds. And, that relates to the mark to market as well, and the potential for further increases.

[Anthony Paolone, JP Morgan]

Okay. And then for Peter, in the past, you've done a nice job going through cap rates. Can you can you maybe touch on that through your markets?

[Peter Moglia, Co-CEO & Co-Chief Investment Officer]

I mean, I guess I’d broadly say that a couple years ago, there were markets like Research Triangle or Maryland, where people thought you're in the 6.5 to 7.5 range. And I would say today, I would doubt that there'd be any asset we would sell on our balance sheet in any market that wouldn't have a cap rate with a handle greater than a 5. So that way, we're going to -- you're going to see sub 4 cap rates, you're going to see nothing really go below -- I mean, until interest rates go up and then all real estate kind of gets hurt by that. I don't think you're going to see anything above a 5 something cap rate, at least in life science for the near future.

[Joel Marcus, Executive Chairman and Founder]

Yeah. In the core cluster markets.

[Peter Moglia, Co-CEO & Co-Chief Investment Officer]

Correct.

[Anthony Paolone, JP Morgan]

Got it. Thank you.

[Operator]

Our next question will come from Sheila McGrath with Evercore ISI. Please go ahead.

[Sheila McGrath, Evercore ISI]

Yes, good afternoon. Joel, I was wondering if you could give us more detail on your thought process or strategic thinking on which buildings or which markets you're choosing to sell partial interest in. Is it -- are you looking to lighten up in California given the business environment? Just a little more color on that?

[Joel Marcus, Executive Chairman and Founder]

Yeah, I want to be real careful there because we have transactions underway. So maybe I would say defer that to the next quarter, where we could come in on the full year. I think the mantra that we have is where we have assets that are -- where we've really maximized value for Alexandria in a sense are ones that we certainly think about and look at. But it's a sophisticated set of issues and thoughts that we go through, but I think I don't want to come in given just pending transactions.

[Sheila McGrath, Evercore ISI]

Okay. And then if you could give us some insights on the recent entitlements that you received at Fenway Park, was the timing and square footage in line with your expectation? And will this extra 450,000 square feet be near-term project?

[Joel Marcus, Executive Chairman and Founder]

Yeah. So Peter, you could comment on the underwriting?

[Peter Moglia, Co-CEO & Co-Chief Investment Officer]

Yeah, Sheila, we actually underwrote a lower amount of -- more conservative amount FDR [ph] that we get on that additional side. So we're quite pleased with the outcome. And we are already set to design a project on that site. It's underway. The leasing that was done at the current development on the site there has been terrific, as you can see we're in the in the 90% leased and negotiating, and we're just wrapping up any leases that we haven't ramped up so far over the next quarter.

So, the Fenway market is exceeding our expectations. The outcome of the entitlements was tremendous and we'll be capitalizing on that in the near future.

[Joel Marcus, Executive Chairman and Founder]

Yeah. And you guys, either Steve or Peter, you can comment on the leasing that was done there from when we started early in the year till now, and how we've been able to really bring our client base to that project.

[Peter Moglia, Co-CEO & Co-Chief Investment Officer]

Yeah, I'll start with and then Steve, you can add anything. But, one of the things when we bought that asset, the one that was under developed was 17% leased at the time. And within, I think a quarter, I was looking at the statistics of when we were preparing their supplemental, and I called up our team and I said, guys, like you're making incredible progress here, what is going on. And what they told us was, what they've been -- what they were told by the market was essentially, this is a great project. And the developer was a very, very good developer, but not allowed developer and that the market was waiting to see who was going to acquire it.

And once they saw it was us, then people were ready to commit to it. So we went again, from 17% to in the 19%, at least in negotiating in I think within two quarters. And it was all because, our brand was put on the building, and people could trust that we would do an excellent job of not only finishing the development, but operating it down the road.

[Sheila McGrath, Evercore ISI]

Okay, great. Thank you.

[Joel Marcus, Executive Chairman and Founder]

Thanks, Sheila.

[Operator]

Our next question will come from Jamie Feldman with Bank of America. Please go ahead.

[Jamie Feldman, Bank of America Merrill Lynch]

Thank you. Steve, in your remarks, I think you had commented that you and Peter just kind of made the rounds around the markets, and felt very good about supply through ‘22 and ‘23. Can you talk more about some of the details of what gives you that comfort?

[Steve Richardson, Co-CEO]

Sure, Jamie, Steve here. I think, as we toured through the markets and you drill down on a parcel by parcel or building by building basis, as I did comment, there are a number of single buildings that may be either redeveloped potentially from office to lab, or being advertised for that, or you may see a project or two that has some horizontal work going on, and people are talking about vertical for lab. That timeframe is here and now. So you actually have to see that activity to have a true delivery in ‘22 or ‘23.

A lot of what is being talked about, still needs to be entitled, still needs to be permitted, still needs to actually have the horizontal work done before someone's going to make the decision to go vertical, and potentially go vertical without an anchor tenant. So I think it's just important to really bracket the timeframes here. And we just saw that time and time again, and each of these sub-markets really on a specific building and parcel by parcel basis.

[Joel Marcus, Executive Chairman and Founder]

Yeah. And I think if you overlay that, Jamie, with what Peter said, about construction issues, it makes it all the more unbelievable that people could maybe broadcast something when in fact, they couldn't accomplish it. So I think that's the reality as well.

[Peter Moglia, Co-CEO & Co-Chief Investment Officer]

It’s Peter. I just would add that, we really didn't see anything that was going to reach the scale that we can provide our tenancy, as Steve mentioned. Lots of projects named, but they're essentially one-off. And, as we've discovered over the past few years, as we've assembled our mega campuses, there's just a lot of power and attraction that tenants have to that aggregation. And what we see in the markets when we were touring on our decent sites, but nothing that would compete with us on that scale. So anyway.

[Jamie Feldman, Bank of America Merrill Lynch]

And then, are there certain markets that you'll be watching more than others that maybe -- I mean, sounds like you're talking about 2024 at this point, but just generally, where do you see the most potential supply risk?

[Steve Richardson, Co-CEO]

We’re tracking each and every one of the markets very closely, Jamie. Certainly, San Diego, San Francisco and Cambridge, tracking those closely, Seattle, Maryland and Research Triangle as well. I don't know that there's any one market right now that is most concerning. Over the others, we're just monitoring it very closely broad based.

[Joel Marcus, Executive Chairman and Founder]

Yeah. And I mean, the other thing, Jamie is, that's more than two years out, so we don't know what the macro environment will be or the micro demand environment as well. So, hard to predict.

[Jamie Feldman, Bank of America Merrill Lynch]

Okay. And then Joel, just listening to your comments at the outset of the call, couple – it sounds like you're somewhat frustrated with the political environment. Can you…

[Joel Marcus, Executive Chairman and Founder]

I think, every -- yeah, that's just not me. I think we're speaking about everybody that days, the old days of bipartisanship are kind of gone. And everybody seems to want to railroad their ideas. I mean, I spoke about the infrastructure package, which is being held up kind of as ransom for this much broader cradle to grave social entitlement thing. And if infrastructure is so important, why isn't it just done, because that is bipartisan.

But I've said, I think it's a 20th century infrastructure package, not a 21st century infrastructure package. And if we don't watch out China's going to eat our lunch here over the next decade or two.

[Jamie Feldman, Bank of America Merrill Lynch]

Okay. So I guess just to ask the question, I mean, what concerns you the most as it pertains to your business specifically?

[Joel Marcus, Executive Chairman and Founder]

Well, I mean, I think the way – I think the folks that are in there, nobody knows who they are that are pushing this 3.5 trillion, but now slimmed down, because of likely Joe Manchin and Kyrsten Sinema to some number that still seems outrageous. It's like going into a store, buying things and then figuring out Gee, I don't have a credit card, I don't have a check, I can't cover this. What am I going to do to pay for this? That's what it seems to me, that's a good analogy. And the items are pretty crazy, too. Certainly, we can do much better in a bipartisan fashion, not just crazy stuff.

[Jamie Feldman, Bank of America Merrill Lynch]

Generally, it sounds like you're comfortable with the life science part of things.

[Joel Marcus, Executive Chairman and Founder]

Well, I mean, I think early on they're going after all kinds of sources, without any regard to policy. This is maybe the point here, Jamie. It's not a policy decision. It's, oh, where can we try to get $1 trillion or $2 trillion or $3 trillion or $4 trillion or $5 trillion from a bunch of sources without thinking about tax policy or health care policy. It's all about -- let's just steal somewhere and put it somewhere so we can get the goodies we want. That's not how to run a government.

[Jamie Feldman, Bank of America Merrill Lynch]

Okay, understood. Thank you.

[Joel Marcus, Executive Chairman and Founder]

Yep. Thank you.

[Operator]

Our next question will come from Tom Catherwood with BTIG. Please go ahead.

[Tom Catherwood, BTIG]

Thank you so much. Good afternoon, everyone. Great to see the lease with Moderna at 325 Binney. And Dean, thank you for the color on that. In the past, you've worked with the Citi to add more density to your Cambridge sites. With the acquisition of One Rogers and One Charles Park, what’s the opportunity for further densification in Cambridge?

[Joel Marcus, Executive Chairman and Founder]

Yeah, so we don't want to give anybody else a roadmap. But I'd say there are unique opportunities we're looking at. And we think given our position in that market and our knowledge of that market, much like three to five, which we were able to substantially up zone, we had actually underwrote that site for something like 200,000 or 250,000 feet, and we're able to do much better.

I would say, just wait and see. But there are things that we are doing and we will be doing that are pretty amazing. So, let me leave it at that.

[Tom Catherwood, BTIG]

Got it. Thanks, Joel. And then last one for me. We've heard numerous examples of life science companies facing challenges with small molecule manufacturing, and especially products that have short half-lives, like radiology treatments. In the past, you've talked about specialized domestic drug manufacturing as an area of opportunity. And what's your current view on manufacturing up kind of build outs or development for Alexandria? And given the mission-critical nature of these, are tenants looking to own these instead of lease them?

[Joel Marcus, Executive Chairman and Founder]

Yeah. So Peter, you've got a whole lot of recent experience on the integration of the R&D with the manufacturing. So maybe just kind of a quick overview of how to kind of think about that.

[Peter Moglia, Co-CEO & Co-Chief Investment Officer]

Yeah, Tom, what you were alluding to more small molecule as -- the issue there's more just onshoring the materials that go into that, and hopefully, eventually manufacturing things there. But that's really not the opportunity we've been touting. The opportunity we've been touting is the next generation manufacturing of cell and gene therapy type, or even DNA and RNA type of drugs like Moderna manufacturers.

Those drugs need to be near the research. They're living and breathing biologics that will take constant tweaking until they can be gotten right. And so, the tenants tend to need those facilities within even probably preferably 10, 20, 30 minute drive versus across the country, or in an area where maybe there's cheap labor. So that's the opportunity for us and we've taken advantage of it in acquiring some properties that will do well for manufacturing. There's certain attributes to a building that makes it better for manufacturing.

But we've been also very careful in setting ourselves and putting ourselves in a good position to do that, by ensuring that where we're buying this real estate and real estate that we're buying would also work well for R&D. And so it's easy to do, because, as I said, the tenants will want these facilities to be very close to where they're doing the R&D now. And so, down the line, if we have a building or 20 in a market that is being used for manufacturing, and then they become available, they could also easily convert to R&D down the road. Hopefully, that answers your question.

[Tom Catherwood, BTIG]

That that was really helpful. Thanks so much, everyone.

[Joel Marcus, Executive Chairman and Founder]

Thanks, Tom.

[Operator]

Our next question will come from Michael Carroll with RBC Capital Markets. Please go ahead.

[Michael Carroll, RBC Capital Markets]

Yeah. There was a sizable increase, I guess, in your staff related projects under construction, or expected to break ground over the next six quarters. I know this stuff was about 57 versus 52 in the prior stuff. I know there's a lot of moving parts within these numbers, though. But I guess, my key or that my question is, how much of that increase is due to new projects who’re planning breaking ground before 2022 versus kind of starting to bleed into maybe the beginning of 2023 into those numbers?

[Joel Marcus, Executive Chairman and Founder]

Yeah, so I'll let Dean comment. But I would say keep in mind, the key driver here is immediate demand by our tenants and a path for future growth. So we're trying to kind of juggle both requirements. So Dean, you could comment.

[Dean Shigenaga, President and CFO]

Yeah, Michael, I think what you're trying to understand a little bit is as we look at the full year ‘22 versus something going into ‘23. And I think you'll see us quarter-to-quarter extend that horizon a little bit. It's nothing to do with timing of transactions slipping. You can actually see a number of changes, if you were in supplemental, a supplemental where we had a number of projects across the spectrum from near-term, intermediate to future, get accelerated forward in the timeline.

And as we highlighted in our commentary, all of this has been driven by as Joel mentioned, as well, demand for the space and an acceleration of our timing outlook as a result of the requirements that we're dealing with, with our tenant base and other relationships as well.

[Michael Carroll, RBC Capital Markets]

Okay. So, I guess if I'm understanding correctly, this is more of you're seeing near-term demand, so you're willing to break ground on new projects over the next six quarters, and that's driving the large part of that increase?

[Dean Shigenaga, President and CFO]

Yeah, exactly. And as I mentioned in my commentary, almost all the activity you're seeing has some level of leasing on it. So we're sitting in a pretty nice spot right now.

[Michael Carroll, RBC Capital Markets]

Okay, great. And then can we talk a little bit more about the fundamental backdrop, I guess, particularly market rent growth? I mean, can you quantify how much market rents have increased this year compared to prior years? And is there any big differences among the top clusters, I guess, particularly Boston, San Fran, or San Diego?

[Joel Marcus, Executive Chairman and Founder]

So Steve, maybe give a top side view of that. I want to be careful. We don't benchmark each and every market,

[Steve Richardson, Co-CEO]

Michael, look, again, it's been broad based. I know, we've said that, but it really is. And, I think you're probably in the mid to single digits in some of the markets and maybe even double digit, low teen growth in some of the markets.

We are just going to have Investor Day in a number of weeks here, so why don't we push a little bit of this question to Investor Day?

[Michael Carroll, RBC Capital Markets]

Okay, great. I appreciate it.

[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 Marcus, Executive Chairman and Founder]

Okay. Thank you very much, everybody for your time and attention. And stay safe and god bless.

[Operator]

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