Good day and welcome to the Alexandria Real Estate Equities Second Quarter 2019 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 conference over to Paula Schwartz with Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. This conference call contains forward-looking statements within the meaning of 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 I would like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

Thank you, Paula and welcome everybody to our second quarter call. With me today are Dean Shigenaga; Steve Richardson; and Peter Moglia. I want to start with focusing on the cover page to our 20 -- our 2Q19 press release and supplemental, which features our recently developed Vertex Pharmaceutical West Coast research base, designed in the shape of two human lungs together with a quote from the mother of the two children suffering from cystic fibrosis, which I quoted in the first quarter call. This is our solemn mission to build the future of life-changing innovation as we have each and every day over the past 25 years as the originator and innovator of the life science real estate niche and we thank each and every team member of the Alexandria family for their important contribution each and every day. As we sit here after the close of the second quarter, we really are very proud on a couple of aspects. I think we've reached a point where we can say we really have built a fortress balance sheet with over $3.4 billion in liquidity and a weighted average remaining debt term of greater than 10 years, and Dean will highlight some of the capital accomplishments this past quarter. We also have a pipeline which will – which could enable us to double rental revenue from January of 2018 to December 2022. The strongest client tenant base with 53% of our annual rental revenue from investment grade or publicly-traded large cap client tenants with a weighted average lease term of 8.4 years. In addition, a robust 2Q cash same-store growth number that Dean will talk about as well and Steve will highlight robust cash re-leasing spreads this past quarter. And we're very proud of a very strong value-add pipeline leading…

Thank you, Joel. Steve here. We're very pleased to report the company's unique cluster campus business model is not only driving superior operating and financial results, but it continues to provide tremendous value to our tenants and stakeholders. Alexandria's dominant franchise and brand, its best-in-class team and highly differentiated campuses continue to exceed expectations and drive significant internal and external growth opportunities for the company. I'll provide a granular analysis of the following key clusters and metrics. In the Mission Bay, SoMa submarket, Alexandria’s leadership role dating back from 2004 in establishing Mission Bay as one of the country's most vital life science translational research clusters has and continues to provide significant value. Our campuses, totaling 2.7 million square feet, have been nearly 100% leased for a number of years. Our lab vacancy is 0% and the tech vacancy in the market is 1.3%. Lease rates for existing lab and tech space is now in the high-60s to low-70s triple net, while we anticipate new deliveries to exceed 80s triple net. Significant lease transactions include Pinterest’s 488,000 square feet lease at Alexandria’s unique 88 Bluxome project in SoMa, which we'll discuss later, as well as Sony leasing a 130,000 square feet; Autodesk, a 117,000 square feet; Glassdoor a 116,000 square feet; SamCERA, a 116,000 square feet; Workday, 74,000 square feet; and Zoom, 64,000 square feet. Just want to highlight, it's very important to note the overall high regard respect and leadership position of Alexandria as was epitomized by last week's decision by the San Francisco Planning Commission to provide Alexandria with the only full project approval in Prop M allocation for our new Class A plus game-changing 88 Bluxome Mixed-Use Urban Campus in SoMa. I just want to step back and take a moment to say how proud we are…

Thank you, Steve. This is Peter Moglia, everybody. I'm going to spend the next few minutes updating you on our near-term pipeline, our acquisition in the seaport area of Boston and give you some thoughts on recent capital flows into the life science real estate area. During the second quarter, we placed 218,061 square feet into service from six different 2019 deliveries that I'll touch on. In South San Francisco, we delivered 24,396 square feet of our 279 East Grand project anchored by Alphabet’s Life Sciences subsidiary, Verily. We've now delivered 78% of that project at a very strong yield of over 8%. We delivered another 27,164 square feet at 188 East Blaine, our new flagship property on Lake Union and Seattle and are on track to meet or exceed our pro forma cash yield on cost of 6.7% which is very strong when considering Class A operating assets and this market continue to trade at sub 4.5% yield. 12,822 square feet was delivered at 266 and 275 Second Avenue in Waltham and that property is now fully leased with the remaining 19,000 square feet under construction and expected to be delivered in the fourth quarter. The initial stabilized cash yield on this redevelopment is 7.1% in a market where stabilized lab buildings have historically traded in the low side 6% range. A significant portion of Phase I of Alexandria Center for AgTech located in the Research Triangle market was delivered in the second quarter, bringing that highly unique 97% leased project to 74% delivered. We delivered the remaining 76,400 square feet of 681 Gateway in South San Francisco this quarter, and more importantly, increased the pro forma initial cash yield cash yield, cash yield from 7.9% to 8.2%. Completing second quarter deliveries was 3,450 square feet at our multi-tenant…

Thanks, Peter. Dean Shigenaga here. Good afternoon, everyone. I'll briefly cover five key topics today, including our second quarter results and continued strength from both internal and external growth, our very strong balance sheet today, our recently published corporate responsibility report, venture investments and then lastly, our updated guidance for 2019. Total revenues for the second quarter were up a significant 15% over the second quarter of 2018, reflecting continued outstanding execution by our best-in-class team. Our adjusted EBITDA margins continue to remain near the top of the REIT industry at approximately 79% for the second quarter. Same property NOI growth for 2Q was up 4.3% and significantly at 9.5% on a cash basis as compared to the second quarter of 2018. Our team executed very well across key drivers of our same property results. We completed in an outstanding volume of leasing activity in the first half of ’19, aggregating 2.1 million square feet, including 1.1 million rentable square feet related to lease renewals and re-leasing the space with very strong growth in rental rates of 32.6% and 20.1% on a cash basis over the expiring rental rates. Very strong execution of leasing supports were high and stable occupancy in our same property pool approximately 96% to 96.5% for both the second quarter and the first half of 2019, and our very favorable structure with annual rent – annual contractual rent escalations approximately about 3% drives growth and same property cash NOI year-to-year. Continued strong external growth and a few important key highlights for you today. Now that we're about – just about midyear through 2019, it's clear our team has executed extremely well on the delivery of projects in the first half of the year, with a number of highly leased projects aggregating about 1.5 million rentable square…

Operator, if we could go to question-and-answer, please.

Sure, thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question will be from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.

Great, thank you. I guess starting with Dean, you've raised a lot of capital in the quarter and slightly after. Can you just give us your thoughts as you look out over the next -- through 2020 and the development spending, what you think next year's capital plan might look like compared to this one, this year's?

So Jamie, thank you, it's Dean here. So good reminder that we do plan to hold our Annual Investor Day event on Tuesday, December 3rd later this year at our New York Center in New York City. As we're thinking about this time every year, we do get questions about the next year and our preferences to respond to those questions about our outlook, once we publish that on the morning of our Annual Investor Day event. But, Jamie broadly, I think if you look back over the last several years, our objective with capital and our capital raising needs each year, we’ll remain to be very disciplined and prudent with funding our needs from various sources as we have historically.

Okay. And then, we've seen a pickup in kind of value-add or development that are -- kind of development related acquisitions over the last couple of quarters. Can you just talk about maybe the returns you're getting or what is it lately that's made those types of opportunities come in the surface for you guys, looks like you've even got more to close going forward?

Hey, Jamie, it's Peter. Look, the volatility and interest rates, latter part of last year, I think woke up a lot of people that were holding real estate and decided, if I'm going to sell, I'm going to sell soon. Of course, that has tempered and we're looking at – continue to look at a low rate environment. Nonetheless, a lot of opportunities have come into the market and in great locations where we wanted to expand. So we've been able to capitalize on that, especially considering our stock has performed well and our cost of debt has gone down due to Dean and his team's great work. So with all those things aligning, we've gone ahead and purchased some things and we certainly strive for a good spread over exit cap rates of at least 150 basis points or something ground up and we’ll continue to maintain that.

Okay. You’re saying the acquisitions you’re underwriting 150 basis points better than ground up?

That's typically the target, we sometimes do better. It's going to depend on the risk, obviously. But we're certainly aware of risk adjusted return concepts. And I think we do a good job of allocating capital that way.

Okay. And then just as you think about the legislative environment or regulatory environment, especially related to the drug pricing, have you seen any change in tenant behavior or any thoughts that you can pass along on just either how your tenants are acting or how you think they might act going forward?

Hey, Jamie, this is Joel. So we haven't seen any real impact at the moment. I think it is pretty clear though that from the executive branch to the legislative branch, in light of the impending 2020 election, each -- a party wants to have some talking points about what they've accomplished on drug pricing. Unfortunately, they’ve focused on the 10% to 12% of the healthcare pie and haven't appropriately focused on the big numbers. But I think it's fair to say, given some of the movement in the Senate Finance Committee that we’ll see something done over the next few months. And my sense is that, it may reside in a -- some adjustment to Part D of Medicare. Remember, outside of the 8% to 10% of Americans who are not insured, two-thirds of people are covered by private pay or self-insured plans and one-third is Medicare. So the one-third is going to be focused on the PART D. It's also important to remember, there's this notion of trying to index somehow Medicare pricing to international standards, but that President can't enact that by Executive Board or individually. So that's something to think about.

If you would boil it all down, I mean, what's your view on how this plays out for you in terms of your business?

I think that, if there is a fixed Part D that would impact what we call the oral oncology drug sector and the two biggest players in oncology are Bristol-Myers, Celgene and Roche have pretty dominant positions there and so they'll have to think about how that impacts them, a company like Lilly wouldn't be impacted in any way, shape or form. So I think it's selective. And remember, Medicare is about a third of overall drug. Medicare covers a third of US people, so it's not 100% by any means.

Okay, all right. Thank you.

You’re welcome. Thank you.

The next question comes from Manny Korchman with Citi. Please go ahead.

Hey, good afternoon, everyone. Maybe this question for Dean. Dean, the accelerated acquisition pace in 2019, does that at all impact your goal of doubling revenues and does it sort of speed that up or this all sort of contemplated and is this just going to be land bank essentially through those years?

Manny it's Dean here. The acquisition pipeline as you can imagine, is very unpredictable. It does add to our five-year growth plan in that sense. So it doesn't move along to that target nicely for us, but that was not critical in our initial outlook that we had contemplated in our five-year plan.

And remember, that's a framework we haven't given definitive guidance on that since we only give one year guidance.

Okay. And then you talked about the competition, specifically, I guess, in South San Francisco. Have you seen anyone coming into more of your cluster markets that’s a more of a developer or a merchant developer that's who is trying to put up and get out or is that limited to that one market?

Well, I think historically, certainly, over the last 5,10, 15 years, there have been both national players and regional players in every single one of our markets. So I think that just is the way it is, and that hasn't really changed. There is a lot of capital moving into this sector. So that's why Peter maybe mention that he did, because people are looking at this as a – to some people, this almost becomes a valuable core asset, whereas when we started out for many, many years, this was looked at as kind of a funky oddball, a niche that you wouldn't group with retail, housing, office, industrial, et cetera, but that's changed around and that's why the cap rates have gone where they are. So that's a net process for us [indiscernible].

Thanks, everyone.

Thank you. The next question is from Rich Anderson with SMBC. Please go ahead.

Hey, thanks. Good afternoon. Dean, first to you. Why do a forward deal if you plan to settle it as soon as this year? I can understand having a longer tail to the plan. I'm just curious what your line of thinking was there?

Sure, Rich it's Dean here. Forward equity sale agreements generally, most of them are set for about a 12-month term, contractually, very few of them extend meaningfully beyond that, it might go to 15 months, but not much beyond that. So I think conceptually, Rich, forward transactions are short-term settlements. I would say that most useful transactions on a forward has really – is really focused on settling somewhere in the near-term over several quarters to match your funding requirements. And that's the reason why we use it. Rich, it's really to align with our timing of funding.

Fair enough, just curious, usually, it's a next year sort of event. But I understand the answer. So the second question is somewhat conceptual. You guys are doing a lot in the way of early renewal activity, 61% again this quarter. I'm curious if there's any impact on your ability to negotiate those rents? In other words, if someone's coming to you early, do you think about the current market rent or you think about what the future market rent would be for them? Had they waited until they were contractually expiring and hence you kind of get a bigger number out of that in negotiation? Is that something that makes any sense at all or is the market just the market?

Rich it’s Steve Richardson. It as you might imagine, it is all a balance and we are certainly looking at an increasing rental rate environment, how to tackle that. So I think, with that balance, we get the benefit of locking the tenant down. I think we are getting upside beyond what the rent is today. And really importantly, and this is a metric that we've noted for a long time now, the reusability of these improvements, the lower CapEx requirement is really enhanced when we can renew somebody in our space that they've already invested in. So I really do think we end up with an optimal balance where we get the best of all worlds there.

But we're also mindful of relationships and we're not pushing the last dollar and the last cent, because you can be penny-wise and pound-foolish in a sense, because these relationships are long-term and we want to be a partner, not a financial landlord who is pressing every last cent out of the property.

Perfect answer. Thank you and then last, on the – I think perhaps the one of the jewels of the story as you’re pre-leasing of your development pipeline upwards to 80%? Curious how much of that is, you start to deal and you are almost amazed by the level that you're able to get to in a relatively short period of time? Or do you manage it and I guess the short question is, where are you and what type of pre-leasing you need to just get the engine rolling on a development? And how does that vary from one market to the next, I imagine you be more willing to go spec in a Cambridge and less so in maybe, San Diego or something?

Yeah, I think since the financial crisis, we've tried to match going vertical with commitments in hand. And I think fortunately – we've been fortunate and also with relationships, we've been able to match those after the last – over the last many years with a very comfortable kind of dovetail, there's no magical number, obviously as you could imagine, there would be more momentum in Cambridge than there would be, say in the New York City. But, it's one that just you have to have kind of the touch and feel of that particular sub market. So it's pretty differentiated.

Hey and this is Peter Moglia. I mean, the other thing I think I would add is that, it's a testament to how ingrained we are in the fabric of the industry and each market that we are well aware of the demand well before the market is. So that allows us to plan for these things. And if you plan well, you can deliver quickly and that's what our tenants need. So really our long-term presence in these markets, and our teams that are highly experienced and with long tenure pays off, and the ability to forecast when we should be delivering product.

Okay, lastly, can you mention who the San Diego seller was?

No, we need to keep that confidential.

Okay. Fair enough. Thank you.

Thanks, Richard.

The next question will be from Sheila McGrath with Evercore ISI. Please go ahead.

Yes, good afternoon. On 88 Bluxome, you have the approvals. That's great news. I'm just wondering the status of any lawsuits there and what you expect the timing to be and is this going to be in two phases? Or is it all one phase?

Yeah Sheila, I'm going to kick it over to Steve in a moment. But I think, remember what Steve said, we're the only project to get full, one-time approval for the entire project and we don't have to go back for any prior approval and a full Prop M allocation. No other developer in Central. SoMa has that, they must come back. But Steve can speak to the lawsuits that I think we're pretty optimistic on.

Yeah. Hi, Sheila it’s Steve. That's exactly right. There are ongoing discussions, everybody is reasonably encouraged and we would hope through the balance of the year that we would be able to resolve those, enabling us to be in a position to go ahead and kick off construction. So, again, we're very hopeful. And that, again, that would be for the entire project as Joel just emphasized there, we do not need to go back to the city. So we could in fact, kick off the entire 1 million square foot project.

Okay, great. And then just a question on Alexandria District for Science in the Greater Stanford area, that's a big project. It's already 37% leased. Just wondered if you could give us an update on that and is that a ground up development? Or was that redevelopment?

That is a ground up development? Yes, we're very pleased. And I think this really speaks to what, Peter had discussed with our long-term presence there. And the insight that we have with the teams on the ground that we've been able to have this type of success this early in a ground up project, so very pleased with the progress there.

Okay. And then two questions for Dean. On the forward equity, should – in terms of timing, should we assume that is back-end weighted to fourth quarter?

Yeah, yeah that's fair to assume, Sheila.

Okay. And then on the other investment gains, I'm just wondering is the active IPO market in biotech is that driving these realized gains a little bit higher this year? And given current equity market conditions, should we assume a similar level as the first half of the year?

Sheila it’s Dean here again. I'd say, when I think back several years now or maybe even longer than that, because we've been investing in early-stage companies for quite a number of years. The liquidity events that drive realized gains are always – have always been a combination of IPOs and M&A activity. And that seems to be pretty true for the last number of quarters. The IPO market has been fairly active since 2013, but you still see quite a bit of M&A driving liquidity events and gain for this business.

Okay, thank you.

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

Yeah. Thanks. I wonder if you guys can touch on your investment activity. I know Peter kind of discussed this a little bit earlier. I know you've been acquiring a lot of future development sites. I mean, what – how do you underwrite that? And when do you break ground on those projects, once they potentially be stabilized down the road? And how willing are you to increase your land bank today?

So, Michael, it's Dean here. I think, broadly, what we'd like to comment on is that, what we've done here is, I think, given really nice visibility for our investors to think about how we can manage growth into the future, because now we have a pipeline that goes beyond ‘20 of about 10 million square feet. So we just want to be able to provide strategic visibility for everybody and I think we’ve accomplished that in recent quarters with adding to the pipeline.

Okay, is there a limit to how much land you want to add to your land bank? Or is it just the market fundamentals are so strong you're willing to grab high quality sites and you can find them?

We're always been very thoughtful in that regard, Michael, as it relates to the amount of product we have. What we did on page two of our supplemental disclosure was, add some visibility into that pipeline, about half of it is currently vertical, highly leases, 74% leased and included in this bucket is the 88 Bluxome project, which is also about 60% pre-leased today. What I think that most of our investors should focus in on is, what's behind that. And it's a fairly modest number. So this is land that's either nothing vertical is going on with these land sites, but it's really strategic sites for future growth. That number is only 6% of our gross investment in real estate. So it's pretty modest today.

Okay, great. And then Steve, can you talk a little bit about your comments on the South San Francisco market? I know demand has been pretty strong and I know one of your competitors had some good leasing activity on one of their development projects. I mean the supply, were you in that market? And then maybe can touch on about the - if you can, the acquisitions you put in the sub regarding the three sites in the San Francisco Bay area that's pending acquisition right now?

Yeah Michael hi, it’s Steve. Yeah we’ll provide further color when we're able on the pending acquisition certainly in the Bay Area. And on South San Francisco yeah I think as we've said for a while, we've just been very thoughtful and prudent in the approach there. We’ve got a tremendous set of campuses, they are essentially fully leased, adding product like we're doing at Haskins is the right thing to do with the right time. And we are watching this supply very closely there with a number of different projects that if people choose to build on a speculative basis, could add more supply than we've seen there for a while. So we monitor this extremely closely, but right now we're taking a very balanced approach.

Okay, great. Thank you.

The next question is from Daniel Ismail with Green Street Advisors. Please go ahead.

Great, thank you. Peter you mentioned the amount of new capital flowing into the space and with potentially lower rates. I’m curious to get your thoughts on where you see cap rates across your markets and have you noticed any accelerating cap rate compression in any specific markets?

Yeah, thanks Daniel. Yeah it’s Peter. I wouldn't say that we've seen accelerated cap rate compression, but it has ticked down. I don't think anybody would have forecasted that at the end of last year. But I think I may have had this conversation with you in the past, but right now, a great look or a well located lab building in a core market is probably more valuable on a cap rate basis than an office building, which is unique considering what Joel said about how people looked at our assets back when we started. So, obviously that has been a terrific or had terrific impact on our NAV. And we expect that it will continue, we do get contacted quite a bit from people interested in our assets when we do put things out for sale, we do have some pending transactions with that had very high quality investors interested. And next quarter we’ll be giving some news on that, and I think everyone will be pleasantly not surprised, but satisfied with the cap rates that we’ll show. So, it's a good time to be a laboratory owner for us and that's another reason we continue to create value through some acquisitions, because we wanted to create even more.

And just a quick one for Dean, noticed expenses picked up a little bit this year or this quarter again, anything we should know driving that’s and maybe that outlook for the rest of the year?

Daniel I think I missed the key part of your question.

It’s the express - excuse me, expense growth this quarter looks like it picked up again eight points – about 8%. Anything driving that we should know?

Nothing unusual in our operating expense growth, I think that it probably had a little bit of repairs and maintenance and property taxes is a driver lately over the last few years. I think what you find in our – as we build out and renovate product or redevelopment or development, the different regions are sometimes slow to assess the values and that creeps in overtime and doesn't necessarily all commence in the year that we actually deliver product. And it’s importantly, though, Daniel as you know, our leases are triple net, so we're able to pass through almost all of our operating cost or tenants and I think that's really important, because that mitigates volatility to earnings or net operating income.

Great. Thanks guys.

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

Thank you. So a question on San Diego. This cluster has always been somewhat unique for you guys and that it's been more spread out than some of your other markets. But in this quarter, you've taken down more land adjacent to your campus point projects and you're looking at kind of a pretty substantially sized dense cluster there. Is this the case of just taking advantage of adjacent assets that came up for sale? Or do you think that a denser cluster in San Diego could help drive demand in rent growth?

So this is Joel. I remember San Diego was our first market and I think campus point is pretty unique, because it fits essentially as part of a university town center, which is a more urban like market than you would normally find and say other parts of San Diego per se sales compared to Torrey Pines, which is one of the most beautiful, but it's not so urban. So I think that is an important factor. And then obviously, we have the preeminent campus and a world-class set of client tenants there, both Life Science and Tech and so the opportunity to expand that campus by adjacencies is, I think super-prudent. So those things play into our mindset.

So will it be fair to say that you're starting to see some interest by tenants in getting those adjacencies to similar companies that you've seen, obviously not the same level, but as you've seen in a Cambridge or in Mission Bay?

I think yes and also we've been fortunate that existing tenants have wanted to expand. So having the ability to both, build or provide product that there may be some near-term vacancy ability is a real plus.

Got it? And then, I know it was a small deal, but you announced the LaunchLabs partnership with Columbia University this quarter. I assume that’s the West Harlem campus, is that correct?

That's correct. The motivation for that is a little different than you might imagine, broadly speaking, New York really is a early-stage company. It is, clusters take about a generation 25 years to really evolve and develop, Boston, Cambridge is in there, second generation, so as San Francisco, but New York is really in the first decade. So there's not a long waiting line of tenants like there is in Cambridge, it really is an early-stage market and one that you really have to create. So we've tried to meet that reality with a product that makes sense and we've partnered with that by far the largest and most dominant institutions in that market.

Very fair and I think along those lines, we've seen new lab space development that happened and it's also ongoing in West Harlem, there was an incubator up there right now and there's been a number of companies that have formed a Tech transfers out of Columbia up there. Is this kind of a test the waters kind of move where you get to feel out the potential, a growing cluster in New York or is it just the connection to Columbia that was really the benefit?

Well, I think most of the – and you have to take demand kind of with a grain of salt in New York, there is some institutional demand. And I think that's been the focus of some of the developers there, because there's not a line of companies waiting like there is as in San Francisco or Cambridge has pretty prototypical examples. Columbia is the biggest and most dominant institution. They have a huge amount of NIH funding. So it's really part of a strategic ability to take advantage of that opportunity. I'm not sure whether there will be a sub-cluster of any effort up there. There is you mentioned one incubator, that's the Harlem bio space, but that's 3,000 square feet. So I think you can't assume that a massive amount of incubation space.

Very fair. Thanks, Joel.

Yeah.

The next question comes from Dave Rodgers with Robert W. Baird. Please go ahead.

Hey, good afternoon. Steve wanted to start with you on the 88 Bluxome property. I think you've quoted now couple of times like 60% leased or committed and Pinterest only get to you a portion of the way there. So if you had said it earlier, I missed it and you mentioned a lot of leases at the beginning of the call. But have you announced the second lease there? Can you give a little more color on that?

Dave, hi it’s Steve. Yeah this is the historical kind of relationship we had with the Bay Club. So that's the other leased that’s counting towards that occupancy percentage of the overall mixed-use complex.

Got you. That's helpful. Thank you.

Sure.

Dean, the increase in capitalized interest I think, for this year. Was that just purely a function of more land kind of acquired in the most recent quarter? Were there any other changes as you looked at kind of that bucket of capitalized properties?

No, I just – what has increased is the dollar basis on average days under qualifying activities, which could be construction, vertical construction or pre-construction which is entitlements. So we have more activity today than we did last year as an example. And that's I think apparent as you look at our disclosures for product beyond 2019 as an example.

Right. It is and I guess I was just thinking within the guidance that went up not necessarily versus last year, but in your own guidance. So I guess I was just trying to reconcile any changes –

Yeah, yeah, yeah. I'm sorry, Dave, you're right. In June – on June 20th, we filed an 8-K which highlighted an increase in our acquisition guidance. And a portion – a significant portion of that is future redevelopment and development opportunities. And that results in almost all those projects have qualifying activities that require capitalization of interests or guidance for cap interest went up at that point. And net interest went down, because there weren't any increases in interest costs anticipated. And just to round that out a little bit, Dave, we fund that with common equity, because that's non-income producing, there's no cash flows on the future development product. So that kind of helps you understand why there's no increase in interest cost, it’s equity funded projects.

And you're capitalizing the average cost of debt, I assume so that's the change.

I'm sorry?

Yeah, I get you, that’s helpful. I appreciate that. And then maybe last question for Joel. Joel, I think in the last cycle you go back to kind of early 2000s you guys were very aggressive buying buildings, land redevelopment, et cetera. But I guess I was wondering aside from the balance sheet which hasn't been much improved from that point in time. Have you guys done anything different? Or is it really just a market that's cooperating this time versus last time kind of the market that sell out, if you will, for a couple years?

Well, I think if you listen to the story, you would realize that Mission Bay took place in 2004-2005 and beyond where we shifted from single asset to a campus cluster strategy. We, in 2006, we moved Big Time [ph] into Cambridge with Tech Square and the entire Binney Street development of over 2 million square feet. And we won the RFP in New York. So the pivot in the days of 2004, ‘05 and ‘06 have vastly impacted our growth over the last number of years. And I think that the leveraging and the investment grade that we achieved in 2011 have significantly enhanced our balance sheet to where we are today, we believe we've got what people sometimes refer to as a fortress balance sheet and that has enabled us to continue to grow. I think there's nobody who has this kind of a unique business. So I think nothing is ever the same. If you look at some of the things that we've done and some of the approaches we've taken in each of the markets, I think they're pretty highly differentiated than where we were say even five years ago or 10 years ago.

Right, thank you.

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

Exactly at 60 minutes, 1 o'clock and 4 o'clock on the East Coast. Thank you very much and we look forward to talking to you on the third quarter call. Be safe.

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