Good day, and welcome to the Alexandria Real Estate Equities Second Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Paula Schwartz, Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. This conference call contains forward-looking statements within the meaning of the federal securities laws. The company's actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission. I now would like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.

Thank you very much, Paula, and welcome, everybody, to Alexandria's second quarter earnings call and our first full quarter done virtually. And as I always do, I want to thank the entire Alexandria family for an outstandingly executed second quarter, really in all respects and by all metrics, as I said, our first full reporting quarter virtually. It was once said -- a couple of notes about change. Everything changes but change. And as I've quoted before, the award-winning visionary author Jim Collins noted, "To be built to last must be built to change." And Stephen Hawking said, "Intelligence is the ability to adapt to change." So Alexandria is, has always been, I think, resilient and very responsive to a changing environment. We're all blessed compared to many who are struggling during this pandemic, and I want to -- my heart goes out and wish everyone both safety and good health here. And Dean will talk about this, but entire -- our huge kudos to the entire accounting and finance team on our win of NAREIT's Best Communications Gold Award once again. In our first quarter call in -- or on our first quarter call, I should say, we dialed back our growth in light of the uncertainties of the COVID onslaught in all realms. But now that we've gotten through that quarter and through part of -- gotten through the second quarter certainly and into the third quarter, we have a much clearer, I think, view of the landscape going forward. I want to say a couple of things about corporate responsibility. It's a lot in the press, but we're not new to this. And we've included in our press release the panoply of corporate responsibility initiatives. We've worked on very hard over many, many years many long-standing and…

Thank you so much, Joel, and good afternoon, everyone. Against the backdrop of this COVID-19 pandemic that has made an indelible mark on our society, the economy and the future of public health, as Joel noted, life science fundamentals remain strong as the biopharma industry represents the beacon of hope and absolutely essential in the fight against COVID-19. We are currently tracking over 80 tenants across our cluster markets who are advancing solutions for COVID-19, and we owe a tremendous set of gratitude to their heroic work. Clearly, as Joel mentioned, the state manufactured vaccine should help bring about the effective end of the COVID-19 pandemic and as a prerequisite to fully reopen society and restore the global economy. As a reminder, given the global demand for a vaccine, multiple vaccines by multiple company sponsors are absolutely required. As such, researchers around the world are working with unprecedented speed and collaboration on at least 165 distinct coronavirus vaccine programs, of which nearly 30 vaccine candidates are already in human trials. And the cornerstone of the U.S. government's effort to expedite the development, manufacturing and distribution of COVID-19 vaccines, as Joel mentioned, the administration had allocated $10 billion with Operation Warp Speed initiatives and has awarded grants to a handful of company partners, almost all of which are Alexandria tenants, including AstraZeneca, Emergent BioSolutions, Johnson & Johnson, Moderna, Novavax and Pfizer. Among these efforts, I want to call to your attention -- your attention to the 3 most advanced vaccine programs from Moderna, Pfizer and AstraZeneca, each a top tenant for Alexandria in their respective regions. Each of these companies has reported early clinical data that points to initial safety and efficacy. And all 3 companies' vaccine programs have now officially enrolled major late-stage pivotal studies and tens of thousands of…

Thank you, Jenna. Steve Richardson here, everybody. Good afternoon. As we stated during the Q1 earnings call, Alexandria's role as a proven leader in providing mission-critical and indispensable strategic national health infrastructure is only becoming more important as the COVID-19 pandemic continues to challenge our country. I'd like to acknowledge with a loud shout-out to our full operations team the stellar work they're undertaking as they've been on the job 24/7, providing exceptional and high-quality service to our tenants at Alexandria's essential services facilities, which have been open and fully operational every day throughout this difficult time. The increasing complexity of construction, delivery and ongoing operations of this mission-critical infrastructure is formidable and not an easy task and requires a highly skilled and talented team that Alexandria has carefully built since its inception. We are pleased to report a healthy, dynamic and positive operations and market reality for the company, and I'll tick through a number of pieces of that. Brand loyalty is evident as Alexandria's tenants garner great value in our delivery of excellence in all operational matters. And as such, the company has collected 99.5% of accounts receivable during the second quarter and 99.3% during July so far, truly a testament to both the quality of the companies we serve and the great work by our operations team. Outperformance. During Q2, we outperformed our Q1 leasing activity with a total of 1,077,000 square feet leased. And as we've noted now the past several quarters, this contribution is coming from all regions, with this quarter's significant leasing statistics highlighted by San Diego's activity. Great kudos to the team there. Strong quarter. The rental rate increases continue to be strong with 15% cash and 37.2% GAAP during Q2. Early renewals year-to-date are consistent at our historic levels of 69%. And…

Thanks, Steve. This is Peter Moglia. I'm going to briefly update you on all of our development pipeline activity, acquisitions closed in the second quarter and touch on some capital markets activity. So coming into 2020, we had 11 development/redevelopment projects, and we added 2 this quarter, including the second phase of our 5 Laboratory Drive project in the Research Triangle and 9877 Waples in the San Diego submarket of Sorrento Mesa, which is 100% pre-leased. These development projects are spread among a number of regions and give us a great mix of Alexandria-branded projects to meet the growing demand in all of our regions. Whenever possible, tenants want to locate their mission-critical operations in our high-quality and expertly managed assets. Although we achieved 196,000 square feet of leasing in our development pipeline during the COVID-impacted quarter, the leasing percentage remained 61% as the new leasing was offset by the additional project we added in the Triangle and a positive development at our Arsenal on the Charles project, where we were able to take back a poor performing leased retail space that will be converted to high-value lab office space. Our redevelopment of Arsenal on the Charles of that project has met our high expectations for it. To date, we have signed 3 LOIs for approximately 144,000 square feet. And remember, we only closed on this asset in mid-December, and we have a number of prospects for more. Tenants really like this location and our development plans for it. Despite the continuing overhang of COVID-19, we had an uptick in activity at many of our development/redevelopment projects. In Long Island City, we are in serious negotiations with groups representing 86,000 square feet of demand. At the Alexandria District in San Carlos, we have solid interest from a number of companies…

Okay. Thanks, Peter. Dean Shigenaga here. Good afternoon, everyone. Our national essential real estate platform, really combined with our trusted partnerships with some of the most innovative entities in the world, continues to generate high-quality growth in cash flows. 51% of our annual rental revenue is generated from investment grade-rated or large-cap publicly traded companies, really highlighting that our team has curated one of the best tenant rosters in the REIT industry. This high-quality tenant base continues to support growth in our common stock dividends that is currently $1.06 per common share or $4.12 per share on an annual basis and was up 6% over the previous 12-month period. We remain in a great position and continue to benefit from a very strong and flexible balance sheet, the best in the history of the company, really to support our strategic growth initiatives. And more on this in a moment. In June, we published our annual corporate responsibility report, which, along with our supplemental package, highlights our long-standing commitment to ESG, our focus on making a positive and meaningful impact on society and Alexandria's critical role at the forefront of the life science ecosystem, advancing solutions for COVID-19. Thank you to our ESG team for an outstanding job over the last year. Before jumping into the second quarter, I also want to share a shout-out with a huge thank you to our entire team for their 5-time recognition as NAREIT's Gold Award winner for Communication and Reporting Excellence. So congratulations, team. The second quarter results were solid and in line with our expectations. Rental revenue was up almost 20% over the first half 2019. NOI was up approximately 19% over the first half of '19. And adjusted EBITDA margin was very strong at 69% and continues to be one of the…

Okay. We're ready for questions from the group.

[Operator Instructions] And our first question today will come from Manny Korchman with Citi.

Dean, if we think about the accelerated disposition program, a couple of questions there. Maybe just if you could help us figure out how you're weighing or thinking about doing dispositions versus even more equity than you've already done. And maybe helpful on that would be to talk about what types of assets or maybe what markets you're thinking about selling those in and also timing of those sales.

So Manny, let me kick off with a little color. If you look back over probably 5 to 7 years now, we pretty much have been consistent with our sources of capital being from a range of opportunities to blend our long-term cost to capital, and dispositions have been a component going back to 2014, 2015 now. A lot of them have ranged from a partial interest sale, and these are high-valued core assets that we want to retain an ownership in. And so I would say, without getting into a whole lot of details because the deal flow is in process right now, we're looking at opportunities from an outright sale to partial interest sales. These are high-value assets in order to generate some equity capital to reinvest in the business. And then, Manny, just touching on the difference between dispositions and equity capital, there obviously are considerations to be taken when you consider both. I think, for us, it's always been a blend of capital. And our cost of equity has been fairly attractive over the time that I was chatting about since 2014, '15. Looking forward -- and our multiple has only improved, which has improved our cost of equity capital. I do think though it's still prudent to consider dispositions from time to time. And as a result, our program for 2020, given the needs for our business this year, we felt it was prudent to balance the equity needs with some dispositions. I think as we give some color to that program over the coming quarter or so, it will help bring a little more clarity to what we're focused on here. So I think you'll have to stay tuned for market information and details for at least a quarter.

Right. And maybe just thinking about how tenants, especially the ones that are so involved in searching for the treatment, the cure, the vaccine, whatever it be, how are they thinking about their growth in real estate needs? Is that on the back burner? Or is it just that there's separate teams that are doing one versus the other, and so those are same entities that are looking to lease more space from you or others?

So Steve, you want to maybe fill that?

Sure. Manny, it's Steve. Manny, I'd say it's a combination of both. You have existing platforms that the capital markets are very liquid. As Joel was mentioning and Jenna, the strength of the venture and IPO markets, we know of a company that did a virtual road show and went public during this time. So they're using that capital, both for their existing platforms and for any COVID initiatives. In addition to that, we're also seeing manufacturing become a real and viable dimension as well, which is further driving demand. So you've really got 2 elements, the COVID R&D and then the COVID kind of very early manufacturing as well continuing to drive demand. And that is broad-based across a number of markets.

Yes. You could also note, Manny, that there was an announcement yesterday that the U.S. government would loan Eastman Kodak, a company that failed to adopt Jim Collins' notion of change, $765 million as part of a wider attempt to bring pharmaceutical ingredient manufacturing back to the United States. So I think you're going to see a lot of activity in the entire supply chain issue when it comes to biopharma.

And our next question will come from Sheila McGrath with Evercore.

I was wondering if you could give us more insight on the Sorrento Mesa leasing that you mentioned. Did you have a tenant in hand before you purchased 9877 Waples?

We did. And it was -- yes, Sheila. And it was a COVID-related requirement. So the answer is yes.

Okay. And then on the quarter, I was surprised that you had over 1 million square feet of leasing activity. Was that just other activity that's spilled into the quarter? Or were there any new requirements during 2Q?

So Steve, you could give color, but I hope you weren't surprised that we had 1 million square feet. We weren't. We thought it would even be bigger. But anyway, Steve?

Yes, Sheila, a couple of things there. Again, it has, as we've talked about for a number of quarters, been broad-based across nearly all markets. As I did highlight, San Diego, in particular, was kind of a standout there. But nevertheless, all markets were contributing. No, not necessarily surprising. The impetus for space, the sense of urgency is still there. Literally, 78% were early renewals during this Q2 time period. So we have very, very close long-standing relationships with these tenants. So this was to be expected during this quarter.

Okay. And last question. You did just mention, I think, Steve or Joel, on the manufacturing being a new source of demand. Would Alexandria be interested in owning any of the pharma or vaccine manufacturing facilities?

Well, we already do, and some of them are embedded in assets we own. Some are dedicated manufacturing. Others are pilot manufacturing or other clinical trial, scale manufacturing. It kind of spans the gamut. But yes, we're finding that there is a need, I think, hopefully, that we can bring a bunch of the critical manufacturing and other supply chain needs of biopharma products back from overseas, including China, for our own protection. And yes, we are very interested. And now we wouldn't be interested in a random manufacturing in the middle of nowhere. But if they're in strong submarkets that are tied to core markets, that's a good thing.

And our next question will come from James Feldman with Bank of America Merrill Lynch.

I wanted to just get your thoughts on the election and even with Prop 13 coming up before we know it. What are you concerned about most if it's a Biden win? And how do you think about the risks?

Yes. I'm not sure I want to comment out about 100 days. I think on the third quarter call, it will be better. We'll have a more triangulated view who Biden's Vice President is. We don't know that yet. It's very important who may be in the cabinet. But to me, it's a worry for everybody because to elect somebody who may not be in the best of health would be a worry there, and that's unfortunate. It's too bad we don't have 2 45- or 50-year-olds running, but that's the way it worked. So I think I'll reserve comment until the third quarter, and we'll have a better view on things. The other part of your question, I'm sorry, I forgot.

Just you guys are sitting in California, just your thoughts on Prop 13.

Yes. So I don't know, Peter or Steve, you guys want to talk about Prop 13?

Yes, sure. This is Peter. I have sat in on some calls with a committee that is running the campaign against it. They feel like there's a better than 50% chance it does not pass, but I'm sure it's tight enough to make everybody a little bit nervous. I think we're in good shape because a number of our assets in California are -- were developed by us in the last few years. So I don't think from a -- and plus we have a triple net lease structure so we would fare better than others. But given the current economy, I don't think it would be good news to help California out of its troubles by making it harder to do business.

Okay. That's helpful. And then Peter, you had mentioned the Wall Street Journal article, I just want to get your thoughts. I know that tech is a smaller part of your business, but you do have Facebook, Uber and Stripe on your top tenants list. When you think about the Bay Area specifically, from your vantage point on the ground there, what do you think changes in terms of how people use office space? And especially more among the tech companies, do you think they will be doing more work from home or more flexible work arrangements, which will have a longer-term impact or even satellite offices? I'm just curious what you guys are hearing on the ground.

I think Steve can talk to the San Francisco specifics, but I think there's been a lot of talk over whether or not offices is going away or not. I think the consensus is that things are going to work differently that the majority of people, 75% to 90%, depending on the survey you look at, want to go to work. They want to separate their home life from work. I know I personally do because it just becomes very odd to live your life in a constant state of work. But the advantages are becoming more and more apparent. It's very difficult to train people when they work from home. So you're onboarding people on a Zoom. Very difficult to transfer your culture. How do you celebrate a win? How do you commiserate a loss? You're not going to just get on Zoom and say, "Hey, let's celebrate." You're in the office, something great happens. You high-five your colleagues, everybody goes and gets a cup of coffee or whatever and talks about it and just develops a bond. That does not work on Zoom. Same thing when you lose a deal, the debrief, the commiseration. What did we do wrong? How can we do better next time? Ideas, strategies in front of a whiteboard. One of my rare trips into the office recently was to meet somebody so we could get on a whiteboard because we needed a storyboard presentation. And I just couldn't do it on Zoom. So I think companies are going to realize that for retaining employees, they're going to have to establish a culture with those employees because otherwise, it just becomes a battle of salary and benefits. If people don't really feel connected to the company, why should they stay there? Somebody else is offering a few more shillings. So I think you're going to hear more and more about that. I think we've done really well as a business community in the United States in managing productivity and keeping it going. But I think cracks are starting to appear, and that's what that article kind of goes into. I don't know, Steve, if you want to talk about the tech company.

Yes. Thanks, Peter. Jamie, Steve here. Yes, if you look at tech demand from San Francisco down to the peninsula, say, Palo Alto as I referenced, it has fallen by about half. We had a little over 7 million square feet of demand this time last year. Now it's about 3.5 million. I think a lot of that is as a result of exactly what Peter is saying. People are navigating this. In the scheme of things, it's still kind of early innings as to the outcome. So we're certainly monitoring it closely. Having said that, the context is -- SoMa, for instance, now has a 4% vacancy rate versus 1.3% vacancy rate. When you've got big floor plates, kind of lower mid-rise construction in those areas, which is probably more desirable COVID-wise, the peninsula has gone from 7% to 9.9%. So on a relative context, it's still healthy there. And then I talked with somebody this morning who had a little bit of insight into Google's stay at home until summer '21. And their understanding, chatting with people at Google is it's really primarily driven by the school year. They were trying to provide certainty to families as the next school year is still highly uncertain. And ultimately, it's voluntary at this point. So we're monitoring it closely. We are getting direct intel. I think it's still kind of early innings, and we'll keep everybody updated as it unfolds.

Okay. Thank you, and congratulations on the quarter.

Thank you, Jamie.

And our next question will come from Anthony Paolone with JPMorgan.

On the tech demand side, you mentioned down 50%. Can you talk about whether that has any impact on how you're looking at any of the developments in your pipeline? Was anything dual tracked? Or does it make you change directions on anything that you're planning if that piece of the demand picture pulls back?

Yes. I think, in general, no.

Okay. And then in terms of you are increasing your net investment activity as you look to the back half of the year. But you also talked about just the amount of capital out there that has paid some big numbers for deals, and it just seems anecdotally that there's a lot of folks that certainly like your business right now. I mean how did you think about just increasing the capital deployment, returns? And what have you been seeing in terms of competing to buy product, whether it's land or existing assets in this environment?

It's a pretty broad question. I don't know, maybe try to be more specific, if you could, because I'm not sure we want to get into acquisition pipeline discussions or things like that until we can actually disclose something.

Yes. I'm just trying to bridge sort of what seems to be more capital being pointed towards your markets and your space, at the same time not driving up activity.

Yes. I think the 3 sectors, generally, people are seeing today that have been fairly COVID-resistant or resilient is obviously logistics, data centers, life science. There are others, but those have been the primary ones. And so it's natural for people to think about how do I do this. But it's a lot more difficult in a sense because it's not like a company is moving into a generic office. These are fairly mission-critical facilities for companies and entities, and they really don't -- they're pretty picky about locations. They're pretty picky about the details of the improvements in the deliveries and the certifications and things like that and how they're going to operate. So there may be money and so forth. But if people mess up, they won't be given a second chance by tenants. That's for darn sure because when you have millions of dollars of experiments at stake, it's different if you're JPMorgan in an office versus a COVID therapeutics company and something goes wrong. So that's kind of a perspective.

And our next question will come from Tom Catherwood with BTIG.

Following up on Tony's question on acquisitions. Joel, last quarter, you had been maybe a little -- call it a little cagey on the potential for acquisitions to ramp back up, especially with maybe more product coming to market. So my question then, given that, obviously, you acquired a bunch this quarter and there's more to come and you raised guidance. The additional acquisitions, were those primarily ones that you were already looking at prior to COVID? Or were those acquisitions that have come up kind of since COVID? And then the second part to that is, what do you think the opportunity set looks like moving forward? Is there a chance for kind of more assets coming on? Is there any chance for distress out there in the acquisition field?

Well, so first, let me correct the characterization. I don't think I was being cagey. I think, honestly, when we reported the end of April, I think, in the first quarter, think about we had only been shelter-in-place for 45 days. And so when the executive management team looked at our balance sheet, which is in great shape and looked at our prospects, at our pipeline, we wanted to be really careful having lived through '99, 2000, having lived through '08, '09. We wanted to be very careful about really reining back our commitments. And so we did do that in a very, very, I thought, thoughtful and careful way. So I don't think it was caginess at all. It was really one out of concern that we don't know what this thing is. I mean we know what it is, but we don't know what damage it can do, COVID-19. We don't know -- we had no real information from China as to what went on there in places that were hard hit and so forth. It just was a very nontransparent situation. So none of us had any idea what to -- what it was going to happen. So we had to be very conservative about our go-forward game plan. But I think as time wore on in the second quarter and it was clear that the industry was really being marshaled to really come up, as Jim had talked about, whether it's testing, the diagnostics side, therapeutic side and importantly, the all-important vaccine side, the government's real ramp up, especially on this Warp Speed project on the vaccine or Warp Speed project. I think it gave us better confidence that we could ease our concerns and go back to a more growth plan, but still, I think, carefully guarded. Now some of the acquisitions -- I mean, acquisitions don't hang on for months and months. So I'm not sure there were a lot that were before that we may be still looking at, and there are processes that go on. But I think from time to time, people see a pretty buoyant real estate market. Peter cited pretty low cap rates on secondary location assets that are pretty strong. So people are thinking of maybe trying to maybe exit or other people are trying to come in. And I think we've just tried to be super thoughtful and super smart and disciplined, most importantly. We learned that from the teachings of Jim Collins about what we do and how we do it. I think the Arsenal that I think Peter, Steve alluded to, campus that we bought last quarter in Watertown is a great example. So I think that's how we have journeyed through this last couple of months.

That's completely fair. And I think your -- the conservative classification is much better than the one that I gave. And then you're absolutely right with that. Along those lines, Joel, Seattle has obviously been a key area of growth for you guys over the last few years. Most of your portfolio has been focused in the South Lake Union submarket. But this quarter, you disclosed some previous acquisitions in the Pioneer Square submarket, and it looks like you've added a substantial development site outside of your core markets in Seattle as well. So can you kind of speak to the -- your investment strategy in Seattle and maybe what's driving you or what you're seeing in other submarkets that's increasing your interest?

Well, let me say, overall in Seattle, where we have an important presence there. We started back in 1996. So we've been in that market for a long time, and it's an important market for us. It is one of the markets that, thankfully, has taken advantage of the confluence of life science and information technology. We just topped out Adaptive's building on the lake at Eastlake Union 1165. We're building for them and the big -- or a big joint venture with Microsoft focused on COVID-19 issues. We have a very small presence in Pioneer Square that we kind of put our toe in the water a couple of years ago. I think the most recent acquisitions are south of that, so they're really not in Pioneer Square. They're more really in the Stadium area, and those are more long-term kind of thinking. But we just want to be careful because Seattle has been one of those hotspots for civil unrest. And some people have attacked, I think, without any real fair balance on -- they've gone after Amazon and Starbucks. Starbucks certainly is one of the most heralded and great companies. Amazon certainly is. But Starbucks, in particular, has done a great job for, I think, people. And so you see some of that stuff that's pretty disconcerting. But we hope that comes under control and that the city and the state really try to really go forward with a very positive game plan. So I think it's a little bit of a wait and see on some of those things. But that was a little bit forward thinking. I'm not sure we would -- those wouldn't be coming to the -- in the development in the near term, for sure.

And the next question will come from Rich Anderson with SMBC.

So I just want to make sure I kind of understand this. When we talk about the vaccine and the duration by which you would be -- it would maintain antibodies and thereby, protect people from the disease. I've heard in spots that it could be maybe 6 months where you'd have to go twice a year to get another kind of booster. Correct me if I'm wrong on that, number one. Number two, would that be a good thing from your tenants' perspective or a bad thing? I'm trying to sort of triangulate how permanent the condition COVID-19 will be for the underlying workings of your tenants, if vaccine happens and it's like a measles vaccine, it's good for life. Maybe things go back to normal in that regard. I'm just curious if you can sort of kind of explain that logic to me.

Yes. So I'll have Jenna answer that in a second, but let me just say that each of the 3 most advanced candidate cases that she talked about, each have varying antibody immunity. I think Moderna probably is shown among the best, but no one really knows at this point the duration. But remember, much like everything in life, there will be in -- certainly in the biotech and pharma area, there will be dramatic improvements. I mean there'll be vaccine 2.0, 3.0, 4.0. So I wouldn't get too hung up about 1.0. But Jenna, you want to maybe comment on Rich's question?

Sure. Rich. So yes, on the booster question, I think the idea is that there likely will need to be booster for some of these vaccine programs. I don't think that, that is necessarily a bad thing. I think Joel kind of hit the nail on the head that we really just don't know. The virus has only been known to us for 6 months, 7 months, 8 months. So we really need to learn more. But I think as far as these vaccines, in general, I do think that this will be -- if approved, they will be a revenue stream for these -- our tenants for the foreseeable future. But I also think that the knowledge that has been gained and the approach to vaccine development, in general, that has been gleaned from this experience will be absolutely lasting and so will poise a lot of these companies to develop additional products thereafter.

Great. Great. I kind of asked a version of this last time, but let me ask it again. Have you seen a change in how your tenants are sort of attacking the situation, reallocation of IP or hiring more people? Is there more demand for space because of COVID-19 juxtaposed to their core drug research business that was near and dear than before COVID-19? I'm just curious if this has all created more manpower within your buildings.

Yes. I think the answer is a simple yes. I think it's an add-on. It's a bolt-on. Some companies, it's dramatic. Other companies, it may not be existent. In other companies, it may be more minor. But the answer is yes. And the amount of money going into this because think about there's testing, all kinds of diagnostics, then you've got the holy grail of therapeutics and vaccines. So -- and then remember, COVID-19 isn't likely to be the last infectious disease agent that we see. I mean I think people worry about -- I mean the big worry would be would somebody try to weaponize these things so you get into a whole government need to prevent -- or to stockpile antibiological agents. So this is a big, big thing that's going to go on for quite a while here.

Okay. And then Peter, last question, you mentioned some of the investment activity happening around your portfolios. Are you seeing any different money come in capital-wise, looking at these life science assets? Or is it pretty much the same players just being more -- perhaps a little bit more aggressive in the space?

There's been a pretty large cohort of investors that we've been tracking ever since we started selling assets in '13. I don't think the mix of them has changed much. It's just they're probably a little bit more aggressive today.

Thanks very much. Great quarter.

Thank you very much.

And our next question comes from Dave Rodgers with Baird.

Peter, you mentioned earlier that construction timing was really not having a big impact on your yield returns expectations, costs, et cetera, which was great. Maybe take it a step further. Is there anywhere where this kind of work-at-home environment for cities is causing zoning or entitlement issues? And then how do you look at construction costs and the impact on kind of zoning entitlement and construction costs on that next wave of development? Any thoughts on that?

Yes. It's funny. It's like 2 things that just offset each other. On the one hand, there's less staff, and we are submitting plans for permits and things, and they're going to people that are working from home. So that would say, "'Jeez, inefficiency, timing delays." But on the other hand, nobody else is developing really much anymore. So the activity is down. So I think that net-net, we're going to be fine as far as getting our permits and things like that. To the extent that something needed to be done, and I hear public hearing or something, it can get a little tricky. But so far, we've been able to get through those hurdles.

On the construction cost side, any early reads on where that might be as you're buying kind of the future jobs?

We actually have been analyzing that in detail. I know Dean and I have both been looking at it. It's all theoretical right now that the pace of work could slow down, taking pressure off material and labor costs. I will say we haven't seen it yet, but it would -- it wouldn't be unreasonable to think that at least costs would flatten out.

Fair enough. I think in your release, there was a comment about maybe a project that you guys have written off that you were acquiring that you decided not to acquire. I read it as maybe being incremental to the one you discussed on the last call. But if it's the same, then it doesn't matter. But if it was incremental, any details that have maybe more of an office component or more retail to it that just you couldn't get comfortable with.

I think it was the same thing. We...

Yes. It was the same one.

Okay. I wanted to double-check. Dean, moving on to you. I think $29 million of free rent burn-off, you mentioned, coming from leases that have started but not burned off that free rent yet. Is that in the second half of this year? We get that next year?

It -- I think, for the most part, is being absorbed over about 4 quarters, Dave? Generally, those numbers we update every quarter. And on average, almost all of it is rolling in over 4 quarters. The number is updated the next quarter because some has come in and some deliveries may have occurred. So over time, it's a different mix. But historically, it's generally been burning off over 4 quarters.

Great. And then lastly, Dean, maybe with you again on maybe guidance around the realized gains for the second half. I know it's really what you guys choose to sell. It's how you get there. You've made a lot of money in the business. You gave a really good disclosure about it in the supplement. It's running about -- if you annualize the second quarter, it's about $0.55 a share of earnings. But any thoughts on how that would kind of play out in the second half with the strong market that we've seen so far. Do you anticipate continuing to sell?

Yes. I think pretty consistent, Dave, with what I've mentioned over the last few quarters. The portfolio has done well. And I think you pointed that out. But the run rate I touched on specifically, it's averaging $15.3 million per quarter, maybe a little bit upward this quarter at $17 million approaching $18 million. So that run rate historically, I think, is a good view for how you should think about the run rate over the next number of quarters. We -- I think it's prudent for us to monetize some of these investments at this point. We've made money. Some of them might -- we believe strongly, and we'll make more money, so we're going to hold a number of them. But I think it's prudent to prune. So you should have a decent run rate looking forward.

Okay. And then I don't know if this last one is maybe for Steve. I'll just throw one more in. I think you have about -- and I might ask something similar to last quarter, but 420,000 square feet of lease is still expiring this year that are negotiating, it looks like, or that may have an unclear resolution yet, another 1.1 million next year. I realize that you have a lot of small leases in there, and it's kind of hard to get visibility far out on those. But in terms of what's yet to be committed, is there anything known to be moving out besides those redevelopment assets? Or are you feeling really good about the remaining renewals?

Yes. Dave, it's Steve. Yes, we just got about 3% to resolve back in the second half of the year here. We started at 6.7% so we're already 60%, 70% through that. We've really just got 3 different suites, San Francisco, Boston, San Diego, that are in excess of 70,000 feet. So nothing overly challenging. I think we're making good progress on one of them. Another one, I think we'll be able to reposition successfully. So yes, nothing to be too concerned about there in 2020, for sure. And then '21, again, when you look at the early renewals, we've only got 5.7% in rollovers happening in '21. So we'd expect kind of consistent with what we've seen historically with early renewals and just a handful of any size, over 70,000 feet, just a couple there.

And our next question comes from Michael Carroll with RBC Capital Markets.

Peter, can you provide some color on the recent and the pending acquisition? I guess, specifically, there's a fairly large pending bucket, I think, totaling about $780 million. I mean how far along is the company on these negotiations? Have these deals already been awarded to ARE? It's just a timing issue right now?

Yes. So let me jump in and say, I think we'd prefer not to comment on those. But just I think Dean mentioned, stay tuned for third quarter. It just can't do it at the moment.

Okay. And then I guess, on some of the assets that you've acquired, obviously, the recent acquisitions, there's a lot of future developable sites. What's the timing typically on these types of properties? And when do you expect to start breaking ground? Is there a plan there?

Yes. Everyone is totally different. So if you looked at -- I mean, 2 examples, I mentioned the question on Seattle, that's more into-the-future development site. And if you compare that to, say, the Watertown, that would be maybe more in the near to medium term. So each one is different based on the campus, the location, what's going on, demand, what's going on in that market. So there's no general way to generalize. Each one is highly specific and kind of cultivated.

And I can confirm that we know they're going into it. So we put a lot of carry costs into our future basis as we underwrite these things.

Okay. And I think that you did a pretty good job, I think, in the supplement for the -- you talked about the percent of, I guess, covered land plays that you have. Is a lot of these deals that you're looking at now, too, that you're willing to have and maybe a little bit of longer development time you have the covered land place?

Yes. Again, each one is different. So let us not characterize anything at the moment. Sorry about that.

And our last question today will come from Tayo Okusanya with Mizuho.

Congrats on a great quarter. I just wanted to kind of talk a little bit about acquisitions going forward. In the past year or 2, a lot of the acquisitions have kind of focused very heavily on purchasing assets that have a lot of future development potential. Is that the way we should still be thinking about acquisitions going forward? Or do we kind of start to see acquisitions as kind of operating assets going forward?

Yes. I think Mike Carroll just asked that question maybe in a different way. I think every situation is different. So I don't think there's -- we don't want to characterize anything at this point. So I'm not sure it's good to think about one way or another just -- they'll be what they'll be, and they'll stand on their own. And let's just wait for each one to unfold as appropriate.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Joel Marcus for any closing remarks.

Yes. Just thank you, everybody. Please stay safe and be well, and we'll talk to you on the third quarter call. Thank you again very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.