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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, and welcome to the Alexandria Real Estate Equities Fourth Quarter and Year-end 2020 Conference Call. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to Paula Schwartz. 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.
And now I would like to turn the call over to Joel Marcus, Executive Chairman and Founder. Please go ahead, Joel.
Thank you, Paul, and welcome, everybody, today. With me, as usual, Jenna Foger, Steve Richardson, Peter Moglia and Dean Shigenaga.
Want to welcome everybody and extend our thoughts and prayers to each one of you to continue to be well safe and state COVID free. Just over one year ago, January 21, 2020, the United States had its first reported case of COVID-19 in Seattle. And just today, a little more than a year later, we have lost more than 443,000 Americans, a number that is actually quite astounding to imagine.
And that does not even count the number of - the millions, probably tens of millions of Americans who have suffered really irreparable personal, mental and financial arm due to the worldwide pandemic. President Roosevelt on Pearl Harbor Day referred to that day as a day that would live in infamy. And I think we will all feel that 2020 is a year that will live in infamy in all of our memories.
Talking about the pandemic, there is much work to do to control the virus’ spread. We need to enhance manufacturing supply chains as well as a big effort on distribution, administration of the vaccines as well as continued testing.
And we, as a country, I think, for decades, have been ill prepared and behind the curve to respond to a true worldwide and kind of a 100-year pandemic, I think our readiness just has not been there, unfortunately. Much work to do to rebuild businesses and lives so devastatingly impacted.
And I would say it is going to take a good part of this decade to do that for many people who’ve been really so devastated. We still have not discovered the root cause of the virus, natural or human made or brought those responsible to an accounting.
We at Alexandria at the Vanguard, the heart of the life science industry, are honored, proud and yet humbled to serve this mission-critical industry, which has been on the forefront, 24/7, really as the savior of human kind in this pandemic. It really doesn’t get more important or impactful than that truly.
There are two primary causes behind the COVID vaccines rescue of humanity from this pandemic, I firmly believe. The first one is our free market system here in the United States, the economic system that facilitated the innovation, competition and cooperation between our biotech and pharma industries and government, that literally doesn’t happen in other countries around the world.
There would likely be no multiple COVID vaccines today that they are not being venture capitalist prepared to invest before product or profit was really visible and no corporate leadership would be willing to double down other than those in our country with the company’s own money in the spring of 2020 to fund a crash effort to produce a safe and affected vaccine by year-end, really truly unheard of.
The revolutionary, I think, cooperation and coordination between government and the private sector, the collaboration, cooperation and really ingenuity of operation work speed really led by the world’s, probably, foremost vaccine expert Moncef Slaoui, who is empowered to allocate billions of dollars outside of the normal government contracting procedures, and he was able to bring forth multiple technology platforms with multiple vaccines in absolute record time.
So as Americans, we can now look forward to getting vaccinating, getting our lives back into a somewhat non-pandemic normal environment during 2021. It probably will never be the same again. And we paused to give thanks to the remarkable group of scientists and entrepreneurs who has free market drive, passion and mission, truly pushed them to venture into the unknown.
Our solid mission with our remarkable life science and life saving, life science industry colleagues has been to do everything in our power to help the industry repatriate mission-critical and novel research development and manufacturing capability back to the United States and to control the research development in manufacturing in the future of complex medicines.
Policymakers and legislatures must absolutely avoid the awful temptation to raise corporate taxes and reverse what is the mission-critical onshoring of our critical R&D and manufacturing in this country and to its citizens.
Let me make a few comments generally about the life science industry and particularly the number one cluster in the world and our number one region, Greater Boston. Peter will highlight Alexandria’s highly insightful, strategic and collaborative entry into and our intent to create a new life science cluster in the Fenway submarket of our Greater Boston region.
And contrary to incorrect recent news reports, Alexandria is, in fact, the absolute leading largest and most dominant life science owner-operator and developer of office lab space in our Cambridge submarket.
With three mega campuses, 33 properties and approximately 5.2 million square feet, including our 325 Binney Street development. We are also the leading largest and most dominant life science owner-operator and developer in our Greater Boston region.
Currently, as of this date, February 2, Groundhog Day, all of us know, we have approximately 14.6 million square feet of office laboratory assets, including operating properties, plus our entire value creation pipeline, near-term, intermediate and future which also includes the recent Fenway acquisition. With respect to the industry, 2020 is the ultimate Paradox, the worst year of our lives, yet the greatest year ever for the life science industry. Science won the day in 2020.
Our R&D laboratories operated continuously 24/7, and ARE was on the front lines of making that happen. The FDA-approved a record-setting second place all time, 53 new medicines in 2020, including a number of breakthrough medicines for pediatric neuroblastoma, spinal muscular atrophy and thyroid eye disease. Great clinical progress was made for many medicines in 2020 as well.
With this impressive scientific backdrop, it was not a surprise that the capital markets boomed in 2020. Biotech equity markets had the best year ever. Every major biotech index hit an all-time high in 2020. Biotech IPOs hit their all-time high for both volume and deal activity, and the IPO class of 2020 had very strong post-IPO performance.
Follow-on equity, financings and biotech hit their all-time high as well. And venture funding in biotech hit an all-time high. two other thoughts I would like to share with everybody. First of all, a truly profound thank you to each and every one of the members of our team whose everyday operational excellence during this continuous operation to keep our R&D labs going 24/7 during a horrendous worldwide pandemic really is a testament to their great passion, fortitude and mission-driven excellence.
And thank you to each and everyone who work collectively and contributed to our record-setting results for the fourth quarter and for 2020 and wish each of you to stay safe and God bless. And before I turn it over to Jenna, I want to end with a timely quote from Confucius, he once said, our greatest glory is not in never failing, but in rising up every time we fail. The greater the obstacle, the more the glory and overcoming it.
So with that, I turn it over to Jenna for a deep dive on vaccines.
Thank you so much, Phil, and good afternoon, everyone. So really echoing Joel here. As the entire world looks to the power of science, the life science industry and specifically to our tenants to lead us out of this devastating COVID pandemic.
2020 has underscored why Alexandria has dedicated our business, our passion and purpose helped drive this mission-critical industry forward. Without a doubt biopharma, essential R&D engine has persisted with amazing productivity and resilience throughout the past year, which has further magnified our tenant’s role as the key solution to overcoming today’s greatest health challenges, bringing unprecedented positive sentiment to the sector, as Joel mentioned.
The achievements in COVID vaccine development from our tenants, Pfizer, Moderna, Johnson & Johnson, Novavax and AstraZeneca many others in the fourth quarter, specifically of 2020 and into the beginning of 2021, have marked the culmination of a full year’s worth of tireless, truly collaborative efforts across the industry with significant aid of federal funding.
So where are we now? As Joel mentioned, it is been just over a year since the first U.S. COVID case was reported in January of 2020, with over 26 million confirmed cases in the U.S. and nearly 450,000 deaths in the U.S. alone.
So but at the same time, this is all transpiring, developed with unprecedented speed. We now have two vaccines for tenants, Moderna and Pfizer, authorized for emergency use with strong safety and efficacy profiles in the 95% range. At least three other vaccines from tenant Johnson & Johnson,
Novavax and AstraZeneca have reported Phase III results and similarly, exceeded expectations in their efficacy data in the range of 62% to 96% in various trials each with strong safety profile as well.
And to put this in perspective, at the outset of the code vaccine development efforts, the FDA had set the minimum standard escape thresholds for authorization of COVID vaccine at 50%. And so clearly, each major vaccine program has blown away past its mark.
In aggregate, these 5 companies have capacity now to produce at least 8 billion doses in 2021 with over 700 million doses already procured by our own government. The national vaccine rollout campaign has begun with nearly 26 million people in the U.S.
Having already received at least their first dose, which includes about 6 million people in the country who have already been fully vaccinated. The distribution has been slower than hoped for, our tenants are doing really what they can to bring significant manufacturing resources that continue to scale vaccine production.
Also, not to be under appreciated, though I want to focus on vaccines for these comments is really the role of therapies in this equation in the fourth quarter in addition to the full approval of Gilead or [indiscernible].
The FDA also authorized the emergency use of antibody-based therapies for mild to moderate COVID and highest individuals from tenant Eli Lilly, and then Regeneron and another repurposed Lilly arthritis drug in combination with remdesivir for hospitalized patients, amazing results in those studies as well.
Given that COVID will unfortunately, but likely remain on the planet indefinitely. Therapies are going to continue to be important in mitigating the severity of COVID-19 and also potentially play a role in added prophylaxis as well.
So to help further impact the COVID vaccine landscape, what we thought we would do this time is address three pressing questions and help frame what we may look towards in the coming months.
So number one, what are the major differences between the current vaccines? And how should we think about which might be the best. So we have Pfizer and Moderna with EUAs emergency’s authorizations granted and J&J, Novavax and AstraZeneca with Phase III data for major tiles reported.
And while there are advantages and nuances that I won’t go into at this call in the amount of shots that you get from each one, Pfizer, Moderna Colgin requirements, et cetera, all five major programs are showing strong safety and efficacy. And comparing efficacy between trials and companies is really not apples-to-apples.
So the differences in efficacy that we are all reading in the headlines, Johnson & Johnson is 66% to 72%, and Novavax is 86% to 96% et cetera, are referring to prevention against COVID infection of any kind, even the most mild cases.
So what we really need to focus on when we read these headlines is whether these vaccines protect against the severity of the disease, whether they reduce death and hospitalization and longer-term complications? That is how we are going to get out of this pandemic?
And it is important to note that each of these vaccines does very well probably in excess of 85% and protecting against severe disease. A direct comparison between vaccine efficacy can also be misleading because differences in trial populations and the new variants circulating around the world at any given time.
So Moderna and Pfizer trials were largely based in the U.S. and were mostly performed prior to the evolution and transmission of these new strains that we are hearing about in the U.K., Brazil, South Africa, with Johnson & Johnson and Novavax vaccine to capture, lowering their overall efficacy.
And given the addressable population for these vaccines, i.e., the entire world, this will not be a winner-take-all opportunity. No one company alone can possibly supply the global demand. So a diversity of options is important.
Question number two. Is it worth waiting to get a vaccine until more data becomes available, especially in light of these new variants? While I’m not a physician, here is a critical fact. Of the roughly 75,000 people who have received one of these five vaccines in a major research trial, not a single person has died from COVID.
And only a few people appear to have been hospitalized in the vaccine group. So none of them, however, remain hospitalized 28-days after receiving a shot from COVID from the vaccine itself or otherwise. If you compare that to COVID exposure in a similar population, we would likely end up with about 150 deaths and many more hospitalizations.
So I would say this is a pretty strong risk-benefit argument. Of course, unknowns remain regarding the durability of protection from these vaccines, how often we should be getting vaccinated after the initial one-two shot, vaccine guidance for pregnant women and children, so we should have more insight into these in the coming year.
Question number three. So what do we make of all of these new COVID strains? Should I wait and get back needed against the newer strains instead? While we need to take these new gains seriously, this does not render the vaccines already out there as ineffective. The predominant strains in the U.S. right now are still closer to the original target of Moderna, Pfizer and other vaccines.
What is making headlines right now is particularly the Brazil and South Africa variant that seems to create several mutations to the site protein on the virus, basically allowing the virus to partially escape the antibodies produced by current vaccines, reducing their overall efficacy.
Until now, most mutations that were detected, the original strain with a little consequence. And even the new U.K. variance, that seems to increase transmission by 50% does not evade the neutralizing antibodies produced by the current vaccines, which allows for vaccines to still work well against it.
All of this is to say, as we continue to vaccinate more population with current vaccines, it should still serve as a backstop against the continued spread of these variants and in new ones that will inevitably evolve.
So question number four and related to number three is, will these new variant strains up end current vaccine development efforts? Quite to the contrary, the more rapidly vaccinate our population, the more quickly we can stay ahead of and slow down the emergence of new variants. There will always be mutations. This is the nature of viruses and not shocking.
Moderna and Pfizer with their mRNA based platform, particularly well suited to adapt quickly to mutational changes and others are already working on booster shots against new strains that could be available as early as the fall. To understand and maximize efficacy, we do need to sequence COVID patients more to identify the prevalence and emergence of new variants in real time.
And last question, when is all of this going to end? On the bright side, the incidence of positive COVID-19 cases have begun to decline in the U.S. with strong efficacy data from these initial vaccines are highly encouraging and particularly their ability to protect against severe disease.
The supply outlook for existing vaccine is improving and the makers of these vaccines are already working on boosters to combat new strains that emerge. And remember, so it would be nice, we do not need to completely eradicate COVID from the face of the earth for like to return to normal.
Instead, we need to downgrade it from a deadly pandemic to a more mild virus that we could effectively treat, which further underscores the in force of new therapies, as I mentioned earlier. At the same time, we do need to slow transmission. We are still a ways off from herd immunity. Public health officials estimate that between 70%to 85% of the population needs to be vaccinated before people can start moving freely again society.
So things go well, this could start happening by the summertime, at which point we should have enough vaccine supply for the entire U.S. population. But again, it depends on the uptake of the vaccine and the level of infection in the community. As more people get vaccinated, we should also expect severity of hospitalizations and death to drop.
So all things considered, if we can continue to improve vaccine distribution and access and encourage enough of the population get vaccinated, we should be able to return to a more new normal and early fall and hopefully bringing into the tendency year-end 2021.
And despite the incredible fatigue we all feel around social distancing, mask wearing, quarantining and limited travel, we really do need to continue to be vigilant. The more relaxed we as a society the more we continue to give the virus opportunity to adapt against natural selection pressure that mutate more efficiently.
And for all of these reasons, it is our honor to continue to serve at the Vanguard as essential life science industry and the fight against COVID-19 and to support the remote work of our tenants and campus communities addressing to over 10,000 diseases plaguing upon today and solving tomorrow’s greatest threat to human health.
And with that, I will turn it over to Steve.
Thank you, Jenna. A tremendous deep dive. Good afternoon, everyone. A clear insured vision fused with undaunted determination during 2020 from the Alexandria team has enabled the company to thrive during this unprecedented and challenging time. At a high level, consider the truly exceptional growth during the past 12 months. The operating platform has grown from 26.9 million square feet to 31.8 million square feet, an increase of 18%.
The redevelopment pipeline has grown from 12.1 million square feet to 17.8 million square feet, an increase of 47%. And it is important to note that this development pipeline has been smartly derisked with 45% of this value in significantly pre-leased projects well underway, 40% in covered land plays and just 15% of this value in land. The total Alexandria Real Estate platform then have grown during 2020 from 39 million square feet to 49.7 million square feet, an increase of 27%, a truly remarkable achievement.
The Company’s leadership and central role in the nation’s life science ecosystem is clearly evident in only increasing in each of our core clusters. The year 2020 demanded the very best from our teams, from operational excellence to the vision and execution of critical strategic growth initiatives.
Alexandria is pleased to prevent its outperformance highlights for Q4 and 2020. Operational excellence. The company collected 99.8% of its accounts receivable during COVID from April 1 through December 31, 2020, and we are at 99.6% for the month of January. Alexandria’s labs were deemed essential infrastructure and have been operational from day 1 in the pandemic.
Leasing outperformance. During Q4, we leased approximately 1.4 million square feet and a total of 4.35 million square feet during 2020, which is meaningfully above our 10-year average of 4 million square feet and consistent with our 5-year average of 4.4 million square feet. The current and near-term development pipeline is 78% leaser negotiating, a significant metric when 1 considers the active pipeline is now at 4.8 million square feet, up from 4.1 million square feet just three months ago at the end of Q3.
An exceptionally strong core. I want to pause for a moment and underscore that during the challenging time, we achieved the highest annual rental rate increases during the past 10-years with cash increases of 18.3% and GAAP increases of 37.6%.
The fourth quarter was also strong with cash increases of 10.7% and GAAP increases of 29.8%. We are honored to work with the most innovative life science companies in the world and believe these metrics further validate the value we are providing to the life science ecosystem.
Solid occupancy. We are at 94.6% across 31.8 million square feet in the operating portfolio. And again, context is important here as we have increased the operating portfolio from 26.9 million square feet, as mentioned before, providing strategic embedded growth opportunities through lease-up of available suites in the coming quarters.
I just want to emphasize this last point, as the recent acquisitions provide very near-term increases in cash flows and strategic expansion of our tenant base. Market health. Demand continues to be broad-based across our innovation clusters as each of the markets have made meaningful contributions to the company’s overall growth during 2020 and Alexandria continues to capture a dominant market share in each of these clusters.
We have discussed potential supply in our core clusters the past several quarters. And as we highlighted during our Investor Day, the conversion of generic office product into mission-critical Class A laboratory facilities is brought with significant fault insufficient clear heights and live loads, compromise hazardous material storage areas, dysfunctional shipping and receiving areas, impaired HVAC capabilities and performance, amongst others.
We continue to monitor all potential supply closely, but do not see significant high-quality Class A products being delivered during the near-term in our markets. Also a note on the San Francisco Bay Area as this has been a focus in the press.
As we have stated, the life science market continues to be very healthy with low single-digit vacancy of 3.4% and demand of 2.6 million square feet, enabling Alexandria to successfully lease-up our Haskins and 825, 835 project at increasing rental rates, all while the city of San Francisco’s tech office sector is struggling with direct vacancy now at 12.4%, above the 15-year average of 8% and sublease space pushing the availability rate to 20.2%.
In conclusion, year 2020 accelerated Alexandria’s leadership role in the life science ecosystem. Our team is energized and enthusiastic to continue our partnership with world-class enterprises and the fight against COVID-19 and in the broader mission of building the future of life-changing innovation.
With that, I will hand it off to Peter.
Thanks, Steve. I’m going to follow-up on some remarks we made about our valuation on Investor Day. And then I’m going to update you all on our development pipeline and briefly comment on a new acquisition.
As the inventor and pioneer of the essential life science real estate asset class, we have created our campuses and clusters in the best locations with the market’s best assets. By combining our irreplaceable locations and our world-class campuses and ecosystems with meticulously designed, highly functional buildings and a world-class tenant base, Alexandria has aggregated the best life science real estate base in the world and it isn’t close.
During Investor Day, we highlighted our views that the private market has been sending strong signals that there should be significant upside in our stock price. This included a comparison of Ventas’ acquisition of the Genesis property in South San Francisco for $1,260 per square foot, which has since been updated to $1,301 per square foot.
And Blackstone’s recap of BMR at a value of $1,100 per square foot against a very simple back of the napkin, $767 per square foot implied value of our operating portfolio, which was based upon the difference between the closing price of our common stock on September 30, 2020, and the book value of other significant assets such as construction in progress, venture investments and cash divided by our total operating square feet.
We acknowledge that the implied value of our operating portfolio can vary up or down depending upon the valuation of our other assets and liabilities as well as adjustments for joint ventures, but we believe the underlying thesis remains true, which is that Alexandria is significantly undervalued.
The Genesis property is vastly inferior to our South San Francisco asset base. It is located on the opposite side of the 101 Freeway, making it part of the cluster by address only. The original South Tower is an office building conversion, which sat vacant for years and required some jerry rigging to make it work and will require more work to complete the conversion of the top floors.
And the North Tower has relatively small floor place, which causes it to have a load factor that exceeds what is typically acceptable in the market. Both buildings have relatively low floor-to-floor heights that will dictate a lower finished ceiling than the market prefers. And as a result, the two buildings did not attract a high-quality tenant base.
Blackstone has done well reforming and adding to BMRs original somewhat older and tired asset base. But given Alexandria superior locations, assets and tenants, our asset base should command a premium valuation on the real estate alone. Taking all this into account, our assets should be valued significantly higher than what is implied by today’s stock price.
Since Investor Day, more evidence from the private markets has come to light such as the sale of the 2.3 million square foot former Forest City lab portfolio from Brookfield to Blackstone BMR for $3.45 billion, which implied an approximately $1,500 per square foot total valuation according to Green Street.
Approximately 90% of the portfolio is concentrated in University Park, which was the original Cambridge development area before the emergence of Kendall Square. And according to CoStar, the allocation to those assets yielded a value of $1,800 per square foot and an implied cap rate of 4.2%.
This value, and therefore, the overall value of the transaction would have likely been materially higher if not for the fact that those assets are in relatively short to medium-term ground leases. When comparing this portfolio to Alexandria’s primary Cambridge asset base located in the preferred Kendall square location.
It should be apparent that the location of our assets are superior as we are aggregated at the front door of MIT, proximate to the Kendall square tea stop in the center of gravity of the East Cambridge ecosystem versus being on the western edge of MIT, far from the heart of the campus in the less desirable area of Cambridge port.
Some sell-side analysts seem to agree with this premise. The five that have NAVs above our current stock price ranging from $175.54 to $184 per share, value our operating portfolio within a range of $824 per square foot to $1,062 per square foot. These same analysts have price targets ranging from $185 per square foot to $206. So they seem to be factoring in the private market activity we are seeing.
If you are still not convinced and want to look at it from a different angle, I would encourage you to compare Alexandria’s multiple to the sector FFO multiples published in cities weekly REIT and lodging strategy published on January 15. Even with all of the momentum in life science real estate, the single-family home sector’s FFO multiple is 1.1 higher than ours.
The industrial mixed ratio is 3.9 higher and the manufactured homes and data center FFO multiple ratios are 3.8 and 5.6 higher than Alexandria’s, respectively. We are in the early days of the biology revolution with 10,000 known diseases and less than 10% of those are addressable treatments. COVID-19 has brought unprecedented positive sentiment to the sector as the world recognizes the life science industry’s contributions to solving today’s greatest health challenges.
The five fundamentals that signals strong demand, government funding, medical research philanthropy, FDA regulatory environment, venture capital and public market investor sentiment and commercial R&D funding continue to have tailwinds and there is no reason to suspect that, that will change anytime soon.
The life science industry is one of the few bright spots in the world today, and Alexandria is well positioned to enable and participate in its outside growth. We invite you to reassess your valuation and future prospects in light of the private market data presented and the significant prospects for growth in our underlying industry.
On to development. We are pleased to report that we continue to make great progress with our development pipeline. We delivered 177,953 square feet and three projects in the fourth quarter including 100% of the 9877 Waples Street project in the Seromas submarket of San Diego, which was featured at Investor Day because it illustrated the power of our brand.
When an existing tenant needed to expand, and we did not have space for them, they found a building and effectuated the sale to us by telling the owner it would only lease it from us because the facility was mission-critical to them, and they would not entrust its development and operation with anyone else.
Leasing activity has been robust since the third quarter with over 913,000 square feet of leasing completed and approximately 50,000 square feet of space put under LOI in the development redevelopment pipeline, led by significant leasing at 201 Haskins in South San Francisco.
The Alexandria center for Life Science San Carlos, 3115 Merryfield in San Diego, and the newly acquired Alexandria Center for Life Science, Durham, which significantly increased their pre-leasing percentages in the range of 27% to 58%.
Overall, with the addition of 6 new projects, we now have approximately 3.3 million square feet under construction, that is 74% pre-leased, an increase of over 1.3 million square feet from last quarter’s project aggregation, which was only 63% pre-leased.
And as Joel mentioned, I would like to conclude by expressing our great pride and enthusiasm with the acquisition just recently closed 401 Park Drive, 201 Brookline and a continuous development site that will provide Alexandria operating income and an ability to realize upside by marking rents to market, converting certain office and retail space to lab, completing the lease-up of 201 Brookline and developing the future 400,000 square foot development opportunity into a world-class laboratory office building in the Fenway.
We are also pleased to be developing this campus in a collaborative venture with esteemed local developer Samuelson associates, who has been the visionary for the Fenway for more than 20 years.
With that, I’m going to pass it over to Dean.
Thanks, Peter. Dean Shigenaga here. Good afternoon, everyone. Our team is super passionate about our strategic initiatives to drive unique, disruptive and highly impactful solutions to tackle society’s most complex and pressing challenges.
Now they are also very pleased with continued recognition as a leader in ESG. From our 115 projects focused on solving the opioid epidemic, combating the COVID-19 pandemic, the GRESB sector leadership and leadership in health, wellness and safety.
Our team’s passion goes well beyond operational excellence and strong financial and operating results from our real estate business. Our fourth quarter and year-end 2020 financial and operating results were outstanding.
For 2020, we reported strong growth in total revenues of 23.1%, NOI growth of 24.8%, and adjusted EBITDA growth of 17.4%, EPS and FFO as adjusted of $6.01 and $7.70 per share diluted, respectively.
Now our high-quality properties in tenant roster, combined with our outstanding execution by our best-in-class team, continue to generate strong performance, including many results representing some of the top in the REIT industry.
Investment-grade rated or large-cap publicly traded companies generate 55% of our annual rental revenue, consistently high and timely payment of rent and well into the 99% range each month. Strong 5.1% cash same-property NOI growth.
Strong leasing velocity with record rental rate growth of 37.6% and 18.3% on a cash basis, an adjusted EBITDA margin of 69%, highlighting operational excellence, occupancy of 94.6% or 97.7% adjusted for vacancy at recently acquired properties. And please see Page 25 of our supplemental package for details on vacancy at these recently acquired properties.
Now I should briefly mention that our quarterly rental rate growth related to lease renewals and releasing of space does vary occasionally, since it is only 1/4 of our annual leasing volume. For example, in the third quarter of 2020, we reported 30.9% cash rental rate growth. And then in the fourth quarter of 2020, we reported 10.7% cash rental rate growth.
I think the key takeaway is that rental rate growth for 2020 was very strong at 37.6% and 18.3% on a cash basis. And importantly, our outlook for 2021 reflects continued strength in the financial and operating performance, including rental rate growth on lease renewals and releasing of space at 30.5% and 17.5% at the midpoint of our guidance ranges.
Now our team is executing extremely well. We are projecting strong growth in net operating income and cash flows. We anticipate significant growth in occupancy in 2021 and 2022, as our team executes on lease-up of recently acquired properties with vacancy. Additionally, as Peter highlighted, we have a very highly leased pipeline of projects undergoing construction and a very large volume of deliveries in 2021.
Now it is important to highlight that our Board has been very consistent with our common stock dividend policy, given the high amount of operating cash flows after dividends that we generate each year.
Now in 2020, the growth in our annual common stock dividend was 6%, and cash flows from operating activities after dividends is projected in 2021 to be approximately $230 million at the midpoint of our guidance. Now on Friday, we completed the purchase of what has been rebranded as the Alexandria Center for Life Science, Fenway. It is a campus of 1.8 million square feet upon full build-out.
Now as a result, we expect to settle the $1.1 billion in forward equity sale agreements in March, and that was related to our January common stock offering. So huge kudos to our entire team for outstanding execution on this transaction and upon full build-out, this will represent another awesome collaborative campus in our asset base.
It is super important to have one of the best teams in the country, since real estate transactions move quickly from selection by the seller to closing. And in this case, the seller selected Alexandria as the best party for this transaction on December 9.
On the real estate disposition front, we provided our initial range of guidance for 2021 at a midpoint of $1.375 billion, and we will provide more information on dispositions quarter-to-quarter.
Our team has really positioned us very well with our pipeline of redevelopment and development of Class A properties. The key highlights include execution over one million rentable square feet of leasing in 2020 related to our development and redevelopment pipeline.
Projects undergoing construction aggregate 3.2 million rentable square feet or 74% leased, about 2.5 million or plus square feet of this is projected for delivery in 2021, making 2021 the largest year of deliveries for Alexandria. And this to generate annual net operating income of about $135 million, which on average, commences in the third quarter of 2021.
Now we have a number of well-located near-term projects, aggregating 4.9 million rentable square feet including approximately 348,000 rentable square feet that is 79% leased with vertical construction commencing in the second quarter. And in January, we added two key projects under construction, aggregating 640,000 rentable square feet with pre-leasing in the 20% to 25% range.
Now our venture portfolio continues to perform extremely well. Realized gains on our venture investments included in FFO per share were $21.6 million and $71.6 million for the fourth quarter and 2020, respectively.
Now as a percentage of adjusted EBITDA, our venture investment gains were approximately 5.5% for 2020, up slightly from approximately the mid-4% range for 2019. And as we look forward into 2021, we expect venture investment gains to increase slightly as a percentage of adjusted EBITDA as we look to capture a portion of the unrealized gains in the portfolio. Unrealized gains on venture investments as of December 31 were $776 million on our adjusted cost basis of $835 million.
Now thank you to our team for hitting our key balance sheet goals, and we are well positioning our balance sheet to support our strategic business initiatives. We are very pleased to have corporate credit ratings that rank in the top 10% of companies within the REIT industry. Our net debt to adjusted EBITDA was 5.3 times for fourth quarter annualized with slight improvement to 5.2 times by the end of 2021.
Now our fixed charge coverage ratio is 4.6 times for the fourth quarter annualized and is also expected to improve by the fourth quarter 2021. Liquidity was very solid at $4.1 billion, and we continue to view long-term capital to fund growth in our business and are very fortunate to have access to efficient cost of capital.
Now to put this into perspective, pricing for 10 and 30-year bonds today for Alexandria is extremely attractive at approximately 2% and 3%, respectively. Our prior shelf registration expired in December 2020, three years after we filed it.
An odd aspect of the ATM program is that each program is associated with a specific shelf registration versus the program that can be used as long as you have an effective shelf registration in place.
Now in our case, our ATM program expired in connection with the shelf registration statement that expired in December. And as a result, we expect to file a new ATM program over the next 4 weeks.
Moving on to guidance. Please refer to our detailed underlying assumptions included in our 2021 guidance, beginning on Page 12 of our supplemental package. Changes were limited to a breakout of our range of real estate dispositions from the overall equity type capital guidance. The midpoint of our guidance for dispositions, as I mentioned earlier, is at $1.375 billion. And we also provided an update on acquisitions completed in January 2021, most of which was previously disclosed.
Now there were no changes in our 2021 guidance for EPS diluted of a range from $2.14 to $2.34 and FFO per share diluted of a range from $7.60 to $7.80.
Now embedded in our overall guidance is continued strong growth in cash flows as we execute on the lease-up and occupancy growth in 2021 and 2022 and continued execution on an important year of record deliveries in 2021 of our highly leased redevelopment and development projects.
With that, let me turn it back to Joel.
Operator, if we could go to questions, please.
[Operator Instructions] And the first question will come from Jamie Feldman with Bank of America Merrill Lynch.
I guess I want to start off with the Fenway acquisition. I’m hoping you can talk a little bit more about what do you like about that submarket? What do you like about those - the 3 buildings or properties for the future? And then how should we be thinking about just your Boston strategy going forward, given - it just seems - now that you have moved to the mega cluster model, it just seems like there is a lot more submarkets to choose from. Where does Fenway fit into kind of the larger Alexandria footprint we might see?
Yes. So thanks, Jamie. This is Joel. I will ask Peter to comment in a minute. We don’t want to say too much about Fenway at this point. Peter has given a little bit of detail. He can talk a little more about it.
I think it is pretty clear that the location of Fenway which has good proximity to the other submarkets, obviously, to Boston itself and Downtown and Cambridge, but it is also pretty proximate to the collection of important Harvard hospitals, et cetera. And it has been a submarket that has been, I think, quite vital for several decades, and we just think that time is right for the kind of change to a more life science orientation there.
And so that is one of the motivations that certainly attracted us. It is pretty clear that the greater Boston region still is the number one region or I should say the number 1 cluster market in the world and still the major destination for so many companies because there is such a rich amount of science, talent capital and the location is certainly one that is excellent.
So Peter, just general comments?
Yes. Thanks, Jamie. Look, the 401 Park asset is a really nice office R&D building. It has some dry lab in it. It has a great tenant roster. It is got great duration and leases. And there is going to be opportunities for us to convert some of that to lab over time.
The development of 201 Brookline is doing really well ever since we’re awarded the transaction. There is been great activity. We will be reporting on that in future quarters. There is some opportunities at the 401 Park building as well to mark some rents to market. So overall, just typical Alexandria value creation play here with combination of using our brand to increase rents to bring new product to market, and ultimately, another building to create a nice urban campus.
And then $1.5 billion, obviously, a very large transaction. Is this something we should expect to see from Alexandria going forward as just…?
Yes, I don’t think you - people ask about that all the time about when we acquire something or become involved in a transaction. We never know what is - and I’m sure Blackstone has the same feeling. You never know until a - like the University Park assets came forward when or if that will ever happen. So I don’t think you can make any general assumptions about things like that. I think they’re very opportunistic, and they’re very dependent upon the time play space. So I wouldn’t take anything, read anything into it or out of it. All - every one of these is just quite unique on their own.
Okay. And then my last question is, if you look at your TIs in the quarter, definitely above-average for the year. Is there anything to read into about concessions?
Steve and Dean, you guys maybe want to?
Hi, Jamie, it is Steve. Yes, that was really driven. We had two opportunities in core markets with two very exciting tenants to refresh buildings that were 15 to 20 years old. So we go - we went ahead and did that. The incremental yield was exceptionally strong, well into the double-digits. So when we see opportunities like that, we are going to move. So if you excluded those, I think we were in much more of a normal range. But it was opportunistic to go ahead and refresh buildings, secure great tenants. And have exceptionally strong yields as well on the incremental capital.
Okay. And those are life science projects or office?
Yes.
Well, yes, they...
And the next question will come from Sheila McGrath with Evercore ISI.
I guess, Joel, I was wondering your thoughts on the new administration, if you believe there will be more or less favorable to biotech research and investment and also bringing manufacturing of pharma back to the U.S. just your big picture thoughts there?
Yes. So we don’t fully know what the health side of the administration is going to look like. We have some indication. But I would say it is too early to tell. I think, though, that when it comes to the enormous substrate, which exists in the NIH and in much of the funding that goes on at really the basic research level. That has remained, I think, very favorably bipartisan for decades now. And I don’t think there will be any change in the increase-- the rate of increase with respect to that.
I think the biggest worry would be a knee-jerk reaction by some to raise corporate taxes to try to somewhat either address deficits or just because it seems fair. But the challenge with that and policymakers and lawmakers should really know better and understand that plants can revert back to Ireland or more favorable tax havens and cash can go overseas if the incentives aren’t made to do those things in America.
So I hope that people take a long-term view of that. But at the moment, I think, by and large, it looks, I would say, favorable but still too early to tell.
Okay. And one other question. The investment portfolio had very strong gains in fourth quarter. Just - I know Dean touched on it a little bit, but I’m just wondering, given where biotech indices are, if your thoughts on taking some more meaningful profits from that, those investments to invest in the pipeline - development pipeline?
Well, we do, and we have done that from time to time. So the answer is, I’m sure we will review that almost real-time and certainly consider that for sure.
And the next question will come from Emmanuel Korchman with Citi.
Joel, just wanted to sort of circle back on the early remarks you made on the call about scale, and especially the scale you have in your cluster markets. Can you just elaborate on sort of the direct advantages of having the market trend and the scale versus an environment where the tenants are growing quickly? And at the same time, there is new supply being created. So are those kind of going to match up naturally where tenants are just going to slot into space that is available, maybe rather than working through a relationship they have had with you to build space years from now?
You have revealed the office playbook because when you have a generic commodity product, that is true. But I think as Peter indicated or Steve, when you have a mission-critical project, much like the Waples in Sorrento Mesa with Cue Health, you don’t just turn it over to the cheapest guy on the Street or the one who maybe has something available. It is much more careful than that. Office space, that is true. But when you have critical R&D and critical next-gen manufacturing, that just doesn’t happen that way.
Next question is from Rich Anderson with SMBC.
So was looking back in time a little bit about your Moderna exposure, went from about 382,000 square feet in the first quarter to 615,000 square feet in the fourth quarter. I guess, my broader question is, is - can we consider COVID a new line of business? Perhaps, as Jenna mentioned, more leaning towards the therapy side once we kind of get beyond this year and now? Or is what I see, not something I should be reading through to in a broader sense?
Well, I think maybe two things, Rich. One is, I think, COVID and pandemic virus, we have been through a number of mini ones over the years. But certainly, this is one of the biggest ones we have ever seen in our lifetime, different than HIV aids, which we did turn into a chronic condition.
So I think and Jenna said, it will be with us for a long, long time, and there will be continual efforts not only on the vaccine side and the booster side, the testing side, this testing is going to be critical going forward, and then obviously, on the therapy side because if you can take a quick - if you can have access to therapy that is maybe not infusible, but 1 that is a pill like, just as you get a sour throat, you get a fever, that would be a whole lot better than trying to - or being very sick and looking for an infusion site.
So there is a lot to do there. And I do think COVID will be a continuous business and these companies will be very busy. But I think one of the things about Moderna, in particular, we have bought into the mRNA revolution back almost a decade ago when Moderna was founded.
And I think today, if you just separate out the COVID-19 stuff, Moderna represents really one of the most impressive and important platforms for many different - to address many different illnesses. Imagine if the body could replicate erythropoietin, so you didn’t need to have constant external injections, et cetera, where the body itself could address different - or insulin where you could do it by regulation in a sense.
So the opportunity is pretty big, and that is what we have looked at when we look at companies like Moderna, and there are obviously many more that have enormously big technology platforms. It is not simply a one product company.
And then just 1 question on Fenway Park. Although not specifically, since I know you want to kind of keep it a little tight to the vest for the time being. But if memory serves the Longwood Medical Area perhaps did not pan out as well, if I - and correct me if I’m wrong on that. But it is a further afield from Cambridge. If I’m right on my recollection of Longwood - and I’m not making enough judgment about you, I think your peers were invested there. What makes you think Fenway pretty close to Longwood would sort of work out this, using…?
Yes, your recollection is correct. We dipped our toe into the Longwood Medical Area, and it turns out, it is a pretty institutional area and one that is not a really vibrant one at night. But I think what’s happened in Fenway, and certainly, our partner has been at the forefront of that is it is - they have really created a 24/7 live, work, play environment. Certainly, the park itself has been a major part of that. So I think it is a totally different submarket and a totally different feeling. So I think we have no qualms at all about the future there.
The next question is from Michael Carroll with RBC Capital Markets.
And I think, Joel, you kind of touched on this a little bit earlier, but can you provide some color on the supply outlook for the space? And I know a few years ago, there were some concerns in South San Francisco, but those seem to have abated. Are there specific markets that ARE is tracking that we should kind of look out for?
So I think Steve touched on that, Steve, do you want to maybe get the question?
Yes. Hi, Michael, it is Steve. No, you are right. We were monitoring South San Francisco closely with combination of Kilroy, PEAK and Blackstone at the time. And those projects have all been substantially leased. And look, we track literally building by building, parcel by parcel in each of our markets very closely, and we just don’t see a lot of new Class A high-quality product being delivered.
There has been a lot in the press about conversions. And I think at Investor Day, we kind of went through that chapter inverse, and I highlighted it in the comments today, so we stay very vigilant in our analysis of that. But at the current time, we just don’t see significant supply disruptions happening in the market.
Okay. Great. And then, I guess, can you talk a little bit about, I guess, the Mercer Mega Block deal. What’s the time line on that potential acquisition and/or, I guess, the development you do acquire, what’s holding it up? And what should we be expecting there?
Yes. I think we don’t know precisely, but I think sometime over the next 6 months, part of it is diligence and part of it, as you know, the city has gone through quite a shock over the last probably since, what, late May. Triggered by the death of George Floyd and has had its share of tumult.
And obviously, the city - both the Mayor and the counsel have been fighting. Obviously, there was a defund police effort going on there. So I think part of the effort is, hopefully, for the city, I think there is a Mayor election coming up, I think, maybe later this year to get back into a more normal environment. We hope that is true. And this, certainly, I think you will see activity on this over the next six months.
But I think Seattle, certainly, South Lake Union remains a very safe and really good area. Seattle’s got a strong, obviously, on the technology side anchored by the likes of Amazon and Microsoft across the water and the big Facebook and Google and the big things are up there other than Netflix different way.
So I think that is been all positive. The life science industry, as you know, Peter, I think, talked about our pricing on the partial interest sale we made in a couple of assets. Seattle has attracted a lot of institutional money and the life science industry certainly is growing well, anchored by the Fred Hutch and the University of Washington. So it is a pretty positive outlook there.
And our next question will come from Tom Catherwood with BTIG.
So Steve and Dean, you both kind of alluded to this topic, but I wanted to dive into it a little more. We know that the same-store NOI growth guidance on a GAAP basis is 2% for the year. But you have done nearly $6.3 billion of acquisitions over the last 25 months. And I assume most of those, if not all of them, are not in the same-store pool. So how should we think about NOI growth in 2021 from the lease-up and mark-to-market on these non-same-store assets?
Well, as Tom, it is Dean here, just to clarify. As I mentioned in our commentary, and you have our guidance for 2021, which our guidance for occupancy covers the entire asset base in the operating portfolio, and you have got something in the range of, I think, 170 basis point growth in occupancy, and then that continues into 2022 as well. We’re actually likely to pick up something approaching 300 basis points over the two calendar years.
So you are going to see occupancy growth from the acquisitions be a key driver and it is not - we find the asset that fit our business profile nicely. And occasionally they come with some vacancy that we need to manage. But fortunately, we feel comfortable about making good progress on that in 2021.
So that is going to be a key driver, and you will see that continue to benefit into 2022 as well. So that is important to note. It is just not a one year trend. I think 2022 will benefit probably as well in the same-property pool because some of those properties will start to drop into the same-property pool over time.
Got it. That is really helpful, Dean. And then kind of along the same lines, looking at newly acquired assets and all and development assets as well. So a number of development projects shift between your intermediate classification and your near-term classification. But one that had kind of a real marked jump was the Arsenal on the Charles, where 200,000 square feet of future redevelopment moved from the future bucket to near-term, it is kind of a 2-phase jump, and you also picked up an extra 81,000 square feet of potential redevelopment. Can you speak a little bit to the demand that you are seeing in Watertown and how that is driving this acceleration of your redevelopment plans?
Yes. So I don’t want to get into too much there at the moment because nothing has been formally announced. But one thing that has been announced that you have seen in a lot of the papers is the next-gen innovation technologies and manufacturing consortium with ourselves, Fujifilm, MIT, Harvard have selected that site as the home of this enterprise.
And then there are a host of other, I would say, advanced technology companies, life science companies and other things that have sought that location as being, I think, very proximate to Cambridge and transportation being easier to deal with than some of the other submarkets that are, I think, harder to get in and out.
Alewife is a good example. We stayed out of Alewife because we believe that transportation in and transportation out have been super problematic. And so that is been one of the challenges that when we have looked at acquisitions in that submarket, they have kind of confounded us to figure out how we can solve the transportation problem, but Watertown is, I think, in much better shape. So I would say stay tuned.
Next question is from Tayo Okusanya with Mizuho.
Most of my questions have been answered, but quick one. One of your largest tenants, not top 10, but just outside top 10, bluebird bio is doing some type of spin-off of one of its units. Just kind of curious...
I’m sorry, what?
One of your tenants, bluebird bio?
Yes?
They’re doing a spin-off of one of their business units. Just curious if that has any implications for their current lease with you guys?
I’m sorry. So the question is what?
They are spinning off one of their business units. Does that have any implications for the current lease they have with you?
Well, we don’t know the answer to that. They may sublease, and they may not. Jenna, do you want to maybe just comment on the nature of that change?
Sure, for sure. So bluebird bio, basically announced. They haven’t disclosed the details other than that they’re basically dividing the company between severe genetic diseases and oncology company. And so we usually have exposure to them in Greater Boston, specifically in Cambridge and then in Seattle. And so basically, they’re - everything that they’re retaining in place is what they have kind of with us, both in terms of their H2 in Cambridge and then manufacturing in Seattle, so we’re really not concerned about that at all.
Yes. And it would be easy to backfill space if we had it in those locations, I can tell you.
The next question is a follow-up from Jamie Feldman with Bank of America Merrill Lynch.
Just quickly, I wanted to go back to Dean’s comment on - you said that investment gains as a percentage of EBITDA you expect to be higher this year than last year. Can you maybe quantify that? How big of a portion of EBITDA do you think it can be?
It is just - Jamie, it is Dean here. It is slight. I think what my comments were - in 2019 was probably in the 4.5% range, 2020 was probably about 5.5% of EBITDA and just a slight growth anticipated as we look out to 2021 on top of that. So it is still staying pretty small as a percentage of overall EBITDA.
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.
No closing remarks other than to wish everybody be safe, be healthy and COVID-free, and we look forward to talking to you on the first quarter call. Thank you again, everybody.
Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.