EXHIBIT 99.2
BIOMED REALTY TRUST
EARNINGS CALL TRANSCRIPT
NOVEMBER 11, 2004
10:00 AM PT
Operator: Good afternoon my name is (Shayla) and I will be your
conference facilitator today. At this time I would like to
welcome everyone to the BioMed Realty Trust 2004 Third
Quarter Results conference call.
All lines have been placed on mute to prevent any
background noise. After the speakers' remarks there will
be a question and answer period. If you would like to ask
a question during this time simply press star then the
number 1 on your telephone keypad. If you would like to
withdraw your question press the pound key. I would now
like to turn the conference over to Gary Maier, President
of Maier and Company. Please go ahead sir.
Gary S. Maier: Good morning from San Diego everyone. Thanks for
joining us for the company's first call since its IPO in
August. Before we begin and I turn the call over to Alan
Gold and John Wilson, I would like to remind everyone of
the Safe Harbor Statement included in today's press
release.
The Private Securities Litigation Reform Act of 1995
provides a safe harbor for certain forward-looking
statements including statements made during the course of
today's conference call. Such forward-looking statements
are based on the company's current expectations and
beliefs concerning future developments and their potential
effects on the company. There can be no assurance that
future developments effecting BioMed Realty will be those
anticipated by the company. Actual results may differ from
those projected in the forward-looking statements.
These forward-looking statements involve significant risks
and uncertainties some of which are beyond the control of
the company and subject to change based upon a variety of
factors including, but not limited to, the company's
inability to enter into or renew leases, dependence on
tenants' financial condition and competition from other
developers, owners and operators of real estate; adverse
economic or real estate developments in the life science
industry or the California region; risks associated with
availability and terms of financing and the use of debt to
fund acquisitions and developments; failure to manage
effectively the company's growth and expansion into new
markets, or to complete or integrate acquisitions
successfully. For more detailed discussions of ongoing
risks and uncertainties, I refer you to the company's
various filings with the Securities and Exchange
Commission.
With that said I would now like to begin the call and turn
the call over to Alan Gold, Alan.
Alan D. Gold: Thank you and thank you all for joining us today. It's
pretty exciting for us to be here at our first call, our
first earnings call, hopefully one of many. In general
I'd like to cover basically three points.
The first is what I consider continued positive life
science industry trends. We feel very strongly that the
life science industry continues to grow and specifically
grow with some renewed interest. As you can see in
California there was very strong popular support for
Proposition 71, the stem cell initiative. I believe that
initiative, although won't directly help - won't directly
bring additional research dollars to the for-profit
companies, it will certainly help the not-for-profit
companies in raising research dollars.
We continue to see very positive trends in our target
markets. All of our target markets continue to show
positive leasing absorption for scientific research
laboratory facilities.
We're excited about what's occurring in the San Francisco
Bay area with, not only the positive absorption of life
science properties, but also the general market in the Bay
area.
And lastly we're excited about our recent acquisitions. We
continue to stay focused in our target markets, we
continue to have a very strong pipeline in our target
markets, we are able to complete the acquisition of two
transactions and we continue to have a very strong
pipeline, a pipeline with well in excess of $500 million
with acquisition yields ranging anywhere from 9% to an
excess of 11% and with on average yields in excess of our
target of 9.5%. And we feel that there are significant
opportunities for the company to grow in the future.
I would now like to turn our presentation over to John.
John F. Wilson, II: Thanks Alan. Well as discussed in this morning's release,
from the completion of the IPO through September 30, 2004
the company completed the acquisition of the 13 properties
described in the IPO prospectus. Specifically, the
properties were acquired for approximately 2.9 million
partnership units, cash consideration of $400.2 million
and the assumption of $43 million of debt. Together the 13
properties represent a total of approximately 2.3 million
rentable square feet.
On August 11, 2004, the company entered into a 3-year $100
million revolving unsecured credit facility, which bears
interest at LIBOR plus 120 basis points or higher
depending on the leverage ratio of the company at the time
of the draw. The facility has an accordion feature, which
would allow us to increase the size of the facility up to
$200 million upon agreement with the lender. As of
September 30, 2004, the company had not drawn on the line
of credit.
On October 15, 2004, we paid out our first quarterly
dividend of 14.9 cents, excuse me, 14.97 cents per share.
The dividend of approximately $5.1 million covered the
partial 3-month period commencing on the closing of the
IPO and was prorated based on a 27 cent per share
distribution rate for the full quarter as contemplated in
the IPO prospectus.
On October 21, 2004, as Alan mentioned, we acquired a
105,000 square foot laboratory and office property located
in San Diego known as the San Diego Science Center. This
facility was acquired for approximately $29.8 million in
cash. Also during October 2004 the company agreed to
purchase the Ardentech Court property located in the San
Francisco market. This facility, which is scheduled to
close in November 2004, contains approximately 55,000
square feet of laboratory and office space. The purchase
price is $10.5 million including assumption of
approximately $4.9 million in existing debt at 7.25%.
Third quarter earnings consist of revenues and expenses
for the 13 properties only for the period from the
respective property closing dates to September 30, 2004.
Closing dates occurred periodically from August 12, 2004
to September 30, 2004. Accordingly earnings, FFO and AFFO
are not representative of full quarter amounts. Net income
for the third quarter was $1.8 million, or 6 cents per
share; FFO was $3.9 million, or 13 cents per share; AFFO
was $4.4 million, or 14 cents per share.
Occupancy in our portfolio at September 30, 2004 remains
at approximately 95%, unchanged from our IPO prospectus.
Occupancy related to the two new acquisition properties is
91.2%. Of the unoccupied space in the original portfolio,
14,000 square feet in the Seattle market has been leased
and will be occupied beginning January 2005. Additionally,
46,000 square feet in San Francisco market is in shell
condition and we plan to make improvements to the space in
2005, so that it can be more effectively marketed.
Our exposure to lease expirations continues to be fairly
modest with approximately 100,000 square feet of lease
expirations or about 4.5% of our current portfolio in both
2005 and 2006.
Finally, let me finish with our earnings guidance for the
fourth quarter. Based on our completion of the IPO and our
additional property acquisitions during the fourth
quarter, our fourth quarter FFO guidance is 28 cents per
share and our AFFO guidance is 29 cents per
share. We plan to complete our first full quarter of
earnings prior to providing 2005 FFO and AFFO guidance.
Accordingly we will provide this guidance during our 2005
first quarter earnings call in February. We will also
provide supplemental financial information at this time as
well.
That's the news from here and now we would be pleased to
take your questions. Operator?
Operator?
Operator: Yes sir?
Gary S. Maier: We're ready to take questions.
Operator: At this time I would like to remind everyone in order to
ask a question please press star then the number 1 on your
telephone keypad. We'll pause for just a moment to compile
the Q&A roster.
Thank you. Your first question comes from David Copp of
RBC Capital.
David Copp: Hi, thanks guys. Here with Jay as well. Could you talk a
bit about the Bridgeview property that you expect to close
in March? What's the dollar value there? To the extent
that you care to talk about yield I'd be interested to
hear your comments on that as well.
Alan D. Gold: The yield on the overall property I think was disclosed in
the prospectus. The dollar amount is a $16 million
acquisition of a single building. We've been talking with
the seller. They still maintain a closing in March, but
potentially earlier.
David Copp: Okay and then could you just talk generally about the
acquisition pipeline? How it's, how and if it's changed in
the last couple of months and how you view it generally?
Alan D. Gold: You know, I think it's a rolling pipeline, one that
depends on what is happening in each one of the individual
markets. It's actually increased in size since the
completion of the public offering with, I guess, more
opportunities coming from the big core markets of Boston
and San Francisco.
David Copp: Okay. And then talking a bit about San Francisco, I
know you mentioned it specifically as one of the markets
you're kind of more excited about, what is your strategy
here? I know Mission Bay is getting a lot of attention
lately, you know, what is your strategy here? Do you think
you'll move into Mission Bay with the land acquisition at
any point?
Alan D. Gold: No, we believe that does not provide an opportunity for
our company. Our focus is to be more in the core markets
on the Peninsula and in the East Bay. We believe that
there's significant opportunities along the Peninsula to
make acquisitions with life science companies that would
prefer not to be as far north as Mission Bay and yet near
the clusters of existing life science companies.
David Copp: Okay, fair enough. And then with regard to your fourth
quarter guidance, could you give us a little guidance,
specifically on G&A run rate going forward?
John F. Wilson, II: G&A run rate going forward is pretty much in line with
what we talked about initially in the prospectus. We
expect annually about a $7.5 to $8 million G&A run rate.
David Copp: Okay. Great, thanks guys.
Alan D. Gold: Thank you David. Thank you Jay.
Operator: Thank you. Your next call comes from Paul Puryear of
Raymond James.
Paul Puryear: Hi guys. Alan could you talk about the yields on the two
acquisitions you just completed or put under contract and
some more specifics about the properties, the quality of
the properties, etc.?
Alan D. Gold: Okay. The yields in general exceeded our 9.5% target
rate. I think, I don't want to be exact because I really
don't have those numbers in front of me, but they were
well in excess of the 9.5%. I think on the San Francisco
property it was in excess of 9.6% and the San Diego
property was in excess of 9.9%.
The San Diego property has 105,000 square feet, of which
over 40% of the space is leased to Tier 1 companies,
Pfizer and a subsidiary of Kirin Brewery, Gemini Sciences.
The property is well positioned; it is an exciting
property located along the freeway, along the 5 Freeway,
with easy access to the research corridor, the research
market in Torrey Pines. It has great access to amenities
and it provides a very collegiate feel for the researchers
at the specific property. It has performed very well, it
has gone from a redevelopment project to just under 90%
leased in less than 2 years and has attracted, not only
the Tier 1-type companies, but also Tier 4-type companies.
Our acquisition up in the San Francisco Bay area, it's a
bread and butter, right down the middle of what we're
looking for, single tenant, net leased asset, long-term
lease or a medium term lease with a very strong tenant
that has received some very positive results in a Phase 3
trial, that's Vicuron, with a focus in antibiotics.
Paul Puryear: And how old are the properties? When were they built?
Alan D. Gold: The Vicuron transaction was completed in the late '90's
and the San Diego property was rehab'd in 2001 and 2002.
Paul Puryear: Yeah, you know, I know you don't want to give guidance for
'05, but the outlook for acquisitions for '05, on the road
show, you know, we talked a lot about a number of $200
million for '05 at 9.5% cap rates. How do you feel about
that at this point?
Alan D. Gold: I mean I think our business plan remains very - we remain
focused and we believe we'll be able to achieve those
goals of at least $50 million per quarter with average cap
rates in excess of 9.5%. You know, we already have
acquired well in excess of our stated goal of $25 million
in the fourth quarter and we believe we'll be able to
achieve our goals going forward.
Paul Puryear: Okay, good. As far as tenants are concerned, I mean we
continue to watch some of the tenants. Could you just sort
of address, you know, the two or three tenants that, you
know, you think are the most troublesome here or where you
see any problems really with your tenancy?
Alan D. Gold: You know, I think the two tenants that we continue to
watch are Cell Therapeutics and Nastech. Nastech has
recently received some very positive press having entered
into a $346 million agreement with a major pharmaceutical
company and Cell Therapeutics recently raised, I think,
$41 million in a recent offering. So, although they've had
positive results, they still are the two tenants we still
are most focused on. You know, I think those are our main
focus today.
Paul Puryear: What about Regeneron or Emisphere? How do you feel about
- I mean their balance sheets are pretty weak.
Alan D. Gold: I think Regeneron has, I thought, a pretty strong
balance sheet with well over $300 million in cash, from
the last time I looked. Emisphere has received positive
trial results; they are positioning themselves for another
capital event. We're watching them closely, but we feel
that they've got some very strong technology and should be
very successful.
Paul Puryear: Okay. I think one more question hold on. Yeah InterMune
and the Department of Justice inquiry?
Alan D. Gold: That's recent news that came out today. I think that the
Department of Justice has instituted inquires in many of
the pharmaceutical companies for these off-label type uses
of their products. I think InterMune has indicated they
are going to cooperate with the investigation and we
haven't at this time had a conversation with the senior
management at InterMune, but we plan to do so in the near
future.
Paul Puryear: Okay. I mean, an update on that, we would appreciate that
if we could get that. Very good, thanks.
Alan D. Gold: Thank you.
Operator: Thank you. Your next question comes from Jerry Doctrow of
Legg Mason.
Jerry Doctrow: Good morning. I had just a couple of things. On the - you
talk about leasing - the tenant reimbursements there's
some things you were going to go back and sort of, you
know, adjust in the tenant - I was curious as sort of
where that process is and whether any of that's reflected
in the reported numbers whether we should see some of that
changing in 4Q?
John F. Wilson, II: We've been working with the tenants in increasing the
reimbursements on a property-by-property basis. Our
recoveries currently are about in the 79% to 80% range and
that process is continuing. We believe that they'll
increase slightly from that level in the future and in the
next, you know, after we finish year end we're going to
continue working with the tenants as we do the CAM
reconciliations.
Jerry Doctrow: Okay. And then similarly, just on the expense ratios, you
know, the numbers that were reported versus kind of where
the trend might be there. We look at it as, I guess, an
operating expense as a percentage of your rental income.
Any sense about where that's playing out and how maybe the
reported numbers reflect your trend?
Alan D. Gold: Well, you know, I don't think that - I think the
expenses are coming in as expected. I don't think there's
anything unusual happening at any of the properties that
would increase the expenses over time.
Jerry Doctrow: Okay. And then just one last thing, the share
counts, I was just trying to clarify, I think you did
report your end of quarter share counts. We were thinking
I think with the OP units and stuff in it was higher, I
just wanted to clarify maybe those counts, you know, now
that it's all, the deal's all settled. Can you just kind
of review where you are on sort of fully diluted and with
the OP units in?
John F. Wilson, II: Well for the current quarter we have,
first, not all of the public shares outstanding for the
whole period and the calculation of OP shares were
actually slightly anti-dilutive, so it didn't go into the
base of fully diluted shares outstanding. But for both the
minority shareholders, the OP shareholders, and for the
common shareholders the earnings per share was 6 cents per
share. In future quarters we expect those OP units to be
dilutive and be in the base dilutive weighted shares
outstanding.
Jerry Doctrow: So if I'm adding, you know, round numbers like
3.2 million shares up that's sort of on the fourth quarter
or when you calculate your fourth quarter what kind of
share count maybe you are assuming? Is that the right way
to ask it?
John F. Wilson, II: For the fourth quarter I believe we're going to be right
around 33 million.
Jerry Doctrow: Okay, okay. Great, thanks.
John F. Wilson, II: You're welcome.
Operator: Your next question comes from Frank Greywitt of KeyBanc
Capital Markets.
Frank Greywitt: Hey guys. Just going back to your acquisition pipeline
I was wondering if you could talk a little bit about any
additional fourth quarter acquisitions that you might
have. Do you expect there to be additional acquisitions as
we near the - as we get towards the end of the year? As...
Alan D. Gold: Well, it's not our policy to preannounce any sort of
acquisitions. I think maybe John you can talk about what's
inside our guidance, what's the assumptions on our
guidance.
John F. Wilson, II: Yeah in our guidance really is the two acquisitions that
we've announced, and like Alan said, we are continuing to
work on other acquisition projects, but nothing that we're
ready to announce today.
Frank Greywitt: Okay and as far as the percentage of your pipeline that's
marketed versus not marketed, can you give that
information?
Alan D. Gold: I mean I think that remains about the same as what we've
disclosed in the past. About 35% to 45% of that or 35% to
40% of that pipeline is going to be actively marketed. The
balance is, you know, are off market type transactions
that we continue to source ourselves.
Frank Greywitt: Okay and you indicated that you're beginning to see some
activity in Boston. Are you, I mean, I guess what can we
expect for you guys branching out in your other two core
markets where you don't have any properties, being D.C.
and Boston?
Alan D. Gold: Those are target markets. We are focused on those target
markets and putting a major push to source acquisitions in
those markets. Boston, the indication that I gave there
was that we were seeing additional leasing activity in
that market, which is a positive thing in the life science
industry. It's a very large market and it has many
opportunities, many opportunities there.
Frank Greywitt: Okay. Now kind of moving to the King of Prussia asset and
the Bayshore, where you have the master leases, are you
still kind of holding off on those? Are you getting any
traction on any of those properties?
Alan D. Gold: In the Bayshore market or the Bayshore facilities we've
actually had in excess of 60, well probably closer to
90,000 square feet of different types of proposals for
tenants looking at that space. Those are all expressions
of interest, but we have not been able to convert any of
those to signed leases as of yet. We're continuing down
our business plan of building out a portion of that space
to accommodate the life science tenants that cannot wait
for a space to be built out over a six or nine month
period of time.
In the King of Prussia asset we have received, and
continue to receive, interest from the existing tenant
there, Johnson, Johnson / Centocor and we're in active
negotiations on that asset with them for a portion of the
space. We've also had third party tenants come in and
request proposals for that space. So we are actively
marketing both of those, both of those assets, and our
additional unleased assets in, not only New York, but in
San Francisco area.
Frank Greywitt: Okay. Your recent acquisition in San Diego has some -
Pfizer you indicated is located there. What do you kind of
see going forward? They just acquired their campus do you
expect them to aggregate all of their San Diego operations
to that campus or?
Alan D. Gold: Their San Diego campus is fully built out and fully
occupied and they actually, the Pfizer lease in our recent
acquisition, is actually a new lease because they didn't
have any more space available for them up in that campus
location.
We believe Pfizer has made a significant commitment to the
San Diego market, will continue to grow, will need
additional space over time and we hope to be able to
continue to provide them that space and additional space.
Frank Greywitt: Okay. And the San Francisco acquisition, can you indicate
what type of seller the seller was?
Alan D. Gold: Seller was a, you know, a one-off, happened to own this
asset, we identified the asset as a potential acquisition,
spoke to the seller and negotiated a deal with them
one-off. The market continues to have, or the market is
continuing to be characterized as a fragmented market
providing significant opportunities for us to make those
type of acquisitions and we're excited that we're able to
bring that one in, in this quarter.
Frank Greywitt: Okay so it was not corporate owned it was investor owned?
Alan D. Gold: That's correct.
Frank Greywitt: And then finally, your development and redevelopment you
indicated previously you were - it wasn't your near term
focus. You do have land, is that changing? Do you think
that the development might become more of a focus than you
originally thought?
Alan D. Gold: Not at this time. We maintain our business plan of not
being focused on the development side of the portfolio. We
are in active negotiations with potential build-to-suits
on not only that land, but another - other parcels, but it
is not our focus to be developers.
Frank Greywitt: Okay. Thank you.
Operator: Thank you. Your next question comes from Jay Leupp of RBC
Capital Markets.
Jay Leupp: Hi, good morning. I got dropped a few minutes ago, so I
apologize if these are repeat questions. Could you give us
some feel for the type of rent growth that you are
expecting on the 100,000 square feet or so that expires in
2005? And then also can you talk some about, in the $500
million of potential acquisitions, the credit strength of
that portfolio relative to what you currently have in the
portfolio that you own?
Alan D. Gold: Well let's talk about the credit strength of our recent
acquisitions. Not only are we, you know, our focus is on
the Tier 2 and Tier 3 type tenants or those tenants that
are in the mid-tier of the evolution of a life science
type company. Our San Francisco asset is occupied by a
mid-tier type tenant, Vicuron, a tenant that has continued
to receive very positive news on their products and has
been able to and is looking to raise additional capital
and has great prospects in doing that.
Our current portfolio has over 30% of its tenant base in
Tier 1 or credit-based type tenants and, as you can see in
our San Francisco or San Diego assets, just under 40% of
its tenants come from credit background, which includes
the Pfizer and the subsidiary of Kirin. We think we have
added some in that San Diego asset, some Tier 4 type
tenants, but are very excited about what they bring to our
company.
As for your question about the leases that are expiring,
of the 100,000 or so square feet that might be expiring in
2005 we expect to be able to renew approximately 50% of
that space at the current rent or slightly higher rent.
The balance of that space will go into kind of a
redevelopment type program where we will be able to
significantly increase the rent by providing life science
or laboratory improvements.
Jay Leupp: Okay and then just one other question. On the subject of
development, I know you've got a little bit of a pipeline
that you've talked about, but how long do you think it
will be before ground up development becomes a significant
part of your pipeline and what will be your threshold
return rate for new development in this area?
Alan D. Gold: I think our focus has remained, I think, in our business
plan it has always been not to have development to be a
significant portion of our pipeline in our business. So
that's the first one. Second, we don't really want to talk
about the potential yields on our development pipeline for
competitive purposes.
Jay Leupp: Thank you.
Operator: Again I would like to remind everyone in order to ask a
question please press star then the number 2 on your
telephone keypad.
Your next question comes from Timothy Goebel of RREEF.
Timothy Goebel: Hi guys. I was wondering if you could fill in a little
bit more color on the remainder of your leasing pipeline
beyond the 14,000 that you've signed for January
occupancy?
Alan D. Gold: Well I think what we have is we have the majority
of our leasing opportunities are in the San Francisco Bay
area. We have 46,000 square feet at 201 Industrial to
lease, we have the master lease at Bayshore, which
provides about 60,000 square feet to lease; we have been
in active negotiations with well over 100,000 square feet
of potential tenants at those two properties. We have not
been able to convert any of those negotiations into signed
leases, but we are actively working with those group of
tenants.
In the New York market, we have been negotiating with over
40,000 square feet of potential tenants in our - for the
New York property and are continuing to work with them. We
believe that we'll have something to report in the first
quarter of 2005.
Timothy Goebel: Great, thank you.
Operator: Again if you would like to ask a question please press
star then the number 1 on your telephone keypad.
Your next question comes from Frank Greywitt of KeyBanc
Capital Markets.
Frank Greywitt: Hi, sorry just one follow-up. Could you indicate what you
believe the amount of square footage that you have in your
portfolio now for redevelopment? You were - different
feasibility studies I know were going on and what you
think that number is now.
Alan D. Gold: For redevelopment, I think that's taking existing - we're
not talking about development, we're not talking about
ground-up development, we're talking about existing built
up space that can be redeveloped into laboratory space. Of
that, right now, other than the master lease space at
Bayshore, which is 60,000 square feet, the 46,000 square
feet at 201 Industrial, in 2005 we believe that there will
be an additional 50,000 square feet that we could
redevelop and most of that comes at the Bridgeview
property in the East Bay of San Francisco.
Frank Greywitt: Okay, thanks.
Operator: Thank you. At this time there are no further questions.
Alan D. Gold: Well thank you very much. Thank you very much and we
hope to talk to you all in the next quarter.
Operator: Thank you. This concludes today's conference call. You
may now disconnect.
END