Genentech Inks $540M Lease Agreement

SOUTH SAN FRANCISCO-Locally based Genentech has signed a $540-million lease agreement with England-based Slough Estates for eight buildings totaling 780,000 sf that will be built next to its existing headquarters campus over the next few years, according a filing last week with the Securities Exchange Commission. According to the agreement, Slough SSF LLC will construct the building shell for each building at a cost of $325 million, and Genentech will finish the build-out of each building as lab or office space, as applicable, using a $78-million tenant improvement allowance ($1 per sf leased). The leases will launch in two phases. Phase I building leases will begin throughout 2006 and cover approximately 450,000 sf. Subject to Genentech’s right to accelerate or delay the rent commencement dates for the Phase II buildings for up to one year, Phase II building leases will begin throughout 2008 and cover approximately 330,000 sf. The leases are coterminous and will end in 2020 or 12 years following the rent commencement date for the last building of Phase II. Genentech’s aggregate lease payments will be approximately $540 million, assuming there is no acceleration or delay in the rent commencement date for a Phase II building. If there is a delay and the leases terminate one year later, Genentech will pay approximately an additional $28 million, according to the agreement. Genentech has the right to build certain additional facilities on adjacent parcels within Slough Estates’ Britannia East Grand campus at its own expense. Genentech also has an option to purchase the entire campus, which may be consummated on one of two dates that will likely be in 2016 or 2018 for the Phase I buildings and 2018 or 2020 for the Phase II buildings. In addition, Genentech has a right of first refusal with respect to each of the buildings and/or the entire campus. Founded in the 1970s, Genentech occupies close to three dozen buildings in South San Francisco and more are expected. The company is working with the City of South San Francisco to expand its campus to 111 acres from 72 acres.