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Here's Why Alexandria (ARE) is an Apt Portfolio Pick for Now
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Alexandria Real Estate Equities, Inc. (ARE - Free Report) has a portfolio of high-quality, niche assets — life science, technology and agtech properties — in strategic markets, which positions it well for growth.
This Pasadena, CA-based urban office real estate investment trust (REIT) has been witnessing healthy demand for its properties amid the growing need for drug research and innovation. Moreover, favorable demand-supply dynamics and the company’s strong pricing power in its core markets give it a competitive edge.
Shares of this Zacks Rank #2 (Buy) company have rallied 15.9% over the past three months, outperforming its industry's growth of 11.6%.
Image Source: Zacks Investment Research
Factors That Make Alexandria a Solid Pick
Healthy Operating Performance: Alexandria’s Class A properties are situated in the AAA innovation cluster locations of North America, with significant market presence in Greater Boston, San Francisco Bay Area, New York City, San Diego, Seattle, Maryland and Research Triangle. These locations are characterized by high barriers to entry and a limited supply of available spaces. The advantageous locations of its properties have been driving demand, resulting in high occupancy levels.
As of Sep 30, 2022, the occupancy of operating properties in North America remained high at 94.3%. The occupancy, excluding the vacancy at the recently acquired properties, was 98.4% as of the same date. Given the robust demand for its properties, ARE is expected to witness high levels of occupancy in the upcoming quarters, which will support rent growth.
Strong Tenant Base: ARE has a strong tenant base of more than 1,000 high-quality companies, which ensures steady rental revenues. As of Sep 30, 2022, investment-grade or publicly-traded large-cap tenants accounted for 49% of the annual rental revenues in effect. The weighted-average remaining lease term of all the tenants is 7.2 years, and for the company’s top 20 tenants, it is 9.7 years.
Continued Strong Internal Growth: Alexandria has been experiencing strong internal growth. It witnessed total leasing activity of 6.4 million rentable square feet (RSF) of space from the beginning of the year through Sep 30, 2022, based on strong demand for its high-quality office/laboratory space. The lease renewals and re-leasing of space totaled 3 million RSF. Also, it registered rental rate growth of 34.3% and 24.2% (cash basis) during this period, respectively. With solid demand for its properties, this upbeat trend is likely to continue.
Acquisitions & Development: In order to enhance its operating platform, Alexandria has been focusing on the acquisition, development and redevelopment of new Class A properties in AAA locations. In the third quarter of 2022, ARE completed acquisitions in its key life-science cluster submarkets totaling 1.2 million RSF of value-creation opportunities for $316.7 million. It also placed into service development and redevelopment projects totaling 332,961 RSF across multiple submarkets during the quarter.
Moreover, its development pipeline is encouraging for long-term growth. As of Sep 30, 2022, ARE had 5.6 million RSF of the Class A properties undergoing construction. Further, it had 9.9 million RSF of near-term and intermediate-term development and redevelopment projects and 17.9 million SF of future development projects.
Balance Sheet Strength: Alexandria maintains a robust balance-sheet position with ample liquidity. It exited third-quarter 2022 with $6.4 billion of liquidity. It has no debt maturities prior to 2025.
The company enjoys investment-grade credit ratings of Baa1/Stable and BBB+/Positive from Moody’s and S&P Global Ratings, respectively, rendering it favorable access to the debt market. With a strong financial footing and enough financial flexibility, it is well-placed to capitalize on long-term growth opportunities.
FFO Growth: The FFO per share is expected to be up 8.38% for 2022 compared with the industry’s average of 3.94%.
Dividend: ARE is known for consistently raising its dividend rates, which remains a huge attraction for REIT investors. In December 2022, it increased its dividend payment from $1.18 per share to $1.21, representing a sequential hike of 2.5%. Based on the increased rate, the annual dividend comes to $4.84 per share. Also, Alexandria increased its dividend 10 times in the last five years, and the five-year annualized dividend growth rate is 6.07%.
Given the company’s strong operating platform, robust financial position and lower payout ratio compared with the industry, the dividend rate is likely to be sustainable in the near term.
Image: Bigstock
Here's Why Alexandria (ARE) is an Apt Portfolio Pick for Now
Alexandria Real Estate Equities, Inc. (ARE - Free Report) has a portfolio of high-quality, niche assets — life science, technology and agtech properties — in strategic markets, which positions it well for growth.
This Pasadena, CA-based urban office real estate investment trust (REIT) has been witnessing healthy demand for its properties amid the growing need for drug research and innovation. Moreover, favorable demand-supply dynamics and the company’s strong pricing power in its core markets give it a competitive edge.
Shares of this Zacks Rank #2 (Buy) company have rallied 15.9% over the past three months, outperforming its industry's growth of 11.6%.
Image Source: Zacks Investment Research
Factors That Make Alexandria a Solid Pick
Healthy Operating Performance: Alexandria’s Class A properties are situated in the AAA innovation cluster locations of North America, with significant market presence in Greater Boston, San Francisco Bay Area, New York City, San Diego, Seattle, Maryland and Research Triangle. These locations are characterized by high barriers to entry and a limited supply of available spaces. The advantageous locations of its properties have been driving demand, resulting in high occupancy levels.
As of Sep 30, 2022, the occupancy of operating properties in North America remained high at 94.3%. The occupancy, excluding the vacancy at the recently acquired properties, was 98.4% as of the same date. Given the robust demand for its properties, ARE is expected to witness high levels of occupancy in the upcoming quarters, which will support rent growth.
Strong Tenant Base: ARE has a strong tenant base of more than 1,000 high-quality companies, which ensures steady rental revenues. As of Sep 30, 2022, investment-grade or publicly-traded large-cap tenants accounted for 49% of the annual rental revenues in effect. The weighted-average remaining lease term of all the tenants is 7.2 years, and for the company’s top 20 tenants, it is 9.7 years.
Continued Strong Internal Growth: Alexandria has been experiencing strong internal growth. It witnessed total leasing activity of 6.4 million rentable square feet (RSF) of space from the beginning of the year through Sep 30, 2022, based on strong demand for its high-quality office/laboratory space. The lease renewals and re-leasing of space totaled 3 million RSF. Also, it registered rental rate growth of 34.3% and 24.2% (cash basis) during this period, respectively. With solid demand for its properties, this upbeat trend is likely to continue.
Acquisitions & Development: In order to enhance its operating platform, Alexandria has been focusing on the acquisition, development and redevelopment of new Class A properties in AAA locations. In the third quarter of 2022, ARE completed acquisitions in its key life-science cluster submarkets totaling 1.2 million RSF of value-creation opportunities for $316.7 million. It also placed into service development and redevelopment projects totaling 332,961 RSF across multiple submarkets during the quarter.
Moreover, its development pipeline is encouraging for long-term growth. As of Sep 30, 2022, ARE had 5.6 million RSF of the Class A properties undergoing construction. Further, it had 9.9 million RSF of near-term and intermediate-term development and redevelopment projects and 17.9 million SF of future development projects.
Balance Sheet Strength: Alexandria maintains a robust balance-sheet position with ample liquidity. It exited third-quarter 2022 with $6.4 billion of liquidity. It has no debt maturities prior to 2025.
The company enjoys investment-grade credit ratings of Baa1/Stable and BBB+/Positive from Moody’s and S&P Global Ratings, respectively, rendering it favorable access to the debt market. With a strong financial footing and enough financial flexibility, it is well-placed to capitalize on long-term growth opportunities.
FFO Growth: The FFO per share is expected to be up 8.38% for 2022 compared with the industry’s average of 3.94%.
Dividend: ARE is known for consistently raising its dividend rates, which remains a huge attraction for REIT investors. In December 2022, it increased its dividend payment from $1.18 per share to $1.21, representing a sequential hike of 2.5%. Based on the increased rate, the annual dividend comes to $4.84 per share. Also, Alexandria increased its dividend 10 times in the last five years, and the five-year annualized dividend growth rate is 6.07%.
Given the company’s strong operating platform, robust financial position and lower payout ratio compared with the industry, the dividend rate is likely to be sustainable in the near term.
Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties (VICI - Free Report) , First Industrial Realty Trust (FR - Free Report) and Stag Industrial (STAG - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $1.92.
The Zacks Consensus Estimate for First Industrial Realty Trust’s 2022 FFO per share stands at $2.26.
The Zacks Consensus Estimate for Stag Industrial’s 2022 FFO per share is pegged at $2.21.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.