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Here's Why You Should Retain Alexandria (ARE) Stock for Now
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Alexandria Real Estate Equities, Inc.’s (ARE - Free Report) portfolio of high-quality, niche assets — life science, technology and agtech properties — in strategic markets is well-poised to benefit from solid demand for life-science assets on the back of the increasing need for drug research and innovation. However, a huge development outlay raises the risks of cost overruns and lease-up concerns amid macroeconomic uncertainty and a high interest rate environment.
What’s Aiding It?
Alexandria owns Class A/A+ properties 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 the Research Triangle.
These locations are highly appealing to life science, agtech and technology companies seeking tenancy. Moreover, they are characterized by high barriers to entry for new landlords, high barriers to exit for tenants and a limited supply of available space. As a result, the company is generally able to command high rents at its properties, aiding steady revenues.
The soaring demand for life-science assets on the back of the increasing need for drug research and innovation positions the company well to capitalize on this trend. This will likely drive healthy leasing activity and keep the occupancy and rent growth momentum steady.
In December 2023, ARE signed long-term leases with Novo Nordisk and CARGO Therapeutics at its Waltham mega campus in Greater Boston and San Carlos mega campus in the San Francisco Bay Area, respectively.
Also, with artificial intelligence (AI) and machine learning (ML) tools being implemented in this industry, AI-focused life science companies require a significant lab footprint to generate the immense biological and chemical datasets needed to train AI-ML models effectively. This is likely to emerge as a key demand driver for Alexandria’s life-science assets in the upcoming period.
Alexandria enjoys a solid tenant base of around 825 diversified, high-quality companies. These tenants mainly rely on a central lab-based infrastructure to optimize their research capabilities and workflow, making it difficult for them to switch locations frequently. This ensures steady rental revenue generation for ARE.
In order to enhance its operating platform for long-term growth, Alexandria is focusing on the acquisition, development and redevelopment of new Class A/A+ properties in AAA locations. Its pipeline of current and near-term projects is expected to generate annual incremental net operating income of $580 million through the third quarter of 2026, which is encouraging.
In addition, as part of the company’s capital-recycling efforts, it aims to achieve dispositions and sales of partial interests target of $1.65 billion in 2023 and is well on track.
On the balance sheet front, ARE had $5.9 billion of liquidity as of the end of the third quarter of 2023. It enjoys investment-grade credit ratings of Baa1/Stable and BBB+/Positive from Moody’s and S&P Global Ratings, respectively, rendering it access to the debt market at favorable rates. Hence, with no debt maturities prior to 2025 and a strong financial footing with ample financial flexibility, the company is well-placed to bank on growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and ARE has remained committed to that. In December 2023, the company announced a 2.4% sequential hike in its fourth-quarter 2023 cash dividend payout to $1.27 per share. Encouragingly, Alexandria increased its dividend 10 times in the last five years, and its five-year annualized dividend growth rate is 5.56%. Check Alexandria’s dividend history here.
Given the company’s decent financial position and a lower payout ratio compared with that of the industry, the dividend rate is likely to be sustainable in the future.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for 2024 funds from operations (FFO) per share indicates a favorable outlook for the company, with estimates moving marginally northward over the past week.
The company’s shares have gained 28.5% in the past three months compared with the industry’s growth of 19.8%.
Image Source: Zacks Investment Research
What’s Hurting It?
Alexandria has a substantial active development and redevelopment pipeline. Although this is encouraging for long-term growth, it exposes ARE to the risk of rising construction costs and lease-up concerns amid persistent macroeconomic uncertainty.
Given the prevailing high interest rate environment, the company may find it difficult to purchase or develop real estate with borrowed funds as the cost of borrowing will likely be on the higher side. Moreover, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts with high interest rates in place.
The Zacks Consensus Estimate for Rexford Industrial Realty’s 2023 FFO per share is pegged at $2.18, indicating a year-over-year increase of 11.2%.
The Zacks Consensus Estimate for Stag Industrial’s 2023 FFO per share stands at $2.28, suggesting year-over-year growth of 3.2%.
The Zacks Consensus Estimate for Park Hotels & Resorts’ 2023 FFO per share is pegged at $2.03, implying a year-over-year rise of 31.8%.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Here's Why You Should Retain Alexandria (ARE) Stock for Now
Alexandria Real Estate Equities, Inc.’s (ARE - Free Report) portfolio of high-quality, niche assets — life science, technology and agtech properties — in strategic markets is well-poised to benefit from solid demand for life-science assets on the back of the increasing need for drug research and innovation. However, a huge development outlay raises the risks of cost overruns and lease-up concerns amid macroeconomic uncertainty and a high interest rate environment.
What’s Aiding It?
Alexandria owns Class A/A+ properties 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 the Research Triangle.
These locations are highly appealing to life science, agtech and technology companies seeking tenancy. Moreover, they are characterized by high barriers to entry for new landlords, high barriers to exit for tenants and a limited supply of available space. As a result, the company is generally able to command high rents at its properties, aiding steady revenues.
The soaring demand for life-science assets on the back of the increasing need for drug research and innovation positions the company well to capitalize on this trend. This will likely drive healthy leasing activity and keep the occupancy and rent growth momentum steady.
In December 2023, ARE signed long-term leases with Novo Nordisk and CARGO Therapeutics at its Waltham mega campus in Greater Boston and San Carlos mega campus in the San Francisco Bay Area, respectively.
Also, with artificial intelligence (AI) and machine learning (ML) tools being implemented in this industry, AI-focused life science companies require a significant lab footprint to generate the immense biological and chemical datasets needed to train AI-ML models effectively. This is likely to emerge as a key demand driver for Alexandria’s life-science assets in the upcoming period.
Alexandria enjoys a solid tenant base of around 825 diversified, high-quality companies. These tenants mainly rely on a central lab-based infrastructure to optimize their research capabilities and workflow, making it difficult for them to switch locations frequently. This ensures steady rental revenue generation for ARE.
In order to enhance its operating platform for long-term growth, Alexandria is focusing on the acquisition, development and redevelopment of new Class A/A+ properties in AAA locations. Its pipeline of current and near-term projects is expected to generate annual incremental net operating income of $580 million through the third quarter of 2026, which is encouraging.
In addition, as part of the company’s capital-recycling efforts, it aims to achieve dispositions and sales of partial interests target of $1.65 billion in 2023 and is well on track.
On the balance sheet front, ARE had $5.9 billion of liquidity as of the end of the third quarter of 2023. It enjoys investment-grade credit ratings of Baa1/Stable and BBB+/Positive from Moody’s and S&P Global Ratings, respectively, rendering it access to the debt market at favorable rates. Hence, with no debt maturities prior to 2025 and a strong financial footing with ample financial flexibility, the company is well-placed to bank on growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and ARE has remained committed to that. In December 2023, the company announced a 2.4% sequential hike in its fourth-quarter 2023 cash dividend payout to $1.27 per share. Encouragingly, Alexandria increased its dividend 10 times in the last five years, and its five-year annualized dividend growth rate is 5.56%. Check Alexandria’s dividend history here.
Given the company’s decent financial position and a lower payout ratio compared with that of the industry, the dividend rate is likely to be sustainable in the future.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for 2024 funds from operations (FFO) per share indicates a favorable outlook for the company, with estimates moving marginally northward over the past week.
The company’s shares have gained 28.5% in the past three months compared with the industry’s growth of 19.8%.
Image Source: Zacks Investment Research
What’s Hurting It?
Alexandria has a substantial active development and redevelopment pipeline. Although this is encouraging for long-term growth, it exposes ARE to the risk of rising construction costs and lease-up concerns amid persistent macroeconomic uncertainty.
Given the prevailing high interest rate environment, the company may find it difficult to purchase or develop real estate with borrowed funds as the cost of borrowing will likely be on the higher side. Moreover, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts with high interest rates in place.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Rexford Industrial Realty (REXR - Free Report) , Stag Industrial (STAG - Free Report) and Park Hotels & Resorts (PK - Free Report) . While PK sports a Zacks Rank #1 (Strong Buy) at present, REXR and STAG carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Rexford Industrial Realty’s 2023 FFO per share is pegged at $2.18, indicating a year-over-year increase of 11.2%.
The Zacks Consensus Estimate for Stag Industrial’s 2023 FFO per share stands at $2.28, suggesting year-over-year growth of 3.2%.
The Zacks Consensus Estimate for Park Hotels & Resorts’ 2023 FFO per share is pegged at $2.03, implying a year-over-year rise of 31.8%.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.