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Here's Why You Should Retain Alexandria Stock in Your Portfolio 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 due to 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.
Recently, Alexandria announced the completion of the sale of 1165 Eastlake Avenue East in its Lake Union submarket of Seattle. This was done through an affiliate to the longstanding tenant Fred Hutch Cancer Center. The move aligns with the company’s capital recycling strategy. The sale of the single-tenant Class A+ life science facility, encompassing 100,086 rentable square feet (RSF), was carried out for $150 million.
Alexandria will reinvest the proceeds from the disposition of 1165 Eastlake into its highly leased development and redevelopment pipeline comprising research and development centers for top life science companies like Bristol Myers Squibb and Novo Nordisk.
What’s Aiding Alexandria?
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, which aids its revenues.
The soaring demand for life science assets due to the increasing need for drug research and innovation positions the company well to capitalize on this trend. This is likely to drive healthy leasing activity and keep the occupancy and rent growth momentum steady. 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 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. For 2024, we expect Alexandria’s same-store occupancy to be 94.8%. Rental income is expected to increase 7.5% on a year-over-year basis in 2024.
On the balance sheet front, ARE had $5.6 billion of liquidity as of the end of the second quarter of 2024. The net debt and preferred stock to adjusted EBITDA was 5.4X, and the fixed-charge coverage ratio was 4.5 in the quarter on an annualized basis. Its debt maturities are well-laddered, with a weighted average remaining term of 13 years as of the end of the second quarter.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and ARE has remained committed to that. Encouragingly, Alexandria increased its dividend 10 times in the last five years, and its five-year annualized dividend growth rate is 5.42%. 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.
What’s Hurting Alexandria?
Alexandria’s substantial active development and redevelopment pipeline, although encouraging for long-term growth, exposes it to the risk of rising construction costs and lease-up concerns amid macroeconomic uncertainty.
As of June 30, 2024, the company had 4.9 million RSF of the Class A/A+ properties undergoing construction. Alexandria has also committed to one near-term project, which is expected to begin in the next two years. The company had 2.4 million RSF of priority anticipated development and redevelopment projects and 24.3 million SF of future development projects.
Although the Federal Reserve has announced a rate cut, the interest rate is still high and is a concern for Alexandria. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. The company has a substantial debt burden, and its total debt as of June 30, 2024, was $12.42 billion. For 2024, our estimate indicates a significant increase in the company’s interest expenses year over year.
The company’s shares have gained 2.1% in the past month compared with the industry’s increase of 2.8%. Also, analysts seem a bit bearish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for 2024 funds from operations (FFO) per share has been revised marginally downward over the past two months.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share has been raised marginally over the past month to $2.67.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has moved marginally north in the past two months to $8.09.
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 Stock in Your Portfolio 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 due to 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.
Recently, Alexandria announced the completion of the sale of 1165 Eastlake Avenue East in its Lake Union submarket of Seattle. This was done through an affiliate to the longstanding tenant Fred Hutch Cancer Center. The move aligns with the company’s capital recycling strategy. The sale of the single-tenant Class A+ life science facility, encompassing 100,086 rentable square feet (RSF), was carried out for $150 million.
Alexandria will reinvest the proceeds from the disposition of 1165 Eastlake into its highly leased development and redevelopment pipeline comprising research and development centers for top life science companies like Bristol Myers Squibb and Novo Nordisk.
What’s Aiding Alexandria?
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, which aids its revenues.
The soaring demand for life science assets due to the increasing need for drug research and innovation positions the company well to capitalize on this trend. This is likely to drive healthy leasing activity and keep the occupancy and rent growth momentum steady. 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 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. For 2024, we expect Alexandria’s same-store occupancy to be 94.8%. Rental income is expected to increase 7.5% on a year-over-year basis in 2024.
On the balance sheet front, ARE had $5.6 billion of liquidity as of the end of the second quarter of 2024. The net debt and preferred stock to adjusted EBITDA was 5.4X, and the fixed-charge coverage ratio was 4.5 in the quarter on an annualized basis. Its debt maturities are well-laddered, with a weighted average remaining term of 13 years as of the end of the second quarter.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and ARE has remained committed to that. Encouragingly, Alexandria increased its dividend 10 times in the last five years, and its five-year annualized dividend growth rate is 5.42%. 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.
What’s Hurting Alexandria?
Alexandria’s substantial active development and redevelopment pipeline, although encouraging for long-term growth, exposes it to the risk of rising construction costs and lease-up concerns amid macroeconomic uncertainty.
As of June 30, 2024, the company had 4.9 million RSF of the Class A/A+ properties undergoing construction. Alexandria has also committed to one near-term project, which is expected to begin in the next two years. The company had 2.4 million RSF of priority anticipated development and redevelopment projects and 24.3 million SF of future development projects.
Although the Federal Reserve has announced a rate cut, the interest rate is still high and is a concern for Alexandria. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. The company has a substantial debt burden, and its total debt as of June 30, 2024, was $12.42 billion. For 2024, our estimate indicates a significant increase in the company’s interest expenses year over year.
The company’s shares have gained 2.1% in the past month compared with the industry’s increase of 2.8%. Also, analysts seem a bit bearish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for 2024 funds from operations (FFO) per share has been revised marginally downward over the past two months.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Cousins Properties (CUZ - Free Report) and Lamar Advertising (LAMR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share has been raised marginally over the past month to $2.67.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has moved marginally north in the past two months to $8.09.
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.