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Should You Retain Alexandria (ARE) 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 are well poised to benefit from the growing need for drug research and innovation. However, the company’s vast development pipeline exposes it to the risk of rising construction costs and lease-up concerns. Also, elevated interest rates are a key concern.
What’s Aiding It?
ARE's primary emphasis is on the development of Class A/A+ properties strategically located within AAA innovation cluster regions. These locations are highly appealing to life science, agtech and technology companies seeking tenancy. Moreover, these locations are characterized by high barriers to entry for new landlords and exit for tenants, and a limited supply of available space. Given this backdrop, the company is generally able to command high rents at its properties, aiding steady revenues.
Also, booming demand for life-science assets on the back of increasing need for drug research and innovation continues to aid healthy demand for ARE’s life-science assets, helping it to maintain high occupancy levels.
In the nine months ended Sep 30, 2023, Alexandria’s total leasing activity aggregated 3.4 million rentable square feet (RSF), of which 80% was generated from existing tenants in the last 12 months. Lease renewals and re-leasing of space amounted to nearly 2.6 million RSF. As of Sep 30, 2023, the occupancy of Alexandria’s operating properties in North America remained high at 93.7%.
Management is focused on acquisition, development and redevelopment of new Class A/A+ properties in AAA locations to boost its operating performance over the long term.
Notably, from the beginning of 2023 through Oct 23, Alexandria completed acquisitions with development/redevelopment opportunities worth $258.9 million.Its pipeline of current and near-term projects is expected to generate annual incremental NOI 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.
Alexandria maintains a healthy balance sheet, enabling it to capitalize on long-term growth opportunities. It exited the third quarter of 2023 with $6.9 billion of liquidity. It has no debt maturities before 2025. It also 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.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and ARE has remained committed to that. It recently announced a 2.4% sequential hike in its fourth-quarter 2023 cash dividend payout to $1.27 per share. The company has increased its dividend 10 times in the last five years, and the five-year annualized dividend growth rate is 5.56%. Check Alexandria’s dividend history here.
Given ARE’s decent financial position, a lower payout ratio compared with that of the industry and our adjusted funds from operations (FFO) year-over-year growth projection of 12.6% in 2023, the dividend rate is likely to be sustainable in the upcoming period.
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 amidst a macroeconomic slowdown.
A high interest rate environment is a concern for ARE. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. Moreover, with high interest rates in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 1.1% compared with the industry’s 1.8% growth.
The Zacks Consensus Estimate for Iron Mountain’s current-year FFO per share has moved marginally northward over the past week to $3.98.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has been raised 1.7% over the past two months to $7.31.
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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Should You Retain Alexandria (ARE) 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 are well poised to benefit from the growing need for drug research and innovation. However, the company’s vast development pipeline exposes it to the risk of rising construction costs and lease-up concerns. Also, elevated interest rates are a key concern.
What’s Aiding It?
ARE's primary emphasis is on the development of Class A/A+ properties strategically located within AAA innovation cluster regions. These locations are highly appealing to life science, agtech and technology companies seeking tenancy. Moreover, these locations are characterized by high barriers to entry for new landlords and exit for tenants, and a limited supply of available space. Given this backdrop, the company is generally able to command high rents at its properties, aiding steady revenues.
Also, booming demand for life-science assets on the back of increasing need for drug research and innovation continues to aid healthy demand for ARE’s life-science assets, helping it to maintain high occupancy levels.
In the nine months ended Sep 30, 2023, Alexandria’s total leasing activity aggregated 3.4 million rentable square feet (RSF), of which 80% was generated from existing tenants in the last 12 months. Lease renewals and re-leasing of space amounted to nearly 2.6 million RSF. As of Sep 30, 2023, the occupancy of Alexandria’s operating properties in North America remained high at 93.7%.
Management is focused on acquisition, development and redevelopment of new Class A/A+ properties in AAA locations to boost its operating performance over the long term.
Notably, from the beginning of 2023 through Oct 23, Alexandria completed acquisitions with development/redevelopment opportunities worth $258.9 million.Its pipeline of current and near-term projects is expected to generate annual incremental NOI 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.
Alexandria maintains a healthy balance sheet, enabling it to capitalize on long-term growth opportunities. It exited the third quarter of 2023 with $6.9 billion of liquidity. It has no debt maturities before 2025. It also 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.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and ARE has remained committed to that. It recently announced a 2.4% sequential hike in its fourth-quarter 2023 cash dividend payout to $1.27 per share. The company has increased its dividend 10 times in the last five years, and the five-year annualized dividend growth rate is 5.56%. Check Alexandria’s dividend history here.
Given ARE’s decent financial position, a lower payout ratio compared with that of the industry and our adjusted funds from operations (FFO) year-over-year growth projection of 12.6% in 2023, the dividend rate is likely to be sustainable in the upcoming period.
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 amidst a macroeconomic slowdown.
A high interest rate environment is a concern for ARE. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. Moreover, with high interest rates in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 1.1% compared with the industry’s 1.8% growth.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Iron Mountain (IRM - Free Report) and Lamar Advertising (LAMR - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Iron Mountain’s current-year FFO per share has moved marginally northward over the past week to $3.98.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has been raised 1.7% over the past two months to $7.31.
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.