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Here's Why You Should Hold on to Alexandria Stock for Now

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Alexandria Real Estate Equities, Inc.’s (ARE - Free Report) solid asset portfolio, comprising class A properties in AAA locations, has enabled the company to enjoy high occupancy levels. While the company has been shedding non-core assets to optimize its portfolio, the near-term dilution impact of such moves on earnings cannot be bypassed.

This urban office real estate investment trust (REIT) mainly focuses on collaborative life science and technology campuses concentrated in urban areas. Robust demand for best-in-class office/laboratory space in this market has resulted in high-absorption rates, accelerating the company’s internal growth.

Recently, Alexandria announced that it has 100% pre-leased 100 Binney Street — a ground-up development project — which will provide office/laboratory space to its tenants. The building, spanning 431,000 rentable square feet (RSF) of space, is slated to be delivered in fourth-quarter 2017.

Moreover, Alexandria has delivered strong internal growth, stemming from rise in rental revenues and same-property cash NOI. The company enjoys a steady flow of rental revenues amid limited supply conditions. Also, robust external growth, in the form of development and redevelopment of new class A properties in premium locations, is likely to boost its operating performance.

Subsequently, the company hiked its dividend sequentially by 4% in second-quarter 2017 and retained the same payout for the third quarter.

Alexandria has a strong balance sheet and ample liquidity to sustain this payout ratio over the long run.

Amid these, this Zacks Rank #3 (Hold) company has outperformed the industry it belongs to, year to date. During the time frame, shares of Alexandria have gained 8.3%, while the industry rallied 7.4%. Also, the Zacks Consensus Estimate for funds from operations (FFO) per share for third-quarter 2017 inched up 0.7% in a month’s time. Given its progress on the fundamentals, the stock is likely to perform well in the near term.


Nevertheless, there are concerns over Alexandria’s exposure to its Canadian and Asian subsidiaries, which makes the company vulnerable to currency fluctuation. In addition, the uneasiness in certain global economies remains another concern for this urban REIT.

Furthermore, the company is selling non-strategic assets and non-strategic land parcels to finance pre-leased value-creation development and redevelopment projects. The near-term dilution effect of such moves on earnings is unavoidable.

Key Picks

Better-ranked stocks in the REIT space include Getty Realty Corporation (GTY - Free Report) , Seritage Growth Properties (SRG - Free Report) and Communications Sales & Leasing, Inc. (UNIT - Free Report) . While Getty Realty flaunts a Zacks Rank #1 (Strong Buy), Seritage and Communications Sales & Leasing carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Getty Realty’s FFO per share estimates for the current year moved 3.1% upward to $2 over the past week.

Over the last 60 days, Seritage’s FFO per share estimates for full-year 2017 inched up 0.5% to $2.01.

Communications Sales & Leasing’s 2017 FFO per share estimates climbed 14.4% to $2.54 in the last 60 days.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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