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Alexandria (ARE) Rewards Investors, Hikes Dividend by 2.5%

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Alexandria Real Estate Equities (ARE - Free Report) announced a 2.5% sequential hike in its second-quarter 2023 cash dividend payout. Delighting its shareholders, the company will now pay out a dividend of $1.24 per share, up from the $1.21 paid out in the first quarter. The increased dividend will be paid out on Jul 14, 2023 to shareholders on record as of Jun 30, 2023.

Based on the increased rate, the annual dividend comes to $4.96 per share. This results in an annualized yield of about 4.3%, considering Alexandria’s closing price of $115.43 on Jun 5. For the 12 months ending Jun 30, 2023, the common stock dividend marks an increase of 24 cents or 5% year over year.

Solid dividend payouts are arguably the biggest enticements for real estate investment trust investors, and Alexandria remains committed to that. It has increased its dividend 10 times in the last five years, and the five-year annualized dividend growth rate is 5.84%. This is attractive to income investors and represents a steady income stream. Check Alexandria’s dividend history here.

Can Alexandria Maintain Its Payout?

Alexandria operates life science, agtech and advanced technology campuses in AAA innovation cluster locations. Reflecting robust demand for its high-quality office/laboratory space, Alexandria’s total leasing activity aggregated 1.2 million rentable square feet (RSF) of space in the first quarter of 2023. Lease renewals and re-leasing of space amounted to 1.1 million RSF.

The high demand for Class A properties in AAA locations is aiding the level of occupancy and driving growth in rents. Alexandria registered rental rate growth of 48.3% during the reported quarter. On a cash basis, the rental rate increased 24.2%.

Moreover, in the first quarter of 2023, 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 tenants is 7.2 years. For Alexandria’s top 20 tenants, it is 9.5 years. This ensures steady rental revenues for ARE.

Moreover, Alexandria has adequate financial flexibility to enhance its market position and capitalize on long-term growth opportunities. The company had $5.3 billion of liquidity at the end of the reported quarter. As of the first-quarter end, ARE had no debt maturities before 2025, and its weighted-average remaining term was 13.4 years.

For the five-year period ending Dec 31, 2023, Alexandria expects to generate for reinvestment an aggregate of $1.7 billion of net cash provided by operating activities after dividends.

Its funds from operations (FFO) payout ratio remains favorably low at 55% for the three months ended Mar 31, 2023. Looking at the company’s solid operating platform, balance sheet strength, ability to generate cash flows and payout ratio, it is likely to be able to sustain the hiked dividend.

However, reflecting broader market concerns, this Zacks Rank #3 (Hold) stock has declined 5.7% in the past month compared with the industry’s fall of 1.4%.

Zacks Investment Research
Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the REIT sector are Rexford Industrial Realty (REXR - Free Report) and EastGroup Properties (EGP - 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 Rexford Industrial Realty’s current-year FFO per share has been revised 1.4% north over the past two months to $2.19. This indicates an 11.7% increase year over year.

The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has been revised marginally upward over the past month to $7.56. This indicates an 8% increase year over year.

Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.

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