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Here's Why You Should Retain Alexandria (ARE) Stock for Now
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Amid the growing need for drug research and innovation, 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 this elevated demand.
Alexandria’s Class A properties are situated in North America's AAA innovation cluster locations, with a significant market presence in Greater Boston, San Francisco Bay Area, New York City, San Diego, Seattle, Maryland and Research Triangle. The advantageous locations of its properties have been driving demand, resulting in high occupancy levels.
Reflecting the 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.
Alexandria registered rental rate growth of 48.3% during the reported quarter, which marked the highest quarterly rental rate growth in the company’s history. On a year-over-year basis, same-property net operating income (NOI) was up 3.7%. Given its solid operating platform, this upbeat trend is likely to continue.
To enhance its operating platform, Alexandria has been focusing on the acquisition, development and redevelopment of new Class A properties in AAA locations. In the first quarter of 2023, ARE completed acquisitions totaling 1.1 million RSF of value-creation opportunities for a total price of $171.9 million. Also, ARE placed into service development and redevelopment projects totaling 453,511 RSF across multiple submarkets, which resulted in $23 million of incremental annual NOI.
Moreover, Alexandria’s encouraging development pipeline bodes well for its long-term growth. Its 6.7 million RSF value-creation pipeline is anticipated to generate more than $610 million of incremental NOI, mainly starting from the second quarter of 2023 through the first quarter of 2026.
On the balance sheet front, ARE had $5.3 billion of liquidity as of the end of the first quarter of 2023. Further, as of the first-quarter end, the company had no debt maturities before 2025, and its weighted-average remaining term was 13.4 years. With a strong financial footing and enough financial flexibility, it is well-placed to capitalize on long-term growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and ARE has remained committed to that. In June 2023, it announced a 2.5% sequential hike in its second-quarter 2023 cash dividend.
Alexandria has increased its dividend 10 times in the last five years, and the five-year annualized dividend growth rate is 5.79%. Given the company’s solid operating platform, our adjusted funds from operations (FFO) growth projections of 12.6% for 2023, a decent financial position and a lower payout ratio compared with that of the industry, this dividend rate is likely to be sustainable.
However, Alexandria’s huge development and redevelopment pipeline, although encouraging for growth, exposes it to the risks associated with rising construction costs and lease-up concerns.
Further, a high interest rate is a concern for Alexandria. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. Moreover, the dividend payout might become less attractive than the yields on fixed income and money market accounts.
Shares of this Zacks Rank #3 (Hold) company have declined 6.1% in the past three months against its industry’s growth of 0.5%.
The Zacks Consensus Estimate for EastGroup Properties’ current-year FFO per share has moved marginally north over the past two months to $7.56.
The Zacks Consensus Estimate for Innovative Industrial Properties’ 2023 FFO per share has moved 3.6% upward in the past two months to $8.66.
Note: Anything related to earnings presented in this write-up represent 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
Amid the growing need for drug research and innovation, 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 this elevated demand.
Alexandria’s Class A properties are situated in North America's AAA innovation cluster locations, with a significant market presence in Greater Boston, San Francisco Bay Area, New York City, San Diego, Seattle, Maryland and Research Triangle. The advantageous locations of its properties have been driving demand, resulting in high occupancy levels.
Reflecting the 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.
Alexandria registered rental rate growth of 48.3% during the reported quarter, which marked the highest quarterly rental rate growth in the company’s history. On a year-over-year basis, same-property net operating income (NOI) was up 3.7%. Given its solid operating platform, this upbeat trend is likely to continue.
To enhance its operating platform, Alexandria has been focusing on the acquisition, development and redevelopment of new Class A properties in AAA locations. In the first quarter of 2023, ARE completed acquisitions totaling 1.1 million RSF of value-creation opportunities for a total price of $171.9 million. Also, ARE placed into service development and redevelopment projects totaling 453,511 RSF across multiple submarkets, which resulted in $23 million of incremental annual NOI.
Moreover, Alexandria’s encouraging development pipeline bodes well for its long-term growth. Its 6.7 million RSF value-creation pipeline is anticipated to generate more than $610 million of incremental NOI, mainly starting from the second quarter of 2023 through the first quarter of 2026.
On the balance sheet front, ARE had $5.3 billion of liquidity as of the end of the first quarter of 2023. Further, as of the first-quarter end, the company had no debt maturities before 2025, and its weighted-average remaining term was 13.4 years. With a strong financial footing and enough financial flexibility, it is well-placed to capitalize on long-term growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and ARE has remained committed to that. In June 2023, it announced a 2.5% sequential hike in its second-quarter 2023 cash dividend.
Alexandria has increased its dividend 10 times in the last five years, and the five-year annualized dividend growth rate is 5.79%. Given the company’s solid operating platform, our adjusted funds from operations (FFO) growth projections of 12.6% for 2023, a decent financial position and a lower payout ratio compared with that of the industry, this dividend rate is likely to be sustainable.
However, Alexandria’s huge development and redevelopment pipeline, although encouraging for growth, exposes it to the risks associated with rising construction costs and lease-up concerns.
Further, a high interest rate is a concern for Alexandria. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. Moreover, the dividend payout might become less attractive than the yields on fixed income and money market accounts.
Shares of this Zacks Rank #3 (Hold) company have declined 6.1% in the past three months against its industry’s growth of 0.5%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are EastGroup Properties (EGP - Free Report) and Innovative Industrial Properties (IIPR - Free Report) , each presently 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 EastGroup Properties’ current-year FFO per share has moved marginally north over the past two months to $7.56.
The Zacks Consensus Estimate for Innovative Industrial Properties’ 2023 FFO per share has moved 3.6% upward in the past two months to $8.66.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.