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Alexandria (ARE) Rises 12% in a Month: Will the Trend Last?
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Shares of Alexandria Real Estate Equities, Inc. (ARE - Free Report) have rallied 11.8% over the past month compared with the industry's growth of 7.5%.
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.
Image Source: Zacks Investment Research
Given the booming demand for life-science assets on the back of the increasing need for drug research and innovation, the company continues to witness healthy demand and maintain high occupancy levels.
In the third quarter, total leasing activity aggregated 867,582 RSF of space, of which lease renewals and re-leasing of space amounted to 396,334 RSF. Rental rate growth was 28.8% or 19.7% on a cash basis.
The occupancy of operating properties in North America remained high at 93.7% as of Sep 30, 2023. For 2023, we expect Alexandria’s same-store occupancy to be 94.1%
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 around 825 diversified high-quality companies ranging from multinational pharmaceutical companies, public and private biotechnology companies, manufacturers of complex medicines and top-tier investment-grade companies and institutions as well as technology entities.
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. Notably, in the last 12 months, 80% of ARE’s leasing activity was generated from its existing client base.
As a result, the company is generally able to command high rents at its properties, aiding steady revenues over the long term. We estimate rental income to increase 9.5% on a year-over-year basis in 2023.
Alexandria’s acquisition, development and redevelopment of new Class A/A+ properties in AAA locations to enhance its operating platform bode well for long-term growth. Its pipeline of current and near-term projects is expected to generate annual incremental net operating income 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.
The Zacks Rank #3 (Hold) company maintains a robust balance sheet position, supporting its growth endeavors. This has enabled 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 prior to 2025 and its weighted-average remaining term was 13.1 years.
Moreover, in September and October 2023, ARE received reaffirmations on its credit ratings of Baa1/Stable and BBB+/Positive from Moody’s and S&P Global Ratings, respectively. This renders access to the debt market at favorable costs.
For 2023, expecting to benefit from the flourishing life-science market, the company revised its 2023 guidance for AFFO per share to $8.97-$8.99 from $8.93-$8.99 estimated earlier, representing a 2-cent increase at the midpoint to $8.98. The Zacks Consensus Estimate is pegged at $8.97, within expectations.
Nonetheless, Alexandria’s substantial active development and redevelopment pipeline, although encouraging for long-term growth, increases the risks related to cost overruns and lease-up concerns amid the current macroeconomic scenario and a high interest rate environment.
Further, with high interest rates in place, the company may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past month to $7.71.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised marginally over the past month to $2.28.
The Zacks Consensus Estimate for Park Hotels & Resorts’ current-year FFO per share has moved 3.1% northward over the past month to $1.98.
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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Alexandria (ARE) Rises 12% in a Month: Will the Trend Last?
Shares of Alexandria Real Estate Equities, Inc. (ARE - Free Report) have rallied 11.8% over the past month compared with the industry's growth of 7.5%.
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.
Image Source: Zacks Investment Research
Given the booming demand for life-science assets on the back of the increasing need for drug research and innovation, the company continues to witness healthy demand and maintain high occupancy levels.
In the third quarter, total leasing activity aggregated 867,582 RSF of space, of which lease renewals and re-leasing of space amounted to 396,334 RSF. Rental rate growth was 28.8% or 19.7% on a cash basis.
The occupancy of operating properties in North America remained high at 93.7% as of Sep 30, 2023. For 2023, we expect Alexandria’s same-store occupancy to be 94.1%
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 around 825 diversified high-quality companies ranging from multinational pharmaceutical companies, public and private biotechnology companies, manufacturers of complex medicines and top-tier investment-grade companies and institutions as well as technology entities.
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. Notably, in the last 12 months, 80% of ARE’s leasing activity was generated from its existing client base.
As a result, the company is generally able to command high rents at its properties, aiding steady revenues over the long term. We estimate rental income to increase 9.5% on a year-over-year basis in 2023.
Alexandria’s acquisition, development and redevelopment of new Class A/A+ properties in AAA locations to enhance its operating platform bode well for long-term growth. Its pipeline of current and near-term projects is expected to generate annual incremental net operating income 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.
The Zacks Rank #3 (Hold) company maintains a robust balance sheet position, supporting its growth endeavors. This has enabled 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 prior to 2025 and its weighted-average remaining term was 13.1 years.
Moreover, in September and October 2023, ARE received reaffirmations on its credit ratings of Baa1/Stable and BBB+/Positive from Moody’s and S&P Global Ratings, respectively. This renders access to the debt market at favorable costs.
For 2023, expecting to benefit from the flourishing life-science market, the company revised its 2023 guidance for AFFO per share to $8.97-$8.99 from $8.93-$8.99 estimated earlier, representing a 2-cent increase at the midpoint to $8.98. The Zacks Consensus Estimate is pegged at $8.97, within expectations.
Nonetheless, Alexandria’s substantial active development and redevelopment pipeline, although encouraging for long-term growth, increases the risks related to cost overruns and lease-up concerns amid the current macroeconomic scenario and a high interest rate environment.
Further, with high interest rates in place, the company may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side.
Stocks to Consider
Some better-ranked stocks from the REIT sector are EastGroup Properties (EGP - Free Report) , Stag Industrial (STAG - Free Report) and Park Hotels & Resorts (PK - 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 EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past month to $7.71.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised marginally over the past month to $2.28.
The Zacks Consensus Estimate for Park Hotels & Resorts’ current-year FFO per share has moved 3.1% northward over the past month to $1.98.
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.