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Alexandria (ARE) Sees Demand, Seals Early Renewal With insitro

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Alexandria Real Estate Equities, Inc. (ARE - Free Report) recently clinched an early renewal with the machine learning-powered drug discovery and development company insitro for a six-year lease extension at the Alexandria Center for Advanced Technologies mega campus in South San Francisco.

Being a significant early renewal, the lease extension for 143,188 rentable square feet (RSF) at 279 East Grand Avenue will run through Aug 31, 2034. This move will ensure steady rental revenues from this property for the long term.  

It emphasizes the necessity for ample laboratory facilities to produce extensive datasets crucial for AI-driven advancements in medicine and reaffirms Alexandria's strong capacity to facilitate companies engaged in the burgeoning area of AI-enhanced laboratory-based research and development.

Acknowledging the potential of insitro's groundbreaking platform that leverages AI, particularly machine learning (ML), and extensive data to unravel complex biological processes and uncover novel medications across various therapeutic domains, including metabolism, oncology and neuroscience, Alexandria had executed its first lease with insitro in 2018. That lease encompassed nearly 36,000 RSF Labspace infrastructure at 279 East Grand Avenue.

The South San Francisco submarket is home to the densest concentration of life science companies in the San Francisco Bay Area. Alexandria made its entry into the South San Francisco submarket in 1998 and, over the years, has strategically expanded its footprint, which now comprises roughly 3.4 million RSF in operation (as of Dec 31, 2023).

Aggregating 1.0 million RSF of operating properties and future development opportunities as of Dec 31, 2023, Alexandria Center for Advanced Technologies – South San Francisco mega campus is positioned at the center of the submarket and is well-poised to cater to the needs of disruptive companies like insitro.

AI/ML holds vast potential to expedite and streamline the discovery and development of new medications, thereby reducing the time and cost associated with the entire research and development process.

Alexandria caters to a diversified tenant base comprising 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.

As of Dec 31, 2023, mega campuses accounted for 75% of annual rental revenues in effect, and investment-grade or publicly traded large-cap tenants accounted for 52% of the annual rental revenues in effect. The weighted average remaining lease term of all tenants is 7.4 years, increasing from 7 years at the end of the prior quarter. For Alexandria’s top 20 tenants, it is 9.6 years, increasing from 8.9 years as of the end of the prior quarter. This ensures steady rental revenues over the long term.

Over the past six months, shares of this Zacks Rank #3 (Hold) company have rallied 29.1%, outperforming its industry's upside of 19%.

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Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Host Hotels & Resorts (HST - Free Report) and Iron Mountain (IRM - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for HST’s 2024 FFO per share is pegged at $1.97, which suggests year-over-year growth of 2.6%.

The Zacks Consensus Estimate for IRM’s 2024 FFO per share stands at $4.42, which indicates an increase of 7.3% from the year-ago quarter.

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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