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Why Should You Add Alexandria (ARE) Stock to Your Portfolio?

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Alexandria Real Estate Equities, Inc.’s (ARE - Free Report) high-quality, niche assets — life science and lab office properties — in strategic markets have enabled it to enjoy high demand and occupancy. Further, with an impressive investment-grade balance sheet, the company has ample financial flexibility to navigate through the ongoing coronavirus outbreak-induced volatility and uncertainties, and to withstand any credit crisis.

Over the past month, the Zacks Consensus Estimate for its 2020 funds from operations (FFO) per share has moved 1.7% upward.

Moreover, shares of the Zacks Rank #2 (Buy) company have rallied 5.1% over the past year as against the industry’s decline of 7.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Given the positive trends and a favorable Zacks Rank, the stock is anticipated to rally further in the days ahead.

For first-quarter 2020, the company’s FFO as adjusted of $1.82 per share improved 6.4% from the year-ago quarter’s $1.71. The reported figure was in line with the Zacks Consensus Estimate. Results were driven by strong leasing activity and rental rate growth during the quarter. It witnessed the highest quarterly rental rate growth over the past 10 years.

Notably, a strong Zacks Rank and impressive operating fundamentals of Alexandria appear strong enough to drive the stock’s performance further in the near future.

Factors That Make Alexandria a Solid Pick

High-quality assets in desirable markets driving occupancy: The company focuses on Class A properties concentrated in key markets, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland and Research Triangle. The locations are characterized by high barriers to entry and exit, and a limited supply of available space. This is boosting its occupancy level. In fact, the company enjoys a solid 10-year historical occupancy rate of 96% at operating properties in North America. Such a high level of occupancy is anticipated to continue in the upcoming quarters as well.

Diverse and high-quality tenants contribute to steady revenues:  The company has a diverse tenant base, consisting of international pharmaceutical, biotech and institutional entities that are relatively independent from the business cycle. In fact, as of first-quarter 2020, investment-grade or publicly-traded large-cap tenants accounted for 51% of annual rental revenues in effect. Further, no single tenant accounted for more than 3.9% of annual rental revenues at the first-quarter end. Productive and efficient tenants ensure steady rental revenues for the company.

Adequate financial flexibility and sustainable dividends: In light of the coronavirus pandemic, Alexandria has taken measures to enhance its liquidity and sail through these uncertain times. The company had $3.3 billion of liquidity as of the end of the reported quarter that was increased to $4 billion in April, with an additional unsecured senior line. Moreover, as of the first-quarter end, the company enjoyed investment-grade credit ratings and a stable outlook from S&P Global Ratings, Fitch and Moody’s, respectively.

With no near-term debt maturities and limited capital needs,  Alexandria has ample funds to reward its shareholders with dividends. Solid dividend payouts are arguably the biggest enticement for REIT shareholders, and given the company’s lower payout ratio compared to that of the industry, its dividends are likely to be sustainable.

Continued strong internal growth: During the January-March quarter, Alexandria continued to deliver strong internal growth. Its total leasing activity aggregated to 703,355 rentable square feet (RSF) of space. Lease renewals and re-leasing of space amounted to 557,367 RSF. On a year-over-year basis, same-property net operating income (NOI) was up 2.4%. The company registered strong rental rate growth of 46.3% in the reported quarter, denoting the highest quarterly rental rate growth over the past decade. These indicate that the company has strong operating fundamentals, which will likely boost its performance in the upcoming quarters as well.

Other Stocks to Consider

Alexander Baldwin Holdings, Inc.’s (ALEX - Free Report) Zacks Consensus Estimate for 2020 FFO per share has moved upward to 83 cents over the past month. The company currently flaunts a Zacks Rank of 1.

Gladstone Land Corporation’s (LAND - Free Report) FFO per share estimate for 2020 has moved 3% upward to 68 cents over the past month. Further, it currently carries a Zacks Rank of 2.

One Liberty Properties, Inc. (OLP - Free Report) FFO per share estimate for the ongoing year has been unchanged at $1.89 over the past 30 days. The company currently flaunts a Zacks Rank of 1.

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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