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Here's Why Alexandria (ARE) Jumped 13.3% in the Past 3 Months

Shares of Alexandria Real Estate Equities, Inc. ARE, presently carrying a Zacks Rank #2 (Buy), have rallied 13.3% over the past three months, outperforming its industry's growth of 8.7%.

This Pasadena, CA-based urban office real estate investment trust (REIT), slated to report fourth-quarter 2022 and full-year results on Jan 30, has a portfolio of high-quality, niche assets — life science, technology and agtech properties — in strategic markets.

It has been witnessing healthy demand for its properties amid the growing need for drug research and innovation. Moreover, favorable demand-supply dynamics and the company’s strong pricing power in its core markets give it a competitive edge.

Zacks Investment Research
Zacks Investment Research

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Let us decipher the factors behind the surge in the stock price.

Alexandria’s Class A properties are situated 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 Research Triangle. These locations are characterized by high barriers to entry and a limited supply of available spaces.

In addition, the life-science industry has been benefiting from the increasing life expectancy of the United States population and biopharma drug development growth opportunities.

As a result, higher demand for life science real-estate assets and the advantageous locations of ARE’s properties have been aiding leasing activity and occupancy growth.

In third-quarter 2022, Alexandria’s total leasing activity aggregated 1.7 million rentable square feet (RSF) of space. Lease renewals and re-leasing of space amounted to 1.1 million RSF. The leasing of development and redevelopment space was 0.3 million RSF. Also, it registered rental rate growth of 34.3% (24.2% on a cash basis) during this period.

The occupancy of operating properties in North America remained high at 94.3% as of Sep 30, 2022. The occupancy, excluding the vacancy at the recently acquired properties, was 98.4% as of the same date.

ARE has a strong tenant base of more than 1,000 high-quality companies, which ensures steady rental revenues. As of Sep 30, 2022, 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 the tenants is 7.2 years, and for the company’s top 20 tenants, it is 9.7 years.

Alexandria’s acquisition, development and redevelopment of new Class A properties in AAA locations to enhance its operating platform have paid off well. In the third quarter of 2022, ARE completed acquisitions in its key life-science cluster submarkets totaling 1.2 million RSF of value-creation opportunities for $316.7 million. It also placed into service development and redevelopment projects totaling 332,961 RSF across multiple submarkets during the quarter.  

ARE has a promising development pipeline. As of Sep 30, 2022, ARE had 5.6 million RSF of the Class A properties undergoing construction. Further, it had 9.9 million RSF of near-term and intermediate-term development and redevelopment projects and 17.9 million SF of future development projects.

The company’s robust balance-sheet position has enabled it to capitalize on long-term growth opportunities. It exited third-quarter 2022 with $6.4 billion of liquidity. It has no debt maturities prior to 2025. Moreover, investment-grade credit ratings of Baa1/Stable and BBB+/Positive from Moody’s and S&P Global Ratings, respectively, render the company favorable access to the debt market.

The funds from operations (FFO) per share for 2022 are expected to be up 8.38% compared with the industry’s average of 3.76%. The Zacks Consensus Estimate for the same is currently pegged at $8.41.

ARE is known for consistently raising its dividend rates, which remains a huge attraction for REIT investors. In December 2022, it increased its dividend payment from $1.18 per share to $1.21, representing a sequential hike of 2.5%. Alexandria increased its dividend 10 times in the last five years, and the five-year annualized dividend growth rate is 6.07%. Such efforts boost investors’ confidence in the stock.

Stocks to Consider

Some better-ranked stocks from the REIT sector are VICI Properties VICI, Stag Industrial STAG and The Geo Group GEO, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $2.11.

The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share is pegged at $2.25.

The Zacks Consensus Estimate for The Geo Group’s 2022 FFO per share stands at $2.35.

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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