Yahoo Finance 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 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 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.
Alexandria has also been experiencing healthy leasing activity on solid demand for its high-quality office/laboratory space. This has been aiding the company’s rental rate growth. In 2022, it registered rental rate growth of 31% and 22.1% (cash basis).
Also, a tenant base of more than 1,000 high-quality companies ensures steady rental revenues for ARE.
In order to enhance its operating platform, Alexandria has been focusing on the acquisition, development and redevelopment of new Class A properties in AAA locations. In 2022, it completed acquisitions in its key life-science cluster submarkets totaling 10.2 million square feet (SF) for $2.8 billion.
Moreover, ARE’s encouraging development pipeline bodes well for its long-term growth. As of Dec 31, 2022, it had 5.6 million rentable square feet (RSF) properties under construction and seven near-term projects aggregating 2 million RSF. This pipeline is expected to generate $655 million of incremental annual rental revenues from first-quarter 2023 through fourth-quarter 2025.
On the balance sheet front, ARE had $5.3 billion of liquidity as of the end of 2022. It has no debt maturities prior to 2025. Also, investment-grade credit ratings of Baa1/Stable and BBB+/Positive from Moody’s and S&P Global Ratings, respectively, render it favorable access to the debt market. 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 December 2022, it announced a 2.5% sequential hike in its third-quarter 2022 dividend to $1.21 per share. Moreover, Alexandria increased its dividend 10 times in the last five years, and its five-year annualized dividend growth rate is 5.84%.
Given the company’s strong operating platform, our adjusted funds from operations (AFFO) growth projections of 12.4% for 2023, a decent financial position and a lower payout ratio compared with the industry, this dividend rate is likely to be sustainable.
Nonetheless, 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.
Higher interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.
Shares of this Zacks Rank #3 (Hold) company have lost 6.8% in the past six months against its industry’s growth of 8.5%.
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Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties VICI, Terreno Realty TRNO and Innovative Industrial Properties IIPR, 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 VICI Properties’ current-year FFO per share is pegged at $2.12.
The Zacks Consensus Estimate for Terreno Realty’s 2023 FFO per share is pegged at $2.17.
The Zacks Consensus Estimate for Innovative Industrial Properties’ ongoing year’s FFO per share is pegged at $8.36.
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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Terreno Realty Corporation (TRNO) : Free Stock Analysis Report
Alexandria Real Estate Equities, Inc. (ARE) : Free Stock Analysis Report
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