ARE Stock Overview
Alexandria Real Estate Equities, Inc. (NYSE:ARE), an S&P 500<sup>®</sup> urban office real estate investment trust ("REIT"), is the first, longest-tenured, and pioneering owner, operator, and developer uniquely focused on collaborative life science, technology, and agtech campuses in AAA innovation cluster locations, with a total market capitalization of $31.9 billion as of December 31, 2020, and an asset base in North America of 49.7 million square feet ("SF").
Alexandria Real Estate Equities, Inc. Competitors
Price History & Performance
|Historical stock prices|
|Current Share Price||US$166.97|
|52 Week High||US$224.95|
|52 Week Low||US$130.00|
|1 Month Change||16.59%|
|3 Month Change||0.31%|
|1 Year Change||-18.39%|
|3 Year Change||15.03%|
|5 Year Change||37.23%|
|Change since IPO||695.10%|
Recent News & Updates
Alexandria Real Estate: Thanks To The Bears, I'm Buying Shares
Let’s look at Alexandria Real Estate, an office REIT with over 25 years under its belt. Its focus is on A-class science and tech properties. ARE has an interesting portfolio and client mix. And above all, it’s one of only three REITs with a 100 iREIT quality score. We’ll explore why that is and why, at the right price, you should consider buying Alexandria Real Estate. This article was coproduced with Wolf Report. Let’s start out with a quote from Benjamin Graham (emphasis added): “The intelligent investor realizes that stocks become more risky, not less, as their prices rise – and less risky, not more, as their prices fall. The intelligent investor dreads a bull market, since it makes stocks more costly to buy. “And conversely (so long as you keep enough cash on hand to meet your spending needs), you should welcome a bear market, since it puts stocks back on sale.” With that established, let’s discuss office real estate investment trusts ((REITs)). Admittedly, that space is a complex segment, especially with the current macro we're moving deeper and deeper into. Uncertainty about where we're going exactly, how, and why is high. As such, investors need to be very clear as to what we're investing in. You may recall an article iREIT published last week titled "REITs to the Rescue," which explained how: "... office REITs are in somewhat of a tug-of-war. So we want to focus on the highest-quality, best-situated assets outperforming… Those with the best balance sheets, modest floating-rate debt, and well-laddered maturities." Included in our top office sector picks at the time was Alexandria Real Estate Equities, Inc. (ARE). Today, we want to do a deeper dive on why it’s an outlier worth considering. (iREIT on Alpha) Alexandria Real Estate – An Outlier! Alexandria Real Estate started out with a fairly unique vision, choosing to only serve clients in the life-science industry. It was established and listed 28 years ago and, today, its market capitalization is over $24 billion. Also worth pointing out is how it's a member of the S&P500… and how it has a BBB+ S&P Global credit rating and a Baa1 from Moody's. (ARE Investor Presentation) Admittedly, its yield is only around 3.2% after a two-month drop. Moreover, even 3.2% is well above what it usually offers. Those who know their REITs immediately recognize that’s not the most attractive amount ever. Yet it’s not the lowest, either. (iREIT) So let’s explore exactly why… ARE earns annual revenues of around $2.1 billion. Its earnings before interest, taxes, depreciation, and amortization (EBITDA) are $1.34 billion. And its interest expenses are around $142 million. As such, ARE has EBITDA-based interest-rate coverage of 9.4x and a fixed-charge coverage of 3.1x. Net debt/EBITDA, meanwhile, stood at around 6.3x for 2021. In addition, higher yields automatically trigger assumptions of risk, with good reason. Lower yields do the opposite… which is very justified, as we can easily see. (ARE Investor Presentation) Among U.S. REITs, it’s among the top 10% in total equity capitalization. This helps it borrow at a blended interest rate of 2.51%... Which even the latest macro hasn't done much to increase on average even though its main markets are: Boston – 35% San Francisco – 25% San Diego – 16% Seattle – 6% Maryland – 6% All put together, ARE has 426 properties with a gross leasable area of 47.4 million square feet. Occupancy was 94.7% as of the latest quarter with renters like: Bristol Myers Squibb (BMY) Moderna (MRNA) Eli Lilly (LLY) Sanofi (SNY) Takeda Pharma (TAK) These are some extremely strong companies that aren't going anywhere. More Money-Making Facts About ARE The tenants above – which are mostly A graded or better, mind you – are all part of Alexandria’s top annualized base renters list. Yet even all put together, they represent less than 15% of total ABR. (ARE Investor Presentation) That’s a good thing, showing that Alexandria has "doubled down" on safety. Like we said earlier, it began by focusing only on life science and tech… then tightened its standards further by leasing significant amounts to only the best in the business – yet in such a way that its top tenant, BMY, represents less than 3.6% of its total ABR. And ARE’s latest quarterly report goes a long way to ensure that this safety continues. The REIT saw renewal rent spreads increase 16.5% year-over-year for 864,000 square feet, and same-property net operating income ((NOI)) increase 7.6% on a GAAP basis. Meanwhile, core funds from operations ((FFO)) was up 7.4% YoY. And the company’s ongoing development pipeline is more than half-finished going into this new environment. ARE also managed to issue $1.8 billion worth of senior unsecured notes with a due date in 2023-2025 – before most of its macro and interest issues. (ARE Investor Presentation) Based on a Q1-22 run rate, annual 2022 revenue should come in at $300 million above 2021, at revenues of close to $2.5B, with EBITDA of above $1.55B. This would imply an EBITDA/interest coverage of 13.3x and a fixed charge coverage of up to 3.5x. It would also decrease leverage down to the 6x mark. That and mark down the AFFO payout ratio to close to 75%. This should give ample room to increase the company's conservative dividend. Overall, ARE has executed very strongly on leasing, development, and its pipeline… leading to very good visibility for future growth. Our Attraction Grows ARE owns and develops some of the most attractive properties in this entire sector… in the entire nation... and around the globe. Just take Alexandria Point as an example. It involves the second-largest lease in the company's history and deepens its relationship with BMY in San Diego. (ARE Investor Presentation) ARE has proven its ability at managing its portfolio in general for its 28 years. That’s how, in 2021, ARE's annual leasing volume was twice that of pre-pandemic levels and therefore their absolute highest ever. Quarterly leasing for Q4-21 alone was nearly annual levels of preceding years. And the company also completed its largest acquisition ever in the Alexandria Center for Life Science – as part of its upcoming Fenway Mega Campus – for around $1.5 billion. Naturally, this has spurred some truly unprecedented levels of growth. ARE still has 4.8 million square feet of leasable space under construction, with 2.6 million square feet expected to be finished in the next six quarters or so. The pre-lease on these square feet, either leased or in negotiation, is already close to 90%. So we’re looking at even further confirmation of ARE’s near-and-mid-term upside, with incremental annual rental revenue increases of $610 million. The REIT had an industry-leading adjusted EBITDA margin of 72% in 2021. And it continues to make improvements to its credit rating — which is now in the top 10% of all publicly-traded REITs. The downside to all of this, naturally, is price. 2021 was simply too strong a year. In fact, if we had shares in it back then, we probably would have taken gains when they hit over 25X P/FFO. No company, no matter how good, deserves that sort of premium. (Yahoo Finance) But this year is a very different story, as we’ll show below. ARE Stock Valuation Now, based on fundamentals, Alexandria Real Estate does deserve to trade at a premium, which it typically does. However, it began trading above 25x FFO last year, and that was too much. (FAST Graphs) Now, the chart above could imply that ARE isn’t a good investment considering how much it lost in less than seven months. However, that’s like being upset because you bought something worth $5 at a $10 price tag. Valuation is a pillar to being an intelligent investor! It’s the metric we always spend the longest time calculating and looking at. Over the last 20 years, ARE has averaged a P/FFO of 17.5x. And for the past 10, it’s around 21x. We think that’s justified and something that will remain consistent going forward. The cost of building has increased, for one thing. So established REITs like ARE with world-class clients and assets deserve higher premiums. As such, ARE trading below 18.5x is intriguing for a few reasons. First and foremost, it has a very high-quality and visible overall pipeline of revenue and EBITDA increases hailing from new leases and properties over the next 3-5 years. So even if we see significant inflation headwinds and interest rate increases…
Alexandria: An Excellent Bargain You Don't Want To Miss
ARE is a well-positioned REIT that should continue to benefit from strong operating fundamentals and an accretive development pipeline. It maintains a strong balance sheet and pays respectable and growing dividend. The recent share price weakness presents an excellent opportunity for long-term investors who prize income and growth. I don't subscribe to the efficient market theory, which suggests that stocks are always reasonably priced in accordance to their value. While smaller and lower quality companies may see volatile swings in their stocks that are justified, the same shouldn't be said for higher quality names that have durable advantages. This brings me to Alexandria Real Estate Equities (ARE), as I was surprised by how much this high quality name has dropped in a short time frame, from the $200 level as recently as April to just $146 at present. In this article, I highlight why this presents a solid buying opportunity on this stock, so let's get started. Why ARE? Alexandria Real Estate Equities was founded in 1984 and is an S&P 500 company and REIT that’s focused on owning urban office real estate leased to leading life science and agtech tenants. At present, its asset base includes nearly 42 million of rentable square feet that are located in major metropolitan areas such as Greater Boston, SF Bay Area, New York City, San Diego, and Research Triangle in North Carolina. 50% of ARE's annual rental revenue comes from either investment grade-rated or large cap publicly traded companies. What makes ARE unique is its innovation cluster locations that are adjacent to leading U.S. research institutions. This forms a virtuous cycle, in which access to talent bolsters its tenants' ability to attract a well-educated workforce, which further strengthens the operating fundamentals of the underlying real estate. This is reflected by ARE's strong 71% adjusted operating margin, comparing favorably to the 59% (adjusted for depreciation) of office peer Boston Properties (BXP) over the trailing 12 months. ARE is seeing strong operating fundamentals with occupancy of 98.6% (excluding vacancy at recently acquired properties). Moreover, it had its second-highest leasing volume in company history during the first quarter. This includes 2.5 million square feet of total leasing activity, including 427K and 334K square feet of space for leading big pharmaceutical firms Bristol Myers Squibb (BMY) and Eli Lilly (LLY). Plus, it's seeing impressive 16.5% and 32.2% rent spreads on a cash and straight-line GAAP basis, respectively, signaling strong continued tenant demand for its properties. Looking forward, ARE remains well-positioned, as 97% of its leases contain annual rent escalations approximating 3%, which compares favorably to the ~2% of most net lease REITs. ARE also maintains a strong development pipeline, which should add meaningful incremental value, as noted by management during the recent conference call: Leveraging our unique market industry insights and the proven expertise of our best-in-class team, our value creation pipeline is tactically broadening our core clusters to meet the needs of our world-class tenant roster. Our value creation pipeline of projects that are either under construction or expected to commence construction in the next 6 quarters has increased to 8 million square feet that is projected to add more than $665 million in annual rental revenue, primarily commencing from the second quarter of this year through the first quarter of 2025, a $55 million increase over what was discussed last quarter. 77% of this remarkable pipeline is either leased or under negotiation, which means we have an executed LOI. With an astounding 94% of the activity coming from existing relationships, highlighting the incredible loyalty to our stellar brand. Our tenant base is an award for talent and recognize that space at an Alexandria's campus is mission-critical in that fight. Without question, our ability to offer our tenant-based scalability and comprehensive amenity offerings through our mega campuses is a truly unique differentiator and why Alexandria is the clear choice to provide mission-critical facilities to the life science industry's most innovative and successful companies.
|ARE||US REITs||US Market|
Return vs Industry: ARE underperformed the US REITs industry which returned -4.3% over the past year.
Return vs Market: ARE underperformed the US Market which returned -11.6% over the past year.
|ARE Average Weekly Movement||5.0%|
|REITs Industry Average Movement||4.3%|
|Market Average Movement||7.8%|
|10% most volatile stocks in US Market||16.9%|
|10% least volatile stocks in US Market||3.2%|
Stable Share Price: ARE is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 5% a week.
Volatility Over Time: ARE's weekly volatility (5%) has been stable over the past year.
About the Company
Alexandria Real Estate Equities, Inc. (NYSE:ARE), an S&P 500<sup>®</sup> urban office real estate investment trust ("REIT"), is the first, longest-tenured, and pioneering owner, operator, and developer uniquely focused on collaborative life science, technology, and agtech campuses in AAA innovation cluster locations, with a total market capitalization of $31.9 billion as of December 31, 2020, and an asset base in North America of 49.7 million square feet ("SF"). The asset base in North America includes 31.9 million RSF of operating properties and 3.3 million RSF of Class A properties undergoing construction, 7.1 million RSF of near-term and intermediate-term development and redevelopment projects, and 7.4 million SF of future development projects. Founded in 1994, Alexandria pioneered this niche and has since established a significant market presence in key locations, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle.
Alexandria Real Estate Equities, Inc. Fundamentals Summary
|ARE fundamental statistics|
Is ARE overvalued?See Fair Value and valuation analysis
Earnings & Revenue
|ARE income statement (TTM)|
|Cost of Revenue||US$719.32m|
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
|Earnings per share (EPS)||1.80|
|Net Profit Margin||12.27%|
How did ARE perform over the long term?See historical performance and comparison