REIT with stable distributions and unique proposition
Alexandria Real Estate Equities (ARE) is an S&P 500 investment-grade REIT that focuses on niche life science real estate. It acquires, manages, expands and develops mainly office and laboratory space properties. The company leases its properties to pharmaceutical, biotechnology, diagnostic and personal care products companies, research institutions, and related government agencies.
There are several key positives to ARE. First, the healthcare industry, which the REIT caters to, is one that has long-term growth potential and is deemed an essential service in times of emergencies such as the Covid-19 pandemic.
In addition, the REIT has earned itself a stellar reputation within the life science industry, establishing itself as the preferred brand tenants look to in terms of providing complex laboratory infrastructure and excellence in operations to the industry’s most innovative companies.
Second, the REIT’s strategy of differentiating itself from its competitors by operating everything from amenities-rich collaborative cluster campuses to mega campuses and through operational excellence has seen demand from its target market surge.
As at Dec 31, 2022, ARE has a portfolio of 432 properties in AAA locations such as New York City, the San Francisco Bay Area, Greater Boston and Seattle. These properties, which span some 74.6 million sq ft, house the 1,000 tenants in the REIT’s portfolio.
Its tenants also come from a diverse base, with a good mix of companies from the life science, product, service and device industry, multinational pharmaceutical industry as well as public biotechnology industry. Other tenants include academic, medical, non-profit and governmental institutions, investment-grade and large-cap tech and office companies. As at Dec 31, 2022, ARE’s 10-year average occupancy percentage of its operating properties stood at 96%.
Third, the REIT has proven its stability with its quarterly distributions to its investors. Since FY2012, ARE has enjoyed steady annual distribution growth, increasing from US$2.09 to US$4.72 ($6.29) in FY2022. While its CAGR of 0.085% isn’t that high, the REIT has proven its stability even during the pandemic years of FY2020 and FY2021.
The REIT’s total revenues have also grown each year steadily from US$574.5 million in FY2012 to US$2.59 billion in FY2022. Its earnings — with the exception of FY2016, which recorded a loss in income from continuing operations — have also grown from FY2012 to FY2020. While its earnings in FY2021 and FY2022 dipped after the high in FY2020, it still remains above pre-Covid-19 levels.
Some of the REIT’s other metrics as at Dec 31, 2022, include its 99.4% of fixed-rate debt, 13.2 years in weighted average remaining term of debt, net debt and preferred stock to adjusted ebitda of 5.1x which is the lowest in the REIT’s history so far. The REIT also has US$5.3 billion in liquidity, placing it in the top 10 among S&P500 REITs.
In its FY2022 ended Dec 31, 2022 annual report, Joel Marcus, ARE’s executive chairman and founder, says the REIT achieved an “outstanding year” in terms of operating and financial performance against the backdrop of a “deleterious macroeconomic environment”.
“These results were made possible thanks to our differentiated business model; sustained operational excellence; fortress balance sheet; world-class brand at the vanguard and heart of the life science ecosystem, the national treasure that has saved millions of lives during the Covid-19 pandemic; and our long-tenured and highly experienced team with unique life science expertise,” says Marcus in his letter to shareholders.
The REIT’s unique positioning has also enabled it to benefit from “innovative technologies, massive unmet medical needs and strong fundamentals,” he adds.
ARE was listed on the NYSE in 1997 and has a market cap of around US$21.35 billion today. As at April 18, units of ARE closed at US$123.40, which is a 15.3% discount to ARE’s price of US$145.67 as at Dec 31, 2022. The REIT also had total net assets of US$22.68 billion over some 170.7 million shares issued and outstanding. —