Its life science tenants are a who's who in battling the pandemic. Alexandria leases space to testing giants Abbott Laboratories (NYSE: ABT), LabCorp (NYSE: LH), and others that have been working tirelessly to improve testing quality and capacity so that the country can quickly and accurately identify those who have the virus. It also leases space to pharmaceutical and biotechnology companies like Gilead Sciences (NASDAQ: GILD) and Eli Lilly (NYSE: LLY) that have repurposed drugs and developed novel treatments to save lives and keep people out of the hospital. Finally, it has served the needs of vaccine makers Moderna (NASDAQ: MRNA), Pfizer (NYSE: PFE), and Johnson & Johnson (NYSE: JNJ) that have brought safe and effective vaccines to the market at warp speed, which hold the promise of putting an end to this pandemic.
Healthy demand for Alexandria's real estate
These companies couldn't have accomplished as much as they did in the past year without Alexandria's mission-critical campuses. Because of that, the company's properties have remained in high demand. It collected 99.8% of the rent it billed last year. Further, it enjoyed strong leasing activity. The company noted that rental growth during 2020 over expiring rates on renewed and re-leased space was at its highest annual rental rate increases in the past decade. That helped push its FFO per share up 5% last year, which was impressive considering that it declined at most other office REITs.
Robust demand for life science space isn't likely to abate post-pandemic. Biotechnology companies are flush with cash these days thanks to government funding, a wide-open equity market (which enabled the sector to complete a record number of initial public offerings and follow-on equity financings), and record venture funding for the industry. Because of that, they have the capital to expand their research and development capabilities, implying they'll need to secure more lab space from companies like Alexandria.
The REIT appears well-positioned to meet this demand. It has 3.3 million square feet of Class A properties currently under construction, 7.1 million square feet of near- and intermediate-term development and redevelopment projects in its pipeline, and another 7.4 million square feet of future development projects. The REIT has been strategically stockpiling development opportunities via acquisitions. For example, during the fourth quarter, it acquired 16 properties for $580.7 million with 1 million square feet of operating space that's currently 80% leased, nearly 400,000 square feet of active redevelopments, and 1.9 million square feet of future developments. Meanwhile, it paid $1.48 billion in January for an operating property, development project, and redevelopment opportunity. As these and future developments come online, they'll enable the REIT to continue growing its FFO and dividend.
Focused on mission-critical office space
Alexandria Real Estate Equities owns office and laboratory campuses that are critical to meeting the life sciences sector's needs. That benefited the company during the pandemic and should continue doing so once it's in the past because investment in the industry appears poised to remain robust for years to come. As a result, Alexandria should be able to grow its rental rate and portfolio, which should allow it to continue creating value for its shareholders in the coming years.