Real estate investment trusts (REITs) are not typically go-go stocks, but when you're a brand name in one of the hottest commercial real estate segments out there, it's not surprising if you have a gangbusters quarter now and then.
That's certainly the case with Alexandria Real Estate Equities (NYSE: ARE), an office REIT that's not just any office REIT. This Pasadena, California-based operation is the grandaddy in its space -- specializing in life sciences property since 1994 -- and it was perfectly positioned to make hay when the sun shines this time around.
Unfortunately, that "sunshine" was the result of a devastating worldwide pandemic that put the spotlight on the collaborative, essential nature of the work done in and around university and other health science campuses, where scientists and technicians join forces with corporate America to find cures to what ails you, or the entire world.
In fact, every major U.S. vaccine maker -- including Pfizer (NYSE: PFE), Moderna (NASDAQ: MRNA), and Johnson & Johnson (NYSE: JNJ) -- are among Alexandria's hundreds of clients engaged in research, development, and production of medicines, medical equipment, and myriad technologies aimed at solving everything from the common cold to opioid addiction and more.
Together, these life science companies helped drive this REIT to new heights in the first quarter of 2021 -- success that also speaks to the prospects of life sciences enterprises and the property that hosts them, now and going forward.
The go-go shows in the FFO
Alexandria Real Estate Equities reported on April 26 that revenue had grown by 9.1% year over year, reaching $479.8 million. That critical measure, funds from operations (FFO), rose even more, by 18.8% from $221.4 million, or $1.82 per share, last year to $263 million, or $1.91 per share, in this year's first quarter.
The company also declared a dividend of $1.09 per share, giving it a trailing 12-month payout of $4.30 per share that's up $0.24 per share, or 6%, in the past four quarters.
"Our FFO payout ratio of 60% for the three months ended March 31, 2021, allows us to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment," Alexandria says in a press release about that strong first quarter of 2021.
Buying more growth in markets nationwide
In the first quarter alone, ARE completed the acquisition of 25 properties for $1.9 billion and, with two more already in April, is already $3.05 billion toward the $3.3 billion that was at the top of its guidance range for such activity in all of 2021.
Alexandria ended the quarter with a market cap of $32.5 billion and 52.6 million square feet of operating space in North America, including nearly 19 million square feet in various stages of construction and development.
The company's innovation clusters are concentrated in key growth markets that include Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and North Carolina's Research Triangle. And its properties are nearly completely occupied, with federal and other grant money from multiple sources helping to buoy a tenant base that, by and large, is doing pretty well in the open market on their own.
That includes Pfizer, which also had a strong quarter and whose CEO pointed out in its quarterly call that this war is far from over, and that we can expect vaccine development against coronavirus variants to be an ongoing enterprise, much like vaccines to fight the flu are now.
Here's a Motley Fool article that addresses that point: "Pfizer's CEO Makes a Prediction That Could Mean Huge Post-Pandemic Success."
Busy clients, strong competitors
Looking ahead, Alexandria says in its first-quarter report, "By maintaining 24/7 operations across our campuses and facilities, (we) enable our tenants to pursue their mission-critical research, development, manufacturing, and commercialization efforts to solve these most pressing current and future healthcare challenges."
Even looking beyond the pandemic -- and a pleasant thought that is -- life science real estate seems poised for growth, and Alexandria is far from alone is seizing opportunity in this space. For example, office REIT Boston Properties (NYSE: BPX) recently poured more than $500 million into new life science development projects, with plans for more.
The Blackstone Group (NYSE: BX), meanwhile, has poured billions into acquiring and building out its own life sciences real estate business, including most recently a couple of adjacent 11-floor office towers containing about 475,000 square feet of office space that will be converted to life science uses and operated by Blackstone's BioMed Realty, which bills itself as the largest private provider of real estate solutions to the life science and technology industries..
The Millionacres bottom line
The life sciences business has been around as long as there's been, well, business being done by live people. Nowadays, developing and producing solutions to epidemics is just part of this industry's resume. Altogether, even though there will be ups and downs like in every other business segment, it seems hard to believe there's anything but an upwards trend here in the offing.
There also are multiple ways for real estate investors to get involved. A good way to start is by checking out this digital discussion about life science REITs with Millionacres writer Matt Frankel and editor Deidre Woollard, titled "Why You Should Have Life Science Real Estate in Your Portfolio." Now's a good time to listen up.