Alexandria Real Estate Equities (NYSE: ARE) has attracted a lot of attention as the pandemic has worn on, serving as the landlord for many of the companies at the leading edge of combatting the virus.
In fact, the list of its 20 largest leaseholders reads like a who's who of biotech, including vaccine makers Moderna and Pfizer, along with Bristol Myers Squibb, Eli Lilly, Novartis, Roche, Merck, Massachusetts Institute of Technology (MIT), the U.S. government, and interestingly enough, Uber and Facebook.
ARE has been around since 1994, when it started off with a few buildings in San Diego and, from the beginning, relied on a cluster model to create office campuses near high-end academic institutions and other talent pools.
This kind of work attracts high-end tenants, the kind that pay a lot of rent very reliably. In fact, as of June 30, 53% of Alexandria's annual rent revenue was from investment-grade or publicly traded large-cap tenants, including 85% of the rent from its 20 largest tenants. And the company's credit ratings place it in the top 10% among all publicly traded real estate investment trusts (REITs).
Meanwhile, 35% of its annual rental revenue is from the Boston area, 25% is from the San Francisco Bay area, and 16% is from the San Diego area, with the rest evenly distributed among Seattle, Maryland, New York City, and North Carolina's Research Triangle.
A model that's worked well
That model has served this office REIT well. As of June 30, ARE boasts total market capitalization of $36.3 billion through an asset base of 58.1 million square feet comprising 36.7 million rentable square feet (RSF) of operating properties, 3.4 million RSF of Class A properties undergoing construction, 7.7 million RSF of near-term and intermediate-term development and redevelopment projects, and 10.3 million square feet of future development projects.
Along with a place to be, ARE also has a venture capital platform that provides strategic capital to life science, agtech, and technology companies.
"We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value," the company says.Alexandria stock closed on Monday, Aug. 3, at $204.91 after reaching a 52-week high of $205.19 earlier in the day. Shares were yielding 2.19% based on an annual dividend yield of 4.48%. The company also has raised its dividend each year for the past 10 years.
That's good for a 19.2% one-year return. Long-term, a $10,000 investment in the company after it went public in 1997 would be worth nearly $98,000.
The Millionacres bottom line: Is ARE a buy?
Even just a look at the company's leases says so. The REIT's North American properties were 98.1% occupied as of June 30. The average lease had 7.5 years left to run, and about 95% of its leases contain annual rent escalations, are triple net leases, and/or provide for the recapture of capital expenditures. (Those kinds of operations required a lot of customization before the pandemic -- even more so now, it would seem.)
Along with money coming in now from its more than 750 tenants, there's all that development in the pipeline. ARE's founder and executive chairman Joel Marcus said in the company's Q2 2021 earnings call that "Fundamental drivers of demand are the strongest we've ever seen. Rental rate growth continues unabated and no excess supply on the horizon at this time."
Marcus reported almost 7% funds from operations (FFO) growth from the year before, as well as more than 40% rental rate growth, almost 18% net operating income (NOI) growth, and "about $545 million in incremental revenue in our development and redevelopment pipeline."
So, is this stock a buy? I think so. I own some now and plan to add to it as a stock with both a record of and potential for growth and income.