Solid demand for Alexandria Real Estate Equities’s ARE Class A properties in AAA urban locations have been boosting its occupancy. Also, stellar internal and external growth, robust cash flow and a solid balance sheet are other driving factors for the company.
Over the past two months, the Zacks Consensus Estimate for 2019 and 2020 funds from operations (FFO) per share have been revised marginally upward. Thus, the stock carries a Zacks Rank #2 (Buy), currently.
Moreover, shares of the company have rallied 31.4%, so far this year, outperforming the industry’s growth of 26.3%. Given the positive trends and a favorable Zacks Rank, the stock is anticipated to rally further in the days ahead.
Factors That Make Alexandria a Solid Pick
Presence in urban locations: Alexandria focuses on Class A properties, located in urban campuses, mainly for the life-science and technology entities. Particularly, the company generates 77% of its annual rental revenues from Class A properties in AAA locations. High barriers to entry, limited supply of available space and a highly-dynamic setting, which boost its tenants’ productivity and efficiency, ensure steady rental revenues for the company. The company registered decent rental rate growth of 32.5% in the June-end quarter.
Solid tenant base and high occupancy rates: As of second-quarter 2019, investment-grade or publicly-traded large-cap tenants accounted for 53% of annual rental revenues in effect. The company is also witnessing strong demand for space in key life-science markets. It has a solid 10-year historical occupancy rate of 96%. Given Alexandria’s solid portfolio and healthy market fundamentals, such high level of occupancy is anticipated to continue in the upcoming quarters as well.
FFO growth: Alexandria recorded more than 7.9% growth in its FFO per share, over the past three to five years. The company continues to execute and deliver strong internal growth, while development and redevelopment of new Class A properties in AAA locations will likely boost its near-term operating performance. The company’s FFO per share is projected to be up 5.7% in 2019, which is well ahead of the industry’s average of 1.2%.
Furthermore, Alexandria has a long-term (five years) expected FFO growth rate of 4.8%, promising rewards for shareholders.
Adequate financial flexibility and sustainable dividends: Alexandria has adequate financial flexibility, which will likely help fortify its foothold in the market. As of Jun 30, 2019, the company had $3.4 billion of liquidity. In addition, issuance of unsecured senior notes worth $1.25 billion, this July, helped extend debt maturities. Also, as of Jun 30, it generated 94% unencumbered net operating income (NOI), which adds to its financial flexibility.
This apart, Alexandria announced a 3% sequential hike in its dividend payout rate in June. The dividend rate is likely to be sustainable, given the company’s financial position and lower payout ratio compared to that of the industry.
Other Key Picks
Americold Realty Trust COLD has been witnessing upward FFO estimate revisions for 2019, for the past 30 days. Moreover, this Zacks #1 (Strong Buy) Ranked stock has surged 43.4%, year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arbor Realty Trust’s ABR current-year FFO estimates have moved north in a month’s time. Further, the company’s shares have gained 33.2% in the year-to-date period. At present, it flaunts a Zacks Rank of 1.
City Office REIT’s CIO ongoing-year FFO estimates have been revised upward, over the past month. Additionally, the stock has appreciated 38.4%, so far this year. It currently sports a Zacks Rank #1.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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