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Alexandria (ARE) Rewards Investors, Hikes Dividend by 2.6%

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Alexandria Real Estate Equities, Inc. ARE recently announced a 2.6% sequential hike in its second-quarter 2022 cash dividend payment. The company will now pay out a dividend of $1.18 per share, up from $1.15 paid in the first quarter. The increased dividend will be paid out on Jul 15, 2022, to shareholders on record as of Jun 30, 2022.

Based on the increased rate, the annual dividend comes to $4.72 per share, resulting in an annualized yield of about 2.84%, considering Alexandria’s closing price of $165.95 on May 31.

Solid dividend payouts are arguably the biggest enticements for real estate investment trusts (“REIT”) investors and Alexandria remains committed to that. In December 2021, ARE had announced a 2.7% sequential hike in its fourth-quarter 2021 cash dividend to $1.15 per share. Rewarding investors with such dividend hikes boosts shareholders’ wealth and confidence in the stock.

The dividend hikes highlight Alexandria’s strategy of sharing the growth in cash flows from its operating activities with stockholders and simultaneously retaining a significant portion to reinvest in its development and redevelopment pipeline that consists of new Class A properties. As of Mar 31, 2022, the funds from operations (“FFO”) payout ratio remained favorably low at 57%, which is encouraging.

Alexandria operates its business in the highly concentrated urban campuses, which have high barriers to entry and a limited supply of available space. It focuses on Class A properties concentrated in urban campuses, primarily for life science and technology entities.

During the first quarter of 2022, investment-grade or publicly-traded large-cap tenants accounted for 50% of the annual rental revenues in effect. The weighted-average remaining lease term of all the tenants is 7.3 years and for the company’s top 20 tenants it is 10.5 years.

High demand for Class A properties in AAA locations elevated the level of occupancy and drove growth in rents in the past quarters. The occupancy of operating properties in North America remained high at 94.7% as of Mar 31, 2022. Excluding the vacancy at the recently acquired properties, the occupancy was 98.6% as of the same date. With strong demand, this high level of occupancy is expected to continue in the following quarters and support rent growth.

These favorable factors are expected to drive growth in net cash provided by operating activities in the near term, aid Alexandria to hike its quarterly dividend and maintain a low FFO payout ratio. However, its huge development pipeline exposes it to the risk of rising construction costs and lease-up concerns.

In the past three months, shares of Alexandria have declined 12.5% compared with its industry’s fall of 1.6%. ARE currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Stocks to Consider

Some better-ranked stocks from the REIT sector are Prologis PLD, Rexford Industrial Realty REXR and Cedar Realty Trust CDR.

The Zacks Consensus Estimate for Prologis’ 2022 FFO per share has moved 1.8% upward in the past two months to $5.15. PLD presently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Rexford Industrial Realty’s ongoing year’s FFO per share has been raised 2.1% over the past two months to $1.93. REXR carries a Zacks Rank #2, currently.

The Zacks Consensus Estimate for Cedar Realty Trust’s current-year FFO per share has moved 3.6% northward in the past week to $2.59. CDR also carries a Zacks Rank of 2 at present.

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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