Alexandria Real Estate Equities, Inc. ARE recently announced a public offering of 6 million shares of common stock. The company also expects to grant a 30-day option to the underwriters for purchase of up to 900,000 additional shares.
For this offering, Alexandria will enter into forward sale agreements, per which the forward purchasers are likely to borrow and sell the shares to the underwriters. Subject to its right to elect cash or net share settlement, the company anticipates to deliver the shares no later than Apr 6, 2021, in exchange for cash proceeds amounting to the applicable forward sale price. Nonetheless, the company will not receive any proceeds through forward sales in the initial phase.
The common stock offering will boost the company's financial flexibility and help meet its financial obligations. Moreover, it will open up ample scope for deploying capital for long-term growth opportunities and rewarding higher returns to stockholders at the same time.
Furthermore, a forward sale arrangement will enable it to lock in the price of such shares at the time of offering pricing, while at the same time delaying share issuance and the receipt of net proceeds until a funding requirement has occurred.
Net proceeds from the offering will be used to fund pending/completed acquisition and commence construction of highly-leased development projects in the pipeline. Moreover, the remaining proceeds will be used for general working capital needs and other corporate purposes. This may include reducing any outstanding balance on the company's unsecured senior line of credit and commercial paper program.
Notably, Alexandria has an active development and redevelopment pipeline consisting of 2.5 million rentable square feet (RSF) of Class A properties under construction or pre-construction, with estimated initial occupancy in the fourth quarter of 2019 or 2020. The company also has 4.9 million RSF of intermediate-term Class A properties undergoing or nearing pre-construction, and 2.8 million SF of future development projects. Hence, the stock offering will provide the company with capital to pursue these strategic projects and leverage on strong demand for space in key life-science markets.
However, a significant development pipeline escalates operational risks, and exposes the company to the risk of rising construction costs and lease-up concern.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have rallied 5.2%, as against the industry’s decline of 1.5%.
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Duke Realty's DRE Zacks Consensus Estimate for 2019 FFO per share has moved marginally north to $1.44 in the past two months. It carries a Zacks Rank of 2, at present.
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