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Here's What Makes Alexandria (ARE) a Promising Investment Bet

Zacks Equity Research

Alexandria Real Estate Equities, Inc. ARE is a promising bet now backed by its organic growth strategies and efforts to expand in strategic life-science clusters. Moreover, a strong capital and liquidity position make it well poised for future endeavors.

Alexandria not only witnessed year-over-year growth in funds from operations (FFO) per share in the last reported quarter, but has also been witnessing upward estimate revisions, reflecting analysts’ optimism about its prospects. Over the last 30 days, the Zacks Consensus Estimate for 2019 and 2020 FFO per share have marginally moved north.

The company’s price performance also seems impressive. In fact, this Zacks Rank #2 (Buy) stock has gained around 17.1% over the past three months, outperforming 11.1% growth recorded by the industry.

Notably, Alexandria has a number of other aspects that make it a solid investment choice.

Why the Stock is an Attractive Pick

Revenue strength: Alexandria continues to make steady progress toward improving its top line. Importantly, strategically-located properties and investment-grade tenants have ensured growth in revenues. In fact, as of fourth-quarter 2018, investment-grade or large-cap tenants accounted for 52% of annual rental revenues in effect. Furthermore, 77% of the annual rental revenues are from Class A properties in AAA locations. Also, the company’s projected sales growth (F1/F0) of 7.06% (the industry average was 3.13%) indicates upward momentum in revenues.

Operational strength: Alexandria enjoys an impressive portfolio of Class A properties in high barriers to entry and exit life-science clusters. Hence, amid strong demand for space in key life-science markets, the company has a solid 10-year historical occupancy rate of 95%. In fact, rental rate growth of 17.4% for lease renewals and re-leasing and same-property net operating income (NOI) improvement of 3.8% on a year-over-year basis, indicate at strong internal growth. The robust fundamentals of the life-science industry will likely keep driving its internal growth.

Encouraging FFO picture: Alexandria witnessed FFO per share growth of 8.07% over the last three to five years, higher than the industry average of 4.07%. Moreover, this uptrend is likely to continue in the near term as reflected by its projected EPS growth rate of 5.49% for 2019 (higher than the industry average of 1.71%). Additionally, over the trailing four quarters, the company’s FFO per share surpassed the Zacks Consensus Estimate, the average beat being 0.18%.

Strong leverage: The company’s debt/equity ratio stands at 0.70 compared with the industry average of 0.84. This reflects that it has a lower debt burden relative to its peers and will likely be able to fare well even in a dynamic business environment. In addition, Alexandria has improved its credit profile over the past two years, which is encouraging.

Encouraging capital deployment activities: Last December, Alexandria announced a 4.3% sequential hike in its quarterly cash dividend for the fourth quarter. Further, in second-quarter 2018, it rewarded shareholders with 3% sequential increase in common stock dividend. Also, improving bottom-line performance and favorable debt/equity ratio highlight the fact that such dividend hikes are sustainable.

Other Stocks to Consider

Investors can also consider other similarly-ranked stocks from the same space like Terreno Realty Corporation TRNO, Cousins Properties Incorporated CUZ and Boston Properties, Inc. BXP. All three stocks carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Terreno Realty’s FFO per share estimates for first-quarter 2019 remained unchanged at $1.32, in the last month. Furthermore, it has a long-term growth rate of 8.40%.

Cousins Properties’ Zacks Consensus Estimate for 2019 FFO per share has been revised upward 15.9% to 73 cents in the last month. Also, it has a long-term growth rate of 3.2%.

Boston Properties’ FFO per share estimate for the ongoing year has been revised marginally north to $6.92 in seven days’ time. Additionally, it has a long-term growth rate of 6.20%.

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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