Alexandria Real Estate Equities (ARE) is a real estate investment trust that is primarily engaged in the ownership, operation, management, acquisition, expansion, and selective development and redevelopment of high-quality properties containing office and laboratory space, writes analyst Kenneth Leon in CFRA Research’s flagship newsletter, The Outlook.
Our Top Ten Model Portfolio comprises stocks that CFRA thinks are well-positioned for total return over the next 12 months. The goal of the Top Ten Model Portfolio is to outperform the S&P 500 index on a total return basis.
CFRA’s Senior Portfolio Group, made up of strategists and senior equity analysts, selects the stocks. The intention of the model portfolio is to be fairly balanced among sectors – and ARE currently makes the cut.
This REIT is the market leader in life science real estate. ARE may have tenant rental revenue risk to start-up biopharma firms that may fail, but we point to ARE’s diversified mix of tenants, and the fact 48% of the tenant base is investment grade or publicly traded, large-cap tenants with long-duration lease terms. Other tenants are privately held and well-funded by venture capital or invested in by the largest global pharmaceutical companies.
Our target price is $180, based on a Price/Funds From Operations (FFO) of 20.0x our 2023 FFO per share estimate, a premium to the office peer average of 11.2x, given ARE’s high-quality growth profile and life sciences franchise. Our 2023 FFO per-share estimate is $9.00 and 2024’s is $9.70.
ARE reported Q4 FFO of $2.14, $0.01 below consensus, with revenue in line at $671 million. During Q4 2022, ARE raised $1.5 billion by issuing 8.0 million shares of common stock at an average price of $186.87 per share. We expect ARE to establish new at-the-market equity program in Q1 2023.
Risks to our recommendation and target price include potential competition, recession, vacancies, and lower rental rates.
Recommended Action: Buy ARE.
