Biotech’s Strong Leasing Activity & Cap Rate Compression Favors Alexandria

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Alexandria Real Estate Equities (NYSE:ARE) is an office REIT that has operated in the niche of science and technology campuses in urban innovation clusters since 1994. With an $11 billion total market capitalization, it has about 19 million ft.2 in rentable property and 12.3 million more near completion or in the planning stage. They are present in AAA locations, and 53 percent of annualized base rent from investment-grade tenants. The business is still enjoying tailwinds from the life and science industry, where technology and favorable regulations have fueled demand growth — something of which Alexandria is positioned to take advantage. A highlight of Q2 has been its Greater Boston assets.

The company sold 70 percent of 225 Binney at the heart of Kendall Square in Cambridge to TIAA-CREF. Management has been content with the number of interested high-quality buyers and the high value TIAA-CREF has paid, at 4.5 percent cash cap rate. They will continue monetizing select assets that will help promote pipeline development. They also succeeded in validating asset values in Cambridge, which have risen as a top innovation cluster.

Demand for their campus has been strong, with biotech companies willing to pay for premium real estate. During Q2, 1.9 million square feet — a record figure for the company — have been leased, 29 percent in the Greater Boston area.

Lease renewals and re-leasing of space increased 8.0 percent on a cash basis. FFO-per-share grew 10 percent to $1.31, and dividend went up 7 percent from $0.72 to $0.77. Same-property cash NOI increased 4.7 percent, and adjusted EBITDA margins for 2Q15 are 65 percent. Driven by strong leasing activity, guidance FFO-per-share increased $0.02 to $5.24.

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Source: Alexandria Real Estate Equities, Fast Graphs

Written by Heli Brecailo

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