Alexandria Real Estate(ARE) Seeking Alpha·2024-09-07 13:27Thesis Review - Alexandria Real Estate Equities Inc (ARE) continues to trade at a depressed P/FFO multiple of 9.5x, which has improved since the initial bullish investment case due to increased earnings and a flat share price [3] - FFO per share increased by 5.4% or 9.47, representing a 5.6% increase compared to 2023 [3] - Same store NOI advanced by 3.9% on a cash basis, driven by embedded lease escalators and positive leasing momentum [3] - Total rental/lease increase for H1 2024 was 15% on a cash basis, with rental increases from releasing activity at 3.7% [3] - ARE delivered ~285,000 square feet of new space in Q2 2024, which was 100% leased, with 92% associated with mega campuses [3] - Remaining projects expected to be completed in 2024 and 2025 are already 87% leased, with NOI stabilization expected in early 2026 [3] - Incremental NOI from new development activity is projected at 1.9 billion [3] - ARE aims to increase the share of rental/lease income from mega campuses from 74% to 90% over the next few years through targeted organic CapEx activity [3] - ARE is divesting non-core assets, generating 807 million [3] - The company maintains a robust balance sheet with a strong investment grade credit rating and a well-laddered debt maturity profile with a weighted average term to maturity of 13 years [3] Performance and Market Response - Since the initial bull thesis, ARE has performed somewhat in line with the overall REIT market but has shown a notable divergence starting from July, leading to negative alpha [1] - ARE has not responded well to the improved interest rate outlook, likely due to its well-laddered debt maturity profile, which reduces the impact of cheaper debt financing [4] Strategic Focus - ARE emphasizes its first-mover advantage in top life science clusters, high-quality assets in mega campuses, and efforts to reduce non-mega campus pipeline [3] - The company is focused on re-development and development efforts in its mega campuses and the sale of non-core assets to refine its footprint [3] Growth and De-risking - ARE's business is growing despite the single-digit multiple and struggling office sector, with positive organic growth and incremental earnings from development activity [3] - The current growth agenda is set to further de-risk the business and deliver additional cash flow generation [4] - The risk of increased vacancy rates is mitigated by strong fundamentals, core performance metrics, and new growth projects funded sustainably [4] Conclusion - ARE's business is strong, exhibiting clear patterns of continued and stable growth, with all core performance metrics showing positive trends [4] - The bullish stance on Alexandria Real Estate Equities is maintained due to its strong fundamentals and growth prospects [5]