Alexandria (ARE) Divests 5 Non-Core Properties for $365M
Alexandria Real Estate Equities, Inc. ARE, through its affiliates, recently disposed of five non-core, non-mega campus properties in Greater Boston to affiliates of TPG Real Estate Partners. The move aligns with the company’s capital recycling strategy.
The sale of the portfolio, encompassing 428,663 rentable square feet (RSF), was carried out for $365 million or an average sales price of $852 per RSF. Based on ARE’s net operating income (NOI) for second-quarter 2023, the weighted average capitalization rate was 5.2%, inclusive of vacancy available for redevelopment. The transaction yielded a gain on sale of $187.2 million and a value-creation margin of 80%, making the latest move a strategic fit for Alexandria.
The portfolio comprised two of ARE’s first life science developments in the Cambridge cluster, 780 and 790 Memorial Drive, which it acquired in 2001 and delivered in 2002. It also included 225 Second Avenue, and 266 and 275 Second Avenue, all in Waltham.
Alexandria intends to reinvest the proceeds from the disposition into its highly leased value-creation pipeline to capitalize on the secular trends of the life science industry. This consists of large-scale research and development centers for top life science companies, including Eli Lilly LLY, Bristol Myers Squibb and Moderna.
Additionally, for 2023, Alexandria aims at dispositions and sales of partial interests of $1.525 billion (at the midpoint of its guidance range of $1.425–$1.625 billion). So far, inclusive of this latest transaction, it has completed or has signed letters of intent or purchase and sale agreements for pending transactions totaling $884 million, achieving 58% of its 2023 capital plan.
In May 2023, the company concluded the sale of 11119 North Torrey Pines Road, a fully leased 72,506 RSF single-tenant property, in its San Diego cluster to DivcoWest for $86 million. Based on ARE’s annualized NOI for first-quarter 2023, the capitalization rate was 4.6%, yielding significant realized value for the company.
Further, in April 2023, ARE transferred a partial interest in 15 Necco Street, a 345,995 RSF Class A property presently under construction, to a U.S. affiliate of Mori Trust Co., Ltd. The proceeds from the transaction were used to fund the development of the property located in the Seaport Innovation District submarket of Greater Boston. The delivery is anticipated to take place in late 2023.
Eli Lilly, one of Alexandria’s longtime tenants, had chosen this state-of-the-art facility for its Lilly Institute for Genetic Medicine. The institute will leverage promising RNA- and DNA-based technologies to develop therapies with the potential to treat or prevent diseases in a way that is either challenging or not possible with traditional medicines.
Alexandria’s Class A properties are situated in North America's AAA innovation cluster locations, with significant market presence in Greater Boston, San Francisco Bay Area, New York City, San Diego, Seattle, Maryland and Research Triangle. The advantageous locations of its properties have been driving demand, resulting in high occupancy levels.
Also, ARE’s focus on acquiring, developing and redeveloping new Class A properties in AAA locations bodes well for growth. As of Mar 31, 2023, its current and near-term value-creation projects totaled 6.7 million RSF and were 72% leased, which is encouraging.
The company expects to capture more than $610 million of annual incremental net operating income from the second quarter of 2023 through the first quarter of 2026 with these projects.
With a solid balance-sheet position and ample financial flexibility, ARE is well-positioned to capitalize on long-term growth opportunities.
Shares of this Zacks Rank #3 (Hold) company have lost 2.6% in the past three months against its industry’s growth of 3.2%.
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Some better-ranked stocks from the REIT sector are Ventas VTR and Host Hotels & Resorts HST. While Host Hotels sports a Zacks Rank #1 (Strong Buy), Ventas carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ventas’ current-year funds from operations (FFO) per share has moved marginally northward over the past month to $2.98.
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Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
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