Alexandria Real Estate Equities, Inc. ARE announced a 1.5% sequential hike in its fourth-quarter 2024 cash dividend payment. Delighting its shareholders, the company will now pay out a dividend of $1.32 per share, up from the $1.30 paid out in the prior quarter. The increased dividend will be paid out on Jan. 15 to shareholders on record as of Dec. 31, 2024.
Based on the increased rate, the annual dividend comes to $5.28 per share. This results in an annualized yield of about 4.95%, considering Alexandria’s closing price of $106.75 on Dec. 9.
Solid dividend payouts are arguably the biggest enticements for real estate investment trust investors, and Alexandria remains committed to that. It has increased its dividend 10 times in the last five years, and the five-year annualized dividend growth rate is 5.26%. This is attractive to income investors and represents a steady income stream. Check Alexandria’s dividend history here.
Alexandria also remains committed to boosting shareholders’ wealth and has announced a $500 million common stock repurchase program that will run through Dec. 31, 2025. Such efforts boost investors’ confidence in the stock.
Can Alexandria Maintain Its Payout?
Alexandria's primary emphasis is on the development of Class A/A+ properties strategically located within AAA innovation cluster regions. These locations are highly appealing to life science, agtech and technology companies seeking tenancy. Moreover, these locations are characterized by high barriers to entry for new landlords, high barriers to exit for tenants and a limited supply of available space. Tenants mainly rely on a central lab-based infrastructure to optimize their research capabilities and workflow, making it difficult to switch locations frequently.
Given this backdrop, the company is generally able to command high rents at its properties, aiding steady revenues. Alexandria’s total leasing activity aggregated 1.5 million rentable square feet (RSF) of space in the third quarter, reflecting healthy demand for its high-quality office/laboratory space. During the third quarter of 2024, the company registered rental rate escalations for 96% of its leases and rental rate growth of 5.1% and 1.5% on a cash basis. For 2024, we expect Alexandria’s same-store occupancy to be 94.9%, while rental income is expected to increase 7.6% on a year-over-year basis.
As of Sept. 30, 2024, mega campuses accounted for 76% of the annual rental revenues in effect, and investment-grade or publicly traded large-cap tenants accounted for 53% of the annual rental revenues in effect. The weighted average remaining lease term of all tenants is 7.5 years. For Alexandria’s top 20 tenants, it is 9.5 years. This ensures steady rental revenues over the long term. Given the decent demand for its premium assets, this upbeat trend is likely to continue in the upcoming period, driving solid organic growth.
Alexandria has adequate financial flexibility to enhance its market position and capitalize on long-term growth opportunities. The company had $5.4 billion of liquidity as of the end of the third quarter of 2024. The net debt and preferred stock to adjusted EBITDA was 5.5X and the fixed-charge coverage ratio was 4.4 in the third quarter of 2024 on an annualized basis. Its debt maturities are well-laddered, with a weighted average remaining term of 12.6 years, as of the end of the third quarter of 2024.
For the five-year period ending Dec. 31, 2024, Alexandria expects to generate an aggregate of $2.1 billion of net cash for reinvestment provided by operating activities after dividends. Its dividend payout ratio remains favorably low at 55% for the three months ended Sept. 30, 2024. Looking at the company’s solid operating platform, balance sheet strength, ability to generate cash flows and payout ratio, ARE is likely to be able to sustain the hiked dividend.
Alexandria: In a Nutshell
Amid the rising demand for life science assets due to the increasing need for drug research and innovation, the company’s properties are witnessing solid demand, keeping the occupancy and rent growth momentum steady. Alexandria’s strategic buyouts and capital-recycling efforts augur well for long-term growth. A robust balance sheet is likely to support its growth endeavors and dividend payouts. However, the company’s significant development pipeline increases the risks related to cost overruns and lease-up concerns.
Also, shares of this Zacks Rank #3 (Hold) company have declined 10.1% so far in the quarter, wider than its industry’s fall of 5.3%.
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Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower Inc. WELL and Cousins Properties CUZ, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s 2024 FFO per share has been raised 1.7% over the past two months to $4.26.
The Zacks Consensus Estimate for Cousins Properties’ current-year FFO per share has moved marginally north in the past month to $2.68.
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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Alexandria Real Estate Equities, Inc. (ARE) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
