Alexandria Real Estate Equities (ARE) is a laboratory real estate investment trust with a market cap of $21 billion.
Rising interest rates have crushed REITs, as a REIT is hurt by higher rates twice over – it makes debt more expensive, and it makes the shares look less attractive on a relative basis (because there are competing yields elsewhere). But you have to ask yourself a question: Are you in this for the short term, or are you in it for the long term?
If it’s the latter, Alexandria Real Estate is running a fantastic operation, focusing on high-value, hard-to-replace labs where the specialized work cannot be easily done by someone working in their extra bedroom at home in their pajamas. Some of the world’s largest pharmaceutical companies are top tenants. And the REIT continues to crush it in all aspects, including the dividend growth.
The lab REIT has increased its dividend for 13 consecutive years.
Like American Tower, Alexandria Real Estate is more of a “growthy” REIT. The yield is 4.1%. So it’s no slouch there. But the 10-year DGR of 8.7% is where a lot of the magic is, as that greatly exceeds the low-single-digit dividend growth you get from a lot of other REITs out there.
Another magical factor here is the low, low payout ratio of 54.1%, based on midpoint AFFO/share guidance for this fiscal year. That’s one of the lowest payout ratios I know of in all of REITdom, which makes this one of the safest dividends in the entire space.
This stock has dropped massively. It’s down 42% from its 52-week high.
In addition to rising rates, it seems that Alexandria Real Estate has been caught up in the selloff affecting office REITs, even though this is not a traditional office REIT. We’re talking about labs where high-level R&D is done, not data entry or customer service. This isn’t casual “work-from-home” stuff.
The REIT’s North American occupancy is near 95%. And that’s why this stock’s fall from $203.39 at the 52-week high to the current pricing of approximately $118 has been really quite surprising. Nonetheless, that could be just the opportunity a long-term dividend growth investor is looking for to pick up a very high-quality REIT on the cheap.
Based on that aforementioned guidance, the forward price-to-adjusted-funds-from-operations ratio is 13.3. Its five-year average P/CF ratio is 25.1. We are in deep value territory here. Want a great deal? Here you go.
— Jason Fieber
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