Alexandria Real Estate Equities Inc. (ARE) in Pasadena, Calif., is the first, longest-tenured, and most pioneering owner, operator, and developer solely focused on collaborative life science, technology, and agtech campuses in AAA innovation cluster locations. The stock’s price has retreated by 10% over the past three months and 5.5% over the past month.
In addition, closing yesterday's trading session at $185.75, the stock is currently trading 17.4% below its 52-week-high of $224.95.
Last month, the company closed a public offering of 7,000,000 shares of common stock at $210.00 per share. The company expects to use the net proceeds to fund pending acquisitions and the construction of highly leased development and redevelopment projects, with any remaining proceeds being used for general working capital and other corporate purposes.
Here's what could shape ARE's performance in the near term:
Debt Financing
This month, ARE announced the pricing of a public offering of $800 million of 2.950% senior notes due 2034 and $1 billion of 3.550% senior notes due 2052. The notes will be unsecured obligations of the company and will be entirely and unconditionally guaranteed by Alexandria Real Estate Equities, L.P., the company's indirectly 100% owned subsidiary. ARE intends to use the net proceeds from the 2.950% senior notes due 2034 for general corporate purposes, which may include reducing the outstanding balance on its unsecured senior line of credit, reducing its outstanding indebtedness under its commercial paper program, repaying other debt, and selective property development, redevelopment, or acquisition.
Premium Valuations
In terms of trailing-12-months Price/Book, the stock is currently trading at 52.11x, which is 28.4% higher than the 40.59x industry average. Also, its 16.66x forward EV/Sales multiple is 42.5% higher than the 11.69x industry average. And ARE's forward Price/Sales of 12.07x is 75.2% higher than the 6.89x industry average.
POWR Ratings Reflect Uncertainty
ARE has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. ARE has a D grade for Value which is justified given the company's higher-than-industry valuations.
Of the 14 stocks in the D-rated REITs – Office industry, ARE is ranked #13.
Beyond what I've stated above, one can view ARE ratings for Growth, Quality, Stability, Sentiment, and Momentum here.
Bottom Line
While the company should benefit from a high inflationary environment, its recent equity and debt financing exhibit its inability to generate sufficient cash flows to fund its operations. This has raised investors' concerns related to its prospects. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $202.80 and $198.02, respectively, indicating bearish sentiment. So, we think the stock is best avoided now.
How Does Alexandria Real Estate Equities Inc. (ARE) Stack Up Against its Peers?
While ARE has an overall D rating, one might want to consider its industry peers, City Office REIT Inc. (CIO) and Allied Properties Real Estate Investment Trust (APYRF), which have an overall B (Buy) rating.
ARE shares were unchanged in premarket trading Thursday. Year-to-date, ARE has declined -16.69%, versus a -13.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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