Alexandria (ARE) Cheers Investors With 4.3% Dividend Increase

Ushering in good news for shareholders, Alexandria Real Estate Equities (NYSE:ARE) announced a 4.3% sequential hike in quarterly cash dividend. The company will now pay a dividend of 97 cents per share against 93 cents paid in the prior quarter. The hiked dividend will be paid on Jan 15, 2019, to shareholders of record as on Dec 31, 2018.

Based on the increased rate, the annual dividend comes to $3.88 a share, resulting in an annualized yield of about 3.08%, considering Alexandria’s closing price of $125.90 on Dec 3.

Solid dividend payouts are arguably the biggest enticement for real estate investment trusts (REIT) investors and Alexandria remains committed to that. In fact, prior to this hike, the company had raised its second-quarter 2018 cash dividend by 3.3% to 93 cents. Earlier, the company hiked fourth-quarter 2017 dividend by around nearly 4.7% sequentially to 90 cents from 86 cents.

Per management, the dividend hike is in sync with the Pasadena, CA-based REIT’s strategy of sharing growth in cash flow from operating activities with stockholders while also retaining a significant portion to reinvest in strong development and redevelopment pipeline that consists of new Class A properties. The funds from operations (FFO) payout ratio remained at 57% for third-quarter 2018, which is favorable.

Notably, Alexandria focuses on Class A properties concentrated in urban campuses, primarily for life science and technology entities. These locations are characterized by high barriers to entry and exit, and a limited supply of available space. This highly dynamic setting adds to the productivity and efficiency of tenants, which in turn, ensures steady rental revenues for the company. In fact, as of third-quarter 2018, investment-grade or large-cap tenants accounted for 52% of annual rental revenues in effect. Furthermore, 77% of the annual rental revenues are from Class A properties in AAA locations.

High demand for Class A properties in AAA locations is boosting the level of occupancy. The company is witnessing strong demand for space in key life science markets. In fact, the company enjoys a solid 10-year historical occupancy rate of 95%. Such a high level of occupancy is anticipated to continue in the upcoming quarters.

Moreover, its focus on both internal and external growth is expected to work in favor of Alexandria in the days ahead. In fact, in third-quarter 2018, the company witnessed record rental rate growth of 35.4%, the highest in the past 10 years. Given the company’s financial position and lower payout ratio, this dividend rate is likely to be sustainable.

In the past month, shares of Alexandria have gained 2.7%, while its industry has rallied 3.8%. Alexandria currently carries a Zacks Rank #2 (Buy).



Other Stocks to Consider

Similar-ranked stocks from the real estate space are Cousins Properties Incorporated (NYSE:CUZ) , PS Business Parks, Inc. (NYSE:PSB) and Boston Properties, Inc. (NYSE:BXP) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cousins Properties’ FFO per share estimates for 2018 has been revised marginally upward to 61 cents in two months’ time.

PS Business Parks’ Zacks Consensus Estimate for 2018 FFO per share moved up 0.5% to $6.45 in the last month.

Boston Properties’ FFO per share estimates for 2018 has been revised slightly north to $6.39 north in 30 days’ time.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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