ARE Alexandria Real Estate Equities
Best-in-class lab REIT, battered by oversupply; impairment-distorted FFO understates cash flow, but recovery isn't priced cheaply.
The story
Alexandria owns the premier life-science campus portfolio in Boston/Cambridge, the SF Bay Area and San Diego, but biotech funding weakness and a wave of new lab supply have pushed occupancy and rents down, forcing asset sales, dividend cuts and large impairments. Revenue has slipped to 2.95B, and the -33.6% operating margin reflects roughly $1B+ of non-cash impairments, not a collapse in cash rents. The balance sheet is investment grade with long-dated fixed-rate debt, but high leverage relative to shrinking FFO and cap-rate expansion keep it rate-sensitive.
Nothing material has changed since August: lab oversupply still caps same-store growth, and dispositions offset the development deliveries, so year-one growth stays at 2% and terminal growth at 2.5%, well below the 5.26% risk-free rate. The 0.73 AFFO ratio reflects heavy TI and leasing costs on lab re-leasing, and beta 1.1 sits above the 0.9 anchor because of biotech tenant credit and leverage. The large gap to market comes mostly from the FFO base: NI + D&A (0.22B) counts impairments as if they were cash losses, while the market prices normalized FFO several times higher, so the model value is a floor, not a point estimate.
Value drivers
| AFFO growth (Y1) | 2.0% |
| Terminal AFFO growth | 2.5% |
| AFFO / FFO ratio | 73.0% |
| Beta | 1.10 |
| Failure probability | 2.0% |
| Cost of equity | 10.2% |
Valuation bridge
| PV of AFFO (explicit) | 1.09B |
| PV of terminal value | 1.01B |
| Equity value | 2.06B |
| ÷ shares → per share | $11.98 |
News
neutral -0.10 · 8 articles
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- Alexandria Real Estate Chief Accounting Officer Sells 10,000 Shares
- Alexandria’s (ARE) Profit Rebound Comes With A Cash Flow Catch
- Postal Realty Trust (PSTL) Up 2.2% Since Last Earnings Report: Can It Continue?
- Alexandria Real Estate Equities (ARE) Up 5.7% Since Last Earnings Report: Can It Continue?
- Alexandria Real Estate Equities (ARE) On Its October Results Date And A Valuation Split
Projected AFFO
| Yr | FFO | AFFO | Growth | PV |
|---|---|---|---|---|
| 1 | 225.44M | 164.57M | 2.0% | 149.33M |
| 2 | 230.07M | 167.95M | 2.1% | 138.29M |
| 3 | 234.93M | 171.50M | 2.1% | 128.13M |
| 4 | 240.02M | 175.21M | 2.2% | 118.79M |
| 5 | 245.35M | 179.11M | 2.2% | 110.18M |
| 6 | 250.94M | 183.19M | 2.3% | 102.26M |
| 7 | 256.80M | 187.46M | 2.3% | 94.95M |
| 8 | 262.93M | 191.94M | 2.4% | 88.22M |
| 9 | 269.36M | 196.63M | 2.4% | 82.01M |
| 10 | 276.09M | 201.55M | 2.5% | 76.27M |
Key risks
- Prolonged lab oversupply and rising vacancy pressure rents and force more impairments
- Biotech tenant credit and funding stress lead to defaults and early move-outs
- Higher-for-longer rates widen cap rates and raise refinancing costs on a levered balance sheet
Catalysts
- Biotech funding and IPO recovery lifting leasing velocity and occupancy
- Asset sales at or above book value, used to cut leverage and fund buybacks