JPMorgan Reiterates Overweight Rating on Alexandria Real Estate (ARE)

JPMorgan analyst Anthony Paolone reiterated an Overweight rating and $133.00 price target on Alexandria Real Estate (NYSE: ARE).

The analyst comments "We updated our ARE model post 2Q earnings. We are lowering our 2024, 2025, and 2026 FFO/share estimates to $9.47 (down from $9.49), $9.67 (down from $9.75), and $9.82 (down from $9.89), which implies y/y FFO growth of +5.6%, +2.1%, and +1.6%, respectively. In comparison, company guidance for 2024 is $9.41-9.53 (midpoint of $9.47), and Bloomberg consensus for the three years is $9.47, $9.69, and $10.02, respectively. The main drivers behind our revisions are a lower NOI run-rate coming out of 2Q and some drag from interest expense and development yields/timing in the out years. In terms of KPIs, we assume occupancy to end 2024 at 95.2% (guidance 94.6-95.6%), followed by a 50bp decrease in 2025 and another 50bp in 2026. We assume cash/GAAP rent spreads to be +9%/+16% for 2024 and +5%/+10% for 2025. We continue to believe that ARE has the highest quality portfolio and platform in the life science real estate segment, and we think it is a compelling segment of the CRE market. We think the valuation for this business is reasonable as we describe below. That said, we do think a risk is that earnings growth the next few years could look weak compared to ARE’s history and peers. ARE has grown earnings 7% annually for the decade ending 2024. Outsized rent increases, a sizable development pipeline, and low capital costs all helped drive this growth. Looking ahead, however, development returns may be stuck in the 7% range while capital costs have increased, and new supply in its markets is muting rental rate growth; current demand trends are softer as well. Thus earnings growth moving to a low-single-digit level could look mediocre against its own history, what we expect out of its health care REIT peers, and even office REITs if a sustained recovery in demand unfolds. By assuming a blended cap rate of 6.5%, we arrive at NAV/share of $125. At its current stock price, we calculate an implied cap rate of 7.0%. We think this valuation is reasonable when comparing it to other blue chip REITs that own long-term favorable portfolios. We are establishing our Dec-2025 price target of $133/share (previously $133/share for Dec-2024)."

For an analyst ratings summary and ratings history on Alexandria Real Estate click here. For more ratings news on Alexandria Real Estate click here.

Shares of Alexandria Real Estate closed at $114.69 yesterday.

You May Also Be Interested In

• Tesla to launch Cybercab in Austin this month - report
• Yalla Group Limited (YALA) Reports Q2 EPS of $0.24
• BofA Securities Starts Definium Therapeutics Inc (DFTX) at Buy