Alexandria Acquires 219 East 42nd Street, Boosts Portfolio

Shutterstock photo

Recently, Alexandria Real Estate Equities, Inc.ARE expanded its regional life-science cluster franchise in New York City. The life-science and technology real estate investment trust (REIT) has purchased 219 East 42 nd Street from Pfizer Inc., through a joint-venture entity - 219/235 East LLC  - for $203 million, on a fee-simple basis.

The acquisition is subject to a partial sale leaseback on a triple-net basis to Pfizer, that is expected to remain in the location for some time, after which, the pharma conglomerate will relocate its headquarters to a new building in Manhattan's Hudson Yards in 2020.

Strategically located in the center of Manhattan's East Side Medical Corridor, with close proximity to academic and medical institutions of the city, the 10-story office building offers nearly 350,000 rentable square feet of space.  In fact, its location is a strategic fit for the company which is focused on strengthening the life-science cluster in the area. 

Further, when the lease expires, the Manhattan property will offer opportunities to the company to enhance cash flows by converting and redeveloping it into an office/laboratory space. In fact, per management, acquisition renders immediate and significant net operating income growth, supported by strong yield from an investment grade tenant.

Per management, the company has played a vital role in developing premier life-science campuses in New York City. In fact, Alexandria Center for Life Science has created collaboration and innovation opportunities to a wide range of entities by providing highly amenitized laboratory and office space.

In fact, the company has significant presence in New York City, with an asset base of two-building office/laboratory campus as of Mar 31, 2018. This 728,000-rentable-square-foot campus also offers future development opportunities for an on-site tower spanning 420,000 rentable square feet of space. While the campus is fully leased, 70% of annual rental revenues from the region comes from investment grade tenant. 

This, along with the company's most recent acquisition, is expected to boost its presence in the region and provide significant pricing power. Furthermore, it mirrors Alexandria's confidence in the life-science market of the region.

However, a rise in interest rates remains a challenge for Alexandria as it has exposure to long-term leased assets. In fact, any rise in rates may increase the cost of financing acquisitions, as well as investment and development activity expenses.

Shares of this Zacks Rank #3 (Hold) company have outperformed its industry in the past year. While the stock has gained 8.7%, the industry has rallied 5.7% during this time frame.

Stocks Worth a Look

A few better-ranked stocks from the same space are PS Business Parks PSB , Lamar Advertising Company LAMR and SBRA Healthcare REIT SBRA . All three stocks carry a Zacks Rank of 2 (Buy). You can see  the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

PS Business Parks' Zacks Consensus Estimate for 2018 FFO per share has remained unchanged at $6.37 over the past month. Its shares have returned 11.7% in the past three months.

Lamar's FFO per share estimates for the current year remained unchanged at $5.40 in the past month. The stock has gained 13.1% in three months' time.

SBRA Healthcare's FFO per share estimates for 2018 remained unchanged at $2.51 in the past month. The stock has gained 29.9% over the past three months.

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

Wall Street's Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It's a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Lamar Advertising Company (LAMR): Free Stock Analysis Report

Sabra Healthcare REIT, Inc. (SBRA): Free Stock Analysis Report

PS Business Parks, Inc. (PSB): Free Stock Analysis Report

Alexandria Real Estate Equities, Inc. (ARE): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: LAMR , SBRA , PSB , ARE

More from Zacks.com




Equity Research

Research Brokers before you trade

Want to trade FX?