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Alexandria Prices Public Offering Related to Forward Sale Deal

Alexandria Real Estate Equities, Inc. ARE has announced the pricing of upsized public offering of 6 million shares of common stock at $160.50 per share related to forward sale agreements. Moreover, underwriters have been granted a 30-day option to buy up to 900,000 additional shares.

The move comes as part of the company’s effort to boost financial flexibility and bank on opportunistic investment options. Notably, a forward sale of common shares entails an offering agreed upon now and settled at a future date. Such offerings are beneficial for REITs as these companies need to finance capital expenditures over a period of time compared with one-time expenditure for buyout. Also, such agreements help avoid incurring immediate economic dilution but capitalize on current trading prices.

Subject to customary closing conditions, the above-mentioned offering is expected to close on or about Jul 9. The REIT has entered into forward sale agreements with Citibank, Bank of America, Goldman Sachs and JPMorgan Chase Bank for the 6 million shares. The forward purchasers or their affiliates are expected to borrow and sell to the underwriters a total of 6 million shares of the common stock that will be delivered in this offering, or 6.9 million shares with underwriters exercising their option in full to buy additional shares.

Alexandria plans to deliver, upon physical settlement of such forward sale agreements on one or more dates stated by the company taking place by Jan 6, 2022, subject to its right to elect cash or net share settlement. The company will not receive any proceeds initially from this move. However, with any net proceeds it receives upon future settlement of forward sale agreements, the company plans to finance pending and the recently-completed acquisitions as well as the construction of highly-leased development projects.

Moreover, with any residual proceeds, Alexandria plans to use it for general working capital and other corporate needs, including reduction of outstanding balance, if any, on its $2.2-billion unsecured senior line of credit, new $750-million unsecured senior line of credit, and commercial paper program.

Alexandria focuses on Class A properties concentrated in urban campuses, primarily for the life science and technology entities. The dynamic setting adds to the productivity and efficiency of the tenants, which, in turn, ensures steady rental revenues. Moreover, the coronavirus pandemic is opening up scope for life-science companies, in turn benefiting landlords who provide spaces for such activities.

As of first-quarter 2020, investment-grade or publicly-traded large-cap tenants accounted for 51% of annual rental revenues in effect. Furthermore, 74% of the annual rental revenues are from Class A properties in AAA locations. Weighted-average remaining lease term of all tenants is 7.8 years. For its top 20 tenants, it is 11.4 years.

In addition, during the March-end quarter, Alexandria completed acquisitions of 11 properties for a total of $484.6 million. The company also has a healthy development and redevelopment pipeline which positions it well to capitalize on favorable market fundamentals.

Shares of this Zacks Rank #2 (Buy) company have appreciated 13.1% over the past year, while its industry has declined 6.1%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.


Stocks to Consider

City Office REIT, Inc.’s CIO funds from operations (FFO) per share estimates for the ongoing year have been revised 13.3% upward over the past 60 days. The company currently carries a Zacks Rank of 2.

Cousins Properties Incorporated’s CUZ Zacks Consensus Estimate for 2020 FFO per share has been revised marginally upward to $2.74 over the past month. The company currently carries a Zacks Rank of 2.

Gladstone Land Corporation’s LAND FFO per share estimate for 2020 has been unchanged at 68 cents over the past month. It currently carries a Zacks Rank of 2.

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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