Diversified tenant base
Alexandria Real Estate Equities (ARE) has a diversified tenant base comprising some of the top names in science and technology, global pharmaceutical and biotechnology companies, academic institutions, US government research agencies, medical institutions, biomedical device companies, industrial biotechnology companies, and venture capital companies. The diversified tenant base reduces the company’s dependence on any particular industry.
As of September 2015, the company’s top 20 customers comprised 49.1% of the annualized base rent and occupied a rentable area of 5.8 million square feet. In addition, no single customer except Novartis comprised more than 5% of the total annualized base rent. As of September 2015, the company’s top five tenants were as follows:
- Novartis – 5.4% of annualized base rent
- ARIAD Pharmaceuticals – 4.8% of annualized base rent
- Illumina – 4.1% of annualized base rent
- New York University – 3.2% of annualized base rent
- Eli Lilly and Company – 3.1% of annualized base rent
The above tenants occupied an area of 2.2 million square feet or 11.1% of the company’s total rentable square feet as of September 2015.
Investment-grade tenants comprised 53% of the company’s total annualized base rent. These quality tenants with substantial financial resources ensure steady and stable cash flows for the company.
Triple net leases
As of September 2015, 56.6% of the company’s leases were long term, expiring after 2019. The leases expiring after 2019 comprised a rentable area of 9.5 million square feet. The long-term nature of leases ensures a steady income to the company without any risk of renewals. In addition, 96% of the company’s leases were triple net, leading to stable cash flows for the company.
Other major office REITs such as Kilroy Realty (KRC), SL Green Corp (SLG), and Boston Properties (BXP) are following the same tenant diversification strategy and looking for long-term leases. The iShares US Real Estate ETF (IYR) invests ~0.5% of its portfolio in Alexandria. In the next article, we’ll discuss Alexandria’s property acquisitions and dispositions.