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Property Acquisitions May Boost Alexandria’s Operating Income

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Dec. 22 2015, Updated 11:06 a.m. ET

Acquires properties in cluster markets

Alexandria Real Estate Equities (ARE) acquires properties in cluster markets to strengthen its competitive position. The company targets quality properties located near the centers of innovation and technological advances to attract high-profile corporate tenants. The company seeks acquisition opportunities with in-place cash flows and the possibility of near-term lease-up. It also aims for properties available below the market rental rates. Such properties are expected to generate higher occupancy and rental revenues for the company.

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Property acquisitions

Over the past several years, Alexandria has seen substantial competition from institutional investors and other REITs in acquiring premium properties and land at suitable locations. Despite the rising competition, Alexandria has acquired numerous quality properties during the past five years.

  • In January 2015, the company acquired a class A building of 222,504 rentable square feet in Mid-Cambridge, near the Massachusetts Institute of Technology campus, for $176.5 million.
  • The company acquired 10% non-controlling interest in Alexandria Technology Square for $108.2 million.
  • In 3Q15, Alexandria acquired 10290 Campus Point Drive in San Diego for $105 million and 11 Hurley Street in Cambridge for $6 million.

Property dispositions

The company disposes of properties that do not fit its strategic goals or are not considered core assets due to location, age, or quality. The disposition of non-core properties is a significant source of capital for funding property acquisitions and development projects. The company has sold a number of properties over the last five years to improve its portfolio quality.

  • In 2014, the company sold four land parcels with a total area of 693,257 square feet. It also sold a property in San Diego with an area of 62,346 square feet.
  • In 2013, the company sold assets comprising 826,824 rentable square feet for $128.6 million, located primarily in the suburban markets of Seattle, Maryland, Greater New York City, and Greater Boston. In addition, it sold four land parcels for $73.3 million.

Shoring up net operating income

The company expects the acquired properties to provide higher occupancy levels and rental rates, which would contribute substantially to its net operating income. The company expects to fund these acquisitions through a mix of asset sales and higher leverage.

Other major office REITs such as Kilroy Realty (KRC), SL Green Realty (SLG), and Boston Properties (BXP) are also active in property acquisitions and dispositions. The SPDR Dow Jones Global Real Estate ETF (RWO) invests ~0.7% of its portfolio in Alexandria. Continue to the next part of this series for a discussion on Alexandria’s strategy.

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