Maskot/DigitalVision via Getty Images Over the last decade, it’s been one hell of a ride for investors in Alexandria Real Estate Equities ( ARE ), the blue-chip life sciences landlord that leases premier lab space to big pharma companies, biotech firms, and everyone in between. In the mid 2010s, life sciences campuses appeared bulletproof, and for the eight years between 2014 and 2021, the company...
Maskot/DigitalVision via Getty Images Over the last decade, it’s been one hell of a ride for investors in Alexandria Real Estate Equities ( ARE ), the blue-chip life sciences landlord that leases premier lab space to big pharma companies, biotech firms, and everyone in between. In the mid 2010s, life sciences campuses appeared bulletproof, and for the eight years between 2014 and 2021, the company’s stock produced solid total returns of more than 350%, significantly outstripping the broader real estate sector: TradingView Then, over the last few years, a combination of rising rates, tightening credit, and a multiyear bust in biotech funding have driven shares down more than 70%, right back to where they started: TradingView For some, the unending selloff has produced an interesting-looking 'buy' opportunity. Trading at a discount to other healthcare-related REITs, shares of ARE screen positively versus the sector. Plus, the company’s high-quality mega-campuses will have to be leased out at some point, right? That said, while shares of ARE appear attractive, I would argue the market has priced the ongoing life sciences bear market fairly. With a significant trough in per property NOI, ARE management’s recent guide does not inspire confidence. Plus, while recent portfolio dispositions have deleveraged the company and driven a stronger focus on the part of management, I still believe that ARE is a 'show me' story. That is, until management can show some inflection in per-property profitability, I expect it will be difficult for the market to re-rate ARE shares higher. Today, I’ll dive into the company’s recent earnings trajectory, highlight the valuation, and explain why I see ARE as a hold, not a buy, for the time being. Sound good? Let’s dive in. Financials At its core, ARE is a specialized life science office REIT that develops, owns, and operates lab campuses in key innovation clusters, including Boston, the Bay Area, San Diego, and more. Primarily, the firm leases...