REIT Stocks

Alexandria Real Estate Equities Inc Valuation – November 2018 $ARE

Company Profile (excerpt from Reuters): Alexandria Real Estate Equities, Inc., incorporated on October 27, 1994, is a real estate investment (REIT). The Company is engaged in the business of providing space for lease to the life science and technology industries. The Company focuses on collaborative life science and technology campuses. It develops urban cluster campuses and ecosystems. As of December 31, 2016, the Company had 199 properties in North America. As of December 31, 2016, its asset base in North America consisted of 25.2 million square feet, including 19.9 million rentable square feet/foot (RSF) of operating properties, and development and redevelopment of under construction or pre-construction, as well as 5.3 million square feet of future ground-up development projects. As of December 31, 2016, the Company’s operating properties and development projects included nine properties that were held by consolidated real estate joint ventures and one property that was held by an unconsolidated real estate joint venture.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ARE – November 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

 

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $13,231,149,935 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.48 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -71.23% Fail
6. Moderate PEmg Ratio PEmg < 20 113.72 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.75 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.48 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -10.83 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.08
MG Growth Estimate -3.06%
MG Value $2.58
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $15.68
MG Value based on 0% Growth $9.19
Market Implied Growth Rate 52.61%
Current Price $122.97
% of Intrinsic Value 4762.03%

Alexandria Real Estate Equities Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.36 in 2014 to an estimated $1.08 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 52.61% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Alexandria Real Estate Equities Inc revealed the company was trading above its Graham Number of $55.44. The company pays a dividend of $3.45 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 113.72, which was above the industry average of 80.08. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-59.02.

Alexandria Real Estate Equities Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$59.02
Graham Number $55.44
PEmg 113.72
Current Ratio 0.48
PB Ratio 1.75
Current Dividend $3.45
Dividend Yield 2.81%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $483,216,000
Total Current Liabilities $1,008,178,000
Long-Term Debt $5,684,004,000
Total Assets $14,105,566,000
Intangible Assets $0
Total Liabilities $6,702,953,000
Shares Outstanding (Diluted Average) 105,385,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.32
Dec2017 $1.58
Dec2016 -$1.99
Dec2015 $1.63
Dec2014 $1.01
Dec2013 $1.60
Dec2012 $1.09
Dec2011 $1.73
Dec2010 $2.19
Dec2009 $2.72
Dec2008 $2.86
Dec2007 $2.63
Dec2006 $2.25
Dec2005 $2.22
Dec2004 $2.33
Dec2003 $3.10
Dec2002 $1.76
Dec2001 $1.64
Dec2000 $1.77
Dec1999 $1.46
Dec1998 $1.58

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.08
Dec2017 $0.56
Dec2016 $0.26
Dec2015 $1.39
Dec2014 $1.36
Dec2013 $1.64
Dec2012 $1.82
Dec2011 $2.26
Dec2010 $2.53
Dec2009 $2.64
Dec2008 $2.56
Dec2007 $2.44
Dec2006 $2.34
Dec2005 $2.33
Dec2004 $2.29
Dec2003 $2.16
Dec2002 $1.68

Recommended Reading:

Other ModernGraham posts about the company

Alexandria Real Estate Equities Inc Valuation – February 2018 $ARE
Alexandria Real Estate Equities Inc. Analysis – Initial Coverage $ARE

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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