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Alexandria (ARE) Prices 6M Share Offering Related to Forward Sale

Alexandria Real Estate Equities, Inc. ARE has announced the pricing of an upsized public offering of 6 million shares of common stock at $164 per share all of which will be offered on a forward basis. Moreover, underwriters have been granted a 30-day option to buy up to 900,000 additional shares.

Earlier, the company offered 5 million shares of common stock in addition to granting underwriters a 30-day option to buy up to 750,000 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 expenditure over a period 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 Jan 8. The REIT entered forward sale agreements with JPMorgan Chase Bank, N.A., Bank of America, N.A., Citibank, N.A., Goldman Sachs & Co. LLC and Royal Bank of Canada 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, which 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 Jul 5, 2022, subject to its right to elect cash or net share settlement. The company will not receive any proceeds initially from the move. However, with any net proceeds it receives upon future settlement of forward sale agreements, Alexandria plans to finance pending acquisitions of 401 Park Drive, 201 Brookline Avenue and a future development opportunity in the heart of the company's life-science cluster in the Greater Boston market.

Post such allocations, any residual proceeds will be used for general working capital and other corporate needs, including the reduction of the outstanding balance on its unsecured senior line of credit and commercial paper program.

Notably, life-science assets, in particular, have grabbed the limelight amid the increasing need for effective diagnostics, therapies and vaccines to fight the coronavirus pandemic, thereby, accelerating growth and strengthening the fundamentals of the life sciences real estate market. Specifically, R&D funding dedicated to COVID-19 increased the demand for labs, given the need for more biomanufacturing space for domestic manufacture and the production of solutions and innovations that can exclusively be carried out in labs. (Read more: Will Life Science, MOBs Aid Healthcare REIT Recovery in 2021?

Such underlying demand drivers are likely to accelerate developments in leading life-science clusters like Boston-Cambridge and the San Francisco Bay Area. This is likely to benefit life-science realty owners like Alexandria, Healthpeak Properties PEAK, Ventas Inc. VTR and Pfizer Inc. PFE. Hence, capitalizing on this, Alexandria’s efforts to fund its expansion plan through a forward sale stock offering is a strategic fit.  

Shares of this Zacks Rank #3 (Hold) company have appreciated 9.7% as against the industry’s decline of 5.7% over the past year.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

 

However, Alexandria has an active development and redevelopment pipeline. As of Sep 30, 2020, the company had 7.2 million RSF of near-term and intermediate-term development and redevelopment projects, and 6.2 million SF of future development projects. This increases operational risks and exposes the company to the risk of rising construction costs and lease-up concerns.

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