Alexandria and the Massive Report, Target Updates

Today, we’re going to focus on some fundamental factors for Alexandria (ARE). We already discussed the insider selling.

This is an extremely long report.

Note: This was expected to be a long report, but it weighs in at 5,000 words. Precisely 5,000. Until I have to edit a typo. Well, that lasted about 2 minutes.

Summary

Alexandria is facing a substantial headwind from excess supply. The rest of the bear ideas are junk. Excess supply is the whole story. I’m adjusting targets downwards (-16%) to reflect two changes:

1. A more intense level of excess supply and the resulting longer time necessary to absorb it.
2. Increasing interest rates. 

Excess supply puts pressure on occupancy rates and rental spreads. Alexandria was far more responsible than other developers. Alexandria was leasing properties before development. However, many other developers assumed tenants would just show up. They collectively built far too much space. While this space is generally inferior to Alexandria’s properties, it is still an alternative. Conversions from office to lab happen, but they are actually a minor part of the excess supply. Given the costs involved and the increased cap rates on biotech labs, those conversions should be far less attractive today. Contrary to some public opinions, conversions from office to lab are falling rather than rising. They are already declined more than 50% from the peak.

This article also includes a review of another article and sharing some work on NAV estimates. However, Seeking Alpha policies place some significant restrictions on critiquing any other analyst (or author, or person, or corporation) on any platform at any time. To avoid running afoul of those rules, those bonus sections will only be available on our website (at the bottom of the article). The REIT Forum is an independent research service. We are not and have never been employees of Seeking Alpha. For a summary of those elements, see the conclusion of the article on The REIT Forum.

I do not anticipate any changes to my position in ARE.

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