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Markets can be fickle, but it is worth listening to what it’s trying to tell you. For example, stocks that were thought of as being safe only 12 months ago are simply no longer. That’s been the case for so-called growth stocks that were reminiscent of the Nifty 50 decades ago.

For those who are unfamiliar with this term, the Nifty 50 was a collection of growth stocks from a generation ago, in which the market was willing to overpay for, because of their quality and growth attributes. This thesis was proven wrong over the long-run, as those lofty valuations failed to live up to their high expectations.

That’s why it’s better to pay for quality stocks when they are cheaply valued relative to their past performance and which pay a healthy dividend yield to boot. This brings me to the ultra-high quality REIT, Alexandria Real Estate Equities (NYSE:ARE). In this article, I highlight why bargain hunters may want to seek out this gem, so let’s get started.

Why ARE?

Alexandria Real Estate Equities is an SP 500 company and a REIT with a long operating history since 1984. ARE is focused on owning urban office real estate leased to leading life science and agtech tenants. At present, its asset base includes nearly 41 million rentable square feet of properties that are located in major metropolitan areas such as SF Bay Area, New York City, Greater Boston Area, San Diego, and Research Triangle in North Carolina.

ARE reminds me of VICI Properties (VICI) in the sense that many of its assets are irreplaceable in densely populated urban innovation centers. This is reflected by the fact that it’s in close proximity to major research institutions in the United States. This was done by design, as this gives ARE’s tenants ready access to a pool of highly educated and motivated talent.

Moreover, 50% of ARE’s annual rental revenue comes from either investment grade-rated or large cap publicly traded companies, and ARE counts some big players in its tenant roster. This includes major pharmaceutical companies such as Eli Lilly (LLY), Pfizer (PFE), Merck (MRK), and Bristol Myers Squibb (BMY). As shown below, ARE has produced a 156% total return over the past 10 years, far surpassing the 82% return of the Vanguard Real Estate ETF (VNQ) over the same timeframe.

Meanwhile, ARE boasts one of the highest occupancy rates in the office sector, with a 98.4% occupancy rate (excluding vacancy at recently acquired properties). It also enjoys a relatively long weighted average remaining lease term of 7.1 years (10.2 years for the Top 20 tenants), and a high operating margin of 70%, due to premium pricing that it’s able to charge for its well-located and high-quality properties.

Rent collection is very strong at 99.9%, and demand remains high for ARE’s properties, with a 45.4% (straight line) and 33.9% (cash basis) rental rate increase, representing the second-highest and highest quarterly increases in ARE’s history. Importantly, ARE has built a sterling reputation with its tenants, as 87% of this leasing volume came from existing tenants.

Potential headwinds to ARE include economic weakness as it relates to emerging biotech companies. This could impact the health of some of ARE’s tenants. However, private funding for emerging companies have remained strong, with near record amounts of capital raised in the first half of the year despite talks of a recession. This was highlighted by management during the recent conference call:

While funding has slowed across all industries compared to 2021 due to macro market conditions, venture funds continue to raise historic levels of capital and deploy it at a sustained pace. $30 billion was deployed into private biotechnology companies in the first half of 2022 compared to a record-breaking $39 billion in the first half of 2021, and still up over 50% compared to the first half of 2019 and 2020. Indeed, companies like incoming New York and Bay Area tenant, Icon Therapeutics, with a stellar management team and highly differentiated platform recently raised over $0.5 billion.

This is not to say that investment thesis haven’t shifted. With downward pressure on valuations and are refocusing towards the most innovative companies with experienced management teams, but market resets are ultimately healthy for a sector in the long run as companies are forced to double down in their core strength and talent is diverted to the most promising applications.

Moreover, ARE sports a strong BBB+ rated balance sheet, and pays a respectable 3.4% dividend yield that’s well-covered by a 56% payout ratio (based on Q2 FFO per share of $2.10). The 5-year dividend CAGR has “only” been 6.7%, but that’s because ARE is plowing money into funding its pipeline, which comes to $2 billion of cash flows invested over a 10-year period by the end of this year. As such, I believe patient investors can expect to see more robust dividend increases down the line.

Lastly, ARE appears to be cheap on a relative basis at the current price of $139.46, sitting well below its 52-week high of $225. It also carries a forward P/FFO of 16.6, sitting well below its normal P/FFO of 20 over the past 10 years. Sell side analysts have a consensus Strong Buy rating with an average price target of $197.64. This implies a potential one-year 45% total return including dividends.

Investor Takeaway

In summary, I believe ARE is an ultra-quality REIT that’s well positioned to capitalize on the long-term secular tailwinds in the biotechnology space. It boasts a strong portfolio of properties with long-term leases, robust rent collection, and attractive dividend growth potential.

While it’s not immune to macroeconomic headwinds, its strong balance sheet and position in an innovative and high-growth industry gives it a wide margin of safety. For these reasons, I believe ARE is a great long-term investment at the current price.

Article source: https://seekingalpha.com/article/4543294-alexandria-real-estate-stock-well-positioned-biotechnology-space

Morgan was born in San Francisco, and by her early 30s, was operating as a solo architect. She studied at UC Berkeley with Bernard Maybeck, later at the Ecole des Beaux-Arts in Paris, and worked for John Galen Howard before opening her own practice in 1904. Her designs are some of the Bay Area’s most iconic: the Berkeley City Club, the UC Berkeley and Mills College edifices, the Julia Morgan Theater (formerly the St. John’s Presbyterian Church), as well as her famous collaboration with William Randolph Hearst on Hearst Castle.

Morgan designed more than 700 buildings during her remarkable career and one of them is this home, Kofoid House. Just one year after starting her solo practice, Morgan was commissioned by the Kofoids to build the 2,929-square-foot home.

Charles Atwood Kofoid was a zoology professor at UC Berkeley; his wife, Carrie Kofoid, was a writer and historian. The home was, from its very beginning, a true testament to Morgan’s style and priorities as an architect. The property’s official website tells us that “at a cost of about $4,500 (including Morgan’s $200 fee), the house was built mostly of old growth redwood and wood salvaged from a demolished building on campus.”

Arts and Crafts details abound from the entry hall to each of the three bedrooms and two and a half bathrooms to the kitchen and into the formal dining room and library beyond. There’s plenty of original craftsmanship, including built-ins, hand-carved wood, tiled hearths and an abundance of windows to both frame the foliage outside and let natural light inside. Everything is impeccably preserved.

“It may be the most pristine Julia Morgan house I’ve ever been in,” listing agent Mark Hardwicke of Better Homes Gardens told SFGATE.

The Kofoids were very involved with the creation. Charles Kofoid’s family pitched in construction skills and Carrie Kofoid commissioned a woven “lauhala” mat from Hawaii that still adorns the library ceiling.

But the home is not a time capsule. Hardwicke pointed out modern features he believes Julia Morgan would have appreciated. “Morgan built homes not for showing off, but for living in. Every detail is meant to make life more simple, while also celebrating the beauty of fine craftsmanship that is anything but,” he said. Updates include a modern chef’s kitchen, ecology-minded systems and earthquake retrofitting.

The home sits on a 6,075-square-foot lot in the Elmwood neighborhood. Gardens and a patio surround the space, secluded by its fencing and the dappled light of mature trees.

Article source: https://www.sfgate.com/realestate/article/julia-morgan-berkeley-home-sale-17451995.php

In 2019, Sarah La Due told EdSource, a news organization focused on covering California education, that’s why she was moving to Las Vegas to teach high school instead of starting her sixth year at a school district in El Cerrito, a city in the east Bay Area about 40 miles northwest of Milpitas. In Vegas, La Due expected to live in a two-bedroom apartment by herself for less than $1,000 a month instead of spending $900 to rent a small bedroom in a house she shared with two roommates.

Article source: https://www.washingtonpost.com/nation/2022/09/02/teacher-housing-california-bay-area/

According to Redfin, 24.1% of its local users searched for properties outside of the Bay Area in July and August. Their top in-state destination is only a hop, skip and a jump along Interstate 80 away, in Sacramento. The top out-of-state destination for San Francisco home buyers is Seattle. 

Throughout the U.S., 33.9% of Redfin users were looking to relocate in July and August, a record number. This number was only about 26% before the pandemic. 

The report lists Los Angeles as second to San Francisco when it comes to home buyers looking to move elsewhere — close to 35,000 Redfin users in LA searched for homes in different areas in July and August, with their top in-state destination being San Diego and their top out-of-state destination being Las Vegas. 

Redfin attributes this record number of relocations across the country to economic burdens like high mortgage rates and inflation, as well as the flexibility of remote work that allows more people to move away from expensive job centers. Droves of home buyers in places like the Bay Area, Los Angeles, New York City, Washington, D.C., and Boston are moving in favor of more affordable cities like Miami, Sacramento, San Diego, Las Vegas and Tampa. 

The report published by Redfin used data collected from more than 2 million users across more than 100 metro areas in July and August. 

Instead, the term “balanced market” is being tossed around, a new spin on the phenomenon of buyers (slowly, cautiously) earning back power they haven’t had for years. Kenneth Hogan, an East Bay real estate agent for two decades, said he’s had some buyers pull out of the market entirely because of stock market declines, but he’s also had clients take advantage of the current climate of decreased competition. “It used to be a free-for-all, but not anymore,” Hogan said. “Buyers are starting to get their turn at it. Buyers are able to negotiate more and ask for things there’s no way they would have gotten before.”

In a recent survey of more than 1,000 real estate agents from real estate tech company HomeLight, 72% of agents reported an increase in contingencies, something buyers often waive in the Bay Area in order to present a competitive offer. Simultaneously, 86% of agents said sellers have, since the “pandemic home buying boom,” become overconfident when listing property.

“There’s a weird feeling of it being a stand-off,” said Zillow senior economist Jeff Tucker. “The flow of new listings dropped 18% from July to August. That suggests to me that sellers were digging in their heels. They’re thinking, ‘I don’t have to sell so I’m just going to wait.’”

Median home prices are up 6% nationwide in August, while San Francisco and Oakland were the only two metro areas where prices fell year-over-year, according to Redfin’s most recent housing report. “Out of everywhere,” Tucker said, the Bay Area has emerged as something approaching a buyer’s market.  “I think the one thing holding me back from saying that [outright] is buyers still don’t have a lot of options to choose from. Inventory is still low.”

Home values are down 3.4% since July in the Bay Area, though they’re up 25.6% since August 2019, according to Zillow’s most recent market report. “The market has cooled down dramatically,” Tucker said. “The month-over-month decline is the most of any major metro in August. That’s a major indication to me that home buyers have pulled back in the Bay Area in a big way.”

Carlisle, meanwhile, is a bit more bearish, and believes it’s too early to say we’ve come to a balanced market. “We’re still in a period of adjustment,” he said. “We have to see how many of these economic developments get worse or better.”

Recent Compass data showed that the number of home sales in the Bay Area are down 32% year over year, but Carlisle said 2021 was an “overheated market.” August is typically a slower period before a spike in September, and the data won’t show whether that cyclical trend holds true until next month. 

“We’re in a place where buyers, sellers and agents are waiting to see how things shake out,” Carlisle said. “It’s an uncertain market and we’re trying to figure out what’s coming next.”

Carlisle cautioned against the rosy picture of the market balancing in the Bay Area. “The problem is even with the power swinging back [to buyers], they still have to deal with interest rates that are double what they were a year ago, and stock market portfolios are down 20%,” he said. “There’s nothing yet to celebrate. This wasn’t Christmas in July.”

Article source: https://www.sfgate.com/realestate/article/bay-area-housing-market-cooling-17457463.php