Ian Salisbury

For dividend investors on the hunt for fat payouts, Alexandria Real Estate Equities' nearly 7% yield may provide an opportunity.

Shares of the real-estate investment trust, which caters to the life-sciences industry, have languished in recent months, declining more than 35% to just under $76 from $116 a year ago. Blame factors like office space oversupply following and upheaval at the Food and Drug Administration.

But the falling stock price has boosted Alexandria's dividend yield to 6.8%, an attractive proposition considering the company's solid financials and long-term prospects. Average yield on the Real Estate Select Sector SPDR, an exchange-traded fund focused on REITs, is just 3.4%.

Pasadena, Calif.-based Alexandria owns nearly 40 million square feet of property in life sciences hubs such as Boston, San Francisco, and San Diego. Known for its "megacampus" model, it focuses on properties clustered close together, which helps its clients benefit from factors like easier recruiting. Top tenants include companies such as Eli Lilly, Moderna, and Roche Holding, as well as plenty of early-stage drug companies.

Wall Street's been down on the stock in large part because a Covid-era building boom has fizzled, leading to massive oversupply in health-related office space. In Boston, for instance, life-sciences office buildings have seen rental rates per square foot fall to $70 from $100, according to a recent report by commercial-real-estate trade publication CRE Daily.

The weak market led to a wave of downgrades last year for Alexandria stock. Today nine of 14 analysts who follow the stock rate it at Hold, according to FactSet; the rest have Buy ratings.

More recently the health sector has also suffered from questions about how the Trump administration will oversee the FDA, with worries about mass layoffs leading to fewer drug approvals.

Still Alexandria's long-term prospects look solid. While analysts see funds from operations declining for 2025, they forecast 2.3% growth in 2026 and 4.2% growth in 2027, according to FactSet. (For REITs, funds from operations are similar to net profit in other types of companies.)

CFRA analyst Nathan Schmidt cut his rating on Alexandria to Buy from Strong Buy earlier this month. But he remains bullish on the company's prospects, with a 12-month target price of $118.

Alexandria "is the market leader in life sciences real estate, where we see solid secular growth from an aging population and continued investment in new drug development, as well as greater recession resilience than other property types," Schmidt concluded.

Wedbush's Richard Anderson cut his rating on Alexandria stock to Neutral from Outperform last July, citing office market oversupply. He reiterated the call in January, but noted the company's yield "represents a positive starting point," for investors.

Alexandria's payout ratio -- essentially the share of a company's profits that go to covering a dividend -- was just 69% based on his estimate of 2025 funds from operations, Anderson noted.

The payout ratio is more or less in line with other REITs, suggesting Alexandria should be able to comfortably make those payments, regardless of the recent share-price decline.

Write to Ian Salisbury at ian.salisbury@barrons.com

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April 25, 2025 13:56 ET (17:56 GMT)

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