Alexandria Real Estate Equities - New Preferred Is Attractive

| About: Alexandria Real (ARE)

Alexandria Real Estate Equities (NYSE:ARE) is in the market with a new $25 par cumulative redeemable preferred stock. Here are the details:

  • Issuer: Alexandria Real Estate Equities
  • Maturity: Perpetual
  • Optional Redemption: Callable at par on or after March , 2017
  • Expected Ratings: Baa3/BB

The issue has a special optional redemption upon the occurrence of a "Change of Control", ARE may redeem the Preferred Shares by paying $25.00 per share. If ARE exercises this redemption right, holders will not have the conversion right.

The issue also has the conversion feature that we have been seeing inserted into newer low BBB, BBB/BB and non-rated REIT preferreds:

Upon the occurrence of a Change of Control, each holder of Series E Preferred Shares will have the right (subject to ARE's Special Optional Redemption) to convert some or all of the Series E Preferred Shares held by such holder on the Change of Control Conversion Date into a number of common shares per Series E Preferred Share to be converted.

The proceeds are to be used for reducing the balance of their borrowings on their unsecured line of credit. Subject to the approval of the Board of Directors in its sole discretion, ARE currently expects to call for redemption the Series C preferred stock in its entirety.

Some comparative prices:

(Click to enlarge)

Given where comps trade - most notably the new Health Care REIT (NYSE:HCN) Series J, I would expect this issue to price at a yield of around 6.50% as they are in the same sector and have the same ratings. The 6.50% area also makes sense when compared to HCP Inc (NYSE:HCP) Series F as it is currently callable (next up?) so it should trade closer to its coupon of 7.1%.


I like the name and the credit metrics of Alexandria Real Estate (as I stated in my debt article on the company) and would be a buyer of the preferred due to the company fundamentals, the call protection and the exposure to the healthcare sector.

REITs have been tapping the preferred market in a big way lately, taking out higher coupon preferreds and putting relatively cheap perpetual capital on their books. I fully expect that this will continue, so investors should look at the coupons on their REIT preferred, and if the company can save 50-100bps, keep an eye out for the call or swap into new issues such as this one.

Initial prospectus here.

The company:

Alexandria Real Estate Equities is the largest REIT focused principally on cluster development through the ownership, operation, management, selective redevelopment, development and acquisition of properties containing life science laboratory space. Alexandria is the leading provider of high-quality, environmentally sustainable real estate, technical infrastructure, and services to the broad and diverse life science industry. Client tenants include institutional (universities and independent not-for-profit institutions), pharmaceutical, biotechnology, medical device, product, service, and translational entities, as well as government agencies. Alexandria's operating platform is based on the principle of "clustering," with assets and operations located in key life science markets.

Some stats:

  • Occupancy of operating properties at approximately 94.9%, and occupancy of operating and redevelopment properties at approximately 88.5% as of December 31, 2011;
  • Approximately 95% of the leases (on a rentable square footage basis) were triple net leases;
  • ARE's 173 properties aggregating approximately 15.3 million rentable square feet, composed of approximately 13.6 million rentable square feet of operating properties, approximately 818,020 rentable square feet undergoing active development, and approximately 919,857 rentable square feet undergoing active redevelopment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.