Life sciences REITs

[tucker]

Alexandria Real Estate Equities Inc. (ARE) (as of 6/15)
Recent Price: $101.40
EPS: $2.20
Market Cap: $2.99bil
FFO/S: $4.47
Avg. Volume: 321,386
P/FFO: 22.68
Revenue: $346.2mil
Dividend: $2.96
Book Value: $39.89
Yield: 3.00%

ARE-C
Recent Price: $26.19
Dividend: $2.09375
Call Price: $
Yeild: 8.13%
Call Date: 6/29/09
Rating: -

Alexandria Real Estate Equities is an REIT specializing in laboratory and office space for the life sciences industry. The company owns 159 properties with 11.2 million rentable square feet spread over 9 US states and Canada. The company has a further 1.2 million square feet under development and 5.9 million square feet its development pipeline, including the new Edinburgh BioQuarter that will house the Scottish Center for Regenerative Medicine and related medical research facilities. Much of Alexandria’s development strategy focuses on redevelopment of existing warehouse properties into higher-yielding laboratory space. The company obtains environmental assessments for each property it considers buying, and so has avoided acquiring properties with existing environmental liabilities. While most of Alexandria’s tenants are involved in health care or pure biosciences, it is worth noting that at least one of the company’s major tenants, Senomyx (0.9% of rental portfolio) works in the development of artificial flavors for clients including Ajinomoto, Coca Cola and Cadbury-Schweppes.

Alexandria’s focus on life sciences properties has led to comparisons with health care REITs. Over the past ten years the bioresearch property market has outperformed the broader health care property market, and in particular has been more resistant to economic slowdowns. This has led to the higher pricing of research-focused REITs compared to their peers in applied health care. To date this has been justified by rapid growth in the market, but Alexandria’s steep P/FFO suggests that continued growth is factored in to share price. Standard & Poor’s believes the company’s rapid growth will continue, and rates the company a “Buyâ€

[andy]

both alexandria and bmr seem like a good investment financially. but, while browsing their renters they all were "biotechnology" companies. they all seemed to be researching noble things like cures for cancer and none reported cloning dogs or other living beings or splicing together tomatoes and snow or anything, but i am not knowledgeable enough to know if this is good stuff or bad stuff and the terms biotechnology and pharmaceuticals are usually associated with things i tend to view negatively. can anyone clear up for me whether these are the people patenting plants of the amazon, creating more resistant strains of the diseases they claim to be curing, etc or are they ethical and socially responsible companies worth investing in? thanks, andy

andy

[tucker]

Hi Andy,

That is a good question. Neither Alexandria nor BMR does research themselves. Their tenants are somewhat of a mixed bag, including pharmaceuticals giants, smaller bioscience research companies, universities, and non-profits. I don’t have a full list of tenants for either company, but both companies list their ten largest tenants (by rental revenue) in their annual reports.

I don’t immediately see a focus on GMOs or industrial-scale antibiotics among Alexandria’s or BMR’s top tenants. Novartis sells preemptive antibiotics for industrial livestock operations, but these aren’t made on Alexandria’s property. The question of bioprospecting and intellectual property rights is more difficult to answer. In many cases it is not easy to determine the origin of the pharmaceuticals developed by any one company (e.g. proteins made by healthy humans, compounds discovered in Amazonian plants), and many of the larger companies discover pharmaceuticals from a wide range of sources. Intellectual property is extremely valuable to all of these companies, and while I don’t know it to be true I wouldn’t be at all surprised to find that companies had pursued patent protection for bioprospected compounds developed on Alexandria’s or BMR’s property.

Below I have tried to present the most basic descriptions of each tenant without editorializing.

Alexandria

Novartis AG (8.3% of rental portfolio): Pharmaceuticals, diagnostics, generic medications, veterinary and infant care products

GlaxoSmithKline (4.0%): Pharmaceuticals and consumer health care

ZymoGenetics, Inc. (3.3%): Therapeutic proteins for treatment of human illness. Often these are proteins that are made by healthy humans but absent in victims of certain diseases.

Human Genome Sciences, Inc. (3.1%): Therapeutic proteins for treatment of human illness. Often these are proteins that are made by healthy humans but absent in victims of certain diseases.

Massachusetts Institute of Technology (2.9%): One of the US top research universities

Theravance, Inc. (2.2%): Drug discovery and development
Genentech, Inc. (2.0%): Pharmaceuticals, with an emphasis on knowledge of the human genome

Amylin Pharmaceuticals, Inc. (2.0%): Pharmaceuticals, with a focus on the treatment of diabetes and obesity

Amgen, Inc. (1.9%): Human therapeutics with a focus on cancer, kidney disease, and inflammation

Senomyx, Inc. (0.9%): Development of flavoring chemicals for processed food

After the completion of the Edinburgh BioSciences Quarter, the Scottish Center for Regenerative Medicine, Scottish National Health Service, and/or Edinburgh University are likely to rank among Alexandria’s largest tenants.

BMR

Human Genome Sciences, Inc (21.5%): Therapeutic proteins for treatment of human illness. Often these are proteins that are made by healthy humans but absent in victims of certain diseases.

Vertex Pharmaceuticals (12.9%): Drug discovery and development

Genzyme Corporation (8.4%): Enzyme based treatments for human disease, diagnostics, and some surgical supplies

Centocor, Inc (4.4%): Johnson & Johnson’s human immunology research division

Array BioPharma, Inc (3.6%): Drug discovery and development, with a focus on cancer and inflammatory disease

Sun Microsystems (3.0%): Computer hardware and software, with a growing focus on open source software

Regeneron Pharmaceuticals, Inc. (2.3%): Discovery of therapeutic proteins, with a focus on cancer and eye disease

Illumina, Inc. (2.2%): Develops tools for use in genetic research

Nektar Therapeutics (2.1%): Drug delivery systems. Nektar doesn’t develop the drugs themselves, but instead develops the most efficient ways to get drugs to target tissues

InterMune, Inc. (2.0%): Drug discovery and development, with a focus on lung and liver disease


I hope this helps!

Tucker