TRADE ALERT - Retirement Portfolio April 2025

Important Note

Before going into today's article, I wanted to let you know that we will soon conduct interviews with the management teams of the following REITs:

• Farmland Partners (FPI)

• Easterly Government Properties (DEA)

• NewLake Capital Partners (OTCQX:NLCP)

• BSR REIT (HOM.U:CA / OTCPK:BSRTF)

• Safehold (SAFE)

• Canadian Net REIT (NET.UN:CA)

Let me know if you have any questions for them and I will make sure to ask them for you. You can put your questions in the comment section below.

Thanks!

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TRADE ALERT - Retirement Portfolio April 2025

Summary:

• We bought another 100 shares of Alexandria Real Estate.

• The market is focused on the near-term challenges. We focus on the long-term opportunity

• Alexandria could be one of the biggest beneficiaries of AI in the REIT sector, and we explain why.

Transaction screenshot:

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Alexandria Real Estate (ARE) is hated right now.

The life science sector is way oversupplied following the huge wave of new supply that came to the market in 2024.

This is resulting in declining occupancy rates and rents in many markets.

Here is how the market has punished Alexandria. It is down 59% in the last three years, even as it grew its cash flow by 22% during this same time period:

Data by YCharts

What this means is that Alexandria's valuation has now dropped by 81% from its peak. That's a real crash!

In fact, the company's valuation has never been lower in its existence other than during the great financial crisis.

In a way, the situation reminds me of malls a few years ago.

Mall REITs were hated because the sector was oversupplied, and e-commerce was going to kill them all.

Now, looking back, we know that the market had overreacted. Class A malls are today producing higher sales per square foot than ever, and REITs like Simon Property Group (SPG) have strongly recovered and richly rewarded investors who had the courage to buy them when they were discounted:

Data by YCharts

Today, we are offered a similar opportunity in life science.

The property sector is oversupplied, it is temporarily hurting results, and the market has overreacted by pricing Alexandria at an exceptionally low valuation.

Why is the sector suddenly oversupplied?

The pandemic initially led to a boom in demand for life science space. Rents were growing, and interest rates were ultra-low, so naturally, this attracted a lot of developers. Moreover, a lot of office buildings were sitting vacant, unable to find tenants, which pushed many landlords to redevelop their offices into labs:

But conditions have changed drastically.

The demand has normalized, interest rates have surged, the supply has overwhelmed the market, and developers have gotten hurt, forcing them to scale back projects. Moreover, office landlords have learned that office-to-lab conversions result in lower-quality products that are often difficult or even impossible to lease. Meanwhile, increasingly many companies are now returning to the office, making future office conversions less appealing.

As a result, the new supply under construction has now dropped back to historic norms. It will still take some time for the new supply to get absorbed, but the good news is that demand for life science space is still growing and will eventually catch up to the supply, leading to an acceleration in rent growth.

If we are correct on that, then Alexandria will be a huge winner over the coming years. And we are more and more confident in this because of one aspect that we are yet to discuss and it is the adoption of AI in this industry.

We think that Alexandria could be one of the biggest beneficiaries of AI in the REIT sector and the market has completely overlooked this so far.

Let's dive deeper into this topic:

The Future Demand for Life Science Buildings