Alexandria Real Estate Equities delivered 1 million square feet over the past two quarters, including 481,000 square feet in the first quarter. More good news is that the REIT increased its stabilized cash yield to a 7.2% yield, which Peter Moglia said on the firm’s Q1 earnings call is a solid increase of 50 basis points over our original pro forma of 6.7%.
“At today’s cap rates for lab office in Cambridge, we believe we’ve developed to a value accretion margin in the range of 60% plus when comparing our current stabilized yield with current market cap rates,” Moglia says.
Anchored by Alphabet’s Life Science subsidiary Verily, the company delivered 139,810 square feet or 66% of the 279 East Grand building in South San Francisco in the first quarter at a very healthy 8.1% yield, he says. “Green Street’s current NAV model applies a 5.3% nominal cap rate to South San Francisco assets. So the 280 basis point spread over that benchmark makes 279 a significant new contributor to NAV.”
He adds that the company’s new flagship building on Lake Union in Seattle (188 East Blaine), delivered 90,615 square feet or 46% of the building at a 6.7% initial stabilized cash yield. “Steady leasing progress continued as we move from 49% leased at the end of 2018 to 67% leased at the end of the first quarter. And the limited supply in the market has enabled us to push rents above $60 net for the first time in our history there.”
As of the end of the first quarter, the company delivered 56,137 square feet or approximately half of Phase 1 of Alexandria Center for AgTech, also known as 5 Laboratory Drive in RTP. “This project has been very well received by the market and has reached 97% lease within 15 months of the commencement of construction.”