Alexandria reit lures biotech investors with lab space
California-based trust a favourite target for fund managers thanks to its large collection of high-end laboratory space
The booming biotech sector is putting a premium on laboratory space, and fund managers are buying in.
One of their favourite targets is Pasadena, California-based Alexandria Real Estate Equities, which owns the largest collection of high-end lab space in such research clusters as San Diego, San Francisco and Cambridge, Massachusetts.
A total of 64 mutual funds and hedge funds have reported adding shares of the company to their portfolios in the current quarter, a 56 per cent jump from the September quarter, according to Morningstar data.
Those buys come on the heels of a steep decline in biotech stocks generally because of concerns that legislation could bring caps to drug prices.
Shares of Alexandria fell by as much as 10 per cent during the sell-off, while the broader Nasdaq biotechnology index tumbled as much as 24 per cent before hitting a low at the end of September. Fund managers say that they pounced on shares of a company they see as uniquely positioned to benefit from an ageing US population that will spur the development of new drugs. US-based life science firms have added about 80,000 employees since 2011, according to real estate research firm JLL.
That has helped push rents for lab spaces up by 7.4 per cent over the last year in Boston, the nation's most expensive market for life science firms, while San Francisco rose 16.9 per cent and San Diego is up 15.5 per cent.
Investors who go long on lab space instead of the biotech companies that use it do not have to worry about which drugs will emerge as winners and which will not.
“They own the best real estate in the best health-care-focused markets in the country,” said Jeffrey Kolitch, whose US$1.8 billion Baron Real Estate fund is the top-performing real estate fund over the last five years, according to Morningstar.
With its fortunes directly tied to the health of tenants including Biogen, Novartis, Eli Lilly and Roche, Alexandria has long traded in tandem with the pharmaceutical and biotech industries.
At the same time, the shares are benefiting from the acquisition of BioMed Realty Trust – its chief competitor among life-sciences focused reits – by private equity group Blackstone for US$4.8 billion on October 8.
Blackstone paid a 24 per cent premium for BioMed's assets, which Kolitch estimates were in less desirable locations than Alexandria's and suggests that Alexandria would fetch a higher valuation.