UPDATE: Goldman Sachs Resumes Coverage on Alexandria Real Estate Equities with Neutral Rating, $70 PT

In a report published Friday, Goldman Sachs Group resumed coverage on Alexandria Real Estate Equities

with a Neutral rating and $70.00 price target. Goldman Sachs noted, “Although Alexandria has a high-quality portfolio and long-standing relationships with many of the highest profile tenants in the life science business, we think that much of ARE's value is ultimately tied up in its construction pipeline. Because ARE can develop at 7%-9% yields and fund with permanent capital in the 5%-6% range, development margins are indeed positive. But with the size of ARE's pipeline, slow demand, and projects taking longer to lease up than management had originally anticipated, the present value of the pipeline is likely below where ARE carries it on its balance sheet. This is essentially the difference between the undiscounted value of the assets and the net present value of the assets – there will be several years or more without cash flows from many of these projects. Moreover, most valuation metrics implicitly give ARE credit for the full value of its pipeline; see page 36 for a sensitivity analysis showing that ARE may be more expensive than it looks. We estimate that ARE trades at 21.6X 2013E AFFO, a 14% premium to BMR and a 2% premium to the overall REIT sector, and at 15.7X 2017E AFFO, in line with BMR and a 2% premium to the overall REIT sector.” Alexandria Real Estate Equities closed on Thursday at $72.98.