Alexandria Real Estate Equities, Inc.ARENYSE

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DCF Valuation

⚠️Model Warnings

•Terminal value represents 87% of enterprise value. Valuation highly sensitive to long-term assumptions.

DCF Valuation Summary

Strong Buy

Fair Value: $174.17 per share(market-calibrated)

+233.5%

Upside to Fair Value

Current

$52.22

Pure Model

$200.23

Fair Value

$174.17

Bull Case

$228.79

Bear Case

$170.64

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $200.23.

What's Driving This Ratingfor ARE

↓

CapEx normalizing toward maintenance

Historical CapEx is 49.37% of revenue (heavy investment phase). Model fades this to 2.50% by Year 10, freeing up ~$2.0B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 13.90% — below the sector mature average of 30.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $1.1B (26.62% margin).

→

Moderate revenue growth

Analyst consensus projects -38.60% revenue growth, fading to 2.50% by Year 10. Revenue reaches $4.3B (vs $3.0B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $234.33/share (34.2x terminal FCF) while exit multiple gives $166.12/share (25.5x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 86.42% indicates efficient cash generation. FCF reaches $2.3B by Year 10 (53.04% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.32

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.44%

Cost of Debt

Pre-tax Cost of Debt1.13%

Tax Rate21.00%

After-tax Cost of Debt0.90%

Equity Weight (E/V)41.08%

Debt Weight (D/V)58.92%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (41.08% × 10.44%) + (58.92% × 0.90%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$1.8B	$2.8B	$3.8B	$4.0B	$4.3B
EBIT	$253M	$394M	$748M	$934M	$1.1B
Tax	$53M	$83M	$157M	$196M	$240M
NOPAT	$200M	$312M	$591M	$738M	$904M
+ Depreciation	$634M	$986M	$1.3B	$1.4B	$1.5B
- Capex	$901M	$1.1B	$1.1B	$723M	$107M
- Δ NWC	-$115M	$105M	$9M	$10M	$10M
Free Cash Flow	$48M	$87M	$818M	$1.4B	$2.3B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$46M	$74M	$626M	$957M	$1.3B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.3B

Terminal Growth Rate2.50%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$77.9B

PV of Terminal Value$45.6B

Exit Multiple Method

Year 10 EBITDA$2.6B

Exit Multiple (EV/EBITDA)22.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$58.0B

PV of Terminal Value$34.0B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$6.5B

PV of Terminal Value$45.6B

Enterprise Value$52.1B

(-) Net Debt$12.2B

Equity Value$39.9B

Shares Outstanding170M

Price per Share$234.33

Exit Multiple Method

PV of Projected FCFs$6.5B

PV of Terminal Value$34.0B

Enterprise Value$40.5B

(-) Net Debt$12.2B

Equity Value$28.3B

Shares Outstanding170M

Price per Share$166.12

Pure Model Fair Value

$200.23

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
3.50%	$334.12	$316.65	$300.01	$284.17	$269.08
4.50%	$225.00	$255.00	$300.01	$284.17	$269.08
5.50%	$165.80	$180.55	$200.23	$227.77	$269.08
6.50%	$127.16	$135.59	$146.13	$159.69	$177.76
7.50%	$99.21	$104.49	$110.84	$118.59	$128.28

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$170.64

226.8% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.65

Base Case

$200.23

283.4% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.32

Bull Case

$228.79

338.1% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 1.12

Key Assumptions & Drivers• Real Estate Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-38.60%

Year 3 Revenue Growth58.61%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin13.90%

Terminal EBIT Margin30.00%

Tax Rate21.00%

Historical Capex / Rev49.37%

Terminal Capex / Rev2.50%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 22x EV/EBITDA (Real Estate sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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