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Alexandria (ARE) Gears Up for Q2 Earnings: What to Expect?

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Alexandria Real Estate Equities ARE is scheduled to report second-quarter results on Jul 30, after the market closes. The company’s results will likely reflect year-over-year growth in its funds from operations (FFO) per share and revenues.

In the last reported quarter, this Pasadena, CA-based urban office real estate investment trust (REIT), which primarily focuses on collaborative life science and technology campuses, comfortably surpassed the Zacks Consensus Estimate for FFO per share. The company also beat revenue estimates on solid increase in rental rate and net operating income (NOI).

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in two occasions, missed in another and met in the other. It delivered an average positive surprise of 0.48% during this period. The graph below depicts this surprise history:

Alexandria Real Estate Equities, Inc. Price and EPS Surprise

Alexandria Real Estate Equities, Inc. Price and EPS Surprise | Alexandria Real Estate Equities, Inc. Quote

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Fundamentals of the office real estate market remained strong in the second quarter. In fact, going by numbers, per a study by the commercial real estate services firm, CBRE Group Inc. CBRE, net absorption for the quarter under review in the U.S office market increased by more than double sequentially.

This operating environment remains favorable for Alexandria, which focuses on Class A properties concentrated in urban campuses, primarily for the life-science and technology entities. The company’s properties are located in markets with high barriers to entry and exit. This adds to the productivity and efficiency of tenants. We anticipate rent escalations and healthy leasing activity to have driven revenues in the quarter. Further, we expect Alexandria to have witnessed solid demand for its properties from life-science and tech tenants.  

However, new supply for the April-June quarter exceeded the 10-million-square-foot mark, totaling 11.1 million square feet of space, with 60% of these deliveries pre-leased. In comparison, in the prior quarter, 70% of new deliveries were pre-leased. Although this underscores elevated demand for premier office space in major office markets, pre-leasing activity mellowed down as compared to the previous quarter.

In addition, Alexandria’s bottom-line performance is expected to display impact of the company’s strategy to sell non-core operating assets and non-strategic land parcels in a bid to finance pre-leased value-creation development and redevelopment projects.

Hence, there is lack of any solid catalyst prior to the second-quarter earnings release. As such, the Zacks Consensus Estimate of funds from operations (FFO) per share for the to-be-reported quarter fell by a cent to $1.64, over the past month, reflecting bearish analyst sentiment.

Furthermore, in three months’ time, shares of the company have gained 1.4%, while the industry recorded growth of 9.3%.


Earnings Whispers

Our proven model does not conclusively show that Alexandria is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Alexandria’s Earnings ESP is -0.15%.

Zacks Rank: The company carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

While the other players in this space are lined up to report financial results, below are two stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank stocks here.

Extra Space Storage EXR, slated to report second-quarter results on Jul 31, has an Earnings ESP of +0.44% and holds a Zacks Rank of 3.

HCP, Inc. HCP, set to release April-June quarter figures on Aug 2, has an Earnings ESP of +0.66% and a Zacks Rank of 3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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