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Alexandria (ARE) to Post Q1 Earnings: Is a Beat in Store?

Zacks Equity Research

Alexandria Real Estate Equities ARE is scheduled to report first-quarter results on Apr 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, had posted first-quarter 2018 adjusted FFO of $1.68 per share, missing the Zacks Consensus Estimate by a whisker. Nonetheless, decent internal and external growth during the quarter enabled it to witnessed rental rate growth of 17.4%.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in one occasion, missed in another two and met in the other. It delivered average positive surprise of 0.18% 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

Robust fundamentals of the life-science and technology markets encouraged Alexandria to expand its footprint in top-tier cluster locations. Accordingly, in February, the company announced plans to expand its life-science cluster in Seattle, with a development project at 188 East Blaine Street and pre-construction measures for 1165 Eastlake Avenue East in Seattle.

In the same month, the company unveiled Alexandria GradLabs at its Campus Pointe complex in San Diego. In fact, growth of the life-science industry in San Diego is fueling demand for cluster campuses in the region. Hence, this new proprietary offering is a strategic fit for the company. Additionally, owing to its prime location and easy commuting options, Campus Pointe is expected to have witnessed healthy leasing activity and occupancy in the quarter under review.

Going by a CBRE Group CBRE report, the Boston-Cambridge region is emerging as a leading life-science cluster, as indicated by solid growth in rents and significant new lab space under construction. Further, the market is attracting large amount of funding.

Hence, Alexandria’s acquisition of 10 Necco St. parking garage for $81.1 million with National Development in March is a strategic fit.

Additionally, the company announced another plan to grow Alexandria LaunchLabs, its premier life science startup platform, and the Alexandria Seed Capital Platform, a funding model for seed-stage investments, in Alexandria’s Seattle cluster market for supporting continuing, transformative growth.

Hence, we anticipate the company to have witnessed solid demand from life-science and tech tenants during the first quarter, on the back of these efforts. Moreover, we expect the company to have witnessed healthy rent escalations and leasing activity at positive rent spreads, given the strategic location of its clusters. This will likely have boosted Alexandria’s first-quarter revenues. In fact, the Zacks Consensus Estimate for the same is pegged at $348 million and reflects a year-over-year jump of 8.7%.

Lastly, prior to the first-quarter earnings release, the company has been witnessing upward estimate revisions. As such, the Zacks Consensus Estimate of FFO per share for the quarter has been revised marginally upward to $1.68 over the past month, reflecting analysts’ bullish sentiments. Also, it represents year-over-year growth of 3.7%.

Earnings Whispers

Here is what our quantitative model predicts:

Alexandria has the right combination of two key ingredients — a positive Earnings ESP  and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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 +0.3%.

Zacks Rank: It currently carries a Zacks Rank of 2 (Buy).

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Welltower, Inc. WELL, scheduled to release earnings on Apr 30, has an Earnings ESP of +0.9% and a carries Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mack-Cali Realty Corporation CLI, slated to report first-quarter results on May 1, has an Earnings ESP of +1.2% and holds a Zacks Rank of 3.

Duke Realty Corporation DRE, set to release its quarterly numbers on Apr 25, has an Earnings ESP of +3.94% and carries 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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