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Alexandria (ARE) to Post Q4 Earnings: What's in the Cards?

Zacks Equity Research

Alexandria Real Estate Equities ARE is scheduled to report fourth-quarter results on Feb 4, 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, posted adjusted FFO of $1.66 per share, missing the Zacks Consensus Estimate by a penny. Results reflected decent internal and external growth. The company witnessed increase in rental rate and net operating income (NOI).

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 0.16% 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

For 2018, Alexandria anticipates adjusted FFO per share of $6.59-$6.61. The Zacks Consensus Estimate for the same is pegged at $6.62, representing year-over-year growth of approximately 10%.

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

Factors to Consider

In the Oct-Dec quarter, Alexandria made strategic efforts to enhance its life-science and technology campus portfolio in a bid to gain from the strengthening industry fundamentals.

In October, the company started development of the North Tower at the Alexandria Centerfor Life Science – New York City, thereby, banking on the city’s emerging life-science cluster space.Further, the company expanded its ownership in New York City to more than two million rentable square feet (RSF) of space, including a development/redevelopment pipeline of 1.3 million RSF.

In addition, in December, it announced the expansion of the company’s full-service life-science start-up platform, Alexandria LaunchLabs, opening at the Alexandria Center in One Kendall Square. The platform intends to provide a solid start-up platform for life-science companies. This, in turn, will spur demand for life-science space.

Hence, we anticipate the company to have witnessed solid demand from life-science and tech tenants during the fourth 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 fourth-quarter revenues. In fact, the Zacks Consensus Estimate for the same is pegged at $344.5 million and reflects a year-over-year jump of 15.3%.

Although the company initiated development projects in a bid to strengthen its life-science portfolio, amid rising construction-cost scenario, we anticipate Alexandria to have witnessed cost overruns. This will likely decrease development returns for its development projects and in turn, adversely impact its fourth-quarter bottom-line performance. 

Lastly, the rising interest-rate environment remains a challenge, since the company has exposure to long-term leased assets. Furthermore, it is expected to have escalated cost of financing the company’s development pipeline.

Hence, there is lack of any solid catalyst prior to the fourth-quarter earnings release. As such, the Zacks Consensus Estimate for FFO per share for the to-be-reported quarter remained unchanged at $1.69 over the past month. Nonetheless, it represents year-over-year growth of 10.5%.

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 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 2, 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 their financial results, below are three 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.

AvalonBay Communities AVB, slated to report fourth-quarter results on Feb 4, has an Earnings ESP of +0.22% and holds a Zacks Rank of 3.

American Tower Corporation AMT, set to release earnings on Feb 27, has an Earnings ESP of +0.29% and carries a Zacks Rank of 3.

Omega Healthcare Investors, Inc. OHI, scheduled to report quarterly numbers on Feb 11, has an Earnings ESP of +0.26% and carries a Zacks Rank of 2.

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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