It has been about a month since the last earnings report for Alexandria Real Estate Equities (ARE). Shares have lost about 1.2% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Alexandria Real Estate Equities due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Alexandria Q2 FFO Beats Estimates on Rental Rate Growth
Alexandria reported second-quarter 2019 FFO, as adjusted of $1.73 per share, beating the Zacks Consensus Estimate by a whisker. The figure also improved from the year-ago quarter’s reported tally of $1.64.
This better-than-expected performance was backed by growth in revenues, which jumped 15% year over year to $373.9 million, outpacing the Zacks Consensus Estimate of $365.3 million.
Results reflect decent internal and external growth. The company recorded continued rental rate growth, while lease renewal and re-leasing of space activity were strong in the quarter.
Behind the Headline Numbers
Alexandria’s total leasing activity aggregated to 819,949 rentable square feet (RSF) of space during the June-end quarter. Lease renewals and re-leasing of space amounted to 587,930 RSF.
On a year-over-year basis, same-property NOI grew 4.3%. It climbed 9.5% on a cash basis. Occupancy of operating properties in North America remained high at 97.4%. The company witnessed decent rental rate growth of 32.5% in the second quarter. On a cash-basis, rental rate increased 17.8%.
As of second-quarter 2019, investment-grade or publicly traded large-cap tenants accounted for 53% of annual rental revenues in effect. Furthermore, 77% of the annual rental revenues are from Class A properties in AAA locations. Weighted-average remaining lease term of all tenants is 8.4 years. For its top 20 tenants, it is 12 years.
Notably, during the April-June quarter, the company acquired three properties and a land parcel for a total of $296.5 million. Moreover, second-quarter commencements of development projects aggregated 841,178 RSF.
Alexandria exited second-quarter 2019 with cash and cash equivalents of $198.9 million, down from the $261.4 million reported at the end of the previous quarter. However, the company had $3.4 billion of liquidity as of the end of the reported quarter. Also, 94% of its net operating income is unencumbered.
Alexandria revised its guidance for adjusted FFO per share for 2019 to $6.92-$7.00 from the prior outlook of $6.90-$7. The company’s 2019 guidance is backed by expectations for occupancy in North America (as of Dec 31, 2019) in the band of 97.2-97.8%, rental rate increases for lease renewals, and re-leasing of space of 27-30%, and same-property NOI growth of 1-3%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
At this time, Alexandria Real Estate Equities has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. It comes with little surprise Alexandria Real Estate Equities has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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