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Alexandria (ARE) Beats Q1 FFO Estimates on Solid Revenues

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Alexandria Real Estate Equities, Inc. (ARE - Free Report) reported first-quarter 2018 adjusted funds from operations (FFO) of $1.62 per share, which surpassed the Zacks Consensus Estimate of $1.59. The figure also compared favorably with the year-ago quarter tally of $1.48.

Results reflect solid internal and external growth. The company experienced increase in rental rate and net operating income (NOI).

Total revenues for the quarter jumped 18.2% year over year to $320.1 million. In addition, the revenue figure comfortably exceeded the Zacks Consensus Estimate of $319.0 million.

Behind the Headline Numbers

Alexandria’s total leasing activity aggregated around 1,481,164 rentable square feet (RSF) of space during the first quarter. The company carried out lease renewals and re-leasing of space at rental rate growth of 16.3% and 19.0% (cash basis), respectively, during the quarter. In addition, key leases executed in the quarter included 593,765 RSF at 1655 and 1725 Third Street property in the Mission Bay/SoMa submarket leased to Uber Technologies, Inc. and 192,070 RSF at Summers Ridge Science Park in Sorrento Mesa submarket leased to Quidel Corporation.

On a year-over-year basis, same-property NOI grew 4.0%. It climbed 14.6% on a cash basis. Occupancy of operating properties in North America remained high at 96.6%.

As of first-quarter 2018, investment-grade or large cap tenants accounted for 57% of annual rental revenues in effect. Furthermore, 79% of the annual rental revenues are from Class A properties in AAA locations.

Notably, during the reported quarter, the company acquired 11 properties in four transactions, for a total of $320.5 million. The properties offer both current and future value-creation development and redevelopment scopes.

Liquidity

Alexandria exited first-quarter 2018 with cash and cash equivalents of $221.6 million, down from $254.4 million reported at the end of the prior quarter. The company had $2.3 billion of liquidity as of the first quarter.

Outlook

Alexandria expects adjusted FFO per share in the band of $6.52-$6.62 for 2018. The Zacks Consensus Estimate for the same is currently pegged at $6.57.

The company’s 2018 guidance is backed by expectations for occupancy in North America (as of Dec 31, 2018) in the range of 96.9-97.5%, rental rate increases for lease renewals and re-leasing of space of 13.0-16.0%, and same-property NOI growth of 2.5-4.5%.

Our Viewpoint

We are encouraged with the stellar performance of Alexandria in the Jan-Mar quarter. Notably, strong fundamentals of the life-science industry have enabled the company’s Class A properties in upscale locations to enjoy high occupancy. Additionally, Alexandria’s efforts to improve credit profile look encouraging. The company has adequate capital buffer which will likely cushion its position during any adverse situation. However, stiff competition and rate hike remain concerns.

Alexandria currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
 

We now look forward to the earnings releases of other REITs like Essex Property Trust Inc. (ESS - Free Report) , Host Hotels & Resorts, Inc. (HST - Free Report) and Federal Realty Investment Trust (FRT - Free Report) , all of which are slated to report quarterly numbers on May 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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