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Alexandria (ARE) Q2 FFO Beats on Solid Rental Rate Growth

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Alexandria Real Estate Equities, Inc. (ARE - Free Report) reported second-quarter 2021 funds from operations (FFO) as adjusted of $1.93 per share, up 6.6% from the year-ago quarter’s $1.81. The figure also surpassed the Zacks Consensus Estimate of $1.89.

This year-over-year improvement resulted from the 16.6% year-over-year top-line improvement to $509.6 million. Results reflect decent internal growth. The company witnessed continued healthy leasing activity and rental rate growth during the quarter.

Though the company revised the 2021 outlook, it kept the mid-point of its FFO as adjusted per share guidance unchanged at $7.75.

In addition, management noted that the company’s tenant collections have been consistently high, with 99.4% of July 2021 billings collected as of Jul 26, 2021. Also, as of Jun 30, 2021, the tenant receivables balance was $6.7 million and this marked its lowest balance since 2012.

Behind the Headline Numbers

Reflecting robust demand for its high-quality office/laboratory space, Alexandria’s total leasing activity aggregated to 1.93 million rentable square feet (RSF) of space during the June-end quarter. It marked the highest leasing activity in a single quarter and the second highest rental rate growth in the company’s history. Lease renewals and re-leasing of space amounted to 1.47 million RSF. Leasing of development and redevelopment space was 256,328 RSF.

The company registered rental rate growth of 42.4% during the reported quarter. On a cash basis, rental rate increased 25.4%.

On a year-over-year basis, same-property NOI was up 3.7%. It climbed 7.8% on a cash basis. Occupancy of operating properties in North America remained high at 94.3%.

As of second-quarter 2021, investment-grade or publicly-traded large-cap tenants accounted for 53% of annual rental revenues in effect. Weighted-average remaining lease term of all tenants is 7.5 years. For the company’s top 20 tenants, it is 11.1 years.

During the April-June period, the company completed acquisitions in its key life science cluster submarkets totaling 5.5 million SF, 4.7 million RSF of value-creation opportunities, and 0.9 million RSF of operating space, for a total price of $1.1 billion.

Moreover, the company entered into a definitive agreement in June to expand its Alexandria Center on the Kendall Square campus through the acquisition of a 100% interest in One Rogers Street and One Charles Park for a purchase price of $815 million. This acquisition is expected to complete in December 2021 and would offer a major expansion to Alexandria’s mega campus strategy in the Cambridge submarket.

During the reported quarter, the company placed into service development and redevelopment projects totaling 755,565 RSF, which are 100% leased across five submarkets.

Liquidity

Alexandria exited second-quarter 2021 with cash and cash equivalents of $323.9 million, down from the $492.2 million seen at the end of first-quarter 2021. The company had $4.5 billion of liquidity as of the end of the reported quarter. Net debt and preferred stock to adjusted EBITDA was 5.8x and fixed-charge coverage ratio was 4.9x for second-quarter 2021 annualized.The company has no debt maturities prior to 2024 and its weighted-average remaining term of debt as of Jun 30, 2021 is 12.5 years.

Outlook

Alexandria also revised the 2021 outlook, guiding FFO as adjusted per share in the range of $7.71-$7.79 compared with the $7.70-$7.80 estimated earlier, keeping the mid-point unchanged. The Zacks Consensus Estimate for the same is currently pinned at $7.77.

The company’s current-year guidance is backed by anticipations for occupancy in North America (as of Dec 31, 2021) in the band of 94.3-94.9%, rental rate increases for lease renewals, and re-leasing of space of 31-34%, and same-property NOI growth of 2-4%.

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

We now look forward to the earnings releases of other REITs like AvalonBay Communities (AVB - Free Report) , Duke Realty (DRE - Free Report) and Equinix, Inc. (EQIX - Free Report) scheduled for Jul 28.

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.