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Alexandria (ARE) Q2 FFO In Line, Revenues Miss, '18 View Up

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Alexandria Real Estate Equities, Inc. (ARE - Free Report) reported second-quarter 2018 adjusted funds from operations (FFO) of $1.64 per share, which came in line with the Zacks Consensus Estimate. The figure also compares favorably with the year-ago tally of $1.50.

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

Total revenues for the quarter jumped 19% year over year to $325 million. However, the revenue figure missed the Zacks Consensus Estimate of $330.8 million.

Behind the Headline Numbers

Alexandria’s total leasing activity aggregated around 985,996 rentable square feet (RSF) of space during the quarter under review. The company carried out lease renewals and re-leasing of space at rental rate growth of 24% and 12.8% (cash basis), respectively, during the quarter. In addition, key leases executed in Q2 included 152,157 RSF at the 215 First Street property in the Cambridge submarket leased to Sarepta Therapeutics, Inc. and 110,000 RSF at 960 Industrial Road in Greater Stanford submarket leased to Joby Aero, Inc.

On a year-over-year basis, same-property NOI grew 4.1%. It climbed 6.3% on a cash basis. Occupancy of operating properties in North America remained high at 97.1%.

As of second-quarter 2018, investment-grade or large-cap tenants accounted for 55% of annual rental revenues in effect. Furthermore, 78% of the annual rental revenues are from Class A properties in AAA locations.

Notably, during the April-June quarter, the company acquired 14 properties and four land parcels, for a total of $662.9 million.

Liquidity

Alexandria exited the second quarter with cash and cash equivalents of $287 million, down from $221.6 million reported at the end of the previous quarter. The company had $2.9 billion of liquidity as of the end of the second quarter.

Outlook

Alexandria expects adjusted FFO per share of $6.57 to $6.63, up from the previous projection of $6.52 to $6.62 for 2018. The Zacks Consensus Estimate for the same is currently pegged at $6.60 which is the mid-point of the guidance.

The company’s 2018 guidance is backed by expectations for occupancy in North America (as of Dec 31, 2018) in the band of 97.1-97.7%, rental rate increases for lease renewals and re-leasing of space of 17-20%, and same-property NOI growth of 2.5-4.5%.

Our Viewpoint

We are encouraged with the decent performance of Alexandria in the June-end season. Notably, strong fundamentals of the life-science industry have enabled the company’s Class A properties in upscale locations to enjoy high occupancy. Additionally, recently-delivered projects are anticipated to stoke significant NOI growth in the near term.

Nonetheless, rising interest rates have dampened the company’s operating fundamentals, as underlined by higher interest expenses incurred in Q2. Further, fierce competition remains another headwind.

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 The Macerich Company (MAC - Free Report) , Federal Realty Trust (FRT - Free Report) and Mark Cali Realty (CLI - Free Report) . All three companies are scheduled to report their Q2 numbers on Aug 1.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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