A month has gone by since the last earnings report for Alexandria Real Estate Equities (ARE - Free Report) . Shares have added about 3.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Alexandria Real Estate Equities due for a pullback? 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 Q3 FFO Meets Estimates, Rental Rate Grows
Alexandria reported third-quarter 2019 FFO as adjusted of $1.75 per share, in line with the Zacks Consensus Estimate. The figure improved 5.4% from the year-ago quarter’s reported tally of $1.66.
This improvement resulted from top-line growth, which jumped 14.2% year over year to $390.5 million and also outpaced the Zacks Consensus Estimate of $381.6 million.
Results reflect decent internal and external growth. The company witnessed continued strong leasing activity and rental rate growth in the quarter.
Behind the Headline Numbers
Alexandria’s total leasing activity aggregated to 1.2 rentable square feet (RSF) of space during the September-end quarter. Lease renewals and re-leasing of space amounted to 758,113 RSF.
On a year-over-year basis, same-property NOI grew 2.5%. It climbed 5.7% on a cash basis. Occupancy of operating properties in North America remained high at 96.6%. The company registered decent rental rate growth of 27.9% in the reported quarter. On a cash-basis, rental rate increased 11.2%.
As of third-quarter 2019, investment-grade or publicly-traded large-cap tenants accounted for 53% of annual rental revenues in effect. Furthermore, 78% of the annual rental revenues are from Class A properties in AAA locations. Weighted-average remaining lease term of all tenants is 8.3 years. For its top 20 tenants, it is 11.8 years.
Notably, during the July-September period, the company acquired 11 properties for a total of $459.2 million. These acquisitions include operating properties aggregating 546,389 RSF, of which 111,080 RSF are existing vacant space. Moreover, the buyouts include future development and redevelopment opportunities, totaling 537,850 RSF, positioned in multiple markets. Moreover, third-quarter commencements of development and redevelopment projects aggregated 447,998 RSF and involved three projects.
Alexandria exited third-quarter 2019 with cash and cash equivalents of $410.7 million, up from the $198.9 million reported at the end of the previous quarter. The company had $3.5 billion of liquidity as of the end of the reported quarter. Also, 95% of its net operating income is unencumbered.
Alexandria revised its guidance for adjusted FFO per share for 2019 to $6.95-$6.97 from the prior outlook of $6.92-$7.00. The company’s 2019 guidance is backed by expectations for occupancy in North America (as of Dec 31, 2019) in the band of 96.7-97.3%, rental rate increases for lease renewals, and re-leasing of space of 28-31%, and same-property NOI growth of 1.5-3.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
Currently, Alexandria Real Estate Equities has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Alexandria Real Estate Equities has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.