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Alexandria (ARE) Q3 FFO Misses Estimates, Revenues Improve


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Alexandria Real Estate Equities, Inc. ARE reported third-quarter 2018 adjusted funds from operations (FFO) of $1.66 per share. The figure compares favorably with the year-ago tally of $1.51, however, missed the Zacks Consensus Estimate by a penny.

Results reflect decent internal and external growth. The company witnessed increase in rental rate and net operating income (NOI). Particularly, it witnessed record rental rate growth of 35.4% in the third quarter, which marks the highest increase over the past 10 years. However, interest expense was higher in the quarter.

Total revenues for the quarter jumped 19.8% year over year to $341.8 million. The revenue figure also surpassed the Zacks Consensus Estimate of $329.7 million.

Behind the Headline Numbers

Alexandria's total leasing activity aggregated around 696,468 rentable square feet (RSF) of space during the quarter under review.

On a year-over-year basis, same-property NOI grew 3.4%. It climbed 8.9% on a cash basis. Occupancy of operating properties in North America remained high at 97.3%.

As of third-quarter 2018, investment-grade or large-cap tenants accounted for 52% of annual rental revenues in effect. Furthermore, 77% of the annual rental revenues are from Class A properties in AAA locations.

However, interest expense of $42.2 million came in 36.1% higher than the prior-year tally.

Notably, during the Jul-Sep quarter, the company acquired two properties and one land parcel, for a total of $257.0 million, in key sub-markets.

Liquidity

Alexandria exited the third quarter with cash and cash equivalents of $204.2 million, down from $287 million reported at the end of the previous quarter. The company had $2.9 billion of liquidity as of the end of the reported quarter.

Outlook

Alexandria narrowed its adjusted FFO per share outlook to $6.59 to $6.61, from the previous projection of $6.57 to $6.63. The Zacks Consensus Estimate for the same is currently pinned at $6.61.

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 22.5-25.5% compared with the prior projection of 17-20%, and same-property NOI growth of 2.5-4.5%.

Our Viewpoint

Robust fundamentals of the life-science industry are expected to help the company's Class A properties in upscale locations enjoy high occupancy. Additionally, the recently-delivered projects are anticipated to stoke NOI growth over the long run.

Nonetheless, rising interest rates have dampened the company's operating fundamentals, as underlined by higher interest expenses incurred in the third quarter. Furthermore, fierce competition remains another headwind.

Alexandria currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Alexandria Real Estate Equities, Inc. Price, Consensus and EPS Surprise

Alexandria Real Estate Equities, Inc. Price, Consensus and EPS Surprise | Alexandria Real Estate Equities, Inc. Quote

We now look forward to the earnings releases of other REITs like Mid-America Apartment Communities, Inc. MAA , Federal Realty Investment Trust FRT and Realty Income Corp. O , which are slated to report their quarterly numbers on Oct 31.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: O , FRT , MAA , ARE



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