Alexandria (ARE) to Post Q3 Earnings: What's in the Offing?

Alexandria Real Estate Equities ARE is scheduled to report third-quarter results on Oct 30, after the market closes . The company's results will likely reflect year-over-year growth in its funds from operations (FFO) per share and revenues.

In the last reported quarter, this Pasadena, CA-based urban office real estate investment trust (REIT), which primarily focuses on collaborative life science and technology campuses, posted adjusted FFO of $1.64 per share, in line with the Zacks Consensus Estimate. Results reflected decent internal and external growth. The company witnessed increase in rental rate and NOI.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in two occasions, missed in another and met in the other. It delivered an average positive surprise of 0.48% during this period. The graph below depicts this surprise history:

Let's see how things are shaping up prior to this announcement.

Factors to Consider

In September, Alexandria's ratings were upgraded by Moody's Investors Service. Specifically, long-term issuer and senior unsecured ratings have been bumped up by a notch to Baa1 from Baa2.

In addition, it is expected to have witnessed solid demand trends from life science and tech tenants during the Jul-Sep quarter. Amid this favorable operating environment, we anticipate the company to have witnessed healthy rent escalations and leasing activity at positive rent spreads. This is expected to have boosted the company's third-quarter revenues. In fact, the Zacks Consensus Estimate for the same is pegged at $334.7 million and reflects a year-over-year jump of 17.3%.

Although fundamentals of the U.S. office real estate market remained strong in the quarter to be reported, going by numbers, per a report by the commercial real estate services firm, CBRE Group Inc. CBRE , net absorption in third quarter was 11 million square feet, reflecting a sequential decline.

Also, amid rising construction-cost environment, we anticipate the company to have witnessed cost overruns for its development projects. This is expected to adversely impact Alexandria's third-quarter bottom-line performance.

Lastly, the rising interest-rate environment remains a challenge, since the company has exposure to long-term leased assets. Furthermore, it is expected to have escalated financing cost for the company.

Hence, there is lack of any solid catalyst prior to the third-quarter earnings release. As such, the Zacks Consensus Estimate for FFO per share for the to-be-reported quarter remained unchanged at $1.67 over the past month.

Earnings Whispers

Our proven model does not conclusively show that Alexandria is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks ESP : Alexandria's Earnings ESP is -0.90%.

Zacks Rank : The company carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Iron Mountain Incorporated IRM , scheduled to release earnings on Oct 25, has an Earnings ESP of +0.62% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here.

Welltower Inc. WELL , slated to report Sep-end quarter results on Oct 30, has an Earnings ESP of +1.06% and a Zacks Rank of 3.

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

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

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