Technology

Alexandria Real Estate Equities (ARE) Down 1.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Alexandria Real Estate Equities (ARE). Shares have lost about 1.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Alexandria Real Estate Equities due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Alexandria's Q2 FFO In Line, Rental Rates Rise Y/Y

Alexandria delivered second-quarter 2020 FFO as adjusted of $1.81 per share, up 4.6% from the year-ago quarter’s $1.73.  The reported figure came in line with the Zacks Consensus Estimate.

This improvement resulted from year-over-year top-line growth of 16.9% to $437 million. The company witnessed continued strong leasing activity and rental rate growth during the quarter.

The company noted that as of Jul 24, 2020, it collected 99% of July 2020 rents and tenant recoveries and 99.4% of June 2020 rents and tenant recoveries. Moreover, Alexandria’s tenant receivables balance stands at $7.2 million as of Jun 30, 2020, marking the lowest since 2012.

Behind the Headline Numbers

Alexandria’s total leasing activity aggregated to 1.1 million rentable square feet (RSF) of space during the June-end quarter. Lease renewals and re-leasing of space amounted to 699,130 RSF.

On a year-over-year basis, same-property NOI was up 0.6%. It climbed 2.5% on a cash basis. Occupancy of operating properties in North America remained high at 97.1%. The company registered decent rental rate growth of 37.2% in the reported quarter. On a cash basis, rental rate increased 15%.

As of second-quarter 2020, investment-grade or publicly-traded large-cap tenants accounted for 51% of annual rental revenues in effect. Furthermore, 74% of the annual rental revenues are from Class A properties in AAA locations. Weighted-average remaining lease term of all tenants is 7.8 years. For the company’s top 20 tenants, it is 11.2 years.

During the April-June period, the company completed the acquisitions of four properties for a total of $215.3 million. These acquisitions comprise 1.6 million RSF, including 1.4 million RSF of future value-creation opportunities.

Liquidity

Alexandria exited the second quarter with cash and cash equivalents of $206.9 million, down from the $445.3 million reported at the end of the previous quarter. The company had $4.2 billion of liquidity as of the end of the reported quarter. Also, it has zero debt maturing until 2023.

Guidance

The company has revised its FFO per share guidance for 2020 to $7.26-$7.34 from $7.25-$7.35.

The company’s current-year guidance is backed by expectations for occupancy in North America (as of Jul 27, 2020) in the band of 94.8-95.4%, rental rate increases for lease renewals, and re-leasing of space of 28-31%, and same-property NOI growth of 1-3%.

The company has increased its construction-spend forecast for 2020 from $960 million to $1.35 billion. Further, it projected an additional $900 million to $1.3 billion of real estate acquisitions in the second half of 2020, including acquisitions completed in July 2020.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

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 bottom 20% 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. 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.


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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.

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