Alexandria Real Estate Equities (ARE) Down 1.1% 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 1.1% 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 Q1 FFO In Line, Rental Rates Rise Y/Y
Alexandria delivered first-quarter 2020 FFO as adjusted of $1.82 per share, up 6.4% from the year-ago quarter’s $1.71. The reported figure came in line with the Zacks Consensus Estimate.
This year-over-year improvement resulted from top-line growth, which jumped 22.6% year over year to $439.9 million. The company witnessed continued strong leasing activity and rental rate growth during the quarter. It witnessed the highest quarterly rental rate growth over the past 10 years.
Nonetheless, the company revised its full-year outlook in the wake of the coronavirus pandemic and the prevailing market conditions.
It also apprised of its accounts receivable balance as of Apr 24, 2020 with 98.4% of April 2020 rent collected. Alexandria’s tenant receivables balance stands at $7.3 million, the lowest since 2012.
With the prevailing uncertain situation due to the coronavirus pandemic, the company has reduced its construction-spend forecast for 2020 from $1.6 billion to $960 million. The expected acquisitions for 2020 have also been reduced from $950 million to $650 million.
Behind the Headline Numbers
Alexandria’s total leasing activity aggregated to 703,355 RSF of space during the March-end quarter. Lease renewals and re-leasing of space amounted to 557,367 RSF.
On a year-over-year basis, same-property NOI was up 2.4%. It climbed 6.1% on a cash basis. Occupancy of operating properties in North America remained high at 97.5%. The company registered strong rental rate growth of 46.3% in the reported quarter, denoting the highest quarterly rental rate growth over the past decade. On a cash basis, rental rate increased 22.3%.
As of first-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 its top 20 tenants, it is 11.4 years.
During the January-March period, the company completed acquisitions of 11 properties for a total of $484.6 million.
Liquidity
Alexandria exited first-quarter 2020 with cash and cash equivalents of $445.3 million, up from the $189.7 million reported at the end of the previous quarter. The company had $4 billion of liquidity as of the end of the first quarter. Also, it has no debt maturities until 2023.
Guidance
In light of the coronavirus pandemic and the choppy market conditions, the company has revised its FFO per share guidance to $7.25-$7.35 from $7.28-$7.48.
The revision is based on a reduction of eight cents in projected revenues from its retail tenancy and transient/short-term parking business, higher interest costs and updated timing of deliveries, offset by an improvement in EBITDA from its core operations.
The company also anticipates a reduction in its projected remaining required sources of capital.
The company’s current-year guidance is backed by expectations for occupancy in North America (as of Apr 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%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, Alexandria Real Estate Equities has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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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