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Alexandria Real Estate Equities (ARE) Up 1.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Alexandria Real Estate Equities (ARE). Shares have added about 1.9% 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 catalysts.

Alexandria Q2 FFO Beats on Solid Rental Rate Growth

Alexandria reported second-quarter 2021 FFO as adjusted of $1.93 per share, up 6.6% from the year-ago quarter’s $1.81. The figure also surpassed the Zacks Consensus Estimate of $1.89.

This year-over-year improvement resulted from the 16.6% year-over-year top-line improvement to $509.6 million. Results reflect decent internal growth. The company witnessed continued healthy leasing activity and rental rate growth during the quarter.

Though the company revised the 2021 outlook, it kept the mid-point of its FFO as adjusted per share guidance unchanged at $7.75.

In addition, management noted that the company’s tenant collections have been consistently high, with 99.4% of July 2021 billings collected as of Jul 26, 2021. Also, as of Jun 30, 2021, the tenant receivables balance was $6.7 million and this marked its lowest balance since 2012.

Behind the Headline Numbers

Reflecting robust demand for its high-quality office/laboratory space, Alexandria’s total leasing activity aggregated to 1.93 million RSF of space during the June-end quarter. It marked the highest leasing activity in a single quarter and the second highest rental rate growth in the company’s history. Lease renewals and re-leasing of space amounted to 1.47 million RSF. Leasing of development and redevelopment space was 256,328 RSF.The company registered rental rate growth of 42.4% during the reported quarter. On a cash basis, rental rate increased 25.4%.

On a year-over-year basis, same-property NOI was up 3.7%. It climbed 7.8% on a cash basis. Occupancy of operating properties in North America remained high at 94.3%.

As of second-quarter 2021, investment-grade or publicly-traded large-cap tenants accounted for 53% of annual rental revenues in effect. Weighted-average remaining lease term of all tenants is 7.5 years. For the company’s top 20 tenants, it is 11.1 years.

During the April-June period, the company completed acquisitions in its key life science cluster submarkets totaling 5.5 million SF, 4.7 million RSF of value-creation opportunities, and 0.9 million RSF of operating space, for a total price of $1.1 billion.

Moreover, the company entered into a definitive agreement in June to expand its Alexandria Center on the Kendall Square campus through the acquisition of a 100% interest in One Rogers Street and One Charles Park for a purchase price of $815 million. This acquisition is expected to complete in December 2021 and would offer a major expansion to Alexandria’s mega campus strategy in the Cambridge submarket.

During the reported quarter, the company placed into service development and redevelopment projects totaling 755,565 RSF, which are 100% leased across five submarkets.

Liquidity

Alexandria exited second-quarter 2021 with cash and cash equivalents of $323.9 million, down from the $492.2 million seen at the end of first-quarter 2021. The company had $4.5 billion of liquidity as of the end of the reported quarter. Net debt and preferred stock to adjusted EBITDA was 5.8x and fixed-charge coverage ratio was 4.9x for second-quarter 2021 annualized. The company has no debt maturities prior to 2024 and its weighted-average remaining term of debt as of Jun 30, 2021 is 12.5 years.

Outlook

Alexandria also revised the 2021 outlook, guiding FFO as adjusted per share in the range of $7.71-$7.79 compared with the $7.70-$7.80 estimated earlier, keeping the mid-point unchanged.

The company’s current-year guidance is backed by anticipations for occupancy in North America (as of Dec 31, 2021) in the band of 94.3-94.9%, rental rate increases for lease renewals, and re-leasing of space of 31-34%, and same-property NOI growth of 2-4%.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

Currently, Alexandria Real Estate Equities has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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