Alexandria (ARE) Gears Up For Q4 Earnings: What's In Store?

Alexandria Real Estate Equities Inc. (NYSE:ARE) is scheduled to report fourth-quarter and full-year 2019 results on Feb 3, after market close. The company’s results will likely reflect year-over-year growth in its funds from operations (FFO) per share.

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, delivered an in-line performance with respect to FFO per share. Results reflected decent internal and external growth. The company witnessed continued strong leasing activity and rental rate growth during this period.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions, met in another and missed in the other. It came up with an average positive surprise of 0.45% 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

Strong leasing activity and rental rate growth helped Alexandria excel in the first nine months of the year. Given the company’s portfolio of high quality and well-located life-science assets in key life-science clusters, this trend is expected to have continued in the fourth quarter as well.

Additionally, high demand for Alexandria’s Class A properties in AAA locations is likely to have boosted occupancy in the company’s portfolio in the December-end quarter. This, in turn, is expected to have driven decent rent escalations and positive rent spreads.

However, prior to the fourth-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the October-December period remained unchanged at $1.79, over the past 30 days. Nonetheless, it suggests year-over-year growth of 6.6%.

For full-year 2019, the company expects adjusted FFO per share of $6.95-$6.97. The company’s 2019 guidance is backed by expectations for occupancy in North America (as of Dec 31, 2019) in the band of 96.7-97.3%, rental rate increases for lease renewals, and re-leasing of space of 28-31%, and same-property NOI growth of 1.5-3.5%. Notably, the Zacks Consensus estimate for full-year 2019 FFO per share is currently pinned at $6.97, indicating 5.6% growth year on year.

Key Developments in Q4

On Nov 25, Alexandria announced the launch of a first-of-its-kind life-science consortium to accelerate advanced biological innovation and manufacturing in the Greater Boston region. The consortium consists of top-tier academic institutions, life-science industry partners and research hospitals situated in Massachusetts. As a founding member of the consortium, Alexandria will serve in the board of directors.

This innovative and collaborative center will work on the need for the development of important advanced technologies and address the robust demand for higher access to viral vector manufacturing production and next-generation cell. Further, it will offer a workforce development platform that will accelerate translation of emerging technologies into cost-effective and high-impact medicines aimed at preventing, treating and curing devastating diseases. This will improve patient lives and reduce the cost burden of diseases on society.

Alexandria has played a pivotal role in developing life-science cluster in the Greater Boston area. It has provided leading life-science companies with highly effective, first-in-class infrastructure and strategic venture capital, thereby facilitating innovation, job growth and economic diversity in this significant cluster. In fact, its asset base in Greater Boston spans more than 6.5 million RSF of office/laboratory space that is highly leased. This includes 5 million RSF in the Cambridge submarket.

Earnings Whispers

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Alexandria this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Alexandria carries a Zacks Rank of 3, its Earnings ESP of -0.38% makes surprise prediction difficult.

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:

Healthpeak Properties, Inc. (NYSE:PEAK) , slated to release fourth-quarter earnings on Feb 11, has an Earnings ESP of +1.15% and carries a Zacks Rank of 3, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Iron Mountain Incorporated (NYSE:IRM) , set to report quarterly numbers on Feb 13, has an Earnings ESP of +1.94% and carries a Zacks Rank of 3, currently.

Host Hotels & Resorts, Inc. (NYSE:HST) , scheduled to release October-December quarter results on Feb 19, has an Earnings ESP of +1.52% and currently holds a Zacks Rank #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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