Alexandria (ARE) Q4 FFO & Revenues Miss Estimates, Up Y/Y

Alexandria Real Estate Equities, Inc. (NYSE:ARE) reported fourth-quarter 2018 adjusted funds from operations (FFO) of $1.68 per share, missing the Zacks Consensus Estimate by a whisker. Quarterly revenues of $340.5 million also missed Zacks Consensus Estimate of $344.5 million.

However, on a year-over-year basis, adjusted FFO per share increased 9.8% from $1.53 in the prior-year quarter while revenues jumped 13.9% year over year. Results reflect decent internal and external growth. Particularly, the company witnessed decent rental rate growth of 17.4% in the fourth quarter. However, expenses related to rental operations and interest rose 10.9% and 11.5% year over year, respectively.

For full-year 2018, adjusted FFO per share came in at $6.60, up 9.6% from the prior-year tally of $6.02. This was backed by a 17.7% increase in revenues to $1.3 billion.

Behind the Headline Numbers

Alexandria’s total leasing activity aggregated around 1,558,064 rentable square feet (RSF) of space during the quarter under review.

On a year-over-year basis, same-property NOI grew 3.8%. It climbed 7.6% on a cash basis. Occupancy of operating properties in North America remained high at 97.3%.

As of fourth-quarter 2018, investment-grade or large-cap tenants accounted for 52% of annual rental revenues in effect. Furthermore, 77% of the annual rental revenues are from Class A properties in AAA locations.

Notably, during the Oct-Dec quarter, the company acquired three properties, for $155.0 million, in two key submarkets.

Liquidity

Alexandria exited 2018 with cash and cash equivalents of $234.2 million, up from $204.2 million reported at the end of the previous quarter. The company had $2.4 billion of liquidity as of the end of the reported quarter.

Outlook

Alexandria guided its adjusted FFO per share for 2019 in the range of $6.85-$7.05. The Zacks Consensus Estimate for the same is currently pinned at $6.94 and lies within that range.

The company’s 2018 guidance is backed by expectations for occupancy in North America (as of Dec 31, 2019) in the band of 97.7- 98.3%, rental rate increases for lease renewals, and re-leasing of space of 25.0-28.0%, and same-property NOI growth of 1.0- 3.0%.

Our Viewpoint

We are slightly disappointed with Alexandria’s Q4 FFO per share and revenue miss. However, strong fundamentals of the life-science industry are expected to help the company’s Class A properties in upscale locations enjoy high occupancy. The company is also expanding its full-service life-science start-up platform, Alexandria LaunchLabs, with the opening of its first Cambridge location at the Alexandria Center in One Kendall Square (NYSE:SQ). Its effort to improve credit profile is also encouraging. Nonetheless, the company’s notable development pipeline exposes it to the risk of rising construction costs.

Alexandria currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alexandria Real Estate Equities, Inc. Price, Consensus and EPS Surprise

We now look forward to the earnings releases of other REITs like Medical Properties Trust, Inc. (NYSE:MPW) , Macerich Company (NYSE:MAC) and Ventas, Inc. (NYSE:VTR) , which are slated to report their quarterly numbers this week.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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