Why Is Alexandria Real Estate Equities (ARE) Down 6% Since Last Earnings Report?

It has been about a month since the last earnings report for Alexandria Real Estate Equities (ARE). Shares have lost about 6% in that time frame, outperforming 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 catalysts.

Alexandria's Q4 FFO Up Y/Y, Rental Rate Increases

Alexandria Real Estate Equities, Inc. reported fourth-quarter 2019 FFO as adjusted of $1.77 per share, up 5.4% from the year-ago quarter’s $1.68. However, the figure missed the Zacks Consensus Estimate of $1.78.

This year-over-year improvement resulted from top-line growth, which jumped 19.9% year over year to $408.1 million. Results reflect decent internal and external growth. The company witnessed continued strong leasing activity and rental rate growth during the quarter.

For full-year 2019, adjusted FFO per share came in at $6.96, higher than the prior-year tally of $6.60. Total revenues of $1.5 billion increased 15.4% year over year.

Behind the Headline Numbers

Alexandria’s total leasing activity aggregated to 1.75 million RSF of space during the December-end quarter. Lease renewals and re-leasing of space amounted to 571,650 RSF.

On a year-over-year basis, same-property NOI grew 2%. It climbed 4% on a cash basis. Occupancy of operating properties in North America remained high at 96.8%. The company registered decent rental rate growth of 37% in the reported quarter. On a cash basis, rental rate increased 21.7%.

As of fourth-quarter 2019, investment-grade or publicly-traded large-cap tenants accounted for 50% of annual rental revenues in effect. Furthermore, 76% of the annual rental revenues are from Class A properties in AAA locations. Weighted-average remaining lease term of all tenants is 8.1 years. For its top 20 tenants, it is 11.6 years.

During the October-December period, the company completed acquisitions of 23 properties for a total of $956.5 million. These acquisitions comprise 3.3 million RSF, including 2.1 million RSF of current and future value-creation opportunities.

Liquidity

Alexandria exited fourth-quarter 2019 with cash and cash equivalents of $189.7 million, down from the $410.7 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 issued its guidance for 2020 FFO per share in the range of $7.28-$7.48. The company’s current-year guidance is backed by expectations for occupancy in North America (as of Dec 31, 2020) in the band of 95.4-96%, rental rate increases for lease renewals, and re-leasing of space of 28-31%, and same-property NOI growth of 1.5-3.5%.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Alexandria Real Estate Equities has a nice Growth Score of B, 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 fifth 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 looks promising. 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.