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Alexandria (ARE) Q1 FFO Tops on Rent Growth, '23 View Revised

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Alexandria Real Estate Equities, Inc. (ARE - Free Report) reported first-quarter 2023 adjusted funds from operations (AFFO) per share of $2.19, surpassing the Zacks Consensus Estimate of $2.15. The reported figure climbed 6.8% from the year-ago quarter’s tally. We estimated AFFO per share for the quarter to be $2.14.

Results reflect better-than-anticipated revenues on healthy leasing activity and solid rental rate growth.

Total revenues of $700.8 million in the quarter, too, outpaced the consensus estimate of $679.9 million. The figure increased 13.9% from the prior-year quarter’s $615.1 million. Our estimate for first-quarter total revenues was pegged at $679.3 million.

Behind the Headlines

Reflecting robust demand for its high-quality office/laboratory space, Alexandria’s total leasing activity aggregated 1.2 million rentable square feet (RSF) of space in the first quarter. Lease renewals and re-leasing of space amounted to 1.1 million RSF.

Alexandria registered rental rate growth of 48.3% during the reported quarter. On a cash basis, the rental rate increased 24.2%.

On a year-over-year basis, same-property net operating income (NOI) was up 3.7%. It improved 9% on a cash basis. The occupancy of operating properties in North America was 93.6%, down from 94.7% in the prior-year quarter.

In the reported quarter, investment-grade or publicly-traded large-cap tenants accounted for 49% of the annual rental revenues in effect. The weighted-average remaining lease term of all tenants is 7.2 years. For Alexandria’s top 20 tenants, it is 9.5 years.

As of Mar 31, 2023, the tenant receivable balance was $8.2 million.

Alexandria completed acquisitions totaling 1.1 million RSF of value-creation opportunities for a total price of $171.9 million. Also, the company placed into service development and redevelopment projects totaling 453,511 RSF across multiple submarkets, which resulted in $23 million of incremental annual NOI.

Liquidity

Alexandria exited first-quarter 2023 with cash and cash equivalents of $1.3 billion, up from $825.2 million as of Dec 31, 2022. It had $5.3 billion of liquidity at the end of the reported quarter.

The net debt and preferred stock to adjusted EBITDA was 5.3X, and the fixed-charge coverage was 5.0X in the first quarter on an annualized basis. As of the first-quarter end, ARE had no debt maturities before 2025, and its weighted-average remaining term was 13.4 years.

As of Mar 31, 2023, the company’s remaining aggregate amount available under its at-the-market program for future sales of common stock was $141.9 million.

Revised 2023 Guidance

Alexandria narrowed its 2022 guidance for AFFO per share.

It now projects the same to lie in the range of $8.91-$9.01, narrowed by 10 cents from $8.86-$9.06 estimated earlier. The mid-point was unchanged at $8.96. The Zacks Consensus Estimate for the FFO per share is currently pegged at $8.95, which lies within the guided range.

While ARE maintained its guidance for same-property NOI growth at 2-4%, it increased the same for rental rate increases for lease renewals and re-leasing of space from 27-32% to 28-33%. However, it lowered its guidance for occupancy in North America (as of Dec 31, 2023) in the band of 94.6-95.6% from 94.8-95.8% guided earlier.

Alexandria currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Earnings Releases

We now look forward to the earnings releases of other REITs like SBA Communications (SBAC - Free Report) , slated to report on May 1. Host Hotels & Resorts (HST - Free Report) and Equinix (EQIX - Free Report) are scheduled on May 3.

The Zacks Consensus Estimate for SBA Communications’ first-quarter 2023 FFO per share is pegged at $3.11, suggesting year-over-year growth of 5.1%. SBAC currently carries a Zacks Rank #3.

The Zacks Consensus Estimate for Host Hotels & Resorts’ first-quarter 2023 FFO per share is pegged at 47 cents, implying a year-over-year increase of 20.5%. HST currently carries a Zacks Rank of 3.

The Zacks Consensus Estimate for Equinix’s first-quarter 2023 FFO per share stands at $7.92, indicating a year-over-year increase of 10.6%. EQIX currently has a Zacks Rank #2 (Buy).

Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.

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