Alexandria Real Estate (ARE) Misses Q1 EPS by 52c, Revenues Beat; Lowers FY20 EPS Outlook

Alexandria Real Estate (NYSE: ARE) reported Q1 EPS of $0.14, $0.52 worse than the analyst estimate of $0.66. Revenue for the quarter came in at $439.92 million versus the consensus estimate of $319.21 million.

Net operating income and internal growth

• Net operating income (cash basis) of $1.1 billion for 1Q20 annualized, up $204.1 million, or 22.9%, compared to 1Q19 annualized.
• 95% of our leases contain contractual annual rent escalations approximating 3%.
• 2.4% and 6.1% (cash basis) same property net operating income growth for 1Q20 over 1Q19.
• Minimal 2020 contractual lease expirations aggregating 4.0% of annual rental revenue.
• Strong rental rate increases of 46.3% for 1Q20, representing our highest quarterly rental rate increase over the past 10 years.

GUIDANCE:

Alexandria Real Estate sees FY2020 EPS of $1.69-$1.79, versus the consensus of $2.72.

Guidance for 2020 has been updated to reflect our current view of existing market conditions and assumptions for the year ending December 31, 2020, including the estimated impact stemming from the COVID-19 pandemic on our financial and operating results. Key updates to our 2020 guidance include the following:

• A projected reduction in funds from operations, per share – diluted, as adjusted, primarily consisting of:
  • a reduction of eight cents, or one percent, in projected revenues from our retail tenancy and transient/short-term parking over the remaining three quarters of 2020, for which we expect the impact to be weighted toward 2Q20 (as of March 31, 2020, only 0.8% of our annual rental revenue was related to retail tenants); and
  • approximately net neutral impact related to (i) higher interest costs related to the issuance of our $700.0 million unsecured senior notes payable in March 2020 and (ii) updated timing of deliveries of our current development and redevelopment projects as a result COVID-19-related construction disruptions, including various executive orders restricting construction activities, offset by (iii) an improvement in EBITDA from our core operations, including early lease renewals and re-leasing of space; and
• A reduction in our forecasted remaining required sources of capital from real estate dispositions, partial interest sales, and common equity from $925 million to zero dollars as a result of a reduction in construction and acquisitions by an aggregate $940 million at the midpoints of each respective guidance range. Importantly, upon improvement of market conditions, we have the option, on a project-by-project basis, to address demand for our development and redevelopment projects.

For earnings history and earnings-related data on Alexandria Real Estate (ARE) click here.

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