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What's in the Cards for Alexandria's (ARE) Q3 Earnings?

Alexandria Real Estate Equities Inc. ARE is scheduled to report third-quarter 2020 results on Oct 26, after market close. The company’s results are expected to reflect year-over-year growth in revenue and 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 in terms of FFO per share. The company witnessed continued strong leasing activity and rental rate growth during the quarter.

Over the trailing four quarters, the company met the Zacks Consensus Estimate on three occasions and missed in the other, the average negative surprise being 0.14%. The graph below depicts this surprise history:

Alexandria Real Estate Equities, Inc. Price and EPS Surprise

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

Alexandria Real Estate Equities, Inc. price-eps-surprise | Alexandria Real Estate Equities, Inc. Quote

Let’s see how things have shaped up prior to this announcement.

Factors at Play

Alexandria’s properties and its tenants have become indispensable amid the increasing need for effective diagnostics, therapies and vaccines to fight the coronavirus pandemic. Moreover, with higher investments in pharmaceutical research and development, critical monetary support from the government and urgent hirings by its tenants, Alexandria’s lab-office assets are anticipated to have been in high demand during the third quarter.

Amid these, the company is likely to have enjoyed solid leasing activity, stellar rental rate growth and occupancy during the quarter under review.

Occupancy level in the company’s portfolio is anticipated to have been driven by elevated demand for its Class A properties in AAA locations. Ownership of such premium properties in strategic cluster locations is also likely to have driven rent growth during the September-end quarter.

Further, a significant part of the company’s revenues comes in from investment-grade or publicly-traded large-cap tenants. Hence, even amid dislocations in the market, its rent collections during the to-be-reported quarter are anticipated to have been healthy.

These are likely to have aided revenue and net operating income growth for the company during the third quarter. The Zacks Consensus Estimate for quarterly revenues is currently pegged at $444.5 million, suggesting a 13.8% increase year on year. The Zacks Consensus Estimate for the third-quarter FFO per share is currently pinned at $1.83, calling for a 4.6% increase from the prior-year period.

However, there is a weakness in demand for spaces from tenants belonging to the technology industry.  Nevertheless, the company has a comparatively smaller exposure to this industry.

Amid these, prior to the third-quarter earnings release, there is lack of any solid catalyst to be optimistic. Therefore, the Zacks Consensus Estimate for the third-quarter FFO per share has remained unchanged over the past week.

Here is what our quantitative model predicts:

Alexandria does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of a FFO beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Alexandria is -0.37%.

Zacks Rank: Alexandria currently carries a Zacks Rank of 3 (Hold).

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:

EastGroup Properties, Inc. EGP, slated to release third-quarter earnings on Oct 27, has an Earnings ESP of +0.80% and carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Storage Affiliates Trust NSA, scheduled to report quarterly numbers on Nov 5, currently has an Earnings ESP of +2.44% and carries a Zacks Rank of 2.

Boston Properties, Inc. BXP, slated to release third-quarter earnings on Oct 27, has an Earnings ESP of +2.35% and a Zacks Rank of 3 at present.

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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