Alexandria Q3 2024 Update

Alexandria Real Estate (ARE) reported Q3 2024 results today after the market closed.

Before the market closed, shares were down for almost all equity REITs. The largest REIT index ETF, Vanguard Real Estate Index ETF (VNQ) was down 2.00%. Why? I would attribute most of it to interest rates.

Source: MBSLive

Treasury rates bumped quite a bit higher on the day. The 2-year Treasury yield was up nearly 7 basis points and the 10-year Treasury yield was up just over 10 basis points.

Results for FFO

• Consensus FFO estimate: $2.37
• FFO Result: $2.37
• Result in line with estimate.

Results for AFFO

• Consensus AFFO estimate: $1.91
• Result: ARE does not report AFFO.

Guidance for FFO

• Old Guidance for FFO: $8.89 to $9.01 (midpoint $8.95)
• New Guidance for FFO: $8.88 to $8.92 (midpoint $8.90)
• Change: Down $.05.
• Note: This is not particularly important. The headline metric should be FFO as Adjusted.

Guidance for FFO as Adjusted

• Old Guidance for FFO as Adjusted: $9.41 to $9.53 (midpoint $9.47)
• New Guidance for FFO as Adjusted: $9.45 to $9.49 (midpoint $9.47)
• Change: Tightened. No change at midpoint.
• Consensus Estimate for 2024: $9.47
• Guidance in line with consensus estimate.

Wall Street’s Definitions for FFO

The wording can be a bit strange here because Wall Street is sloppy. Consensus analyst estimates are labeled as “FFO” and “AFFO”. Someone might assume that FFO would represent FFO and AFFO would represent FFO as Adjusted. However, that would be wrong.

The Wall Street estimate for “FFO” goes with what Alexandria is calling “FFO as Adjusted”.

The Wall Street estimate for “AFFO” is a metric Alexandria Real Estate does not (directly) report. Instead, it has to be calculated by making other adjustments. That generally isn’t too bad, except for the fact that analysts disagree on which “other adjustments” need to be made.

The Takeaway

Alexandria Real Estate tightened guidance for FFO as Adjusted, which is the most relevant number they report for FFO. The tightened guidance continues to match the consensus analyst estimate.

Change in Debt Plans

Alexandria Real Estate modified their plan for debt. It’s not a significant change. It simply means they have some extra cash held on the balance sheet at the end of the year:

Source: Alexandria Real Estate

I added some green boxes to highlight the categories that changed.

The ATM Program

Per Alexandria Real Estate:

“During 3Q24, we had no activity under our ATM program. As of October 21, 2024, the remaining aggregate amount available for future sales of common stock was $1.47 billion.”

No issuance. No worries. There are times when Alexandria should use that program. But those times are when shares are trading at higher prices.

Leasing Spreads

Spreads for leasing were unusually weak.

• GAAP spreads: 5.1%
• Cash spreads: 1.5%

Guidance for 2024 full-year leasing spreads was unchanged:

• GAAP spreads: 11% to 19%
• Cash spreads: 5% to 13%

Year to date leasing spreads:

• GAAP spreads: 16.4%
• Cash spreads: 8.9%

Total leasing activity was elevated for the quarter, leading me to think ARE prioritized occupancy over spreads. Occupancy came in at 94.7%, which is only a higher than 94.6% from each of the prior 3 quarters. However, it is up nicely from 93.7% one year ago.

Same Property Performance

On a cash basis, same property NOI was up 6.5% year-over-year for the quarter and 4.6% year-to-date:

Source: Alexandria Real Estate

Conclusion

Looks like a reasonable quarter. Not particularly good or bad. Nothing stands out as concerning. The REIT appears to be continuing to function as expected. The bears tried to attack Alexandria Real Estate on occupancy, so the high leasing volume and improved occupancy year-over-year are more meaningful.

Disclosure: Long ARE

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