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Essex Property (ESS) Q3 FFO & Revenues Rise Y/Y, Outlook Up

Zacks Equity Research

Essex Property Trust Inc. ESS reported third-quarter 2019 core funds from operations (FFO) per share of $3.35. Though the figure improved 6.3% from the year-ago quarter tally of $3.15, it narrowly missed the Zacks Consensus Estimate of $3.36.

Results of this residential real estate investment trust (REIT) reflect improved net operating income from its communities, while occupancy level moderated sequentially and year over year.

Total revenues of $366.9 million were up 4.6% year over year in the reported quarter. The figure, in addition, outpaced the Zacks Consensus Estimate of $365.5 million. The company has also increased its full-year core FFO per share guidance mid-point for the third time this year.

According to management, the West Coast markets remain supply constrained, and keep on adding jobs and growing incomes. This, in turn, is expected to help maintain market rent growth close to their long-term averages. Moreover, management noted that decrease in the cost of capital since January has helped the company exceed the high-end of its acquisition targets and Essex Property is seeking out accretive opportunities.

Quarter in Detail

During the third quarter, Essex Property’s same-property gross revenues grew 3.1% from the prior-year quarter. Same-property NOI too improved 3.1% year over year. However, financial occupancies of 96% shrunk 60 basis points (bps) sequentially and 40 bps year over year.

Essex Property exited the third quarter with cash and cash equivalents, including restricted cash, of $91.7 million, down from the $151.4 million recorded at the end of 2018. As of Oct 22, the company had $1 billion in undrawn capacity on its unsecured credit facilities.

These apart, the company issued 228,271 shares of its common stock at an average price per share of $321.56, generating $73.4 million in gross proceeds, through its equity distribution program.

Moreover, during the reported quarter, Essex Property acquired three apartment communities for a total contract price of $414.7 million.

Outlook

For 2019, the company raised its core FFO per share projections by 5 cents at the mid-point to $13.28-$13.38. The Zacks Consensus Estimate for the same is pinned at $13.33. The full-year outlook is backed by same-property gross revenue growth guidance of 3.1-3.4%, and NOI increase of 3.4-3.9%

For fourth-quarter 2019, the company projects core FFO per share at $3.36-$3.46. The Zacks Consensus Estimate for the same is currently pinned at $3.40.

Conclusion

We are encouraged with the better-than-expected third-quarter revenue figure of Essex Property, though the occupancy slip and the narrow miss of the FFO per share is slightly disappointing. Nevertheless, with a solid balance sheet, Essex Property is likely to leverage on favorable demographic trends, household formation and job-market growth in its markets.

Substantial exposure to the West Coast market, which is home to several innovation and technology companies, offers ample scope to bolster the top line. However, apartment deliveries are projected to remain elevated in a number of its markets in the near term, which might fuel competition, curb the company’s capability to raise rents and result in aggressive rental concessions.

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

Essex Property Trust, Inc. Price, Consensus and EPS Surprise

Essex Property Trust, Inc. Price, Consensus and EPS Surprise
Essex Property Trust, Inc. Price, Consensus and EPS Surprise

Essex Property Trust, Inc. price-consensus-eps-surprise-chart | Essex Property Trust, Inc. Quote

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We, now, look forward to the earnings releases of other residential REITs like AvalonBay Communities, Inc. AVB, UDR Inc. UDR and Apartment Investment and Management Company AIV which are slated to report their quarterly numbers next week.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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