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Essex Property (ESS) Q4 FFO & Revenues Surpass Estimates

Zacks Equity Research

Essex Property Trust Inc. ESS reported fourth-quarter 2019 core funds from operations (FFO) per share of $3.45, surpassing the Zacks Consensus Estimate of $3.42. The figure also improved 8.2% from the year-ago quarter tally of $3.19.

Results of this residential real estate investment trust (REIT) reflect improved net operating income from its communities, backed by high occupancy level.

Total revenues of $375.4 million were up 6.3% year over year in the reported quarter. The figure, in addition, outpaced the Zacks Consensus Estimate of $373.6 million.

For full-year 2019, core FFO per share came in at $13.38, ahead of the Zacks Consensus Estimate of $13.35 and 6.4% higher than the prior-year’s $12.57. Total revenues of $1.46 billion increased 4.3% year over year.     

Quarter in Detail

During the fourth quarter, Essex Property’s same-property gross revenues grew 4% from the prior-year quarter. Same-property NOI too improved 5.5% year over year. Moreover, financial occupancies of 97.1% expanded 110 basis points (bps) sequentially and 30 bps year over year.

Essex Property exited the fourth quarter with cash and cash equivalents, including restricted cash, of $ 81.1 million, down from the $151.4 million recorded at the end of 2018. As of Jan 27, 2020, the company had $725 million in undrawn capacity on its unsecured credit facilities.

During the reported quarter, the company did not issue any shares of common stock through its equity distribution program.

During the final quarter of 2019, the company acquired a 105-unit apartment home community — Pure Redmond — in Redmond, WA, for a total contract price of $39.1 million. Moreover, Wesco V, LLC, a joint venture in which the company owns a 50% stake, acquired a 308-unit apartment home community — Velo and Ray — in the Fremont neighborhood of Seattle, WA, for a total contract price of $133 million. The company also disposed one joint venture community during this period for a contract price of $311 million.

Outlook

For 2020, the company expects core FFO per share of $13.74-$14.14. The Zacks Consensus Estimate for the same is pinned at $14.01.

The full-year outlook is backed by same-property gross revenue growth guidance of 2.6-3.6%, operating expense rise of 2.5-3.5% and NOI expansion of 2.2- 4.0%. In addition, the company projects acquisitions of $375-$575 million, excluding the CPP transaction which closed this January, dispositions worth $100-$300 million, and preferred equity investments of $50-$100 million.

For first-quarter 2020, the company projects core FFO per share at $3.36-$3.46. The Zacks Consensus Estimate for the same is currently pinned at $3.38.

Conclusion

We are encouraged with Essex Property’s better-than-expected fourth-quarter performance. With a solid balance sheet, it 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.

Additionally, substantial improvement in cost of capital since last January has helped it exceed high-end of its initial 2019 acquisition targets and preferred equity investments. Further, in January 2020, the company acquired its joint-venture partner’s 45% stake in a land parcel and six communities representing 2,020 apartment homes. Together these are valued at around $1 billion on a gross basis.

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

We, now, look forward to the earnings releases of other REITs like AvalonBay Communities, Inc. AVB, Alexandria Real Estate Equities, Inc. ARE and Simon Property Group, Inc. SPG, 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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