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Essex Property Trust (ESS) Down 5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Essex Property Trust (ESS). Shares have lost about 5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Essex Property Trust due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Essex Property Q4 FFO & Revenues Surpass Estimates

Essex Property Trust reported fourth-quarter 2019 core 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 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 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.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Essex Property Trust has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Essex Property Trust has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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