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Essex Property (ESS) Beats Q1 FFO Estimates, Raises Outlook

Zacks Equity Research

Essex Property Trust Inc. ESS reported first-quarter 2019 core funds from operations (FFO) per share of $3.23, surpassing the Zacks Consensus Estimate of $3.19. Core FFO per share improved 4.5% from the year-ago quarter figure of $3.09.

Results of this residential real estate investment trust (REIT) reflect growth in same-property net operating income (NOI). The operating fundamentals in the West Coast market have been healthy, and the Northern California and Seattle regions are witnessing solid demand, backed by the technology sector. Management remains confident of achieving roughly 3% rent growth in its markets this year.

Total revenues of $356.2 million in the reported quarter grew 2.6% year over year. The figure also outpaced the Zacks Consensus Estimate of $353.5 million.

Quarter in Detail

During the reported quarter, Essex Property’s same-property gross revenues grew 3.1% from the prior-year quarter, while same-property NOI improved 2.8% year over year. Financial occupancies of 96.9% expanded 10 basis points (bps) sequentially but edged down 20 bps year over year.

Essex Property exited first-quarter 2019 with cash and cash equivalents, including restricted cash, of $124.1 million, down from $151.4 million recorded at the end of 2018. As of Apr 22, 2019, the company had around $1.1 billion in undrawn capacity on its unsecured credit facilities.

Apart from these, the company did not issue any shares of common stock under the equity distribution program in the first quarter.

Essex Property repurchased 234,061 shares of its common stock aggregating $57.0 million (including commissions), the average price being $243.48 per share. Notably, the company’s stock repurchase plan has been replaced, increasing the buyback authorization to $250 million and as of Mar 31, 2019, this entire authorization was remaining under its stock repurchase plan.

Outlook

For 2019, the company has raised its core FFO per share projections by 5 cents at the mid-point to $12.90-$13.25. The Zacks Consensus Estimate for the same is currently pegged at $13.07.

The company has reaffirmed its full-year guidance for same-property revenues, expenses and NOI growth. Particularly, the company expects same-property revenue growth of 2.5-3.5% and same-property NOI growth of 2.1-3.9%.

For second-quarter 2019, the company projects core FFO per share at $3.17-$3.27. The Zacks Consensus Estimate for the same is currently pegged at $3.26.

Conclusion

With its solid balance sheet, Essex Property is likely to leverage on favorable demographic trends, household formation, healthy economy and job-market growth in its markets. Its substantial exposure to the West Coast market, which is home to several innovation and technology companies, offers ample scope to boost the top line over the long term. However, apartment deliveries are expected to remain elevated in a number of its markets in the near term. Aggressive rental concessions and moderate pricing power amid high supply remain concerns.

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. Quote

We now look forward to the earnings releases of other residential REITs like UDR Inc. UDR, Mid-America Apartment Communities, Inc. MAA and Apartment Investment and Management Company AIV or commonly known as “Aimco”. UDR is slated to report first-quarter earnings on Apr 30, while Mid-America Apartment Communities and Aimco are scheduled to release their quarterly numbers on May 1 and May 2, respectively.

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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