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Essex Property (ESS) Beats on Q1 FFO, Guides Q2 Below Consensus

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Essex Property Trust Inc. ESS reported first-quarter 2021 core funds from operations (FFO) per share of $3.07, beating the Zacks Consensus Estimate of $3.04. The figure also surpassed the mid-point of the company’s first-quarter guided range provided earlier by 4 cents per share.

Sequentially, the company witnessed lower cash concessions and delinquency, leading to a marginal improvement in same-property gross revenues and net operating income (NOI).

However, core FFO per share marks a decline of 11.8% from the year-ago quarter’s $3.48.

Also, total revenues of $355.1 million lagged the Zacks Consensus Estimate of $356.7 million as well as slipped 9.5% year over year. Results reflect the adverse impact of the pandemic on the company’s business, with higher cash concessions and lower scheduled rents affecting year-on-year comparisons.

Michael J. Schall, president and CEO, Essex Property pointed, “Encouragingly, the large tech employers in our markets have accelerated hiring and are beginning to reopen their offices which should improve apartment demand, consistent with our expectations at the beginning of the year.”

Quarter in Detail

During the January-March period, Essex Property’s same-property gross revenues dipped 8.1% from the prior-year period. Moreover, same-property operating expenses flared up 3.1% year on year. Consequently, same-property NOI dropped 12.3% year over year. This decline in revenues and NOI reflects lower scheduled rents and higher cash concessions compared with the prior-year quarter.

However, on a sequential basis, both same-property gross revenues and NOI inched up 0.1%. Lower cash concessions and delinquency compared with the prior quarter contributed to this improvement.

Financial occupancies of 96.7% in the first quarter expanded 20 basis points (bps) sequentially but remained flat year on year.

During the reported quarter, the company sold three apartment communities, two in Southern California and one in Northern California, containing 636 apartment homes, for a total contract price of $275.5 million, recognizing a $100.1-million gain on sale.

Balance Sheet

Essex Property exited first-quarter 2021 with cash and cash equivalents, including restricted cash, of $113.4 million, up from the $84 million recorded at the end of 2020. As of Apr 23, 2021, the company had $1.4 billion in liquidity through undrawn capacity on its unsecured credit facilities and cash and marketable securities.

During the quarter, the company issued $450 million of 7-year senior unsecured notes due in 2028 at an interest rate per annum of 1.70% and an effective yield of 1.79%, using proceeds to repay its $200-million unsecured term loan due in 2021 and the majority of its $350-million unsecured term loan due in 2022. Remarkably, the company now has less than $200 million of debt maturing through the end of 2022.

During the reported quarter, Essex Property repurchased 40,000 shares of its common stock amounting to $9.2 million, including commissions, at an average price of $229.30 per share. As of Apr 23, the company had $214.5 million of purchase authority remaining under the stock-repurchase plan.

Outlook

For second-quarter 2021, the company projects core FFO per share at $2.84-$3.00. This is below the Zacks Consensus Estimate of $3.03.

Notably, the company’s mid-point of the current-quarter core FFO per share guidance range marks a 15-cent sequential decline. This is due to a negative impact of 3 cents per share from first-quarter dispositions, adverse impact of 4 cents per share from the early redemption of a $110 million preferred equity investment, 2 cents per share adverse impact due to lower commercial income, 3 cents per share decrease due to lower same-property NOI and 3 cents per share adverse impact because of higher G&A partially offset by other income.

For full-year 2021, the company has reaffirmed its guidance ranges for same-property gross revenues, expenses, NOI, and core FFO per share, which were issued during the fourth-quarter 2020 earnings release. Notably, that time the company had estimated core FFO per share of $11.86-$12.46, with $12.16 at the mid-point. The Zacks Consensus Estimate for the same is currently pinned at $12.28.

The company’s full-year outlook incorporated same-property gross revenue decline of 1.50-3.50%, an operating expense rise of 2-3% and NOI contraction of 3-6.25%.

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

Performance of Other Residential REITs

Equity Residential’s EQR first-quarter 2021 normalized FFO per share of 68 cents came in line with the Zacks Consensus Estimate. Rental income of $597.6 million exceeded the consensus mark of $586.8 million. Results reflect sequential improvement in pricing trend and physical occupancy.

UDR Inc. UDR reported first-quarter 2021 FFO as adjusted per share of 47 cents, missing the Zacks Consensus Estimate of 48 cents. Also, the figure is lower than the prior year’s 54 cents. Results reflect the adverse impacts of the coronavirus pandemic. A decline in revenues from mature communities affected top-line growth.

We now look forward to the earnings release of residential REIT — AvalonBay Communities, Inc. AVB — scheduled for today after the closing bell.

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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