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Essex Property (ESS) Misses on Q4 FFO Amid Concessions

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Zacks Equity Research
·5 min read
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Essex Property Trust Inc. ESS reported fourth-quarter 2020 core funds from operations (FFO) per share of $3.02, missing the Zacks Consensus Estimate of $3.12. The figure also fell 12.5% from the year-ago quarter’s $3.45.

Also, total revenues of $362.1 million lagged the Zacks Consensus Estimate of $366 million as well as slipped 3.5% year over year.

Results reflect the adverse impact of the pandemic on the company’s business. Concessions and delinquencies affected same-property revenues during the quarter.

Michael J. Schall, president and CEO, Essex Property pointed that “fourth quarter results provided signs of stabilization, with a partial recovery of lost jobs and modestly improved same-property revenues on a sequential basis.”

Management forecasts “year-over-year results to remain challenged through the second quarter of 2021, followed by a steady economic recovery and resurgence inrental demand assuming a widespread distribution of vaccines.”

For 2020, the company recorded core FFO per share of $12.82, down 4.2 % from the prior year’s $13.38 and also missed the Zacks Consensus Estimate of $12.92. Total revenues of $1.5 billion went up 2.4% year on year.

Quarter in Detail

During the October-December period, Essex Property’s same-property gross revenues slid 8.0% from the prior-year period. Moreover, same-property operating expenses flared up 4.6% year on year. Consequently, same-property NOI dropped 12.7% year over year. However, on a sequential basis, same-property gross revenue and NOI improved by 0.3% and 1.0%, respectively.

Financial occupancies of 96.5% in the fourth quarter expanded 50 basis points (bps) sequentially but shrunk 60 bps year on year.

During the reported quarter, the company sold a community, containing 115 apartment homes, in Glendale, CA for a total contract price of $60 million, recognizing a $25.7-million gain on sale.

Balance Sheet

Essex Property exited 2020 with cash and cash equivalents, including restricted cash, of $84.0 million, up from the $81.1 million recorded at the end of 2019. As of Feb 1, 2021, the company had $1.2 billion in liquidity through undrawn capacity on its unsecured credit facilities and cash and marketable securities.

In the fourth quarter, the company repaid $328.2 million of secured and unsecured debt due to mature in 2021, with a weighted average effective rate of 4.2%.

During the reported quarter, Essex Property repurchased 211,681 shares of its common stock amounting to $46.3 million at an average price of $218.84 per share. Notably, the board of directors approved the replenishment of the stock-repurchase plan in December such that the company had $250 million of purchase authority remaining under the stock-repurchase plan. As of Feb 1, 2021, the company had $214.4 million of purchase authority remaining under the stock-repurchase plan.

Outlook

For full-year 2021, the company expects core FFO per share of $11.86-$12.46, with $12.16 at the mid-point. This is below the Zacks Consensus Estimate of $12.78.

The company’s full-year outlook incorporates same-property gross revenue decline of 1.50-3.50%, operating expense rise of 2-3% and NOI contraction of 3-6.25%. In addition, the company projects acquisitions and dispositions of $300-$500 million, which are subject to market conditions and cost of capital, as well as preferred equity commitments of $100-$150 million, to be funded by redemptions.

Moreover, the company projects total development spending in 2021 for the existing projects under construction to be about $60 million at the company’s pro rata share. Presently, the REIT does not intend to commence any new developments during 2021.

For first-quarter 2021, the company projects core FFO per share at $2.96-$3.10. The Zacks Consensus Estimate for the same is currently pinned at $3.12.

Essex Property currently carries a Zacks Rank #4 (Sell).

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

AvalonBay Communities, Inc.’s AVB core FFO per share of $2.02 missed the Zacks Consensus Estimate of $2.09 for the October-December quarter. The reported figure also declined 16.9% year over year from the prior-year quarter’s $2.43. Results underlined decline in residential rental revenues on lease rates and concessions as well as uncollectible lease revenues.

Mid-America Apartment Communities, Inc. MAA, commonly referred to as MAA, reported fourth-quarter 2020 core FFO per share of $1.65, surpassing the Zacks Consensus Estimate of $1.64. However, the reported figure marginally declined from the year-ago figure of $1.66. The residential REIT’s quarterly results were driven by an increase in average effective rent per unit for the same-store portfolio. Positive rent growth also aided same-store portfolio revenue growth during the quarter.

We now look forward to the earnings releases of another residential REITs — Equity Residential EQR — scheduled for the 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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