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Essex Property (ESS) Q2 FFO and Revenues Miss Estimates

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Essex Property Trust Inc. ESS reported second-quarter 2020 core funds from operations (FFO) per share of $3.16, missing the Zacks Consensus Estimate of $3.30. The figure also fell 5.1% from the year-ago quarter’s $3.33.

Results reflect a tepid environment with a “sharp decline” in rental demand early in the quarter due to the coronavirus pandemic and shelter-in-place ordinances. Nevertheless, management witnessed improvements in employment trends at the end of the quarter and is “cautiously optimistic” about the continuation of these trends.

Total revenues of $370.5 million missed the Zacks Consensus Estimate of $382.2 million. However, the figure was up 2.5% year over year.

The company did not reinstate the full-year 2020 guidance due to the pandemic’s uncertain nature as well as the evolving re-opening plans of the economy. However, the company, in its operational update, noted that in the same-property portfolio, cash delinquencies as percentage of scheduled rent was 2.7% in July compared with the 4.3% witnessed in the second quarter.

New lease rates declined 5.8% in July compared with a fall of 1.9% for the second quarter, while renewal rates slipped 1.9% in the month as against a rise of 0.4% during the quarter. However, financial occupancy improved to 96.2% in July, up from the June-end quarter’s 94.9%.

Quarter in Detail

During the April-June quarter, Essex Property’s same-property gross revenues declined 3.8% from the prior-year period. The company recorded an additional $9.7 million of delinquencies in the quarter compared with the year-ago period.

Moreover, same-property operating expenses flared up 6% year on year, reflecting a 9.6% increase in real estate taxes on higher taxes in Seattle. Consequently, same-property NOI dropped 7.4% year over year. Financial occupancies of 94.9% contracted 190 basis points (bps) sequentially and 170 bps year over year.

During the reported quarter, the company disposed two apartment communities — One South Market and Museum Park — located in San Jose, CA, for a total contract price of $232.0 million.

Balance Sheet

Essex Property exited the June-end quarter with cash and cash equivalents, including restricted cash, of $256.5 million, up from the $81.1 million recorded at the end of 2019. As of Jul 31, Essex Property had $1.2 billion in undrawn capacity on its unsecured credit facilities and the company’s immediate available liquidity surpassed $1.4 billion.

Notably, in June, the company issued $150 million of 12-year senior unsecured notes due in March 2032, having an interest rate per annum of 2.65% and an effective yield of 2.09%. Also, in April 2020, Essex Property originated a $200-million unsecured term loan, priced at LIBOR + 1.20%, with a one-year maturity and two 12-month extension options, which are exercisable at the company’s option. It used the proceeds to repay all residual consolidated debt having maturity this year.

During the reported quarter, the company repurchased 87,988 shares of its common stock amounting to $20.1 million at an average price of $228.36 per share. As of Jul 31, the company had $203.3 million of purchase authority remaining under the stock-repurchase plan.

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

AvalonBay Communities, Inc.’s AVB second-quarter 2020 core FFO per share of $2.23 edged down 1.8% year over year from the prior-year quarter’s $2.27. The reported figure also missed the Zacks Consensus Estimate of $2.25. Results reflected uncollectible lease revenues from residential and retail properties as well as decline in economic occupancy.

Equity Residential’s EQR second-quarter normalized FFO per share of 86 cents surpassed the Zacks Consensus Estimate of 83 cents. The reported figure remained flat, year over year. Results reflected a decline in same-store expenses on impressive expense control and continued enhancements in its operating platform. Moreover, resident retention was the highest for the June-end quarter in Equity Residential’s history.

UDR Inc. UDR reported second-quarter 2020 FFO as adjusted per share of 51 cents. The figure missed the Zacks Consensus Estimate of 53 cents as well as came in lower than the prior-year’s 52 cents. Results reflect the adverse impact of the pandemic and related economic challenges as well as government actions and regulations on the company’s business.

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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