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A month has gone by since the last earnings report for Essex Property Trust (ESS). Shares have added about 2.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Essex Property Trust due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Essex Property Trust Q1 FFO Surpass Estimates
Essex Property reported first-quarter 2021 core 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 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.
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.
For second-quarter 2021, the company projects core FFO per share at $2.84-$3.00.
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 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%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Essex Property Trust has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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