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Key Factors to Impact Essex Property's (ESS) Q2 Earnings

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·5 min read
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Essex Property Trust, Inc. ESS is scheduled to report second-quarter 2021 results on Jul 29, after the closing bell. The company’s results will likely reflect year-over-year declines in revenues and funds from operations (FFO) per share.

In the last reported quarter, this San Mateo, CA-based residential real estate investment trust (REIT) reported a surprise of 0.99% in terms of FFO 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).

Over the trailing four quarters, the company beat the Zacks Consensus Estimate on one occasion and missed in the other three, the average negative surprise being 1.70%. This is depicted in the graph below:

Essex Property Trust, Inc. Price and EPS Surprise

Essex Property Trust, Inc. Price and EPS Surprise
Essex Property Trust, Inc. Price and EPS Surprise

Essex Property Trust, Inc. price-eps-surprise | Essex Property Trust, Inc. Quote

Let’s see how things have shaped up prior to this announcement.

Factors to Consider

For the U.S. apartment market, the second quarter appeared to be robust this year, with renter demand soaring significantly. The number of occupied apartments in the nation’s 150 largest metros climbed 219,909 units, per a report from the real estate technology and analytics firm RealPage, aided by acceleration in employment growth that drives household formation and housing absorption. This not only marked a significant increase from second-quarter 2020 when demand for apartments was limited to around 33,000 units, given the nationwide lockdown, but is also the highest quarterly upsurge observed in the RealPage, Inc. database.

The Sun Belt metros continue to see healthy demand that have already proved their resilience amid the coronavirus crisis. Nevertheless, the gateway markets also registered solid demand with considerable absorption, after witnessing a tepid environment last year that dampened fundamentals, with job losses and population declines, and a flexible working environment.

The current favorable environment is boosting occupancy levels and in turn, pushing up rents. Per a report from RealPage, occupancy is in line with the early 2000s all-time highs, with effective asking rents rising 2% in June, pushing prices up by 6.3% year over year. Rent growth has also been widespread.

Essex Property has a sturdy property base, substantial exposure to the West Coast market, and is also banking on its technology, scale and organizational capabilities to drive innovation and margin expansion in the portfolio. The residential REIT is also likely to have benefited from its improving fundamentals.

In June, Essex Property announced raising the second-quarter and full-year 2021 core FFO per share guidance ranges in light of the improving market conditions and declining concession usage. The company projected second-quarter core FFO per share of $2.92-$3.00, suggesting a 4-cent increase at the mid-point from the previously- guided range of $2.84-$3.00.

Relaxation of restrictions have been a positive in its markets, and the same-property results and net effective rental rates continue to improve, which is mostly attributable to the reduced concession usage.

The Zacks Consensus Estimate of $348.7 million for second-quarter revenues calls for a 5.9% decline, year on year. The Zacks Consensus Estimate for quarterly same-property occupancy currently stands at 97%, up from the 95% reported in the prior-year quarter, while the consensus estimate for same property-revenues is presently pegged at $315 million.

The residential REIT is also likely to have maintained a decent balance sheet and financial flexibility during the quarter under review.

The Zacks Consensus Estimate for the April-June quarter FFO per share remained unchanged at $2.99 over the past month. However, it suggests a year-over year decline of 5.4%.

Here is what our quantitative model predicts:

Our proven model predicts a surprise in terms of FFO per share for Essex Property this season. The combination of a positive Earnings ESP, and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), increases the chances of a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Essex Property currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.29%.

Other Stocks That Warrant a Look

Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that these too have the right combination of elements to report a positive surprise this quarter:

Equity Residential EQR, scheduled to report second-quarter earnings on Jul 27, currently has an Earnings ESP of +1.43% and carries a Zacks Rank of 2.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mid-America Apartment Communities MAA, slated to report quarterly numbers on Jul 28, currently has an Earnings ESP of +2.65% and carries a Zacks Rank of 3.

UDR Inc. UDR, slated to release quarterly numbers on Jul 28, has an Earnings ESP of +0.91% and has a Zacks Rank of 3, at present.

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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Equity Residential (EQR) : Free Stock Analysis Report

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MidAmerica Apartment Communities, Inc. (MAA) : Free Stock Analysis Report

Essex Property Trust, Inc. (ESS) : Free Stock Analysis Report

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