It has been about a month since the last earnings report for Essex Property Trust (ESS). Shares have added about 7.5% 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 drivers.
Essex Property Beats Q2 FFO Estimates, Raises Outlook
Backed by improved net operating income from its communities, Essex Property delivered a better-than-expected performance for second-quarter 2019. The company reported core FFO per share of $3.33 for the quarter, surpassing the Zacks Consensus Estimate of $3.26. Core FFO per share not only improved 6.1% from the year-ago quarter figure of $3.14, it also exceeded the mid-point of the company’s guidance range by 11 cents.
Results of this residential REIT were supported by favorable market conditions. Fundamentals of the Northern California and Seattle regions are backed by the technology sector and job growth continues to outpace national average. With improved market conditions, favorable cost of capital as well as tax assessments, the company has also considerably raised its outlook for the ongoing year.
Total revenues of $361.6 million were up 3.7% year over year in the reported quarter. The figure, in addition, outpaced the Zacks Consensus Estimate of $358.1 million.
Quarter in Detail
During the second quarter, Essex Property’s same-property gross revenues grew 3.5% from the prior-year quarter, while same-property NOI improved 4.1% year over year. However, financial occupancies of 96.6% shrunk 30 basis points (bps) sequentially and 10 bps year over year.
Essex Property exited second-quarter with cash and cash equivalents, including restricted cash, of nearly $55 million, down from the $151.4 million recorded at the end of 2018. As of Jul 22, the company had around $1 billion in undrawn capacity on its unsecured credit facilities.
These apart, the company did not issue any shares of common stock under the equity distribution program in the second quarter.
Notably, this June, Essex Property acquired a 300 unit apartment home community in Walnut Creek, CA, for $164.9 million in a DownREIT structure. Moreover, simultaneously with the acquisition closing, the company assumed a $98.7-million mortgage loan, having an effective interest rate of 3.2% and a maturity date in 2025.
For 2019, the company raised its core FFO per share projections by 20 cents at the mid-point to $13.19-$13.37. The company also raised the mid-point of its full-year guidance for same-property gross revenues and NOI by 0.25% and 0.65%, respectively. Same-property expense guidance for the year has been reduced by 0.8% at the mid-point, mainly due to favorable tax assessments in Washington. Particularly, the company expects same-property gross revenue growth of 3-3.5%, NOI increase of 3.2-4.1% and operating expenses growth of 2-2.4%.
For third-quarter 2019, the company projects core FFO per share at $3.26-$3.36.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
Currently, Essex Property Trust has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. 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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