Essex Property (ESS) Beats Q1 FFO And Revenue Estimates

Residential real estate investment trust (“REIT”), Essex Property Trust Inc. (NYSE:ESS) delivered a better-than-expected performance for first-quarter 2017. The company reported core funds from operations (“FFO”) per share of $2.94 for the quarter, beating the Zacks Consensus Estimate of $2.89. Core FFO per share also improved 9.7% from the year-ago quarter figure of $2.68. Results were backed by solid growth in revenues.

Total revenue of $335.4 million in the quarter exceeded the Zacks Consensus Estimate of $332.8 million and was up 6.7% year over year.

Per the management, the first-quarter 2017 results “reflect a recovery from challenging conditions experienced in the fourth quarter”. In addition, results were solid in the Seattle portfolio and the company witnessed better pricing power in Northern California amid lesser deliveries of apartment supply.

Quarter in Detail

During the quarter, Essex Property’s same-property gross revenues grew 5.0% from the prior-year quarter, while same- property net operating income (NOI) improved 5.6% year over year. Financial occupancies of 96.5% expanded 50 basis points (bps) year over year.

During the quarter, the company acquired its joint-venture partner’s 50% stake in Palm Valley, for a contract price of $183.0 million. Located in San Jose, CA, the property has 1,098 apartment homes within four communities on 37 acres.

On the other hand, the company sold Jefferson at Hollywood in Los Angeles, CA, for a total contract price of $132.5 million. Total gain on the sale was $26.2 million.

Essex Property exited first-quarter 2017 with cash and cash equivalents, including restricted, of $100.3 million, down from $170.3 million at the end of 2016. As of Apr 24, 2017, the company had $1.025 billion in undrawn capacity on its unsecured credit facilities.

Outlook

Essex Property raised its guidance for 2017. The company projects core FFO per share in the range of $11.56–$11.96 from $11.48–$11.88 guided earlier, denoting an increase of 8 cents at the mid-point. The Zacks Consensus Estimate for the same is currently pegged at $11.71.

Further, the company revised estimates for same-property gross revenue growth to 3.0–4.0% from the prior range of 2.75–3.75%. Same-property NOI is now guided in the band of 2.8–4.6% from the previous range of 2.5–4.25%.

For second-quarter 2017, the company foresees core FFO per share in the $2.82–$2.92 range. The Zacks Consensus Estimate for the same is currently pegged at $2.93.

Conclusion

We are encouraged with the better-than-expected performance of Essex Property in the reported quarter. Moving ahead, with a strong property base and solid balance sheet, Essex is likely to leverage on favorable demographic trends in its markets. However, elevated deliveries pose concerns for the company.

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.

Among other residential REITs, UDR Inc. (NYSE:UDR) reported FFO as adjusted per share of 45 cents for first-quarter 2017, matching the Zacks Consensus Estimate. The figure also came higher than the prior-year quarter tally of 43 cents. The year-over-year increase was driven by growth in revenue from same-store and stabilized, non-mature communities. (Read more: UDR Inc. Meets Q1 FFO Estimates, Beats on Revenues)

Equity Residential (NYSE:EQR) reported first-quarter 2017 normalized FFO per share of 74 cents, in line with the Zacks Consensus Estimate. However, the figure was lower than 76 cents reported in the year-ago quarter. Results reflected enhanced same-store NOI and lease-up NOI. In addition, the company experienced lower corporate overhead. However, the positive was offset by adverse impact on NOI, primarily stemming from the company’s 2016 huge disposition activity. (Read more: Equity Residential's Q1 FFO in Line, Revenues Miss)

Further, AvalonBay Communities, Inc.’s (NYSE:AVB) first-quarter 2017 core FFO per share of $2.09 missed the Zacks Consensus Estimate of $2.11. However, the figure grew 6.1% from the year-ago number of $1.97. Growth in NOI from existing, acquired and newly developed operating communities attributed to this year-over-year increase. However, the benefit was partly offset by a rise in interest expense. (Read more: AvalonBay Q1 FFO Misses Estimates, Revenues Up Y/Y)

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.


Zacks' Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?

Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.

Click here for Zacks' secret trade>>