Essex Property (ESS) Beats Q1 FFO Estimates, Raises View

Residential real estate investment trust (REIT) Essex Property Trust Inc. (NYSE:ESS) delivered first-quarter 2018 core funds from operations (FFO) per share of $3.09, beating the Zacks Consensus Estimate of $3.05. Core FFO per share improved 5.1% from the year-ago quarter figure of $2.94.

Results reflect growth in net operating income (NOI) and high occupancy level.

Total revenues of $347.3 million in the quarter grew 3.5% year over year. However, the figure narrowly missed the Zacks Consensus Estimate of $347.5 million.

Quarter in Detail

During the reported quarter, Essex Property’s same-property gross revenues grew 3.3% from the prior-year quarter, while same-property net operating income (NOI) improved 3.6% year over year. Financial occupancies of 97.1% expanded 60 basis points (bps) year over year.

Essex Property exited first-quarter 2018 with cash and cash equivalents, including restricted cash, of $139.1 million, up from $61.1 million recorded at the end of 2017.

Notably, in January 2018, the company made an amendment to its unsecured line of credit facility, thereby enhancing the maximum amount available for borrowing from $1.0 billion to $1.2 billion, as well as lengthening the maturity to December 2021. As of Apr 27, 2018, the company had around $1.2 billion in undrawn capacity on its unsecured credit facilities.

During the reported quarter, the company repurchased 16,834 shares of its common stock for a total of $3.8 million (including commissions), at an average price of $224.13 per share. The company had $245.2 million of purchase authority left under its stock buyback program at the end of the quarter.

Notably, the company did not issue any shares of common stock under its equity distribution program.

Outlook

Essex Property provided its guidance for second-quarter and full-year 2018. For the full year, the company projects core FFO per share in the range of $12.28-$12.64, denoting 2 cents per share increase at the mid-point. The Zacks Consensus Estimate for the same is currently pegged at $12.43.

The current-year projection is backed by expectations for same-property revenue growth in the band of 2.3-3.0%, denoting a 15-basis-point (bps) increase at the mid-point, and same-property NOI growth in the 2-3.4% range, marking 20-bps growth at the midpoint.

For second-quarter 2018, the company projects core FFO per share of $3.00-$3.10. The Zacks Consensus Estimate for the same is currently pegged at $3.10.

Conclusion

We are encouraged with the stellar Q1 performance of Essex Property, in terms of FFO per share. However, the company’s revenue miss remains a disappointment. With a strong property base and solid balance sheet, Essex Property is likely to leverage on favorable demographic trends in its markets.

The company’s substantial exposure to the West Coast market, which is home to several innovation and technology companies, offers ample scope to boost its top line over the long term. Nonetheless, aggressive rental concessions and moderate pricing power amid high supply remain concerns. Also, rate hike adds to its woes.

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.

We now look forward to the earnings releases of other REITs like Apartment Investment and Management Company (NYSE:AIV) , EPR Properties (NYSE:EPR) and Realty Income Corporation (NYSE:O) . While Apartment Investment and Management Company is scheduled to release earnings on May 7, EPR Properties and Realty Income are slated to report quarterly numbers on May 8.

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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