Essex Property (ESS) Meets Q4 FFO Estimates, Revenues Beat

Essex Property Trust Inc. (NYSE:ESS) reported fourth-quarter 2018 core funds from operations (FFO) per share of $3.19, in line with the Zacks Consensus Estimate. Core FFO per share improved 6.0% from the year-ago quarter figure of $3.01.

Results of this residential real estate investment trust (REIT) reflect growth in same-property net operating income (NOI). Improving economic environment and job growth helped in driving rental housing demand.

Total revenues of $353.2 million in the reported quarter grew 2.3% year over year. The figure also surpassed the Zacks Consensus Estimate of $351.8 million.

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

For 2018, the company reported core FFO per share of $12.57, reflecting year-over-year growth of 5.5%. This was backed by a 2.7% increase in revenues to $1.4 billion.

Quarter in Detail

During the reported quarter, Essex Property’s same-property gross revenues grew 2.9% from the prior-year quarter, while same-property NOI improved 2.5% year over year. Financial occupancies of 96.8% expanded 40 basis points (bps) sequentially and remained stable year over year.

During fourth-quarter 2018, the company sold three communities for $285.3 million.

Essex Property exited 2018 with cash and cash equivalents, including restricted cash, of $151.4 million, up from $61.1 million recorded at the end of 2017. As of Jan 28, 2019, the company had around $1.2 billion in undrawn capacity on its unsecured credit facilities.

Apart from these, the company did not issue any shares of common stock under the equity distribution program in 2018.

During the fourth quarter, the company repurchased 193,649 shares of its common stock, aggregating $47.5 million (including commissions), the average price being $245.08 per share.

Outlook

For 2019, the company projects core FFO per share of $12.83-$13.23. The Zacks Consensus Estimate for the same is currently pegged at $13.09.

The current-year projection is backed by expectations for same-property revenue growth of 2.5-3.5% and same-property NOI growth of 2.1-3.9%.

For first-quarter 2019, the company projects core FFO per share of $3.14 to $3.24. The Zacks Consensus Estimate for the same is currently pegged at $3.20.

Conclusion

With its solid balance sheet, Essex Property is likely to leverage on favorable demographic trends, household formation, recovering economy and job-market growth. Its substantial exposure to the West Coast market, which is home to several innovation and technology companies, offers ample scope to boost the top line over the long term. But, apartment deliveries are expected to remain elevated in a number of its markets in the near term. Aggressive rental concessions and moderate pricing power amid high supply remain concerns.

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.

Recently, Equity Residential (NYSE:EQR) posted quarterly results. The company reported fourth-quarter 2018 normalized FFO per share of 84 cents, which missed the Zacks Consensus Estimate by a penny. However, normalized FFO per share was higher than 83 cents reported in the year-ago quarter. Though the company’s results reflect enhanced same-store NOI, casualty losses from its Washington, D.C. portfolio, and transaction activity in recent years had a negative impact.

We now look forward to earnings releases of other residential REITs like AvalonBay Communities, Inc. (NYSE:AVB) , and Apartment Investment and Management Company (NYSE:AIV) , which are slated to report quarterly numbers on Feb 4.

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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