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Essex Property (ESS) Q4 FFO and Revenues Grow Y/Y, Stock Up

Zacks

Residential real estate investment trust (REIT) Essex Property Trust Inc. ESS delivered an in-line performance for fourth-quarter 2017. The company reported core funds from operations (FFO) per share of $3.01 for the quarter, meeting the Zacks Consensus Estimate. Core FFO per share improved 7.1% from the year-ago quarter figure of $2.81.

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

Total revenues of $345.1 million in the quarter grew 4.9% year over year. However, the figure narrowly missed the Zacks Consensus Estimate of $346.5 million.

In 2018, management expects housing demand to surpass supply in coastal markets of California and Washington. This is likely to result in growth in market rent close to long-term averages. Specifically, West Coast is anticipated to outdo the nation both in terms of rent growth as well as job growth in the year.

For full-year 2017, core FFO per share came in at $11.91, 7.9% ahead of the prior-year tally of $11.04. This was backed by 5.4% year-over-year growth in total revenues to $1.4 billion.

Following the earnings release on Feb 7, shares of Essex Property rallied 4.7% and closed at $227.94 on Feb 9.

Quarter in Detail

During the reported quarter, Essex Property’s same-property gross revenues grew 3.0% from the prior-year quarter, while same-property net operating income (NOI) improved 3.4% year over year. Financial occupancies of 96.8% expanded 20 basis points (bps) year over year.

Further, the company sold two communities for a total contract price of $160.3 million during the quarter. On the other hand, the company acquired one community for a total contract price of $59.0 million.

Liquidity

Essex Property exited year-end 2017 with cash and cash equivalents, including restricted cash, of $61.1 million, down from $170.3 million at the end of 2016.

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 Feb 2, 2018, the company had around $891.0 million in undrawn capacity on its unsecured credit facilities.

During the fourth quarter, the company issued 33,571 shares of common stock at an average price of $261.19 through its equity distribution program for net proceeds of $8.7 million. For full year 2017, the company issued 345,444 shares of common stock at an average price of $260.38. This helped generate net proceeds of $89.1 million.

Outlook

Essex Property provided its guidance for first-quarter and full-year 2018. For the full year, the company projects core FFO per share in the range of $12.24- $12.64. The Zacks Consensus Estimate for the same is currently pegged at $12.42.

The full-year 2018 projection is backed by expectations for same-property revenue growth in the band of 2.0-3.0% and same-property NOI increase in the range of 1.6-3.4%.

For first-quarter 2018, the company projects core FFO per share in the $2.99-$3.09 band. The Zacks Consensus Estimate for the same is currently pegged at $3.05.

Conclusion

We are encouraged with the better-than-expected performance in terms of FFO per share of Essex Property in the reported quarter but slightly disappointed with the revenue miss. 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. However, elevated apartment deliveries remain a concern. Also, rate hike add 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.

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

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

Among other residential REITs, Equity Residential EQR reported fourth-quarter 2017 normalized FFO per share of 83 cents, beating the Zacks Consensus Estimate of 81 cents. The figure also came in higher than 79 cents reported in the year-ago quarter. Results mirror enhanced same-store NOI and lease-up NOI. However, the company incurred higher corporate overhead in the quarter. (Read more: Equity Residential Q4 FFO Beats on Solid NOI Growth)

AvalonBay Communities, Inc.’s AVB fourth-quarter 2017 core FFO per share of $2.25 beat the Zacks Consensus Estimate by a penny. The company’s core FFO per share also recorded 6.1% growth from the year-ago figure of $2.12. Results highlight growth in average rental rates. Additionally, economic occupancy managed to increase slightly in the quarter. The company also announced a hike in quarterly dividend. (Read more: AvalonBay Beats Q4 FFO Estimates, Raises Dividend)

Mid-America Apartment Communities, Inc. MAA, commonly referred as MAA, reported fourth-quarter FFO of $1.50 per share, beating the Zacks Consensus Estimate of $1.48. The figure also compared favorably with the prior-year quarter tally of $1.13. This residential REIT’s quarterly results reflected growth in same-store property NOI and rise in average effective rent per unit for the same-store portfolio. (Read more: Mid-America Apartment Q4 FFO Beats, Revenues Up Y/Y)

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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