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Essex Property (ESS) Q3 FFO & Revenues Top, Outlook Raised

Residential real estate investment trust (REIT) Essex Property Trust Inc. ESS delivered a better-than-expected performance for third-quarter 2017. The company reported core funds from operations (FFO) per share of $2.98 for the quarter, beating the Zacks Consensus Estimate of $2.96. Core FFO per share also improved 6.0% from the year-ago quarter figure of $2.81.

Results reflect solid growth in revenues. The company also raised its outlook for full-year 2017.

Total revenues of $344.4 million in the quarter exceeded the Zacks Consensus Estimate of $342.1 million and were up 4.6% year over year.

Management continues to expect market environment to aid rental growth near long-term averages in its West Coast markets.

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

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

Note: The EPS numbers presented in the above chart represent funds from operations (“FFO”) per share.

Quarter in Detail

During the reported quarter, Essex Property’s same-property gross revenues grew 3.1% from the prior-year quarter, while same- property net operating income (NOI) improved 3.1% year over year. Financial occupancies of 96.7% expanded 20 basis points (bps) year over year.

Essex Property exited third-quarter 2017 with cash and cash equivalents, including restricted cash, of $63.3 million, down from $170.3 million at the end of 2016. As of Oct 27, 2017, the company had $885.0 million in undrawn capacity on its unsecured credit facilities.

During the third quarter, the company did not issue any common stock through its equity distribution program. Following the quarter end, the company issued 33,571 shares of common stock at an average price of $261.19 for net proceeds of $8.7 million. Since the beginning of the year through Oct 27, 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 raised its guidance for 2017. The company projects core FFO per share in the range of $11.84-$11.94 from $11.70-$11.96 guided earlier, denoting an increase of 6 cents at the mid-point. The Zacks Consensus Estimate for the same is currently pegged at $11.87.

Further, for same-property revenues, operating expenses, and NOI, the company reaffirmed the midpoint of prior full-year guidance but narrowed the ranges. Specifically, the company estimates same-property gross revenue growth of 3.4-3.8%, operating expenses to flare up 2.6-2.8% and same-property NOI to increase 3.7-4.3%.

For fourth-quarter 2017, the company projects core FFO per share in the $2.95-$3.05 range. The Zacks Consensus Estimate for the same is currently pegged at $3.00.

Conclusion

We are encouraged with the better-than-expected performance of Essex Property in the reported quarter. With a strong property base and solid balance sheet, it 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.

In addition, the stock has rallied 13.0% year to date, outperforming 5.0% growth recorded by the industry it belongs to.


 

Among other residential REITs, Equity Residential EQR reported third-quarter 2017 normalized FFO per share of 80 cents, beating the Zacks Consensus Estimate by a penny. The figure came in higher than 78 cents reported in the year-ago quarter. Results mirror enhanced same-store net operating income (NOI) and lease-up NOI. (Read more: Equity Residential Q3 FFO Beats on Sound NOI Growth)

AvalonBay Communities, Inc.’s AVB third-quarter 2017 core FFO per share of $2.19 missed the Zacks Consensus Estimate of $2.26. However, total revenues of $550.5 million managed to exceed the Zacks Consensus Estimate of $538.5 million. Results highlight modest growth in average rental rates. Economic occupancy managed to increase only slightly in the quarter. (Read more: AvalonBay Q3 FFO Misses Estimates, Revenues Up Y/Y)

Moreover, UDR Inc. UDR reported FFO as adjusted per share of 47 cents for third-quarter 2017, matching the Zacks Consensus Estimate. The figure also came in higher than the prior-year quarter tally of 45 cents. Growth in revenues from same-store communities and stabilized, non-mature communities backed the increase. (Read more: UDR Q3 FFO In Line With Expectations, Revenues Increase)

Note:  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.

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AvalonBay Communities, Inc. (AVB): Free Stock Analysis Report
 
Equity Residential (EQR): Free Stock Analysis Report
 
United Dominion Realty Trust, Inc. (UDR): Free Stock Analysis Report
 
Essex Property Trust, Inc. (ESS): Free Stock Analysis Report
 
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