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Essex Property (ESS) to Post Q4 Earnings: What's in Store?

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Essex Property Trust, Inc. (ESS - Free Report) is scheduled to report fourth-quarter 2017 results on Feb 7, after the market closes. The company’s funds from operations (FFO) per share and revenues are anticipated to increase year over year.

In the prior quarter, this San Mateo, CA-based residential real estate investment trust (REIT) generated a positive surprise of 0.68% in terms of FFO per share. Results reflected solid growth in revenues.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate in three occasions — the average beat being 0.94%. This is depicted in the graph below:

For the fourth quarter, the company estimates core FFO per share in the $2.95-$3.05 range. The Zacks Consensus Estimate for the same is currently pegged at $3.01.

Let’s see how things have shaped up for this announcement.

Factors That Might Influence Q4 Results

Per a study by the real estate technology and analytics firm — RealPage, Inc. — the U.S. apartment market reported moderate rent growth for the calendar year 2017 and seasonal pricing cuts in the fourth quarter. While U.S. apartment rents increased at a modest rate of 2.5% in 2017, effective rents for new leases edged down 0.9% during the quarter. Admittedly, the levels of rent growth have moderated from the earlier years. However, national apartment occupancy came in at 95.1% at the end of fourth-quarter 2017, remaining stable year over year.

Essex has a strong property base and a sturdy balance sheet. The company’s substantial exposure to the West Coast market, which is home to several innovation and technology companies, is likely to offer scope to boost its top line in the to-be-reported quarter. Also, there is significant pent-up demand.

However, apartment deliveries remained elevated in the reported quarter. This elevated supply is a concern because it curbs landlords’ ability to command more rent and results in lesser absorption. As such, in the to-be-reported quarter, occupancy is likely to remain nearly unchanged. Furthermore, escalating supply in certain submarkets is expected to result in aggressive rental concessions and moderate pricing power of landlords.

Amid these, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $346.1 million, marking an expected increase of 5.2% year over year.

Moreover, in a month’s time, the Zacks Consensus Estimate of FFO per share for the fourth quarter inched up 0.3% to $3.01, highlighting analysts’ bullish sentiments.

However, Essex Property’s shares have descended 13.8% in the past six months, underperforming the industry’s decline of 10.5%.

Earnings Whispers

Our proven model does not conclusively show that Essex Property will likely beat estimates this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: The Earnings ESP is pegged at -0.04%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Essex Property has a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.  

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are a few stocks in the REIT space that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this time around:

CubeSmart (CUBE - Free Report) , slated to release fourth-quarter results on Feb 15, has an Earnings ESP of +1.10% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

EPR Properties (EPR - Free Report) , scheduled to report quarterly numbers on Feb 28, has an Earnings ESP of +0.69% and a Zacks Rank of 3.

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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