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Why Is Essex Property Trust (ESS) Up 36.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Essex Property Trust (ESS - Free Report) . Shares have added about 36.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Essex Property Trust due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Essex Property Q3 FFO Misses Estimates Amid Concessions

Essex Property Trust reported third-quarter 2020 core FFO per share of $3.15, missing the Zacks Consensus Estimate of $3.16. The figure also fell 6% from the year-ago quarter’s $3.35.

Results reflect a tepid environment due to the coronavirus pandemic and subsequent economic recession that prevailed throughout the third quarter. Cash concessions and delinquencies affected same-property revenues during the quarter.

Michael Schall, president and CEO, Essex Property noted, “Local and state governments on the West Coast adopted strict guidelines for reopening businesses, muting the recovery in job growth and economic activity in the third quarter. However, these restrictions have begun to subside, leading to cautious optimism that the pace of improvement in job growth and economic activity will accelerate.”

However, total revenues of $370.8 million surpassed the Zacks Consensus Estimate of $368.6 million as well as inched up 1.1% year over year.

Essex Property did not reinstate the 2020 guidance due to the pandemic’s uncertain nature as well as the evolving re-opening plans of the economy. However, the company, in its operational update, noted that in the same-property portfolio, cash delinquencies as percentage of scheduled rent was 2.2% in October compared with the 2.7% witnessed in the third quarter.

New lease rates declined 3% in October compared with the third quarter’s fall of 5.8%, while renewal rates slipped 1.9% in the month as against the 1.6% decrease during the quarter. However, financial occupancy improved to 96.6% in October, up from the September-end quarter’s 96%.

Quarter in Detail

During the July-September quarter, Essex Property’s same-property gross revenues slid 6.7% from the prior-year period. Moreover, same-property operating expenses flared up 3.7% year on year. Consequently, same-property NOI dropped 10.8% year over year. Notably, the drop in same-property revenues and NOI is mainly due to an additional $16.8 million of cash concessions compared with the prior-year period.

Nonetheless, financial occupancies of 96% expanded 110 basis points (bps) sequentially and remained flat year over year.

During the reported quarter, the company sold a community, containing 126 apartment homes, in Redmond, WA for a total contract price of $51.5 million, recognizing a $22.7-million gain on sale. Also, Essex Property’s development, Station Park Green – Phase III, reached stabilization during this period.

Balance Sheet

Essex Property exited the September-end quarter with cash and cash equivalents, including restricted cash, of $569.1 million, up from the $81.1 million recorded at the end of 2019. As of Oct 22, the company had $1.2 billion in undrawn capacity on its unsecured credit facilities, and $0.5 billion in cash and marketable securities.

In August, the company issued $600 million of senior unsecured notes, comprising two $300-million tranches, due in 2031 and 2050, respectively. The notes bear an interest rate per annum of 1.65% and 2.65%, respectively. The company used part of the proceeds to prepay $300 million of its outstanding 3.625% senior notes due in August 2022. The remaining proceeds will be utilized for repayment of all remaining 2021 debt maturities.

During the reported quarter, Essex Property repurchased 121,260 shares of its common stock amounting to $26.6 million at an average price of $219.24 per share. As of Oct 22, the company had $203.3 million of purchase authority remaining under the stock-repurchase plan.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

Currently, Essex Property Trust has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Essex Property Trust has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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