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Is a Beat in Store for Essex Property (ESS) in Q4 Earnings?

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Essex Property Trust, Inc. (ESS - Free Report) is scheduled to report fourth-quarter and full-year 2021 earnings on Feb 2 after the closing bell. The company’s results are likely to reflect year-over-year growth in both revenues and funds from operations (FFO) per share.

In the last reported quarter, this San Mateo, CA-based residential real estate investment trust (REIT) delivered a surprise of 0.65% in terms of FFO per share. Results reflected an improvement in net effective rent growth in the quarter.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and missed the same on the other, the average surprise being 0.03%. The graph below depicts the surprise history of the company:

Essex Property Trust, Inc. Price and EPS Surprise

Essex Property Trust, Inc. Price and EPS Surprise

Essex Property Trust, Inc. price-eps-surprise | Essex Property Trust, Inc. Quote

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

Factors to Consider

For the U.S. apartment market, 2021 appeared to be robust, with renter demand continuing to surge significantly. Net demand aggregated more than 673,000 units, surpassing the prior high set in 2000 by a whopping 66%, per a report from the real estate technology and analytics firm, RealPage. Household formation seemed to have taken place at a faster pace and fueled demand for apartments as well as for other types of housing. Also, renter incomes continued to climb upward. Limited availability led to price appreciation and effective asking rents on new leases increased a remarkable 14.4% in 2021.

Moreover, for the first time, the nation’s apartment market experienced an increase in occupancy in the fourth quarter, which is otherwise considered to be a seasonally slow leasing period. This increase is due to the pandemic that disrupted the seasonal behavior. In the fourth quarter, U.S. occupancy climbed 30 basis points (bps), touching 97.4% at the end of the year, contrary to a decline of an average of 40 bps during the fourth quarter in the past three decades.

Essex Property has a sturdy property base, substantial exposure to the West Coast market and is banking on its technology, scale and organizational capabilities to drive innovation and margin expansion in the portfolio. The residential REIT is also likely to have benefited from its improving fundamentals.

The Zacks Consensus Estimate of $370.08 million for fourth-quarter revenues calls for a 2.21% increase year over year. The Zacks Consensus Estimate for quarterly same-property occupancy stands at 96% in line with the prior quarter, while the consensus estimate for same-property revenues is pegged at $332 million, up from $325 million reported in the prior quarter.

This residential REIT is also likely to have maintained a decent balance sheet and financial flexibility during the quarter under review.

During its third-quarter earnings release, ESS projected fourth-quarter 2021 core FFO per share in the range of $3.15-$3.25.

Before the quarterly earnings release, analysts do not seem to be optimistic about the company’s prospects as the Zacks Consensus Estimate for the October-December quarter’s FFO per share has moved south a cent to $3.23 over the past month. However, it suggests a year-over-year increase of 6.95%.

Essex Property’s earnings might reflect the adverse impact of the pandemic on its business year over year, though the gap is expected to have narrowed. The outmigration trend of population and business has emerged as a concern. An oversupply in its urban markets also adds to its woes.

For full-year 2021, Essex Property projected core FFO per share in the range of $12.39-$12.49. ESS estimated same-property revenues to be down 1.3-1.1%, operating expenses to shoot up 2.2-2.4% and net operating income to slip 2.9-2.5%.

For the full year, the Zacks Consensus Estimate for FFO per share has moved south a cent to $12.47 over the past month. The figure indicates a decrease of 2.73% year over year on revenues of $1.44 billion.

Here Is What Our Quantitative Model Predicts:

Our proven model predicts a surprise in terms of FFO per share for Essex Property this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is the case here.

Essex Property currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.53%. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Other Stocks That Warrant a Look

Here are three stocks from the REIT sector — American Campus Communities, Inc. , Highwoods Properties, Inc. (HIW - Free Report) and Invitation Homes Inc. (INVH - Free Report) — that you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter:

American Campus Communities, slated to release fourth-quarter earnings on Feb 22, has an Earnings ESP of +1.86% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Highwoods Properties, scheduled to report quarterly numbers on Feb 8, has an Earnings ESP of +2.67 % and carries a Zacks Rank of 3.

Invitation Homes, slated to report quarterly numbers on Feb 15, has an Earnings ESP of +2.19% and carries a Zacks Rank of 3.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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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