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Is a Beat in Store for Essex Property (ESS) in Q1 Earnings?

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Essex Property Trust, Inc. (ESS - Free Report) is scheduled to report first-quarter 2022 earnings on Apr 26 after the closing bell. The company’s results are likely to reflect year-over-year growth in 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 0.62% in terms of FFO per share. Results reflected improving rent growth amid the recovering economic conditions.

Over the trailing four quarters, Essex Property surpassed the Zacks Consensus Estimate on each occasion, the average surprise being 0.98%. 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, the first quarter — typically a slow leasing period in other years — appears to be a solid one this year, with impressive demand for rental units, due to the pandemic that disrupted seasonal behavior.

Per a report from the real estate technology and analytics firm, RealPage, the U.S. apartment market witnessed robust demand, with net demand for market-rate apartments aggregating a whopping 712,899 units nationally in the year ending the first quarter of 2022. This not only marks an 8% increase from the previous high a quarter earlier but also is 76% higher than the pre-pandemic-era highest established back in 2000. There is strong demand from young adults who are gaining from tight labor market conditions and record wage growth.

As a result of the high demand, the apartment occupancy inched up 0.1 percentage point to 97.6% instead of seasonal cooling in the first quarter. Rent growth reached another all-time high, with the new lease effective asking rents increasing 15.2% year over year through March.

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

The Zacks Consensus Estimate of $376.3 million for first-quarter revenues calls for a 5.96% increase year over year. The consensus estimate for same-property revenues is pegged at $338 million, up from $330 million reported in the prior quarter and $318 million in the year-ago period.

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

In its fourth-quarter earnings release, ESS projected first-quarter 2022 core FFO per share in the range of $3.24-$3.36.

However, the outmigration trend of population and business from its markets emerged as a concern. The oversupply in its urban markets and pandemic-related regulatory challenges also add to its woes.

Before the quarterly earnings release, analysts do not seem optimistic about the company’s prospects as the Zacks Consensus Estimate for the January-March quarter’s FFO per share has moved south by a cent to $3.34 over the past week. However, it suggests a year-over-year increase of 8.8%.

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 +0.28%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Stocks That Warrant a Look

Here are three other stocks from the residential REIT sector — AvalonBay Communities, Inc. (AVB - Free Report) , Camden Property Trust (CPT - Free Report) and American Homes 4 Rent (AMH - Free Report) — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter:

AvalonBay Communities, slated to release first-quarter earnings on Apr 27, has an Earnings ESP of +0.46% and a Zacks Rank of 3 at present.

Camden Property Trust, scheduled to report quarterly figures on Apr 28, has an Earnings ESP of +1.25 % and a Zacks Rank of 2 currently.

American Homes 4 Rent, slated to report quarterly numbers on May 5, has an Earnings ESP of +0.76% 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 represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.