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Is a Beat in Store for Essex Property (ESS) in Q2 Earnings?

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Essex Property Trust, Inc. (ESS - Free Report) is scheduled to report second-quarter 2022 earnings on Jul 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 0.90% in terms of FFO per share. Results reflected an improvement in same-property revenues and net operating income during the quarter.

Over the trailing four quarters, Essex Property surpassed the Zacks Consensus Estimate on each occasion, the average surprise being 0.96%. 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 second quarter appears to be a solid one this year with the impressive demand for rental units. Essex Property too is likely to have benefited from this trend.

ESS 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.

Particularly, the demand for rental units is rising as technology companies are returning to the office, and homeownership is becoming costlier due to higher interest rates. Moreover, with two of the largest Life Science clusters located in California, the state acts as a key employment driver in the Bay Area and San Diego regions. A combination of these factors is driving the rental demand for Essex Property. Per the second-quarter operating update, preliminary April-May year-over-year new lease spreads recorded 21.4% growth.

In its June investor presentation, Essex Property noted that its preliminary April-May 2022 same-property revenue growth is trending better than expected due to higher net effective rent growth and lower net delinquencies. The same increased 12.5% year over year from the 6.5% reported in the first quarter.

Essex Property’s preliminary April-May 2022 update also reveals that same-property cash delinquencies as a percentage of the scheduled rent were 0.1% compared with the first quarter’s 2.2%. Blended rates increased 16.2% compared with 16.1% in the first quarter. Financial occupancy was 95.9% in April-May compared with 96.3% in the first quarter.

The Zacks Consensus Estimate of $390.1 million for second-quarter revenues calls for an 11.15% increase year over year. The consensus estimate for same-property revenues is pegged at $345 million. The consensus mark for same-property occupancy is currently pegged at 96% for the quarter.

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

During the quarter, ESS raised its second-quarter core FFO per share guidance to the $3.55-$3.61 range from the previously guided range of $3.43-$3.55, increasing the midpoint by 9 cents to $3.58.

Before the quarterly earnings release, analysts seem optimistic about the company’s prospects as the Zacks Consensus Estimate for the April-June quarter’s FFO per share has moved north by two cents to $3.53 over the past month. It also suggests a year-over-year increase of 16.12%.

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 2 and has an Earnings ESP of +1.21%. 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 other stocks from the residential REIT sector — Equity Residential (EQR - Free Report) , Mid-America Apartment Communities, Inc. (MAA - Free Report) and UDR, Inc. (UDR - 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:

Equity Residential, slated to release second-quarter earnings on Jul 26, has an Earnings ESP of +1.11% and a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mid-America Apartment Communities, scheduled to report quarterly figures on Jul 27, has an Earnings ESP of +1.78% and a Zacks Rank of 2 currently.

UDR, slated to report quarterly numbers on Jul 26, has an Earnings ESP of +0.66% and carries a Zacks Rank of 2.

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.