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What's in the Offing for Essex Property (ESS) Q1 Earnings?

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Essex Property Trust, Inc. (ESS - Free Report) is scheduled to report first-quarter 2018 results on May 2, after the market closes. The company’s funds from operations (FFO) per share and revenues are anticipated to have increased moderately year over year.

In the last-reported quarter, this San Mateo, CA-based residential real estate investment trust (REIT) delivered in-line results, in terms of FFO per share. Results reflected solid growth in net operating income (NOI) and occupancy levels.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate in three occasions and met in the other, the average beat being 1.03%. This is depicted in the graph below:

Essex Property Trust, Inc. Price and EPS Surprise
 

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

Factors to Drive the Results

Per the latest report from the real estate technology and analytics firm — RealPage, Inc. (RP - Free Report) — the national apartment market remained moderated in first-quarter 2018, with occupancy shrinking slightly and rent growth slowing down. Nevertheless, the first quarter marks a slow leasing period, thanks to the cold weather that inhibits shift of households and curbs growth in demand.

Going by statistics, the annual rent growth slipped to 2.3% in Q1. This marked moderation from the 2.6-2.9% growth rate experienced throughout 2017. Occupancy level of 94.5% in March edged down from the prior-year tally of 95%, with metros having subdued construction activity faring well and recording the strongest occupancy. Nevertheless, the overall occupancy level is still healthy.

Essex Property’s focus on acquisition and development of West Coast properties is predicted to have offered ample scope to enhance its top line in the to-be-reported quarter. Notably, the West Coast is a hub of innovation and technology companies. While real wages are expected to rise amid growth in these companies, we anticipate apartments in the area to have registered decent demand and rent growth in the Jan-Mar quarter.

Further, a solid balance sheet and financial flexibility raises our confidence in the company. Notably, in January 2018, the company amended its unsecured line of credit facility, thereby enhancing the maximum amount available for borrowing from $1 billion to $1.2 billion, as well as lengthening the maturity to December 2021. Furthermore, as of Feb 2, 2018, the company had around $891 million in undrawn capacity on its unsecured credit facilities.

Amid these, the Zacks Consensus Estimate for first-quarter revenues is pegged at $347.5 million, marking an expected increase of 3.6% year over year.

For the first quarter, the company estimates core FFO per share of $2.99-$3.09. The Zacks Consensus Estimate for the same is currently pegged at $3.05. It reflects 3.7% growth from the prior-year quarter.

Lastly, Essex Property’s shares have ascended 3.5% in the past three months, outperforming the industry’s decline of 0.3%.

A Surprise in Store?

Our proven model shows that Essex Property has the right combination of the two key ingredients —positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat in the first quarter.

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

Zacks ESP: The Earnings ESP for Essex Property is +0.05%.

Zacks Rank: Essex Property carries a Zacks Rank of 3.

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:

Amanda Hoffer Properties (AHH - Free Report) , slated to release first-quarter results on May 1, has an Earnings ESP of +0.88% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Spirit Realty Capital (SRC - Free Report) , scheduled to report quarterly numbers on May 1, has an Earnings ESP of +0.49% 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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