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What's in the Offing for Essex Property's (ESS) Q4 Earnings?

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Essex Property Trust, Inc. (ESS - Free Report) is scheduled to report fourth-quarter 2018 results on Jan 30, after the market closes. The company’s results will likely display year-over-year growth in funds from operations (FFO) per share and revenues.

In the last reported quarter, this San Mateo, CA-based residential real estate investment trust (REIT) delivered a positive surprise of 0.32%, in terms of FFO per share. Results reflected growth in same-property net operating income (NOI). Improving economic environment and job growth helped drive housing demand.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate in three occasions and met in the other, the average beat being 0.73%. This is depicted in the graph below:

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

Factors at Play

The U.S. apartment market witnessed an encouraging fourth quarter in 2018, with accelerated rent growth and elevated occupancy level amid robust demand for rental units. Per a study by the real estate technology and analytics firm — RealPage, Inc. — the annual pace of apartment rent growth in the United States picked up and reached 3.3% in the quarter, ahead of the 2.5% recorded in 2017.

Also, occupancy came in at 95.4%, up from 95% reported at year-end 2017. Reflecting the strongest demand realized since 2010, occupied apartment tally moved up by 323,290 units in 2018, and demand surpassed annual completions that aggregated 287,007 units.

Amid these, Essex Property is likely to have leveraged on favorable demographic trends, household formation, recovering economy and job-market growth in its markets. In fact, the company’s substantial exposure to the West Coast market offers ample scope to enhance its top line. The West Coast is home to several innovation and technology companies. The region is witnessing solid job growth, higher wages, increased percentage of renters than owners, and favorable migration trends with the influx of workers to its markets, mainly from major East Coast markets. In addition, due to high cost of homeownership, transition from renters to homeowners is difficult in its markets.

Notably, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $351.8 million, marking an expected increase of 1.94% year over year. Further, the company estimates core FFO per share of $3.13-$3.23 for the quarter. The Zacks Consensus Estimate for the same is currently pinned at $3.19. It reflects 6% growth from the prior-year quarter.

In addition, Essex Property enhanced its flexibility by disposing three properties during the fourth quarter for a total contract price of $285.3 million. Moreover, since the beginning of the year through Dec 20, the company sold assets worth $417.3 million. This came in above the high-end of the guided range offered during the third-quarter 2018 earnings call. The move is a strategic fit as it offers the company the scope to use the proceeds to support its development requirements, acquire, as well as pay back debt and buyback shares.

Nevertheless, in a number of the company’s markets, apartment deliveries are expected to have remained elevated in the to-be-reported quarter. This high supply is a concern because it curtails landlords’ ability to command more rent and result in lesser absorption. Additionally, periodic disruptions to pricing takes place with multiple apartment lease-ups occurring within a submarket. Such environments are predicted to continue, and result in aggressive rental concessions and moderate pricing power of the company.

For full-year 2018, the company projected core FFO per share of $12.51-$12.61, denoting 3 cents per share increase at the mid-point. The Zacks Consensus Estimate for the same is currently pegged at $12.57.

Here is what our quantitative model predicts:

Essex Property does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Essex Property is -0.34%.

Zacks Rank: Essex Property carries a Zacks Rank #3 (Hold), currently.

Although a favorable Zacks Rank increases the predictive power of ESP, but we also need a positive ESP to be confident of a positive surprise in terms of FFO per share.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Equity Residential (EQR - Free Report) , scheduled to report earnings on Jan 29, has an Earnings ESP of +0.82% and flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Properties, Inc. (BXP - Free Report) , slated to release fourth-quarter results on Jan 29, has an Earnings ESP of +0.33% and carries a Zacks Rank of 3.

Omega Healthcare Investors, Inc. (OHI - Free Report) , set to report quarterly numbers on Feb 11, has an Earnings ESP of +0.26% and sports a Zacks Rank of 1.

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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