Essex Property (ESS) Beats Q3 FFO, Raises 2022 Guidance

Essex Property Trust Inc. ESS reported third-quarter 2022 core funds from operations (FFO) per share of $3.69, beating the Zacks Consensus Estimate of $3.68. The figure also surpassed the midpoint of the company’s guidance range by 4 cents and improved by 18.3% from the year-ago quarter.

Results reflect improving same-property net operating income (NOI) in the quarter. This residential REIT raised the full-year 2022 core FFO per share guidance.

Total revenues of $409.7 million exceeded the Zacks Consensus Estimate of $406.9 million. Revenues were also up 12.9% year over year.

Michael J. Schall, president and CEO of Essex Property, noted, “Core FFO per share for the quarter was the highest in the Company’s history, now meaningfully above the pre-COVID levels at year-end 2019. This year’s exceptional growth is attributed to the ongoing recovery in our markets and strong execution from the Essex team. Looking ahead, we recognize that macroeconomic conditions could lead to headwinds for job growth, as reflected in our initial outlook for 2023.”

Quarter in Detail

During the July-September period, Essex Property’s same-property revenues increased 11.4% from the prior-year period and operating expenses rose 2.7% year over year. Consequently, same-property NOI increased 15.4% year over year. Results primarily reflect an increase in scheduled rents.

On a sequential basis, same-property revenues increased 1.9%. Meanwhile, expenses flared up 5.4%, resulting in the NOI inching up 0.6%.

Financial occupancies of 96.0% in the third quarter contracted by 10 basis points (bps) sequentially and 40 bps year over year.

During the reported quarter, Essex Property acquired its joint venture partner’s 49.8% minority stake in two apartment communities comprising 211 apartment homes in Los Angeles, CA. The contract price was $32.9 million.

Balance Sheet

Essex Property exited the third quarter of 2022 with cash and cash equivalents, including restricted cash, of $53.6 million, down from the $58.6 million recorded at the end of 2021.

Essex Property had $1.1 billion in liquidity through the undrawn capacity on its unsecured credit facilities, cash and marketable securities as of Oct 24, 2022.

In the third quarter, Essex Property repurchased 371,884 shares of its common stock aggregating $97.1 million, including commissions. The average price was $261.16 per share.

During the quarter, the replacement of the company’s prior repurchase program with a new, $500.0-million stock repurchase plan was approved by the board of directors. ESS had $430.1 million in purchase authority remaining under its stock repurchase plan as of Oct 24, 2022.

Guidance

For the fourth quarter of 2022, the company projects core FFO per share in the range of $3.67-$3.77. The Zacks Consensus Estimate for the same is pegged at $3.77.

For the full-year 2022, the company revised the core FFO per share guidance to the $14.42-$14.52 range from the $14.35-$14.55 range guided earlier, indicating a two-cent-per-share increase at the midpoint to $14.47. It also suggests 15.9% growth at the midpoint compared to the prior year. However, the midpoint is lower than the Zacks Consensus Estimate of $14.50.

Management reaffirmed the midpoint of the full-year guidance range for same-property revenues, expenses and NOI. The company projects same-property gross revenue growth on a cash basis of 10.3% at the midpoint.

Operating expenses are expected to grow 3.3% at the midpoint. NOI is projected to expand by 13.5% at the midpoint.

Essex Property currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Essex Property Trust, Inc. Price, Consensus and EPS Surprise

Essex Property Trust, Inc. Price, Consensus and EPS Surprise

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

Performance of a Few Residential REITs

Equity Residential’s EQR third-quarter 2022 normalized FFO per share of 92 cents outpaced the Zacks Consensus Estimate of 91 cents. Rental income of $695.1 million also exceeded the consensus mark of $694.1 million.

On a year-over-year basis, the FFO per share grew 19.5% from 77 cents, while the rental income increased 11.5%. Results reflected healthy demand during the primary leasing season.

This residential REIT benefited from the favorable real estate tax and payroll expenses. However, EQR narrowed its full-year guidance for normalized FFO per share.

Mid-America Apartment Communities, Inc. MAA, commonly referred to as MAA, reported third-quarter 2022 core FFO per share of $2.19, surpassing the Zacks Consensus Estimate of $2.09. The reported number improved by 23% year over year.

Mid-America Apartment Communities’ quarterly results were driven by an increase in the average effective rent per unit for the same-store portfolio. MAA increased its outlook for core FFO growth for the year.

Upcoming Release

We now look forward to the earnings release of another residential REIT — AvalonBay Communities, Inc. AVB. AvalonBay Communities is slated to report quarterly results on Nov 3 after the closing bell.

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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