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

Essex Property Trust, Inc. ESS is scheduled to report fourth-quarter and full-year 2022 results on Feb 7 after market close. The company’s quarterly results are likely to reflect year-over-year growth in revenues and core 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 0.27% in terms of core FFO per share. Results reflected improving same-property net operating income (NOI) in the quarter.

Over the trailing four quarters, Essex Property surpassed the Zacks Consensus Estimate on each occasion, the average surprise being 1.36%. 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 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

Essex Property has a sturdy property base and substantial exposure to the West Coast market. ESS banks on its technology, scale and organizational capabilities to drive innovation and margin expansion in the portfolio.

However, for the U.S. apartment market, low consumer confidence and high inflation have taken a toll, with net demand for apartments ending in negative territory for calendar 2022, per a report from the real estate technology and analytics firm RealPage. Despite solid job growth and wage gains, there was weak demand for all types of housing.

Amid this soft demand, new-lease apartment rents fell in December for the fourth consecutive month, declining another 0.4%. The cumulative rent drop was around 1.6% since September. Also, the national apartment vacancy surged from a record seasonal low of 2.5% one year ago to 5.0% in December 2022.

This demand softness is likely to have impacted ESS as well. In its November investor presentation, Essex Property noted that though net effective rents remained strong throughout the third quarter compared to one year ago, the same moderated in October because of seasonality, a difficult comparison period in 2021 and pockets of softness in demand in certain regions.

Blended lease rates for October were 4.7% compared with 9.6% for the third quarter and 15.4% for the second quarter.

The Zacks Consensus Estimate of $411.6 million for fourth-quarter revenues calls for a 10.8% increase year over year. The consensus estimate for same-property revenues is pegged at $386.58 million, up from $380.56 million in the prior quarter and $330.33 million in the year-ago period. Same-property financial occupancy is expected to slightly moderate to 95.9% from 96.0% in the prior quarter and 96.1% in the year-ago period.

However, this residential REIT is likely to have maintained a decent balance sheet and financial flexibility during the quarter under review. For the fourth quarter of 2022, Essex Property earlier projected core FFO per share in the range of $3.67-$3.77.

Before the fourth-quarter earnings release, Essex Property’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO per share has been revised a cent south in the past month to $3.74. However, it suggests a year-over-year increase of 15.1%.

For the full-year 2022, ESS expected core FFO per share in the range of $14.42-$14.52, indicating a midpoint of $14.47. For the full year, the company projected same-property 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.

For the full year, the Zacks Consensus Estimate for core FFO per share is pegged at $14.49. The figure indicates a 16.01% increase year over year on 11.04% year-over-year growth in revenues to $1.60 billion.

Here Is What Our Quantitative Model Predicts:

Our proven model does not conclusively predict 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 not the case here.

Essex Property currently carries a Zacks Rank of 4 (Sell) and has an Earnings ESP of -0.36%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are three stocks from the broader REIT sector — First Industrial Realty Trust, Inc. FR, STAG Industrial, Inc. STAG and Gladstone Commercial Corporation GOOD — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

First Industrial Realty Trust is slated to report quarterly numbers on Feb 8. FR has an Earnings ESP of +7.65% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

STAG Industrial, scheduled to report quarterly numbers on Feb 15, has an Earnings ESP of +2.89% and carries a Zacks Rank of 2.

Gladstone Commercial Corporation is slated to report quarterly numbers on Feb 22. GOOD has an Earnings ESP of +5.13% and has a Zacks Rank of 3 presently.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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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