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What's in Store for Essex Property (ESS) in Q2 Earnings?
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Essex Property Trust, Inc. (ESS - Free Report) is scheduled to report its second-quarter 2024 results on Jul 30 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 2.41% in terms of core FFO per share. Results reflected favorable growth in same-property revenues and net operating income (NOI).
Over the trailing four quarters, Essex Property surpassed the Zacks Consensus Estimate on each occasion, the average surprise being 1.07%. The graph below depicts the surprise history of the company:
Let’s see how things have shaped up before this announcement.
US Apartment Market in Q2
Per RealPage data, the U.S. apartment market witnessed a surge in demand in the second quarter despite supply continuing to grab headlines.
This is evidenced by high absorption rates. Around 389,629 apartment units were absorbed on net over the past 12 months, with some 257,000 units being absorbed during the first two quarters of 2024. However, there were massive amounts of new supply, with 522,743 new market-rate apartment units delivered in the past 12 months.
With the narrow gap between demand and supply, national occupancy and rent growth rates have stabilized. Occupancy held steady for three straight months, remaining at 94.2% in June. Rents rose 0.2% in the year ending June, and the monthly effective rent change was north 0.4%. The average effective rent was $1,838.
Projections
Essex Property has a good property base and substantial exposure to the West Coast market. The West Coast is home to several innovation and technology companies that drive job creation and income growth. Moreover, California has key life science clusters and is a major employment driver in San Francisco and San Diego. The West Coast region has higher median household incomes, an increased percentage of renters than owners and favorable demographics.
With layoffs in the tech industry slowing and return to office gaining momentum, the West Coast markets are likely to have seen an increase in renter demand in the second quarter. Also, due to the high cost of homeownership amid high interest rates, the transition from renter to homeowner is difficult in its markets, making renting apartment units a more flexible and viable option.
ESS also banks on its technology, scale and organizational capabilities to drive margin expansion across its portfolio and bring about operational efficiency by lowering costs. It is making good progress on the technology front, and leasing agents are becoming more productive by leveraging these tools.
Per the June investor presentation, Essex Property experienced healthy rental rate momentum to begin peak leasing, with year-over-year blended rates improving 100 bps in May compared to April.
For the same-property operating portfolio, new rates improved to 2.1% in May from 0.3% in April and 0.1% in the first quarter of 2024. Renewal rates increased to 4.9% in May from 4.3% in April and 3.9% in the first quarter of 2024.
Financial occupancy for May increased to 96.4% from 96% in April and 96.3% in the first quarter of 2024. Blended rates climbed to 3.7% in May from 2.7% in April and 2.2% in the first quarter of 2024.
The Zacks Consensus Estimate of $432.24 million for second-quarter revenues calls for a 3.9% increase year over year. The consensus estimate for same-property revenues is pegged at $411.73 million, slightly up from $409.82 million in the prior quarter and $394.20 million in the year-ago period.
For the second quarter, we expect same-store property revenue growth of 2.9% and, consequently, net operating income to rise 1.5% year over year. For the second quarter, we project financial occupancy of 96.4%, up 10 basis points sequentially.
For the second quarter of 2024, Essex Property projected core FFO per share in the range of $3.77-$3.89, with the midpoint being $3.83.
Before the second-quarter earnings release, Essex Property’s activities were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has been revised a cent north in the past month to $3.85. It suggests a year-over-year increase of 2.12%.
However, the struggle to lure renters is expected to have persisted in the second quarter as supply volumes are likely to have remained elevated in some of its markets. Such a competitive landscape limits the company’s ability to increase rents and occupancy levels, restricting its growth momentum to some extent. Moreover, outmigration and job losses are expected to affect apartment demand.
Also, a high interest rate is a concern for Essex Property. Elevated rates imply higher borrowing costs for the company, which is likely to have affected its ability to purchase or develop real estate. We expect interest expenses to increase 8.8% year over year in the second quarter.
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 +1.00%. 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 two other stocks from the broader REIT sector — Extra Space Storage Inc. (EXR - Free Report) and American Homes 4 Rent (AMH - 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.
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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What's in Store for Essex Property (ESS) in Q2 Earnings?
Essex Property Trust, Inc. (ESS - Free Report) is scheduled to report its second-quarter 2024 results on Jul 30 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 2.41% in terms of core FFO per share. Results reflected favorable growth in same-property revenues and net operating income (NOI).
Over the trailing four quarters, Essex Property surpassed the Zacks Consensus Estimate on each occasion, the average surprise being 1.07%. The graph below depicts the surprise history of the company:
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.
US Apartment Market in Q2
Per RealPage data, the U.S. apartment market witnessed a surge in demand in the second quarter despite supply continuing to grab headlines.
This is evidenced by high absorption rates. Around 389,629 apartment units were absorbed on net over the past 12 months, with some 257,000 units being absorbed during the first two quarters of 2024. However, there were massive amounts of new supply, with 522,743 new market-rate apartment units delivered in the past 12 months.
With the narrow gap between demand and supply, national occupancy and rent growth rates have stabilized. Occupancy held steady for three straight months, remaining at 94.2% in June. Rents rose 0.2% in the year ending June, and the monthly effective rent change was north 0.4%. The average effective rent was $1,838.
Projections
Essex Property has a good property base and substantial exposure to the West Coast market. The West Coast is home to several innovation and technology companies that drive job creation and income growth. Moreover, California has key life science clusters and is a major employment driver in San Francisco and San Diego. The West Coast region has higher median household incomes, an increased percentage of renters than owners and favorable demographics.
With layoffs in the tech industry slowing and return to office gaining momentum, the West Coast markets are likely to have seen an increase in renter demand in the second quarter. Also, due to the high cost of homeownership amid high interest rates, the transition from renter to homeowner is difficult in its markets, making renting apartment units a more flexible and viable option.
ESS also banks on its technology, scale and organizational capabilities to drive margin expansion across its portfolio and bring about operational efficiency by lowering costs. It is making good progress on the technology front, and leasing agents are becoming more productive by leveraging these tools.
Per the June investor presentation, Essex Property experienced healthy rental rate momentum to begin peak leasing, with year-over-year blended rates improving 100 bps in May compared to April.
For the same-property operating portfolio, new rates improved to 2.1% in May from 0.3% in April and 0.1% in the first quarter of 2024. Renewal rates increased to 4.9% in May from 4.3% in April and 3.9% in the first quarter of 2024.
Financial occupancy for May increased to 96.4% from 96% in April and 96.3% in the first quarter of 2024. Blended rates climbed to 3.7% in May from 2.7% in April and 2.2% in the first quarter of 2024.
The Zacks Consensus Estimate of $432.24 million for second-quarter revenues calls for a 3.9% increase year over year. The consensus estimate for same-property revenues is pegged at $411.73 million, slightly up from $409.82 million in the prior quarter and $394.20 million in the year-ago period.
For the second quarter, we expect same-store property revenue growth of 2.9% and, consequently, net operating income to rise 1.5% year over year. For the second quarter, we project financial occupancy of 96.4%, up 10 basis points sequentially.
For the second quarter of 2024, Essex Property projected core FFO per share in the range of $3.77-$3.89, with the midpoint being $3.83.
Before the second-quarter earnings release, Essex Property’s activities were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has been revised a cent north in the past month to $3.85. It suggests a year-over-year increase of 2.12%.
However, the struggle to lure renters is expected to have persisted in the second quarter as supply volumes are likely to have remained elevated in some of its markets. Such a competitive landscape limits the company’s ability to increase rents and occupancy levels, restricting its growth momentum to some extent. Moreover, outmigration and job losses are expected to affect apartment demand.
Also, a high interest rate is a concern for Essex Property. Elevated rates imply higher borrowing costs for the company, which is likely to have affected its ability to purchase or develop real estate. We expect interest expenses to increase 8.8% year over year in the second quarter.
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 +1.00%. 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 two other stocks from the broader REIT sector — Extra Space Storage Inc. (EXR - Free Report) and American Homes 4 Rent (AMH - 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.
Extra Space Storage, scheduled to report quarterly numbers on Jul 30, has an Earnings ESP of +1.00% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Homes 4 Rent is slated to report quarterly numbers on Aug 1. AMH has an Earnings ESP of +1.14% and carries 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.