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Key Factors to Impact Essex Property's (ESS) Q2 Earnings

Essex Property Trust, Inc. ESS is scheduled to report second-quarter 2019 results on Jul 24, 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 1.25% in terms of funds from operations (FFO) per share. Results reflect growth in same-property net operating income (NOI).

Over the trailing four quarters, the company beat the Zacks Consensus Estimate on three occasions and met in the other, the average beat being 0.72%. This is depicted in the graph below:

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 for this announcement.

Factors at Play

According to the latest figures from real estate technology and analytics firm RealPage, Inc. suggest that during the current year’s prime leasing period, the U.S. apartment rental market was able to bank on the stellar demand for rental units. The apartment rental market’s fundamentals have been buoyed by a stable economy, a healthy job market, household formation and high home-ownership costs in several markets hindering transition from renter to homeowner.

Leasing activity accelerated as demand was strong during the second quarter and per the RealPage report, from April through June, net move-ins aggregated 155,515 units, which came in 11% higher than the second-quarter 2018 product absorption as well as touched a five-year high.

With an impressive leasing activity, occupancy reached 95.8% during the June-end period, up from the prior-year quarter’s 95.4%. This upswing in occupancy level amidst a steady delivery of new units looks encouraging. With occupancy pushing up, rent growth also seems to be steady. In fact, the market has achieved a 3% increase in rents from the prior-year level, attaining an average of $1,390 per month.

Amid these, with a sturdy property base and strong management team, Essex Property is likely to have leveraged on favorable demographic trends, household formation, healthy economy and job-market growth in its markets.

Particularly, the company’s substantial exposure to the West Coast market offers ample scope to bolster its top line over the long run. 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.

Moreover, due to high cost of homeownership, transition from renter to homeowner is difficult in its markets. These are likely to have favorably impacted rental housing demand in the to-be-reported quarter.

As such, the Zacks Consensus Estimate for second-quarter revenues of $358.2 million indicates a 2.7% uptick year over year. Further, the company estimates core FFO per share of $3.17-$3.27 for the quarter. The Zacks Consensus Estimate for the same is currently pinned at $3.26. It reflects 3.82% growth from the prior-year quarter’s reported tally.

In addition, Essex Property maintains a solid balance sheet and enjoys financial flexibility. As of Apr 22, the company had around $1.1 billion in undrawn capacity on its unsecured credit facilities. This healthy financial position is likely to help the company strengthen and expand its business.

Nevertheless, apartment deliveries are expected to be elevated in a number of its markets. This high supply is a concern because it curtails landlords’ ability to command more rent and results in lesser absorption.

Here is what our quantitative model predicts:

Essex Property has 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 +0.42%.

Zacks Rank: Essex Property carries a Zacks Rank #2 (Buy), currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Here are some other stocks in the residential 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:

Mid-America Apartment Communities MAA, commonly known as MAA, currently carries a Zacks Rank #2 and has an Earnings ESP of +1.31%. MAA is set to release results on Jul 31. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Camden Property Trust CPT, another Zacks #2 Ranked stock, has an Earnings ESP of +0.14%. It is slated to report its quarterly numbers on Jul 25.

Equity Residential EQR carries a Zacks Rank #3, at present, and has an Earnings ESP of +1.30%. The company is scheduled to release its earnings figures on Jul 30.

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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Mid-America Apartment Communities, Inc. (MAA): Free Stock Analysis Report
 
Camden Property Trust (CPT): Free Stock Analysis Report
 
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Essex Property Trust, Inc. (ESS): Free Stock Analysis Report
 
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