Essex Property (ESS) Q3 FFO Misses Estimates Amid Concessions

Essex Property Trust Inc. ESS reported third-quarter 2020 core funds from operations (FFO) per share of $3.15, missing the Zacks Consensus Estimate of $3.16. The figure also fell 6% from the year-ago quarter’s $3.35.

Results reflect a tepid environment due to the coronavirus pandemic and subsequent economic recession that prevailed throughout the third quarter. Cash concessions and delinquencies affected same-property revenues during the quarter.

Michael Schall, president and CEO, Essex Property noted, “Local and state governments on the West Coast adopted strict guidelines for reopening businesses, muting the recovery in job growth and economic activity in the third quarter. However, these restrictions have begun to subside, leading to cautious optimism that the pace of improvement in job growth and economic activity will accelerate.”

However, total revenues of $370.8 million surpassed the Zacks Consensus Estimate of $368.6 million as well as inched up 1.1% year over year.

Essex Property did not reinstate the 2020 guidance due to the pandemic’s uncertain nature as well as the evolving re-opening plans of the economy. However, the company, in its operational update, noted that in the same-property portfolio, cash delinquencies as percentage of scheduled rent was 2.2% in October compared with the 2.7% witnessed in the third quarter.

New lease rates declined 3% in October compared with the third quarter’s fall of 5.8%, while renewal rates slipped 1.9% in the month as against the 1.6% decrease during the quarter. However, financial occupancy improved to 96.6% in October, up from the September-end quarter’s 96%.

Quarter in Detail

During the July-September quarter, Essex Property’s same-property gross revenues slid 6.7% from the prior-year period. Moreover, same-property operating expenses flared up 3.7% year on year. Consequently, same-property NOI dropped 10.8% year over year. Notably, the drop in same-property revenues and NOI is mainly due to an additional $16.8 million of cash concessions compared with the prior-year period.

Nonetheless, financial occupancies of 96% expanded 110 basis points (bps) sequentially and remained flat year over year.

During the reported quarter, the company sold a community, containing 126 apartment homes, in Redmond, WA for a total contract price of $51.5 million, recognizing a $22.7-million gain on sale. Also, Essex Property’s development, Station Park Green – Phase III, reached stabilization during this period.

Balance Sheet

Essex Property exited the September-end quarter with cash and cash equivalents, including restricted cash, of $569.1 million, up from the $81.1 million recorded at the end of 2019. As of Oct 22, the company had $1.2 billion in undrawn capacity on its unsecured credit facilities, and $0.5 billion in cash and marketable securities.

In August, the company issued $600 million of senior unsecured notes, comprising two $300-million tranches, due in 2031 and 2050, respectively. The notes bear an interest rate per annum of 1.65% and 2.65%, respectively. The company used part of the proceeds to prepay $300 million of its outstanding 3.625% senior notes due in August 2022. The remaining proceeds will be utilized for repayment of all remaining 2021 debt maturities.

During the reported quarter, Essex Property repurchased 121,260 shares of its common stock amounting to $26.6 million at an average price of $219.24 per share. As of Oct 22, the company had $203.3 million of purchase authority remaining under the stock-repurchase plan.

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 Other Residential REITs

AvalonBay Communities, Inc.’s AVB third-quarter 2020 core FFO per share of $2.06 missed the Zacks Consensus Estimate of $2.16. The reported tally also declined 12% year over year from the prior-year quarter’s $2.34. Results reflect decline in residential rental revenues, driven by concessions, occupancy and uncollectible lease revenues. While weak same-store results is mainly due to the urban portfolio, the sub-urban portfolio is performing better.

Equity Residential’s EQR third-quarter 2020 normalized FFO per share of 77 cents missed the Zacks Consensus Estimate of 82 cents. The reported figure also declined 15.4% year over year. According to its president and CEO Mark J. Parrell, roughly 23% of the company’s portfolio positioned in the urban cores of New York, San Francisco and Boston continues to struggle amid pandemic-related reductions in economic activity. This has resulted in fall in occupancy, lower resident-renewal levels and an associated drop in rental rates.

Mid-America Apartment Communities, Inc. MAA, commonly referred to as MAA, reported third-quarter 2020 core funds from operations (FFO) per share of $1.57, surpassing the Zacks Consensus Estimate of $1.53. The reported figure remained flat year over year. The residential REIT’s quarterly results reflect rise in average effective rent per unit for the same-store portfolio.

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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