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

Essex Property Trust, Inc. ESS is scheduled to report second-quarter 2020 earnings on Aug 3, after market close. While the company’s results will likely reflect year-over-year growth in revenues, funds from operations (FFO) per share might display a decline.

In the last reported quarter, this San Mateo, CA-based residential real estate investment trust (REIT) delivered a surprise of 2.35% in terms of FFO per share. Results mirrored improved same-property gross revenues and net operating income.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate on three occasions and missed in the other, the average beat being 1.27%. This is depicted in the graph below:

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 for this announcement.

Factors at Play

The prime leasing season for the U.S. apartment market did not have a favorable start this time. This is because the coronavirus crisis has impacted the economy and substantial job cuts in the beginning of the April-June period affected leasing activity.

Per the latest report from real estate technology and analytics firm RealPage RP, the June-end quarter witnessed demand for just 33,966 units across the country’s 150 largest markets. This marks roughly one-fourth of the average apartment product absorption realized in the second quarter in the past five years.

Majority of the demand was seen in June, as leasing activity in several locations were limited in the previous months. Moreover, the Sun Belt markets topped the second-quarter apartment demand. However, a number of gateway markets suffered net move-outs during the to-be-reported quarter, and urban core neighborhoods struggled the most.

For Essex Property, the tepid environment is likely to have affected the company’s leasing activity, rental rates, occupancy, and rent collections.

However, Essex Property has a sturdy property base, substantial exposure to the West Coast market and a strong management team. Moreover, the company is banking on its technology, scale and organizational capabilities to drive innovation and margin expansion in the portfolio. This has become all the more essential in this social-distancing era, as the virus outbreak needed a quick shift to virtual operations for the continuity of normal business operations. These are likely to have provided the company a competitive edge.

The Zacks Consensus Estimate of $383.1 million for second-quarter revenues indicates a 5.9% improvement, year on year.  The company is also expected to have maintained decent balance sheet and financial flexibility.

Prior to the second-quarter earnings release, analysts seem to have become slightly optimistic about the company’s prospects as the Zacks Consensus Estimate for the FFO per share moved a cent north to $3.31 over the past month. Nevertheless, it suggests a year-over year decline of 0.6%.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive 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 odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Essex Property currently carries a Zacks Rank #3 and has an Earnings ESP of -0.27%.

Stocks That Warrant a Look

Here are a few stocks in the 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:

Healthcare Trust of America, Inc. HTA, set to report quarterly numbers on Aug 6, currently has an Earnings ESP of +0.96% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

SBA Communications Corporation SBAC, slated to release results on Aug 3, has an Earnings ESP of +4.48% and carries a Zacks Rank of 3, at present.

National Storage Affiliates Trust NSA, scheduled to announce earnings figures on Aug 6, has an Earnings ESP of +0.44% and holds a Zacks Rank of 3 currently.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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