Essex Property Trust, Inc. ESS is scheduled to report its third-quarter 2024 results on Oct. 29 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.
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In the last reported quarter, this San Mateo, CA-based residential real estate investment trust (REIT) delivered a surprise of 2.60% 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 1.45%. 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 Q3
Per RealPage data, the U.S. apartment demand remained impressive in the third quarter of 2024 despite a record number of new deliveries entering the market. As a result, rent growth stayed relatively subdued across the nation, continuing the trend observed over the past several months.
Between July and September 2024, the U.S. apartment market absorbed 192,649 market-rate units, while 162,595 new units were delivered during the same period. Annual supply hit 557,842 units, the highest since 1974, while demand trailed slightly at 488,773 units.
In the third quarter, nationwide, occupancy in market-rate apartments stood at 94.4%, a slight decline of just 10 basis points compared to the same period last year. Rents rose 0.2% year over year in September, and the monthly effective rent change was down 0.5%. The average effective rent was $1,838.
Factors to Consider Ahead of ESS’ Upcoming Results
Essex Property benefits from a strong property portfolio and significant exposure to the West Coast market, which is home to numerous innovation and tech companies driving job creation and income growth. California boasts major life science hubs and key employment centers in San Francisco and San Diego. The West Coast has higher median household incomes, a greater proportion of renters and favorable demographics. The high cost of homeownership makes renting a more practical option. Essex also leverages technology, scale and organizational capabilities to enhance margins, reduce costs and boost operational efficiency across its portfolio.
However, the struggle to lure renters is expected to have persisted in the third 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.
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.
Projections for ESS
Per the September investor presentation, in August, market rents were more resilient than expected, which helped slow the typical rate of decline usually observed during this period. For the same-property operating portfolio, financial occupancy for the July-August period increased to 96.3% from 96.2% in the second quarter and flat with the first quarter of 2024. Blended rates decreased to 2.9% in the July-August period from 3.4% in the second quarter of 2024. New/Renewal rates for the July-August period were 1.4%/3.9%, down from 1.7%/4.6%, respectively, in the second quarter of 2024.
The Zacks Consensus Estimate of $445.88 million for third-quarter revenues calls for a 6.37% increase year over year. The consensus estimate for same-property revenues is pegged at $414.89 million, up from $398.46 million in the year-ago period.
For the third quarter, we expect same-store property revenue growth of 2.4% and net operating income to rise 1.7% year over year. For the third quarter, we project financial occupancy of 96.4%, up 20 basis points sequentially. We expect interest expenses to increase 7.8% year over year in the third quarter.
For the third quarter of 2024, Essex Property projected core FFO per share in the range of $3.81-$3.93, with the midpoint being $3.87.
Before the third-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 three cents north in the past two months to $3.88. It suggests a year-over-year increase of 2.65%.
Here is What Our Quantitative Model Predicts for ESS:
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 2 and has an Earnings ESP of -0.17%. 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 two stocks from the residential REIT sector — AvalonBay Communities, Inc. AVB and Independence Realty Trust, Inc. IRT — that you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter.
AvalonBay Communities, scheduled to report quarterly numbers on Nov. 4, has an Earnings ESP of +0.72% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Independence Realty Trust is slated to report quarterly numbers on Oct. 30. IRT has an Earnings ESP of +1.94% and carries a Zacks Rank of 2 presently.
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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