Riding on strong growth, residential real estate investment trust (REIT) Essex Property Trust Inc. ESS reported encouraging second-quarter 2015 results. Core funds from operations (“FFO”) of $2.40 per share came in higher than the Zacks Consensus Estimate of $2.34 as well as the year-ago quarter figure of $2.08.
Moreover, total revenue of $296.2 million for the reported quarter was ahead of the Zacks Consensus Estimate of $290 million and surged 14% year over year. The uptick reflects solid same-property operating performance.
Quarter in Detail
During the quarter, the company’s same-property gross revenues increased 7.8% from the prior-year quarter, while net operating income (“NOI”) improved 10.9% year over year. Financial occupancies came at 96.1%, reflecting an increase of 30 basis points from the prior-year quarter.
The company attributed solid same-property revenue growth to the sustained strength in Northern California and Seattle, as well as improving rent increase in Southern California markets.
Portfolio Activity
In the second quarter, Essex Property acquired an apartment community in Downtown Los Angeles, CA for a total contract price of $99.0 million. The company also stabilized four development communities aggregating 1,038 apartment homes.
Liquidity and Balance Sheet
Essex Property exited second-quarter 2015 with cash and cash equivalents of $65.2 million, down from $95.7 million at the year-end 2014. As of Jun 30, 2015, the company had over $975 million in undrawn capacity on its unsecured credit facilities.
Moreover, the company issued 396,840 shares of its common stock at an average price of $223.59, reaping net proceeds of $88.5 million in the quarter.
Outlook Raised
For full-year 2015, Essex Property has raised its guidance range. The company now expects core FFO per share in the range of $9.56–$9.72, reflecting an increase of 16 cents or 1.7% rise at the mid-point. The Zacks Consensus Estimate of $9.51 lies within this range.
Backed by robust operating conditions in targeted West Coast markets and accelerating operating results, Essex Property revised its outlook. The company raised the mid-point of its full-year guidance for same-property revenue growth by 65 basis points to 7.9% and NOI growth by 110 basis points to 10.5%.
For third-quarter 2015, the company expects core FFO per share in the range of $2.40–$2.46. The Zacks Consensus Estimate of $2.40 also lies in this range.
Conclusion
With a solid property base and strong management team, we believe Essex Property is capable of efficiently leveraging attractive market fundamentals. In the West Coast, job growth amid lower supply of properties in the market will likely propel demand.
Essex Property currently carries a Zacks Rank #2 (Buy). Investors interested in the residential REIT industry may also consider stocks like Avalonbay Communities Inc. AVB, Apartment Investment and Management Company AIV and Equity Residential EQR. All these stocks have the same rank as Essex Property.
Note: FFO, a widely accepted and reported measure of the performance of REITs, is derived by adding depreciation, amortization and other non-cash expenses to net income.
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