Essex Property Trust, Inc. ESS is scheduled to report its fourth-quarter and full-year 2024 results on Feb. 4, 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 0.77% 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 1.58%. The graph below depicts the surprise history of the company:
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 before this announcement.
US Apartment Market in Q4
Per RealPage data, U.S. apartment demand surged to its highest level in almost three years in the fourth quarter of 2024, comfortably surpassing the record-high new supply seen that year.
Between October and December 2024, the U.S. apartment market absorbed 230,819 market-rate units, while 155,408 new units were delivered during the same period. Annual supply hit 588,883 units, while demand led to 666,699 units.
As demand exceeded supply, U.S. apartment occupancy saw a notable annual increase, reaching 94.8% in December. The annual occupancy change was 0.7%. However, rent growth remained stagnant due to the pressure of historically high new supply levels. Rents rose 0.5% in 2024, and the monthly effective rent change was down 0.3%. The average effective rent was $1,823.
Factors to Consider Ahead of ESS’ Upcoming Results
Essex Property benefits from a strong West Coast presence, where tech-driven job growth and high incomes support rental demand. California’s key employment hubs, including San Francisco and San Diego, attract a large renter base, while high homeownership costs make renting more practical. Essex leverages technology, scale and operational expertise to improve margins, cut costs and enhance efficiency, strengthening its portfolio in a region with favorable demographics and strong economic fundamentals.
However, Essex Property is likely to have continued facing challenges in attracting renters in the fourth quarter due to elevated supply in some markets, limiting rent and occupancy growth. This competitive environment may have constrained its overall momentum. Additionally, high interest rates remain a concern, increasing borrowing costs and potentially restricting the company’s ability to acquire or develop properties, posing a hurdle to its expansion and investment strategy.
Projections for ESS
Per the November investor presentation, for the same-property operating portfolio, financial occupancy for October was 96.1%, slightly below 96.2% in the third quarter of 2024. Moreover, blended rates decreased to 1.6% in October from 2.5% in the third quarter. New lease rates for October were down 1.5%, while renewal rates were 3.6% in the fourth quarter.
The Zacks Consensus Estimate of $453.08 million for fourth-quarter revenues calls for a 7.4% increase year over year. The consensus estimate for same-property revenues is pegged at $417.64 million, up from $400.33 million in the year-ago period.
For the fourth quarter, we expect same-store property revenue growth of 5.6% and net operating income to rise 4.8% year over year. For the fourth quarter, we project financial occupancy of 96.1%, down 10 basis points sequentially. We expect interest expenses to increase 9.9% year over year in the fourth quarter.
For the fourth quarter of 2024, Essex Property projected core FFO per share in the range of $3.82-$3.94, with the midpoint being $3.88.
Before the fourth-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 two cents north in the past three months to $3.90. It suggests a year-over-year increase of 1.83%.
For full-year 2024, the company expected core FFO per share guidance in the range of $15.50-$15.62, with the midpoint being $15.56. Essex projected same-property revenue growth on a cash basis in the range of 3.1%-3.4% and operating expense growth of 4.5%-5%. NOI is projected to grow in the range of 2.3%-2.9%.
Here is What Our Quantitative Model Predicts for ESS:
Our proven model predicts 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 the case here.
Essex Property currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.01%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks That Warrant a Look
Here are two stocks from the broader REIT sector — Ventas, Inc. VTR and Vornado Realty Trust VNO — that you may want to consider, as our model shows that these also have the right combination of elements to report a surprise this quarter.
Ventas, scheduled to report quarterly numbers on Feb. 12, has an Earnings ESP of +0.89% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Vornado is slated to report quarterly numbers on Feb. 10. VNO has an Earnings ESP of +2.25% and carries a Zacks Rank of 3 at present.
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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