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4 Reasons to Add Essex Property (ESS) to Your Portfolio Now
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Essex Property Trust, Inc. (ESS - Free Report) , which has a robust property base in the West Coast market, is poised to benefit from the healthy demand for its residential units. It is also banking on technology, scale and organizational capabilities to drive growth.
Analysts also seem bullish on this Zacks Rank #2 (Buy) stock. The Zacks Consensus Estimate for the company’s 2024 FFO per share has been revised five cents upward over the past month to $15.40.
Shares of Essex Property have risen 14.9%, outperforming the industry’s growth of 9.2% in the past three months. Given its favorable fundamentals, the stock has more scope for growth.
Image Source: Zacks Investment Research
Factors That Make Essex Property a Solid Pick
West Coast Exposure and Healthy Fundamentals: Essex Property enjoys a robust property base and a strong management team. This residential REIT’s substantial exposure to the West Coast market has offered ample scope to enhance its top line.
The West Coast is home to several innovation and technology companies that drive job creation and income growth. Moreover, California has key life science clusters and is a major employment driver in San Francisco and San Diego. The West Coast region has higher median household incomes, an increased percentage of renters than owners and favorable demographics.
With layoffs in the tech industry slowing and return to office gaining momentum, the West Coast markets are likely to see an increase in renter demand in the near term. Also, due to the high cost of homeownership amid high interest rates, the transition from renter to homeowner is difficult in its markets, making renting apartment units a more flexible and viable option. Against this backdrop, we expect its rental and other property revenues to increase 2.4% and 2.3% year over year in 2024 and 2025, respectively.
Technology Initiatives: Essex Property is also banking on its technology, scale and organizational capabilities to drive margin expansion across its portfolio and bring about operational efficiency by lowering costs. It is making good progress on the technology front, and leasing agents are becoming more productive by leveraging these tools. The next phase of the company’s expansion of its operating model to maintenance function is expected to maximize the workflow of its associates, including reducing task time and vendor costs. These efforts are likely to have an incremental effect on the top-line and bottom-line growth, positioning Essex Property to ride the growth curve.
Balance Sheet Strength and High ROE: Essex Property maintains a healthy balance sheet and enjoys financial flexibility. As of Apr 29, 2024, the company had $1.5 billion of liquidity through an undrawn capacity on its unsecured credit facilities, cash, cash equivalents and marketable securities.
In the first quarter of 2024, its net debt-to-adjusted EBITDAre remained unchanged at 5.4X from the prior quarter. Over the years, it has made efforts to increase its unencumbered net operating income (NOI) to an adjusted total NOI, which stood at 93% at the end of the first quarter of 2024. With a high percentage of such assets, the company can access secured and unsecured debt markets and maintain availability on the line.
As of Mar 31, 2024, this residential REIT had Baa1/Stable and BBB+/Stable ratings from Moody’s Investor Service and Standard and Poor's, respectively. Therefore, with a solid liquidity position, manageable debt maturities and investment grade ratings, the company is well-poised to ride its growth curve.
In addition, its trailing 12-month return on equity (ROE) is 9.22% compared with the industry’s average of 2.96%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Dividend: Solid dividend payouts are arguably the biggest attraction for REIT investors, and Essex Property has been steadily raising its payout. In February 2024, the company announced a 6.1% hike in its annual cash dividend to $2.45 per share from $2.31 paid out earlier. The company has raised its dividend every year since its IPO in 1994, and the latest hike marked the company’s 30th consecutive annual dividend increase.
ESS has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 4.34%. With a low dividend payout ratio, a solid operating platform and decent balance sheet strength, the dividend payment is expected to be sustainable over the long run.
The Zacks Consensus Estimate for Invitation Home’s current-year FFO per share has been raised marginally over the past two months to $1.88.
The Zacks Consensus Estimate for BRT Apartments’ 2024 FFO per share has moved 25% northward over the past two months to $1.50.
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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4 Reasons to Add Essex Property (ESS) to Your Portfolio Now
Essex Property Trust, Inc. (ESS - Free Report) , which has a robust property base in the West Coast market, is poised to benefit from the healthy demand for its residential units. It is also banking on technology, scale and organizational capabilities to drive growth.
Analysts also seem bullish on this Zacks Rank #2 (Buy) stock. The Zacks Consensus Estimate for the company’s 2024 FFO per share has been revised five cents upward over the past month to $15.40.
Shares of Essex Property have risen 14.9%, outperforming the industry’s growth of 9.2% in the past three months. Given its favorable fundamentals, the stock has more scope for growth.
Image Source: Zacks Investment Research
Factors That Make Essex Property a Solid Pick
West Coast Exposure and Healthy Fundamentals: Essex Property enjoys a robust property base and a strong management team. This residential REIT’s substantial exposure to the West Coast market has offered ample scope to enhance its top line.
The West Coast is home to several innovation and technology companies that drive job creation and income growth. Moreover, California has key life science clusters and is a major employment driver in San Francisco and San Diego. The West Coast region has higher median household incomes, an increased percentage of renters than owners and favorable demographics.
With layoffs in the tech industry slowing and return to office gaining momentum, the West Coast markets are likely to see an increase in renter demand in the near term. Also, due to the high cost of homeownership amid high interest rates, the transition from renter to homeowner is difficult in its markets, making renting apartment units a more flexible and viable option. Against this backdrop, we expect its rental and other property revenues to increase 2.4% and 2.3% year over year in 2024 and 2025, respectively.
Technology Initiatives: Essex Property is also banking on its technology, scale and organizational capabilities to drive margin expansion across its portfolio and bring about operational efficiency by lowering costs. It is making good progress on the technology front, and leasing agents are becoming more productive by leveraging these tools. The next phase of the company’s expansion of its operating model to maintenance function is expected to maximize the workflow of its associates, including reducing task time and vendor costs. These efforts are likely to have an incremental effect on the top-line and bottom-line growth, positioning Essex Property to ride the growth curve.
Balance Sheet Strength and High ROE: Essex Property maintains a healthy balance sheet and enjoys financial flexibility. As of Apr 29, 2024, the company had $1.5 billion of liquidity through an undrawn capacity on its unsecured credit facilities, cash, cash equivalents and marketable securities.
In the first quarter of 2024, its net debt-to-adjusted EBITDAre remained unchanged at 5.4X from the prior quarter. Over the years, it has made efforts to increase its unencumbered net operating income (NOI) to an adjusted total NOI, which stood at 93% at the end of the first quarter of 2024. With a high percentage of such assets, the company can access secured and unsecured debt markets and maintain availability on the line.
As of Mar 31, 2024, this residential REIT had Baa1/Stable and BBB+/Stable ratings from Moody’s Investor Service and Standard and Poor's, respectively. Therefore, with a solid liquidity position, manageable debt maturities and investment grade ratings, the company is well-poised to ride its growth curve.
In addition, its trailing 12-month return on equity (ROE) is 9.22% compared with the industry’s average of 2.96%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Dividend: Solid dividend payouts are arguably the biggest attraction for REIT investors, and Essex Property has been steadily raising its payout. In February 2024, the company announced a 6.1% hike in its annual cash dividend to $2.45 per share from $2.31 paid out earlier. The company has raised its dividend every year since its IPO in 1994, and the latest hike marked the company’s 30th consecutive annual dividend increase.
ESS has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 4.34%. With a low dividend payout ratio, a solid operating platform and decent balance sheet strength, the dividend payment is expected to be sustainable over the long run.
Other Stocks to Consider
Some other top-ranked stocks from the residential REIT sector are Invitation Homes (INVH - Free Report) and BRT Apartments Corp. (BRT - Free Report) . Invitation Home and BRT Apartments each carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Invitation Home’s current-year FFO per share has been raised marginally over the past two months to $1.88.
The Zacks Consensus Estimate for BRT Apartments’ 2024 FFO per share has moved 25% northward over the past two months to $1.50.
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.