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Essex Property (ESS) Up 9.1% in 3 Months: Will the Trend Last?
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Shares of Essex Property Trust, Inc. (ESS - Free Report) have rallied 9.1% in the past three months, outperforming the industry’s growth of 3.5%.
This residential REIT, 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.
Image Source: Zacks Investment Research
Let us now decipher the factors behind the surge in the stock price and also check whether this trend will last.
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. 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.
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. 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.
On the balance sheet front, 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. 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.
Solid dividend payouts are arguably the biggest attraction for REIT investors, and Essex Property has been steadily raising its payout. 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.
However, the elevated supply of apartment units in some of the company’s markets is likely to fuel competition and curb pricing power. A flexible working environment and high interest rates add to its woes.
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 $15.40.
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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Essex Property (ESS) Up 9.1% in 3 Months: Will the Trend Last?
Shares of Essex Property Trust, Inc. (ESS - Free Report) have rallied 9.1% in the past three months, outperforming the industry’s growth of 3.5%.
This residential REIT, 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.
Image Source: Zacks Investment Research
Let us now decipher the factors behind the surge in the stock price and also check whether this trend will last.
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. 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.
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. 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.
On the balance sheet front, 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. 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.
Solid dividend payouts are arguably the biggest attraction for REIT investors, and Essex Property has been steadily raising its payout. 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.
However, the elevated supply of apartment units in some of the company’s markets is likely to fuel competition and curb pricing power. A flexible working environment and high interest rates add to its woes.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Invitation Homes (INVH - Free Report) and BRT Apartments Corp. (BRT - Free Report) . While BRT Apartments sports a Zacks Rank #1 (Strong Buy), Invitation Homes carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank 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 $15.40.
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.