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Essex Property Stock Up 16.1% YTD: Will It Rise Any Further?
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Shares of Essex Property Trust (ESS - Free Report) have rallied 16.1% year to date, outperforming the industry's upside of 10.5%.
A robust property base in the West Coast market with favorable demand drivers will aid Essex Property. Technology initiatives to drive margins and a healthy balance sheet bode well for long-term growth.
Analysts seem bullish on this residential REIT carrying a Zacks Rank #3 (Hold), with the Zacks Consensus Estimate for its 2024 FFO per share moving northward over the past month to $15.55.
Image Source: Zacks Investment Research
Factors Behind ESS Stock Price Surge: Will the Trend Last?
Essex Property’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, 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 4.4% and 3.9% year over year in 2024 and 2025, respectively.
The company is also banking on its technology, scale and organizational capabilities to drive margin expansion across its portfolio and improve 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 and bottom-line growth, positioning ESS to ride the growth curve.
Essex Property maintains a healthy balance sheet and enjoys financial flexibility. As of Aug. 30, 2024, the company had $1.4 billion of liquidity. In the second quarter of 2024, its net debt-to-adjusted EBITDAre remained unchanged at 5.4X from the prior quarter. Its unencumbered net operating income (NOI) to an adjusted total NOI stood at 93% at the end of the second 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, ESS is likely to grow over the long term.
Solid dividend payouts are arguably the biggest attraction for REIT investors, and Essex Property has been steadily raising its payout. The company has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 4.35%. With a low dividend payout ratio and decent balance sheet strength, the dividend payment is expected to be sustainable over the long run.
Key Risks for ESS
The struggle to lure renters will persist, as supply volumes are likely to remain elevated in some markets where the company will operate in the upcoming period. Essex Property faces competition from other housing alternatives, and such a competitive landscape limits the company’s ability to increase rents. This restricts the company’s growth momentum to some extent.
ESS has a significant concentration of assets in Southern California, Northern California and the Seattle metropolitan area. The company derived 44% and 37% of its portfolio NOI from Southern California and Northern California, respectively, as of June 30, 2024. This makes the company’s operating results and financial conditions susceptible to any unfavorable fluctuations in local markets.
The Zacks Consensus Estimate for Equity Lifestyle Properties’ 2024 FFO per share is pegged at $2.92, up 6.18% year over year.
The Zacks Consensus Estimate for Centerspace’s2024 FFO per share is pegged at $4.83, up 1.05% year over year.
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 Stock Up 16.1% YTD: Will It Rise Any Further?
Shares of Essex Property Trust (ESS - Free Report) have rallied 16.1% year to date, outperforming the industry's upside of 10.5%.
A robust property base in the West Coast market with favorable demand drivers will aid Essex Property. Technology initiatives to drive margins and a healthy balance sheet bode well for long-term growth.
Analysts seem bullish on this residential REIT carrying a Zacks Rank #3 (Hold), with the Zacks Consensus Estimate for its 2024 FFO per share moving northward over the past month to $15.55.
Image Source: Zacks Investment Research
Factors Behind ESS Stock Price Surge: Will the Trend Last?
Essex Property’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, 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 4.4% and 3.9% year over year in 2024 and 2025, respectively.
The company is also banking on its technology, scale and organizational capabilities to drive margin expansion across its portfolio and improve 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 and bottom-line growth, positioning ESS to ride the growth curve.
Essex Property maintains a healthy balance sheet and enjoys financial flexibility. As of Aug. 30, 2024, the company had $1.4 billion of liquidity. In the second quarter of 2024, its net debt-to-adjusted EBITDAre remained unchanged at 5.4X from the prior quarter. Its unencumbered net operating income (NOI) to an adjusted total NOI stood at 93% at the end of the second 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, ESS is likely to grow over the long term.
Solid dividend payouts are arguably the biggest attraction for REIT investors, and Essex Property has been steadily raising its payout. The company has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 4.35%. With a low dividend payout ratio and decent balance sheet strength, the dividend payment is expected to be sustainable over the long run.
Key Risks for ESS
The struggle to lure renters will persist, as supply volumes are likely to remain elevated in some markets where the company will operate in the upcoming period. Essex Property faces competition from other housing alternatives, and such a competitive landscape limits the company’s ability to increase rents. This restricts the company’s growth momentum to some extent.
ESS has a significant concentration of assets in Southern California, Northern California and the Seattle metropolitan area. The company derived 44% and 37% of its portfolio NOI from Southern California and Northern California, respectively, as of June 30, 2024. This makes the company’s operating results and financial conditions susceptible to any unfavorable fluctuations in local markets.
Stocks to Consider
Some better-ranked stocks from the residential REIT sector are Equity Lifestyle Properties (ELS - Free Report) and Centerspace (CSR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Equity Lifestyle Properties’ 2024 FFO per share is pegged at $2.92, up 6.18% year over year.
The Zacks Consensus Estimate for Centerspace’s2024 FFO per share is pegged at $4.83, up 1.05% year over year.
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.