Shares of Essex Property Trust Inc. (ESS) scaled a new 52-week high of $230.49 on Jan 26. The residential real estate investment trust (“REIT”) stock closed the session at $230.11, reflecting a solid year-to-date return of 56.2%. The trading volume for the session was around 0.4 million shares.
Despite scaling such high, we believe this Zacks Rank #2 (Buy) stock has plenty of upside left, given the improving fundamentals of the apartment sector, an enhanced presence in the West Coast market and a long-term expected growth rate of 8.4%.
Moreover, the broader REIT market remains optimistic as well, driven by expectations for a continued low rate environment for an extended time in the U.S. This assumption is backed by modest growth pace of the economy, the launching of 1 trillion-euro rescue plan by the European Central Bank and the International Monetary Fund’s (“IMF”) advice toward advanced economies for maintaining accommodative monetary policies.
Growth Drivers
California-based Essex Property has emerged as a premium West Coast multifamily REIT, following its merger with BRE Properties in last year April. The company has solid growth prospects. This is because the demand momentum in the West Coast remains robust, backed by improvement in economy and growth in jobs amid a lower supply of properties in the market.
Given its enhanced property base and strong management team, Essex can efficiently leverage attractive market fundamentals amid this environment and reward its shareholders accordingly. The company presently enjoys ownership interests in 240 apartment communities with an additional 14 properties in different phases of active development or in the initial leasing phase.
Moreover, riding on strong growth initiatives, Essex reported encouraging third-quarter 2014 results. Core funds from operations (“FFO”) of $2.16 per share came higher than the Zacks Consensus Estimate of $1.91 by 13.1%.
Essex is slated to release fourth-quarter and full year 2014 results after the closing bell on Feb 4, 2015. The Zacks Consensus Estimate currently stands at $2.22 per share for the quarter and $7.80 for the year.
The Zacks Consensus Estimate, over the last 30 days, remained unchanged at $7.80 per share for 2014, while that for 2015 climbed a cent up to $9.32 per share.
Other REITs Scaling Highs
Other REITs that have scaled 52-week highs on Jan 26 include Equity Residential (EQR), General Growth Properties, Inc (GGP) and Simon Property Group Inc. (SPG).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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