Shares of Essex Property Trust, Inc. ESS scaled a new 52-week high of $244.71 on Dec 29, before closing trade at a marginally lower price of $244.29. This reflects a solid year-to-date return of over 20% for this residential real estate investment trust (REIT). The trading volume in the session was nearly 0.4 million shares.
Despite hitting a 52-week high, we believe that this Zacks Rank #2 (Buy) stock has the potential to move even higher, given its solid property base, strong management team and attractive market fundamentals.
Growth Drivers
Essex enjoys a solid property base and strong management team. Importantly, the company’s merger with BRE Properties in 2014 led to the creation of a premium West Coast pure-play multifamily REIT.
Its substantial exposure in the West Coast market offers it ample scope to boost its top line as the region experiences solid growth in jobs and personal income, along with a comparatively lower housing supply, which should drive rents and occupancies.
Moreover, the company leases all of its apartments on a short-term basis, i.e. for one year or less. We believe that such short-term nature of leases would allow the company to adjust its rents quickly to rate hikes.
Finally, Essex Property has been a steady performer. The company reported an earnings surprise of 1.63% in the last reported quarter. In the trailing four quarters, the company delivered positive surprises, with an average beat of 2.06%. Its historical EPS growth (3–5 years) of 14.46% is well above the industry average of 9.98%. Moreover, the earnings momentum is expected to continue in the near term as reflected by the company’s projected EPS growth (F1/F0) of 14.2% compared with the industry average of 9.77%. This reflects strong prospects for the company.
Echoing similar sentiments, the Zacks Consensus Estimate over the last 30 days increased a penny to $9.75 for 2015 and by 3 cents to $10.87 per share for 2016.
Other REIT Stocks Scaling 52-Week Highs
Some other stocks in the REIT industry that have scaled new 52-week highs are CubeSmart CUBE, Equity LifeStyle Properties, Inc. ELS and Extra Space Storage Inc. EXR. All these stocks hold the same Zacks Rank as Essex Property.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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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