Shares of Essex Property Trust Inc. (ESS) scaled a new 52-week high of $195.64 on Sep 5. The residential real estate investment trust (REIT) stock closed the session at $195.51, reflecting a solid year-to-date return of 35.6%. The trading volume for the session was nearly 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 long-term expected growth rate of 8.1%.
Growth Drivers
Recent opportunistic acquisitions, solid second-quarter results including improved performance of its same-store properties and a guidance hike drove the company’s stock price to the new high.
In August, Essex shelled out $208.8 million in total for buying two apartment communities, Apex Apartments in Milpitas, CA and Avalon Bellevue Park Apartments in Bellevue, WA.
Moreover, Essex reported encouraging second-quarter 2014 results. Core funds from operations (FFO) of $2.08 per share exceeded the Zacks Consensus Estimate of $1.70 by 22.4% and the year-ago quarter figure by 11.1%.
Further, the core FFO per share came 8 cents above the midpoint of its guidance range. Results were driven by healthy economic conditions in Northern California and Seattle as well as continued improvements in Southern California. The company has also raised its outlook for full year 2014 on the back of solid same-property net operating income growth (NOI).
As a matter of fact, California-based Essex Property accomplished the merger with BRE Properties on Apr 1, thereby creating a premium West Coast multifamily REIT. It was also added to the S&P 500 Index on the same day. The company enjoys ownership interests in 242 apartment communities with an additional 11 properties in different phases of active development.
In the West Coast, improvement in economy and growth in jobs amid a lower supply of properties in the market, keeps the demand momentum robust. Therefore, given its enhanced property base and strong management team, we believe that Essex can efficiently leverage on attractive market fundamentals to reward its shareholders accordingly.
Echoing similar sentiments, the Zacks Consensus Estimate over the last 30 days climbed 0.6% to $7.30 per share for 2014, while that for 2015 advanced 0.8% to $9.23 per share.
Other REITs Scaling Highs
Other REITs that have scaled 52-week highs on Sep 5 include Cousins Properties Inc. (CUZ), Health Care REIT, Inc. (HCN) and Highwoods Properties Inc. (HIW).
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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