We have initiated coverage on Essex Property Trust, Inc. ESS on Jun 23, 2015.
Headquartered in Palo Alto, CA, Essex Property Trust, Inc. is a real estate investment trust (“REIT”) that boasts possession of multifamily residential properties in select coastal submarkets along the West Coast, including Southern California, the San Francisco Bay Area, as well as the Seattle metropolitan area. In Apr 2014, Essex Property completed the merger with BRE Properties that led to the creation of a premium West Coast pure play multifamily REIT.
Riding on strong growth, in May, the company reported first-quarter 2015 core funds from operations (“FFO”) of $2.29 per share, which beat the Zacks Consensus Estimate of $2.22 as well as the year-ago quarter figure of $2.02. Total revenue came in at $282.9 million, ahead of the Zacks Consensus Estimate of $280 million and soaring 75.7% year over year, mainly on the back of the BRE acquisition and growth in same-property revenues.
For full-year 2015, backed by an increase in same-property growth rates, Essex Property has raised its guidance range for core FFO per share to $9.36–$9.60, an increase of 8 cents at the mid point from the prior range of $9.25–$9.55.
With a solid property base and strong management team, we believe Essex Property is capable of efficiently leveraging the attractive market fundamentals. The company’s substantial exposure to the West Coast market offers it ample scope to enhance its top line. This region experiences solid growth in jobs and personal income. While these factors are likely to drive demand for apartments, housing supply remains comparatively lower in the region. Amid this, rents and occupancies are projected to trend higher.
Yet, substantial leasing on a short-term basis and asset concentrations continue to pose as risks for Essex. Moreover, anticipation of rate hike in the medium term adds to the concerns.
Essex Property currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Armada Hoffler Properties, Inc. AHH, Equity LifeStyle Properties, Inc. ELS and Sun Communities Inc. SUI. All these stocks hold a Zacks Rank #2 (Buy).
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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