Should You Hold Essex Property (ESS) In Your Portfolio?

We updated our research report on Essex Property Trust, Inc. (NYSE:ESS) on May 26.

Late in April, backed by robust growth in revenues, Essex Property delivered a better-than-expected core funds from operations (“FFO”) per share for first-quarter 2017. The company reported core FFO per share of $2.94 for the quarter, beating the Zacks Consensus Estimate of $2.89. Core FFO per share also improved 9.7% from the year-ago quarter figure of $2.68.

Total revenue of $335.4 million in the quarter exceeded the Zacks Consensus Estimate of $332.8 million and was up 6.7% year over year.

Per management, the first-quarter 2017 results “reflect a recovery from challenging conditions experienced in the fourth quarter”. In addition, results were solid in the Seattle portfolio and the company witnessed better pricing power in Northern California amid lesser deliveries of apartment supply.

Further, the company raised its guidance for 2017. It projects core FFO per share in the range of $11.56–$11.96 from $11.48–$11.88 guided earlier, indicating an increase of $0.08 at the mid-point. Essex Property revised its estimates for same-property gross revenue growth to 3.0–4.0% from the prior range of 2.75–3.75%. Same-property NOI is now guided in the band of 2.8–4.6% from the previous range of 2.5–4.25%.

Moving ahead, with a strong property base and solid balance sheet, Essex Property is likely to leverage on favorable demographic trends in its markets. Moreover, the company has a 23-year history of increasing cash dividend, with the most recent announcement of dividend hike of 9.4% in Feb 2016.

Also, shares of Essex Property outperformed the Zacks categorized REIT and Equity Trust – Residential industry in the past three months. During this time period, shares of the company increased 10.2%, whereas the industry ascended 0.2%. Additionally, FFO per share estimates for full-year 2017 moved north 0.7% over the past 30 days to $11.79.



However, there is elevated apartment deliveries is Essex Property’s market. This high supply is a concern because it curtails landlord’s ability to command more rent and results in lesser absorption. The trend is anticipated to continue in the near term, and result in aggressive rental concessions and moderate pricing power of landlords.

Essex Property currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors can also consider better-ranked stocks in the REIT space like DCT Industrial Trust Inc. (NYSE:DCT) , Prologis, Inc. (NYSE:PLD) and Sunstone Hotel Investors, Inc. (NYSE:SHO) . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DCT Industrial Trust’s estimates for 2017 FFO per share moved north 0.4% to $2.39, over the past 30 days.

Prologis’ estimates for 2017 FFO per share moved north nearly 3.8% to $2.76, over the past 60 days.

Sunstone Hotel currently has a long-term growth rate of 5.0%.


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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