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Essex Property (ESS) Buys JV Partner's Stake in BEXAEW Portfolio
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Essex Property Trust, Inc. (ESS - Free Report) recently announced the acquisition of its joint venture partner’s 49.9% stake in the BEXAEW portfolio for $505 million on a gross basis. The move comes as part of the company’s efforts to boost its asset base and drive profitability.
Comprising four properties, this portfolio totals 1,480 apartment homes and generated an 11.4% IRR. Essex Property will recognize roughly $1.5 million in promote income, which will be excluded from its core FFO.
While the seller’s cap rate is approximately 5.25%, the company estimates a 5.9% year-one yield after the incorporation of additional economic benefits on the full integration of this portfolio into ESS’ operating platform. Essex Property repaid $219.9 million of debt, encumbering the properties simultaneously with the closing and consolidating the communities on its financials.
Essex Property enjoys a robust property base and a strong management team. This residential REIT’s substantial exposure to the West Coast market has offered ample scope to enhance its top line. The West Coast is home to several innovation and technology companies that drive job creation and income growth.
Moreover, California has key life science clusters and is a major employment driver in San Francisco and San Diego. The West Coast region has higher median household incomes, an increased percentage of renters than owners and favorable demographics. With layoffs in the tech industry slowing and return to office gaining momentum, the West Coast markets are likely to see an increase in renter demand in the near term.
Also, due to the high cost of homeownership amid high interest rates, the transition from renter to homeowner is difficult in its markets, making renting apartment units a more flexible and viable option. Against this backdrop, we expect a year-over-year increase of 1.3% in the company’s rental and other property revenues in 2024.
Also, efforts to leverage technology, scale and organizational capabilities are expected to drive margin expansion and bring about operational efficiency across its portfolio. A healthy balance sheet also augurs well. For 2024, we project 1.4% year-over-year growth in total revenues.
However, the elevated supply of rental units in certain markets is likely to increase competitive pressure and hurt pricing power, thereby restricting rent growth momentum to some extent. High interest rates add to its woes.
Shares of this Zacks Rank #3 (Hold) company have rallied 13.7% over the past six months, outperforming the industry’s increase of 6.2%.
The Zacks Consensus Estimate for UMH Properties’ 2024 funds from operations (FFO) per share is pegged at 95 cents, which suggests year-over-year growth of 10.5%.
The Zacks Consensus Estimate for Centerspace’s 2024 FFO per share has been revised marginally upward over the past month to $4.70.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Essex Property (ESS) Buys JV Partner's Stake in BEXAEW Portfolio
Essex Property Trust, Inc. (ESS - Free Report) recently announced the acquisition of its joint venture partner’s 49.9% stake in the BEXAEW portfolio for $505 million on a gross basis. The move comes as part of the company’s efforts to boost its asset base and drive profitability.
Comprising four properties, this portfolio totals 1,480 apartment homes and generated an 11.4% IRR. Essex Property will recognize roughly $1.5 million in promote income, which will be excluded from its core FFO.
While the seller’s cap rate is approximately 5.25%, the company estimates a 5.9% year-one yield after the incorporation of additional economic benefits on the full integration of this portfolio into ESS’ operating platform. Essex Property repaid $219.9 million of debt, encumbering the properties simultaneously with the closing and consolidating the communities on its financials.
Essex Property enjoys a robust property base and a strong management team. This residential REIT’s substantial exposure to the West Coast market has offered ample scope to enhance its top line. The West Coast is home to several innovation and technology companies that drive job creation and income growth.
Moreover, California has key life science clusters and is a major employment driver in San Francisco and San Diego. The West Coast region has higher median household incomes, an increased percentage of renters than owners and favorable demographics. With layoffs in the tech industry slowing and return to office gaining momentum, the West Coast markets are likely to see an increase in renter demand in the near term.
Also, due to the high cost of homeownership amid high interest rates, the transition from renter to homeowner is difficult in its markets, making renting apartment units a more flexible and viable option. Against this backdrop, we expect a year-over-year increase of 1.3% in the company’s rental and other property revenues in 2024.
Also, efforts to leverage technology, scale and organizational capabilities are expected to drive margin expansion and bring about operational efficiency across its portfolio. A healthy balance sheet also augurs well. For 2024, we project 1.4% year-over-year growth in total revenues.
However, the elevated supply of rental units in certain markets is likely to increase competitive pressure and hurt pricing power, thereby restricting rent growth momentum to some extent. High interest rates add to its woes.
Shares of this Zacks Rank #3 (Hold) company have rallied 13.7% over the past six months, outperforming the industry’s increase of 6.2%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are UMH Properties, Inc. (UMH - Free Report) and Centerspace (CSR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for UMH Properties’ 2024 funds from operations (FFO) per share is pegged at 95 cents, which suggests year-over-year growth of 10.5%.
The Zacks Consensus Estimate for Centerspace’s 2024 FFO per share has been revised marginally upward over the past month to $4.70.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.