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Essex Property Grows in Q3 Despite Nagging Supply Issues

ESS SUI APTS SFR

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On Nov 18, 2016, we issued an updated research report on Essex Property Trust, Inc. (ESS - Free Report) – a residential real estate investment trust (REIT) having a concentration of assets in select West Coast markets.

Essex Property reported third-quarter 2016 core funds from operations (“FFO”) of $2.81 per share, beating the Zacks Consensus Estimate of $2.76. Core FFO per share also improved 12.9% from the year-ago quarter figure. Results were driven by growth in same-property net operating income.

On a positive note, we believe Essex Property is well capable of navigating the current challenging cycle in the residential real estate market given its solid property base and healthy management team.

Encouragingly, in October, the company’s senior unsecured rating was upgraded by Moody’s to Baa1 from Baa2, with a stable outlook. Moreover, the company’s corporate credit rating was raised by Standard & Poor’s to BBB+ from BBB, with a stable outlook. The rating upgrade is based on the company’s improved balance sheet, strengthened liquidity as well as solid operating performance by its core West Coast markets. Such rating upgrade raises the company’s creditworthiness in the market.

On the flip side, rising apartment deliveries is a concern for Essex Property as that curbs landlords’ ability to command more rent and results in lesser absorption. In fact, nationwide and in a number of west coast submarkets, there have been continued apartment deliveries and a slowdown in employment trends. This is expected to continue and moderate pricing power amid aggressive rental concessions offered at newly developed communities.

Over the past seven days, the Zacks Consensus Estimate for FFO per share has increased by a cent to $11.04 for 2016 while the same for 2017 has remained stable at $11.79.

Zacks Rank & Key Picks

Essex Property currently carries a Zacks Rank #3 (Hold). Some better-ranked residential REIT stocks are Colony Starwood Homes (SFR - Free Report) , Preferred Apartment Communities, Inc. (APTS - Free Report) and Sun Communities Inc. (SUI - Free Report) . Each of these stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Colony Starwood Homes has long-term expected growth rate of 10.0% against the industry average of 7.2%.

Preferred Apartment Communities has a four-quarter average positive earnings surprise of 4.64%.

Sun Communities experienced an upward revision in full-year 2016 FFO estimates of around 1.9% over the past one month to $3.79 from $3.72.

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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