Yahoo Finance Here's Why You Should Retain Essex Property (ESS) Stock for Now
Essex Property Trust, Inc. ESS has a sturdy property base in the West Coast market of the United States and is well-poised to benefit from the healthy demand for its residential properties.
These markets are characterized by higher median household incomes, an increased percentage of renters than owners and favorable demographics. Also, higher home ownership costs are making renting apartment units a viable option. These factors are likely to aid demand, enabling the company to generate steady rental revenues in the upcoming period.
For 2023, we expect total revenues to grow 3.9% year over year. The same-store property revenue growth is anticipated to be 4.4%.
This residential REIT is also leveraging technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. It is making steady progress on the technology front, and leasing agents are becoming more productive by leveraging these tools.
On the balance sheet front, Essex Property had $1.3 billion of liquidity through an undrawn capacity on its unsecured credit facilities, and cash and marketable securities as of Mar 1, 2023. In 2022, its net debt-to-adjusted EBITDAre declined to 5.6X from 6.3X witnessed at the end of 2021.
With manageable debt maturities and investment grade credit ratings of Baa1/Stable from Moody’s and a BBB+/Stable from both Fitch and S&P, ESS has enough financial flexibility to capitalize on growth opportunities.
Solid dividend payouts are arguably the biggest attraction for REIT investors, and Essex Property has remained committed to that. In February 2023, the company announced a 5% hike in its annual cash dividend to $2.31 per share from $2.20 paid out earlier. Moreover, it has increased its dividend five times in the last five years and its five-year annualized dividend growth rate is 4.16%. Such efforts boost investors’ confidence in the stock.
Shares of this Zacks Rank #3 (Hold) company have lost 3.2% in the past three months compared with its industry's fall of 3.7%.
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Nonetheless, stiff competition from other housing alternatives like rental apartments, condominiums and single-family homes might restrict Essex Property from raising rents, stalling its growth pace. Elevated supply in some of its markets is another key concern.
Also, the lack of rent relief in 2023 may weigh on ESS’ revenue growth to a certain extent. We project core funds from operations (FFO) to exhibit a marginal improvement of 0.8% in 2023.
Rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate. For 2023, we anticipate net interest expenses to increase 3.7% year over year.
Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties VICI, Terreno Realty TRNO and Innovative Industrial Properties IIPR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $2.12.
The Zacks Consensus Estimate for Terreno Realty’s 2023 FFO per share is pegged at $2.17.
The Zacks Consensus Estimate for Innovative Industrial Properties’ ongoing year’s FFO per share is pegged at $8.36.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
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Terreno Realty Corporation (TRNO) : Free Stock Analysis Report
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