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Essex Property Trust, Inc. ESS is well-poised to gain from a robust property base in the West Coast market with several demand drivers. Efforts to leverage technology, scale and organizational capabilities are expected to drive margin expansion. A healthy balance sheet augurs well. Solid dividends aid shareholder wealth.
However, the elevated supply of apartment units in some of the company’s markets is likely to fuel competition and curb pricing power. A concentrated portfolio and substantial debt burden remain concerns.
Shares of this residential REIT, carrying a Zacks Rank #3 (Hold), have risen 21.7% in the past year, outperforming the industry’s growth of 7.7%. Moreover, analysts seem bullish on this residential REIT, with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share being raised 0.5% over the past week to $16.00.
Image Source: Zacks Investment Research
What’s Aiding ESS?
Essex Property enjoys a robust property base in the West Coast market, which is home to several innovation and technology companies that drive job creation and income growth. The region has higher median household incomes, an increased percentage of renters than owners and favorable demographics. Also, due to the high cost of homeownership amid still elevated interest rates, the transition from renter to homeowner is difficult, making renting apartment units a more flexible and viable option. Moreover, California has key life science clusters and is a major employment driver in San Francisco and San Diego. Against this backdrop, we expect its rental and other property revenues to increase 4.4% and 3.5% year over year in 2025 and 2026, respectively.
ESS is banking on its technology, scale and organizational capabilities to drive margin expansion across its portfolio and bring about operational efficiency by lowering costs. These efforts are likely to have an incremental effect on top-line and bottom-line growth, positioning the company to ride the growth curve.
Essex Property maintains a healthy balance sheet and enjoys financial flexibility. As of Dec. 31, 2024, the company had $1.3 billion of liquidity through an undrawn capacity on its unsecured credit facilities, cash, cash equivalents and marketable securities. In the fourth quarter of 2024, its net debt-to-adjusted EBITDAre was 5.6X. Over the years, it has made efforts to increase its unencumbered net operating income (NOI) to an adjusted total NOI, which was 92% at the end of the fourth quarter of 2024. With a high percentage of such assets, the company can access secured and unsecured debt markets and maintain availability on the line.
Solid dividend payouts are arguably the biggest attraction for REIT investors and Essex Property has been steadily raising its payout. In February 2025, the company’s board of directors announced a 4.9% hike in its cash dividend to $2.57 per share from $2.45 paid out earlier. It has increased its dividend six times in the last five years, and its five-year annualized dividend growth rate is 4.22%. With a low dividend payout ratio and decent balance sheet strength, the dividend payment is expected to be sustainable over the long run.