Dividend Aristocrats In Focus: Essex Property Trust

Essex is less diversified than investors would typically look for, but its track record is unmatched in the world of REITs. Indeed, according to the company it has produced the highest total return of all public US REITs since it went public in 1994.

The trust reported Q4 and full-year earnings on January 29th, and results showed strong growth once again. Core FFO-per-share was up 8.2% year-over-year in Q4 and 6.4% for the entire year. The trust achieved same-property revenue and net operating income, or NOI, growth of 4.0% and 5.5%, respectively, against the fourth quarter of 2018. Same-property revenue and NOI are organic growth measures REITs use to assess the performance of their portfolio, in the same way a retailer reports same-store sales.

For the full-year, realized same-property revenue and NOI growth came to 3.4% and 3.9%, respectively, both of which were towards the top end of the trust’s prior guidance. In total, full-year core FFO-per-share rose 6.4% to $13.38, slightly missing our estimate of $13.55, but a strong performance nonetheless.

Essex acquired two more apartment communities during the fourth quarter for a total consideration of $172.1 million. For the full-year, Essex acquired or otherwise invested in eight communities for a total consideration of $856.4 million, which was in excess of its guidance range for 2019. Essex has never been shy about acquiring growth when the deal is attractive, and it spent nearly $900 million last year to that end. Essex funded these purchase in part by divesting its interest in one community during Q4 for $311 million.

Finally, in January of 2020, Essex acquired its joint venture partner’s 45% interest in a land parcel and six communities with more than 2,000 combined units for $1 billion. The company has guided for core FFO-per-share of $13.74 to $14.14 for 2020. At the midpoint, FFO would reach $13.94 per share and would represent ~4% annual growth over 2019 FFO.

Growth Prospects

We see Essex producing 4% annual FFO-per-share growth in the coming years, consistent with growth that was produced for the past two years, as well as guidance for 2020. Essex has reached the point where it is a huge player in the markets where it is present, so growth could be more difficult to come by.

However, we see some catalysts as driving further improvement in FFO over time.

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