Dividend Aristocrats In Focus: Essex Property Trust

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ESS Markets

Source: Investor Presentation, page 11

Essex concentrates on the markets on the West Coast because of favorable long-term rental prospects. That area has very high economic productivity and strong rates of job growth, both of which fuel demand for housing supply. In addition, single-family residences are very expensive in these markets, making renting more attractive.

These markets have a strong demand for rental units, but also limited new supply as undeveloped land is limited, and construction is lengthy and expensive.

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ESS California

Source: Investor Presentation, page 12

Indeed, as this map shows, Essex is present in two markets with chronic housing shortage problems, which drives demand for its rental units over time. We think this tailwind will be modest but steady, adding to the trust’s FFO-per-share in the years to come via higher same-property revenue and NOI growth.

In addition, Essex has never been afraid to acquire or invest in future growth, as we can see below.

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ESS Strategy

Source: Investor Presentation, page 6

Essex has a history of investing in properties in a variety of ways, but also in financial instruments like bonds and preferred stocks. Essex has, over time, invested its capital in the way it saw fit, irrespective of the method. We think this sets Essex up well for the long-term, as it has produced strong results for the past 25 years.

Competitive Advantages & Recession Performance

Competitive advantages are difficult to come by for a REIT, given that so many competitors employ essentially identical business models. However, Essex has scale and size unlike other apartment REITs and a management team that is highly skilled in terms of creating shareholder value through a variety of methods.

Interestingly, Essex performed very well during and after the Great Recession:

  • 2007 FFO-per-share: $5.57
  • 2008 FFO-per-share: $6.14
  • 2009 FFO-per-share: $6.74
  • 2010 FFO-per-share: $5.02

This speaks to the resilience of the markets where it is present, as 2010 was the only year in the past decade where FFO-per-share declined. We see this recession resilience as highly-favorable and adds to the attractiveness of the stock.

Valuation & Expected Returns

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