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Jefferies: West Coast Apartment REIT Essex Property Trust Hitting On All Cylinders

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Jefferies: West Coast Apartment REIT Essex Property Trust Hitting On All Cylinders
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On April 27, Jefferies analyst Omotayo Okusanya published a note, "Upgrading to Buy: West Coast Fundamentals Getting Even Stronger," prior to multifamily REIT Essex Property Trust Inc (NYSE: ESS) earnings release scheduled for May 6.

Essex has a market cap of $15 billion, owns ~250 apartment communities, has nine projects in various stages of development, and is in the process of completing its BRE Properties merger integration.

Notably, these multifamily properties are all located in the San Francisco Bay Area, Southern California and Seattle, WA markets.

Tale Of The Tape - Past Year

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Essex large cap REIT peers include:

  • AvalonBay Communities Inc (NYSE: AVB) - $22.6 billion cap, 2.9 percent yield; Jefferies Buy rated, with a $198 PT.
  • Equity Residential (NYSE: EQR) - $29 billion cap, 2.9 percent yield; Jefferies Hold rated, with an $84 PT.

5 Slides - Essex At A Glance

Company slides below are from a February 2015 presentation:

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ess_-_ssgrowth_vs_peers_feb_2015.jpg

ess_-_capital_structure_feb_2015.jpg

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Jefferies - Essex: Hold To Buy, PT Raised From $250 to $267

The Jefferies new $267 base case PT is derived from its DDM (dividend discount model) assumptions; as well as 2015E core FFO of $9.50 per share, with a target 2015 multiple of 27.7x, and assumes a year-end portfolio NAV of $214 (based on a 4.9 percent cap rate).

Jefferies base case assumes same store occupancy of 96 percent; 150 bps rent increases per quarter; development yields of 6.25 percent; and $650 million of 2015 acquisitions.

Jefferies - Essex: Strong Fundamentals

  • Essex four key markets comprise '~53% of revenues are in the Top 10 National apartment markets based on annual effective rent growth."
  • Greater than 80 percent of Essex revenues are in the top 20 markets.
  • The Essex "robust development pipeline ($1.1B at ESS' pro rata share) will support double digit earnings growth over the next few years."
  • Other catalysts included: stronger than anticipated job growth; faster lease-up and better yields for development projects and sale of non-core assets.

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Jefferies - Essex Risk Factors

  1. An economic slowdown in the company's markets;
  2. Rising rent/income ratios; and
  3. A significant increase in new supply.

Latest Ratings for ESS

DateFirmActionFromTo
Dec 2016KeyBancUpgradesSector WeightOverweight
Nov 2016Evercore ISI GroupUpgradesHoldBuy
Nov 2016Bank of AmericaDowngradesBuyNeutral

View More Analyst Ratings for ESS
View the Latest Analyst Ratings

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