Should You Retain Essex Property Stock in Your Portfolio Now?

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 ResearchWhat’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.What’s Hurting ESS?The struggle to lure renters will persist, as supply volumes will likely remain elevated in some of the markets where the company operates in the upcoming period. In addition, Essex Property faces competition from other housing alternatives, such as rental apartments, condominiums and single-family homes. Such a competitive landscape limits the company’s ability to increase rents, thereby restricting its growth momentum to some extent.Essex Property has a significant concentration of assets in Southern California, Northern California, and the Seattle metropolitan area. The company derived 43.4% and 39.2% of its portfolio NOI from Southern California and Northern California, respectively, as of Dec. 31, 2024. This makes the company’s operating results and financial conditions susceptible to any unfavorable fluctuations in local markets.Despite the Federal Reserve announcing rate cuts in recent times, the interest rate is still high and is a concern for Essex Property in the near term. Elevated rates imply high borrowing costs for the company, which would affect its ability to purchase or develop real estate. The company has a substantial debt burden, and its total debt as of Dec. 31, 2024 was $6.60 billion. For 2025, we expect interest expenses to rise 7.1% on a year-over-year basis.Stocks to ConsiderSome better-ranked stocks from the broader REIT sector are Gladstone Land LAND and Sabra Healthcare REIT SBRA, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.The Zacks Consensus Estimate for Gladstone’s 2025 FFO per share is pegged at 54 cents, which indicates year-over-year growth of 14.9%.The Zacks Consensus Estimate for Sabra’s full-year FFO per share is $1.49, which indicates an increase of 3.5% from the year-ago period.Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Sabra Healthcare REIT, Inc. (SBRA): Free Stock Analysis Report Essex Property Trust, Inc. (ESS): Free Stock Analysis Report Gladstone Land Corporation (LAND): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks