Morningstar | Essex Will Rely on Strength of West Coast Fundamentals as Development Becomes Harder to Source
Essex Property Trust is the most geographically focused multifamily real estate investment trust, with a portfolio of high-quality multifamily buildings positioned entirely on the West Coast: Los Angeles, San Diego, San Francisco, San Jose, and Seattle. These markets are experiencing strong demographic trends like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that draw younger populations, which allows the company to maintain high occupancies and drive rent growth above the U.S. average. We expect the company's markets to see strong job and income growth, which should continue to support above average net operating income growth over the next few years. The company's solid internal operating outlook should be supplemented by its small but opportunistic development pipeline to create value for shareholders.While Essex's portfolio focuses on markets with strong demand drivers, the company's growth prospects will be affected by rising supply in those markets. We think the rising volume of apartment deliveries, in addition to the likely development of more-affordable suburban apartments and single-family homes, will continue to pressure market rents and offset much of the demand growth created by demographic trends. Additionally, the concentration of the Essex portfolio in tech-oriented West Coast markets leaves it exposed to the risk of a downturn and a resulting job/income loss in the technology sector. Though Essex has a strong balance sheet and we expect management to continue to exhibit careful but strategic capital stewardship, we believe that high supply limits the upside to the company's internal growth, and the company's exposure to the volatile tech industry presents real downside risk.Essex Property Trust operates as a self-administered and self-managed real estate investment trust. The company owns all of its interest in its real estate and other investments directly or indirectly through Essex Portfolio, L.P. (the Operating Partnership). The company is the sole general partner of the Operating Partnership. The company is engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of primarily apartment communities, located along the West Coast. The company owns or has an interest in various operating apartment communities, consisting of apartment homes, operating commercial building and a development pipeline.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
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