Essex Property Trust Inc. Analysis – October 2015 Update $ESS

REITs often attract a great deal of investors because of their strong cash flows and dividends, and those investors often overlook other parts of the business, choosing to analyze the company under a different set of criteria than companies in other sectors.  This can create a problem in that it becomes difficult to compare a REIT to an industrial, which is fine if you use the typical top-down approach to stock selection; however, a top-down approach invites speculation in the fact that you are theorizing which sector will perform well going forward.  Benjamin Graham taught that we should avoid speculation as much as possible, which is why it is critical to develop a system for analyzing companies that will allow them to be compared across industries.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another investment opportunity.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Essex Property Trust Inc. (ESS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Essex Property Trust, Inc. (Essex) is a self-administered and self-managed real estate investment trust (REIT). The Company is engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of apartment communities. As of December 31, 2014, the Company owned or held an interest in 239 communities, aggregating 57,455 units, located along the West Coast, as well as four commercial buildings (totaling approximately 325,200 square feet), and 12 active development projects with 2,920 units in various stages of development. The Company’s apartment communities are located in Southern California, which include Los Angeles, Orange, Riverside, San Diego, Santa Barbara, and Ventura counties; Northern California, which include the San Francisco Bay Area, and Seattle Metro, which include Seattle metropolitan area.


To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of ESS – October 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,006,794,013 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.89 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 40.89% Pass
6. Moderate PEmg Ratio PEmg < 20 57.28 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.38 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.89 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -165.28 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ESS value Chart October 2015

EPSmg $3.98
MG Growth Estimate 15.00%
MG Value $153.41
Opinion Overvalued
MG Value based on 3% Growth $57.78
MG Value based on 0% Growth $33.87
Market Implied Growth Rate 24.39%
Current Price $228.26
% of Intrinsic Value 148.79%

Essex Property Trust Inc. does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and high PEmg ratio while the Enterprising Investor is concerned with the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable with proceeding with further research.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.86 in 2011 to an estimated $3.98 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 24.39% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Essex Property Trust Inc. (ESS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

ESS Charts October 2015

Net Current Asset Value (NCAV) -$85.30
Graham Number $115.60
PEmg 57.28
Current Ratio 0.89
PB Ratio 2.38
Dividend Yield 2.40%
Number of Consecutive Years of Dividend Growth 20




Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $268,983,000
Total Current Liabilities $301,296,000
Long-Term Debt $5,340,569,000
Total Assets $12,045,000,000
Intangible Assets $0
Total Liabilities $5,810,952,000
Shares Outstanding (Diluted Average) 64,973,000

Earnings Per Share History

Next Fiscal Year Estimate $6.27
Dec14 $2.06
Dec13 $4.04
Dec12 $3.41
Dec11 $1.24
Dec10 $1.14
Dec09 $2.91
Dec08 $2.09
Dec07 $4.24
Dec06 $2.45
Dec05 $3.32
Dec04 $3.36
Dec03 $1.57
Dec02 $2.60
Dec01 $2.63
Dec00 $2.37
Dec99 $2.36
Dec98 $1.36
Dec97 $1.92
Dec96 $1.12
Dec95 $1.73

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.98
Dec14 $2.69
Dec13 $2.85
Dec12 $2.22
Dec11 $1.86
Dec10 $2.30
Dec09 $2.92
Dec08 $2.98
Dec07 $3.28
Dec06 $2.76
Dec05 $2.84
Dec04 $2.57
Dec03 $2.22
Dec02 $2.45
Dec01 $2.29
Dec00 $2.02
Dec99 $1.80

Recommended Reading:

Other ModernGraham posts about the company

Essex Property Trust Inc. Analysis – Initial Coverage $ESS

Other ModernGraham posts about related companies

Macerich Company Analysis – September 2015 Update $MAC
Alexandria Real Estate Equities Inc. Analysis – Initial Coverage $ARE
Weyerhaeuser Company Analysis – August 2015 Update $WY
Boston Properties Inc. Analysis – August 2015 Update $BXP
Health Care REIT Inc. Analysis – August 2015 Update $HCN
Kimco Realty Corporation Analysis – August 2015 Update $KIM
American Campus Communities Inc. Analysis – Initial Coverage $ACC
Ventas Inc. Analysis – 2015 Update $VTR
National Retail Properties Inc. Analysis – Initial Coverage $NNN
SL Green Realty Corp Analysis – Initial Coverage $SLG


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.