How Essex Property Maintains Its Revenue Growth



Business momentum to continue

A slow and steady improvement in the job market and rising optimism among consumers about their economic welfare has triggered a spike in the construction sector.

Further, although rising rent has been somewhat checked, it remains at record high levels. Residential REITs (real estate investment trust) such as Essex Property Trust (ESS), AvalonBay Communities (AVB), Equity Residential (EQR), and UDR (UDR) are participating in strategic initiatives to concentrate their properties in Class A cities, ensuring higher occupancy and driving revenue growth.

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The iShares Residential Real Estate Capped ETF (REZ), in which AvalonBay, Equity Residential, and Essex Property make up almost 20%, has a market cap–weighted index with a vast product portfolio covering industries such as healthcare, self-storage, and residential REITs. Investors looking for risk aversions can look to REZ, which provides a cushion against volatility.

Essex Property is expected to ride high in its business growth trajectory backed by its strategic investments. The company boasts a rich history of maintaining solid top line growth, and the trend is expected to continue. ESS is expected to generate revenue rises of 4.7%, 3.9%, 4%, and 3.3%, respectively, in 2Q17, 3Q17, 4Q17, and 1Q18, respectively.

Robust revenue growth in 1Q17

Same property gross revenue rose 5% year-over-year and 0.4% sequentially in 1Q17. The growth in gross revenue was backed by 4.8% growth in Southern California and 3.6% growth in Northern California. The Seattle Metro region reported growth of 7.9% during the quarter.

Same-property occupancy rose 50 basis points and stood at 96.5% during the quarter, compared to 96% in the previous year.

Enhanced 2017 guidance

Going forward, Essex Property expects its revenue to be favorably impacted by higher demand as well as higher promotional activity. Moreover, the job growth improvement in the country is expected to fuel demand for office spaces. Essex raised its forecast for gross revenue growth, and it now expects its revenue to rise in the range of 3%–4%, compared to its previously expected range of 2.8%–3.8% for 2017.

In the next article, we’ll see how Essex is able to maintain its share in the residential REIT industry.


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