Proprietary Data Insights
Top Apartment REIT Stock Searches This Month
In today’s edition of The Juice, we piece together a little story that focuses on housing and a stock you should at least look twice at – apartment REIT Essex Property Trust (ESS). Data from Essex and other sources paints a housing (buy or rent) market that – even amid some cooling – will remain expensive, if not unaffordable, particularly in key West Coast markets.
Even though we’re seeing signs of a cooling housing market, demand significantly outpaces supply in many markets, namely the West Coast cities and regions where ESS owns and operates luxury apartment buildings.
This will continue to keep home ownership out of reach for large swaths of a still relatively affluent population.
They’ll remain renters in places such as San Francisco, Los Angeles, Orange County, San Diego, and Seattle. And they’ll rent at a premium.
Cooling Rents Do Not Necessarily Mean More Affordable Rents
It’s a mixed bag:
Maybe more importantly, the apartment vacancy rate in all of these cities decreased last month. It’s lowest in Seattle (3.1%), San Diego (4.15%), and Los Angeles (4.5%). In San Francisco, it’s around 5%, but the median rent there is highest among the group.
Nationally, the vacancy rate declined to 4.5% in Q2, down from 4.7% in Q1.
This only tells part of the story for Essex Property Trust. Scroll to dig deeper with us.
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A Stock To Double Down On
Earlier this year, The Juice suggested looking at apartment REITs.
All three of the stocks highlighted have been hit hard this year along with the rest of the market.
Source: Google Finance
As you’ve likely figured out, The Juice likes Essex Property Trust most.
Because, when compared to the other apartment REITs we also like, Equity Residential (EQR) and AvalonBay (AVB), ESS has the most high-end, West Coast market exposure. In fact, its entire portfolio sits in affluent Northern and Southern California and Seattle.
These places have large pools of financially resilient residents who might not be ready or able to buy, but they’re more than willing – and able – to, again, rent at a premium in supply-constrained, expensive markets.
One key thing to remember about those median rents we showed you at the outset. Median means middle. A quick survey of its portfolio reveals that Essex rents its apartments for considerably more than median rent.
For example –
Tech’s Return To The Office Will Benefit ESS
In ESS markets, big tech continues to return to the office – at some level – with big investments in office space.
In San Francisco and Seattle there’s a similar biotech boom happening, resulting in affluent workers looking to rent apartments. These people make good money, but it still might not be enough to buy in the cities where they live and work.
In fact, it’s still considerably more expensive to own a home than it is to rent in Essex’s portfolio cities.
The story we’ve pieced together today indicates that ESS’s long-term narrative remains intact.
If This Story Isn’t Enough…
ESS is a dividend aristocrat, having increased its annual dividend payment for 28 consecutive years. Thanks in part to this dividend, ESS’s total return crushes the specific and broad indices it’s part of.
One of the beauties of dividend growth investing – you get paid as the stock price ebbs and flows.
The Bottom Line: Investors might have unfairly punished apartment REITs, particularly relatively well-positioned Essex Property Trust. ESS rents to an affluent base of high-paid workers only in the West Coast’s hottest markets.
If you’re a long-term investor, now might be the time to consider a position in ESS or double down if you’re already in.
One way to ride this market’s waves is to set aside some cash once or twice a month to invest in ESS – or any stock you like for that matter. This is called dollar cost averaging, a long-term strategy where you’ll purchase fewer shares as the stock price rises and more shares when it falls.
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