Tuesday - Baird has increased the price target on Essex Property Trust (NYSE:ESS) shares to $264 from the previous target of $236, while maintaining a Neutral rating on the stock.
The adjustment follows a positive beginning to the year for the company, which has seen favorable trends in bad debt, other revenue, and blended rent growth. These factors have surpassed management’s initial projections.
Essex Property Trust has also successfully resolved a preferred investment that was previously on non-accrual in the fourth quarter and has completed an accretive acquisition of a joint venture (JV) asset.
Despite facing pressures on rent growth mainly in Alameda and Los Angeles due to the return of units from non-paying tenants, the overall renewal growth is performing well.
Renewal rates are ahead of the initial forecast, with a 3.9% market rent growth in the first quarter and approximately 4.3% in April. The company is sending out renewals for May and June at a rate of 4.25%.
The company's performance is also being supported by job growth, which is slightly better than Essex Property Trust had anticipated. However, high-paying job growth has not yet reached pre-COVID levels, with job openings at the top 20 tech companies doubling over the past year to around 16,000, still below the pre-pandemic figure of approximately 25,000.
Further contributing to the positive outlook, Essex Property Trust has taken the common equity interest of a sponsor related to a preferred equity investment that was on non-accrual status. This particular asset is yielding approximately 4.75%, providing a modest boost to the full-year guidance.
The company has four preferred investments that remain on non-accrual status or the watch list, with three of them having a loan maturity due within the year.
Additionally, Essex Property Trust's acquisition of the JV partner’s interest in an asset has led to an increase of $0.03 per share to the full-year guidance, indicating a potentially stronger financial performance for the year.
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