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Essex Property Shells Out $208.8M for 2 Communities

Zacks Equity Research

Residential real estate investment trust – Essex Property Trust Inc. (ESS) – shelled out $208.8 million in total for buying two apartment communities, Apex Apartments in Milpitas, CA and Avalon Bellevue Park Apartments in Bellevue, WA.

In particular, the Apex Apartments were acquired for $150.0 million. Completed and fully stabilized in 2014, this unencumbered property comprises 366 units. Further, it enjoys proximity to North San Jose, which is home to high paying jobs, as well as a VTA Rail Station and the currently under-construction Milpitas BART station.

The other property, Avalon Bellevue Park Apartments, is a 220-unit community positioned in downtown Bellevue. Placed in the vicinity of employers, and shopping, dining and entertainment zones, this property is expected to enjoy solid demand from renters. Acquired for $58.8 million, the property comes with an existing $21.5 million loan (an interest rate of 5.5% and maturity in Jun 2019).

As a matter of fact, California-based Essex Property completed a merger with BRE Properties on Apr 1, thereby creating a premium West Coast multifamily REIT. Moreover, the latest acquisition strengthens the already strong base of Essex Property. And along with a good management team, this Zacks Rank #2 (Buy) stock seems well-positioned to ride on the growth trajectory, by efficiently leveraging the attractive market fundamentals and improving economy.

Earlier this month, well in tune with our expectations, Essex Property reported encouraging second-quarter results. Core funds from operations (:FFO) of $2.08 per share exceeded the Zacks Consensus Estimate of $1.70 by 22.4% and the year-ago quarter figure by 11.1%.

Results were driven by healthy economic conditions in Northern California and Seattle, as well as continued improvements in Southern California. The company has also raised its outlook for full-year 2014 on the back of solid same-property net operating income growth (:NOI). (Read: Essex Property Q2 FFO Beats on Solid NOI Growth, Guides Up.)

Investors interested in the residential REIT industry may also consider stocks like American Campus Communities, Inc. (ACC), Avalonbay Communities Inc. (AVB) and Equity LifeStyle Properties, Inc. (ELS). All these stocks carry a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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