DCF Studio

    ESS · NYQ · Real Estate

    Essex Property Trust, Inc.

    Also onConsensus Drift

    Implied value per share

    USD 45.33

    Market price

    USD 270.05

    Implied upside

    -83.2%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages 8.42% of revenue against depreciation and amortisation of 32.83%. A business cannot depreciate more than it invests indefinitely. Capex has been set to 32.83% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    Current EV/EBITDA of 20.9x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 45.33-83.2%
    Exit multiple
    USD 284.92+5.5%
    Market price
    USD 270.05

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m388m775mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 2.0bnUSD 2.1bnUSD 2.2bnUSD 2.3bnUSD 2.5bn+5.5%
    EBITUSD 622.7mUSD 657.1mUSD 693.3mUSD 731.5mUSD 771.8m+5.5%
    NOPATUSD 622.7mUSD 657.1mUSD 693.3mUSD 731.5mUSD 771.8m+5.5%
    Add depreciation & amortisationUSD 653.7mUSD 689.7mUSD 727.7mUSD 767.8mUSD 810.1m+5.5%
    Less capital expenditureUSD -653.7mUSD -689.7mUSD -727.7mUSD -767.8mUSD -810.1m+5.5%
    Less increase in working capitalUSD 2.7mUSD 2.9mUSD 3.0mUSD 3.2mUSD 3.4m-5.5%
    Free cashflow to firmUSD 625.5mUSD 659.9mUSD 696.3mUSD 734.7mUSD 775.1m+5.5%
    Discount factor0.96120.88820.82070.75830.7007-
    Present valueUSD 601.2mUSD 586.1mUSD 571.4mUSD 557.1mUSD 543.1m-2.5%
    Present Value Of The ForecastUSD 2.9bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.803Reported 0.706, pulled toward 1.0 (Blume)
    Cost of equity9.41%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 18.6bn73.1% of capital
    Total debtUSD 6.9bn26.9% of capital, book value as a proxy
    Tax rate0.0%Effective, capped at statutory
    WACC8.23%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 45.33

    70% of EV

    Forecast FCFF, final year
    USD 775.1m
    Capex at depreciation, working capital in reinvestment
    USD 771.8m
    Less reinvestment at g/ROIC (30.4% of NOPAT)
    USD -234.5m
    Capitalised
    USD 537.2m
    ROIC (WACC floor)
    8.2%
    Terminal value, undiscounted
    USD 9.6bn
    Terminal value, discounted
    USD 6.7bn
    Enterprise value
    USD 9.6bn
    Less net debt
    USD 6.7bn
    Equity value
    USD 2.9bn

    Exit at 20.0x EBITDA

    Value per shareUSD 284.92

    89% of EV

    Terminal value, undiscounted
    USD 31.6bn
    Terminal value, discounted
    USD 22.2bn
    Enterprise value
    USD 25.0bn
    Less net debt
    USD 6.7bn
    Equity value
    USD 18.3bn

    Spread between methods: 145%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.23%91.6692.4093.1393.8694.60
    7.23%64.7065.3165.9166.5267.12
    8.23%44.3144.8245.3345.8446.35
    9.23%28.3528.7929.2229.6630.10
    10.23%15.5215.9016.2816.6617.03

    Outlined: this model. Green text: above today's price of 270.05. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year5.5%29.2%+23.7pp
    EBIT margin31.3%78.5%+47.2pp
    Discount rate8.2%3.9%-4.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.