Critical Analysis: Select Income REIT (SIR) vs. Essex Property Trust (ESS)

Essex Property Trust (NYSE: ESS) and Select Income REIT (NASDAQ:SIR) are both finance companies, but which is the better investment? We will compare the two companies based on the strength of their institutional ownership, valuation, risk, dividends, analyst recommendations, earnings and profitability.

Volatility and Risk

Essex Property Trust has a beta of 0.39, suggesting that its stock price is 61% less volatile than the S&P 500. Comparatively, Select Income REIT has a beta of 0.79, suggesting that its stock price is 21% less volatile than the S&P 500.

Profitability

This table compares Essex Property Trust and Select Income REIT’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Essex Property Trust 31.75% 6.76% 3.46%
Select Income REIT 14.29% 3.31% 1.39%

Analyst Recommendations

This is a breakdown of current ratings and price targets for Essex Property Trust and Select Income REIT, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Essex Property Trust 1 8 12 0 2.52
Select Income REIT 1 1 3 0 2.40

Essex Property Trust currently has a consensus price target of $262.95, suggesting a potential upside of 9.84%. Select Income REIT has a consensus price target of $22.90, suggesting a potential upside of 22.20%. Given Select Income REIT’s higher possible upside, analysts plainly believe Select Income REIT is more favorable than Essex Property Trust.

Valuation and Earnings

This table compares Essex Property Trust and Select Income REIT’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Essex Property Trust $1.36 billion 11.59 $433.05 million $11.91 20.10
Select Income REIT $468.10 million 3.58 $66.90 million $2.78 6.74

Essex Property Trust has higher revenue and earnings than Select Income REIT. Select Income REIT is trading at a lower price-to-earnings ratio than Essex Property Trust, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

97.3% of Essex Property Trust shares are owned by institutional investors. Comparatively, 49.8% of Select Income REIT shares are owned by institutional investors. 3.3% of Essex Property Trust shares are owned by insiders. Comparatively, 2.1% of Select Income REIT shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Dividends

Essex Property Trust pays an annual dividend of $7.44 per share and has a dividend yield of 3.1%. Select Income REIT pays an annual dividend of $2.04 per share and has a dividend yield of 10.9%. Essex Property Trust pays out 62.5% of its earnings in the form of a dividend. Select Income REIT pays out 73.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Essex Property Trust has increased its dividend for 24 consecutive years.

Summary

Essex Property Trust beats Select Income REIT on 14 of the 17 factors compared between the two stocks.

Essex Property Trust Company Profile

Essex Property Trust, Inc., an S&P 500 company, is a fully integrated real estate investment trust (REIT) that acquires, develops, redevelops, and manages multifamily residential properties in selected West Coast markets. Essex currently has ownership interests in 247 apartment communities with an additional 7 properties in various stages of active development. Additional information about Essex can be found on the Company's website at www.essex.com.

Select Income REIT Company Profile

SIR is a real estate investment trust, or REIT, which owns properties that are primarily leased to single tenants. As of December 31, 2017, we owned 366 buildings, leasable land parcels and easements with approximately 45.5 million rentable square feet located in 36 states. As of December 31, 2017, our subsidiary, Industrial Logistics Properties Trust, or ILPT, owned 266 of our buildings, leasable land parcels and easements with approximately 28.5 million rentable square feet, including 226 buildings, leasable land parcels and easements with approximately 16.8 million rentable square feet which are primarily leasable industrial and commercial lands located in Hawaii. ILPT was our wholly owned subsidiary until January 17, 2018, when it completed an initial public offering, or IPO, of its common shares and became a publicly traded REIT. We remain ILPT's largest shareholder and, as of the date hereof, we own 45.0 million, or approximately 69.2%, of ILPT's outstanding common shares. We have been investment grade rated since 2014, and we are included in the Russell 2000® Index and the MSCI US REIT Index.

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