Essex Property Trust, Inc.ESSNYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $402.12 per share(market-calibrated)

+57.1%

Upside to Fair Value

Current

$256.03

Pure Model

$431.92

Fair Value

$402.12

Bull Case

$529.15

Bear Case

$348.89

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $431.92.

What's Driving This Ratingfor ESS

↓

CapEx normalizing toward maintenance

Historical CapEx is 5.91% of revenue (heavy investment phase). Model fades this to 2.50% by Year 10, freeing up ~$79M in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 51.39% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

⚠

Analyst growth decelerates sharply

Revenue growth drops from 2.45% in Year 1 to 0.61% by Year 5 (per analyst consensus). That's below the 2.50% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 93.06% indicates efficient cash generation. FCF reaches $1.8B by Year 10 (75.28% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.74

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)7.82%

Cost of Debt

Pre-tax Cost of Debt3.28%

Tax Rate5.00%

After-tax Cost of Debt3.12%

Equity Weight (E/V)70.51%

Debt Weight (D/V)29.49%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (70.51% × 7.82%) + (29.49% × 3.12%)

= 6.43%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$1.9B	$2.1B	$2.1B	$2.2B	$2.3B
EBIT	$1.0B	$1.1B	$1.1B	$1.1B	$1.2B
Tax	$50M	$54M	$55M	$56M	$60M
NOPAT	$951M	$1.0B	$1.0B	$1.1B	$1.1B
+ Depreciation	$574M	$620M	$630M	$645M	$687M
- Capex	$115M	$108M	$94M	$80M	$58M
- Δ NWC	$10M	$20M	$3M	$7M	$13M
Free Cash Flow	$1.4B	$1.5B	$1.6B	$1.6B	$1.8B
Discount Factor	0.940	0.829	0.732	0.646	0.536
Present Value	$1.3B	$1.3B	$1.2B	$1.1B	$940M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.8B

Terminal Growth Rate2.50%

WACC6.43%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$45.7B

PV of Terminal Value$24.5B

Exit Multiple Method

Year 10 EBITDA$1.9B

Exit Multiple (EV/EBITDA)22.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$41.5B

PV of Terminal Value$22.2B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$11.3B

PV of Terminal Value$24.5B

Enterprise Value$35.8B

(-) Net Debt$6.8B

Equity Value$29.0B

Shares Outstanding64M

Price per Share$449.55

Exit Multiple Method

PV of Projected FCFs$11.3B

PV of Terminal Value$22.2B

Enterprise Value$33.5B

(-) Net Debt$6.8B

Equity Value$26.7B

Shares Outstanding64M

Price per Share$414.30

Pure Model Fair Value

$431.92

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
4.43%	$601.28	$665.75	$743.27	$709.95	$678.17
5.43%	$474.61	$505.89	$547.82	$606.99	$678.17
6.43%	$391.93	$409.67	$431.92	$460.65	$499.18
7.43%	$331.90	$342.97	$356.27	$372.58	$393.04
8.43%	$285.37	$292.73	$301.32	$311.50	$323.74

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$348.89

36.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.92

Base Case

$431.92

68.7% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.74

Bull Case

$529.15

106.7% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.63

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Real Estate Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth2.45%

Year 3 Revenue Growth4.39%

Year 5 Revenue Growth0.61%

Year 7 Revenue Growth1.36%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin51.39%

Tax Rate5.00%

Historical Capex / Rev5.91%

Terminal Capex / Rev2.50%

NWC / Revenue22.17%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 22x EV/EBITDA (Real Estate sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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