Intrinsic Value of Essex Property Trust

Intrinsic value of stock is a company’s realistic value per share at any given moment. Intrinsic value is not book value; it is the most likely dollar amount a reasonable person would pay for the underlying net assets. In most cases, an investor would include some value for the near-term future earnings of the investment; but the core amount in determining the intrinsic value of a share of stock is tied to the net assets at fair market value.

The intrinsic value formula is different for every sector of the economy and for the respective industries within that sector. Equity based real estate investment trusts (REITs) consist of six different types. One of the types of REITs are apartment complex based operations. In effect, they are apartment rentals. With real estate, specifically those in the home rental industry which includes apartments, condos, townhomes and traditional individual homes, intrinsic value is strongly tied to the fair market value of the rental properties less the assigned associated debt (mortgage). In addition, some value is included for future near-term earnings and the other assets on the balance sheet. It is really no different than how your traditional home rental operation would value their investment. 

With Essex Property Trust, this REIT has been around for almost 30 years. It owns 246 apartment complexes with 60,272 units. There are an additional 1,853 units under construction. To determine intrinsic value, one would simply appraise all 246 complexes, determine the full fair market value and then deduct the total debt to get net assets value. Add to this value, the other assets on the books, get a full net assets value at fair market value. In addition, you would simply add about three years of profits. With this cumulative sum, divide by the number of shares and determine an approximate intrinsic value per share.

This appears relatively simple. For Essex, assume each unit can be sold for $350,000; seems like a reasonable value per unit. Total fair market value would approximate $21.1 Billion. The other assets on the books are equal to around $900 Million, thus total assets at fair market value would approximate $22 Billion. Total debt and current liabilities on the books are approximately $7.2 Billion. Once the liabilities are satisfied upon the sale of the units, the net remaining amount available to all shareholders results in $14.8 Billion. There are 67.5 Million shares outstanding. Thus, each share has a net worth of about $219 tied to net assets value at fair market value.