Equity Residential Compared to Its Peers
Valuations for REITs such as Equity Residential (EQR) are done by matching the price-to-FFO (funds from operations) multiple with the stocks of other companies in the sector. FFO is the main earnings metric used for REITs. It carries the same meaning as EPS (earnings per share) for stocks belonging to other industries. The price-to-FFO multiple is comparable to the PE (price-to-earnings) ratio used in other industries.
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Peer group price-to-FFO multiple
Equity Residential’s current price-to-FFO multiple is 21.01x. Its higher multiple shows that the stock has provided a consistent capital value return and reliable, steady dividend yields to investors. EQR’s repositioning of properties in high-density metropolitan cities and the strategic disposition of its non-core apartment units as part of the Starwood transaction must have given a boost to its price movement.
At this multiple, Equity Residential stock currently trades in line with most of its peers. Camden Property Trust (CPT), AvalonBay Communities (AVB), and Essex Property Trust (ESS) are trading at 18.86x, 21.75x, and 21.43x, respectively.
Currently, Equity Residential is offering a five-year average dividend yield of 3.1%, which is in line with its close competitors. For example, Camden Property Trust (CPT), AvalonBay Communities (AVB), and Essex Property Trust (ESS) have dividend yields of 3.5%, 3.0%, and 2.8%, respectively.