The most common way to calculate the relative value of an REIT such as Camden Property Trust (CPT) is the price-to-FFO (funds from operations) multiple. FFO is widely used because it’s the main earnings metric for REITs similar to EPS (earnings per share) in other industries. Price-to-FFOx is the equivalent of the PE (price-to-earnings) ratio used in other industries.
Peer group price-to-FFO multiple
A closer look at Camden Property Trust’s (CPT) trailing 12-month price-to-FFO multiple shows that it’s in line with its historical valuation. Over the last eight years, Camden Property Trust’s (CPT) price ranged from 5.2x–36.3x of its FFO, with a current price-to-FFO multiple of around 18.3x. During the housing crisis, Camden experienced the lowest price-to-FFO multiple but recorded the highest multiple in December 2010.
At the current multiple, Camden Property Trust’s stock is trading at a lower price-to-FFO multiple compared to some of its major peers. For example, Essex Property Trust (ESS) is trading at a price-to-FFO multiple of 25.5x followed by Equity Residential (EQR) at 23.6x and AvalonBay Communities (AVB) at 22.7x. The industry average price-to-FFO multiple is 20.1x.
Lower multiple for Camden
Historically, Camden’s lower-than-average price-to-FFO multiple shows that it wasn’t able to provide consistent capital value return to investors despite providing a higher dividend yield compared to some of its peers. In addition, Camden’s significant exposure to the moderating markets of Texas and Washington, DC also affected its recent valuation.
Higher dividend yield
Currently, Camden offers a dividend yield of 3.7%, which is higher than Equity Residential (EQR) at 2.8%, AvalonBay Communities (AVB) at 2.8%, and Essex Property Trust (ESS) at 2.6%. The industry average dividend yield is 3.1%. Camden Property Trust makes up 0.79% of the holdings of the iShares US Real Estate ETF (IYR).
In the next part of this series, we’ll discuss Camden Property Trust’s EV-to-EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) multiple.