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Interpreting BioMed Realty’s EV-to-EBITDA Multiple

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BioMed Realty’s EV-to-EBITDA multiple

A close look at BioMed Realty Trust’s (BMR) EV-to-EBITDA (enterprise value-to-earnings before interest, taxes, depreciation, and amortization) multiple shows that its ratio is in line with its historical valuation. Over the last six years, BioMed Realty’s EV-to-EBITDA ranged between 12.2–19.6x, with a current EV-to-EBITDA multiple of around 14.8x. BioMed Realty recorded its highest EV-to-EBITDA multiple in January 2015, whereas its lowest multiple was recorded in July 2009. The current industry average EV-to-EBITDA multiple is 19.9x.

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EV-to-EBITDA ratio and why it is preferred

EV-to-EBITDA multiple is widely used for valuation of real estate companies. EV is the market value of equity and debt minus cash and cash equivalents. EV-to-EBITDA ratio values the worth of the entire company and not just the equity portion.

The company that raises debt to fund operations will have lower PE (price-to-earnings) ratio than companies that raise the similar amount of equity, even though the two companies may have equivalent enterprise values. The company with lower PE ratio may thus look cheaper than the company with the higher PE ratio. In the case of the PE multiple, a company with the substantial amount of debt may look cheaper, while the company with less debt and higher equity portion look pricey.

The REIT (real estate investment trust) industry is a capital-intensive business, and most REITs raise a lot of debt to fund their operations. Thus, the EV-to-EBITDA ratio becomes a valuable, additional tool for valuing REITs alongside the price-to-FFO multiple.

BioMed Trust’s peer group comparison and ETF exposure

A peer group comparison shows that BioMed Realty’s EV-to-EBITDA multiple is lower than most of its competitors. For example, Kilroy Realty Corporation (KRC) trades at the highest EV-to-EBITDA multiple of 20.6x, followed by Boston Properties (BXP) at 20.2x, and Alexandria Real Estate Equities (ARE) at 20x. The SPDR S&P 400 Mid-Cap Growth ETF (MDYG) invests approximately 0.6% of its total portfolio in BioMed Realty.

We’ll wrap up this series by analyzing investment possibilities in BioMed Realty through ETFs.

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