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BioMed Realty Is Trading at a Discount Compared to Peers—For Now

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BioMed Realty’s price-to-FFO multiple

A close look at BioMed Realty Trust’s (BMR) trailing-twelve-month price-to-FFO (funds from operations) multiple shows that it is in line with its historical valuation. Over the last eight years, BioMed Realty’s price ranged between 3.6x–17x of its FFO, with a current price-to-FFO multiple of around 16.3x. BioMed Realty experienced its lowest price-to-FFO multiple in March 2009, whereas the highest multiple was recorded in May 2011.

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At the current multiple, BioMed Realty’s stock is trading at a low price-to-FFO multiple compared to most of its peers. For example, Boston Properties (BXP) is trading at a price-to-FFO multiple of 21.8x followed by Kilroy Realty Corporation (KRC) at 18.4x, Douglas Emmett (DEI) at 18.3x. The industry average price-to-FFO multiple is 14.5x.

Interpreting the price-to-FFO multiple

The most common way of calculating the relative value of an REIT (real estate investment trust) like BioMed Realty is the price-to-FFO (funds from operations) multiple. FFO is widely used because it is the main earnings metric for REITs similar to EPS (earnings per share) in other industries. Price-to-FFO multiple is comparable to the PE (price-to-earnings) ratio used in other industries.

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BioMed Realty’s higher dividend yield

Currently, BioMed Realty offered a higher dividend yield of 5.7%. On the other hand, Columbia Property Trust (CXP) offered a highest dividend yield of approximately 5.1% while Alexandria Real Estate Equities (ARE) dividend yield was at 3.3%. BioMed Realty makes up approximately 0.5% holdings of the SPDR Dow Jones Wilshire Global Real Estate ETF (RWO).

Can BioMed Realty’s lower multiple continue?

BioMed Realty’s asset quality is not the best in the industry. The company’s property portfolio is heavily concentrated in Boston and California markets. These two market comprised 57.4% of the annualized base rent.

In order to improve its valuation, the company needs to focus on other lucrative markets and acquire properties that could add substantially to its revenue and NOI growth. Low occupancy compared to some of its peers and a slower rental rate growth have also affected its valuation. BioMed Realty’s lower valuation multiple is likely to continue due to the presence of the above factors.

Now let’s discuss BioMed Realty’s EV-to-EBITDA multiple.

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