How AvalonBay Compares after 2Q17

Jennifer Mathews - Author

Aug. 11 2017, Updated 7:35 a.m. ET

Price-to-funds from operations multiple

AvalonBay Communities’ (AVB) performance in 2Q17 can be best evaluated by looking at its price-to-FFO (funds from operations) multiple. The multiple, widely used for REITs, gives an idea of how much an investor pays for a particular stock per unit of its profit. The multiple, which has the same implications as the price-to-earnings multiple, portrays the intrinsic value of a REIT.

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Peer group comparison

AvalonBay’s estimated price-to-FFO multiple for fiscal 2018 is 22.1x. AvalonBay’s higher earnings and revenue during the second quarter may have boosted its stock price. The residential REIT has repositioned its properties in high-demand Class A cities, helping it generate higher rent growth. AvalonBay carried out several expansion activities to boost its results.

AvalonBay’s multiple is in line with most peers’. UDR’s (UDR), Essex Property Trust’s (ESS), and Equity Residential’s (EQR) price-to-FFO multiples are 20.9x, 22.0x, and 21.6x, respectively.

Comparing other metrics

AvalonBay’s forward price-to-earnings ratio is 21.1x. UDR, Essex, and Equity Residential have ratios of 20.1x, 21.3x and 21.4x. respectively. AvalonBay’s forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio is 22.9x. UDR, Essex, and Equity Residential have ratios of 22.9x, 23.2x, and 21.2x, respectively.

The SPDR Dow Jones REIT ETF (RWR), of which AVB, EQR, ESS, and UDR occupy 13%, has a 95.6% exposure to REITs. The varied portfolio, which has a beta under 1, has low volatility and offers a cushion to investors.


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