Peers’ price-to-FFO multiples

REITs are valued using the price-to-FFO multiples since this ratio requires adding back depreciation and makes other adjustments that help in correctly determining REITs’ income. Funds from operation (or FFO) for Equity Residential for 3Q17 stood at $0.81 per share. FFO per share is expected to be in the range of $0.79 to $0.83 for 4Q17. This expectation is similar to 3Q17 levels.

EQR has a price-to-FFO multiple of 20.23x. The peer group median is 20.80x, while the peer group average is 20.77x. The company’s peer group consists of AvalonBay Communities (AVB), Camden Property (CPT), and UDR (UDR). EQR trades on par with its peers.

What Is Equity Residential’s Valuation after 3Q17 Earnings?

Peer group dividend yield

EQR has a dividend yield of 3.2%, lower than the peer group median and average of 3.26% and 3.25%, respectively. As compared to the peer group, it has a lower dividend yield and a higher payout ratio.

Peer group’s earnings per share

EQR has TTM EPS and TTM PE of $2.04 and $31.07, respectively, while peer AvalonBay Communities (AVB) has EPS and PE of $6.39 and $27.72. Camden Property (CPT) has EPS and PE of $1.65 and $55.59, respectively, while UDR (UDR) has EPS of $1.06 and PE of $36.04. The industry average EPS stands at $3.03, and the average PE stands at $40, indicating that EQR is trading at a discount in comparison to its peers.

Equity Residential makes up almost ~2.6% of the Vanguard REIT ETF (VNQ). It has a large portfolio and covers a variety of industries like healthcare and self storage.

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