Equity Valuation

Self-Paced Tutorial
Online tutorials for mini classes at: http://tradingroom.bentley.edu

2004 Hughey Center for Financial Services. All Rights Reserved.

Equity Valuation Tutorial

Hughey Center for Financial Services 2003 Introduction: This tutorial is to be used in conjunction with the FI 640A Final Project or any other equity valuation. In it we will introduce the Gordon growth, Free Cash Flow to Equity, and Free Cash Flow to the Firm models, as well as Relative Value analysis. We will discuss when to use these models, the variables associated with their employment, and how to search for those variables using Bloomberg, Multex, Reuters, and First Call. A cautionary note: the data this tutorial will lead you to analyze is, with the exception of earnings estimates, historical data. You will apply growth rates to these historical data to estimate future revenues and costs. What must be remembered throughout this tutorial is that future revenues and future costs are what we seek to analyze, and that we download historical data to estimate these figures. Our valuation is thus based on estimated future data, not historical data alone! The instructions provided for the retrieval of input variables suggest the repeated opening of Multex and other software. If you seek to retrieve more than one variable over the course of your analysis it is not necessary to repeatedly open and close these software. You must simply leave the application running and change the required ticker information. Gordon Growth Model: The Gordon Growth model (a.k.a the Dividend Growth Model) relies on the principle that the value of a stock is equal to the present value of its future cash flows. These cash flows take the form of dividends. Use this model if your stock meets the following criteria: It pays out 90% or more of its Net Income in dividends Its leverage is expected to remain stable into the future Its growth rates are expected to remain stable.

Po =

DPS

t =1

(1 + k e )

(1 + k e )

Pn

, where Pn =

DPS n +1 (ke g n )

Gordon Growth Model Variables: DPSt = expected total dividends per share in year t

1. Open First Call 4.2 2. Click and click ok , enter the companys ticker symbol (i.e. HD for Home Depot),

3. Click , and towards the top of the page you will see EPS forecasts and actual EPS broken down by quarters. Numbers in the Earnings Estimates section with the letter A next to them (i.e. 0.36A for the 1st quarter of 2003 for Home Depot) are actual recorded earnings. Numbers without an A next to them represent the consensus estimates of the analysts following the stock. 4. You can use these estimates to predict Dividends Per Share (Earnings Per Share * Payout Ratio = Dividends Per Share), or you can grow the dividends at what you believe to be realizable growth rates.

Ke = cost of equity The cost of equity can be found using the Capital Asset Pricing Model. The CAPM equation is as follows:
K e = r f + ( rm r f )

rf = the risk free rate (typically a US treasury yield that matches your investment horizon) = Beta (a measurement of a stocks return relative to the market) rm = 5.5% = the return on the market (the historically accepted risk premium is 5.5%) rf = the risk free rate

1. 2.

Open Reuters Kobra Select the quote box and type: 0#USBMK=X

3.

Select the treasury bill/note/bond whose maturity most appropriately represents your holding period, and use its yield as the risk free rate. For example, 0.8545% if your holding period is 1 month, or 3.0981% if your holding period is 5 years.

= Beta

Beta is a measure of risk. We will begin by entering the ticker of a company in which we are interested into Bloomberg. For example, lets say were interested in Microsoft. So we enter the following command: MSFT <equity> BETA And it brings us to the following page:

1. In the range box we type the dates that give us an appropriate timeline by which to measure beta. The greater the number of years in your forecast, the greater the number of years you should use in your beta calculation. Five is generally a safe minimum. 2. The market index set as the default in the S&P500. You should change this if you feel another index better represents the risk associated with your market, or if you believe the S&P500 is not large enough a market. 3. For all intensive purposes we will use the raw beta as it presents us with a larger and more conservative cost of equity. If you were to repeat this process with Home Depot, the Beta you would pull is 0.53. Pn = price (terminal value) at the end of year n

Pn =

DPS n +1 (ke g n )

1. Pn is a value that must be calculated for the final year of your valuation (the price of the stock at the time you intend to sell it.) Ke represents the cost of equity in the final year, gn represents the companys terminal growth rate, and DPSn+1 represents the dividend you expect to pay in the year following the terminal year of your valuation. g = extraordinary growth rates for the first n years = retention rate * ROE 1. Extraordinary growth can be defined as growth that cannot be sustained indefinitely. In a two-stage model, it can be used to grow variables like EPS, DPS, and assorted balance sheet items in the first stage. It can be found by multiplying the companys Return On Equity by its Retention Rate (the % of earnings the company does not pay out in dividends). Retention rate = 1 Dividend Payout Ratio. Finding ROE: 1. Open First Call 4.2 2. Click and click ok 3. Click on On Equity %. , enter the companys ticker symbol (i.e. HD for Home Depot),

, scroll down to selected financial ratios, and you will find Return

Finding the Retention Rate: 1. The Payout Ratio is also listed in the Selected Financial Ratios section in First Call. Your retention rate will equal one minus the payout ratio. gn = steady state growth rate forever after year n 1. A company experiencing rapid growth is expected to have those growth rates approach levels that are more sustainable. Terminal growth rates are what mature companies reach, and these rates are best approximated by the growth rate of the industry. 2. Click on MultexNet . Enter the username and password located under the keyboard, and click on the fundamentals tab. 3. Under company reports select Company Comparison.

4. Enter your companys ticker into the ticker search (i.e. HD for Home Depot) and

. click 5. Under the Growth Rates section you will find EPS quarterly, annual, and 5-year growth rates for the Company, Industry, Sector, and the S&P 500. Select the one you believe is most feasible. Terminal Growth Rate

1. Click on MultexNet . Enter the username and password located under the keyboard, and click on the fundamentals tab. 2. Under company reports select Company Comparison. 3. Enter your companys ticker into the ticker search (i.e. enter HD for Home Depot)

and click . 4. Under the Growth Rates section you will find EPS quarterly, annual, and 5-year growth rates for the Company, Industry, Sector, and the S&P 500. The terminal growth rate is the growth rate that you expect your companys to eventually reach. This can be represented as the EPS 5-year growth rate of the industry, sector, or market. To be conservative we will take the lower of the three.

Dividend Discount Model Home Depot (HD.N) Growth Rate Terminal Growth Rate (Market Growth Rate) payout ratio Cost of Equity Capital Beta Risk Free Rate Market Risk Premium

15.39% 8.78% 14% 10.3% 1.28 3.2825% 5.50%

Year Dividends Terminal Value PV of Dividend Cashflows Stock Value per share Closing stock price 10/21/03 $

0 2003 0.22 $ $

1 2004 0.25 $ 0.23 $

2 2005 0.29 $ 0.24 $

3 2006 0.34 $ 0.25 $

4 2007 0.39 $ $ 0.26 $

5 2008 0.45 $ 33.48 20.76

6 2009 0.52

$ $

21.74 35.60

conclusion: Stock is overvalued

Notes The payout ratio is too small to use the Dividend Discount Model The terminal growth rate is larger than the Cost of Equity, resulting in a large negative terminal value.

Given the notes listed above, the DDM is not the appropriate model to use. Free Cash Flow to Equity Model: The Free Cash Flow to Equity model is to be used to value firms that possess debt as well as firms that do not payout out more than 90% of their earnings as dividends. Many firms will reinvest their earnings back into the company and these reinvested earnings will not show up as dividends. Using the Gordon Growth model would thus value the equity incorrectly. It is important to note that this model bases its valuation on cash flows to equity, and these cash flows are created after debt payments are taken out. The essential difference between the Gordon Growth Model and the Dividend Discount Model is the definition of cash flows. When firms have FCFE different from the dividends they pay out, valuations of the stocks given by these models will be different. Damodaran says: In valuing firms for takeovers or in valuing firms in which there is a reasonable chance of changing corporate control, the value from the FCFE provides a better estimate of value. FCFE for an unlevered1 firm Cash Flows from Operations -Capital Expenditures -Working Capital =Free Cash Flow to Equity FCFE for a levered firm Cash Flows from Operations -Preferred Dividends -Capital Expenditures - Working Capital -Principal repayments +Proceeds from new debt issues =Free Cash Flow to Equity

After the FCFE are calculated they must be discounted to the present by dividing each years FCFE by (1+WACC)^t.

Leverage is another word for debt. To say a firm is leveraged is to say that they are borrowing money and must pay it back.

t = the number of years from today WACC = Weighted Average Cost of Capital 1. On a Bloomberg terminal enter the ticker of your company followed by <equity> followed by WACC. i. Example: HD <equity> WACC 2. The Weighted Average Cost of Capital is next to the title Wgt. Avg. Cost Cap. Free Cash Flow to Equity Variables: Cash Flows From Operations

1. Click on MultexNet . Enter the username and password located under the keyboard, and click on the fundamentals tab. 2. Next to financial reports select Cash Flow Statement. 3. Enter your companys ticker into the ticker search (i.e. HD for Home Depot) and

click . 4. Scroll down and you will find in bold letters Cash from Operating Activities. Capital expenditures

1. Click on MultexNet . Enter the username and password located under the keyboard, and click on the fundamentals tab. 2. Under financial reports select Cash Flow Statement. 3. Enter your companys ticker into the ticker search (i.e. HD for Home Depot) and

click . 4. In the Cash from Operating Activities you will find Capital Expenditures. Working Capital = Current Assets minus Current Liabilities

1. Click on MultexNet , enter the username and password located under the keyboard, and click on the fundamentals tab. 2. Under financial reports select Balance Sheet.

3. Enter your companys ticker into the ticker search (i.e. HD for Home Depot) and

. click 4. Scroll down and you will see Current Assets and Current Liabilities in bold letters. Preferred Dividends 1. This information may present itself in Multex under the Cash Flows from Investing Activities. It can also be retrieved from Bloomberg using the following steps: a. HD <equity> CH3 b. Click on 2) Liabilities and Equity. 2. If it does not pull up on either of these sources, it must be gotten from the companys 10-K. It would most likely be stated in the companys statement of retained earnings, with additional related information listed in the footnotes. 3. To access this information via EDGARscan go to the following website: http://edgarscan.pwcglobal.com/servlets/edgarscan 4. Type in the companys name, select the hyperlink to its most recent 10-K filing, and begin your perusal. Principal Repayments 1. This information is presented in the 10-K, and it is most likely to appear in the footnotes. This can prove to be a time consuming hunt, so be patient. EDGARscan (see above explanation) may be used to find this data. Proceeds from new debt issues . Enter the username and password located under the 1. Click on MultexNet keyboard, and click on the fundamentals tab. 2. Under financial reports select Cash Flow Statement. 3. Enter your companys ticker into the ticker search (i.e. enter HD for Home Depot)

and click . 4. In the Cash from Financing Activities you will find Proc. of LT Debt. (Proceeds from Long Term Debt)
2003 FPRD LT Debt Proceeds 1.00 2002 532.00 2001 32.00 2000 522.00 1999 0.00

Because we see large fluctuations between the years we are led to take an average of the past five years and grow that amount by the growth rate as opposed to only growing the one million we find in 2003.

Free Cash Flow to Equity Home Depot (HD.N) in millions Growth Rate Terminal Growth Rate (Market Growth Rate) WACC Year

15.39%

8.78% 9.54% 0 2003 Cash Flows from Operations $4,802.00 less preferred dividends $ less Capital Exenditures $2,749.00 less Change in Working Capital $ (22.00) less principal repayments $ plus proceeds from new debt issues $ 217.40 $2,292.40 Free Cash Flows to Equity Terminal Value PV of FCFE Common Shares Outstanding $2,367.34 Stock Value per share $ 197.05 Closing stock price 10/21/03 $ 35.60

$ $ $ $ $ $ $

1 2004 5,541.22 3,172.18 (25.39) 250.87 2,645.29

$ $ $ $ $ $ $

2 2005 6,394.24 3,660.51 (29.29) 289.48 3,052.51

$ $ $ $ $ $ $

3 2006 7,378.56 4,224.01 (33.80) 334.05 3,522.41

$ $ $ $ $ $ $

4 2007 8,514.42 4,874.25 (39.01) 385.47 4,064.65

$ 2,414.91 $ 2,543.97 $ 2,679.92 $

5 2008 $ 9,825.13 $ $ 5,624.59 $ (45.01) $ $ 444.81 $ 4,690.36 $ 714,508.06 2,823.14 $ 456,021.21

6 2009 $11,337.61 $ $ 6,490.44 $ (51.94) $ $ 513.29 $ 5,412.40

conclusion: Stock is undervalued

Notes The terminal growth rate is barely less than the WACC, which results in an astronomically high terminal value Principal Payments were not listed for the company in the footnotes of its 2003 10-K

Free Cash Flow to the Firm Model: This model bases its valuation on all cash flows to the firm. It can be used when a company has significant amounts of debt, and when it does not pay the majority of its earnings out in dividends.

Damodaran says: It is the sum of the cash flows to all claim holders in the firm, including stockholders, bondholders, and preferred stockholders. As such, this measure should be used to approximate the value of a firm in its entirety, not just the firms equity value. It is calculated as follows: Net Income +Depreciation -Capital Expenditures -Working Capital +Interest expense (1-tax rate) =Free Cash Flows to the Firm After the FCFF are calculated they must be discounted to the present by dividing each years FCFF by (1+WACC)^t. Free Cash Flow to the Firm Variables: Net Income

1. Click on MultexNet . Enter the username and password located under the keyboard, and click on the fundamentals tab. 2. Under financial reports select Income Statement. 3. Enter your companys ticker into the ticker search (i.e. HD for Home Depot) and

click . 4. Use Net Income After Taxes for the purpose of your analysis. Depreciation

1. Click on MultexNet . Enter the username and password located under the keyboard, and click on the fundamentals tab. 2. Under financial reports select Income Statement. 3. Enter your companys ticker into the ticker search (i.e. HD for Home Depot) and

click . 4. Use the expense titled Depreciation for the purpose of your analysis.

Capital expenditures

1. Click on MultexNet . Enter the username and password located under the keyboard, and click on the fundamentals tab. 2. Under financial reports select Cash Flow Statement. 3. Enter your companys ticker into the ticker search (i.e. HD for Home Depot) and

click . 4. Under the Cash from Operating Activities you will find Capital Expenditures. Working Capital = Current Assets minus Current Liabilities

1. Click on MultexNet . Enter the username and password located under the keyboard, and click on the fundamentals tab. 2. Under financial reports select Balance Sheet. 3. Enter your companys ticker into the ticker search (i.e. HD for Home Depot) and

click . 4. Scroll down and you will see in bold letters Total Current Assets and Total Current Liabilities. Interest expense

. Enter the username and password located under the 1. Click on MultexNet keyboard, and click on the fundamentals tab. 2. Under financial reports select Income Statement. 3. Enter your companys ticker into the ticker search (i.e. HD for Home Depot) and

click . 4. Use the row titled Interest Expense for the purpose of your analysis. Tax rate 1. On a Bloomberg terminal enter the ticker for your company followed by the yellow <equity> key and the letters DES. i. MSFT <equity> DES

2. Hit the green page forward button twice and the effective tax rate should be under the profitability section (Eff tax rate). You will use this rate as the companys tax rate.

Free Cash Flow to the Firm Home Depot (HD.N) in millions Growth Rate Terminal Growth Rate Tax Rate WACC Year Net Income Plus Depreciation Less Capital Expenditures Less Change in Working Capital Plus Interest Expense (1-tax rate) Free Cash Flows to the Firm Terminal Value PV of FCFF Common Shares Outstanding Stock Value per share Closing stock price 10/21/03 $ $ $ $ $ $

15.39% 8.78% 37.3% 9.54% 0 2003 3,664.00 903.00 2,749.00 (22.00) 23.20 1,863.20

$ $ $ $ $ $

1 2004 4,228.04 1,042.01 3,172.18 (25.39) 26.77 2,150.02

$ $ $ $ $ $

2 2005 4,878.90 1,202.41 3,660.51 (29.29) 30.89 2,480.99

$ $ $ $ $ $

3 2006 5,629.96 1,387.51 4,224.01 (33.80) 35.64 2,862.91

$ $ $ $ $ $

4 2007 6,496.63 1,601.11 4,874.25 (39.01) 41.13 3,303.63

$ 1,962.77 $ 2,067.66 $ 2,178.16 $ $ $ 2367.336 160.16 18.99

5 2008 $ 7,496.73 $ 1,847.58 $ 5,624.59 $ (45.01) $ 47.46 $ 3,812.19 $580,731.13 2,294.56 $370,640.63

$ $ $ $ $ $

6 2009 8,650.77 2,132.00 6,490.44 (51.94) 54.76 4,399.04

conclusion: Stock is undervalued

Notes The terminal growth rate is barely less than the WACC, which results in an astronomically high terminal value

Relative Valuation The goal of relative valuation is to find assets that are incorrectly priced relative to how similar assets are being priced at the same time. Now study this equation.

P0 P PayoutRatio * (1 + g n ) = = DPS 0 E ke g
Now read it again. Pause. Think about it. It is essential that you understand this relationship. P0 is the current price, DPS0 is the current Dividend Per Share, P/E is the Current Price divided by the Net Income Per Share, the Payout Ratio is the percentage of earnings the firm chooses to pay to its stockholders, g is the growth rate and ke is the cost of equity. The fundamental principle is that stocks (given similar growth rates, payout ratios, and betas) with high P/E ratios are overvalued and stocks with low P/E ratios are undervalued. Using these variables you can calculate the P/E ratio of a list of companies in a given industry. The analysis consists of valuing stocks relative to other stocks in their industry based on their P/E ratios. The conclusion we should reach is to long (buy) the stocks with low P/E ratios (because they are undervalued), and short (sell) the stocks with high P/E ratios (because they are overvalued). 1. Enter Multex, select screening, select add build, select SIC1Code, click the select button, scroll down and select Real Estate Investment Trusts (6798), click GO. 2. Select 181 Companies 3. Select Add/Remove/Arrange Columns 4. Add Sales5YCGr% 5. Add PayRatioTTM 6. Add Beta 7. Add ProjPECurFY 8. Click GO Export the data to Excel by selecting Download. Delete all entries that do not have complete information. The equation discussed previously implies that a relationship exists between growth rates, risk (ke in the equation, we will use beta), and the payout ratio. To test this we downloaded these variables for 110 REITS. Now we must run a multiple regression with the aforementioned variables (independent x variables), to predict the P/E ratio (dependent, y variable). The regression gives us an equation that tells us what the P/E should be for these stocks based on growth rates, beta, and payout ratio. To run the regression we select Tools, Data Analysis, and Regression. We enter the existing P/E ratio in the Y-range and the growth, beta, and payout ratios in the X-range. We click ok. The regression bottom of the regression output looks like this:
Coefficients Standard Error t Stat Pvalue Lower 95% Upper 95%

Intercept X Variable 1 X Variable 2 X Variable 3

11.87074405 -0.000257356 -0.672687842 -0.014746442

0.3636822 0.0003125 1.3553542 0.0074019

32.6404 0 11.14970827 12.59178 -0.8236 0.41 -0.000876881 0.000362 -0.4963 0.62 -3.35981084 2.014435 -1.9923 0.05 -0.029421426 -7.15E-05

Thus, our predictive equation should look like this: Predicted P/E = 11.8707 - 0.00025*Payout Ratio - 0.67268*Sales Growth - 0.01474*Beta This is the predicted P/E ratio. We subtract the predicted from the actual P/E ratio for each security. A positive value means the stock is overvalued and we should sell (short) the stock. A negative value means the stock is undervalued, so we should buy (long) the stock. Conclusion: Equity valuation is a process that continues to intrigue and puzzle investors to this day. There are no correct answers, only educated guesses. Try these valuation models on stocks that interest you, chart their performance, and draw your own conclusions. Supplemental Relative Valuation Data:
TTM Actual Payout PE Ratio 5 year Sales Predicted minus Name Current Year Ratio Beta Growth Rate P/E predicted Prime Group Realty Trust 3.79 0.00 0.27 28.65 11.27 -7.48 Humphrey Hospitality Tr. 4.17 0.00 0.56 7.15 11.39 -7.22 IMPAC Mortgage Holdings, 7.16 91.21 0.07 15.63 11.57 -4.41 HRPT Properties Trust 7.51 141.59 0.24 14.83 11.45 -3.94 Anthracite Capital Inc. 7.50 500.00 0.07 37.04 11.15 -3.65 Hersha Hospitality Trust 8.32 358.21 0.30 1.45 11.56 -3.24 RAIT Investment Trust 8.10 107.91 0.14 43.92 11.10 -3.00 Agree Realty Corporation 8.92 88.21 -0.03 7.21 11.76 -2.84 Bedford Property Investor 8.71 106.50 0.09 16.55 11.54 -2.83 Kilroy Realty Corporation 8.52 154.93 0.22 23.49 11.34 -2.82 Koger Equity, Inc. 8.96 203.49 0.12 2.62 11.70 -2.74 Apex Mortgage Capital 5.92 81.26 -0.12 228.43 8.56 -2.64 Great Lakes REIT, Inc. 9.07 246.95 0.14 16.30 11.47 -2.40 CarrAmerica Realty Corp. 9.36 164.34 0.19 9.10 11.57 -2.21 Omega Healthcare Investor 9.11 0.00 0.76 8.59 11.23 -2.12 Annaly Mortgage Managemen 8.41 102.52 0.35 74.88 10.50 -2.09 National Health Investors 9.75 150.45 -0.15 9.05 11.80 -2.05 Parkway Properties, Inc. 9.37 118.67 0.26 26.55 11.27 -1.90 Anworth Mortgage Asset 8.99 75.80 -0.03 67.12 10.88 -1.89 LTC Properties, Inc. 9.99 160.71 0.07 -1.18 11.80 -1.81 First Industrial Realty, 9.80 288.89 0.15 9.20 11.56 -1.76

Ticker PGE HUMP IMH HRP AHR HT RAS ADC BED KRC KE AXM GL CRE OHI NLY NHI PKY ANH LTC FR

CEI WXH MFA HPT GLB BDN HIW CLP EOP CLI PP AMC NHP SKT GRT LXP UHT RSE MAC SPG CBL ARI SNH PSB GGP CPV MLS SLG HCN RA PEI BXP DDR SUI LRY VTR AKR VNO SIZ MNRTA ARE AIV USV HR UDR SSS CUZ EGP

Crescent R.E. Equities Co Winston Hotels, Inc. MFA Mortgage Investments Hospitality Properties Tr Glenborough Realty Trust Brandywine Realty Trust Highwoods Properties, Inc Colonial Properties Trust Equity Office Properties Mack-Cali Realty Corp. Prentiss Properties Trust American Mortgage Accepta Nationwide Health Propert Tanger Factory Outlet Cnt Glimcher Realty Trust Lexington Corp. Prop. Tr. Universal Health Realty Rouse Company, The Macerich Company, The Simon Property Group, Inc CBL & Associates Properti Arden Realty, Inc. Senior Housing Properties PS Business Parks, Inc. General Growth Properties Correctional Properties T Mills Corporation, The SL Green Realty Corp. Health Care REIT, Inc. Reckson Associates Realty Pennsylvania R.E.I.T. Boston Properties, Inc. Developers Divers. Realty Sun Communities, Inc. Liberty Property Trust Ventas, Inc. Acadia Realty Trust Vornado Realty Trust Sizeler Property Inv. Monmouth R.E. Inv. Corp. Alexandria RE Equities Apartment Investment and U.S. Restaurant Props. Healthcare Realty Trust United Dominion Realty Sovran Self Storage, Inc. Cousins Properties Inc. EastGroup Properties Inc.

9.59 442.48 9.43 108.11 8.69 90.09 9.80 142.08 8.63 5,931.03 9.81 156.44 9.32 3,824.56 10.30 214.11 9.86 150.15 10.21 114.44 10.26 165.93 10.46 97.58 10.50 200.87 10.56 238.13 10.28 630.56 10.65 157.02 10.87 107.24 10.87 189.03 10.76 127.73 10.82 156.46 10.61 89.65 10.60 221.25 10.55 144.02 10.54 69.01 10.80 87.67 10.55 109.39 11.22 105.29 10.68 91.60 11.29 146.80 11.13 282.60 10.97 155.37 11.01 48.79 11.31 98.08 11.42 452.47 11.31 125.13 11.85 91.82 11.70 149.05 11.13 113.25 11.66 1,435.90 11.59 141.81 11.56 106.29 10.74 2,037.27 11.38 785.71 11.64 160.18 11.97 760.14 12.00 157.90 11.89 48.59 11.91 258.20

0.25 0.60 -0.17 0.20 -0.05 0.10 0.04 -0.02 0.21 0.13 0.07 -0.26 0.06 0.06 0.16 -0.12 -0.07 0.00 0.03 -0.09 0.00 0.09 0.61 -0.11 0.02 0.19 0.21 0.08 -0.05 -0.06 -0.06 0.25 0.21 0.06 0.27 -0.11 0.09 0.17 -0.11 0.08 -0.05 0.18 0.18 0.14 -0.08 -0.02 0.14 0.14

17.84 20.66 108.80 25.03 22.72 37.19 11.64 12.37 36.05 17.92 21.90 24.81 6.22 5.82 14.03 18.22 4.55 3.80 11.36 15.70 27.53 25.22 7.76 44.84 27.49 36.78 6.23 49.53 17.35 26.97 48.91 34.99 16.12 11.04 21.38 6.99 9.28 46.99 2.59 23.36 32.94 48.73 27.27 26.61 8.98 15.66 18.36 14.56

11.33 11.13 10.36 11.33 10.04 11.21 10.69 11.65 11.16 11.49 11.46 11.65 11.69 11.68 11.39 11.64 11.82 11.77 11.65 11.66 11.44 11.38 11.31 11.27 11.43 11.17 11.61 11.06 11.61 11.44 11.15 11.17 11.47 11.55 11.34 11.82 11.63 11.03 11.54 11.44 11.39 10.51 11.15 11.34 11.60 11.61 11.49 11.50

-1.74 -1.70 -1.67 -1.53 -1.41 -1.40 -1.37 -1.35 -1.30 -1.28 -1.20 -1.19 -1.19 -1.12 -1.11 -0.99 -0.95 -0.90 -0.89 -0.84 -0.83 -0.78 -0.76 -0.73 -0.63 -0.62 -0.39 -0.38 -0.32 -0.31 -0.18 -0.16 -0.16 -0.13 -0.03 0.03 0.07 0.10 0.12 0.15 0.17 0.23 0.23 0.30 0.37 0.39 0.40 0.41

EQY NXL UBA NNN XLG BFS RPT AML DRE CPT KIM OLP IRETS EPR PLD WRI PNP CARS EQR GBP OFC HCP SHU ANL CPG O BRE PSA HME CPJ SMT FRT ESS WRE AVB SFI ASN MHC CNT HMT PCL

Equity One, Inc. New Plan Excel Realty Tr. Urstadt Biddle Properties Commercial Net Lease Rlty Price Legacy Corporation Saul Centers, Inc. Ramco-Gershenson Properti AMLI Residential Properti Duke Realty Corp. Camden Property Trust Kimco Realty Corp. One Liberty Properties, I Investors Real Estate Tr. Entertainment Properties ProLogis Weingarten Realty Investo Pan Pacific Retail Proper Capital Automotive REIT Equity Residential Gables Residential Trust Corporate Office Properti Health Care Property Inve Shurgard Storage Centers, American Land Lease, Inc. Chelsea Property Group Realty Income Corp BRE Properties, Inc. Public Storage, Inc. Home Properties of New Yo Chateau Communities, Inc. Summit Properties Inc. Federal Realty Inv. Trust Essex Property Trust, Inc Washington Real Estate In AvalonBay Communities iStar Financial Inc. Archstone-Smith Trust Manufactured Home Commun. CenterPoint Properties Host Marriott Corporation Plum Creek Timber Co. Inc

11.68 112.85 12.05 976.33 12.24 133.60 12.24 129.69 11.52 0.00 12.43 137.45 12.45 202.65 12.31 417.39 12.27 182.18 12.60 312.42 12.69 97.41 12.75 113.99 12.65 185.69 11.57 111.76 12.84 134.02 13.11 131.49 13.19 95.32 13.01 100.84 13.13 307.28 13.50 227.87 12.26 1,035.29 13.53 187.32 13.68 192.93 13.60 100.10 13.82 148.58 13.92 126.11 13.83 132.83 14.06 145.87 13.52 319.74 13.00 3,793.10 14.27 390.26 14.40 234.87 14.28 148.61 14.90 121.19 14.52 267.43 12.19 106.82 15.28 181.96 15.83 122.71 15.91 151.24 16.49 0.00 24.07 138.82

0.11 -0.11 -0.05 0.04 0.50 -0.04 0.01 0.26 0.30 0.16 0.13 0.05 0.00 0.10 0.20 0.00 -0.16 0.05 0.28 0.08 0.08 0.01 0.17 -0.04 -0.06 -0.08 0.10 -0.10 0.07 0.22 0.08 0.00 0.17 -0.03 0.26 0.47 0.18 0.04 0.09 0.52 0.45

38.05 9.41 12.30 13.35 46.15 6.77 9.02 5.62 25.35 15.52 17.78 20.10 29.74 106.94 17.41 15.93 32.81 42.10 21.69 10.66 87.14 22.85 13.47 33.16 20.08 15.73 14.56 12.40 41.51 14.31 6.11 9.31 18.80 14.00 30.15 208.32 24.93 12.91 12.86 5.06 9.40

11.21 11.55 11.69 11.61 10.85 11.76 11.68 11.51 11.25 11.45 11.50 11.51 11.38 10.20 11.44 11.60 11.47 11.19 11.28 11.60 10.27 11.48 11.51 11.38 11.58 11.66 11.55 11.72 11.13 10.54 11.63 11.67 11.44 11.65 11.18 8.46 11.34 11.62 11.58 11.45 11.39

0.47 0.50 0.55 0.63 0.67 0.67 0.77 0.80 1.02 1.15 1.19 1.24 1.27 1.37 1.40 1.51 1.72 1.82 1.85 1.90 1.99 2.05 2.17 2.22 2.24 2.26 2.28 2.34 2.39 2.46 2.64 2.73 2.84 3.25 3.34 3.73 3.94 4.21 4.33 5.04 12.68

SUMMARY OUTPUT Regression Statistics Multiple R

0.205273749

R Square Adjusted R Square Standard Error Observations ANOVA df Regression Residual Total

0.042137312 0.015027991 2.505729239 110

SS 3 106 109 29.28 665.54 694.82

MS 9.76 6.28

F Significance F 1.55 0.20

Intercept X Variable 1 X Variable 2 X Variable 3

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% 11.87074405 0.36 32.64 0.00 11.15 12.59178 -0.000257356 0.00 -0.82 0.41 0.00 0.0003622 -0.672687842 1.36 -0.50 0.62 -3.36 2.0144352 -0.014746442 0.01 -1.99 0.05 -0.03 -7.15E-05