Hi, I am posting this query regarding valuations in this sector to hopefully the most experienced board, EQR. Taking them as an example, at their current price of almost $30 they have a Market Cap of $8.12bn but a net shareholder equity of only $4.99bn. To me this does not make sense, why pay double what the net worth of the company is?

In fact, when you look at the balance sheet you see that they have INCREASED property asset valuations over the past 3-years from 2006. We all know that real estate is off around -40% since then, so discounting the asset values of the company by -40% would make the net asset value even worse, as liabilities would remain the same. If you did this and total real estate assets listed ($15.12bn) were reduced to reflect national real estate reductions, this would reduce shareholder equity by $6.05bn, meaning the company actually has a negative net worth ($4.99bn-$6.05bn=-$1.06bn).

The Balance Sheet can be viewed here: http://finance.yahoo.com/q/bs?s=EQR&annu...

I do understand that the company produces a dividend, so has some value, but perhaps someone can explain where I am going wrong in my basic assumptions that there is no shareholder equity backing up the company valuation?

Actually, if we also look at how the funds to pay the dividend were generated, only $0.04bn of the $0.40bn was generated by continuing operations (presume net rental income) and the other $0.36bn was from non-recurring income (presume gains of asset sales). So in this circumstance, the dividend yield from net rental income of it's continuing business is only 0.4%.

The Income Statement can be viewed here:
http://finance.yahoo.com/q/is?s=EQR&annu...

Surely a real estate company should be 1. A reflection of the net rental income it produces and 2. In some way be a reflection of the net real assets it holds?

Thanks for any explanation.