There are a few things that annoy me. One of those things is seeing investors focus on the wrong metrics. Unfortunately, that happens frequently. Let's talk about the absurd reliance on FFO multiples for equity REIT investors. Are FFO multiples useful? Yes, they are useful. Are they the cornerstone of your analysis? You should hope not. Many investors fall for value traps. Those value traps are particularly common among the smaller REITs. To be clear, focusing on small REITs or high-dividend REITs does not produce superior returns.
If you want a better technique, simply look at the medium and big REITs. They each had a median EBITDA margin of 63%. For the big equity REITs, the AFFO margin is very healthy at 44%. The big REITs need to bring in a little over $2 to have $1 available for shareholders. Remember, for the tiny REITs it was a staggering $8 of revenue to have $1 available for shareholders (before stock-based compensation).
Source: Seeking Alpha
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