Price-to-funds from operations ratios
Since price-to-FFO (funds from operations) ratios consider depreciation and other adjustments, they’re suitable for valuing REITs. While American Tower’s (AMT) TTM (trailing-12-month) price-to-FFO ratio is 22.1x, main competitors Crown Castle (CCI), Realty Income (O), and Simon Property (SPG) have TTM price-to-FFO ratios of 25.9x, 18.9x, and 15.1x, respectively, meaning AMT is trading at a discount to Crown Castle but at a premium to Realty Income and Simon Property.
Meanwhile, American Tower’s forward 12-month price-to-FFO ratio is 19.6x, whereas Crown Castle’s, Realty Income’s, and Simon Property’s are 22.7x, 17.5x, and 14.3x, respectively.
Enterprise value-to-EBITDA multiples
Another appropriate valuation multiple for valuing telecommunication REITs such as American Tower is the EV[1.enterprise value]-to-EBITDA multiple, as the capital-intensive telecommunication industry has high depreciation and amortization as well as varying degrees of debt and operating leases. EV-to-EBITDA multiples neutralize these factors. They show what investors are willing to pay for the next four quarters of a stock’s estimated EBITDA.
American Tower’s trailing 12-month EV-to-EBITDA multiple is 21.6x, and its forward 12-month EV-to-EBITDA multiple is 19.0x.
In comparison, Crown Castle, Realty Income, SBA Communications, and Simon Property have forward EV-to-EBITDA multiples of 19.1x, 21.0x, 18.4x, and 17.9x, respectively, meaning AMT is trading at a discount to Crown Castle and SBA Communications, and at a premium to Realty Income and Simon Property. American Tower comprises 4% of the Cohen & Steers Global Realty Majors ETF (GRI).
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