The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: patron_anejo_por_favor who wrote (168989)	12/4/2008 12:34:23 PM
From: Perspective	Read Replies (1) of 306849

Can ANYBODY explain how people value REITs? How relevant is FFO? Net income? The earnings releases all act like you're supposed to ignore the depreciation and amortization. As if the buildings come for free? Or is it just that some patsy before you paid for the buildings, and you just get to reap the revenue? Take somebody like PSB. Their EPS were $0.67, while FFO was $3.36. That's a 4-fold difference! That tells me that if you count the cost of capital, they are at 40X earnings. Of course, if you ignore the cost of capital, they would just run out the present life of the business they have. It would amount to paying back out the $1.1B in equity they have over the next eight years or so and shutting down, right? But why would you pay more than that for the right to have your money returned to you in a steady stream over the next eight years? Can anybody help me understand REIT valuations? `BC

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