Chartered Financial Analyst Level 2
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39 An analyst gathers the following information (in € millions) about three REITs with the same share price and number of shares outstanding:
| REIT 1 | REIT 2 | REIT 3 | |
|---|---|---|---|
| EBITDA | 325.0 | 330.0 | 325.0 |
| Depreciation & amortization | 110.0 | 80.0 | 60.0 |
| Non-cash rent | 10.0 | 16.6 | 18.5 |
Which REIT has the lowest price-to-FFO ratio?
Exam-Like
A
REIT 1
B
REIT 2
C
REIT 3
Explanation:
Calculation Explanation
Step 1: Calculate FFO for each REIT FFO = EBITDA - Depreciation & Amortization + Non-cash rent
- REIT 1: FFO = 325.0 - 110.0 + 10.0 = 225.0
- REIT 2: FFO = 330.0 - 80.0 + 16.6 = 266.6
- REIT 3: FFO = 325.0 - 60.0 + 18.5 = 283.5
Step 2: Compare Price-to-FFO Ratios Since all REITs have the same share price and number of shares outstanding, the REIT with the highest FFO will have the lowest price-to-FFO ratio.
- REIT 1 FFO: 225.0
- REIT 2 FFO: 266.6
- REIT 3 FFO: 283.5
REIT 3 has the highest FFO (283.5), therefore it has the lowest price-to-FFO ratio.
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