The value of an REIT such as Public Storage (PSA) is commonly measured by using its price-to-FFO (funds from operations) multiple.
An REIT’s price-to-FFO multiple holds the same significance as that of the PE (price-to-earnings) ratio that’s used to calculate the relative valuations of companies operating in other industries.
Peer group price-to-FFO multiple
PSA’s current price-to-FFO multiple is 20.59x. Its high price-to-FFO multiple reflects the fact that it has consistently been returning capital value as well as reliability to its investors.
Public Storage has undertaken several acquisitions and developments as well as redevelopment initiatives to boost its presence in high demand localities. These strategic initiatives and the rising rent in its self-storage facilities may have led to the recent rally in its share prices, due to which there was a spike in its price-to-FFO multiple.
In terms of its price-to-FFO multiple, PSA is trading a little higher than its peers. While Life Storage (LSI) is trading at 13.80x, Macerich Company (MAC) and Extra Space Storage (EXR) are trading at 14.39x and 18.31x, respectively.
Peer group dividend yield
The dividend yield is an effective way to calculate the valuation of an REIT. PSA currently offers a next-12-month dividend yield of 3.8%, in line with its close competitors. Life Storage offers a dividend yield of 5.3%, Macerich offers a dividend yield of 5%, and Extra Space Storage offers a dividend yield of 4%.
Net asset value (or NAV) is also a method that can be used to value REITs. Public Storage occupies 6.5% of the iShares Cohen & Steers REIT ETF (ICF). The ETF has a NAV of 100.02x. In the final article in this series, we’ll see how analysts view Public Storage.