The price-to-AFFO (price-to-adjusted funds from operations) ratio is considered to be the best multiple for measuring a REIT and finding out where it’s undervalued or overvalued compared to its peers. The ratio’s implications are similar to the implications of the PE ratio.
Based on its trailing-12-month price-to-AFFO ratio, American Tower (AMT) is trading at a discount to its main competitor Crown Castle International (CCI). However, compared to Realty Income (O) and Simon Property Group (SPG), it’s trading at a premium. American Tower has a trailing-12-month price-to-AFFO ratio of 21.1x, while its peers Crown Castle, Realty Income, and Simon Property are trading at multiples of 2.4x, 19.2x, and 14.9x, respectively.
However, based on Wall Street’s 2018 projections for AFFO, American Tower is trading at a premium to all of its competitors mentioned above. The forward price-to-AFFO multiples of American Tower, Crown Castle, Realty Income, and Simon Property are 20.3x, 20.2x, 18x, and 14.6x, respectively.
EV-to-EBITDA (enterprise value-to-EBITDA) is another ratio that can be used for valuing telecommunications REITs such as American Tower. The telecommunications industry is highly capital intensive, so companies in the space have very high levels of depreciation and amortization as well as differing levels of financial leverage.
The EV-to-EBITDA ratio neutralizes these factors and helps compare two or more stocks from a valuation perspective. The forward EV-to-EBITDA ratio shows what investors are willing to pay for the next four quarters of a stock’s estimated EBITDA.
Currently, American Tower is trading at a trailing-12-month EV-to-EBITDA ratio of 22.1x and a forward 12-month ratio of 19.8x.
The company’s competitors Crown Castle, Realty Income, and Simon Property Group are currently trading at forward EV-to-EBITDA multiples of 19.1x, 18.3x, and 18.3x, respectively. From this perspective, American Tower is trading at a premium to all its peers mentioned above.
American Tower makes up 6% of the iShares US Real Estate ETF (IYR).