Saturday, January 20, 2007

FFO of Recent Deals
If I am doing the math right, CNL's Hotel REIT had an annualized Funds from Operations (FFO) of $.72 a share. At a $20.50 sales price, the REIT was sold at 28 times FFO. Good deal for investors if that's the case. How much value was in those 50-plus hotels Morgan Stanley sold as part of the acquisition. I received Inland's proxy material for its non-traded REIT that is being acquired by Developer's Diversified Realty Corp (DDR), and that acquisition looks like it is being done on a multiple of 14 times FFO. Dividend Capital's DCT Industrial Trust has annualized FFO of $.60 per share and trades at $12 per share after its recent IPO, a multiple of 20.

A lot of FFO talk, but FFOs are like P/E ratios, the higher the growth potential the higher the FFO should be. I think the one to watch is DCT's FFO as that is traded every day and the other two have set prices. The market seems to think the multiple is OK, but REITs have historically traded in the 8 to 12 times FFO range, which would value the DCT stock much lower than current prices.

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