Fidere Patrimonio Socimi, S.A. is a €144m small-cap, real estate investment trust (REIT) based in Madrid, Spain. REITs own and operate income-generating property and adhere to a different set of regulations. This impacts how YFID’s business operates and also how we should analyse its stock. I’ll take you through some of the key metrics you should use in order to properly assess YFID.
Funds from Operations (FFO) is a higher quality measure of YFID’s earnings compared to net income. This term is very common in the REIT investing world as it provides a cleaner look at its cash flow from daily operations by excluding impact of one-off activities or non-cash items such as depreciation. For YFID, its FFO of €11m makes up 47% of its gross profit, which means over a third of its earnings are high-quality and recurring.
In order to understand whether YFID has a healthy balance sheet, we have to look at a metric called FFO-to-total debt. This tells us how long it will take YFID to pay off its debt using its income from its main business activities, and gives us an insight into YFID’s ability to service its borrowings. With a ratio of 2.1%, the credit rating agency Standard & Poor would consider this as aggressive risk. This would take YFID 47.05 years to pay off using just operating income, which is a long time, and risk increases with time. But realistically, companies have many levers to pull in order to pay back their debt, beyond operating income alone.
I also look at YFID’s interest coverage ratio, which demonstrates how many times its earnings can cover its yearly interest expense. This is similar to the concept above, but looks at the upcoming obligations. The ratio is typically calculated using EBIT, but for a REIT stock, it’s better to use FFO divided by net interest. With an interest coverage ratio of 0.84x, YFID is not generating an appropriate amount of cash from its borrowings. Typically, a ratio of greater than 3x is seen as safe.
I also use FFO to look at YFID’s valuation relative to other REITs in Spain by using the price-to-FFO metric. This is conceptually the same as the price-to-earnings (PE) ratio, but as previously mentioned, FFO is more suitable. In YFID’s case its P/FFO is 13.7x, compared to the long-term industry average of 16.5x, meaning that it is slightly undervalued.
As a REIT, Fidere Patrimonio Socimi offers some unique characteristics which could help diversify your portfolio. However, before you decide on whether or not to invest in YFID, I highly recommend taking a look at other aspects of the stock to consider:
- Future Outlook: What are well-informed industry analysts predicting for YFID’s future growth? Take a look at our free research report of analyst consensus for YFID’s outlook.
- Valuation: What is YFID worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether YFID is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.