Is Vitruvio Real Estate SOCIMI, S.A. (BME:YVIT) A Healthy REIT?

Vitruvio Real Estate SOCIMI, S.A. is a €83m 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 YVIT’s business operates and also how we should analyse its stock. Below, I’ll look at a few important metrics to keep in mind as part of your research on YVIT.

See our latest analysis for Vitruvio Real Estate SOCIMI

REIT investors should be familiar with the term Fund from Operations (FFO) – a REIT’s main source of cash flow from its day-to-day business activities. FFO is a higher quality measure of earnings because it takes out the impact of non-recurring sales and non-cash items such as depreciation. These items can distort the bottom line and not necessarily reflective of YVIT’s daily operations. For YVIT, its FFO of €1.7m makes up 42% of its gross profit, which means over a third of its earnings are high-quality and recurring.

BME:YVIT Historical Debt, March 20th 2019
BME:YVIT Historical Debt, March 20th 2019

Robust financial health can be measured using a common metric in the REIT investing world, FFO-to-debt. The calculation roughly estimates how long it will take for YVIT to repay debt on its balance sheet, which gives us insight into how much risk is associated with having that level of debt on its books. With a ratio of 4.5%, the credit rating agency Standard & Poor would consider this as aggressive risk. This would take YVIT 22.43 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.

Next, interest coverage ratio shows how many times YVIT’s earnings can cover its annual interest payments. Usually the ratio is calculated using EBIT, but for REITs, it’s better to use FFO divided by net interest. This is similar to the above concept, but looks at the nearer-term obligations. With an interest coverage ratio of 3.28x, it’s safe to say YVIT is generating an appropriate amount of cash from its borrowings.

In terms of valuing YVIT, FFO can also be used as a form of relative valuation. Instead of the P/E ratio, P/FFO is used instead, which is very common for REIT stocks. YVIT’s price-to-FFO is 48.8x, compared to the long-term industry average of 16.5x, meaning that it is highly overvalued.

Next Steps:

As a REIT, Vitruvio Real Estate SOCIMI offers some unique characteristics which could help diversify your portfolio. However, before you decide on whether or not to invest in YVIT, I highly recommend taking a look at other aspects of the stock to consider:

  1. Future Outlook: What are well-informed industry analysts predicting for YVIT’s future growth? Take a look at our free research report of analyst consensus for YVIT’s outlook.
  2. Valuation: What is YVIT 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 YVIT is currently mispriced by the market.
  3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.