Société de la Tour Eiffel is a €627m small-cap, real estate investment trust (REIT) based in Paris, France. REIT shares give you ownership of the company than owns and manages various income-producing property, whether it be commercial, industrial or residential. The structure of EIFF is unique and it has to adhere to different requirements compared to other non-REIT stocks. Below, I’ll look at a few important metrics to keep in mind as part of your research on EIFF.
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Funds from Operations (FFO) is a higher quality measure of EIFF’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 EIFF, its FFO of €44m makes up 72% of its gross profit, which means the majority of its earnings are high-quality and recurring.
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 EIFF 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 4.9%, the credit rating agency Standard & Poor would consider this as aggressive risk. This would take EIFF 20.41 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 EIFF’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 3.99x, it’s safe to say EIFF is generating an appropriate amount of cash from its borrowings.
I also use FFO to look at EIFF’s valuation relative to other REITs in France 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. EIFF’s price-to-FFO is 14.23x, compared to the long-term industry average of 16.5x, meaning that it is slightly undervalued.
Next Steps:
As a REIT, Société de la Tour Eiffel offers some unique characteristics which could help diversify your portfolio. However, before you decide on whether or not to invest in EIFF, I highly recommend taking a look at other aspects of the stock to consider:
- Future Outlook: What are well-informed industry analysts predicting for EIFF’s future growth? Take a look at our free research report of analyst consensus for EIFF’s outlook.
- Management: Who are the people running the company? Experienced management and board are important for setting the right strategy during a volatile market. Take a look at information on EIFF’s executive and directors here.
- 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.
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