Investing In Property Through Ascendas Real Estate Investment Trust (SGX:A17U)

Ascendas Real Estate Investment Trust is a S$7.56b mid-cap real estate investment trust (REIT) based in Singapore, Singapore. REITs own and operate income-generating property and adhere to a different set of regulations. This impacts how A17U’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 A17U.

View out our latest analysis for Ascendas Real Estate Investment Trust

Funds from Operations (FFO) is a higher quality measure of A17U'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 A17U, its FFO of S$538.89m makes up 93.04% of its gross profit, which means the majority of its earnings are high-quality and recurring.

A17U's financial stability can be gauged by seeing how much its FFO generated each year can cover its total amount of debt. The higher the coverage, the less risky A17U is, broadly speaking, to have debt on its books. The metric I'll be using, FFO-to-debt, also estimates the time it will take for the company to repay its debt with its FFO. With a ratio of 15.31%, the credit rating agency Standard & Poor would consider this as significantly high risk. This would take A17U 6.53 years to pay off using operating income alone. Given that long-term debt is a multi-year commitment this is not unusual, however, the longer it takes for a company to pay back debt, the higher the risk associated with that company.

I also look at A17U'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 4.91x, it’s safe to say A17U is generating an appropriate amount of cash from its borrowings.

In terms of valuing A17U, 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. A17U's price-to-FFO is 14.19x, compared to the long-term industry average of 16.5x, meaning that it is slightly undervalued.

Next Steps:

Ascendas Real Estate Investment Trust can bring diversification into your portfolio due to its unique REIT characteristics. Before you make a decision on the stock today, keep in mind I've only covered one metric in this article, the FFO, which is by no means comprehensive. I'd strongly recommend continuing your research on the following areas I believe are key fundamentals for A17U:

1. Future Outlook: What are well-informed industry analysts predicting for A17U’s future growth? Take a look at our free research report of analyst consensus for A17U’s outlook.
2. Valuation: What is A17U 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 A17U 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.