IREIT Global is a S$458m small-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 UD1U’s business operates and also how we should analyse its stock. In this commentary, I’ll take you through some of the things I look at when assessing UD1U.
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Funds from Operations (FFO) is a higher quality measure of UD1U’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 UD1U, its FFO of €29m makes up 101% of its gross profit, which means the majority of its earnings are high-quality and recurring.
In order to understand whether UD1U 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 UD1U to pay off its debt using its income from its main business activities, and gives us an insight into UD1U’s ability to service its borrowings. With a ratio of 15%, the credit rating agency Standard & Poor would consider this as significantly high risk. This would take UD1U 6.68 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.
Next, interest coverage ratio shows how many times UD1U’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 7.27x, it’s safe to say UD1U is generating an appropriate amount of cash from its borrowings.
I also use FFO to look at UD1U’s valuation relative to other REITs in Singapore 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. UD1U’s price-to-FFO is 10.23x, compared to the long-term industry average of 16.5x, meaning that it is undervalued.
As a REIT, IREIT Global offers some unique characteristics which could help diversify your portfolio. However, before you decide on whether or not to invest in UD1U, I highly recommend taking a look at other aspects of the stock to consider:
- Future Outlook: What are well-informed industry analysts predicting for UD1U’s future growth? Take a look at our free research report of analyst consensus for UD1U’s outlook.
- Valuation: What is UD1U 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 UD1U 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.