Brandywine Realty Trust is a US$2.6b mid-cap, real estate investment trust (REIT) based in Philadelphia, United States. REITs own and operate income-generating property and adhere to a different set of regulations. This impacts how BDN’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 BDN.
Funds from Operations (FFO) is a higher quality measure of BDN’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 BDN, its FFO of US$182m makes up 59% of its gross profit, which means the majority of its earnings are high-quality and recurring.
In order to understand whether BDN 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 BDN to pay off its debt using its income from its main business activities, and gives us an insight into BDN’s ability to service its borrowings. With a ratio of 9.4%, the credit rating agency Standard & Poor would consider this as aggressive risk. This would take BDN 10.61 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 BDN’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 2.16x, BDN is not generating an appropriate amount of cash from its borrowings. Typically, a ratio of greater than 3x is seen as safe.
In terms of valuing BDN, 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. In BDN’s case its P/FFO is 14.25x, compared to the long-term industry average of 16.5x, meaning that it is slightly undervalued.
As a REIT, Brandywine Realty Trust offers some unique characteristics which could help diversify your portfolio. However, before you decide on whether or not to invest in BDN, I highly recommend taking a look at other aspects of the stock to consider:
- Future Outlook: What are well-informed industry analysts predicting for BDN’s future growth? Take a look at our free research report of analyst consensus for BDN’s outlook.
- Valuation: What is BDN 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 BDN 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.