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CoreSite Realty Corporation is a US$4.8b mid-cap, real estate investment trust (REIT) based in Denver, United States. 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 COR is unique and it has to adhere to different requirements compared to other non-REIT stocks. I’ll take you through some of the key metrics you should use in order to properly assess COR.
A common financial term REIT investors should know is Funds from Operations, or FFO for short, which is a REIT’s main source of income from its portfolio of property, such as rent. FFO is a cleaner and more representative figure of how much COR actually makes from its day-to-day operations, compared to net income, which can be affected by one-off activities or non-cash items such as depreciation. For COR, its FFO of US$259m makes up 75% 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 COR 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 19%, the credit rating agency Standard & Poor would consider this as significantly high risk. This would take COR 5.17 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 COR’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 7.28x, it’s safe to say COR is generating an appropriate amount of cash from its borrowings.
In terms of valuing COR, 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. COR’s price-to-FFO is 18.59x, compared to the long-term industry average of 16.5x, meaning that it is slightly overvalued.
In this article, I’ve taken a look at Funds from Operations using various metrics, but it is certainly not sufficient to derive an investment decision based on this value alone. CoreSite Realty can bring about diversification for your portfolio, but before you decide to invest, take a look at the other aspects you must consider before investing:
- Future Outlook: What are well-informed industry analysts predicting for COR’s future growth? Take a look at our free research report of analyst consensus for COR’s outlook.
- Valuation: What is COR 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 COR 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.