Weingarten Realty Investors is a US$3.7b mid-cap, real estate investment trust (REIT) based in Houston, 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 WRI 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 WRI.
Funds from Operations (FFO) is a higher quality measure of WRI’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 WRI, its FFO of US$270m makes up 69% of its gross profit, which means the majority of its earnings are high-quality and recurring.
In order to understand whether WRI 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 WRI to pay off its debt using its income from its main business activities, and gives us an insight into WRI’s ability to service its borrowings. With a ratio of 13%, the credit rating agency Standard & Poor would consider this as significantly high risk. This would take WRI 7.71 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 WRI’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 3.31x, it’s safe to say WRI is generating an appropriate amount of cash from its borrowings.
In terms of valuing WRI, 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 WRI’s case its P/FFO is 13.57x, compared to the long-term industry average of 16.5x, meaning that it is slightly undervalued.
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. Weingarten Realty Investors 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 WRI’s future growth? Take a look at our free research report of analyst consensus for WRI’s outlook.
- Valuation: What is WRI 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 WRI 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.
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