Investing In JBG SMITH Properties (NYSE:JBGS): What You Need To Know
JBG SMITH Properties is a US$5.7b mid-cap, real estate investment trust (REIT) based in Chevy Chase, 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 JBGS 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 JBGS.
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REIT investors should be familiar with the term Fund from Operations (FFO) – a REIT’s main source of cash flow from its day-to-day business activities. FFO is a higher quality measure of earnings because it takes out the impact of non-recurring sales and non-cash items such as depreciation. These items can distort the bottom line and not necessarily reflective of JBGS’s daily operations. For JBGS, its FFO of US$188m makes up 52% of its gross profit, which means over a third of its earnings are high-quality and recurring.
JBGS’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 JBGS 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 8.7%, the credit rating agency Standard & Poor would consider this as aggressive risk. This would take JBGS 11.43 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.
I also look at JBGS’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 2.53x, JBGS is not generating an appropriate amount of cash from its borrowings. Typically, a ratio of greater than 3x is seen as safe.
I also use FFO to look at JBGS’s valuation relative to other REITs in United States 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. JBGS’s price-to-FFO is 30.45x, compared to the long-term industry average of 16.5x, meaning that it is overvalued.
Next Steps:
As a REIT, JBG SMITH Properties offers some unique characteristics which could help diversify your portfolio. However, before you decide on whether or not to invest in JBGS, I highly recommend taking a look at other aspects of the stock to consider:
Future Outlook: What are well-informed industry analysts predicting for JBGS’s future growth? Take a look at our free research report of analyst consensus for JBGS’s outlook.
Valuation: What is JBGS 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 JBGS 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.
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