Global Self Storage, Inc. is a US$33m small-cap, real estate investment trust (REIT) based in New York, United States. REITs own and operate income-generating property and adhere to a different set of regulations. This impacts how SELF’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 SELF.
Funds from Operations (FFO) is a higher quality measure of SELF'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 SELF, its FFO of US$2.3m makes up 47% of its gross profit, which means over a third of its earnings are high-quality and recurring.
SELF'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 SELF 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 12%, the credit rating agency Standard & Poor would consider this as aggressive risk. This would take SELF 8 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 SELF'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 2.54x, SELF 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 SELF'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. SELF's price-to-FFO is 14.35x, compared to the long-term industry average of 16.5x, meaning that it is slightly undervalued.
As a REIT, Global Self Storage offers some unique characteristics which could help diversify your portfolio. However, before you decide on whether or not to invest in SELF, I highly recommend taking a look at other aspects of the stock to consider:
- Future Outlook: What are well-informed industry analysts predicting for SELF’s future growth? Take a look at our free research report of analyst consensus for SELF’s outlook.
- Valuation: What is SELF 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 SELF 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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