Condor Hospitality Trust Inc is a US$126m small-cap, real estate investment trust (REIT) based in Bethesda, 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 CDOR 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 CDOR.
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 CDOR 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 CDOR, its FFO of US$9m makes up 53% of its gross profit, which means over a third of its earnings are high-quality and recurring.
In order to understand whether CDOR 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 CDOR to pay off its debt using its income from its main business activities, and gives us an insight into CDOR’s ability to service its borrowings. With a ratio of 7.8%, the credit rating agency Standard & Poor would consider this as aggressive risk. This would take CDOR 12.84 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 CDOR’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 1.76x, CDOR 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 CDOR’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. CDOR’s price-to-FFO is 13.84x, compared to the long-term industry average of 16.5x, meaning that it is slightly undervalued.
Condor Hospitality Trust can bring diversification into your portfolio due to its unique REIT characteristics. Before you make a decision on the stock today, keep in mind I’ve only covered one metric in this article, the FFO, which is by no means comprehensive. I’d strongly recommend continuing your research on the following areas I believe are key fundamentals for CDOR:
Future Outlook: What are well-informed industry analysts predicting for CDOR’s future growth? Take a look at our free research report of analyst consensus for CDOR’s outlook.
Valuation: What is CDOR 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 CDOR 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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