Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Weingarten Realty Investors is a US$3.7b mid-cap, real estate investment trust (REIT) based in Houston, United States. REITs own and operate income-generating property and adhere to a different set of regulations. This impacts how WRI’s business operates and also how we should analyse its stock. I’ll take you through some of the key metrics you should use in order to properly assess WRI.
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 WRI’s daily operations. For WRI, its FFO of US$286m makes up 77% of its gross profit, which means the majority of its earnings are high-quality and recurring.
WRI'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 WRI 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 16%, the credit rating agency Standard & Poor would consider this as significantly high risk. This would take WRI 6.28 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.
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 4.24x, 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. WRI's price-to-FFO is 13.08x, 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.