In This Article:
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Frasers Logistics & Industrial Trust is a S$2.2b small-cap, real estate investment trust (REIT) based in Singapore, Singapore. REITs own and operate income-generating property and adhere to a different set of regulations. This impacts how BUOU’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 BUOU.
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Funds from Operations (FFO) is a higher quality measure of BUOU’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 BUOU, its FFO of AU$124m makes up 84% of its gross profit, which means the majority of its earnings are high-quality and recurring.
Robust financial health can be measured using a common metric in the REIT investing world, FFO-to-debt. The calculation roughly estimates how long it will take for BUOU to repay debt on its balance sheet, which gives us insight into how much risk is associated with having that level of debt on its books. With a ratio of 12%, the credit rating agency Standard & Poor would consider this as aggressive risk. This would take BUOU 8.63 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 BUOU’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 5.22x, it’s safe to say BUOU is generating an appropriate amount of cash from its borrowings.
In terms of valuing BUOU, 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. BUOU’s price-to-FFO is 18.75x, compared to the long-term industry average of 16.5x, meaning that it is slightly overvalued.
Next Steps:
Frasers Logistics & Industrial 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 BUOU: