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Montea Comm. VA is a €1.2b small-cap, real estate investment trust (REIT) based in Erembodegem, Belgium. 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 MONT 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 MONT.

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Funds from Operations (FFO) is a higher quality measure of MONT'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 MONT, its FFO of €56m makes up 112% of its gross profit, which means the majority of its earnings are high-quality and recurring.

MONT'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 MONT 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 MONT 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.

Next, interest coverage ratio shows how many times MONT’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 5.52x, it’s safe to say MONT is generating an appropriate amount of cash from its borrowings.

I also use FFO to look at MONT's valuation relative to other REITs in Belgium 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. MONT's price-to-FFO is 21.07x, compared to the long-term industry average of 16.5x, meaning that it is overvalued.

Next Steps:

Montea Comm. VA 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 MONT:

1. Valuation: What is MONT 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 MONT is currently mispriced by the market.

2. Management: Who are the people running the company? Experienced management and board are important for setting the right strategy during a volatile market. Take a look at information on MONT's executive and directors here.

3. 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 editorial-team@simplywallst.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.