Intrinsic value of Canadian Apartment Properties Real Estat - CAR-UN

Previous Close

$33.86

  Intrinsic Value

$19.63

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  Rating & Target

sell

-42%

Previous close

$33.86

 
Intrinsic value

$19.63

 
Up/down potential

-42%

 
Rating

sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CAR-UN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 4.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  11.80
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.77
  5.70
  5.63
  5.56
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
Revenue, $m
  597
  638
  680
  724
  769
  817
  866
  918
  972
  1,028
  1,087
  1,148
  1,212
  1,278
  1,348
  1,421
  1,497
  1,577
  1,661
  1,748
  1,840
  1,936
  2,037
  2,142
  2,253
  2,369
  2,490
  2,617
  2,751
  2,891
  3,038
Variable operating expenses, $m
 
  97
  103
  110
  117
  124
  132
  140
  148
  156
  165
  174
  184
  194
  205
  216
  228
  240
  252
  266
  280
  294
  310
  326
  342
  360
  378
  398
  418
  439
  462
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  61
  97
  103
  110
  117
  124
  132
  140
  148
  156
  165
  174
  184
  194
  205
  216
  228
  240
  252
  266
  280
  294
  310
  326
  342
  360
  378
  398
  418
  439
  462
Operating income, $m
  536
  541
  576
  614
  652
  693
  735
  779
  824
  872
  921
  973
  1,027
  1,084
  1,143
  1,205
  1,270
  1,338
  1,408
  1,483
  1,560
  1,642
  1,727
  1,817
  1,910
  2,009
  2,112
  2,220
  2,333
  2,452
  2,576
EBITDA, $m
  548
  543
  579
  616
  655
  696
  738
  782
  828
  876
  926
  978
  1,032
  1,089
  1,148
  1,210
  1,275
  1,344
  1,415
  1,489
  1,567
  1,649
  1,735
  1,825
  1,919
  2,018
  2,121
  2,230
  2,343
  2,463
  2,588
Interest expense (income), $m
  109
  123
  132
  141
  150
  160
  171
  181
  193
  204
  217
  229
  243
  257
  271
  286
  302
  319
  336
  354
  373
  393
  414
  436
  459
  483
  509
  535
  563
  592
  622
Earnings before tax, $m
  439
  417
  445
  473
  502
  533
  564
  597
  632
  667
  705
  744
  785
  828
  872
  919
  968
  1,019
  1,072
  1,128
  1,187
  1,248
  1,313
  1,380
  1,451
  1,525
  1,603
  1,685
  1,770
  1,860
  1,954
Tax expense, $m
  0
  113
  120
  128
  136
  144
  152
  161
  171
  180
  190
  201
  212
  223
  235
  248
  261
  275
  289
  305
  320
  337
  354
  373
  392
  412
  433
  455
  478
  502
  528
Net income, $m
  439
  305
  325
  345
  367
  389
  412
  436
  461
  487
  515
  543
  573
  604
  637
  671
  706
  744
  783
  824
  866
  911
  958
  1,008
  1,059
  1,113
  1,170
  1,230
  1,292
  1,358
  1,426

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  7,893
  8,389
  8,945
  9,522
  10,124
  10,749
  11,401
  12,080
  12,788
  13,527
  14,297
  15,102
  15,942
  16,820
  17,738
  18,698
  19,703
  20,753
  21,853
  23,005
  24,211
  25,475
  26,799
  28,186
  29,640
  31,165
  32,764
  34,440
  36,198
  38,042
  39,976
Adjusted assets (=assets-cash), $m
  7,893
  8,389
  8,945
  9,522
  10,124
  10,749
  11,401
  12,080
  12,788
  13,527
  14,297
  15,102
  15,942
  16,820
  17,738
  18,698
  19,703
  20,753
  21,853
  23,005
  24,211
  25,475
  26,799
  28,186
  29,640
  31,165
  32,764
  34,440
  36,198
  38,042
  39,976
Revenue / Adjusted assets
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
  0.076
Average production assets, $m
  12
  12
  13
  14
  15
  16
  16
  17
  18
  20
  21
  22
  23
  24
  26
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
Working capital, $m
  -396
  -175
  -187
  -199
  -212
  -225
  -238
  -252
  -267
  -283
  -299
  -316
  -333
  -352
  -371
  -391
  -412
  -434
  -457
  -481
  -506
  -532
  -560
  -589
  -619
  -651
  -685
  -720
  -757
  -795
  -836
Total debt, $m
  3,524
  3,757
  4,020
  4,293
  4,577
  4,873
  5,182
  5,503
  5,838
  6,187
  6,552
  6,932
  7,330
  7,745
  8,179
  8,633
  9,108
  9,605
  10,126
  10,670
  11,241
  11,839
  12,465
  13,121
  13,809
  14,530
  15,286
  16,079
  16,911
  17,783
  18,698
Total liabilities, $m
  3,735
  3,968
  4,231
  4,504
  4,788
  5,084
  5,393
  5,714
  6,049
  6,398
  6,763
  7,143
  7,541
  7,956
  8,390
  8,844
  9,319
  9,816
  10,337
  10,881
  11,452
  12,050
  12,676
  13,332
  14,020
  14,741
  15,497
  16,290
  17,122
  17,994
  18,909
Total equity, $m
  4,158
  4,421
  4,714
  5,018
  5,335
  5,665
  6,008
  6,366
  6,739
  7,129
  7,535
  7,959
  8,402
  8,864
  9,348
  9,854
  10,383
  10,937
  11,517
  12,124
  12,759
  13,425
  14,123
  14,854
  15,621
  16,424
  17,266
  18,150
  19,076
  20,048
  21,067
Total liabilities and equity, $m
  7,893
  8,389
  8,945
  9,522
  10,123
  10,749
  11,401
  12,080
  12,788
  13,527
  14,298
  15,102
  15,943
  16,820
  17,738
  18,698
  19,702
  20,753
  21,854
  23,005
  24,211
  25,475
  26,799
  28,186
  29,641
  31,165
  32,763
  34,440
  36,198
  38,042
  39,976
Debt-to-equity ratio
  0.848
  0.850
  0.850
  0.860
  0.860
  0.860
  0.860
  0.860
  0.870
  0.870
  0.870
  0.870
  0.870
  0.870
  0.870
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.890
  0.890
  0.890
  0.890
  0.890
Adjusted equity ratio
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  439
  305
  325
  345
  367
  389
  412
  436
  461
  487
  515
  543
  573
  604
  637
  671
  706
  744
  783
  824
  866
  911
  958
  1,008
  1,059
  1,113
  1,170
  1,230
  1,292
  1,358
  1,426
Depreciation, amort., depletion, $m
  12
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
Funds from operations, $m
  480
  307
  327
  348
  370
  392
  415
  439
  465
  491
  519
  547
  578
  609
  642
  676
  712
  750
  789
  830
  873
  919
  966
  1,016
  1,068
  1,122
  1,180
  1,240
  1,303
  1,369
  1,438
Change in working capital, $m
  119
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -40
Cash from operations, $m
  361
  318
  339
  360
  382
  405
  429
  454
  480
  507
  535
  564
  595
  627
  661
  696
  733
  772
  812
  854
  899
  945
  994
  1,045
  1,098
  1,154
  1,213
  1,275
  1,339
  1,407
  1,478
Maintenance CAPEX, $m
  0
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
New CAPEX, $m
  -388
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
Cash from investing activities, $m
  -550
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -13
  -13
  -14
Free cash flow, $m
  -189
  315
  336
  357
  378
  401
  425
  449
  475
  502
  530
  559
  590
  621
  655
  690
  726
  764
  804
  846
  890
  936
  984
  1,035
  1,088
  1,144
  1,202
  1,263
  1,327
  1,394
  1,465
Issuance/(repayment) of debt, $m
  261
  233
  263
  273
  284
  296
  308
  321
  335
  349
  365
  381
  398
  415
  434
  454
  475
  497
  520
  545
  571
  598
  626
  656
  688
  721
  756
  793
  832
  872
  915
Issuance/(repurchase) of shares, $m
  162
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  298
  233
  263
  273
  284
  296
  308
  321
  335
  349
  365
  381
  398
  415
  434
  454
  475
  497
  520
  545
  571
  598
  626
  656
  688
  721
  756
  793
  832
  872
  915
Total cash flow (excl. dividends), $m
  109
  549
  598
  630
  663
  697
  733
  771
  810
  851
  894
  940
  987
  1,037
  1,089
  1,144
  1,201
  1,261
  1,325
  1,391
  1,461
  1,534
  1,611
  1,691
  1,776
  1,865
  1,958
  2,056
  2,158
  2,266
  2,380
Retained Cash Flow (-), $m
  -498
  -263
  -293
  -304
  -317
  -330
  -343
  -358
  -373
  -389
  -406
  -424
  -443
  -463
  -484
  -506
  -529
  -554
  -580
  -607
  -636
  -666
  -698
  -731
  -766
  -803
  -842
  -883
  -926
  -972
  -1,019
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  285
  306
  326
  346
  367
  390
  413
  437
  462
  488
  516
  544
  574
  605
  638
  672
  708
  745
  784
  825
  868
  913
  960
  1,009
  1,061
  1,115
  1,172
  1,232
  1,295
  1,360
Discount rate, %
 
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.18
  22.24
  23.35
  24.52
  25.74
  27.03
  28.38
  29.80
  31.29
  32.85
  34.50
  36.22
PV of cash for distribution, $m
 
  262
  256
  247
  235
  221
  206
  189
  172
  154
  136
  118
  101
  85
  71
  57
  46
  36
  27
  20
  15
  11
  7
  5
  3
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Canadian Apartment Properties Real Estate Investment Trust (CAPREIT) is a Canada-based open-ended real estate investment trust. CAPREIT's investment objectives are to provide unitholders with long-term, monthly cash distributions; grow normalized funds from operations (NFFO), distributions and Unit value through the management of its properties, acquisitions and financial management, and reinvest capital within the property portfolio. CAPREIT owns and operates a portfolio of multi-unit residential rental properties, including apartments, townhomes and manufactured home communities (MHC) located in and near urban centers in Canada. CAPREIT owns interests in approximately 46,790 residential units, consisting of over 40,501 residential suites and approximately 30 MHC's, consisting of approximately 6,290 land lease sites. CAPREIT owns leasehold interests in approximately 15 properties located in the Greater Toronto Area. The leases mature between 2033 and 2037.

FINANCIAL RATIOS  of  Canadian Apartment Properties Real Estat (CAR-UN)

Valuation Ratios
P/E Ratio 10.4
Price to Sales 7.6
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow -168.5
Growth Rates
Sales Growth Rate 11.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -58.4%
Cap. Spend. - 3 Yr. Gr. Rate -1.4%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 79.2%
Total Debt to Equity 84.8%
Interest Coverage 5
Management Effectiveness
Return On Assets 7.3%
Ret/ On Assets - 3 Yr. Avg. 7.1%
Return On Total Capital 6%
Ret/ On T. Cap. - 3 Yr. Avg. 5.7%
Return On Equity 11.2%
Return On Equity - 3 Yr. Avg. 10.9%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 61.5%
Gross Margin - 3 Yr. Avg. 60.8%
EBITDA Margin 93.8%
EBITDA Margin - 3 Yr. Avg. 87.7%
Operating Margin 89.8%
Oper. Margin - 3 Yr. Avg. 85.5%
Pre-Tax Margin 73.5%
Pre-Tax Margin - 3 Yr. Avg. 67.1%
Net Profit Margin 73.5%
Net Profit Margin - 3 Yr. Avg. 67.1%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 24.8%

CAR-UN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CAR-UN stock intrinsic value calculation we used $597 million for the last fiscal year's total revenue generated by Canadian Apartment Properties Real Estat. The default revenue input number comes from 2016 income statement of Canadian Apartment Properties Real Estat. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CAR-UN stock valuation model: a) initial revenue growth rate of 6.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.8%, whose default value for CAR-UN is calculated based on our internal credit rating of Canadian Apartment Properties Real Estat, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Canadian Apartment Properties Real Estat.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CAR-UN stock the variable cost ratio is equal to 15.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CAR-UN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Canadian Apartment Properties Real Estat.

Corporate tax rate of 27% is the nominal tax rate for Canadian Apartment Properties Real Estat. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CAR-UN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CAR-UN are equal to 1.9%.

Life of production assets of 1 years is the average useful life of capital assets used in Canadian Apartment Properties Real Estat operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CAR-UN is equal to -27.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4158 million for Canadian Apartment Properties Real Estat - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 136.74 million for Canadian Apartment Properties Real Estat is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Canadian Apartment Properties Real Estat at the current share price and the inputted number of shares is $4.6 billion.

RELATED COMPANIES Price Int.Val. Rating
Financial statements of CAR-UN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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