Intrinsic value of Canadian Real Estate Investment Trust - REF-UN

Previous Close

$50.30

  Intrinsic Value

$11.37

stock screener

  Rating & Target

str. sell

-77%

Previous close

$50.30

 
Intrinsic value

$11.37

 
Up/down potential

-77%

 
Rating

str. sell

We calculate the intrinsic value of REF-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 3.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
Revenue, $m
  453
  471
  489
  509
  530
  552
  576
  601
  628
  656
  686
  718
  751
  786
  823
  862
  903
  946
  992
  1,040
  1,090
  1,143
  1,199
  1,257
  1,319
  1,383
  1,451
  1,523
  1,598
  1,677
Variable operating expenses, $m
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  79
  83
  86
  91
  95
  99
  104
  109
  114
  120
  126
  132
  138
  145
  152
  160
  168
  176
  184
Fixed operating expenses, $m
  195
  199
  204
  208
  213
  218
  222
  227
  232
  237
  243
  248
  253
  259
  265
  271
  277
  283
  289
  295
  302
  308
  315
  322
  329
  336
  344
  351
  359
  367
Total operating expenses, $m
  245
  251
  258
  264
  271
  279
  285
  293
  301
  309
  318
  327
  336
  345
  356
  366
  376
  387
  398
  409
  422
  434
  447
  460
  474
  488
  504
  519
  535
  551
Operating income, $m
  208
  219
  231
  245
  259
  274
  290
  308
  327
  347
  368
  391
  415
  441
  468
  497
  527
  560
  594
  630
  668
  709
  752
  797
  845
  895
  948
  1,004
  1,063
  1,125
EBITDA, $m
  208
  219
  231
  245
  259
  274
  290
  308
  327
  347
  368
  391
  415
  441
  468
  497
  527
  560
  594
  630
  668
  709
  752
  797
  845
  895
  948
  1,004
  1,063
  1,125
Interest expense (income), $m
  78
  79
  82
  86
  89
  93
  97
  102
  106
  111
  116
  122
  128
  134
  140
  147
  154
  162
  170
  178
  187
  196
  206
  216
  227
  239
  251
  263
  276
  290
  305
Earnings before tax, $m
  129
  137
  146
  155
  166
  177
  189
  202
  216
  230
  246
  263
  281
  300
  321
  342
  365
  390
  416
  443
  472
  503
  535
  570
  606
  644
  685
  728
  773
  821
Tax expense, $m
  35
  37
  39
  42
  45
  48
  51
  54
  58
  62
  67
  71
  76
  81
  87
  92
  99
  105
  112
  120
  127
  136
  145
  154
  164
  174
  185
  196
  209
  222
Net income, $m
  94
  100
  106
  113
  121
  129
  138
  147
  157
  168
  180
  192
  205
  219
  234
  250
  267
  285
  303
  323
  345
  367
  391
  416
  442
  470
  500
  531
  564
  599

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
Total assets, $m
  5,665
  5,882
  6,114
  6,361
  6,625
  6,906
  7,203
  7,519
  7,852
  8,206
  8,579
  8,973
  9,388
  9,827
  10,289
  10,776
  11,288
  11,828
  12,397
  12,995
  13,624
  14,286
  14,982
  15,714
  16,483
  17,292
  18,142
  19,035
  19,974
  20,961
Adjusted assets (=assets-cash), $m
  5,665
  5,882
  6,114
  6,361
  6,625
  6,906
  7,203
  7,519
  7,852
  8,206
  8,579
  8,973
  9,388
  9,827
  10,289
  10,776
  11,288
  11,828
  12,397
  12,995
  13,624
  14,286
  14,982
  15,714
  16,483
  17,292
  18,142
  19,035
  19,974
  20,961
Revenue / Adjusted assets
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
  0.080
Average production assets, $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
Working capital, $m
  172
  179
  186
  193
  201
  210
  219
  229
  239
  249
  261
  273
  285
  299
  313
  328
  343
  360
  377
  395
  414
  434
  455
  478
  501
  526
  552
  579
  607
  637
Total debt, $m
  2,058
  2,142
  2,232
  2,329
  2,431
  2,540
  2,656
  2,779
  2,909
  3,046
  3,191
  3,344
  3,506
  3,677
  3,856
  4,046
  4,245
  4,455
  4,676
  4,909
  5,154
  5,411
  5,682
  5,967
  6,266
  6,581
  6,911
  7,259
  7,624
  8,008
Total liabilities, $m
  2,204
  2,288
  2,378
  2,475
  2,577
  2,686
  2,802
  2,925
  3,055
  3,192
  3,337
  3,490
  3,652
  3,823
  4,002
  4,192
  4,391
  4,601
  4,822
  5,055
  5,300
  5,557
  5,828
  6,113
  6,412
  6,727
  7,057
  7,405
  7,770
  8,154
Total equity, $m
  3,461
  3,594
  3,735
  3,887
  4,048
  4,219
  4,401
  4,594
  4,798
  5,014
  5,242
  5,482
  5,736
  6,004
  6,286
  6,584
  6,897
  7,227
  7,574
  7,940
  8,324
  8,729
  9,154
  9,601
  10,071
  10,565
  11,085
  11,631
  12,204
  12,807
Total liabilities and equity, $m
  5,665
  5,882
  6,113
  6,362
  6,625
  6,905
  7,203
  7,519
  7,853
  8,206
  8,579
  8,972
  9,388
  9,827
  10,288
  10,776
  11,288
  11,828
  12,396
  12,995
  13,624
  14,286
  14,982
  15,714
  16,483
  17,292
  18,142
  19,036
  19,974
  20,961
Debt-to-equity ratio
  0.590
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.630
Adjusted equity ratio
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  94
  100
  106
  113
  121
  129
  138
  147
  157
  168
  180
  192
  205
  219
  234
  250
  267
  285
  303
  323
  345
  367
  391
  416
  442
  470
  500
  531
  564
  599
Depreciation, amort., depletion, $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
Funds from operations, $m
  94
  100
  106
  113
  121
  129
  138
  147
  157
  168
  180
  192
  205
  219
  234
  250
  267
  285
  303
  323
  345
  367
  391
  416
  442
  470
  500
  531
  564
  599
Change in working capital, $m
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
Cash from operations, $m
  88
  93
  99
  106
  113
  121
  129
  138
  147
  158
  168
  180
  193
  206
  220
  235
  251
  268
  286
  305
  325
  347
  370
  394
  419
  446
  474
  504
  536
  569
Maintenance CAPEX, $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
New CAPEX, $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 from investing activities, $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
Free cash flow, $m
  88
  93
  99
  106
  113
  121
  129
  138
  147
  158
  168
  180
  193
  206
  220
  235
  251
  268
  286
  305
  325
  347
  370
  394
  419
  446
  474
  504
  536
  569
Issuance/(repayment) of debt, $m
  75
  84
  90
  96
  103
  109
  116
  123
  130
  137
  145
  153
  162
  171
  180
  189
  199
  210
  221
  233
  245
  257
  271
  285
  299
  315
  331
  348
  365
  384
Issuance/(repurchase) of shares, $m
  27
  33
  35
  38
  40
  42
  44
  45
  47
  47
  48
  49
  49
  49
  48
  48
  47
  45
  44
  42
  40
  37
  35
  31
  28
  24
  20
  15
  9
  4
Cash from financing (excl. dividends), $m  
  102
  117
  125
  134
  143
  151
  160
  168
  177
  184
  193
  202
  211
  220
  228
  237
  246
  255
  265
  275
  285
  294
  306
  316
  327
  339
  351
  363
  374
  388
Total cash flow (excl. dividends), $m
  189
  210
  225
  240
  256
  272
  289
  306
  324
  342
  362
  382
  403
  425
  448
  472
  497
  524
  551
  580
  610
  642
  675
  710
  746
  784
  824
  866
  910
  956
Retained Cash Flow (-), $m
  -121
  -133
  -142
  -151
  -161
  -171
  -182
  -193
  -204
  -216
  -228
  -241
  -254
  -268
  -282
  -297
  -313
  -330
  -347
  -365
  -384
  -404
  -425
  -447
  -470
  -494
  -519
  -546
  -574
  -603
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
  68
  78
  83
  89
  95
  101
  107
  113
  120
  127
  134
  141
  149
  157
  166
  175
  184
  194
  204
  214
  226
  237
  250
  262
  276
  290
  305
  320
  337
  354
Discount rate, %
  7.50
  7.88
  8.27
  8.68
  9.12
  9.57
  10.05
  10.55
  11.08
  11.63
  12.22
  12.83
  13.47
  14.14
  14.85
  15.59
  16.37
  17.19
  18.05
  18.95
  19.90
  20.89
  21.94
  23.04
  24.19
  25.40
  26.67
  28.00
  29.40
  30.87
PV of cash for distribution, $m
  64
  67
  66
  64
  61
  58
  55
  51
  46
  42
  38
  33
  29
  25
  21
  17
  14
  11
  9
  7
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  99.3
  98.4
  97.6
  96.7
  95.8
  94.9
  94.0
  93.1
  92.3
  91.5
  90.7
  89.9
  89.2
  88.5
  87.9
  87.3
  86.7
  86.2
  85.8
  85.3
  84.9
  84.6
  84.3
  84.0
  83.8
  83.6
  83.5
  83.4
  83.3
  83.3

Canadian Real Estate Investment Trust (the Trust) is a real estate investment trust. The Trust's primary business objective is to accumulate and aggressively manage a portfolio of real estate assets and deliver the benefits of such real estate ownership to its Unitholders. It operates in three segments: retail, industrial and office. It operates in geographical locations, including British Columbia, Alberta, Saskatchewan (Prairies), Ontario, Quebec, Nova Scotia and New Brunswick (Atlantic), and Chicago, Illinois (the United States). Its portfolio includes over 200 properties, containing approximately 33 million square feet of gross leasable area. Its retail portfolio consists of over 9.2 million square feet. Its industrial portfolio consists of over 10 million square feet. Its office portfolio consists of approximately three million square feet. Its Ontario office portfolio consists of properties in the Greater Toronto Area. Its development portfolio consists of over 10 properties.

FINANCIAL RATIOS  of  Canadian Real Estate Investment Trust (REF-UN)

Valuation Ratios
P/E Ratio 27.1
Price to Sales 8.4
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 19.3
Price to Free Cash Flow 51.9
Growth Rates
Sales Growth Rate 3.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 130.8%
Cap. Spend. - 3 Yr. Gr. Rate -4.2%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 54.4%
Total Debt to Equity 59.9%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 2.6%
Ret/ On T. Cap. - 3 Yr. Avg. 3%
Return On Equity 4.1%
Return On Equity - 3 Yr. Avg. 4.8%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 86.3%
Gross Margin - 3 Yr. Avg. 86.2%
EBITDA Margin 49.9%
EBITDA Margin - 3 Yr. Avg. 57.2%
Operating Margin 46.7%
Oper. Margin - 3 Yr. Avg. 45.3%
Pre-Tax Margin 32%
Pre-Tax Margin - 3 Yr. Avg. 37.8%
Net Profit Margin 31.1%
Net Profit Margin - 3 Yr. Avg. 37.2%
Effective Tax Rate 2.9%
Eff/ Tax Rate - 3 Yr. Avg. 1.9%
Payout Ratio 90.4%

REF-UN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the REF-UN stock intrinsic value calculation we used $437 million for the last fiscal year's total revenue generated by Canadian Real Estate Investment Trust. The default revenue input number comes from 2016 income statement of Canadian Real Estate Investment Trust. 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 REF-UN stock valuation model: a) initial revenue growth rate of 3.7% 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 7.5%, whose default value for REF-UN is calculated based on our internal credit rating of Canadian Real Estate Investment Trust, 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 Real Estate Investment Trust.
    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 REF-UN stock the variable cost ratio is equal to 11%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $191 million in the base year in the intrinsic value calculation for REF-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 4% for Canadian Real Estate Investment Trust.

Corporate tax rate of 27% is the nominal tax rate for Canadian Real Estate Investment Trust. 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 REF-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 REF-UN are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Canadian Real Estate Investment Trust 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 REF-UN is equal to 38%. 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 - $3340 million for Canadian Real Estate Investment Trust - 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 73.434 million for Canadian Real Estate Investment Trust 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 Real Estate Investment Trust at the current share price and the inputted number of shares is $3.7 billion.

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