Intrinsic value of RioCan Real Estate Investment Trust - REI-UN

Previous Close

$24.61

  Intrinsic Value

$6.14

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  Rating & Target

str. sell

-75%

Previous close

$24.61

 
Intrinsic value

$6.14

 
Up/down potential

-75%

 
Rating

str. sell

We calculate the intrinsic value of REI-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 8.0

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,156
  1,182
  1,213
  1,247
  1,285
  1,326
  1,371
  1,420
  1,473
  1,529
  1,590
  1,654
  1,723
  1,796
  1,873
  1,955
  2,042
  2,134
  2,231
  2,334
  2,442
  2,556
  2,676
  2,803
  2,937
  3,077
  3,225
  3,381
  3,544
  3,717
Variable operating expenses, $m
  708
  725
  743
  764
  787
  813
  841
  870
  903
  937
  974
  1,014
  1,056
  1,101
  1,148
  1,199
  1,252
  1,308
  1,368
  1,431
  1,497
  1,567
  1,641
  1,718
  1,800
  1,886
  1,977
  2,072
  2,173
  2,278
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
  708
  725
  743
  764
  787
  813
  841
  870
  903
  937
  974
  1,014
  1,056
  1,101
  1,148
  1,199
  1,252
  1,308
  1,368
  1,431
  1,497
  1,567
  1,641
  1,718
  1,800
  1,886
  1,977
  2,072
  2,173
  2,278
Operating income, $m
  447
  458
  469
  482
  497
  513
  531
  550
  570
  592
  615
  640
  667
  695
  725
  757
  790
  826
  864
  903
  945
  989
  1,036
  1,085
  1,136
  1,191
  1,248
  1,308
  1,372
  1,438
EBITDA, $m
  447
  458
  469
  482
  497
  513
  531
  550
  570
  592
  615
  640
  667
  695
  725
  757
  790
  826
  864
  903
  945
  989
  1,036
  1,085
  1,136
  1,191
  1,248
  1,308
  1,372
  1,438
Interest expense (income), $m
  229
  221
  227
  233
  239
  246
  254
  263
  273
  283
  295
  307
  319
  333
  348
  363
  380
  397
  416
  435
  456
  478
  501
  525
  551
  578
  606
  636
  668
  701
  736
Earnings before tax, $m
  226
  231
  237
  243
  251
  259
  267
  277
  287
  297
  309
  321
  334
  347
  362
  377
  393
  410
  428
  447
  467
  488
  510
  534
  558
  584
  612
  640
  671
  702
Tax expense, $m
  61
  62
  64
  66
  68
  70
  72
  75
  77
  80
  83
  87
  90
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
Net income, $m
  165
  168
  173
  178
  183
  189
  195
  202
  209
  217
  225
  234
  243
  253
  264
  275
  287
  299
  312
  326
  341
  356
  373
  390
  408
  427
  447
  468
  490
  513

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
  14,446
  14,778
  15,158
  15,584
  16,057
  16,575
  17,140
  17,751
  18,409
  19,115
  19,871
  20,678
  21,536
  22,449
  23,417
  24,444
  25,530
  26,679
  27,892
  29,174
  30,526
  31,952
  33,456
  35,039
  36,708
  38,464
  40,313
  42,258
  44,304
  46,457
Adjusted assets (=assets-cash), $m
  14,446
  14,778
  15,158
  15,584
  16,057
  16,575
  17,140
  17,751
  18,409
  19,115
  19,871
  20,678
  21,536
  22,449
  23,417
  24,444
  25,530
  26,679
  27,892
  29,174
  30,526
  31,952
  33,456
  35,039
  36,708
  38,464
  40,313
  42,258
  44,304
  46,457
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
  -55
  -57
  -58
  -60
  -62
  -64
  -66
  -68
  -71
  -73
  -76
  -79
  -83
  -86
  -90
  -94
  -98
  -102
  -107
  -112
  -117
  -123
  -128
  -135
  -141
  -148
  -155
  -162
  -170
  -178
Total debt, $m
  5,821
  5,966
  6,132
  6,318
  6,525
  6,751
  6,998
  7,265
  7,553
  7,861
  8,192
  8,544
  8,919
  9,318
  9,741
  10,190
  10,665
  11,167
  11,697
  12,257
  12,848
  13,471
  14,128
  14,820
  15,549
  16,317
  17,125
  17,975
  18,869
  19,810
Total liabilities, $m
  6,313
  6,458
  6,624
  6,810
  7,017
  7,243
  7,490
  7,757
  8,045
  8,353
  8,684
  9,036
  9,411
  9,810
  10,233
  10,682
  11,157
  11,659
  12,189
  12,749
  13,340
  13,963
  14,620
  15,312
  16,041
  16,809
  17,617
  18,467
  19,361
  20,302
Total equity, $m
  8,133
  8,320
  8,534
  8,774
  9,040
  9,332
  9,650
  9,994
  10,364
  10,762
  11,187
  11,642
  12,125
  12,639
  13,184
  13,762
  14,373
  15,020
  15,703
  16,425
  17,186
  17,989
  18,836
  19,727
  20,666
  21,655
  22,696
  23,791
  24,943
  26,155
Total liabilities and equity, $m
  14,446
  14,778
  15,158
  15,584
  16,057
  16,575
  17,140
  17,751
  18,409
  19,115
  19,871
  20,678
  21,536
  22,449
  23,417
  24,444
  25,530
  26,679
  27,892
  29,174
  30,526
  31,952
  33,456
  35,039
  36,707
  38,464
  40,313
  42,258
  44,304
  46,457
Debt-to-equity ratio
  0.720
  0.720
  0.720
  0.720
  0.720
  0.720
  0.730
  0.730
  0.730
  0.730
  0.730
  0.730
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.760
  0.760
  0.760
Adjusted equity ratio
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  165
  168
  173
  178
  183
  189
  195
  202
  209
  217
  225
  234
  243
  253
  264
  275
  287
  299
  312
  326
  341
  356
  373
  390
  408
  427
  447
  468
  490
  513
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
  165
  168
  173
  178
  183
  189
  195
  202
  209
  217
  225
  234
  243
  253
  264
  275
  287
  299
  312
  326
  341
  356
  373
  390
  408
  427
  447
  468
  490
  513
Change in working capital, $m
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
Cash from operations, $m
  166
  170
  174
  179
  185
  191
  197
  204
  212
  220
  228
  237
  247
  257
  268
  279
  291
  304
  317
  331
  346
  362
  378
  396
  414
  433
  454
  475
  497
  521
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
  166
  170
  174
  179
  185
  191
  197
  204
  212
  220
  228
  237
  247
  257
  268
  279
  291
  304
  317
  331
  346
  362
  378
  396
  414
  433
  454
  475
  497
  521
Issuance/(repayment) of debt, $m
  149
  145
  166
  186
  206
  227
  247
  267
  288
  309
  330
  352
  375
  399
  423
  448
  475
  502
  530
  560
  591
  623
  657
  692
  729
  768
  808
  850
  894
  941
Issuance/(repurchase) of shares, $m
  12
  19
  41
  62
  83
  103
  123
  142
  161
  181
  200
  220
  240
  260
  281
  303
  325
  347
  371
  395
  420
  447
  474
  502
  531
  562
  594
  628
  663
  699
Cash from financing (excl. dividends), $m  
  161
  164
  207
  248
  289
  330
  370
  409
  449
  490
  530
  572
  615
  659
  704
  751
  800
  849
  901
  955
  1,011
  1,070
  1,131
  1,194
  1,260
  1,330
  1,402
  1,478
  1,557
  1,640
Total cash flow (excl. dividends), $m
  327
  334
  381
  428
  474
  520
  567
  613
  661
  709
  759
  810
  862
  916
  972
  1,030
  1,090
  1,153
  1,218
  1,287
  1,357
  1,432
  1,509
  1,590
  1,675
  1,763
  1,856
  1,953
  2,054
  2,161
Retained Cash Flow (-), $m
  -177
  -187
  -214
  -240
  -266
  -292
  -318
  -344
  -371
  -398
  -426
  -454
  -483
  -514
  -545
  -578
  -612
  -647
  -683
  -722
  -761
  -803
  -846
  -892
  -939
  -989
  -1,041
  -1,095
  -1,152
  -1,212
Prev. year cash balance distribution, $m
  54
  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
  204
  146
  167
  188
  208
  229
  249
  269
  290
  311
  333
  356
  379
  402
  427
  452
  479
  506
  535
  565
  596
  629
  663
  698
  735
  774
  815
  858
  902
  949
Discount rate, %
  8.50
  8.93
  9.37
  9.84
  10.33
  10.85
  11.39
  11.96
  12.56
  13.19
  13.85
  14.54
  15.26
  16.03
  16.83
  17.67
  18.55
  19.48
  20.46
  21.48
  22.55
  23.68
  24.86
  26.11
  27.41
  28.78
  30.22
  31.73
  33.32
  34.99
PV of cash for distribution, $m
  188
  123
  128
  129
  127
  123
  117
  109
  100
  90
  80
  70
  60
  50
  41
  33
  27
  21
  16
  12
  8
  6
  4
  3
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  99.9
  99.6
  99.1
  98.4
  97.5
  96.4
  95.2
  93.8
  92.3
  90.7
  89.1
  87.3
  85.6
  83.8
  82.0
  80.1
  78.3
  76.5
  74.6
  72.8
  71.0
  69.2
  67.4
  65.7
  64.0
  62.3
  60.6
  59.0
  57.4
  55.8

RioCan Real Estate Investment Trust (RioCan) is a Canada-based unincorporated closed-end real estate investment trust. The Trust owns and manages Canada's portfolio of shopping centers with ownership interests in a portfolio of approximately 300 retail and mixed use properties, including approximately 15 properties under development, containing an aggregate net leasable area (NLA) of approximately 46,973,000 square feet. The Trusts property portfolio includes grocery anchored, new format retail, urban retail, mixed use and non-grocery anchored centers, of which approximately 255 properties are owned, which includes approximately 250 income properties and five properties under development and approximately 45 are co-owned through joint arrangements with co-owners including approximately 10 under development. The Trusts projects are categorized into urban/mixed use, renovation/backfill and greenfield/expansion.

FINANCIAL RATIOS  of  RioCan Real Estate Investment Trust (REI-UN)

Valuation Ratios
P/E Ratio 9.7
Price to Sales 7.1
Price to Book 1
Price to Tangible Book
Price to Cash Flow 17.7
Price to Free Cash Flow 19.7
Growth Rates
Sales Growth Rate 4.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 34.3%
Cap. Spend. - 3 Yr. Gr. Rate 12.6%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 70.8%
Total Debt to Equity 70.8%
Interest Coverage 4
Management Effectiveness
Return On Assets 7%
Ret/ On Assets - 3 Yr. Avg. 5.4%
Return On Total Capital 6%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity 10.4%
Return On Equity - 3 Yr. Avg. 7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 61.8%
Gross Margin - 3 Yr. Avg. 62.2%
EBITDA Margin 80.5%
EBITDA Margin - 3 Yr. Avg. 71.2%
Operating Margin 58.2%
Oper. Margin - 3 Yr. Avg. 46.9%
Pre-Tax Margin 59.9%
Pre-Tax Margin - 3 Yr. Avg. 47.4%
Net Profit Margin 73.3%
Net Profit Margin - 3 Yr. Avg. 50.4%
Effective Tax Rate -0.6%
Eff/ Tax Rate - 3 Yr. Avg. -0.1%
Payout Ratio 48.9%

REI-UN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the REI-UN stock intrinsic value calculation we used $1133 million for the last fiscal year's total revenue generated by RioCan Real Estate Investment Trust. The default revenue input number comes from 2016 income statement of RioCan 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 REI-UN stock valuation model: a) initial revenue growth rate of 2% 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 8.5%, whose default value for REI-UN is calculated based on our internal credit rating of RioCan 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 RioCan 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 REI-UN stock the variable cost ratio is equal to 61.3%.

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 REI-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 3.9% for RioCan Real Estate Investment Trust.

Corporate tax rate of 27% is the nominal tax rate for RioCan 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 REI-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 REI-UN are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in RioCan 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 REI-UN is equal to -4.8%. 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 - $8010 million for RioCan 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 326.355 million for RioCan 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 RioCan Real Estate Investment Trust at the current share price and the inputted number of shares is $8.0 billion.

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