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

Previous Close

$23.81

  Intrinsic Value

$6.16

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  Rating & Target

str. sell

-74%

Previous close

$23.81

 
Intrinsic value

$6.16

 
Up/down potential

-74%

 
Rating

str. sell

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

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 7.8

 

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, %
  4.14
  3.60
  3.74
  3.87
  3.98
  4.08
  4.17
  4.26
  4.33
  4.40
  4.46
  4.51
  4.56
  4.60
  4.64
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
Revenue, $m
  1,133
  1,174
  1,218
  1,265
  1,315
  1,369
  1,426
  1,487
  1,551
  1,619
  1,691
  1,768
  1,848
  1,933
  2,023
  2,118
  2,218
  2,323
  2,433
  2,550
  2,673
  2,802
  2,938
  3,080
  3,231
  3,389
  3,555
  3,729
  3,912
  4,105
  4,308
Variable operating expenses, $m
 
  720
  746
  775
  806
  839
  874
  911
  951
  993
  1,037
  1,084
  1,133
  1,185
  1,240
  1,298
  1,359
  1,424
  1,492
  1,563
  1,638
  1,717
  1,801
  1,888
  1,980
  2,077
  2,179
  2,286
  2,398
  2,517
  2,641
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
  474
  720
  746
  775
  806
  839
  874
  911
  951
  993
  1,037
  1,084
  1,133
  1,185
  1,240
  1,298
  1,359
  1,424
  1,492
  1,563
  1,638
  1,717
  1,801
  1,888
  1,980
  2,077
  2,179
  2,286
  2,398
  2,517
  2,641
Operating income, $m
  659
  454
  471
  489
  509
  530
  552
  575
  600
  627
  655
  684
  715
  748
  783
  820
  858
  899
  942
  987
  1,034
  1,084
  1,137
  1,192
  1,250
  1,311
  1,376
  1,443
  1,514
  1,589
  1,667
EBITDA, $m
  663
  454
  471
  489
  509
  530
  552
  575
  600
  627
  655
  684
  715
  748
  783
  820
  858
  899
  942
  987
  1,034
  1,084
  1,137
  1,192
  1,250
  1,311
  1,376
  1,443
  1,514
  1,589
  1,667
Interest expense (income), $m
  229
  221
  231
  240
  250
  261
  272
  285
  298
  311
  326
  341
  357
  375
  393
  412
  432
  453
  476
  499
  524
  550
  578
  607
  637
  669
  703
  738
  775
  814
  855
Earnings before tax, $m
  679
  233
  240
  249
  259
  269
  279
  291
  303
  315
  329
  343
  358
  374
  390
  408
  426
  446
  466
  488
  510
  534
  559
  585
  613
  642
  673
  705
  739
  774
  812
Tax expense, $m
  -4
  63
  65
  67
  70
  73
  75
  78
  82
  85
  89
  93
  97
  101
  105
  110
  115
  120
  126
  132
  138
  144
  151
  158
  166
  173
  182
  190
  199
  209
  219
Net income, $m
  831
  170
  175
  182
  189
  196
  204
  212
  221
  230
  240
  250
  261
  273
  285
  298
  311
  325
  340
  356
  372
  390
  408
  427
  448
  469
  491
  515
  539
  565
  593

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  14,174
  14,672
  15,221
  15,810
  16,439
  17,110
  17,824
  18,582
  19,387
  20,239
  21,142
  22,095
  23,103
  24,167
  25,289
  26,473
  27,720
  29,034
  30,418
  31,875
  33,409
  35,022
  36,720
  38,505
  40,382
  42,357
  44,432
  46,613
  48,906
  51,315
  53,847
Adjusted assets (=assets-cash), $m
  14,120
  14,672
  15,221
  15,810
  16,439
  17,110
  17,824
  18,582
  19,387
  20,239
  21,142
  22,095
  23,103
  24,167
  25,289
  26,473
  27,720
  29,034
  30,418
  31,875
  33,409
  35,022
  36,720
  38,505
  40,382
  42,357
  44,432
  46,613
  48,906
  51,315
  53,847
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
  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
  0
Working capital, $m
  0
  -56
  -58
  -61
  -63
  -66
  -68
  -71
  -74
  -78
  -81
  -85
  -89
  -93
  -97
  -102
  -106
  -111
  -117
  -122
  -128
  -134
  -141
  -148
  -155
  -163
  -171
  -179
  -188
  -197
  -207
Total debt, $m
  5,672
  5,920
  6,160
  6,417
  6,692
  6,985
  7,297
  7,628
  7,980
  8,353
  8,747
  9,164
  9,604
  10,069
  10,559
  11,077
  11,622
  12,196
  12,801
  13,437
  14,108
  14,813
  15,554
  16,335
  17,155
  18,018
  18,925
  19,878
  20,880
  21,933
  23,039
Total liabilities, $m
  6,164
  6,412
  6,652
  6,909
  7,184
  7,477
  7,789
  8,120
  8,472
  8,845
  9,239
  9,656
  10,096
  10,561
  11,051
  11,569
  12,114
  12,688
  13,293
  13,929
  14,600
  15,305
  16,046
  16,827
  17,647
  18,510
  19,417
  20,370
  21,372
  22,425
  23,531
Total equity, $m
  8,010
  8,261
  8,569
  8,901
  9,255
  9,633
  10,035
  10,462
  10,915
  11,395
  11,903
  12,440
  13,007
  13,606
  14,238
  14,904
  15,606
  16,346
  17,125
  17,946
  18,809
  19,717
  20,673
  21,678
  22,735
  23,847
  25,015
  26,243
  27,534
  28,891
  30,316
Total liabilities and equity, $m
  14,174
  14,673
  15,221
  15,810
  16,439
  17,110
  17,824
  18,582
  19,387
  20,240
  21,142
  22,096
  23,103
  24,167
  25,289
  26,473
  27,720
  29,034
  30,418
  31,875
  33,409
  35,022
  36,719
  38,505
  40,382
  42,357
  44,432
  46,613
  48,906
  51,316
  53,847
Debt-to-equity ratio
  0.708
  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
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.760
  0.760
  0.760
  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
  0.563

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  831
  170
  175
  182
  189
  196
  204
  212
  221
  230
  240
  250
  261
  273
  285
  298
  311
  325
  340
  356
  372
  390
  408
  427
  448
  469
  491
  515
  539
  565
  593
Depreciation, amort., depletion, $m
  4
  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
  611
  170
  175
  182
  189
  196
  204
  212
  221
  230
  240
  250
  261
  273
  285
  298
  311
  325
  340
  356
  372
  390
  408
  427
  448
  469
  491
  515
  539
  565
  593
Change in working capital, $m
  156
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
Cash from operations, $m
  455
  172
  178
  184
  191
  199
  207
  215
  224
  234
  243
  254
  265
  277
  289
  302
  316
  330
  346
  362
  378
  396
  415
  434
  455
  476
  499
  523
  548
  575
  602
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
  0
New CAPEX, $m
  -47
  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
  1,194
  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
  1,649
  172
  178
  184
  191
  199
  207
  215
  224
  234
  243
  254
  265
  277
  289
  302
  316
  330
  346
  362
  378
  396
  415
  434
  455
  476
  499
  523
  548
  575
  602
Issuance/(repayment) of debt, $m
  -1,186
  248
  240
  257
  275
  293
  312
  331
  352
  373
  394
  417
  440
  465
  490
  517
  545
  574
  605
  637
  670
  705
  742
  780
  820
  863
  907
  953
  1,002
  1,053
  1,106
Issuance/(repurchase) of shares, $m
  -86
  134
  133
  149
  165
  182
  198
  215
  232
  250
  268
  287
  306
  326
  347
  369
  391
  415
  439
  464
  491
  519
  547
  578
  609
  642
  677
  713
  751
  791
  833
Cash from financing (excl. dividends), $m  
  -1,272
  382
  373
  406
  440
  475
  510
  546
  584
  623
  662
  704
  746
  791
  837
  886
  936
  989
  1,044
  1,101
  1,161
  1,224
  1,289
  1,358
  1,429
  1,505
  1,584
  1,666
  1,753
  1,844
  1,939
Total cash flow (excl. dividends), $m
  377
  554
  551
  591
  632
  674
  717
  761
  808
  856
  906
  958
  1,012
  1,068
  1,127
  1,188
  1,252
  1,319
  1,389
  1,463
  1,539
  1,620
  1,704
  1,792
  1,885
  1,982
  2,083
  2,190
  2,302
  2,419
  2,542
Retained Cash Flow (-), $m
  -84
  -305
  -309
  -331
  -354
  -378
  -402
  -427
  -453
  -480
  -508
  -537
  -567
  -599
  -632
  -666
  -702
  -740
  -779
  -820
  -863
  -908
  -956
  -1,005
  -1,057
  -1,111
  -1,168
  -1,228
  -1,291
  -1,357
  -1,425
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
 
  304
  242
  259
  277
  296
  315
  334
  355
  376
  398
  421
  444
  469
  495
  522
  550
  579
  610
  642
  676
  711
  748
  787
  828
  870
  915
  962
  1,011
  1,062
  1,116
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
 
  280
  204
  198
  191
  181
  170
  157
  144
  130
  115
  101
  87
  74
  62
  51
  41
  32
  25
  19
  14
  10
  7
  5
  3
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.3
  96.7
  95.0
  93.2
  91.3
  89.4
  87.5
  85.5
  83.6
  81.6
  79.6
  77.6
  75.7
  73.7
  71.8
  69.9
  68.1
  66.2
  64.4
  62.6
  60.9
  59.2
  57.6
  55.9
  54.3
  52.8
  51.3
  49.8
  48.4
  47.0

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 9.4
Price to Sales 6.9
Price to Book 1
Price to Tangible Book
Price to Cash Flow 17.1
Price to Free Cash Flow 19.1
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 3.6% 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 325.913 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 $7.8 billion.

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Financial statements of REI-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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