Intrinsic value of Pure Industrial Real Estate Trust - AAR-UN

Previous Close

$6.61

  Intrinsic Value

$5.70

stock screener

  Rating & Target

hold

-14%

  Value-price divergence*

0%

Previous close

$6.61

 
Intrinsic value

$5.70

 
Up/down potential

-14%

 
Rating

hold

 
Value-price divergence*

0%

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

We calculate the intrinsic value of AAR-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 2.0

 

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, %
  9.36
  22.20
  20.48
  18.93
  17.54
  16.28
  15.16
  14.14
  13.23
  12.40
  11.66
  11.00
  10.40
  9.86
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
Revenue, $m
  187
  229
  275
  327
  385
  448
  515
  588
  666
  749
  836
  928
  1,024
  1,125
  1,231
  1,341
  1,455
  1,575
  1,698
  1,827
  1,961
  2,100
  2,245
  2,395
  2,551
  2,714
  2,883
  3,059
  3,243
  3,434
  3,633
Variable operating expenses, $m
 
  57
  69
  82
  97
  112
  129
  148
  167
  188
  210
  233
  257
  282
  309
  337
  365
  395
  426
  459
  492
  527
  563
  601
  640
  681
  724
  768
  814
  862
  912
Fixed operating expenses, $m
 
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  25
  25
  26
  26
  27
  28
  29
  29
  30
  31
  31
Total operating expenses, $m
  62
  72
  85
  98
  114
  129
  146
  166
  185
  207
  229
  253
  277
  303
  330
  359
  387
  418
  449
  483
  517
  552
  589
  627
  667
  709
  753
  797
  844
  893
  943
Operating income, $m
  125
  156
  190
  229
  272
  318
  369
  423
  481
  542
  607
  675
  747
  822
  901
  983
  1,068
  1,156
  1,249
  1,345
  1,444
  1,548
  1,655
  1,767
  1,884
  2,005
  2,131
  2,262
  2,399
  2,541
  2,690
EBITDA, $m
  125
  156
  190
  229
  272
  318
  369
  423
  481
  542
  607
  675
  747
  822
  901
  983
  1,068
  1,156
  1,249
  1,345
  1,444
  1,548
  1,655
  1,767
  1,884
  2,005
  2,131
  2,262
  2,399
  2,541
  2,690
Interest expense (income), $m
  38
  36
  46
  56
  67
  80
  94
  108
  124
  141
  160
  179
  199
  220
  242
  265
  289
  314
  341
  368
  396
  425
  456
  487
  520
  554
  590
  627
  666
  706
  748
Earnings before tax, $m
  158
  119
  145
  173
  204
  238
  275
  314
  356
  401
  447
  497
  548
  602
  659
  717
  778
  842
  908
  977
  1,048
  1,123
  1,200
  1,280
  1,363
  1,450
  1,541
  1,635
  1,733
  1,835
  1,942
Tax expense, $m
  5
  32
  39
  47
  55
  64
  74
  85
  96
  108
  121
  134
  148
  163
  178
  194
  210
  227
  245
  264
  283
  303
  324
  346
  368
  392
  416
  441
  468
  496
  524
Net income, $m
  148
  87
  106
  126
  149
  174
  201
  229
  260
  292
  327
  363
  400
  440
  481
  524
  568
  615
  663
  713
  765
  819
  876
  934
  995
  1,059
  1,125
  1,193
  1,265
  1,340
  1,418

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  59
  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
  2,517
  3,007
  3,623
  4,308
  5,064
  5,889
  6,781
  7,740
  8,764
  9,851
  11,000
  12,210
  13,479
  14,808
  16,196
  17,643
  19,150
  20,717
  22,348
  24,042
  25,803
  27,632
  29,534
  31,511
  33,567
  35,706
  37,932
  40,250
  42,665
  45,182
  47,807
Adjusted assets (=assets-cash), $m
  2,458
  3,007
  3,623
  4,308
  5,064
  5,889
  6,781
  7,740
  8,764
  9,851
  11,000
  12,210
  13,479
  14,808
  16,196
  17,643
  19,150
  20,717
  22,348
  24,042
  25,803
  27,632
  29,534
  31,511
  33,567
  35,706
  37,932
  40,250
  42,665
  45,182
  47,807
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
  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
  43
  85
  103
  122
  144
  167
  193
  220
  249
  280
  313
  347
  383
  421
  460
  501
  544
  589
  635
  683
  733
  785
  839
  896
  954
  1,015
  1,078
  1,144
  1,213
  1,284
  1,359
Total debt, $m
  1,044
  1,233
  1,510
  1,819
  2,159
  2,530
  2,932
  3,363
  3,824
  4,313
  4,830
  5,374
  5,946
  6,544
  7,168
  7,819
  8,497
  9,203
  9,936
  10,699
  11,491
  12,315
  13,170
  14,060
  14,985
  15,948
  16,949
  17,992
  19,079
  20,212
  21,393
Total liabilities, $m
  1,164
  1,353
  1,630
  1,939
  2,279
  2,650
  3,052
  3,483
  3,944
  4,433
  4,950
  5,494
  6,066
  6,664
  7,288
  7,939
  8,617
  9,323
  10,056
  10,819
  11,611
  12,435
  13,290
  14,180
  15,105
  16,068
  17,069
  18,112
  19,199
  20,332
  21,513
Total equity, $m
  1,353
  1,654
  1,992
  2,370
  2,785
  3,239
  3,730
  4,257
  4,820
  5,418
  6,050
  6,715
  7,414
  8,144
  8,908
  9,703
  10,532
  11,395
  12,291
  13,223
  14,191
  15,198
  16,244
  17,331
  18,462
  19,638
  20,862
  22,137
  23,466
  24,850
  26,294
Total liabilities and equity, $m
  2,517
  3,007
  3,622
  4,309
  5,064
  5,889
  6,782
  7,740
  8,764
  9,851
  11,000
  12,209
  13,480
  14,808
  16,196
  17,642
  19,149
  20,718
  22,347
  24,042
  25,802
  27,633
  29,534
  31,511
  33,567
  35,706
  37,931
  40,249
  42,665
  45,182
  47,807
Debt-to-equity ratio
  0.772
  0.750
  0.760
  0.770
  0.780
  0.780
  0.790
  0.790
  0.790
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
Adjusted equity ratio
  0.526
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  148
  87
  106
  126
  149
  174
  201
  229
  260
  292
  327
  363
  400
  440
  481
  524
  568
  615
  663
  713
  765
  819
  876
  934
  995
  1,059
  1,125
  1,193
  1,265
  1,340
  1,418
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
  0
Funds from operations, $m
  68
  87
  106
  126
  149
  174
  201
  229
  260
  292
  327
  363
  400
  440
  481
  524
  568
  615
  663
  713
  765
  819
  876
  934
  995
  1,059
  1,125
  1,193
  1,265
  1,340
  1,418
Change in working capital, $m
  -29
  16
  18
  19
  21
  23
  25
  27
  29
  31
  33
  34
  36
  38
  39
  41
  43
  45
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
Cash from operations, $m
  97
  72
  88
  107
  128
  151
  175
  202
  231
  261
  294
  328
  364
  402
  441
  483
  525
  570
  617
  665
  715
  767
  822
  878
  937
  998
  1,061
  1,128
  1,196
  1,268
  1,343
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
  -344
  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
  -308
  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
  -211
  72
  88
  107
  128
  151
  175
  202
  231
  261
  294
  328
  364
  402
  441
  483
  525
  570
  617
  665
  715
  767
  822
  878
  937
  998
  1,061
  1,128
  1,196
  1,268
  1,343
Issuance/(repayment) of debt, $m
  44
  248
  277
  309
  340
  371
  402
  432
  461
  489
  517
  544
  571
  598
  625
  651
  678
  706
  734
  762
  792
  823
  856
  890
  925
  962
  1,002
  1,043
  1,087
  1,133
  1,181
Issuance/(repurchase) of shares, $m
  276
  214
  233
  251
  266
  280
  290
  298
  303
  305
  305
  303
  298
  291
  282
  272
  261
  248
  234
  219
  203
  187
  170
  153
  135
  118
  100
  82
  63
  45
  26
Cash from financing (excl. dividends), $m  
  322
  462
  510
  560
  606
  651
  692
  730
  764
  794
  822
  847
  869
  889
  907
  923
  939
  954
  968
  981
  995
  1,010
  1,026
  1,043
  1,060
  1,080
  1,102
  1,125
  1,150
  1,178
  1,207
Total cash flow (excl. dividends), $m
  111
  533
  598
  666
  734
  801
  867
  932
  995
  1,056
  1,116
  1,175
  1,233
  1,291
  1,348
  1,406
  1,464
  1,523
  1,584
  1,646
  1,711
  1,778
  1,848
  1,921
  1,997
  2,078
  2,163
  2,252
  2,346
  2,446
  2,551
Retained Cash Flow (-), $m
  -350
  -301
  -339
  -377
  -416
  -454
  -491
  -527
  -563
  -598
  -632
  -665
  -698
  -731
  -763
  -796
  -829
  -862
  -897
  -932
  -968
  -1,006
  -1,046
  -1,087
  -1,131
  -1,176
  -1,224
  -1,275
  -1,328
  -1,385
  -1,444
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
 
  233
  260
  289
  319
  348
  376
  404
  432
  458
  484
  510
  535
  560
  585
  610
  635
  661
  687
  714
  742
  771
  802
  833
  867
  902
  938
  977
  1,018
  1,061
  1,107
Discount rate, %
 
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
 
  216
  222
  226
  225
  221
  213
  202
  188
  172
  155
  137
  119
  102
  86
  71
  57
  46
  36
  27
  20
  15
  11
  7
  5
  3
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  90.4
  82.6
  76.2
  70.9
  66.4
  62.7
  59.5
  56.8
  54.5
  52.5
  50.8
  49.3
  48.0
  47.0
  46.0
  45.2
  44.5
  43.9
  43.4
  42.9
  42.6
  42.2
  42.0
  41.8
  41.6
  41.4
  41.3
  41.3
  41.2
  41.2

Pure Industrial Real Estate Trust (PIRET) is a Canada-based unincorporated, open-ended investment trust that owns and operates a portfolio of income-producing industrial properties. The Trust's primary objectives are to generate stable and growing cash distributions from investments in income producing industrial properties in markets across Canada and distribution and logistics markets in the United States; to maximize the long-term value of the properties through active management, and to expand its asset base and increase its distributable income through an accretive acquisition program. The Trust operates through five segments, which include British Columbia (BC), Alberta (AB), Ontario (ON), the United States of America (USA) and Other. PIRET is a real estate investment trust (REIT) that focuses on investing in industrial properties. Its subsidiaries include PIRET Holdings (Canada) Ltd., PIRET USA Inc., PIRET Management Corporation and PIRET Management LP.

FINANCIAL RATIOS  of  Pure Industrial Real Estate Trust (AAR-UN)

Valuation Ratios
P/E Ratio 11
Price to Sales 8.7
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 16.7
Price to Free Cash Flow -6.6
Growth Rates
Sales Growth Rate 9.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 65.4%
Cap. Spend. - 3 Yr. Gr. Rate -10.7%
Financial Strength
Quick Ratio 1
Current Ratio 0.7
LT Debt to Equity 70.8%
Total Debt to Equity 77.2%
Interest Coverage 5
Management Effectiveness
Return On Assets 8%
Ret/ On Assets - 3 Yr. Avg. 8.8%
Return On Total Capital 6.7%
Ret/ On T. Cap. - 3 Yr. Avg. 7.1%
Return On Equity 12.6%
Return On Equity - 3 Yr. Avg. 14.2%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 91.4%
Gross Margin - 3 Yr. Avg. 91.7%
EBITDA Margin 104.8%
EBITDA Margin - 3 Yr. Avg. 107.2%
Operating Margin 66.8%
Oper. Margin - 3 Yr. Avg. 66.7%
Pre-Tax Margin 84.5%
Pre-Tax Margin - 3 Yr. Avg. 84.9%
Net Profit Margin 79.1%
Net Profit Margin - 3 Yr. Avg. 79.8%
Effective Tax Rate 3.2%
Eff/ Tax Rate - 3 Yr. Avg. 4%
Payout Ratio 45.3%

AAR-UN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AAR-UN stock intrinsic value calculation we used $187 million for the last fiscal year's total revenue generated by Pure Industrial Real Estate Trust. The default revenue input number comes from 2016 income statement of Pure Industrial Real Estate 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 AAR-UN stock valuation model: a) initial revenue growth rate of 22.2% 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 7.8%, whose default value for AAR-UN is calculated based on our internal credit rating of Pure Industrial Real Estate 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 Pure Industrial Real Estate 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 AAR-UN stock the variable cost ratio is equal to 25.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $15 million in the base year in the intrinsic value calculation for AAR-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 3.7% for Pure Industrial Real Estate Trust.

Corporate tax rate of 27% is the nominal tax rate for Pure Industrial Real Estate 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 AAR-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 AAR-UN are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Pure Industrial Real Estate 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 AAR-UN is equal to 37.4%. 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 - $1353 million for Pure Industrial Real Estate 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 305.598 million for Pure Industrial Real Estate 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 Pure Industrial Real Estate Trust at the current share price and the inputted number of shares is $2.0 billion.

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Financial statements of AAR-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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