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

Previous Close

$6.73

  Intrinsic Value

$6.29

stock screener

  Rating & Target

hold

-7%

  Value-price divergence*

0%

Previous close

$6.73

 
Intrinsic value

$6.29

 
Up/down potential

-7%

 
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 1.8

 

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, %
  9.36
  22.70
  20.93
  19.34
  17.90
  16.61
  15.45
  14.41
  13.47
  12.62
  11.86
  11.17
  10.55
  10.00
  9.50
  9.05
  8.64
  8.28
  7.95
  7.66
  7.39
  7.15
  6.94
  6.74
  6.57
  6.41
  6.27
  6.14
  6.03
  5.93
  5.83
Revenue, $m
  187
  229
  277
  331
  390
  455
  526
  601
  682
  768
  860
  956
  1,056
  1,162
  1,272
  1,388
  1,508
  1,632
  1,762
  1,897
  2,037
  2,183
  2,334
  2,492
  2,655
  2,826
  3,003
  3,187
  3,380
  3,580
  3,789
Variable operating expenses, $m
 
  58
  70
  83
  98
  114
  132
  151
  171
  193
  216
  240
  265
  292
  319
  348
  378
  410
  442
  476
  511
  548
  586
  625
  667
  709
  754
  800
  848
  899
  951
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
  73
  86
  99
  115
  131
  149
  169
  189
  212
  235
  260
  285
  313
  340
  370
  400
  433
  465
  500
  536
  573
  612
  651
  694
  737
  783
  829
  878
  930
  982
Operating income, $m
  125
  156
  192
  232
  276
  324
  376
  433
  493
  557
  625
  696
  771
  850
  932
  1,018
  1,107
  1,200
  1,296
  1,397
  1,501
  1,610
  1,723
  1,840
  1,962
  2,089
  2,221
  2,358
  2,501
  2,651
  2,806
EBITDA, $m
  125
  156
  192
  232
  276
  324
  376
  433
  493
  557
  625
  696
  771
  850
  932
  1,018
  1,107
  1,200
  1,296
  1,397
  1,501
  1,610
  1,723
  1,840
  1,962
  2,089
  2,221
  2,358
  2,501
  2,651
  2,806
Interest expense (income), $m
  38
  36
  46
  56
  68
  81
  95
  111
  127
  145
  164
  184
  205
  227
  250
  274
  300
  326
  353
  382
  411
  442
  474
  507
  541
  577
  615
  653
  694
  736
  780
Earnings before tax, $m
  158
  120
  146
  176
  208
  243
  281
  322
  365
  412
  461
  512
  566
  623
  682
  743
  807
  874
  943
  1,015
  1,090
  1,168
  1,249
  1,333
  1,420
  1,511
  1,606
  1,705
  1,808
  1,915
  2,026
Tax expense, $m
  5
  32
  39
  47
  56
  66
  76
  87
  99
  111
  124
  138
  153
  168
  184
  201
  218
  236
  255
  274
  294
  315
  337
  360
  383
  408
  434
  460
  488
  517
  547
Net income, $m
  148
  88
  107
  128
  152
  177
  205
  235
  267
  301
  336
  374
  413
  455
  498
  543
  589
  638
  689
  741
  796
  853
  912
  973
  1,037
  1,103
  1,172
  1,244
  1,319
  1,398
  1,479

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
  3,019
  3,651
  4,357
  5,137
  5,990
  6,916
  7,912
  8,978
  10,111
  11,310
  12,573
  13,900
  15,290
  16,742
  18,257
  19,836
  21,478
  23,186
  24,961
  26,806
  28,723
  30,716
  32,787
  34,941
  37,181
  39,512
  41,940
  44,469
  47,104
  49,852
Adjusted assets (=assets-cash), $m
  2,458
  3,019
  3,651
  4,357
  5,137
  5,990
  6,916
  7,912
  8,978
  10,111
  11,310
  12,573
  13,900
  15,290
  16,742
  18,257
  19,836
  21,478
  23,186
  24,961
  26,806
  28,723
  30,716
  32,787
  34,941
  37,181
  39,512
  41,940
  44,469
  47,104
  49,852
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
  86
  104
  124
  146
  170
  197
  225
  255
  287
  321
  357
  395
  435
  476
  519
  564
  610
  659
  709
  762
  816
  873
  932
  993
  1,057
  1,123
  1,192
  1,264
  1,339
  1,417
Total debt, $m
  1,044
  1,239
  1,523
  1,841
  2,192
  2,576
  2,992
  3,441
  3,920
  4,430
  4,969
  5,538
  6,135
  6,760
  7,414
  8,096
  8,806
  9,545
  10,314
  11,113
  11,943
  12,805
  13,702
  14,634
  15,603
  16,611
  17,661
  18,753
  19,891
  21,077
  22,313
Total liabilities, $m
  1,164
  1,359
  1,643
  1,961
  2,312
  2,696
  3,112
  3,561
  4,040
  4,550
  5,089
  5,658
  6,255
  6,880
  7,534
  8,216
  8,926
  9,665
  10,434
  11,233
  12,063
  12,925
  13,822
  14,754
  15,723
  16,731
  17,781
  18,873
  20,011
  21,197
  22,433
Total equity, $m
  1,353
  1,660
  2,008
  2,396
  2,825
  3,295
  3,804
  4,352
  4,938
  5,561
  6,220
  6,915
  7,645
  8,409
  9,208
  10,042
  10,910
  11,813
  12,752
  13,729
  14,743
  15,798
  16,894
  18,033
  19,217
  20,449
  21,732
  23,067
  24,458
  25,907
  27,418
Total liabilities and equity, $m
  2,517
  3,019
  3,651
  4,357
  5,137
  5,991
  6,916
  7,913
  8,978
  10,111
  11,309
  12,573
  13,900
  15,289
  16,742
  18,258
  19,836
  21,478
  23,186
  24,962
  26,806
  28,723
  30,716
  32,787
  34,940
  37,180
  39,513
  41,940
  44,469
  47,104
  49,851
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
  0.810
  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
  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
  88
  107
  128
  152
  177
  205
  235
  267
  301
  336
  374
  413
  455
  498
  543
  589
  638
  689
  741
  796
  853
  912
  973
  1,037
  1,103
  1,172
  1,244
  1,319
  1,398
  1,479
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
  88
  107
  128
  152
  177
  205
  235
  267
  301
  336
  374
  413
  455
  498
  543
  589
  638
  689
  741
  796
  853
  912
  973
  1,037
  1,103
  1,172
  1,244
  1,319
  1,398
  1,479
Change in working capital, $m
  -29
  16
  18
  20
  22
  24
  26
  28
  30
  32
  34
  36
  38
  40
  41
  43
  45
  47
  49
  50
  52
  54
  57
  59
  61
  64
  66
  69
  72
  75
  78
Cash from operations, $m
  97
  72
  89
  108
  129
  153
  179
  207
  237
  268
  302
  338
  376
  415
  456
  500
  544
  591
  640
  691
  743
  798
  855
  914
  976
  1,040
  1,106
  1,175
  1,248
  1,323
  1,401
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
  89
  108
  129
  153
  179
  207
  237
  268
  302
  338
  376
  415
  456
  500
  544
  591
  640
  691
  743
  798
  855
  914
  976
  1,040
  1,106
  1,175
  1,248
  1,323
  1,401
Issuance/(repayment) of debt, $m
  44
  254
  284
  318
  351
  384
  417
  448
  479
  510
  539
  569
  597
  625
  654
  682
  710
  739
  769
  799
  830
  863
  897
  932
  969
  1,008
  1,049
  1,092
  1,138
  1,186
  1,237
Issuance/(repurchase) of shares, $m
  276
  220
  241
  260
  277
  292
  304
  313
  319
  323
  323
  321
  317
  310
  301
  291
  279
  265
  251
  235
  219
  202
  184
  166
  148
  129
  110
  91
  71
  52
  32
Cash from financing (excl. dividends), $m  
  322
  474
  525
  578
  628
  676
  721
  761
  798
  833
  862
  890
  914
  935
  955
  973
  989
  1,004
  1,020
  1,034
  1,049
  1,065
  1,081
  1,098
  1,117
  1,137
  1,159
  1,183
  1,209
  1,238
  1,269
Total cash flow (excl. dividends), $m
  111
  545
  614
  686
  758
  829
  899
  968
  1,035
  1,101
  1,165
  1,228
  1,289
  1,350
  1,411
  1,472
  1,533
  1,596
  1,659
  1,725
  1,792
  1,863
  1,936
  2,012
  2,092
  2,177
  2,265
  2,358
  2,457
  2,560
  2,670
Retained Cash Flow (-), $m
  -350
  -307
  -348
  -388
  -429
  -469
  -509
  -548
  -586
  -623
  -659
  -695
  -730
  -764
  -799
  -833
  -868
  -903
  -939
  -976
  -1,015
  -1,054
  -1,096
  -1,139
  -1,185
  -1,232
  -1,282
  -1,335
  -1,391
  -1,449
  -1,511
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
 
  238
  266
  298
  329
  360
  390
  420
  449
  478
  505
  533
  559
  586
  612
  639
  665
  692
  720
  748
  778
  808
  840
  873
  908
  944
  983
  1,023
  1,066
  1,111
  1,158
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
 
  221
  228
  232
  233
  229
  221
  209
  195
  179
  161
  143
  124
  107
  90
  74
  60
  48
  37
  28
  21
  16
  11
  8
  5
  3
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  89.2
  80.5
  73.4
  67.6
  62.8
  58.7
  55.3
  52.5
  50.0
  48.0
  46.2
  44.7
  43.4
  42.2
  41.3
  40.4
  39.7
  39.1
  38.6
  38.1
  37.7
  37.4
  37.1
  36.9
  36.7
  36.6
  36.5
  36.4
  36.3
  36.3

Pure Industrial Real Estate Trust is an independent equity real estate investment trust. The firm acquires, owns, and operates a diversified portfolio of income producing industrial properties in primary industrial markets. It invests in the real estate markets of Canada. Pure Industrial Real Estate Trust was founded in June 2007 and is headquartered in Vancouver, Canada.

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

Valuation Ratios
P/E Ratio 11.2
Price to Sales 8.8
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 17
Price to Free Cash Flow -6.7
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 22.7% 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 7.8%, 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 270.03 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 $1.8 billion.

RELATED COMPANIES Price Int.Val. Rating
HBC Hudson's B 11.00 21.82  str.buy
Stock chart of AAR-UN 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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