Intrinsic value of Artis Real Estate Investment Trust - AX-UN

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$13.27

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$13.27

 
Intrinsic value

$4.37

 
Up/down potential

-67%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of AX-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, %
  2.43
  2.90
  3.11
  3.30
  3.47
  3.62
  3.76
  3.88
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
Revenue, $m
  549
  565
  582
  602
  623
  645
  669
  695
  723
  753
  784
  818
  853
  891
  931
  973
  1,017
  1,064
  1,114
  1,166
  1,221
  1,279
  1,340
  1,404
  1,471
  1,542
  1,617
  1,696
  1,779
  1,866
  1,957
Variable operating expenses, $m
 
  749
  772
  798
  826
  855
  888
  922
  959
  998
  1,040
  1,084
  1,131
  1,181
  1,234
  1,290
  1,349
  1,411
  1,477
  1,546
  1,619
  1,695
  1,776
  1,861
  1,951
  2,045
  2,145
  2,249
  2,359
  2,474
  2,595
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
  433
  749
  772
  798
  826
  855
  888
  922
  959
  998
  1,040
  1,084
  1,131
  1,181
  1,234
  1,290
  1,349
  1,411
  1,477
  1,546
  1,619
  1,695
  1,776
  1,861
  1,951
  2,045
  2,145
  2,249
  2,359
  2,474
  2,595
Operating income, $m
  117
  -184
  -190
  -196
  -203
  -210
  -218
  -227
  -236
  -245
  -256
  -267
  -278
  -290
  -303
  -317
  -332
  -347
  -363
  -380
  -398
  -417
  -437
  -458
  -480
  -503
  -527
  -553
  -580
  -608
  -638
EBITDA, $m
  118
  -183
  -189
  -195
  -202
  -210
  -217
  -226
  -235
  -245
  -255
  -266
  -277
  -289
  -302
  -316
  -330
  -346
  -362
  -379
  -396
  -415
  -435
  -456
  -478
  -501
  -525
  -551
  -578
  -606
  -636
Interest expense (income), $m
  109
  104
  108
  111
  115
  119
  124
  129
  134
  139
  145
  152
  158
  165
  173
  181
  189
  198
  207
  217
  228
  239
  250
  262
  275
  289
  303
  318
  334
  350
  367
Earnings before tax, $m
  117
  -289
  -298
  -307
  -318
  -330
  -342
  -355
  -370
  -385
  -401
  -418
  -436
  -456
  -476
  -498
  -521
  -545
  -570
  -597
  -626
  -655
  -687
  -720
  -755
  -792
  -830
  -871
  -913
  -958
  -1,005
Tax expense, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  116
  -289
  -298
  -307
  -318
  -330
  -342
  -355
  -370
  -385
  -401
  -418
  -436
  -456
  -476
  -498
  -521
  -545
  -570
  -597
  -626
  -655
  -687
  -720
  -755
  -792
  -830
  -871
  -913
  -958
  -1,005

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
  5,493
  5,593
  5,767
  5,957
  6,164
  6,387
  6,628
  6,885
  7,160
  7,453
  7,765
  8,097
  8,448
  8,821
  9,215
  9,631
  10,071
  10,535
  11,025
  11,542
  12,086
  12,659
  13,263
  13,899
  14,568
  15,272
  16,013
  16,792
  17,611
  18,472
  19,377
Adjusted assets (=assets-cash), $m
  5,434
  5,593
  5,767
  5,957
  6,164
  6,387
  6,628
  6,885
  7,160
  7,453
  7,765
  8,097
  8,448
  8,821
  9,215
  9,631
  10,071
  10,535
  11,025
  11,542
  12,086
  12,659
  13,263
  13,899
  14,568
  15,272
  16,013
  16,792
  17,611
  18,472
  19,377
Revenue / Adjusted assets
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
Average production assets, $m
  4
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
Working capital, $m
  -815
  25
  26
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  78
  82
  86
Total debt, $m
  2,737
  2,763
  2,853
  2,951
  3,058
  3,173
  3,297
  3,431
  3,573
  3,724
  3,886
  4,057
  4,239
  4,431
  4,635
  4,850
  5,078
  5,318
  5,571
  5,838
  6,119
  6,416
  6,728
  7,057
  7,403
  7,767
  8,150
  8,552
  8,976
  9,421
  9,889
Total liabilities, $m
  2,865
  2,892
  2,982
  3,080
  3,187
  3,302
  3,426
  3,560
  3,702
  3,853
  4,015
  4,186
  4,368
  4,560
  4,764
  4,979
  5,207
  5,447
  5,700
  5,967
  6,248
  6,545
  6,857
  7,186
  7,532
  7,896
  8,279
  8,681
  9,105
  9,550
  10,018
Total equity, $m
  2,627
  2,702
  2,786
  2,877
  2,977
  3,085
  3,201
  3,325
  3,458
  3,600
  3,751
  3,911
  4,081
  4,260
  4,451
  4,652
  4,864
  5,089
  5,325
  5,575
  5,838
  6,115
  6,406
  6,713
  7,036
  7,376
  7,734
  8,110
  8,506
  8,922
  9,359
Total liabilities and equity, $m
  5,492
  5,594
  5,768
  5,957
  6,164
  6,387
  6,627
  6,885
  7,160
  7,453
  7,766
  8,097
  8,449
  8,820
  9,215
  9,631
  10,071
  10,536
  11,025
  11,542
  12,086
  12,660
  13,263
  13,899
  14,568
  15,272
  16,013
  16,791
  17,611
  18,472
  19,377
Debt-to-equity ratio
  1.042
  1.020
  1.020
  1.030
  1.030
  1.030
  1.030
  1.030
  1.030
  1.030
  1.040
  1.040
  1.040
  1.040
  1.040
  1.040
  1.040
  1.050
  1.050
  1.050
  1.050
  1.050
  1.050
  1.050
  1.050
  1.050
  1.050
  1.050
  1.060
  1.060
  1.060
Adjusted equity ratio
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  116
  -289
  -298
  -307
  -318
  -330
  -342
  -355
  -370
  -385
  -401
  -418
  -436
  -456
  -476
  -498
  -521
  -545
  -570
  -597
  -626
  -655
  -687
  -720
  -755
  -792
  -830
  -871
  -913
  -958
  -1,005
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
Funds from operations, $m
  271
  -288
  -297
  -307
  -317
  -329
  -341
  -354
  -369
  -384
  -400
  -417
  -435
  -455
  -475
  -497
  -520
  -544
  -569
  -596
  -624
  -654
  -685
  -718
  -753
  -790
  -828
  -869
  -911
  -956
  -1,003
Change in working capital, $m
  19
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
Cash from operations, $m
  252
  -288
  -298
  -308
  -318
  -330
  -342
  -356
  -370
  -385
  -401
  -419
  -437
  -456
  -477
  -499
  -521
  -546
  -571
  -598
  -627
  -656
  -688
  -721
  -756
  -793
  -831
  -872
  -915
  -960
  -1,007
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
New CAPEX, $m
  -82
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
Cash from investing activities, $m
  -32
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
Free cash flow, $m
  220
  -289
  -298
  -308
  -319
  -331
  -343
  -357
  -371
  -386
  -402
  -420
  -438
  -458
  -478
  -500
  -523
  -547
  -573
  -600
  -628
  -658
  -690
  -723
  -758
  -795
  -834
  -875
  -917
  -963
  -1,010
Issuance/(repayment) of debt, $m
  -194
  85
  90
  98
  107
  115
  124
  133
  142
  152
  161
  171
  182
  192
  204
  215
  227
  240
  253
  267
  281
  296
  312
  329
  346
  364
  383
  403
  423
  445
  468
Issuance/(repurchase) of shares, $m
  143
  279
  293
  302
  312
  323
  335
  348
  362
  376
  392
  409
  426
  445
  465
  486
  508
  531
  556
  582
  610
  639
  669
  702
  735
  771
  809
  848
  890
  933
  979
Cash from financing (excl. dividends), $m  
  -52
  364
  383
  400
  419
  438
  459
  481
  504
  528
  553
  580
  608
  637
  669
  701
  735
  771
  809
  849
  891
  935
  981
  1,031
  1,081
  1,135
  1,192
  1,251
  1,313
  1,378
  1,447
Total cash flow (excl. dividends), $m
  162
  -204
  -209
  -210
  -212
  -215
  -219
  -223
  -229
  -235
  -241
  -248
  -256
  -265
  -274
  -285
  -295
  -307
  -320
  -333
  -347
  -362
  -378
  -394
  -412
  -431
  -451
  -472
  -494
  -517
  -542
Retained Cash Flow (-), $m
  -59
  -75
  -84
  -92
  -100
  -108
  -116
  -124
  -133
  -142
  -151
  -160
  -170
  -180
  -190
  -201
  -212
  -224
  -237
  -249
  -263
  -277
  -292
  -307
  -323
  -340
  -358
  -376
  -396
  -416
  -437
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
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for 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
Current shareholders' claim on cash, %
  100
  87.7
  76.8
  67.2
  58.8
  51.4
  45.0
  39.4
  34.4
  30.1
  26.3
  23.0
  20.1
  17.6
  15.4
  13.5
  11.8
  10.3
  9.0
  7.9
  6.9
  6.0
  5.2
  4.6
  4.0
  3.5
  3.1
  2.7
  2.3
  2.0
  1.8

Artis Real Estate Investment Trust operates as a closed-end real estate investment trust in Canada. It engages in the acquisition and operation of commercial/retail and light-industrial properties in western Canada. The company, formerly known as Westfield Real Estate Investment Trust, was founded in 2003 and is based in Winnipeg, Manitoba.

FINANCIAL RATIOS  of  Artis Real Estate Investment Trust (AX-UN)

Valuation Ratios
P/E Ratio 17.2
Price to Sales 3.6
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 7.9
Price to Free Cash Flow 11.7
Growth Rates
Sales Growth Rate 2.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 39%
Cap. Spend. - 3 Yr. Gr. Rate 6.1%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 70%
Total Debt to Equity 104.2%
Interest Coverage 2
Management Effectiveness
Return On Assets 4.1%
Ret/ On Assets - 3 Yr. Avg. 2.9%
Return On Total Capital 2.2%
Ret/ On T. Cap. - 3 Yr. Avg. 0.9%
Return On Equity 4.5%
Return On Equity - 3 Yr. Avg. 1.8%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 61.2%
Gross Margin - 3 Yr. Avg. 61.9%
EBITDA Margin 41.3%
EBITDA Margin - 3 Yr. Avg. 30.3%
Operating Margin 21.1%
Oper. Margin - 3 Yr. Avg. 9.3%
Pre-Tax Margin 21.3%
Pre-Tax Margin - 3 Yr. Avg. 9.3%
Net Profit Margin 21.1%
Net Profit Margin - 3 Yr. Avg. 9.3%
Effective Tax Rate 0.9%
Eff/ Tax Rate - 3 Yr. Avg. 0.3%
Payout Ratio 153.4%

AX-UN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AX-UN stock intrinsic value calculation we used $549 million for the last fiscal year's total revenue generated by Artis Real Estate Investment Trust. The default revenue input number comes from 2016 income statement of Artis 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 AX-UN stock valuation model: a) initial revenue growth rate of 2.9% 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 9%, whose default value for AX-UN is calculated based on our internal credit rating of Artis 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 Artis 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 AX-UN stock the variable cost ratio is equal to 132.6%.

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 AX-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 Artis Real Estate Investment Trust.

Corporate tax rate of 27% is the nominal tax rate for Artis 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 AX-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 AX-UN are equal to 0.6%.

Life of production assets of 3.5 years is the average useful life of capital assets used in Artis 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 AX-UN is equal to 4.4%. 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 - $2627 million for Artis 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 150.228 million for Artis 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 Artis Real Estate Investment Trust at the current share price and the inputted number of shares is $2.0 billion.


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Stock chart of AX-UN Financial statements of AX-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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