Intrinsic value of H&R Real Estate Investment Trust - HR-UN

Previous Close

$21.14

  Intrinsic Value

$7.23

stock screener

  Rating & Target

str. sell

-66%

Previous close

$21.14

 
Intrinsic value

$7.23

 
Up/down potential

-66%

 
Rating

str. sell

We calculate the intrinsic value of HR-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 6.1

 

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, %
  0.67
  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
  1,196
  1,220
  1,248
  1,280
  1,316
  1,356
  1,400
  1,447
  1,499
  1,555
  1,614
  1,678
  1,746
  1,819
  1,896
  1,978
  2,064
  2,156
  2,253
  2,355
  2,464
  2,578
  2,698
  2,825
  2,959
  3,100
  3,248
  3,404
  3,569
  3,741
  3,923
Variable operating expenses, $m
 
  575
  588
  603
  620
  639
  659
  682
  706
  732
  760
  790
  822
  857
  893
  931
  972
  1,015
  1,061
  1,109
  1,160
  1,214
  1,271
  1,331
  1,394
  1,460
  1,530
  1,603
  1,681
  1,762
  1,848
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
  358
  575
  588
  603
  620
  639
  659
  682
  706
  732
  760
  790
  822
  857
  893
  931
  972
  1,015
  1,061
  1,109
  1,160
  1,214
  1,271
  1,331
  1,394
  1,460
  1,530
  1,603
  1,681
  1,762
  1,848
Operating income, $m
  838
  645
  660
  677
  696
  717
  740
  766
  793
  822
  854
  888
  924
  962
  1,003
  1,046
  1,092
  1,140
  1,192
  1,246
  1,303
  1,364
  1,427
  1,495
  1,565
  1,640
  1,718
  1,801
  1,888
  1,979
  2,075
EBITDA, $m
  838
  645
  660
  677
  696
  717
  740
  766
  793
  822
  854
  888
  924
  962
  1,003
  1,046
  1,092
  1,140
  1,192
  1,246
  1,303
  1,364
  1,427
  1,495
  1,565
  1,640
  1,718
  1,801
  1,888
  1,979
  2,075
Interest expense (income), $m
  300
  292
  298
  307
  316
  326
  338
  350
  364
  379
  395
  412
  430
  450
  471
  493
  517
  542
  568
  596
  626
  657
  690
  724
  761
  799
  840
  883
  928
  975
  1,025
Earnings before tax, $m
  590
  353
  362
  371
  380
  391
  403
  415
  429
  444
  459
  476
  493
  512
  532
  553
  575
  599
  624
  650
  678
  707
  738
  770
  804
  840
  878
  918
  960
  1,004
  1,051
Tax expense, $m
  201
  95
  98
  100
  103
  106
  109
  112
  116
  120
  124
  128
  133
  138
  144
  149
  155
  162
  168
  176
  183
  191
  199
  208
  217
  227
  237
  248
  259
  271
  284
Net income, $m
  389
  258
  264
  271
  278
  286
  294
  303
  313
  324
  335
  347
  360
  374
  388
  404
  420
  437
  455
  475
  495
  516
  539
  562
  587
  614
  641
  670
  701
  733
  767

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  48
  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
  14,155
  14,352
  14,682
  15,059
  15,483
  15,952
  16,467
  17,028
  17,635
  18,289
  18,991
  19,742
  20,543
  21,397
  22,303
  23,265
  24,285
  25,364
  26,505
  27,711
  28,985
  30,328
  31,745
  33,238
  34,812
  36,469
  38,214
  40,051
  41,984
  44,017
  46,155
Adjusted assets (=assets-cash), $m
  14,107
  14,352
  14,682
  15,059
  15,483
  15,952
  16,467
  17,028
  17,635
  18,289
  18,991
  19,742
  20,543
  21,397
  22,303
  23,265
  24,285
  25,364
  26,505
  27,711
  28,985
  30,328
  31,745
  33,238
  34,812
  36,469
  38,214
  40,051
  41,984
  44,017
  46,155
Revenue / Adjusted assets
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
  0.085
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
  610
  624
  640
  658
  678
  700
  724
  750
  777
  807
  839
  873
  909
  948
  989
  1,032
  1,078
  1,126
  1,178
  1,232
  1,289
  1,349
  1,413
  1,480
  1,550
  1,624
  1,702
  1,784
  1,871
  1,962
Total debt, $m
  6,141
  6,219
  6,387
  6,579
  6,795
  7,035
  7,297
  7,583
  7,893
  8,227
  8,585
  8,968
  9,376
  9,811
  10,274
  10,764
  11,284
  11,835
  12,417
  13,032
  13,681
  14,366
  15,089
  15,851
  16,653
  17,498
  18,388
  19,325
  20,311
  21,348
  22,438
Total liabilities, $m
  7,242
  7,320
  7,488
  7,680
  7,896
  8,136
  8,398
  8,684
  8,994
  9,328
  9,686
  10,069
  10,477
  10,912
  11,375
  11,865
  12,385
  12,936
  13,518
  14,133
  14,782
  15,467
  16,190
  16,952
  17,754
  18,599
  19,489
  20,426
  21,412
  22,449
  23,539
Total equity, $m
  6,913
  7,032
  7,194
  7,379
  7,587
  7,817
  8,069
  8,344
  8,641
  8,962
  9,306
  9,674
  10,066
  10,484
  10,929
  11,400
  11,900
  12,428
  12,988
  13,579
  14,202
  14,861
  15,555
  16,287
  17,058
  17,870
  18,725
  19,625
  20,572
  21,568
  22,616
Total liabilities and equity, $m
  14,155
  14,352
  14,682
  15,059
  15,483
  15,953
  16,467
  17,028
  17,635
  18,290
  18,992
  19,743
  20,543
  21,396
  22,304
  23,265
  24,285
  25,364
  26,506
  27,712
  28,984
  30,328
  31,745
  33,239
  34,812
  36,469
  38,214
  40,051
  41,984
  44,017
  46,155
Debt-to-equity ratio
  0.888
  0.880
  0.890
  0.890
  0.900
  0.900
  0.900
  0.910
  0.910
  0.920
  0.920
  0.930
  0.930
  0.940
  0.940
  0.940
  0.950
  0.950
  0.960
  0.960
  0.960
  0.970
  0.970
  0.970
  0.980
  0.980
  0.980
  0.980
  0.990
  0.990
  0.990
Adjusted equity ratio
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  389
  258
  264
  271
  278
  286
  294
  303
  313
  324
  335
  347
  360
  374
  388
  404
  420
  437
  455
  475
  495
  516
  539
  562
  587
  614
  641
  670
  701
  733
  767
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
  84
  258
  264
  271
  278
  286
  294
  303
  313
  324
  335
  347
  360
  374
  388
  404
  420
  437
  455
  475
  495
  516
  539
  562
  587
  614
  641
  670
  701
  733
  767
Change in working capital, $m
  -340
  12
  14
  16
  18
  20
  22
  24
  26
  28
  30
  32
  34
  36
  39
  41
  43
  46
  49
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  86
  91
Cash from operations, $m
  424
  246
  250
  254
  260
  266
  272
  279
  287
  296
  305
  315
  326
  338
  350
  363
  377
  391
  407
  423
  441
  459
  478
  499
  520
  543
  567
  592
  619
  647
  676
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
  -404
  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
  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
  423
  246
  250
  254
  260
  266
  272
  279
  287
  296
  305
  315
  326
  338
  350
  363
  377
  391
  407
  423
  441
  459
  478
  499
  520
  543
  567
  592
  619
  647
  676
Issuance/(repayment) of debt, $m
  -137
  126
  168
  192
  216
  239
  263
  286
  310
  334
  358
  383
  409
  435
  462
  491
  520
  550
  582
  615
  649
  685
  723
  762
  803
  845
  890
  937
  986
  1,037
  1,091
Issuance/(repurchase) of shares, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  9
  21
  33
  44
  56
  68
  80
  92
  104
  116
  129
  142
  156
  169
  184
  199
  214
  230
  246
  263
  281
Cash from financing (excl. dividends), $m  
  -139
  126
  168
  192
  216
  239
  263
  286
  310
  334
  367
  404
  442
  479
  518
  559
  600
  642
  686
  731
  778
  827
  879
  931
  987
  1,044
  1,104
  1,167
  1,232
  1,300
  1,372
Total cash flow (excl. dividends), $m
  284
  371
  418
  447
  476
  505
  535
  565
  597
  630
  672
  719
  767
  817
  868
  921
  976
  1,033
  1,093
  1,155
  1,219
  1,286
  1,357
  1,430
  1,507
  1,587
  1,671
  1,759
  1,851
  1,947
  2,048
Retained Cash Flow (-), $m
  -88
  -119
  -162
  -185
  -208
  -230
  -252
  -275
  -297
  -320
  -344
  -368
  -393
  -418
  -444
  -471
  -500
  -529
  -559
  -591
  -624
  -658
  -694
  -732
  -771
  -812
  -855
  -900
  -947
  -996
  -1,048
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
 
  252
  257
  262
  268
  275
  282
  291
  299
  309
  328
  351
  375
  399
  424
  450
  477
  505
  534
  564
  595
  628
  662
  698
  736
  775
  816
  859
  904
  951
  1,000
Discount rate, %
 
  8.30
  8.72
  9.15
  9.61
  10.09
  10.59
  11.12
  11.68
  12.26
  12.88
  13.52
  14.20
  14.91
  15.65
  16.43
  17.26
  18.12
  19.02
  19.97
  20.97
  22.02
  23.12
  24.28
  25.49
  26.77
  28.11
  29.51
  30.99
  32.54
  34.16
PV of cash for distribution, $m
 
  232
  217
  201
  186
  170
  154
  139
  124
  109
  98
  87
  76
  66
  55
  46
  37
  30
  23
  18
  13
  10
  7
  5
  3
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  99.9
  99.6
  99.3
  98.8
  98.2
  97.5
  96.7
  95.9
  95.0
  94.1
  93.1
  92.0
  91.0
  89.9
  88.7
  87.6
  86.4
  85.2
  84.1
  82.9
  81.7

H&R Real Estate Investment Trust is a Canada-based open-ended real estate investment trust. The Trust's primary objectives are to provide unitholders with stable and growing cash distributions, generated by the revenue it derives from a diversified portfolio of income producing real estate assets, and to maximize unit value through ongoing active management of its assets, acquisition of additional properties and the development and construction of projects, which are pre-leased to creditworthy tenants. Its segments include Office, Primaris, H&R Retail, ECHO, Industrial and Lantower Residential. The Trust owns, operates and develops commercial and residential properties across Canada and in the United States. Its subsidiaries include Bow Centre Street Limited Partnership, H&R Portfolio Limited Partnership, H&R REIT Management Services Limited Partnership, H&R REIT (U.S.) Holdings Inc., Primaris Management Inc. and PRR Trust.

FINANCIAL RATIOS  of  H&R Real Estate Investment Trust (HR-UN)

Valuation Ratios
P/E Ratio 15.5
Price to Sales 5
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 14.2
Price to Free Cash Flow 301.5
Growth Rates
Sales Growth Rate 0.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 16.8%
Cap. Spend. - 3 Yr. Gr. Rate 8.9%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 79.5%
Total Debt to Equity 88.8%
Interest Coverage 3
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 4.6%
Return On Total Capital 3%
Ret/ On T. Cap. - 3 Yr. Avg. 3%
Return On Equity 5.7%
Return On Equity - 3 Yr. Avg. 5.8%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 64%
Gross Margin - 3 Yr. Avg. 64.8%
EBITDA Margin 74.4%
EBITDA Margin - 3 Yr. Avg. 64.2%
Operating Margin 70.1%
Oper. Margin - 3 Yr. Avg. 61.5%
Pre-Tax Margin 49.3%
Pre-Tax Margin - 3 Yr. Avg. 39.7%
Net Profit Margin 32.5%
Net Profit Margin - 3 Yr. Avg. 31.9%
Effective Tax Rate 34.1%
Eff/ Tax Rate - 3 Yr. Avg. 17.6%
Payout Ratio 70.4%

HR-UN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HR-UN stock intrinsic value calculation we used $1196 million for the last fiscal year's total revenue generated by H&R Real Estate Investment Trust. The default revenue input number comes from 2016 income statement of H&R 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 HR-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 8.3%, whose default value for HR-UN is calculated based on our internal credit rating of H&R 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 H&R 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 HR-UN stock the variable cost ratio is equal to 47.1%.

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 HR-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 4.8% for H&R Real Estate Investment Trust.

Corporate tax rate of 27% is the nominal tax rate for H&R 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 HR-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 HR-UN are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in H&R 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 HR-UN is equal to 50%. 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 - $6913 million for H&R 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 290.472 million for H&R 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 H&R Real Estate Investment Trust at the current share price and the inputted number of shares is $6.1 billion.

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Financial statements of HR-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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