Intrinsic value of Canadian Real Estate Investment Trust - REF-UN

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$49.03

  Intrinsic Value

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  Value-price divergence*

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$49.03

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

We calculate the intrinsic value of REF-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 3.6

 

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, %
  3.07
  4.60
  4.64
  4.68
  4.71
  4.74
  4.76
  4.79
  4.81
  4.83
  4.85
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
Revenue, $m
  437
  457
  478
  501
  524
  549
  575
  603
  632
  662
  694
  728
  764
  801
  840
  881
  925
  970
  1,018
  1,068
  1,121
  1,177
  1,235
  1,296
  1,361
  1,428
  1,499
  1,574
  1,652
  1,735
  1,821
Variable operating expenses, $m
 
  50
  53
  55
  58
  60
  63
  66
  69
  73
  76
  80
  84
  88
  92
  97
  102
  107
  112
  118
  123
  129
  136
  143
  150
  157
  165
  173
  182
  191
  200
Fixed operating expenses, $m
 
  196
  201
  206
  211
  216
  222
  227
  233
  239
  244
  251
  257
  263
  270
  277
  284
  291
  298
  305
  313
  321
  329
  337
  345
  354
  363
  372
  381
  391
  401
Total operating expenses, $m
  233
  246
  254
  261
  269
  276
  285
  293
  302
  312
  320
  331
  341
  351
  362
  374
  386
  398
  410
  423
  436
  450
  465
  480
  495
  511
  528
  545
  563
  582
  601
Operating income, $m
  204
  211
  225
  240
  256
  273
  290
  309
  330
  351
  373
  397
  423
  450
  478
  508
  539
  573
  608
  646
  685
  727
  770
  817
  866
  917
  971
  1,029
  1,089
  1,153
  1,220
EBITDA, $m
  204
  211
  225
  240
  256
  273
  290
  309
  330
  351
  373
  397
  423
  450
  478
  508
  539
  573
  608
  646
  685
  727
  770
  817
  866
  917
  971
  1,029
  1,089
  1,153
  1,220
Interest expense (income), $m
  78
  79
  83
  87
  92
  96
  101
  106
  111
  117
  123
  129
  136
  143
  150
  158
  166
  174
  183
  192
  202
  212
  223
  234
  246
  259
  272
  286
  300
  316
  332
Earnings before tax, $m
  140
  132
  142
  153
  164
  176
  190
  203
  218
  234
  251
  268
  287
  307
  328
  350
  374
  399
  425
  453
  483
  514
  547
  582
  619
  658
  700
  743
  789
  837
  888
Tax expense, $m
  4
  36
  38
  41
  44
  48
  51
  55
  59
  63
  68
  72
  77
  83
  89
  95
  101
  108
  115
  122
  130
  139
  148
  157
  167
  178
  189
  201
  213
  226
  240
Net income, $m
  136
  96
  104
  111
  120
  129
  138
  148
  159
  171
  183
  196
  209
  224
  239
  256
  273
  291
  311
  331
  353
  375
  400
  425
  452
  481
  511
  542
  576
  611
  649

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  18
  0
  0
  0
  0
  0
  0
  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
  5,487
  5,714
  5,979
  6,258
  6,553
  6,864
  7,191
  7,535
  7,897
  8,278
  8,679
  9,101
  9,545
  10,011
  10,502
  11,017
  11,559
  12,129
  12,727
  13,356
  14,016
  14,710
  15,439
  16,205
  17,010
  17,855
  18,742
  19,674
  20,654
  21,682
  22,762
Adjusted assets (=assets-cash), $m
  5,469
  5,714
  5,979
  6,258
  6,553
  6,864
  7,191
  7,535
  7,897
  8,278
  8,679
  9,101
  9,545
  10,011
  10,502
  11,017
  11,559
  12,129
  12,727
  13,356
  14,016
  14,710
  15,439
  16,205
  17,010
  17,855
  18,742
  19,674
  20,654
  21,682
  22,762
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
  174
  182
  190
  199
  209
  219
  229
  240
  252
  264
  277
  290
  304
  319
  335
  351
  369
  387
  406
  426
  447
  469
  493
  517
  543
  570
  598
  628
  659
  692
Total debt, $m
  2,001
  2,077
  2,180
  2,289
  2,403
  2,524
  2,651
  2,785
  2,926
  3,074
  3,230
  3,394
  3,567
  3,748
  3,939
  4,140
  4,351
  4,572
  4,805
  5,049
  5,306
  5,576
  5,860
  6,158
  6,471
  6,799
  7,145
  7,507
  7,888
  8,288
  8,708
Total liabilities, $m
  2,147
  2,223
  2,326
  2,435
  2,549
  2,670
  2,797
  2,931
  3,072
  3,220
  3,376
  3,540
  3,713
  3,894
  4,085
  4,286
  4,497
  4,718
  4,951
  5,195
  5,452
  5,722
  6,006
  6,304
  6,617
  6,945
  7,291
  7,653
  8,034
  8,434
  8,854
Total equity, $m
  3,340
  3,491
  3,653
  3,824
  4,004
  4,194
  4,393
  4,604
  4,825
  5,058
  5,303
  5,561
  5,832
  6,117
  6,417
  6,732
  7,063
  7,411
  7,776
  8,160
  8,564
  8,988
  9,433
  9,901
  10,393
  10,909
  11,451
  12,021
  12,619
  13,248
  13,908
Total liabilities and equity, $m
  5,487
  5,714
  5,979
  6,259
  6,553
  6,864
  7,190
  7,535
  7,897
  8,278
  8,679
  9,101
  9,545
  10,011
  10,502
  11,018
  11,560
  12,129
  12,727
  13,355
  14,016
  14,710
  15,439
  16,205
  17,010
  17,854
  18,742
  19,674
  20,653
  21,682
  22,762
Debt-to-equity ratio
  0.599
  0.590
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.630
  0.630
  0.630
Adjusted equity ratio
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611
  0.611

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  136
  96
  104
  111
  120
  129
  138
  148
  159
  171
  183
  196
  209
  224
  239
  256
  273
  291
  311
  331
  353
  375
  400
  425
  452
  481
  511
  542
  576
  611
  649
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
  130
  96
  104
  111
  120
  129
  138
  148
  159
  171
  183
  196
  209
  224
  239
  256
  273
  291
  311
  331
  353
  375
  400
  425
  452
  481
  511
  542
  576
  611
  649
Change in working capital, $m
  -61
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
Cash from operations, $m
  191
  89
  96
  103
  111
  119
  128
  138
  148
  159
  171
  183
  196
  210
  224
  240
  256
  274
  292
  312
  333
  354
  377
  402
  428
  455
  484
  514
  546
  580
  616
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
  -120
  0
  0
  0
  0
  0
  0
  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
  -121
  0
  0
  0
  0
  0
  0
  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
  70
  89
  96
  103
  111
  119
  128
  138
  148
  159
  171
  183
  196
  210
  224
  240
  256
  274
  292
  312
  333
  354
  377
  402
  428
  455
  484
  514
  546
  580
  616
Issuance/(repayment) of debt, $m
  57
  94
  103
  109
  115
  121
  127
  134
  141
  148
  156
  164
  173
  181
  191
  201
  211
  221
  233
  245
  257
  270
  284
  298
  313
  329
  345
  363
  381
  400
  420
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  54
  94
  103
  109
  115
  121
  127
  134
  141
  148
  156
  164
  173
  181
  191
  201
  211
  221
  233
  245
  257
  270
  284
  298
  313
  329
  345
  363
  381
  400
  420
Total cash flow (excl. dividends), $m
  124
  182
  199
  212
  226
  240
  256
  272
  289
  307
  327
  347
  369
  391
  415
  441
  467
  495
  525
  556
  589
  624
  661
  700
  741
  784
  829
  877
  927
  980
  1,036
Retained Cash Flow (-), $m
  -12
  -151
  -162
  -171
  -180
  -190
  -200
  -210
  -221
  -233
  -245
  -258
  -271
  -285
  -300
  -315
  -331
  -348
  -366
  -384
  -404
  -424
  -445
  -468
  -492
  -516
  -542
  -570
  -598
  -628
  -660
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
 
  31
  37
  41
  46
  50
  56
  62
  68
  74
  82
  89
  98
  106
  116
  126
  136
  147
  160
  172
  186
  200
  216
  232
  249
  267
  287
  307
  329
  352
  376
Discount rate, %
 
  7.50
  7.88
  8.27
  8.68
  9.12
  9.57
  10.05
  10.55
  11.08
  11.63
  12.22
  12.83
  13.47
  14.14
  14.85
  15.59
  16.37
  17.19
  18.05
  18.95
  19.90
  20.89
  21.94
  23.04
  24.19
  25.40
  26.67
  28.00
  29.40
  30.87
PV of cash for distribution, $m
 
  29
  32
  32
  33
  33
  32
  32
  30
  29
  27
  25
  23
  21
  18
  16
  13
  11
  9
  7
  6
  4
  3
  2
  2
  1
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Canadian Real Estate Investment Trust (CREIT) operates as a closed-end real estate investment trust in Canada. It owns and manages a real estate portfolio consisting of retail properties, such as food-store-anchored strip plazas and shopping centers; industrial properties, such as distribution facilities, warehouses, and buildings; and office properties. As of December 31, 2007, the trust owned approximately 149 properties. CREIT was founded in 1984 and is based in Toronto, Canada.

FINANCIAL RATIOS  of  Canadian Real Estate Investment Trust (REF-UN)

Valuation Ratios
P/E Ratio 26.4
Price to Sales 8.2
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 18.8
Price to Free Cash Flow 50.6
Growth Rates
Sales Growth Rate 3.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 130.8%
Cap. Spend. - 3 Yr. Gr. Rate -4.2%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 54.4%
Total Debt to Equity 59.9%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 2.6%
Ret/ On T. Cap. - 3 Yr. Avg. 3%
Return On Equity 4.1%
Return On Equity - 3 Yr. Avg. 4.8%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 86.3%
Gross Margin - 3 Yr. Avg. 86.2%
EBITDA Margin 49.9%
EBITDA Margin - 3 Yr. Avg. 57.2%
Operating Margin 46.7%
Oper. Margin - 3 Yr. Avg. 45.3%
Pre-Tax Margin 32%
Pre-Tax Margin - 3 Yr. Avg. 37.8%
Net Profit Margin 31.1%
Net Profit Margin - 3 Yr. Avg. 37.2%
Effective Tax Rate 2.9%
Eff/ Tax Rate - 3 Yr. Avg. 1.9%
Payout Ratio 90.4%

REF-UN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the REF-UN stock intrinsic value calculation we used $437 million for the last fiscal year's total revenue generated by Canadian Real Estate Investment Trust. The default revenue input number comes from 2016 income statement of Canadian 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 REF-UN stock valuation model: a) initial revenue growth rate of 4.6% 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 7.5%, whose default value for REF-UN is calculated based on our internal credit rating of Canadian 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 Canadian 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 REF-UN stock the variable cost ratio is equal to 11%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $191 million in the base year in the intrinsic value calculation for REF-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% for Canadian Real Estate Investment Trust.

Corporate tax rate of 27% is the nominal tax rate for Canadian 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 REF-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 REF-UN are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Canadian 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 REF-UN is equal to 38%. 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 - $3340 million for Canadian 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 73.076 million for Canadian 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 Canadian Real Estate Investment Trust at the current share price and the inputted number of shares is $3.6 billion.


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Stock chart of REF-UN Financial statements of REF-UN
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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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