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

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$48.89

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$48.89

 
Intrinsic value

$11.35

 
Up/down potential

-77%

 
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 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
  6.60
  6.44
  6.30
  6.17
  6.05
  5.94
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.18
  5.16
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.08
Revenue, $m
  437
  466
  496
  527
  560
  593
  629
  665
  704
  744
  786
  829
  875
  923
  973
  1,025
  1,079
  1,137
  1,196
  1,259
  1,325
  1,394
  1,466
  1,541
  1,621
  1,704
  1,791
  1,882
  1,978
  2,079
  2,184
Variable operating expenses, $m
 
  51
  55
  58
  62
  65
  69
  73
  77
  82
  86
  91
  96
  101
  107
  113
  119
  125
  132
  139
  146
  153
  161
  170
  178
  187
  197
  207
  218
  229
  240
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
  247
  256
  264
  273
  281
  291
  300
  310
  321
  330
  342
  353
  364
  377
  390
  403
  416
  430
  444
  459
  474
  490
  507
  523
  541
  560
  579
  599
  620
  641
Operating income, $m
  204
  219
  241
  263
  287
  312
  338
  365
  394
  424
  455
  488
  522
  558
  596
  635
  677
  721
  767
  815
  866
  919
  976
  1,035
  1,097
  1,162
  1,231
  1,303
  1,379
  1,459
  1,543
EBITDA, $m
  204
  219
  241
  263
  287
  312
  338
  365
  394
  424
  455
  488
  522
  558
  596
  635
  677
  721
  767
  815
  866
  919
  976
  1,035
  1,097
  1,162
  1,231
  1,303
  1,379
  1,459
  1,543
Interest expense (income), $m
  78
  79
  85
  91
  97
  103
  110
  116
  124
  131
  139
  147
  155
  164
  174
  183
  193
  204
  215
  227
  239
  252
  265
  279
  294
  309
  326
  342
  360
  379
  398
Earnings before tax, $m
  140
  140
  156
  173
  191
  209
  228
  249
  270
  292
  316
  341
  366
  394
  422
  452
  484
  517
  552
  588
  627
  668
  710
  755
  803
  853
  905
  961
  1,019
  1,080
  1,145
Tax expense, $m
  4
  38
  42
  47
  51
  56
  62
  67
  73
  79
  85
  92
  99
  106
  114
  122
  131
  140
  149
  159
  169
  180
  192
  204
  217
  230
  244
  259
  275
  292
  309
Net income, $m
  136
  102
  114
  126
  139
  153
  167
  182
  197
  213
  231
  249
  267
  287
  308
  330
  353
  377
  403
  430
  458
  487
  519
  551
  586
  623
  661
  701
  744
  789
  836

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
  5,823
  6,198
  6,588
  6,995
  7,418
  7,859
  8,318
  8,798
  9,298
  9,821
  10,367
  10,937
  11,534
  12,157
  12,809
  13,492
  14,207
  14,955
  15,739
  16,560
  17,420
  18,321
  19,266
  20,257
  21,296
  22,385
  23,527
  24,725
  25,982
  27,301
Adjusted assets (=assets-cash), $m
  5,469
  5,823
  6,198
  6,588
  6,995
  7,418
  7,859
  8,318
  8,798
  9,298
  9,821
  10,367
  10,937
  11,534
  12,157
  12,809
  13,492
  14,207
  14,955
  15,739
  16,560
  17,420
  18,321
  19,266
  20,257
  21,296
  22,385
  23,527
  24,725
  25,982
  27,301
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
  177
  188
  200
  213
  225
  239
  253
  267
  283
  299
  315
  332
  351
  370
  389
  410
  432
  455
  478
  503
  530
  557
  586
  616
  647
  680
  715
  752
  790
  830
Total debt, $m
  2,001
  2,119
  2,265
  2,417
  2,575
  2,739
  2,911
  3,090
  3,276
  3,471
  3,674
  3,887
  4,109
  4,341
  4,583
  4,837
  5,102
  5,380
  5,671
  5,976
  6,296
  6,630
  6,981
  7,349
  7,734
  8,138
  8,562
  9,006
  9,472
  9,961
  10,474
Total liabilities, $m
  2,147
  2,265
  2,411
  2,563
  2,721
  2,885
  3,057
  3,236
  3,422
  3,617
  3,820
  4,033
  4,255
  4,487
  4,729
  4,983
  5,248
  5,526
  5,817
  6,122
  6,442
  6,776
  7,127
  7,495
  7,880
  8,284
  8,708
  9,152
  9,618
  10,107
  10,620
Total equity, $m
  3,340
  3,558
  3,787
  4,025
  4,274
  4,532
  4,802
  5,083
  5,376
  5,681
  6,001
  6,334
  6,683
  7,047
  7,428
  7,827
  8,244
  8,680
  9,138
  9,616
  10,118
  10,644
  11,194
  11,772
  12,377
  13,012
  13,677
  14,375
  15,107
  15,875
  16,681
Total liabilities and equity, $m
  5,487
  5,823
  6,198
  6,588
  6,995
  7,417
  7,859
  8,319
  8,798
  9,298
  9,821
  10,367
  10,938
  11,534
  12,157
  12,810
  13,492
  14,206
  14,955
  15,738
  16,560
  17,420
  18,321
  19,267
  20,257
  21,296
  22,385
  23,527
  24,725
  25,982
  27,301
Debt-to-equity ratio
  0.599
  0.600
  0.600
  0.600
  0.600
  0.600
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.620
  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
  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
  102
  114
  126
  139
  153
  167
  182
  197
  213
  231
  249
  267
  287
  308
  330
  353
  377
  403
  430
  458
  487
  519
  551
  586
  623
  661
  701
  744
  789
  836
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
  102
  114
  126
  139
  153
  167
  182
  197
  213
  231
  249
  267
  287
  308
  330
  353
  377
  403
  430
  458
  487
  519
  551
  586
  623
  661
  701
  744
  789
  836
Change in working capital, $m
  -61
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  32
  33
  35
  36
  38
  40
Cash from operations, $m
  191
  91
  102
  114
  127
  140
  153
  168
  183
  198
  215
  232
  250
  269
  289
  310
  332
  356
  380
  406
  433
  461
  491
  523
  556
  591
  628
  667
  707
  750
  796
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
  91
  102
  114
  127
  140
  153
  168
  183
  198
  215
  232
  250
  269
  289
  310
  332
  356
  380
  406
  433
  461
  491
  523
  556
  591
  628
  667
  707
  750
  796
Issuance/(repayment) of debt, $m
  57
  136
  146
  152
  158
  165
  172
  179
  187
  195
  203
  212
  222
  232
  243
  254
  266
  278
  291
  305
  319
  335
  351
  368
  385
  404
  424
  444
  466
  489
  513
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
  136
  146
  152
  158
  165
  172
  179
  187
  195
  203
  212
  222
  232
  243
  254
  266
  278
  291
  305
  319
  335
  351
  368
  385
  404
  424
  444
  466
  489
  513
Total cash flow (excl. dividends), $m
  124
  227
  248
  266
  285
  304
  325
  346
  369
  393
  418
  444
  472
  501
  532
  564
  598
  634
  671
  711
  752
  796
  842
  890
  941
  995
  1,051
  1,111
  1,173
  1,239
  1,309
Retained Cash Flow (-), $m
  -12
  -218
  -229
  -238
  -248
  -259
  -269
  -281
  -293
  -306
  -319
  -334
  -349
  -364
  -381
  -399
  -417
  -437
  -457
  -479
  -502
  -526
  -551
  -577
  -605
  -635
  -666
  -698
  -732
  -768
  -806
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
 
  9
  19
  28
  37
  46
  55
  66
  76
  87
  99
  111
  123
  137
  151
  165
  181
  197
  214
  232
  251
  270
  291
  313
  336
  360
  386
  413
  441
  471
  503
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
 
  9
  16
  22
  26
  30
  32
  34
  34
  34
  33
  31
  29
  26
  24
  21
  18
  15
  12
  10
  8
  6
  4
  3
  2
  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
  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 26.3
Price to Sales 8.2
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 18.7
Price to Free Cash Flow 50.4
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 6.6% 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 73.572 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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