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

Previous Close

$46.33

  Intrinsic Value

$11.38

stock screener

  Rating & Target

str. sell

-75%

  Value-price divergence*

0%

Previous close

$46.33

 
Intrinsic value

$11.38

 
Up/down potential

-75%

 
Rating

str. sell

 
Value-price divergence*

0%

*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 3.4

 

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
  2.80
  3.02
  3.22
  3.40
  3.56
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
Revenue, $m
  437
  449
  463
  478
  494
  511
  530
  551
  572
  596
  620
  647
  675
  704
  735
  768
  803
  840
  879
  920
  963
  1,009
  1,057
  1,108
  1,161
  1,217
  1,276
  1,338
  1,403
  1,471
  1,544
Variable operating expenses, $m
 
  49
  51
  53
  54
  56
  58
  61
  63
  66
  68
  71
  74
  77
  81
  85
  88
  92
  97
  101
  106
  111
  116
  122
  128
  134
  140
  147
  154
  162
  170
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
  245
  252
  259
  265
  272
  280
  288
  296
  305
  312
  322
  331
  340
  351
  362
  372
  383
  395
  406
  419
  432
  445
  459
  473
  488
  503
  519
  535
  553
  571
Operating income, $m
  204
  204
  211
  219
  229
  239
  251
  263
  277
  292
  308
  325
  343
  363
  385
  407
  431
  457
  485
  514
  545
  577
  612
  649
  688
  729
  773
  819
  867
  919
  973
EBITDA, $m
  204
  204
  211
  219
  229
  239
  251
  263
  277
  292
  308
  325
  343
  363
  385
  407
  431
  457
  485
  514
  545
  577
  612
  649
  688
  729
  773
  819
  867
  919
  973
Interest expense (income), $m
  78
  79
  82
  84
  87
  90
  94
  97
  101
  106
  110
  115
  120
  125
  131
  137
  144
  150
  158
  165
  173
  182
  190
  200
  210
  220
  231
  242
  254
  267
  280
Earnings before tax, $m
  140
  125
  130
  135
  142
  149
  157
  166
  176
  186
  198
  210
  224
  238
  253
  270
  288
  307
  327
  348
  371
  396
  422
  449
  478
  509
  542
  576
  613
  652
  693
Tax expense, $m
  4
  34
  35
  37
  38
  40
  42
  45
  47
  50
  53
  57
  60
  64
  68
  73
  78
  83
  88
  94
  100
  107
  114
  121
  129
  137
  146
  156
  165
  176
  187
Net income, $m
  136
  91
  95
  99
  103
  109
  115
  121
  128
  136
  144
  153
  163
  174
  185
  197
  210
  224
  239
  254
  271
  289
  308
  328
  349
  372
  395
  421
  447
  476
  506

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
  5,615
  5,785
  5,971
  6,174
  6,394
  6,630
  6,884
  7,156
  7,446
  7,755
  8,083
  8,431
  8,801
  9,191
  9,605
  10,041
  10,503
  10,989
  11,502
  12,043
  12,613
  13,214
  13,846
  14,511
  15,211
  15,948
  16,722
  17,537
  18,394
  19,294
Adjusted assets (=assets-cash), $m
  5,469
  5,615
  5,785
  5,971
  6,174
  6,394
  6,630
  6,884
  7,156
  7,446
  7,755
  8,083
  8,431
  8,801
  9,191
  9,605
  10,041
  10,503
  10,989
  11,502
  12,043
  12,613
  13,214
  13,846
  14,511
  15,211
  15,948
  16,722
  17,537
  18,394
  19,294
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
  171
  176
  182
  188
  194
  202
  209
  218
  226
  236
  246
  256
  268
  279
  292
  305
  319
  334
  350
  366
  383
  402
  421
  441
  462
  485
  508
  533
  559
  587
Total debt, $m
  2,001
  2,038
  2,104
  2,177
  2,256
  2,341
  2,433
  2,532
  2,638
  2,750
  2,871
  2,998
  3,134
  3,277
  3,429
  3,590
  3,760
  3,940
  4,129
  4,328
  4,539
  4,761
  4,994
  5,240
  5,499
  5,771
  6,058
  6,359
  6,676
  7,009
  7,359
Total liabilities, $m
  2,147
  2,184
  2,250
  2,323
  2,402
  2,487
  2,579
  2,678
  2,784
  2,896
  3,017
  3,144
  3,280
  3,423
  3,575
  3,736
  3,906
  4,086
  4,275
  4,474
  4,685
  4,907
  5,140
  5,386
  5,645
  5,917
  6,204
  6,505
  6,822
  7,155
  7,505
Total equity, $m
  3,340
  3,431
  3,535
  3,648
  3,772
  3,906
  4,051
  4,206
  4,372
  4,549
  4,738
  4,939
  5,152
  5,377
  5,616
  5,868
  6,135
  6,417
  6,714
  7,028
  7,358
  7,707
  8,073
  8,460
  8,866
  9,294
  9,744
  10,217
  10,715
  11,238
  11,789
Total liabilities and equity, $m
  5,487
  5,615
  5,785
  5,971
  6,174
  6,393
  6,630
  6,884
  7,156
  7,445
  7,755
  8,083
  8,432
  8,800
  9,191
  9,604
  10,041
  10,503
  10,989
  11,502
  12,043
  12,614
  13,213
  13,846
  14,511
  15,211
  15,948
  16,722
  17,537
  18,393
  19,294
Debt-to-equity ratio
  0.599
  0.590
  0.600
  0.600
  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
  0.610
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
  0.620
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
  91
  95
  99
  103
  109
  115
  121
  128
  136
  144
  153
  163
  174
  185
  197
  210
  224
  239
  254
  271
  289
  308
  328
  349
  372
  395
  421
  447
  476
  506
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
  91
  95
  99
  103
  109
  115
  121
  128
  136
  144
  153
  163
  174
  185
  197
  210
  224
  239
  254
  271
  289
  308
  328
  349
  372
  395
  421
  447
  476
  506
Change in working capital, $m
  -61
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
Cash from operations, $m
  191
  86
  90
  93
  97
  102
  107
  113
  120
  127
  135
  143
  153
  162
  173
  185
  197
  210
  224
  239
  255
  272
  289
  309
  329
  350
  373
  397
  423
  450
  478
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
  86
  90
  93
  97
  102
  107
  113
  120
  127
  135
  143
  153
  162
  173
  185
  197
  210
  224
  239
  255
  272
  289
  309
  329
  350
  373
  397
  423
  450
  478
Issuance/(repayment) of debt, $m
  57
  55
  66
  72
  79
  85
  92
  99
  106
  113
  120
  128
  136
  144
  152
  161
  170
  179
  189
  200
  210
  222
  234
  246
  259
  272
  287
  301
  317
  333
  350
Issuance/(repurchase) of shares, $m
  1
  0
  9
  15
  20
  25
  30
  34
  38
  41
  44
  47
  50
  52
  54
  55
  57
  58
  59
  59
  59
  59
  59
  58
  57
  56
  55
  53
  50
  48
  45
Cash from financing (excl. dividends), $m  
  54
  55
  75
  87
  99
  110
  122
  133
  144
  154
  164
  175
  186
  196
  206
  216
  227
  237
  248
  259
  269
  281
  293
  304
  316
  328
  342
  354
  367
  381
  395
Total cash flow (excl. dividends), $m
  124
  142
  164
  181
  197
  213
  229
  246
  264
  281
  299
  318
  338
  358
  379
  401
  423
  447
  472
  498
  524
  553
  582
  613
  645
  679
  714
  751
  790
  831
  873
Retained Cash Flow (-), $m
  -12
  -91
  -104
  -114
  -124
  -134
  -145
  -155
  -166
  -177
  -189
  -201
  -213
  -226
  -239
  -253
  -267
  -282
  -297
  -314
  -331
  -348
  -367
  -386
  -406
  -428
  -450
  -473
  -498
  -523
  -550
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
 
  51
  61
  67
  73
  79
  85
  91
  97
  104
  111
  118
  125
  132
  140
  148
  157
  165
  174
  184
  194
  204
  215
  227
  239
  251
  264
  278
  292
  307
  323
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
 
  47
  52
  53
  52
  51
  49
  47
  44
  40
  37
  33
  29
  26
  22
  19
  15
  13
  10
  8
  6
  5
  3
  2
  2
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  99.7
  99.3
  98.8
  98.1
  97.4
  96.6
  95.8
  94.9
  94.0
  93.1
  92.1
  91.2
  90.4
  89.5
  88.6
  87.8
  87.1
  86.3
  85.6
  84.9
  84.3
  83.7
  83.1
  82.6
  82.2
  81.7
  81.3
  81.0
  80.7

Canadian Real Estate Investment Trust (the Trust) is a real estate investment trust. The Trust's primary business objective is to accumulate and aggressively manage a portfolio of real estate assets and deliver the benefits of such real estate ownership to its Unitholders. It operates in three segments: retail, industrial and office. It operates in geographical locations, including British Columbia, Alberta, Saskatchewan (Prairies), Ontario, Quebec, Nova Scotia and New Brunswick (Atlantic), and Chicago, Illinois (the United States). Its portfolio includes over 200 properties, containing approximately 33 million square feet of gross leasable area. Its retail portfolio consists of over 9.2 million square feet. Its industrial portfolio consists of over 10 million square feet. Its office portfolio consists of approximately three million square feet. Its Ontario office portfolio consists of properties in the Greater Toronto Area. Its development portfolio consists of over 10 properties.

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

Valuation Ratios
P/E Ratio 24.9
Price to Sales 7.8
Price to Book 1
Price to Tangible Book
Price to Cash Flow 17.8
Price to Free Cash Flow 47.8
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 2.8% 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 73.387 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 $3.4 billion.

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Financial statements of REF-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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