Intrinsic value of RioCan Real Estate Investment Trust - REI-UN

Previous Close

$25.54

  Intrinsic Value

$6.09

stock screener

  Rating & Target

str. sell

-76%

  Value-price divergence*

-33%

Previous close

$25.54

 
Intrinsic value

$6.09

 
Up/down potential

-76%

 
Rating

str. sell

 
Value-price divergence*

-33%

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

We calculate the intrinsic value of REI-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 8.4

 

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, %
  4.14
  2.10
  2.39
  2.65
  2.89
  3.10
  3.29
  3.46
  3.61
  3.75
  3.88
  3.99
  4.09
  4.18
  4.26
  4.34
  4.40
  4.46
  4.52
  4.56
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
Revenue, $m
  1,133
  1,157
  1,184
  1,216
  1,251
  1,290
  1,332
  1,378
  1,428
  1,482
  1,539
  1,600
  1,666
  1,735
  1,809
  1,888
  1,971
  2,059
  2,152
  2,250
  2,354
  2,463
  2,579
  2,700
  2,828
  2,963
  3,105
  3,255
  3,412
  3,577
  3,751
Variable operating expenses, $m
 
  709
  726
  745
  767
  791
  817
  845
  875
  908
  943
  981
  1,021
  1,064
  1,109
  1,157
  1,208
  1,262
  1,319
  1,379
  1,443
  1,510
  1,581
  1,655
  1,734
  1,816
  1,903
  1,995
  2,091
  2,193
  2,299
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
  474
  709
  726
  745
  767
  791
  817
  845
  875
  908
  943
  981
  1,021
  1,064
  1,109
  1,157
  1,208
  1,262
  1,319
  1,379
  1,443
  1,510
  1,581
  1,655
  1,734
  1,816
  1,903
  1,995
  2,091
  2,193
  2,299
Operating income, $m
  659
  448
  458
  471
  484
  499
  516
  533
  553
  573
  596
  619
  645
  672
  700
  731
  763
  797
  833
  871
  911
  953
  998
  1,045
  1,095
  1,147
  1,202
  1,260
  1,320
  1,384
  1,452
EBITDA, $m
  663
  448
  458
  471
  484
  499
  516
  533
  553
  573
  596
  619
  645
  672
  700
  731
  763
  797
  833
  871
  911
  953
  998
  1,045
  1,095
  1,147
  1,202
  1,260
  1,320
  1,384
  1,452
Interest expense (income), $m
  229
  221
  227
  233
  240
  247
  256
  265
  274
  285
  296
  309
  322
  336
  351
  366
  383
  401
  419
  439
  460
  482
  506
  530
  556
  583
  612
  642
  674
  708
  743
Earnings before tax, $m
  679
  226
  231
  237
  244
  252
  260
  269
  278
  288
  299
  311
  323
  336
  350
  364
  380
  396
  413
  432
  451
  471
  492
  515
  538
  563
  590
  617
  646
  677
  709
Tax expense, $m
  -4
  61
  62
  64
  66
  68
  70
  73
  75
  78
  81
  84
  87
  91
  94
  98
  103
  107
  112
  117
  122
  127
  133
  139
  145
  152
  159
  167
  174
  183
  191
Net income, $m
  831
  165
  169
  173
  178
  184
  190
  196
  203
  210
  218
  227
  236
  245
  255
  266
  277
  289
  302
  315
  329
  344
  359
  376
  393
  411
  430
  451
  472
  494
  517

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  54
  0
  0
  0
  0
  0
  0
  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
  14,174
  14,460
  14,806
  15,198
  15,637
  16,121
  16,651
  17,227
  17,849
  18,519
  19,237
  20,004
  20,822
  21,693
  22,618
  23,598
  24,637
  25,737
  26,899
  28,127
  29,423
  30,791
  32,232
  33,752
  35,353
  37,039
  38,814
  40,682
  42,647
  44,715
  46,889
Adjusted assets (=assets-cash), $m
  14,120
  14,460
  14,806
  15,198
  15,637
  16,121
  16,651
  17,227
  17,849
  18,519
  19,237
  20,004
  20,822
  21,693
  22,618
  23,598
  24,637
  25,737
  26,899
  28,127
  29,423
  30,791
  32,232
  33,752
  35,353
  37,039
  38,814
  40,682
  42,647
  44,715
  46,889
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
  -56
  -57
  -58
  -60
  -62
  -64
  -66
  -69
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -95
  -99
  -103
  -108
  -113
  -118
  -124
  -130
  -136
  -142
  -149
  -156
  -164
  -172
  -180
Total debt, $m
  5,672
  5,827
  5,978
  6,150
  6,341
  6,553
  6,784
  7,036
  7,308
  7,601
  7,914
  8,250
  8,607
  8,988
  9,392
  9,820
  10,275
  10,755
  11,263
  11,800
  12,366
  12,964
  13,594
  14,258
  14,957
  15,694
  16,470
  17,286
  18,145
  19,048
  19,999
Total liabilities, $m
  6,164
  6,319
  6,470
  6,642
  6,833
  7,045
  7,276
  7,528
  7,800
  8,093
  8,406
  8,742
  9,099
  9,480
  9,884
  10,312
  10,767
  11,247
  11,755
  12,292
  12,858
  13,456
  14,086
  14,750
  15,449
  16,186
  16,962
  17,778
  18,637
  19,540
  20,491
Total equity, $m
  8,010
  8,141
  8,335
  8,556
  8,803
  9,076
  9,374
  9,699
  10,049
  10,426
  10,830
  11,262
  11,723
  12,213
  12,734
  13,286
  13,871
  14,490
  15,144
  15,836
  16,565
  17,335
  18,147
  19,002
  19,904
  20,853
  21,852
  22,904
  24,010
  25,174
  26,399
Total liabilities and equity, $m
  14,174
  14,460
  14,805
  15,198
  15,636
  16,121
  16,650
  17,227
  17,849
  18,519
  19,236
  20,004
  20,822
  21,693
  22,618
  23,598
  24,638
  25,737
  26,899
  28,128
  29,423
  30,791
  32,233
  33,752
  35,353
  37,039
  38,814
  40,682
  42,647
  44,714
  46,890
Debt-to-equity ratio
  0.708
  0.720
  0.720
  0.720
  0.720
  0.720
  0.720
  0.730
  0.730
  0.730
  0.730
  0.730
  0.730
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.760
  0.760
  0.760
Adjusted equity ratio
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  831
  165
  169
  173
  178
  184
  190
  196
  203
  210
  218
  227
  236
  245
  255
  266
  277
  289
  302
  315
  329
  344
  359
  376
  393
  411
  430
  451
  472
  494
  517
Depreciation, amort., depletion, $m
  4
  0
  0
  0
  0
  0
  0
  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
  611
  165
  169
  173
  178
  184
  190
  196
  203
  210
  218
  227
  236
  245
  255
  266
  277
  289
  302
  315
  329
  344
  359
  376
  393
  411
  430
  451
  472
  494
  517
Change in working capital, $m
  156
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
Cash from operations, $m
  455
  166
  170
  175
  180
  186
  192
  198
  205
  213
  221
  230
  239
  249
  259
  270
  281
  293
  306
  320
  334
  349
  365
  382
  399
  418
  437
  458
  479
  502
  526
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
  -47
  0
  0
  0
  0
  0
  0
  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
  1,194
  0
  0
  0
  0
  0
  0
  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
  1,649
  166
  170
  175
  180
  186
  192
  198
  205
  213
  221
  230
  239
  249
  259
  270
  281
  293
  306
  320
  334
  349
  365
  382
  399
  418
  437
  458
  479
  502
  526
Issuance/(repayment) of debt, $m
  -1,186
  155
  151
  172
  192
  212
  232
  252
  272
  293
  314
  335
  358
  380
  404
  429
  454
  480
  508
  537
  566
  598
  630
  664
  700
  737
  776
  816
  859
  904
  950
Issuance/(repurchase) of shares, $m
  -86
  20
  26
  48
  69
  89
  109
  128
  147
  167
  186
  205
  225
  245
  265
  286
  308
  330
  353
  376
  401
  426
  452
  480
  508
  538
  569
  601
  635
  670
  707
Cash from financing (excl. dividends), $m  
  -1,272
  175
  177
  220
  261
  301
  341
  380
  419
  460
  500
  540
  583
  625
  669
  715
  762
  810
  861
  913
  967
  1,024
  1,082
  1,144
  1,208
  1,275
  1,345
  1,417
  1,494
  1,574
  1,657
Total cash flow (excl. dividends), $m
  377
  341
  347
  394
  440
  486
  532
  578
  625
  672
  721
  770
  821
  874
  928
  985
  1,043
  1,104
  1,167
  1,233
  1,301
  1,373
  1,447
  1,525
  1,607
  1,692
  1,782
  1,875
  1,973
  2,076
  2,183
Retained Cash Flow (-), $m
  -84
  -185
  -195
  -221
  -247
  -273
  -298
  -324
  -350
  -377
  -404
  -432
  -461
  -490
  -521
  -552
  -585
  -619
  -654
  -691
  -730
  -770
  -812
  -856
  -901
  -949
  -999
  -1,052
  -1,107
  -1,164
  -1,224
Prev. year cash balance distribution, $m
 
  54
  0
  0
  0
  0
  0
  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
 
  210
  152
  173
  193
  214
  234
  254
  274
  295
  316
  338
  361
  384
  408
  432
  458
  485
  512
  541
  571
  603
  636
  670
  706
  743
  782
  823
  866
  911
  959
Discount rate, %
 
  8.50
  8.93
  9.37
  9.84
  10.33
  10.85
  11.39
  11.96
  12.56
  13.19
  13.85
  14.54
  15.26
  16.03
  16.83
  17.67
  18.55
  19.48
  20.46
  21.48
  22.55
  23.68
  24.86
  26.11
  27.41
  28.78
  30.22
  31.73
  33.32
  34.99
PV of cash for distribution, $m
 
  194
  128
  132
  133
  131
  126
  119
  111
  102
  92
  81
  71
  61
  51
  42
  34
  27
  21
  16
  12
  8
  6
  4
  3
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  99.8
  99.5
  98.9
  98.2
  97.2
  96.1
  94.9
  93.5
  92.1
  90.5
  88.9
  87.3
  85.6
  83.8
  82.1
  80.3
  78.5
  76.7
  75.0
  73.2
  71.4
  69.7
  68.0
  66.3
  64.6
  63.0
  61.4
  59.8
  58.2
  56.7

RioCan Real Estate Investment Trust engages in owning, developing, and operating retail real estate properties in Canada. Its portfolio of properties include supermarkets; junior department stores; and entertainment properties, including movie theatres, large-format bookstores, and restaurants, as well as fashion components. As of December 31, 2007, the company owned interests in a portfolio of 201 shopping centers in Canada. RioCan Real Estate Investment Trust is headquartered in Toronto, Canada.

FINANCIAL RATIOS  of  RioCan Real Estate Investment Trust (REI-UN)

Valuation Ratios
P/E Ratio 10
Price to Sales 7.4
Price to Book 1
Price to Tangible Book
Price to Cash Flow 18.3
Price to Free Cash Flow 20.4
Growth Rates
Sales Growth Rate 4.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 34.3%
Cap. Spend. - 3 Yr. Gr. Rate 12.6%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 70.8%
Total Debt to Equity 70.8%
Interest Coverage 4
Management Effectiveness
Return On Assets 7%
Ret/ On Assets - 3 Yr. Avg. 5.4%
Return On Total Capital 6%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity 10.4%
Return On Equity - 3 Yr. Avg. 7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 61.8%
Gross Margin - 3 Yr. Avg. 62.2%
EBITDA Margin 80.5%
EBITDA Margin - 3 Yr. Avg. 71.2%
Operating Margin 58.2%
Oper. Margin - 3 Yr. Avg. 46.9%
Pre-Tax Margin 59.9%
Pre-Tax Margin - 3 Yr. Avg. 47.4%
Net Profit Margin 73.3%
Net Profit Margin - 3 Yr. Avg. 50.4%
Effective Tax Rate -0.6%
Eff/ Tax Rate - 3 Yr. Avg. -0.1%
Payout Ratio 48.9%

REI-UN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the REI-UN stock intrinsic value calculation we used $1133 million for the last fiscal year's total revenue generated by RioCan Real Estate Investment Trust. The default revenue input number comes from 2016 income statement of RioCan 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 REI-UN stock valuation model: a) initial revenue growth rate of 2.1% 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 8.5%, whose default value for REI-UN is calculated based on our internal credit rating of RioCan 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 RioCan 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 REI-UN stock the variable cost ratio is equal to 61.3%.

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 REI-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 RioCan Real Estate Investment Trust.

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

Life of production assets of 0 years is the average useful life of capital assets used in RioCan 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 REI-UN is equal to -4.8%. 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 - $8010 million for RioCan 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 328.622 million for RioCan 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 RioCan Real Estate Investment Trust at the current share price and the inputted number of shares is $8.4 billion.

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CGX Cineplex Inc. 50.09 40.08  sell
HBC Hudson's B 11.09 21.82  str.buy
Stock chart of REI-UN Financial statements of REI-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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