Intrinsic value of Smart Real Estate Investment Trust - SRU-UN

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$31.32

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$31.32

 
Intrinsic value

$10.52

 
Up/down potential

-66%

 
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 SRU-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 4.1

 

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, %
  8.37
  2.20
  2.48
  2.73
  2.96
  3.16
  3.35
  3.51
  3.66
  3.79
  3.92
  4.02
  4.12
  4.21
  4.29
  4.36
  4.42
  4.48
  4.53
  4.58
  4.62
  4.66
  4.69
  4.72
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
Revenue, $m
  725
  741
  759
  780
  803
  829
  856
  886
  919
  954
  991
  1,031
  1,073
  1,119
  1,167
  1,217
  1,271
  1,328
  1,388
  1,452
  1,519
  1,590
  1,664
  1,743
  1,826
  1,913
  2,005
  2,102
  2,203
  2,310
  2,423
Variable operating expenses, $m
 
  386
  396
  406
  418
  431
  446
  461
  478
  496
  516
  535
  557
  581
  606
  632
  660
  689
  721
  754
  789
  825
  864
  905
  948
  993
  1,041
  1,091
  1,144
  1,199
  1,258
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
  339
  386
  396
  406
  418
  431
  446
  461
  478
  496
  516
  535
  557
  581
  606
  632
  660
  689
  721
  754
  789
  825
  864
  905
  948
  993
  1,041
  1,091
  1,144
  1,199
  1,258
Operating income, $m
  386
  355
  364
  374
  385
  397
  410
  425
  440
  457
  475
  496
  516
  538
  561
  585
  611
  639
  668
  698
  731
  765
  801
  838
  878
  920
  964
  1,011
  1,060
  1,111
  1,165
EBITDA, $m
  388
  357
  366
  376
  387
  399
  412
  427
  442
  459
  477
  496
  517
  539
  562
  586
  612
  640
  669
  699
  732
  766
  802
  839
  879
  921
  966
  1,012
  1,061
  1,113
  1,167
Interest expense (income), $m
  160
  161
  166
  171
  177
  183
  190
  198
  207
  216
  226
  236
  248
  260
  272
  286
  300
  316
  332
  349
  367
  386
  406
  427
  449
  473
  497
  523
  551
  579
  610
Earnings before tax, $m
  386
  194
  198
  203
  208
  214
  220
  227
  234
  241
  249
  259
  269
  278
  289
  299
  311
  323
  336
  350
  364
  379
  395
  411
  429
  448
  467
  488
  509
  532
  556
Tax expense, $m
  0
  52
  53
  55
  56
  58
  59
  61
  63
  65
  67
  70
  73
  75
  78
  81
  84
  87
  91
  94
  98
  102
  107
  111
  116
  121
  126
  132
  137
  144
  150
Net income, $m
  322
  142
  145
  148
  152
  156
  161
  165
  171
  176
  182
  189
  196
  203
  211
  219
  227
  236
  245
  255
  266
  277
  288
  300
  313
  327
  341
  356
  372
  388
  406

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  23
  0
  0
  0
  0
  0
  0
  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
  8,739
  8,927
  9,149
  9,398
  9,677
  9,983
  10,317
  10,679
  11,070
  11,490
  11,940
  12,420
  12,932
  13,476
  14,054
  14,667
  15,316
  16,002
  16,728
  17,494
  18,302
  19,155
  20,054
  21,001
  21,999
  23,050
  24,156
  25,321
  26,545
  27,834
  29,189
Adjusted assets (=assets-cash), $m
  8,716
  8,927
  9,149
  9,398
  9,677
  9,983
  10,317
  10,679
  11,070
  11,490
  11,940
  12,420
  12,932
  13,476
  14,054
  14,667
  15,316
  16,002
  16,728
  17,494
  18,302
  19,155
  20,054
  21,001
  21,999
  23,050
  24,156
  25,321
  26,545
  27,834
  29,189
Revenue / Adjusted assets
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
Average production assets, $m
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
  15
Working capital, $m
  -556
  -29
  -30
  -30
  -31
  -32
  -33
  -35
  -36
  -37
  -39
  -40
  -42
  -44
  -45
  -47
  -50
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -94
Total debt, $m
  3,845
  3,944
  4,068
  4,208
  4,363
  4,534
  4,721
  4,924
  5,142
  5,377
  5,628
  5,897
  6,183
  6,487
  6,810
  7,153
  7,516
  7,899
  8,305
  8,733
  9,185
  9,662
  10,164
  10,694
  11,252
  11,839
  12,457
  13,108
  13,793
  14,513
  15,270
Total liabilities, $m
  4,891
  4,990
  5,114
  5,254
  5,409
  5,580
  5,767
  5,970
  6,188
  6,423
  6,674
  6,943
  7,229
  7,533
  7,856
  8,199
  8,562
  8,945
  9,351
  9,779
  10,231
  10,708
  11,210
  11,740
  12,298
  12,885
  13,503
  14,154
  14,839
  15,559
  16,316
Total equity, $m
  3,848
  3,937
  4,034
  4,145
  4,267
  4,402
  4,550
  4,709
  4,882
  5,067
  5,265
  5,477
  5,703
  5,943
  6,198
  6,468
  6,754
  7,057
  7,377
  7,715
  8,071
  8,447
  8,844
  9,262
  9,702
  10,165
  10,653
  11,166
  11,707
  12,275
  12,872
Total liabilities and equity, $m
  8,739
  8,927
  9,148
  9,399
  9,676
  9,982
  10,317
  10,679
  11,070
  11,490
  11,939
  12,420
  12,932
  13,476
  14,054
  14,667
  15,316
  16,002
  16,728
  17,494
  18,302
  19,155
  20,054
  21,002
  22,000
  23,050
  24,156
  25,320
  26,546
  27,834
  29,188
Debt-to-equity ratio
  0.999
  1.000
  1.010
  1.020
  1.020
  1.030
  1.040
  1.050
  1.050
  1.060
  1.070
  1.080
  1.080
  1.090
  1.100
  1.110
  1.110
  1.120
  1.130
  1.130
  1.140
  1.140
  1.150
  1.150
  1.160
  1.160
  1.170
  1.170
  1.180
  1.180
  1.190
Adjusted equity ratio
  0.439
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  322
  142
  145
  148
  152
  156
  161
  165
  171
  176
  182
  189
  196
  203
  211
  219
  227
  236
  245
  255
  266
  277
  288
  300
  313
  327
  341
  356
  372
  388
  406
Depreciation, amort., depletion, $m
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
Funds from operations, $m
  303
  144
  147
  150
  154
  158
  163
  167
  173
  178
  184
  190
  197
  204
  211
  219
  228
  237
  246
  256
  267
  278
  289
  302
  314
  328
  342
  357
  373
  390
  407
Change in working capital, $m
  -13
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
Cash from operations, $m
  316
  143
  147
  151
  155
  159
  164
  169
  174
  180
  186
  192
  198
  206
  213
  221
  230
  239
  249
  259
  269
  280
  292
  305
  318
  331
  346
  361
  377
  394
  412
Maintenance CAPEX, $m
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
New 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
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  -91
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
Free cash flow, $m
  225
  143
  147
  150
  154
  158
  163
  168
  173
  179
  185
  191
  197
  205
  212
  220
  229
  238
  247
  257
  268
  279
  291
  303
  316
  330
  344
  359
  375
  392
  409
Issuance/(repayment) of debt, $m
  -11
  122
  124
  140
  155
  171
  187
  203
  219
  235
  251
  269
  286
  304
  323
  342
  363
  384
  405
  428
  452
  477
  503
  530
  558
  587
  618
  651
  685
  720
  757
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  -54
  122
  124
  140
  155
  171
  187
  203
  219
  235
  251
  269
  286
  304
  323
  342
  363
  384
  405
  428
  452
  477
  503
  530
  558
  587
  618
  651
  685
  720
  757
Total cash flow (excl. dividends), $m
  172
  265
  270
  290
  310
  329
  350
  370
  392
  414
  436
  459
  484
  509
  535
  563
  591
  621
  653
  686
  720
  756
  793
  833
  874
  917
  962
  1,010
  1,060
  1,112
  1,167
Retained Cash Flow (-), $m
  -155
  -89
  -98
  -110
  -123
  -135
  -147
  -160
  -172
  -185
  -198
  -212
  -226
  -240
  -255
  -270
  -286
  -303
  -320
  -338
  -357
  -376
  -396
  -418
  -440
  -463
  -488
  -513
  -540
  -568
  -598
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
 
  176
  173
  180
  187
  194
  202
  211
  219
  228
  238
  247
  258
  269
  280
  293
  305
  319
  333
  348
  363
  380
  397
  415
  434
  454
  475
  497
  520
  544
  569
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
 
  161
  144
  135
  126
  116
  105
  95
  84
  74
  64
  55
  46
  38
  31
  25
  20
  15
  11
  8
  6
  4
  3
  2
  1
  1
  0
  0
  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

Smart Real Estate Investment Trust operates as an open-ended mutual fund trust in Canada. It engages in the acquisition, ownership, development, management, and operation of retail centers. As of December 31, 2007, the company owned 131 shopping centers and 2 industrial buildings with total gross leasable area of 20.2 million square feet. It was previously known as Calloway Real Estate Investment Trust. Smart Real Estate Investment Trust was founded in 1945 and is based in Vaughan, Canada.

FINANCIAL RATIOS  of  Smart Real Estate Investment Trust (SRU-UN)

Valuation Ratios
P/E Ratio 15.1
Price to Sales 6.7
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 15.4
Price to Free Cash Flow 15.4
Growth Rates
Sales Growth Rate 8.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 85.6%
Total Debt to Equity 99.9%
Interest Coverage 3
Management Effectiveness
Return On Assets 5.6%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 4.2%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity 8.5%
Return On Equity - 3 Yr. Avg. 7.7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 65.5%
Gross Margin - 3 Yr. Avg. 65.3%
EBITDA Margin 75.6%
EBITDA Margin - 3 Yr. Avg. 63.3%
Operating Margin 53.2%
Oper. Margin - 3 Yr. Avg. 48.2%
Pre-Tax Margin 53.2%
Pre-Tax Margin - 3 Yr. Avg. 48.1%
Net Profit Margin 44.4%
Net Profit Margin - 3 Yr. Avg. 40.7%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 52.8%

SRU-UN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SRU-UN stock intrinsic value calculation we used $725 million for the last fiscal year's total revenue generated by Smart Real Estate Investment Trust. The default revenue input number comes from 2016 income statement of Smart 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 SRU-UN stock valuation model: a) initial revenue growth rate of 2.2% 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 9%, whose default value for SRU-UN is calculated based on our internal credit rating of Smart 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 Smart 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 SRU-UN stock the variable cost ratio is equal to 52.1%.

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 SRU-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 4.2% for Smart Real Estate Investment Trust.

Corporate tax rate of 27% is the nominal tax rate for Smart 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 SRU-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 SRU-UN are equal to 0.6%.

Life of production assets of 9 years is the average useful life of capital assets used in Smart 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 SRU-UN is equal to -3.9%. 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 - $3848 million for Smart 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 130.671 million for Smart 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 Smart Real Estate Investment Trust at the current share price and the inputted number of shares is $4.1 billion.


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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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