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

Previous Close

$30.24

  Intrinsic Value

$10.59

stock screener

  Rating & Target

str. sell

-65%

  Value-price divergence*

0%

Previous close

$30.24

 
Intrinsic value

$10.59

 
Up/down potential

-65%

 
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 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 4.0

 

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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  725
  740
  757
  776
  798
  822
  849
  877
  909
  942
  979
  1,017
  1,059
  1,102
  1,149
  1,199
  1,251
  1,307
  1,366
  1,428
  1,493
  1,563
  1,636
  1,713
  1,794
  1,879
  1,969
  2,064
  2,163
  2,268
  2,378
Variable operating expenses, $m
 
  385
  394
  404
  416
  428
  442
  457
  473
  491
  509
  528
  549
  572
  597
  622
  650
  678
  709
  741
  775
  811
  849
  889
  931
  975
  1,022
  1,071
  1,123
  1,177
  1,234
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
  385
  394
  404
  416
  428
  442
  457
  473
  491
  509
  528
  549
  572
  597
  622
  650
  678
  709
  741
  775
  811
  849
  889
  931
  975
  1,022
  1,071
  1,123
  1,177
  1,234
Operating income, $m
  386
  354
  362
  372
  382
  394
  407
  421
  436
  452
  469
  489
  509
  530
  553
  577
  602
  629
  657
  687
  718
  752
  787
  824
  863
  904
  947
  992
  1,040
  1,091
  1,144
EBITDA, $m
  388
  356
  364
  374
  384
  396
  409
  423
  438
  454
  471
  490
  510
  531
  553
  577
  603
  629
  658
  688
  719
  753
  788
  825
  864
  905
  948
  994
  1,042
  1,092
  1,145
Interest expense (income), $m
  160
  161
  165
  170
  176
  182
  189
  196
  204
  213
  223
  233
  244
  255
  268
  281
  295
  310
  326
  342
  360
  379
  398
  419
  441
  463
  488
  513
  540
  568
  598
Earnings before tax, $m
  386
  194
  197
  202
  207
  212
  218
  224
  231
  239
  247
  256
  265
  275
  285
  295
  307
  319
  331
  344
  358
  373
  389
  405
  422
  440
  459
  479
  501
  523
  546
Tax expense, $m
  0
  52
  53
  54
  56
  57
  59
  61
  62
  64
  67
  69
  72
  74
  77
  80
  83
  86
  89
  93
  97
  101
  105
  109
  114
  119
  124
  129
  135
  141
  147
Net income, $m
  322
  141
  144
  147
  151
  155
  159
  164
  169
  174
  180
  187
  194
  201
  208
  216
  224
  233
  242
  251
  262
  272
  284
  296
  308
  321
  335
  350
  365
  382
  399

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
  8,910
  9,115
  9,349
  9,612
  9,903
  10,223
  10,571
  10,948
  11,354
  11,790
  12,256
  12,753
  13,283
  13,846
  14,443
  15,076
  15,746
  16,454
  17,203
  17,994
  18,828
  19,707
  20,634
  21,611
  22,640
  23,723
  24,863
  26,063
  27,325
  28,653
Adjusted assets (=assets-cash), $m
  8,716
  8,910
  9,115
  9,349
  9,612
  9,903
  10,223
  10,571
  10,948
  11,354
  11,790
  12,256
  12,753
  13,283
  13,846
  14,443
  15,076
  15,746
  16,454
  17,203
  17,994
  18,828
  19,707
  20,634
  21,611
  22,640
  23,723
  24,863
  26,063
  27,325
  28,653
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
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
Working capital, $m
  -556
  -29
  -30
  -30
  -31
  -32
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -93
Total debt, $m
  3,845
  3,934
  4,049
  4,180
  4,327
  4,490
  4,669
  4,863
  5,074
  5,301
  5,544
  5,805
  6,083
  6,379
  6,694
  7,028
  7,381
  7,756
  8,152
  8,571
  9,012
  9,479
  9,970
  10,489
  11,035
  11,610
  12,215
  12,853
  13,523
  14,229
  14,971
Total liabilities, $m
  4,891
  4,980
  5,095
  5,226
  5,373
  5,536
  5,715
  5,909
  6,120
  6,347
  6,590
  6,851
  7,129
  7,425
  7,740
  8,074
  8,427
  8,802
  9,198
  9,617
  10,058
  10,525
  11,016
  11,535
  12,081
  12,656
  13,261
  13,899
  14,569
  15,275
  16,017
Total equity, $m
  3,848
  3,929
  4,020
  4,123
  4,239
  4,367
  4,508
  4,662
  4,828
  5,007
  5,199
  5,405
  5,624
  5,858
  6,106
  6,369
  6,648
  6,944
  7,256
  7,587
  7,935
  8,303
  8,691
  9,100
  9,530
  9,984
  10,462
  10,965
  11,494
  12,050
  12,636
Total liabilities and equity, $m
  8,739
  8,909
  9,115
  9,349
  9,612
  9,903
  10,223
  10,571
  10,948
  11,354
  11,789
  12,256
  12,753
  13,283
  13,846
  14,443
  15,075
  15,746
  16,454
  17,204
  17,993
  18,828
  19,707
  20,635
  21,611
  22,640
  23,723
  24,864
  26,063
  27,325
  28,653
Debt-to-equity ratio
  0.999
  1.000
  1.010
  1.010
  1.020
  1.030
  1.040
  1.040
  1.050
  1.060
  1.070
  1.070
  1.080
  1.090
  1.100
  1.100
  1.110
  1.120
  1.120
  1.130
  1.140
  1.140
  1.150
  1.150
  1.160
  1.160
  1.170
  1.170
  1.180
  1.180
  1.180
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
  141
  144
  147
  151
  155
  159
  164
  169
  174
  180
  187
  194
  201
  208
  216
  224
  233
  242
  251
  262
  272
  284
  296
  308
  321
  335
  350
  365
  382
  399
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
  143
  146
  149
  153
  157
  161
  166
  171
  176
  182
  188
  194
  201
  209
  216
  225
  233
  243
  252
  263
  273
  285
  297
  309
  323
  337
  351
  367
  383
  400
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
  144
  147
  150
  154
  158
  162
  167
  172
  178
  183
  189
  196
  203
  210
  218
  227
  236
  245
  255
  265
  276
  288
  300
  313
  326
  340
  355
  371
  387
  405
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
  146
  149
  153
  157
  162
  166
  171
  177
  183
  188
  195
  202
  209
  217
  226
  234
  244
  253
  264
  275
  286
  298
  311
  324
  338
  353
  369
  385
  402
Issuance/(repayment) of debt, $m
  -11
  112
  115
  131
  147
  163
  179
  195
  211
  227
  244
  261
  278
  296
  315
  334
  354
  375
  396
  418
  442
  466
  492
  518
  546
  575
  606
  637
  671
  706
  742
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  5
  12
  18
  26
  33
  40
  48
  55
  63
  71
  79
  87
  96
  104
  113
  123
  132
  142
  153
  164
  175
  187
Cash from financing (excl. dividends), $m  
  -54
  112
  115
  131
  147
  163
  179
  195
  211
  232
  256
  279
  304
  329
  355
  382
  409
  438
  467
  497
  529
  562
  596
  631
  669
  707
  748
  790
  835
  881
  929
Total cash flow (excl. dividends), $m
  172
  255
  260
  280
  300
  320
  340
  361
  382
  409
  438
  467
  499
  531
  564
  599
  635
  672
  710
  751
  793
  836
  882
  930
  980
  1,032
  1,086
  1,143
  1,203
  1,266
  1,331
Retained Cash Flow (-), $m
  -155
  -81
  -90
  -103
  -116
  -129
  -141
  -154
  -166
  -179
  -192
  -206
  -219
  -234
  -248
  -263
  -279
  -295
  -312
  -330
  -349
  -368
  -388
  -409
  -431
  -454
  -478
  -503
  -529
  -557
  -585
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
 
  174
  170
  177
  184
  191
  199
  207
  216
  229
  246
  262
  279
  298
  316
  336
  356
  376
  398
  421
  444
  469
  494
  521
  549
  578
  609
  641
  674
  709
  746
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
 
  160
  142
  133
  124
  114
  104
  93
  83
  75
  67
  58
  50
  42
  35
  29
  23
  18
  14
  10
  7
  5
  4
  2
  2
  1
  1
  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
  99.9
  99.7
  99.3
  98.9
  98.3
  97.7
  96.9
  96.1
  95.2
  94.3
  93.3
  92.3
  91.2
  90.1
  89.0
  87.8
  86.7
  85.5
  84.3
  83.1
  81.9
  80.7

Smart Real Estate Investment Trust is an unincorporated open-ended mutual fund trust. The Trust develops, leases, constructs, owns and manages shopping centers that provide retailers with a platform to reach the customers through convenient locations, designs, and a tenant mix, and provides quality office space for tenants to locate effective workspaces. The Trust is also working on opportunities to provide residential, seniors housing, and self-storage facilities at certain of its shopping center properties across Canada, as well as developing certain of its urban properties to provide a mix of retail, residential and office space. The Trust owns approximately 142 shopping centers, one office property, eight development properties and one mixed-use property, located in communities across Canada. The Trust's properties include Alliston, Aurora (North), Blainville, Bracebridge, Bradford, Brampton, Brampton (Bramport) and Cornwall.

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

Valuation Ratios
P/E Ratio 16.1
Price to Sales 7.2
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 16.4
Price to Free Cash Flow 16.4
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% 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 130.952 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 $4.0 billion.

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Financial statements of SRU-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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