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

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$32.76

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$32.76

 
Intrinsic value

$11.95

 
Up/down potential

-64%

 
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 4.3

 

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
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
Revenue, $m
  725
  753
  783
  816
  850
  886
  925
  966
  1,009
  1,055
  1,103
  1,154
  1,207
  1,264
  1,324
  1,387
  1,453
  1,522
  1,596
  1,673
  1,754
  1,839
  1,929
  2,023
  2,123
  2,227
  2,337
  2,452
  2,573
  2,700
  2,833
Variable operating expenses, $m
 
  392
  408
  425
  443
  461
  481
  503
  525
  549
  574
  599
  627
  656
  687
  720
  754
  790
  828
  868
  910
  955
  1,001
  1,050
  1,102
  1,156
  1,213
  1,273
  1,335
  1,401
  1,471
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
  392
  408
  425
  443
  461
  481
  503
  525
  549
  574
  599
  627
  656
  687
  720
  754
  790
  828
  868
  910
  955
  1,001
  1,050
  1,102
  1,156
  1,213
  1,273
  1,335
  1,401
  1,471
Operating income, $m
  386
  361
  375
  391
  407
  425
  443
  463
  484
  506
  529
  555
  581
  608
  637
  667
  699
  732
  767
  805
  844
  885
  928
  973
  1,021
  1,071
  1,124
  1,179
  1,237
  1,298
  1,363
EBITDA, $m
  388
  363
  377
  393
  409
  427
  445
  465
  486
  508
  531
  556
  581
  609
  637
  668
  700
  733
  768
  806
  845
  886
  929
  975
  1,022
  1,073
  1,125
  1,181
  1,239
  1,300
  1,365
Interest expense (income), $m
  160
  161
  169
  178
  187
  196
  207
  218
  229
  241
  254
  268
  282
  298
  314
  330
  348
  367
  387
  407
  429
  452
  476
  502
  528
  557
  586
  617
  650
  684
  720
Earnings before tax, $m
  386
  200
  206
  213
  221
  228
  237
  245
  255
  264
  275
  287
  298
  310
  323
  336
  350
  365
  381
  397
  414
  432
  451
  471
  492
  515
  538
  562
  588
  615
  643
Tax expense, $m
  0
  54
  56
  58
  60
  62
  64
  66
  69
  71
  74
  77
  81
  84
  87
  91
  95
  99
  103
  107
  112
  117
  122
  127
  133
  139
  145
  152
  159
  166
  174
Net income, $m
  322
  146
  151
  156
  161
  167
  173
  179
  186
  193
  200
  209
  218
  227
  236
  246
  256
  267
  278
  290
  302
  316
  330
  344
  359
  376
  393
  410
  429
  449
  469

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
  9,076
  9,440
  9,827
  10,240
  10,678
  11,143
  11,635
  12,155
  12,705
  13,286
  13,900
  14,547
  15,229
  15,948
  16,705
  17,503
  18,342
  19,225
  20,155
  21,133
  22,161
  23,242
  24,379
  25,575
  26,831
  28,151
  29,539
  30,997
  32,529
  34,138
Adjusted assets (=assets-cash), $m
  8,716
  9,076
  9,440
  9,827
  10,240
  10,678
  11,143
  11,635
  12,155
  12,705
  13,286
  13,900
  14,547
  15,229
  15,948
  16,705
  17,503
  18,342
  19,225
  20,155
  21,133
  22,161
  23,242
  24,379
  25,575
  26,831
  28,151
  29,539
  30,997
  32,529
  34,138
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
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
Working capital, $m
  -556
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -91
  -96
  -100
  -105
  -111
Total debt, $m
  3,845
  4,027
  4,231
  4,448
  4,678
  4,923
  5,183
  5,458
  5,749
  6,056
  6,381
  6,724
  7,086
  7,467
  7,869
  8,292
  8,738
  9,207
  9,701
  10,221
  10,767
  11,342
  11,947
  12,582
  13,250
  13,952
  14,691
  15,466
  16,281
  17,138
  18,037
Total liabilities, $m
  4,891
  5,073
  5,277
  5,494
  5,724
  5,969
  6,229
  6,504
  6,795
  7,102
  7,427
  7,770
  8,132
  8,513
  8,915
  9,338
  9,784
  10,253
  10,747
  11,267
  11,813
  12,388
  12,993
  13,628
  14,296
  14,998
  15,737
  16,512
  17,327
  18,184
  19,083
Total equity, $m
  3,848
  4,002
  4,163
  4,334
  4,516
  4,709
  4,914
  5,131
  5,360
  5,603
  5,859
  6,130
  6,415
  6,716
  7,033
  7,367
  7,719
  8,089
  8,478
  8,888
  9,320
  9,773
  10,250
  10,751
  11,278
  11,832
  12,415
  13,027
  13,670
  14,345
  15,055
Total liabilities and equity, $m
  8,739
  9,075
  9,440
  9,828
  10,240
  10,678
  11,143
  11,635
  12,155
  12,705
  13,286
  13,900
  14,547
  15,229
  15,948
  16,705
  17,503
  18,342
  19,225
  20,155
  21,133
  22,161
  23,243
  24,379
  25,574
  26,830
  28,152
  29,539
  30,997
  32,529
  34,138
Debt-to-equity ratio
  0.999
  1.010
  1.020
  1.030
  1.040
  1.050
  1.050
  1.060
  1.070
  1.080
  1.090
  1.100
  1.100
  1.110
  1.120
  1.130
  1.130
  1.140
  1.140
  1.150
  1.160
  1.160
  1.170
  1.170
  1.170
  1.180
  1.180
  1.190
  1.190
  1.190
  1.200
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
  146
  151
  156
  161
  167
  173
  179
  186
  193
  200
  209
  218
  227
  236
  246
  256
  267
  278
  290
  302
  316
  330
  344
  359
  376
  393
  410
  429
  449
  469
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
  2
  2
  2
  2
  2
Funds from operations, $m
  303
  148
  152
  158
  163
  169
  175
  181
  188
  195
  203
  210
  219
  227
  237
  246
  257
  268
  279
  291
  304
  317
  331
  345
  361
  377
  394
  412
  431
  450
  471
Change in working capital, $m
  -13
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
Cash from operations, $m
  316
  148
  154
  159
  164
  170
  176
  183
  190
  197
  204
  212
  221
  230
  239
  249
  259
  270
  282
  294
  307
  320
  334
  349
  365
  381
  398
  416
  435
  455
  476
Maintenance CAPEX, $m
  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
  -2
  -2
  -2
  -2
New CAPEX, $m
  0
  -1
  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
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  -91
  -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
  -2
  -3
  -3
  -3
  -3
Free cash flow, $m
  225
  147
  153
  158
  164
  169
  175
  182
  189
  196
  203
  211
  220
  228
  238
  248
  258
  269
  280
  292
  305
  319
  333
  347
  363
  379
  396
  414
  433
  453
  474
Issuance/(repayment) of debt, $m
  -11
  205
  203
  217
  231
  245
  260
  275
  291
  308
  325
  343
  362
  381
  402
  423
  446
  469
  494
  520
  547
  575
  604
  636
  668
  702
  738
  776
  815
  856
  900
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
  205
  203
  217
  231
  245
  260
  275
  291
  308
  325
  343
  362
  381
  402
  423
  446
  469
  494
  520
  547
  575
  604
  636
  668
  702
  738
  776
  815
  856
  900
Total cash flow (excl. dividends), $m
  172
  353
  356
  375
  394
  414
  435
  457
  480
  503
  528
  554
  581
  610
  640
  671
  704
  738
  774
  812
  852
  893
  937
  983
  1,031
  1,081
  1,134
  1,190
  1,248
  1,309
  1,374
Retained Cash Flow (-), $m
  -155
  -154
  -160
  -171
  -182
  -193
  -205
  -217
  -230
  -243
  -256
  -270
  -285
  -301
  -317
  -334
  -352
  -370
  -390
  -410
  -431
  -454
  -477
  -501
  -527
  -554
  -582
  -612
  -643
  -676
  -710
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
 
  198
  196
  204
  212
  221
  230
  240
  250
  261
  272
  283
  296
  309
  323
  337
  352
  368
  385
  402
  421
  440
  460
  481
  504
  527
  552
  578
  605
  634
  664
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
 
  182
  164
  154
  143
  132
  120
  108
  96
  85
  74
  63
  53
  44
  36
  29
  23
  17
  13
  10
  7
  5
  3
  2
  1
  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
  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 15.8
Price to Sales 7
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 16.1
Price to Free Cash Flow 16.1
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 3.9% 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 130.967 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 $4.3 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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