Canadian REIT Stocks

Cominar Real Estate Investment Trust – Initial Coverage $TSE:CUF.UN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cominar Real Estate Investment Trust (TSE:CUF.UN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cominar Real Estate Investment Trust is a Canada-based real estate investment trust (REIT). The Company is a commercial property owner and manager in the province of Quebec. Its segments include Office, Retail, and Industrial and mixed-use. Its activities include a portfolio of three property types, including office properties, retail properties, and industrial and mixed-use properties located in Canadian provinces. It owns and manages a portfolio of approximately 570 properties, including over 140 office buildings, approximately 200 retail buildings and over 230 industrial and mixed-use buildings located in Quebec, Ontario, the Atlantic Provinces and Western Canada. Its portfolio of properties includes 4635 1re Avenue, 5055 Wilfrid-Hamel Ouest Blvd, 2014 Cyrille-Duquet St, 455 du Marais St, 979 de Bourgogne Ave, 400 Cooper St, 355 du Marais St, 3323 du Carrefour St, 1990 Cyrille-Duquet St, 2025 Lavoisier St and 280 Racine St.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CUF.UN – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,599,857,498 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.55 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 61.48% Pass
6. Moderate PEmg Ratio PEmg < 20 9.12 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.63 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.55 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -79.01 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $1.54
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade B+
MG Value based on 3% Growth $22.32
MG Value based on 0% Growth $13.08
Market Implied Growth Rate 0.31%
Current Price $14.04
% of Intrinsic Value N/A

Cominar Real Estate Investment Trust qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.19 in 2013 to an estimated $1.54 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 0.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Cominar Real Estate Investment Trust revealed the company was trading below its Graham Number of $27.01. The company pays a dividend of $1.47 per share, for a yield of 10.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 9.12, which was below the industry average of 31.91, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-25.54.

Cominar Real Estate Investment Trust performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$25.54
Graham Number $27.01
PEmg 9.12
Current Ratio 0.55
PB Ratio 0.63
Current Dividend $1.47
Dividend Yield 10.48%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $66,510,000
Total Current Liabilities $121,576,000
Long-Term Debt $4,350,696,000
Total Assets $8,287,785,000
Intangible Assets $166,971,000
Total Liabilities $4,472,272,000
Shares Outstanding (Diluted Average) 172,505,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.55
Dec2016 $1.40
Dec2015 $1.62
Dec2014 $1.45
Dec2013 $1.98
Dec2012 $2.91
Dec2011 $2.45
Dec2010 $1.72
Dec2009 $0.57
Dec2008 $0.54
Dec2007 $0.69
Dec2006 $0.98
Dec2005 $0.95
Dec2004 $0.98
Dec2003 $1.14
Dec2002 $1.14
Dec2001 $1.08
Dec2000 $1.03
Dec1999 $1.01
Dec1998 $0.56

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.54
Dec2016 $1.65
Dec2015 $1.87
Dec2014 $2.03
Dec2013 $2.19
Dec2012 $2.08
Dec2011 $1.51
Dec2010 $0.99
Dec2009 $0.67
Dec2008 $0.75
Dec2007 $0.89
Dec2006 $1.00
Dec2005 $1.03
Dec2004 $1.07
Dec2003 $1.10
Dec2002 $1.04
Dec2001 $0.91

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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