Canadian REIT Stocks

Crombie Real Estate Investment Trust Valuation – August 2018 $TSE-CRR.UN

Company Profile (excerpt from Reuters): Crombie Real Estate Investment Trust is a Canada-based unincorporated open-ended real estate investment trust (REIT). The Trust invests in income-producing retail, office and mixed use properties in Canada. It owns and operates primarily retail and office real estate assets located in Canada. It owns a portfolio of over 280 investment properties in 10 provinces, comprising approximately 19.1 million square feet of gross leasable area (GLA). It focuses on owning, operating and developing a portfolio of high quality grocery and drug store anchored shopping centers, freestanding stores and mixed use developments primarily in Canada’s urban and suburban markets. Its property portfolio includes Aberdeen Business Centre, Barrington Place, Brunswick Place, Kenmount Business Centre, Barrington Tower, CIBC Building, Amherst Centre, Avalon Mall, County Fair Mall, 1 Avenue NW Safeway, 2 Avenue West Safeway, 13 Avenue, Kildonan Green, Yellowhead Highway Safeway, among others.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CRR.UN – August 2018

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 $1,178,043,838 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.11 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
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 77.21% Pass
6. Moderate PEmg Ratio PEmg < 20 98.21 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.35 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 0.11 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -5.12 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.13
MG Growth Estimate 15.00%
MG Value $5.16
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $1.94
MG Value based on 0% Growth $1.14
Market Implied Growth Rate 44.85%
Current Price $13.16
% of Intrinsic Value 255.09%

Crombie Real Estate Investment Trust does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-0.32 in 2014 to an estimated $0.13 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 44.85% 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 Crombie Real Estate Investment Trust revealed the company was trading above its Graham Number of $7.74. The company pays a dividend of $0.89 per share, for a yield of 6.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 98.21, which was above the industry average of 47.15. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-16.77.

Crombie Real Estate Investment Trust scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$16.77
Graham Number $7.74
PEmg 98.21
Current Ratio 0.11
PB Ratio 1.35
Current Dividend $0.89
Dividend Yield 6.76%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $48,688,000
Total Current Liabilities $460,671,000
Long-Term Debt $2,108,185,000
Total Assets $4,063,543,000
Intangible Assets $0
Total Liabilities $2,587,986,000
Shares Outstanding (Diluted Average) 151,463,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.46
Dec2017 $0.20
Dec2016 $0.00
Dec2015 -$0.39
Dec2014 -$0.32
Dec2013 -$0.39
Dec2012 -$0.41
Dec2011 -$0.43
Dec2010 $0.44
Dec2009 $0.36
Dec2008 $0.57
Dec2007 $0.49
Dec2006 $0.44

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.13
Dec2017 -$0.08
Dec2016 -$0.25
Dec2015 -$0.38
Dec2014 -$0.32
Dec2013 -$0.24
Dec2012 -$0.08
Dec2011 $0.16
Dec2010 $0.45
Dec2009 $0.43
Dec2008 $0.41
Dec2007 $0.28
Dec2006 $0.15

Recommended Reading:

Other ModernGraham posts about the company

5 Overvalued Canadian Stocks for Intelligent Investors – March 2017
Crombie Real Estate Investment Trust Valuation – Initial Coverage $TSE:CRR.UN

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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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