Cominar Real Estate Investment Trust Valuation – September 2018 $TSE:CUF.UN

Company Profile (excerpt from Reuters): Cominar REIT 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.


Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CUF.UN – September 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 $2,194,191,303 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.11 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 -93.24% Fail
6. Moderate PEmg Ratio PEmg < 20 32.19 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.69 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 1.11 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 265.84 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 Fail


Stage 2: Determination of Intrinsic Value

EPSmg $0.37
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $5.43
MG Value based on 0% Growth $3.18
Market Implied Growth Rate 11.84%
Current Price $12.06
% of Intrinsic Value N/A

Cominar REIT does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth 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 or growth 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 seeing its EPSmg (normalized earnings) decline from $2.03 in 2014 to an estimated $0.37 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.84% 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 REIT revealed the company was trading below its Graham Number of $20.26. The company pays a dividend of $1.33 per share, for a yield of 11.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 32.19, which was below the industry average of 75.38, 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 $-19.58.

Cominar REIT receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$19.58
Graham Number $20.26
PEmg 32.19
Current Ratio 1.11
PB Ratio 0.69
Current Dividend $1.33
Dividend Yield 11.05%
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 $136,370,000
Total Current Liabilities $122,922,000
Long-Term Debt $3,574,964,000
Total Assets $6,873,107,000
Intangible Assets $139,982,000
Total Liabilities $3,704,419,000
Shares Outstanding (Diluted Average) 182,197,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.05
Dec2017 -$2.13
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 $0.37
Dec2017 $0.31
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

Recommended Reading:

Other ModernGraham posts about the company

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

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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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