Is RioCan Real Estate Investment Trust (TSX:REI.UN) Fairly Priced After Recent DCF And P/E Signals
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If you are wondering whether RioCan Real Estate Investment Trust is offering good value at its current price, this article will walk through what the numbers are really saying about the units.
With RioCan units recently closing at $19.73 and returns of 0.9% over 7 days, 1.1% over 30 days, 5.2% year to date, 8.4% over 1 year and 8.0% over 3 years, investors may be reassessing both the potential and the risks around the trust.
Recent coverage has focused on RioCan’s position within Canadian real estate investment trusts and how the market is treating income focused vehicles relative to other asset classes. This context helps explain why even modest price moves can attract attention from investors looking for a balance between distributions and unit price stability.
Despite this, RioCan currently scores 0 out of 6 on our valuation checks. Next we will look at what different valuation approaches say about the units and finish with a way to tie those methods together into a clearer view of value.
RioCan Real Estate Investment Trust scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
A Discounted Cash Flow model projects RioCan Real Estate Investment Trust’s adjusted funds from operations into the future, then discounts those CA$ cash flows back to today to estimate what the units could be worth right now.
For RioCan, the model uses last twelve months free cash flow of about CA$553.2 million and applies a 2 stage Free Cash Flow to Equity approach based on adjusted funds from operations. Analysts supply estimates out to 2027, with projected free cash flow of CA$414.5 million in that year. Beyond that, Simply Wall St extrapolates further, with ten year projections that run through 2035, such as an estimated CA$383.3 million in 2035, all discounted back to today.
Pulling those discounted cash flows together gives an estimated intrinsic value of CA$19.47 per unit, compared with the recent unit price of CA$19.73. That suggests RioCan is about 1.3% overvalued on this DCF view, which is a very small gap and well within a reasonable margin of error for this kind of model.
Result: ABOUT RIGHT
RioCan Real Estate Investment Trust is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment’s notice. Track the value in your watchlist or portfolio and be alerted on when to act.
For a profitable business, the P/E ratio is a straightforward way to think about what you are paying for each dollar of earnings. Higher growth expectations or lower perceived risk usually justify a higher P/E, while slower growth or higher risk point to a lower, more conservative multiple.
RioCan is currently trading on a P/E of 83.77x. That is well above the Retail REITs industry average of about 15.68x and also above the average of key peers at 15.92x. On simple comparisons, the units look expensive relative to both the sector and similar companies.
Simply Wall St’s Fair Ratio for RioCan is 26.33x. This is a proprietary estimate of what a reasonable P/E could be for the trust, taking into account factors such as its earnings growth profile, profit margins, risk indicators, market cap and its Retail REITs industry classification. Because it adjusts for these fundamentals, the Fair Ratio can offer a more tailored reference point than broad peer or industry averages alone.
Comparing the Fair Ratio of 26.33x with the current P/E of 83.77x suggests RioCan is trading at a richer level than that fundamentals based benchmark.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simple stories you create about RioCan that tie your view of its future revenue, earnings and margins to a financial forecast and a fair value number, all within the Simply Wall St Community page used by millions of investors.
Instead of only looking at ratios, you set your own assumptions and compare the fair value those assumptions imply with the current unit price to decide whether RioCan looks attractive or expensive to you. You can then see that view automatically update when new information such as earnings or news arrives.
For example, one RioCan Narrative might lean toward the higher analyst price target of CA$22.50 based on confidence in catalysts like lease repricing and capital recycling. Another might sit closer to the lower CA$18.00 target because it places more weight on risks such as interest costs and project deferrals. Narratives simply show you how each story translates into numbers so you can choose which one you agree with.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include REI-UN.TO.
