Intrinsic value of Allied Properties Real Estate Investment - AP-UN

Previous Close

$38.74

  Intrinsic Value

$13.66

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  Rating & Target

str. sell

-65%

Previous close

$38.74

 
Intrinsic value

$13.66

 
Up/down potential

-65%

 
Rating

str. sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AP-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 3.6

 

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, %
  6.85
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
  6.32
  6.19
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
Revenue, $m
  390
  423
  457
  492
  529
  567
  607
  648
  691
  736
  783
  831
  881
  934
  989
  1,046
  1,105
  1,168
  1,233
  1,301
  1,372
  1,446
  1,523
  1,605
  1,690
  1,779
  1,872
  1,970
  2,072
  2,180
  2,292
Variable operating expenses, $m
 
  256
  276
  298
  320
  343
  367
  392
  418
  445
  473
  503
  533
  565
  598
  633
  669
  706
  746
  787
  830
  875
  922
  971
  1,022
  1,076
  1,133
  1,192
  1,254
  1,319
  1,387
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
  249
  256
  276
  298
  320
  343
  367
  392
  418
  445
  473
  503
  533
  565
  598
  633
  669
  706
  746
  787
  830
  875
  922
  971
  1,022
  1,076
  1,133
  1,192
  1,254
  1,319
  1,387
Operating income, $m
  140
  167
  180
  194
  209
  224
  240
  256
  273
  291
  309
  328
  348
  369
  391
  413
  437
  461
  487
  514
  542
  571
  602
  634
  667
  703
  740
  778
  819
  861
  905
EBITDA, $m
  142
  167
  180
  194
  209
  224
  240
  256
  273
  291
  309
  328
  348
  369
  391
  413
  437
  461
  487
  514
  542
  571
  602
  634
  667
  703
  740
  778
  819
  861
  905
Interest expense (income), $m
  76
  82
  89
  97
  105
  113
  122
  130
  140
  149
  159
  170
  180
  192
  203
  216
  228
  242
  256
  270
  285
  301
  318
  335
  353
  372
  392
  413
  435
  458
  482
Earnings before tax, $m
  324
  85
  91
  98
  104
  111
  118
  126
  133
  141
  150
  159
  168
  177
  187
  197
  208
  219
  231
  244
  256
  270
  284
  299
  314
  330
  347
  365
  384
  403
  424
Tax expense, $m
  0
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  51
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  89
  94
  99
  104
  109
  114
Net income, $m
  324
  62
  67
  71
  76
  81
  86
  92
  97
  103
  109
  116
  122
  129
  137
  144
  152
  160
  169
  178
  187
  197
  207
  218
  229
  241
  253
  266
  280
  294
  309

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  12
  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
  5,214
  5,637
  6,091
  6,563
  7,054
  7,564
  8,094
  8,645
  9,218
  9,814
  10,434
  11,080
  11,752
  12,452
  13,182
  13,944
  14,739
  15,569
  16,435
  17,341
  18,288
  19,278
  20,313
  21,397
  22,531
  23,719
  24,963
  26,266
  27,631
  29,062
  30,561
Adjusted assets (=assets-cash), $m
  5,202
  5,637
  6,091
  6,563
  7,054
  7,564
  8,094
  8,645
  9,218
  9,814
  10,434
  11,080
  11,752
  12,452
  13,182
  13,944
  14,739
  15,569
  16,435
  17,341
  18,288
  19,278
  20,313
  21,397
  22,531
  23,719
  24,963
  26,266
  27,631
  29,062
  30,561
Revenue / Adjusted assets
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
Average production assets, $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
Working capital, $m
  -233
  -99
  -106
  -115
  -123
  -132
  -141
  -151
  -161
  -172
  -182
  -194
  -205
  -218
  -230
  -244
  -258
  -272
  -287
  -303
  -320
  -337
  -355
  -374
  -394
  -414
  -436
  -459
  -483
  -508
  -534
Total debt, $m
  2,061
  2,231
  2,421
  2,619
  2,825
  3,038
  3,261
  3,491
  3,731
  3,981
  4,241
  4,511
  4,793
  5,086
  5,392
  5,712
  6,045
  6,392
  6,755
  7,135
  7,532
  7,946
  8,380
  8,834
  9,310
  9,807
  10,328
  10,874
  11,446
  12,046
  12,674
Total liabilities, $m
  2,192
  2,362
  2,552
  2,750
  2,956
  3,169
  3,392
  3,622
  3,862
  4,112
  4,372
  4,642
  4,924
  5,217
  5,523
  5,843
  6,176
  6,523
  6,886
  7,266
  7,663
  8,077
  8,511
  8,965
  9,441
  9,938
  10,459
  11,005
  11,577
  12,177
  12,805
Total equity, $m
  3,022
  3,275
  3,539
  3,813
  4,099
  4,395
  4,703
  5,023
  5,356
  5,702
  6,062
  6,437
  6,828
  7,235
  7,659
  8,101
  8,563
  9,045
  9,549
  10,075
  10,625
  11,200
  11,802
  12,432
  13,091
  13,781
  14,503
  15,260
  16,054
  16,885
  17,756
Total liabilities and equity, $m
  5,214
  5,637
  6,091
  6,563
  7,055
  7,564
  8,095
  8,645
  9,218
  9,814
  10,434
  11,079
  11,752
  12,452
  13,182
  13,944
  14,739
  15,568
  16,435
  17,341
  18,288
  19,277
  20,313
  21,397
  22,532
  23,719
  24,962
  26,265
  27,631
  29,062
  30,561
Debt-to-equity ratio
  0.682
  0.680
  0.680
  0.690
  0.690
  0.690
  0.690
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
Adjusted equity ratio
  0.579
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  324
  62
  67
  71
  76
  81
  86
  92
  97
  103
  109
  116
  122
  129
  137
  144
  152
  160
  169
  178
  187
  197
  207
  218
  229
  241
  253
  266
  280
  294
  309
Depreciation, amort., depletion, $m
  2
  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
Funds from operations, $m
  156
  62
  67
  71
  76
  81
  86
  92
  97
  103
  109
  116
  122
  129
  137
  144
  152
  160
  169
  178
  187
  197
  207
  218
  229
  241
  253
  266
  280
  294
  309
Change in working capital, $m
  -5
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
Cash from operations, $m
  161
  70
  75
  79
  85
  90
  96
  101
  107
  114
  120
  127
  134
  142
  149
  157
  166
  175
  184
  194
  204
  214
  225
  237
  249
  262
  275
  289
  304
  319
  335
Maintenance CAPEX, $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
New CAPEX, $m
  -2
  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 investing activities, $m
  -529
  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
Free cash flow, $m
  -368
  70
  75
  79
  85
  90
  96
  101
  107
  114
  120
  127
  134
  142
  149
  157
  166
  175
  184
  194
  204
  214
  225
  237
  249
  262
  275
  289
  304
  319
  335
Issuance/(repayment) of debt, $m
  119
  182
  190
  198
  206
  214
  222
  231
  240
  250
  260
  270
  282
  293
  306
  319
  333
  348
  363
  379
  397
  415
  434
  454
  475
  498
  521
  546
  572
  599
  628
Issuance/(repurchase) of shares, $m
  224
  191
  197
  203
  209
  215
  222
  228
  235
  243
  251
  259
  268
  278
  288
  298
  310
  322
  335
  348
  363
  378
  394
  412
  430
  449
  469
  491
  513
  537
  562
Cash from financing (excl. dividends), $m  
  491
  373
  387
  401
  415
  429
  444
  459
  475
  493
  511
  529
  550
  571
  594
  617
  643
  670
  698
  727
  760
  793
  828
  866
  905
  947
  990
  1,037
  1,085
  1,136
  1,190
Total cash flow (excl. dividends), $m
  123
  442
  462
  481
  499
  519
  539
  561
  583
  606
  631
  657
  684
  713
  743
  775
  809
  844
  882
  921
  963
  1,007
  1,054
  1,103
  1,154
  1,208
  1,266
  1,326
  1,389
  1,456
  1,526
Retained Cash Flow (-), $m
  -430
  -253
  -264
  -274
  -285
  -296
  -308
  -320
  -333
  -346
  -360
  -375
  -391
  -407
  -424
  -443
  -462
  -482
  -504
  -526
  -550
  -575
  -602
  -630
  -659
  -690
  -723
  -757
  -793
  -831
  -871
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
 
  189
  198
  206
  214
  223
  231
  240
  250
  260
  271
  282
  293
  306
  319
  332
  347
  362
  378
  395
  413
  432
  452
  473
  495
  518
  543
  569
  596
  624
  655
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
 
  175
  168
  159
  149
  138
  127
  116
  104
  93
  82
  71
  61
  51
  43
  35
  28
  22
  17
  13
  10
  7
  5
  3
  2
  1
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  95.0
  90.4
  86.2
  82.4
  78.9
  75.7
  72.7
  70.0
  67.4
  65.0
  62.7
  60.6
  58.6
  56.7
  54.9
  53.2
  51.6
  50.0
  48.5
  47.1
  45.7
  44.4
  43.1
  41.9
  40.7
  39.6
  38.5
  37.4
  36.4
  35.4

Allied Properties Real Estate Investment Trust is a closed-end real estate investment trust (REIT). The Trust is an owner, manager and developer of urban office properties. The Trust operates in nine urban markets in Canada: Toronto, Kitchener, Ottawa, Montreal, Quebec City, Winnipeg, Calgary, Edmonton and Vancouver. The Trust may invest in interests in producing office, retail and residential properties, and properties under development in Canada and the United States. The Trust specializes in an office format created through the adaptive re-use of light industrial structures in urban areas that has come to be known as Class I. Its properties include 32 Atlantic, 47 Jefferson, 64 Jefferson, 905 King W, The Castle, 141 Bathurst, 420 Wellington W, 468 King W, The Well, 193 Yonge and Dominion Square. Its tenant base include companies from various sectors, including business service and professional, telecommunications and information technology, and educational and institutional.

FINANCIAL RATIOS  of  Allied Properties Real Estate Investment (AP-UN)

Valuation Ratios
P/E Ratio 10.1
Price to Sales 8.4
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 20.4
Price to Free Cash Flow 20.6
Growth Rates
Sales Growth Rate 6.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 63.1%
Total Debt to Equity 68.2%
Interest Coverage 5
Management Effectiveness
Return On Assets 8.3%
Ret/ On Assets - 3 Yr. Avg. 7.2%
Return On Total Capital 6.9%
Ret/ On T. Cap. - 3 Yr. Avg. 5.8%
Return On Equity 11.5%
Return On Equity - 3 Yr. Avg. 9.6%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 56.7%
Gross Margin - 3 Yr. Avg. 58.3%
EBITDA Margin 103.1%
EBITDA Margin - 3 Yr. Avg. 84.8%
Operating Margin 36.2%
Oper. Margin - 3 Yr. Avg. 38.1%
Pre-Tax Margin 83.1%
Pre-Tax Margin - 3 Yr. Avg. 65.9%
Net Profit Margin 83.1%
Net Profit Margin - 3 Yr. Avg. 65.9%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 35.5%

AP-UN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AP-UN stock intrinsic value calculation we used $390 million for the last fiscal year's total revenue generated by Allied Properties Real Estate Investment. The default revenue input number comes from 2016 income statement of Allied Properties Real Estate Investment. 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 AP-UN stock valuation model: a) initial revenue growth rate of 8.4% 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 8.2%, whose default value for AP-UN is calculated based on our internal credit rating of Allied Properties Real Estate Investment, 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 Allied Properties Real Estate Investment.
    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 AP-UN stock the variable cost ratio is equal to 60.5%.

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 AP-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% for Allied Properties Real Estate Investment.

Corporate tax rate of 27% is the nominal tax rate for Allied Properties Real Estate Investment. 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 AP-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 AP-UN are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in Allied Properties Real Estate Investment 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 AP-UN is equal to -23.3%. 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 - $3022 million for Allied Properties Real Estate Investment - 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 92.669 million for Allied Properties Real Estate Investment 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 Allied Properties Real Estate Investment at the current share price and the inputted number of shares is $3.6 billion.

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Financial statements of AP-UN
Valuation of Stocks

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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