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

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$36.04

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$36.04

 
Intrinsic value

$8.91

 
Up/down potential

-75%

 
Rating

str. sell

 
Value-price divergence* premium content

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*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 3.1

 

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
  11.70
  11.03
  10.43
  9.88
  9.40
  8.96
  8.56
  8.20
  7.88
  7.60
  7.34
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.91
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
Revenue, $m
  390
  436
  484
  534
  587
  642
  700
  759
  822
  887
  954
  1,024
  1,097
  1,172
  1,251
  1,332
  1,417
  1,506
  1,598
  1,694
  1,794
  1,898
  2,007
  2,121
  2,239
  2,363
  2,493
  2,628
  2,770
  2,918
  3,073
Variable operating expenses, $m
 
  264
  293
  323
  355
  388
  423
  459
  497
  536
  577
  619
  663
  709
  757
  806
  858
  911
  967
  1,025
  1,085
  1,148
  1,214
  1,283
  1,355
  1,430
  1,508
  1,590
  1,676
  1,766
  1,859
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
  264
  293
  323
  355
  388
  423
  459
  497
  536
  577
  619
  663
  709
  757
  806
  858
  911
  967
  1,025
  1,085
  1,148
  1,214
  1,283
  1,355
  1,430
  1,508
  1,590
  1,676
  1,766
  1,859
Operating income, $m
  140
  172
  191
  211
  232
  254
  276
  300
  325
  350
  377
  404
  433
  463
  494
  526
  560
  595
  631
  669
  709
  750
  793
  838
  885
  934
  985
  1,038
  1,094
  1,153
  1,214
EBITDA, $m
  142
  172
  191
  211
  232
  254
  276
  300
  325
  350
  377
  404
  433
  463
  494
  526
  560
  595
  631
  669
  709
  750
  793
  838
  885
  934
  985
  1,038
  1,094
  1,153
  1,214
Interest expense (income), $m
  76
  82
  92
  103
  114
  126
  138
  151
  164
  178
  193
  208
  224
  240
  257
  274
  293
  312
  331
  352
  373
  396
  419
  443
  469
  495
  523
  552
  582
  614
  647
Earnings before tax, $m
  324
  90
  99
  108
  118
  128
  138
  149
  160
  172
  184
  197
  210
  223
  237
  252
  267
  283
  300
  317
  335
  354
  374
  394
  416
  438
  462
  486
  512
  539
  567
Tax expense, $m
  0
  24
  27
  29
  32
  34
  37
  40
  43
  46
  50
  53
  57
  60
  64
  68
  72
  76
  81
  86
  91
  96
  101
  106
  112
  118
  125
  131
  138
  146
  153
Net income, $m
  324
  66
  72
  79
  86
  93
  101
  109
  117
  125
  134
  143
  153
  163
  173
  184
  195
  207
  219
  232
  245
  259
  273
  288
  304
  320
  337
  355
  374
  393
  414

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
  5,808
  6,449
  7,122
  7,825
  8,561
  9,327
  10,126
  10,957
  11,821
  12,718
  13,651
  14,621
  15,629
  16,676
  17,766
  18,899
  20,079
  21,307
  22,587
  23,920
  25,311
  26,762
  28,277
  29,859
  31,511
  33,238
  35,044
  36,933
  38,909
  40,977
Adjusted assets (=assets-cash), $m
  5,202
  5,808
  6,449
  7,122
  7,825
  8,561
  9,327
  10,126
  10,957
  11,821
  12,718
  13,651
  14,621
  15,629
  16,676
  17,766
  18,899
  20,079
  21,307
  22,587
  23,920
  25,311
  26,762
  28,277
  29,859
  31,511
  33,238
  35,044
  36,933
  38,909
  40,977
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
  -102
  -113
  -124
  -137
  -150
  -163
  -177
  -191
  -207
  -222
  -239
  -256
  -273
  -291
  -310
  -330
  -351
  -372
  -395
  -418
  -442
  -468
  -494
  -522
  -551
  -581
  -612
  -645
  -680
  -716
Total debt, $m
  2,061
  2,303
  2,571
  2,853
  3,148
  3,456
  3,777
  4,112
  4,460
  4,822
  5,198
  5,589
  5,995
  6,417
  6,856
  7,313
  7,788
  8,282
  8,797
  9,333
  9,892
  10,474
  11,082
  11,717
  12,380
  13,072
  13,796
  14,553
  15,344
  16,172
  17,039
Total liabilities, $m
  2,192
  2,434
  2,702
  2,984
  3,279
  3,587
  3,908
  4,243
  4,591
  4,953
  5,329
  5,720
  6,126
  6,548
  6,987
  7,444
  7,919
  8,413
  8,928
  9,464
  10,023
  10,605
  11,213
  11,848
  12,511
  13,203
  13,927
  14,684
  15,475
  16,303
  17,170
Total equity, $m
  3,022
  3,375
  3,747
  4,138
  4,547
  4,974
  5,419
  5,883
  6,366
  6,868
  7,389
  7,931
  8,495
  9,080
  9,689
  10,322
  10,980
  11,666
  12,379
  13,123
  13,898
  14,706
  15,549
  16,429
  17,348
  18,308
  19,312
  20,361
  21,458
  22,606
  23,808
Total liabilities and equity, $m
  5,214
  5,809
  6,449
  7,122
  7,826
  8,561
  9,327
  10,126
  10,957
  11,821
  12,718
  13,651
  14,621
  15,628
  16,676
  17,766
  18,899
  20,079
  21,307
  22,587
  23,921
  25,311
  26,762
  28,277
  29,859
  31,511
  33,239
  35,045
  36,933
  38,909
  40,978
Debt-to-equity ratio
  0.682
  0.680
  0.690
  0.690
  0.690
  0.690
  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
  0.720
  0.720
  0.720
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
  66
  72
  79
  86
  93
  101
  109
  117
  125
  134
  143
  153
  163
  173
  184
  195
  207
  219
  232
  245
  259
  273
  288
  304
  320
  337
  355
  374
  393
  414
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
  66
  72
  79
  86
  93
  101
  109
  117
  125
  134
  143
  153
  163
  173
  184
  195
  207
  219
  232
  245
  259
  273
  288
  304
  320
  337
  355
  374
  393
  414
Change in working capital, $m
  -5
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
Cash from operations, $m
  161
  76
  83
  91
  98
  106
  114
  123
  131
  141
  150
  160
  170
  181
  192
  203
  215
  227
  240
  254
  268
  283
  298
  314
  331
  349
  367
  387
  407
  428
  450
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
  -504
  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
  76
  83
  91
  98
  106
  114
  123
  131
  141
  150
  160
  170
  181
  192
  203
  215
  227
  240
  254
  268
  283
  298
  314
  331
  349
  367
  387
  407
  428
  450
Issuance/(repayment) of debt, $m
  119
  254
  268
  282
  295
  308
  321
  335
  348
  362
  376
  391
  406
  422
  439
  456
  475
  494
  515
  536
  559
  583
  608
  635
  663
  692
  724
  757
  791
  828
  867
Issuance/(repurchase) of shares, $m
  224
  23
  20
  18
  16
  13
  10
  7
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  491
  277
  288
  300
  311
  321
  331
  342
  351
  362
  376
  391
  406
  422
  439
  456
  475
  494
  515
  536
  559
  583
  608
  635
  663
  692
  724
  757
  791
  828
  867
Total cash flow (excl. dividends), $m
  123
  330
  352
  372
  393
  414
  435
  457
  480
  502
  526
  551
  576
  603
  631
  660
  690
  722
  755
  790
  827
  866
  906
  949
  994
  1,041
  1,091
  1,143
  1,198
  1,256
  1,317
Retained Cash Flow (-), $m
  -430
  -353
  -372
  -391
  -409
  -427
  -445
  -464
  -483
  -502
  -522
  -542
  -563
  -585
  -609
  -633
  -658
  -685
  -714
  -743
  -775
  -808
  -843
  -880
  -919
  -960
  -1,003
  -1,049
  -1,097
  -1,148
  -1,202
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
 
  0
  0
  0
  0
  0
  0
  0
  0
  1
  4
  9
  13
  17
  22
  27
  31
  36
  41
  47
  52
  58
  63
  69
  75
  81
  87
  94
  101
  108
  115
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
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  3
  3
  3
  3
  3
  2
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  99.3
  98.7
  98.2
  97.8
  97.6
  97.4
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2

Allied Properties Real Estate Investment Trust operates as an unincorporated closed-end real estate investment trust in Canada. The company, through its subsidiaries, provides Class I office space in the urban areas of Toronto, Montreal, Winnipeg, Quebec City, and Kitchener. It also provides property management and related services. The company serves various business tenants, including a range of service and professional firms, telecommunications and information technology providers, media and film groups, and storefront retailers. As of December 31, 2007, it owned and operated 50 properties located in Toronto, 7 properties in Winnipeg, 8 properties in Montreal, 5 properties in Quebec City, and 1 property in Kitchener. Allied Properties Real Estate Investment Trust was founded in 2002 and is headquartered in Toronto, Canada.

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

Valuation Ratios
P/E Ratio 9.4
Price to Sales 7.8
Price to Book 1
Price to Tangible Book
Price to Cash Flow 19
Price to Free Cash Flow -8.9
Growth Rates
Sales Growth Rate 6.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 46.1%
Cap. Spend. - 3 Yr. Gr. Rate 9.7%
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 11.7% 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 84.765 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 $3.1 billion.


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Stock chart of AP-UN Financial statements of AP-UN
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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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