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

Previous Close

$41.85

  Intrinsic Value

$15.04

stock screener

  Rating & Target

str. sell

-64%

Previous close

$41.85

 
Intrinsic value

$15.04

 
Up/down potential

-64%

 
Rating

str. sell

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 3.9

 

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
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
Revenue, $m
  390
  426
  464
  503
  544
  587
  631
  677
  725
  775
  826
  880
  936
  994
  1,055
  1,118
  1,184
  1,252
  1,324
  1,398
  1,476
  1,558
  1,643
  1,732
  1,826
  1,923
  2,025
  2,132
  2,244
  2,361
  2,484
Variable operating expenses, $m
 
  258
  281
  305
  329
  355
  382
  410
  439
  469
  500
  532
  566
  601
  638
  676
  716
  758
  801
  846
  893
  943
  994
  1,048
  1,104
  1,164
  1,225
  1,290
  1,358
  1,429
  1,503
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
  258
  281
  305
  329
  355
  382
  410
  439
  469
  500
  532
  566
  601
  638
  676
  716
  758
  801
  846
  893
  943
  994
  1,048
  1,104
  1,164
  1,225
  1,290
  1,358
  1,429
  1,503
Operating income, $m
  140
  168
  183
  199
  215
  232
  249
  268
  286
  306
  326
  348
  370
  393
  417
  442
  467
  495
  523
  552
  583
  615
  649
  684
  721
  760
  800
  842
  886
  933
  981
EBITDA, $m
  142
  168
  183
  199
  215
  232
  249
  268
  286
  306
  326
  348
  370
  393
  417
  442
  467
  495
  523
  552
  583
  615
  649
  684
  721
  760
  800
  842
  886
  933
  981
Interest expense (income), $m
  76
  82
  90
  98
  107
  116
  126
  136
  146
  157
  168
  179
  191
  204
  217
  230
  245
  259
  275
  291
  307
  325
  343
  362
  382
  403
  425
  447
  471
  496
  522
Earnings before tax, $m
  324
  86
  93
  100
  108
  115
  123
  132
  140
  149
  159
  168
  178
  189
  200
  211
  223
  235
  248
  262
  276
  291
  306
  322
  339
  357
  375
  395
  415
  436
  459
Tax expense, $m
  0
  23
  25
  27
  29
  31
  33
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
  64
  67
  71
  75
  78
  83
  87
  92
  96
  101
  107
  112
  118
  124
Net income, $m
  324
  63
  68
  73
  79
  84
  90
  96
  102
  109
  116
  123
  130
  138
  146
  154
  163
  172
  181
  191
  201
  212
  223
  235
  248
  261
  274
  288
  303
  319
  335

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
  5,684
  6,188
  6,713
  7,259
  7,826
  8,416
  9,030
  9,667
  10,329
  11,018
  11,734
  12,479
  13,254
  14,062
  14,903
  15,780
  16,695
  17,649
  18,646
  19,686
  20,774
  21,910
  23,098
  24,341
  25,642
  27,003
  28,428
  29,921
  31,484
  33,122
Adjusted assets (=assets-cash), $m
  5,202
  5,684
  6,188
  6,713
  7,259
  7,826
  8,416
  9,030
  9,667
  10,329
  11,018
  11,734
  12,479
  13,254
  14,062
  14,903
  15,780
  16,695
  17,649
  18,646
  19,686
  20,774
  21,910
  23,098
  24,341
  25,642
  27,003
  28,428
  29,921
  31,484
  33,122
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
  -225
  -99
  -108
  -117
  -127
  -137
  -147
  -158
  -169
  -181
  -193
  -205
  -218
  -232
  -246
  -260
  -276
  -292
  -308
  -326
  -344
  -363
  -383
  -404
  -425
  -448
  -472
  -497
  -523
  -550
  -579
Total debt, $m
  2,061
  2,250
  2,462
  2,682
  2,910
  3,148
  3,395
  3,652
  3,919
  4,197
  4,485
  4,785
  5,098
  5,422
  5,761
  6,113
  6,481
  6,864
  7,264
  7,682
  8,118
  8,573
  9,049
  9,547
  10,068
  10,613
  11,183
  11,780
  12,406
  13,061
  13,747
Total liabilities, $m
  2,192
  2,381
  2,593
  2,813
  3,041
  3,279
  3,526
  3,783
  4,050
  4,328
  4,616
  4,916
  5,229
  5,553
  5,892
  6,244
  6,612
  6,995
  7,395
  7,813
  8,249
  8,704
  9,180
  9,678
  10,199
  10,744
  11,314
  11,911
  12,537
  13,192
  13,878
Total equity, $m
  3,022
  3,302
  3,595
  3,900
  4,217
  4,547
  4,890
  5,246
  5,616
  6,001
  6,401
  6,817
  7,250
  7,701
  8,170
  8,659
  9,168
  9,700
  10,254
  10,833
  11,438
  12,070
  12,730
  13,420
  14,142
  14,898
  15,689
  16,517
  17,384
  18,292
  19,244
Total liabilities and equity, $m
  5,214
  5,683
  6,188
  6,713
  7,258
  7,826
  8,416
  9,029
  9,666
  10,329
  11,017
  11,733
  12,479
  13,254
  14,062
  14,903
  15,780
  16,695
  17,649
  18,646
  19,687
  20,774
  21,910
  23,098
  24,341
  25,642
  27,003
  28,428
  29,921
  31,484
  33,122
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
  0.710
  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
  0.710
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
  63
  68
  73
  79
  84
  90
  96
  102
  109
  116
  123
  130
  138
  146
  154
  163
  172
  181
  191
  201
  212
  223
  235
  248
  261
  274
  288
  303
  319
  335
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
  161
  63
  68
  73
  79
  84
  90
  96
  102
  109
  116
  123
  130
  138
  146
  154
  163
  172
  181
  191
  201
  212
  223
  235
  248
  261
  274
  288
  303
  319
  335
Change in working capital, $m
  0
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
Cash from operations, $m
  161
  72
  77
  82
  88
  94
  100
  107
  114
  121
  128
  135
  143
  151
  160
  169
  178
  188
  198
  209
  220
  231
  243
  256
  269
  283
  298
  313
  329
  346
  364
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
  72
  77
  82
  88
  94
  100
  107
  114
  121
  128
  135
  143
  151
  160
  169
  178
  188
  198
  209
  220
  231
  243
  256
  269
  283
  298
  313
  329
  346
  364
Issuance/(repayment) of debt, $m
  120
  201
  211
  220
  229
  238
  247
  257
  267
  277
  288
  300
  312
  325
  338
  353
  368
  383
  400
  417
  436
  456
  476
  498
  521
  545
  570
  597
  625
  655
  686
Issuance/(repurchase) of shares, $m
  369
  217
  225
  232
  239
  246
  253
  260
  268
  276
  284
  293
  303
  313
  323
  335
  347
  360
  373
  388
  403
  419
  437
  455
  475
  495
  517
  540
  564
  590
  617
Cash from financing (excl. dividends), $m  
  491
  418
  436
  452
  468
  484
  500
  517
  535
  553
  572
  593
  615
  638
  661
  688
  715
  743
  773
  805
  839
  875
  913
  953
  996
  1,040
  1,087
  1,137
  1,189
  1,245
  1,303
Total cash flow (excl. dividends), $m
  123
  490
  513
  534
  556
  578
  600
  624
  648
  674
  701
  729
  758
  789
  822
  856
  892
  931
  971
  1,014
  1,059
  1,106
  1,156
  1,209
  1,265
  1,323
  1,385
  1,450
  1,519
  1,591
  1,667
Retained Cash Flow (-), $m
  -430
  -280
  -293
  -305
  -317
  -330
  -343
  -356
  -370
  -385
  -400
  -416
  -433
  -451
  -469
  -489
  -510
  -531
  -555
  -579
  -605
  -632
  -660
  -690
  -722
  -756
  -791
  -828
  -867
  -908
  -952
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
 
  210
  220
  229
  238
  248
  258
  268
  278
  289
  301
  313
  325
  338
  352
  367
  383
  399
  417
  435
  454
  475
  496
  519
  543
  568
  594
  622
  651
  682
  715
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
 
  194
  187
  177
  166
  154
  142
  129
  116
  103
  91
  79
  67
  57
  47
  38
  31
  24
  19
  14
  11
  8
  5
  4
  2
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  94.7
  89.9
  85.6
  81.7
  78.2
  75.0
  72.0
  69.2
  66.7
  64.3
  62.1
  60.0
  58.1
  56.2
  54.5
  52.8
  51.3
  49.8
  48.4
  47.0
  45.7
  44.4
  43.2
  42.1
  41.0
  39.9
  38.8
  37.8
  36.9
  35.9

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 10.9
Price to Sales 9.1
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 22
Price to Free Cash Flow 22.3
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 63.4%
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 9.3% 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 92.754 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 $3.9 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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