Intrinsic value of Armada Hoffler Properties - AHH

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$14.49

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$14.49

 
Intrinsic value

$7.00

 
Up/down potential

-52%

 
Rating

str. sell

 
Value-price divergence* premium content

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Our model is not good at valuating stocks of financial companies, such as AHH.

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

We calculate the intrinsic value of AHH 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 0.8

 

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, %
  2.38
  22.20
  20.48
  18.93
  17.54
  16.28
  15.16
  14.14
  13.23
  12.40
  11.66
  11.00
  10.40
  9.86
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
Revenue, $m
  258
  315
  380
  452
  531
  617
  711
  812
  919
  1,033
  1,153
  1,280
  1,413
  1,553
  1,698
  1,850
  2,008
  2,172
  2,343
  2,521
  2,706
  2,897
  3,097
  3,304
  3,520
  3,744
  3,977
  4,220
  4,474
  4,738
  5,013
Variable operating expenses, $m
 
  282
  340
  404
  475
  553
  636
  726
  822
  924
  1,032
  1,146
  1,265
  1,390
  1,520
  1,656
  1,797
  1,944
  2,097
  2,256
  2,421
  2,593
  2,772
  2,957
  3,150
  3,351
  3,560
  3,777
  4,004
  4,240
  4,487
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
  232
  282
  340
  404
  475
  553
  636
  726
  822
  924
  1,032
  1,146
  1,265
  1,390
  1,520
  1,656
  1,797
  1,944
  2,097
  2,256
  2,421
  2,593
  2,772
  2,957
  3,150
  3,351
  3,560
  3,777
  4,004
  4,240
  4,487
Operating income, $m
  27
  33
  40
  47
  56
  65
  75
  85
  96
  108
  121
  134
  148
  163
  178
  194
  211
  228
  246
  265
  284
  304
  325
  347
  370
  393
  418
  443
  470
  497
  526
EBITDA, $m
  62
  76
  91
  109
  128
  148
  171
  195
  221
  248
  277
  308
  340
  373
  408
  445
  483
  522
  563
  606
  650
  696
  744
  794
  846
  900
  956
  1,014
  1,075
  1,139
  1,205
Interest expense (income), $m
  15
  18
  25
  32
  40
  49
  59
  69
  81
  93
  106
  119
  134
  149
  165
  181
  198
  216
  235
  254
  274
  295
  317
  339
  363
  387
  412
  439
  466
  495
  525
Earnings before tax, $m
  43
  15
  15
  15
  16
  16
  16
  16
  16
  15
  15
  15
  15
  14
  14
  13
  13
  12
  11
  11
  10
  9
  8
  8
  7
  6
  5
  4
  3
  3
  2
Tax expense, $m
  0
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  3
  3
  3
  3
  3
  2
  2
  2
  2
  2
  1
  1
  1
  1
  0
Net income, $m
  28
  11
  11
  11
  11
  11
  12
  11
  11
  11
  11
  11
  11
  10
  10
  10
  9
  9
  8
  8
  7
  7
  6
  6
  5
  4
  4
  3
  3
  2
  1

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  22
  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
  982
  1,172
  1,412
  1,679
  1,974
  2,295
  2,643
  3,017
  3,416
  3,840
  4,288
  4,759
  5,254
  5,772
  6,313
  6,877
  7,464
  8,076
  8,711
  9,371
  10,058
  10,771
  11,512
  12,283
  13,084
  13,918
  14,786
  15,689
  16,631
  17,612
  18,635
Adjusted assets (=assets-cash), $m
  960
  1,172
  1,412
  1,679
  1,974
  2,295
  2,643
  3,017
  3,416
  3,840
  4,288
  4,759
  5,254
  5,772
  6,313
  6,877
  7,464
  8,076
  8,711
  9,371
  10,058
  10,771
  11,512
  12,283
  13,084
  13,918
  14,786
  15,689
  16,631
  17,612
  18,635
Revenue / Adjusted assets
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
  0.269
Average production assets, $m
  667
  815
  982
  1,168
  1,373
  1,596
  1,838
  2,098
  2,375
  2,670
  2,982
  3,309
  3,654
  4,014
  4,390
  4,782
  5,191
  5,615
  6,057
  6,517
  6,994
  7,490
  8,005
  8,541
  9,098
  9,678
  10,281
  10,910
  11,564
  12,247
  12,958
Working capital, $m
  0
  -27
  -32
  -38
  -45
  -52
  -60
  -69
  -78
  -88
  -98
  -109
  -120
  -132
  -144
  -157
  -171
  -185
  -199
  -214
  -230
  -246
  -263
  -281
  -299
  -318
  -338
  -359
  -380
  -403
  -426
Total debt, $m
  522
  706
  915
  1,147
  1,403
  1,683
  1,985
  2,310
  2,657
  3,025
  3,414
  3,824
  4,254
  4,704
  5,174
  5,664
  6,175
  6,706
  7,258
  7,832
  8,428
  9,048
  9,692
  10,362
  11,058
  11,783
  12,537
  13,322
  14,140
  14,993
  15,882
Total liabilities, $m
  834
  1,018
  1,227
  1,459
  1,715
  1,995
  2,297
  2,622
  2,969
  3,337
  3,726
  4,136
  4,566
  5,016
  5,486
  5,976
  6,487
  7,018
  7,570
  8,144
  8,740
  9,360
  10,004
  10,674
  11,370
  12,095
  12,849
  13,634
  14,452
  15,305
  16,194
Total equity, $m
  148
  154
  185
  220
  259
  301
  346
  395
  448
  503
  562
  623
  688
  756
  827
  901
  978
  1,058
  1,141
  1,228
  1,318
  1,411
  1,508
  1,609
  1,714
  1,823
  1,937
  2,055
  2,179
  2,307
  2,441
Total liabilities and equity, $m
  982
  1,172
  1,412
  1,679
  1,974
  2,296
  2,643
  3,017
  3,417
  3,840
  4,288
  4,759
  5,254
  5,772
  6,313
  6,877
  7,465
  8,076
  8,711
  9,372
  10,058
  10,771
  11,512
  12,283
  13,084
  13,918
  14,786
  15,689
  16,631
  17,612
  18,635
Debt-to-equity ratio
  3.527
  4.600
  4.950
  5.220
  5.430
  5.600
  5.730
  5.840
  5.940
  6.010
  6.080
  6.130
  6.180
  6.220
  6.260
  6.290
  6.310
  6.340
  6.360
  6.380
  6.400
  6.410
  6.430
  6.440
  6.450
  6.460
  6.470
  6.480
  6.490
  6.500
  6.510
Adjusted equity ratio
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  28
  11
  11
  11
  11
  11
  12
  11
  11
  11
  11
  11
  11
  10
  10
  10
  9
  9
  8
  8
  7
  7
  6
  6
  5
  4
  4
  3
  3
  2
  1
Depreciation, amort., depletion, $m
  35
  43
  51
  61
  72
  84
  96
  110
  124
  140
  156
  173
  191
  210
  230
  250
  272
  294
  317
  341
  366
  392
  419
  447
  476
  507
  538
  571
  605
  641
  678
Funds from operations, $m
  69
  53
  62
  72
  83
  95
  108
  121
  136
  151
  167
  184
  202
  220
  240
  260
  281
  303
  325
  349
  373
  399
  425
  453
  481
  511
  542
  574
  608
  643
  680
Change in working capital, $m
  9
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -22
  -23
Cash from operations, $m
  60
  198
  68
  79
  90
  102
  116
  130
  145
  161
  177
  195
  213
  232
  252
  273
  294
  317
  340
  364
  389
  415
  442
  470
  500
  530
  562
  595
  630
  665
  703
Maintenance CAPEX, $m
  0
  -35
  -43
  -51
  -61
  -72
  -84
  -96
  -110
  -124
  -140
  -156
  -173
  -191
  -210
  -230
  -250
  -272
  -294
  -317
  -341
  -366
  -392
  -419
  -447
  -476
  -507
  -538
  -571
  -605
  -641
New CAPEX, $m
  -260
  -148
  -167
  -186
  -205
  -224
  -242
  -260
  -277
  -295
  -311
  -328
  -344
  -360
  -376
  -392
  -408
  -425
  -442
  -459
  -477
  -496
  -515
  -536
  -557
  -580
  -603
  -628
  -655
  -682
  -712
Cash from investing activities, $m
  -226
  -183
  -210
  -237
  -266
  -296
  -326
  -356
  -387
  -419
  -451
  -484
  -517
  -551
  -586
  -622
  -658
  -697
  -736
  -776
  -818
  -862
  -907
  -955
  -1,004
  -1,056
  -1,110
  -1,166
  -1,226
  -1,287
  -1,353
Free cash flow, $m
  -166
  15
  -142
  -159
  -176
  -193
  -210
  -226
  -242
  -258
  -274
  -289
  -304
  -319
  -334
  -349
  -364
  -380
  -396
  -412
  -429
  -447
  -465
  -485
  -505
  -526
  -548
  -572
  -596
  -622
  -650
Issuance/(repayment) of debt, $m
  130
  184
  209
  232
  256
  279
  302
  325
  347
  368
  389
  410
  430
  450
  470
  490
  510
  531
  552
  574
  596
  620
  644
  670
  696
  725
  754
  785
  818
  853
  889
Issuance/(repurchase) of shares, $m
  68
  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 financing (excl. dividends), $m  
  196
  184
  209
  232
  256
  279
  302
  325
  347
  368
  389
  410
  430
  450
  470
  490
  510
  531
  552
  574
  596
  620
  644
  670
  696
  725
  754
  785
  818
  853
  889
Total cash flow (excl. dividends), $m
  29
  200
  67
  74
  80
  86
  93
  99
  104
  110
  115
  121
  126
  131
  136
  141
  146
  151
  156
  162
  167
  173
  179
  185
  192
  199
  206
  214
  222
  230
  239
Retained Cash Flow (-), $m
  -98
  -28
  -31
  -35
  -39
  -42
  -46
  -49
  -52
  -56
  -59
  -62
  -65
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -90
  -93
  -97
  -101
  -105
  -109
  -114
  -118
  -123
  -129
  -134
Prev. year cash balance distribution, $m
 
  22
  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
 
  194
  36
  38
  41
  44
  47
  50
  52
  54
  57
  59
  61
  63
  65
  67
  69
  71
  73
  75
  77
  79
  82
  84
  87
  89
  92
  95
  98
  102
  105
Discount rate, %
 
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.84
  17.69
  18.57
  19.50
  20.47
  21.50
  22.57
  23.70
  24.88
  26.13
  27.44
  28.81
  30.25
  31.76
  33.35
  35.02
  36.77
  38.60
  40.53
  42.56
  44.69
  46.92
PV of cash for distribution, $m
 
  175
  28
  27
  25
  23
  21
  18
  16
  13
  11
  9
  7
  6
  4
  3
  2
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Armada Hoffler Properties, Inc. is a publicly owned real estate investment trust. It invests in real estate markets of Mid-Atlantic United States. The firm is involved in developing, building, owning and managing high-quality, institutional-grade office, retail, and multifamily properties. Armada Hoffler Properties, Inc. was formed on October 12, 2012 and is based in Virginia Beach, Virginia.

FINANCIAL RATIOS  of  Armada Hoffler Properties (AHH)

Valuation Ratios
P/E Ratio 19.4
Price to Sales 2.1
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 9.1
Price to Free Cash Flow -2.7
Growth Rates
Sales Growth Rate 2.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 106.3%
Cap. Spend. - 3 Yr. Gr. Rate 40.8%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 352.7%
Total Debt to Equity 352.7%
Interest Coverage 4
Management Effectiveness
Return On Assets 5.1%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 5.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 28.3%
Return On Equity - 3 Yr. Avg. 26.9%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 28.3%
Gross Margin - 3 Yr. Avg. 26.7%
EBITDA Margin 36%
EBITDA Margin - 3 Yr. Avg. 29.4%
Operating Margin 10.1%
Oper. Margin - 3 Yr. Avg. 11%
Pre-Tax Margin 16.7%
Pre-Tax Margin - 3 Yr. Avg. 12.2%
Net Profit Margin 10.9%
Net Profit Margin - 3 Yr. Avg. 7.9%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 121.4%

AHH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AHH stock intrinsic value calculation we used $258 million for the last fiscal year's total revenue generated by Armada Hoffler Properties. The default revenue input number comes from 2016 income statement of Armada Hoffler Properties. 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 AHH stock valuation model: a) initial revenue growth rate of 22.2% 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 11.4%, whose default value for AHH is calculated based on our internal credit rating of Armada Hoffler Properties, 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 Armada Hoffler Properties.
    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 AHH stock the variable cost ratio is equal to 89.5%.

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 AHH 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 3.5% for Armada Hoffler Properties.

Corporate tax rate of 27% is the nominal tax rate for Armada Hoffler Properties. 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 AHH 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 AHH are equal to 258.5%.

Life of production assets of 19.1 years is the average useful life of capital assets used in Armada Hoffler Properties 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 AHH is equal to -8.5%. 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 - $148 million for Armada Hoffler Properties - 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 56.257 million for Armada Hoffler Properties 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 Armada Hoffler Properties at the current share price and the inputted number of shares is $0.8 billion.


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COMPANY NEWS

▶ New Strong Sell Stocks for February 17th   [Feb-17-17 09:33AM  Zacks]
▶ Is Armada Hoffler Properties Inc (AHH) A Good Stock To Buy?   [Dec-12-16 01:53AM  at Insider Monkey]
▶ Armada Hoffler Properties New Development Pipeline Project   [May-18-16 06:00AM  Business Wire]
Stock chart of AHH Financial statements of AHH
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