Intrinsic value of Preferred Apartment Communities - APTS

Previous Close

$19.88

  Intrinsic Value

$6.75

stock screener

  Rating & Target

str. sell

-66%

  Value-price divergence*

+37%

Previous close

$19.88

 
Intrinsic value

$6.75

 
Up/down potential

-66%

 
Rating

str. sell

 
Value-price divergence*

+37%

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

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

We calculate the intrinsic value of APTS 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 0.7

 

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, %
  83.49
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  200
  320
  494
  739
  1,073
  1,514
  2,081
  2,793
  3,667
  4,719
  5,961
  7,402
  9,049
  10,907
  12,978
  15,259
  17,750
  20,447
  23,345
  26,439
  29,726
  33,200
  36,858
  40,697
  44,715
  48,913
  53,290
  57,848
  62,590
  67,522
  72,647
Variable operating expenses, $m
 
  264
  408
  610
  885
  1,249
  1,717
  2,304
  3,026
  3,893
  4,917
  6,106
  7,466
  8,999
  10,707
  12,589
  14,644
  16,869
  19,260
  21,812
  24,524
  27,390
  30,407
  33,575
  36,890
  40,353
  43,964
  47,725
  51,637
  55,705
  59,934
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
  170
  264
  408
  610
  885
  1,249
  1,717
  2,304
  3,026
  3,893
  4,917
  6,106
  7,466
  8,999
  10,707
  12,589
  14,644
  16,869
  19,260
  21,812
  24,524
  27,390
  30,407
  33,575
  36,890
  40,353
  43,964
  47,725
  51,637
  55,705
  59,934
Operating income, $m
  30
  56
  87
  129
  188
  265
  364
  489
  642
  826
  1,043
  1,295
  1,584
  1,909
  2,271
  2,670
  3,106
  3,578
  4,085
  4,627
  5,202
  5,810
  6,450
  7,122
  7,825
  8,560
  9,326
  10,123
  10,953
  11,816
  12,713
EBITDA, $m
  108
  181
  279
  417
  605
  854
  1,174
  1,575
  2,069
  2,662
  3,362
  4,175
  5,105
  6,153
  7,320
  8,608
  10,013
  11,534
  13,168
  14,914
  16,768
  18,727
  20,791
  22,956
  25,223
  27,591
  30,060
  32,631
  35,306
  38,088
  40,979
Interest expense (income), $m
  39
  51
  83
  129
  195
  284
  401
  553
  743
  976
  1,257
  1,589
  1,973
  2,413
  2,909
  3,462
  4,071
  4,736
  5,455
  6,229
  7,055
  7,932
  8,859
  9,836
  10,861
  11,933
  13,054
  14,222
  15,439
  16,705
  18,021
Earnings before tax, $m
  -10
  5
  4
  0
  -7
  -19
  -37
  -64
  -101
  -151
  -214
  -293
  -390
  -504
  -638
  -791
  -964
  -1,157
  -1,370
  -1,602
  -1,853
  -2,122
  -2,409
  -2,714
  -3,035
  -3,373
  -3,728
  -4,099
  -4,485
  -4,888
  -5,308
Tax expense, $m
  0
  1
  1
  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
Net income, $m
  -10
  4
  3
  0
  -7
  -19
  -37
  -64
  -101
  -151
  -214
  -293
  -390
  -504
  -638
  -791
  -964
  -1,157
  -1,370
  -1,602
  -1,853
  -2,122
  -2,409
  -2,714
  -3,035
  -3,373
  -3,728
  -4,099
  -4,485
  -4,888
  -5,308

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
  2,421
  3,855
  5,957
  8,908
  12,925
  18,236
  25,070
  33,651
  44,186
  56,857
  71,815
  89,177
  109,028
  131,415
  156,358
  183,849
  213,861
  246,350
  281,264
  318,546
  358,140
  399,995
  444,066
  490,322
  538,739
  589,311
  642,045
  696,963
  754,102
  813,513
  875,263
Adjusted assets (=assets-cash), $m
  2,409
  3,855
  5,957
  8,908
  12,925
  18,236
  25,070
  33,651
  44,186
  56,857
  71,815
  89,177
  109,028
  131,415
  156,358
  183,849
  213,861
  246,350
  281,264
  318,546
  358,140
  399,995
  444,066
  490,322
  538,739
  589,311
  642,045
  696,963
  754,102
  813,513
  875,263
Revenue / Adjusted assets
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
  0.083
Average production assets, $m
  1,440
  2,303
  3,559
  5,322
  7,722
  10,895
  14,978
  20,104
  26,398
  33,968
  42,904
  53,278
  65,137
  78,512
  93,414
  109,838
  127,768
  147,178
  168,037
  190,310
  213,965
  238,971
  265,300
  292,935
  321,861
  352,075
  383,580
  416,390
  450,526
  486,020
  522,912
Working capital, $m
  0
  160
  247
  370
  536
  757
  1,040
  1,397
  1,834
  2,360
  2,980
  3,701
  4,525
  5,454
  6,489
  7,630
  8,875
  10,224
  11,672
  13,220
  14,863
  16,600
  18,429
  20,348
  22,358
  24,456
  26,645
  28,924
  31,295
  33,761
  36,323
Total debt, $m
  1,465
  2,368
  3,699
  5,567
  8,110
  11,471
  15,797
  21,229
  27,898
  35,918
  45,387
  56,377
  68,943
  83,114
  98,903
  116,305
  135,302
  155,867
  177,968
  201,568
  226,631
  253,125
  281,022
  310,302
  340,950
  372,962
  406,343
  441,106
  477,275
  514,882
  553,970
Total liabilities, $m
  1,537
  2,440
  3,771
  5,639
  8,182
  11,543
  15,869
  21,301
  27,970
  35,990
  45,459
  56,449
  69,015
  83,186
  98,975
  116,377
  135,374
  155,939
  178,040
  201,640
  226,703
  253,197
  281,094
  310,374
  341,022
  373,034
  406,415
  441,178
  477,347
  514,954
  554,042
Total equity, $m
  884
  1,415
  2,186
  3,269
  4,744
  6,692
  9,201
  12,350
  16,216
  20,866
  26,356
  32,728
  40,013
  48,229
  57,383
  67,473
  78,487
  90,410
  103,224
  116,906
  131,437
  146,798
  162,972
  179,948
  197,717
  216,277
  235,631
  255,786
  276,755
  298,559
  321,222
Total liabilities and equity, $m
  2,421
  3,855
  5,957
  8,908
  12,926
  18,235
  25,070
  33,651
  44,186
  56,856
  71,815
  89,177
  109,028
  131,415
  156,358
  183,850
  213,861
  246,349
  281,264
  318,546
  358,140
  399,995
  444,066
  490,322
  538,739
  589,311
  642,046
  696,964
  754,102
  813,513
  875,264
Debt-to-equity ratio
  1.657
  1.670
  1.690
  1.700
  1.710
  1.710
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
Adjusted equity ratio
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -10
  4
  3
  0
  -7
  -19
  -37
  -64
  -101
  -151
  -214
  -293
  -390
  -504
  -638
  -791
  -964
  -1,157
  -1,370
  -1,602
  -1,853
  -2,122
  -2,409
  -2,714
  -3,035
  -3,373
  -3,728
  -4,099
  -4,485
  -4,888
  -5,308
Depreciation, amort., depletion, $m
  78
  125
  192
  288
  417
  589
  810
  1,087
  1,427
  1,836
  2,319
  2,880
  3,521
  4,244
  5,049
  5,937
  6,906
  7,956
  9,083
  10,287
  11,566
  12,917
  14,341
  15,834
  17,398
  19,031
  20,734
  22,508
  24,353
  26,271
  28,266
Funds from operations, $m
  64
  128
  195
  288
  410
  570
  772
  1,023
  1,326
  1,686
  2,105
  2,587
  3,131
  3,740
  4,412
  5,146
  5,942
  6,798
  7,713
  8,685
  9,713
  10,795
  11,931
  13,120
  14,363
  15,658
  17,006
  18,409
  19,867
  21,383
  22,958
Change in working capital, $m
  2
  60
  87
  122
  167
  220
  284
  356
  437
  526
  621
  721
  824
  929
  1,035
  1,141
  1,245
  1,348
  1,449
  1,547
  1,643
  1,737
  1,829
  1,920
  2,009
  2,099
  2,188
  2,279
  2,371
  2,466
  2,563
Cash from operations, $m
  62
  68
  108
  165
  244
  350
  489
  666
  889
  1,160
  1,484
  1,866
  2,308
  2,811
  3,376
  4,005
  4,697
  5,450
  6,264
  7,138
  8,070
  9,058
  10,102
  11,201
  12,353
  13,559
  14,818
  16,130
  17,496
  18,917
  20,395
Maintenance CAPEX, $m
  0
  -78
  -125
  -192
  -288
  -417
  -589
  -810
  -1,087
  -1,427
  -1,836
  -2,319
  -2,880
  -3,521
  -4,244
  -5,049
  -5,937
  -6,906
  -7,956
  -9,083
  -10,287
  -11,566
  -12,917
  -14,341
  -15,834
  -17,398
  -19,031
  -20,734
  -22,508
  -24,353
  -26,271
New CAPEX, $m
  -1,020
  -864
  -1,255
  -1,763
  -2,400
  -3,173
  -4,083
  -5,127
  -6,294
  -7,570
  -8,936
  -10,373
  -11,859
  -13,375
  -14,902
  -16,424
  -17,930
  -19,410
  -20,859
  -22,274
  -23,655
  -25,005
  -26,330
  -27,634
  -28,926
  -30,214
  -31,505
  -32,810
  -34,137
  -35,494
  -36,892
Cash from investing activities, $m
  -1,127
  -942
  -1,380
  -1,955
  -2,688
  -3,590
  -4,672
  -5,937
  -7,381
  -8,997
  -10,772
  -12,692
  -14,739
  -16,896
  -19,146
  -21,473
  -23,867
  -26,316
  -28,815
  -31,357
  -33,942
  -36,571
  -39,247
  -41,975
  -44,760
  -47,612
  -50,536
  -53,544
  -56,645
  -59,847
  -63,163
Free cash flow, $m
  -1,065
  -873
  -1,272
  -1,791
  -2,444
  -3,240
  -4,183
  -5,270
  -6,492
  -7,837
  -9,288
  -10,826
  -12,432
  -14,085
  -15,769
  -17,468
  -19,171
  -20,866
  -22,550
  -24,219
  -25,872
  -27,513
  -29,145
  -30,774
  -32,407
  -34,053
  -35,719
  -37,414
  -39,148
  -40,930
  -42,768
Issuance/(repayment) of debt, $m
  702
  915
  1,330
  1,868
  2,543
  3,361
  4,326
  5,432
  6,669
  8,021
  9,468
  10,991
  12,565
  14,171
  15,789
  17,402
  18,997
  20,565
  22,100
  23,600
  25,063
  26,494
  27,897
  29,279
  30,648
  32,012
  33,381
  34,763
  36,169
  37,607
  39,088
Issuance/(repurchase) of shares, $m
  435
  527
  768
  1,083
  1,481
  1,968
  2,545
  3,213
  3,968
  4,801
  5,704
  6,665
  7,675
  8,720
  9,792
  10,880
  11,979
  13,081
  14,183
  15,285
  16,384
  17,483
  18,584
  19,689
  20,805
  21,934
  23,081
  24,253
  25,455
  26,692
  27,970
Cash from financing (excl. dividends), $m  
  1,132
  1,442
  2,098
  2,951
  4,024
  5,329
  6,871
  8,645
  10,637
  12,822
  15,172
  17,656
  20,240
  22,891
  25,581
  28,282
  30,976
  33,646
  36,283
  38,885
  41,447
  43,977
  46,481
  48,968
  51,453
  53,946
  56,462
  59,016
  61,624
  64,299
  67,058
Total cash flow (excl. dividends), $m
  67
  569
  827
  1,161
  1,580
  2,089
  2,688
  3,376
  4,144
  4,984
  5,884
  6,830
  7,808
  8,806
  9,812
  10,814
  11,805
  12,780
  13,734
  14,665
  15,575
  16,464
  17,336
  18,195
  19,045
  19,893
  20,743
  21,603
  22,476
  23,370
  24,290
Retained Cash Flow (-), $m
  -361
  -531
  -771
  -1,083
  -1,481
  -1,968
  -2,545
  -3,213
  -3,968
  -4,801
  -5,704
  -6,665
  -7,675
  -8,720
  -9,792
  -10,880
  -11,979
  -13,081
  -14,183
  -15,285
  -16,384
  -17,483
  -18,584
  -19,689
  -20,805
  -21,934
  -23,081
  -24,253
  -25,455
  -26,692
  -27,970
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
 
  38
  55
  78
  99
  121
  143
  162
  176
  183
  180
  164
  134
  86
  20
  -67
  -173
  -301
  -450
  -619
  -809
  -1,019
  -1,248
  -1,495
  -1,759
  -2,040
  -2,338
  -2,651
  -2,979
  -3,322
  -3,680
Discount rate, %
 
  10.60
  11.13
  11.69
  12.27
  12.88
  13.53
  14.21
  14.92
  15.66
  16.44
  17.27
  18.13
  19.04
  19.99
  20.99
  22.04
  23.14
  24.30
  25.51
  26.79
  28.12
  29.53
  31.01
  32.56
  34.19
  35.90
  37.69
  39.57
  41.55
  43.63
PV of cash for distribution, $m
 
  35
  45
  56
  62
  66
  67
  64
  58
  50
  39
  29
  18
  9
  2
  -4
  -7
  -9
  -9
  -8
  -7
  -6
  -4
  -3
  -2
  -1
  -1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  55.2
  31.8
  19.0
  11.8
  7.5
  5.0
  3.4
  2.3
  1.7
  1.2
  0.9
  0.7
  0.5
  0.4
  0.3
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0

Preferred Apartment Communities, Inc. is a real estate investment trust (REIT). The Company is formed to acquire and operate multifamily properties in select targeted markets throughout the United States. It operates through segments, including multifamily communities, real estate related financing, new market properties and office buildings. The multifamily communities segment consists of its portfolio of owned residential multifamily communities. The real estate related financing segment consists of the Company's portfolio of real estate loans, bridge loans, and other instruments deployed by it to partially finance the development, construction, and prestabilization carrying costs of new multifamily communities and other real estate and real estate related assets. The new market properties segment consists of its portfolio of grocery-anchored shopping centers. The office buildings segment consists of its three office buildings located in Atlanta, Georgia and Birmingham, Alabama.

FINANCIAL RATIOS  of  Preferred Apartment Communities (APTS)

Valuation Ratios
P/E Ratio -52.7
Price to Sales 2.6
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 8.5
Price to Free Cash Flow -0.5
Growth Rates
Sales Growth Rate 83.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 140%
Cap. Spend. - 3 Yr. Gr. Rate 95.2%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 151.2%
Total Debt to Equity 165.7%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.6%
Ret/ On Assets - 3 Yr. Avg. 1.8%
Return On Total Capital -0.6%
Ret/ On T. Cap. - 3 Yr. Avg. -0.1%
Return On Equity -1.4%
Return On Equity - 3 Yr. Avg. -0.3%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 79.5%
Gross Margin - 3 Yr. Avg. 81.5%
EBITDA Margin 53.5%
EBITDA Margin - 3 Yr. Avg. 50.4%
Operating Margin 15%
Oper. Margin - 3 Yr. Avg. 18.4%
Pre-Tax Margin -5%
Pre-Tax Margin - 3 Yr. Avg. -1.1%
Net Profit Margin -5%
Net Profit Margin - 3 Yr. Avg. -1.1%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio -570%

APTS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the APTS stock intrinsic value calculation we used $200 million for the last fiscal year's total revenue generated by Preferred Apartment Communities. The default revenue input number comes from 2016 income statement of Preferred Apartment Communities. 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 APTS stock valuation model: a) initial revenue growth rate of 60% 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 10.6%, whose default value for APTS is calculated based on our internal credit rating of Preferred Apartment Communities, 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 Preferred Apartment Communities.
    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 APTS stock the variable cost ratio is equal to 82.5%.

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 APTS 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 Preferred Apartment Communities.

Corporate tax rate of 27% is the nominal tax rate for Preferred Apartment Communities. 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 APTS 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 APTS are equal to 719.8%.

Life of production assets of 18.5 years is the average useful life of capital assets used in Preferred Apartment Communities 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 APTS is equal to 50%. 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 - $884 million for Preferred Apartment Communities - 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 32.722 million for Preferred Apartment Communities 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 Preferred Apartment Communities at the current share price and the inputted number of shares is $0.7 billion.

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▶ Preferred Apartment Communities reports 2Q results   [Jul-31-17 10:16PM  Associated Press]
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Financial statements of APTS
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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