Intrinsic value of American Realty Investors - ARL

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$7.75

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$7.75

 
Intrinsic value

$3.39

 
Up/down potential

-56%

 
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 ARL.

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

We calculate the intrinsic value of ARL 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 2015), $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 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2015(a)
   2016
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  31.65
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
Revenue, $m
  104
  111
  119
  127
  135
  144
  153
  162
  172
  182
  193
  204
  215
  227
  240
  253
  267
  281
  296
  312
  329
  346
  364
  383
  403
  424
  445
  468
  492
  517
  544
Variable operating expenses, $m
 
  85
  90
  97
  103
  109
  116
  123
  131
  138
  147
  155
  164
  173
  182
  192
  203
  214
  225
  237
  250
  263
  277
  291
  306
  322
  339
  356
  374
  393
  413
Fixed operating expenses, $m
 
  19
  20
  20
  21
  21
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
  34
  35
  36
  37
  38
  39
  40
Total operating expenses, $m
  98
  104
  110
  117
  124
  130
  138
  146
  154
  162
  171
  180
  190
  199
  209
  220
  231
  243
  255
  267
  281
  295
  310
  325
  340
  357
  375
  393
  412
  432
  453
Operating income, $m
  6
  7
  9
  10
  12
  13
  15
  16
  18
  20
  22
  24
  26
  28
  31
  33
  36
  39
  41
  45
  48
  51
  55
  58
  62
  66
  71
  75
  80
  85
  91
EBITDA, $m
  27
  35
  38
  42
  45
  49
  53
  57
  61
  65
  70
  75
  80
  85
  91
  96
  102
  109
  115
  122
  130
  137
  145
  154
  163
  172
  182
  192
  203
  214
  226
Interest expense (income), $m
  45
  49
  54
  58
  63
  68
  73
  78
  83
  89
  95
  101
  108
  114
  121
  129
  136
  144
  153
  162
  171
  180
  190
  201
  212
  224
  236
  249
  262
  276
  291
Earnings before tax, $m
  -4
  -42
  -45
  -48
  -51
  -54
  -58
  -61
  -65
  -69
  -73
  -77
  -81
  -86
  -91
  -95
  -100
  -106
  -111
  -117
  -123
  -129
  -136
  -143
  -150
  -157
  -165
  -173
  -182
  -191
  -200
Tax expense, $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
Net income, $m
  -2
  -42
  -45
  -48
  -51
  -54
  -58
  -61
  -65
  -69
  -73
  -77
  -81
  -86
  -91
  -95
  -100
  -106
  -111
  -117
  -123
  -129
  -136
  -143
  -150
  -157
  -165
  -173
  -182
  -191
  -200

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  15
  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
  1,117
  1,185
  1,267
  1,351
  1,440
  1,532
  1,627
  1,727
  1,830
  1,938
  2,051
  2,169
  2,291
  2,419
  2,553
  2,693
  2,840
  2,993
  3,153
  3,320
  3,496
  3,679
  3,872
  4,074
  4,285
  4,506
  4,738
  4,982
  5,237
  5,504
  5,785
Adjusted assets (=assets-cash), $m
  1,102
  1,185
  1,267
  1,351
  1,440
  1,532
  1,627
  1,727
  1,830
  1,938
  2,051
  2,169
  2,291
  2,419
  2,553
  2,693
  2,840
  2,993
  3,153
  3,320
  3,496
  3,679
  3,872
  4,074
  4,285
  4,506
  4,738
  4,982
  5,237
  5,504
  5,785
Revenue / Adjusted assets
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
  0.094
Average production assets, $m
  777
  832
  889
  949
  1,011
  1,076
  1,143
  1,213
  1,285
  1,361
  1,440
  1,523
  1,609
  1,699
  1,793
  1,891
  1,994
  2,102
  2,214
  2,332
  2,455
  2,584
  2,719
  2,861
  3,009
  3,165
  3,328
  3,498
  3,678
  3,866
  4,063
Working capital, $m
  0
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -36
  -38
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -75
  -78
Total debt, $m
  805
  877
  951
  1,027
  1,107
  1,189
  1,275
  1,365
  1,458
  1,556
  1,657
  1,763
  1,873
  1,989
  2,109
  2,235
  2,367
  2,504
  2,648
  2,799
  2,957
  3,123
  3,296
  3,477
  3,667
  3,867
  4,075
  4,294
  4,524
  4,765
  5,018
Total liabilities, $m
  994
  1,066
  1,140
  1,216
  1,296
  1,378
  1,464
  1,554
  1,647
  1,745
  1,846
  1,952
  2,062
  2,178
  2,298
  2,424
  2,556
  2,693
  2,837
  2,988
  3,146
  3,312
  3,485
  3,666
  3,856
  4,056
  4,264
  4,483
  4,713
  4,954
  5,207
Total equity, $m
  123
  118
  127
  135
  144
  153
  163
  173
  183
  194
  205
  217
  229
  242
  255
  269
  284
  299
  315
  332
  350
  368
  387
  407
  428
  451
  474
  498
  524
  550
  579
Total liabilities and equity, $m
  1,117
  1,184
  1,267
  1,351
  1,440
  1,531
  1,627
  1,727
  1,830
  1,939
  2,051
  2,169
  2,291
  2,420
  2,553
  2,693
  2,840
  2,992
  3,152
  3,320
  3,496
  3,680
  3,872
  4,073
  4,284
  4,507
  4,738
  4,981
  5,237
  5,504
  5,786
Debt-to-equity ratio
  6.545
  7.400
  7.510
  7.600
  7.690
  7.770
  7.840
  7.910
  7.970
  8.020
  8.080
  8.130
  8.180
  8.220
  8.260
  8.300
  8.330
  8.370
  8.400
  8.430
  8.460
  8.490
  8.510
  8.540
  8.560
  8.580
  8.600
  8.620
  8.640
  8.660
  8.670
Adjusted equity ratio
  0.098
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2
  -42
  -45
  -48
  -51
  -54
  -58
  -61
  -65
  -69
  -73
  -77
  -81
  -86
  -91
  -95
  -100
  -106
  -111
  -117
  -123
  -129
  -136
  -143
  -150
  -157
  -165
  -173
  -182
  -191
  -200
Depreciation, amort., depletion, $m
  21
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
  63
  66
  70
  74
  78
  82
  86
  91
  95
  100
  105
  111
  117
  123
  129
  135
Funds from operations, $m
  -75
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -59
  -62
  -65
Change in working capital, $m
  -40
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
Cash from operations, $m
  -35
  64
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
Maintenance CAPEX, $m
  0
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -111
  -117
  -123
  -129
New CAPEX, $m
  -207
  -55
  -57
  -60
  -62
  -64
  -67
  -70
  -73
  -76
  -79
  -83
  -86
  -90
  -94
  -98
  -103
  -107
  -112
  -118
  -123
  -129
  -135
  -142
  -148
  -155
  -163
  -171
  -179
  -188
  -197
Cash from investing activities, $m
  -130
  -81
  -85
  -90
  -94
  -98
  -103
  -108
  -113
  -119
  -124
  -131
  -137
  -144
  -151
  -158
  -166
  -173
  -182
  -192
  -201
  -211
  -221
  -233
  -243
  -255
  -268
  -282
  -296
  -311
  -326
Free cash flow, $m
  -165
  -17
  -99
  -104
  -110
  -116
  -121
  -128
  -134
  -141
  -148
  -155
  -163
  -171
  -180
  -189
  -198
  -208
  -218
  -229
  -240
  -252
  -264
  -277
  -290
  -305
  -319
  -335
  -352
  -369
  -387
Issuance/(repayment) of debt, $m
  173
  72
  73
  76
  79
  83
  86
  90
  93
  97
  101
  106
  110
  115
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  209
  219
  230
  241
  253
Issuance/(repurchase) of shares, $m
  0
  0
  34
  37
  39
  42
  45
  48
  51
  54
  58
  61
  65
  69
  73
  77
  81
  85
  90
  94
  99
  105
  110
  116
  121
  127
  134
  140
  147
  155
  162
Cash from financing (excl. dividends), $m  
  169
  72
  107
  113
  118
  125
  131
  138
  144
  151
  159
  167
  175
  184
  194
  203
  213
  223
  234
  245
  257
  270
  283
  297
  311
  326
  343
  359
  377
  396
  415
Total cash flow (excl. dividends), $m
  4
  55
  -26
  -28
  -30
  -33
  -35
  -38
  -41
  -44
  -46
  -49
  -53
  -56
  -59
  -63
  -66
  -70
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -111
  -116
  -122
  -128
  -134
Retained Cash Flow (-), $m
  1
  -10
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
Prev. year cash balance distribution, $m
 
  15
  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
 
  60
  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
Discount rate, %
 
  13.90
  14.60
  15.32
  16.09
  16.90
  17.74
  18.63
  19.56
  20.54
  21.56
  22.64
  23.77
  24.96
  26.21
  27.52
  28.90
  30.34
  31.86
  33.45
  35.12
  36.88
  38.72
  40.66
  42.69
  44.83
  47.07
  49.42
  51.90
  54.49
  57.21
PV of cash for distribution, $m
 
  53
  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
Current shareholders' claim on cash, %
  100
  100.0
  77.3
  59.7
  46.0
  35.4
  27.2
  20.9
  16.0
  12.3
  9.4
  7.2
  5.5
  4.2
  3.2
  2.5
  1.9
  1.4
  1.1
  0.8
  0.6
  0.5
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0

American Realty Investors, Inc. engages in the acquisition, development, and ownership of residential, hotel, and commercial real estate properties. The company leases apartment units to residents; leases office, industrial, and retail space to various for-profit businesses, as well as local, state, and federal agencies; and sells properties and land. As of December 31, 2015, its portfolio comprised 48 residential apartment communities totaling 7,983 units; and 9 commercial properties, including 5 office buildings, 1 industrial warehouse, and 3 retail centers comprising approximately 2.2 million square feet. The company also owned or controlled 3,812 acres of improved and unimproved land. American Realty Investors, Inc. was founded in 1961 and is headquartered in Dallas, Texas. American Realty Investors, Inc. is a subsidiary of Realty Advisors LLC.

FINANCIAL RATIOS  of  American Realty Investors (ARL)

Valuation Ratios
P/E Ratio -60.1
Price to Sales 1.2
Price to Book 1
Price to Tangible Book
Price to Cash Flow -3.4
Price to Free Cash Flow -0.5
Growth Rates
Sales Growth Rate 31.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 146.4%
Cap. Spend. - 3 Yr. Gr. Rate 87.2%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 654.5%
Total Debt to Equity 654.5%
Interest Coverage 1
Management Effectiveness
Return On Assets 4.1%
Ret/ On Assets - 3 Yr. Avg. 3.9%
Return On Total Capital -0.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.9%
Return On Equity -1.6%
Return On Equity - 3 Yr. Avg. 28.6%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 48.1%
Gross Margin - 3 Yr. Avg. 48.5%
EBITDA Margin 59.6%
EBITDA Margin - 3 Yr. Avg. 41.7%
Operating Margin 5.8%
Oper. Margin - 3 Yr. Avg. -12.9%
Pre-Tax Margin -3.8%
Pre-Tax Margin - 3 Yr. Avg. -29.9%
Net Profit Margin -1.9%
Net Profit Margin - 3 Yr. Avg. 29.3%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 63.2%
Payout Ratio -50%

ARL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARL stock intrinsic value calculation we used $104 million for the last fiscal year's total revenue generated by American Realty Investors. The default revenue input number comes from 2015 income statement of American Realty Investors. 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 ARL stock valuation model: a) initial revenue growth rate of 7.1% 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 13.9%, whose default value for ARL is calculated based on our internal credit rating of American Realty Investors, 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 American Realty Investors.
    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 ARL stock the variable cost ratio is equal to 76%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $19 million in the base year in the intrinsic value calculation for ARL 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 6.1% for American Realty Investors.

Corporate tax rate of 27% is the nominal tax rate for American Realty Investors. 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 ARL 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 ARL are equal to 747.1%.

Life of production assets of 37 years is the average useful life of capital assets used in American Realty Investors 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 ARL is equal to -14.4%. 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 - $123 million for American Realty Investors - 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 15.486 million for American Realty Investors 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 American Realty Investors at the current share price and the inputted number of shares is $0.1 billion.


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COMPANY NEWS

▶ American Realty Investors reports Q1 EPS 25c vs. (2c) a year ago   [May-15  01:45PM  at theflyonthewall.com]
Stock chart of ARL Financial statements of ARL
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