Intrinsic value of Avalonbay Communities - AVB

Previous Close

$180.08

  Intrinsic Value

$18.45

stock screener

  Rating & Target

str. sell

-90%

  Value-price divergence*

-4%

Previous close

$180.08

 
Intrinsic value

$18.45

 
Up/down potential

-90%

 
Rating

str. sell

 
Value-price divergence*

-4%

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

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

We calculate the intrinsic value of AVB 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 24.8

 

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, %
  10.18
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.49
  7.24
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.34
  5.30
  5.27
  5.24
Revenue, $m
  2,045
  2,254
  2,472
  2,699
  2,937
  3,184
  3,441
  3,708
  3,985
  4,274
  4,574
  4,885
  5,209
  5,546
  5,897
  6,262
  6,642
  7,038
  7,451
  7,882
  8,331
  8,801
  9,291
  9,803
  10,338
  10,898
  11,483
  12,096
  12,738
  13,409
  14,112
Variable operating expenses, $m
 
  1,589
  1,743
  1,903
  2,070
  2,245
  2,426
  2,614
  2,810
  3,013
  3,224
  3,444
  3,673
  3,910
  4,157
  4,415
  4,683
  4,962
  5,253
  5,557
  5,874
  6,204
  6,550
  6,911
  7,288
  7,683
  8,096
  8,528
  8,980
  9,453
  9,949
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
  1,461
  1,589
  1,743
  1,903
  2,070
  2,245
  2,426
  2,614
  2,810
  3,013
  3,224
  3,444
  3,673
  3,910
  4,157
  4,415
  4,683
  4,962
  5,253
  5,557
  5,874
  6,204
  6,550
  6,911
  7,288
  7,683
  8,096
  8,528
  8,980
  9,453
  9,949
Operating income, $m
  584
  665
  729
  796
  866
  939
  1,015
  1,094
  1,176
  1,261
  1,349
  1,441
  1,537
  1,636
  1,740
  1,847
  1,959
  2,076
  2,198
  2,325
  2,458
  2,596
  2,741
  2,892
  3,050
  3,215
  3,388
  3,568
  3,758
  3,956
  4,163
EBITDA, $m
  1,115
  1,250
  1,371
  1,497
  1,629
  1,766
  1,909
  2,057
  2,211
  2,371
  2,537
  2,710
  2,890
  3,077
  3,271
  3,474
  3,684
  3,904
  4,133
  4,372
  4,621
  4,882
  5,154
  5,438
  5,735
  6,045
  6,370
  6,710
  7,066
  7,438
  7,828
Interest expense (income), $m
  194
  246
  273
  302
  332
  363
  396
  429
  464
  501
  539
  578
  619
  662
  706
  752
  800
  850
  903
  957
  1,014
  1,073
  1,134
  1,199
  1,266
  1,337
  1,410
  1,487
  1,568
  1,652
  1,741
Earnings before tax, $m
  1,034
  419
  456
  494
  534
  576
  619
  664
  711
  760
  810
  863
  917
  974
  1,033
  1,095
  1,159
  1,226
  1,295
  1,368
  1,444
  1,523
  1,606
  1,693
  1,783
  1,878
  1,977
  2,081
  2,190
  2,303
  2,422
Tax expense, $m
  0
  113
  123
  134
  144
  156
  167
  179
  192
  205
  219
  233
  248
  263
  279
  296
  313
  331
  350
  369
  390
  411
  434
  457
  482
  507
  534
  562
  591
  622
  654
Net income, $m
  1,034
  306
  333
  361
  390
  421
  452
  485
  519
  555
  592
  630
  670
  711
  754
  799
  846
  895
  946
  999
  1,054
  1,112
  1,173
  1,236
  1,302
  1,371
  1,443
  1,519
  1,598
  1,681
  1,768

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  215
  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
  17,867
  19,428
  21,308
  23,271
  25,317
  27,446
  29,661
  31,964
  34,357
  36,844
  39,429
  42,115
  44,908
  47,813
  50,836
  53,982
  57,259
  60,674
  64,234
  67,947
  71,821
  75,866
  80,091
  84,506
  89,121
  93,947
  98,995
  104,277
  109,806
  115,595
  121,658
Adjusted assets (=assets-cash), $m
  17,652
  19,428
  21,308
  23,271
  25,317
  27,446
  29,661
  31,964
  34,357
  36,844
  39,429
  42,115
  44,908
  47,813
  50,836
  53,982
  57,259
  60,674
  64,234
  67,947
  71,821
  75,866
  80,091
  84,506
  89,121
  93,947
  98,995
  104,277
  109,806
  115,595
  121,658
Revenue / Adjusted assets
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
Average production assets, $m
  14,446
  15,919
  17,460
  19,069
  20,745
  22,490
  24,305
  26,192
  28,153
  30,191
  32,309
  34,510
  36,799
  39,179
  41,656
  44,234
  46,919
  49,718
  52,635
  55,677
  58,852
  62,167
  65,629
  69,246
  73,028
  76,982
  81,119
  85,447
  89,978
  94,721
  99,690
Working capital, $m
  0
  -237
  -260
  -283
  -308
  -334
  -361
  -389
  -418
  -449
  -480
  -513
  -547
  -582
  -619
  -658
  -697
  -739
  -782
  -828
  -875
  -924
  -976
  -1,029
  -1,085
  -1,144
  -1,206
  -1,270
  -1,337
  -1,408
  -1,482
Total debt, $m
  7,031
  7,805
  8,625
  9,481
  10,373
  11,302
  12,267
  13,271
  14,315
  15,399
  16,526
  17,697
  18,915
  20,181
  21,499
  22,871
  24,300
  25,789
  27,341
  28,960
  30,649
  32,413
  34,255
  36,180
  38,192
  40,296
  42,497
  44,800
  47,210
  49,735
  52,378
Total liabilities, $m
  7,696
  8,470
  9,290
  10,146
  11,038
  11,967
  12,932
  13,936
  14,980
  16,064
  17,191
  18,362
  19,580
  20,846
  22,164
  23,536
  24,965
  26,454
  28,006
  29,625
  31,314
  33,078
  34,920
  36,845
  38,857
  40,961
  43,162
  45,465
  47,875
  50,400
  53,043
Total equity, $m
  10,171
  10,957
  12,018
  13,125
  14,279
  15,480
  16,729
  18,028
  19,378
  20,780
  22,238
  23,753
  25,328
  26,966
  28,671
  30,446
  32,294
  34,220
  36,228
  38,322
  40,507
  42,789
  45,172
  47,661
  50,264
  52,986
  55,833
  58,812
  61,931
  65,196
  68,615
Total liabilities and equity, $m
  17,867
  19,427
  21,308
  23,271
  25,317
  27,447
  29,661
  31,964
  34,358
  36,844
  39,429
  42,115
  44,908
  47,812
  50,835
  53,982
  57,259
  60,674
  64,234
  67,947
  71,821
  75,867
  80,092
  84,506
  89,121
  93,947
  98,995
  104,277
  109,806
  115,596
  121,658
Debt-to-equity ratio
  0.691
  0.710
  0.720
  0.720
  0.730
  0.730
  0.730
  0.740
  0.740
  0.740
  0.740
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
  0.760
Adjusted equity ratio
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,034
  306
  333
  361
  390
  421
  452
  485
  519
  555
  592
  630
  670
  711
  754
  799
  846
  895
  946
  999
  1,054
  1,112
  1,173
  1,236
  1,302
  1,371
  1,443
  1,519
  1,598
  1,681
  1,768
Depreciation, amort., depletion, $m
  531
  585
  642
  701
  763
  827
  894
  963
  1,035
  1,110
  1,188
  1,269
  1,353
  1,440
  1,531
  1,626
  1,725
  1,828
  1,935
  2,047
  2,164
  2,286
  2,413
  2,546
  2,685
  2,830
  2,982
  3,141
  3,308
  3,482
  3,665
Funds from operations, $m
  1,140
  891
  975
  1,062
  1,153
  1,247
  1,346
  1,448
  1,554
  1,665
  1,779
  1,899
  2,023
  2,152
  2,286
  2,425
  2,571
  2,723
  2,881
  3,046
  3,218
  3,398
  3,585
  3,782
  3,987
  4,201
  4,426
  4,661
  4,906
  5,164
  5,433
Change in working capital, $m
  -3
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -61
  -64
  -67
  -71
  -74
Cash from operations, $m
  1,143
  913
  998
  1,086
  1,178
  1,273
  1,373
  1,476
  1,583
  1,695
  1,811
  1,931
  2,057
  2,187
  2,323
  2,464
  2,611
  2,764
  2,924
  3,091
  3,265
  3,447
  3,637
  3,835
  4,043
  4,260
  4,487
  4,725
  4,974
  5,234
  5,507
Maintenance CAPEX, $m
  0
  -531
  -585
  -642
  -701
  -763
  -827
  -894
  -963
  -1,035
  -1,110
  -1,188
  -1,269
  -1,353
  -1,440
  -1,531
  -1,626
  -1,725
  -1,828
  -1,935
  -2,047
  -2,164
  -2,286
  -2,413
  -2,546
  -2,685
  -2,830
  -2,982
  -3,141
  -3,308
  -3,482
New CAPEX, $m
  -1,274
  -1,473
  -1,541
  -1,608
  -1,676
  -1,745
  -1,815
  -1,887
  -1,961
  -2,038
  -2,118
  -2,201
  -2,289
  -2,380
  -2,477
  -2,578
  -2,685
  -2,798
  -2,917
  -3,043
  -3,175
  -3,315
  -3,462
  -3,618
  -3,781
  -3,954
  -4,136
  -4,328
  -4,531
  -4,744
  -4,968
Cash from investing activities, $m
  -1,037
  -2,004
  -2,126
  -2,250
  -2,377
  -2,508
  -2,642
  -2,781
  -2,924
  -3,073
  -3,228
  -3,389
  -3,558
  -3,733
  -3,917
  -4,109
  -4,311
  -4,523
  -4,745
  -4,978
  -5,222
  -5,479
  -5,748
  -6,031
  -6,327
  -6,639
  -6,966
  -7,310
  -7,672
  -8,052
  -8,450
Free cash flow, $m
  106
  -1,092
  -1,129
  -1,164
  -1,200
  -1,234
  -1,269
  -1,304
  -1,341
  -1,378
  -1,417
  -1,458
  -1,501
  -1,546
  -1,595
  -1,646
  -1,701
  -1,759
  -1,821
  -1,887
  -1,957
  -2,031
  -2,111
  -2,195
  -2,284
  -2,379
  -2,480
  -2,586
  -2,698
  -2,817
  -2,943
Issuance/(repayment) of debt, $m
  453
  774
  820
  856
  892
  928
  966
  1,004
  1,043
  1,084
  1,127
  1,171
  1,218
  1,267
  1,318
  1,372
  1,429
  1,489
  1,552
  1,619
  1,689
  1,764
  1,842
  1,925
  2,012
  2,104
  2,201
  2,303
  2,411
  2,524
  2,643
Issuance/(repurchase) of shares, $m
  14
  695
  728
  746
  764
  780
  797
  814
  831
  848
  866
  885
  906
  927
  950
  975
  1,002
  1,031
  1,062
  1,095
  1,131
  1,169
  1,210
  1,254
  1,301
  1,351
  1,404
  1,460
  1,520
  1,584
  1,651
Cash from financing (excl. dividends), $m  
  435
  1,469
  1,548
  1,602
  1,656
  1,708
  1,763
  1,818
  1,874
  1,932
  1,993
  2,056
  2,124
  2,194
  2,268
  2,347
  2,431
  2,520
  2,614
  2,714
  2,820
  2,933
  3,052
  3,179
  3,313
  3,455
  3,605
  3,763
  3,931
  4,108
  4,294
Total cash flow (excl. dividends), $m
  541
  378
  419
  437
  456
  475
  494
  513
  533
  554
  576
  599
  623
  647
  674
  701
  730
  761
  793
  828
  864
  902
  942
  984
  1,029
  1,076
  1,125
  1,177
  1,232
  1,290
  1,351
Retained Cash Flow (-), $m
  -330
  -1,001
  -1,061
  -1,107
  -1,154
  -1,201
  -1,249
  -1,299
  -1,350
  -1,403
  -1,458
  -1,515
  -1,575
  -1,638
  -1,705
  -1,775
  -1,848
  -1,926
  -2,008
  -2,094
  -2,185
  -2,281
  -2,383
  -2,490
  -2,603
  -2,722
  -2,847
  -2,979
  -3,118
  -3,265
  -3,419
Prev. year cash balance distribution, $m
 
  215
  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
 
  -408
  -642
  -670
  -698
  -726
  -756
  -786
  -816
  -848
  -882
  -916
  -953
  -991
  -1,031
  -1,073
  -1,118
  -1,165
  -1,214
  -1,267
  -1,322
  -1,380
  -1,441
  -1,506
  -1,574
  -1,646
  -1,722
  -1,802
  -1,886
  -1,975
  -2,068
Discount rate, %
 
  7.40
  7.77
  8.16
  8.57
  8.99
  9.44
  9.92
  10.41
  10.93
  11.48
  12.05
  12.66
  13.29
  13.95
  14.65
  15.38
  16.15
  16.96
  17.81
  18.70
  19.63
  20.62
  21.65
  22.73
  23.87
  25.06
  26.31
  27.63
  29.01
  30.46
PV of cash for distribution, $m
 
  -380
  -552
  -529
  -502
  -472
  -440
  -405
  -370
  -333
  -297
  -262
  -228
  -196
  -166
  -138
  -113
  -91
  -72
  -56
  -43
  -32
  -23
  -17
  -12
  -8
  -5
  -3
  -2
  -1
  -1
Current shareholders' claim on cash, %
  100
  97.2
  94.6
  92.3
  90.1
  88.2
  86.3
  84.7
  83.1
  81.6
  80.3
  79.0
  77.8
  76.6
  75.5
  74.5
  73.5
  72.5
  71.6
  70.7
  69.9
  69.1
  68.3
  67.5
  66.8
  66.1
  65.3
  64.7
  64.0
  63.3
  62.7

AvalonBay Communities, Inc. is a real estate investment trust (REIT). The Company is focused on the development, redevelopment, acquisition, ownership and operation of multifamily communities primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California. Its segments include Established Communities, Other Stabilized Communities and Development/Redevelopment Communities. As of January 31, 2017, it owned or held a direct or indirect ownership interest in 259 operating apartment communities containing 75,038 apartment homes in 10 states and the District of Columbia; 27 communities under development, and rights to develop an additional 25 communities. It operates its apartment communities under three core brands: Avalon, AVA and Eaves by Avalon. Its real estate investments consist of operating apartment communities, communities in various stages of development (Development Communities) and Development Rights.

FINANCIAL RATIOS  of  Avalonbay Communities (AVB)

Valuation Ratios
P/E Ratio 23.9
Price to Sales 12.1
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 21.6
Price to Free Cash Flow -188.8
Growth Rates
Sales Growth Rate 10.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21.6%
Cap. Spend. - 3 Yr. Gr. Rate -0.6%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 69.1%
Total Debt to Equity 69.1%
Interest Coverage 6
Management Effectiveness
Return On Assets 7.1%
Ret/ On Assets - 3 Yr. Avg. 6.1%
Return On Total Capital 6.2%
Ret/ On T. Cap. - 3 Yr. Avg. 5.1%
Return On Equity 10.3%
Return On Equity - 3 Yr. Avg. 8.6%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 66.6%
Gross Margin - 3 Yr. Avg. 65.7%
EBITDA Margin 86%
EBITDA Margin - 3 Yr. Avg. 79.8%
Operating Margin 28.6%
Oper. Margin - 3 Yr. Avg. 27.9%
Pre-Tax Margin 50.6%
Pre-Tax Margin - 3 Yr. Avg. 43.5%
Net Profit Margin 50.6%
Net Profit Margin - 3 Yr. Avg. 43.7%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0.6%
Payout Ratio 70.3%

AVB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AVB stock intrinsic value calculation we used $2045 million for the last fiscal year's total revenue generated by Avalonbay Communities. The default revenue input number comes from 2016 income statement of Avalonbay 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 AVB stock valuation model: a) initial revenue growth rate of 10.2% 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 7.4%, whose default value for AVB is calculated based on our internal credit rating of Avalonbay 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 Avalonbay 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 AVB stock the variable cost ratio is equal to 70.5%.

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 AVB 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 Avalonbay Communities.

Corporate tax rate of 27% is the nominal tax rate for Avalonbay 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 AVB 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 AVB are equal to 706.4%.

Life of production assets of 27.2 years is the average useful life of capital assets used in Avalonbay 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 AVB is equal to -10.5%. 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 - $10171 million for Avalonbay 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 137.838 million for Avalonbay 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 Avalonbay Communities at the current share price and the inputted number of shares is $24.8 billion.

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COMPANY NEWS

▶ 3 'Commission-Free' 5%+ Yields To Buy Now   [Oct-10-17 09:16AM  Forbes]
▶ [$$] Three REITs Worth an Upgrade   [Sep-26-17 02:56PM  Barrons.com]
▶ 3 Stocks Retirees Should Buy on a Market Pullback   [Sep-14-17 05:22PM  Motley Fool]
▶ San Francisco officials select developers for huge site near Balboa Park BART   [Aug-23-17 10:30AM  American City Business Journals]
▶ 3 Scorching-Hot REIT Stocks -- Are They Buys Right Now?   [Aug-18-17 08:03AM  Motley Fool]
▶ How AvalonBay Compares after 2Q17   [07:35AM  Market Realist]
▶ AvalonBay Maintains Profit with Strategic Capital Deployment   [Aug-09-17 10:37AM  Market Realist]
▶ What Lies Ahead for AvalonBay   [07:41AM  Market Realist]
▶ Where AvalonBay Stands after Its 2Q17 Earnings Release   [Aug-08-17 04:58PM  Market Realist]
▶ Vornados New Leases Drove Revenue in 2Q17   [Aug-03-17 11:40AM  Market Realist]
▶ Where Does Vornado Stand after 2Q17 Earnings?   [10:07AM  Market Realist]
▶ AvalonBay reports 2Q results   [Aug-02-17 09:54PM  Associated Press]
▶ Whats Equity Residentials Valuation after 2Q17 Results?   [Aug-01-17 09:06AM  Market Realist]
▶ Why This REIT Is No Longer A Buy   [Jul-31-17 01:40PM  Barrons.com]
▶ How Wall Street Analysts Rate Vornado   [Jul-27-17 09:07AM  Market Realist]
▶ 4 REIT Plays with Beat Potential in Q2 Earnings   [Jul-19-17 05:19PM  Zacks]
▶ Equity Residential Compared to Its Peers   [Jul-17-17 02:17PM  Market Realist]
▶ How Does Wall Street Rate Essex Property Trust?   [Jul-12-17 09:06AM  Market Realist]
▶ Where Vornado Stands among Its Peers   [10:35AM  Market Realist]
▶ Heres Why Monogram Residential Trust Is Up 22% Today   [Jul-05-17 11:24AM  Motley Fool]
▶ How Wall Street Analysts View AvalonBay Stock   [Jun-19-17 07:35AM  Market Realist]
▶ AvalonBayComparison with Other Retail REITs in Its Industry   [Jun-16-17 10:35AM  Market Realist]
▶ How Rising Interest Rates Impact AVB and Residential REITs   [Jun-14-17 10:37AM  Market Realist]
▶ AvalonBay: Weathering Ups and Downs in Residential REITs   [Jun-13-17 05:25PM  Market Realist]
▶ Equity Residential: A Peer Comparison   [May-29-17 09:05AM  Market Realist]
▶ 3 Top Residential REIT Stocks to Buy in 2017   [May-19-17 10:03AM  Motley Fool]
Financial statements of AVB
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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