Intrinsic value of Franklin Street Properties - FSP

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$12.28

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$12.28

 
Intrinsic value

$2.21

 
Up/down potential

-82%

 
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 FSP.

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

We calculate the intrinsic value of FSP 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 1.3

 

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, %
  2.46
  8.20
  7.88
  7.59
  7.33
  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
Revenue, $m
  250
  271
  292
  314
  337
  361
  386
  412
  439
  466
  496
  526
  557
  590
  625
  661
  698
  737
  778
  820
  865
  911
  960
  1,011
  1,065
  1,121
  1,179
  1,241
  1,305
  1,372
  1,443
Variable operating expenses, $m
 
  256
  277
  298
  319
  342
  366
  390
  416
  442
  470
  499
  528
  560
  592
  626
  662
  699
  737
  778
  820
  864
  910
  959
  1,009
  1,062
  1,118
  1,176
  1,237
  1,301
  1,368
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
  239
  256
  277
  298
  319
  342
  366
  390
  416
  442
  470
  499
  528
  560
  592
  626
  662
  699
  737
  778
  820
  864
  910
  959
  1,009
  1,062
  1,118
  1,176
  1,237
  1,301
  1,368
Operating income, $m
  11
  14
  15
  16
  18
  19
  20
  21
  23
  24
  26
  27
  29
  31
  32
  34
  36
  38
  40
  43
  45
  47
  50
  53
  55
  58
  61
  65
  68
  71
  75
EBITDA, $m
  106
  117
  126
  136
  145
  156
  167
  178
  189
  201
  214
  227
  241
  255
  270
  285
  301
  318
  336
  354
  373
  393
  415
  437
  460
  484
  509
  536
  563
  592
  623
Interest expense (income), $m
  24
  37
  40
  43
  47
  50
  54
  58
  62
  66
  71
  76
  80
  85
  90
  96
  102
  107
  114
  120
  127
  134
  141
  149
  157
  165
  174
  184
  193
  203
  214
Earnings before tax, $m
  9
  -23
  -25
  -27
  -29
  -32
  -34
  -37
  -39
  -42
  -45
  -48
  -51
  -55
  -58
  -62
  -65
  -69
  -73
  -77
  -82
  -86
  -91
  -96
  -102
  -107
  -113
  -119
  -125
  -132
  -139
Tax expense, $m
  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
  0
  0
Net income, $m
  8
  -23
  -25
  -27
  -29
  -32
  -34
  -37
  -39
  -42
  -45
  -48
  -51
  -55
  -58
  -62
  -65
  -69
  -73
  -77
  -82
  -86
  -91
  -96
  -102
  -107
  -113
  -119
  -125
  -132
  -139

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9
  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
  2,088
  2,254
  2,432
  2,616
  2,808
  3,008
  3,215
  3,430
  3,654
  3,887
  4,130
  4,382
  4,646
  4,920
  5,206
  5,504
  5,816
  6,141
  6,481
  6,836
  7,207
  7,596
  8,002
  8,428
  8,873
  9,339
  9,828
  10,339
  10,875
  11,437
  12,026
Adjusted assets (=assets-cash), $m
  2,079
  2,254
  2,432
  2,616
  2,808
  3,008
  3,215
  3,430
  3,654
  3,887
  4,130
  4,382
  4,646
  4,920
  5,206
  5,504
  5,816
  6,141
  6,481
  6,836
  7,207
  7,596
  8,002
  8,428
  8,873
  9,339
  9,828
  10,339
  10,875
  11,437
  12,026
Revenue / Adjusted assets
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
Average production assets, $m
  1,690
  1,828
  1,972
  2,122
  2,277
  2,439
  2,607
  2,782
  2,963
  3,152
  3,349
  3,554
  3,767
  3,990
  4,222
  4,464
  4,716
  4,980
  5,256
  5,544
  5,845
  6,160
  6,489
  6,834
  7,195
  7,574
  7,970
  8,385
  8,820
  9,275
  9,753
Working capital, $m
  0
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -45
  -47
  -49
  -52
Total debt, $m
  1,045
  1,141
  1,237
  1,337
  1,441
  1,549
  1,661
  1,778
  1,900
  2,026
  2,157
  2,294
  2,437
  2,586
  2,741
  2,902
  3,071
  3,247
  3,432
  3,624
  3,825
  4,036
  4,256
  4,487
  4,728
  4,981
  5,246
  5,523
  5,813
  6,118
  6,437
Total liabilities, $m
  1,126
  1,222
  1,318
  1,418
  1,522
  1,630
  1,742
  1,859
  1,981
  2,107
  2,238
  2,375
  2,518
  2,667
  2,822
  2,983
  3,152
  3,328
  3,513
  3,705
  3,906
  4,117
  4,337
  4,568
  4,809
  5,062
  5,327
  5,604
  5,894
  6,199
  6,518
Total equity, $m
  962
  1,032
  1,114
  1,198
  1,286
  1,378
  1,472
  1,571
  1,674
  1,780
  1,891
  2,007
  2,128
  2,253
  2,384
  2,521
  2,664
  2,813
  2,968
  3,131
  3,301
  3,479
  3,665
  3,860
  4,064
  4,277
  4,501
  4,735
  4,981
  5,238
  5,508
Total liabilities and equity, $m
  2,088
  2,254
  2,432
  2,616
  2,808
  3,008
  3,214
  3,430
  3,655
  3,887
  4,129
  4,382
  4,646
  4,920
  5,206
  5,504
  5,816
  6,141
  6,481
  6,836
  7,207
  7,596
  8,002
  8,428
  8,873
  9,339
  9,828
  10,339
  10,875
  11,437
  12,026
Debt-to-equity ratio
  1.086
  1.100
  1.110
  1.120
  1.120
  1.120
  1.130
  1.130
  1.140
  1.140
  1.140
  1.140
  1.150
  1.150
  1.150
  1.150
  1.150
  1.150
  1.160
  1.160
  1.160
  1.160
  1.160
  1.160
  1.160
  1.160
  1.170
  1.170
  1.170
  1.170
  1.170
Adjusted equity ratio
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8
  -23
  -25
  -27
  -29
  -32
  -34
  -37
  -39
  -42
  -45
  -48
  -51
  -55
  -58
  -62
  -65
  -69
  -73
  -77
  -82
  -86
  -91
  -96
  -102
  -107
  -113
  -119
  -125
  -132
  -139
Depreciation, amort., depletion, $m
  95
  103
  111
  119
  128
  137
  146
  156
  166
  177
  188
  200
  212
  224
  237
  251
  265
  280
  295
  311
  328
  346
  365
  384
  404
  425
  448
  471
  495
  521
  548
Funds from operations, $m
  83
  80
  86
  92
  99
  105
  112
  120
  127
  135
  143
  152
  160
  170
  179
  189
  200
  211
  222
  234
  246
  260
  273
  288
  303
  318
  335
  352
  370
  389
  409
Change in working capital, $m
  -11
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
Cash from operations, $m
  94
  152
  87
  93
  99
  106
  113
  120
  128
  136
  144
  153
  161
  171
  180
  190
  201
  212
  224
  236
  248
  261
  275
  289
  304
  320
  337
  354
  372
  391
  411
Maintenance CAPEX, $m
  0
  -95
  -103
  -111
  -119
  -128
  -137
  -146
  -156
  -166
  -177
  -188
  -200
  -212
  -224
  -237
  -251
  -265
  -280
  -295
  -311
  -328
  -346
  -365
  -384
  -404
  -425
  -448
  -471
  -495
  -521
New CAPEX, $m
  -310
  -139
  -144
  -150
  -156
  -162
  -168
  -175
  -182
  -189
  -197
  -205
  -213
  -222
  -232
  -242
  -253
  -264
  -276
  -288
  -301
  -315
  -330
  -345
  -361
  -378
  -396
  -415
  -435
  -456
  -478
Cash from investing activities, $m
  -245
  -234
  -247
  -261
  -275
  -290
  -305
  -321
  -338
  -355
  -374
  -393
  -413
  -434
  -456
  -479
  -504
  -529
  -556
  -583
  -612
  -643
  -676
  -710
  -745
  -782
  -821
  -863
  -906
  -951
  -999
Free cash flow, $m
  -151
  -81
  -160
  -167
  -175
  -183
  -192
  -201
  -210
  -220
  -230
  -240
  -252
  -263
  -276
  -289
  -302
  -317
  -332
  -348
  -365
  -382
  -401
  -420
  -441
  -462
  -485
  -509
  -534
  -560
  -587
Issuance/(repayment) of debt, $m
  140
  96
  96
  100
  104
  108
  112
  117
  121
  126
  131
  137
  143
  149
  155
  162
  169
  176
  184
  193
  201
  211
  220
  231
  241
  253
  265
  277
  291
  305
  319
Issuance/(repurchase) of shares, $m
  84
  56
  145
  152
  159
  167
  174
  183
  191
  200
  209
  219
  229
  240
  252
  264
  276
  289
  303
  318
  333
  349
  366
  384
  403
  423
  444
  466
  488
  513
  538
Cash from financing (excl. dividends), $m  
  219
  152
  241
  252
  263
  275
  286
  300
  312
  326
  340
  356
  372
  389
  407
  426
  445
  465
  487
  511
  534
  560
  586
  615
  644
  676
  709
  743
  779
  818
  857
Total cash flow (excl. dividends), $m
  68
  15
  -64
  -67
  -71
  -75
  -80
  -84
  -89
  -93
  -98
  -103
  -109
  -115
  -121
  -127
  -134
  -140
  -148
  -155
  -163
  -172
  -180
  -190
  -199
  -209
  -220
  -231
  -243
  -255
  -268
Retained Cash Flow (-), $m
  -26
  -79
  -81
  -85
  -88
  -91
  -95
  -99
  -103
  -107
  -111
  -116
  -121
  -126
  -131
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -186
  -195
  -204
  -214
  -224
  -234
  -246
  -257
  -270
Prev. year cash balance distribution, $m
 
  9
  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
 
  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
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for 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
Current shareholders' claim on cash, %
  100
  96.0
  87.1
  79.3
  72.4
  66.2
  60.7
  55.7
  51.2
  47.2
  43.5
  40.1
  37.1
  34.3
  31.7
  29.4
  27.2
  25.3
  23.4
  21.8
  20.2
  18.8
  17.5
  16.2
  15.1
  14.0
  13.1
  12.2
  11.3
  10.5
  9.8

Franklin Street Properties Corp. is a publicly traded hybrid real estate investment trust. The firm invests in the real estate markets of the United States. It primarily engages in property acquisitions and dispositions, short-term financing, leasing, development and asset management. The firm makes investment in commercial real estate. Franklin Street Properties Corp was formed in 1997 and is based in Wakefield, Massachusetts.

FINANCIAL RATIOS  of  Franklin Street Properties (FSP)

Valuation Ratios
P/E Ratio 164.6
Price to Sales 5.3
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 14
Price to Free Cash Flow -6.1
Growth Rates
Sales Growth Rate 2.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 213.1%
Cap. Spend. - 3 Yr. Gr. Rate -11.6%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 108.6%
Total Debt to Equity 108.6%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.5%
Ret/ On Assets - 3 Yr. Avg. 2.1%
Return On Total Capital 0.4%
Ret/ On T. Cap. - 3 Yr. Avg. 1%
Return On Equity 0.8%
Return On Equity - 3 Yr. Avg. 1.9%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 74%
Gross Margin - 3 Yr. Avg. 74.6%
EBITDA Margin 51.2%
EBITDA Margin - 3 Yr. Avg. 56.1%
Operating Margin 4.4%
Oper. Margin - 3 Yr. Avg. 5.2%
Pre-Tax Margin 3.6%
Pre-Tax Margin - 3 Yr. Avg. 7.8%
Net Profit Margin 3.2%
Net Profit Margin - 3 Yr. Avg. 7.6%
Effective Tax Rate 11.1%
Eff/ Tax Rate - 3 Yr. Avg. 6.1%
Payout Ratio 962.5%

FSP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FSP stock intrinsic value calculation we used $250 million for the last fiscal year's total revenue generated by Franklin Street Properties. The default revenue input number comes from 2016 income statement of Franklin Street 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 FSP stock valuation model: a) initial revenue growth rate of 8.2% 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 9%, whose default value for FSP is calculated based on our internal credit rating of Franklin Street 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 Franklin Street 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 FSP stock the variable cost ratio is equal to 94.8%.

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 FSP 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 Franklin Street Properties.

Corporate tax rate of 27% is the nominal tax rate for Franklin Street 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 FSP 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 FSP are equal to 675.8%.

Life of production assets of 17.8 years is the average useful life of capital assets used in Franklin Street 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 FSP is equal to -3.6%. 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 - $962 million for Franklin Street 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 108.731 million for Franklin Street 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 Franklin Street Properties at the current share price and the inputted number of shares is $1.3 billion.


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