Intrinsic value of Franklin Street Properties - FSP

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$11.37

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$11.37

 
Intrinsic value

$2.26

 
Up/down potential

-80%

 
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 1.2

 

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
  15.00
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
Revenue, $m
  250
  288
  328
  371
  416
  464
  515
  568
  624
  682
  742
  805
  871
  939
  1,010
  1,083
  1,160
  1,239
  1,322
  1,408
  1,497
  1,590
  1,687
  1,788
  1,893
  2,003
  2,118
  2,237
  2,362
  2,493
  2,629
Variable operating expenses, $m
 
  273
  311
  351
  395
  440
  488
  539
  591
  646
  704
  763
  825
  890
  957
  1,027
  1,099
  1,175
  1,253
  1,335
  1,419
  1,508
  1,599
  1,695
  1,795
  1,899
  2,008
  2,121
  2,239
  2,363
  2,492
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
  273
  311
  351
  395
  440
  488
  539
  591
  646
  704
  763
  825
  890
  957
  1,027
  1,099
  1,175
  1,253
  1,335
  1,419
  1,508
  1,599
  1,695
  1,795
  1,899
  2,008
  2,121
  2,239
  2,363
  2,492
Operating income, $m
  11
  15
  17
  19
  22
  24
  27
  30
  32
  35
  39
  42
  45
  49
  53
  56
  60
  64
  69
  73
  78
  83
  88
  93
  98
  104
  110
  116
  123
  130
  137
EBITDA, $m
  106
  124
  141
  160
  180
  200
  222
  245
  269
  294
  320
  348
  376
  405
  436
  468
  501
  535
  571
  608
  646
  686
  728
  772
  817
  865
  914
  966
  1,020
  1,076
  1,135
Interest expense (income), $m
  24
  37
  43
  49
  56
  63
  71
  79
  87
  96
  105
  114
  124
  135
  146
  157
  168
  181
  193
  206
  220
  234
  249
  264
  280
  296
  314
  332
  351
  371
  391
Earnings before tax, $m
  9
  -22
  -26
  -30
  -34
  -39
  -44
  -49
  -55
  -60
  -66
  -73
  -79
  -86
  -93
  -100
  -108
  -116
  -124
  -133
  -142
  -151
  -161
  -171
  -181
  -192
  -204
  -216
  -228
  -241
  -254
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
  -22
  -26
  -30
  -34
  -39
  -44
  -49
  -55
  -60
  -66
  -73
  -79
  -86
  -93
  -100
  -108
  -116
  -124
  -133
  -142
  -151
  -161
  -171
  -181
  -192
  -204
  -216
  -228
  -241
  -254

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
  2,396
  2,731
  3,089
  3,469
  3,870
  4,292
  4,734
  5,198
  5,681
  6,185
  6,710
  7,256
  7,824
  8,414
  9,027
  9,665
  10,327
  11,015
  11,732
  12,477
  13,252
  14,060
  14,901
  15,778
  16,693
  17,648
  18,644
  19,685
  20,772
  21,908
Adjusted assets (=assets-cash), $m
  2,079
  2,396
  2,731
  3,089
  3,469
  3,870
  4,292
  4,734
  5,198
  5,681
  6,185
  6,710
  7,256
  7,824
  8,414
  9,027
  9,665
  10,327
  11,015
  11,732
  12,477
  13,252
  14,060
  14,901
  15,778
  16,693
  17,648
  18,644
  19,685
  20,772
  21,908
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
  1,943
  2,215
  2,505
  2,813
  3,138
  3,480
  3,839
  4,215
  4,607
  5,016
  5,442
  5,885
  6,345
  6,824
  7,321
  7,838
  8,375
  8,933
  9,514
  10,118
  10,747
  11,402
  12,084
  12,796
  13,537
  14,311
  15,119
  15,963
  16,845
  17,767
Working capital, $m
  0
  -10
  -12
  -13
  -15
  -17
  -19
  -20
  -22
  -25
  -27
  -29
  -31
  -34
  -36
  -39
  -42
  -45
  -48
  -51
  -54
  -57
  -61
  -64
  -68
  -72
  -76
  -81
  -85
  -90
  -95
Total debt, $m
  1,045
  1,218
  1,399
  1,593
  1,799
  2,016
  2,245
  2,485
  2,736
  2,998
  3,271
  3,556
  3,852
  4,160
  4,479
  4,812
  5,157
  5,516
  5,889
  6,277
  6,681
  7,102
  7,539
  7,995
  8,471
  8,967
  9,484
  10,024
  10,588
  11,177
  11,793
Total liabilities, $m
  1,126
  1,299
  1,480
  1,674
  1,880
  2,097
  2,326
  2,566
  2,817
  3,079
  3,352
  3,637
  3,933
  4,241
  4,560
  4,893
  5,238
  5,597
  5,970
  6,358
  6,762
  7,183
  7,620
  8,076
  8,552
  9,048
  9,565
  10,105
  10,669
  11,258
  11,874
Total equity, $m
  962
  1,097
  1,251
  1,415
  1,589
  1,772
  1,966
  2,168
  2,380
  2,602
  2,833
  3,073
  3,323
  3,583
  3,854
  4,135
  4,426
  4,730
  5,045
  5,373
  5,714
  6,069
  6,439
  6,825
  7,226
  7,645
  8,083
  8,539
  9,016
  9,513
  10,034
Total liabilities and equity, $m
  2,088
  2,396
  2,731
  3,089
  3,469
  3,869
  4,292
  4,734
  5,197
  5,681
  6,185
  6,710
  7,256
  7,824
  8,414
  9,028
  9,664
  10,327
  11,015
  11,731
  12,476
  13,252
  14,059
  14,901
  15,778
  16,693
  17,648
  18,644
  19,685
  20,771
  21,908
Debt-to-equity ratio
  1.086
  1.110
  1.120
  1.130
  1.130
  1.140
  1.140
  1.150
  1.150
  1.150
  1.150
  1.160
  1.160
  1.160
  1.160
  1.160
  1.170
  1.170
  1.170
  1.170
  1.170
  1.170
  1.170
  1.170
  1.170
  1.170
  1.170
  1.170
  1.170
  1.170
  1.180
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
  -22
  -26
  -30
  -34
  -39
  -44
  -49
  -55
  -60
  -66
  -73
  -79
  -86
  -93
  -100
  -108
  -116
  -124
  -133
  -142
  -151
  -161
  -171
  -181
  -192
  -204
  -216
  -228
  -241
  -254
Depreciation, amort., depletion, $m
  95
  109
  124
  141
  158
  176
  196
  216
  237
  259
  282
  306
  331
  356
  383
  411
  440
  470
  502
  534
  568
  604
  641
  679
  719
  761
  804
  849
  897
  946
  998
Funds from operations, $m
  83
  88
  99
  111
  124
  137
  152
  167
  182
  199
  215
  233
  251
  270
  290
  311
  332
  354
  378
  402
  427
  453
  480
  508
  537
  568
  600
  634
  669
  705
  744
Change in working capital, $m
  -11
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
Cash from operations, $m
  94
  160
  100
  113
  126
  139
  154
  169
  184
  201
  218
  235
  254
  273
  293
  313
  335
  357
  381
  405
  430
  456
  483
  512
  541
  572
  604
  638
  673
  710
  749
Maintenance CAPEX, $m
  0
  -95
  -109
  -124
  -141
  -158
  -176
  -196
  -216
  -237
  -259
  -282
  -306
  -331
  -356
  -383
  -411
  -440
  -470
  -502
  -534
  -568
  -604
  -641
  -679
  -719
  -761
  -804
  -849
  -897
  -946
New CAPEX, $m
  -310
  -253
  -272
  -290
  -308
  -325
  -342
  -359
  -376
  -392
  -409
  -426
  -443
  -460
  -479
  -497
  -517
  -537
  -558
  -581
  -604
  -629
  -655
  -682
  -711
  -742
  -774
  -808
  -844
  -882
  -922
Cash from investing activities, $m
  -245
  -348
  -381
  -414
  -449
  -483
  -518
  -555
  -592
  -629
  -668
  -708
  -749
  -791
  -835
  -880
  -928
  -977
  -1,028
  -1,083
  -1,138
  -1,197
  -1,259
  -1,323
  -1,390
  -1,461
  -1,535
  -1,612
  -1,693
  -1,779
  -1,868
Free cash flow, $m
  -151
  -188
  -281
  -302
  -323
  -344
  -365
  -386
  -407
  -428
  -450
  -472
  -495
  -518
  -542
  -567
  -593
  -620
  -648
  -678
  -709
  -741
  -775
  -811
  -849
  -889
  -930
  -974
  -1,020
  -1,068
  -1,119
Issuance/(repayment) of debt, $m
  140
  173
  182
  194
  206
  217
  229
  240
  251
  262
  273
  285
  296
  308
  320
  332
  345
  359
  373
  388
  404
  420
  438
  456
  475
  496
  517
  540
  564
  589
  616
Issuance/(repurchase) of shares, $m
  84
  151
  253
  272
  291
  310
  330
  349
  368
  388
  408
  428
  449
  470
  493
  516
  540
  565
  591
  618
  646
  676
  708
  741
  775
  812
  850
  890
  933
  977
  1,024
Cash from financing (excl. dividends), $m  
  219
  324
  435
  466
  497
  527
  559
  589
  619
  650
  681
  713
  745
  778
  813
  848
  885
  924
  964
  1,006
  1,050
  1,096
  1,146
  1,197
  1,250
  1,308
  1,367
  1,430
  1,497
  1,566
  1,640
Total cash flow (excl. dividends), $m
  68
  -15
  -99
  -108
  -117
  -127
  -136
  -146
  -156
  -166
  -177
  -188
  -199
  -210
  -222
  -235
  -248
  -261
  -275
  -290
  -305
  -321
  -338
  -355
  -374
  -393
  -413
  -434
  -456
  -479
  -503
Retained Cash Flow (-), $m
  -26
  -144
  -154
  -164
  -174
  -184
  -193
  -203
  -212
  -221
  -231
  -240
  -250
  -260
  -270
  -281
  -292
  -303
  -315
  -328
  -341
  -355
  -370
  -385
  -402
  -419
  -437
  -456
  -477
  -498
  -520
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
  88.9
  75.1
  64.1
  55.1
  47.7
  41.6
  36.4
  32.1
  28.4
  25.3
  22.6
  20.2
  18.2
  16.4
  14.8
  13.4
  12.2
  11.1
  10.1
  9.2
  8.4
  7.7
  7.1
  6.5
  6.0
  5.5
  5.0
  4.6
  4.3
  3.9

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 152.4
Price to Sales 4.9
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 13
Price to Free Cash Flow -5.6
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 15% 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 106.643 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 $1.2 billion.


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