Intrinsic value of Government Properties Income Trust - GOV

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$21.70

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$21.70

 
Intrinsic value

$3.26

 
Up/down potential

-85%

 
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 GOV.

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

We calculate the intrinsic value of GOV 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 1.6

 

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, %
  3.61
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
Revenue, $m
  258
  275
  292
  310
  329
  349
  370
  391
  413
  437
  461
  486
  513
  541
  570
  600
  632
  666
  701
  737
  776
  816
  858
  902
  948
  997
  1,048
  1,101
  1,157
  1,216
  1,278
Variable operating expenses, $m
 
  202
  215
  228
  242
  257
  272
  288
  304
  321
  339
  358
  378
  398
  420
  442
  465
  490
  516
  543
  571
  600
  631
  664
  698
  734
  771
  811
  852
  895
  940
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
  191
  202
  215
  228
  242
  257
  272
  288
  304
  321
  339
  358
  378
  398
  420
  442
  465
  490
  516
  543
  571
  600
  631
  664
  698
  734
  771
  811
  852
  895
  940
Operating income, $m
  67
  73
  77
  82
  87
  92
  98
  103
  109
  115
  122
  128
  135
  143
  150
  159
  167
  176
  185
  195
  205
  215
  227
  238
  250
  263
  277
  291
  306
  321
  337
EBITDA, $m
  138
  148
  157
  167
  177
  188
  199
  211
  223
  235
  248
  262
  276
  291
  307
  323
  341
  359
  377
  397
  418
  439
  462
  486
  511
  537
  564
  593
  623
  655
  688
Interest expense (income), $m
  41
  49
  52
  55
  59
  63
  66
  70
  75
  79
  84
  88
  93
  99
  104
  110
  116
  122
  128
  135
  142
  150
  158
  166
  175
  184
  193
  203
  214
  225
  236
Earnings before tax, $m
  23
  24
  25
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
  44
  46
  49
  51
  54
  57
  59
  62
  65
  69
  72
  76
  79
  83
  87
  92
  96
  101
Tax expense, $m
  0
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
  24
  25
  26
  27
Net income, $m
  58
  17
  18
  19
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  64
  67
  70
  74

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  30
  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
  2,385
  2,498
  2,657
  2,822
  2,994
  3,173
  3,359
  3,554
  3,757
  3,970
  4,191
  4,423
  4,664
  4,917
  5,182
  5,459
  5,749
  6,052
  6,370
  6,703
  7,052
  7,417
  7,800
  8,202
  8,622
  9,064
  9,527
  10,012
  10,522
  11,056
  11,617
Adjusted assets (=assets-cash), $m
  2,355
  2,498
  2,657
  2,822
  2,994
  3,173
  3,359
  3,554
  3,757
  3,970
  4,191
  4,423
  4,664
  4,917
  5,182
  5,459
  5,749
  6,052
  6,370
  6,703
  7,052
  7,417
  7,800
  8,202
  8,622
  9,064
  9,527
  10,012
  10,522
  11,056
  11,617
Revenue / Adjusted assets
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
Average production assets, $m
  1,516
  1,615
  1,717
  1,824
  1,935
  2,051
  2,171
  2,297
  2,429
  2,566
  2,709
  2,859
  3,015
  3,178
  3,350
  3,528
  3,716
  3,912
  4,117
  4,332
  4,558
  4,794
  5,042
  5,301
  5,573
  5,859
  6,158
  6,472
  6,801
  7,146
  7,509
Working capital, $m
  0
  -32
  -34
  -36
  -38
  -40
  -43
  -45
  -48
  -51
  -53
  -56
  -60
  -63
  -66
  -70
  -73
  -77
  -81
  -86
  -90
  -95
  -100
  -105
  -110
  -116
  -122
  -128
  -134
  -141
  -148
Total debt, $m
  1,392
  1,481
  1,578
  1,680
  1,786
  1,896
  2,011
  2,131
  2,257
  2,387
  2,524
  2,666
  2,815
  2,971
  3,134
  3,305
  3,483
  3,670
  3,866
  4,071
  4,286
  4,511
  4,747
  4,994
  5,253
  5,525
  5,811
  6,110
  6,423
  6,753
  7,098
Total liabilities, $m
  1,450
  1,539
  1,636
  1,738
  1,844
  1,954
  2,069
  2,189
  2,315
  2,445
  2,582
  2,724
  2,873
  3,029
  3,192
  3,363
  3,541
  3,728
  3,924
  4,129
  4,344
  4,569
  4,805
  5,052
  5,311
  5,583
  5,869
  6,168
  6,481
  6,811
  7,156
Total equity, $m
  935
  959
  1,020
  1,084
  1,150
  1,218
  1,290
  1,365
  1,443
  1,524
  1,609
  1,698
  1,791
  1,888
  1,990
  2,096
  2,208
  2,324
  2,446
  2,574
  2,708
  2,848
  2,995
  3,149
  3,311
  3,481
  3,658
  3,845
  4,040
  4,246
  4,461
Total liabilities and equity, $m
  2,385
  2,498
  2,656
  2,822
  2,994
  3,172
  3,359
  3,554
  3,758
  3,969
  4,191
  4,422
  4,664
  4,917
  5,182
  5,459
  5,749
  6,052
  6,370
  6,703
  7,052
  7,417
  7,800
  8,201
  8,622
  9,064
  9,527
  10,013
  10,521
  11,057
  11,617
Debt-to-equity ratio
  1.489
  1.540
  1.550
  1.550
  1.550
  1.560
  1.560
  1.560
  1.560
  1.570
  1.570
  1.570
  1.570
  1.570
  1.580
  1.580
  1.580
  1.580
  1.580
  1.580
  1.580
  1.580
  1.580
  1.590
  1.590
  1.590
  1.590
  1.590
  1.590
  1.590
  1.590
Adjusted equity ratio
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  58
  17
  18
  19
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  64
  67
  70
  74
Depreciation, amort., depletion, $m
  71
  75
  80
  85
  90
  96
  101
  107
  113
  120
  127
  134
  141
  149
  157
  165
  174
  183
  192
  202
  213
  224
  236
  248
  260
  274
  288
  302
  318
  334
  351
Funds from operations, $m
  119
  93
  99
  105
  111
  117
  124
  131
  139
  146
  154
  163
  172
  181
  190
  201
  211
  222
  234
  246
  258
  272
  286
  300
  316
  332
  349
  366
  385
  404
  425
Change in working capital, $m
  -5
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Cash from operations, $m
  124
  171
  101
  107
  113
  120
  127
  134
  141
  149
  157
  166
  175
  184
  194
  204
  215
  226
  238
  250
  263
  276
  291
  305
  321
  337
  354
  372
  391
  411
  432
Maintenance CAPEX, $m
  0
  -71
  -75
  -80
  -85
  -90
  -96
  -101
  -107
  -113
  -120
  -127
  -134
  -141
  -149
  -157
  -165
  -174
  -183
  -192
  -202
  -213
  -224
  -236
  -248
  -260
  -274
  -288
  -302
  -318
  -334
New CAPEX, $m
  -233
  -99
  -103
  -107
  -111
  -116
  -121
  -126
  -131
  -137
  -143
  -150
  -156
  -164
  -171
  -179
  -187
  -196
  -205
  -215
  -225
  -236
  -248
  -260
  -272
  -285
  -299
  -314
  -329
  -345
  -362
Cash from investing activities, $m
  -215
  -170
  -178
  -187
  -196
  -206
  -217
  -227
  -238
  -250
  -263
  -277
  -290
  -305
  -320
  -336
  -352
  -370
  -388
  -407
  -427
  -449
  -472
  -496
  -520
  -545
  -573
  -602
  -631
  -663
  -696
Free cash flow, $m
  -91
  1
  -77
  -80
  -83
  -86
  -90
  -94
  -97
  -102
  -106
  -110
  -115
  -120
  -126
  -131
  -137
  -144
  -150
  -158
  -165
  -173
  -181
  -190
  -199
  -208
  -219
  -229
  -240
  -252
  -265
Issuance/(repayment) of debt, $m
  245
  89
  98
  102
  106
  110
  115
  120
  125
  131
  136
  143
  149
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236
  247
  259
  272
  285
  299
  314
  329
  345
Issuance/(repurchase) of shares, $m
  0
  0
  40
  42
  43
  45
  47
  48
  50
  52
  54
  57
  59
  62
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  101
  106
  111
  117
  122
  128
  134
Cash from financing (excl. dividends), $m  
  234
  89
  138
  144
  149
  155
  162
  168
  175
  183
  190
  200
  208
  218
  227
  238
  249
  260
  273
  285
  299
  313
  328
  344
  360
  378
  396
  416
  436
  457
  479
Total cash flow (excl. dividends), $m
  143
  90
  20
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  45
  48
  50
  52
  55
  58
  60
  63
  67
  70
  73
  77
  81
Retained Cash Flow (-), $m
  22
  -54
  -61
  -63
  -66
  -69
  -72
  -75
  -78
  -81
  -85
  -89
  -93
  -97
  -102
  -106
  -111
  -117
  -122
  -128
  -134
  -140
  -147
  -154
  -162
  -170
  -178
  -186
  -196
  -205
  -215
Prev. year cash balance distribution, $m
 
  30
  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
 
  66
  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, %
 
  9.70
  10.19
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.38
  29.79
  31.28
  32.85
  34.49
  36.21
  38.03
  39.93
PV of cash 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
Current shareholders' claim on cash, %
  100
  100.0
  97.5
  95.2
  92.9
  90.8
  88.8
  86.8
  84.9
  83.1
  81.4
  79.7
  78.1
  76.5
  74.9
  73.4
  72.0
  70.6
  69.2
  67.9
  66.6
  65.3
  64.0
  62.8
  61.6
  60.5
  59.3
  58.2
  57.1
  56.1
  55.0

Government Properties Income Trust is an equity real estate investment trust externally managed by REIT Management & Research LLC. The trust invests in the real estate markets of United States. It engages in investment, operation and maintenance of real estate assets. The firm invests primarily in office buildings. Government Properties Income Trust is based in Newton, Massachusetts.

FINANCIAL RATIOS  of  Government Properties Income Trust (GOV)

Valuation Ratios
P/E Ratio 26.6
Price to Sales 6
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 12.5
Price to Free Cash Flow -14.2
Growth Rates
Sales Growth Rate 3.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 1126.3%
Cap. Spend. - 3 Yr. Gr. Rate 11.4%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 148.9%
Total Debt to Equity 148.9%
Interest Coverage 2
Management Effectiveness
Return On Assets 4.3%
Ret/ On Assets - 3 Yr. Avg. 0.2%
Return On Total Capital 2.6%
Ret/ On T. Cap. - 3 Yr. Avg. -1.3%
Return On Equity 6.1%
Return On Equity - 3 Yr. Avg. -2.5%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 67.1%
Gross Margin - 3 Yr. Avg. 68.3%
EBITDA Margin 52.3%
EBITDA Margin - 3 Yr. Avg. 18%
Operating Margin 26%
Oper. Margin - 3 Yr. Avg. 26.8%
Pre-Tax Margin 8.9%
Pre-Tax Margin - 3 Yr. Avg. -22%
Net Profit Margin 22.5%
Net Profit Margin - 3 Yr. Avg. -13%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 210.3%

GOV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GOV stock intrinsic value calculation we used $258 million for the last fiscal year's total revenue generated by Government Properties Income Trust. The default revenue input number comes from 2016 income statement of Government Properties Income Trust. 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 GOV stock valuation model: a) initial revenue growth rate of 6.5% 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 9.7%, whose default value for GOV is calculated based on our internal credit rating of Government Properties Income Trust, 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 Government Properties Income Trust.
    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 GOV stock the variable cost ratio is equal to 73.6%.

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 GOV 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 Government Properties Income Trust.

Corporate tax rate of 27% is the nominal tax rate for Government Properties Income Trust. 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 GOV 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 GOV are equal to 587.6%.

Life of production assets of 21.4 years is the average useful life of capital assets used in Government Properties Income Trust 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 GOV is equal to -11.6%. 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 - $935 million for Government Properties Income Trust - 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 71.667 million for Government Properties Income Trust 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 Government Properties Income Trust at the current share price and the inputted number of shares is $1.6 billion.


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