Intrinsic value of NexPoint Residential Trust - NXRT

Previous Close

$26.62

  Intrinsic Value

$2.76

stock screener

  Rating & Target

str. sell

-90%

Previous close

$26.62

 
Intrinsic value

$2.76

 
Up/down potential

-90%

 
Rating

str. sell

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

We calculate the intrinsic value of NXRT 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 0.6

 

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, %
  12.71
  2.90
  3.11
  3.30
  3.47
  3.62
  3.76
  3.88
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
Revenue, $m
  133
  137
  141
  146
  151
  156
  162
  168
  175
  182
  190
  198
  207
  216
  225
  236
  246
  258
  270
  282
  296
  310
  325
  340
  356
  374
  392
  411
  431
  452
  474
Variable operating expenses, $m
 
  26
  27
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  42
  44
  46
  48
  51
  53
  56
  58
  61
  64
  67
  70
  74
  77
  81
  85
  89
Fixed operating expenses, $m
 
  92
  95
  97
  99
  102
  104
  107
  110
  112
  115
  118
  121
  124
  127
  130
  134
  137
  140
  144
  147
  151
  155
  159
  163
  167
  171
  175
  180
  184
  189
Total operating expenses, $m
  111
  118
  122
  124
  127
  131
  134
  139
  143
  146
  151
  155
  160
  165
  169
  174
  180
  185
  191
  197
  203
  209
  216
  223
  230
  237
  245
  252
  261
  269
  278
Operating income, $m
  22
  19
  20
  21
  23
  25
  27
  30
  33
  36
  39
  43
  47
  51
  56
  61
  66
  72
  79
  85
  93
  100
  109
  117
  127
  137
  147
  158
  170
  183
  196
EBITDA, $m
  58
  56
  58
  61
  64
  67
  71
  75
  80
  85
  91
  96
  103
  110
  117
  125
  133
  142
  152
  162
  173
  184
  196
  209
  223
  238
  253
  270
  287
  305
  325
Interest expense (income), $m
  21
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  39
  41
  42
  44
  46
  49
  51
  53
  56
  58
  61
  64
  67
  71
  74
  78
  82
  86
  90
  94
Earnings before tax, $m
  26
  -8
  -8
  -7
  -6
  -6
  -4
  -3
  -2
  0
  2
  4
  6
  9
  12
  15
  18
  22
  25
  30
  34
  39
  44
  50
  56
  62
  69
  77
  85
  93
  102
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  2
  3
  4
  5
  6
  7
  8
  9
  11
  12
  13
  15
  17
  19
  21
  23
  25
  27
Net income, $m
  22
  -8
  -8
  -7
  -6
  -6
  -4
  -3
  -2
  0
  1
  3
  5
  6
  8
  11
  13
  16
  19
  22
  25
  29
  32
  36
  41
  46
  51
  56
  62
  68
  74

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  23
  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
  1,035
  1,045
  1,077
  1,113
  1,151
  1,193
  1,238
  1,286
  1,337
  1,392
  1,450
  1,512
  1,578
  1,648
  1,721
  1,799
  1,881
  1,968
  2,059
  2,156
  2,257
  2,365
  2,477
  2,596
  2,721
  2,853
  2,991
  3,136
  3,289
  3,450
  3,619
Adjusted assets (=assets-cash), $m
  1,012
  1,045
  1,077
  1,113
  1,151
  1,193
  1,238
  1,286
  1,337
  1,392
  1,450
  1,512
  1,578
  1,648
  1,721
  1,799
  1,881
  1,968
  2,059
  2,156
  2,257
  2,365
  2,477
  2,596
  2,721
  2,853
  2,991
  3,136
  3,289
  3,450
  3,619
Revenue / Adjusted assets
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
Average production assets, $m
  894
  919
  948
  979
  1,013
  1,050
  1,089
  1,132
  1,177
  1,225
  1,276
  1,331
  1,389
  1,450
  1,515
  1,583
  1,655
  1,732
  1,812
  1,897
  1,987
  2,081
  2,180
  2,285
  2,395
  2,510
  2,632
  2,760
  2,895
  3,036
  3,185
Working capital, $m
  0
  -24
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -78
  -82
Total debt, $m
  764
  789
  815
  843
  874
  907
  943
  981
  1,022
  1,065
  1,111
  1,160
  1,212
  1,267
  1,326
  1,388
  1,453
  1,521
  1,594
  1,671
  1,751
  1,836
  1,926
  2,020
  2,119
  2,223
  2,333
  2,448
  2,569
  2,697
  2,831
Total liabilities, $m
  804
  828
  854
  882
  913
  946
  982
  1,020
  1,061
  1,104
  1,150
  1,199
  1,251
  1,306
  1,365
  1,427
  1,492
  1,560
  1,633
  1,710
  1,790
  1,875
  1,965
  2,059
  2,158
  2,262
  2,372
  2,487
  2,608
  2,736
  2,870
Total equity, $m
  232
  216
  223
  230
  238
  247
  256
  266
  277
  288
  300
  313
  327
  341
  356
  372
  389
  407
  426
  446
  467
  489
  513
  537
  563
  590
  619
  649
  681
  714
  749
Total liabilities and equity, $m
  1,036
  1,044
  1,077
  1,112
  1,151
  1,193
  1,238
  1,286
  1,338
  1,392
  1,450
  1,512
  1,578
  1,647
  1,721
  1,799
  1,881
  1,967
  2,059
  2,156
  2,257
  2,364
  2,478
  2,596
  2,721
  2,852
  2,991
  3,136
  3,289
  3,450
  3,619
Debt-to-equity ratio
  3.293
  3.650
  3.660
  3.660
  3.670
  3.670
  3.680
  3.680
  3.690
  3.700
  3.700
  3.710
  3.710
  3.720
  3.720
  3.730
  3.730
  3.740
  3.740
  3.740
  3.750
  3.750
  3.750
  3.760
  3.760
  3.760
  3.770
  3.770
  3.770
  3.780
  3.780
Adjusted equity ratio
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  22
  -8
  -8
  -7
  -6
  -6
  -4
  -3
  -2
  0
  1
  3
  5
  6
  8
  11
  13
  16
  19
  22
  25
  29
  32
  36
  41
  46
  51
  56
  62
  68
  74
Depreciation, amort., depletion, $m
  36
  37
  38
  39
  41
  42
  44
  46
  47
  49
  51
  54
  56
  58
  61
  64
  67
  70
  73
  76
  80
  84
  88
  92
  97
  101
  106
  111
  117
  122
  128
Funds from operations, $m
  31
  29
  31
  32
  34
  37
  39
  42
  46
  49
  53
  57
  61
  65
  70
  74
  80
  86
  92
  98
  105
  112
  120
  129
  137
  147
  157
  167
  178
  190
  203
Change in working capital, $m
  -3
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
Cash from operations, $m
  34
  30
  31
  33
  35
  38
  41
  44
  47
  51
  54
  58
  62
  66
  71
  76
  82
  88
  94
  100
  107
  115
  123
  131
  140
  150
  160
  171
  182
  194
  207
Maintenance CAPEX, $m
  0
  -36
  -37
  -38
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -54
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -76
  -80
  -84
  -88
  -92
  -97
  -101
  -106
  -111
  -117
  -122
New CAPEX, $m
  -24
  -26
  -29
  -31
  -34
  -37
  -39
  -42
  -45
  -48
  -51
  -54
  -58
  -61
  -65
  -68
  -72
  -76
  -81
  -85
  -89
  -94
  -99
  -105
  -110
  -116
  -122
  -128
  -135
  -142
  -149
Cash from investing activities, $m
  -52
  -62
  -66
  -69
  -73
  -78
  -81
  -86
  -91
  -95
  -100
  -105
  -112
  -117
  -123
  -129
  -136
  -143
  -151
  -158
  -165
  -174
  -183
  -193
  -202
  -213
  -223
  -234
  -246
  -259
  -271
Free cash flow, $m
  -18
  -32
  -34
  -36
  -38
  -40
  -41
  -43
  -44
  -45
  -47
  -48
  -49
  -51
  -52
  -53
  -54
  -56
  -57
  -58
  -59
  -60
  -60
  -61
  -62
  -63
  -63
  -64
  -64
  -64
  -65
Issuance/(repayment) of debt, $m
  44
  25
  26
  28
  31
  33
  36
  38
  41
  43
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  81
  85
  89
  94
  99
  104
  110
  115
  121
  128
  134
Issuance/(repurchase) of shares, $m
  -5
  15
  14
  14
  14
  14
  14
  13
  12
  11
  11
  10
  9
  8
  7
  5
  4
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  28
  40
  40
  42
  45
  47
  50
  51
  53
  54
  57
  59
  61
  63
  65
  67
  69
  71
  73
  77
  81
  85
  89
  94
  99
  104
  110
  115
  121
  128
  134
Total cash flow (excl. dividends), $m
  10
  9
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  19
  22
  25
  29
  33
  37
  42
  47
  52
  57
  63
  69
Retained Cash Flow (-), $m
  -10
  -15
  -14
  -14
  -14
  -14
  -14
  -13
  -12
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
Prev. year cash balance distribution, $m
 
  23
  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
 
  16
  -9
  -8
  -8
  -7
  -6
  -5
  -3
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -1
  1
  3
  6
  8
  11
  15
  18
  22
  26
  30
  34
Discount rate, %
 
  12.00
  12.60
  13.23
  13.89
  14.59
  15.32
  16.08
  16.89
  17.73
  18.62
  19.55
  20.52
  21.55
  22.63
  23.76
  24.95
  26.19
  27.50
  28.88
  30.32
  31.84
  33.43
  35.10
  36.86
  38.70
  40.64
  42.67
  44.80
  47.04
  49.39
PV of cash for distribution, $m
 
  15
  -7
  -6
  -4
  -3
  -2
  -2
  -1
  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
  97.1
  94.5
  92.0
  89.7
  87.6
  85.6
  83.8
  82.2
  80.8
  79.6
  78.5
  77.6
  76.8
  76.2
  75.7
  75.4
  75.2
  75.2
  75.2
  75.2
  75.2
  75.2
  75.2
  75.2
  75.2
  75.2
  75.2
  75.2
  75.2
  75.2

NexPoint Residential Trust, Inc. is an externally managed real estate investment trust (REIT). The Company's investment objectives are to maximize the cash flow and value of properties owned, acquire properties with cash flow growth potential, provide quarterly cash distributions and achieve long-term capital appreciation for its stockholders through targeted management and a value-add program. The Company is focused on multifamily investments primarily located in the Southeastern and Southwestern United States. All of the Company's business operations are conducted through NexPoint Residential Trust Operating Partnership, L.P. (OP). The sole limited partner of the OP is the Company. Its subsidiary, NexPoint Residential Trust Operating Partnership GP, LLC, is the sole general partner of the OP. As of December 31, 2016, the Company owned 39 properties representing 12,965 units in eight states, including two Parked Assets. The Company's advisor is NexPoint Real Estate Advisors, L.P.

FINANCIAL RATIOS  of  NexPoint Residential Trust (NXRT)

Valuation Ratios
P/E Ratio 25.5
Price to Sales 4.2
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 16.5
Price to Free Cash Flow 56
Growth Rates
Sales Growth Rate 12.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -38.5%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 329.3%
Total Debt to Equity 329.3%
Interest Coverage 2
Management Effectiveness
Return On Assets 4.3%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 2.3%
Ret/ On T. Cap. - 3 Yr. Avg. -1.3%
Return On Equity 9.7%
Return On Equity - 3 Yr. Avg. -4.3%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 91.7%
Gross Margin - 3 Yr. Avg. 92.4%
EBITDA Margin 62.4%
EBITDA Margin - 3 Yr. Avg. 41.1%
Operating Margin 16.5%
Oper. Margin - 3 Yr. Avg. 0%
Pre-Tax Margin 19.5%
Pre-Tax Margin - 3 Yr. Avg. -10.5%
Net Profit Margin 16.5%
Net Profit Margin - 3 Yr. Avg. -10%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 81.8%

NXRT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NXRT stock intrinsic value calculation we used $133 million for the last fiscal year's total revenue generated by NexPoint Residential Trust. The default revenue input number comes from 2016 income statement of NexPoint Residential 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 NXRT stock valuation model: a) initial revenue growth rate of 2.9% 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 12%, whose default value for NXRT is calculated based on our internal credit rating of NexPoint Residential 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 NexPoint Residential 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 NXRT stock the variable cost ratio is equal to 18.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $90 million in the base year in the intrinsic value calculation for NXRT 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 NexPoint Residential Trust.

Corporate tax rate of 27% is the nominal tax rate for NexPoint Residential 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 NXRT 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 NXRT are equal to 671.8%.

Life of production assets of 24.8 years is the average useful life of capital assets used in NexPoint Residential 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 NXRT is equal to -17.3%. 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 - $232 million for NexPoint Residential 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 21.044 million for NexPoint Residential 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 NexPoint Residential Trust at the current share price and the inputted number of shares is $0.6 billion.

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Financial statements of NXRT
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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