Intrinsic value of Sotherly Hotels - SOHO

Previous Close

$6.81

  Intrinsic Value

$4.87

stock screener

  Rating & Target

sell

-29%

Previous close

$6.81

 
Intrinsic value

$4.87

 
Up/down potential

-29%

 
Rating

sell

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

We calculate the intrinsic value of SOHO 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 0.1

 

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, %
  10.07
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
Revenue, $m
  153
  168
  185
  201
  219
  237
  256
  276
  297
  318
  340
  363
  387
  412
  438
  465
  493
  523
  553
  585
  618
  653
  689
  727
  767
  808
  852
  897
  945
  994
  1,047
Variable operating expenses, $m
 
  142
  156
  170
  185
  200
  216
  233
  250
  268
  287
  306
  326
  347
  369
  392
  416
  440
  466
  493
  521
  550
  581
  613
  646
  681
  718
  756
  796
  838
  882
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
  136
  142
  156
  170
  185
  200
  216
  233
  250
  268
  287
  306
  326
  347
  369
  392
  416
  440
  466
  493
  521
  550
  581
  613
  646
  681
  718
  756
  796
  838
  882
Operating income, $m
  17
  26
  29
  32
  34
  37
  40
  43
  47
  50
  53
  57
  61
  65
  69
  73
  77
  82
  87
  92
  97
  103
  108
  114
  120
  127
  134
  141
  148
  156
  164
EBITDA, $m
  32
  43
  47
  51
  56
  61
  65
  70
  76
  81
  87
  93
  99
  105
  112
  119
  126
  133
  141
  149
  158
  167
  176
  186
  196
  206
  217
  229
  241
  254
  267
Interest expense (income), $m
  17
  17
  18
  20
  22
  24
  26
  28
  31
  33
  36
  38
  41
  44
  46
  49
  53
  56
  59
  63
  66
  70
  74
  78
  83
  87
  92
  97
  102
  108
  114
Earnings before tax, $m
  0
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  39
  42
  44
  46
  48
  51
Tax expense, $m
  -1
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Net income, $m
  1
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  32
  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
  406
  412
  451
  493
  536
  580
  627
  675
  725
  777
  832
  888
  947
  1,008
  1,071
  1,137
  1,206
  1,278
  1,352
  1,430
  1,512
  1,597
  1,685
  1,778
  1,875
  1,976
  2,082
  2,193
  2,310
  2,431
  2,559
Adjusted assets (=assets-cash), $m
  374
  412
  451
  493
  536
  580
  627
  675
  725
  777
  832
  888
  947
  1,008
  1,071
  1,137
  1,206
  1,278
  1,352
  1,430
  1,512
  1,597
  1,685
  1,778
  1,875
  1,976
  2,082
  2,193
  2,310
  2,431
  2,559
Revenue / Adjusted assets
  0.409
  0.408
  0.410
  0.408
  0.409
  0.409
  0.408
  0.409
  0.410
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
  0.409
Average production assets, $m
  352
  387
  424
  463
  503
  545
  589
  634
  681
  730
  781
  834
  889
  947
  1,006
  1,068
  1,133
  1,200
  1,270
  1,344
  1,420
  1,500
  1,583
  1,670
  1,762
  1,857
  1,956
  2,061
  2,170
  2,284
  2,404
Working capital, $m
  0
  -35
  -39
  -42
  -46
  -50
  -54
  -58
  -62
  -66
  -71
  -76
  -81
  -86
  -92
  -97
  -103
  -109
  -116
  -122
  -129
  -136
  -144
  -152
  -160
  -169
  -178
  -187
  -197
  -208
  -219
Total debt, $m
  307
  340
  374
  411
  448
  487
  528
  570
  614
  659
  707
  756
  807
  861
  916
  974
  1,034
  1,097
  1,162
  1,230
  1,301
  1,375
  1,453
  1,534
  1,619
  1,707
  1,800
  1,897
  1,999
  2,105
  2,216
Total liabilities, $m
  327
  360
  394
  431
  468
  507
  548
  590
  634
  679
  727
  776
  827
  881
  936
  994
  1,054
  1,117
  1,182
  1,250
  1,321
  1,395
  1,473
  1,554
  1,639
  1,727
  1,820
  1,917
  2,019
  2,125
  2,236
Total equity, $m
  79
  52
  57
  62
  67
  73
  79
  85
  91
  98
  105
  112
  119
  127
  135
  143
  152
  161
  170
  180
  190
  201
  212
  224
  236
  249
  262
  276
  291
  306
  322
Total liabilities and equity, $m
  406
  412
  451
  493
  535
  580
  627
  675
  725
  777
  832
  888
  946
  1,008
  1,071
  1,137
  1,206
  1,278
  1,352
  1,430
  1,511
  1,596
  1,685
  1,778
  1,875
  1,976
  2,082
  2,193
  2,310
  2,431
  2,558
Debt-to-equity ratio
  3.886
  6.550
  6.580
  6.610
  6.640
  6.660
  6.680
  6.700
  6.720
  6.730
  6.750
  6.760
  6.770
  6.780
  6.790
  6.800
  6.800
  6.810
  6.820
  6.830
  6.830
  6.840
  6.840
  6.850
  6.850
  6.860
  6.860
  6.860
  6.870
  6.870
  6.870
Adjusted equity ratio
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
Depreciation, amort., depletion, $m
  15
  17
  18
  20
  22
  23
  25
  27
  29
  31
  33
  36
  38
  40
  43
  46
  48
  51
  54
  57
  61
  64
  68
  71
  75
  79
  84
  88
  93
  98
  103
Funds from operations, $m
  15
  24
  26
  28
  30
  33
  35
  38
  41
  43
  46
  49
  53
  56
  59
  63
  67
  70
  74
  79
  83
  88
  92
  97
  103
  108
  114
  120
  126
  133
  140
Change in working capital, $m
  -2
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
Cash from operations, $m
  17
  27
  29
  32
  34
  37
  39
  42
  45
  48
  51
  54
  58
  61
  65
  68
  72
  77
  81
  85
  90
  95
  100
  105
  111
  117
  123
  129
  136
  143
  151
Maintenance CAPEX, $m
  0
  -15
  -17
  -18
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -36
  -38
  -40
  -43
  -46
  -48
  -51
  -54
  -57
  -61
  -64
  -68
  -71
  -75
  -79
  -84
  -88
  -93
  -98
New CAPEX, $m
  -15
  -35
  -37
  -39
  -40
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -80
  -83
  -87
  -91
  -95
  -100
  -104
  -109
  -114
  -120
Cash from investing activities, $m
  -13
  -50
  -54
  -57
  -60
  -64
  -67
  -70
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -111
  -115
  -121
  -127
  -133
  -141
  -147
  -155
  -162
  -170
  -179
  -188
  -197
  -207
  -218
Free cash flow, $m
  4
  -23
  -24
  -25
  -26
  -27
  -28
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -35
  -37
  -38
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -54
  -56
  -58
  -61
  -64
  -67
Issuance/(repayment) of debt, $m
  -12
  33
  35
  36
  38
  39
  41
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  63
  65
  68
  71
  74
  78
  81
  85
  89
  93
  97
  102
  106
  111
Issuance/(repurchase) of shares, $m
  36
  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 from financing (excl. dividends), $m  
  22
  33
  35
  36
  38
  39
  41
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  63
  65
  68
  71
  74
  78
  81
  85
  89
  93
  97
  102
  106
  111
Total cash flow (excl. dividends), $m
  26
  9
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  40
  42
  45
Retained Cash Flow (-), $m
  -30
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
Prev. year cash balance distribution, $m
 
  32
  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
 
  37
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
Discount rate, %
 
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.84
  17.69
  18.57
  19.50
  20.47
  21.50
  22.57
  23.70
  24.88
  26.13
  27.44
  28.81
  30.25
  31.76
  33.35
  35.02
  36.77
  38.60
  40.53
  42.56
  44.69
  46.92
PV of cash for distribution, $m
 
  33
  4
  4
  4
  3
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Sotherly Hotels Inc. is a self-managed and self-administered lodging real estate investment trust. The Company is focused on the acquisition, renovation, upbranding and repositioning of upscale to upper-upscale full-service hotels in the southern United States. The Company operates through the hotel ownership segment. The Company conducts its operations through Sotherly Hotels LP, its Operating Partnership, of which the Company is the general partner. Its portfolio consists of approximately 10 full-service, mainly upscale and upper-upscale hotels located in over eight states with an aggregate of approximately 3,010 rooms and approximately 160,930 square feet of meeting space. All of these hotels are owned by subsidiaries of the Operating Partnership, approximately 10 operate under the Hilton, Crowne Plaza, DoubleTree and Sheraton brands, one is an independent hotel, and all are managed on a day to day basis by MHI Hotels Services, LLC, which does business as Chesapeake Hospitality.

FINANCIAL RATIOS  of  Sotherly Hotels (SOHO)

Valuation Ratios
P/E Ratio 98.5
Price to Sales 0.6
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 5.8
Price to Free Cash Flow 49.3
Growth Rates
Sales Growth Rate 10.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -67.4%
Cap. Spend. - 3 Yr. Gr. Rate -16.1%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 388.6%
Total Debt to Equity 388.6%
Interest Coverage 1
Management Effectiveness
Return On Assets 4.5%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 0.3%
Ret/ On T. Cap. - 3 Yr. Avg. 0.5%
Return On Equity 1.6%
Return On Equity - 3 Yr. Avg. 3.8%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 63.4%
Gross Margin - 3 Yr. Avg. 63.4%
EBITDA Margin 20.9%
EBITDA Margin - 3 Yr. Avg. 21.6%
Operating Margin 11.1%
Oper. Margin - 3 Yr. Avg. 12.2%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 0.7%
Net Profit Margin 0.7%
Net Profit Margin - 3 Yr. Avg. 1.1%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 10%
Payout Ratio 600%

SOHO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SOHO stock intrinsic value calculation we used $153 million for the last fiscal year's total revenue generated by Sotherly Hotels. The default revenue input number comes from 2016 income statement of Sotherly Hotels. 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 SOHO stock valuation model: a) initial revenue growth rate of 10.1% 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 11.4%, whose default value for SOHO is calculated based on our internal credit rating of Sotherly Hotels, 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 Sotherly Hotels.
    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 SOHO stock the variable cost ratio is equal to 84.3%.

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 SOHO 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 5.4% for Sotherly Hotels.

Corporate tax rate of 27% is the nominal tax rate for Sotherly Hotels. 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 SOHO 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 SOHO are equal to 229.7%.

Life of production assets of 23.4 years is the average useful life of capital assets used in Sotherly Hotels 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 SOHO is equal to -20.9%. 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 - $79 million for Sotherly Hotels - 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 13.815 million for Sotherly Hotels 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 Sotherly Hotels at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating
CHSP Chesapeake Lod 27.91 4.95  str.sell
AHT Ashford Hospit 6.71 20.77  str.buy
LHO LaSalle Hotel 28.29 5.65  str.sell
XHR Xenia Hotels&R 21.51 3.82  str.sell
APLE Apple Hospital 19.65 3.94  str.sell
RLJ RLJ Lodging Tr 21.45 4.77  str.sell
AHP Ashford Hospit 9.85 4.27  str.sell
INN Summit Hotel P 14.91 3.44  str.sell
HST Host Hotels&Re 19.85 2.36  str.sell

COMPANY NEWS

▶ Sotherly Hotels reports 3Q results   [Nov-07-17 09:14AM  Associated Press]
▶ Sotherly Hotels Inc. Announces Quarterly Dividends   [Oct-24-17 09:00AM  GlobeNewswire]
▶ [$$] Lodging REITs Could Be Slammed by Hurricane Irma   [Sep-05-17 07:20PM  The Wall Street Journal]
▶ Sotherly Hotels reports 2Q results   [Aug-08-17 05:51PM  Associated Press]
▶ Sotherly Hotels Inc. Announces Quarterly Dividends   [Jul-25-17 09:00AM  GlobeNewswire]
▶ Sotherly Hotels reports 1Q results   [May-09-17 09:10AM  Associated Press]
▶ Sotherly Hotels Inc. Announces Quarterly Dividends   [Apr-25-17 07:00AM  GlobeNewswire]
▶ New Strong Sell Stocks for February 24th   [Feb-24-17 10:06AM  Zacks]
▶ Sotherly Hotels reports 4Q results   [09:48AM  Associated Press]
▶ Sotherly Hotels Inc. Announces Quarterly Dividends   [Oct-25-16 09:00AM  GlobeNewswire]
Financial statements of SOHO
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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