Intrinsic value of Urban Edge Properties - UE

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$23.53

  Intrinsic Value

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  Value-price divergence*

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

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

We calculate the intrinsic value of UE 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 2.3

 

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, %
  0.93
  2.50
  2.75
  2.97
  3.18
  3.36
  3.52
  3.67
  3.80
  3.92
  4.03
  4.13
  4.22
  4.29
  4.36
  4.43
  4.49
  4.54
  4.58
  4.62
  4.66
  4.70
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
Revenue, $m
  326
  334
  343
  354
  365
  377
  390
  405
  420
  437
  454
  473
  493
  514
  536
  560
  585
  612
  640
  669
  701
  734
  768
  805
  843
  884
  926
  971
  1,018
  1,068
  1,120
Variable operating expenses, $m
 
  233
  239
  246
  254
  262
  272
  282
  292
  304
  316
  329
  343
  358
  373
  390
  407
  426
  445
  466
  488
  511
  535
  560
  587
  615
  645
  676
  709
  743
  780
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
  193
  233
  239
  246
  254
  262
  272
  282
  292
  304
  316
  329
  343
  358
  373
  390
  407
  426
  445
  466
  488
  511
  535
  560
  587
  615
  645
  676
  709
  743
  780
Operating income, $m
  133
  102
  104
  107
  111
  115
  119
  123
  128
  133
  138
  144
  150
  156
  163
  170
  178
  186
  195
  204
  213
  223
  234
  245
  256
  269
  282
  295
  310
  325
  340
EBITDA, $m
  190
  160
  164
  169
  175
  180
  187
  194
  201
  209
  217
  226
  236
  246
  257
  268
  280
  293
  306
  320
  335
  351
  368
  385
  404
  423
  443
  465
  487
  511
  536
Interest expense (income), $m
  51
  50
  52
  54
  55
  58
  60
  62
  65
  68
  71
  74
  78
  81
  85
  89
  94
  99
  103
  109
  114
  120
  126
  133
  139
  147
  154
  162
  170
  179
  188
Earnings before tax, $m
  97
  51
  53
  54
  55
  57
  59
  61
  63
  65
  67
  70
  72
  75
  78
  81
  84
  87
  91
  95
  99
  103
  107
  112
  117
  122
  128
  133
  139
  146
  152
Tax expense, $m
  0
  14
  14
  15
  15
  15
  16
  16
  17
  18
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  38
  39
  41
Net income, $m
  91
  37
  38
  39
  40
  42
  43
  44
  46
  47
  49
  51
  53
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  106
  111

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  132
  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
  1,904
  1,816
  1,866
  1,921
  1,983
  2,049
  2,121
  2,199
  2,283
  2,372
  2,468
  2,570
  2,678
  2,793
  2,915
  3,044
  3,181
  3,325
  3,478
  3,638
  3,808
  3,987
  4,175
  4,374
  4,583
  4,803
  5,034
  5,278
  5,534
  5,804
  6,087
Adjusted assets (=assets-cash), $m
  1,772
  1,816
  1,866
  1,921
  1,983
  2,049
  2,121
  2,199
  2,283
  2,372
  2,468
  2,570
  2,678
  2,793
  2,915
  3,044
  3,181
  3,325
  3,478
  3,638
  3,808
  3,987
  4,175
  4,374
  4,583
  4,803
  5,034
  5,278
  5,534
  5,804
  6,087
Revenue / Adjusted assets
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
Average production assets, $m
  1,629
  1,670
  1,716
  1,767
  1,823
  1,884
  1,950
  2,022
  2,099
  2,181
  2,269
  2,363
  2,463
  2,568
  2,680
  2,799
  2,925
  3,057
  3,198
  3,345
  3,501
  3,666
  3,839
  4,022
  4,214
  4,416
  4,629
  4,853
  5,088
  5,336
  5,597
Working capital, $m
  0
  -135
  -139
  -143
  -148
  -153
  -158
  -164
  -170
  -177
  -184
  -192
  -200
  -208
  -217
  -227
  -237
  -248
  -259
  -271
  -284
  -297
  -311
  -326
  -342
  -358
  -375
  -393
  -412
  -432
  -454
Total debt, $m
  1,198
  1,234
  1,275
  1,320
  1,370
  1,424
  1,483
  1,546
  1,615
  1,688
  1,766
  1,849
  1,937
  2,031
  2,130
  2,235
  2,346
  2,464
  2,588
  2,719
  2,858
  3,003
  3,157
  3,319
  3,489
  3,668
  3,857
  4,056
  4,264
  4,484
  4,715
Total liabilities, $m
  1,444
  1,480
  1,521
  1,566
  1,616
  1,670
  1,729
  1,792
  1,861
  1,934
  2,012
  2,095
  2,183
  2,277
  2,376
  2,481
  2,592
  2,710
  2,834
  2,965
  3,104
  3,249
  3,403
  3,565
  3,735
  3,914
  4,103
  4,302
  4,510
  4,730
  4,961
Total equity, $m
  460
  336
  345
  355
  367
  379
  392
  407
  422
  439
  457
  475
  495
  517
  539
  563
  588
  615
  643
  673
  704
  738
  772
  809
  848
  889
  931
  976
  1,024
  1,074
  1,126
Total liabilities and equity, $m
  1,904
  1,816
  1,866
  1,921
  1,983
  2,049
  2,121
  2,199
  2,283
  2,373
  2,469
  2,570
  2,678
  2,794
  2,915
  3,044
  3,180
  3,325
  3,477
  3,638
  3,808
  3,987
  4,175
  4,374
  4,583
  4,803
  5,034
  5,278
  5,534
  5,804
  6,087
Debt-to-equity ratio
  2.604
  3.670
  3.690
  3.710
  3.730
  3.760
  3.780
  3.800
  3.820
  3.840
  3.870
  3.890
  3.910
  3.930
  3.950
  3.970
  3.990
  4.010
  4.020
  4.040
  4.060
  4.070
  4.090
  4.100
  4.120
  4.130
  4.140
  4.150
  4.170
  4.180
  4.190
Adjusted equity ratio
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  91
  37
  38
  39
  40
  42
  43
  44
  46
  47
  49
  51
  53
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  106
  111
Depreciation, amort., depletion, $m
  57
  58
  60
  62
  64
  66
  68
  71
  73
  76
  79
  83
  86
  90
  94
  98
  102
  107
  112
  117
  122
  128
  134
  141
  147
  154
  162
  170
  178
  187
  196
Funds from operations, $m
  134
  96
  98
  101
  104
  108
  111
  115
  119
  124
  128
  133
  139
  144
  151
  157
  164
  171
  178
  186
  195
  203
  213
  222
  233
  244
  255
  267
  280
  293
  307
Change in working capital, $m
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
Cash from operations, $m
  137
  108
  102
  105
  109
  113
  117
  121
  125
  130
  136
  141
  147
  153
  160
  166
  174
  181
  190
  198
  207
  217
  227
  237
  248
  260
  272
  285
  299
  313
  328
Maintenance CAPEX, $m
  0
  -57
  -58
  -60
  -62
  -64
  -66
  -68
  -71
  -73
  -76
  -79
  -83
  -86
  -90
  -94
  -98
  -102
  -107
  -112
  -117
  -122
  -128
  -134
  -141
  -147
  -154
  -162
  -170
  -178
  -187
New CAPEX, $m
  -79
  -41
  -46
  -51
  -56
  -61
  -66
  -72
  -77
  -82
  -88
  -94
  -100
  -106
  -112
  -119
  -126
  -133
  -140
  -148
  -156
  -164
  -173
  -183
  -192
  -202
  -213
  -224
  -236
  -248
  -261
Cash from investing activities, $m
  -59
  -98
  -104
  -111
  -118
  -125
  -132
  -140
  -148
  -155
  -164
  -173
  -183
  -192
  -202
  -213
  -224
  -235
  -247
  -260
  -273
  -286
  -301
  -317
  -333
  -349
  -367
  -386
  -406
  -426
  -448
Free cash flow, $m
  78
  10
  -2
  -6
  -9
  -12
  -16
  -19
  -22
  -25
  -29
  -32
  -35
  -39
  -42
  -46
  -50
  -53
  -57
  -62
  -66
  -70
  -75
  -80
  -84
  -90
  -95
  -101
  -107
  -113
  -119
Issuance/(repayment) of debt, $m
  -38
  36
  41
  45
  50
  54
  59
  63
  68
  73
  78
  83
  88
  94
  99
  105
  111
  118
  124
  131
  138
  146
  154
  162
  170
  179
  189
  199
  209
  220
  231
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  -35
  36
  41
  45
  50
  54
  59
  63
  68
  73
  78
  83
  88
  94
  99
  105
  111
  118
  124
  131
  138
  146
  154
  162
  170
  179
  189
  199
  209
  220
  231
Total cash flow (excl. dividends), $m
  43
  46
  38
  39
  41
  42
  43
  45
  46
  48
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  72
  76
  79
  82
  86
  90
  94
  98
  102
  107
  112
Retained Cash Flow (-), $m
  -22
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
Prev. year cash balance distribution, $m
 
  132
  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
 
  171
  29
  29
  29
  30
  30
  30
  31
  31
  32
  32
  33
  34
  34
  35
  36
  37
  39
  40
  41
  42
  44
  46
  47
  49
  51
  53
  55
  57
  59
Discount rate, %
 
  9.90
  10.40
  10.91
  11.46
  12.03
  12.64
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.83
  25.02
  26.27
  27.58
  28.96
  30.41
  31.93
  33.52
  35.20
  36.96
  38.81
  40.75
PV of cash for distribution, $m
 
  155
  24
  21
  19
  17
  15
  13
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
  1
  1
  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

Urban Edge Properties (NYSE:UE) operates independently of Vornado Realty Trust as of January 15, 2015.

FINANCIAL RATIOS  of  Urban Edge Properties (UE)

Valuation Ratios
P/E Ratio 25.8
Price to Sales 7.2
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow 17.1
Price to Free Cash Flow 40.5
Growth Rates
Sales Growth Rate 0.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 19.7%
Cap. Spend. - 3 Yr. Gr. Rate 25.9%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 260.4%
Total Debt to Equity 260.4%
Interest Coverage 3
Management Effectiveness
Return On Assets 7.4%
Ret/ On Assets - 3 Yr. Avg. 6.4%
Return On Total Capital 5.5%
Ret/ On T. Cap. - 3 Yr. Avg. 4.1%
Return On Equity 20.3%
Return On Equity - 3 Yr. Avg. 17.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 67.2%
Gross Margin - 3 Yr. Avg. 65.9%
EBITDA Margin 62.9%
EBITDA Margin - 3 Yr. Avg. 55.4%
Operating Margin 40.8%
Oper. Margin - 3 Yr. Avg. 36.7%
Pre-Tax Margin 29.8%
Pre-Tax Margin - 3 Yr. Avg. 21.5%
Net Profit Margin 27.9%
Net Profit Margin - 3 Yr. Avg. 20.3%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 2.5%
Payout Ratio 89%

UE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the UE stock intrinsic value calculation we used $326 million for the last fiscal year's total revenue generated by Urban Edge Properties. The default revenue input number comes from 2016 income statement of Urban Edge 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 UE stock valuation model: a) initial revenue growth rate of 2.5% 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 9.9%, whose default value for UE is calculated based on our internal credit rating of Urban Edge 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 Urban Edge 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 UE stock the variable cost ratio is equal to 69.6%.

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 UE 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 4.2% for Urban Edge Properties.

Corporate tax rate of 27% is the nominal tax rate for Urban Edge 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 UE 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 UE are equal to 499.7%.

Life of production assets of 28.6 years is the average useful life of capital assets used in Urban Edge 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 UE is equal to -40.5%. 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 - $460 million for Urban Edge 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 96.634 million for Urban Edge 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 Urban Edge Properties at the current share price and the inputted number of shares is $2.3 billion.


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COMPANY NEWS

▶ Urban Edge Properties reports 1Q results   [May-03-17 06:29PM  Associated Press]
▶ Real-estate and construction sector lead S&P 500 gainers   [Apr-11-17 02:05PM  MarketWatch]
Stock chart of UE Financial statements of UE Annual reports of UE
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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