Intrinsic value of Whitestone REIT - WSR

Previous Close

$12.63

  Intrinsic Value

$2.19

stock screener

  Rating & Target

str. sell

-83%

  Value-price divergence*

+36%

Previous close

$12.63

 
Intrinsic value

$2.19

 
Up/down potential

-83%

 
Rating

str. sell

 
Value-price divergence*

+36%

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

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

We calculate the intrinsic value of WSR 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 0.4

 

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, %
  11.83
  12.00
  11.30
  10.67
  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
Revenue, $m
  104
  116
  130
  143
  158
  173
  189
  205
  223
  240
  259
  278
  298
  319
  341
  363
  387
  411
  436
  463
  490
  519
  549
  580
  613
  647
  682
  719
  758
  799
  841
Variable operating expenses, $m
 
  108
  120
  132
  146
  160
  174
  190
  205
  222
  239
  257
  275
  294
  314
  335
  357
  379
  403
  427
  452
  479
  506
  535
  565
  597
  630
  664
  700
  737
  777
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
  99
  108
  120
  132
  146
  160
  174
  190
  205
  222
  239
  257
  275
  294
  314
  335
  357
  379
  403
  427
  452
  479
  506
  535
  565
  597
  630
  664
  700
  737
  777
Operating income, $m
  5
  9
  10
  11
  12
  13
  15
  16
  17
  19
  20
  21
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  55
  58
  62
  65
EBITDA, $m
  27
  38
  42
  47
  52
  57
  62
  67
  73
  79
  85
  91
  97
  104
  111
  119
  126
  134
  143
  151
  160
  170
  179
  190
  200
  211
  223
  235
  248
  261
  275
Interest expense (income), $m
  18
  0
  3
  5
  8
  11
  14
  17
  21
  24
  28
  31
  35
  39
  43
  48
  52
  57
  62
  67
  72
  78
  84
  90
  96
  103
  110
  117
  124
  132
  140
Earnings before tax, $m
  5
  9
  7
  6
  4
  2
  1
  -1
  -3
  -5
  -8
  -10
  -12
  -15
  -17
  -20
  -23
  -25
  -28
  -32
  -35
  -38
  -42
  -45
  -49
  -53
  -57
  -61
  -66
  -71
  -76
Tax expense, $m
  0
  2
  2
  2
  1
  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
Net income, $m
  5
  7
  5
  4
  3
  2
  0
  -1
  -3
  -5
  -8
  -10
  -12
  -15
  -17
  -20
  -23
  -25
  -28
  -32
  -35
  -38
  -42
  -45
  -49
  -53
  -57
  -61
  -66
  -71
  -76

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4
  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
  855
  955
  1,063
  1,176
  1,295
  1,419
  1,549
  1,684
  1,824
  1,970
  2,122
  2,280
  2,444
  2,615
  2,792
  2,977
  3,168
  3,368
  3,576
  3,792
  4,017
  4,252
  4,498
  4,753
  5,021
  5,300
  5,591
  5,896
  6,215
  6,548
  6,897
Adjusted assets (=assets-cash), $m
  851
  955
  1,063
  1,176
  1,295
  1,419
  1,549
  1,684
  1,824
  1,970
  2,122
  2,280
  2,444
  2,615
  2,792
  2,977
  3,168
  3,368
  3,576
  3,792
  4,017
  4,252
  4,498
  4,753
  5,021
  5,300
  5,591
  5,896
  6,215
  6,548
  6,897
Revenue / Adjusted assets
  0.122
  0.121
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
  0.122
Average production assets, $m
  780
  873
  972
  1,075
  1,184
  1,298
  1,416
  1,540
  1,668
  1,802
  1,941
  2,085
  2,235
  2,391
  2,553
  2,722
  2,897
  3,080
  3,269
  3,467
  3,673
  3,888
  4,113
  4,347
  4,591
  4,846
  5,113
  5,391
  5,683
  5,988
  6,307
Working capital, $m
  0
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
Total debt, $m
  0
  73
  149
  229
  313
  400
  491
  586
  685
  788
  895
  1,006
  1,122
  1,242
  1,367
  1,497
  1,631
  1,772
  1,918
  2,070
  2,229
  2,395
  2,567
  2,747
  2,936
  3,132
  3,337
  3,552
  3,776
  4,011
  4,257
Total liabilities, $m
  600
  672
  748
  828
  912
  999
  1,090
  1,185
  1,284
  1,387
  1,494
  1,605
  1,721
  1,841
  1,966
  2,096
  2,230
  2,371
  2,517
  2,669
  2,828
  2,994
  3,166
  3,346
  3,535
  3,731
  3,936
  4,151
  4,375
  4,610
  4,856
Total equity, $m
  256
  283
  315
  348
  383
  420
  458
  498
  540
  583
  628
  675
  724
  774
  827
  881
  938
  997
  1,058
  1,122
  1,189
  1,259
  1,331
  1,407
  1,486
  1,569
  1,655
  1,745
  1,840
  1,938
  2,042
Total liabilities and equity, $m
  856
  955
  1,063
  1,176
  1,295
  1,419
  1,548
  1,683
  1,824
  1,970
  2,122
  2,280
  2,445
  2,615
  2,793
  2,977
  3,168
  3,368
  3,575
  3,791
  4,017
  4,253
  4,497
  4,753
  5,021
  5,300
  5,591
  5,896
  6,215
  6,548
  6,898
Debt-to-equity ratio
  0.000
  0.260
  0.470
  0.660
  0.820
  0.950
  1.070
  1.180
  1.270
  1.350
  1.420
  1.490
  1.550
  1.600
  1.650
  1.700
  1.740
  1.780
  1.810
  1.840
  1.870
  1.900
  1.930
  1.950
  1.980
  2.000
  2.020
  2.040
  2.050
  2.070
  2.080
Adjusted equity ratio
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  7
  5
  4
  3
  2
  0
  -1
  -3
  -5
  -8
  -10
  -12
  -15
  -17
  -20
  -23
  -25
  -28
  -32
  -35
  -38
  -42
  -45
  -49
  -53
  -57
  -61
  -66
  -71
  -76
Depreciation, amort., depletion, $m
  22
  29
  32
  36
  39
  43
  47
  51
  56
  60
  65
  70
  75
  80
  85
  91
  97
  103
  109
  116
  122
  130
  137
  145
  153
  162
  170
  180
  189
  200
  210
Funds from operations, $m
  37
  36
  38
  40
  42
  45
  48
  50
  52
  55
  57
  60
  62
  65
  68
  71
  74
  77
  81
  84
  88
  92
  96
  100
  104
  109
  113
  118
  123
  129
  135
Change in working capital, $m
  -2
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
Cash from operations, $m
  39
  36
  38
  41
  43
  46
  48
  51
  53
  55
  58
  60
  63
  66
  69
  72
  75
  78
  82
  85
  89
  93
  97
  101
  105
  110
  115
  120
  125
  130
  136
Maintenance CAPEX, $m
  0
  -26
  -29
  -32
  -36
  -39
  -43
  -47
  -51
  -56
  -60
  -65
  -70
  -75
  -80
  -85
  -91
  -97
  -103
  -109
  -116
  -122
  -130
  -137
  -145
  -153
  -162
  -170
  -180
  -189
  -200
New CAPEX, $m
  -83
  -94
  -99
  -104
  -109
  -114
  -119
  -123
  -129
  -134
  -139
  -144
  -150
  -156
  -162
  -169
  -175
  -182
  -190
  -198
  -206
  -215
  -224
  -234
  -244
  -255
  -267
  -279
  -292
  -305
  -319
Cash from investing activities, $m
  -76
  -120
  -128
  -136
  -145
  -153
  -162
  -170
  -180
  -190
  -199
  -209
  -220
  -231
  -242
  -254
  -266
  -279
  -293
  -307
  -322
  -337
  -354
  -371
  -389
  -408
  -429
  -449
  -472
  -494
  -519
Free cash flow, $m
  -37
  -83
  -89
  -95
  -101
  -107
  -114
  -120
  -127
  -134
  -141
  -149
  -157
  -165
  -173
  -182
  -191
  -201
  -211
  -222
  -233
  -245
  -257
  -270
  -284
  -298
  -314
  -329
  -346
  -364
  -382
Issuance/(repayment) of debt, $m
  45
  73
  76
  80
  84
  87
  91
  95
  99
  103
  107
  111
  116
  120
  125
  130
  135
  140
  146
  152
  159
  165
  173
  180
  188
  196
  205
  215
  224
  235
  246
Issuance/(repurchase) of shares, $m
  26
  24
  27
  29
  32
  35
  38
  41
  45
  49
  53
  57
  61
  65
  70
  74
  79
  85
  90
  96
  101
  108
  114
  121
  128
  136
  143
  152
  160
  169
  179
Cash from financing (excl. dividends), $m  
  70
  97
  103
  109
  116
  122
  129
  136
  144
  152
  160
  168
  177
  185
  195
  204
  214
  225
  236
  248
  260
  273
  287
  301
  316
  332
  348
  367
  384
  404
  425
Total cash flow (excl. dividends), $m
  34
  14
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
Retained Cash Flow (-), $m
  -13
  -31
  -32
  -34
  -35
  -37
  -38
  -41
  -45
  -49
  -53
  -57
  -61
  -65
  -70
  -74
  -79
  -85
  -90
  -96
  -101
  -108
  -114
  -121
  -128
  -136
  -143
  -152
  -160
  -169
  -179
Prev. year cash balance distribution, $m
 
  4
  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
 
  -13
  -19
  -20
  -21
  -22
  -23
  -25
  -28
  -31
  -34
  -38
  -41
  -45
  -48
  -52
  -56
  -60
  -65
  -69
  -74
  -79
  -85
  -90
  -96
  -102
  -108
  -115
  -122
  -129
  -137
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  -12
  -17
  -17
  -17
  -17
  -16
  -17
  -18
  -18
  -18
  -18
  -18
  -17
  -16
  -15
  -14
  -13
  -12
  -11
  -9
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  -2
  -1
  -1
Current shareholders' claim on cash, %
  100
  93.8
  88.1
  82.7
  77.7
  73.1
  68.8
  64.7
  60.9
  57.3
  53.9
  50.8
  47.8
  45.0
  42.3
  39.8
  37.5
  35.3
  33.2
  31.2
  29.4
  27.7
  26.0
  24.5
  23.0
  21.7
  20.4
  19.2
  18.0
  16.9
  15.9

Whitestone REIT is an equity real estate investment trust. The firm invests in the real estate markets of the United States. It is engaged in owning and operating commercial properties in culturally diverse markets in major metropolitan areas. The firm was formerly known as Hartman Commercial Properties REIT. Whitestone REIT was founded on 1998 and is based in Houston, Texas.

FINANCIAL RATIOS  of  Whitestone REIT (WSR)

Valuation Ratios
P/E Ratio 74.4
Price to Sales 3.6
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 9.5
Price to Free Cash Flow -8.5
Growth Rates
Sales Growth Rate 11.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -48.4%
Cap. Spend. - 3 Yr. Gr. Rate -7.9%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 1
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 2.8%
Return On Total Capital 2%
Ret/ On T. Cap. - 3 Yr. Avg. 3%
Return On Equity 2%
Return On Equity - 3 Yr. Avg. 3%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 67.3%
Gross Margin - 3 Yr. Avg. 66.4%
EBITDA Margin 43.3%
EBITDA Margin - 3 Yr. Avg. 43.6%
Operating Margin 4.8%
Oper. Margin - 3 Yr. Avg. 6.4%
Pre-Tax Margin 4.8%
Pre-Tax Margin - 3 Yr. Avg. 6.9%
Net Profit Margin 4.8%
Net Profit Margin - 3 Yr. Avg. 7.8%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 5.6%
Payout Ratio 640%

WSR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WSR stock intrinsic value calculation we used $104 million for the last fiscal year's total revenue generated by Whitestone REIT. The default revenue input number comes from 2016 income statement of Whitestone REIT. 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 WSR stock valuation model: a) initial revenue growth rate of 12% 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 4.3%, whose default value for WSR is calculated based on our internal credit rating of Whitestone REIT, 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 Whitestone REIT.
    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 WSR stock the variable cost ratio is equal to 92.3%.

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 WSR 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 Whitestone REIT.

Corporate tax rate of 27% is the nominal tax rate for Whitestone REIT. 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 WSR 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 WSR are equal to 749.5%.

Life of production assets of 35.4 years is the average useful life of capital assets used in Whitestone REIT 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 WSR is equal to -3.8%. 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 - $256 million for Whitestone REIT - 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 29.212 million for Whitestone REIT 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 Whitestone REIT at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ Whitestone REIT Reports Second Quarter 2017 Results   [Aug-02-17 04:01PM  GlobeNewswire]
▶ Deal finalized to acquire Galleria-area's Blvd Place   [May-30-17 03:37PM  American City Business Journals]
▶ Whitestone reports 1Q results   [May-03-17 05:52PM  Associated Press]
▶ Top Ranked Income Stocks to Buy for March 6th   [Mar-06-17 10:30AM  Zacks]
▶ Whitestone reports 4Q results   [Mar-01-17 05:32PM  Associated Press]
▶ Is Whitestone REIT (WSR) A Good Stock To Buy?   [Dec-15-16 09:43AM  at Insider Monkey]
▶ 3 Bargain REITs That Pump Out Dividends   [Jul-06-16 01:20PM  at Kiplinger]
Stock chart of WSR Financial statements of WSR
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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