Intrinsic value of American Realty Investors - ARL

Previous Close

$8.94

  Intrinsic Value

$1.93

stock screener

  Rating & Target

str. sell

-78%

  Value-price divergence*

-101%

Previous close

$8.94

 
Intrinsic value

$1.93

 
Up/down potential

-78%

 
Rating

str. sell

 
Value-price divergence*

-101%

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

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

We calculate the intrinsic value of ARL 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, %
  15.38
  3.20
  3.38
  3.54
  3.69
  3.82
  3.94
  4.04
  4.14
  4.23
  4.30
  4.37
  4.44
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
Revenue, $m
  120
  124
  128
  133
  137
  143
  148
  154
  161
  167
  175
  182
  190
  199
  208
  218
  228
  238
  249
  261
  274
  287
  301
  315
  330
  346
  363
  381
  400
  419
  440
Variable operating expenses, $m
 
  55
  57
  59
  61
  63
  66
  68
  71
  74
  77
  81
  84
  88
  92
  96
  101
  105
  110
  115
  121
  127
  133
  139
  146
  153
  161
  168
  177
  185
  194
Fixed operating expenses, $m
 
  54
  56
  57
  59
  60
  61
  63
  65
  66
  68
  70
  71
  73
  75
  77
  79
  81
  83
  85
  87
  89
  91
  94
  96
  98
  101
  103
  106
  108
  111
Total operating expenses, $m
  105
  109
  113
  116
  120
  123
  127
  131
  136
  140
  145
  151
  155
  161
  167
  173
  180
  186
  193
  200
  208
  216
  224
  233
  242
  251
  262
  271
  283
  293
  305
Operating income, $m
  15
  15
  16
  17
  18
  20
  21
  23
  25
  27
  30
  32
  35
  38
  41
  45
  48
  52
  57
  61
  66
  71
  76
  82
  88
  95
  102
  109
  117
  125
  134
EBITDA, $m
  39
  45
  47
  49
  52
  54
  57
  61
  64
  68
  72
  77
  81
  86
  92
  98
  104
  110
  117
  125
  133
  141
  150
  159
  169
  179
  190
  202
  215
  228
  241
Interest expense (income), $m
  51
  53
  54
  56
  59
  61
  64
  67
  70
  74
  77
  81
  85
  90
  94
  99
  104
  110
  115
  121
  128
  134
  141
  149
  156
  165
  173
  182
  192
  202
  212
Earnings before tax, $m
  -2
  -38
  -38
  -39
  -40
  -42
  -43
  -44
  -45
  -46
  -48
  -49
  -50
  -52
  -53
  -54
  -56
  -57
  -59
  -60
  -62
  -63
  -65
  -66
  -68
  -70
  -71
  -73
  -75
  -76
  -78
Tax expense, $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
  0
Net income, $m
  -3
  -38
  -38
  -39
  -40
  -42
  -43
  -44
  -45
  -46
  -48
  -49
  -50
  -52
  -53
  -54
  -56
  -57
  -59
  -60
  -62
  -63
  -65
  -66
  -68
  -70
  -71
  -73
  -75
  -76
  -78

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  18
  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
  1,175
  1,191
  1,231
  1,275
  1,322
  1,372
  1,426
  1,484
  1,545
  1,610
  1,680
  1,753
  1,831
  1,913
  2,000
  2,092
  2,189
  2,291
  2,399
  2,512
  2,631
  2,757
  2,890
  3,029
  3,176
  3,330
  3,492
  3,663
  3,842
  4,030
  4,229
Adjusted assets (=assets-cash), $m
  1,157
  1,191
  1,231
  1,275
  1,322
  1,372
  1,426
  1,484
  1,545
  1,610
  1,680
  1,753
  1,831
  1,913
  2,000
  2,092
  2,189
  2,291
  2,399
  2,512
  2,631
  2,757
  2,890
  3,029
  3,176
  3,330
  3,492
  3,663
  3,842
  4,030
  4,229
Revenue / Adjusted assets
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
Average production assets, $m
  878
  906
  936
  969
  1,005
  1,044
  1,085
  1,128
  1,175
  1,225
  1,278
  1,333
  1,393
  1,455
  1,521
  1,591
  1,665
  1,742
  1,824
  1,911
  2,001
  2,097
  2,198
  2,304
  2,415
  2,533
  2,656
  2,786
  2,922
  3,065
  3,216
Working capital, $m
  0
  -19
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -60
  -63
  -66
Total debt, $m
  851
  870
  906
  945
  987
  1,033
  1,082
  1,133
  1,189
  1,247
  1,310
  1,376
  1,446
  1,520
  1,598
  1,681
  1,768
  1,860
  1,957
  2,059
  2,166
  2,280
  2,399
  2,524
  2,656
  2,795
  2,941
  3,094
  3,256
  3,425
  3,604
Total liabilities, $m
  1,053
  1,072
  1,108
  1,147
  1,189
  1,235
  1,284
  1,335
  1,391
  1,449
  1,512
  1,578
  1,648
  1,722
  1,800
  1,883
  1,970
  2,062
  2,159
  2,261
  2,368
  2,482
  2,601
  2,726
  2,858
  2,997
  3,143
  3,296
  3,458
  3,627
  3,806
Total equity, $m
  122
  119
  123
  127
  132
  137
  143
  148
  155
  161
  168
  175
  183
  191
  200
  209
  219
  229
  240
  251
  263
  276
  289
  303
  318
  333
  349
  366
  384
  403
  423
Total liabilities and equity, $m
  1,175
  1,191
  1,231
  1,274
  1,321
  1,372
  1,427
  1,483
  1,546
  1,610
  1,680
  1,753
  1,831
  1,913
  2,000
  2,092
  2,189
  2,291
  2,399
  2,512
  2,631
  2,758
  2,890
  3,029
  3,176
  3,330
  3,492
  3,662
  3,842
  4,030
  4,229
Debt-to-equity ratio
  6.975
  7.300
  7.360
  7.420
  7.470
  7.530
  7.580
  7.640
  7.690
  7.750
  7.800
  7.850
  7.900
  7.940
  7.990
  8.030
  8.080
  8.120
  8.160
  8.200
  8.230
  8.270
  8.300
  8.330
  8.360
  8.390
  8.420
  8.450
  8.470
  8.500
  8.520
Adjusted equity ratio
  0.090
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3
  -38
  -38
  -39
  -40
  -42
  -43
  -44
  -45
  -46
  -48
  -49
  -50
  -52
  -53
  -54
  -56
  -57
  -59
  -60
  -62
  -63
  -65
  -66
  -68
  -70
  -71
  -73
  -75
  -76
  -78
Depreciation, amort., depletion, $m
  24
  30
  31
  32
  34
  35
  36
  38
  39
  41
  43
  44
  46
  49
  51
  53
  55
  58
  61
  64
  67
  70
  73
  77
  81
  84
  89
  93
  97
  102
  107
Funds from operations, $m
  28
  -8
  -7
  -7
  -7
  -7
  -7
  -6
  -6
  -6
  -5
  -5
  -4
  -3
  -2
  -1
  0
  1
  2
  3
  5
  7
  8
  10
  12
  15
  17
  20
  23
  26
  29
Change in working capital, $m
  11
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
Cash from operations, $m
  17
  -7
  -6
  -6
  -6
  -6
  -6
  -5
  -5
  -5
  -4
  -3
  -3
  -2
  -1
  0
  1
  2
  4
  5
  7
  9
  10
  13
  15
  17
  20
  22
  25
  29
  32
Maintenance CAPEX, $m
  0
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -49
  -51
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -84
  -89
  -93
  -97
  -102
New CAPEX, $m
  -92
  -28
  -31
  -33
  -36
  -38
  -41
  -44
  -47
  -50
  -53
  -56
  -59
  -63
  -66
  -70
  -74
  -78
  -82
  -86
  -91
  -96
  -101
  -106
  -112
  -117
  -123
  -130
  -136
  -143
  -151
Cash from investing activities, $m
  -61
  -57
  -61
  -64
  -68
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -103
  -109
  -115
  -121
  -127
  -133
  -140
  -147
  -155
  -163
  -171
  -179
  -189
  -198
  -207
  -219
  -229
  -240
  -253
Free cash flow, $m
  -44
  -65
  -67
  -71
  -74
  -78
  -82
  -85
  -89
  -93
  -98
  -102
  -106
  -111
  -116
  -120
  -126
  -131
  -136
  -142
  -148
  -154
  -160
  -167
  -174
  -181
  -188
  -196
  -204
  -212
  -221
Issuance/(repayment) of debt, $m
  46
  19
  36
  39
  42
  45
  49
  52
  55
  59
  62
  66
  70
  74
  78
  83
  87
  92
  97
  102
  108
  113
  119
  125
  132
  139
  146
  153
  161
  170
  178
Issuance/(repurchase) of shares, $m
  0
  53
  42
  44
  45
  47
  48
  50
  51
  53
  55
  56
  58
  60
  62
  64
  66
  68
  70
  72
  74
  76
  78
  80
  83
  85
  88
  90
  93
  95
  98
Cash from financing (excl. dividends), $m  
  47
  72
  78
  83
  87
  92
  97
  102
  106
  112
  117
  122
  128
  134
  140
  147
  153
  160
  167
  174
  182
  189
  197
  205
  215
  224
  234
  243
  254
  265
  276
Total cash flow (excl. dividends), $m
  3
  7
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  43
  45
  48
  50
  53
  56
Retained Cash Flow (-), $m
  1
  -53
  -42
  -44
  -45
  -47
  -48
  -50
  -51
  -53
  -55
  -56
  -58
  -60
  -62
  -64
  -66
  -68
  -70
  -72
  -74
  -76
  -78
  -80
  -83
  -85
  -88
  -90
  -93
  -95
  -98
Prev. year cash balance distribution, $m
 
  18
  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
 
  -28
  -31
  -31
  -32
  -32
  -33
  -34
  -34
  -35
  -35
  -36
  -36
  -37
  -37
  -38
  -38
  -39
  -39
  -40
  -40
  -41
  -41
  -41
  -42
  -42
  -42
  -42
  -42
  -42
  -42
Discount rate, %
 
  14.00
  14.70
  15.44
  16.21
  17.02
  17.87
  18.76
  19.70
  20.68
  21.72
  22.80
  23.94
  25.14
  26.40
  27.72
  29.10
  30.56
  32.09
  33.69
  35.38
  37.15
  39.00
  40.95
  43.00
  45.15
  47.41
  49.78
  52.27
  54.88
  57.63
PV of cash for distribution, $m
 
  -24
  -23
  -20
  -18
  -15
  -12
  -10
  -8
  -6
  -5
  -4
  -3
  -2
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  69.4
  53.1
  40.7
  31.2
  23.9
  18.3
  14.1
  10.9
  8.4
  6.5
  5.0
  3.9
  3.0
  2.4
  1.9
  1.5
  1.2
  0.9
  0.7
  0.6
  0.5
  0.4
  0.3
  0.2
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1

American Realty Investors, Inc. is an externally advised and managed real estate investment company that owns a diverse portfolio of income-producing properties and land held for development. The Company's segments are commercial properties, apartments, land and other. The Company's business is the acquisition, development and ownership of income-producing residential and commercial real estate properties. In addition, the Company acquires land for future development in in-fill or suburban markets. The Company's portfolio of income-producing properties includes residential apartment communities, office buildings, hotels and other commercial properties. It owns approximately 50 residential apartment communities comprising over 7,980 units, approximately nine commercial properties comprising an aggregate of over 2.2 million rentable square feet, an investment in approximately 3,810 acres of undeveloped and partially developed land and a golf course comprising approximately 100 acres.

FINANCIAL RATIOS  of  American Realty Investors (ARL)

Valuation Ratios
P/E Ratio -46.2
Price to Sales 1.2
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 8.2
Price to Free Cash Flow -1.8
Growth Rates
Sales Growth Rate 15.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -55.6%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 697.5%
Total Debt to Equity 697.5%
Interest Coverage 1
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 3.7%
Return On Total Capital -0.3%
Ret/ On T. Cap. - 3 Yr. Avg. 1.2%
Return On Equity -2.4%
Return On Equity - 3 Yr. Avg. 8.3%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 47.5%
Gross Margin - 3 Yr. Avg. 47.5%
EBITDA Margin 60.8%
EBITDA Margin - 3 Yr. Avg. 55.8%
Operating Margin 12.5%
Oper. Margin - 3 Yr. Avg. 6.1%
Pre-Tax Margin -1.7%
Pre-Tax Margin - 3 Yr. Avg. -9.4%
Net Profit Margin -2.5%
Net Profit Margin - 3 Yr. Avg. 11.6%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 37%
Payout Ratio -33.3%

ARL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARL stock intrinsic value calculation we used $120 million for the last fiscal year's total revenue generated by American Realty Investors. The default revenue input number comes from 2016 income statement of American Realty Investors. 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 ARL stock valuation model: a) initial revenue growth rate of 3.2% 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 14%, whose default value for ARL is calculated based on our internal credit rating of American Realty Investors, 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 American Realty Investors.
    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 ARL stock the variable cost ratio is equal to 44.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $53 million in the base year in the intrinsic value calculation for ARL 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 6.2% for American Realty Investors.

Corporate tax rate of 27% is the nominal tax rate for American Realty Investors. 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 ARL 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 ARL are equal to 731.3%.

Life of production assets of 36.6 years is the average useful life of capital assets used in American Realty Investors 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 ARL is equal to -15%. 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 - $122 million for American Realty Investors - 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 15.801 million for American Realty Investors 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 American Realty Investors at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating

COMPANY NEWS

▶ ARL reports 2Q loss   [Aug-14-17 11:08PM  Associated Press]
▶ ARL reports 1Q loss   [May-16-17 11:44AM  Associated Press]
▶ ARL posts 4Q profit   [Apr-03-17 04:52PM  Associated Press]
▶ American Realty Investors reports Q1 EPS 25c vs. (2c) a year ago   [May-15  01:45PM  at theflyonthewall.com]
Financial statements of ARL
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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