Intrinsic value of Franklin Street Properties - FSP

Previous Close

$8.49

  Intrinsic Value

$6.76

stock screener

  Rating & Target

sell

-20%

Previous close

$8.49

 
Intrinsic value

$6.76

 
Up/down potential

-20%

 
Rating

sell

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

We calculate the intrinsic value of FSP 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 2017), $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 0.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  9.10
  8.69
  8.32
  7.99
  7.69
  7.42
  7.18
  6.96
  6.76
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.84
  5.76
  5.68
  5.62
  5.55
  5.50
  5.45
  5.40
  5.36
  5.33
  5.29
  5.26
  5.24
  5.21
  5.19
Revenue, $m
  298
  324
  351
  379
  408
  438
  470
  502
  536
  571
  608
  646
  686
  728
  771
  816
  863
  912
  963
  1,017
  1,073
  1,131
  1,192
  1,256
  1,323
  1,393
  1,467
  1,543
  1,624
  1,708
Variable operating expenses, $m
  251
  272
  294
  317
  341
  366
  392
  419
  447
  476
  500
  531
  564
  598
  633
  670
  709
  749
  791
  835
  881
  929
  980
  1,032
  1,087
  1,145
  1,205
  1,268
  1,334
  1,404
Fixed operating expenses, $m
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Total operating expenses, $m
  253
  274
  296
  319
  343
  368
  394
  421
  449
  478
  503
  534
  567
  601
  636
  673
  712
  752
  794
  838
  884
  932
  983
  1,035
  1,090
  1,149
  1,209
  1,272
  1,338
  1,408
Operating income, $m
  45
  50
  54
  59
  64
  70
  75
  81
  87
  93
  106
  113
  120
  127
  135
  143
  151
  160
  169
  178
  188
  199
  209
  221
  233
  245
  258
  272
  286
  301
EBITDA, $m
  280
  305
  330
  357
  384
  413
  443
  474
  506
  539
  574
  610
  648
  687
  728
  771
  815
  862
  910
  961
  1,014
  1,069
  1,127
  1,188
  1,251
  1,317
  1,387
  1,460
  1,536
  1,616
Interest expense (income), $m
  24
  29
  28
  28
  28
  28
  28
  28
  28
  27
  27
  27
  27
  27
  26
  26
  26
  26
  26
  25
  25
  25
  25
  24
  24
  24
  23
  23
  23
  22
  22
Earnings before tax, $m
  16
  21
  26
  31
  36
  42
  48
  54
  60
  66
  79
  86
  93
  101
  108
  117
  125
  134
  143
  153
  163
  174
  185
  197
  209
  222
  235
  249
  264
  279
Tax expense, $m
  4
  6
  7
  8
  10
  11
  13
  14
  16
  18
  21
  23
  25
  27
  29
  31
  34
  36
  39
  41
  44
  47
  50
  53
  56
  60
  63
  67
  71
  75
Net income, $m
  12
  15
  19
  23
  27
  31
  35
  39
  44
  48
  58
  63
  68
  73
  79
  85
  91
  98
  105
  112
  119
  127
  135
  144
  153
  162
  172
  182
  192
  204

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  -538
  -584
  -633
  -684
  -736
  -791
  -847
  -906
  -968
  -1,032
  -1,098
  -1,167
  -1,239
  -1,314
  -1,392
  -1,473
  -1,558
  -1,646
  -1,739
  -1,835
  -1,936
  -2,042
  -2,152
  -2,268
  -2,388
  -2,515
  -2,647
  -2,786
  -2,931
  -3,083
Adjusted assets (=assets-cash), $m
  -538
  -584
  -633
  -684
  -736
  -791
  -847
  -906
  -968
  -1,032
  -1,098
  -1,167
  -1,239
  -1,314
  -1,392
  -1,473
  -1,558
  -1,646
  -1,739
  -1,835
  -1,936
  -2,042
  -2,152
  -2,268
  -2,388
  -2,515
  -2,647
  -2,786
  -2,931
  -3,083
Revenue / Adjusted assets
  -0.554
  -0.555
  -0.555
  -0.554
  -0.554
  -0.554
  -0.555
  -0.554
  -0.554
  -0.553
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
  -0.554
Average production assets, $m
  2,293
  2,492
  2,699
  2,915
  3,139
  3,372
  3,614
  3,866
  4,127
  4,399
  4,682
  4,977
  5,283
  5,602
  5,935
  6,282
  6,643
  7,021
  7,415
  7,827
  8,258
  8,707
  9,178
  9,670
  10,185
  10,725
  11,289
  11,881
  12,500
  13,149
Working capital, $m
  -1,223
  -1,329
  -1,440
  -1,555
  -1,674
  -1,799
  -1,928
  -2,062
  -2,201
  -2,347
  -2,497
  -2,654
  -2,818
  -2,988
  -3,166
  -3,351
  -3,544
  -3,745
  -3,955
  -4,175
  -4,404
  -4,644
  -4,895
  -5,158
  -5,433
  -5,720
  -6,022
  -6,337
  -6,667
  -7,014
Total debt, $m
  143
  142
  142
  141
  140
  139
  139
  138
  137
  136
  135
  134
  133
  132
  131
  130
  129
  127
  126
  125
  123
  122
  120
  119
  117
  115
  113
  111
  109
  107
Total liabilities, $m
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
Total equity, $m
  -530
  -576
  -624
  -674
  -726
  -780
  -836
  -894
  -954
  -1,017
  -1,083
  -1,151
  -1,221
  -1,295
  -1,372
  -1,452
  -1,536
  -1,623
  -1,714
  -1,810
  -1,909
  -2,013
  -2,122
  -2,236
  -2,355
  -2,480
  -2,610
  -2,747
  -2,890
  -3,040
Total liabilities and equity, $m
  -538
  -584
  -633
  -684
  -736
  -791
  -848
  -907
  -968
  -1,031
  -1,098
  -1,167
  -1,238
  -1,313
  -1,391
  -1,473
  -1,558
  -1,646
  -1,738
  -1,836
  -1,936
  -2,042
  -2,152
  -2,268
  -2,388
  -2,515
  -2,647
  -2,786
  -2,931
  -3,083
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986
  0.986

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  12
  15
  19
  23
  27
  31
  35
  39
  44
  48
  58
  63
  68
  73
  79
  85
  91
  98
  105
  112
  119
  127
  135
  144
  153
  162
  172
  182
  192
  204
Depreciation, amort., depletion, $m
  235
  255
  276
  298
  320
  343
  368
  393
  419
  446
  468
  498
  528
  560
  593
  628
  664
  702
  742
  783
  826
  871
  918
  967
  1,019
  1,072
  1,129
  1,188
  1,250
  1,315
Funds from operations, $m
  247
  271
  295
  320
  347
  374
  402
  432
  462
  494
  526
  560
  596
  634
  673
  713
  756
  800
  846
  895
  945
  998
  1,053
  1,111
  1,171
  1,234
  1,300
  1,370
  1,442
  1,519
Change in working capital, $m
  -102
  -106
  -111
  -115
  -120
  -124
  -129
  -134
  -139
  -145
  -151
  -157
  -163
  -170
  -177
  -185
  -193
  -201
  -210
  -220
  -230
  -240
  -251
  -263
  -275
  -288
  -301
  -315
  -330
  -346
Cash from operations, $m
  349
  377
  406
  435
  466
  498
  531
  566
  602
  639
  677
  717
  760
  804
  850
  898
  949
  1,001
  1,057
  1,114
  1,175
  1,238
  1,304
  1,373
  1,446
  1,522
  1,602
  1,685
  1,773
  1,865
Maintenance CAPEX, $m
  -210
  -229
  -249
  -270
  -292
  -314
  -337
  -361
  -387
  -413
  -440
  -468
  -498
  -528
  -560
  -593
  -628
  -664
  -702
  -742
  -783
  -826
  -871
  -918
  -967
  -1,019
  -1,072
  -1,129
  -1,188
  -1,250
New CAPEX, $m
  -194
  -199
  -207
  -216
  -224
  -233
  -242
  -252
  -262
  -272
  -283
  -294
  -306
  -319
  -333
  -347
  -362
  -378
  -394
  -412
  -430
  -450
  -471
  -492
  -515
  -539
  -565
  -591
  -620
  -649
Cash from investing activities, $m
  -404
  -428
  -456
  -486
  -516
  -547
  -579
  -613
  -649
  -685
  -723
  -762
  -804
  -847
  -893
  -940
  -990
  -1,042
  -1,096
  -1,154
  -1,213
  -1,276
  -1,342
  -1,410
  -1,482
  -1,558
  -1,637
  -1,720
  -1,808
  -1,899
Free cash flow, $m
  -55
  -52
  -51
  -50
  -50
  -49
  -48
  -47
  -46
  -45
  -46
  -45
  -44
  -44
  -43
  -42
  -41
  -41
  -40
  -39
  -39
  -38
  -37
  -37
  -36
  -36
  -35
  -35
  -35
  -34
Issuance/(repayment) of debt, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Issuance/(repurchase) of shares, $m
  -45
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -77
  -80
  -84
  -87
  -91
  -95
  -100
  -104
  -109
  -114
  -119
  -125
  -131
  -137
  -143
  -150
Cash from financing (excl. dividends), $m  
  -46
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -96
  -101
  -105
  -111
  -116
  -121
  -127
  -133
  -139
  -145
  -152
Total cash flow (excl. dividends), $m
  -100
  -98
  -100
  -101
  -102
  -103
  -105
  -106
  -108
  -109
  -112
  -114
  -116
  -118
  -121
  -123
  -126
  -129
  -132
  -136
  -139
  -143
  -148
  -152
  -157
  -162
  -168
  -174
  -180
  -187
Retained Cash Flow (-), $m
  45
  46
  48
  50
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  77
  80
  84
  87
  91
  95
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
Prev. year cash balance distribution, $m
  485
  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
  430
  46
  48
  50
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  77
  80
  84
  87
  91
  95
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
Discount rate, %
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.18
  22.24
  23.35
  24.52
  25.74
  27.03
  28.38
  29.80
  31.29
  32.85
  34.50
  36.22
PV of cash for distribution, $m
  395
  39
  36
  34
  31
  28
  26
  23
  20
  17
  15
  13
  11
  9
  7
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  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

Franklin Street Properties Corp. is a real estate investment trust (REIT). The Company is focused on commercial real estate investments primarily in office markets. The Company operates through the real estate operations segment. The Company's investment objectives are to create shareholder value by increasing revenue from rental, dividend, interest and fee income and net gains from sales of properties, and increase the cash available for distribution in the form of dividends to its stockholders. As of December 31, 2016, the Company owned and operated a portfolio of real estate consisting of 36 office properties, which were located in 12 states. It provides asset management, property management, property accounting, and investor and development services to its portfolio and certain of its Sponsored REITs through its subsidiaries. It focuses on investing in select urban infill and central business district properties with focus on Atlanta, Dallas, Denver, Houston and Minneapolis.

FINANCIAL RATIOS  of  Franklin Street Properties (FSP)

Valuation Ratios
P/E Ratio 113.8
Price to Sales 3.6
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 9.7
Price to Free Cash Flow -4.2
Growth Rates
Sales Growth Rate 2.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 213.1%
Cap. Spend. - 3 Yr. Gr. Rate -11.6%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 108.6%
Total Debt to Equity 108.6%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.5%
Ret/ On Assets - 3 Yr. Avg. 2.1%
Return On Total Capital 0.4%
Ret/ On T. Cap. - 3 Yr. Avg. 1%
Return On Equity 0.8%
Return On Equity - 3 Yr. Avg. 1.9%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 74%
Gross Margin - 3 Yr. Avg. 74.6%
EBITDA Margin 51.2%
EBITDA Margin - 3 Yr. Avg. 56.1%
Operating Margin 4.4%
Oper. Margin - 3 Yr. Avg. 5.2%
Pre-Tax Margin 3.6%
Pre-Tax Margin - 3 Yr. Avg. 7.8%
Net Profit Margin 3.2%
Net Profit Margin - 3 Yr. Avg. 7.6%
Effective Tax Rate 11.1%
Eff/ Tax Rate - 3 Yr. Avg. 6.1%
Payout Ratio 962.5%

FSP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FSP stock intrinsic value calculation we used $273 million for the last fiscal year's total revenue generated by Franklin Street Properties. The default revenue input number comes from 2017 income statement of Franklin Street 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 FSP stock valuation model: a) initial revenue growth rate of 9.1% 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 8.8%, whose default value for FSP is calculated based on our internal credit rating of Franklin Street 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 Franklin Street 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 FSP stock the variable cost ratio is equal to 84.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2 million in the base year in the intrinsic value calculation for FSP 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 19.9% for Franklin Street Properties.

Corporate tax rate of 27% is the nominal tax rate for Franklin Street 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 FSP 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 FSP are equal to 769.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Franklin Street 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 FSP is equal to -410.6%. 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 - $0 million for Franklin Street 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 107 million for Franklin Street 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 Franklin Street Properties at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

▶ Franklin Street Properties Corp. to Host Earnings Call   [Nov-01-17 07:40AM  ACCESSWIRE]
▶ Stay Away! 5 Dividend Stocks That Are Yield Traps   [Jul-13-17 11:30AM  Motley Fool]
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