Intrinsic value of Franklin Street Properties - FSP

Previous Close

$10.59

  Intrinsic Value

$2.23

stock screener

  Rating & Target

str. sell

-79%

Previous close

$10.59

 
Intrinsic value

$2.23

 
Up/down potential

-79%

 
Rating

str. sell

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

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

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  2.46
  9.50
  9.05
  8.64
  8.28
  7.95
  7.66
  7.39
  7.15
  6.94
  6.74
  6.57
  6.41
  6.27
  6.14
  6.03
  5.93
  5.83
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
Revenue, $m
  250
  274
  299
  324
  351
  379
  408
  438
  470
  502
  536
  571
  608
  646
  686
  727
  770
  815
  862
  911
  962
  1,015
  1,071
  1,129
  1,190
  1,254
  1,321
  1,391
  1,464
  1,541
  1,621
Variable operating expenses, $m
 
  260
  283
  307
  333
  359
  387
  416
  445
  476
  508
  542
  576
  612
  650
  689
  730
  773
  817
  864
  912
  963
  1,015
  1,071
  1,129
  1,189
  1,252
  1,319
  1,388
  1,461
  1,537
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
  239
  260
  283
  307
  333
  359
  387
  416
  445
  476
  508
  542
  576
  612
  650
  689
  730
  773
  817
  864
  912
  963
  1,015
  1,071
  1,129
  1,189
  1,252
  1,319
  1,388
  1,461
  1,537
Operating income, $m
  11
  14
  16
  17
  18
  20
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  69
  72
  76
  80
  84
EBITDA, $m
  106
  118
  129
  140
  152
  164
  176
  189
  203
  217
  231
  247
  262
  279
  296
  314
  332
  352
  372
  393
  415
  438
  462
  488
  514
  541
  570
  600
  632
  665
  700
Interest expense (income), $m
  24
  37
  40
  44
  48
  53
  57
  62
  66
  71
  77
  82
  87
  93
  99
  106
  112
  119
  126
  133
  141
  149
  158
  167
  176
  185
  195
  206
  217
  229
  241
Earnings before tax, $m
  9
  -22
  -25
  -27
  -30
  -33
  -36
  -39
  -42
  -45
  -49
  -52
  -56
  -60
  -64
  -68
  -72
  -77
  -81
  -86
  -91
  -96
  -102
  -108
  -114
  -120
  -127
  -134
  -141
  -148
  -156
Tax expense, $m
  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
  0
  0
  0
  0
  0
Net income, $m
  8
  -22
  -25
  -27
  -30
  -33
  -36
  -39
  -42
  -45
  -49
  -52
  -56
  -60
  -64
  -68
  -72
  -77
  -81
  -86
  -91
  -96
  -102
  -108
  -114
  -120
  -127
  -134
  -141
  -148
  -156

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  2,088
  2,281
  2,488
  2,703
  2,927
  3,159
  3,401
  3,653
  3,914
  4,185
  4,468
  4,761
  5,066
  5,384
  5,715
  6,059
  6,419
  6,793
  7,184
  7,591
  8,017
  8,462
  8,927
  9,412
  9,921
  10,452
  11,009
  11,591
  12,201
  12,840
  13,509
Adjusted assets (=assets-cash), $m
  2,079
  2,281
  2,488
  2,703
  2,927
  3,159
  3,401
  3,653
  3,914
  4,185
  4,468
  4,761
  5,066
  5,384
  5,715
  6,059
  6,419
  6,793
  7,184
  7,591
  8,017
  8,462
  8,927
  9,412
  9,921
  10,452
  11,009
  11,591
  12,201
  12,840
  13,509
Revenue / Adjusted assets
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
Average production assets, $m
  1,690
  1,850
  2,017
  2,192
  2,373
  2,562
  2,758
  2,962
  3,174
  3,394
  3,623
  3,861
  4,109
  4,366
  4,635
  4,914
  5,205
  5,509
  5,826
  6,156
  6,502
  6,862
  7,239
  7,633
  8,045
  8,476
  8,928
  9,400
  9,894
  10,412
  10,955
Working capital, $m
  0
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -55
  -58
Total debt, $m
  1,045
  1,155
  1,267
  1,384
  1,505
  1,631
  1,762
  1,899
  2,040
  2,187
  2,340
  2,500
  2,665
  2,837
  3,016
  3,203
  3,398
  3,601
  3,813
  4,034
  4,264
  4,505
  4,757
  5,021
  5,296
  5,584
  5,886
  6,201
  6,532
  6,878
  7,241
Total liabilities, $m
  1,126
  1,236
  1,348
  1,465
  1,586
  1,712
  1,843
  1,980
  2,121
  2,268
  2,421
  2,581
  2,746
  2,918
  3,097
  3,284
  3,479
  3,682
  3,894
  4,115
  4,345
  4,586
  4,838
  5,102
  5,377
  5,665
  5,967
  6,282
  6,613
  6,959
  7,322
Total equity, $m
  962
  1,045
  1,139
  1,238
  1,340
  1,447
  1,558
  1,673
  1,793
  1,917
  2,046
  2,181
  2,320
  2,466
  2,617
  2,775
  2,940
  3,111
  3,290
  3,477
  3,672
  3,875
  4,088
  4,311
  4,544
  4,787
  5,042
  5,309
  5,588
  5,881
  6,187
Total liabilities and equity, $m
  2,088
  2,281
  2,487
  2,703
  2,926
  3,159
  3,401
  3,653
  3,914
  4,185
  4,467
  4,762
  5,066
  5,384
  5,714
  6,059
  6,419
  6,793
  7,184
  7,592
  8,017
  8,461
  8,926
  9,413
  9,921
  10,452
  11,009
  11,591
  12,201
  12,840
  13,509
Debt-to-equity ratio
  1.086
  1.110
  1.110
  1.120
  1.120
  1.130
  1.130
  1.130
  1.140
  1.140
  1.140
  1.150
  1.150
  1.150
  1.150
  1.150
  1.160
  1.160
  1.160
  1.160
  1.160
  1.160
  1.160
  1.160
  1.170
  1.170
  1.170
  1.170
  1.170
  1.170
  1.170
Adjusted equity ratio
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8
  -22
  -25
  -27
  -30
  -33
  -36
  -39
  -42
  -45
  -49
  -52
  -56
  -60
  -64
  -68
  -72
  -77
  -81
  -86
  -91
  -96
  -102
  -108
  -114
  -120
  -127
  -134
  -141
  -148
  -156
Depreciation, amort., depletion, $m
  95
  104
  113
  123
  133
  144
  155
  166
  178
  191
  204
  217
  231
  245
  260
  276
  292
  309
  327
  346
  365
  386
  407
  429
  452
  476
  502
  528
  556
  585
  615
Funds from operations, $m
  83
  82
  88
  96
  103
  111
  119
  128
  136
  145
  155
  165
  175
  186
  197
  208
  220
  233
  246
  260
  274
  289
  305
  321
  338
  356
  375
  394
  415
  436
  459
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
  -2
  -3
  -3
  -3
  -3
Cash from operations, $m
  94
  82
  89
  97
  104
  112
  120
  129
  137
  147
  156
  166
  176
  187
  198
  210
  222
  235
  248
  262
  276
  291
  307
  323
  340
  358
  377
  397
  418
  439
  462
Maintenance CAPEX, $m
  0
  -95
  -104
  -113
  -123
  -133
  -144
  -155
  -166
  -178
  -191
  -204
  -217
  -231
  -245
  -260
  -276
  -292
  -309
  -327
  -346
  -365
  -386
  -407
  -429
  -452
  -476
  -502
  -528
  -556
  -585
New CAPEX, $m
  -310
  -161
  -167
  -174
  -181
  -189
  -196
  -204
  -212
  -220
  -229
  -238
  -248
  -258
  -268
  -279
  -291
  -304
  -317
  -331
  -345
  -361
  -377
  -394
  -412
  -431
  -451
  -472
  -495
  -518
  -543
Cash from investing activities, $m
  -245
  -256
  -271
  -287
  -304
  -322
  -340
  -359
  -378
  -398
  -420
  -442
  -465
  -489
  -513
  -539
  -567
  -596
  -626
  -658
  -691
  -726
  -763
  -801
  -841
  -883
  -927
  -974
  -1,023
  -1,074
  -1,128
Free cash flow, $m
  -151
  -173
  -182
  -191
  -201
  -210
  -220
  -230
  -241
  -252
  -263
  -276
  -288
  -301
  -315
  -330
  -345
  -362
  -379
  -396
  -415
  -435
  -456
  -478
  -501
  -525
  -550
  -577
  -605
  -635
  -666
Issuance/(repayment) of debt, $m
  140
  110
  112
  117
  121
  126
  131
  136
  142
  147
  153
  159
  165
  172
  179
  187
  195
  203
  212
  221
  231
  241
  252
  263
  275
  288
  302
  316
  331
  346
  363
Issuance/(repurchase) of shares, $m
  84
  114
  119
  126
  133
  140
  147
  154
  162
  170
  178
  187
  196
  205
  215
  226
  237
  248
  260
  273
  286
  300
  315
  330
  347
  364
  382
  400
  420
  441
  463
Cash from financing (excl. dividends), $m  
  219
  224
  231
  243
  254
  266
  278
  290
  304
  317
  331
  346
  361
  377
  394
  413
  432
  451
  472
  494
  517
  541
  567
  593
  622
  652
  684
  716
  751
  787
  826
Total cash flow (excl. dividends), $m
  68
  52
  49
  51
  53
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  82
  86
  89
  93
  97
  102
  106
  111
  116
  121
  127
  133
  139
  146
  153
  160
Retained Cash Flow (-), $m
  -26
  -114
  -119
  -126
  -133
  -140
  -147
  -154
  -162
  -170
  -178
  -187
  -196
  -205
  -215
  -226
  -237
  -248
  -260
  -273
  -286
  -300
  -315
  -330
  -347
  -364
  -382
  -400
  -420
  -441
  -463
Prev. year cash balance distribution, $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
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
 
  -54
  -70
  -75
  -79
  -84
  -89
  -94
  -99
  -105
  -111
  -117
  -123
  -129
  -136
  -143
  -151
  -159
  -167
  -175
  -184
  -194
  -204
  -214
  -225
  -237
  -249
  -261
  -275
  -288
  -303
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
 
  -49
  -59
  -56
  -53
  -50
  -46
  -42
  -38
  -34
  -30
  -26
  -22
  -18
  -15
  -12
  -10
  -8
  -6
  -4
  -3
  -2
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  90.8
  82.9
  75.8
  69.6
  64.0
  58.9
  54.4
  50.3
  46.6
  43.2
  40.2
  37.3
  34.7
  32.4
  30.2
  28.2
  26.3
  24.6
  23.0
  21.5
  20.1
  18.8
  17.6
  16.5
  15.5
  14.5
  13.6
  12.7
  11.9
  11.2

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 141.9
Price to Sales 4.5
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 12.1
Price to Free Cash Flow -5.3
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 $250 million for the last fiscal year's total revenue generated by Franklin Street Properties. The default revenue input number comes from 2016 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 9.5% 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%, 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 94.8%.

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 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 3.5% 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 675.8%.

Life of production assets of 17.8 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 -3.6%. 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 - $962 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 108.007 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 $1.1 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]
Financial statements of FSP
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