Valuing an Entity with Buy-Manage-Sell Model Introduction Urstadt Biddle Properties Inc. (UBA) is a profitable, debt-free REIT that invests in grocery-store.pharmacy and dollar store buildings Although the company has been operating in steady-stare for years. its share price has collapsed during the Covid Pandemic along with REITs focused on office buildings and theatres. (The above is a simplified but basically true story The mmbers below are simplified for this problem). Your PE firm is considering buying UBA at the asking price of: $400 MM This corresponds to a PE ratio of: 5.86 Your firm believes that an optimal capital structure for the firm would be: 40% DD-E) If your fimm buys UBA, it will: - Pay (1-D (D+E))% of the purchase price with your firm's funds - Have the firm take out a loan at the moment of close, to pay the current owners the rest of the purchase price. - Operate UBA in its recapitalized steady-state for four years. - Sell UBA at the end of this time when you believe the entity's PE ratio will have recovered to a more normal value of 7.9121 Financing Structure D+= CAP. D/DD-WO D E Existing As purchased S400 $100.0 0.0% 40.0% $0.0 1 S400.0 2 Key Rates 1. (Pre-tax) Existing As purchased 6.0000% 6.5000% 35.00% Income Tax rate Free Cash Flows AS FCF = Free Cash Flows to Shareholders Existing Income Statement D-S0.0 Reveme $400.00 - Depreciation ($150.00) - Other Experises ($115.00) DBIT $105.00 -Interest $0.00 - Tax (S36.75) = NI S68.25 Purchased S400.00 (S150.00) (S115.00) S105.00 3 4 SG0.9700 Accept this as conect, even if it docs not add up for you. - A Working Capital Depreciation = CF E $0.00 S150.00 $218.25 -CAPX + A Debt ($150.00) S0.00 S68.25 S Valuation at T-0 NPV:=-P+ FCFK/ (1+r)" + Sp / (1+r)" Spe= HE NPVE 7 2 What is quantity 1? 3 What is quantity 2? 4 What is the absolute value of quantity 3? 5 What is the absolute value of quantity 4? 6 What is quanity 5? 7 What is quantity 6? 8 What is quantity 7? 9 According to this model, should your firm buy UBA? O YES O No. Valuing an Entity with Buy-Manage-Sell Model Introduction Urstadt Biddle Properties Inc. (UBA) is a profitable, debt-free REIT that invests in grocery-store.pharmacy and dollar store buildings Although the company has been operating in steady-stare for years. its share price has collapsed during the Covid Pandemic along with REITs focused on office buildings and theatres. (The above is a simplified but basically true story The mmbers below are simplified for this problem). Your PE firm is considering buying UBA at the asking price of: $400 MM This corresponds to a PE ratio of: 5.86 Your firm believes that an optimal capital structure for the firm would be: 40% DD-E) If your fimm buys UBA, it will: - Pay (1-D (D+E))% of the purchase price with your firm's funds - Have the firm take out a loan at the moment of close, to pay the current owners the rest of the purchase price. - Operate UBA in its recapitalized steady-state for four years. - Sell UBA at the end of this time when you believe the entity's PE ratio will have recovered to a more normal value of 7.9121 Financing Structure D+= CAP. D/DD-WO D E Existing As purchased S400 $100.0 0.0% 40.0% $0.0 1 S400.0 2 Key Rates 1. (Pre-tax) Existing As purchased 6.0000% 6.5000% 35.00% Income Tax rate Free Cash Flows AS FCF = Free Cash Flows to Shareholders Existing Income Statement D-S0.0 Reveme $400.00 - Depreciation ($150.00) - Other Experises ($115.00) DBIT $105.00 -Interest $0.00 - Tax (S36.75) = NI S68.25 Purchased S400.00 (S150.00) (S115.00) S105.00 3 4 SG0.9700 Accept this as conect, even if it docs not add up for you. - A Working Capital Depreciation = CF E $0.00 S150.00 $218.25 -CAPX + A Debt ($150.00) S0.00 S68.25 S Valuation at T-0 NPV:=-P+ FCFK/ (1+r)" + Sp / (1+r)" Spe= HE NPVE 7 2 What is quantity 1? 3 What is quantity 2? 4 What is the absolute value of quantity 3? 5 What is the absolute value of quantity 4? 6 What is quanity 5? 7 What is quantity 6? 8 What is quantity 7? 9 According to this model, should your firm buy UBA? O YES O No
