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Investment Analysis - Real Estate Investment Trust (reit)

Autor:   •  December 6, 2015  •  Research Paper  •  1,217 Words (5 Pages)  •  686 Views

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Investment Analysis

Dr. Karin Ford-Torres

FIN 320 Investments

August 25, 2015


The United States asset that seemed like it would be a successful investment was a Real Estate Investment Trust (REIT). The particular RIET that I have chosen to research is One Life Properties, Inc. (OLP). One Liberty is publicly traded on the New York Stock Exchange under symbol “OLP”. The reason they became a REIT is for the federal income tax break. In order for OLP to maintain the status, they are required to distribute to all stockholders at least 90% of our annual ordinary taxable income. Investing in this market, or more specifically OLP, will be a liquid and dividend paying investment in real estate. The OLP is a self-administered and self-managed real estate investment trust incorporated under the laws of Maryland in December 1982. “The primary business of the Company is to acquire, own and manage a geographically diversified portfolio of retail, industrial, office and other properties under long term leases” (OLP 2015). They currently own 119 properties in 31 states. The reasoning behind picking this Real Estate Investment Trust was first due to the fact that OLP has no operational expenses. Their operational expense is low because of the type of buying and selling of commercial property.

Their gross profit for the past three years has grown substantially. In 2012 through 2014, OLP’s profit went from $41,175,000.00 to $56,070,000.00. OLP’s total assets for the three year financial information from 2012 through 2014 was from $481,166,000.00 to $590,439,000.00. Net tangible assets for calendar years 2012 through 2014 were $220,637,000.00 to $226,889,000.00. One Liberty Properties current share price per the NASDAQ Exchange was $21.84 which was down -$.70 (-$30). After doing some extensive research on my investment I found out that OLP’s fiscal year starts in July 2010. NASDAQ identified five years of historical quotes that represents a definite fluctuation in the market. The historical quote went from $15 in 2010 to $23.97 in 2013 and then down to $21.84 in 2015. Based on the total cumulative total return of OLP and the Standard and Poor’s 500 index (S&P500) compares the performance of them both. It was found that OLP out performed every year. The difference in price increased substantially through the five years of data that was provided on their financial statement. In 2014, the price variance between OLP and the S&P 500 was $181.29. Their annual sales at the end of 2014 was $60,480,000.00.

The financial ratios I decided to use to analyze this U.S investment OLP are as follows: Dividend Payout, Asset Turnover, Profit Margin, Debit/Equity Ratio and Price/Earning ratio. Let’s begin with the Dividend Payout ratio which is calculated as Dividends divided by Net Income. This particular ratio provides some idea of how much money a company is providing to their shareholders versus how much it is reinvesting into the business, payoff debt and/or have for cash reserve. Since this is an older company their dividends are definitely going to pay their shareholders. This action of paying dividends out suggests that a company has pasted their initial growth stage. If the payout ratio is on the higher side that identifies to the market that the share price are unlikely to appreciate rapidly. In OLP case, the dividend payout based on their financial statement is 95%. OLP is below the industry average of 195%. OLP is doing very well in their dividend payout ratio because they are extremely lower than the industry. Also, that means they are not providing all of their earnings to the stockholders. The next ratio that I would use to ensure that this investment is a good investment for me is the asset turnover ratio. This ratio is the value of a company’s sale and/or revenue generated relative to the value of their assets. It is used to identify the efficiency in a company using its assets to generate revenue. OLP’s asset turnover ratio is .11. In theory, a higher ratio the better off the company is performing but it is substantially different per industry. The average asset turnover ratio for the REIT investments is .10. Profit margin is a very important ratio to use for analysis. It is used to measure how much of every dollar is kept for earnings. The actual equation for profit margin is net income divided by net sales (revenue). The profit margin for OLP is currently 32.18. The REIT industry average is currently 16.75 which means that OLP is more profitable company and has better control over its costs. The Debit/Equity ratio is used to measure financial power. It identifies how much debt is being used to finance its assets. Based on the industry average OLP debt/equity ratio percentage of 1.29% is very comparable to industry average of 1.25%. Their financial leverage is normal meaning they are not aggressively trying to grow the company. The final financial ratio that will assist an investor in analyzing the data is the Pricing/Earnings ratio. Pricing/Earnings ratio is measures a company’s current share price in comparison to per share earnings. It also identifies how much an individual will invest to receive a dollar back from the company as earnings. OLP has a current rate of 13.70 which is below the industry average of 39.80. To purchase stock in OLP an investor would pay less per dollar of current earnings. I believe that the low stock prices are more attractive and generally have been positive-alpha investments.

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