Question

Please answer the following questions. (1-2 paragraphs for each question).

1.)What are the industry attributes of Realty Income Corporation? Briefly describe any attributes of the industry that have a major effect on the performance of Realty Income Corporation. For example, what factors affect demand for the company's product?

2.) Has Realty Income Corporation been profitable over the last 3 years? Have profits increased or decreased? Perform a DuPont Analysis.

Answer 1

Solution: Part 1

Realty Income Corporation is a real estate investment trust that invests in free-standing, single-tenant commercial properties in the United States, Puerto Rico, and the United Kingdom that are subject to NNN Leases.

The company is one of a few real estate investment trusts that pays dividends monthly, rather than quarterly and has also known as The Monthly Dividend Company.

Yes the Realty Income Corporation been profitable over the last 3 years. The profits have increased and continue declaring the dividend.

Realty Income owns a portfolio of roughly 6,000 net lease properties. That means that the REIT's tenants are responsible for most of the operating expenses of the properties it owns.

Characteristics of Business

· Real Estate

· Locations in significant markets or strategic locations critical to generating revenue for the business

· Property valuations near replacement cost

· Rental or lease payments that approximate market rents

Growth

· Additional growth has traditionally come externally by acquiring new properties at a favourable risk-adjusted return.

· Rent increases built into leases have historically provided same store rental revenue increases up to 1%-1.5% every year.

Solution: Part 2

Definition:

The Dupont analysis also called the Dupont model is a financial ratio based on the return on equity ratio that is used to analyze a company's ability to increase its return on equity.

In other words, this model breaks down the return on equity ratio to explain how companies can increase their return for investors.

The Dupont analysis looks at three main components of the ROE ratio.

1. Profit Margin

2. Total Asset Turnover

3. Financial Leverage

Formula

The Dupont Model equates ROE to profit margin, asset turnover, and financial leverage. The basic formula looks like this.

Since each one of these factors is a calculation in and of itself, a more explanatory formula for this analysis looks like this.

Every one of these accounts can easily be found on the financial statements. Net income and sales appear on the income statement, while total assets and total equity appear on the balance sheet.