Wednesday, November 7, 2012

A Look at an International Micro and Domestic Macro Real Estate Investment Trusts (REITS)

Interested in REITS? Interested in companies with minimal debt? Do you prefer companies that can manage their long term debt? Do you prefer stocks that can bring in profits over the long term? Here are some interesting ideas to get you started.

The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.

The Long Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.

Take a look at these two REIT firms, and evaluate them for yourselves.....

IFM Investments Limited is a real estate services provider with the network of real estate sales offices in People’s Republic of China. It is the exclusive franchisor in People’s Republic of China for the CENTURY 21 brand. As of December 31, 2009, its CENTURY 21 China network covered 35 cities. The Company operates under three business lines: company-owned brokerage services, mortgage management services and franchise services. As of December 31, 2009, it had approximately 318 company-owned sales offices, representing approximately 28.4% of its CENTURY 21 China network. Its company-owned brokerage services business owns and operates regional sub-franchisors and sales offices in the CENTURY 21 China network. Its mortgage management services business provides mortgage advisory services to home buyers and home owners and interim guarantee services to commercial banks. In July 2011, it acquired majority interest in Beijing Shanggu.

Market cap 22.11 million, Outstanding stock 14.84 million
Stock ticker CTC, currently at $1.49
IFM 2012 debt to equity ratio = 1 to 2.5
IFM 3 year average debt to equity ratio = 1 to 3

These figures demonstrate how IFM has grown its capital structure with limited debt.While the investment looks attractive, one should be aware that it is an ADR operating out of China.  As of the last year Chinese firms have been under scrutiny for accounting standards and reporting issues.  As well, ADR's are taxed at a different ration than Us national firms.  While the company previously paid a dividend, this stopped in 2008 and a stock split occurred in early 2012.  Average volume on the micro cap company was 43,244 shares traded daily. 

Prospect Capital Corporation (Prospect Capital), is a financial services company, which lends to and invests in middle market privately-held companies. The Company is a closed-end investment company. It invests in senior and subordinated debt and equity of companies in need of capital for acquisitions, divestitures, growth, development and recapitalization. We work with the management teams or financial sponsors to seek investments with historical cash flows, asset collateral or contracted pro-forma cash flows. Its investment objective is to generate both current income and long-term capital appreciation through debt and equity investments.

Stock ticker PSEC, currently at 10.58
Market Cap 1.76 Billion and outstanding shares of 166.31 million
PSEC reported 2012 revenues of 321 million an 89% increase from the previous fiscal year.
Within 3 years 09-12, PSEC reported revenues increment of 180%
2012 Debt to equity ratio = 1 to 3
3 year debt to equity ratio = 1 to 3.36

With such a low ratio, PSEC has been able to increase capital through little financing activities avoiding millions in potential interest expenses. The company also pays a monthly dividend of 10 cents per share equal to 11.72% yearly return on today's investment.  Earning per share for the company was $1.78 and the average trading volume is 3.17 Million shares daily.  It opened today down over 3%.


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About the Author: Nicholas Coriano is a Business Consultant and Planning Guru.  He is a graduate of The University of Connecticut Business School and the John Marshall Law School in Chicago.  He has worked at Merrill Lynch, The New York Stock Exchange and as an Investor Relations Agent & Consultant to Micro Cap Companies and Penny Stocks.  He is the founder and author of The a blog focused on providing information and advice to Micro Cap Company Executives and Investors.  You can also find him blogging about Social Media, SEO, Web Development and Tech on

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