Professor Elam

Sam Zell just sold Equity Office Properties Trust   symbol EOP.  Take a look at Pete Kendall’s article.  Now go to finance.yahool.com and look at the statistics on EOP.  We study accounting so that we can analyze financial statements.  What do you think, was Sam smart to sell?  Look at the trend of earnings on the income statements the last three years.  Are you able to easily follow Pete’s comments on how well EOP performed?  Good, think how much you have learned that helps you analyze what they are saying.

Learn more at the company website EOP.

The mania for real estate is so high, despite the drop in homebuilder stocks, that B/W reports four different groups   were bidding on the properties.  Indeed, the crash of 1972 was highlighted by the crash of numerous REITs at that time.  As the economy contracted, businesses could not pay off their rents.  It does not take much of a contraction for an REIT to get into trouble.  REITs must pay out 90% of their earnings to avoid paying taxes themselves.  Yet as you learned in cost accounting, there is a break even point due to fixed costs.  So if occupancy drops from say 90% to say 75%, the profits evaporate.  How much money is EOP making now?  What will happen if their occupancy rates decline?

This gets to the core of what we are studying and will be an excellent topic for our first day in class ,
Spring 2007.

DLE