PROPERTY HOLDINGS AND CORPORATE PROFITABILITY

Abstract

Investment and development of properties are no longer the territories of the property companies. Several non-property companies are becoming increasingly involved in these property activities as well. This study will explore how the overall profitability of some thirty corporations are influenced by the presence of properties which act as cost and profit centers for them. The Pearson Correlation test is run on a year by year basis to test for the presence of a relationship between three property related factors namely, property returns, assets employed in properties and property intensity, and overall profit of the corporations. Multiple regression analysis is run to test the extent to which the three factors influence the profits of the corporations. Each of the three property related factors was found to be positively correlated with the overall profit of the corporations. A change of a percent in property returns and assets employed in properties could bring an average change of $lm in the profit of the corporations. An increase of one percent in property intensity would increase the profits of the corporations by an average of $100 million. The two case studies done on Cycle & Carriage Ltd and Fraser & Neaves Ltd showed that properties in the corporations contributed quite significantly towards profitability. However, this was accompanied by a decline in their non-property operations which may indicate that improved profitability of properties was at the expense of the performance of other businesses.