You own a chain of retail boutiques specializing in organic, gourmet enemas. You own the buildings your stores operate in, making you a prime candidate for an opco/propco situation.
In the opco/propco structure, a company's interests get divided into two segments. There's a company that owns all the real estate...that firm is known as the property company, or "propco." Meanwhile, you've got a separate entity that runs the actual business. It's referred to generally as the operating company, or "opco."
By separating the businesses, you take advantage of different legal requirements and debt structures. The property company has all that real estate...collateral it can use to take on additional debt. You use that to lever up the propco...leaving the opco relatively debt free, meaning it has a strong credit rating and doesn't spend much of its revenues on debt service (though it does have to pay rent to the propco as part of the deal).
Meanwhile, since the propco only deals in real estate, it's potentially eligible to organize as a real estate investment trust, or REIT. That structure gives it a significant tax advantage when it comes to income distributions.
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Finance: What are operating profits, net...63 Views
finance a la shmoop.what are gross profits operating profits and net
profits? well the greatest fishing company that walks the earth or swims
the ocean made a fortune last year from selling nets. catching things like well [fish is caught from the ocean]
me. but that's really a different thing and no Bueno. leave us alone. in an
accounting sense net profits come after operating profits that come after gross
profits .and the net thing is well pretty much taxes. so here's an income statement
yeah yeah revenues and then there's the cost of the stuff you're selling. okay
fine. we'll note the nets only cost a little bit to make and you sell them for
a fortune .way overpriced if you ask me. like whatever happened to line fishing
anyway lazy humans. so you have your revenues then your cost of goods sold.
all right well if you subtract those cogs from the revs you get your gross [income statement pictured]
profits. yeah gross just gross and sad frankly like why not eat more chicken
seriously. anyway .so then you have your costs of operating the business you know
overhead. secretaries and insurance and rent and fish-smell deodorizer. and then
you have operating profits after you subtract. them yep you subtract those
right from gross profits. get operating. so you made some number let's call it 10
million bucks why not .you know how many of my brethren died to give you that
money right? blood money. talk to Leo to see about it.
maybe he'll make a movie . anyway let's say the tax rates 30% well you'd pay 3
million in taxes on that 10 million of operating profit to then have net
profits of seven million dollars. lots of profits .there people. yeah hope you can [equation]
sleep at night.
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