As the profitability of Harvey Norman stores declines, it calls into question the value of the underlying property

As the profitability of Harvey Norman stores declines, it calls into question the value of the underlying property. With the housing market on a tear, Harvey Norman's (ASX: HVN) profits jumped 49% to $212m this year. That's a fantastic result, but it's still only around half what the company earned in 2007. Revenue has increased 14% since then, but operating expenses have increased 33%. As the profitability of stores declines, it calls into question the value of the underlying property. For a company like Harvey Norman, shareholders often take comfort that the share price of the cyclical retailer is backed by 'real assets'. The company owns 81 of the 283 sites it operates, primarily the non-shopping centre based sites in Australia and New Zealand, and the portfolio has a balance sheet value of $2.3bn based on market valuations taken every three years. However, the properties are mostly tenanted by Harvey Norman franchisees and a sustained drop in profits would lower the value of these stores... (VIEW LINK)