POSTBUBBLE REAL ESTATE STRATEGIES

1
ORGANIC GROWTH INDEX OGI
(1996 2006)
Edward D. Hess 2/24/2008
2
Background

• OGI is a financial model built in 2002 to
  illuminate high organic growth public companies.
• It applies six screens to the top 1000 EVA
  creating companies (excluding financial
  companies).
• The OGI model results were released for the years
  1996 2001 1997 2002 and 1998 2003.
• The Financial Times and Fortune Magazine have
  written about the model and those results, which
  were also published in Hesss two organic growth
  books and in the Corporate Finance Review.
• The beginning sample size in the three new time
  periods is 801 (1999-2004), 793 (2000-2005), and
  799 (2001-2006) companies.

3

• Six OGI Tests
• Companies are ranked by EVA/Capital Invested and
  the top 300 companies move to the next test.
• Then two growth tests are applied each
  companys SALES CAGR and CFFO CACR are compared
  to their industry averages to pick companies who
  have grown above industry averages.
• Then SPs core earnings computation is used to
  compare a companys core earnings to its
  reported net income.

4

• Then a companys rate of growth of its
  receivables is compared to its rate of growth of
  sales to eliminate companies growing receivables
  much faster than sales.
• Then, as another quality of earnings test, a
  companys cash flow from operations is compared
  to its net income and
• Lastly, companies are eliminated which have
  acquired more than 35 of their increase in
  market value during the reporting time period.

5
OGI Results
6
Prior Results

• In the three prior time periods 45 companies were
  OGI winners in at least two of the three time
  periods.

7

• Of those 45 companies, 16 (36) were either
  retail or restaurant chains, leading me to put
  forth a theory of replicution that high
  organic growth companies have the ability to
  scale their business model across geography or
  large customer segments.

8
New Results

• The OGI Model was applied to three new time
  periods

1999 2004 2000 2005 2001 - 2006
9
New Results (Number of Companies)
10
NEW RESULTS 72 Winners (in at least two time
periods)
11
Test Passing Rates
12
Test Failure Rates
13
(No Transcript)
14
Size Market Cap
15
1996-2006
16
27 ALL STARS   13 Retail or Restaurant Chains
17
(No Transcript)
18
(No Transcript)
19
(No Transcript)
20
(No Transcript)
21
(No Transcript)
22
What Changed?
V Winner
23
What Changed? V Winner
24
What Happened?
VWinner