The Information Content of Funds From Operation and Net Income in Real Estate Investment Trusts
32 Pages Posted: 21 Feb 2019
Date Written: February 7, 2019
This study compares the information content of funds from operation (FFO) and net income (NI) in the real estate investment trust (REIT) industry. We find that models using FFO explain more of the variance in cumulative abnormal returns around earnings announcement dates than models using NI do. We also find that the information content of FFO differ across REITs of different sizes. FFO does not provide useful information to investors in the case of large REITs. Finally, we show that gain or loss from sales of property is relevant for valuing large REITs.
Keywords: Earnings Announcement; Funds From Operation; Net Income; Market Reaction; Real Estate Investment Trust
JEL Classification: G14; G29; M41; L85
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