The Information Content of Funds From Operation and Net Income in Real Estate Investment Trusts

32 Pages Posted: 21 Feb 2019

See all articles by Hoon Cho

Hoon Cho

Korea Advanced Institute of Science and Technology (KAIST)

Doojin Ryu

Sungkyunkwan University

Sangik Seok

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Date Written: February 7, 2019

Abstract

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

Suggested Citation

Cho, Hoon and Ryu, Doojin and Seok, Sangik, The Information Content of Funds From Operation and Net Income in Real Estate Investment Trusts (February 7, 2019). Available at SSRN: https://ssrn.com/abstract=3330440 or http://dx.doi.org/10.2139/ssrn.3330440

Hoon Cho

Korea Advanced Institute of Science and Technology (KAIST) ( email )

87 Hoegiro
Dongdaemun-Gu
Seoul 130-722
Korea
+82-2-958-3413 (Phone)

Doojin Ryu

Sungkyunkwan University ( email )

25-2, Sungkyunkwan-ro, Jongno-gu,
Seoul, 03063
Korea, Republic of (South Korea)

Sangik Seok (Contact Author)

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

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