The Relevance of Earnings and Funds Flow from Operations in the Presence of Transitory Earnings

Ronald Stunda and Eric Typpo

Journal of Real Estate Portfolio Management, 2004, vol. 10, issue 1, 37-45

Abstract: Executive Summary. The real estate investment trust (REIT) industry relies heavily on a cash flow-based measure of performance called funds flow from operation (FFO). FFO is the most widely used measure of performance for REITs, unlike other industries where earnings are used as a benchmark. This paper examines the role that earnings transitivity has on the value-relevance of FFO relative to earnings. The findings indicate that as earnings become more transitive, FFO gains value-relevance, while earnings lose value-relevance. Additionally, both FFO and earnings provide incremental information in the presence of the other.

Date: 2004
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DOI: 10.1080/10835547.2004.12089690

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