As the market for real estate investment trusts continues to grow, it is critical that individuals have access to accurate and impartial data to make informed investment decisions. One important figure is Funds from Operations (FFO), which is used by REITs to define the cash flow from their operations, is calculated by adding depreciation and amortization expenses to earnings, and sometimes quoted on a per share basis.
However, there is no consensus FFO definition used by the REIT market. Companies and analysts often release guidance using their own FFO formulas, often with unclear labeling and lacking explanation.
The market is in need of a standard, which is why NAREIT adopted an FFO definition in 1991 intended as an industry-wide uniform measure of REIT operating performance. The definition has continued to be revised and updated, most recently in 2012. NAREIT FFO corrects drawbacks associated with historical cost accounting for real estate assets which assumes that the value of real estate assets will decrease predictably over time. Real estate values actually rise or fall with market conditions, a consideration that NAREIT FFO includes.
NAREIT is committed to increasing the use of the NAREIT-defined FFO and improving the understandability and uniformity of FFO estimates. To begin, NAREIT has urged member companies that provide FFO guidance related to a company-defined version of FFO to provide guidance on NAREIT-defined FFO as well. In addition, NAREIT has developed an FFO survey for analysts which will further clarify which definition is used in their estimates.
STATUS: Not a legislative issue.
- NAREIT FFO White Paper - 4/05/02
Related Implementation Guidance:
- NAREIT SFO Alert: NAREIT Modifies the FFO Definition to Also Exclude Impairment Write-Downs of Investments in In Substance Real Estate Investees Under Certain Circumstances - 1/6/12
- NAREIT SFO Alert: Further Guidance on Reporting FFO - 11/4/11
- NAREIT SFO Alert: Updated Guidance on Reporting FFO, Write-Downs for Impairment - 10/31/11
- NAREIT SFO Report: SEC Issues a Compliance and Disclosure Interpretation Referring to FFO - 1/29/10
- NAREIT National Policy Bulletin: FFO White Paper Disclosures (Updated) - 2/04
- Excerpt from Real Estate Accounting Quarterly, July 2000: FFO Guidance on Impairment Losses and Taxes Associated with Asset Dispositions (Updated) - 2/04
- SEC Staff Clarifies Further Guidance on Reporting FFO (Updated) - 2/04
- NAREIT Financial Reporting Alert: SEC Staff Clarifies Guidance on FFO Reporting - 7/7/03
- NAREIT Financial Reporting Alert: SEC Staff Issues Guidance on FFO Reporting - 6/20/03
- SEC Rule Retains Use of Non-GAAP Per Share Measures - 1/15/03
- Accounting for GAAP Discontinued Operations in FFO; Impact of FASB Statement No.144 - 4/5/02
- Exclusion of GAAP Extraordinary Items from FFO; Potential Impact of FASB Statement No.145 - 2/14/02
- National Policy Bulletin: Guidelines for Reporting FFO on a Per Share Basis - 7/8/99
- National Policy Bulletin: Guidance on Including Non-recurring as well as Recurring Items in FFO - 11/8/99
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