a measure of the profitability of a Real Estate Investment Trust (REIT). FFO begins with net income as derived using Generally Accepted Accounting Principles (GAAP). To that it adds depreciation deductions and deductions for amortization of deferred charges, which are noncash deductions. FFO does not consider extraordinary items and gains (losses) on the sale of real estate.
a measure of the profitability of a real estate investment trust (REIT). FFO begins with net income as derived using Generally Accepted Accounting Principles (GAAP). To that it adds depreciation deductions and deductions for amortization of deferred charges, which are noncash deductions. FFO does not consider extraordinary items and gains (losses) on the sale of real estate.
Importance: Securities analysts generally believe that the net income from income-producing real estate is not properly measured by GAAP, because GAAP requires depreciation deductions and the amortization of deferred charges. These items do not require a cash outflow. These analysts have embraced FFO as a more appropriate measure of a REIT's performance.
