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The information content of funds from operations and net income in real estate investment trusts
Affiliation:1. College of Business, Korea Advanced Institute of Science and Technology, 85, Hoegi-ro, Dongdaemun-gu, Seoul 02455, Republic of Korea;2. College of Economics, Sungkyunkwan University, 25-2, Sungkyunkwan-ro, Jongno-gu, Seoul 03063, Republic of Korea;1. Research Center of the Central China for Economic and Social Development, Nanchang University, 330031 Nanchang, PR China;2. School of Economics and Management, Nanchang University, 330031 Nanchang, PR China;3. Business School, Hunan University, 410082 Changsha, PR China;1. Research Institute of Industrial Economics (IFN), Sweden;2. CEPR and CESifo, Germany;1. Department of Finance and Insurance, Miller College of Business, Ball State University, Muncie, IN 47306, United States;2. Department of Accounting, University of St. Thomas, St. Paul, MN 55105, United States;1. Department of Business Administration National Taipei University, 151, University Rd, San Shia District, New Taipei City 23741, Taiwan;2. College of Management, Yuan Ze University, Taiwan;1. Florida Gulf Coast University, Lutgert College of Business, Department of Economics and Finance, 10501 FGCU Blvd. S., Fort Myers, FL, 33965, United States;2. University of Wisconsin – Whitewater, College of Business and Economics, Department of Finance and Business Law, Timothy J Hyland 3520, Whitewater, WI, 53190, United States;3. Pepperdine University, Graziadio Business School, Department of Finance, 24255 Pacific Coast Highway, Malibu, CA, 90263, United States;4. College of Charleston, School of Business, Department of Finance, 5 Liberty Street, Beatty Center, Charleston, SC, 29424, United States;1. Shenzhen Audencia Business School, WeBank Institute of Fintech, Guangdong Laboratory of Artificial Intelligence and Digital Economy (SZ), Shenzhen University, Shenzhen, 518060, China;2. Audencia Business School, Nantes, 44300, France;3. Howard Phillips Eminent Scholar Chair in Real Estate, College of Business, University of Central Florida, Orlando, FL, 32816, USA;4. J. Edward Zollinger Chair Professor of Real Estate & Finance, Raymond A. Mason School of Business, College of William & Mary, Williamsburg, VA, 23187, USA
Abstract:This study compares the information content of funds from operations (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 differs across REITs of different sizes. FFO does not provide useful information to investors in the case of large REITs. Finally, we show that the gain or loss from sales of property is relevant to valuing large REITs.
Keywords:Earnings announcement  Funds from operations  Market reaction  Net income  Real estate investment trust
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