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What is the difference between FFO and REIT?

FFO excludes one-time cash inflows such as income from the sale of an asset; instead, it only includes income from business activities. A REIT's adjusted funds from operations subtracts any recurring expenses capitalized and then amortized in addition to any straight-lining of rents.

Why is FFO better than net income for a REIT?

A main reason that FFO is better for measuring performance of a REIT, compared to using net income or EPS, is that adjusts-out depreciation and amortization expenses. Real estate assets are generally appreciating assets, which means that depreciation expense may not be truly indicative economically.

How does FFO affect a REIT?

FFO helps normalize a REIT's earnings by adjusting for non-cash charges and one-time expenses that don't fully reflect its underlying earnings. The figure gives investors a better picture of the recurring cash flow a REIT produces that it can use to make dividend payments.

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