Richard Woon

REITs and the Fallacy of FFO

The use of a single family residence as an example is for simplification only. While the assets differ, the principles are the same. I agree that FFO is an earnings measure and not a value measure - but it is an earnings measure that is dependent on an asset value assumption. Thus, when value is adjusted downward, FFO should be adjusted downward as well.

You may not believe that commercial real estate values were overinflated. If so, my article is useless to you. However, I believe over time I will be proven correct. I also predict the stock market will fall more. If you think it has bottomed - buy.