The REIT Engine: Is Growth in FFO Sustainable?

Summer 1998, Vol 23, No 2
Abstract: The stock price of a REIT, both its level and its growth, is driven by FFO (Funds From Operation). Thus, analysts and investors are concerned about the sustainability of current FFO growth rates. A thorough look at the REIT business model reveals at least eight strategies for fueling future FFO growth: 1). increase rental income; 2). accretive acquisitions; 3). lower the cost of capital; 4). reduce operating expenses; 5). generate non-rental revenue; 6). sell properties at a spread over the investment base and reinvest; 7). generate retained earnings; and 8). grow intellectual capital. The authors examine the practical application of each strategy and how the ingredients combine to create an effective earnings engine.