REIT Industry Moves to Clarify Earnings

The real estate investment trust industry voted to change the way its member companies calculate earnings. At the annual REIT convention in Los Angeles, the National Assn. of Real Estate Investment Trusts recommended that members now include nonrecurring items, such as gains or losses from land sales or employee severance, to the calculation of funds from operations. Funds from operations is a measure of cash flow and is the industry’s main performance benchmark. The changes, which take effect Jan. 1, could lower reported earnings but would increase the “quality” of the results, industry officials said. The changes, however, fall short of an overhaul recommended by some investors and analysts calling for the industry to come up with a figure that resembles net income under generally accepted accounting principles and can be audited. REITs are companies that own all types of properties. They are exempt from corporate income taxes if, among other things, they distribute at least 95% of net income to shareholders as a dividend.