A coalition of REIT analysts has agreed to adopt an earnings per share (EPS) reporting system to forecastresults for REITs. The move is part of an effort to implement the same standards that most companies in Corporate America use to report net income.
Michael Mueller, a REIT analyst for CIBC World Markets, said without using the standard EPS measurement, it has been difficult to compare REITs to the rest of Corporate America. "People are really trying to make thisgroup a lot more mainstream," he said. "Now everybody will be able to understand when for example, you can compare Equity Office Properties Trust to IBM."
EPS revenue is the income of a company as measured by GAAP (generally accepted accounting principles), minus effects of extraordinary items such as discontinued operations. It also eliminates the effects of gains and losses from property sales. Most REITs and industry analysts currently base earnings on funds from operations (FFO), which critics contend overstates earnings because FFO adds back depreciation on real estate properties. The agreement by the coalition of REIT analysts to report EPS is a response to the recent decision by three major Wall Street firms to break ranks with their industry colleagues by forecasting earnings based on per-share income.
To REIT analysts, adding EPS to the mix would be a positive move. "Over the past few years, the cross-over buyers haven’t really been able to get their arms around this alternative earnings measure, FFO," Mueller said.
The EPS-reporting decision comes at a time when the REIT sector is becoming more attractive to non-core investors and as two REITs — Equity Office Properties Trust and Equity Residential Properties Trust — have been added to the S&P 500.
As for implementation, there isn’t a timetable, but mid-2002 is the goal. REIT analysts expect the measure to be included as a measure for most REITs.