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Abstract
Executive Summary. The real estate investment trust (REIT) industry relies heavily on a cash flow-based measure of performance called funds flow from operation (FFO). FFO is the most widely used measure of performance for REITs, unlike other industries where earnings are used as a benchmark. This paper examines the role that earnings transitivity has on the value-relevance of FFO relative to earnings. The findings indicate that as earnings become more transitive, FFO gains value-relevance, while earnings lose value-relevance. Additionally, both FFO and earnings provide incremental information in the presence of the other.