Valuation Of Real Estate Investment Trusts

In 1960, to provide an investment vehicle with high liquidity in realestate market for individual investors, American Congress defined REITsfirst in Internal Revenue Code. In the past 40 years, REITs have beenconsidered as reliable income producing investment vehicles withlong-term growth. Besides, researchers also find that REITs are also goodchoices for diversifying both equity and bond portfolios.Taking account of the large amount of depreciation and amortizationof equity REITs, the Funds From Operations (FFO) by the industry is abetter measure for the profitability of REITs than the Net Income byGAAP.The linear regression models further justify the predictability of FFOfor the profitability of the REITs. But we cannot conclude that there isnotable difference between the predictability of FFO per share and EPSfor the share price.