Numbers count. That’s why accounting is a key to understanding all businesses. Net income calculated under generally accepted accounting principles (GAAP) is the “lingua franca” of accounting. GAAP net income is our industry’s primary earnings measure. Nonetheless, many sectors of the economy use financial metrics that are not always captured under GAAP. As a result, in addition to GAAP metrics, many industries utilize their own supplemental measures of operating performance. Energy companies, for example, often disclose EBITDAX, which is EBITDA before exploration expenses. Radio and television station owners prefer a measure called “broadcast cash flow.” For REITs, the supplemental metric widely accepted is Funds From Operations (FFO), a measure that reflects the way real estate investors and owners have long measured our business.

GAAP accounting for real estate requires that income be reduced quarterly by a charge for depreciation, which assumes that the value of real estate diminishes regularly over time. FFO, which excludes the charge for depreciation, was created because real estate values instead rise or fall with market conditions. Since its introduction, the industry has looked to FFO as a useful tool to better understand operating performance.

For over a decade, NAREIT has worked hard to foster and promote FFO. And, in yet another milestone for the industry, the U.S. Securities and Exchange Commission (SEC) has officially accepted our industry’s supplemental use of FFO, as defined by NAREIT, on a per share basis in SEC filings.

The overwhelming majority of all publicly traded real estate companies today comply with NAREIT’s definition of FFO. Now, with official acceptance by the SEC, I believe all companies should adhere to the NAREIT definition. And companies will be able to use FFO and FFO per share in relevant financial documents furnished to or filed with the SEC.

Further, who would have predicted that the REIT industry would provide the transparency, full disclosure and useful data for investors at a level that I believe is well beyond that of most other public companies. Many REITs provide detailed disclosures in the form of supplemental packages which contain such specifics as sources of revenue broken down by geographic region, occupancy and leasing information by individual property and information about joint ventures. As an example of how extensive industry disclosure is, consider this: Vornado’s 2002 Form 10-K is 170 pages long.

Disclosure matters. All told, a wealth of data and information is routinely made available by REITs today. Our collective efforts are a major step forward for the real estate community at large, as well for the investing public.

When you think about it, the industry’s accomplishments, in this and other areas, have been achieved like real estate is built—brick by brick, year by year.

It has been my pleasure to serve as NAREIT Chair over the past year as we built on the very solid foundation left by my predecessors. Given our industry’s product and performance, we’ve got a great story…one that NAREIT is working harder and harder to get out to investors, the media, policy makers and the public. I am fully confident that NAREIT’s next Chair will lead the effort to get that story out, loudly and clearly.

Steven Roth
NAREIT Chair
Chairman and CEO, Vornado Realty Trust