FAQ Real Estate Investment Trust Morrison Foerster | 14 depreciation and amortization of real estate and real estate-related assets mandated by GAAP.” In addition, Nareit-defined FFO excludes gains or losses on the sale of certain real estate assets, as well as impairment write-downs of certain real estate assets, which improves the comparability of companies’ period-over-period results. FFO is defined by Nareit as net income (computed in accordance with GAAP), excluding: ▪ Depreciation and amortization expenses related to real estate; ▪ Gains and losses from the sale of certain real estate assets; ▪ Gains and losses from change in control; and ▪ Impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. The reconciling items should include amounts to adjust earnings from consolidated partially-owned entities and equity in earnings of unconsolidated affiliates to FFO, or such adjustments could be presented as a single line item. Nareit’s definition does not specify whether FFO should be presented as FFO attributable to common stockholders or FFO attributable to all common equity holders (i.e., common stockholders and outside limited partners of a REIT’s operating partnership). REITs should be mindful that they accurately and appropriately label FFO and variations of FFO to reflect the securities to which the reported measure is applicable, which has been a subject of SEC comment letters. For example, UPREITs with outside limited partners should specify whether FFO is presented as “FFO attributable to common stockholders and OP unitholders” or “FFO attributable to common stockholders.” Many REITs also present additional variations of FFO, such as AFFO and core FFO, in order to show a more consistent comparison of operating performance over time or to report a metric that better explains their dividend policies. These metrics may adjust for additional items such as straight-line rent, non-cash stock-based compensation expense, gains/losses on early extinguishment of debt, capital expenditures and acquisition and pursuit costs. However, there are not uniform approaches to the labeling of, or the adjustments included in, such variations of FFO. EBITDAre Similar to its white paper on FFO, in September 2017, Nareit published a white paper to create a uniform definition of EBITDA for real estate (“EBITDAre”). Similar to FFO, in order to improve the comparability of REITs’ period-over-period performance, EBITDAre includes adjustments for gains/losses on the disposition of depreciated property and impairment write-downs of depreciated property. Nareit defines EBITDAre as net income (computed in accordance with GAAP), plus: ▪ Interest expense; ▪ Income tax expense; ▪ Depreciation and amortization expense; ▪ Losses (or minus gains) on the disposition of depreciated property, including losses/gains on change of control; ▪ Impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate; and ▪ Adjustments to reflect the entity’s share of EBITDAre of unconsolidated affiliates. For additional information, see Nareit’s EBITDAre white paper. For more information regarding the most commonly used non-GAAP measures presented by REITs, see our publication entitled “Frequently Asked Questions about Non-GAAP Measures for REITs.” What are the stock exchange rules applicable to listed REITs? REITs seeking to be listed on a securities exchange like the NYSE or Nasdaq are generally subject to the same rules as non-REITs. However, for a REIT that does not have a three-year operating history, the NYSE will generally authorize listing if the REIT has at least $60 million in stockholders’ equity, including the funds raised in any IPO related to the listing. For more information regarding the stock exchange listing requirements fortraded REITs, see our publication entitled “REIT IPOs and Listing Transactions - A Quick Guide”
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