Comments on: The Fallacy of F.F.O. http://www.stripnomics.com/the-fallacy-of-ffo/213 Stripping the Noise Out of Economics Thu, 09 Sep 2010 04:21:59 +0000 http://wordpress.org/?v=2.6 By: FOOLSGOLD http://www.stripnomics.com/the-fallacy-of-ffo/213 #comment-8576 FOOLSGOLD Wed, 29 Apr 2009 22:00:30 +0000 http://www.stripnomics.com/?p=213#comment-8576 Buying plenty of preferreds and making a ton of cash... BTW, you're getting schooled by Mr. Hayes on the ARE mesage board and it's quite entertaining. You should go back to your day job because you've now successfully demonstrated how poor you financial analysis skills are... Buying plenty of preferreds and making a ton of cash…
BTW, you’re getting schooled by Mr. Hayes on the ARE mesage board and it’s quite entertaining. You should go back to your day job because you’ve now successfully demonstrated how poor you financial analysis skills are…

]]> By: Stripnomics » Blog Archive » Alexandria Real Estate Cuts Dividend, Outlook & Announce Senior Convertible Offering http://www.stripnomics.com/the-fallacy-of-ffo/213 #comment-8456 Stripnomics » Blog Archive » Alexandria Real Estate Cuts Dividend, Outlook & Announce Senior Convertible Offering Tue, 21 Apr 2009 13:43:01 +0000 http://www.stripnomics.com/?p=213#comment-8456 [...] to $5.18 to $5.22 a share down from the $6.26 a share the company projected in February (I think FFO is a BS metric).  The company updated its 2009 earnings per-share guidance to $2.14 to $2.19 down from $2.73 a [...] [...] to $5.18 to $5.22 a share down from the $6.26 a share the company projected in February (I think FFO is a BS metric).  The company updated its 2009 earnings per-share guidance to $2.14 to $2.19 down from $2.73 a [...]

]]> By: Richard http://www.stripnomics.com/the-fallacy-of-ffo/213 #comment-8062 Richard Tue, 24 Mar 2009 22:47:19 +0000 http://www.stripnomics.com/?p=213#comment-8062 Bill- You are absolutely correct. Foolsgold- Maybe you should stop reading me and go buy the REITs. I dare you to take the other side of my trade and I hope you do. When you are broke...remember I told you so. Richard Bill-

You are absolutely correct.

Foolsgold-

Maybe you should stop reading me and go buy the REITs. I dare you to take the other side of my trade and I hope you do. When you are broke…remember I told you so.

Richard

]]> By: FOOLSGOLD http://www.stripnomics.com/the-fallacy-of-ffo/213 #comment-8058 FOOLSGOLD Tue, 24 Mar 2009 21:27:52 +0000 http://www.stripnomics.com/?p=213#comment-8058 Richard, you truly are a fool... Richard, you truly are a fool…

]]> By: Stripnomics » The Next Tsunami http://www.stripnomics.com/the-fallacy-of-ffo/213 #comment-84 Stripnomics » The Next Tsunami Sun, 09 Nov 2008 21:58:03 +0000 http://www.stripnomics.com/?p=213#comment-84 [...] ANSWER: Faulty assumptions and The Fallacy of FFO [...] [...] ANSWER: Faulty assumptions and The Fallacy of FFO [...]

]]> By: Bill http://www.stripnomics.com/the-fallacy-of-ffo/213 #comment-72 Bill Wed, 05 Nov 2008 18:21:50 +0000 http://www.stripnomics.com/?p=213#comment-72 Do you really think it is a good idea to accelerate depreciation in one environment and elongate in in another? How is this supposed to be measured and carried out? Monthly,Quarterly,Yearly,etc.? and what yardstick would you use? If you do as you say , in a rising real estate environment, management will be presented with even higher FFO to use,possibly to pay ever rising real estate prices...this is a prescription for bubbles and depressions.. Do you really think it is a good idea to accelerate depreciation in one environment and elongate in in another? How is this supposed to be measured and carried out? Monthly,Quarterly,Yearly,etc.? and what yardstick would you use? If you do as you say , in a rising real estate environment, management will be presented with even higher FFO to use,possibly to pay ever rising real estate prices…this is a prescription for bubbles and depressions..

]]> By: Bill http://www.stripnomics.com/the-fallacy-of-ffo/213 #comment-71 Bill Wed, 05 Nov 2008 18:08:16 +0000 http://www.stripnomics.com/?p=213#comment-71 Real estate and REITS are not valued just by FFO ...Net Asset Value ( NAV ) is also extremely important...so is the nature of the real estate and its' importance in the economy...for example, PLD essentially owns distribution warehouses needed by companies for the holding and distributing of their goods...this economic need will not disappear. The current state of the ecomomy is also important in valuation because of the assumptions regarding future cash flows. By concentrating on the way you see the FFO measurement,you are making a misjudgement about the viability of these businesses....the FFO describes the cash flow...it says nothing in particular about the long-term viability of the business...in a recession,FFO will go down because the net earnings will go down as depreciation remains the same...just as in a growing environment,FFO will increase because of higher net earnings as depreciation remains the same....in this current environment,earnings will decrease because of overall rent decreases due to lower leasing levels and generally lower rents...concurrently,in this environment,NAV will decrease in recognition of the lower value of rents and occupancy... if a REIT can't pay off its' borrowings, it's in big trouble...there could occur a time when there is such a drop in rents and occupancy that it can't pay off its' debt...we are not there...if you want to make the assumption that we are going there,that's your judgement only... Depreciation is a return of capital ...management must decide how to use that capital...if they have used that capital, with the additional of additional capital ( through borrowing ),to make uneconomic investments, the market will eventually punish them...PLD is a case in point...the market now recognizes the slowing environment and reassesses the value of PLDs' investments...but again,this is a judgement about both the company and the economy...people were wrong at the top and will be wrong at the bottom... Real estate and REITS are not valued just by FFO …Net Asset Value ( NAV ) is also extremely important…so is the nature of the real estate and its’ importance in the economy…for example, PLD essentially owns distribution warehouses needed by companies for the holding and distributing of their goods…this economic need will not disappear.

The current state of the ecomomy is also important in valuation because of the assumptions regarding future cash flows.

By concentrating on the way you see the FFO measurement,you are making a misjudgement about the viability of these businesses….the FFO describes the cash flow…it says nothing in particular about the long-term viability of the business…in a recession,FFO will go down because the net earnings will go down as depreciation remains the same…just as in a growing environment,FFO will increase because of higher net earnings as depreciation remains the same….in this current environment,earnings will decrease because of overall rent decreases due to lower leasing levels and generally lower rents…concurrently,in this environment,NAV will decrease in recognition of the lower value of rents and occupancy…

if a REIT can’t pay off its’ borrowings, it’s in big trouble…there could occur a time when there is such a drop in rents and occupancy that it can’t pay off its’ debt…we are not there…if you want to make the assumption that we are going there,that’s your judgement only…

Depreciation is a return of capital …management must decide how to use that capital…if they have used that capital, with the additional of additional capital ( through borrowing ),to make uneconomic investments, the market will eventually punish them…PLD is a case in point…the market now recognizes the slowing environment and reassesses the value of PLDs’ investments…but again,this is a judgement about both the company and the economy…people were wrong at the top and will be wrong at the bottom…

]]> By: Emil http://www.stripnomics.com/the-fallacy-of-ffo/213 #comment-22 Emil Mon, 29 Sep 2008 07:56:09 +0000 http://www.stripnomics.com/?p=213#comment-22 Hey rich, great stuff dude, but the real question is with all the trouble that is going on will anybody in real power do the right action to correct such mistakes. BTW are we, meaning USA, still a free market system? Hey rich, great stuff dude, but the real question is with all the trouble that is going on will anybody in real power do the right action to correct such mistakes. BTW are we, meaning USA, still a free market system?

]]> By: Richard http://www.stripnomics.com/the-fallacy-of-ffo/213 #comment-21 Richard Mon, 29 Sep 2008 03:13:47 +0000 http://www.stripnomics.com/?p=213#comment-21 Thanks! Thanks!

]]> By: Mike Harmon http://www.stripnomics.com/the-fallacy-of-ffo/213 #comment-20 Mike Harmon Mon, 29 Sep 2008 03:00:22 +0000 http://www.stripnomics.com/?p=213#comment-20 Nice writing style. I look forward to reading more in the future. Nice writing style. I look forward to reading more in the future.

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