Since most real estate assets are depreciable, using accounting income to measure a REIT's cash flow may actually understate the funds that are available to distribute to investors as dividends. Therefore, REITs utilize a measure that adds back depreciation and amortization expenses, more commonly referred to as:

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Quizplus · Accepted Answer

REITs use funds from operations (FFO) as a measure of cash flow rather than accounting income because FFO adds back depreciation and amortization expenses. This provides a more accurate picture of the funds that are available for distribution to investors as dividends. FFO is calculated by taking net income, adding back depreciation and amortization expenses, and subtracting gains on the sale of real estate assets. Therefore, choice C is the best option.

Since Most Real Estate Assets Are Depreciable, Using Accounting Income