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Strategies & Market Trends : Starwood Lodging REIT
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To: Sheldon Hochberg who wrote (9)10/24/1997 9:12:00 AM
From: Richard Barron   of 20
 
Sheldon,
Sorry, but I don't know of any books to explain the FFO concept. I imagine the the NAREIT site on the web could steer you in the right direction.

I'll try to explain briefly. If you bought a new car, a new PC and a new $100,000 apartment and rented them all out, you would be able to depreciate all 3 (the car and PC rapidly (i.e 3-5 years) and the apartment over 30 years). After 3-5 years you'd be lucky to get 1/2 of the rental rate on the car and PC that you got in the first year.
If inflation occurs about 3% a year, you would likely be able to get another 10% after the 5th year for the apartment than in the first year. If so, even though you had depreciated 5/30ths of the apartment (about $16,666), it is acutally worth more since it can generate a higher revenue stream. You still have to maintain the apartment, but you probably had to maintain the car and PC also and it is a small percentage of the rent. I hope this helps.

Richard
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