How do many REITs pay dividends > EPS? And how can REITs grow?
################################################################################ EPS is usually not a good measure to use in evaluating REITs, since GAAP EPS deducts depreciation. Dividend payouts are usually compared to FFO or AFFO, to determine the ratio of dividends to free cash flow, as opposed to comparing against “earnings”. (See the following question/answer below as well.) REITs can grow even though they are paying out more than taxable earnings, since most of them pay out far less than cash flow. They can also raise cash by selling more equity, of course. Additionally, they may sell properties to raise cash, and re-invest the money in new construction or acquisitions (presumably at higher rates of return than the disposed properties). They may also grow income by rent increases, of course. Here are 2 posts that do a very good job of illustrating the differences between GAAP net income and taxable income: http://boards.fool.com/Message.asp?mid=18389518 http://boards.fool.com/Me
