EPRA earnings
Sector Deep DivesThe recurring result from operating a property portfolio, stripping revaluations, disposal gains and derivative marks out of IFRS profit.
Also written: EPRA earnings per share, recurring earnings
EPRA earnings is the European answer to the problem that IFRS net income for a property company is dominated by things that are not rent. Under the IAS 40 fair value model the portfolio is remeasured to market every period, so a yield movement can swamp a year of operating performance in either direction.
The measure strips revaluation movements on investment property, gains and losses on disposal, changes in the fair value of financial instruments such as interest rate swaps, and the tax attaching to all of those. What survives is rent less property costs less administrative expense less net interest, which is the recurring economics of running the portfolio.
It occupies the same position as funds from operations does for a US REIT, but it gets there from the other side. FFO starts from a cost model number and adds depreciation back. EPRA earnings starts from a fair value number and takes revaluations out. The two are not calculated identically, so comping a European company against a US REIT means rebuilding both from net rental income rather than trusting the two headline lines.
What it still does not capture is the cash a portfolio consumes to stand still: maintenance capital expenditure, letting fees and tenant incentives. There is no standardised European equivalent of adjusted funds from operations, so companies present their own underlying or distributable figure and the basis has to be read rather than assumed.
Worked example
Net rental income 100, administrative expenses 15, net interest 30, a portfolio revaluation gain of 120 and a disposal gain of 10.
IFRS profit before tax is 185. EPRA earnings is 100 less 15 less 30, so 55, because the 120 and the 10 are both stripped out.
Report the identical portfolio on a US cost model with 45 of depreciation and net income is 20, from which FFO adds back the 45 and removes the 10 to reach the same 55.