In real estate, it is sometimes easy to mistake a bull market for a genius. Property companies with soaring net asset values may be run by great managers, but equally, they may be run by guys who just got lucky. How can investors spot the difference between a management which invested in the right place at the right time through good market research and one which got there by chance?

In both the US and Europe, there are strong debates about the best "headline" figure to follow when analysing property company results. UK and European investors favour net asset value (NAV) while in the US, the ambiguous funds from operations (FFO) is the benchmark. Both have their detractions; NAV places too much reliance on the word of an independent valuer when there are growing doubts about their reliability.

Researchers at two UK universities produced papers suggesting that valuers may be subject to pressure from clients. Jeremy Newsum, chief executive of Grosvenor Estates, has suggested requiring quoted companies to rotate their valuers every three years to avoid a too-cosy relationship.

In the US there is equal dissatisfaction with the heavily cash-based analytical system that produces FFO figures. Analysts complain that too many one-off revenue contributions are included, obscuring the picture of ongoing income and that FFO is an unaudited figure.

Fundamentally, neither addresses whether the directors are good at managing property. Neither reliably distinguishes between bull markets and geniuses, nor between income from development and/or acquisitions and ongoing income.

In the US there is growing consensus that there is one figure that reveals the strength of management, and that is data encapsulated in what is called same-store net operating income (SSNOI).

With growing demands for more cash based analytical methods in the UK, it is worth considering the SSNOI and the measures of management skills it contains.

UK property securities analysts say property companies in Europe do not provide enough information to make a similar basis of analysis possible. SSNOI looks at income from properties on the balance sheet at the end of the previous year's accounting period and still on its books. It reflects rents minus operating costs of a property but does not take into account general and administrative corporate expenses.

John Lutzius, analyst at Californiabased Green Street Advisors, the real estate securities research firm, says that over time, rents rise in line with inflation.

While there are pockets of outperformance and under-performance, over the long haul, rents move with costs. Therefore, companies able to demonstrate consistent out-performance in operating income from a stable portfolio of properties are managing those assets better than their peer group.

"Same store net operating income tells you what the internal growth is," Mr Lutzius says. "External growth is chancy. It can be here today and gone tomorrow."

Green Street is not alone in targeting SSNOI. Indeed, most US property investment trust analysts follow those statistics. Lee Schalop, Bank of America Securities analyst, says: "It tells you the quality of the management and it tells you the quality of the markets in which the management operates. It is very important for figuring out which companies are doing well and which will continue to do well."

Mr Schalop points out that simply looking at gross, or even net, rental income is inadequate. It fails to tell you how much additional income was added by development. Statistics such as SSNOI are most important when looked at long term, he says. Underperformance may occur simply because a local economy is depressed for a year or two and not because of poor management. "If, over a seven-year period, management has failed to deliver SSNOI growth, there is probably a management issue there."

In a recent research report on earnings for the third quarter 2000, analysts at Goldman Sachs note the significance of SSNOI. "A more powerful measure of the state of the real estate markets and real estate fundamentals is the growth in NOI on a same-store basis," Goldman Sachs says.

"Accordingly, the true variables of operating revenue and operating expenses are isolated: rental growth; operating margin; and occupancy changes."

For the period covered, Goldman Sachs awards the SSNOI honours to Cousins Properties, which achieved growth of 17.1 per cent in the quarter against an average of 9.7 per cent.

Other winners were Spieker Properties, the San Francisco-based office developer whose SSNOI, after deducting lease termination fees and occupancy gains, was 13 per cent against 8.1 per cent for the sector. However, US REIT analysts caution against relying too heavily on SSNOI alone.

For one thing, Mr Lutzius says, it does not measure a property company management's most important task; capital allocation.

If a company buys, say, an office building which delivers SSNOI twice that of similar properties, it may still not have been a good investment. "Maybe the building delivered rental growth of 40 per cent per annum," he says. "But it is not a good deal if you bought it at a price which assumed 50 per cent rental growth."

Analysts at Goldman Sachs concur, noting the limits of SSNOI, and issue this health warning. "We believe investors should keep in mind that strong real estate fundamentals can mask an imperfect capital structure and/or bail out poor investment decisions."

In other words, no one measure of corporate performance will ever tell the whole story.