FFO and NOI
FFO (funds from operations), AFFO (adjusted funds from operations), NOI (net operating income), and comparable property NOI[1. NOI for properties owned and operating in both periods under comparison] are the key measures of operating performance. These measures are important when evaluating the operating performance of a company’s portfolio. They provide a basis for comparison with other real estate companies.
Record FFO in 2014
FFO is a measure used by REITs to define the cash generated from their operations. UDR’s (UDR) FFO has risen consistently for the past five years. It rose from $192.8 million in 2010 to $415.4 million in 2014. This is the highest FFO recorded by the company during the past decade.
The company achieved a diluted FFO per share of $1.6 in 2014, compared to $1.40 in the previous year. This is lower than most of its competitors. For example, Equity Residential (EQR) reported an FFO per share of $3.20 in 2014. It was followed by AvalonBay Communities (AVB) at $7.30 and Essex Property Trust (ESS) at $7.90. The SPDR Dow Jones Wilshire Global Real Estate ETF (RWO) invests 0.9% of its portfolio in UDR.
Net operating income
The NOI is computed by deducting the operating expenses from the gross operating income. Operating expenses can be property taxes, maintenance costs, and salary, among others. NOI is used to measure the operating performance of the company’s properties while FFO is used to measure the operating performance of a REIT. UDR’s NOI grew consistently during the past five years. It grew from $411.1 million in 2010 to $556.3 million in 2014. The NOI rose by 8.2% in 2014, compared to a growth of 2% in 2013. This is the highest NOI reported by the company since its inception.
We’ll discuss UDR’s dividend payout in the next part.