Operating performance measures
Funds from operations (or FFO), adjusted funds from operations (or AFFO), and net operating income (or NOI) are the key measures of operating performance. These measures are important to evaluate the operating performance of a company’s portfolio. They provide a basis for comparison with other real estate companies.
FFO rising at a moderate pace
FFO is a measure used by REITs to define the cash generated from their operations. Apartment Investment & Management Company’s (or AIMCO) (AIV) FFO has increased consistently over the past five years. It increased from $177 million in fiscal 2010 to $301.8 million in fiscal 2014. This is the highest FFO recorded by the company for the past seven years.
The company achieved diluted FFO per share of $2.07 in 2014 compared to $2.04 in the previous year. This is lower than most of its competitors, which recorded much higher FFO per share.
For example, Equity Residential (EQR) reported FFO per share of $3.18 in 2014. AvalonBay Communities (AVB) reported FFO per share of $7.25, and Essex Property Trust (ESS) reported $7.89. AIMCO (AIV) forms 1.0% of the holdings of the SPDR Dow Jones REIT ETF (RWR).
Net operating income
Net operating income (or NOI) is computed by deducting operating expenses from gross operating income. Operating expenses can be property taxes, maintenance costs, salary, and more. NOI is used to measure the operating performance of a company’s properties. FFO is used to measure the operating performance of an REIT.
AIMCO’s NOI grew consistently during the past five years. It grew from $580.4 million in fiscal 2010 to $603.7 million in fiscal 2014. NOI increased by 1.6% in 2014 compared to a growth of 3.8% in 2013. This is the highest NOI reported by the company over the past five years.
We’ll discuss AIMCO’s dividend payout in the next article.