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American Campus Communities: Higher Funds from Operations

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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 the company’s portfolio and provide a basis for comparison with other real estate companies.

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FFO rising moderately

FFO is a measure used by REITs to define the cash generated from their operations. American Campus Communities’ (ACC) FFO has increased consistently over the past five years. It increased from $102.7 million in 2010 to $259.2 million in 2014. This is ACC’s highest FFO recorded since its IPO in 2004.

ACC achieved diluted FFO per share of $2.42 in 2014 compared to $2.22 in the previous year. This is lower than some of its competitors, which recorded higher FFO per share. For example, AvalonBay Communities’ (AVB) FFO per share was $7.25 in 2014 followed by Essex Property Trust (ESS) at $7.89 and Equity Residential (EQR) at $3.18. American Campus Communities forms 0.44% of the holdings of the SPDR Dow Jones Wilshire Global Real Estate ETF (RWO).

Net operating income

Net operating income 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 operating performance of a company’s properties, while FFO is used to measure operating performance of an REIT.

American Campus Communities’ NOI grew consistently during the past five years. It grew from $157.6 million in 2010 to $366.7 million in 2014. NOI increased by 11.7% in 2014 compared to a growth of 43.3% in 2013. This is the highest NOI reported by the company over the past five years.

We’ll discuss dividend payout by American Campus Communities in the next article.

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