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Analyzing Douglas Emmett’s Low—but Rising—FFO Payout Ratio


Dec. 21 2015, Updated 8:04 a.m. ET

Douglas Emmett’s rising dividends

As mentioned in previously in this series, Douglas Emmett’s (DEI) FFO (funds from operations) increased to $1.54 per share in 2014, compared to $1.49 per share in 2013.

Bolstered by its higher FFO per share, the company increased its dividend by 9.5%, to $0.81 per common share in fiscal 2014, compared to $0.74 per share in 2013. This represents the highest dividend paid by the company over the past seven years.

With the increase in dividend during the first three fiscal quarters of 2015 to $0.63, Douglas Emmett is on course to pay around $0.85 per share this fiscal year.

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Importance of dividends

We should remember that REITs (real estate investment trusts) like Douglas Emmett must pay at least 90% of taxable income to investors as dividends. For REITs, dividends come primarily from the relatively stable and predictable streams of rent paid by the tenants occupying its properties. Rental rates usually rise during periods of inflation as many lease rates are tied to inflation. As a result, REIT dividends are protected, to a large extent, from the long-term effects of rising prices.

FFO payout ratio—not very appealing?

A company’s FFO payout ratio is calculated by dividing its dividend declared per common share by its diluted FFO per common share for a given period. FFO payout ratios provide investors with relevant and useful information as they measure the portion of FFO being declared as dividends to shareholders.

That said, Douglas Emmett’s payout ratio remained relatively low during the past six years, although the ratio is gradually improving. We should note that the company’s FFO payout ratio, which was 25.3% in 2010, rose to 40.6% in 2013 and 43.1% in 2014.

Peer group comparison

Douglas Emmett’s FFO payout ratio was lower than most of its peers in 2014. For example, Boston Properties (BXP) offered an FFO payout ratio of 134.6% in 2014, and Columbia Property Trust (CXP) saw a ratio of 62.24%. Highwoods Properties (HIW) offered an FFO payout ratio of 56.77% in 2014.

The iShares Cohen & Steers REIT ETF (ICF) invests approximately 1.4% of its total portfolio in Douglas Emmett.

Continue to the next part for a discussion of Douglas Emmett’s debt position.


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