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Sizing up Boston Properties’ Funds from Operations

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Operating performance measures

FFO (funds from operations), AFFO (adjusted funds from operations), and NOI (net operating income) are all key measures of operating performance for REITs (real estate investment trusts). These measures are important in evaluating the operating performance of a company’s portfolio and in providing a basis for comparison with other real estate companies.

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FFO improves consistently

FFO is a measure used by REITs to define the cash generated from their operations. Boston Properties’ (BXP) FFO has increased consistently over the past five years, rising from $547.4 million in 2010 to $807.5 million in 2014. This is the highest FFO recorded by the company during the past ten years.

The company achieved a diluted FFO per share of $5.26 in 2014, compared to $4.91 the previous year, which is looking better than some of its competitors, who recorded lower FFOs per share. For example, Kilroy Realty Corporation’s (KRC) FFO per share was $2.91 in 2014, and Highwoods Properties (HIW) recorded an FFO per share of $2.90. On the other hand, SL Green Realty Corporation (SLG) reported a higher FFO per share of $5.87 in 2014.

Net operating income

Net operating income, or NOI, is computed by deducting the operating expenses from the gross operating income. These operating expenses can be property taxes, maintenance costs, or salaries, among other expenses. In this sense, NOI is used to measure the operating performance of a company’s properties, whereas FFO is used measure the operating performance of an REIT.

Boston Properties’ NOI grew consistently over the past five years, growing from $951.8 million in 2010 to $1.5 billion in 2014. NOI increased by 12.5% in 2014 compared to a growth of 15.9% in 2013. This is the highest NOI reported by the company during the past five years.

Boston Properties represents ~1.9% of the total holdings of the SPDR DJ Wilshire Global Real Estate ETF (RWO).

Continue to the next part of this series for the lowdown on Boston Properties’ dividend payouts over the past few years.

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