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Analyzing BioMed Realty’s Higher FFO Payout Ratio

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BioMed Realty’s rising dividend

As mentioned in the previous part of this series, BioMed Realty Trust’s (BMR) FFO (funds from operations) increased to $1.55 per share in 2014, compared to $1.47 per share in 2013. Bolstered by higher FFO per share, the company increased its dividend by 36.5% to $1.31 per common share in fiscal 2014. This is the highest dividend paid by the company during the past seven years. During the first three fiscal quarters of 2015, the company paid a total dividend of $0.78.

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Significance of dividends

REITs (real estate investment trusts) such as BioMed Realty must pay at least 90% of taxable income to investors as dividends. For REITs, dividends come primarily from the relatively stable and predictable stream of rents paid by the tenants who occupy the 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.

Rising FFO payout ratio

FFO payout ratio is calculated by dividing the dividend declared per common share by diluted FFO per common share for a given period. FFO payout ratio provides investors relevant and useful information as it measures the portion of FFO being declared as dividends to shareholders.

BioMed Realty’s payout ratio increased gradually during the past five years, rising from 51.3% in 2010, increased to 61.3% in 2013 and 79.2% in 2014.

Peer group comparisons and ETF exposure

BioMed Realty’s FFO payout ratio is on the higher side compared to most of its major peers in 2014. For example, Boston Properties (BXP) offered an FFO payout ratio of 134.6% followed by Columbia Property Trust (CXP) at 62.2%. Boston Properties’ higher FFO payout ratio was due to a one-time special dividend in 2014. On the other hand, Kilroy Property Corporation (KRC) had a lower FFO payout ratio at 46.4%. The iShares S&P Mid-Cap 400 Growth ETF (IJK) invests approximately 0.6% of its portfolio in BioMed Realty.

Continue to the next part of this series for a look at BioMed Realty’s debt position.

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