In taking a closer look at the unique metrics used to measure up REITs, we've detailed FFO (funds from operations) and RevPAR. You'll see another one, net operating income, or NOI, no matter what kind of real estate investment trust you want to invest in.
From a mathematical perspective, the net operating income reported by REITs such as Weingarten Realty Investors
To get an idea of some of the line items that are commonly used in calculating NOI, we'll use a recent quarterly earnings release from General Growth Properties
Line item |
Balance |
---|---|
Total property revenues |
$835,856 |
Real estate taxes |
(69,832) |
Repairs and maintenance |
(57,610) |
Marketing |
(15,537) |
Other property operating costs |
(124,907) |
Provision for doubtful accounts |
(6,350) |
Retail - Net Operating Income |
$561,620 |
Many REITs also provide a same-store sales NOI figure. If you're thinking this is a figure from the world of retailers such as Target
Foolish tool
Like FFO, NOI also has its limitations. Understanding NOI is important to understanding the profitability and growth in profitability of a portfolio of properties, but it doesn't give you the full picture of a REIT's profitability or a number of other aspects of the business. NOI is, however, one of the important pieces for building a net asset value calculation for a property or a portfolio of properties such as a REIT. Because of this, it also offers a look into the profitability of a property, which makes NOI is a very useful tool for a REIT investor.
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At the time of publication, Nathan Parmelee had no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.