Total NOI growth mixes what the buildings earned with what the company bought, built and sold; a strictly defined same-store pool separates the two.
Restrict the comparison to properties owned and stabilised for the whole of both periods, take NOI on a cash basis, strip out lease termination fees, and divide this year's NOI on that pool by last year's. On an illustrative REIT whose total NOI rose 6.5 per cent, the reported same-store figure is 3.3 per cent and the cash same-store growth, excluding termination fees, is 2.5 per cent: the organic growth the portfolio actually produced.
Worked in full in REIT Analysis and Valuation by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Same-store NOI growth is the operating number REIT investors watch most closely, because total NOI growth mixes what the buildings earned with what the company bought, built and sold. The definition is not standardised, and the choices inside it, which properties are in the pool, GAAP or cash, with or without one-off income, can move the figure by several points. The calculation below takes one year's portfolio apart.
| Group | Prior year | Current year | Change |
|---|---|---|---|
| Same-store pool: owned and stabilised both full years | 360.0 | 372.0 | 12.0 |
| Acquisitions made during the prior year | 12.0 | 30.0 | 18.0 |
| Developments delivered this year | 0.0 | 14.0 | 14.0 |
| Redevelopment, partly out of service | 18.0 | 8.0 | −10.0 |
| Dispositions during the current year | 10.0 | 2.0 | −8.0 |
| Total portfolio | 400.0 | 426.0 | 26.0 |
Inside the same-store pool, current-year NOI includes a 6.0 lease termination fee (none last year), and GAAP straight-line rent adjustments of 6.0 last year and 3.0 this year.
1. Pool = properties owned and stabilised for all of both periods
2. Cash NOI = GAAP NOI − straight-line rent − lease intangible amortisation
3. Remove termination fees and other one-off income
Same-store growth = pool cash NOIcurrent ÷ pool cash NOIprior − 1
In Excel, tag each property with a pool flag and use =SUMIFS(NOI_cur,Pool,"SS")/SUMIFS(NOI_prior,Pool,"SS")-1, with the adjustments in their own columns.
Total NOI grew from 400.0 to 426.0, 6.5 per cent. The same-store pool grew from 360.0 to 372.0: 3.33 per cent on a GAAP basis, the figure many companies headline. On a cash basis, the prior year is 360.0 less 6.0 of straight-line rent, 354.0; the current year is 372.0 less 3.0 of straight-line rent and the 6.0 termination fee, 363.0. Cash same-store growth is 2.54 per cent.
| Source | Points |
|---|---|
| Same-store pool | 3.0 |
| Acquisitions, first full year | 4.5 |
| Developments delivered | 3.5 |
| Redevelopment | −2.5 |
| Dispositions | −2.0 |
| Total NOI growth | 6.5 |
Only 46 per cent of the NOI increase came from the buildings the company owned throughout. Acquisitions and developments added 8.0 points, bought with capital that has its own cost; redevelopment and sales took 4.5 away. A growth rate driven by external investment depends on the share price and the cost of debt staying favourable. Organic growth does not, which is why the market pays more for a point of same-store growth than for a point bought with new capital.
| Definition | Prior | Current | Growth |
|---|---|---|---|
| Strict pool, cash, excluding termination fees | 354.0 | 363.0 | 2.5% |
| Strict pool, GAAP | 360.0 | 372.0 | 3.3% |
| Pool including last year's acquisitions | 372.0 | 402.0 | 8.1% |
| Pool including the redevelopment | 378.0 | 380.0 | 0.5% |
| Total portfolio | 400.0 | 426.0 | 6.5% |
The range runs from 0.5 to 8.1 per cent on the same buildings in the same year. Including last year's acquisitions is the most flattering error, because a property bought partway through the prior year shows only part of a year's NOI in the base, so its "growth" is mostly the calendar. Including a redevelopment does the opposite. Check the pool rule in the supplemental package before comparing two REITs, and check whether it changed from last year.
Same-store NOI growth is cash NOI on a strictly defined pool, without one-off income: 2.5 per cent here, against a 3.3 per cent GAAP headline and 6.5 per cent total growth. It is the input to the growth assumption in any valuation, including NAV per share and the multiple work in valuing a REIT on P/FFO. The analysis checklist in the free workbooks for this case puts the pool definition among the questions to ask on the call.
Because total NOI growth includes acquisitions, developments and sales. In the illustrative REIT, total NOI grew 6.5 per cent, but acquisitions and developments added 8.0 points while redevelopment and dispositions removed 4.5; the buildings owned throughout contributed only 3.0 points.
Cash is the better measure of organic growth because GAAP straight-line rent spreads fixed increases over the lease. In the illustrative pool, removing straight-line rent and a 6.0 termination fee gives 2.54 per cent cash growth, against 3.33 per cent on the GAAP figure.
Those owned and stabilised for the whole of both periods. Last year's acquisitions, new developments, redevelopments and properties being sold stay out. Including the prior year's acquisitions in the illustrative pool lifts reported growth from 3.3 to 8.1 per cent; including the redevelopment cuts it to 0.5 per cent.
This article is one calculation from REIT Analysis and Valuation. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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