What is AFFO?
Adjusted funds from operations, or AFFO, is a non-GAAP measure commonly used to evaluate the recurring cash-generating capacity of a real estate investment trust. It starts with funds from operations and adjusts for recurring property expenditures and other items that can affect sustainable distributions.
AFFO is often compared with dividends to assess payout coverage. Because companies may define adjustments differently, investors should read the reconciliation in the REIT's filings rather than treating every published AFFO figure as directly comparable.
How to calculate AFFO? AFFO vs. FFO
The calculator first estimates FFO: net income + depreciation and amortization + losses on property sales - gains on property sales - interest income. It then estimates AFFO as FFO + rent increases - capital expenditures - routine maintenance amounts.
FFO removes major accounting effects that can obscure real-estate operating performance. AFFO goes further by accounting for recurring capital needs and adjustments intended to approximate cash available for distribution.
- Use values from the same reporting period.
- Enter gains and losses as positive amounts in their named fields.
- Do not double-count capital expenditures or maintenance already included in another adjustment.
What is the difference between FFO and AFFO?
FFO primarily adjusts net income for real-estate depreciation, amortization, and property-sale gains or losses. AFFO adjusts FFO for recurring expenditures and revenue adjustments that management believes better represent sustainable cash flow.
AFFO is generally more useful for dividend coverage, but it is also less standardized. Compare the company's calculation over time, inspect each adjustment, and consider debt service, leasing costs, and upcoming capital requirements before drawing a conclusion.
- FFO is more standardized within REIT reporting practice.
- AFFO is closer to recurring distributable cash flow but varies by issuer.
- Neither measure replaces the cash-flow statement, balance sheet, or debt maturity analysis.
FAQs
AFFO can be negative when recurring capital and maintenance needs exceed FFO and positive rent adjustments. A high AFFO does not automatically make a REIT attractive because leverage, asset quality, tenant concentration, and valuation still matter.
The AFFO payout ratio is commonly calculated as dividends divided by AFFO. Use the same period and share basis for both amounts, and verify whether the company reports total AFFO or AFFO per share.