Definition
FFO is the standard earnings metric for REITs because standard net income understates true performance by deducting depreciation—a non-cash charge on assets that are often appreciating. FFO = Net Income + Depreciation + Amortization − Gains on Sales. Adjusted FFO (AFFO) further subtracts maintenance CapEx and straight-line rent adjustments for an even more accurate cash earnings figure.
functions Formula
FFO = Net Income + Depreciation + Amortization − Gains on Sales
lightbulb Example
A REIT reports: Net income $50M, depreciation $30M, gain on property sale $5M. FFO = $50M + $30M - $5M = $75M. With 50M shares, FFO/share = $1.50. Price-to-FFO of $20/$1.50 = 13.3x.
verified_user Key Points
- Standard REIT earnings metric
- Adds back depreciation (non-cash charge on appreciating assets)
- AFFO further adjusts for maintenance CapEx
- P/FFO replaces P/E for REIT valuation