AFFO Calculator — Adjusted Funds From Operations
Calculate Adjusted Funds From Operations (AFFO) for REITs and real estate investments. AFFO provides a clearer picture of a REIT's ability to pay dividends by adjusting FFO for recurring capital expenditures and other items.
AFFO Calculation
Per Share Metrics
Investment Analysis
Understanding Adjusted Funds From Operations (AFFO)
Adjusted Funds From Operations (AFFO) is a financial metric used primarily by Real Estate Investment Trusts (REITs) to measure their operating performance and ability to pay dividends. AFFO provides a more accurate picture of a REIT's cash flow by adjusting Funds From Operations (FFO) for recurring capital expenditures.
AFFO vs FFO
| Metric | FFO | AFFO | Purpose |
|---|---|---|---|
| Starting Point | Net Income | FFO | Cash Flow Measurement |
| Adjustments | Depreciation, Gains/Losses | Recurring CapEx, Leasing Costs | Sustainability Assessment |
| Use Case | Operating Performance | Dividend Sustainability | Investment Analysis |
AFFO Calculation Formula
AFFO = FFO - Recurring Capital Expenditures - Other Adjustments
FFO = Net Income + Depreciation + Amortization ± Gains/Losses
Common AFFO Adjustments
- Recurring Capital Expenditures: Maintenance, repairs, and recurring improvements
- Leasing Commissions: Costs to find and place new tenants
- Tenant Improvements: Build-outs and renovations for tenants
- Straight-Line Rent Adjustments: Accounting adjustments for lease terms
- Amortization of Leases: Above/below market lease amortization
Why AFFO Matters for REIT Investors
- Dividend Sustainability: Measures ability to maintain dividend payments
- Growth Capacity: Funds available for property improvements and acquisitions
- Valuation Tool: Used in determining fair value of REIT shares
- Peer Comparison: Standardized metric for comparing REITs
- Risk Assessment: Identifies REITs with stable cash flows
AFFO Payout Ratio Guidelines
- Safe (=70%): Strong dividend coverage, room for growth
- Moderate (70-85%): Adequate coverage, monitor closely
- Aggressive (85-100%): Limited buffer, potential dividend cuts
- Unsustainable (>100%): Dividends exceed cash flow, high risk
AFFO Yield Calculation
AFFO Yield measures the dividend income relative to the AFFO per share:
AFFO Yield = (Dividend per Share ÷ AFFO per Share) × 100
Limitations of AFFO
- Non-Standardized: Different REITs may calculate AFFO differently
- Subjective Adjustments: Management discretion in what to include
- Not GAAP: Not a standardized accounting measure
- Short-term Focus: May not capture long-term capital needs
Using AFFO in Investment Decisions
- Compare Payout Ratios: Lower ratios indicate more sustainable dividends
- Track Trends: Look for consistent or growing AFFO over time
- Peer Analysis: Compare AFFO metrics within the same property sector
- Growth Assessment: Higher AFFO suggests capacity for acquisitions
Tip: When evaluating REITs, look at both FFO and AFFO. AFFO provides a more conservative view of dividend sustainability by accounting for the capital expenditures needed to maintain property values. Always check how the REIT calculates AFFO and compare it to industry peers for consistency.