The FFO calculator above starts from reported net income and works through the adjustments that produce funds from operations: adding back real-estate depreciation and amortisation, removing gains from property sales, adding back losses and impairments on depreciable real estate, and folding in the REIT's share of joint ventures. It then deducts preferred dividends to reach the figure attributable to common shareholders, divides by diluted shares, and continues into adjusted FFO.
Arb Digital builds free tools that treat accounting definitions as definitions. Every figure on this page comes from a set of financial statements you are reading, not from any data source of our own. Nothing here is a valuation, a target or an opinion about a company, and the page publishes no market data. It is the arithmetic of a supplemental performance measure, nothing more.
What This FFO Calculator Does
Real estate under generally accepted accounting principles is depreciated on a historical-cost basis, as though a building loses value steadily until it is worth nothing. Real property frequently does the opposite. That mismatch makes a REIT's net income a poor description of how the portfolio is performing, and it is the reason the industry constructed a supplemental measure at all.
Nareit's definition of funds from operations describes it as a supplemental measure of REIT operating performance, created in 1991 to address what the industry regarded as the artificial nature of historical-cost depreciation on real estate. The calculation excludes from net income depreciation, gains and losses from asset sales, and certain impairment write-downs, and Nareit is explicit that it should be considered in addition to GAAP results rather than as a substitute for them.
The calculator reports FFO, FFO per share, AFFO, AFFO per share and the dividend as a proportion of AFFO, because those five numbers answer different questions. FFO describes operating performance. AFFO attempts to describe what is actually available after the spending required to keep the portfolio earning. The payout ratio against AFFO is the one that speaks to whether a distribution is being covered by the business.
How to Use It
- Take net income from the income statement. Use the figure attributable to the REIT, after non-controlling interests but before preferred dividends.
- Separate real-estate depreciation from all other depreciation. Only the real-estate portion is added back, and the cash-flow statement usually splits it out.
- Enter gains and losses on property sales separately. Gains are removed and losses are added back, so keeping them apart avoids sign errors.
- Fill in the AFFO adjustments from the company's own reconciliation. There is no standard set, so use the ones the REIT itself discloses.
- Compare the payout ratio against AFFO, not FFO. AFFO already deducts the capital spending that maintaining the portfolio requires.
The Formula: How FFO and AFFO Are Calculated
The Nareit construction is FFO = net income + real-estate depreciation and amortisation − gains on sales of depreciable property + losses on sales of depreciable property + impairment write-downs of depreciable real estate ± adjustments for unconsolidated partnerships and joint ventures. Subtracting preferred dividends gives FFO attributable to common shareholders, and dividing by weighted average diluted shares gives FFO per share.
AFFO has no equivalent standard. The common construction is AFFO = FFO − recurring maintenance capital expenditure − straight-line rent adjustment − amortised capitalised leasing costs, and Nareit's own note on adjusted funds from operations states plainly that there is no standardised definition and that readers should understand how the measure is defined by each company.
Work the defaults. Net income of 120,000,000 plus 210,000,000 of real-estate depreciation is 330,000,000. Removing 45,000,000 of gains on sales leaves 285,000,000. Adding 8,000,000 of impairment and 6,000,000 of joint-venture adjustments gives FFO of 299,000,000. Preferred dividends of 12,000,000 leave 287,000,000 attributable to common, which over 250,000,000 diluted shares is 1.148 per share.
For AFFO, deduct 38,000,000 of recurring capital expenditure, 9,000,000 of straight-line rent and 5,000,000 of amortised leasing costs from the 287,000,000, giving 235,000,000, or 0.940 per share. A declared dividend of 0.90 per share is therefore 95.7 per cent of AFFO and 78.4 per cent of FFO — the same distribution looking comfortable on one measure and tight on the other.
Why Depreciation Is Added Back and Capital Expenditure Is Not
The case for adding back depreciation is that it is a non-cash charge computed from a historical cost that bears little relation to the building's current value or its remaining economic life. A well-located property maintained properly can be worth more after thirty years than it cost, while the accounts have been writing it down the whole time. Removing that charge produces a number closer to the cash the portfolio generates.
The case against stopping there is that buildings genuinely do consume capital. Roofs, lifts, plant, car parks and tenant improvements all have to be paid for, and unlike depreciation those payments are real cash leaving the business. FFO ignores them entirely, which is precisely the criticism levelled at it, and precisely why AFFO exists.
The unresolved part is which capital spending counts as maintenance and which counts as investment. Replacing a failed chiller is maintenance; fitting out a floor to win a new tenant at a higher rent is arguably investment. Companies draw that line differently and the line moves the AFFO figure materially, which is why comparing two REITs' AFFO without reading both reconciliations is unreliable. Our free cash flow calculator handles the general version of the same problem outside real estate.
Where FFO Can Still Mislead
FFO says nothing about leverage. Two REITs with identical FFO and very different debt loads are not in the same position, because interest is already inside net income but refinancing risk is not inside anything. A portfolio funded with short maturities at low rates produces attractive FFO right up to the point where the debt has to be replaced.
Straight-line rent is a second blind spot at the FFO level. Accounting recognises rent evenly over a lease even when the contract has fixed increases, so early years report more revenue than cash received and later years report less. That difference sits in net income, passes untouched through the FFO adjustments, and only gets removed at the AFFO stage. A REIT with a young portfolio of escalating leases will show FFO running ahead of cash for years.
Share count is a third. FFO per share can rise or fall for reasons unrelated to the properties if the company has been issuing equity, and REITs issue equity often because distributing most of their taxable income leaves little retained. Growth in total FFO with flat FFO per share means the portfolio grew and the shareholders did not benefit. Our EPS calculator and net income calculator cover the GAAP figures that sit underneath.
Reading the Payout Ratio
A REIT must distribute most of its taxable income to retain its tax status, so payout ratios in the sector are high by construction and a figure that would look alarming for an industrial company is unremarkable here. What matters is the measure the ratio is taken against. Against FFO, a distribution can look well covered while the capital spending needed to sustain the rents has not been counted at all.
The default figures illustrate the gap: 78.4 per cent of FFO and 95.7 per cent of AFFO from the same dividend and the same accounts. Neither number is wrong. They answer different questions, and quoting only the flattering one is a familiar habit worth watching for. Our dividend payout ratio calculator computes the conventional earnings-based version, and the dividend yield calculator handles the yield side.
The boundary with our REIT calculator is worth naming: that page projects income and portfolio value forward from a dividend yield and a growth assumption, which is an investment-modelling question. This page computes an accounting measure from a set of published statements and projects nothing at all. For the depreciation schedules that feed the add-back, the depreciation calculator covers the underlying methods.
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Browse All Free Tools Talk to Arb DigitalCommon Mistakes to Avoid
- Adding back all depreciation — only the real-estate portion belongs in FFO, not depreciation of corporate assets.
- Forgetting preferred dividends — per-share FFO must be calculated on the amount attributable to common shareholders.
- Comparing AFFO across companies — there is no standard definition, so the adjustments differ and the numbers are not like for like.
- Taking the payout ratio against FFO alone — it excludes the maintenance capital spending that keeps the portfolio earning.
- Treating FFO as a cash flow statement — it is a supplemental performance measure and does not reconcile to cash from operations.
Related Free Tools From Arb Digital
REIT analysis draws on several ordinary accounting measures. The net income calculator gives the starting figure, the depreciation calculator covers the charge that FFO adds back, and the EBITDA calculator gives the general-purpose equivalent used outside real estate.
On distributions, the dividend payout ratio calculator and the dividend yield calculator handle the conventional versions, and the free cash flow calculator takes the same capital-spending question outside the REIT framework.
Frequently Asked Questions
Funds from operations is a supplemental measure of REIT operating performance defined by Nareit in 1991. It takes GAAP net income, adds back real-estate depreciation and amortisation, removes gains and losses from property sales and certain impairments, and adjusts for joint ventures. Nareit is clear it supplements GAAP results rather than replacing them.
Because historical-cost depreciation assumes a building steadily loses value, which real property often does not. The charge is non-cash and computed from an original cost that may bear little relation to current value, so removing it produces a figure closer to what the portfolio actually generates from operations.
FFO has a published Nareit definition. AFFO does not: it starts from FFO and deducts items such as recurring maintenance capital expenditure, straight-line rent adjustments and amortised leasing costs, but every company chooses its own adjustments. Nareit states explicitly that there is no standardised definition of AFFO.
AFFO is the stricter test because it has already deducted the capital spending needed to keep the portfolio earning. The same dividend can look comfortably covered against FFO and tight against AFFO, which is why the measure used should always be stated alongside the ratio.
No. Only depreciation and amortisation relating to real estate. Depreciation of corporate assets such as vehicles, computers and office fit-out stays in the calculation, because the argument about historical cost understating value applies to property rather than to equipment.
No. It is a performance measure, not a cash measure, and it does not reconcile to cash generated from operations. Working capital movements, financing flows and non-real-estate items all sit outside it, so a full picture still requires reading the cash flow statement itself.
No. Every figure is one you enter from the financial statements you are reading. The page holds no data on any company, publishes no market information, and makes no assessment of any REIT, security or distribution.
This tool is provided for educational and estimating use only. It applies a published accounting definition to figures you supply and is not investment or accounting advice, nor an assessment of any company or security. Reported FFO and AFFO should be taken from the company's own reconciliation and reviewed with a qualified adviser.
