Adjusted Funds From Operations (AFFO) Calculator
Calculate Adjusted Funds From Operations (AFFO) for a REIT by adding depreciation back to net income and subtracting capital expenditures and straight-line rent adjustments.
How to use this tool
- Enter net income, depreciation & amortization, capital expenditures (capex) and straight-line rent adjustments in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your adjusted funds from operations (affo) and the full breakdown beneath it.
⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.
Formula
FFO = Net Income + Depreciation & Amortization
AFFO = FFO − CapEx − Straight-Line Rent Adjustments
How it works
Funds From Operations (FFO) adjusts GAAP net income by adding back real estate depreciation, which is a non-cash charge that overstates the true economic cost for properties that typically appreciate in value. Adjusted Funds From Operations (AFFO) further refines FFO by subtracting recurring capital expenditures needed to maintain the properties and removing straight-line rent adjustments that do not reflect actual cash collected. AFFO is considered a better proxy for a REIT's sustainable cash flow and dividend-paying capacity than either FFO or GAAP net income.
Worked example
REIT with $100,000 Net Income
- Start with net income: $100,000
- Add back depreciation & amortization: $100,000 + $50,000 = $150,000 (FFO)
- Subtract capital expenditures: $150,000 − $30,000 = $120,000
- Subtract straight-line rent adjustments: $120,000 − $5,000 = $115,000 (AFFO)
AFFO = $115,000
Common mistakes to avoid
- Omitting straight-line rent adjustments — REITs often recognise rent on a straight-line basis under GAAP, which inflates GAAP income relative to actual cash received; subtracting straight-line rent adjustments in the AFFO formula corrects for this.
- Using total capital expenditures rather than maintenance CapEx only — AFFO is intended to reflect recurring cash available to shareholders; growth or expansion CapEx should be excluded, and only recurring maintenance CapEx deducted.
- Adding back amortisation of intangibles without checking if it is recurring — some intangible amortisation (e.g. lease origination costs) is recurring and legitimately reduces distributable cash; blanket add-backs overstate AFFO.
Key terms
- FFO (Funds From Operations)
- A REIT performance measure equal to net income plus real estate depreciation and amortization, intended to reflect operating cash flow more accurately than GAAP net income.
- AFFO (Adjusted Funds From Operations)
- FFO further adjusted by subtracting recurring capital expenditures and straight-line rent adjustments to approximate true distributable cash flow.
- Straight-Line Rent
- An accounting method that spreads total lease payments evenly over the lease term, creating a non-cash revenue item when actual rent received differs from the recognized amount.
- Capital Expenditures (CapEx)
- Spending on maintaining or improving physical assets such as buildings; recurring CapEx is subtracted in the AFFO calculation because it represents real cash outflows.
- Distributable Cash Flow
- The cash available for distribution to investors; AFFO is frequently used as a proxy for this figure in REITs.
Frequently asked questions
- Why do REIT analysts prefer AFFO over FFO?
- FFO (Funds From Operations) adds depreciation back to net income but does not account for capital needed to maintain properties or non-cash revenue adjustments. AFFO goes further by subtracting maintenance CapEx and straight-line rent, giving a closer approximation of distributable cash flow.
- Is there a standard AFFO definition across REITs?
- No -- unlike FFO, which has a NAREIT definition, AFFO lacks a universal standard. Each REIT defines AFFO in its own supplemental disclosures. When comparing REITs, verify which adjustments each company includes or excludes.
- How is AFFO used to evaluate dividend sustainability?
- Analysts calculate the AFFO payout ratio: dividends per share divided by AFFO per share. A ratio below 80-85% is generally considered sustainable for most property types; above 95% signals the dividend may be at risk if AFFO declines.