Funds From Operations (FFO) Calculator
Calculate a REIT's Funds From Operations (FFO) and FFO per share — the standard measure of operating cash flow used to evaluate real estate investment trusts.
How to use this tool
- Enter net income, depreciation & amortization, gains on property sales, shares outstanding and current share price in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your funds from operations (ffo) 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 − Gains on Property Sales
FFO per Share = FFO / Shares Outstanding
Price-to-FFO = Share Price / FFO per Share
How it works
FFO was defined by the National Association of Real Estate Investment Trusts (NAREIT) as a non-GAAP metric that adds back real estate depreciation (which overstates cost because properties often appreciate) and removes one-time gains from property sales, giving a cleaner picture of recurring operating cash generation. Price-to-FFO serves as the REIT equivalent of the P/E ratio for evaluating relative valuation.
Worked example
REIT with $1M Net Income
- Net income = $1,000,000; depreciation & amortization = $500,000; gains on property sales = $200,000.
- FFO = $1,000,000 + $500,000 − $200,000 = $1,300,000.
- FFO per share = $1,300,000 / 100,000 shares = $13.00.
- Price-to-FFO = $25 / $13.00 = 1.92×.
FFO is $1,300,000; FFO per share is $13.00; Price-to-FFO is 1.92×.
Common mistakes to avoid
- Using GAAP net income without adding back real estate depreciation — GAAP depreciation on buildings reduces net income but does not reflect actual value decline for well-maintained properties, which is why FFO adds it back.
- Failing to subtract gains on property sales — these are one-time events that inflate net income; FFO removes them to focus on recurring operating performance.
- Applying P/FFO multiples without adjusting for AFFO (Adjusted FFO) — AFFO further subtracts recurring capital expenditures, making it a better proxy for dividend sustainability.
Key terms
- Why is FFO used instead of net income for REITs?
- Real estate depreciation under GAAP overstates actual economic decline because property values often rise; FFO adds it back to show true cash generation.
- What is a good Price-to-FFO ratio?
- A typical range is 10–20× for established REITs, though it varies by sector; lower may signal undervaluation, higher may reflect growth expectations.
- What is AFFO?
- Adjusted FFO (AFFO) further deducts recurring capital expenditures needed to maintain properties, providing an even more conservative cash-flow measure.
- Who standardized FFO?
- NAREIT (National Association of Real Estate Investment Trusts) established the FFO definition in 1991 to provide a consistent operating metric across REITs.
Frequently asked questions
- Why is FFO preferred over net income for REITs?
- GAAP requires REITs to depreciate real property, but real estate often appreciates over time. FFO adds back depreciation to better reflect the cash-generating capacity of the portfolio.
- What is the difference between FFO and AFFO?
- AFFO (Adjusted FFO) starts with FFO then subtracts recurring capital expenditures needed to maintain the properties. AFFO is a closer approximation of true distributable cash flow.
- How do I interpret the Price-to-FFO multiple?
- Price-to-FFO is the REIT equivalent of P/E. A lower P/FFO suggests the REIT may be undervalued relative to peers; a higher ratio implies the market expects stronger growth or the portfolio commands a quality premium.