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FFO Calculator

Calculate Funds From Operations (FFO) for Real Estate Investment Trusts (REITs) using net income, depreciation, and gains on property sales.

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Understanding Funds From Operations (FFO)

Funds From Operations (FFO) is the standard performance metric used by real estate investment trusts (REITs) and commercial real estate investors to measure operational cash flow. Developed by the National Association of Real Estate Investment Trusts (NAREIT), FFO adjusts GAAP net income to reflect the true operating strength of property-holding businesses.

Why FFO is Preferred Over Net Income for REITs

Traditional accounting rules require commercial real estate to be depreciated over time. However, real property often appreciates or maintains value over long holding periods. Treating depreciation as a real expense artificially depresses net income. FFO adds back real estate depreciation and amortization while eliminating non-recurring gains or losses from property sales.

FFO Calculation Formula

The standard NAREIT FFO equation is:

$$\text{FFO} = \text{Net Income} + \text{Depreciation} + \text{Amortization} - \text{Gains on Property Sales} + \text{Losses on Property Sales}$$

Related Real Estate & Valuation Calculators

Explore related financial tools including our AFFO Calculator, calculate profitability via the Expense Ratio Calculator, or evaluate corporate value with the Degree of Operating Leverage Calculator.

Frequently Asked Questions

What is the difference between FFO and AFFO?

FFO measures core operational cash flow by adding back depreciation and removing property sales gains. Adjusted Funds From Operations (AFFO) goes further by subtracting recurring capital expenditures (CapEx) and routine maintenance costs needed to keep properties operational.

Why are gains on property sales subtracted in the FFO formula?

Gains from property sales represent one-off asset liquidations rather than ongoing, sustainable rental income. Excluding them ensures FFO reflects recurring real estate operational revenue.

How is FFO per share used by dividend investors?

FFO per share allows investors to evaluate REIT valuation multiples (Price-to-FFO) and assess dividend payout sustainability, similar to how EPS is used for non-REIT equities.

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