🏘️ FFO Calculator

Net income lies about real estate. Depreciation charges assume buildings melt away on schedule, while in reality well-kept properties appreciate, and one-time sale gains masquerade as recurring profit. Funds from operations fixes both: add back the phantom depreciation, strip out the sale gains, and you get the recurring cash earnings of the property portfolio. REIT investors price on FFO, not EPS.

How to Use This Calculator

The Formula

NAREIT defines the standard; most REITs then report Adjusted FFO, subtracting recurring maintenance capex for an even cleaner number. Value the equity with our enterprise value tools and price it per share against FFO.

Worked Example

A REIT reports $8.0 million of net income, $3.5 million of depreciation, and a $1.2 million gain from selling an office building. FFO = $8.0M + $3.5M − $1.2M = $10.3 million. The dividend of $7 million is covered 1.47x by FFO but would look stretched at 1.14x of net income minus the sale gain. The sale proceeds are real money, but they are not earnings you can count on next year.

Tips for REIT Analysis

Use FFO per share growth, not total FFO, since equity raises dilute holders. Compare P/FFO across REITs in the same property sector; office and apartment multiples differ structurally. Watch AFFO most closely for dividend safety, because maintenance capex is a genuine recurring cost that FFO ignores. And treat "company-defined" adjustments with skepticism: every extra add-back between FFO and the headline number deserves a footnote read.

Common Mistakes

Valuing REITs on P/E repeats the depreciation error the whole metric exists to fix. Counting sale gains as recurring income justifies dividends that collapse when sales stop. Ignoring share dilution makes FFO growth look better than per-share reality. And forgetting that depreciation, while non-cash, proxies real long-run capex needs: buildings do not last forever, which is why AFFO subtracts the maintenance.

FFO vs AFFO vs FAD

The ladder runs: FFO adds back depreciation; AFFO (or FAD, funds available for distribution) further subtracts recurring capital expenditures and straight-line rent adjustments. Each step gets closer to true distributable cash. Dividend coverage should be judged on AFFO, the strictest rung; a REIT covering its payout 1.0x on FFO but 0.8x on AFFO is slowly liquidating itself to pay you.

Downturns test every FFO-based thesis. In 2020, hotel and retail REIT FFO collapsed 50 to 80 percent while industrial and data-center FFO barely wobbled, proving that property type matters more than the metric. Investors who diversified across REIT sectors by FFO stability collected dividends through the crisis; those concentrated in one troubled type learned that FFO is a measurement, not a moat.

FFO and Dividend Safety

REIT dividends live or die on AFFO payout ratios. A REIT paying 85 percent of AFFO retains a thin cushion; one bad leasing year forces a choice between the dividend and the balance sheet. The safest REITs hold payout ratios near 70 to 80 percent of AFFO, keeping dry powder for vacancies and rate spikes.

History's dividend cuts cluster where payout ratios exceeded 95 percent of AFFO going into downturns: office REITs in 2009, mall REITs in 2017-2020, hotel REITs in 2020. The ratio is the smoke detector; investors who watched it had quarters of warning. A "high yield" built on a 100 percent payout is not income but a return of your own capital with extra steps.

Compare payout on AFFO, not FFO or net income, across your REIT holdings yearly. When a holding creeps above 90 percent, demand a story: is it temporary (a known vacancy releasing) or structural (a dying property type)? The dividend is only as safe as the cash flow beneath it.

P/FFO vs Cap Rates

Two lenses value the same REIT: P/FFO from the equity market, and the portfolio's implied cap rate from property values. They should roughly agree: a REIT at 15x FFO (a 6.7 percent earnings yield) holding properties at 5 percent cap rates is either overvalued or sitting on fee income and development pipeline the cap rate misses. Reconcile the gap before investing.

Net asset value analysis bridges them: value each property at market cap rates, add other assets, subtract debt, divide by shares. Trading below NAV with a high P/FFO may signal the market distrusts the asset values; trading above NAV with a low P/FFO may signal growth the properties have not caught. The three metrics triangulate fair value.

In practice, use cap rates for the real estate and P/FFO for the operating business, then check they tell a consistent story. When they diverge persistently, the market is usually pricing something your model omits: management quality, embedded growth, or hidden rot. Find it before it finds you.

Estimates for planning only, not financial advice.