What Are Adjusted Funds From Operations—AFFO?

Adjusted funds from operations (AFFO) refers to the financial performance measure primarily used in the analysis of real estate investment trusts (REITs). The AFFO of a REIT, though subject to varying methods of computation, is generally equal to the trust's 澳洲幸运5官方开奖结果体彩网:funds from operations (FFO) with adjustments made for recurring capital expenditures used to maintain the quality of the REIT's underlying assets. The calculation takes in the adjustment to GAAP straight-lining of rent, leasing costs, and other material factors.

Understanding 🐼Adjusted Funds Froไm Operations—AFFO

Regardless of how industry professionals choose to compute adjusted funds from operations (AFFO), it is considered to be a more accurate measure of residual cash flow for shareholders than simple FFO. Though FFO is commonly used, it does not deduct for 澳洲幸运5官方开奖结果体彩网:capital expenditures required to maintain the existing portfolio of properties, so it doesn't quite measure the true residual cash flow. Professional analysts prefer AFFO because it takes into consideration additional costs incurred by the REIT—and additional income sources too, like rent increases. Thus, It provides for a more accurate base number when estimating 澳洲幸运5官方开奖结果体彩网:present values and a better predictor of the REIT's future ability to pay 澳洲幸运5官方开奖结果体彩网:dividends. This is a non-GAAP measure.

Calculating Adjusted Funds From Operations—AFFO

Before calculating the AFFO, an analyst must first determine the REIT's funds from operations (FFO). The FFO measures cash flow from a specified list of activities. FFO reflects the impact from the REIT's leasing and acquisition activity, as well as interest costs. FFO takes into account the REIT's net income including 澳洲幸运5官方开奖结果体彩网:amortization and depreciation, but it excludes the 澳洲幸运5官方开奖结果体彩网:capital gains from property sales. The reason these gains are not included is that they are one-time events and generally do not have a long-term effect on the REIT's future earnings potential.

The formula for FFO is:

FFO = net income + amortization + depreciation - capital gains from property sales

Once the FFO is determined, the AFFO can ওbe calculated. Though there is no one official formula, calculations for AFFO typically would be something like:

AFFO = FFO + rent increases - capital expenditures - routine maintenance amounts

Example of an Adjusted Funds From Operations—

AFFO Calculation

As an example of the AFFO calculation, assume the following: a REIT had $2 million in net income over the last reporting period. During that time, it earned $400,000 from the sale of one of its properties and l﷽ost $100,000 from the sale of another. It reported $35,000 of amortization and $50,000 of depreciation. During the period, net rent increases were $40,000; capital expenditures were $75,000 and routine maintenance amounted to $30,000.

Given this inf🥂ormation the FFO can be calculated as:

FFO = $2,000,000 + $35,000 + $50,000 - ($400,000 - $100,000) = $1,785,000

澳ℱ洲幸运5官方开奖结果🤡体彩网: From this, the AFFO is calculated as:

AFFO = FFO + $40,000 - $75,000 - $30,000 = $1,720,000