AFFO Calculator (Adjusted Funds From Operations)

AFFO is the REIT industry’s preferred cash-earnings metric. Where FFO strips out depreciation (which overstates expenses for buildings that often appreciate), AFFO goes further: it subtracts the recurring capex needed to maintain those buildings, plus other adjustments that turn accounting income into something closer to actual cash a REIT can pay out as dividends.

The formula:

AFFO = FFO - Recurring Capex - Straight-Line Rent Adjustment - Non-recurring Items

Where:

• FFO is Funds From Operations (net income + D&A - gains on sales)
• Recurring capex is maintenance spending: roof replacements, HVAC, parking lot resurfacing
• Straight-line rent adjustment removes the GAAP smoothing of stepped-rent leases (because the cash matters, not the average)
• Non-recurring items (lease termination fees, one-time gains/losses) get backed out

Enter every adjustment as a positive number. All three fields below are subtracted, which is why each label says so. If an adjustment genuinely runs the other way, as straight-line rent does late in a lease when cash rent has overtaken the average, enter it as a negative and it will be added back. Typing a minus sign on an ordinary adjustment is the one way to get this page badly wrong: on the example below it would return $228M instead of $202M.

Why analysts use AFFO over FFO. A REIT can have great FFO but be quietly bleeding cash if it owns aging buildings that need constant capex. AFFO catches this. Two REITs with identical FFO can have wildly different AFFO if one is in newer buildings vs older.

Dividend coverage is the main use. AFFO Payout Ratio = Dividend per share / AFFO per share. Below 80%: comfortable, room to grow the dividend. 80-95%: tight but typical for stabilized REITs. Above 100%: dividend is funded by debt or equity issuance, which is unsustainable.

Property-type benchmarks. Recurring capex as % of revenue varies by sector:

• Net lease (single tenant, triple net): 1-3% (tenant pays for upkeep)
• Healthcare (medical office, senior housing): 4-6%
• Industrial / warehouse: 3-5%
• Apartments: 7-10%
• Office: 10-15% (highest, from turnover costs, tenant improvements, constant updates)
• Hotel: 4-6% of revenue, but 25-35% of EBITDA

This is why hotel and office REITs often look cheap on FFO but expensive on AFFO.

Worked example. Mid-cap apartment REIT.

• FFO: $250M
• Recurring capex: $35M (apartment turnover, appliances, paint)
• Straight-line rent adjustment: $8M (leases ramping up, so GAAP rent runs ahead of cash rent)
• Non-recurring lease termination fee received: $5M
• AFFO = 250 - 35 - 8 - 5 = $202M

Each figure goes in as written, with no minus sign, because the formula already subtracts all three.

If shares outstanding are 50M, AFFO per share = $4.04. With a $3.20 annual dividend, the payout ratio is 79%, which is comfortable.

Why FFO and AFFO can diverge sharply. A REIT building a development pipeline shows growing FFO but flat or declining AFFO during the build. Conversely, a stabilized REIT with no growth shows aligned FFO and AFFO. The gap tells you where the company is in its lifecycle.