AFFO Calculator

Net Income (N): USD

Depreciation & Amortization (D): USD

Gains from Property Sales (G): USD

Losses from Property Sales (L): USD

Interest Income (I): USD

Rent Increases (R): USD

Capital Expenditures (C): USD

Routine Maintenance (M): USD

1. What is the AFFO Calculator?

Definition: This calculator computes the Funds From Operations (F) and Adjusted Funds From Operations (A) for a Real Estate Investment Trust (REIT). FFO measures operational cash flow, while AFFO adjusts for recurring costs to show cash available for dividends.

Purpose: Helps investors and analysts evaluate a REIT’s financial performance and ability to sustain dividend payments, providing a clearer picture than net income.

2. How Does the Calculator Work?

The calculator uses these formulas:

Formulas:

$ F = N + D + L - G - I $
$ A = F + R - C - M $

Where:

$ N $: Net income (USD)
$ D $: Depreciation and amortization (USD)
$ L $: Losses from property sales (USD)
$ G $: Gains from property sales (USD)
$ I $: Interest income (USD)
$ R $: Rent increases (USD)
$ C $: Capital expenditures (USD)
$ M $: Routine maintenance (USD)
$ F $: Funds From Operations (USD)
$ A $: Adjusted Funds From Operations (USD)

Steps:

Step 1: Enter values. Input net income ($ N $), depreciation and amortization ($ D $), gains ($ G $) and losses ($ L $) from property sales, interest income ($ I $), rent increases ($ R $), capital expenditures ($ C $), and routine maintenance ($ M $).
Step 2: Compute FFO. Calculate $ F = N + D + L - G - I $.
Step 3: Compute AFFO. Calculate $ A = F + R - C - M $.

3. Importance of AFFO Calculation

Calculating FFO and AFFO is key for:

Dividend Assessment: AFFO shows cash available for dividends, critical for REITs required to distribute 90% of taxable income.
Performance Evaluation: FFO and AFFO provide a clearer view of operational cash flow than GAAP net income, which includes non-cash depreciation.
Investment Decisions: Investors use AFFO to compare REITs and assess sustainability of dividends.

4. Using the Calculator

Example: For REIT Alpha with $ N = \$500,000 $, $ D = \$150,000 $, $ G = \$125,000 $, $ L = \$80,000 $, $ I = \$75,000 $, $ R = \$50,000 $, $ C = \$60,000 $, $ M = \$35,000 $:

Step 1: Input values.
Step 2: Compute FFO: $ F = 500,000 + 150,000 + 80,000 - 125,000 - 75,000 = \$530,000 $.
Step 3: Compute AFFO: $ A = 530,000 + 50,000 - 60,000 - 35,000 = \$485,000 $.
Result: $ F = \$530,000 $, $ A = \$485,000 $.

This shows REIT Alpha generates $530,000 in operational cash flow and $485,000 available for dividends after recurring costs.

5. Frequently Asked Questions (FAQ)

Q: How is AFFO calculated?
A: AFFO is calculated in two steps: (1) Compute FFO using $ F = N + D + L - G - I $, where non-cash expenses (D) and losses (L) are added back to net income (N), and gains (G) and interest income (I) are subtracted. (2) Adjust FFO for recurring costs using $ A = F + R - C - M $, adding rent increases (R) and subtracting capital expenditures (C) and maintenance (M).

Q: What is AFFO vs. FFO?
A: FFO measures a REIT’s operational cash flow, focusing on leasing and acquisition activities, excluding non-cash items like depreciation and non-recurring gains/losses. AFFO refines FFO by deducting recurring capital expenditures (e.g., maintenance, upgrades) and adjusting for rent increases, providing a more accurate estimate of cash available for dividends. AFFO is preferred for assessing dividend sustainability, while FFO is more standardized but less precise.

Q: Can AFFO be negative?
A: Yes, if recurring costs (C, M) exceed FFO plus rent increases (R), indicating the REIT may struggle to sustain dividends without additional funding.