AFFO Calculator
Enter your REIT's net income, depreciation, capex, and share data to calculate Adjusted Funds From Operations (AFFO), the most widely used measure of a REIT's true cash-generating ability. The calculator also derives FFO, AFFO per share, AFFO yield, and dividend payout ratio so you can assess dividend sustainability at a glance.
What is AFFO and why does it matter for REIT investors?
Adjusted Funds From Operations (AFFO) is the most widely used non-GAAP measure of a real estate investment trust's recurring cash flow. GAAP net income overstates the cash costs of owning real estate because it deducts large amounts of depreciation on buildings that, in practice, often appreciate in value. AFFO corrects for this by starting with FFO (which adds depreciation back) and then making further adjustments for costs that FFO itself ignores: the cash needed to maintain properties, the non-cash smoothing of rent under lease accounting rules, and the real cost of re-leasing space to new tenants. The result is a close approximation of the cash a REIT actually generates each year, which investors then compare against dividends to judge whether the income stream is safe.
FFO vs AFFO: how they differ
FFO (Funds From Operations) was the industry's original standard, developed by NAREIT in 1991. It adds back real estate depreciation and amortization to net income and strips out gains and losses from property sales, on the theory that selling assets is not part of normal operating activity. This is already a big improvement over GAAP net income for REITs. AFFO goes further in two important ways. First, it deducts recurring (maintenance) capital expenditures, the actual cash a REIT spends on roof replacements, HVAC upgrades, and other work needed just to keep existing properties functional. FFO ignores this outflow entirely because it reversed D&A, but that reversal was intended to remove overstatement of depreciation, not to pretend that maintenance is free. Second, AFFO removes the straight-line rent adjustment: GAAP requires leases to be recognized smoothly over their full term, which can create non-cash income in early years and non-cash expense in later years. AFFO strips this out so only real cash rent is counted. Many analysts also subtract leasing commissions and tenant improvement allowances, which are genuine recurring cash costs of re-leasing space that do not appear in GAAP expenses. The result is an AFFO figure that more closely tracks the cash the REIT actually has available to pay dividends.
How to use the AFFO payout ratio and yield
Two ratios derived from AFFO are especially useful. The AFFO payout ratio is annual dividends per share divided by AFFO per share, expressed as a percentage. Most healthy REITs run payout ratios in the 75-90% range: high enough to satisfy the REIT distribution requirement (90% of taxable income), but low enough to retain a buffer for capital needs. A ratio consistently above 100% is a warning sign that the dividend is being funded from asset sales, debt, or equity raises rather than true operating cash flow. The AFFO yield is AFFO per share divided by the current share price. It is analogous to an earnings yield for ordinary stocks and is a direct gauge of how cheaply you are buying the REIT's cash flow. Comparing AFFO yield to Treasury yields and to the yields of other REITs in the same property sector is a standard part of REIT valuation.
Limitations and things to watch in reported AFFO
Because AFFO is a non-GAAP measure, every REIT defines it slightly differently. Some include amortization of deferred financing costs; others exclude it. Some define "recurring" capex narrowly, deferring large expenditures into their growth capex bucket to make AFFO look better. Always check the supplemental operating data that REITs file quarterly, where the capex breakdown is usually disclosed in more detail than the income statement alone. Also note that the straight-line rent adjustment can swing significantly as leases roll: in a period of rising market rents, many leases may be below market, generating large positive straight-line adjustments that inflate FFO and require a larger subtraction when calculating AFFO. Finally, some analysts add back the amortization of below-market lease intangibles and stock-based compensation, two further non-cash items that can distort the picture. The calculator here follows the most common methodology, but adjusting any input to match a specific REIT's disclosed definition is straightforward.
REIT dividend payout ratio benchmarks
| Payout Ratio (AFFO) | Classification | Analyst Take |
|---|---|---|
| Below 70% | Conservative | Room to grow dividend; possibly retaining cash for acquisitions |
| 70% to 85% | Healthy | Common range for well-run REITs; dividend is well-covered |
| 85% to 95% | Elevated | Acceptable, but limited buffer for unexpected capex |
| 95% to 100% | Stretched | Any AFFO shortfall puts the dividend at risk |
| Above 100% | Unsustainable | Dividend likely exceeds cash flow; cut risk or equity raise probable |
General guidelines used by REIT analysts when assessing dividend sustainability from AFFO. Actual healthy ranges vary by property sector and company strategy.
Frequently asked questions
What is the difference between FFO and AFFO?
FFO (Funds From Operations) starts with GAAP net income, adds back real estate depreciation and amortization, and removes gains or losses on property sales. AFFO then goes further by subtracting recurring maintenance capital expenditures, removing the non-cash straight-line rent adjustment, and often deducting leasing commissions and tenant improvement allowances. These extra steps remove significant non-cash or one-time items and actual cash outflows that FFO leaves in, making AFFO a closer proxy for the cash available to pay dividends.
Why do REITs use AFFO instead of net income?
GAAP net income for REITs is heavily depressed by depreciation of real estate assets. Buildings are depreciated over 27.5 to 39 years under tax rules, but the underlying land and well-maintained structures often appreciate rather than decline in value. Deducting depreciation therefore dramatically understates the cash a REIT actually earns. AFFO adds depreciation back and then makes targeted subtractions for real cash costs, producing a figure that better reflects economic reality for the purpose of judging dividend safety.
What is a healthy AFFO payout ratio for a REIT?
Most REIT analysts consider a payout ratio of 75-90% healthy. This range satisfies the REIT requirement to distribute at least 90% of taxable income (note: taxable income is different from AFFO, so a 75% AFFO payout ratio can still meet the distribution requirement) while retaining enough cash flow for maintenance and modest capital needs. Ratios persistently above 100% suggest the dividend is not fully covered and may be at risk of a cut.
What are recurring capital expenditures in an AFFO calculation?
Recurring or maintenance capex covers cash spending on existing properties to keep them operational and competitive: roof replacements, HVAC systems, parking lot repaving, elevator upgrades, and similar expenditures. It explicitly excludes growth capex, the money spent to acquire new properties or develop new projects, because that spending adds to the asset base and is funded separately. The key judgment call is where to draw the line between maintenance and improvement, and REITs vary in how conservatively they make this distinction.
What is the straight-line rent adjustment in AFFO?
GAAP accounting requires rent to be recognized evenly (straight-line) over the full term of a lease, even if actual payments step up over time. In the early years of a long lease this produces non-cash rent income above actual cash received; in later years it produces non-cash expense when rents have stepped up above the straight-line average. AFFO subtracts the non-cash portion of straight-line rent so the metric reflects only cash actually collected. During periods when market rents are rising faster than in-place rents, the straight-line adjustment can be large, and stripping it out meaningfully lowers AFFO versus FFO.
How is AFFO yield calculated and what does it tell me?
AFFO yield is AFFO per share divided by the current share price, expressed as a percentage. It tells you how much cash flow you are getting per dollar invested, similar to an earnings yield for ordinary equities. A higher AFFO yield relative to peers or to risk-free rates suggests a REIT may be undervalued or that the market is pricing in risk (such as lease rollover or leverage). Comparing AFFO yield to the 10-year Treasury yield is a common shorthand for judging whether REIT valuations are attractive.