Glossary

Funds From Operations (FFO)

Also known as: FFO

The standard REIT industry earnings metric, calculated as GAAP net income adjusted by adding back real estate depreciation and amortization and excluding gains or losses on property sales, used because GAAP net income understates the cash-generating capacity of long-lived real estate assets.

FFO was standardized by the National Association of Real Estate Investment Trusts (Nareit) to give investors a consistent, comparable earnings measure across REITs, correcting for the fact that GAAP depreciation charges — calculated on a straight-line basis over a fixed useful life — rarely reflect the actual economic decline (if any) in a well-maintained property's value. Because FFO still includes recurring capital expenditures needed to maintain a property's competitive position and revenue-generating capacity, most analysts and REITs further adjust FFO down to arrive at AFFO, which is considered a closer proxy for sustainable, distributable cash flow. FFO per share and its growth rate are widely used in REIT valuation (including FFO multiples analogous to a P/E ratio) and are reported as a standard supplemental disclosure alongside GAAP net income in every public REIT's quarterly filings.