AFFO Calculator (Adjusted Funds From Operations)
Calculate AFFO from FFO by adjusting for recurring capex and straight-line rent.
The cleanest cash earnings metric for REIT analysis and dividend coverage.
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
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 — 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 — 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)
- Non-recurring lease termination: -$5M
- AFFO = 250 - 35 - 8 - 5 = $202M
If shares outstanding are 50M, AFFO per share = $4.04. With a $3.20 annual dividend, payout ratio = 79% — 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.