FFO and AFFO
From net income to the measures REITs are priced on.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: ffo and affo.Updated 2 October 2026
Part of real estate models, with the models, labs and guides around it.
What it does
The reconciliation REITs publish every quarter. Funds from operations (FFO), as NAREIT defines it, is net income plus real estate depreciation and amortisation, less gains on property sales: depreciation is added back because well-kept buildings tend to hold their value, and gains are removed because they are not recurring income. Adjusted FFO moves towards cash: it deducts the capital spending needed to keep the buildings let (maintenance capex, tenant improvements, leasing commissions) and straight-line rent that is reported before it is received, and adds back share-based pay. Both are quoted per diluted share, and the dividend is judged against AFFO.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Assumptions, row 22: Straight-line rent: reported rent above cash rent, % of cash NOI
- Assumptions, rows 25–32: General and administrative expense, FY1 (including share-based pay), Share-based pay within it, FY1 (non-cash), Growth in G&A and share-based pay a year, Gross real estate at cost, end of FY0…
- Portfolio, rows 15–20: Gross real estate, opening, Plus acquisitions, less the cost of buildings sold, Gross real estate, closing, Real estate depreciation: rate x average gross real estate…
- Earnings, rows 6–16: Cash NOI, Straight-line rent adjustment (non-cash), Reported NOI, General and administrative expense…
- Earnings, rows 19–21: Add back real estate depreciation and amortisation, Less gains on sale of real estate, FFO
- Earnings, rows 24–27: Less straight-line rent, Less recurring capital spending (maintenance capex, TI and leasing commissions), Add back share-based pay, AFFO
- Earnings, rows 30–35: Weighted average diluted shares (m), Net income per share, FFO per share, AFFO per share…
What a reviewer looks for
- Adding back depreciation on offices and systems as well as on buildings.
- Leaving property gains in FFO.
- An AFFO with no recurring capex, which makes any dividend look covered.
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Vocabulary: Funds From Operations (FFO), Adjusted Funds From Operations (AFFO), Straight-Line Rent.