FFO Calculator

Standard accounting rules require companies to depreciate real estate assets over time, even though physical property values often appreciate. This creates a large non-cash expense that artificially reduces net income. To solve this, the National Association of Real Estate Investment Trusts (NAREIT) established FFO as a standardized industry benchmark. The core formula used by this calculator is: FFO = Net Income + Depreciation & Amortization + Loss on Property Sales - Gains on Property Sales - Interest Income. By adding back depreciation and removing one-time gains or losses from asset sales, FFO provides a crystal-clear view of recurring operational revenue.

Imagine you are analyzing a regional retail REIT for your portfolio. Over the past fiscal year, the company reports a Net Income of $15,000,000. Additionally, the financial statements reveal $4,500,000 in Depreciation and Amortization expenses, a $500,000 Loss on Property Sales due to an emergency parking lot repair, a $1,200,000 Gain on Property Sales from selling an outdated strip mall, and $300,000 in non-operating Interest Income. Plugging these numbers into our formula gives us: FFO = $15,000,000 + $4,500,000 + $500,000 - $1,200,000 - $300,000. Executing this arithmetic results in an FFO of $18,500,000, giving you an accurate depiction of their true operating cash flow.

Always examine FFO alongside Adjusted Funds from Operations (AFFO), which further accounts for capital expenditures and routine maintenance costs. Watch out for recurring gains on property sales, as management teams sometimes try to mask declining core operations with asset liquidation profits. Finally, always evaluate FFO on a per-share basis (FFO per share) to accurately compare profitability across different REITs regardless of their total market capitalization.