Adjusted Funds From Operations (AFFO) is a financial metric primarily used to evaluate the performance of real estate investment trusts (REITs) and similar entities. It represents a refined version of Funds From Operations (FFO), which itself measures the cash generated from operating activities, excluding certain non-cash items like depreciation.
AFFO further adjusts FFO by accounting for capital expenditures needed to maintain the properties owned by the REIT. This provides a clearer picture of the cash available to investors, as it focuses on funds that can be sustainably distributed.
In finance, AFFO is important for investors because it offers a better insight into a company’s ability to generate cash and pay dividends. Analysts often use AFFO to compare the performance of different REITs, guiding investment decisions based on their sustainable cash flow generation capabilities. Understanding AFFO helps stakeholders assess the potential returns and risks associated with real estate investments.
