Adjusted Funds From Operations (AFFO): Definition and REIT Analysis

Adjusted funds from operations (AFFO) is a non-GAAP REIT measure that starts from Funds From Operations and makes additional adjustments intended to better reflect recurring real-estate cash economics.

A common analytical form is:

AFFO ≈ FFO - recurring capital expenditures - leasing costs - straight-line rent adjustments ± other recurring normalization items

But there is an important limitation: AFFO has no single standardized definition. Nareit explicitly notes that users should understand how each company defines the measure.

Why AFFO differs from FFO

FFO adjusts GAAP earnings for real-estate depreciation, certain sale gains and losses, and related items. It does not necessarily account for cash spending required to keep a property competitive and leased.

AFFO often goes further by adjusting for items such as:

• recurring tenant improvements;
• leasing commissions;
• recurring building capital expenditures;
• straight-line rent accounting; and
• other issuer-selected noncash or nonrecurring items.

Those choices can materially change the result.

Example

Suppose a REIT reports $300 million of FFO and then adjusts for:

• $35 million of recurring building capital expenditures;
• $20 million of tenant improvements and leasing commissions; and
• a $10 million reduction for straight-line rent and other noncash revenue adjustments.

A simplified AFFO would be:

AFFO = $300m - $35m - $20m - $10m = $235m

Another REIT may classify some of those costs differently, so the same label does not guarantee the same calculation.

AFFO is not a GAAP cash-flow measure

AFFO should not be treated as identical to operating cash flow or Free Cash Flow. Issuers can use different adjustments, and AFFO may exclude or include items that differ from a conventional corporate free-cash-flow calculation.

It is also not necessarily identical to "core FFO," "normalized FFO," "funds available for distribution," or "cash available for distribution."

What to check before comparing REITs

For each issuer, review:

1. the starting FFO definition;
2. recurring versus growth capital expenditures;
3. leasing commissions and tenant improvements;
4. straight-line rent adjustments;
5. stock compensation and acquisition costs;
6. debt extinguishment or mark-to-market adjustments; and
7. the diluted share count used for per-share AFFO.

A higher AFFO growth rate is not automatically evidence of stronger property economics if the adjustment policy changed.

Sources

• Nareit Adjusted Funds From Operations definition
• Farmland Partners 2025 Form 10-K

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