Funds From Operations (FFO) Calculator
Enter net income, depreciation and amortization, gains and losses on property sales and interest income to find the funds from operations of a REIT or property business.
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Funds From Operations (FFO) Calculator
Our Funds From Operations (FFO) Calculator shows the recurring cash a real estate investment trust (REIT) or property business earns from its operations. Enter net income, depreciation and amortization, gains and losses on property sales and interest income from the income statement. It adds back the non-cash charges, removes the one-off property sale results and interest income, and shows how far FFO differs from net income. It is built for REIT investors, analysts, property owners and finance students.
Quick answer
Funds from operations is net income + depreciation and amortization − gains + losses on property sales − interest income: 250,000 + 60,000 − 15,000 + 5,000 − 2,000 = 298,000.
- Meaning: recurring cash earned from owning and running properties.
- Why add back depreciation: buildings often hold or gain value, so the charge understates real earnings.
- Why remove property sales: gains and losses on selling buildings are one-off, not operations.
- Used for: REIT valuation (price ÷ FFO per share) and dividend cover.
What Is Funds From Operations (FFO)?
Funds from operations (FFO) is the standard measure of operating performance for real estate investment trusts. Net income is a poor guide for a property company because it is cut by large depreciation charges on buildings that usually keep or grow their value, and it swings with one-off gains and losses when properties are sold. FFO corrects both:
+ Depreciation and amortization
− Gains on property sales
+ Losses on property sales
− Interest income
This calculator uses the common textbook version that also removes interest income, so only rental and property operations remain. The industry definition set by Nareit (the US REIT association) does not subtract interest income and also adds back impairment write-downs on property. The FFO before interest row shows the figure without the interest step.
How to Calculate FFO
− 15,000 + 5,000 − 2,000
= 298,000
- Start with net income. From the income statement for the period. A loss is entered as a negative number.
- Add depreciation and amortization. The non-cash charge for wear on buildings and other real estate assets.
- Subtract gains on property sales. Profit from selling buildings or land is a one-off.
- Add losses on property sales. Losses from selling property are one-off too, so they are put back.
- Subtract interest income. Interest earned on cash is not from property operations.
FFO Examples
Office REIT. Net income 1,200,000, depreciation 800,000, gains on a building sale 150,000, no losses, interest income 20,000:
− 150,000 + 0 − 20,000
= 1,830,000
FFO is 630,000 higher than net income, mostly because depreciation is added back.
Small landlord company. Net income 40,000, depreciation 25,000, no gains, a loss of 3,000 on selling a flat, interest income 500:
+ 3,000 − 500
= 67,500
Loss-making year. Net loss 50,000, depreciation 120,000, gains 10,000, no losses, interest income 1,000:
− 10,000 + 0 − 1,000
= 59,000
The accounts show a loss, but the properties still produced 59,000 of funds once the non-cash depreciation is put back.
| Net income | FFO |
|---|---|
| −50,000 | 59,000 |
| 40,000 | 67,500 |
| 250,000 | 298,000 |
| 1,200,000 | 1,830,000 |
How FFO Is Used
- FFO per share. FFO ÷ shares outstanding, the REIT version of earnings per share.
- Price to FFO. Share price ÷ FFO per share, used instead of the P/E ratio to value REITs.
- Dividend cover. REITs pay out most of their income, so dividends per share are compared with FFO per share.
- Trends. Rising FFO over several years means rents and occupancy are growing.
Many REITs also report adjusted FFO (AFFO), which subtracts the recurring capital spending needed to keep buildings let, such as repairs, tenant improvements and leasing commissions, and adjusts for straight-line rent. AFFO is closer to the cash actually available for dividends.
FFO vs Other Measures
| Measure | What it shows |
|---|---|
| Net income | Accounting profit after depreciation and one-offs |
| FFO | Recurring property earnings before depreciation |
| AFFO | FFO after recurring capital spending |
| Free cash flow | Operating cash flow after all CapEx |
Common Mistakes
- Adding back all depreciation. Strictly, only depreciation on real estate is added back, not on vehicles or office equipment.
- Entering a gain as negative. Type gains and losses as positive amounts; the calculator applies the signs.
- Mixing definitions. Compare REITs on the same FFO definition; check whether interest income and impairments were adjusted.
- Treating FFO as free cash. FFO ignores the capital spending needed to maintain buildings; use AFFO for dividend safety.
Key Terms
- FFO
- Funds from operations: net income with depreciation added back and property sale results removed.
- REIT
- Real estate investment trust: a company that owns income-producing property.
- AFFO
- Adjusted FFO, after recurring capital spending.
- Nareit
- The US REIT association that set the standard FFO definition.
- P/FFO
- Share price ÷ FFO per share.
How to Use the Funds From Operations (FFO) Calculator
- Enter net income. Type net income for the period, such as 250,000. Enter a loss as a negative number.
- Enter depreciation and amortization. Type the depreciation and amortization charge, such as 60,000.
- Enter gains and losses on property sales. Type gains, such as 15,000, and losses, such as 5,000, as positive amounts. Use 0 if there were none.
- Enter interest income. Type interest earned on cash and other non-property sources, such as 2,000, or 0.
- Read and copy the result. FFO appears as you type, with the working, FFO before interest, the property sale adjustment and the change from net income. Press Copy to copy it, or Clear or Esc to start again.
Example: net income 1,200,000, depreciation and amortization 800,000, gains on property sales 150,000, no losses and interest income 20,000. FFO is 1,200,000 + 800,000 − 150,000 + 0 − 20,000 = 1,830,000, which is 630,000 more than net income.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
How do you calculate funds from operations (FFO)?
Start with net income, add depreciation and amortization, subtract gains on property sales, add losses on property sales and subtract interest income. FFO = net income + D&A − gains + losses − interest income.
What is the FFO with net income 250,000, depreciation 60,000, gains 15,000, losses 5,000 and interest income 2,000?
FFO is 298,000. 250,000 + 60,000 − 15,000 + 5,000 − 2,000 = 298,000.
Why is depreciation added back in FFO?
Depreciation is a non-cash charge, and well-kept buildings usually hold or gain value, so subtracting it understates what a property company really earns. FFO puts it back.
Why are gains on property sales subtracted?
Selling a building is a one-off event, not part of renting out properties. Removing gains (and adding back losses) leaves only the recurring results of operations.
Is interest income always subtracted in FFO?
No. Many textbook formulas subtract it, as this calculator does, but the Nareit definition used by most listed REITs does not. The FFO before interest row shows the result without that step.
What is the difference between FFO and AFFO?
Adjusted FFO (AFFO) starts from FFO and subtracts recurring capital spending such as repairs, tenant improvements and leasing costs, and adjusts for straight-line rent. It is closer to the cash available for dividends.
Can FFO be positive when net income is negative?
Yes. A REIT with large depreciation charges can report a net loss while its properties still generate funds. For example, a net loss of 50,000 with 120,000 of depreciation, 10,000 of gains and 1,000 of interest income gives FFO of 59,000.
Is the Funds From Operations Calculator free?
Yes. It is completely free, needs no sign-up, and can be used as many times as you like.
Sources
- Corporate Finance Institute. Funds From Operations (FFO).
- Wikipedia. Funds from operations.
- Wikipedia. Real estate investment trust.
Try our Funds From Operations Calculator to find the recurring earnings of a REIT in seconds.