Adjusted Funds From Operations (AFFO)

Adjusted Funds From Operations (AFFO) is a measure of a real estate investment trust's (REIT) ability to pay dividends to shareholders. AFFO is calculated by taking a REIT's net income and adding back depreciation, amortization, and other non-cash expenses. AFFO is often used as a proxy for cash flow from operations because it excludes non-cash expenses that can distort a REIT's true cash flow.

AFFO is important for investors because it provides a more accurate picture of a REIT's financial health than net income. Net income can be misleading because it includes non-cash expenses that do not reflect the REIT's actual cash flow. AFFO is a better measure of a REIT's ability to pay dividends because it excludes these non-cash expenses.

There are a few things to keep in mind when using AFFO to evaluate a REIT. First, AFFO is not a standardized measure. Each REIT calculates AFFO in its own way, so it is important to compare AFFO between REITs on a consistent basis. Second, AFFO is a forward-looking measure. It is based on the REIT's current financial statements and projections of future cash flows. As such, AFFO can be subject to uncertainty.

Despite these limitations, AFFO is a valuable tool for investors who want to evaluate a REIT's financial health and ability to pay dividends. AFFO provides a more accurate picture of a REIT's cash flow than net income and is a better measure of a REIT's ability to pay dividends.

In addition to AFFO, there are a few other important financial metrics that investors should consider when evaluating a REIT. These metrics include:

• Net income: Net income is a measure of a REIT's profitability. It is calculated by taking a REIT's revenue and subtracting its expenses.
• Debt-to-equity ratio: The debt-to-equity ratio is a measure of a REIT's financial leverage. It is calculated by dividing a REIT's debt by its equity.
• Dividend yield: The dividend yield is a measure of a REIT's dividend payout ratio. It is calculated by dividing a REIT's annual dividend by its share price.

By considering these metrics, investors can get a more complete picture of a REIT's financial health and ability to pay dividends.