FFO (Funds From Operations)
Funds from operations (FFO) is a REIT earnings measure that adds depreciation back to net income, giving a truer picture of cash generated by the properties.
Definition
Funds from operations (FFO) is the standard measure of a REIT's operating performance. Because real estate throws off large non-cash depreciation charges that depress net income, FFO adds depreciation and amortization back to earnings and removes gains or losses from property sales, better reflecting the recurring cash the portfolio produces.
The metric was defined by Nareit and is widely used because GAAP net income understates a REIT's earning power. Investors and analysts compare a REIT's price to its FFO per share much like a P/E ratio for stocks, and dividends are often evaluated against FFO to judge sustainability.
A refinement, adjusted FFO (AFFO), further subtracts recurring capital expenditures to approximate true distributable cash. For 721 exchange and UPREIT investors holding OP units, FFO growth is a key signal of whether the REIT can maintain and grow distributions over time.
Key points
- Net income plus depreciation, excluding property sale gains
- Standard REIT performance metric defined by Nareit
- Used like a P/E ratio to value REITs
- AFFO refines it by subtracting recurring capital expenditures
Related terms
Jerry Baker founded Baker 1031 Investments to help exchange investors move from active property ownership into passive, institutional-quality real estate through DST, 721 exchange, mineral royalty, and Opportunity Zone strategies. He holds the FINRA Series 22 and Series 63 registrations and the Securities Industry Essentials (SIE) qualification. Read full bio →
Reviewed by the Aurora Securities, Inc. compliance team — Aurora Securities, Inc., member FINRA/SIPC. Last reviewed July 2026. Securities are offered through Aurora Securities, Inc.; Baker 1031 Investments, LLC is independent of Aurora Securities, Inc.
This glossary entry is educational and is not investment, tax, or legal advice, or an offer to sell or a solicitation to buy any security. Definitions are general and may not reflect your specific circumstances — consult your own CPA and attorney. Past performance does not guarantee future results.