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What is Affo in REITs?

AFFO (Adjusted Funds From Operations) is a crucial metric for assessing REITs' financial performance and cash flows. REITs must distribute 90% of taxable income as dividends, making accurate AFFO calculations valuable for investors. AFFO adjusts FFO by subtracting capital expenditures and accounting for straight-line rents.

Should you use Affo to estimate a REIT's value?

Professional analysts, therefore, use AFFO to estimate the REIT’s value. Although FFO is commonly used, professionals tend to focus on AFFO for two reasons: It measures more precisely the residual cash flow available to shareholders, and it’s thus a better “base number” for estimating value.

What is the difference between FFO and REIT?

FFO excludes one-time cash inflows such as income from the sale of an asset; instead, it only includes income from business activities. A REIT's adjusted funds from operations subtracts any recurring expenses capitalized and then amortized in addition to any straight-lining of rents.

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