what are adjusted funds from operations affo 
adjusted funds from operations affo refers to the financial performance measure primarily used in the analysis of real estate investment trusts reits the affo of a reit though subject to varying methods of computation is generally equal to the trust s funds from operations ffo with adjustments made for recurring capital expenditures used to maintain the quality of the reit s underlying assets the calculation takes in the adjustment to gaap straight lining of rent leasing costs and other material factors 1understanding adjusted funds from operations afforegardless of how industry professionals choose to compute adjusted funds from operations affo it is considered to be a more accurate measure of residual cash flow for shareholders than simple ffo though ffo is commonly used it does not deduct for capital expenditures required to maintain the existing portfolio of properties so it doesn t quite measure the true residual cash flow professional analysts prefer affo because it takes into consideration additional costs incurred by the reit and additional income sources too like rent increases thus it provides for a more accurate base number when estimating present values and a better predictor of the reit s future ability to pay dividends this is a non gaap measure 2calculating adjusted funds from operations affobefore calculating the affo an analyst must first determine the reit s funds from operations ffo the ffo measures cash flow from a specified list of activities ffo reflects the impact from the reit s leasing and acquisition activity as well as interest costs ffo takes into account the reit s net income including amortization and depreciation but it excludes the capital gains from property sales the reason these gains are not included is that they are one time events and generally do not have a long term effect on the reit s future earnings potential 3the formula for ffo is 4ffo net income amortization depreciation capital gains from property salesonce the ffo is determined the affo can be calculated though there is no one official formula calculations for affo typically would be something like affo ffo rent increases capital expenditures routine maintenance amountstraditional metrics used in evaluating equities such as earnings per share eps and price to earnings ratio p e are not reliable in estimating the value of a reit example of an adjusted funds from operations affo calculationas an example of the affo calculation assume the following a reit had 2 million in net income over the last reporting period during that time it earned 400 000 from the sale of one of its properties and lost 100 000 from the sale of another it reported 35 000 of amortization and 50 000 of depreciation during the period net rent increases were 40 000 capital expenditures were 75 000 and routine maintenance amounted to 30 000 given this information the ffo can be calculated as ffo 2 000 000 35 000 50 000 400 000 100 000 1 785 000from this the affo is calculated as affo ffo 40 000 75 000 30 000 1 720 000