Equity REIT Analysis, Real Estate Accounting & Dividend Sustainability
NAREIT FFO, AFFO & True Dividend Payout Ratio Formula
Calculate Equity REIT NAREIT Funds From Operations (FFO), Adjusted Funds From Operations (AFFO) After Straight-Line Rent Accruals and Recurring TI/LC Maintenance Capex, Headline FFO Payout Ratio, and True Cash AFFO Payout Ratio.
Never judge REIT dividend safety on GAAP EPS or headline FFO—reconcile down to cash AFFO!
GAAP Net Income severely understates Equity REIT operating performance because buildings are depreciated straight-line even as well-maintained properties appreciate! NAREIT defines Funds From Operations as FFO = GAAP_Net_Income + Real_Estate_Depreciation_&_Amortization - Gains_On_Property_Sales! Yet headline FFO OVERSTATES sustainable dividend capacity for two reasons: it includes non-cash GAAP Straight-Line Rent Accruals ahead of actual cash escalations, and it ignores recurring Maintenance Capex, Tenant Improvements (TI), and Leasing Commissions (LC) required just to keep buildings leased! Deducting both yields Adjusted Funds From Operations AFFO = FFO - StraightLine_Rent_Accrual - Recurring_Maint_Capex_TI_LC!
Verify on a Listed Industrial/Office REIT—GAAP_Net_Income = $85.00M (B2), Real_Estate_D&A = $140.00M (B3), Gains_On_Property_Sales = $25.00M (B4 -> NAREIT FFO = 85 + 140 - 25 = $200.00M in E2), NonCash_StraightLine_Rent = $12.00M (B5), Recurring_Maint_Capex_&_TI_LC = $28.00M (B6 -> Cash AFFO = 200 - 12 - 28 = $160.00M in E3), and Common_Dividends_Paid = $128.00M (B7): Headline FFO Payout Ratio looks ultra-low at 128 / 200 = 0.6400 (64.00% in E4), whereas True Cash AFFO Payout Ratio is 128 / 160 = 0.8000 (80.00% in E5)!
| Equity REIT Cashflow Metric ($85M NI, $140M D&A, $25M Gain, $12M SL, $28M Capex, $128M Div) | Formula | Verified Output |
|---|---|---|
| NAREIT FFO ($M) | GAAP_NI + Real_Estate_DA - Property_Gains | $200.00M |
| Adjusted FFO / AFFO ($M) | FFO - StraightLine_Rent - Recurring_TI_LC_Capex | $160.00M ($112.00M @ $76M TI) |
| Headline FFO Payout Ratio | Common_Dividends_Paid / NAREIT_FFO | 0.6400 (Unchanged @ $76M TI!) |
| True Cash AFFO Payout Ratio | Common_Dividends_Paid / AFFO | 0.8000 (1.1429 Uncovered @ $76M TI) |
Equity REIT AFFO & True Cash Payout Ratio Formula
Validate Real_Estate_D&A >= 0, Recurring_Capex >= 0, Common_Dividends >= 0, and strictly positive FFO and AFFO!
=LET(ni_g, B2, da_r, B3, gn_s, B4, sl_r, B5, cx_m, B6, dv_c, B7, ff_o, ni_g + da_r - gn_s, af_o, ff_o - sl_r - cx_m, IF(OR(da_r < 0, cx_m < 0, dv_c < 0, ff_o <= 0, af_o <= 0), "Invalid REIT FFO/AFFO Input", ROUND(dv_c / af_o, 4)))Suburban Office TI/LC Capex Surge Trap Check (Set Recurring Capex & TI/LC = $76.00M)
Simulate heavy office re-leasing concessions by raising Recurring_Maint_Capex_&_TI_LC B6 from $28.00M to $76.00M: Headline FFO E2 ($200.00M) and FFO Payout E4 (64.00%) don’t budge at all, yet AFFO E3 plunges to $112.00M and True AFFO Payout E5 spikes to 1.1429 (114.29% uncovered dividend)!
=IF(ISTEXT(E5), E5, ROUND(B2 + B3 - B4 - B5 - B6, 2))Try the example
Use the original values or change them to test your understanding.