Adjusted Funds from Operations (AFFO) is a real estate investment metric that measures the financial performance of REIT or property investment trust.
It is derived by deducting recurring capital expenditures, leasing costs and other material factors from the REIT’s or property trust’s funds from operations.
Adjusted Funds from Operations is a term that is more commonly used in Canada and the United States. In other parts of the world with a sizeable REIT or property trust markets, such as Singapore and Malaysia, the term distributable income may be used instead.
AFFO is considered a good measure of residual cash flow that is to be distributed to unitholders of the REIT of property trust. It must also be noted that as AFFO is not a term that is recognised by the Generally Accepted Accounting Principles (GAAP) framework. As such, different finance professionals may have different methods of computing Adjusted Funds from Operations.
AFFO has also been referred to in certain investment literatures in the United States as Cash Available for Distribution (CAD) or Funds Available for Distribution (FAD).