A superior metric compared to FFO when evaluating a REIT’s performance. AFFO is used in order to account for any additional expenses the landlord is expected to incur over the life of the asset (such as TIs, CAPEX, leasing commissions etc.). The measure is calculated as follows:
AFFO = FFO – Maintenance Costs – CAPEX – Straight Line Rent Adjustments.
Adjusted Funds from Operations is comparable to the Net Operating Income metric, used in analyzing individual properties.