In the context of Real Estate Investment Trusts (REITs), what does FFO stand for?

In the context of Real Estate Investment Trusts (REITs), the term FFO stands for Funds From Operations. This metric is crucial as it provides a clearer picture of a REIT's operating performance compared to net income, which can include various non-cash items and one-time transactions that do not reflect the ongoing profitability of the REIT’s real estate operations.

FFO is calculated by taking net income and adding back depreciation and amortization, as well as excluding gains or losses on sales of properties. This adjustment is significant because real estate properties often appreciate over time, while accounting standards require depreciation to be recorded, even though this does not represent an actual cash outflow for the business.

As a widely used benchmark, FFO is essential for investors in assessing the real earning capacity of a REIT, making it a reliable metric for gauging dividends, operational efficiency, and overall financial health in the real estate sector.