FFO is not free cash flow
Explain why FFO is useful for REIT performance analysis but insufficient for dividend safety without recurring capex adjustments.
The move: treat FFO as the start of the cash story, not the end. FFO is a REIT-specific performance measure because GAAP net income can understate property earnings when depreciation is large. Adding depreciation and amortization back to net income, then removing gains or losses from property sales, gives a cleaner view of recurring real estate operations. That correction is valuable, but it is not the same as free cash flow. A portfolio still needs capital to keep tenants, renew leases, repair systems, and maintain competitiveness. Leasing commissions and tenant improvements can be recurring economic costs even if they do…
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