FFO / AFFO (Funds From Operations)

FFO (Funds From Operations) is the standard REIT profitability metric defined by Nareit as net income plus real estate depreciation and amortization, minus gains on property sales — a proxy for cash flow that adjusts for the fact that GAAP depreciation overstates the economic decline in value of well-maintained data centers. AFFO (Adjusted FFO) goes further, subtracting recurring capital expenditures and straight-lining rent adjustments, giving a closer read on cash actually available for dividends. Data center REITs such as Digital Realty and Equinix report both figures every quarter alongside net operating income, and investors price the stocks on multiples of AFFO per share rather than GAAP earnings, since GAAP net income is distorted by heavy depreciation on power and cooling infrastructure. A rising AFFO payout ratio signals a REIT is distributing most of its adjusted cash flow as dividends, leaving less to self-fund development without new debt or equity.