iREIT Daily

Get To Know “AFFO”

Brad Thomas

467 postsMarch 2, 2021

Quote for Today:

“Do right and risk the consequences”.
Sam Houston

Source (Caerlaverock in Scotland)

As I told everyone in yesterday’s Another Day in REIT Paradise post, I’m throwing a pre-publishing party this week.

The Intelligent REIT Investor is all written out, edited, and ready to be formatted. That means my part of the work is done!

To celebrate, I quoted a significantly sized segment of the book, specifically about funds from operations, or FFO. But, as I noted at the end, as valuable a tool as that is, it doesn’t completely cover everything it needs to in the commercial real estate world.

So that’s why adjusted funds from operations came about. Here’s what The Intelligent REIT Investor has to say on that subject:

“AFFO begins with a REIT’s FFO and adjusts for expenditures that, though capitalized, don’t enhance property value. It also eliminates rent straight-lining. This makes it a reasonable, albeit imprecise, measure of operating performance and a fairly effective tool to measure free cash generation and dividend health.
“Unfortunately, REITs don’t regularly report AFFO since there’s no single accepted definition for the term. Investors and analysts usually have to calculate it on their own by reviewing financial statements and related footnotes and schedules.”

Knowing that, the following is an oversimplified, but perhaps useful, way of looking at this methodology:

1. All revenues (including capital gains), less operating expenses, write-offs, depreciation, amortization, interest expense, and general and administrative expenses = Net Income.

2. Net income, less capital gains from real estate sales, plus real estate depreciation expenses = FFO.

3. FFO, less normal and recurring capital expenditures, amortization of tenant improvements and leasing commissions, adjusted to remove rent straight-lining and any gains or losses on the early extinguishment of debt = AFFO.

“In addition, since AFFO is intended to measure current and recurring cash flows, noncash write-downs of property investments due to impairment charges are usually added back too.
“Noting the problems with FFO, Nareit Vice President of Financial Standards George L. Yungmann and Director of Financial Standards David M. Taube noted in the May/June 2001 issue of Real Estate Portfolio: ‘A single metric may not appropriately satisfy the need for both a supplemental earnings measure and a cash flow measure.’…
“When determining AFFO, some analysts and investors look at actual capital expenditures incurred during a reporting period. Others apply a long-term average to smooth out periods of unusually high or low capital expenditures.
Still others try to determine a “normalized” figure based on historical experience for the REIT over several years. There’s no ‘right’ or ‘wrong’ approach here, but it’s important to always compare apples to apples one way or the other. We must always be aware of how these supplements to net income reporting are calculated by or for each REIT.”

In short, AFFO makes evaluating REITs more concrete. Not easier, mind you, since it involves so many other considerations and calculations, but definitely more insightful into how a real estate investment trust is actually doing.

Source

The World According to Commercial Real Estate

Last week I interviewed seven REIT CEOs and our members get full access to the videos and transcripts. Today I’m interviewing the CFO of Healthcare Trust of America (HTA) and later this week I’m interviewing CEOs at:

Store Capital (STOR)
Broadmark Realty (BRMK)
Plymouth Industrial (PLYM)

It never ends at iREIT…we are constantly interacting with management teams, industry experts, and other analysts to help our members gain a competitive advantage in the market.

Another value-enhancer (for our members) is our daily dose of REIT news (powered by the Daily REITBeat). Today there’s a lot of news…and here are a few nuggets:

NNN priced $450 million of 3.50% senior unsecured notes due 2051 and intends to use the net proceeds from this offering to redeem all of its outstanding 3.300% Notes due 2023 plus intend to use the remainder of the net proceeds from the offering of the notes, if any, to fund future property acquisitions and for general corporate purposes.

STAG announced that it will redeem all 3 million outstanding shares of its 6.875% Series C Cumulative Redeemable Preferred Stock on March 31st for a cash redemption price of $25.00 per share, plus accrued and unpaid dividends to but excluding the redemption date.

ADC announced its progress on February rent collections commenting that as of March 1, 2021, the Company has received February rent payments from more than 99% of its portfolio and noted that February marks the sixth consecutive month the Company has received at least 99% of all contractual monthly rental obligations.

Source: The Daily REITBeat

Happy Investing

Brad Thomas

467 posts

View all my Posts

Brad Thomas is Senior Research Analyst at iREIT and CEO of Wide Moat Research LLC. With over 30 years of real estate experience, he is also long-time Editor of Forbes Real Estate Investor, a monthly subscription-based newsletter that dives deep into the vast world of profitable properties, and since 2021, he has served as an adjunct professor at New York University.

Thomas has also been featured on or in Forbes magazine, Kiplinger's, U.S. News and World Report, Money, NPR, Institutional Investor, GlobeStreet, CNN, Newsmax, and Fox. And he was the #1 contributing analyst on Seeking Alpha in 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021 based on both page views and number of followers.

Thomas is the recently-published author of The Intelligent REIT Investor Guide (2021), co-author of The Intelligent REIT Investor (2016), and he wrote The Trump Factor: Unlocking The Secrets Behind The Trump Empire (2016) - all available on Amazon.

Thomas received a bachelor of science in business/economics from Presbyterian College and is married with five wonderful kids.

REIT Mutual Fund	Symbol
Alpine Realty Income and Growth Fund	AIGYX, AIAGX
American Century Real Estate Fund	REAIX, REACX, AREEX, AREWX, ARYCX, AREDX
Real Estate Securities Fund	MRESX
AR Capital Real Estate Income Fund	ARIAX, ARICX, ARIPX
AssetMark Real Estate Securities Fund	AFREX
Aston/Harrison Street Real Estate Fund	AARIX, ARFCX
Baron Real Estate Fund	BREIX, BREFX
BlackRock Real Estate Securities	BIREX, BAREX, BCREX
Brookfield U.S. Listed Real Estate Fund	BRUAX, BRUCX, BRUIX, BRUYX
CGM Realty Fund	CGMRX
West Loop Realty Fund	REIIX, REIAX, REICX
Cohen & Steers Institutional Realty Shares	CSRIX
Cohen & Steers Realty Income Fund	CSEIX, CSDIX, CSBIX, CSCIX
Cohen & Steers Realty Shares	CSRSX
Columbia Real Estate Equity Fund	CREAX, CREIX, CRRVX, CRERX, CREEX, CRRFX, CREWX, CRECX, CREBX
Compass EMP REC Enhanced Volatility Weighted Fund	CWRAX, CWRIX, CWRTX, CWRCX
Davis Real Estate Fund	RPFRX, DREYX, DRECX, DREBX
Delaware Real Estate Investment Trust Portfolio II	DPRTX, DPRBX
Delaware Real Estate Investment Trust Portfolio	DPREX, DPRSX, DPRRX, DPRCX
DFA Real Estate Securities Portfolio	DFREX
Dunham Real Estate Stock Fund	DAREX, DNREX, DCREX
DWS RREEF Real Estate Securities Fund	RRRRX, RRREX, RRRAX, RRRSX, RRRBX, RRRCX
DWS RREEF Real Estate Securities Income Fund	REFAX, REFCX, REFIX, REFSX
Eaton Vance Real Estate Fund	EAREX, EIREX
EII Realty Securities Fund	EIIRX
Fidelity Advisor Real Estate Fund	FHEIX, FHEAX, FHETX, FHECX, FHEBX
Fidelity Advisor Real Estate Income Fund	FRIRX, FRIQX, FRINX, FRIOX
Fidelity Real Estate Income Fund	FRIFX
Fidelity Real Estate Investment Portfolio	FRESX
Fidelity Spartan Real Estate Index Fund	FSRNX, FRXIX, FSRVX
Fidelity Series Real Estate Equity Fund	FREDX, FREFX
Fidelity Series Real Estate Income Fund	FSREX, FSRWX
Forward Real Estate Long/Short Fund	KSRYX, FRLSX, FFSRX, KSRAX, KSRCX, KSRBX
Forward Real Estate Fund	FPREX, FFREX, KREAX, KRECX
Forward Select Income Fund	KIFYX, FSIMX, FFSLX, KIFAX, KIFBX, KIFCX
Franklin Real Estate Securities Fund	FREEX, FRLAX, FRRSX, FSERX
GMO Real Estate Fund	GMORX
Goldman Sachs Real Estate Securities Fund	GREIX, GRETX, GREAX, GRESX, GRERX, GREBX, GRECX
Great-West Real Estate Fund	MXREX
Heitman REIT Fund	OARTX, OBRTX
ING Real Estate Fund	CRARX, IREWX, IDROX, CLARX, CRWRX, CRCRX, CRBCX
INVESCO Real Estate Fund	REINX, IARFX, IARIX, IARYX, IARAX, IARRX, IARCX, AARBX
Ivy Real Estate Securities Fund	IRSAX, IREIX, IRSYX, IRSRX, IREEX, IRSCX, IRSBX
John Hancock Real Estate Securities Fund	JIREX
Johnson Realty Fund	JRLTX
J.P.Morgan Realty Income Fund	URTLX, JRIRX, URTAX, URTBX, URTCX
J.P. Morgan Security Capital U.S. Core Real Estate Securities Fund	CEEAX, CEERX, CEEFX, CEESX, CEECX
J.P. Morgan U.S. Real Estate Fund	SUSIX
Lazard U.S. Realty Equity Portfolio	LREIX, LREOX
Lazard U.S. Realty Income Portfolio	LRIIX, LRIOX
Manning & Napier Real Estate Series	MNRIX, MNREX
Morgan Stanley Institutional U.S. Real Estate Portfolio	MSUSX, MUSDX, MSULX, MURSX
Natixis AEW Real Estate Fund	NRFAX, NRFYX, NRFBX, NRFCX, NRFNX
Neuberger Berman Real Estate Fund	NBRIX, NBRFX, NREAX, NRERX, NRECX, NRREX
Nuveen Real Estate Securities Fund	FREAX, FARCX, FRSSX, FREBX, FRLCX, FREGX
Oppenheimer Real Estate Fund	OREAX, OREIX, OREYX, ORENX, OREBX, ORECX
PHOCAS Real Estate Fund	PHREX
PIMCO RealEstateRealReturn Strategy Fund	PRRSX, PETPX, PETAX, PETDX, PETCX, PETBX
Pioneer Real Estate Shares	PWREX, PYREX, PCREX, PBREX
Principal Real Estate Securities Fund	PIREX, PIRPX, PREPX, PRETX, PREJX, PRRAX, PRERX, PRENX, PRAEX, PRCEX, PRLEX
ProFunds Real Estate UltraSector ProFund	REPIX
Prudential Select Real Estate Fund	SREAX
Prudential U.S. Real Estate Fund	PJEAX, PJEZX, PJECX, PJEBX
REMS Real Estate Income 50/50 Portfolio	RREIX
REMS Real Estate Value-Opportunity Fund	HLRRX, HLPPX
Rydex Real Estate Fund	RYREX, RYHRX, RYCRX
SA Real Estate Securities Fund	SAREX
SEI Institutional Mgd Real Estate Fund	SETAX, SEIRX
Spirit of America Real Estate Income & Growth Fund	SOAAX
SSgA Clarion Real Estate Fund	SSREX
Stratton Real Estate Fund	STMDX
T.Rowe Price Real Estate Fund	TRREX, PAREX
TIAA-CREF Real Estate Securities Fund	TIREX, TRRPX, TRRSX, TCREX
Vanguard REIT Index Fund	VGSNX, VGRSX, VGSLX, VGSIX
Virtus Real Estate Securities Fund	PHRAX, PHRIX, PHRCX, PHRBX

REIT ETF	Symbol
Flex Shares	ASET
Wisdom Tree Global Ex-US	DRW
S&P 500 Equal Weight	EWRE
iShares FTSE Industrial/Office	FNIO
MSCI Real Estate Index	FREL
S&P REIT Index	FRI
First Trust S&P REIT	FRI
iShares Real Estate 50	FTY
Flexshares Global	GQRE
iShares Cohen & Streers	ICF
iShares International Developed RE	IFGL
iShares US RE	IYR
Premium Yield Equity REIT	KBWY
ETRACS Monthly Pay 2x Leverage	MORL
Market Vector Mortgage	MORT
iShares Global REIT	REET
iShares FTSE Mortgage	REM
iShares Residential	REZ
IQ US Real Estate Small Cap	ROOF
iShares FTSE NAREIT Retail	RTL
DOW Jones Global RE	RWO
SPDR Dow Jones	RWR
Schwab US REIT	SCHH
Super Dividend REIT	SRET
ProShares Ultra RE	URE
Vanguard REIT	VNQ
Vanguard Global ex-US	VNQI
iShares International Developed	WPS
Wilshire US REIT	WREI
Pacer Benchmark Data & Infrastructure RE	SRVR
Pacer Benchmark Industrial RE	INDS
Pacer Benchmark Retail RE	RTL
Hoya Capital Housing	HOMZ
NetLease Corporate RE	NETL

REIT Name	Ticker	Annual Increases/yr
Federal Realty	FRT	51
Universal Health Realty	UHT	33
National Retail Properties	NNN	29
Realty Income	O	27
Tanger Outlets	SKT	26
Urstadt Biddle	UBA	25
Essex Property Trust	ESS	25
W.P.Carey	WPC	22
National Health Investors	NHI	17
Equity Lifestyle	ELS	15
Digital Realty	DLR	15

Get To Know “AFFO”

Brad Thomas

467 postsMarch 2, 2021

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Get To Know “AFFO”

467 postsMarch 2, 2021

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