What Is Funds From Operations Per Share (FFOPS)?

Funds from operations per share (FFOPS) is a measure of the cash generated by a real estate investment trust (REIT)—companies that hold a portfolio of income-producing properties and mortgages.

The base formula is calculated by taking the sum of net income (NI), depreciation, and amortization and subtracting it by gains on sales of property. To get the per share value, divide the previous formula by the total number of outstanding shares

Key Takeaways

  • Funds from operations per share (FFOPS) is a measure of the cash generated by a real estate investment trust (REIT).
  • FFOPS is calculated by adding depreciation and amortization to earnings, subtracting any gains on sales, and then dividing this figure by shares outstanding.
  • FFOPS is widely regarded as the best way for investors to determine a REIT’s profitability and financial health.
  • This makes FFOPS, which can be found in the footnotes of financial statements, a key driver of REIT share prices.

Understanding Funds From Operations Per Share (FFOPS)

A real estate investment trust (REIT) offers investors the chance to gain exposure to large-scale, income-generating real estate. These companies own and typically operate a vast array of properties, including apartments, hotels, office buildings, resorts, self-storage facilities, shopping malls, and warehouses. Most of the time, their business model involves leasing space, collecting rents, and then distributing that income as dividends to shareholders.

Funds from operations per share (FFOPS) is widely regarded as the best method for investors to determine a REIT’s profitability and financial health. In many ways, it mirrors the earnings per share (EPS) that publicly traded companies report on a quarterly basis. The former represents the value of earnings from the REIT, whereas the latter illustrates a company's earnings power.

Some investors even derive basic market valuations from the price to funds from operations ratio, just as a fundamental investor focuses on price to earnings multiples. Both funds from operations (FFO) and funds from operations per share (FFOPS), therefore, are key drivers of share prices.

Like many popular financial metrics, funds from operations per share (FFOPS) is susceptible to manipulation, accounting changes, and restatements.

Investors can find FFO and funds from operations per share (FFOPS) in the footnotes of a quarterly financial statement. They should not be confused with a REIT's cash flow from operations, an important component of a company’s cash flow statement that instead measures the net amount of cash and equivalents that flows into a firm from regular, ongoing business activities.

Special Considerations

Methods of Funds From Operations Per Share (FFOPS)

In general, the funds from operations per share (FFOPS) calculation makes adjustments to net income (NI) to offset performance changes from accounting methods. Take depreciation, for example. Under normal circumstances, accountants depreciate tangible assets that lose value over time. However, REITs often gain value as time progresses which means depreciation superficially depresses NI.

The metric also adjusts for gains on the sale of properties to account for non-recurring profit streams. Adding this layer of extra earnings power yields greater returns and dividends per share—REITs are required to pay out 90% of all taxable income as dividends.

Funds From Operations Per Share (FFOPS) vs. Adjusted Funds From Operations (AFFO)

Funds from operations per share (FFOPS) is the industry standard for determining earnings growth of a real estate investment trust. However, some analysts prefer to go one step further and use adjusted funds from operations (AFFO) to gauge the performance of these companies.

AFFO is considered a more accurate measure of residual cash flow and earnings potential than the traditional funds from operations per share (FFOPS). AFFO factors in rent increases and additional costs incurred by the REIT, such as capital expenditures (CapEx). It can be calculated as follows: AFFO = FFO + rent increases - CapEx - routine maintenance amounts.