What is Funds from Operations Per Share (FFOPS)?
Funds from operations per share (FFOPS) is a measure of cash generated by a real estate investment trust (REIT). It is important to that FFOPS is not the same as Cash from Operations Per Share, which is a key component of the indirect-method cash flow statement.
The formula for FFOPS is:
How Does Funds from Operations Per Share (FFOPS) Work?
Let's assume XYZ Company is a REIT with several properties. It has 10 million. Last , Company XYZ's looked like this:
Using the formula above, we can calculate XYZ Company's FFOPS as follows:
$2,500,000 + $2,000,000 - $200,000 = $4,300,000/10,000,000 = $0.43
REITs and similar trusts typically disclose financial statements, and they are required to show their calculations.
Why Does Funds from Operations Per Share (FFOPS) Matter?
In general, the adjustments accounting requires REITs to depreciate their investment properties over time. However, many REIT properties actually appreciate over time, and for this reason, the required depreciation expense tends to make net income appear artificially low. FFO also adjusts for (or losses) on the of properties because they are not recurring and therefore do not contribute to the REIT's ongoing dividend-paying capacity (REITs are required to pay out 90% of their in dividends). Some go a step further and calculate AFFO (Adjusted from Operations), which adjusts FFO for rent increases and certain expenditures. All of these affect FFOPS.makes to are intended to compensate for methods that may distort an trust's true performance. This is especially true of .
Many analysts prefer FFOPS to net income per share when measuring a REIT's financial performance. Similar to , FFOPS is a carefully scrutinized metric that is often used as a barometer to gauge a company's profitability per unit of shareholder ownership, and the interpretation of price/FFO may generate insights similar to those generated by P/E multiples. As such, FFOPS is a key driver of share prices. Though FFOPS is a popular method of quantifying a firm's profitability, it's important to remember that FFOPS can often be susceptible to manipulation, accounting changes and restatements. Nevertheless, FFOPS is an industry standard in determining investment-trust profitability for shareholders.
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