Funds From Operations (FFO): Essential Guide for Aussie Property Investors 2025

Funds From Operations (FFO) is the single most important metric for evaluating the financial health of real estate investment trusts (REITs) in Australia. But as the commercial property landscape evolves, so too does the way investors interpret FFO. If you’re looking to make smarter property investment decisions in 2025, understanding FFO is non-negotiable.

What Is FFO and Why Does It Matter?

Unlike traditional net profit, FFO strips out the noise of non-cash items like depreciation and amortisation. This makes it a far more accurate reflection of the cash actually generated by a REIT’s property portfolio. In Australia’s property-heavy investment market, FFO is the preferred yardstick for:

• Comparing REIT performance

• Assessing dividend sustainability

• Spotting trends in core property earnings

FFO is calculated using the formula:

FFO = Net Profit + Depreciation/Amortisation of Investment Properties – Gains from Property Sales

This approach helps investors look past headline figures and focus on what really matters: the recurring cash flow that supports distributions.

2025 Policy Updates: How FFO Reporting Is Changing

In 2025, the Australian Securities Exchange (ASX) and the Property Council of Australia have updated best practice guidelines for FFO reporting. Here’s what’s new:

• Mandatory Reconciliation: All listed REITs must reconcile FFO with statutory net profit, improving transparency.

• Standardisation: The new guidelines discourage non-standard FFO adjustments, making it easier to compare apples with apples across REITs.

• Sustainability Disclosure: Some REITs are now voluntarily reporting “Adjusted FFO” to account for recurring capex, providing a clearer view of sustainable distributions.

This regulatory push means investors can now rely on FFO as a more consistent and comparable metric across the property sector.

Real-World Example: FFO in Action

Let’s say you’re comparing two ASX-listed REITs in 2025:

• REIT A: Reports net profit of $120 million, depreciation of $50 million, and a one-off gain from property sales of $30 million.

• REIT B: Reports net profit of $100 million, depreciation of $40 million, and no property sales.

Calculating FFO:

• REIT A: $120m + $50m – $30m = $140 million FFO

• REIT B: $100m + $40m = $140 million FFO

Despite differences in net profit, both REITs have identical FFO. This shows why FFO is a better guide to the cash available for distribution to investors.

How to Use FFO for Smarter Investing

FFO isn’t just for accountants and analysts. Everyday investors can use it to:

• Compare REITs: Use FFO per unit/share to compare distribution potential across the sector.

• Assess Yield Sustainability: If a REIT’s distributions routinely exceed its FFO, that’s a red flag.

• Track Growth: Watch for consistent growth in FFO over time—this signals a healthy, expanding portfolio.

With the 2025 updates, pay close attention to how REITs report “Adjusted FFO” or “AFFO”, which deducts recurring capital expenditures. This can be a more conservative, but realistic, view of what’s available for dividends.

Conclusion

Funds From Operations is more than just another financial acronym—it’s the backbone of REIT analysis in Australia. With new 2025 regulations making FFO reporting clearer and more standardised, investors are better equipped than ever to make informed decisions. Next time you’re scanning a REIT’s financials, dig into the FFO numbers—you’ll be reading the real story behind the distributions.