What are the best revenue forecasting metrics for a real estate investment trust?

1 Funds from operations

Funds from operations (FFO) is one of the most widely used metrics to measure the operating performance and cash flow of a REIT. It is calculated by adding depreciation and amortization to net income, and subtracting gains or losses from property sales. FFO reflects the amount of cash that a REIT generates from its core business of owning and leasing properties, and excludes non-recurring items that may distort the net income. FFO can be used to forecast the dividend payout ratio, the debt service coverage ratio, and the growth potential of a REIT.

2 Adjusted funds from operations

Adjusted funds from operations (AFFO) is a refinement of FFO that accounts for the capital expenditures and leasing costs that a REIT incurs to maintain and enhance its properties. It is calculated by subtracting these expenses from FFO, and adding or subtracting other adjustments that may affect the cash flow. AFFO represents the amount of cash that a REIT has available to distribute to its shareholders, and is often used as a proxy for the dividend per share. AFFO can be used to forecast the dividend yield, the payout sustainability, and the return on equity of a REIT.

3 Net operating income

Net operating income (NOI) is the difference between the rental income and the operating expenses of a REIT's properties. It is a measure of the profitability and efficiency of a REIT's portfolio, and excludes interest, taxes, depreciation, amortization, and other non-operating items. NOI can be used to forecast the occupancy rate, the rent growth, the expense ratio, and the capitalization rate of a REIT.

4 Funds available for distribution

Funds available for distribution (FAD) is another metric that estimates the cash flow available to pay dividends to shareholders. It is calculated by subtracting the capital expenditures and leasing costs that are not deducted from AFFO, and adding or subtracting other adjustments that may affect the cash flow. FAD is similar to AFFO, but may be more conservative or aggressive depending on the assumptions and adjustments made by the REIT. FAD can be used to forecast the dividend coverage, the dividend growth, and the free cash flow of a REIT.

5 Revenue per available room

Revenue per available room (RevPAR) is a specific metric for hotel REITs that measures the average revenue generated by each room in their portfolio. It is calculated by multiplying the occupancy rate by the average daily rate, or by dividing the total revenue by the total number of available rooms. RevPAR reflects the demand and pricing power of a hotel REIT, and is influenced by factors such as location, seasonality, competition, and customer preferences. RevPAR can be used to forecast the revenue growth, the margin expansion, and the market share of a hotel REIT.