What Does Funds Available For Distribution𝔍 Mean?

Funds available for distribution (FAD) is an internal measure of the amount of capital that a real estate investment trust (REIT) possesses to pay out to common shareholders and 澳洲幸运5官方开奖结果体彩网:unitholders.

A REIT holds a portfolio of income-producing properties and/or mortgages and is required to distribute nearly all its taxable net income to maintain REIT status. While there is no standardized method for calculating funds available for distribution🍌, many REITs calculate FAD in a similar way by adjusting the funds from operatio𒅌ns value for straight-line rents, non-cash items, and any recurring real estate-related expenses.

Understanding Funds Available For Distributio⭕n (FAD)ꩵ

A REIT is a pool of properties and mortgages bundled together and offered as a security in the form of a 澳洲幸运5官方开奖结果体彩网:unit investment trust. Each unit in a REIT represents a proportionate fraction of ownership in each of the underlying assets. To qualify as a REIT under 澳洲幸运5官方开奖结果体彩网:Securities and Exchange Commission (SEC) rules, a property company must distribute at least 90% of taxable income to its investors.

Funds available for distribution, a non-GAAP measure, are a proxy for a REIT's cash flow for investors. Another yardstick is the 澳洲幸运5官方开奖结果体彩网:funds from operations (FFO) metric, but FAD is considered more representative of cash flow because of certain adjustments that provide a truerཧ economic picture of a REIT's operations.

Example of Funds Av🅘ailable for Distribution Calculation

Boston Properties (BXP) is a 澳洲幸运5官方开奖结果体彩网:commercial property REIT that owns buildings in Boston, New York, San Francisco, Los Angeles, Washington D.C., and Reston, Virginia. In 2020, the REIT's FAD payout ratio was 96.4% compared with 86.7% in 2019.

Boston Properties calculates FAD by adding to FFO lease transaction costs that qualify as rent inducements, non-real estate depreciation, non-cash losses (or subtracting gains) from early extinguishment of debt, and 澳洲幸运5官方开奖结果体彩网:stock-based compensation expense; eliminating the effects of 澳洲幸运5官方开奖结果体彩网:straight-line rent and straight-line ground rent expense adjustment; and subtracting maintenance 澳洲幸运5官方开奖结果体彩网:capital expenditures, hotel improvements, and equipment upgrades and replacements. This list of adjustment items is not exhaustive, but it shows how cash and non-cash items are handled to present a more accurate figure of actual funds available for distribution to investors.