Cash Available for Distribution (CAD)
What Is Cash Available for Distribution (CAD)?
Cash accessible for distribution (CAD) alludes to a real estate investment trust (REIT) cash close by that is accessible to be distributed as shareholder dividends. The CAD value is calculated by taking the REIT's funds from operations (FFO) and deducting its recurring capital expenditures (CAPEX).
CAD is the most liquid subset of [funds accessible for distribution](/funds-accessible for-distribution) (FAD). The benefits of having a store of CAD are that it provides a more complete image of a REIT's adjusted cash flows and how much investors can hope to receive as dividend distributions.
- Cash Available for Distribution (CAD) is a REIT metric that deducts recurring capital expenditures from funds from operations (FFO).
- CAD is a non-GAAP measure that is utilized as a proxy for a REIT's cash flow for investors
- CAD can be increased organically or through the acquisitions of new properties.
- The calculation of CAD doesn't follow a standardized formula in the REIT sector, so analysts and investors ought to be careful to note the methodology utilized.
Formula for Cash Available for Distribution (CAD)
Instructions to Calculate CAD
Computing cash accessible for distribution is finished by taking away recurring capital expenditures from funds from operations. The formula and calculation for FFO show up below.
What Does Cash Available for Distribution Tell You?
A real estate investment trust (REIT) is a pooled investment vehicle that holds a portfolio of income-producing properties or potentially mortgages and is required to convey essentially the entirety of its taxable net income to keep up with REIT status. As a matter of fact, REITs are required to pay out 90% of taxable income earned to investors. While there is no standardized method for computing funds accessible for distribution, numerous REITs work out CAD likewise by adjusting the funds from operations value for straight-line rents, non-cash things, and any recurring real estate-related expenses.
To income-oriented investors, cash accessible for distribution is a key measurement to survey a REIT's strength. REITs can increase it organically or through an acquisition.
For REITs, there is no immovable rule about CADs and how it's calculated. In this manner, when the measurement is calculated by a REIT, the calculation could shift from one company to another. Subsequently, it is a non-GAAP measure and ought to be treated as pro-forma.
Illustration of Cash Available for Distribution
Boston Properties (BXP) is a commercial property REIT that claims buildings in Boston, New York, San Francisco, Los Angeles, Washington D.C., and Reston, Virginia. In 2020, the REIT's CAD payout ratio was 96.4% compared with 86.7% in 2019.
Boston Properties' financial statements show that it works out CAD by adding to FFO lease transaction the costs that qualify as rent promptings, non-real estate depreciation, non-cash losses from early extinguishment of debt, and stock-based compensation expense; then dispensing with the effects of straight-line rent and straight-line ground rent expense adjustment; lastly, taking away maintenance capital expenditures, lodging improvements, and equipment overhauls and substitutions. This rundown of cash flow adjustment things isn't exhaustive, yet it shows how cash and non-cash things are taken care of to introduce a more accurate figure of genuine funds accessible for distribution to investors.
The Difference Between CAD and FFO
Cash accessible for distribution calculations doesn't stick to a standardized formula in the REIT sector, however it is generally defined as the difference among FFO and recurring expenses. Recurring capital expenses that are regularly deducted from the FFO to decide the CAD value incorporate supplanting building rooftops, HVAC system repairs, reemerging of parking parts, and other significant routine maintenance. A few REITs might decide to deduct tenant improvements, straight-lining of rents, or leasing commissions from FFO.
The National Association Real Estate Investment Trusts (NAREIT), a trade group for the industry, characterizes FFO as net income plus depreciation less the gain on property sale plus loss on the property sale.
An expanded formula for FFO is:
