What Is Cash Available for Distribution – CAD?

Cash available for distribution (CAD) is a real estate investment trust's (REIT) cash-on-hand that is available to be distributed as shareholder dividends. The value is calculated by finding the funds from operations (FFO) and subtracting recurring capital expenditures.

CAD is also called funds available for distribution (FAD). The benefits of CAD and FAD is that they offer a truer picture of cash flow given the adjustments.

The Formula for Cash Available for Distribution – CAD Is

CAD=FFORCEwhere:CAD=Cash available for distributionFFO=Funds from operations\begin{aligned} &CAD = FFO - RCE\\ &\textbf{where:}\\ &CAD = \text{Cash available for distribution}\\ &FFO = \text{Funds from operations}\\ &RCE = \text{Recurring capital expenditures} \end{aligned}CAD=FFORCEwhere:CAD=Cash available for distributionFFO=Funds from operations

How to Calculate Cash Available for Distribution – CAD

Calculating cash available for distribution is done by subtracting recurring capital expenditures from funds from operations.

What Does Cash Available for Distribution Tell You?

To income-oriented investors, cash available for distribution is a key metric to assess a REIT's strength. REITs can increase it organically or through an acquisition. In October 2017, Potlatch Corporation announced its intention to merge with Deltic Timber Corporation to increase the size and scope of timberland and lumber manufacturing operations. In highlighting the combined "robust financial profile," the company projected that CAD per share will be accretive in the first full year (post-closing of the transaction) and 5% CAD accretive in the second year.

  • REIT metric that subtracts recurring capital expenditures from funds from operations.
  • CAD can be increased organically or through acquisitions.
  • Not a standardized formula in the REIT sector—also called funds available for distribution.

Example of How to Use Cash Available for Distribution – CAD

For the fiscal year 2017, Equity Residential had $1.2 billion in funds from operations. Its recurring capital expenditures for the year were $202.6 million. Thus, its cash available for distribution was $997.4 million, or $1.2 billion less $202.6 million.

The Difference Between CAD and Funds From Operations – FFO

Cash available for distribution (CAD) is not a standardized formula in the REIT sector, but it is generally defined as the difference between FFO and recurring expenses. Recurring capital expenses that are typically subtracted from the FFO to determine the CAD value include replacing building roofs, HVAC system repairs, resurfacing of parking lots and other significant routine maintenance. Some REITs may choose 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, defines FFO as net income plus depreciation less the gain on property sale plus loss on the property sale.

An expanded formula for FFO is:

FFO=NI+DAII+IEGP+LPIV+LVwhere:NI= Net incomeDA= Depreciation and amortizationII= Interest incomeIE= Interest expenseGP= Gain on property saleLP= Loss on property saleIV= Income from unconsolidated ventures\begin{aligned} &FFO = NI + DA - II + IE - GP + LP - IV + LV\\ &\textbf{where:}\\ &NI = \text{ Net income}\\ &DA = \text{ Depreciation and amortization}\\ &II = \text{ Interest income}\\ &IE = \text{ Interest expense}\\ &GP = \text{ Gain on property sale}\\ &LP = \text{ Loss on property sale}\\ &IV = \text{ Income from unconsolidated ventures}\\ &LV = \text{ Loss from unconsolidated ventures} \end{aligned}FFO=NI+DAII+IEGP+LPIV+LVwhere:NI= Net incomeDA= Depreciation and amortizationII= Interest incomeIE= Interest expenseGP= Gain on property saleLP= Loss on property saleIV= Income from unconsolidated ventures

Limitations of Using Cash Available For Distribution – CAD

For REITs, there is no hard and fast rule about CADs and how it’s calculated. Thus, when the metric is calculated by a REIT, the calculation could vary from company to company.

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