DEFINITION of 'Funds Available For Distribution - FAD'

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

BREAKING DOWN 'Funds Available For Distribution - FAD'

A REIT is a pool of properties and mortgages bundled together and offered as a security in the form of a 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 the rules of the Securities and Exchange Commission (SEC), 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 funds from operations (FFO), but FAD is considered more representative of cash flow because of certain adjustments that provide a truer economic picture of a REIT's operations.

Example of Funds Available for Distribution Calculation

Boston Properties, Inc., a commercial property REIT that owns buildings in Boston, New York, San Francisco and Los Angeles, 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 stock-based compensation expense; eliminating the effects of straight-line rent and straight-line ground rent expense adjustment; and subtracting maintenance 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. The company further calculates the FAD payout ratio, which it defines as distributions divided by FAD. In 2014 the REIT's FAD payout ratio was 64.8% and it had increased to 74.8% in 2017.


    REIT ETFs are exchange-traded funds that primarily invest in ...
  2. Funds From Operations - FFO

    Funds from operations, or FFO, refers to the figure used by real ...
  3. Cash Available For Distribution ...

    Cash available for distribution is a real estate investment trust's ...
  4. Adjusted Funds From Operations ...

    Adjusted funds from operations is a financial performance measure ...
  5. Energy Trust

    An energy trust is a type of corporation that exists solely to ...
  6. Non-Traded REIT

    A non-traded REIT does not trade on a securities exchange and ...
Related Articles
  1. Investing

    How To Analyze Real Estate Investment Trusts

    REITs are much like dividend-paying companies, but analyzing them requires consideration of the accounting treatment of property.
  2. Investing

    REITs vs. REIT ETFs: How They Compare

    Learn about the difference in investing in a REIT for a single real estate company versus investing in a REIT ETF that tracks a larger REIT index.
  3. Investing

    The Basics of REIT Taxation

    The unique tax advantages offered by real estate investment trusts (REITs) can translate into superior yields. Learn more about specifically how REITs are taxed.
  4. Investing

    REITs As an Alternative to Real Estate Investment

    Does investing in real estate seem like too much maintenance? Consider the many advantages of REITs, or real estate investment trusts.
  5. Investing

    5 Types of REITs and How to Invest in Them

    Real estate investment trusts are a sound addition to a diversified portfolio. Learn what you need to know to invest.
  6. Investing

    REITs 101: How They're Regulated

    Here's everything you need to know about REITs in less than five minutes.
  7. Investing

    3 Types Of REITs For Your Portfolio

    Learn the key features of three subcategories of equity REITs: industrial, multifamily and hotel REITs.
  8. Investing

    REITs Could be Affected by Higher Interest Rates

    Learn how REITs may be impacted by an increase in interest rates, and understand why certain types of REITs could benefit from higher rates.
  9. Investing

    The Basics of Reinvesting REIT Dividends

    Learn the essentials of dividend reinvestment in real estate investment trusts and how a dividend reinvestment plan can magnify your long-term returns.
  1. Is NAV the best way to assess the value of an REIT?

    Examine and understand the usefulness of net asset value as an accurate metric with which to assess the value of a REIT investment. Read Answer >>
  2. What is the difference between an REIT and a master limited partnership?

    While both are prized for their dividends by income investors, there are notable differences between REITs and master limited ... Read Answer >>
  3. What is the difference between funds from operations per share and earnings per share?

    Find out how funds from operations (FFO) differs from net income. Learn how FFO is calculated and why REITs are evaluated ... Read Answer >>
Trading Center