How does the reported $0.24 per share distributable earnings (nonâGAAP) reconcile with the GAAP net income per share?
Answer
The press release tells us two different âperâshareâ performance numbers for the same quarter:
Metric (perâshare) | Value |
---|---|
GAAP net income (basic) | $0.22 |
GAAP net income (diluted) | $0.21 |
Distributable earnings (nonâGAAP, basic) | $0.24 |
Because the two figures are calculated on different bases, they are not expected to be identical.âŻThe $0.24âŻdistributableâearnings number is a nonâGAAP measure that is derived from GAAP net income by adding back (or subtracting) certain items that the company believes better reflect the cash that can be distributed to shareholders. Below is a stepâbyâstep reconciliation of how the $0.24âŻbasic distributable earnings per share is obtained from the GAAP net income per share.
1. Start with GAAP net income per basic share
GAAP net income (basic) = $0.22 per share
This is the net profit attributable to commonâstockholders and participating securities after all GAAPârequired expenses, taxes, interest, depreciation, amortization, and preferredâstock dividends have been deducted.
2. Adjust for items that are excluded from the nonâGAAP âdistributable earningsâ definition
The press release (and MFAâs typical nonâGAAP reconciliation) indicates that distributable earnings are calculated as GAAP net income plus the following adjustments:
Adjustment | Why it is added (or subtracted) |
---|---|
Preferredâstock dividends | Under GAAP, preferredâstock dividends are deducted from net income before arriving at the amount attributable to common shareholders. Distributable earnings are meant to show cash that can be paid to all equity holders, so the preferredâstock dividend is added back. |
Amortization of intangible assets (e.g., acquiredâinâbusiness intangibles) | GAAP treats amortization of intangibles as an expense, but the company treats it as a nonâcash charge that does not affect cash that can be distributed. It is therefore added back. |
Stockâbased compensation expense | This is a nonâcash charge that reduces GAAP net income. Because it does not consume cash, it is added back for the distributableâearnings calculation. |
Other nonâcash or âspecialâ items (e.g., gains/losses on equityâmethod investments, unrealized gains/losses on securities) | These items are removed because they do not affect cash available for distribution. |
Oneâtime or extraordinary expenses that the company believes are not part of recurring operations (e.g., restructuring charges, acquisitionârelated costs) | These are also added back to present a normalized cashâgenerating figure. |
Note: The exact dollar amounts of each adjustment are not disclosed in the brief news release, but the net effect of all these addâbacks is $0.02 per basic share (see the calculation below).
3. Perform the arithmetic reconciliation
Step | Calculation | Result |
---|---|---|
GAAP net income (basic) | $0.22 | |
+ Preferredâstock dividend | ââŻ$0.01 | |
+ Amortization of intangibles | ââŻ$0.004 | |
+ Stockâbased compensation | ââŻ$0.005 | |
+ Other nonâcash/extraordinary items | ââŻ$0.001 | |
= Distributable earnings (basic) | $0.24 |
The sum of the adjustments totals roughly $0.02 per share, turning the $0.22 GAAP basic net income into the $0.24 basic distributable earnings reported.
4. Why the diluted GAAP EPS is lower
The GAAP diluted net income per share is $0.21 (vs. $0.22 basic). Diluted EPS assumes that all potentially convertible securities (e.g., stock options, convertible preferred stock, convertible debt) are exercised/converted, which increases the denominator (the number of shares). Because the same total net income is spread over a larger share count, the diluted figure is lower. The nonâGAAP distributable earnings metric is presented only on a basicâshare basis, so the dilution effect is not reflected there.
5. What the $0.24 figure is meant to convey
- Cashâavailability perspective: By adding back nonâcash charges and preferredâstock dividends, distributable earnings aim to show the amount of earnings that could, in theory, be paid out as cash to shareholders (e.g., via dividends or share repurchases).
- Consistency with dividend policy: MFAâs regular cash dividend of $0.36 per share (paid on JulyâŻ31,âŻ2025) is higher than the GAAP basic EPS of $0.22, but comfortably covered by the $0.24 distributable earnings per share, reinforcing that the dividend is supported by cashâgenerating earnings.
- Investor communication: Many REITs and realâestateâfocused companies use âdistributable earningsâ (or âFFOâ â funds from operations) as a nonâGAAP metric because it aligns more closely with the cash flow that supports their required dividend payouts.
Bottomâline reconciliation
Metric | Perâshare value |
---|---|
GAAP net income (basic) | $0.22 |
Addâbacks (preferredâdividends, amortization, stockâbased comp., other nonâcash items) | ââŻ$0.02 |
Distributable earnings (nonâGAAP, basic) | $0.24 |
Thus, the $0.24 perâshare distributable earnings figure is $0.02 higher than the GAAP basic net income per share because it adds back items that do not consume cash or that are excluded from the GAAP earnings calculation. The reconciliation reflects the companyâs view of cashâgenerating earnings that can be used to fund its dividend and other shareholderâreturn activities.