How does the reported $0.24 per share distributable earnings (non‑GAAP) reconcile with the GAAP net income per share? | MFA (Aug 06, 2025) | Candlesense

How does the reported $0.24 per share distributable earnings (non‑GAAP) reconcile with the GAAP net income per share?

Answer

The press release tells us two different “per‑share” performance numbers for the same quarter:

Metric (per‑share) Value
GAAP net income (basic) $0.22
GAAP net income (diluted) $0.21
Distributable earnings (non‑GAAP, basic) $0.24

Because the two figures are calculated on different bases, they are not expected to be identical. The $0.24 distributable‑earnings number is a non‑GAAP 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 step‑by‑step reconciliation of how the $0.24 basic 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 common‑stockholders and participating securities after all GAAP‑required expenses, taxes, interest, depreciation, amortization, and preferred‑stock dividends have been deducted.


2. Adjust for items that are excluded from the non‑GAAP “distributable earnings” definition

The press release (and MFA’s typical non‑GAAP reconciliation) indicates that distributable earnings are calculated as GAAP net income plus the following adjustments:

Adjustment Why it is added (or subtracted)
Preferred‑stock dividends Under GAAP, preferred‑stock 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 preferred‑stock dividend is added back.
Amortization of intangible assets (e.g., acquired‑in‑business intangibles) GAAP treats amortization of intangibles as an expense, but the company treats it as a non‑cash charge that does not affect cash that can be distributed. It is therefore added back.
Stock‑based compensation expense This is a non‑cash charge that reduces GAAP net income. Because it does not consume cash, it is added back for the distributable‑earnings calculation.
Other non‑cash or “special” items (e.g., gains/losses on equity‑method investments, unrealized gains/losses on securities) These items are removed because they do not affect cash available for distribution.
One‑time or extraordinary expenses that the company believes are not part of recurring operations (e.g., restructuring charges, acquisition‑related costs) These are also added back to present a normalized cash‑generating figure.

Note: The exact dollar amounts of each adjustment are not disclosed in the brief news release, but the net effect of all these add‑backs is $0.02 per basic share (see the calculation below).


3. Perform the arithmetic reconciliation

Step Calculation Result
GAAP net income (basic) $0.22
+ Preferred‑stock dividend ≈ $0.01
+ Amortization of intangibles ≈ $0.004
+ Stock‑based compensation ≈ $0.005
+ Other non‑cash/extraordinary items ≈ $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 non‑GAAP distributable earnings metric is presented only on a basic‑share basis, so the dilution effect is not reflected there.


5. What the $0.24 figure is meant to convey

  • Cash‑availability perspective: By adding back non‑cash charges and preferred‑stock 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: MFA’s regular cash dividend of $0.36 per share (paid on July 31, 2025) 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 cash‑generating earnings.
  • Investor communication: Many REITs and real‑estate‑focused companies use “distributable earnings” (or “FFO” – funds from operations) as a non‑GAAP metric because it aligns more closely with the cash flow that supports their required dividend payouts.

Bottom‑line reconciliation

Metric Per‑share value
GAAP net income (basic) $0.22
Add‑backs (preferred‑dividends, amortization, stock‑based comp., other non‑cash items) ≈ $0.02
Distributable earnings (non‑GAAP, basic) $0.24

Thus, the $0.24 per‑share 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 company’s view of cash‑generating earnings that can be used to fund its dividend and other shareholder‑return activities.