You are simply pointing out that they (and many authors) talk better of them than what they really are.
On another, but similar, topic: do you keep stock based compensation in mind? To my understanding, it is not mandatory to deduct this from the Free Cash Flow calculation, but if one does, it can paint a very different picture of available Free Cash Flow. Many super investors have complained about this in the past and that this should be ammended by GAAP accounting standards.
Thanks, Andy. And I apologize for not being explicit that this does not break any thesis about $ARE. There remains a lot to like there.
I notice stock based compensation or SBC. But note that while SBC impacts GAAP Net Income and through that FFO, it does not impact CfO. SBC is often small enough to merit being ignored. Some argue that SBC should be viewed as a direct cost, but Chris Volk argues that what it really is is dilution. He convinced me. When I do include it, I consider the dilutive impact.
Yes the standard definition of Free Cash Flow (FCF) is CfO less all capex and so excludes SBC. Not being a fan of FCF to start with, I see minimal significance in whether FCF is positive or not, and so don't care about whether SBC is subtracted or not. What is significant is whether (and how fast and how securely) the business is growing FAD/sh. FCF does not help you understand that.
Thanks Paul, excellent.
This does not break the thesis, right?
You are simply pointing out that they (and many authors) talk better of them than what they really are.
On another, but similar, topic: do you keep stock based compensation in mind? To my understanding, it is not mandatory to deduct this from the Free Cash Flow calculation, but if one does, it can paint a very different picture of available Free Cash Flow. Many super investors have complained about this in the past and that this should be ammended by GAAP accounting standards.
Curious to thear your thoughts
Thanks, Andy. And I apologize for not being explicit that this does not break any thesis about $ARE. There remains a lot to like there.
I notice stock based compensation or SBC. But note that while SBC impacts GAAP Net Income and through that FFO, it does not impact CfO. SBC is often small enough to merit being ignored. Some argue that SBC should be viewed as a direct cost, but Chris Volk argues that what it really is is dilution. He convinced me. When I do include it, I consider the dilutive impact.
Yes the standard definition of Free Cash Flow (FCF) is CfO less all capex and so excludes SBC. Not being a fan of FCF to start with, I see minimal significance in whether FCF is positive or not, and so don't care about whether SBC is subtracted or not. What is significant is whether (and how fast and how securely) the business is growing FAD/sh. FCF does not help you understand that.
Thanks, will keep that in mind when I read your recent article "REITs: Structure of Growth" in more detail.
I addressed the fundamental issues in
https://seekingalpha.com/article/4665882-enterprise-products-partners-more-debt-means-larger-distributions
and
https://seekingalpha.com/article/4591830-not-all-debt-is-bad-reit-midstream-mlp-perspective
Great, good to know!