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Use of NAREIT Version of FFO Widespread

10/31/2012 | By Allen Kenney

A review of NAREIT member companies' financial statements from 2011 has found that more than 90 percent report funds from operations (FFO) in accordance with the NAREIT definition, according to George Yungmann, NAREIT's senior vice president for financial standards. NAREIT's definition of FFO provides a "consistent metric"¬Ě for members companies, Yungmann said.

Yungmann covered some of the latest developments in accounting and financial reporting in a video interview with REIT.com at NAREIT's headquarters in Washington. Yungmann said approximately 50 percent of the companies also reported a supplemental FFO metric.

"This causes a bit of confusion when analysts develop their estimates of future earnings or future FFO,"¬Ě Yungmann said. "Some of the analysts project FFO as defined by NAREIT. Some project FFO as reported by this secondary FFO measurement as reported by the companies."¬Ě

Financial information provider First Call operates by a "majority rules"¬Ě standard regarding consensus estimates, according to Yungmann. In talking with First Call, Yungmann said it appears as though First Call will provide space in their table that will include room for analysts' projections of FFO as defined by NAREIT and FFO as defined by the company's secondary metric.

Fair value of investment properties is another topic that has been under discussion. In 2011, the Financial Accounting Standards Board (FASB) issued a proposed standard that would require investment properties to be reported at fair value by certain companies under an entity-based approach.

"Probably 90 percent of the comment letters on this proposed accounting standard said, 'Kill this project. The entity-based approach doesn't work,'"¬Ě Yungmann said. Instead commenters suggested that FASB should consider the International Accounting Standards Board's (IASB) guidelines for investment property, IAS 40, according to Yungmann. NAREIT's position is that FASB should do away with the entity-based standard and try to converge with the international standard, he said.

In a separate video interview with REIT.com, Yungmann discussed the progress being made by the FASB and IASB in their efforts to converge their rules for the accounting of leases.

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