Updated Guidance on Reporting FFO: Write-Downs for Impairment
On October 1, 2003, NAREIT issued a Financial Reporting Alert with respect to the treatment of impairment write-downs of depreciable real estate in the computation of Funds From Operations (FFO). At that time, NAREIT communicated to its members that the exclusion of impairment write-downs of depreciable real estate was consistent with the definition of FFO from its inception, and continued to be consistent with the definition of FFO. At the same time, NAREIT also communicated that Securities and Exchange Commission (SEC) staff conveyed to NAREIT a view that was not consistent with our perspective in this specific matter.
This update to NAREIT FFO guidance is now provided to NAREIT members because SEC staff recently advised NAREIT that it currently takes no position on the matter of whether such impairment write-downs should be included or excluded from NAREIT's FFO definition, as long as the measure complies with applicable SEC regulations, such as Regulation G, Conditions for the Use of Non-GAAP Financial Measures (Regulation G), and, for filings made with the SEC, Item 10(e) of Regulation S-K, Use of Non-GAAP Financial Measures in Commission Filings (Regulation S-K). The staff also noted that companies should avoid potentially misleading inferences about the usefulness of a measure that excludes any GAAP income statement element, including impairment write-downs.
Consistent with NAREIT's October 1, 2003 communication, NAREIT reiterates in this notice that the exclusion of impairment write-downs of depreciable real estate has been in the past and continues to be consistent with the definition of FFO.
To the extent that NAREIT members included impairment write-downs of depreciable real estate in NAREIT FFO in prior periods, NAREIT expects that companies would restate reported NAREIT FFO in order to provide a consistent and comparable presentation of FFO measures.
As a reminder, NAREIT members should always provide robust disclosures for FFO that are consistent with the requirements in Regulation G and Item 10(e) of Regulation S-K.
For further information, please contact Christopher Drula, NAREIT's Senior Director, Financial Standards, at email@example.com.