Guidelines for Reporting Performance on a Per Share Basis

Guidelines for Reporting Performance on a Per Share Basis

July 8, 1999

Guidelines for Reporting Performance on a Per Share Basis

Editor's Note: This National Policy Bulletin has been prepared at the recommendation of NAREIT's Best Financial Practices Council. The Council continues to believe that consistency in financial reporting among member companies could be advanced by providing guidelines on the application of generally accepted accounting principles (GAAP). The guidelines contained in this bulletin were approved by the NAREIT leadership in March, and are intended to create greater uniformity in reporting company performance on a per share basis. They should not be confused with the Council's review of the industry's supplemental performance measure. Because these guidelines are GAAP-based, they should remain applicable to any future modifications or adjustments that are made to the industry's supplemental performance measure.

In addition to consistent reporting of performance on a per share basis, the Council also recommends that when calculating FFO and FFO per share, the industry supplemental performance measure should reflect GAAP accounting for derivative instruments, hedging activities and straight-line rents.

We appreciate the valuable assistance of all who helped in the preparation of these guidelines, including representatives of Arthur Andersen, KPMG and PriceWaterhouseCoopers, as well as analysts from Cohen & Steers, CIBC Oppenheimer, Legg Mason, BankBoston Robertson Stephens and J.P. Morgan.

David M. Taube, CFA, CPA
Financial Standards Analyst

NAREIT's Best Financial Practices Council is issuing industry guidance on reporting performance on a per share basis in a manner consistent with the way earnings per share (EPS) is reported by public companies. Real estate companies report Funds From Operations (FFO) per share in earnings releases and disclosures that typically accompany these releases. Presenting FFO per share is still prohibited in Securities and Exchange Commission (SEC) filings (See NOTE below). Nevertheless, the Council believes that adopting a GAAP-based framework will improve uniformity, transparency, and credibility in reporting the industry's supplemental performance measure on a per share basis.

New guidance on EPS, FASB Statement No. 128, became effective for financial statements for both interim and annual periods ending after December 15, 1997. During the first quarter of 1999, NAREIT surveyed member companies, investors, and analysts to assess how the Statement is being applied in the calculation and reporting of FFO per share. Although most REITs reported FFO per share in accordance with the Statement, the diversity in practice revealed by the survey prompted NAREIT to develop the following guidance.

NOTE: Effective March 28, 2003, reporting FFO per share is permitted pursuant to the SEC rule, "Conditions for Use of Non-GAAP Financial Measures," issued on January 22, 2003. The rule can be accessed at http://www.sec.gov/rules/final/33-8176.htm.

Application of FASB Statement No. 128 to FFO per Share

Survey results from member companies, investors, and analysts indicated overwhelming support for adoption of an industry-wide uniform practice for reporting basic and diluted FFO per share. Moreover, respondents also supported consistency with GAAP by using the methodology under FASB Statement No. 128 in the calculation of FFO per share. FASB Statement No. 128 simplified the computation of EPS by eliminating common stock equivalents in computing primary EPS. In addition, primary EPS is now called "basic" EPS, while fully diluted EPS is now "diluted" EPS.