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January 21, 2016
2015 Year End Reporting Reminders - FFO Reporting and Earnings Guidance
Over the past two years, NAREIT has been focused on certain issues with respect to reporting Funds From Operations (FFO), and providing guidance on how best to report this important industry metric. This Alert is issued to remind NAREIT member companies of certain guidance that resulted from this initiative.
Providing Guidance on FFO
On Sept. 18, 2014, Steve Wechsler, NAREIT President and CEO, sent a letter to Chief Executive Officers of stock exchange-listed equity REITs describing certain issues related to reporting FFO and the development of FFO guidance. As indicated in the letter, NAREIT found that: 1) over 95% of stock exchange-listed equity REITs reported FFO according to the NAREIT definition; and 2) about half of these companies also reported FFO based on a modified definition of FFO. Steve Wechsler’s letter requested that if a company reports a modified version of FFO that it be reconciled to the NAREIT-defined FFO.
Similarly, in some cases a company and/or analysts may provide guidance based on a modified FFO definition without providing guidance based on NAREIT-defined FFO. In order to enhance the usefulness and transparency of FFO guidance, companies are asked to:
- Provide guidance on NAREIT-defined FFO if the Company provides guidance on a modified definition of FFO
- Reconcile the guidance provided on NAREIT-defined FFO and on a modified definition of FFO.
Transparency in Labeling FFO
On July 13, 2015, NAREIT issued a SFO Alert, Transparency in Labeling FFO. While the great majority of equity REITs measure FFO in accordance with NAREIT's definition, there are variations in the securities to which the reported FFO applies (e.g., all equity securities, common shares, etc.) While each of these metrics may represent FFO as defined by NAREIT, accurate labeling with respect to applicable securities is very important. Therefore, care should be taken in labeling the FFO metric, as well as the GAAP earnings metric. This is particularly so in the reconciliation of GAAP earnings to NAREIT-defined FFO.
Contact
For more information contact George Yungmann, Senior Vice President Financial Standards at gyungmann@nareit.com or Christopher Drula, Vice President Financial Standards at cdrula@nareit.com.
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