Financial reporting standards have never mattered more to investors than they do now. Financial standards and accounting practices are a critical issue for NAREIT and its members.

In my view, we have two key requirements that REITs must meet. First, we must ensure that the financial statements of publicly traded real estate companies are comparable to the rest of corporate America. Second, it is vital that financial reporting be consistent among all companies in our industry. I’ve seen significant progress in both areas, but we can clearly do more.

I cannot stress enough the importance of ensuring that REIT financial data is comparable with those of other publicly traded companies. Our businesses need to be on par from a reporting basis if we are to be seen as an investment alternative along with all other publicly traded equity.

Increasingly companies are spotlighting GAAP net income alongside funds from operations (FFO). NAREIT has made great strides by highlighting the value of GAAP net income, the principal performance measure for all publicly traded companies, by emphasizing that it is the primary reporting metric for the industry.

Related to this, NAREIT’s approach regarding FFO is to follow all GAAP standards. This means that every time a new universal standard is issued, NAREIT will not change the definition of FFO to exclude the impact of the new standard.

Within our industry, the issue is tied mainly to compliance with NAREIT’s definition and guidance on reporting FFO. Having every company play by the same rules helps eliminate any confusion among analysts or investors.

Make no mistake, FFO has come to be regarded as a valuable supplemental reporting metric. However, the utility and effectiveness is compromised if all companies do not follow the same rules and guidelines in their FFO reporting practices.

The good news is that compliance has improved dramatically in recent years to reach nearly 90 percent, but 100 percent compliance remains our ultimate goal. Just as noteworthy, the SEC has acknowledged NAREIT’s definition and guidance on FFO, leading to the ability for companies to provide FFO on a per-share basis in SEC filings.

In addition, many REITs are taking it upon themselves to elevate their financial disclosure by providing supplemental analyst packages concurrent with their earnings releases. Not only does this provide investors and analysts a better understanding of their businesses, but it also positions our industry as a leader in providing full disclosure.

Whether FFO exists or not, NAREIT would still have its hands full with important issues tied to education and advocacy on financial reporting matters. Past years have seen NAREIT file dozens of comments with the SEC and FASB, among others, on many and varied proposed reporting standards. NAREIT provides forums for industry professionals to understand these new rules and comprehend how changing standards might impact their reporting practices.

Going forward, NAREIT will continue to be aggressive in its efforts on industry education and advocacy with respect to financial reporting issues. NAREIT’s efforts, however, are only one part of the disclosure discussion. At the end of the day, it is up to each and every member company to comply with the existing rules and to foster financial reporting that allows our industry to effectively compete in the capital markets.

Hamid R. Moghadam
NAREIT Chair
Chairman and CEO,
AMB Property Corporation