4.12 Presentation of Funds From Operations
Funds from operations (FFO) is a non-GAAP measure commonly used in
the real estate industry. C&DI Questions 102.01 and 102.02 indicate that FFO, as
defined by the NAREIT and in effect as of May 17, 2016, as well
as FFO per share will continue to be accepted as a performance measure.
The presentation of any FFO measure in a manner that departs from
the NAREIT definition (e.g., adjusted FFO, core FFO), or as a per-share amount based
on such a modified measure, is subject to the prohibitions in Item 10(e).
Accordingly, that measure must comply with the requirements in Item 10(e) for a
performance measure or a liquidity measure. If modified FFO is considered a
performance measure, it may be presented on a per-share basis; if a modified FFO per
share is, in substance, a liquidity measure, presentation on a per-share basis is
prohibited. Acceptability of FFO per-share measures, or modified FFO per share, does
not override the prohibition against the presentation of cash flow per-share data
and other per-share measures of liquidity.
C&DIs — Non-GAAP Financial Measures
Question: What
measure was contemplated by “funds from operations” in
footnote 50 to Exchange Act Release No. 47226, Conditions
for Use of Non-GAAP Financial Measures, which indicates that
companies may use “funds from operations per share” in
earnings releases and materials that are filed or furnished
to the Commission, subject to the requirements of Regulation
G and Item 10(e) of Regulation S-K?
Answer: The
reference to “funds from operations” in footnote 50, or
“FFO,” refers to the measure [as] defined as of January 1,
2000, by the National Association of Real Estate Investment
Trusts (NAREIT). NAREIT has revised and clarified the
definition since 2000. The staff accepts NAREIT’s definition
of FFO in effect as of May 17, 2016 as a performance measure
and does not object to its presentation on a per share
basis. [May 17, 2016]
Question: May a
registrant present FFO on a basis other than as defined by
NAREIT as of May 17, 2016?
Answer: Yes,
provided that any adjustments made to FFO comply with Item
10(e) of Regulation S-K and the measure does not violate
Rule 100(b) of Regulation G. Any adjustments made to FFO
must comply with the requirements of Item 10(e) of
Regulation S-K for a performance measure or a liquidity
measure, depending on the nature of the adjustments, some of
which may trigger the prohibition on presenting this measure
on a per share basis. See Section 100 and Question 102.05.
[May 17, 2016]
FFO may be reported gross or net of noncontrolling interest
adjustments. In situations in which the FFO calculation appears to take into account
noncontrolling interest adjustments and is simply labeled “FFO,” the registrant
should clearly label the measure to reflect “FFO attributable to common
stockholders” or “FFO attributable to the company.”