REIT AvalonBay Communities: A Blast From The Past

The subject of operating lease restatements has been beaten so thoroughly, it’s hard to believe that there are any companies left with this problem.

Not impossible, though. One turned up last week: REIT AvalonBay Communities (AVB) put the non-reliance tag on its financials for the fiscal years 2006, 2005 and 2004 and the quarterly filings for 2006 to boot.

What happened? AvalonBay believed it was within the bounds of SFAS 13’s “reference to an alternative basis to straight-lining over the full term of the lease” by straight-lining its land lease expense over the historical and expected average holding period of communities - about the same as the current payments under the lease. Reconsidering the policy after seeing other companies examine their land lease accounting, AvalonBay figured it might be more in line with SFAS 13 to straight-line land lease obligations over the full term of the lease, ignoring the expected holding period.

Bottom line effect: the company expects to report “a reduction of net income available to common stockholders from amounts previously reported of approximately $11.9 million for each of the years ended December 31, 2006, 2005 and 2004, respectively, or a reduction in the previously reported net income available to common stockholders of 4.4%, 3.8%, and 5.7%, respectively.” Wonder if there are more of these revisions still lurking out there? The issue was pretty much a hot topic two years ago…

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My recent post mentioned the SEC’s forthcoming proposal to give U.S. companies a choice of using international (IASB-issued) accounting standards or U.S. (FASB-issued) accounting standards.

The natural question: if this happens, what is the FASB’s future? My crystal ball is kind of cloudy right now, although I think there’s still going to be some kind of accounting standard-setting organization in Norwalk no matter what happens. Better idea: read Marie Leone’s take on the FASB’s future based on a recent industry presentation made by FASB Chairman Bob Herz at Pace University’s School of Business in New York. Link here.

AVB 1-yr chart: