AMB Property Corporation set out to be a leader in corporate governance and financial reporting. The company is a publicly traded real estate investment trust (REIT) which acquires, develops and owns industrial properties, believed that their corporate governance and reporting practices were among the best in the industry. The implementation of good disclosure practices in the REIT industry was no easy task. Historically, the real estate industry was dominated by private partnerships and institutions … Read more »

AMB Property Corporation set out to be a leader in corporate governance and financial reporting. The company is a publicly traded real estate investment trust (REIT) which acquires, develops and owns industrial properties, believed that their corporate governance and reporting practices were among the best in the industry. The implementation of good disclosure practices in the REIT industry was no easy task. Historically, the real estate industry through private partnerships and institutional investors, the tax and accounting partnership rather than generally accepted accounting principles (GAAP) used was dominated. As a result, there was a need for new financial conditions that were actually bridge the differences between GAAP and private partnership accounting, in particular, funds from operations. But because such industry-specific ratios were not calculated consistently, it was difficult to compare companies for the users of financial statements to the REIT operating results. Public REITs, which are non-GAAP measures used were required to these metrics to GAAP standards, a process that added significantly to the length of the REIT’s financial reports to reconcile. In addition, companies were required to GAAP accounting standards, which are designed especially for the real estate industry as others were, and had the unintended consequence of making it difficult to assess the operating performance of REITs and compare these results across time periods. Examines the issue of financial reporting in the REIT industry, including key FASB, the potentially distorting REIT financial results, the use of funds from operations as a metric of financial performance and different approaches for the evaluation of REITs.
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from
Maureen McNichols,
Brian Tayan
Source: Stanford Graduate School of Business
29 pages.
Publication Date: Apr 27, 2007. Prod #: A194-PDF-ENG
AMB Property Corporation: Financial Reporting in the REIT Industry HBR case solution

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