Summary
AvalonBay Communities, Inc. (AVB) filed an 8-K on April 26, 2007, primarily to announce that previously issued financial statements for fiscal years 2006, 2005, 2004, and interim periods in 2006, must be restated. This restatement is due to a change in the accounting method for land lease obligations, specifically an adjustment to comply with SFAS No. 13, requiring lease payments to be recognized over the full term of the lease. The company also reported its Q1 2007 financial results concurrently via press release. Investors should note that while this change impacts reported net income, it is a non-cash adjustment and does not affect cash flows or debt covenants.
Key Highlights
- 1Previously issued financial statements for FY 2004-2006 and certain 2006 interim periods require restatement.
- 2Restatement is due to a change in accounting for land lease obligations under SFAS No. 13.
- 3The change involves straight-lining land lease payments over the full lease term, rather than shorter holding periods.
- 4This accounting change results in a non-cash charge and a reduction in reported net income available to common stockholders.
- 5For FY 2004-2006, net income reductions are approximately $11.9 million per year, representing 4.4%, 3.8%, and 5.7% decreases, respectively.
- 6The restatement does not impact historical or future cash flows, lease payment timing, or compliance with financial covenants.
- 7AVB also announced its Q1 2007 financial results alongside this filing, with related press releases and supplemental information furnished as exhibits.
Frequently Asked Questions
AvalonBay is restating its financial statements for fiscal years 2004 through 2006 and certain interim periods in 2006 because of a change in its accounting method for land lease obligations. This change ensures compliance with SFAS No. 13 by recognizing lease payments over the entire term of the lease.
The accounting change results in a non-cash adjustment that reduces reported net income available to common stockholders by approximately $11.9 million annually for the years 2004-2006. This represents a decrease of 4.4% (2004), 3.8% (2005), and 5.7% (2006) in reported net income for those respective years. The specific land lease in question now accrues approximately $11.2 million per year instead of the previously reported $1.0 million cash payment in 2006.
No, the company explicitly states that this restatement is a non-cash adjustment. It will not impact historical or future cash flows from operating activities, the timing or amount of actual lease payments, or compliance with any financial ratio covenants under its credit facility or debt instruments.
The 8-K filing references a press release issued on April 25, 2007, which announces AvalonBay's financial results for the first quarter of 2007. This press release, along with supplemental information, is furnished as exhibits (99.1 and 99.2) to the 8-K filing.