Office of the Chief Accountant Staff Position; Release No. 12-OCA-3 [42 Pa.B. 1024]
[Saturday, February 18, 2012]Date of Release
January 25, 2012Commission Guidelines Regarding the Interpretation of Net Assets as defined under the NASAA Statement of Policy Regarding Real Estate Investment Trusts and Incorporating Net Asset Value in the Review and Analysis of Real Estate Investment Trusts.
Background
The Pennsylvania Securities Commission attempts to foster legitimate capital through adequate review of registration and exempt offering material filed with the Division of Corporation Finance and the Office of the Chief Accountant. The Commission staff has increasingly been presented with Real Estate Investment Trusts (REITs) filing registrations under Section 205 of the Act defining Net Assets using a basis not in accordance with U.S. GAAP, specifically in the calculation and use of Net Asset Value (NAV) as a non-GAAP financial measure.
On December 18, 1985, the Commission adopted the North American Securities Administrators Association Statement of Policy Regarding Real Estate Investment Trusts (NASAA REIT Guideline), which defines ''Net Assets'' as ''[t]he total assets (other than intangibles) at cost before deducting depreciation or other non-cash reserves less total liabilities, calculated at least quarterly on a basis consistently applied.'' It appears that many REITs interpret this definition to allow the use of a basis not based on generally accepted accounting principles. Staff believes this is an incorrect interpretation.
The purpose of this Staff Position is to present the views of the Staff that the phrase ''on a basis consistently applied'' will be interpreted to mean ''on the basis of generally accepted accounting principles,'' consistent with other NASAA Guidelines adopted by the Commission. In addition, Staff will interpret the term ''Net Asset Value'' consistent with the term ''Net Asset Value Per Program Interest'' as defined in the NASAA Registration of Commodity Pool Program Policy, also adopted by the Commission.
Staff Position
Interpretation of net assets as defined under the NASAA Statement of Policy regarding Real Estate Investment Trusts and the definition of net asset value as defined under the NASAA Registration of Commodity Pool Programs guideline is to be used by analogy in the review and analysis of real estate investment trusts filed under sections 205 or 206.
(1) Net Assets as defined under Section I.B.17. of the NASAA Statement of Policy Regarding Real Estate Investment Trusts:
Net Assets—The total assets (other than intangibles) at cost before deducting depreciation or other non-cash reserves less total liabilities, calculated at least quarterly on a basis consistently applied.
Shall be interpreted to mean the following:
Net Assets—The total assets (other than intangibles) at cost before deducting depreciation or other non-cash reserves less total liabilities, calculated at least quarterly on the basis of generally accepted accounting principles.
(2) Net Asset Value Per Program Interest as defined under Section I.B.9. of the NASAA Policy Registration of Commodity Pool Programs:
Net Asset Value Per Program Interest—The Net Assets divided by the number of Program Interests outstanding.
Shall be applied to Real Estate Investment Trusts by analogy and be defined as the following with respect to these filers:
Net Asset Value Per Share—The Net Assets divided by the number of Shares outstanding.
Share shall be the term defined under Section I.B.25. of the NASAA Statement of Policy Regarding Real Estate Investment Trusts.
JEANNE S. PARSONS,
Secretary[Pa.B. Doc. No. 12-325. Filed for public inspection February 17, 2012, 9:00 a.m.]
