Real Estate Companies - Financial Reporting and Analysis

Real estate companies typically construct and operate income-producing real properties.

Examples of such properties are shopping centers, hotels, and office buildings. A typical project would involve selecting a site, arranging financing, arranging for long-term leases, construction, and subsequently operating and maintaining the property.

Real estate companies contend that conventional accounting—recognizing depreciation but not the underlying value of the property—misleads investors. In some cases, these companies have taken the drastic step of selling major parts or all of the companies’ assets to realize greater benefits for stockholders. Some real estate companies have attempted to reflect value by disclosing current value in addition to the conventional accounting. Such acompany is The Rouse Company.

The Rouse Company arrives at current value using future income potential, assuming that the property is held for the long-term development and sales programs. This is an attempt to indicate annual progress and reflect how investors perceive real estate values.

In The Rouse Company 1998 annual report, the conventional balance sheet has net stockholders’ equity of $628,926,000, which is $8.71 per common share. In the letter to stockholders, it discloses the current value stockholders’ equity of $2,400,000,000, which is $33.15 per share.

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