Retailers have been hit with a rent increase.
It's not their landlords that are sticking them with it, however, but their accountants. After years of skirting the rules about how to report leasehold depreciation and when to start recording their rent payments, many retailers -- including several of the largest supermarket operators -- have been going back over their books and adding in past rent payments they previously avoided reporting.
Safeway, Albertsons, Whole Foods and Ingles have all recently had to adjust current earnings or restate past earnings to account for lease payments made between the time a site was acquired and the time it actually opened. Kroger said it was reviewing its accounting and may have to make adjustments as well.
In many cases, retailers did not record the cost of their leases between the time the site was acquired and the time the store actually opened, as required, according to Ron Lunde, a consultant based in Ponte Vedra, Fla.
"This is the most sweeping earnings restatement, involving the largest amount of companies, since the 1990s," he said.
In addition to the so-called "rent holidays" that some retailers booked, some extended the amortization of their leases over longer terms than they should have after making improvements to the properties, Lunde explained.
The revisions follow a letter to the American Institute for Certified Public Accountants from the Securities and Exchange Commission warning about the issue. Late last year, a handful of companies, as they prepared for the more rigorous financial reporting required by the Sarbanes-Oxley Act, disclosed the lease accounting, which prompted the warning.
Neither Safeway nor Albertsons had to restate prior results, but both took non-cash charges in their recently ended fourth quarters -- $5 million after-tax at Albertsons and $6.5 million after-tax at Safeway.
