This excerpt taken from the EQR 8-K filed Dec 15, 2008.
See Note 11 for further discussion of derivative instruments.
Rental income attributable to leases is recorded when due from residents and is recognized monthly as it is earned, which is not materially different than on a straight-line basis. Leases entered into between a resident and a property, for the rental of an apartment unit, are generally year-to-year, renewable upon consent of both parties on an annual or monthly basis. Fee and asset management revenue and interest income are recorded on an accrual basis.
The Company adopted SFAS No. 123(R), Share-Based Payment, as required effective January 1, 2006. SFAS No. 123(R) requires all companies to expense share-based compensation (such as share options), as well as making other revisions to SFAS No. 123. As the Company began expensing all share-based compensation effective January 1, 2003, the adoption of SFAS No. 123(R) did not have a material effect on its consolidated statements of operations or financial position.
The cost related to share-based employee compensation included in the determination of net income for the years ended December 31, 2007, 2006 and 2005 is equal to that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123.
The fair value of the option grants as computed under SFAS No. 123 would be recognized over the vesting period of the options. The fair value for the Companys share options was estimated at the time the share options were granted using the Black-Scholes option pricing model with the following weighted-average assumptions:
The valuation method and assumptions are the same as those the Company used in accounting for option expense in its consolidated financial statements. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. This model is only one method of valuing options and the Companys use of this model should not be interpreted as an endorsement of its accuracy. Because the Companys share options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the