Q: Would the option to elect to report debt at fair value be available to be changed upon the extinguishment of the current debt in a portfolio? If yes would the extinguishment of all the properties in the portfolio be required or would a majority be sufficient?
A: The Fair Value Option (ASC 825) requires the election on an instrument by instrument basis and is not revocable. REIS requires compliance with GAAP, so if the Fair Value Option is elected, it would be elected and utilized in a manner consistent with GAAP.
Tenant Improvements and Leasing Commissions
Q:How are leasing commissions for terminated/vacated tenants reflected? They remain in cost and not written off? Historical cost would adjust.
A: The Reporting Standards require fair value, GAAP based financial reporting not historical cost. Accordingly, at each valuation period, a new fair value is determined. Leasing commission for terminated/vacated tenants are reflected in the adjusted fair value of the asset, so in essence are written off through the valuation adjustment.
Q: With respect to tenant improvement allowances at acquisition, should the buyer consider the TI allowances as a liability or a reduction to the purchase price upon establishment at day one?
A: The Reporting Standards require fair value, GAAP based financial reporting, not historical cost. In a fair value model tenant improvements would be included in the value of the real estate.
Financial and Accounting Q&A