NAREIT Submission to FASB on Asset Impairment and Disposal
October 13, 2000
Mr. Timothy S. Lucas
Director of Research and Technical Activities
Financial Accounting Standards Board
File Reference No. 210-D
401 Merritt 7
P.O. Box 5116
Norwalk, CT 06856-5116
Re: Proposed Statement of Financial Accounting Standards - Accounting for the Impairment or Disposal of Long-Lived Assets and for Obligations Associated with Disposal Activities
Dear Mr. Lucas:
The National Association of Real Estate Investment Trusts (NAREIT) is pleased to have the opportunity to respond to the Financial Accounting Standards Board's (the Board) Exposure Draft (ED) of the proposed policy on asset impairment and disposal. NAREIT is the national trade association for real estate investment trusts (REITs) and other publicly traded real estate companies. Members include REITs and other businesses that develop, own, operate, and finance income-producing real estate, as well as those firms and individuals who advise, study, and service these businesses.
The business of developing, owning and operating income-producing property involves long-lived assets and their disposal. In this context, the accounting standards for asset impairment and disposal are of vital importance to producing useful and relevant financial reports for publicly traded real estate companies.
NAREIT supports the Board's efforts to enhance the usefulness and relevance of financial reporting by developing standards that would supersede FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, as well as the accounting and reporting provisions of APB No. 30 that address the disposal of a segment of a business. However, as discussed below, we believe there are certain aspects of the proposal that should be amended to facilitate its implementation.
Exchanging an asset (group) for a similar productive asset (group):
Asset sold or liability settled separately from a group:
When to test an asset (group) for impairment:
The term "useful life" does not appear in boldface type the first time it appears in the document (see paragraph 11).
Issues on which the Board has requested comments
Issue 1: Using the expected cash flow approach in developing estimates of future cash flows to test an asset (group) for recoverability.
Issue 2: Definition of "primary asset" of an asset group.NAREIT has no comment on this issue.
Issue 3: "Held for sale" criteria.The criteria in paragraph 30(e) related to assets to be sold as a group states:
Assets to be sold as a group are expected to be sold to a single buyer. The estimated net proceeds expected to result from that sale are higher than those that would result if the assets were sold individually.
Issue 4: Discontinued OperationsNAREIT has no comment on this issue.
Issue 5: Obligations Associated with Disposal ActivitiesNAREIT has no comment on this issue.
Issue 6: Public HearingThe ED contains accounting policies that have not previously been required. NAREIT believes that the Board would benefit by hearing how the proposed accounting could impact companies.
Although we consider all of the foregoing issues to be important, we urge the Board to especially consider the recognition of gain/loss upon exchange of an asset (group) for a similar productive asset (group). We applaud the Board's continued use of fair value to measure the impairment of long-lived assets, and encourage the Board to consider broadening its use of fair value for investment property, possibly in a manner similar to the International Accounting Standards Committee's adoption of International Accounting Standard No. 40, Investment Property.
Executive Vice President, Chief Financial Officer
Mack-Cali Realty Corporation
Co-Chair, NAREIT Accounting Committee