FASB Reconsidering Capitalization of REIT Acquisition Transaction Costs, Analyst Says

Ross Prindle, managing director and global head of the real estate advisory group at Duff & Phelps, participated in a video interview at Nareit's REITwise: 2018 Law, Accounting & Finance Conference in Hollywood, Florida.

Prindle discussed phase three of the Financial Accounting Standards Board’s (FASB) project to improve the accounting for asset acquisitions and business combinations. He explained that prior to FASB’s new definition of a business, acquisitions were treated as business combinations and REITs had to expense their transaction costs.

Now, REITs can capitalize those expenses if they meet the new definition. In phase three of the project, FASB is seeking to align the accounting for asset acquisitions and business combinations. It is possible that the FASB could decide to require that all transaction costs be expensed, according to Prindle.

Meanwhile, Prindle commented on the outlook for real estate valuations for the next few years. He noted that retail assets located in tertiary markets are likely to face continued pressure.