1. Lease contracts
Above/ below market lease(s)
Methodology: Income Approach
-- Discount the difference between the contract rent and market rent over the remaining term of each tenant's lease
-- Significant judgment exists with regard to the treatment of renewal options. Consider the following when assessing renewal options:
- Is the renewal within the control of the tenant?
- Does the renewal provide economic benefit to the tenant?
Above/ below market ground lease(s)
Capital lease(s)
Legal/ marketing fees
Leases in-place (forgone rent)
Methodology: Income Approach
-- Represents the value related to the economic benefit for acquiring the property with in-place leases as opposed to a vacant property
-- Measured as the income (rent and expense reimbursement revenue) over the estimated amount of time that it would take to lease the space to stabilized occupancy.
-- The value of the Lease In-Place should not exceed the value of the remaining cash payments under the lease.
Tenant/Customer relationships
Methodology: Income Approach
-- Represents the PV of the NOI difference expected if a tenant renews their lease versus if they vacate and the owner is required to find a new tenant.
-- Tenant relationships are uncommon.
-- Estimated NOI difference is calculated as the sum of the following items multiplied by the renewal probability:
Monthly market rent expense recoveries at the end of the current lease term for the estimated months vacant before a new tenant is in place.
Difference in TI allowance required and leasing commissions paid at the end of the current lease term for a new tenant versus a renewal tenant
-- The expected NOI value is then discounted from the end of the current lease term to the acquisition date to estimate the current value of the tenant relationship.
Unamortized leasing commissions
2. Service contracts
Favorable purchase contracts
Trade names
Above/ below market debt
PPA accounting guidance requires that notes payable and other long-term debt be assigned amounts “at present values of amounts to be paid, determined at appropriate current interest rates.” Therefore, if a mortgage is assumed in the acquisition of a property, there may be an intangible asset to the extent that the assumed mortgage features a below-market coupon. Likewise, assumed mortgage featuring above-market coupons represent an assumed liability to the buyer.
-- Methodology: Income Approach
- If property-level debt was assumed as part of the transaction, the debt should be fair valued in accordance with specific mortgage terms in relation to current market terms as of the acquisition date to determine if a favorable/ unfavorable condition exists.
3. Recognize and measure goodwill
Goodwill shall be recognized as of the acquisition date and measured as the excess of (1) over (b).
(a) The aggregate of the following:
-- The consideration transferred measured in accordance with ASC 805-30-30-1, which generally requires acquisition-date fair value.
-- The fair value of any non-controlling interest in the acquire
-- In a business combination achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest in the acquiree.
(b) The of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with ASC 805.
4. Recognize and measure a bargain purchase gain
-- Bargain purchases occur if the acquisition-date amounts of the identifiable net assets acquired, excluding goodwill, exceed the sum of
(1) the value of consideration transferred
(2) the value of any non-controlling interest in the acquiree; and
(3) the fair value of any previously held equity interest in the acquiree
-- A bargain purchase should be recognized in earnings (profit or loss) and attributed to the acquirer