CNSREIT-AR-2024 Final - Flipbook - Page 122
Investments in Real Estate
The Company determines whether the acquisition of a property qualifies as a business combination, which requires that the
assets acquired and liabilities assumed constitute a business. If the property acquired is not a business, the Company
accounts for the transaction as an asset acquisition. All property acquisitions to date have been accounted for as asset
acquisitions.
Upon the acquisition of a property deemed to be an asset acquisition, the Company assesses the fair value of acquired
tangible and intangible assets (including land, buildings, tenant improvements, above-market and below-market leases,
acquired in-place leases, other identified intangible assets and assumed liabilities) and allocates the purchase price to the
acquired assets and assumed liabilities. The Company assesses and considers fair value based on estimated cash flow
projections that utilize discount or capitalization rates that it deems appropriate, as well as other available market
information. Estimates of future cash flows are based on a number of factors including the historical operating results,
known and anticipated trends, and market and economic conditions.
Whether the acquisition of a property acquired is considered a business combination or an asset acquisition, the Company
recognizes the identifiable tangible and intangible assets acquired, the liabilities assumed and any non-controlling interest
in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of
goodwill or a gain from a bargain purchase. The Company expenses acquisition-related costs associated with business
combinations as they are incurred and capitalizes acquisition-related costs associated with asset acquisitions. The fair value
of the tangible assets of an acquired property considers the value of the property as if it were vacant. The Company also
considers an allocation of purchase price of other acquired intangibles, including acquired in-place leases that may have a
customer relationship intangible value, including the nature and extent of the existing relationship with the tenants, the
tenants9 credit quality and expectations of lease renewals. The estimated fair value of acquired in-place leases is the costs
the Company would have incurred to lease the properties to the occupancy level of the properties at the date of acquisition.
Such estimates include the fair value of leasing commissions, legal costs and other direct costs that would be incurred to
lease the properties to such occupancy levels. Additionally, the Company evaluates the time period over which such
occupancy levels would be achieved. Such evaluation includes an estimate of the net market-based rental revenues and net
operating costs (primarily consisting of real estate taxes, insurance costs and utilities) that would be incurred during the
lease-up period. Acquired in-place leases as of the date of acquisition are amortized over the remaining lease terms. The
amortization of in-place lease intangibles is recorded in depreciation and amortization expense on the Company9s
consolidated statements of operations. Acquired above- and below-market lease values are recorded based on the present
value of the difference between the contractual amounts to be paid pursuant to the in-place leases and the Company9s
estimate of fair market value lease rates for the corresponding in-place leases. The capitalized above- and below market
lease values are amortized as adjustments to rental revenue over the remaining terms of the respective leases, which include
periods covered by bargain renewal options, if applicable. Should a tenant terminate its lease, the unamortized portion of
the in-place lease value will be charged to amortization expense and the unamortized portion of above and below-market
lease value will be charged to rental revenue.
The Company9s investments in real estate are stated at cost and are generally depreciated on a straight-line basis over the
estimated useful lives of the assets as follows:
Description
Depreciable Life
40 years
5 - 20 years
Over lease term
Buildings
Buildings and site improvements
Lease intangibles and leasehold improvements
Significant improvements to properties are capitalized, whereas repairs and maintenance expenses at the Company9s
properties are expensed as incurred and included in property operating expense on the Company9s consolidated statements
of operations. When an asset is sold, the cost and related accumulated depreciation are removed from the accounts with the
resulting gain or loss reflected in the Company's results of operations for the period.
105
