3.4 Considerations Related to Certain Investments
3.4.1 Investments Held by REITs
ASC 974-323
25-1 The existence of some or all of the following factors indicates that the real estate investment trust has the ability to exercise at least significant influence over the service corporation and that, accordingly, the real estate investment trust should either account for its investment under the equity method or should consolidate the investee.
- The service corporation performs activities primarily for the real estate investment trust.
- Substantially all of the economic benefits in the service corporation flow to the real estate investment trust.
- The real estate investment trust has the ability to designate a seat on the board of directors of the service corporation.
- The real estate investment trust and the service corporation have common board members.
- The real estate investment trust and the service corporation have common officers, employees, or both.
- The owners of the majority voting stock of the service corporation have not contributed substantial equity to the service corporation.
- The views of the real estate investment’s management influence the operations of the service corporation.
- The real estate investment trust is able to obtain financial information from the service corporation that is needed to apply the equity method of accounting to its investment in the service corporation.
The determination of whether the real estate investment trust should use the equity method of
accounting for its investment in the service corporation or consolidate the service corporation in its
financial statements should be based on facts and circumstances.
REITs, which can be formed as trusts, associations, or corporations, should consider the guidance in
ASC 974-323-25-1 in addition to the ownership interest and other factors of significant influence (see
Section 3.3) when evaluating whether they have the ability to exercise significant influence over the
operating and financial policies of the service corporation, as discussed above.