5.4 Normally Occurring Disposals
Entities in certain industries (e.g., real estate, private equity, or retail)
may frequently enter into disposal transactions that may be quantitatively major. If
the dispositions are part of the entity’s ongoing strategy, it is likely that they
would not represent a strategic shift for the entity. The determination of whether a
normally occurring disposal is a strategic shift will be based on the entity’s
specific facts and circumstances.
Example 5-3
Normally Occurring Disposals
Entity A is a real estate investment trust (REIT) that acquires properties in
areas experiencing a downturn in prices. Entity A renovates
the properties, leases them, and manages them until it is
able to capitalize on appreciation by selling them.
In the current reporting period, A sells a property, identifying the property
sold on the basis of its assessment of whether the sale
would provide it with a specified rate of return. Regardless
of whether the sale has or will have a major effect on A’s
operations and financial results (e.g., reduced rental
income and maintenance costs), the sale would most likely
not represent a strategic shift because it occurred as part
of A’s ongoing strategy to sell the properties that have
appreciated sufficiently to provide A with its specified
rate of return.
If, however, the property sold represented A’s only such
property of a particular class or in a particular
jurisdiction, the sale might represent a strategic shift if
A plans to exit entirely that class of property or
jurisdiction.