Fred55's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/415498/comments http://seekingalpha.com/article/99338-reits-and-the-fallacy-of-ffo?source=feed#comment-507656 507656
Depreciation assumes that the depreciated asset has to be replaced at the end of the depreciation period. It was believed (probably correctly) that with proper maintenance, buildings could last much longer than their GAAP depreciation periods. If that's true, then it makes sense to add back the non-cash depreciation expense. But if you add back depreciation, you have to make sure to account for the expense of maintaining the building in its current state forever, which is probably a significant expense.

I think what Richard Woon may be talking about is the possibility that the asset value of the building will be impaired because market prices of buildings will fall. You're on the right track, Richard, it's a valid concern. But depreciation has to do with erosion of value from "wear and tear" (fairly regular and predictable) and not repricing of assets by the market (less regular and predictable). ]]> Sun, 17 May 2009 19:55:13 -0400
Depreciation assumes that the depreciated asset has to be replaced at the end of the depreciation period. It was believed (probably correctly) that with proper maintenance, buildings could last much longer than their GAAP depreciation periods. If that's true, then it makes sense to add back the non-cash depreciation expense. But if you add back depreciation, you have to make sure to account for the expense of maintaining the building in its current state forever, which is probably a significant expense.

I think what Richard Woon may be talking about is the possibility that the asset value of the building will be impaired because market prices of buildings will fall. You're on the right track, Richard, it's a valid concern. But depreciation has to do with erosion of value from "wear and tear" (fairly regular and predictable) and not repricing of assets by the market (less regular and predictable). ]]>