Bryan Seck Yulia Ellison, CPA Vice President, Global ......Holdover: Holdover shall be deemed a...
Transcript of Bryan Seck Yulia Ellison, CPA Vice President, Global ......Holdover: Holdover shall be deemed a...
Yulia Ellison, CPA Technical Accounting and Implementation Specialist
Bryan SeckVice President, Global
Alliances, LeaseAccelerator
© 2020 LeaseAccelerator Inc.
Our Speakers
Yulia Ellison, CPA Technical Accounting and Implementation
Specialist
Bryan SeckVice President, Global
Alliances, LeaseAccelerator
© 2020 LeaseAccelerator Inc.
Agenda
• Gathering Your Leases
• What is Lease Abstraction
• Lease Abstraction Today
• Challenges
• Solutioning & Upkeep
• Q&A
The Ability To Read Pages Of Unstructured Data
• Written In Legalese
• Using Words That Are By Design Intended To Have Double Meaning
And Extract Information Such As Critical Dates, Financial Data And Accounting Provisions
Requires Specific Skills And Knowledge To Understand Standard Clauses, Like Alterations, Damages, Holdover, Default, Destruction, Etc.
What Is Lease Abstraction? What Is Lease Accounting Abstraction?
All Of The Above
Requires Technical Accounting Knowledge To Search For Precise Details Prescribed By The New Lease Accounting Standard
+
150 Data Fields To Collect For Your Lease Accounting Project
Challenge: Lease data is complex!
150 AttributesPer Lease To Collect
• Lease Term• Base and Variable
Rent• Rent Formula• Reasonably Certain
Plans• Residual Value• End of Term Options
70% LeasesChange for Each Year
• New Leases• Rent Changes• Contract
Modifications• New Subleases• Renewals• Terminations• Buyouts
Multiple IntegrationsAcross Internal Systems
• Multiple ERPs, • Asset management• Real estate
100 BillionAccounting Combinations
• Payment Frequency• Payment Timing• Early Termination• End of Term
Renewal• End of Term Buyout• Evergreen
Payments
20% PeopleAcross Organization Touch
Leases
• Procurement• Treasury• Accounts Payable• Corporate IT• Supply Chain• Real Estate
© 2020 LeaseAccelerator Inc.
Remote Provider Management Using Owned Software / Existing Solution
Lease Intelligence (AI) Solutions
In-HouseAbstraction
Lease Abstraction Today
• Abstract Form or Template that houses all the critical data in a concise way
• In a format that is easily understood and read;
• Information can be quickly referenced
• Key Dates are checked and recorded
• Documentation of Key Clauses• Budgeting Awareness for
forthcoming expenses• Reduction of risk of unusual
Clauses being interpreted incorrectly
• Abstracted in a format that is ready for software upload
• Avoid ancillary hiring for incremental work resulting from the new lease standards by leveraging scale and expertise of a Provider
• 40% of public filers cited that significant re-work was required post implementation with several filers forced to scrap the initial work and start over by doing a full abstraction
39%manage decentral
68%spreadsheet tracking
10%use systems today
Lease Abstract by a Remote Provider Management (real-life example)“concise, easy to read and understand”
Holdover: Holdover shall be deemed a tenancy-at –sufferance 125% of the last paid Rent. (Lease, Pg.21-22, Para. 16) Suite: Building 700, Suite 300 (Building 730), Floor 3 & 4 (Building 790) and Suite 400 on4th Floor (Building 730 and 760) Primary Size: Initially, TT occupies the September Premises (128,637RSF, which consists of June Premises and the Second Contraction Premises) from Commencement Dateuntil 5/31/2009; effective 6/1/2009, Premises shall be the June Premises, which consists of all space inthe 700 Building (73,751 RSF) and Suite 300 (20,052 RSF) in 730 Building until 3/31/2022; effective11/1/2011 Premises has expanded to include the 4th Floor Space (20,047 RSF) until 12/15/2012;effective 12/15/2012, Premises is further expanded to include the Rialto (39,694 RSF) in 790 Building withTerm coterminous with the Lease; effective 6/14/2014, Premises is further expanded to include Suite 400(10,250 RSF) in 730 Building with the Term coterminous with the Lease; effective 10/14/2014 until 5years thereafter, Premises is further expanded to include the 4th Floor (9,797 RSF) in 730 Building;effective 4/16/2015 until 5 years and 5 months thereafter, Premises is further expanded to include the760 Expansion Space (18,658 RSF); and effective 3/1/2017, Premises is further expanded to include theMTM Spaces (11,310 RSF) in 730, 760 and 790 Buildings until 3/31/2019. (10th Amendment, Pg. 3,Para. 2; 9th Amendment, Pg. 3-4, Para. 2-4; 8th Amendment, Pg. 3-4, Para. 2-4; 7th Amendment, Pg. 3,Para. 2-3; 3rd Amendment, Pg. 2, 4-5, Para. 2, 5; 2nd Amendment, Pg. 2, Para. 3; 1st Amendment, Pg.3, Para. 3; Lease, Pg. 2, Para. 1.6) TT to pay LL, Base Rent in an amount of (i) $2,721.67/month from6/6/2014 for Suite 110 (1,420 RSF) of 730 Building, (ii) $9,220.83/month from 6/21/2015 for Suite 110(4,426 RSF) of 790 Building, (iii) $4,258.33/month from 7/7/2015 for Suite 117 (2,044 RSF) of 790Building, and (iv) $10,166.67/month from 11/12/2015 for Suite 112 (3,420 RSF) of 760 Building and Suite110 (1,460 RSF) of 760 Building. (MTM Lease dated 10/13/2015, Pg. 3, Para. 3; MTM Lease dated6/22/2015, Pg. 3, Para. 2; MTM Lease dated 5/22/2015, Pg. 3, Para. 2; Lease dated 6/5/2014, Pg. 3,Para. 2) 760 EXPANSION SPACE (18,568 RSF): TT shall pay Base Rent for the 760 Expansion Space inthe amount of $23.50/RSF per year, subject to 3% increase beginning 8/1/2015 and each anniversarythereafter. Base Rent for the 760 Expansion Space shall be abated for the first 5 months and TT shallonly be obligated to pay Base Rent on 14,568 RSF of the 760 Expansion Space for the 6th through 17thmonth. (9th Amendment, Pg. 4, Para. 5) 4TH FLOOR SPACE (20,047 RSF): TT shall pay Base Rent for4th Floor Space in the amount of $23.00/RSF per year, excluding any applicable tax. (1st Amendment,Pg. 3, Para. 5(b)) RIALTO PREMISES (39,694 RSF): TT shall pay Base Rent in the amount of: (a)$24.97/RSF/ year from Rialto Commencement Date to 3/31/2013; (b) $25.72/RSF/ year from 4/1/2013 to3/31/2014; (c) $26.49/RSF/ year from 4/1/2014 to 3/31/2015; (d) $27.29/RSF/ year from 4/1/2015 to3/31/2016; (e) $28.10/RSF/year from 4/1/2016 to 3/31/2017; (f) $28.95/RSF/year from 4/1/2017 to3/31/2018; (g) $29.82/RSF/year from 4/1/2018 to 3/31/2019; (h) $30.71/RSF/year from 4/1/2019 to3/31/2020; (i) 31.63/RSF/year from 4/1/2020 to 3/31/2021; and (j) $32.58/RSF/year from 4/1/2021 to3/31/2022. (3rd Amendment, Pg. 3, Para. 3) TT holdover with respect to the 730 Contraction Space(7,714 RSF) from 2/1/2013 until 6/4/2013 and TT has previously paid to LL holdover rent for such spacefor months February-May 2013, which is 25% premium in excess of the Base Rent applicable during theperiod immediately prior to the holding over.
TT shall pay Base Rent in the amount of: (a) $23.58/RSF/year from 9/1/2008 to1/31/2009; (b)$24.29/RSF/year from 2/1/2009 to 1/31/2010; (c) $30.00/RSF/year from 2/1/2010 to 1/31/2011; (d)$30.83/RSF/year from 2/1/2011 to 1/31/2012; (e) $31.68/RSF/year from 2/1/2012 to 3/31/2012; (f)$24.97/RSF/ year from 4/1/2012 to 3/31/2013; (g) $25.72/RSF/ year from 4/1/2013 to 3/31/2014; (h)$26.49/RSF/ year from 4/1/2014 to 3/31/2015; (i) $27.29/RSF/ year from 4/1/2015 to 3/31/2016; (j)$28.10/RSF/year from 4/1/2016 to 3/31/2017; (k) $28.95/RSF/year from 4/1/2017 to 3/31/2018; (l)$29.82/RSF/year from 4/1/2018 to 3/31/2019; (m) $30.71/RSF/year from 4/1/2019 to 3/31/2020; (n)31.63/RSF/year from 4/1/2020 to 3/31/2021; and (o) $32.58/RSF/year from 4/1/2021 to 3/31/2022.(3rd Amendment, Pg. 3, Para. 3; Lease, Pg. 3, Para. 1.8) Base Rent: SUITE 400 (10,250 RSF): TTshall pay Base Rent for Suite 400 in the amount of $23.50/RSF per year, subject to 3% increaseevery anniversary of the Suite 400 Commencement Date, provided that the first 6 months Base Rentshall be abated. (7th Amendment, Pg. 3, Para. 5) 4TH FLOOR (9,797 RSF) on 730 Building: TT shallpay Base Rent for 4th Floor Space in the amount of $23.50/RSF per year, subject to increase at thesame time as the annual increases in Base Rent for Suite 400 under the 7th Amendment, with thesame Base Rent per RSF, provided that the first 4 months Base Rent shall be abated. (11thAmendment, Pg. 3-4, Para. 2; 8th Amendment, Pg. 4-5, Para. 6; 7th Amendment, Pg. 3, Para. 5)Operating SUITE 400 (10,250 RSF): TT shall pay its PRS (14.16%) of Operating Costs over the BaseYear (2014) in estimated monthly installments with respect to 760 Expansion Space. (7thAmendment, Pg. 3, Para. 6; Lease, Pg. 11-15, Para. 6) Operating RIALTO PREMISES (39,694 RSF):TT shall pay its PRS of Operating Costs over the Base Year (2012) in estimated monthly installmentswith respect to the Rialto Premises. (2nd Amendment, Pg. 4, 5-6, Para. 9, 12; Lease, Pg. 3, 11-15,Para. 1.10, 6) Operating EXISTING PREMISES: TT shall pay its PRS (from 9/1/2008 to 5/31/2009,100% for the 700 Building, 53.20% for the 730 Building and 24.76% for the 760 Building, and effective6/1/2009, 100% for the 700 Building and 28.25% for the 730 Building) of Operating Costs over theBase Year (from 9/1/2008, CY 2008; effective 4/1/2012, CY 2012) in estimated monthly installments.(2nd Amendment, Pg. 4, 5-6, Para. 9, 12; Lease, Pg. 3, 11-15, Para. 1.9, 1.10, 6) Operating 4THFLOOR SPACE (10,047 RSF): TT shall not pay any Additional Rent or any other charges for theOperating Costs above the 4th Floor Space Rate ($23.00/RSF/year). (1st Amendment, Pg. 3, Para.5(b)) Operating 760 EXPANSION SPACE (18,568 RSF): TT shall pay its PRS (26.84%) of OperatingCosts over the Base Year (2015) in estimated monthly installments with respect to 760 ExpansionSpace. (9th Amendment, Pg. 4, Para. 6; Lease, Pg. 11-15, Para. 6) Operating 4TH FLOOR (9,797RSF): TT shall pay its PRS (13.53%) of Operating Costs over the Base Year (2014) in estimatedmonthly installments with respect to Expansion Space on the 730 Building. (11th Amendment, Pg. 4,Para. 4; 8th Amendment, Pg. 5, Para. 7; Lease, Pg. 11-15, Para. 6) Operating MTM Spaces: TT shallpay its PRS of Operating Costs over the Base Year (2016) in estimated monthly installments withrespect to MTM Spaces. (11th Amendment, Pg. 4, Para. 3; 10th Amendment, Pg. 3, Para. 2; Lease,Pg. 11-1
© 2020 LeaseAccelerator Inc.
Remote Provider Management Using Owned Software / Existing Solution
Lease Intelligence (AI) Solutions
In-HouseAbstraction
Lease Abstraction Today
• Abstract Form or Template that houses all the critical data in a concise way
• In a format that is easily understood and read;
• Information can be quickly referenced
• Key Dates are checked and recorded
• Documentation of Key Clauses• Budgeting Awareness for
forthcoming expenses• Reduction of risk of unusual
Clauses being interpreted incorrectly
• Abstracted in a format that is ready for software upload
• Avoid ancillary hiring for incremental work resulting from the new lease standards by leveraging scale and expertise of a Provider
• 40% of public filers cited that significant re-work was required post implementation with several filers forced to scrap the initial work and start over by doing a full abstraction
39%manage decentral
68%spreadsheet tracking
10%use systems today
Lease Abstract by AI: (real-life example) text is “read through” like a human eye
• Lease Term 07.15.2016 - 07.14.2021 5
years Par. 1, line 1 6 years Par. 1, line 2 7 years
• Frequency Year to Month 12 months for each year 1st Payment Period for the 1st
Months of Payment
• Rent Y6.394,.67 $6.0 million RMB 5 million yuan
© 2020 LeaseAccelerator Inc.
Remote Provider Management Using Owned Software / Existing Solution
Lease Intelligence (AI) Solutions
In-HouseAbstraction
Lease Abstraction Today
• Abstract Form or Template that houses all the critical data in a concise way
• In a format that is easily understood and read;
• Information can be quickly referenced
• Key Dates are checked and recorded
• Documentation of Key Clauses• Budgeting Awareness for
forthcoming expenses• Reduction of risk of unusual
Clauses being interpreted incorrectly
• Abstracted in a format that is ready for software upload
• Avoid ancillary hiring for incremental work resulting from the new lease standards by leveraging scale and expertise of a Provider
• 40% of public filers cited that significant re-work was required post implementation with several filers forced to scrap the initial work and start over by doing a full abstraction
39%manage decentral
68%spreadsheet tracking
10%use systems today
Challenge #1. DocumentationExample: Handling international numbers with decimal and thousands separators
Country Format Decimal mark Digit grouping separator
USA $4,294,295.00 - -
France $4,294,295.00 - space
Brazil $4,294,295.00 - -
India $42,94,295.00 - -
Challenge #2:Data Accuracy and Quality
Example: Critical Dates
• Possession Date• Certificate of Occupancy• Substantial Delivery Date• Store Opening• Move-In Date• Lease Agreement Date• Lease Commencement
Date• Lease Inception Date• Contract Date• Rent Commencement Date• Term Commencement• Lease Expiration Date• Term Expiration• Lease Years• Accounting Years
if A is earlier, then Rent b/w Delivery & Rent Commencement Date is freeBut Rent can’t commence prior to signed Rent Commencement Agreement
if B is earlier, then Term Commencement Agreement is signed after Date of Certificate of Occupancy is received But Rent can’t commence prior to signed TermCommencement Agreement
A.6 months postDelivery Date
B.Certificate of Occupancy
Date
not earlier than butearlier of
Rent Commencement
Commencement Agreement is
signed
Term Commencement
=Date of Certificate
of Occupancy
Free Rent b/w Delivery Date
and Rent
Commencement
Delivery DateMm/dd/yyyy
CHALLENGE #3: Accounting Compliance. What to include in Rent PaymentPractical Expedient Not to Separate Lease and Non-lease Components. Under this scenario, non-lease components are includedin the lease component and no separate entry is required.
Non-lease components may have fixed and variable portions of the payments. Only the fixed portion is included with the leasecomponent.
Component Type
ROU Asset Valuation
Accounting ASC 842 Disclosure Reports
Fixed Variable Fixed Variable Recurring
Variable One-Time
Fixed Variable
Lease Component
Yes No ROU Asset and Liability
Remeasure (unless underlying Index change)
Expense when Incurred
QA –Expense Classification Line Items
QA –Expense in Variable Line Items
Non-Lease Component
Yes No ROU Asset and Liability
Remeasure (unless underlying Index change)
Expense when Incurred
Expense Classification Line Items
QA –Expense in Variable Line Items
Not a Component
No No Non-Lease Operating Expense
Non-Lease Operating Expense
Non-Lease Operating Expense
Excluded Excluded
Most Common Errors PerPoor Quality Abstraction
• Variable lease payments (which do not depend on an index or rate) may not be properly identified when lease terms were entered into LMS.
• In-substance fixed payments may not be properly differentiated from variable lease payments.
• Variable lease payments may not be properly excluded from lease payments at initial measurement.
• Variable lease payments may not be properly measured and recognized when incurred
• Variable lease cost may not be properly disclosed.
Areas with Highest Risk of Inaccuracy
Spend Analysis
Workflow / Task Assignment / Collaboration
SearchDocument
Repository / Audit History
Decision Making
Standardized Abstract
Expertise Value Cost
Reasons for Choosing Abstraction ServicesBy Implementation Partners
• Leasing Service Providers bring knowledge, technology, and scale to solve what is becoming an ongoing challenge for organizations of all sizes
• Goal lies beyond data population for Day 1 transition but ensure that your lease portfolio is set up for Day Two and Year One changes.
• Key Dates are checked and recorded
• Documentation of Key Clauses• Budgeting Awareness for
forthcoming expenses• Reduction of risk of unusual
Clauses being interpreted incorrectly
• Abstracted in a format that is ready for software upload
• Avoid ancillary hiring for incremental work resulting from the new lease standards by leveraging scale and expertise of a Provider
• 40% of public filers cited that significant re-work was required post implementation with several filers forced to scrap the initial work and start over by doing a full abstraction
A portfolio of 300 leases with an average term of 3 years will have an average of
100 of the leases will expire and need
to be renewed or terminated
230events occur within a single fiscal year 100 new leases will
need to be generated to replace the assets on the expired leases
30 change events, such as rent increases, floor space expansions, or
contract modifications, will happen
on an average of 10% of the portfolio
Implementation Partners Ensure that you are set up for Day Two and Year One Changes
Keeping up with lease eventsCapturing decisions and events across the lease lifecycle:
Lease StartMid-Term
End of Term
Implementation Partners apply transition approach that delivers accelerated extraction of lease terms from your leases to create a centralized repository of lease data for financial and operational analysis.
Semi-automated data collection
Digitized lease records forfuture searches
Repeatable data qualityand validation
Transition approach – Combining technology and expertise
Data quality validation
Iterative review process supported by customizable metrics to quantify level of quality providing prioritization of leases for investigation, resulting in cleansed data for migration to your
existing or new system(s)
Lease term extraction
Extraction of lease terms and clauses through advanced
technologies such as natural language processing and machine
learning, combined with a proprietary lease ruleset and term inventory developed by our leasing
professionals
Reportingand analysis
Abstracted Data captures all the quantitive and qualitative data for
future analysis of potential operational improvement
opportunities
Benefits of ourtransition approach
Approximated financial impact (ROU and liabilities)
Increased visibility and enduser analysis
Identification of potential operational opportunities
© 2020 LeaseAccelerator Inc.
Questions?
Yulia Ellison, CPA Technical Accounting and Implementation
Specialist
Bryan SeckVice President, Global
Alliances, LeaseAccelerator
THE LEADER IN ENTERPRISE LEASE LIFECYCLE AUTOMATION
Thank you
LeaseAccelerator LeaseAccelerator @LeaseAccelerate LeaseAccelerator