After an extended 2011 comment period to the initial lease accounting Exposure Draft (ED), the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) intend to release a revised ED early in the second quarter of 2012. The public will have opportunity to comment on this new ED for at least 120 days following the date of release.  If the revised ED is released on schedule, we can expect that new lease accounting  standards will be finalized in the first or second quarter of 2013 with the transition period occurring as early as 2015 or 2016.

Based on our review of the initial ED, here are some issues our negotiators and lease administrators are watching:

Financial statement preparers are likely to have to show two years of comparative data in the year of transition for all leases on the books in that transition year. So, during the two years prior to the effective date of any reporting changes, lessees will want to get a handle  on applying the new standards to their books.  Property Works will be in conversation with each client throughout this period; together, we will design our approach to supporting  each clients’ new reporting needs.

Definition  of “lease assets”: Although capital leases might  be grandfathered into the current accounting standards during the transition period, after that point all leases – capital, operating, or otherwise – will be considered “leases” within  the standard definition.  We are watching to see whether FASB tightens the definition of “lease” or specifies any exceptions so that lessees don’t report more capitalized leases than the standards require.

Impact on Profit and Loss statements & deferred taxes: Under the current ED, all leases will be  booked at the present value of remaining rents, including all renewal terms that the lessee has a strong economic incentive to exercise, offset by the asset to the lessor of the “right of use” of the property over the remainder of the lease. This results in a highly front-loaded reported cost to lessee, although such front-end costs are unlikely to reflect the actual economics of the lease over its term.  Such a reporting structure will affect lessors’ reported profits, generate deferred tax assets in the early years of many lease and may make retailers appear more leveraged than they are, thereby potentially reducing a lessors’ access to capital. We’ll look for FASB revisions to this approach in the upcoming ED, as this language met with heavy criticism from commenters.

Renewal Term language matters: FASB has indicated that the definition of a lease term will probably be the contractual terms plus renewal terms that are essentially a bargain the lessor can’t refuse, but we do not yet know exactly what kinds of renewal language will trigger a renewal term being counted (and capitalized) as part of the lease term up front. Our negotiations team is evaluating approaches to negotiating renewal term language as the precise words of a lease could affect financial reporting.

Contingent rent accountability: Variable payments, such as CPI, will be capitalized by the lessee at an estimated spot rate. As the index fluctuates, this occurrence will impact P&Ls for the current period and prior period and naturally the “right of use” asset or liability, as applicable, will be adjusted for the future. Currently, it looks like percentage rent will not be capitalized unless such payments can be considered minimum payments masquerading as percentage rent. Depending on where FASB settles out, the use of CPI and the language of percentage rent provisions could be negotiation points for new leases or renewals.

Amendments to Lease Contracts after Commencement: Substantial alterations to a lease will likely result in that lease’s  being deemed a new contract for financial reporting purposes, resulting in another round of front-end heavy capitalization following amendment. We will be reviewing the upcoming ED and any related guidance to determine what sorts of revisions will trigger this “new lease” status and our negotiators will be ready to manage amendments with an eye toward possible financial reporting impacts.

We are always interested in discussing  how Report ms and the Property Works team can support your lease management needs in the current and future financial reporting environment. Contact your Account Manager or call us at 678-795-3830 – we look forward to hearing from you.

Post by Andrew Larrier and Caroline Branch

At the October 2011 Taco Bell Franchise Management Advisory Council Convention, attendees stressed that, in this time of  fluctuating commodities prices and cautious consumers, franchisees need to get back to the basics of focusing on customer service and quality food.  As a preferred vendor to Unified Foodservice Purchasing Co-op, LLC (“UFPC”), which is the exclusive supply chain management organization for Yum! Brands, Inc. and its five national restaurant systems including A&W, KFC, Long John Silver’s, Pizza Hut and Taco Bell, Property Works is well aware that managing a real estate portfolio is time-intensive.  This work consumes man hours that corporate staff could be spending on the basics of improving the customer dining experience while maximizing profitability. Property Works supports our clients by taking all lease-related issues off their desks, freeing up the staff to dedicate all of their energy to the basics of their businesses. Recognizing the value Property Works has offered to numerous Yum! Brands franchisees for over ten years, UFPC recently selected Property Works as its preferred solution to lease management needs.  With its user-friendly lease management software and team of real estate professionals experienced in handling all aspects of lease management, including services from managing accounts payable to all manner of vendors  to lease negotiations to tax appeals, Property Works can develop a tailored and cost-effective program to support your business. Would you like to find out more? Contact Paul Crain at 678-795-3839 or pcrain@propertyworks.com.

Visit www.propertyworks.com to see how we can help.

Once in a rare while, we at Property Works run across a business that shares our commitment to customer service, cutting-edge industry expertise and creative approaches to controlling our clients’ costs.  We discovered Secure Energy Solutions, LLC (“SES”), a few years ago and we would like to introduce you – we think SES might be a good partner for our clients in negotiating energy purchases and controlling energy costs in our volatile energy market.

SES is a licensed energy aggregator, meaning that their team can work with

We don’t make a habit of sharing information about other businesses with our clients, and we won’t ever share our clients’ information with any other business.  If you would like to set up a free initial consultation with SES, please contact Christopher Wayte at 413.478.9109 or cwayte@sesenergy.org, or ask your Account Manager to get you connected.

Visit www.propertyworks.com to see how we can help.

Responding to suggestions from our clients, Property Works has added a Consumer Price Index (“CPI”) calculator module to REport ms.  Ever missed a CPI cap and found yourself overpaying? Our new module automatically pulls any CPI caps or floors from the lease data already recorded in REport ms, runs all calculations simultaneously and within a few seconds selects the appropriate CPI increase based on the calculations and lease terms.  The CPI calculator will significantly decrease time dedicated to CPI calculations while increasing accuracy.

As always with our system improvements, this module is immediately accessible to all clients at no increased cost.  For current clients: to use the CPI calculator, select the unit for which you need to calculate CPI, expand “Financials” and select “CPI”. Click on “Add New” to create a new record that will reflect the rent after CPI escalation.  Enter the relevant data into the CPI fields, including current base rent, index amounts, and any minimum or maximum caps.  When you click “Calculate,” the CPI calculator will run the numbers, select the correct rent amount based on the calculation and any applicable caps, and provide you with the CPI-adjusted rent amount.  This record can be saved as a basis for future CPI adjustments.

Property Works is developing more automated features for this module, such as establishing a live link to both the lease data and the Bureau of Labor Statistics tables and automatically adding the escalated rent amount to the Payment Schedule.  If you have ideas for features you would like to see included in the CPI module or to schedule a brief training session,  please contact your Account Manager or Sarah Grathwohl at 678-795-3832 (sgrathwohl@propertyworks.com).

Visit www.propertyworks.com to see how we can help.

 Restaurant Owner and Operator Bob Evans Selects Property Works as Lease Management Partner 

Property Works recently expanded its collaboration with nationwide restaurant owner and operator Bob Evans Farms, Inc. to support  the company’s  entire portfolio of over 550 Bob Evans Restaurants located in eighteen states. Bob Evans selected Property Works’ proprietary web based application, REport ms, to manage lease and property data for its extensive portfolio.

For over ten years, Property Works has supported lease administration for Mimi’s Café, a French inspired bistro owned by Bob Evans that is over 145 restaurants strong.  Property Works has worked with Mimi’s Café to tailor our REport ms offerings to meet Mimi’s Café’s specific needs, and the Property Works team is looking forward to offering the same targeted service to a combined  portfolio of approximately 700 Bob Evans restaurants across the nation. 

Property Works provides lease management software and services to companies that operate in multiple retail locations. Property Works’ current client list includes dozens of retail and restaurant companies representing over forty nationally known brands and it is a preferred vendor to the exclusive supply chain management organization for Yum! Brands, Inc. Using a combination of its industry-leading web based application, Report ms, and personal customer service to manage lease and property data and activity, Property Works saves its clients hundreds of thousands of dollars each year in occupancy costs and administrative expenses. Visit us at www.propertyworks.com.

1. 2010: The Year of High Intensity Projects. With interest rates low, financing scarce, and the most unique market in decades, brilliant executives got creative. Property Works was called on to assist with portfolio restructuring, obtaining consents and approvals, and performing due diligence. Nothing new for the Property Works team, but this year it seemed that everything was a little more critical, a little more urgent. Lots of hard work and long days, but worth it.
2. The number of lease renegotiations and the immediate rent relief generated by Property Works soars to an all time high. Part because of the economy, and part because we’ve built an outstanding negotiation team in recent years, the savings that we achieved for our clients via lease renegotiations and renewals grows exponentially. The Property Works team negotiated nearly 100 leases and achieved more than $5,000,000 in short term rent savings.
3. The Property Works team is growing, and growing strong. Despite the sluggish economy, we added great resources to the Atlanta team, to the New England team, and to our Data Group. For the second consecutive year our employee retention exceeded 93%. In order to maintain the level of employee engagement we need to serve our clients, we have to work real hard and play just enough to keep our focus. In 2010, the Property Works team enjoyed fun afternoons on it’s new patio in Downtown Decatur, the first annual Property Works golf tournament (a dry run for our East Lake Golf Outing), the Kaiser Permanente Corporate Fitness Challenge, a great Fourth of July tailgate party (we discovered that the parking lot of our new office building has the city’s best view of the fireworks!), a super fun rookie Fantasy Football season, and of course, our periodic and impromptu "Catch Phrase" breaks.
4. Occupancy Cost Recoveries exceed $1 million. During a year when landlords were charging more than ever and fighting harder to justify those charges, Property Works auditors were able to recover more than $1,000,000 in erroneously charged additional rent items. The Occupancy Cost team found dozens of caps that were exceeded, charges that weren’t allowed, and more than 82 "new" situations where our clients were overcharged by landlords.
5. Property Works and all its clients make it through the Great Recession. We are so grateful that our clients (and we) have worked through the crazy financial times of 2009 and 2010. The primary company goals that flashed on the conference room wall during our 2009 Annual Kick-Off Meeting were: 1) Do whatever we have to do to keep our clients healthy; and 2) Find ways to make the economy work for us. We did both. We added really strong talent to our team, we bought a new office building four our Atlanta headquarters, and we went into "Do More For Less" mode for all of our clients. We initiated a two year freeze on all fee increases for existing clients, we reduced and restructured our lease renegotiation fees so that our clients could benefit from immediate cash savings with decreased/deferred fees, and we worked with clients to provide the special services they needed during these tough times at a rate they could afford.
6. Property Works gears up for the anticipated new lease accounting regulations. We’ve Got You Covered. Aside from the economy, the industry buzz during 2010 was the proposed FASB/IASB changes to lease accounting rules. The anticipated changes will put a huge short term administrative burden on corporate real estate departments and will require significant changes in the way lease data is tracked, managed, and reported. Because of Property Works world class practices and industry leading technology, existing clients are "covered". Property Works has already added many of the new data fields that will be required and has a development plan based on the anticipated changes that is scheduled to be completed within 60 days of the final ruling (about 1 year BEFORE the new regulations become effective).
7. Property Works Goes Greener. Property Works continued its efforts to be a more environmentally conscious company. In 2010 we became "nearly" paperless, enrolled in the City of Decatur’s commercial recycling program and Decatur’s semi annual electronics recycling collection. The company continued to reimburse public transportation costs for employees and expanded its telecommuting options.
8. Accelerating Technology. Property Works moved REport ms to the latest Microsoft Framework 3.5 which provideds an exponential leap in the library of features available for future development. Infrastructure was completed for exciting new features including a client specific dashboard, enhanced mobile access, and new lease accounting compliance functionality.
9. Property Works Continues to Support The East Lake Foundation. Property Works partnered with The East Lake Foundation in 2008 in an effort to reinvest in our community. In 2010, Property Works participated in monthly "Real Alouds" at the Drew Charter School, purchased books for the Drew Charter School Library, and provided mentor and tutoring to young people in the East Lake neighborhood.
10. Property Works increases it "Roster of Anchors" by five. Property Works is honored to have managed portfolios and/or portfolio data for more than a decade for some of the retail and restaurant industry leaders. McCormick and Schmick’s, Mimi’s Café, Lockwood McKinnon (Taco Bell), Wisconsin Hospitality (Pizza Hut and Taco Bell), and The Honeybaked Ham Company, join an elite and esteemed group of companies that have trusted Property Works to be their lease management partner for 10 years or more.