Terminix Saves 20% on Office Space Rental Costs Through an Early Renewal and Extension of Their Office Lease

Terminix, recently signed a new office space lease to remain in their current office space. They were able restructure their current office space lease and an early extension for 15,762 square feet for their regional contact center in Norcross. Terminix will not only reduce their rental costs by 20 percent , they will also receive capital for improvements to  the entrance and lobby of the their office.

Many companies are looking to reduce their real estate costs by taking advantage of current market pricing and conditions. A creative way to do this is to restructure your current lease through an Extend and Blend leasing agreement. The Extend and Blend is simple amendment to a current lease that extends the length of the lease and usually includes additional incentives from the building owner. These incentives can include reductions in rental rates, operating expenses and in some cases tenant improvements. 

Terminix was able to reduce their real estate costs by planning early and signing an extension while they still had more than a year left on their current office lease. Because the office space vacancy rate for the office submarket is high and Terminix is in a growth phase , the landlord was motivated to keep Terminix as a tenant in their building. Terminix announced this year that they would be hiring additional workers at this regional call center.

For more information on the Extend and Blend lease program please download the Extend and Blend leasing program brochure. 

Complimentary Course on FAS 13 Accounting Changes

John davis version fasb 13 iasb 17 (2)

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How Will Lease Accounting Changes Impact Sale/Leaseback Transaction

Many CFOs have realized many benefits in the past from sale/leaseback transactions. Selling Commercial property and leasing it back has allowed many companies to free capital that has been tied to real estate and redeploy this capital more strategically. New lease accounting changes may change this market dramatically. This topic was recently addressed in an article In CFO Magazine.

Space Race
By Russ Banharn


...All of this would sound even better if it were not for the proposed changes to lease accounting currently on the table. The Financial Accounting Standards Board and the International Accounting Standards Board have both proposed major alterations in lease accounting (see "Taking the 'Ease' Out of 'Lease'?" December 2010). Under the proposals, tenants would be required to place the obligation to pay rent over the entire lease term on their balance sheets as a liability. Right now, only the current rent is booked on the financials, as an expense on the income statement. Many observers predict these changes will be adopted.

If so, those companies seeking to spruce up their balance sheets by eliminating mortgage-debt obligations through a sale-leaseback may change their minds, since a lease liability would effectively treat all leases as a capital lease, which would gum up the balance sheet. "If a company is trying to raise capital, a sale-leaseback would still be a very viable option," says NorthMarq's Houge. "But the proposed changes to the accounting standards will affect other agreements, such as credit agreements requiring a minimum debt coverage ratio, and that could be a problem."

Others predict that future sale-leaseback deals will involve shorter-term leases, in the 3-to-5-year range. "If the rules change, the longer the lease, the greater the liability, so companies may want shorter leases than the typical 10-to-20-year term that makes sale-leasebacks work," says White of Real Capital Analytics. "It comes down to a financial decision: if you can borrow unsecured debt cheaper than what a real estate investor is offering, you may pass."

to read the full article please visit
http://www.cfo.com/article.cfm/14550844/3/c_14551704?f=search

Surplus Property Course for CFOs

Surplus property strategies course2 p96

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CCIM Magazine Covers New Lease Accounting Rules in Current Issue

Counting Leases Before They Hatch

A proposed accounting change will dramatically affect how landlords and tenants treat leases.

by Tom Muller

The accounting profession is currently evaluating a proposed new standard that promises to fundamentally change the ways landlords and tenants account for — and negotiate — leases.Under review is a proposed rewriting of the Financial Standards Accounting Board’s Accounting Standards Codification Topic 840, which before 2009 was known as FAS 13. This topic, "Accounting for Leases," is one of many standards that together comprise generally accepted accounting principles, or GAAP, in the United States.

The draft standard has drawn much heated debate for its potential to fundamentally change the leasing market, likely shortening lease terms and dramatically reducing the apparent value of properties with traditionally long lease terms, such as office buildings.

What Is Being Proposed?

According to FASB, the proposed new rule responds to dissatisfaction with the way that operating leases are disclosed on companies’ financial statements. Current financial standards draw a distinction between operating leases — the standard landlord/tenant relationship — and capital leases, typically used as an alternative form of financing. Current rules effectively ignore the documented structure of capital leases, instead treating the leased property as if it were owned by the tenant and financed by the landlord.

FASB notes that many companies have carefully structured their leases in view of the current rules to achieve characterization as either operating leases or capital leases, resulting in strikingly different effects on the company’s financial statements. The proposed rules to a large degree would prevent this by treating all leases with a term over one year as capital leases.

The proposed new standard treats the execution of a lease as the conveyance to the tenant of an asset — the right to use the property — and the creation of a liability — the obligation to pay rent over the term. The standard creates one analysis for the inception of the transaction and a slightly different one for ongoing reporting. It also requires both landlord and tenant to adjust underlying assumptions about the future of the lease as facts that might affect those assumptions change.
Tenant Changes

For the tenant the new standard would require the following considerations.

    * At the beginning of the lease, the tenant must recognize as a liability the present value of all lease payments it is obligated to make, taking into account any extension or termination options it is likely to exercise, and estimating any contingent rent or termination payments it expects to make. The discount rate to be used for the present value calculation is the interest rate the tenant would have to pay a lender for a comparable real estate secured loan.

    * The tenant recognizes the right to use the property for the term of the lease as an asset, measured, at the beginning of the lease, at the present value of the lease payments, plus the “initial direct costs” it incurs in negotiating the lease, for example, broker’s commissions and legal fees.

    * During the term of the lease, the tenant amortizes the right to use the property over the shorter of its remaining useful life or the term of the lease.

    * During the term of the lease, the tenant must reflect any changes as they occur. For example, if, a few years into the lease, a tenant’s business changes so as to make it likely that it will pay more contingent rent over the term of the lease, its financial statements must immediately reflect that change. Or, if a change in the tenant’s business makes it more likely that it will not exercise an extension option it previously expected to exercise, it may be required to adjust its financial statements to reflect that.

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to read the full article please visit www.cire.com

CFOs Need to be Problem Solvers

Interesting article from CFO magazine about role of CFO as leader and problem solver

By David McCann

For finance chiefs with designs on the chief executive's chair, serving a stint in operations is often a prerequisite. But the lack of an important quality may be blocking many CFOs from successfully doing so, in the view of one former CFO-turned-CEO.

That quality is empathy for customers, and for the employees who serve them, says Cary McMillan, a onetime Sara Lee CFO who now runs tax-advisory firm True Partners. While it's become a cliché for CEOs to say they want a finance leader who can act as a business partner, failing to understand customer behavior and wishes may be a significant handicap in performing that role, he says.
 

Finance chiefs "tend to be supersmart people who don't always help solve problems," asserts McMillan, who left his CFO post in 2002 to become CEO of Sara Lee's then-huge apparel business. And when it comes to being a business partner, he adds, problem solving is "a million times more valuable than being technically correct on every finance issue."

Putting the highest priority on always being right from a technical standpoint is a habit that's difficult for CFOs to kick, McMillan acknowledges, since that's how they're trained. But in the end, he says, that is a "me" mind-set, whereas a "we" mentality is what pushes companies forward.

McMillan developed an appreciation for the "we" approach during 19 years at Arthur Andersen, where he rose to become head of the firm's audit practice and managing partner of the Chicago headquarters office. "I was one of the few line partners who were actually interested in how the firm was run," he recalls. "Almost everybody else — because this is how we trained them — was interested only in their own activities. I got involved in management by throwing myself in there."
Cary McMillan, True Partners

That facility for stepping out of the box clinched Sara Lee's decision to offer him the CFO job, says McMillan. "They could see me as more than just a client-service provider; as somebody who was interested in working on the entire entity, not just one part of it."

It was a heady role for a career audit-firm partner, with Sara Lee sometimes mentioned in the same breath as such finance-professional incubators as PepsiCo, General Electric, Kraft, and Johnson & Johnson. The conglomerate's highly decentralized structure put finance executives in the spotlight, says McMillan, with sales, marketing, purchasing, and supply-chain functions all pushed out to the many business units.

Indeed, he took the job worrying whether he was qualified to be CFO. He had never had to deal with treasury matters or investor relations, for example. "I thought I only had about half the experience I really needed," he says. "But I found that the half I had, in accounting and internal controls, was helpful with the other side."

He earned some treasury chops by helping to arrange hedges on the company's receivables with Kmart in advance of the retail giant's bankruptcy. Although Sara Lee Branded Apparel was one of Kmart's largest creditors, "we didn't lose a penny," says McMillan. And the passage of Regulation FD during his first year on the job turned out to be blessedly timed, because everyone was in the same boat grappling with the transition to a new mandate for disclosure to investors.

to read full article please visit http://www.cfo.com/article.cfm/14544598/c_14545252

Software Programs Help Companies Prepare for New Lease Accounting Changes

Originally published in National Real Estate Investor

By James Duport and Ken Brown

Big changes are on the way for companies that are significant holders of real estate. It’s hard to say exactly when the much talked about and anticipated FASB lease accounting changes will go into effect, but companies with real estate holdings in particular need to be prepared for the significant impact these new rules will have on lease commitments.

Change is never easy, but the transition doesn’t have to be traumatic. On the contrary, required adherence to these new FASB rules, which are being put in place to enforce transparency and full disclosure, actually has a silver lining. It presents the opportunity for companies to update software and technology, which may be outdated anyway, in order to manage their real estate holdings and move to a faster, broader, more accommodating and flexible system.

Under the new proposed law, lease commitments must be on the balance sheet from day one, which is why older technology will no longer do the job. But, before we address effective ways for companies to achieve leasing compliance, it is important to first understand why the laws of lease accounting are changing.

Current lease accounting guidelines were adopted 30 years ago and are outdated by today’s business standards. The biggest difference between the old and new rules pertains to off-balance sheet accounting. The proposed new rules will bring all assets currently under lease onto the balance sheet and take into account international real estate portfolios, too. The new rules will also include a single worldwide leasing standard, which is important as real estate companies continue to go global.

For most companies, and especially those with large, international real estate portfolios, the sheer thought of overhauling the leasing structure of all their properties is overwhelming. But, thankfully, the implementation of advanced lease administration technology can successfully support a company through this process.

It will be difficult, if not impossible, to become compliant with the new lease accounting laws without some level of lease administration software support. When considering which software to implement, be sure the product is Web-based and that it provides a system of record for all of the leased real estate assets.

That includes leases, subleases, purchase agreements, franchise agreements, equipment leases and more. Be sure the software is completely transparent with regard to location information, critical dates and expenses, and that it integrates workflow.

It should have the ability to create pro-forma leases and integrate MS Excel financial models. It should also be able to handle complex reporting and compare multiple lease financials to support decision-making, and standardize all leases in a portfolio to streamline the cumbersome process.

It’s a lot to take into consideration, but there are companies that have been anticipating these changes and updated their technology with the new FASB rules in mind. The right technology should make life easier.

You can audit your current lease administration system and take stock of all of the capabilities you need and would like in an updated product. Then, do the research to locate the technology that will work best with your real estate and lease commitments.

It’s no secret that the new FASB rules promise to radically transform lease accounting and if you are a significant user of real estate, they will radically transform the way you do business, too. But there are lease administration software programs on the market that will make it easier to deal with many of the initial challenges that accompany such a transition.

Jim Duport is the creator and lead developer of Lucernex Technologies Lx LseMod products and the Lucernex financial engine. He created v15, set for release later in the fourth quarter, to support potential FASB changes. Lx LseMod is a corporate lease analysis tool used by companies including GE, MetLife, Robert Half, Cigna, National Semiconductor, United Technologies, Yahoo and Intuit.

Ken Brown designed mass market software in the 1980s and designed SLIM lease administration software. He is executive vice president and CIO of Lucernex and head of Lucernex product development.