Pro ScenarioIn this example 3 properties are being compared prior to relocating a sales office in St. Louis. However, GAAP accounting has been requested by finance. So, rent starts accruing during the fixturing (i.e. construction period), the Landlord Tenant Improvement dollars are shown as a credit to rent (the amount depreciated is the total cost including the Landlord TI$), and Restoration costs have been estimated and are spread over the term as a cost to the P&L (Profit & Loss) Statement. LseMod allows the user to choose between using GAAP or not using GAAP when creating an analysis. LseMod is a decision analysis tool! A number of metrics can be used to reach a decision. They include:
The classic approach is to make an economic decision based on the After-Tax Net Present Value of the Occupancy Cost; however, some companies will instead use the PreTax Net Present Value or EBITDA. Sometimes the decision is based on Capital since that is a separate budget. Other times the decision may be based on the P&L cost in the current budget year. The Profit & Loss (P&L) Impact is the cost typically charged to an End-User's budget and includes depreciation and GAAP Rent Adjustments. Then again, the decision may be political such as location relative to senior management's home. LseMod quantifies the costs for each of the different parameters outlined above on the Management Summary (Mgmt Summary sheet) and even if the least cost solution is not selected, management knows the relative cost differential for whichever property is selected. Taking the analysis a step further, LseMod compares the total occupancy cost. More than "just comparing rent", occupancy cost includes expenses like moving, construction, voice, data, consultants, security systems, etc. Of course, you can just do the minimum since the ONLY required fields are rent, square footage, and lease term.
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