Are Generally Accepted Accounting Principles - GAAP - Important to You?

LseMod - The Commercial Real Estate Industry Leader in GAAP Compliance

Why LseMod is the Industry LEADER in GAAP Compliance

• Straight-line rents
• Rent accrual during construction
• TI credit to rent
• Over-ride GAAP rent for scenario analysis *
• Other rents, e.g. Satellite Dish, based on GAAP *
• Restoration Accrual (FASB 143) *
• Restoration Carry-over *
• Sublease Analysis based on GAAP *
• Ability to add costs later in term (mid-term construction) and account for LL TI$ *
• CPA Resource - LseMod has a GAAP Compliance Manager

* January 2009. To the best of our knowledge, LseMod is the ONLY lease analysis product to include ANY of these GAAP required features.

Top 10 Ways LseMod Can Help YOU Create a GAAP Lease Analysis

1. Straight-Line Rent - Rent, including fixed increases and free rent, needs to be straight-lined (basically averaged) as a cost against the P&L (Profit & Loss/Income Statement).
2. Straight-Line Rent, but Adjust It If a CPI
   Increase -  If the rent increases are not known, e.g. CPI increases, and you have free rent during the term, you need to straight-line the known rent and then estimate the increases and add them in as they occur.
3. Adjust the Timing of When GAAP Rent
   Starts - Under current GAAP, GAAP rent needs to be accrued against the P&L during the construction/build-out of the space, even though you are not paying Cash Rent and you have not occupied the space.
4. Allow You to Set the GAAP Rent - If you are doing a scenario analysis part way through the term of a lease where the costs are being booked against the P&L based on GAAP, in your scenario analysis you need to set the GAAP rent based on the total lease term. The GAAP rent cannot be based on just the remaining lease term since that does not take into account the rent, free rent, and increases prior to the scenario start date.
5. Allow you to Tweak the GAAP Rent - If necessary, you can change the GAAP rent by month.
6. Adjust Depreciation and Rent Based on the Landlord TI Allowance - Under current GAAP, the landlord paid tenant improvement (TI) allowance is shown as a credit to rent (spread over the term), and the tenant’s depreciation is based on the total construction cost (cost paid by the LL TI$ and by any tenant TI dollars).
7. Allow for Other Landlord Paid Costs to Be Booked Based on GAAP, Including Later in the Term - Similar to #6 above, other credits, e.g. a spruce-up allowance 5 years into a 10 year term paid by the landlord needs to be treated on the P&L in a similar manner to the TI$
8. Restoration Costs - Under current GAAP, restoration costs are to be charged against the P&L on an on-going basis. The methodology used is to estimate the cost now, then apply an inflation factor to estimate the cost at the end of the term, the Future Cost. The Future Cost is then discounted to a Present Value. The Discounted Present Value of the Future Cost is straight-lined over the lease term AND an accretion expense is applied to the increasing liability.
9. Carryover Restoration Costs - If you have been accruing restoration per GAAP (#8 above), but at the end of the lease you Renew, what happens with restoration? If there is no change in the restoration cost estimate, it can be carried on the books with a Cash Flow adjustment at the end of the renewal term. If the estimate has changed, the incremental change can be included in the P&L and at the end of the renewal term Cash Flow adjusted based on the total cost.
10. GAAP Sublease Analysis - Need to see the impact of a sublease based on GAAP? Or, if you are doing a scenario analysis that involves subleasing, then you need to include the sublease in the scenario. The sublease analysis needs to be based on GAAP since the rest of the analysis is based on GAAP. This is critical if you are doing any scenario analyses that involve subleasing. See an example of a GAAP sublease analysis.

More About GAAP

The intent of this section is to provide Facilities, Corporate Real Estate Managers, and other professionals an overview of GAAP as it impacts corporate real estate.

GAAP (Generally Accepted Accounting Principes) are determined by the FASB (the Financial Accounting Standards Board). GAAP applies to costs that are charged to the Income Statement / Profit & Loss (P&L) statement.

Importance –  Typically in a corporation, the end-user is charged the cost of the space they occupy, and that cost is the pre-tax P&L cost. Consequently, for corporate users it is important to determine what costs will be charged to their budget.

LseMod and GAAP –  LseMod's Silver Series does Cash Flow analysis only, whereas LseMod's Gold Series (LseMod Pro plus LseMod Purchase and Sale Leaseback) include the P&L Impact, before and after tax costs, and GAAP analysis as an option.

GAAP Sublease Accounting - Click on the link to learn about how GAAP treats a loss on a sublease.

SOX - 5 Rules You Need to Know! –  SOX Compliance: It's impact on Site Selection Financial Analysis

Presentation made at the SIOR 2006 Conference by Jim Duport. Starting with types of analyses (e.g Cash Flow and Accrual), then the relationship between SOX (Sarbanes Oxley) and GAAP (Generally Accepted Accounting Principals), the presentation talks about and shows an example of how doing an analysis in GAAP, as required by SOX, differs from a Cash Flow analysis and why it is important. Rules covered include straight-lining of rent, accounting for a landlord's tenant improvement allowance, restoration, subleasing, and when "rent" starts.

Download this presentation on 5 Rules You Need to Know! .

Learn more about GAAP, LseMod and Sarbanes Oxley.

Disclaimer - The statements herein represent our interpretation of GAAP and FASB. They are NOT intended to replace information received from tax accounting professionals.

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