SRS Corporate Services Prepares for New FASB Lessee Accounting Changes

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SRS Real Estate Partners has enhanced their ability to manage leases according to the new lease accounting standards being beveloped between the IASB (International Accounting Standards Board) and FASB (Financial Accounting Standards Board).

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SRS Real Estate Partners (SRS), the largest national real estate company in the country exclusively dedicated to retail services, has enhanced its amortization schedule processes and ability to manage leases to better prepare their clients for the new lease accounting standards being developed between the IASB (International Accounting Standards Board) and FASB (Financial Accounting Standards Board).

SRS Real Estate Partners' lease administration team, along with its preferred application service provider (ASP), Lease Harbor, have been observing the progress of the forthcoming lease accounting changes since the project was initially announced by FASB. In order to assist SRS lease administration clients in anticipating the impact of the upcoming changes, the amortization functionality for the right-to-use asset and the corresponding interest expense schedule for real estate leases are already in production in their preferred database, Harbor Flex. As equipment leases also will be impacted, SRS' ASP also has implemented enhancements that will optimize the ability to manage equipment leases. The related present value calculations will only require clients to add their incremental borrowing rate into the database. The lease administration team has additional reports available from Lease Harbor, to support these new features.

"The proposed changes to the lease accounting standards go beyond adding obligations to the balance sheet and increasing the cost and complexity of financial reporting," said Peter Patnaude, SRS senior vice president and leader of SRS' lease administration team, "These rule changes will shift the real estate strategies of companies."

The joint IASB/FASB held meetings in July and September, and they intend to re-expose the draft for a new lease standard. Earlier this year the IASB and FASB pushed out the final decision date but have not yet revised the effective date of January 2015 (whereby companies would be required to present data as if it had been in place for 2013 and 2014). Therefore, early implementation of new FASB rules will be necessary.

In summary, some of the significant lessee accounting changes proposed that would affect how to report operating leases on the company's balance sheet include:

  •     Lessee recognizes “right of use” as an asset and the “obligation to pay rentals as a liability
  •     Right of use asset is initially recorded based on the present value of lease payments plus initial direct transaction costs, but less distinct operating expenses and property taxes
  •     The accounting lease term will be the longest possible lease term that is more likely than not to occur
  •     Contingent rentals (e.g., retail percentage rents) are required to be estimated and included in the initial measurement of the “right of use” asset and the “obligation to pay rentals
  •     Lease term and payments are reassessed each reporting period to include changes in projected renewals and contingency rents
  •     Present value interest rate generally utilizes the lessee’s “incremental borrowing rate”
  •     Contingent rents that are based on an index (e.g., CPI) or a rate that would be determined using readily available forward rates. If forward rates are not readily available, the contingent rents would be estimated based on the current rate
  •     Right-to-use asset is amortized straight-line over the lease term along with declining interest expense based on the obligation to pay rentals liability
  •     No grandfathering of existing leases i.e., all leases would need to be reflected on the balance sheet upon adoption

SRS' lease administration business, established in 1994, is a part of SRS’ corporate services line of business. It provides more than 15 years of experience delivering clients consistent and measurable results. On average, SRS’ lease administration team saves clients 1 to 2 percent of total annual occupancy costs through desk top audits and associated triple net reconciliations. The SRS corporate services team is dedicated to helping their clients navigate the new FASB changes as well as assist clients with other needs with lease administration to include CAM reconciliation services, critical date management services, and full portfolio administration outsourcing on a global level.

About SRS Real Estate Partners
SRS Real Estate Partners (SRS) is the largest national real estate company in the country exclusively dedicated to retail services. Headquartered in Dallas with multiple offices nationwide, SRS’ strong presence across the country provides the company with unparalleled local knowledge on a national platform. As a result, clients of SRS have a competitive edge through a full range of offerings including brokerage services, corporate services, development services, investment services and managed services. Since its inception in 1986, SRS has built a strong foundation in the retail real estate world and grown into one of the industry’s most influential and respected leaders. For more information, please visit http://www.srsre.com.

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Tera Burns
SRS REAL ESTATE PARTNERS
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