Bryan Seck Yulia Ellison, CPA Vice President, Global ......Holdover: Holdover shall be deemed a tenancy-at –sufferance 125% of the last paid Rent. (Lease, Pg. 21-22, Para. 16) Suite:

Yulia Ellison, CPA Technical Accounting and Implementation Specialist

Bryan SeckVice President, Global

Alliances, LeaseAccelerator

© 2020 LeaseAccelerator Inc.

Our Speakers

Yulia Ellison, CPA Technical Accounting and Implementation

Specialist




Agenda

• Gathering Your Leases

• What is Lease Abstraction

• Lease Abstraction Today

• Challenges

• Solutioning & Upkeep

• Q&A

The Ability To Read Pages Of Unstructured Data

• Written In Legalese

• Using Words That Are By Design Intended To Have Double Meaning

And Extract Information Such As Critical Dates, Financial Data And Accounting Provisions

Requires Specific Skills And Knowledge To Understand Standard Clauses, Like Alterations, Damages, Holdover, Default, Destruction, Etc.

What Is Lease Abstraction? What Is Lease Accounting Abstraction?

All Of The Above

Requires Technical Accounting Knowledge To Search For Precise Details Prescribed By The New Lease Accounting Standard

+

150 Data Fields To Collect For Your Lease Accounting Project

Challenge: Lease data is complex!

150 AttributesPer Lease To Collect

• Lease Term• Base and Variable

Rent• Rent Formula• Reasonably Certain

Plans• Residual Value• End of Term Options

70% LeasesChange for Each Year

• New Leases• Rent Changes• Contract

Modifications• New Subleases• Renewals• Terminations• Buyouts

Multiple IntegrationsAcross Internal Systems

• Multiple ERPs, • Asset management• Real estate

100 BillionAccounting Combinations

• Payment Frequency• Payment Timing• Early Termination• End of Term

Renewal• End of Term Buyout• Evergreen

Payments

20% PeopleAcross Organization Touch

Leases

• Procurement• Treasury• Accounts Payable• Corporate IT• Supply Chain• Real Estate


Remote Provider Management Using Owned Software / Existing Solution

Lease Intelligence (AI) Solutions

In-HouseAbstraction

Lease Abstraction Today

• Abstract Form or Template that houses all the critical data in a concise way

• In a format that is easily understood and read;

• Information can be quickly referenced

• Key Dates are checked and recorded

• Documentation of Key Clauses• Budgeting Awareness for

forthcoming expenses• Reduction of risk of unusual

Clauses being interpreted incorrectly

• Abstracted in a format that is ready for software upload

• Avoid ancillary hiring for incremental work resulting from the new lease standards by leveraging scale and expertise of a Provider

• 40% of public filers cited that significant re-work was required post implementation with several filers forced to scrap the initial work and start over by doing a full abstraction

39%manage decentral

68%spreadsheet tracking

10%use systems today

Lease Abstract by a Remote Provider Management (real-life example)“concise, easy to read and understand”

Holdover: Holdover shall be deemed a tenancy-at –sufferance 125% of the last paid Rent. (Lease, Pg.21-22, Para. 16) Suite: Building 700, Suite 300 (Building 730), Floor 3 & 4 (Building 790) and Suite 400 on4th Floor (Building 730 and 760) Primary Size: Initially, TT occupies the September Premises (128,637RSF, which consists of June Premises and the Second Contraction Premises) from Commencement Dateuntil 5/31/2009; effective 6/1/2009, Premises shall be the June Premises, which consists of all space inthe 700 Building (73,751 RSF) and Suite 300 (20,052 RSF) in 730 Building until 3/31/2022; effective11/1/2011 Premises has expanded to include the 4th Floor Space (20,047 RSF) until 12/15/2012;effective 12/15/2012, Premises is further expanded to include the Rialto (39,694 RSF) in 790 Building withTerm coterminous with the Lease; effective 6/14/2014, Premises is further expanded to include Suite 400(10,250 RSF) in 730 Building with the Term coterminous with the Lease; effective 10/14/2014 until 5years thereafter, Premises is further expanded to include the 4th Floor (9,797 RSF) in 730 Building;effective 4/16/2015 until 5 years and 5 months thereafter, Premises is further expanded to include the760 Expansion Space (18,658 RSF); and effective 3/1/2017, Premises is further expanded to include theMTM Spaces (11,310 RSF) in 730, 760 and 790 Buildings until 3/31/2019. (10th Amendment, Pg. 3,Para. 2; 9th Amendment, Pg. 3-4, Para. 2-4; 8th Amendment, Pg. 3-4, Para. 2-4; 7th Amendment, Pg. 3,Para. 2-3; 3rd Amendment, Pg. 2, 4-5, Para. 2, 5; 2nd Amendment, Pg. 2, Para. 3; 1st Amendment, Pg.3, Para. 3; Lease, Pg. 2, Para. 1.6) TT to pay LL, Base Rent in an amount of (i) $2,721.67/month from6/6/2014 for Suite 110 (1,420 RSF) of 730 Building, (ii) $9,220.83/month from 6/21/2015 for Suite 110(4,426 RSF) of 790 Building, (iii) $4,258.33/month from 7/7/2015 for Suite 117 (2,044 RSF) of 790Building, and (iv) $10,166.67/month from 11/12/2015 for Suite 112 (3,420 RSF) of 760 Building and Suite110 (1,460 RSF) of 760 Building. (MTM Lease dated 10/13/2015, Pg. 3, Para. 3; MTM Lease dated6/22/2015, Pg. 3, Para. 2; MTM Lease dated 5/22/2015, Pg. 3, Para. 2; Lease dated 6/5/2014, Pg. 3,Para. 2) 760 EXPANSION SPACE (18,568 RSF): TT shall pay Base Rent for the 760 Expansion Space inthe amount of $23.50/RSF per year, subject to 3% increase beginning 8/1/2015 and each anniversarythereafter. Base Rent for the 760 Expansion Space shall be abated for the first 5 months and TT shallonly be obligated to pay Base Rent on 14,568 RSF of the 760 Expansion Space for the 6th through 17thmonth. (9th Amendment, Pg. 4, Para. 5) 4TH FLOOR SPACE (20,047 RSF): TT shall pay Base Rent for4th Floor Space in the amount of $23.00/RSF per year, excluding any applicable tax. (1st Amendment,Pg. 3, Para. 5(b)) RIALTO PREMISES (39,694 RSF): TT shall pay Base Rent in the amount of: (a)$24.97/RSF/ year from Rialto Commencement Date to 3/31/2013; (b) $25.72/RSF/ year from 4/1/2013 to3/31/2014; (c) $26.49/RSF/ year from 4/1/2014 to 3/31/2015; (d) $27.29/RSF/ year from 4/1/2015 to3/31/2016; (e) $28.10/RSF/year from 4/1/2016 to 3/31/2017; (f) $28.95/RSF/year from 4/1/2017 to3/31/2018; (g) $29.82/RSF/year from 4/1/2018 to 3/31/2019; (h) $30.71/RSF/year from 4/1/2019 to3/31/2020; (i) 31.63/RSF/year from 4/1/2020 to 3/31/2021; and (j) $32.58/RSF/year from 4/1/2021 to3/31/2022. (3rd Amendment, Pg. 3, Para. 3) TT holdover with respect to the 730 Contraction Space(7,714 RSF) from 2/1/2013 until 6/4/2013 and TT has previously paid to LL holdover rent for such spacefor months February-May 2013, which is 25% premium in excess of the Base Rent applicable during theperiod immediately prior to the holding over.

TT shall pay Base Rent in the amount of: (a) $23.58/RSF/year from 9/1/2008 to1/31/2009; (b)$24.29/RSF/year from 2/1/2009 to 1/31/2010; (c) $30.00/RSF/year from 2/1/2010 to 1/31/2011; (d)$30.83/RSF/year from 2/1/2011 to 1/31/2012; (e) $31.68/RSF/year from 2/1/2012 to 3/31/2012; (f)$24.97/RSF/ year from 4/1/2012 to 3/31/2013; (g) $25.72/RSF/ year from 4/1/2013 to 3/31/2014; (h)$26.49/RSF/ year from 4/1/2014 to 3/31/2015; (i) $27.29/RSF/ year from 4/1/2015 to 3/31/2016; (j)$28.10/RSF/year from 4/1/2016 to 3/31/2017; (k) $28.95/RSF/year from 4/1/2017 to 3/31/2018; (l)$29.82/RSF/year from 4/1/2018 to 3/31/2019; (m) $30.71/RSF/year from 4/1/2019 to 3/31/2020; (n)31.63/RSF/year from 4/1/2020 to 3/31/2021; and (o) $32.58/RSF/year from 4/1/2021 to 3/31/2022.(3rd Amendment, Pg. 3, Para. 3; Lease, Pg. 3, Para. 1.8) Base Rent: SUITE 400 (10,250 RSF): TTshall pay Base Rent for Suite 400 in the amount of $23.50/RSF per year, subject to 3% increaseevery anniversary of the Suite 400 Commencement Date, provided that the first 6 months Base Rentshall be abated. (7th Amendment, Pg. 3, Para. 5) 4TH FLOOR (9,797 RSF) on 730 Building: TT shallpay Base Rent for 4th Floor Space in the amount of $23.50/RSF per year, subject to increase at thesame time as the annual increases in Base Rent for Suite 400 under the 7th Amendment, with thesame Base Rent per RSF, provided that the first 4 months Base Rent shall be abated. (11thAmendment, Pg. 3-4, Para. 2; 8th Amendment, Pg. 4-5, Para. 6; 7th Amendment, Pg. 3, Para. 5)Operating SUITE 400 (10,250 RSF): TT shall pay its PRS (14.16%) of Operating Costs over the BaseYear (2014) in estimated monthly installments with respect to 760 Expansion Space. (7thAmendment, Pg. 3, Para. 6; Lease, Pg. 11-15, Para. 6) Operating RIALTO PREMISES (39,694 RSF):TT shall pay its PRS of Operating Costs over the Base Year (2012) in estimated monthly installmentswith respect to the Rialto Premises. (2nd Amendment, Pg. 4, 5-6, Para. 9, 12; Lease, Pg. 3, 11-15,Para. 1.10, 6) Operating EXISTING PREMISES: TT shall pay its PRS (from 9/1/2008 to 5/31/2009,100% for the 700 Building, 53.20% for the 730 Building and 24.76% for the 760 Building, and effective6/1/2009, 100% for the 700 Building and 28.25% for the 730 Building) of Operating Costs over theBase Year (from 9/1/2008, CY 2008; effective 4/1/2012, CY 2012) in estimated monthly installments.(2nd Amendment, Pg. 4, 5-6, Para. 9, 12; Lease, Pg. 3, 11-15, Para. 1.9, 1.10, 6) Operating 4THFLOOR SPACE (10,047 RSF): TT shall not pay any Additional Rent or any other charges for theOperating Costs above the 4th Floor Space Rate ($23.00/RSF/year). (1st Amendment, Pg. 3, Para.5(b)) Operating 760 EXPANSION SPACE (18,568 RSF): TT shall pay its PRS (26.84%) of OperatingCosts over the Base Year (2015) in estimated monthly installments with respect to 760 ExpansionSpace. (9th Amendment, Pg. 4, Para. 6; Lease, Pg. 11-15, Para. 6) Operating 4TH FLOOR (9,797RSF): TT shall pay its PRS (13.53%) of Operating Costs over the Base Year (2014) in estimatedmonthly installments with respect to Expansion Space on the 730 Building. (11th Amendment, Pg. 4,Para. 4; 8th Amendment, Pg. 5, Para. 7; Lease, Pg. 11-15, Para. 6) Operating MTM Spaces: TT shallpay its PRS of Operating Costs over the Base Year (2016) in estimated monthly installments withrespect to MTM Spaces. (11th Amendment, Pg. 4, Para. 3; 10th Amendment, Pg. 3, Para. 2; Lease,Pg. 11-1




In-HouseAbstraction












39%manage decentral



Lease Abstract by AI: (real-life example) text is “read through” like a human eye

• Lease Term 07.15.2016 - 07.14.2021 5

years Par. 1, line 1 6 years Par. 1, line 2 7 years

• Frequency Year to Month 12 months for each year 1st Payment Period for the 1st

Months of Payment

• Rent Y6.394,.67 $6.0 million RMB 5 million yuan




In-HouseAbstraction












39%manage decentral



Challenge #1. DocumentationExample: Handling international numbers with decimal and thousands separators

Country Format Decimal mark Digit grouping separator

USA $4,294,295.00 - -

France $4,294,295.00 - space

Brazil $4,294,295.00 - -

India $42,94,295.00 - -

Challenge #2:Data Accuracy and Quality

Example: Critical Dates

• Possession Date• Certificate of Occupancy• Substantial Delivery Date• Store Opening• Move-In Date• Lease Agreement Date• Lease Commencement

Date• Lease Inception Date• Contract Date• Rent Commencement Date• Term Commencement• Lease Expiration Date• Term Expiration• Lease Years• Accounting Years

if A is earlier, then Rent b/w Delivery & Rent Commencement Date is freeBut Rent can’t commence prior to signed Rent Commencement Agreement

if B is earlier, then Term Commencement Agreement is signed after Date of Certificate of Occupancy is received But Rent can’t commence prior to signed TermCommencement Agreement

A.6 months postDelivery Date

B.Certificate of Occupancy

Date

not earlier than butearlier of

Rent Commencement

Commencement Agreement is

signed

Term Commencement

=Date of Certificate

of Occupancy

Free Rent b/w Delivery Date

and Rent

Commencement

Delivery DateMm/dd/yyyy

CHALLENGE #3: Accounting Compliance. What to include in Rent PaymentPractical Expedient Not to Separate Lease and Non-lease Components. Under this scenario, non-lease components are includedin the lease component and no separate entry is required.

Non-lease components may have fixed and variable portions of the payments. Only the fixed portion is included with the leasecomponent.

Component Type

ROU Asset Valuation

Accounting ASC 842 Disclosure Reports

Fixed Variable Fixed Variable Recurring

Variable One-Time

Fixed Variable

Lease Component

Yes No ROU Asset and Liability

Remeasure (unless underlying Index change)

Expense when Incurred

QA –Expense Classification Line Items

QA –Expense in Variable Line Items

Non-Lease Component

Yes No ROU Asset and Liability

Remeasure (unless underlying Index change)

Expense when Incurred

Expense Classification Line Items

QA –Expense in Variable Line Items

Not a Component

No No Non-Lease Operating Expense

Non-Lease Operating Expense

Non-Lease Operating Expense

Excluded Excluded

Most Common Errors PerPoor Quality Abstraction

• Variable lease payments (which do not depend on an index or rate) may not be properly identified when lease terms were entered into LMS.

• In-substance fixed payments may not be properly differentiated from variable lease payments.

• Variable lease payments may not be properly excluded from lease payments at initial measurement.

• Variable lease payments may not be properly measured and recognized when incurred

• Variable lease cost may not be properly disclosed.

Areas with Highest Risk of Inaccuracy

Spend Analysis

Workflow / Task Assignment / Collaboration

SearchDocument

Repository / Audit History

Decision Making

Standardized Abstract

Expertise Value Cost

Reasons for Choosing Abstraction ServicesBy Implementation Partners

• Leasing Service Providers bring knowledge, technology, and scale to solve what is becoming an ongoing challenge for organizations of all sizes

• Goal lies beyond data population for Day 1 transition but ensure that your lease portfolio is set up for Day Two and Year One changes.








A portfolio of 300 leases with an average term of 3 years will have an average of

100 of the leases will expire and need

to be renewed or terminated

230events occur within a single fiscal year 100 new leases will

need to be generated to replace the assets on the expired leases

30 change events, such as rent increases, floor space expansions, or

contract modifications, will happen

on an average of 10% of the portfolio

Implementation Partners Ensure that you are set up for Day Two and Year One Changes

Keeping up with lease eventsCapturing decisions and events across the lease lifecycle:

Lease StartMid-Term

End of Term

Implementation Partners apply transition approach that delivers accelerated extraction of lease terms from your leases to create a centralized repository of lease data for financial and operational analysis.

Semi-automated data collection

Digitized lease records forfuture searches

Repeatable data qualityand validation

Transition approach – Combining technology and expertise

Data quality validation

Iterative review process supported by customizable metrics to quantify level of quality providing prioritization of leases for investigation, resulting in cleansed data for migration to your

existing or new system(s)

Lease term extraction

Extraction of lease terms and clauses through advanced

technologies such as natural language processing and machine

learning, combined with a proprietary lease ruleset and term inventory developed by our leasing

professionals

Reportingand analysis

Abstracted Data captures all the quantitive and qualitative data for

future analysis of potential operational improvement

opportunities

Benefits of ourtransition approach

Approximated financial impact (ROU and liabilities)

Increased visibility and enduser analysis

Identification of potential operational opportunities


Questions?

Yulia Ellison, CPA Technical Accounting and Implementation

Specialist



THE LEADER IN ENTERPRISE LEASE LIFECYCLE AUTOMATION

Thank you

LeaseAccelerator LeaseAccelerator @LeaseAccelerate LeaseAccelerator

Documents

Bryan Seck Yulia Ellison, CPA Vice President, Global ......Holdover: Holdover shall be deemed a tenancy-at –sufferance 125% of the last paid Rent. (Lease, Pg. 21-22, Para. 16) Suite: