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Lease Accounting Survey
June 2016
www.pwc.com/us/leasingsurvey
PwC | CBRE
About this survey
What will be the impacts from the sweeping changes to lease accounting finalized by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB)? How are companies preparing for the coming changes?
To find out, PwC and CBRE surveyed executives from organizations’ accounting, finance and real estate functions about actions they are considering to prepare for the new standards. Key findings from the survey, summarized here, reveal the challenges ahead and steps companies are taking now.
Responses were collected through an open, online survey between March and April of 2016. More than 500 executives responsible for lease accounting or lease management from across a wide range of industries participated in the survey.
Top findings and interactive tools online
Visit our 2016 Lease Accounting Survey – top findings page online for access to:
• Interactive data explorer
• Video interviews with PwC leasing specialists
pwc.com/us/leasingsurvey
2
June 2016
PwC | CBRE
Table of contents
3
Demographic information
• Job title …………………………………………………………. 4
• Industry ………………………………………………………… 5
• Basis of accounting .………………………………………... 6
• Familiar with standards ………………………………….. 7
Character of lease/real estate portfolio
• Real estate assets leased ………………………..………… 8
• Non-real estate assets leased …………………………… 9
• Size (square feet) of real estate portfolio ...………… 10
• Percentage of real estate owned ...…………………….. 11
• Types of leases ...…………………………………………….. 12
• Percentage of leases based in US ...…………………… 13
Leasing strategy
• Change in lease vs. buy strategy .………………………... 14
• Lease vs. buy drivers ………………………………………… 15
• Change to length of lease termsor square feet leased ……………………….………………… 16
Lease management
• Data centralized/dispersed ……………………………….. 17
• Tracking system …………………………………………....... 18
• Abstraction system …………………………………………… 19
• Software solution …………………………………………….. 20
• Change to process or approvals …………………………. 21
Approach to new standards
• When begin implementation …………………………….. 22
• Difficulty of implementation issues ……………………. 23
• Transition reliefs ……………………………………………… 24
June 2016
PwC | CBRE
What best describes your job title?
4
June 2016
6%
15%
2%
48%
29%
Real estate staff
Accounting/Finance staff
Real estate director/Manager
Accounting/Finance director/Manager
CFO/Controller
Real Estate Staff
Accounting/Finance Staff
Real Estate Director/Manager
Accounting/Finance Director/Manager
PwC | CBRE
Which of the following best describes your company’s primary industry?
5
June 2016
12%
3%
10%
11%
6%
2%
4%
14%
1%
8%
15%
4%
8% Other
Transportation
Technology
Retail & Consumer
Real Estate
Professional Services
Pharma/life Science
Manufacturing
Hospitality/Leisure
Healthcare
Financial Services
Entertainment/Media/Communications
Energy/Utilities
PwC | CBRE
Please indicate which basis of accounting your company is required to report under (select all that apply):
6
June 2016
93%
16%
12%
3%
US GAAP
IFRS
Local country GAAP
Other
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
(Respondents were allowed to choose multiple answers so results do not total 100%.)
PwC | CBRE
How familiar are you with the new lease accounting standards and their requirements?
7
June 2016
6%
73%
21%Not at all familiar
Some familiarity
Very familierVery familiar
PwC | CBRE
How many real estate assets are leased?
8
June 2016
2%2%
7%
30%
59%
10,000 or more
5,000 - 9,999
1,000 - 4,999
100 - 999
< 100
PwC | CBRE
How many non-real estate assets are leased?
9
June 2016
6%
4%
11%
25%
54%
10,000 or more
5,000 - 9,999
1,000 - 4,999
100 - 999
< 100
PwC | CBRE
What is the approximate size (square feet) of your combined real estate portfolio, both owned and leased?
10
June 2016
27%
6%
5%
26%
36%
Not sure
> 25M sq. ft.
10M-25M sq. ft
1M-9,999,999 sq. ft…
< 1M sq. ft.
PwC | CBRE
Approximately what percentage of your real estate portfolio is owned (based on square footage)?
11
June 2016
18%
4%
23%
32%
23%
Not sure
100%
51 - 99%
< 50%
0
PwC | CBRE
Do you have the following types of lease arrangements?
12
June 2016
2%
2%
6%
16%
18%
26%
28%
30%
0% 10% 20% 30% 40%
Private REITs
Synthetic leases
Leveraged leases
Embedded lease contracts within supply or otherexecutory arrangements
Operating company/ property company("OpCo/PropCo") transactions
Related party lease transactions
Build-to-suit arrangements
Sale-leaseback arrangements
(Respondents were allowed to choose multiple answers so results do not total 100%.)
PwC | CBRE
What percentage of your leases are based in the US?
13
June 2016
6%
69%
6%
8%
11% Not sure
> 75%
51 - 75%
26 - 50%
< 25%
PwC | CBRE
As a result of the new standards, do you expect your company’s lease vs. buy strategy to change?
14
June 2016
50%
68%
34%
24%
16%
8%
0% 10% 20% 30% 40% 50% 60% 70%
Non-real estate
Real estate
Yes Unsure No
PwC | CBRE
What drives your company’s decision to lease vs. buy assets?
15
June 2016
(Respondents were allowed to choose multiple answers so results do not total 100%.)
16%
5%
11%
12%
27%
40%
56%
0% 10% 20% 30% 40% 50% 60%
Not sure
Other
Tax purposes
Off-balance sheet treatment
It is not feasible to own the asset
Allows flexibility in using the asset
Better use of capital
PwC | CBRE
Do you expect your organization to reduce the square footage leased and/or the average lease term as a result of the new lease accounting?
16
June 2016
38%
2%
10%
50%
0% 10% 20% 30% 40% 50% 60%
Not sure
Square footage of new leases
Average lease term of new leases
No
PwC | CBRE
Does your organization have all its lease agreements and related accounting centralized or geographically dispersed?
17
June 2016
3%
39%
58%
Not sure
Decentralized
Centralized
PwC | CBRE
Which of the following best describes the primary system used for tracking leases and lease accounting?
18
June 2016
4%
68%
6%
22%Other
Spreadsheets
ERP
Lease management system
PwC | CBRE
How do you currently abstract the key terms from your lease agreements?
19
June 2016
3%8%
5%
84%
Other
Thrid party
Abstracting technology
Manually
PwC | CBRE
Have you selected a software solution to accommodate the new leasing requirements?
20
June 2016
10%
14%
66%
10%Not sure
Evaluating vendors
No
Yes
PwC | CBRE
How do you expect the process and/or level of approvals necessary for leases considered material to change as aresult of the new standards?
21
June 2016
30%
1%
26%
43%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Not sure
Shorter approval process
Lengthier approval process
No change expected
PwC | CBRE
When does your company expect to begin implementation of the new standard and the related requirements?
22
June 2016
11%
2%
3%
14%
41%
29%
Not sure
2019
2018
2017
Later in 2016
Already started
PwC | CBRE
For each of the following implementation considerations, please rate the potential difficulty level for:
23
June 2016
6%
18%
4%
10%
25%
3%
19%
55%
53%
41%
51%
50%
41%
54%
32%
22%
34%
35%
19%
53%
25%
7%
7%
21%
4%
6%
3%
2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Disclosures
Resources
Tax impacts
Controls
Systems
Accounting ploicy
Data collection
Accounting policy
Very difficult Somewhat difficult Difficult Unsure
PwC | CBRE
FASB rules provide companies with certain specified reliefs upon transition that must be elected as a package and applied to all of a lessee's leases. Do you expect your company will take advantage of the specified reliefs upon adopting the new leasing standard?
24
June 2016
2%
52%
9%
37%
Not applicable (IFRS.only)
Not sure
No
Yes
PwC | CBRE
PwC contacts
25
June 2016
Henri Leveque
Capital Markets & Accounting Advisory Services Leader, PwC's Deals Practice
Tel: +1 (678) 419 3100
pwc.com/us/leasing
Chad Kokenge
Partner, Deals, Accounting Advisory Services Leader
Tel: +1 (646) 471 4684
Sheri Wyatt
Managing Director, Deals, Accounting Advisory Services
Tel: +1 (312) 298 2425
To have a deeper conversation about how the new lease accounting standards impact your organization, please contact your PwC representative or one of our lease accounting specialists:
PwC | CBRE
CBRE contacts
26
June 2016
Jeff Beatty
Senior Managing DirectorCBRE/Financial Consulting GroupDirector, Lease Accounting Task Force
Tel: +1 (602) 735 5608
Phil Kelloff
Americas Leader, Portfolio ServicesCBRE/Global Workplace Strategies
Tel: +1 (415) 772 0276
Brandon Forde
Accounts Leader for the AmericasCBRE/Occupier Advisory & Transaction Services
Tel: +1 (404) 504 7884
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