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The overhaul of lease Catalyst for change in corporate real estate

The US GAAP edition

April 2016

FPO Dear friends,

The newly-released lease accounting standard effects all leased , from airplanes to copiers, and changes the reporting characteristics of such obligations. For companies that are heavy users of real estate, the rules related to the new standard may be an incentive to reconsider their real estate strategy. Implementation of the new rules may have a significant impact on the company’s financial statements and require substantial changes to processes and systems.

Many companies, especially those that utilize significant real estate as part of their operations, are already reconsidering their real estate strategies. In many cases, this reconsideration is part of an effort to unlock shareholder value in existing assets or to provide growth capital for the continued expansion of capital- intensive industries. Increasingly, activist investors are driving these pressures, who are not likely to go away any time soon. The new lease accounting standard may serve to further increase the focus on real estate in general, and leasehold in particular.

Management at companies of all sizes and in all industries needs to be prepared to provide shareholders and investors with a well-articulated real estate strategy that is supported by a proactive assessment of the company’s existing property portfolio, including both owned and leased assets. By telling a clear story and openly communicating with shareholders and investors, companies both minimize the risk of becoming an activist target and help to build shareholder value.

When you are evaluating your real estate strategy, for whatever reason, PwC can help. We can help you understand the new standards and the implications to your business, as well as help you consider the implications to your broader real estate strategy. Through our specialists’ global presence and extensive knowledge of capital markets, PwC can also provide you with the insight you need to achieve increased organizational transparency for investors and shareholders. PwC offers a powerful combination of personal service, specialized experience, and global reach that sets us apart and helps you achieve your goals.

Byron Carlock, Jr. Tom Wilkin US Real Estate Leader US REIT and Real Estate [email protected] Lifecycles Leader 214.754.7580 [email protected] 646.471.7090

The overhaul of lease accounting: Catalyst for change in corporate real estate Table of contents

Executive summary 1

Reconsidering your corporate real estate strategy 5

How PwC can help 16

Other PwC real estate publications 18

Contacts back cover

Executive summary

In preparation for the new GAAP leases treatment of many leases. This requirements, or to be more nimble in divergence will cause complications the current economic climate, senior for multi-national companies dealing management at many companies are with the different models in different targeting their corporate real estate jurisdictions. This publication deals strategy and operations for major predominately with the application of renovation and update. The existing the FASB model and its implications on corporate real estate function may have US reporting entities. originally been designed to support a very different operational structure The changes in the new standard will compared to what exists today, or may affect almost every company. Under even have been originally motivated by the new model, a lessee’s rights and financing or tax considerations that are obligations under all leases (except no longer applicable. The changes to short-term leases)— existing and lease accounting may provide a catalyst new—will be recognized on its balance for change to these operations that sheet. The income statement treatment goes beyond adapting to the technical will be based on the classification of the requirements of the accounting, and lease as either an operating lease or a may include reconsideration of strategy finance lease, which are differentiated and the potential engagement in real using rules largely similar to those estate monetization transactions. applied today for classifying capital leases. The coming changes The effective date for calendar year end public business entities is 2019, with The FASB and IASB have both recently some relief on transition under several issued new accounting standards that practical expedients. Upon adoption, radically transform lease accounting. prior comparative periods will need to Unfortunately, while the boards be recast. For public business entities, worked together on the project and this means 2017 and 2018 will need were previously largely aligned, they to be recast to reflect the impact of the reached very different conclusions new standard–which is right around in certain areas, most significantly the corner. relating to the income statement

Executive summary 1 Overview of the new leases standard

• The biggest changes were made to lessee accounting. Generally, pre-existing leases will not be grandfathered. Lessor accounting is substantially the same under the new standard compared to today’s accounting. • Essentially all assets leased under operating leases (except short term leases that are less than 12 months at lease commencement) will be brought on . The lease liability will be equal to the present value of lease payments. A corresponding right-of-use will be based on the liability, subject to certain adjustments, such as for initial direct costs. • For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases), while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification is based on criteria that are largely similar to those applied in current lease accounting, but without explicit “bright lines.” While bright lines no longer exist, we believe that a reasonable approach may be to consider the previous percentages when determining lease classification (i.e., 75% of the economic life of the underlying asset and 90% or more of the fair value of the underlying asset). • Lease accounting will continue to require significant judgment, including estimates related to the lease term, lease payments, and the discount rate. Similar to today, the term of the lease will include the noncancellable lease term plus renewal periods that are reasonably certain of exercise by the lessee or within the control of the lessor and periods covered by an option to terminate the lease that the lessee is reasonably certain not to exercise. • Variable rent payments are generally excluded when assessing classification and when measuring the lease liability, except those based on an index or rate, which are included based on the index or rate at lease commencement. Subsequent changes to the index or rate (e.g., changes in CPI) and other variable payments will be treated similar to contingent rent today. A lessee will only reassess variable lease payments that depend on an index or rate when the lease liability is remeasured for another reason independent of a change in a reference index or rate. Lease incentives should be included in lease payments when classifying the lease and measuring the lease liability. • When calculating present value, the applicable discount rate will be determined similar to existing leasing literature, except that lessors will be required to include deferred initial direct costs in their calculation of the rate implicit in the lease. • Lessees will need to monitor for the occurrence of certain triggering events on an ongoing basis. For example, upon certain events under the lessee’s control or an option that is exercised or not exercised as planned, the lessee must reassess the lease term. A change to the lease term may lead to reclassification of the lease and remeasurement of the right-of-use asset and lease liability. In such cases, assumptions related to variable rents based on an index or rate and the discount rate will be updated as of the remeasurement date. • A lease modification may be accounted for as a modification to the original lease or as the creation of a separate lease. A lessor should not reassess the lease term or a lessee option to purchase the asset unless the lease is modified and that modification is not accounted for as a separate lease. • Existing sale and leaseback guidance, including guidance applicable to real estate, is replaced with a new model applicable to both lessees and lessors. Existing sale and leasebacks will need to be addressed in transition – which may include recognizing previously deferred gains as an adjustment through opening equity as of the earliest period presented upon adoption. • Financial performance ratios may be impacted and other new operating metrics may evolve as a result of the adoption of the new standard. • For some companies, the new standard will require significant system and process changes prior to the adoption date. • Companies with international operations many need to consider the impact of the new lease standard under IFRS. There are significant differences between the US GAAP and IFRS standards in that IFRS requires a single model in which all leases are treated as financing transactions.

2 The overhaul of lease accounting: Catalyst for change in corporate real estate At a minimum, compliance with the buy decisions and considering the Regardless of whether narrow changes new standard may drive companies accounting ramifications of alternate are made to real estate strategies to consider significant upgrades, lease structures. Such alternative purely as a result of the new standard replacements, or overhauls of their structures could be different lease or more pervasive changes are made to legacy accounting systems, processes, terms, variable rent (e.g., net lease be responsive to other macroeconomic and controls. Importantly, the new structures over gross/modified gross and governance developments, standard may also have a significant leases for CAM/insurance/real management needs to begin the impact on a company’s operating estate taxes, leases based on CPI) or process now. Decisions made now, results, financial ratios, and debt considering contingent rent over leases including leases being negotiated covenants. The scope of areas impacted with increasing fixed rent payments. today, can have long-term implications. by adoption goes well beyond just It’s important for management to financial accounting. Many companies For significant users of real estate take decisive action after careful are already starting to plan for (e.g., retail, healthcare, and hospitality consideration and analysis. the coming changes, which may companies), it will be critical to have operational, legal, tax, and IT manage stakeholder relations during Aside from the direct impact on implications. the transition to the new standard. financial statement presentation, the Board members, analysts, and following section details some of the For some companies, the new lease shareholders will have many questions more pervasive ancillary business accounting standard will represent just about the potential financial reporting implications that may result from another compliance exercise, but one impact and necessary investments in adoption of the new leases standard. that is likely to entail significant cost new systems, processes, and controls. and complexity. The cost of adoption is In addition, the significant changes likely to include the education of all key to the financial statements, and the stakeholders, robust systems upgrades, related changes in financial metrics, new processes, and implementation of will require thoughtful investor/analyst new controls. communication and possible changes to compensation arrangements and For others, the compliance exercise debt covenants. will serve as a much-needed catalyst for change in their overall corporate But it’s not just the new leases standard real estate strategies. Because the new that has management reconsidering model will eliminate the off-balance their real estate strategies. The real sheet accounting for existing estate industry has recently seen a operating leases, it may also eliminate variety of economic, tax, and business some of the perceived accounting issues. In addition, activist investors advantages of leasing. Thus, the are becoming much more aggressive in new standard may be an impetus for their advocacy for dramatic operational many to overhaul their real estate changes and alternate means of strategies. Changes to strategy may monetizing real estate assets. include re-evaluating lease versus

Executive summary 3 Significant impacts

• Stakeholder education. Lessees will recognize a lease liability measured at the present value of future lease payments. This amount may differ from how analysts and credit agencies previously adjusted leverage ratios for the “debt-like” operating lease obligations disclosed in the footnotes. • Potential impact on financial metrics or indirect financial impacts. While the dual model may often limit the impact on income-based performance metrics, it may impact other financial metrics that utilize balance sheet elements, for example, debt-to-equity ratios or return on assets metrics. Further, there may be indirect impacts caused by these changes. For example, recording significant additional assets may affect state tax payments, while changes to key metrics may alter incentive compensation payments or earn-outs and perhaps even impact legal or regulatory capital. • Decision points and data needs. Except for short term leases, all leases will be on the balance sheet. Decisions about a lease’s structure will impact the amount of the right-of-use asset and lease liability as opposed to impacting whether it will be recorded on the balance sheet. Data needs for ongoing reporting and disclosure will change significantly. • Lease versus buy decisions. Previously, some lease versus buy decisions may have been influenced by whether a transaction qualified for off-balance treatment. Given that virtually all leases will be reported on the balance sheet, companies may want to revisit their lease-versus-buy decision criteria. • Transition. While not effective until 2019, prior comparative periods presented will need to be restated using a modified retrospective transition method, which requires the recognition of a right-of-use asset and lease liability at the beginning of the earliest comparative period presented in the year of adoption. Leasing software and systems may require upgrades and enhancements, which may require a significant runway to adequately prepare for transition. • State tax liabilities. Changes to the reported asset balance may impact income apportionment among states, potentially attracting additional income to higher tax jurisdictions. State capital and net worth taxes may increase as a result of the changes in the balance sheet.

Opportunity

The last several years have seen a host Simply put, many senior executives and of changes facing corporate real estate boards of directors have not viewed organizations. From cost management their corporate real estate departments to outsourcing to systems changes as a significant element in driving the to designing the workplace of the success of an organization. Recent future, the role of the corporate real focus on real estate monetization has estate department has never been begun to change those views. The more complex. Nevertheless, the role advent of the new lease accounting of corporate real estate as a strategic standard may further spur changes in function within an organization has this mind-set. often been overlooked or has not kept pace with the changes in the rest of the organization or market conditions.

4 The overhaul of lease accounting: Catalyst for change in corporate real estate Reconsidering corporate real estate strategy

Some fundamental • How does your company manage questions occupancy costs? • What is the potential impact of the As discussed above, this is a new lease model on your company? dynamic time for those in the real estate industry or with significant • Do your company’s existing systems investments in real estate. On top have the capabilities necessary of the need to adopt the new leases to capture and aggregate the standard, economic, business, and tax information necessary to satisfy changes, have all combined to make the reporting and disclosure it an ideal time to reconsider whether requirements of the new lease your organization has the appropriate standard? Are system, process, real estate strategy. As you assess your control and personnel changes current corporate real estate strategy, necessary? there are a number of fundamental questions that should be asked, such as: Functional • Do you have a strategy for your participation real estate assets that supports the business’ wider strategic objectives? Corporate real estate activity affects a number of key functional areas and • How do you hold your real estate any reconsideration of your approach assets as part of your capital should include, at a minimum, structure (e.g., do you use members of each of the following key intercompany leasing)? constituencies: • What are the drivers of your lease • Accounting/reporting versus buy decisions? • Treasury • Do you have detailed information about all of your lease obligations? • Legal/regulatory • What are current market • Operations opportunities (e.g., lease rates/ • Tax planning and reporting purchase prices) and how would they affect your real estate strategy? • Information systems • How do federal, state, and local • Human resources (e.g., impact on taxes factor into your corporate real compensation agreements) estate decisions? • Investor relations

Reconsidering your corporate real estate strategy 5 Each of these functional areas may Factors that impact The impact to corporate be impacted by the new accounting corporate real estate real estate strategy standard. Accordingly, many companies that are significant users strategy • Reassess “lease-buy” decision of real estate are considering creating The new standard will be the catalyst criteria where buying is feasible a “steering committee” comprised for companies to take a fresh look at • Consider negotiation strategy of individuals from each of these factors that influence their corporate around lease term - controlling constituencies to help them consider real estate strategy, which is influenced space/economics versus the implications. A collaborative by a variety of factors, as represented accounting effect approach from the inception of the below. planning stage is vital to ensure that • Consider pricing implications unexpected implementation issues are of option periods versus longer identified early in the process. terms Economic Financing Many companies quickly identify conditions issues • Consider common contractual terms and modify where some of the more significant transition Tax Workforce impacts, such as the significant change considerations appropriate - what is the “new in financial reporting or the potential normal”? (e.g., should you Corporate real estate increase or eliminate certain impact on debt covenants and other Effective strategy metrics. However, other less obvious Technology management contingent rent provisions) impacts also exist for particular • Evaluate the economic impact companies or industries. In addition to Operational Government on more than just financial the business implications detailed in issues budgetary reporting, including regulatory Regulatory the prior section, many companies will issues capital, cost plus contracts, etc. need to allow for incremental time and • Evaluate the tax impact, effort associated with executing leases including federal, state, local as both lessors and lessees negotiate to and foreign taxes achieve the most desirable accounting impact under changing dynamics. Accordingly, it is essential for companies to seek broad participation in the process of identifying and addressing the potential implications of the new lease accounting standard.

4 The overhaul of lease accounting: Catalyst for change in corporate real estate Many companies are looking for a diversity of potential issues based on a There are also many operational simple answer to the question, “how company’s operations: reasons why companies rent rather should we change our real estate than own that may be unrelated to the strategy?” Unfortunately, the answer Example 1—Retail company accounting or even to the economics. is, “it depends.” As we will discuss One such reason frequently cited is further, the decisions around when A retail company typically requires that leasing allows tenants to avail and how to lease are affected by a several different types of property themselves of professional property large number of factors, including for its operations, including (i) store management. Does a bank, for the need to control particular assets, locations (ii) warehouse locations, example, want to maintain a staff operational flexibility, availability and (iii) key corporate offices in of engineers, maintenance, or other of alternatives, common industry central business districts. personnel necessary to address practices, tax and regulatory impacts the day-to-day issues surrounding and expectations of management. Example 2—Bank management of real estate? In these Careful consideration of the impact and circumstances, we may begin to see an the company’s specific circumstances Banks normally maintain a variety expansion of service options that may will be required. It is not a “one size of property locations for their be included in property management fits all” evaluation for all companies operations, including (i) bank contracts. or for different types of transactions. branches (ii) processing operations Rather, management should be armed (often in fungible office space in Overriding operational considerations with an understanding of the impacts suburban markets), and (iii) key is often the impact of market practice of the new model so they can create corporate offices in central business or practical availability of property for various strategies for major classes of districts. purchase. Certain types of properties transactions and then be able to apply (e.g., retail store locations) may be Generally, a company is more likely unique and not generally available for those to specific situations as they to lease real estate when its long- arise. purchase, whereas commercial office term property needs are unclear; space may be more fungible and, in operational flexibility is highly some cases, also more available for Operational issues desirable and expected access to purchase. acceptable alternatives is good. Leasing A company’s need for corporate has also historically carried the added With the loss of off-balance sheet real estate is driven in large part advantage of providing companies with accounting under the new standard, by both its current and planned a form of off-balance sheet financing, companies that presently lease may physical requirements. Space needs which will generally not exist under instead opt to own. Companies with can change dramatically over the new standard. low leverage and high credit ratings time—driven by a variety of factors, may have a substantially lower cost including growth/contraction Conversely, a company is more likely of capital than traditional real estate plans, potential acquisitions, to buy when the company’s long-term lessors, which may create a capital productivity improvements, and property needs are clear, the need for arbitrage benefit for owning rather physical obsolescence. Further, local specific properties are expected to be than leasing in certain cases. Although demographics may change needs for stable and long-term, specific assets are counter-intuitive, under the new particular locations. These issues will needed and/or there are concerns with standard, companies with a better vary significantly from company to respect to the availability of acceptable credit profile and lower borrowing company and by property type. The alternatives. Expectations regarding costs will record a larger lease liability following examples help illustrate the capital appreciation of real estate assets as a result of discounting the associated may also drive decisions.

Reconsidering your corporate real estate strategy 5 lease payments based on a lower influence and the ownership trend Accordingly, the current environment incremental borrower rate when driven by the accounting ramifications presents both challenges and compared to a company with a lesser will be secondary. opportunities for users of corporate credit and higher borrowing costs, real estate. In certain cases, relative to the same lease. Today, in many cases, companies opportunities to buy assets at favorable outsource their corporate real prices may still exist, while in other We have already begun to hear estate lease administration because cases, negotiating rent concessions of increasing potential purchase commercial real estate service currently or through “blend and transactions involving single-tenant providers offer this service relatively extend” type transactions may yield office buildings. It is possible that we inexpensively (in order to gain lower “all-in” occupancy costs. will see an increase in certain property access to more lucrative transaction Although these market issues exist types converting portions of property activity, such as leasing commissions). irrespective of the potential impact of to condominium interests as a result of Outsourcing may be more cost effective the new lease accounting model, the the new standard. than doing such administration new standard focuses a spotlight on in-house. However, in some cases, the issues as companies consider the However, this trend will be affected the additional information needed implications of the new accounting by the underlying reason companies to account for leases under the new rule. are leasing, as discussed previously. lease model may be sensitive to the It is also likely to vary significantly company’s lease negotiating position. by property type. For example, Companies may be hesitant to allow Financing issues converting portions of properties to such interested parties to have the condominium interests is more likely necessary access to the information For many industries and individual to occur for longer-dated leases in in order to prepare the required companies, alternative financing more physically static situations such accounting documentation. options to leasing may be limited or as individual floors or blocks of floors too expensive. As a result, leasing, in large office buildings or with single- historically, may have been the only tenant retail sites, both of which may Economic issues option available, or, it may have been be functionally independent. It is less cheaper than other sources of financing likely to occur in relatively short or While the real estate market has available to the company. In many moderate duration leases with partial generally improved over the past cases, this will not change irrespective floors or in malls/strip centers, which several years, not all of the impact of the accounting ramifications. are not functionally independent and from the financial crises in 2008 has may frequently require reconfiguration been reversed. Vacancy rates for some However, depending upon the credit to accommodate a different tenant mix. property types and in some markets are quality of the company, corporate real stabilizing, but not uniformly across estate departments may now want It is also interesting to note that this all property type or markets. Further, to reconsider purchasing assets that potential push towards more real many property owners continue to were previously subject to a lease. estate ownership as a result of the new struggle with declining cash flow from When the amount and lease standard is, in fact, counter to operations, liquidity issues, high fit-out terms of a commercial mortgage to a the recent real estate monetization costs, and to a lesser extent, near-term property owner, lenders will consider trends, which are having the effect debt maturities. As a consequence, factors such as debt yields, coverage of driving real estate assets off landlords may be interested in ratios, loan-to-value, the length of corporate real estate user’s balance discussing asset sales and lease lease terms, likelihood of renewal, and sheets. While the jury is still out, many modifications—perhaps by trading credit quality of the tenants occupying market participants believe that the a lower rent in exchange for a longer the property. In some cases, the monetization trends will be the bigger lease (i.e., so called “blend and extend” property owner cannot effectively fund transactions). property improvements necessary for

8 The overhaul of lease accounting: Catalyst for change in corporate real estate the current operation of the property. to undertake substantial restructuring expense and applied a multiple when A corporate real estate user/tenant to accelerate tax benefits or utilize the calculating property factor values. In (lessee) may have a better credit profile losses before they expire. A company such instances, the change in lease and lower as compared with expiring capital loss carryovers accounting may affect the calculation to a particular property owner/ may be seeking opportunities of the property factor, as companies landlord (lessor) or to the “average” to generate gains. Tax sensitive may instead utilize the right-of-use credit in a pool of tenants at a site. If transactions by entities with significant asset to determine these values. the tenant is committed to a longer owned real estate are generating more Further, the compromise to allow for term use of the property, such tenant once again—including sale and straight-line expense recognition for may benefit from obtaining financing leasebacks, joint ventures, spin-offs, certain types of leases, including many using its own credit rating versus the and real estate investment trust (REIT) property leases, actually slows down landlord’s, which may be lower as a conversion transactions. the amortization of the right-of-use result of current market difficulties. asset and, as a result, may exacerbate In most cases, federal taxes will remain the state tax issue. Many of these issues are also the unchanged; however, significant drivers of the recent monetization federal deferred tax adjustments may Depending on the facts and trends. Companies may, in fact, want need to be tracked as the related book circumstances of the company’s to sell a property subject to a long-term amounts change. specific portfolio, the impact could be lease back at a high and an increase in state taxes if the relative effectively monetize an asset using For state income tax purposes, business allocation moves income from lower its own credit to drive the valuation. income of a company is apportioned tax jurisdictions to higher ones. Of Under the new model, this will involve among the states by means of an course, the reverse could also be true an evaluation under the new sale and apportionment formula. For states if the relative allocation moves from leaseback rules and a new lease-related that utilize a property factor in the higher tax jurisdictions to lower ones. asset and liability will come on the apportionment formula, the new lease Unfortunately, however, the states books, even if it’s a qualified sale and standard may affect the amount of with higher rental rates (and therefore leaseback. business income apportioned to a state. higher rental assets under the new In general, a property factor includes model) are also generally the states all real and tangible personal property with higher taxes - thereby creating an Tax considerations owned or leased by the company expectation that in many cases, a state and used during the tax period in Federal and state tax considerations tax increase will result from the change the regular course of business. In in apportionment. Accordingly, a often played a significant role in most states, property owned by a many corporate real estate strategic detailed analysis to consider these state taxpayer is valued at its original cost tax impacts using the company’s fact decisions. A clear understanding of the and property leased by the taxpayer tax motivations and implications for pattern may be necessary in order to is valued typically at eight times its devise a plan to minimize the impact. both counterparties in a transaction net annual rental rate. Certain states’ is critical, as these factors may tax codes provide that federal income State franchise/net worth taxes may significantly affect the pricing as tax rules apply when determining also be impacted by the new standard. well as the range of transactions the the property factor. Others, such as Certain states, such as Illinois, parties may be willing to consider. In New Jersey, do not follow the federal determine the value of a company addition, the economic issues affecting income tax treatment and determine for franchise tax purposes using US either side of a transaction may have property factor values based on book GAAP. In addition, this value may radically changed since the decisions value. Companies doing business in be apportioned to the state by use were first made. A company with net these states may have historically of a property factor, which is also operating losses may be more willing taken financial statement rent calculated under GAAP principles. As a

Reconsidering your corporate real estate strategy 9 result, net worth taxes in certain states Regulatory issues have provided limited relief for the may increase due to the increased value impact of such accounting changes. of property reflected on the balance In some cases, the decision to lease While the lessor operations of many sheet. was driven by regulatory issues banks will not be significantly affected, particular to certain industries. For those with significant lessee activity Items that may be impacted include the example, reimbursement rates paid (e.g., bank branches, headquarter applicable depreciation rules, specific on some government contracts are buildings, processing centers, and ATM rules limiting the tax deductibility based on GAAP reporting. Today, for locations) may be impacted. Based of interest (for example, thin some contracts, the government will on initial discussions with regulators, capitalization rules and percentage of reimburse 100% of the cost of rent there may be an adverse impact of EBITDA rules), existing transfer pricing but will not reimburse for capital adoption of the new standard on risk- agreements, sales/indirect taxes, related items, such as interest and based capital requirements. However, and existing leasing tax structures amortization/depreciation of owned the specifics remain unclear as of now. (in territory and cross-border). A real estate. With the elimination of reassessment of existing and proposed the current operating lease model leasing structures should be performed (where “rent” expense is replaced by Intercompany issues to ensure continued tax benefits and amortization and interest – presented Many heavy corporate real estate users management of tax risks. as a single line “lease expense”), utilize a central real estate holding government contracts and/or Internationally, the new lease entity for owned and leased property, reimbursement rules may need to be accounting model may have other and then provide for intercompany modified to ensure that the intended impacts on the tax treatment of leasing charges to the consolidated subsidiaries economics of the arrangement transactions. In many jurisdictions using such assets. In some cases, the continue. While regulators may outside the United States, tax structures have been created (i) to ultimately view rent and lease expense accounting for leasing is often based take advantage of beneficial pricing the same, it is unclear at this point on accounting used for book purposes, (allowing companies to aggregate whether or how actual government which may be under the IASB’s new subsidiary needs to take bigger spaces), regulations will be modified. standard. Refer to the “International (ii) to obtain operating synergies divergence” section below. Given that While the standard was still in a and negotiate better terms, and there is no uniform leasing concept proposal phase, regulators were (iii) for operational ease (allowing for tax purposes, the effect of the unwilling to provide an opinion on corporations with multiple subsidiaries new standard will vary significantly, the potential regulatory implications to be flexible in allocating space depending on the jurisdiction. until the standard was final and between these units). It also may be its effects were better understood. driven by tax considerations (e.g., When tax does not follow the What is uncertain at this point is how private REITs with beneficial state tax accounting model prescribed by the regulatory agencies will react to the impacts). In some cases, companies new standard, management may see an impacts this change will have on execute intercompany leases, but, in increase in the challenges of managing risk-based capital requirements and others, no formal arrangement exists and accounting for newly-originated other key regulatory metrics. The and costs are allocated through an temporary differences, which will effect of the change could be very intercompany expense charge. Under generate new deferred taxes in the significant to banks/broker dealers the new standard, these intercompany financial statements. (see also “Intercompany Issues”) and transactions will need to be reflected on each consolidated subsidiary’s Timely assessment and management other regulated entities whose capital books, which may affect them from a of the potential tax impact will help ratios and/or other metrics are closely regulatory standpoint (e.g., subsidiary optimize the tax position by enabling monitored and that would be adversely broker dealers may be inadequately entities to seek possible opportunities affected if computed under the new and/or reduce tax exposures. model. Historically, banking regulators

10 The overhaul of lease accounting: Catalyst for change in corporate real estate capitalized). The documentation of may not be visible to corporate treasury this environment to a more centralized the arrangement will be much more departments, this alternative use of one may require significant cultural important since it will drive the value cash may not be in focus and these changes that may not be easy to of assets and associated liabilities for opportunities may be missed. accomplish. entities reporting on a stand-alone basis. In some cases, corporate real Managing corporate estate departments may have the real estate responsibility for tracking real estate, Governance, budgetary but not enough resources and focus issues, and investment In many organizations today, the to (1) identify and manage excess alternative issues corporate real estate department is capacity, (2) identify and seek viewed as more of an administrative reimbursement for overcharges for Some historical decisions to lease function or “cost center” rather than lease operating costs (e.g., common versus buy may have been driven by a part of a strategic function or a area maintenance and bill back approval protocols and budgetary competitive advantage. Further, overcharges), and/or (3) minimize factors. For example, when a company corporate real estate departments may other cash real estate occupancy is growing rapidly, it might have been not have the infrastructure or systems costs. Finally, for many companies, faster and more efficient to execute to effectively track and manage the existing tracking systems are informal, a lease of real estate or equipment information necessary to make the incomplete, or inaccurate. These rather than going through the process various decisions, estimates, and “tracking systems” might be nothing to approve the purchase of a capital periodic remeasurements required by more than a drawer for storing copies asset. In addition, internal budgeting the new standard. In some cases, they of leases, a notebook containing may have led to a leasing bias since the may not previously have been notified lease abstracts, spreadsheets, and upfront cash outlay is much lower than of changes, such as with regard to the non-integrated or out-of-date software a purchase. If the approval rules follow expectations of renewals, on a timely applications. the new lease model, an operating basis. Few companies today track property, lease may now need the same level of Many companies that operate as a plant, and equipment in a manual approval as an outright purchase. group of decentralized subsidiaries or fashion. Yet, many companies are still In addition, some decisions to lease ones that have grown larger through accounting for their leases of corporate may have been driven by a company’s acquisition with significant legacy real estate using spreadsheets and prior alternative investment options systems, may be challenged to capture, accounts payable systems with no for available cash. Today, many understand, and manage the necessary formal corporate real estate asset companies are holding significant cash information related to real estate management system for these balances that are earning only nominal leases on a company-wide or even leased properties. Even for the more returns. In the near term, using some country-wide basis. Such systems may sophisticated corporate real estate of this cash to buy certain types of not be fully integrated into the larger groups that have asset management assets—especially ones expected to enterprise-wide systems, including systems, these systems are often be utilized for a substantial portion of accounting and reporting. In addition, freestanding and utilized more for their lives—instead of paying much because of the length of a typical real lease administration purposes, with higher implicit rates in leases would be estate lease, current management no integration with the company’s accretive to earnings in the long term. may not be aware of the original accounting systems. However, because existing leasing rationale for specific decisions, some activity under today’s operating leases of which may no longer exist due to changing circumstances. Changing

Reconsidering your corporate real estate strategy 11 Some companies may be able to adapt Internal controls and requirements will help reduce to the new information needs without processes reporting risks. This includes ensuring significant upgrades or integration, but adequate processes addressing the to do so would miss an opportunity to Many entities may not have robust accounting in the related areas of automate a previously labor-intensive processes and controls for leases, tenant improvements, impairment activity and free up employees for other than those related to initial evaluation, and tax accounting. other more productive uses. For classification and disclosures. In example, under certain circumstances, addition, the existing lease accounting International the new standard will require the model (absent a modification or remeasurement and reallocation of exercise of an extension) did not divergence consideration (e.g., between lease and require leases to be periodically As previously indicated, the IASB non-lease components), creating the revisited. The new standard requires issued its new lease accounting need to track additional new lease leases to be remeasured for certain standard on January 13, 2016 with a information. Given the additional changes in estimates (for example, for similar adoption date. While current complexities associated with the certain changes in the expected lease lease accounting by lessees was largely detailed tracking required for both the term). Processes and controls will need aligned under current rules, the IASB’s balance sheet and income statement to designed or redesigned to ensure new standard creates some significant accounts, efficiencies can be gained proper management and accounting of points of additional divergence from from enhancing system support and all lease agreements. Such processes US GAAP. Most notably, while both automation. and controls need to address the standards put leases on balance sheet, accounting and reporting at inception From a long-term sustainability the IASB adopted a single finance and over the lease term, as well as perspective (for companies with model for income statement purposes. provide for the monitoring of events substantial leasing activities), Accordingly, US multi-national both in and outside of the lessee’s spreadsheet-based accounting may not companies may need to track both control that may trigger incremental be practical because of the significant models if they have to report on IFRS accounting or remeasurement. maintenance required and resultant or other international standards for susceptibility to error. High-volume Initial recording on balance sheet, statutory purposes and then report on corporate real estate users will likely subsequent recognition of expense US GAAP for consolidated purposes, need new systems/processes to create in the income statement, and the or vice versa. This will also add a documentation trail of the initial potential for remeasurement, complexity to tax accounting. judgments and track subsequent reallocation, and reclassification of changes in estimates or assumptions. the lease and lease-related assets and IT and lease accounting The system will also need to be largely liabilities will likely require complex automated to calculate any resulting changes to existing processes and systems computational adjustments. Full internal controls, including support for IT and lease accounting systems in integration into the company’s control significant management assumptions. the marketplace are based on the structure and accounting systems Monitoring and evaluating the existing risks and rewards concept. will be necessary, as will the ability estimates and updating the balances They will need to be modified to to generate the extensive quantitative may also require more personnel than the new right-of-use concept. While information for the mandated currently available. software developers have been disclosures. working on designing systems to fully The timely assessment and meet the needs of this new standard, management of the impact of adoption these systems are not up and running on processes, controls, and resource

12 The overhaul of lease accounting: Catalyst for change in corporate real estate yet – although some systems may Financial reporting and of deferred gains on qualified sale capture some or all of the underlying impact on ratios and leasebacks, which will now be data that may be needed to do the recognized upon sale in a qualified sale necessary computations. Development The financial statements will and leaseback under the new standard. and implementation of suitable new require restatement for the effect Timely assessment of the new modules or systems is likely to require of the changes. The effects of the standard’s impact on covenants and significant lead-time. Lessees will new standard should be clearly financing agreements will enable have to account for and manage lease communicated to analysts and other management to start discussions agreements differently (including stakeholders in advance. Transition with banks, rating agencies, financial existing operating lease agreements). disclosure requirements as to the analysts and other users of the entity’s They may need to implement contract potential implications of the new financial data. Entities anticipating management systems for lease standard are already required. While capital market transactions should agreements and integrate these with initially most companies will say they consider the effects on their leverage existing accounting systems. The IT are considering the impact of the new ratios. Companies in the process of and accounting solutions will need to standard, as the date of the adoption negotiating new or existing agreements be sufficient to meet both their current gets closer, the disclosure of the should seek provisions in the and future needs. In addition, if a potential implications is expected to be agreements that specify how changes company also has significant subleases, more granular and explicit. additional complexities will arise, as in GAAP impact financial covenants the company will be applying both Ongoing accounting for leases may (i.e., whether covenant calculations are lessor and lessee accounting. require incremental effort and always based on then-current GAAP or resources as a result of an increase on GAAP that was in effect when the Lessees may expect lessors to provide in the volume of leases recognized agreements were signed). them with the necessary information to on balance sheet; there is also a need comply with the new leasing standard. to monitor events that may trigger Next steps However, lessors may not have, or reassessment of the lease term, variable may be unwilling to provide, the data rents based on an index or rate, Prior to adoption, management will requested by lessees. Consequently, residual value guarantees, and the need to catalogue existing leases lessees will need to capture such impact of purchase options. and gather data about lease term, information themselves and may need renewal options, and payments in The impact of the new standard will to modify their systems accordingly. order to measure the amounts to be not be limited to external financial included on balance sheet. Gathering Timely assessment and management of reporting. Internal reporting and analyzing the information could the impact on IT and lease accounting information, including financial take considerable time and effort, systems will help reduce business and budgets and forecasts, will also be depending on the number of leases, the reporting risks. We understand that affected. some of the ERP systems providers inception dates, and the availability of are in the process of evaluating and In many cases, the total expense records. In many cases, original records developing upgrades and solutions for operating leases under the new may be difficult to find or may not be that will allow for the accounting and standard may be the same as under available. Other factors, like embedded reporting requirements of the new today’s operating lease accounting. leases, which had not been a focus standard and related controls. However, that may not always be the before, will need to be identified and case. For example, prior rent expense separately recorded. may have included amortization

Reconsidering your corporate real estate strategy 13 Given all of the above, these changes Assuming adoption in 2019, the in a more holistic fashion, which may will necessitate potentially significant chart that follows depicts a potential assist in identifying how the corporate cultural changes as well as significant transition plan with respect to real estate role can become a strategic operational ones. While adoption evaluating the effects of the new lease driver of operational success, thereby of the new standard is not required model. Incremental corporate real providing the “Catalyst for Change for public business entities until estate strategy and systems changes in Corporate Real Estate.” Beginning 2019, organizations are well advised would be performed concurrently with the process early will help ensure that to begin considering the impact of this plan. implementation of the new standard these changes now, and to put into is orderly and well controlled and that motion the steps needed to prepare The new standard will impact nearly data from existing and new leases the organization for the change. every organization to some extent. As executed before implementation is Under the modified retrospective discussed in this document, the new captured from the outset. In addition, transition approach, the 2019 financial standard will necessitate changes in getting an early start may allow entities statements will need to reflect adoption the technical accounting, operational to consider potential adoption and of the new standard as of January 1, processes, and systems of many negotiation strategy changes for new 2017. In many cases, capturing data in companies. We also believe that they leases and the potential renegotiation real time may be more efficient than may cause many to reconsider their of existing agreements in order to waiting until 2019. overall corporate real estate strategy reduce the impact at adoption.

Timeline

Strategic Implementation On-going planning efforts application (now) (now – 2018) (2019)

Phase I Phase II Phase III • Training & awareness • Issues resolution • Go live & business as usual • Preliminary assessment • Business strategy changes • Reporting updates • Strategic planning for the future • Systems changes & upgrades • Disclosure modifications • Portfolio execution • Ongoing monitoring • Adoption planning

US US Project management, communication, knowledge transfer, & preparation GAAP GAAP today… tomorrow

Assess impact and Establish policies and Embed the new standard determine strategy prepare financial results

14 The overhaul of lease accounting: Catalyst for change in corporate real estate Preparing for the change

q Educate affected individuals in all cross-functional areas about the new standard q Create a cross functional "steering committee" to address the new standard and related transition q Perform an inventory of your lease portfolio - understand what types of assets are leased and where the data resides q Identify contracts likely to include embedded leases q Consider modelling the transition impact on certain significant leases (or sample from a variety of lease types) q Summarize existing systems and future needs q Evaluate sufficiency of existing control processes and potential gaps q Analyze potential income and other tax considerations (including federal, state, and foreign taxes) q Identify contracts affected by the change in accounting (e.g., financial covenants, compensation agreements, earn-outs), the potential implications, and how terms should be modified in the future q Identify regulatory issues affected by the change in accounting (e.g., regulatory capital implications and cost plus government contracts), the potential implications, and how terms should be modified in the future q Consider potential changes in real estate leasing strategy (e.g., lease/buy, shorter vs. longer leases, modify common terms)

Key takeaways on transition

• Be strategic: Planning your • Manage market reaction: For • Don’t wait: In our discussions with transition will go much more many significant users of real estate clients, many expect adoption to smoothly if you have concrete data. (e.g., retail companies), managing take between 12 to 24 months – Modeling selected leases will give investor and other user expectation which doesn’t give a lot of time to you relevant data to share with during the transition will be critical. spare for a 2019 adoption. While internal constituents. It will also Analysts and shareholders may soon the adoption timetable will vary by help you understand what data you raise questions about the potential company, most believe adoption will have, what data you need, and how impact. Longer term, the changes be complex and time consuming. your leasing strategy may need to to presentation and the potential Targeted and measured steps change to minimize any potentially impact on financial metrics, will today will help you understand adverse accounting implications require thoughtful communication. the complexity and duration of resulting from the new standard. the transition effort and more importantly, what steps you can take today to modify existing or planned leases to minimize the effort of complying with the new standard.

Reconsidering your corporate real estate strategy 15 How PwC can help

PwC’s strengths – Our PwC provides audit, tax, or advisory entities reconsidering their real estate integrated approach services to over half of the 50 largest usage and strategy as well as potential firms in the world and to monetization strategies. Our industry specialists have extensive over 40% of the REITs listed in the S&P PwC has a global team of technical accounting and financial 500 index. In addition to our presence multidisciplinary professionals reporting, valuation, tax, operational, throughout the United State, globally, providing real estate services through regulatory, strategy, and industry PwC has established dedicated all phases of the real estate lifecycle. expertise. By bringing together these practices in leading non-US real estate We can help you understand not only professionals, PwC can offer something markets, including Berlin, Hong Kong, the potential implications of the new that most firms do not: an integrated London, Mumbai, Paris, San Paulo, lease standard, but also help you advice model. and Tokyo. reconsider your overall real estate We regularly advise members of the In addition to serving the real estate strategy. private and public sectors, owners, investor/operators, we have provided users, and investors in real estate. We real estate focused services to many serve organizations throughout the real of the largest retail, healthcare, estate industry, including corporate hospitality, and other real estate users. owners/users, developers, hospitality These services include accounting, organizations, real estate investors advisory, tax, systems, and strategy to and REITs.

Accounting/ Advisory

Operations Strategy and systems

Tax & regulatory

PwC has a global team of multidisciplinary professionals providing real estate services…

16 The overhaul of lease accounting: Catalyst for change in corporate real estate …through all phases of the real estate lifecycle…

Strategic Deals Capital Business plan Exit planning formation execution

Considerations Are your real estate Have you validated the Have you fully vetted Do you have a proven When divesting resources (time, talent, original assumptions of the financial structure of methodology in place for assets or businesses, and money) properly scope, risk, cost and a deal, including capital effectively and efficiently have you planned for allocated to generate approach in your real markets alternatives? executing complex capital markets and value? estate business case? business plans? fair value guidance Are the needs of all to realize optimal Do you have a road Will you adjust these stakeholders being met Are you managing assets return on assets for map guiding your assumptions and the without compromising across the portfolio to greater reinvestment organization going associated allocations? commercially attractive improve utilization and potential? forward and describing and tax–efficient performance, reduce Does your internal team how it will get there? arrangements? capital costs, reduce have capacity to deal asset–related operating Are you prepared to with all phases of the Do you have the costs, extend asset life navigate the obstacles due diligence process? appropriate materials and improve your return and risks posed for each stakeholder on assets? by organizational, group? financial, political, and stakeholder groups?

Representative • Training, planning • Lease abstracting • Deal structuring • Complex accounting • Buy/ due services and implementation diligence • Global fund, REIT, • Tax implications • Federal, state and assistance with and investment tax and structuring international tax • Valuation regard to new structuring with respect to new reporting/compliance standard • Disposition strategy standard • Entity and corporate • REIT testing/verification • Analysis of, or • Accounting level financial due • Sale-leaseback assistance with, • Reorganization & & financial diligence transactions evaluating financial insolvency services management • Cash flow modeling • Loan underwriting/ and strategic impact • Asset monitoring & • Tax deferred (ARGUS, DYNA, origination services of new standard asset management exchanges Excel) and model • Market assessment • Investor level tax testing • Litigation & arbitration • Compliance, considerations / economic impact reporting and tax • Financial and tax • Risk & regulatory work studies • IPO readiness entity-level due • Complex assessments • IT and data architecture • Business case accounting diligence and integration analysis • Performance • Cost segregation • Building measurement • Process/control • Equity market/story sustainability • Valuation for the services/Track record change consulting and analysis performance purposes of business verification implementation planning • Sustainability measurement combinations with respect to new • Tax considerations strategy standard • Merger integration • Capital markets relating to General • Dispute avoidance advisory Partner compensation • Operations outsourcing • Global fund, REIT, strategy and investment tax • Entity incorporations • IPO Advisory • Finance transformation • IT and data strategy structuring • Separation/stand- • Debt offering advisory • Capital markets services • Cybersecurity along cost analysis • Global fund, REIT, • Corporate secretarial • Corporate real estate • HR/change and investment tax advisory • Evaluation/development management structuring of human capital and • Merger or business • Property due • Valuation consulting benefit programs acquisition diligence services considerations • / • Evaluation/development • Lease economic model validation of risk management • REIT conversions analysis and transfer programs pricing

Benefits A better vision of your What you don’t know is Having knowledge Assistance with use or Operational, financial, organization and its always the most costly. of and access to the optimization of returns for and risk management resources provides By developing a careful capital markets before real estate can proactively is critical throughout you with clearer understanding of the going to market allows address risks before they the real estate life expectations of your information at hand you you to accelerate occur. cycle including exit. capabilities and overall are better positioned to the financing and business case. negotiate and execute deliver the best value your transactions. for money to all your stakeholders.

How PwC can help 17 Other PwC real estate publications

Our industry thought leadership publications provide up-to- date thinking about the regulatory landscape, evaluate emerging trends, and share ideas impacting the global real estate industry.

www.pwc.com/us/realestate Unlocking shareholder value www.pwc.com/us/realestate Non-traditional REIT Unlocking shareholder value Real estate monetization Non-traditional Transactions: An emerging trend REIT transactions Real estate monetization strategies An emerging trend This free-standing guide is focused strategies

This paper contains an overview of October 2014 exclusively on the unique issues January 2016 real estate monetization strategies, and considerations that REIT their perceived risks and benefits, transactions face. and how PwC can help companies evaluate factors associated with this approach.

www.pwc.com Roadmap for a REIT IPO or Emerging Trends in Real Estate conversion for traditional and Based on personal interviews with Roadmap for a REIT IPO or conversion Your guide to going public non-traditional real estate and surveys from more than 1,000 or converting to a REIT companies of the most influential leaders in

Third edition Third These PwC guides are prepared to the real estate industry, this annual

help both traditional and non- JUSTIN MERKOVICH, BKV GROUP forecast will give you a heads- Emerging Trends traditional real estate companies ® up on where to invest, which in Real Estate

address the IPO and REIT United States and Canada 2015 sectors and markets offer the best conversion process. prospects, and trends in the capital markets that will affect real estate.

EmergTrends US 2015_C1_4.indd 3 10/6/14 9:42 AM

Beijing Istanbul Madrid New York Shanghai Berlin Jakarta Mexico City Paris Singapore As confidence returns to real estate, the industry faces a number of Real Estate 2020: Building the Buenos Aires Johannesburg Milan Rio de Janeiro Stockholm Cities of Opportunity 6 fundamental shifts that will shape its future. Chicago Kuala Lumpur Moscow San Francisco Sydney Dubai London Mumbai São Paulo Tokyo We have looked into the likely changes in the real estate landscape over Hong Kong Los Angeles Nairobi Seoul Toronto the coming years and identified the key trends which, we believe, will have profound implications for real estate investment and development. future This report analyzes the trajectory As confidence returns to real of 30 cities, all capitals of finance, Real Estate 2020 Building the future estate, the industry faces a number commerce, and culture—and, of fundamental shifts that will through their current performance, shape its future. PwC has looked seeks to open a window on what into the likely changes in the makes cities function best. We also real estate landscape over the investigate both the urbanization coming years and identified the Cities of Opportunity 6 and demographic megatrends that key trends which, we believe, shape our cities. www.pwc.com/realestate will have profound implications for real estate investment and development.

18 The overhaul of lease accounting: Catalyst for change in corporate real estate US Real estate insights PwC Real Estate Investor Survey www.pwc.com/us/realestatesurvey US Real Estate This quarterly publication provides The quarterly PwC Real Estate Insights our perspectives on the latest Investor Survey is widely www.pwc.com/us/realestate Second Quarter 2015 Investors Monitor market and economic trends, Construction Levels recognized as an authoritative Spring 2015 regulatory activities and legislative Across Markets source for capitalization and changes affecting the real estate PwC Real Estate Investor Survey™ discount rates, cash flow industry, as well as informed views assumptions, and actual criteria of of the most current developments active investors, as well as property in operations, business strategy, market information. taxation, compliance and financing.

August 2015 PwC Hospitality Directions US Hospitality Directions US This quarterly publication is a near- Our updated lodging outlook

Steady growth expectations, as increases in average daily rate start to become more meaningful term outlook for the US lodging

Our outlook for 2015 anticipates: As the economy rebounded from a first quarter slump, driven by the absence of transitory factors, Peak occupancy levels performance of the US lodging sector in the second sector, commonly used by industry driving RevPAR increase of quarter generally met expectations, with a year-over- year RevPAR increase of 6.5%. During the second 6.9%, driven primarily quarter, ADR growth drove RevPAR increases to a by average daily rate. larger degree than prior quarters. Lodging demand trends in the US remain robust – both transient and group demand have continued to show strong Our outlook for 2016 anticipates: momentum, with increases of 1.4% and 1.5% in decision-makers and stakeholders Supply growth, at transient and group occupancy levels, respectively, As occupancy levels during the first-half of the year, compared to year- 2.0%, exceeding begin to stabilize, ago levels. Indeed, occupancy levels in the first-half long-term average of were at the highest level since 1987, giving operators average daily rate the confidence to test targeted price increases 1.9% for the first growth drives in many markets. Overall, our outlook for 2015 to better understand the impact time since RevPAR increase remains consistent, with a RevPAR increase of 6.9%, driven primarily by contribution from ADR growth. 2009. of 5.9%. Combination of strong demand trends and low supply growth is expected to drive peak occupancy levels, with US lodging occupancy expected to reach 65.6%, the highest level since 1981. As industry occupancy peaks, of policy and other macro- average daily rate growth is expected to become more meaningful, as the effects of the rise in the value of the US Dollar wane, giving operators more pricing power, especially in certain gateway markets.

In 2016, our outlook anticipates a stabilization in occupancy, albeit at peak levels, as lodging demand environmental factors on the and the supply dynamic change. Supply growth is expected to accelerate to 2.0% in 2016, with the increase in available hotel rooms slightly exceeding the long-term average for the first time since 2009. As a result, while occupancy levels are expected to stabilize, these peak levels, coupled with the absence sector’s operating performance. of this year’s drag on the US Dollar, are expected to give hotel operators more confidence to increase room rates, resulting in an average daily rate-driven RevPAR increase of 5.9%.

Where to find additional Authored by: Bill Staffieri information: Senior Manager – Real Estate Tom Wilkin Phone: 646.471.0047 If you would like further information US REIT and Real Estate Lifecycles Email: [email protected] on the new lease standard or assistance Leader in determining how it might affect your Phone: 646.471.7090 Justin Frenzel business, please speak to your PwC Email: [email protected] National Professional Services Group engagement partner or representative. Senior Manager – Real Estate Alternatively, a list of PwC contacts has Tom Kirtland Phone: 973.236.4970 been provided on the last page of this Director Email: [email protected] publication. Phone: 646.471.7345 Email: [email protected] Also, refer to: • CFOdirect, which includes technical guidance on the new lease accounting standards • Adopting the new lease accounting standards, for continually updated resources including updates on new developments to help you transition to the new leasing standards

Other PwC real estate publications 19 Contact us PricewaterhouseCoopers LLP is ready to serve you. For more information, please contact any of the following PwC professionals: National real estate and consulting contacts

US Real Estate Leader Byron Carlock [email protected] 214.754.7580 US REIT and Real Estate Lifecycles Leader Tom Wilkin [email protected] 646.471.7090

Real Estate Capital Markets & Accounting Chris Whitley [email protected] 617.530.7331 Advisory Leader Real Estate Advisory Services David Seaman [email protected] 646.471.8027 Real Estate Advisory Services Doug Struckman [email protected] 312.298.3152 Real Estate Advisory Services Tom Kirtland [email protected] 646.471.7345

Central leasing team contacts

Capital Market & Accounting Advisory Sheri Wyatt [email protected] 312.298.2425 Advisory Rich Cebula [email protected] 973.236.5667 Advisory Tripp Davis [email protected] 305. 375.6298 Assurance Brad Helferich [email protected] 612.596.4799 National Professional Services Ashima Jain [email protected] 408.817.5008 National Professional Services David Schmid [email protected] 973.997.0768

Industry sector contacts Aerospace & Defense Scott Thompson [email protected] 703.918.1976 Automotive Latina Fauconier [email protected] 313.394.6249 Banking & Capital Markets David Lukach [email protected] 646.471.3150 Chemicals Pam Schlosser [email protected] 419.254.2546 Consumer Finance Francois Grunenwald [email protected] 646.471.1993 Entertainment, Media & Communications Tom Leonard [email protected] 501.912.6246 Energy and Mining Mark West [email protected] 713.356.4090 Engineering & Construction John Eilers [email protected] 347.419.4355 Healthcare Timothy Weld [email protected] 646.471.2477 Manufacturing Robert Bono [email protected] 704.350.7993 Metals Phil Rossi [email protected] 412.355.6024 Packaging Max Blocker [email protected] 678.419.4180 Pharmaceuticals & Life Sciences Michael Swanick [email protected] 267.330.6060 Retail & Consumer Steve Barr [email protected] 415.498.5190 Technology Kevin Healy [email protected] 408.817.3834 Utilities David Humphreys [email protected] 617.530.7332 Geographic contacts (CMAAS)

Atlanta Jill Niland [email protected] 678.419.3454 Boston Chris Whitley [email protected] 617.530.7331 Chicago Sheri Wyatt [email protected] 312.298.2425 Dallas Jason Waldie [email protected] 214.754.7642 Houston Chad Soares [email protected] 718.764.7673 New York Matt Sabatini [email protected] 646. 471.7450 San Jose/Los Angeles Chris Smith [email protected] 408.817.5784 San Francisco/Pacific NW - Dallas Reto Micheluzzi [email protected] 214.754.7216 Washington/Philadelphia Tim Bodner [email protected] 703.918.2839

© 2016 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership), a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.