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SAP REAL ESTATE MANAGEMENT (RE-FX)

New Leasing Standards at a Glance

REAL. WORLD. EXPERIENCE.

NORTH AMERICA ASIA PACIFIC MIDDLE EAST EUROPE

Real. World. Experience. www.vestapartners.com


Vesta Partners is a global professional services firm
focused on SAP EAM solutions for customers in asset
intensive industries

Real. World. Experience.


DEEP DOMAIN EXPERIENCE

Vesta Partners has deep domain experience in asset intensive industries

Energy &
CPG Facilities Life Sciences
Utilities

Mining Oil & Gas Transportation

Real. World. Experience.


WHY INTRODUCE NEW LEASE ACCOUNTING STANDARDS?

Creating a New, Global Converged Standard


In the aftermath of Enron and WorldCom’s collapse in 2001/2002, the U.S. Securities and Exchange Commission’s
(SEC) began investigating their off-balance sheet transactions, and they discovered a loophole with operating leases.
The SEC asked the Financial Accounting Standards Board (FASB) to work with the International Accounting Standards
Board (IASB) to develop a new standard that would provide transparency on companies’ lease assets and liabilities.

Started as a joint project, IASB and FASB each published their own standards
on January 13, 2016 and February 25, 2016, respectively:

IASB’s IFRS 16 leasing standard is mandatory from January 01, 2019

FASB’s US GAAP ASC-842 is mandatory from the fiscal year after


December 15, 2018

Both standards mandate that real property and equipment leases


must be recorded on balance sheet

Real. World. Experience.


NEW LEASE ACCOUNTING STANDARDS USHER IN A NEW ERA

New Leasing Standards

US GAAP ASC-842 & IFRS 16


• Impacts every organization that leases real property and / or equipment
• Standards impact both public and private companies

Public Companies – mandatory from 01/2019 onwards


Private Companies – mandatory from 01/2020 onwards

Real. World. Experience.


SAP RE-FX-LA (LEASE ACCOUNTING)

SAP has developed an integrated solution (RE-FX-LA) that simplifies


compliance with US GAAP ASC-842 and IFRS 16 lease accounting standards

Leasing Property Other Than Property


(non-movables) (equipment, movables)

Lessor 1 2 SAP Leasing


SAP Real Estate Management
(enhanced for IFRS 16 and
US GAAP ASC 842)
Lessee SAP Lease
(Biggest impact of IFRS 16 3 4 Administration
US GAAP ASC 842) by Nakisa

Real. World. Experience.


INTEGRATED LEASING SCENARIO FOR REAL PROPERTY MANAGEMENT

Different lease types


Leasing partners
Subject of agreement: cost center, property,
Contract agreements ….
Management Terms and conditions for notice and renewal
options (validity)
Lease payment cash flow with full integration
Critical dates and reminders
Documents management

Classification and evaluation rules


Calculate and report of Net Multi-GAAP enabling (US GAAP
Present Value, Depreciation, ASC-842, IFRS 16)
Repayment and Interest Manage Right-of-Use assets and
Change management / re- Valuation and Multi-GAAP liabilities
valuation Classification Posting Customer / Vendor accounting
Support transition scenarios Post depreciation and repayments
Create / link to Fixed Assets Lease payments
Controlling and Profit Center
Accounting
Real. World. Experience.
7
HOW CAN VESTA HELP?

Vesta can leverage our deep domain experience in asset intensive industries, including geographical enablement
(SAP Geo Framework), to help customers become compliant with the new leasing standards.

Capture & Manage US GAAP


Implement Business Processes,
Prepare & Plan leases & Analyze ASC 842
Systems, & Controls
Impact IFRS16 Go-live

• Setup internal • Upgrade SAP Systems • Analyze and • Capture, create and • Go-live with
project • SAP Lease Contract (re-) design business manage relevant leases IFRS 16 and US
• Analyze & plan IT Management* installation processes impacted • Analyze leases GAAP ASC 842
landscape & initial configuration • Implement changes • Estimate balance sheet
• Define business • SAP Lease Contract (Change Management) impact
process & change Management* customer-
management specific enhancements
roadmap

*SAP Lease Contract Management Refers to functionality to handle lease-ins within SAP RE-FX in conjunction with SAP FI, SAP FI-AA.

Real. World. Experience.


WHAT IS INVOLVED?

Property leases must be reported on balance sheets as assets or liabilities.


This means that leases need to be capitalized.

Signed lease (obligation to pay rent) = Lease Liability


Real Estate Contract
Asset (ability to use space in a building) = Right-of-Use (RoU) Asset

Options for Organizations

Implement RE-FX functionality


Implement RE-FX contract only [New Option]
[includes RE-FX contract]

Real. World. Experience.


BASIC STEPS INVOLVED IN CREATING A CONTRACT

Create a new lease agreement (contract)

Valuate the lease

Post lease payments and valuation

Revaluate contract following a CPI adjustment or contract change

Real. World. Experience.


UNDERSTAND IMPACT OF NEW GUIDELINES

CONDITION VALUATION PROPERTIES

MEASUREMENT OF THE LEASING LIABILITY


A = Lease Installment
E = Remaining value guarantee
D = Cash Surrender Value
SAP CUSTOMERS S = Penalty Payment
I = Incentive
Gain an Understanding of the New Guidelines V = Subletting

MEASUREMENT OF THE RIGHT-OF-USE


B = Initial Costs
GOAL IS TO MINIMIZE THE IMPACT ON THE BALANCE SHEET R = Asset Retirement Obligation
G = Extraordinary Depreciation
1. Capitalization term - lease term, renewal and cancelation options
2. Expenses to be capitalized OFF BALANCE-SHEET ACCOUNTING
3. Discount rate (for calculating Present Value and Interest on lease liability) U = Transfer Posting or Linearization
4. Deductions that are allowed
5. Landlord allowances (TI, etc.) TRANSITION APPROACH
6. Initial direct costs (payments to 3rd parties, etc.) C = Present Value Specified
7. Impairment of Right of Use asset (reduced value in books, decide to sublease) F = Net Worth Value Specified

NOT TO CONSIDER
X = Miscellaneous

Real. World. Experience.


PARTNER AND VALUATION CASH FLOWS

Revaluate after contract’s annual CPI or percentage adjustments, as well as any other change to the contract’s cash flow

Valuation Cash Flow

Valuation Valuation
Contract Valuation
Rule (per relevant charge)
Valuation
(per relevant charge)

(per relevant charge)


Partner Cash Flow

Write-off
Partner- Acquisition
Interest Transfer Special
related Liability (acquisition,
Depreciation RoU Asset
difference, Rate posting Transaction
cash flow retirement)

Acct. doc. Asset Depreciation Interest Service


Payment Difference
(Creditor) Acquisition Document Posting Cost
RoU &
Contr. doc. Asset Depreciation Interest Service liability
Payment
(Contract) Difference Document Posting Cost
Asset Depreciation Interest
Tax Data Payment ………
Retirement Document Posting

Financial and Fixed Assets Postings


Real. World. Experience.
REAL ESTATE LIFE-CYCLE

Optimize Acquire Build Operate Dispose

Construct & Real Estate Facility &


Plan & Optimize Investment Idea Acquisition Disposition
Refurbish Operations Service Mgmt

PPM IM RE-FX RE-FX RE-FX PM RE-FX


Solution

New Lease
Accounting
Standards

Real. World. Experience.


REAL ESTATE LIFECYCLE SOLUTION MAP

Portfolio & Project Investment & Lease & Space Maintenance &
Sales & Marketing
Management Construction Management Repair

Investment Property Construction


Construction
Planning Acquisition Project

Sales &
Campaign Lead Opportunity
Marketing

Service
Lease Master Lease Real Estate Contingent Rent
Administration
Lease Offer Lease Charge
Data Abstract Search Rent Escalation
Settlement

Space Move Room


Facility Master Work Energy
Management
Manage- Manag- Reserv-
Data Order Reporting
ment ment ation

Accounts
Asset Project Cost Payable & Accounts Cost
Accounting Budgeting
Accounting Accounting Accounting Receive- Payables Accounting
ables

Real. World. Experience.


REAL ESTATE MANAGEMENT

RE
Plant Maintenance PM CO Controlling

NetWeaver NW CRM Customer Relationship


Management

INTEGRATED
Purchase Orders PO FI Financials
SOLUTION

Building Control Systems BCS AA Asset Accounting

CAD FM
CAD/CAFM/GIS Systems Funds Management
PS

Project Management
Real. World. Experience.
For more information:
info@vestapartners.com
(203) 517-0400

Real. World. Experience.