To be awarded certification, an audit of Lucernex’s Quality Management system was conducted in 2011 culminating in certification in November of 2011. A third party auditing firm, Quality Systems Registrars, Inc. (QSR), performed the ISO 9001 certification.

“ISO 9001 certification proves how dedicated Lucernex is to customer service and continual improvement. It will ensure that we continually improve our service processes and our customer satisfaction”, said Joe Valeri, President of Lucernex.

If you are interested in learning more about Lucernex’s ISO 9001:2008 certification or about Lucernex Quality Management System, please call 972.403.7100 or email sales@lucernex.com.

About Lucernex
Founded in 2000, Lucernex Technologies provides real estate professionals with powerful software tools to guide them through the real estate store life cycle. It is the only solution designed “by retailers for retailers” and can manage any size portfolio of leased and owned properties. Fortune 500 companies in the commercial real estate, hospitality, retail, construction and engineering industries have been utilizing Lucernex Technologies software solutions every day to ensure compliance, mitigate risk and empower effective growth. As an innovative leader in retail real estate solutions, Lucernex continues to grow its customer base by applying its Web-based software expertise and real estate development insight to provide advanced tools and services for business. For more information, please visit www.lucernex.com.

SSAE 16, which supersedes the SAS 70 audit standard, was designated by the U.S. Securities and Exchange Commission (SEC) as an acceptable method for management to obtain assertions about service organization internal controls without conducting separate assessments. “As a provider of SaaS solutions delivered in the Cloud, SSAE 16 compliance ensures all Lucernex products are safely and securely controlled. To our clients it means they can feel safe using our solutions to develop, build and manage their real estate portfolio”, said Ken Brown, EVP and CIO of Lucernex.

The Auditors’ Report details Lucernex’s controls and provides an independent assessment of operational standards to ensure they are effective for securing and maintaining all client environments. If you are interested in reviewing a copy of the audit, please call 972.403.7100 or email sales@lucernex.com

About Lucernex
Founded in 2000, Lucernex Technologies provides real estate professionals with powerful software tools to guide them through the real estate store life cycle. It is the only solution designed “by retailers for retailers” and can manage any size portfolio of leased and owned properties. Fortune 500 companies in the commercial real estate, hospitality, retail, construction and engineering industries, both in the United States and Europe, have been utilizing Lucernex Technologies software solutions every day to ensure compliance, mitigate risk and empower effective growth. As an innovative leader in retail real estate solutions, Lucernex continues to grow its customer base by applying its Web-based software expertise and real estate development insight to provide advanced tools and services for business. For more information, please visit www.lucernex.com.
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Media Contact: Joe Valeri 310-732-6448, joe.valeri@lucernex.com

Dallas, TX (May 17, 2011) – Lucernex Technologies, Lucernex Technologies, an innovative developer of business intelligence software for real estate management and development, today announced that Jack in the Box Inc. (NASDAQ: JACK) has purchased and implemented Lucernex’s store lifecycle management solution to manage its real estate portfolio, which includes more than 2,200 Jack in the Box® restaurants across 19 states. By implementing the retail version of the Lx Retail product suite, Jack in the Box can streamline its process of selecting store sites; building and opening new store locations; as well as managing existing locations to avoid costly time delays and save costs.

By using Lucernex’s proprietary suite of user interface-driven configuration tools, Jack in the Box completed its implementation of Lx Retail in a short period of time and at a substantially lower cost than current industry standards. The user-friendly tools enabled Jack in the Box staff to complete 80 percent of the initial configuration, including data conversion and integration, internally with minimal consulting fees.

With Lx Retail now fully implemented and live, Jack in the Box is receiving the following benefits and capabilities:

• Portfolio Management
• Market Planning and Location Analysis
• Site Selection and Analysis
• Construction and Project Management
• Facilities Management
• Capital Program and Capital Project Management

Jack in the Box was also a development partner with Lucernex in order to design a new module dedicated to automating creation of capital programs and projects, including individual and rolled-up schedules and budgets. The Capital Projects module is now a core part of the Lx Retail suite and available for all Lucernex customers to manage their remodels, re-images, dispositions and other capital programs.

“By implementing Lx Retail, Jack in the Box was able to successfully replace two previously used systems and integrate with a number of legacy systems into a single streamlined solution,” said Louise Mailloux-McBurnett, Vice President of Product Management, Lucernex. “Moving forward, the staff at Jack in the Box will also continue to build their own processes and integrations without any additional development or consulting from Lucernex.”

About Lucernex
Founded in 2000, Lucernex Technologies provides corporate real estate professionals and real estate developers with powerful software tools that lower expenses and increase ROI through active real estate portfolio data management, whether applied to an existing portfolio or during the real estate development process. For more than a decade, Fortune 500 companies in the commercial real estate, hospitality, retail, construction and engineering industries, both in the United States and Europe, have been utilizing Lucernex Technologies’ software solutions every day to better manage the development lifecycle. As an innovative leader in integrated Store Life Cycle solutions and lease administration solutions, Lucernex continues to grow its customer base by applying its web-based software expertise and real estate development insight to provide advanced tools and services for business. For more information, please visit www.lucernex.com.

About Jack in the Box Inc.
Jack in the Box Inc. (NASDAQ: JACK), based in San Diego, is a restaurant company that operates and franchises Jack in the Box® restaurants, one of the nation’s largest hamburger chains, with more than 2,200 restaurants in 19 states. Additionally, through a wholly owned subsidiary, the company operates and frachises Qdoba Mexican Grill®, a leader in fast-casual dining, with more than 500 restaurants in 43 states and the District of Columbia. For more information, visit www.jackinthebox.com.
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Media Contact: Georgia Perkey 310-732-6448, gperkey@inpointadvisors.com

Since Gartner coined the term IWMS and lumped in all similar vendors including those focused on Store Lifecycle Management (SLM), it has become increasing hard to tell the difference between IWMS and SLM. Some companies provide SLM, or a point solution and call themselves IWMS and others are truly IWMS vendors and call themselves SLM but just within the retail industry. In truth, while there is an overlap of some of the core features there are marked differences in the needs of the end user, the focus of the applications and how the solutions were developed and are delivered.

Store Lifecycle Management, as a term to describe the end-to-end real estate development and management process, was first used to describe software solutions here at Lucernex in the early 2000’s. It was later picked up by Accruent to describe the retail focused solution they built on top of our Lucernex 3.71 licensed product – called Accruent SLM.

The retail and restaurant industries are the focus of Store Lifecycle Management solutions, though other retail-like firms may benefit from it as well. Retail-like companies would include retail healthcare, hospitality, banking, finance, convenience stores and any other company that manages a large portfolio real estate used to directly serve consumers. The focus of their use of SLM is a combination of cost control, risk mitigation and effective store growth.

Integrated Workplace Management Solutions, IWMS, are not focused on retail. Instead they are more generic and cover a much wider group of companies’ primarily focused on the post-operations goal of cost control through effective asset management. Notice the recent IBM acquisition of Tririga, based on IBM’s own press release, is focused on combining Tririga into IBM’s back office Asset Management solution Tivoli.

SLM applications, to meet the client demand for cost control, risk mitigation and effective growth, focus more on the front-end of the lifecycle and provide detailed tools for market analysis, site selection including demographics and mapping, lease analysis, construction project management, capital project management that impacts multiple stores, store opening planning, lease administration, rent accounting (with a focus on percentage rent and other retail specific features) and facilities maintenance.

IWMS applications, to meet the broad needs of facilities and asset managers, focus functionality on computer aided facilities management (CAFM), facilities maintenance and management, sustainability, lease administration and general project management. While some do offer transaction management, they rarely offer an in-depth solution for market analysis, site selection, lease analysis, demographics/mapping or the type of construction or capital project management needed for retail real estate portfolios. The lease administration offered is usually highly functional but rarely offers features that are specific to retailers like deep percentage rent accounting, TI Management and advanced expense accounting and reconciliation that can save retailers millions.

As a result SLM solutions are usually selected and primarily used by Real Estate Departments, as retail focused companies typically place a much higher premium on their real estate groups who are typically responsible for selecting, building and sometimes even maintaining locations. IWMS solutions are typically selected by the IT group or the Facilities Management group as those non-retail companies do not consider real estate strategic and often relegate the function to a part of their Facilities or Asset Management Department.

For retailers or retail like companies that are looking for technology, make sure to ask for the software providers retail credentials. Does management have a background in retail? What percentage of their user base is retail? How much of their R&D is focused on retail? How much or their professional services and support group has a largely retail background? While these points rarely come out during an RFP process or through product demos, it should be one of the most important selection factors when selecting a software application for retail or retail-like real estate.

Shameless Plug

Lucernex is the ONLY company in the SLM or IWMS space with:

• a CEO who was both a retail real estate executive and CEO of a retail company ,
• a President who was CIO of the real estate group within a retail company,
• an EVP who created the Retail Lease Administration Software space with SLIM in he 80’s
• a full-lifecycle, single platform, single database, single user interface solution

We invented the SLM space with the first full-lifecycle SLM solution in 2002 and have continued to innovate with the first cloud-based SLM and Lease Administration solutions in 2009.

Lx SLM has advanced and mature modules for Market Analysis and Site Selection, Project Management, Lease Administration and Rent Accounting and Facilities and Capital Program Management. And, ALL of our products were developed on and are delivered on a single platform with a single database and a single user interface.

Previous IWMS related Blogs

What is IWMS anyway?
IWMS? It’s Location! Location! Location!
The Power of Location Management
IWMS – Why so expensive?
IWMS in the “Cloud”
How Capital Project Management fits in an IWMS
What makes one IWMS easier to implement than another?
Why building real estate software in house is no longer financially feasible
Risks of upgrading Lease Administration Software alone or as part of an IWMS

We recently attempted to sell our applications to a very large retail chain which ended with them deciding that their “IT department had looked at everything out there and they decided to build it in-house instead.”

While it has become far less common, there remain corporate, retail and healthcare companies that still go down the road of building their own real estate management software. In the current economy, with the number of low-cost and low-risk software options out there today, I can’t imagine how a valid financial argument can be made to justify the internal short and long-term cost of an internally developed application.

Before going down that road consider: the real short-term and long-term cost; the risk you are taking sinking so much capital into a system you have not yet seen; the risk you are taking by being the only user of such an important system; the risk you are taking by allowing your internal IT group to interpret FASB regulations and adapt them to technology; the time it takes for your IT department to produce anything; how often your IT group is on time; and; finally, consider what one layoff in the IT group will do to your plan.

Having managed a very large software portfolio for Marriott International and having spoken to countless real estate executives over the past 10 years, there are some unarguable facts about developing in-house that often get overlooked.

1. Internal Cost. Any system, no matter how small, that is developed in-house or purchased and implemented behind the firewall has short and long-term internal cost. The cost of developing the software or purchasing a software license is the SMALL part of the Total Cost of Ownership (TCO). In my days running a real estate systems group (and this was over 10 years ago) even the smallest system required an internal charge of $75k per year and most applications brought an internal charge closer to $150k per year for hardware management, database management, software enhancements, overhead, etc… As you can see from the table below you actually pay FAR more EVERY year for your in-house solution.
Table 1: Typical cost of internally developed solution

2. Timing. A vendor supplied application that is built to be flexible and quick to implement can be up and running in weeks from the time the project is approved. Internally developed applications will take at least 9 months to a year to develop and far more if they are trying to build a complete Lease Accounting or IWMS application. How often does your IT group deliver on time? What will the priority of your project be compared to other IT projects?

3. Accuracy Risk. A software company has to sell its wares to many clients and end users. Having many users means many more folks testing and ensuring the software does what it needs to do. Consider the complexity of lease accounting software; who is best prepared to ensure FASB rules are followed? What better way to be sure of a product accuracy than to have dozens or hundreds of other companies testing it to make sure its rock solid. How many people test your internally developed applications, how much industry experience do they have and how many meaningful scenarios can they come up with?

4. Investment Risk. When you develop internally there is always a substantial upfront cost in hardware, software development, design and overall IT support. You have to build a support organization and training manuals and you have to commit to this before you’ve even seen pictures of what the application will look like. Would you buy a vendor’s product without a demo? All that upfront cost is sunk and you have no recourse if the application does not do what you need. SaaS and Cloud software requires very little upfront cost and, if you are not happy, you cancel, get your data and try another vendor’s product.

5. Focus. No matter what your IT department tells you, they are not a software company and can not possibly operate like one. Software companies are in the business of not only developing their software but in making sure their customers are happy AND making sure they stay on top of new trends and advances that can benefit their clients. Internal IT departments are not in the business of developing software and are always one budget cut away from losing the application’s developers and support.

6. Data Security. No matter what your IT department tells you they are NOT as good at securing data as a SaaS or Cloud vendor using a top-tier hosting facility. If a hacker wants to get to you, the easiest place to start is knowing where your data is – if it’s housed inside your data center its easy to find! Professional, top-tier hosting facilities are in the business of keeping data safe and they implement the most modern technologies and techniques available to protect your data. How long do you think it takes your IT department to get a new piece of security hardware or software approved?

7. IT reality. Job security is more important to most internal IT staff than maximizing the ROI of a software investment. IT priorities change all the time and your project can become unimportant quickly.

In today’s world, there are Software as a Service (SaaS) applications and even more advanced Cloud Computing solutions available for most of the critical areas of real estate management. While some IT groups view these applications as unsafe the fact is they are actually far safer than internally developed applications (see Data Security and Risk above). A SaaS or Cloud solution is actually very low risk in terms of ROI. Clients can start using the application with very little up-front investment including NO hardware, NO internal IT staff, and, in some cases, NO third party licenses. If the product does not show the ROI needed it can be shut off with very little risk and no HUGE upfront investment to eat – in accounting parlance, there is very little sunk cost with SaaS and Cloud applications.

Pros and Cons of Internal Development

Pros
1. Get exactly what we want, built for us
2. More secure (perceived)
3. Protect more internal IT jobs

Cons
1. Much higher up front investment (longer time to ROI)
2. Much higher total cost of ownership
3. Risk of being only using the application (no external checks on quality of software)
4. Takes at least a year before version 1 will be ready and often much longer
5. If IT priorities change, you may not get your application for years
6. Beholden to your IT department for even the smallest change
7. How often is your IT group in time and budget?
8. Technology is outdated the day you start using it and no one is routinely upgrading it
9. One layoff away from no support
10. If you don’t like the software you are stuck with it until it all depreciates
11. Easier to be found by a hacker

Pros and Cons of purchasing a SaaS or Cloud solution

Pros
1. Very little up front investment (no hardware required); less capital at risk
2. Lower long term total cost of ownership
3. Usually a very quick ROI
4. Lower risk of errors since many other users with similar requirements
5. Can start using quickly (often within weeks of purchase)
6. Changes can be made by vendor or even by business users with more advanced software
7. Professional data security by a host in the business of protecting data
8. Cancel anytime with little sunk cost
9. Make payments quarterly or annually; lowering risk
10. Upgrades free – get benefits of new features for free
11. Built using years of experience with other users with similar needs

Cons
1. It is not 100% yours and completely under your control
2. Might mean client needs fewer internal IT staffers
3. Might not do everything exactly as you do it now

Shameless Plug

Lx IWMS and Lx Contracts are Cloud-delivered web applications that require no large up front investment, no internal hardware or IT support, no third party licenses and can be up and running in a matter of weeks. Clients pay one flat fee and pay annually or quarterly. Our applications are housed in a private hosting facility that maintains their own private network (a closed section of the Internet) which houses some of the nation’s largest banks and insurance companies. We typically provide an ROI in year one of use of our systems and focus on customer satisfaction to make sure our clients stay with us for the long term. Before you get talked into building a custom in-house system by your IT group, take a look at how configurable and easy to use Lucernex applications are and see if the product you are looking for already exists.

Previous IWMS related Blogs

What is IWMS anyway?
IWMS? It’s Location! Location! Location!
The Power of Location Management
IWMS – Why so expensive?
IWMS in the “Cloud”
How Capital Project Management fits in an IWMS
What makes one IWMS easier to implement than another?

When considering the purchase of real estate software point solutions such as Lease Administration, Project Management, Purchase Management, CMMS and Space Planning/CAFM it is helpful to understand the differences, benefits and challenges of a-la-carte options vs. an integrated suite of products. Individual software solutions are just that – products that are sold individually and have little to no compatibility with other product offerings. Product suites like an Integrated Workplace Management System (IWMS) are offered as an integrated group of solutions and give the user benefits such as flexibility, ease of use, common overhead, better support for system architectures and platforms. Vendors, like Lucernex Technologies, who build their systems from the ground up using one architecture, one database, one codebase and one common interface eliminate many of the problems encountered with so-called “best of breed” solutions. This blog will illustrate specific examples of why an integrated product suite such as IWMS is best:

First, an IWMS product affords a company software flexibility. Users will be able to share data – including setup and security information – throughout the system and configure the system to meet the company’s needs rather than the other way around. The ability to move data such as deadlines, leasing numbers and budgets without having to re-enter it in multiple places saves valuable time, increases accuracy, and eliminates the frustration that occurs when one part of the system doesn’t talk to the other.

An IWMS solution is also easier to manipulate than single point solutions. All products integrated into an IWMS package look, feel and work the same way. Key interface items like navigation menus, common controls, prompts and messages work together to make the user experience more enjoyable. With a common interface, a user can learn one part of the application and then easily apply this knowledge to another area of the solution. One of the many reasons why Microsoft Office is so widely adopted and successful is because it has a common user interface just like an IWMS product.

Another challenge with implementing multiple software products is that many solutions overlap in areas of functionality. Document management, contract management, security and configuration (form building, report creation, workflow setup, etc.) may have specific areas of the application that are the same. When multiple products try to do similar things the inefficiencies and incompatibilities will render part of these solutions useless. Products within an IWMS system “talk” to one another so that these overlapping areas of functionality work together rather than compete with one another. Who wants to enter contact data twice or define different user security roles because one part of the system cannot talk to another and share the information? With IWMS, all products “talk” to one another, share information, and enable the user to function more efficiently.

A final point to take into consideration is that when a company adopts multiple products they increase their implementation costs, training and on-going maintenance costs dramatically. The purpose of a software solution system is to save time and money and positively impact a company’s bottom line. Often, the implementation of multiple products does just the opposite.

Shameless Plug

At Lucernex, we have a term we like to use for solutions that are banded together, using pieces of various applications to create an end to end solution. We call it a “Franken Product” and if you don’t want a monster on your hands, than consider a single platform IWMS solution. At Lucernex, our response to the “Franken product” is Lx IWMS. The Lucernex Lx IWMS platform is a single platform with one database, one code base and one architecture. It covers the entire property lifecycle with modules dedicated to market planning and location analysis, project management, capital program management, lease administration, lease analysis and facilities management that streamline key processes such as site acquisition and development, construction, procurement, grand opening, lease management, property disposition, and capital or remodeling projects. To avoid the problems, challenges and inefficiencies of a Franken Product, strongly consider a single, integrated solution and beware solutions with a consistent UI that are hiding a “Franken Product” underneath.

For more information about Lucernex Technologies’ Lx IWMS, visit www.Lucernex.com

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Previous Blogs by Ken Brown

Optimizing and Globalizing Real Estate?
It’s time to upgrade lease administration software now

GAAP Sublease Accounting

Summary of GAAP/FASB Accounting for a Loss Associated with a Sublease

Our interpretation of GAAP sublease analysis according to FASB accounting rules is as follows:
Overview: Start by determining the net present value of all rental costs including write-offs of depreciation and subleasing costs, offset by the sublease income (the NPV write-off). The Income Statement (Profit & Loss statement) is then charged the NPV write-off and it is charged an interest expense based on a declining balance of the NPV write-off, the accretion interest expense. The declining balance is determined by taking the net monthly costs (including sublease income) and the interest expense and deducting that cost from the NPV write-off.

Steps are as follows:

1. Determine a start date for the sublease analysis, e.g. if the space is vacated in January 2004 and put on the market for sublease, then the analysis starts January 2004.
2. Determine the remaining lease obligation for the balance of the term from the start date above (rent, operating expenses, taxes, i.e. what was committed to when the lease was executed).
3. Determine the net book value (NBV) of any assets that will be written off as of the start date above, e.g. un-depreciated leasehold improvements.
4. Make sublease assumptions including

• Timing, when space will be subleased
• Rent and Free Rent
• Operating Expenses and Taxes (Subtenant’s base year?)
• Commissions
• Tenant Improvement costs paid by the Sublessor associated with the sublease
• Other costs associated with the sublease

5. Calculate the total cost of the space, include the write-off of the assets on the start date and any Commissions and Tenant Improvement costs paid by the Sublessor
6. Calculate the total income from the sublease, i.e. rent and any operating expense reimbursement.
7. Determine the Shortfall that is the difference between the cost of the space and income.
8. Determine the present value of the Shortfall using a risk-free discount rate (the NPV write-off).
Note 1: The discount rate may not be the same rate as the corporation uses for internal analysis.
Note 2: Lx LseMod calculates the present value monthly based on a beginning of month payment.

9. Determine the Beginning Balance for calculation of Accretion Interest Expense. The Beginning Balance is the Present Value minus the Cash Shortfall in the current month.
10. Determine the monthly Accretion Interest Expense. This expense is the Interest on the Beginning Balance in step 9 above. The Interest rate is the same as used for the present value calculation in step 8.
11. Re-set the Beginning Balance for the next month by taking the previous month’s balance and reducing it by the Cash Shortfall in the current month.
12. Continue this process until the balance is 0.
13. At the end, all costs net out to 0 on the Income Statement (P&L).

Costs booked against the Income Statement include the following:

a. NPV Write-Off including Depreciation
b. Accretion (Interest Expense)
The net effect of GAAP subleasing is what we used to call “funny money” accounting. However, it does impact the Income Statement (P&L), which in turn impacts taxes, which impacts the After Tax NPV.

Examples See a report example to the right or view a detailed example. You can also view many other financial analysis report examples of Sublease and Lx LseMod Lease Analysis reporting.

Sublease GAAP Monthly Report

Notes

A: If the original lease costs booked to the Income Statement (Profit & Loss statement) were based on GAAP accounting (i.e. the rent was spread evenly over the term), then the calculations of the loss must be based on the GAAP rent, not the Cash Flow rent.
B: Lx LseMod Corporate Lease Analysis includes the option to create a GAAP rent analysis as well as a GAAP sublease analysis.

Disclaimer – The summary above represents our interpretation. It is NOT intended to replace information received from tax accounting professionals.

To see the actual FASB write-up, go to http://www.fasb.org/st/
scroll down the page to Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”

Shameless Plug

Lx LseMod Corporate Lease Analysis is the market leading application for Corporate lease analysis, providing GAAP sublease impact analysis within detailed P&L and Cash Flow projections. Companies like GE, MetLife, American Express and Robert Half use Lx LseMod Corporate for lease analysis making it the most trusted name in corporate lease analysis.

Intended for Corporate Real Estate Managers and Tenant Rep Brokers.

Importance of P&L?

First and foremost, in a corporation the cost charged to a manager’s budget is the PreTax P&L, not the Cash Flow. Since performance evaluations and bonuses are based on budgets, it is important to know how the impact of an action (e.g. leasing space) impacts the budget.

Profit & Loss (P&L) is what companies use when reporting financial results. A company’s P&L is perhaps more important than its Cash Flow. It shows whether or not a business has achieved its primary objective – earning a profit.

You have probably heard people say, “Profitability is key.” Profitability is different from Cash Flow. Profitability is the number reported to Wall Street and quoted in newspapers in earnings per share (EPS).

Cash Flow represents the cash coming in (sales/revenues collected) less money actually spent (salaries, rent, costs of doing business, paying off money borrowed, etc.).

A company can be profitable, but have a negative cash flow. Alternatively, a company may be losing money on paper, yet have a positive cash flow.

Although it is rare, large real estate transactions can impact a company’s profitability, and what they have reported to Wall Street analysts, and ultimately, the stock price.

A company’s key financial metric can vary over time and in any particular fiscal year. The key metric can range from the Net Present Value of the AfterTax Cash Flow, to how much Capital is required in that year, to what is the PreTax P&L impact in the current fiscal year.

Corporate managers are measured (and bonused) based on their P&L performance. Typically this measurement does not include taxes, since corporations actually keep another set of books for paying taxes, thus the real measurement is the Pretax P&L. It is important for a corporate real estate manager or an operating business unit manager to be sure the costs for an action being proposed or taken is within their budget, and their budget is a Pretax P&L, not a Cash Flow.

P&L vs. Cash Flow

In accounting for rent on a P&L basis, companies have three choices – Cash Flow, Effective Rent, and GAAP Rent. Cash Flow rent uses whatever the actual cash paid for rent to generate the rent costs on the P&L.

Effective rent takes the Base Rent and any rent abatement input (free rent), determines the average rent and uses that to generate the base rent costs on the P&L. Rent increases are added to the effective rent to generate the rent shown on the P&L.

GAAP rent takes the Base Rent, rent abatement and any increases (or decreases) and then determines the average rent and uses that number to generate the rent on the P&L. The increases must be a known amount or a known percentage. For example, if rent goes up 3% annually, GAAP rent could be used; however, if rent goes up by the CPI (which is an unknown amount and can vary), GAAP rent should not be used.

Since taxes are based on the P&L, one needs to account for the rent properly in order to calculate the taxes correctly, which is necessary to compare the true Net Present Value of the AfterTax Cash Flow.

Two additional key differences between P&L and Cash Flow are Capital/Depreciation and Timing. Companies (and the IRS) categorize costs as Expense and Capital.

Capital is typically a one-time cost and if it has a useful life of more than one year it may be capitalized. Note that different companies have different rules about what is capitalized vs. being “expensed,” assuming a useful life of more than one year (furniture for example). Typically the break point is determined by the cost. The IRS rule is an asset is capitalized if the life of the asset is greater than one year and the cost is greater than $100. However, companies have agreements with the IRS that increase the $100 rule; in some cases as high as $25,000.

When a cost is Capitalized, the total cost is NOT shown in the first year in a P&L analysis. Instead, the cost is depreciated and spread out over some period of time. Note that there are a number of ways to depreciate the costs such a straight-line, double declining balance, etc. The tax department in a company determines the approach, and the approach may be different between the Tax Return and what is reported to Wall Street as the P&L. For simplicity and ease of understanding, using straight-line depreciation (that is dividing the cost by the number of months of its useful life) is typically best for corporate real estate financial analysis.

Timing is everything. The P&L does not show Capital as a lump sum, but instead shows the cost as depreciation over some period of time. Assume you are spending $1 million to construct the interior improvements for a 10 year lease, thus the depreciation would be $100,000 per year ($1 million divided by 10 years).

In a Cash Flow analysis, the $1 million shows as a cost in the first year, but in a P&L analysis, only the depreciation, the $100,000, shows as a cost in the first year. So, in comparing the Cash Flow to the P&L analysis, the Cash Flow is $900,000 higher than the P&L ($1 million less $100,000).

Relationship Between P&L and Cash Flow

There are three fundamental parts to a companies financial reports – the P&L, a Cash Flow statement, and the Balance Sheet, and they are all related.

Assume you sell a widget for $1,000 and your cost of selling the widget is $600. In a typical P&L report, the $1,000 is recorded as a sale and $600 is a cost, leaving a profit of $400. This profit is shown as soon as the product is shipped, not when the bills are paid and the sales revenue collected.

In a simple transaction, the $1,000 is shown on the Balance Sheet and Cash Flow Statement as an Account Receivable and the $600 cost is shown as an Account Payable.

When the customer pays and the $600 cost is paid, the Cash Flow statement is updated to show the the additional $400 and the Balance Sheet is updated to show the $400 as cash and as retained earnings.

The key is timing – on the P&L, the profit is shown as soon as the product is shipped. However, on the Cash Flow and Balance Sheet the net cash is not shown until all bills are paid and the customer has paid for the product.

Special Considerations

Taxes are based on the P&L, not on Cash Flow. Consequently, you need to calculate the P&L before you can calculate the taxes. And, to calculate the P&L, you need to categorize costs as Expense or Capital, and then show the depreciation of the Capital costs in the P&L calculation. The P&L does not show Capital as a lump sum, but instead shows the cost as depreciation over some period of time.

When calculating P&L, it is vitally important to measure the P&L based on a company’s fiscal year for reporting financial results.

The fiscal year can be a calendar year, January through December, or it can start at any month in a year. For instance, most Japanese-owned companies have a fiscal year that starts in April and ends in March, while the federal government has a fiscal year that starts in October and ends in September.

Showing a P&L analysis in Lease Years (Year 1, Year 2, etc.) can be extremely misleading. For instance, if a lease starts in October and a company has a calendar year fiscal year, then only three months of the P&L costs will impact the first fiscal year, not twelve months if an analysis uses Lease Years.

For instance, in the earlier example of a $1 million capital expenditure depreciated over 10 years, on a P&L basis only three months of depreciation would show in the first year, a $30,000 cost vs. a $100,000 cost in a Lease Year analysis.

Financial Metrics

The key financial metric in corporate real estate financial analysis depends on who is measuring and priorities. Usually when companies say that “Cash is King!” the key metric is capital.

Profitability is key. If profitability is the most important metric, then measuring and comparing the Pretax P&L impact is most important. Sometimes the key is the first year P&L impact, other times managers want to compare the P&L by year.

It is important to note that other than retail, corporate real estate is a cost to a company and there is no profit unless space is purchased and later sold assuming appreciation of the asset. When space is leased, the cost goes right to the company’s bottom line. The theory is that the occupants of the building (staff, manufacturing, etc.) will generate a profit that will offset the cost of the real estate. Consequently, most P&L and Cash Flow analyses for corporate real estate do not include any profit and just show the occupancy cost of the space.

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In general, CFOs make comparisons based on the Net Present Value of the AfterTax Cash Flow. However, depending on priorities, they may also compare the P&L impact and the capital required. Business unit managers who are charged back the cost of their space look for the Pretax P&L impact in both the current fiscal year and over the term of the lease.

The Bottom Line

Companies have at least two bottom lines – the bottom line for P&L (the number reported for profitability) and Cash Flow (the actual cost that represents money actually spent).

When doing a financial analysis, one needs to look at both numbers. Depending on a company’s priorities at that time, the P&L can be more important than Cash Flow.

For individual managers, whether corporate real estate managers or the business unit manager, the Pretax P&L represents the cost that is charged to their operating budget. The Pretax P&L is the budget cost with which they are measured by management, and frequently a key measurement in their bonus plan.

So, help yourself and your customers by being sure to calculate the P&L impact as well as the Cash Flow when comparing properties and doing your financial analyses.

Shameless Plug

Lx LseMod Tenant Rep Lease Analysis is the market leading application for lease analysis with easy to use input screens, powerful free emailing and full color client configurable reporting. Brokers from all major houses including NAI, JLL, CBRE, Studley, GTZ, Cassidy Turley and many independent brokers user Lx LseMod Tenant Rep to win more business and wow their clients.

Dallas – (January 22, 2010) – Lucernex Technologies, an innovative developer of business intelligence software for real estate management and development, announced today that it is offering discounted subscription fees and fixed-price implementation of its Lx IWMS workplace management solution to anyone wishing to transition from Accruent’s SLM and IWMS products following Accruent’s announcement that it has been acquired by Vista Equity Partners.

Lx IWMS from Lucernex Technologies is the most comparable solution to Accruent currently on the IWMS market and offers a higher level of functionality as well as the most natural and lowest-priced migration path. The core of Accruent’s IWMS solution (previous called Store Lifecycle Management), was licensed from Lucernex in 2004 and has been installed as part of Accruent’s solution by dozens of large retailers.

“As the former CTO of Accruent and designer of the Lucernex solution, I think there is no doubt that Lucernex is best positioned to enable a smooth migration for any Accruent retail client,” said Joe Valeri, president of Lucernex. “We want to make sure that any client using any part of our software is satisfied with their investment.”

“In addition to the IWMS solution, many of Accruent’s clients are using legacy client-server based lease administration products such as SLIM, REM and RetaiLease and are looking for a web-based replacement. I am confident that any Accruent client that switches to Lucernex will be happy with the transition and will find the Lucernex team to be more responsive to their needs and willing to work with them to ensure success,” said Ken Brown, Lucernex’s executive vice president of product development and the original designer of the SLIM Lease Administration System.

First developed in 2000 and currently in use by Fortune 500 companies, the Lucernex Lx IWMS platform addresses the unique needs of companies with multi-site, rapidly changing real estate portfolios. The solution can be used to manage corporate real estate of any type and also offers market-specific functionality for the retail, restaurant and hospitality sectors.  Available in both Enterprise and Standard Editions, Lucernex Lx IWMS makes it possible for all real estate management resources to openly communicate and keep all projects on time and within budget. Enabling this kind of integrated communication will ultimately reduce costs, improve productivity, enhance operational efficiency and increase profitability.

To learn more about Lx IWMS, please contact Lucernex Technologies at 972-403-7100 or visit www.lucernex.com.

About Lucernex

Founded in 2000, Lucernex Technologies provides real estate developers and facility managers with powerful software tools to guide them through the real estate development process. For nearly a decade, Fortune 500 companies in the commercial real estate, hospitality, retail, construction and engineering industries, both in the United States and Europe, have been utilizing Lucernex Technologies software solutions every day to better manage the development lifecycle. As an innovative leader in Integrated Workplace Management System (IWMS) solutions, Lucernex continues to grow its customer base by applying its Web-based software expertise and real estate development insight to provide advanced tools and services for business. For more information, please visit www.lucernex.com.

So many brokers are competing for deals with the same companies every day. I can bet that each company with a lease renewal or relocation on the horizon is about to get 20 calls a week from an almost begging the agent to get an appointment.  With an already skeleton crew or perhaps nearly busting at the seams these companies are looking for the best guy or gal to get the job done quickly, efficiently and thoroughly for them.  There is no time to be reviewing broker’s resumes or interviewing 5 top agent commercial houses.  These CEO’s and CFO’s want to find someone who can solve their problems overnight. It’s the receptionists that file those stacks of resumes and business cards, but there is always one that catches the eye……………..

New agents today are nearing starvation to land a deal, while the “Old Dogs” still keep slamming deals out of the park.  Makes you wonder how they do that……..repeat business is key of course but reinventing yourself in today’s competitive market is critical to be in front of the pack. Don’t be fooled those “Old Dogs” are learning new tricks too.

Recently I saw on my local news channel a story about a guy in Denver, Colorado with a sign saying willing and able to work “I’m a professional who wants a job”.  I thought how clever of him and HEY he made the news!!  I’m sure he resorted to this after months of interviews and taking all the free classes offered by unemployment to reinvent himself.  Not a bad way to make yourself stand out in the crowd of many looking for work, I think. So how do you set yourself apart from the rest of the rat race in brokerage? Many new agents look at the “Old” dogs and wonder how they get those big $100K deals over and over again. What’s the secret?  Honestly the secret is simple. They use easy to use analysis tools like LxLseMod or Argus programs to provide reports showing detailed cash flow associated to all cost in a relocation, investment or renewal.  These guys and gals have learned along the way how to spend their time and having to create homegrown spreadsheets is not how they want to get more business. Plus the idea of producing your own and client point out a mistake. Oy!!  I would not even want to think about that conversation!! These types of programs provide the key points like rent escalations, free rent, constructions costs, moving, buy-out penalties, parking costs etc.  As we know in lease transactions each one is unique and might require specific detail. Can you imagine having to produce multiple types of homegrown info? I assure you I’d be brain-dead after the 3^rd or 4^th go round. These “Old dogs” have zeroed in on the tenants main objective; to discover what the pain is going to be too relocate or renew. Period!! These types of tools make them the “Experts”  in their market and they get repeat and new business this way over and over again.

Reinventing yourself means changing your old cold calling ways. Invest in a tool or tools; LxLseMod Tenant Rep for example can help you become the “Expert” in your market for let’s say R&D, Industrial or even Corporate representation. The key today in successful deal landing is to empower yourself as the industry leader. So now you’re thinking when I’m out pounding the pavement and leaving my business card for potential prospects to contact me, how is my card going to stand out from the rest?  Imagine instead leaving a one page report showing a mock relocation/renewal side by side with all your contact detail on the report vs your 2 x 3 business card and a few pages about how great you are and who you have done business for blah blah blah……yeah you can see it now can’t you. That one page report just became your new resume and business card. That one page report shows the prospect exactly what you THE EXPERT that can provide by servicing their needs in relocation, purchases or renewals. Now YOU stand out in the crowd!!