The Leader Magazine

SEP 2017

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4 14 SEPTEMBER 2017 ThE lEadER F E A T U R E A R T I C L E Ann Duncan is executive vice president and head of Savills Studley Occupier Services group. Based in Tampa, Florida, she oversees strategic solutions, tenant representation, technology services, project management and lease administration. Jess Joaquin Johnson is senior managing director of strategic solutions for the Occupier Services Group of Savills Studley in Tampa, Florida. He leads the team in portfolio strategy, M&A advisory, occupancy analy- sis and forecasting, and business intelligence. Chris White is executive vice president and market leader at Savills Studley in Atlanta, Georgia. He is a tenant representative and global occupier services veteran with an active practice and more than 20 years of experience. Lee Adrean: There are different approaches, depending on the reasons for the merger. For example, is the merger between companies in different lines of business? If so, you can expect moderate consolidation. There will probably not be need for two accounting teams. But separate production facilities, sales forces, etc., may still be required. On the other hand, if the entities are in the same line of business, you need to look at the reasons behind the merger. Is it a matter of gaining scale? Or is it to add a new products or customer segments? In either case, there's likely to be more extensive consolidation to eliminate redundancies. CRE has to understand the rationale for the merger and prepare for the consequences. 4. Addressing new FASB accounting standards Savills Studley: What can CRE do to facilitate the accounting task? Brian Steiner: Real estate has to get in front of it. But most companies are still evaluating the effect FASB will have. For example, will the revised balance sheet change how analysts view the company? FASB has two phases: Revenue recognition for 2018 and lease accounting in 2019. The reality is that focus is on the fi rst phase now. CRE can act proactively by starting to collect leasing information so that it's ready when accounting begins on the next phase. Lee Adrean: Controller efforts are directed towards 2018 revenue recognition and probably won't shift to leasing until 1Q next year. In the meantime, CRE can help by starting to assemble the needed inventory of all leases, both capital and operating, because even terms as short as one year will be affected. Creating a comprehensive overview is a true challenge. It should note start dates, terminations, renewals, annual increases, and a range of other options that may come into play. The problem is this information is usually scattered throughout the organization. Data may be kept in spreadsheets; terms may still be entered manually. This makes accurate information collection a big task. Still, CRE can provide invaluable assistance by helping the corporation avoid a disruptive fi re drill next year. Most companies report little progress on assessing the impact of FASB. Top take-aways • CRE must function strategically to align with corporate goals and avoid transactional focus at the business level. • Although the means of analysis may vary with circumstance, quantifi cation is crucial for presenting an understandable, well- supported recommendation to aid management decisions. • CRE has to understand the rationale for an M&A event; that is, what is driving it? The CRE team must get to the C-suite early to help with due diligence. Then the team's responsibility is to anticipate and prepare for the post-acquisition integration to drive synergies according to business objectives. • Because real estate represents a principal expense, it can be central to the success or failure of a merger. Early involvement in the undertaking is essential. • Most companies lack the data, systems, processes and controls to comply with FASB leasing standards. Which of the following are your organization's top challenges in 2017? Source: PwC, CFO Direct, 'The quarter close,' June 12, 2017 Source: CFO Forum/Atlanta, First Quarter 2017

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