The lease accounting changes will have a significant impact on your business - from finance to operations to technology! Don’t wait to begin the planning process. Learn from a panel of real estate and accounting experts in a discussion on the key aspects of the revised accounting requirements and their impact on your bottom line.

1. Time to prepare !
…for lease accounting changes

2. Erik Lange
Partner
Accounting Advisory
Services
KPMG
Mindy Berman
Managing Director
Capital Markets
Jones Lang LaSalle
Vivian Mumaw
International Director
Global Lease Administration
Jones Lang LaSalle
Today’s guests
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3. Proposed changes
3

4. Goal
• Recognize off-balance sheet obligations
• Create economic transparency
* Estimate according to the 2005 SEC report on off-balance sheet activities
$1.25 trillion of off-balance sheet operating lease commitments for SEC registrants*
$1,250,000,000,000
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5. Greater transparency
about leverage, assets
used in operations,
and cash flows
Greater transparency
about residual values
Overview
Most lease assets and
liabilities are off-
balance sheet
Lessee
Lessee
Lessor
Existing
accounting issues
The
proposal
How the proposal
is an improvement
Recognition of lease
assets and liabilities
for all leases of more
than 12 months
Insufficient
disclosure about
operating leases
Enhanced disclosure
requirements
Lack of transparency
about residual values of
equipment and vehicles
Separately account for
residual asset
Enhanced disclosures
about residual asset’s
exposure to risk
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6. Anticipated timeline
2013 2015 2016
Final standard
expected to be
issued in 2014
Two year
look-back
period
Revised exposure
draft published
May 16, 2013
Comment
letters due
Sept 13, 2013
1 2 3 4 5
Effective date of
new standard:
2017 / 2018
2014 2017
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7. Proposed right-of-use model
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A lease contract conveys
the right to use an
underlying asset for
a period of time in exchange
for consideration
Lessor
Lessee

8. Scope
• All existing leases – no grandfathering
- Operating leases and capital leases
• All enterprises – public, private, not-for-profit
• All leases – real estate, equipment, leases embedded in service
contracts
- Regardless of underlying asset location
• Short-term leases exempted
- 12 months or less, including renewal/extension options
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9. Lease classification
99
LeaseTerm:
PV of Fixed Lease Payments
Amortization and Interest expense
Accelerated expense profile
Lease expense
Straight-lined over term
Type A
Non-property
Type B
Property
Low High
High
EconomicLifeofAsset
Fair Value of Asset:
• Definition looks to consumption
of underlying asset
• Test performed at lease
commencement or modification

10. Summary of changes – lessee accounting
Current Operating Lease Model Proposed Lease Model
Balance Sheet Off balance sheet Recognize right-of-use asset and liability
Income
Statement
Rent expense • Type A: Non-property leases
– Interest and amortization expense
• Type B: Property leases
– Straight line lease expense
Lease Term Non-cancellable term unless significant
economic penalties for failure to renew
• Options to extend & terminate included if lessee
has significant economic incentive to exercise
• Reassessment required
Variable
Lease
Payments
No contingent rent included • Contingent rent based on an index or rate (i.e.
CPI) using spot rate – no forward or forecasted
rates used
• Performance or usage based rents excluded
Purchase
Options
Bargain purchase option prohibited Included if lessee has significant economic incentive
to exercise
Short Term
Leases
• No liability / asset recognized
• Rent expense
• No liability / asset recognized
• Rent expense
Impairment No testing required Testing and recognition required
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11. Lease term
1111
• The existence of a
termination option
• Contingent amounts due
under residual value
guarantees
= Re-assessed periodically
*Significant
Economic
Incentive
• The importance of
the leased asset to
the lessee’s
operations
• Economic penalties
such as significant
customization,
installation costs or
relocation costs
• The existence of a
purchase option or
lease renewal
option and the
related pricing
Contract Asset
Entity Market
Non-cancelable
lease period
+
Lease extension options
(w/ SEI* to exercise)
+
Lease termination options
(w/ SEI* NOT to exercise)
= Lease Term

12. Discount or
Incremental
Borrowing Rate
Right of Use
Asset / Liability
@ inception
Initial measurement of expected lease payments
Present Value:Apply:
Contingent Rent
Based on Rate or Index
Rent Payments
Non-cancellable term
FV of Residual
Value Guarantees
Term Penalties
SEI to Exercise
Initial Indirect
Costs
Renewal Period
SEI to Exercise
Decommissioning
Costs
Include: Exclude:
Lease
Incentives
Performance /
Usage Rent
Operating
Expense
Capitalized lease obligations
+ – × =
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13. 1313
Effect on accounting
300,000
350,000
400,000
450,000
500,000
550,000
600,000
650,000
1 2 3 4 5 6 7
AnnualExpense($)
Year
* The above graph represents a 7 year office space lease with an option to renew for 3 years. The annual base rent is $500,000 escalating at 3%
annually. The tenant does not have a significant economic incentive to exercise the renewal option.
Cash Rents Lease Payments
Type B Income Statement:
Straight-lined lease
expense
Type A Income Statement:
Interest and amortization
expense

14. Receivable and Residual Model
• Lease is the sale of a more than
insignificant portion of the underlying asset
• Recognize profit upfront on receivable
portion, if any
Type A – Non-property Leases Type B – Property Leases
Financing Receivable Residual Interest
No receivable or
residual recognized
PP&E
Operating Lease ModelReceivable and Residual Model
Operating Lease Model
• Lease is the service of providing access
to an underlying asset for a stated period
of time
• Income recognition similar to current U.S.
GAAP
• No fair value accounting for property
companies
Lessor accounting
1414

15. Other lease arrangements
New Approach
Subleases • Recognize primary lease obligation
• Account for sublease arrangement separately
• Present on net basis
Sale-leasebacks • Determine if financing or sale
• Immediate gain recognition for sale
• Purchase options at market acceptable
Build-to-suits • Accounting based on lease classification
• Principles-based tests
1515

16. Disclosure requirements
The new standard is expected to require the accumulation of additional data points
and assumptions, which include but are not limited to:
• Payment amount considering lease term, including the significant economic
incentive to exercise:
- Renewal options
- Purchase options
- Termination options
• Discount rate
• Commencement date
• Residual value guarantee
• Embedded operating costs (e.g., service, CAM, utilities, taxes, insurance, etc.)
• Maximum possible term (including renewal options) less than 12 months
• Determination of individual lease classification between the straight line lease
expense and interest and amortization expense methods
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17. Business impact
17

18. Organizational impact
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19. 1919
Increase in P&L burden,
accelerated expense for
certain leases
Different accounting of
similar leases
Change in lease vs. own
decision-making
Change in expense
allocation to business
units
Potential violation of
financial covenants
Increase in financial
reporting burden
Substantial increase in
liabilities on the balance
sheet
Change in desired lease
terms and structure
No expected change in
credit ratings
Implications for corporate occupiers

20. Industry specific impact
2020
Financial
Services
Healthcare
Government
Contractors
Telecom
Retail

21. Transaction strategies – myths and realities
Own vs. lease decision-making
Own instead of lease • Use of corporate capital
• Ability to control or own certain property
• Operating flexibility
• Economic vs. accounting-based decisions
Minimize or avoid capitalization
Use shorter lease terms • Commercial feasibility and economic terms
• Short-term lease exemption – principles-based standard
• Termination options – principles-based standard
Limit / eliminate renewal options • Evaluated through lens of significant economic incentive
• Commercial feasibility
Creative rent structures • Usage or percentage of sales-based rents
Creative lease structures • Use of purchase options and residual value guarantees
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22. Get prepared
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23. Key Steps
Strategy
Modify lease terms l
Financing arrangements
Operations
Define roles l Develop processes l
Modify BU metrics l Align resources
Technology / Data
Collect data for D1 impact l Review / modify technology l
Assess impact l Design reporting
2017+
Maintain
2014
Implement
Now
Plan
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24. Technology and data
Data Tracking Reporting Accounting
Current • Lease terms, options,
rent schedule
• Deposits, allowances
• Conditions re. RVG,
option penalties,
decommissioning, BPO
• Fixed term lease
obligation
• Rent roll / income
• Future critical dates
• Abstract summaries
• Rent expense,
income
• Cash receipts
• Budget
• Straight-line rents
Additional
Requirements
• Direct costs
• IBR / Discount Rate
• Value estimates
(economic life, asset
value, exit costs, RV)
• Economic incentive
factors
• Assets and obligations
• Amortization schedules
• Reassessment support
• Expanded portfolio data
• Asset and obligations
for balance sheet
• Amortization using
estimated life
• Financing costs
• Reassessment impact
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25. Calculate/anticipate impact of changes
Establish cross-functional teams/processes
Facilitate strategic/tactical decision support
Lease Portfolio (real estate and equipment)
Action Plan
Staffing Levels
Change Management
Communications, Training
Governance Framework
Business Assumptions,
Work Routines and Processes
Information Systems
Data Collection/Management,
Reporting
Identify data/resource gaps
Information Systems
Human Resources
Lease Information
Organization
Positioning your lease portfolio
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26. What should I do now?
• Get educated and stay informed!
- Visit www.leaseaccountingchanges.com to
gain access to educational materials and
stay abreast of on-going developments
• Get vocal!
- Submit comments by September 13, 2013 via
FASB/IASB website
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• Get prepared!
- Understand the impact of the changes on your organization
- Advise your internal stakeholders
- Plan for change

27. For more information
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Michael Billing
Executive Vice President
Strategic Consulting
Jones Lang LaSalle
michael.billing@am.jll.com
+1 312 228 2638
Erik Lange
Partner
Accounting Advisory
Services
KPMG
elange@kpmg.com
+1 212 872 6654
Mindy Berman
Managing Director
Capital Markets
Jones Lang LaSalle
mindy.berman@am.jll.com
+1 617 316 6539
Vivian Mumaw
International Director
Global Lease
Administration
Jones Lang LaSalle
vivian.mumaw@am.jll.com
+1 312 228 2878