Portfolio managers know that data integrity and quality are paramount when managing leased portfolios. Without reliable information, it is impossible to keep track of the numerous complexities within leases and ensure that business expenses (such as rent, outgoings, promotion levies, storage fees etc) are accurately accounted for and that IFRS-16 / AASB 16 calculations are precise. Therefore, Lease Accounting and Management software has become a must-have tool for growing businesses.
Welcome to LeaseInfo’s weekly blog. This week we will be looking at Lease Manager Software and how it is assisting lease managers and accountants by protecting data integrity, minimizing human error, and expediting data entry and reporting.
This article is one of many in which LeaseInfo explores the current technologies having a profound impact on the leasing industry, check out our latest blog on how AI is being used across the industry here once you’ve finished this article for more information.
What functions does a Lease Management System perform?
At a fundamental level, property lease management systems were initially created to assist businesses with managing the complexities of lease portfolio management. Subsequently they have been augmented to comply with IFRS 16 and AASB 16 accounting standards (to learn more about accounting standards check out our article here).
These complex standards essentially require leases to be capitalized, so they can be transparently shown on a company’s balance sheet. Having leases on a balance sheet means they are subject to multiple changes including CPI, market rent reviews, options and discount rate changes which can create huge complexities for portfolio managers and accountants.
This is where the best Lease Management Systems free up time by handling the bulk of calculations and reducing the risk of human error. The rest of this article will explore the importance of Lease Management Systems as well as the difficulties that some users have when using the software to manage complex Lease portfolio.
Why are Lease Management Systems so prevalent?
To comply with AASB/ IFRS-16 all parts of the lease must be accounted for. These includes:
- Rent increases based on CPI index
- Market Review
- Revised Discount Rates
- Any variation within the lease
- Lease extension
- Rent concessions due to COVID-19
- Marketing allowances
- Abatements within the lease
- Individual clauses (e.g. redecoration and provision for make. good)
All these aspects require time consuming calculations. If completing these calculations on an excel spreadsheet there is no guarantee that they will be accurate, and all calculations would have to be constantly updated and data reentered as CPI and discount rates change regularly.
Some Lease Management Systems have inbuilt CPI tables that are automatically adjusted, turning CPI from a huge headache (especially when backdating) into a simple click of a button.
Lease Managements Systems further ensure data integrity by storing all lease data in one centralized data repository. When dealing with large portfolios, having multiple people working on a document at once can be dangerous, especially if numerous copies exist of the same document.
In some circumstance, changes cannot be tracked, and no “up-to-date” version of the lease portfolio exists, potentially leading to IFRS noncompliance and inaccurate business forecasts and reporting.
Accounting requirements have shifted the goalposts for lease management. Rent has been replaced by interest and depreciation and a modern lease management system will help navigate this process. Lease management is now so complex that sophisticated Lease Management Systems are required.
Lease Management Software should provide the following key features:
Customized watchlists, performance charts and date alerts can be incorporated into the front page of the software system providing a portfolio overview and key information immediately.
Reminders and Alerts
Email and calendar notifications can be automatically generated for critical dates such as market rent reviews, option exercise windows, expiry dates. Customised reminders on any critical date field should be facilitated.
Reporting and Forecasting
Some systems can generate lease reports and portfolio summaries automatically saving staggering amounts of time. Budgets and forecasts are easily generated often with the ability to perform scenario analysis such as projected market rents and CPI values.
Data transfer is integral in modern portfolio management and with so many individual systems, it is paramount that data is not corrupted when being transferred from one program to another via secure APIs.
Lock Dates are an inbuilt feature within lease management systems that prevent the user entering or changing of data prior to a certain point in time (usually at year end). This ensures that once accounting data has been closed that it isn’t overwritten thereby corrupting closing balances. Lock Dates ensure data integrity and prohibit the backdating of data past a certain point, meaning closing balances are preserved.
A critical feature of quality Lease Management Systems is having a reliable audit trail system that allow the user to track changes at a portfolio and lease level. This is vital for error detection and management.
2 Phase Authentication and Security
Several lease management systems have built-in Accounts Payable modules which store vendor bank accounts. It is critical that there are reliable fraud detection/management controls in place such as two-phase authentication for vendor bank changes. Furthermore, security level access should allow system users to control data entry, read only and administrator privileges.
Flexible Report Writers
Most systems come with pro forma reports such as tenancy schedules, budgets and forecasts. However increasingly clients want to be able to customize their own reports and therefore the ability to generate customizable data using client’s individual requirements is becoming critical.
A critical feature of all lease management systems is the ability to manage outgoings at a budget and actual basis and perform “ true-ups” ( reconciliations). The system should allow the user to record outgoings at any level on an annual quarterly or monthly basis.
Stay tuned for next week’s article where we will be taking a deep dive into Common Lease Management Issues or talk to one of our expert lease or accounting assistants on 1300 RETAIL (738 245).
This post was authored by Simon Fonteyn. Simon is one of Australia’s leading experts in retail, childcare and medical leasing and rental valuations. He holds a Degree in Accounting & Finance, a Diploma of Valuation, a Masters of Management and is an Associate of the Australian Property Institute. With over 25 years experience in the commercial property industry, Simon founded LeaseInfo® as a way to provide more transparency to the industry.