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Session ID: JDE-106560

August 21, 2019, 8:00 – 9:00am

Presented By:

Eric Deedrick, Brookfield Properties Retail

David Kratzke, Grant Thornton LLP

New Lease Accounting Functionality for Commercial Real Estate Companies

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About Grant Thornton JDEJD Edwards practice

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on enhancing the code base for customers (e.g. OneView

Reporting, Revenue Recognition, Leasing Standards, Configurator)

Experience and recognition

• More than 250 JD Edwards implementations and upgrades as a

practice

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Upgrades

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optimization

HHUMILITY

AATTITUDE

DDO THE RIGHT THING

TTOGETHER

OOWN IT

We operate best-in-class properties that provide an engaging

environment and experience for our communities, retailers,

employees, consumers, and stakeholders. Using strategic

thinking, innovation, and community partnerships, we have

transformed our retail centers into lifestyle destinations—

creating a new era of retail.

We Mean Retail

HEADQUARTERS

U.S. RETAIL PROPERTIES

STATES

INLINE & FREESTANDING GLA

TOTAL U.S. RETAIL GLA

TOTAL NUMBER OF EMPLOYEES

CHICAGO

170+

43

76+ MILLION SQ FT

146+ MILLION SQ FT

2,000+

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Agenda

• Project Objectives

• Organizational Involvement

• Approach

• Key Challenges

• Outcome

• Takeaways

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Project Objectives

1) Implement JDE Lessee Accounting functionality for ground leases (lessee arrangement) by January 1, 2019 as part of Brookfield Properties Retail’s (BPR) 9.2 upgrade project

2) Conduct comprehensive training for all users that would be involved in the go-forward processing of ground leases

3) Establish appropriate controls and segregation of duties given current uses of Real Estate Management module for lessor leases

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JDE Lessee Accounting processLease creation and management

=Automated step

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Organizational Involvement

Lessee Accounting

Business

Analysts

Business

Applications

Administration

Lease

Accountants

Property

Accountants

Corporate

Accounting

Fixed Assets

- Oversee overall end-to-end implementation- Determine appropriate roles, responsibilities and process

controls for go-forward processing- Oversee training, security setup and initial cutover

- Responsible for all lease setup activities

- Setup and posting of cutover adjustments to ROUA as manual billings

- Setup recurring billings, lease classifications (operating/finance), borrowing rates, etc.

- Billcodes and AAI setup- Object Account Setup

- Gathering existing recurring payment and pre-paid rent details.

- Lease Liability and ROUA Amortization Schedule Setup

- Fixed Asset master setup- Generation of Commencement

Journal Entries

- Ensure accuracy of Lease Liability and ROUA amortization schedules by tying to auditors provided excel schedules.

- Approval of Lease Liability and ROUA commencement journal entries

System Setup and Rollout

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Property

Accountants

Organizational InvolvementOn-going Processing

Lessee Accounting

Business

Analysts

Accounts

Payable

Lease

Accountants

Corporate

Accounting

Fixed Assets

- Oversee production Lessee Accounting processing to ensure process works as intended for initial cut-over, lease commencement, month-end, and lease termination

- Responsible for all lease setup activities when new ground leases are signed

- Setup cutover adjustments to ROUA as manual billings, recurring billings, lease classifications (operating/finance), borrowing rates, etc.

- Clearing open payable entries

- No longer reversing pre-paid rent entries as monthly batch program creates reversal entry.

- When new leases are signed, Generate Lease Liability and ROUA Amortization Schedules and Commencement Journal Entries

- Run monthly batch journal entry program to process amortization

- Processing of Lease Termination entries

- Approval of Lease Liability and ROUA amortization schedules and commencement journal entries when new ground leases are setup.

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Sample Implementation Approach

• Collect data for identified and

unidentified leases

• Validate data collection

• Review existing contracts for

embedded leases

• Design, define, and update policies

• Determine categories of in scope

leases

• Criteria for leases vs services

evaluation

• Document current Fixed Asset,

Accounts Payable and Treasury

processes

• Identify any customizations to

standard objects used in process

• Determine impact to financial

statements

Plan and Assess Design Build and Test

• Design workshops to review

functional areas impacted by the

rollout of the new functionality

• Identify process changes required

• Document configuration changes and

new setup required in Real Estate,

FA and AP modules

• Identify potential barriers and critical

success factors

• Complete design documentation of

all end to end processes

• Identify operational and financial

reporting requirements

• Determine retrofit needs for

customized objects

• Identify and document data

conversion process

• Update system configuration for new

modules and/or changes to current

configuration

• Retrofit custom objects as needed

• Update and implement the security

matrix for any security changes

• Develop custom reports (e.g.

required financial disclosures)

• Unit test conversion processes

• Create test scripts

• Complete test cycles – unit, CRP,

integrated, user acceptance

• Resolve all testing issues

• Develop draft cutover plan

Train and Deploy

• Prepare training environment,

materials, and schedule

• Conduct training and transfer

knowledge to users

• Finalize go-live cutover plan

• Validate configuration, menus, tasks,

versions, objects have been

promoted into JDE production (PD)

• Go / No Go decision

• Convert all lease data into the system

• Go live!!

• Resolve any post go live issues

• Maintain lease information

1-2 Weeks 2-3 Weeks 4-5 Weeks 2-3 Weeks

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• Process based approach for identifying all roles and responsibilities

• Process Diagrams utilized to highlight system configuration design decisions throughout design sessions.

Approach: Design

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Approach: Design

• Detailed Design Books prepared to capture system configuration and design decisions

• Design Books utilized as one-stop-shop for understanding programs and setup required to support Lessee Accounting processing.

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Approach: Build and Test

• Build:• E1 Task Menus and Role Based Security

• Lessee Accounting Role for security• Menu/application security utilized

• System Configurations• Interactive and Batch Program’s Processing Options/Data Selection• RE Constants, Object Accounts, AAI’s, Bill codes• Fixed Asset module setup (no depreciation)

• Retrofit customizations to Lease screens and programs in REM

• Test• Conference Room Pilot (CRP) silo testing by program• Integrated Testing (end-to-end process testing)• User Acceptance Testing (Production Environment as part of End user

training)

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Approach: Train and Deploy

• Training:• 2 Knowledge Transfer sessions conducted with IT• End User Training Conducted (in conjunction with UAT) –

• Complete End to End process training and walkthrough workshop (including temporary work around)

• Training for Pre-paid rent coding changes for AP and Property Accounting

• Recorded UPK’s for all programs used for Lessee Accounting processing

• Deploy:• Deployment plan reviewed with core team – Corp. Accounting,

Prop Accounting, Lease Accounting, Fixed Assets, AP, IT• Go-Live in January 2019

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Key Challenges: Segregation of Duties

• REM module heavily utilized for Lessor (receivable) leases

• Program’s processing options and menu/application security were utilized to ensure appropriate access

*Example above of Lease Master Processing Options

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Key Challenges: Project Timing & Code Freeze

15

ESU 1RE Leases

January 2018

ESU 2* Non-RE Leases, IFRS

April 2018

ESU 3*Early Term/Re-measure

October 2018

* Affects many property management objects and requires 2 baseline ESUs

JDE 9.2 Code FreezeFeb 26, 2018

Paper Fix 1June 2018

Paper Fix 2Nov 2018

Need to get targeted

code current

• Roll out automated functionality as of 1/1/19:• All monthly pay in advance (12 current leases)• Quarterly and annual pay in advance (8 current leases) manual work-around for

commencement and monthly journal entries• Any new ground or building leases that are pay in advance (not in arrears) – AAI work-

around to address ground vs. building

• All bug fixes/Oracle Support• Process Land, Building and

Equipment Leases• Early Terminations• Lease Re-measurements• Multiple BS Accounts (land

and building, operating and finance)

• IFRS

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Key Challenges: Adjusting Initial ROUA

• Manual Billing processing required to adjust initial ROUA balance for each existing ground lease.• Clear manual billing by having AP reverse entry on payment match

*Example showing how manual billing has net $0 impact on IS and Balance Sheet

*Showing existing B/S balances that

may impact initial ROUA balance

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Key Challenges: Pre-Paid Treatment

• Under existing set-up, each property accountant was processing pre-paid rent to one of several object accounts.• Processing Options of the Lessee Accounting monthly JE batch

program only allow you to specify a single pre-paid account to reverse when the monthly program is ran.

• Property Accountants were trained to code fixed portions of rent to new pre-paid account during voucher processing and have system reverse automatically at month-end.

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Outcome:

• 19 Ground Leases currently being processed in system as of January 1, 2019: 11 Monthly, 4 Quarterly, 4 Annual PMT

• Manual amortization journal entries for 1 ground lease due to 99+ year term (current bug with Oracle)

• Additional leases added since January 2019

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Amortization Schedule Dashboard

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Amortization Schedule Example

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Takeaways:

• Begin the process early• Takes time to abstract leases in preparation for data entry• Many design, configuration, security, and system setup decisions to be made

• Engage end-users early• Promote buy-in from end-users by engaging them in early design and testing

cycles

• Validate against manual Excel calculations• Confirm with internal and external auditors

• Conduct comprehensive end-to-end training• Help users visualize the big-picture of the future state process and understand the

“why” behind the new process

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Recommended Upcoming Sessions

Session ID Date / Time Session Name Location

105480 Wednesday,

4:45 - 5:45pm

Getting Started with Lease Accounting for

Lessees of Property and Non-Property Assets

for Enterprise

Tower Court A

101530 Thursday,

1:30 – 3:00pm

Got Leases? You Should Know About the JDE

Lease Accounting Capabilities!

Governor's

Square 9

Please complete a session evaluation

Session ID: 106560

Contact Info:

Eric Deedrick - Eric.Deedrick@brookfieldpropertiesretail.com

David Kratzke – David.Kratzke@us.gt.com

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