Setting Up Operating Expenses

This chapter provides an overview of operating expenses, lists prerequisites, and discusses how to:

Establish operating expenses for a lease.
Perform operating expense audits for payables leases.
Reconcile operating expenses for receivables leases.

Understanding Operating Expenses

The cost of maintaining a property or a building, commonly referred to as Common Area Maintenance (CAM) or operating expenses, is typically considered a shared expense between a landlord and a tenant. These expenses can include utilities, taxes, insurance, maintenance, cleaning, advertising, and promotions. The actual expenses are normally based on the percentage of the space that is occupied (pro rata share) and is detailed in the actual lease. The PeopleSoft Real Estate Management system enables you to set up recurring invoices or payments for estimated operating expense charges and also perform end-of-year audits and reconciliation for those shared expenses.

Typically, on an annual basis, the landlord breaks down all estimated operating expenses for the year and passes those charges through to the tenants on a monthly basis based on how much of the building that they are occupying. Since the monthly amount that is invoiced or paid is based on an estimate, the system tracks all invoices and payments that are made. At the end of the year, the landlord reconciles the estimated expenses with actual costs. A credit is issued to the tenant for overpayment or an invoice for underpayment. After the reconciliation is complete, the landlord uses that data to better estimate the upcoming year's expenses and provide a new budget and estimated bill amount. Tenants can hold CAM audits in situations where they believe that the costs are inaccurate or if they just want to verify the estimates against actuals.

Prerequisites

Before you can set up operating expenses, you must:

Set up the routing code.
Set up the operating expense categories.
Associate the routing code with the operating expense categories.
Add accounting rules for those operating expense categories/routing codes.

See Understanding Operating Expense Categories.

Establishing Operating Expenses for a Lease

This section provides an overview operating expenses and discusses how to establish operating expense details.

Pages Used to Establish Operating Expenses for a Lease

Page Name	Object Name	Navigation	Usage
Create New Lease - Operating Expense Details	RE_LS_TRM_SEC	Lease Administration, Payables Leases, Create New Lease, Financial Terms Click the Add Operating Expense button. Lease Administration, Receivables Leases, Create New Lease, Financial Terms Click the Add Operating Expense button. Lease Administration, Payables Leases, Maintain Lease, Financial Terms Click the Add Operating Expense button. Lease Administration, Receivables Leases, Maintain Lease, Financial Terms Click the Add Operating Expense button.	Define an operating expense for the lease. When you establish your operating expense details, you can set up categories and minimum and maximum amounts for that operating expense.

Establishing Operating Expense Details

Access the Financial Terms - Operating Expenses Details page.

Start Date

Enter the begin date for the operating expense. The start date must occur on or after the lease start date. The system uses the lease start date as the default.

End Date

Enter the end date for the operating expense. The end date should occur on or before the lease termination date. The system uses the lease end date as the default.

Payee

Enter the entity who receives the operating expense payments. The default value is the landlord from the lease. This field appears only for operating expenses that are associated with payables leases.

Payor

Enter the entity who is responsible to make the operating expense payments. The default value is the tenant from the lease. This field appears only for operating expenses that are associated with receivables leases.

Add Expense Line

Click to add a new row to the Operating Expense Categories grid.

Operating Expense Categories

Operating Expense	Enter or select the operating expense category for recoverable shared expenses. You can select from only active operating expense categories. See Defining Operating Expense Categories.
Estimated Amount	Enter the estimated amount for the operating expense. Use the estimated amount for monthly recurring invoices or payments.
Min Amount (minimum amount)	Enter the minimum amount for the operating expense. Note. This field is for information use only.
Max Amount (maximum amount)	Enter the maximum amount to charge for the operating expense. Use this field to calculate audit alerts during the audit and reconciliation processes.
Administration Fee	Enter the administration fee. The system adds this amount to the operating expense charges after final calculations of all operating expenses for the lease.
Straightline	Select to apply straightline calculations to the operating expense. Note. If the rent amount or recurring expense amount for the operating expense is not evenly billed across periods, then those amounts must be reported in the general ledger on a straightline basis (an even distribution). See Understanding Straightline Accounting.
Calculate	Click the button to calculate the recurring monthly operating expenses. Note. This button is only available when the lease or amendment is in pending status.
Total Estimated Payment	Displays the total estimated payment amount for the operating expenses.
Schedule	Select a value from the prompt table to specify how often to invoice or pay the operating expenses. Use this field to determine the frequency of the invoice or payment. The values from which you select come from the Schedule component. Note. If the value you need is not available, to the Schedule component to add additional values. See Defining Common Journal Definitions.
Frequency	Displays the frequency that is associated with the schedule that you selected.
Anticipated Process Date	Displays the current anticipated processing date or the next date on which a transaction is available to be approved and sent to PeopleSoft Payables or PeopleSoft Billing. This field appears only after lease activation. Note. You must run the Transaction Generator to get the scheduled transactions into the transaction queue.
Terms Calendar	Enter the terms calendar, which determines the start date and end date of billing periods for the operating expense. The calendar ID from the business unit definition appears by default. You can override this value, but the frequency of the schedule and terms calendar must be the same. This is a required field.

Performing Operating Expense Audits for a Payables Lease

This section provides an overview of operating expense audits and discusses how to:

Perform an operating expense audit for a payables lease.
Compare operating expenses with the previous audit.

Understanding Operating Expense Audits

The PeopleSoft Real Estate Management system provides you with the ability to reconcile annual operating expenses or CAM against your estimated payments. When the landlord sends the annual CAM reconciliation statement with any invoice or credit against the estimated payments that you have made, you can compare the information against your records of estimated payments, as well as the CAM charges from the previous year. If the charges significantly increase or decrease or the data that is provided by the landlord is insufficient, you can initiate a formal CAM audit.

You can use the Audit Operating Expenses - Operating Expense Audit page to enter the values from the reconciliation statement for each expense category. The system automatically calculates the amounts that you paid to the payee, which includes all of the recurring amounts and the audit adjustment amounts. To calculate the paid amount, the system uses only processed transactions from the transaction queue. You can enter manual adjustments the final total for each expense category. The system compares the data that you entered against the data that is stored in the lease and flags any value that exceeds a certain tolerance threshold.

Note. You set up the tolerance threshold at implementation in the real estate management business unit.

After you have reviewed and compared the data in the worksheet and are satisfied with the final calculated numbers, you can issue a payment for any underpayments. If an overpayment occurs, you can create a negative payables line and apply it to any future payments, or, the landlord can issue a refund check or credit.

Prerequisites

Before you can perform an operating expense audit, the lease that you are auditing must be in active, expired, or holdover state. You must also enter operating expenses terms against the lease.

Pages Used to Audit Operating Expenses

Page Name	Object Name	Navigation	Usage
Audit Operating Expenses - Operating Expense Audit	RE_OPEXAUDIT	Lease Administration, Payables Lease, Audit Operating Expenses	Create an operating expense worksheet to compare estimated operating expense payments against actual expenses.
Audit Operating Expenses - Compare Operating Expenses with Prior Audit	RE_OPEXAUDIT_CMP	Lease Administration, Payables Lease, Audit Operating Expenses Click the Compare Previous Audit link.	Displays the current audit data and prior audit data, if available. You can use this comparison data to ensure continuity in operating expense charges from year to year.

Performing Operating Expense Audits

Access the Audit Operating Expenses - Operating Expense Audit page.

From Date

Enter the date on which you want the audit period to begin. This date must occur after the lease start date and cannot be later than one day after the To Datefrom the previous audit. The system sets the From Date to one day later than the previous audit by default. For first audit period the system uses the lease commencement date by default.

To Date

Enter the date on which you want the audit period to end. This date must occur after the from date and cannot be later than the current date.

Occupancy Percent

Displays the occupancy percentage (percent of total rentable area and between 0 and 100).

Note. The system uses occupancy percent to calculate the Adjusted Actual Amount for each of the audit categories. The formula is Adjusted Actual Amount = Actual Amount × (Occupancy percent ÷ 100).

Audit Number

Displays the sequential number that is assigned to this audit.

Add Category

Click the button to create a new operating expense category for the lease. This button appears only for pending audits.

Update Audit

Click to update this audit. The system compares the actual charges in the current audit with the charges for the operating expense categories in the previous audit and creates and invoice for the balance amount. You can update an audit only after all of the audit transactions have been processed. This field appears only for processed audits.

Lease Terms

The lease terms group box displays the values setup on the lease you select for this audit.

Prorata Share	Displays the percentage of the total area that you are occupying. The system displays the value from the lease. The field is informational only. The system does not use the field for any calculations.
Total Rentable Area	Displays the total area that is available for rent from the lease. The system uses this value to calculate the Cost per Sq Unit (cost per square unit) for each of the audit categories.
Max Op. Ex. Increase/Year (maximum operating expense increase per year)	Displays the maximum percentage increase or amount increase for all operating expense charges for the year. This field is informational only and defaults from the lease.
Base Year Amount	Displays the operating expense amount that is charged for the first year of the lease. This is informational only. This field appears only if you select the Base Year Exclusion option on the Financial Terms page.
Lease Currency	Displays the currency code from the lease.
Override Admin Fee (override administrative fee)	Select to edit or override payment of the administrative fee. If you clear this field, the system automatically computes the administration fee from the lease based on the audit start and end dates. Note. The system adds the administrative fee to the operating expense charges after final calculations.
Revision History	Click to view all the previous revisions of the audit. This link appears only when more than one audit revision exists.

Operating Expense Categories

The system automatically populates the Operating Expense Categories grid with the operating expense categories that are associated with the lease and payee on which you are performing the audit.

Paid Amount	Displays the amount that you paid for each operating expense category. The system adds all of the recurring operating expense amounts and all of the audit adjustment amounts that you paid to the payee during the audit from and to dates. The paid amount includes processed transactions from the audit period.
Actual Amount	Enter the actual amount on the reconciliation statement that is provided by the landlord. The statement provides an actual amount that is incurred for that expense category.
Adj Actual Amt (adjusted actual amount)	Displays the adjusted actual amount based on the occupancy percent. The system uses this calculation method: Adjusted Actual Amount = Actual Amount × (Occupancy percent ÷ 100).
Admin Fee (administrative fee)	Displays the administrative fee amount from the lease terms. You can edit this field only if you select the Override Admin Fee check box.
Adjust Amount	Enter the amount by which you want to adjust the differential amount. Enter a positive amount if you want to increase the differential amount or a negative amount to decrease the differential amount.
Diff Amt (differential amount)	Displays the amount that is owed or invoiced for the category. The system uses this formula to calculate the value: Diff Amount = (Actual Amount − Paid Amount) + Adjust Amount + Admin Fee
Cost/SqUnit (cost per square unit)	Displays the cost of the space per square feet or square meter. The calculations are based on the unit of measure that is defined on the lease.
	Determines if the actual expense exceeds the maximum amount for the operating expense category. The Category Maximum Exceeded icon appears in the Audit Alerts column for the category that exceeded the maximum after you click the Calculate button. The icon is for information only. See Understanding Operating Expense Audits.
	Determines if the difference between the operating expense amounts on this audit compared to the previous audit exceeds the tolerance set at the business unit level. . The Business Unit Maximum Exceeded icon appears in the Audit Alerts column for the category that exceeded the tolerance level after you click the Calculate button. The icon is for information only. See Creating Real Estate Management Business Units.
Calculate	Click the button to calculate the total lines that were entered. When you click the button, the system calculates the difference between the paid amount and the actual amounts and displays the totals and the adjustments.
Total Paid To Landlord	Displays the total operating expenses that were paid to the landlord. The system adds all of the amounts in the Paid Amount column.
Total Adjusted Actual Amount	Displays the total amount of the operating expenses that should have been paid to the landlord or payee. The system adds all of the amounts in the Actual Amount column.
Total Manual Adjustment	Displays the total amount of the manual adjustments. The system adds all of the amounts in the Adjust Amount column.
Total Administration Fee	Displays the total administration fee. The system adds all of the amounts in the Admin Fee column.
Amount Owed	Displays the amount that you owe the landlord or payee. The system uses this formula to calculate the amount: Amount Owed = Total Adjusted Actual Amount + Total Manual Adjustment + Total Administration Fee − Total Paid To Landlord.
Create Payment	Click to create a payment for underpayment of the operating expenses for the year. When you click on this button, the system sends the transaction to the transaction queue for payment processing.
Compare Previous Audit	Click to select the previous audit for comparison, if it exists. The system bases the comparison on the audit end dates. The previous audit is the one with an audit end date less the current audit end dates. The system retrieves the two audits and displays them side-by-side. The system flags category differences from year-to-year and identifies massive increases or charges that are above the maximum that is allowed. If the system cannot find a category match, it separates those categories that are not available for comparison.

Comparing Operating Expenses with the Previous Audit

Access the Audit Operating Expenses - Compare Operating Expenses with Previous Audit page.

This page enables to you compare and audit operating expenses against previous audit data, if it exists. The system retrieves the two audits and displays them side-by-side. The system flags category differences from year-to-year and identifies massive increases or charges that are above the maximum that is allowed. If the system cannot find a category match, it separates those categories that are not available for comparison.

Current Period	Displays the date range for this audit period.
Prior Period	Displays the date range for the prior audit period that you are comparing.

Common Operating Expense Audits for Current and Prior Audits

Current Actual	Displays the current actual amount that you entered based on the reconciliation statement.
Prior Actual	Displays the previous audit actual amount.
Difference % (difference percentage)	Displays the percentage difference between the current actual amount and the prior actual amount. ((Current Actual - Prior Actual) ÷ Prior Actual).
Diff Amt (difference amount)	Displays the difference amount. (Current Actual - Prior Actual).
Current Cost/Sq Unit (current cost per square unit)	Displays the current cost per square unit. (Current Cost ÷ Sq Unit = Adjusted Actual Amount ÷ Total Rentable Area).
Prior Cost/Sq Unit (prior cost per square unit)	Displays the prior cost per square unit. (Prior Cost/Sq Unit = Prior Actual Amount ÷ Prior Total Rentable Area).

Unmatched Categories

When the system cannot match up one or more categories from a previous audit with the categories from the current audit, the system displays the discrepancies in the Unmatched Categories grid. This occurs when you create a new category or an existing category from a previous audit does not exist, or if you change the category in the middle of the year. As a result, the system is unable to provide any comparisons for these categories because there is no exact match.

Calculated Total for Current and Prior Audits

Current Actual	Displays the total amount that you paid to the payee. This amount might differ from the reconciliation statement that is provided by the landlord. The current actual amount paid is based on an estimate that is provided to you at the beginning of the lease.
Prior Actual	Displays the total amount that you paid to the payee in the prior period.
Diff Amt (difference amount)	Displays the difference between the prior actual amount and the current actual amount.
Current Payor Actuals	Displays the current total amount that is paid by the payor.
Payors Actuals Difference	Displays the total amount that the payor paid in the prior audit.
Current Rentable Area	Displays the current total rentable area in the lease.
Prior Rentable Area	Displays the total rentable area in the prior audit.
Rentable Area Difference	Displays the difference between the current and prior rentable area in the lease.
Current Cost Per Sq Unit (current cost per square unit)	Displays the total current cost per square unit.
Prior Cost/SQ Unit (prior cost per square unit)	Displays the total prior cost per square unit.
Cost/SQ Unit Difference (cost per square unit difference)	Displays the difference of the total cost per square unit between the current period and the prior periods.

Reconciling Operating Expenses for Receivables Leases

This section provides an overview of operating expense reconciliation and discusses how to:

Reconcile operating expenses
Compare operating expense reconciliations

Understanding Operating Expense Reconciliation

PeopleSoft Real Estate Management enables you to reconcile the difference in the original estimated operating expense and the actual operating expenses for each tenant or payor for a time period. The system calculates the amount of estimated operating expenses for the transactions that the system processed during a time period that you specify. You can enter the actual expenses that you incurred based on these criteria:

Operating expense category: Summarize your charges by operating expense category.
Tenant: Specify the tenant or payor.
Time period: Determine reconciliation from and to dates.

Use the Reconcile Operating Expenses - Operating Expense Statement page to enter these amounts and compare them with the amounts that the payor paid. You can manually adjust the amount for each operating expense category. Click on the Create Invoice button on the Operating Expense Statement page to access the Billing Review page. In the case of an overpayment, you can issue a credit to the tenant that could be applied against future rent payments. In the case of an underpayment, you can issue an invoice for the remaining sum. Enter the billing amount as negative to generate a payment credit or positive to create an invoice.

You can compare this reconciliation with the previous reconciliation to identify any time gaps or large amount differences in the operating expenses.

Pages Used to Reconcile Operating Expenses

Page Name	Object Name	Navigation	Usage
Reconcile Operating Expenses - Operating Expense Statement	RE_OPEXAUDIT	Lease Administration, Receivables Lease, Reconcile Operating Expenses	Compare operating expenses to the operating expense statement to reconcile paid expenses against actuals.
Compare Operating Expenses with Prior Statement	RE_OPEXAUDIT_CMP	Lease Administration, Receivables Lease, Reconcile Operating Expenses Click the Compare Previous Audit link.	Displays the current reconciliation data and prior reconciliation data. You can use this comparison data to ensure continuity in operating expense charges.

Reconciling Operating Expenses

Access the Reconcile Operating Expenses - Operating Expense Statement page.

Note. The fields on this page function the same as the fields on the Audit Operating Expenses - Operating Expense Audit page.

See Performing Operating Expense Audits.

Comparing Operating Expense Reconciliations

Access the Reconcile Operating Expenses - Compare Operating Expenses with Prior Statement page.

The fields on this page function in the same way as the fields on the Audit Operating Expenses - Compare Operating Expense with Prior Audit page.

See Comparing Operating Expenses with the Previous Audit.

Start Date	Enter the begin date for the operating expense. The start date must occur on or after the lease start date. The system uses the lease start date as the default.
End Date	Enter the end date for the operating expense. The end date should occur on or before the lease termination date. The system uses the lease end date as the default.
Payee	Enter the entity who receives the operating expense payments. The default value is the landlord from the lease. This field appears only for operating expenses that are associated with payables leases.
Payor	Enter the entity who is responsible to make the operating expense payments. The default value is the tenant from the lease. This field appears only for operating expenses that are associated with receivables leases.
Add Expense Line	Click to add a new row to the Operating Expense Categories grid.

From Date	Enter the date on which you want the audit period to begin. This date must occur after the lease start date and cannot be later than one day after the To Datefrom the previous audit. The system sets the From Date to one day later than the previous audit by default. For first audit period the system uses the lease commencement date by default.
To Date	Enter the date on which you want the audit period to end. This date must occur after the from date and cannot be later than the current date.
Occupancy Percent	Displays the occupancy percentage (percent of total rentable area and between 0 and 100). Note. The system uses occupancy percent to calculate the Adjusted Actual Amount for each of the audit categories. The formula is Adjusted Actual Amount = Actual Amount × (Occupancy percent ÷ 100).
Audit Number	Displays the sequential number that is assigned to this audit.
Add Category	Click the button to create a new operating expense category for the lease. This button appears only for pending audits.
Update Audit	Click to update this audit. The system compares the actual charges in the current audit with the charges for the operating expense categories in the previous audit and creates and invoice for the balance amount. You can update an audit only after all of the audit transactions have been processed. This field appears only for processed audits.