"The Journey Begins" Understanding CAM Lease Language Presented by: Pamela Myers – Petco Jessica Mihm – Buckle

Class Objectives To assist Auditors & Lease Administrators MAXIMIZE SAVINGS when completing the CAM reconciliation through understanding lease language

Topics to Include Lease language Pro-rata share Management and administrative charges Utilities, Insurance, Taxes, CapEx, Contributions, etc. The audit process and internal support Components of the reconciliation

What is CAM? Common Area Maintenance CAM is clearly (or not so clearly) defined in each Lease CAM in short, is one of the net charges billed to tenants in a commercial triple net (NNN) lease, and are paid by tenants to the landlord of commercial property.

“What does your Lease say?” The Lease Lease determines what can or cannot be charged to Tenant Landlord is responsible for providing reasonable documentation supporting expenses charged on reconciliations Expenses must be necessary and relate directly to common area operations “What does your Lease say?”

How is each one of your Leases defined? Definitions How is each one of your Leases defined?

Definitions Common Areas: All areas in the Shopping Center which are, from time to time, available for the joint use and benefit of Tenant and other tenants and occupants of the Shopping Center… Floor Area: The actual number of square feet of space contained on all floors within any building area in the Shopping Center …

Definitions Shopping Center: As the same may be changed from time to time, the land and buildings and other improvements constituting an integrated Shopping Center which Landlord and others have constructed or caused to be constructed, commonly known as X. Tenant’s Pro Rata Share: A fraction whose numerator is the Floor Area of the Premises and whose denominator is the Floor Area of the Shopping Center as may be re- determined any time a building (and/or Floor Area) is added to or removed from the Shopping Center…

CAM Defined Common Area Costs: Landlord shall operate, maintain, repair & replace the Common Areas as required by this Lease and otherwise to the standard by which Common Areas of first-class shopping centers are operated, maintained, repaired & replaced, including, w/out limitation, snow, ice, rubbish & debris removal (including installation & maintenance of sidewalk refuse containers), landscaping, adequate lighting, insurance, parking lot paving & striping, drainage, security (as reasonably required) and administrative and overhead costs equal to fifteen percent (15%) of all of the foregoing…

CAM Defined Notwithstanding the foregoing provisions, Landlord's Common Area Costs shall not include: (a) depreciation; (b) costs of original or new construction, remodeling or renovation of the Center, land acquisition, real estate rental fees, or items for which Landlord is reimbursed by insurance or warranties or compensated for due to loss or damage to the Common areas or service areas, to the extent of such compensation or reimbursement; (c) management fees; (d) costs of leasing space to other Tenants; and (e) costs of a capital nature to the extent they improve the Common Areas to beyond their original condition or utility as they may be put from time to time by Landlord.

CAM Defined Tenant’s Pro Rata Share of Common Areas: A fraction whose numerator is the Floor Area of the Premises and whose denominator is the average occupied Floor Area of the Shopping Center (excluding the Floor Area of the Majors), provided, however, that such denominator shall not be less than 80% of the average rentable Floor Area of the Shopping Center (excluding the Floor Area of the Majors). Majors: A single Tenant occupying at least 50,000 contiguous square feet of Floor Area and operating under a single trade name. All leasable space, including Majors and outparcels, are included in the pro-rata share unless specifically excluded in the Lease (check those definitions).

Prorata Share The denominator can be verified from a number of different sources including: Lease Tenant Roster (ask for them from LL) LL Web Site “Leasing” Mall Directory (store Manager can help) Shoppingcenters.com

Prorata Share GLA (area) vs. GLOA (occupied) Gross Leasable Area based on actual square footage of all buildings regardless of occupancy Gross Leased and Occupied Area based on occupancy rates of all square footage of buildings Less Majors/Anchors??? Not less than…

Prorata Share What should be included? Kiosks Storage Trailers Temporary Tenants Out Parcels

Management/Admin Fees Charged by Landlords as compensation for off- site or on-site management & other non-direct expenses associated with shopping center

Management/Admin Fees Generally based on a % of expenses, but can be based on actual expenses or a flat fee Management Fees based on % of Gross Receipts for Center If the Lease is silent with respect to an admin fee, an admin fee cannot be charged! “The Double Dip”

CAPS Stated in Lease as % increase over prior year Cumulative or Actual prior year Controllable v. Uncontrollable expenses CPI Base Year

Additional Items Included in CAM Utilities / Trash Insurance Real Estate Taxes or an allocable percentage of Common Area charged to separate parcels Capital Expenses Contributions

Utilities Water / Sewer, Electric & Gas Are they CAM Utilities Tenant specific Temp spaces Check meter numbers

Insurance Not always paid pursuant to the same section of the Lease as CAM The Landlord is responsible to justify insurance costs charged back, as well as any allocations made Ask for Declaration Page and schedule of properties Generally, only certain types of Insurance coverage may be charged back to tenants

Capital Expenses Expenses which, in accordance with GAAP, are not fully chargeable in the year the expense is incurred. Look for large $$ amounts/increases from prior year expense Consult Store managers (if allowed) about expansion projects in Common Area Does the lease allow?

Contributions Leases can provide for deducting CAM contributions from expense in lieu of including Floor Area in the denominator: “The Majors” Contributions are not deductible from expenses unless specifically stated in YOUR Lease Contributions typically are based on a Fixed amount a “Major” pays (not PRS)

What works best for you (do the math) Contributions Has the Landlord provided evidence of Contribution? G/L, cancelled checks, Leases? Did the Landlord deduct for “ancillary income” from Kiosks, Trailers, Fairs/Carnivals, Santa, etc…? Pro Rata Share vs. Contribution What works best for you (do the math)

The Audit Process & Support Who is on your side? Legal? Store? Develop process to track recs (when received, letters written requesting back-up, disputes, defaults, payments, etc…) TRACK YOUR $AVING$! (Impact to P&L/Cost Avoidance) NRTA as networking tool - get to know one another. It will help!

CAM or NOT CAM? Let’s Play!!!

CAM or NOT CAM? Repairs/Maintenance On-site labor Ohio State University football season tix Snow removal Utilities Trash Insurance

CAM or NOT CAM? Parking lot resurfacing New traffic lights Construction of new building Roof repairs Charges associated with Temp Tenants Painting

CAM or NOT CAM? Structural repairs Windows Shopping cart dents in cars Sweeping (p/l or sidewalk) Fire sprinklers Seasonal flowers

CAM or NOT CAM? Property Manager car Security vehicle / Golf carts Security for special events Holiday decorations Muzak Weed removal

More Information GOOGLE YAHOO ETC www.shoppingcenters.com (Directory of Major Malls Web site and Book) BOMA International (A-4) (Building Owners & Managers Association) www.sec.gov (10-K Statements) www.archive.org (wayback machine)

Presenter’s E-Mail Address: THANK YOU Presenter’s E-Mail Address: pamela.myers@petco.com jessica.mihm@buckle.com