David Robinson, Esq. - Ruberto, Israel & Weiner, P.C. Top 5 Audit Challenges Presented by: Debbie Ravel – Gap Inc. David Robinson, Esq. - Ruberto, Israel & Weiner, P.C.

Survey Says…… #1 Landlord Responsiveness to Audit and Information Requests #2 Obtaining Sufficient Audit Information #3 Challenging Management Fees #4 Verifying Major & REA Contributions and Allocations #5 Change of Ownership by Landlord

#1 Landlord Responsiveness to Audit and Information Requests Does your LEASE provide response parameters? Is offset an option? What is the industry standard for a “normal” response time? Team Discussion: What would you do? Best practices?

#1 Landlord Responsiveness to Audit and Information Requests Leverage Internal Business Partners a/k/a “Who you know” Does the Landlord need something from us? Leverage for Estoppel Response Continuous, relentless follow up “Squeaky wheel gets the grease” Copy lender and owner (if dealing with managing agent) on all correspondence

#1 Landlord Responsiveness to Audit and Information Requests Suggest Joint Audit with peers Engage counsel (internal or external) to send demand letter Request tolling agreement Develop internal timeline/process

#2 Obtaining Sufficient Audit Information Team Discussion: What is “sufficient” audit information? General ledgers Invoice copies Proof expenses were paid (especially “related party” expenses) Sample payroll/labor journals (for landlord employees) Contracts including Scope of Work, Exhibits & Amendments Allocations & objective support for methodology Missing legal documents pertinent to property

#2 Obtaining Sufficient Audit Information Understand Landlord and Landlord’s nearby locations (i.e. allocations) If related party vendor, are costs reasonable? Store Manager/On-site Personnel Verification Comparative Analysis (stores in the vicinity) Taxing Authority/Assessor Information County Clerk for pertinent legal documents (i.e. REAs) Contact Vendors?

#3 Challenging Management Fees Incurred vs Imputed…. Cost of managing the common area vs. management fees What does your LEASE say? “operating and maintaining the Shopping Center, including but not limited to….” Team Discussion: Where to start?

#3 Challenging Management Fees Obtain fully executed Management Contract Review General Ledger to confirm expenses actually paid (Accounts Payable entry) Related Party – is fee “arms length” Comparative analysis “Reasonableness Test” How to estimate the Management Fee %

#3 Challenging Management Fees OC-8: Landlord Fees – Migrate from Fee-ling Overcharged to Empowered Today 3:15-4:45

#4 Verifying Majors & REA Contributions & Allocations The landlord refuses to provide the information Team Discussion: How do we perform our due diligence with minimal information and cooperation?

#4 Verifying Majors & REA Contributions & Allocations Obtain REA from County Clerk (if recorded) or Landlord Understand Lease language – are contributions permitted? How are Majors and Anchors defined? Obtain Tenant roster / Site plan from Landlord How are allocations allocated if controllable expenses are CAPPED Leverage NRTA contacts/peers

#4 Verifying Majors & REA Contributions & Allocations Lease language wish list: Floor on Contribution (i.e. not less than x% of your cost/sf) How are contributions allocated if CAP on controllables? Establish documentation requirement for landlord to provide source documentation

#4 Verifying Majors & REA Contributions & Allocations OC-9 Expense Allocation Overcharges – Hunting for The Big Dollars Tuesday 9:00-10:30 OC-11 Allocation Overcharges: Examples and Case Studies Tuesday 11:00-12:30

#5 Change of Ownership of Mall/Shopping Center What if Audit Period is prior to new owners purchase of the property? Team Discussion: How do we conquer this audit?

#5 Change of Ownership of Mall/Shopping Center Successor provision in the Lease Recent/Upcoming Sale – “Dispute” Funds in Escrow Record availability Managing Agent Continuity (if applicable) Retroactive Extrapolation for pre-ownership period Estoppel language – protect your rights

Debbie Ravel – Gap Inc. Deborah_Ravel@gap. com David Robinson, Esq Debbie Ravel – Gap Inc. Deborah_Ravel@gap.com David Robinson, Esq. - Ruberto, Israel & Weiner, P.C. DWR@riw.com