Quantifying the ROI on AI in Lease Management and AASB 16 Compliance

This is an in-depth look into how data extraction software is changing the way lease portfolio managers operate and comply with AASB 16.

Artificial Intelligence (AI) Lease Reading and Information Extraction Technology is making inroads into how lease portfolios are managed and organised, leading to improvements across the lease management sector to truly make people’s work life better by reducing errors, cutting down risk and dramatically improving productivity.

This article aims to delve into the reasons why major Australian companies are adopting these new technologies and whether your business should follow suit.

What is Lease Abstraction Software?

Lease abstraction software converts unstructured data in PDFs into structured and meaningful insights by creating a data repository for lease portfolio management and financial standards compliance

In the case of a lease data abstraction system, the software reads through the lease and picks up relevant sections of data such as rent, rent increases, commencement, expiry options, bank guarantees etc and sorts them into a flexible dataset and creates links to where it found the data.

Using this information, lease management software can then aid in generating automatic invoices, managing key dates, setting critical date reminders, predicting future rents, finding costly variances and calculating lease liabilities under AASB 16 accounting rules.

The Burden of AASB 16 Compliance

In 2019 Australian businesses and Governments were hit with a billion-dollar liability overhead due to a game changing international accounting standard called AASB 16.

To give you an example of how massive the burden of this standard change is, Telstra alone has estimated a $3.8 billion hit to their balance sheet.

When AASB 16 was announced back in 2017, we started researching what would be needed to comply with this new standard, revealing that the compliance process would be highly problematic since most leases, at the time, were stored in hard copy in filing cabinets gathering dust or the data was trapped in scanned, unreadable PDF files.

With an estimated 18 million commercial property, equipment and vehicle leases created every year in Australasia alone, leases having rental values of billions of dollars and compliance with AASB 16 mandatory with civil and criminal penalties for failure to do so, we realised how important it would be for clear and accurate data to be compiled and continually updated.

This can only be completed by extracting over 50 data points from leases, which in themselves are complex. And this is not just one document we are talking about for each asset, a typical retail lease contact in Australia consists of three interrelated documents, with total pages numbering over 200.

What Current Problems Does AI Software Solve?

Current lease management systems are riddled with errors and are largely inefficient. Lease contracts are often stored as PDF files or even worse, as hard copy documents wasting away in a forgotten basement.

These contracts have extremely important data contained in them and depending on the minutia within the contract it can shape the way your business develops and performs over time. For most businesses, rent is the second largest expense after employment costs.

Even when data is extracted manually it is a costly and highly time-consuming process that is exposed to human error. Large portfolios can take months to organise and it is easy to miss a critical items such as demolition clauses or confuse a rent concession with a rent abatement when wading through hundreds of thousands of PDF files and related documents.

Moreover, data has to be constantly updated and re-entered to keep the portfolio up to date, making data entry an exhausting, time consuming and ongoing part of lease management.

AI software is able to extract data at lightning speed and is not subject to human error. It stores data efficiently and automatically updates the portfolio whenever new documents or information is added.

It essentially turns PDF documents (previously incompatible with machine language) into code that the lease management system can manipulate and organise the same way it would another application or program.

The fact that AI systems can gather information hundreds of times faster than any human and to a degree of accuracy that cannot be matched, removes the need for constant data entry.

Manual data entry is extremely expensive especially when reading leases. It requires someone who is trained in lease management. For example, the average Australian leasing manager makes $93,193 and if the majority of that time is spent doing data entry, it detracts from the effectiveness of the leasing manager’s position and incurs large costs for the company.

What are the Specific Benefits of an Integrated Lease Management Tool with AI?

Streamlining data entry – automatically classifies the lease data and populates reports for analysis.
Integrating with smart accounting tools to forecast cashflows, optimize rent payment process and assist with the compliance of AASB 16. This reduces errors such as overpayments, double payments, etc.
Data integrity – reading the legal structured data correctly. Eliminated human error which in turn reduces audit costs.
Manages the workflow and document hierarchy of assets such as leases, variations and special conditions.
Data authentication – data source is from contractual lease files.
Data interpretation – machine learning system that handles complex algorithms to extract lease data from lease files.
Ensures data quality – accuracy, completeness, reliability, and timeliness.
Streamlines and automates the lease management process, helping the lease management team become exponentially more productive.
Delivers value-added service by reducing lease administration time.
Empowers lease managers and accountants to make better decisions.

Where Are Companies Saving Money?

Companies who employ AI tools are saving money in four key areas:

Eliminating costly errors
Automating data entry and document organisation reducing labour costs
Increasing efficiency
Ensuring data integrity

Quantifying the ROI

In 2019, Swarovski Australia implemented our AI Lease Extraction Software, Accurait® into their lease management system. They estimated Accurait^® could save them in excess of $100,000 per year in terms of:

Increased productivity
Reduction in additional labour costs
Reduction in additional legal and accounting fees
Savings in rent from processing errors

After a few months of use, Swarovski Australia were shocked at the effectiveness of Accurait® and the efficiency it created in their lease management team.

In fact, they estimate that having a lease reading software like Accurait® implemented in their business has saved them over 2,000 hours over the life of single lease contract because they don’t spend the usual six hours to re-read the contract each time it needs to be consulted.

Another Accurait® user, Michael Miller, Director NSW Small Business Commission says “Accurait® is an innovative tool that will help us to quickly deliver insights into our landlord and tenant clients and thereby deliver how we may better serve their needs”.

Summary

In summary, there is no doubt that AI is having a substantial impact in the field of lease management and lease accounting for AASB 16. Due to the efficiency and productivity of the technology, it will become an integral part of lease management in the near future.

Author

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.