There has been a step change in SAP Real Estate interest from our clients. This blog addresses the evolution of SAP’s Real Estate solutions and alignment with S/4HANA.
There has been a step change in SAP Real Estate interest from our clients recently. Real estate is relevant for a wide range of companies that will be undergoing or considering S/4HANA implementations and conversions. Given the functionality provided and benefits it enables, knowledge of the real estate use case does not seem to be as developed as it could be. So here is my take on the solution as of now.
SAP Real Estate consists of two components with distinct but integrated sets of functionalities: Contract and Lease Management and Location Management.
Contract and Lease Management
Contract and Lease Management is available in S/4HANA on-premises, in S/4HANA Finance Cloud and it integrates with S/4HANA Cloud for Real Estate. It’s functionality essentially covers the full systemization of all contracts and seamless integration with all associated SAP modules. Finance, management accounting, asset accounting, project system, and plant maintenance integration enable contract accounting processes, such as:
- Monthly billing/payments and associated accounting entries in the chart of accounts and sub-ledger. Conditions that drive this contract billing/payment cater to the vast array of calculation options used in contracts. For example, based on reported sales, the area occupied key figure-based billing or more complex formulae
- A separate suite of accounting entries for asset valuation posting in accordance with the incumbent IFRS16 and US GAAP ASC842 accounting standards
- Apportionment and recharge of facility management costs incurred back to tenants
- Instant reporting is available for billing teams, financial accountants, management accountants on all contract financial data. Reporting will cover all actuals from contract inception and will also extrapolate contract terms and room occupancy to provide forecasts for each rentable object
- Additionally, the requirements of a lease manager are also covered, such as management of contract brakes/renewals, occupancy management, and key contract date reminders.
Essentially a full property portfolio can be represented via a master data structure, with each object linking back to contracts, associated financials, and all other pertinent data.
Location Management is available as part of S/4HANA Cloud for Real Estate or in S/4HANA on premises. It is configured in addition to contract management and can enable an entire organization to be visually represented from a global level, supplemented with dynamic KPIs down to building and even to room level.
Additionally, with integration available from SAP partners (third-party add-ins) building interiors can be rendered in 3D and objects within the building linked to SAP master data. For example, desks linked to employee profiles, utility meters linked to measuring points, or equipment linked to plant maintenance. Without this partner integration, it is possible to use architectural maps in place of interior renders and master data can still be linked to its associated transactional data.
The complete solution of lease management and location management fully enables the “digital twin” concept (digital representation of buildings and their component objects connected with all associated data).
Commonly, real estate in many businesses is managed via spreadsheet or separate third-party systems. As an example, in the media industry, even studios using SAP tend to manage office and studio hire via media-specific applications. SAP Real Estate could, therefore, represent a big improvement for businesses across many industries. It would also be an important change as real estate does represent some of the largest balance sheet expense items.
From my point of view key advantages would be:
- Ease of audibility, notably this includes including valuation and recognition of leases on the balance sheet in accordance with IFRS 16 and US GAAP
- Instant availability of reporting on all financials (actuals and forecast) occupancy and key contract dates driven from contract masters as a single source of the truth
- Seamless integration enabling contracts to drive automatic billing, recharge of proportional service charges, assignment of plant maintenance meters to locations enabling utility management and billing, assignment of functional locations to property master data to track the cost of maintenance
- The enablement of the digital twin. By this I mean the digital representation of a building portfolio and its associated data, but this could also potentially involve the storage of a building’s information on blockchain infrastructure, bringing associated security and ease of sharing benefits.
Real estate’s alignment with the emergent concepts such as thendigital twin, big data and internet of things makes it a candidate for benefits of automation and insight from interconnected data. The next wave of innovation from SAP through 2019 and onwards will involve machine learning and automation in order to increase the operational efficiencies of running SAP Real Estate.
With the availability of real estate as part of S/4HANA and its ability to provide financial compliance and real digital transformation, the interest in real estate looks set to continue in line with the next wave of conversions and re-implementations.
If you need expertise on real estate or IFRS 16 in SAP then contact our experts today.
This blog was written by Tom Wrigley, our UK Real Estate SME.