In an Exposure Draft ("ED") issued in August 2010, the FASB proposed sweeping changes to current lease accounting rules. The ED eliminates distinctions between operating...

and capital leases; requires companies to recognize lease obligations and the associated "right of use" asset on their balance sheets; and includes both contingent rent and option periods in the measurement of the asset and liability. After the comment period and public roundtables, the FASB decided to readdress fundamental measurement and accounting issues contained in the ED, and to issue a new ED by the end of 2011.

ASG is closely monitoring the FASB's progress. Upon issuance of the final pronouncement (currently estimated as Q3 of 2012), we will issue a whitepaper and schedule seminars regarding implementing and operating in accordance with the new standard. Paul Hiers will also teach a course at the 2012 NRTA National Conference (more information available at the National Retail Tenants Association).

Once again in 2011, Asset Strategies Group was ranked on Business First's annual 50 fastest growing companies in Central Ohio. This is the fifth year in a row ASG tops the list...

The Fast 50 Award recognizes Central Ohio companies with the greatest average revenue growth over the past two years. ASG has been honored with inclusion in the Fast 50 list for the last five years.

But we know there are no great companies without great clients. That's you. Our business partners, customers, and colleagues who've supported us, and given us the honor of working on your business. You're right beside us in the Fast 50.

The Fast 50 is Business First's annual ranking of the 50 fastest-growing emerging companies in Central Ohio.

Moneyball, a great Michael Lewis book, and now a movie book detailing how the Billy Beane and the Oakland A's developed winning teams despite a seemingly insurmountable obstacle – one of the lowest payrolls in baseball.

In 2003, the year before the book was published; the A's won 103 games with a payroll of $40 million — while the NY Yankees had to spend $126 million to win the same number – success attributed to the intelligent use of statistics. The A's "just" correlated statistics to runs produced, determined a player's market value versus runs produced, and sought out and found inefficiencies in the market that let them buy run production at a cheaper price.

Before Billy Beane, baseball scouts picked players, in part because "they looked good". That is not unlike how a lot of retailers approach real estate. They "need" to be in South Coast or Michigan Avenue, or Aventura or Soho because it "looks" good. "Get me a deal there" is the directive, which ironically creates one on the market inefficiencies overpriced spaces driven by demand, not potential, because it's the place to be.

There is a tremendous opportunity find those inefficiencies within retail real estate – primarily because space is priced at what it will produce "on average", but no one actually produces average results. It takes a willingness to sometimes ignore the conventional wisdom and study the statistical drivers that correlate with performance.

I once had an opportunity to correlate sales results of over a dozen apparel brands. We wanted to do a simple exercise and determine the top 100 centers in the country for fashion specialty apparel and surely we could just look at the top hundred stores for each of these brands and the answer would be apparent – expect it wasn't apparent. There was overlap for sure, but not great statistical correlation from one brands performance to another's.

The factors that predict sales are unique to each retailer and relate to their value, price and promotional positioning, customer demographics and psychographics, and, in specialty retail can vary significantly by center variables including size, similar co-tenant, traffic levels, and location within the center.

Best practice retailers use sophisticated statistical modeling to predict sales as part of their deal approval process, and that is a core offering of ASG's Market Research and Analytics group.

Wisdom comes from a combination of knowledge and experience. Unfortunately both knowledge and experience are hard to come by!

I had a boss once tell me data is worthless – data plus analysis equals knowledge. So it is with real estate strategy. On the data side we regularly build a micro business intelligence system for each of our clients pulling all of their real estate attributes into one data base – deal data, competitor data, market data, center data, customer data, store attributes like age, frontage, location characteristics, and store performance.

We typically will get 2 million or more customer records from our clients to geo-code, and use that to build customer psychographic and demographic profiles and primary trade areas.

A lot of data – but it allows good statistical analysis and "information":

• Sales models for new store deals, fine tuned by center type and taking into account both demographics and center / competitor sales performance
• Market optimization models based on size of trade area draw, density concentration of core customers, and store profit model;
• Portfolio model s analyzing existing real estate to plan repositioning and re-investment strategies.

We have found with the right information, putting together a store by store , opportunity by opportunity review with all the key players – the real estate committee, in essence, comprised of real estate, finance, store operations, and executive management gets everyone aligned on "strategy" with a clear call to action.

Skyrocketing energy costs have a direct impact on company operations, especially when these costs can equal up to 10% of total occupancy costs for typical specialty retailers...

While "small box" retailers have difficulty justifying the sophisticated energy management systems of their "big box" cousins, they can still effectively manage energy costs and often reduce their bills 10% or more with a three simple steps.

First, build a good data base of utility usage. While this can be an administrative nightmare to manage for most companies within their existing payable systems, several companies, including ASG offer bill audit and payment processes that pay for themselves as a payment processing function, and at the same time accumulate Kwh usage, peak demand, and other data for comparison. That strategic information provides companies with a complete view of their energy costs and allows proactive action plans.

Second, implement "demand side" management programs, the most typical of which is re-lamping, which reduces electricity directly and indirectly by reducing the "heat" generated in a store affecting HVAC loads. Many utilities offer incentives to defray the costs involved and leveraging these can often produce a 2 year payback.

Third, pursue procurement contracts in de-regulated markets. Once a data base of usage and requirements is established, in many utility jurisdictions you can purchase electricity on an aggregated basis – for multiple stores, lowering your KWh costs and optionally lock in at fixed rates.

ASG capabilities: Our team of experts is dedicated to helping companies lower their energy costs, minimize the risk of overpaying utility bills, maximize reporting capabilities and create more productive time for other administrative needs. To date, we have assisted our clients in saving 2-3% annually on their energy costs through bill validation.

• Expertise: Our experts have been on the client side. We understand what it takes to analyze energy usages and to forecast future expenditures. This unique experience allows us to be better in tuned to our clients needs.
• Enhanced Technology: We use an ISO-9001 certified process to capture all the data from energy bills within 24 hours of receipt. in order to more accurately review, audit and analyze the information.
• Cost Effective: We provide these services better, faster and at a lower cost than our competition.

Portfolio management is tactically dealing with lease renewals and options. Often tagged on at the end of a real estate meeting, lease renewals are the ugly duckling...

of real estate – in a typical ten year renewal, sales are going to stay the same, rent and occupancy costs are going up, and you need to invest new money to bring the store to current brand standards.

On the other hand, Asset Management is proactively and strategically managing the real estate portfolio to increase shareholder value. It's about making tough decisions. At its core, it's about applying proven asset management thinking around resource allocation - investing in winners, pruning losers. Jack Welch grew GE's market capitalization 6000% - the best record on Wall Street, between 1980 and 2000 using this as one of his core principals and one which he applied vigorously to both businesses and talent. Does it work in retail?

Big Lots, for a decade or more routinely "grew" square footage 5% a year – the classic retail growth formula. Their stock consistently traded in a narrow $5 to $10 range. A new CEO came on board in 2005, and he promptly put new store growth on hold, and then closed 150 stores in 2006. Their stock price quadrupled to over $40 per share. Limited Brands, which had never strategically closed a store closed 1000 stores in the late 1990's through lease expirations, buy outs, divestitures and re-positioning space to more profitable uses. Limited Brand's stock price-doubled in three years. Ed Lampert, an investment banker and equity investor bought control of Sears Holding. The stock price increased from $12 to over $150 in a little over two years. Not know as a great merchant, he was quoted thus: "in reality the best companies in the world are ones that constantly reallocate resources in order to deploy them in other, more productive areas."

Distorting resources is the opposite of the typical chain store mentality. The bottom 20% of any retailer's portfolio, even if they are cash positive, drag down every important ratio – sales per square foot, comparable store growth, inventory turnover, labor metrics and so on. Worse, bad stores just consume management time. But asset management is not just about pruning – it's about investing aggressively and distorting resources in the best of the best – never being satisfied with how high is high. Arguably, one of the keys to Victoria Secret becoming one of the world's most valuable brands is their hard work at learning how to operate flagship locations which can generate 10 to 15 times the volume of an "average" store.

ASG Portfolio is a set of decision tools we implement for our clients to help them make strategic re-investments and re-deployments of their real estate dollars.

The size of the US retail market and ability to rapidly expand proven retail concepts means very high returns are available to strong retail concepts once they reach a high growth stage.

However the costs and risks of getting to that "proven" high growth stage are huge. Many try but few succeed.

It is tough to move a proven brand from a wholesale, catalog or overseas channel to US retail and failures result not from branding issues, but from missteps in understanding the operating requirements of a dynamic and highly competitive US retail market. Inventory flow, pricing levels, promotional cadence, staffing, and technology decisions all impact performance. On top of that, limited experience with US real estate costs, landlord behavior, leases and rent negotiations and store construction processes have often led to missteps in "launch" strategies.

ASG can't help you with brand definition or merchandise selection. But we can reduce launch risk by eliminating real estate variability. We have worked with numerous small start-up companies on securing the right real estate and store construction, including Jule, a small accessories concept, now up to 9 stores, Moochie's an Pet gift strategy, and Buckeye Corner, a branded sports apparel store recently bought by Genesco. We have worked on strategy, deals and most recently store construction for dELiA*s a catalog brand becoming a multi-channel brand, and with vineyard vines, an upscale wholesales apparel brand entering retail. We developed strategic market plans for Sephora as they entered their second decade of growth in the US and Canada.

ASG's functional expertise in real estate strategy, leasing, store design and construction, and lease administration and rent accounting can simplify the process of testing and launching proven brands in the US market.