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Real Estate & Construction

REITs Want Clarity on Reporting Maintenance Fees from Tenants

Several office real estate investment trusts (“REITs”) are asking the Financial Accounting Standards Board (“FASB”) to reconsider its lease standard’s reporting requirement concerning maintenance fees that are calculated into a tenant’s rent. In a September 28 letter to the FASB, the REITs responded to the requirement under Accounting Standards Update No. 2016-02, Leases (Topic 842), which would make landlords account for service and maintenance fees separately from the real estate rental. REITs argued that separately accounting for such fees provides minimal benefit to investors and analysts.

Kilroy Realty Corp Senior Vice President Merryl Werber highlighted the issue by saying there isn’t any available market information that values the disclosure of fees related to building maintenance or other services. Werber wrote that even if the fees were reported separately, no significant differences in the revenue recognition are expected.

If the FASB does not eliminate the requirement, the REITs want the board to provide additional guidance on how the information should be separated. Speaking on the REITs’ behalf, Werber said they want clarity before implementing the lease standard, and for the FASB to offer guidance that encourages consistent financial reporting.

While the FASB normally does not issue a public response to unsolicited comment letters, a spokesperson said it would certainly consider the REITs’ request.

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