Share with your friends

Hotel REITs and taxable REIT subsidiaries; lease amendments in response to coronavirus

Hotel REITs and taxable REIT subsidiaries

Real estate investment trusts (REITs) are allowed to organize “taxable REIT subsidiaries” (TRSs) that can engage in activities that would otherwise give rise to REIT qualification concerns. Additionally, notwithstanding that rents from related tenants are treated as nonqualifying income, a REIT can lease its hotels to a related TRS if the hotels are operated by “eligible independent contractors” on behalf of the TRS. This hotel lease arrangement between a REIT and its TRS is commonly referred to as the “qualified lodging exception.” Many REITs have been organized to use this structure to own and operate—through third-party managers—hotel properties.


Related content

With the coronavirus (COVID-19) pandemic—which has already led to a reduction in travel (business or pleasure) and temporary closures (voluntarily or involuntarily)—many hotel TRSs are likely facing operational challenges in the near term. Thus, a threshold question is whether it is permissible for a hotel REIT and its TRS to modify an existing lease during its term.

Read a March 2020 report [PDF 70 KB] prepared by KPMG LLP: What’s News in Tax: A common question from hotel REITs: Should the TRS lease be amended during tough times?

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal