Reimbursable vs Non Reimbursable expenses

[Chetan Singh]

Hi

In the office income statements, what is the difference between reimbursable and non-reimbursable expenses? Essentially both come under operating expense and marked as a cash outflow in the calculation of  NOI. Then why is the difference between reimbursable income and reimbursable expense. Should that not be equal if a building owner has the right to claim those expenses from the tenant?

[Spencer Burton]

Hey Chetan – great question!

What is the difference between reimbursable and non-reimbursable expenses? 

Reimbursable operating expenses are those expenses that the landlord expects to be able to recover from the tenant(s). Non-reimbursable operating expenses are those expenses that the landlord does not expect to be able to recover. So in a fully occupied building where the property is well managed, Reimbursement Income should be approximately equal to Recoverable Expenses.

Now what’s interesting about the example detailed income statement that we used in this course is that the landlord was unable to recover most of the “recoverable expenses”. The detailed income statement we used is from an actual property – so this scenario does happen.

In this particular case, the reason that the landlord was unable to recover most of the recoverable expenses is that the building isn’t fully occupied. So there are recoverable expenses, but no tenant(s) to reimburse for those expenses. But once the building is leased back up to full occupancy, the expectation is that the ‘Reimbursement Income’ will match the Recoverable Expenses.

Let me know if you have any follow up questions!

Spencer

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