An Analysis of 2021 and 2022 SEC Comments Issued to REITs

For the past several years, fewer and fewer reviews of filings by the Securities and Exchange Commission (“ SEC ”) have resulted in comments being issued to public reporting companies; however, sources reveal that trend reversed in 2022, indicating the possibility of increased SEC scrutiny of disclosure made in public filings. Reinforcing the prospect of the SEC’s enhanced review of company filings, news sources have cited the growing number of SEC comments issued to companies within the first two months of 2023 regarding calculation of non-GAAP measures. Given this seemingly global trend of increased SEC scrutiny, and with REITs being the subject of headlines over the past few months, we expect the SEC to keep a close eye on the disclosure that REITs make. In this client alert, we (1) summarize the SEC’s review process for filings that REITs make under the Securities Act of 1933, as amended (the “ Securities Act ”), and the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and (2) explore SEC comments issued to REITs during 2021 and 2022. The SEC’s Division of Corporation Finance (the “ Division ”) reviews filings made under the Securities Act and Exchange Act to monitor compliance with applicable disclosure and accounting requirements. The Division assigns filings made by companies in a particular industry to one of nine industry offices whose staff members have specialized review expertise. The staff of the Office of Real Estate & Construction (the “ Staff ”) review filings made by REITs. Review of Registration Statements A registration statement filed by a company for an offering of securities is subject to review by the SEC before the offering can commence. Note that the discussion below does not extend to automatic shelf registration statements and registration statements on Form S-8 as these registration statements automatically become effective. Review of S-11 For initial Securities Act registration statements, a company may confidentially submit its draft registration statement (“ DRS ”) for Staff review provided that the company confirms in a cover letter that it will publicly file the registration statement and nonpublic draft submissions at least 15 days prior to any road show or the requested effective date of the registration statement. Once the DRS has been submitted, the Staff will determine whether the registration statement should be reviewed in depth, receive a limited review, or be cleared without review. The Staff usually determines within two to five business days after the date of the filing whether the DRS will be reviewed. If the Staff decides not to review, they can make the S-11 effective within 48 hours after notifying the registrant of their decision not to review. However, it is rare that an initial registration statement would not be reviewed by the Staff. Full review of the S-11 entails a thorough review of the registration statement by an examiner and a staff accountant. The examiner reviews all aspects of the registration statement other than the accounting aspects while the staff accountant reviews the financial statements and accounting-related issues. The Staff generally tries to issue an initial comment letter within 30 days of the date of the initial confidential submission or public filing. SEC Review Process 1 | An Analysis of 2021 and 2022 SEC Comments Issued to REITs