SEC Review Process In recent years, the Securities and Exchange Commission (“SEC”) has seemingly increased its scrutiny of disclosure made in public filings, as evidenced by the greater number of comments issued to public reporting companies. Reinforcing this prospect, there was a growing number of SEC comments issued to companies in 2023 regarding calculation of non-GAAP measures. Given this seemingly global trend of enhanced SEC review, and with REITs continuing to be the subject of headlines throughout 2023 and early 2024, we expect the SEC to continue 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”), (2) explore SEC comments issued to REITs during 2023, and (3) compare SEC comments issued to REITs during 2023 with those issued to REITs during 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 Exchange Act Reports The Sarbanes-Oxley Act of 2002 (“SOX”) requires the Division to undertake some level of review of each reporting company at least once every three years. In addition to the required review, the Division selectively pulls certain filings for evaluation. The Division does not set forth the criteria used for determining which companies to selectively review, but Section 408 of SOX sets forth several factors that may be considered, including: ■ whether the company has issued material restatements of its financial results; ■ whether the company has experienced significant volatility in its stock price; ■ the company’s market capitalization; ■ whether the company is an emerging company with a disparity in its price to earnings ratio; ■ whether the company’s operations significantly affect any material sector of the economy; or ■ any other factor the Division considers relevant. If the Division selects a company or a filing for review, the extent of that review will depend on many factors, including the criteria set forth above. The scope of a review may be: ■ A full cover-to-cover review; ■ A financial statement review in which the Staff will examine the financial statements and related disclosures, such as Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”); or ■ A targeted-issue review in which the Staff will examine the filing for one or more specific items of particular focus for the SEC. 1 | A Comparative Analysis of 2022 and 2023 SEC Comments Issued to REITs
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