FAQ Real Estate Investment Trust Morrison Foerster | 27 ▪ Investments in real estate mortgages, including the following: ▪ The types of mortgages, such as first or second mortgages, whether such mortgages are insured and limitations on the amount or percentage of the registrant’s assets that may be invested in each type of mortgage or any particular mortgage; ▪ Each type of mortgage activity in which the registrant intends to engage, such as originating, servicing and warehousing of mortgages; and ▪ The types of real estate asset classes subject to mortgages in which the registrant intends to invest (such as industrial, lodging, multifamily, office, retail, self-storage, etc.). Description of Real Estate (Item 14 of Form S-11) Generally requires the registrant to describe the following, among others, with respect to each “materially important real property”6: ▪ The location and general character of the properties owned or intended to be acquired or leased by the registrant, including the present or proposed use of those properties; ▪ The nature of the registrant’s interest in such properties (e.g., fee simple, joint tenancy, etc.) and all material mortgages or other encumbrances to which the property is subject, including the principal amount of any material encumbrance and its payment provisions; ▪ The principal terms of any lease or any option or contract to purchase or sell any such properties; ▪ The general competitive conditions to which such properties are subject; and ▪ Whether, in the opinion of management, the registrant’s real properties are adequately covered by insurance. Operating Data (Item 15 of Form S-11): Generally requires the following disclosure with respect to each “materially important real property” described in Item 14 of Form S-11: ▪ Occupancy rate for each of the last five years, expressed as a percentage; ▪ Number of tenants occupying 10% or more of the rentable square footage (i.e., “material tenants”) and the principal business of each of those tenants; ▪ The principal provisions of the leases with each material tenant, including annual rental rates, the lease expiration date and the existence of lease renewal options; ▪ The average effective annual rental rate per square foot or per unit for each of the last five years; ▪ A schedule of lease expirations for each of the next 10 years, starting with the year in which the Form S-11 is filed, which must include (i) the number of tenants whose leases will expire; (ii) the total square feet subject to expiring leases; (iii) the annual rental revenue (typically, annualized base rent) associated with expiring leases; and (iv) the percentage of gross annual rental revenue represented by expiring leases; ▪ Each of the properties and components thereof (i.e., land, building, improvements, FF&E, etc.) upon which depreciation is taken, which generally includes disclosure of the federal tax basis, depreciation rate, the estimated useful life and the depreciation method (i.e., straight-line, MACRS, double declining, etc.); and ▪ The realty tax rate, annual realty taxes and estimated taxes on any improvements. Tax Treatment of Registrant and its Security Holders (Item 16 of Form S-11) Generally requires disclosure of the material aspects of the Federal tax treatment of the registrant and its securityholders with respect to distributions by the registrant, including the tax treatment of gains from the sale of securities or property and distributions in excess of annual net income. 6 For purposes of Item 14 of Form S-11, a “materially important real property” is a property whose book value is 10% or more of the registrant’s and its consolidated subsidiaries’ total assets, or the gross revenue generated from such property is 10% or more of the registrant’s and its consolidated subsidiaries’ total gross revenues for the last fiscal year.
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