FAQ Real Estate Investment Trust Morrison Foerster | 9 additional assets and to fund operations. A REIT generally finances its activities through equity offerings of preferred and/or common stock and debt offerings, including subordinated and senior debt, as well as through financing agreements (credit agreements, term loans, revolving lines of credit, etc.) with banks and other lenders. Mortgage REITs may also securitize their assets. An equity REIT may also incur ordinary course mortgage debt on its real property assets. What is the difference between internally and externally managed REITs? In a REIT with an internal management structure, the REIT’s own officers and employees manage the portfolio of assets. A REIT with an external management structure usually resembles a private equity style arrangement, in which the REIT does not have its own employees and the external manager or advisor receives fees and certain expense reimbursements for managing the REIT’s portfolio of assets. Many non-traded REITs and listed mortgage REITs are externally managed or advised. What fees does a manager of an externally managed REIT receive? The types of fees that an externally managed REIT pays to its manager vary, depending upon the type of assets the REIT is focused on acquiring, as well as whether it is structured as a “finite life” or “perpetual life” REIT. With respect to asset management, an external manager typically will receive a base management fee and an incentive fee. The base management fee and sometimes an incentive fee is based on a percentage of stockholders’ equity or the value of assets under management, while the incentive fee often is based on the achievement of targeted levels of earnings (calculated based on GAAP or non-GAAP measures) and is subordinated to a minimum investor return threshold. In addition, an external manager may receive fees such as property management, acquisition, disposition, development, loan coordination and leasing fees and may be reimbursed for certain operating expenses. Public REITS How can REITs go public? REITs become public companies in the same way as non-REITs, although REITs have additional disclosure obligations and may need to comply with specific rules with respect to roll-ups, which are discussed below. Like other companies, REITs may also take advantage of the more lenient requirements available to “emerging growth companies” (“EGCs”) under the Jumpstart our Business Startups (JOBS) Act of 2012. On June 29, 2017, the SEC announced that the Division of Corporation Finance will permit all companies (no longer limited to EGCs) to submit draft registration statements relating to initial public offerings and certain follow-on registration statements for review on a nonpublic basis. For more information regarding REIT IPOs, see our publication entitled “REIT IPOs and Listing Transactions - A Quick Guide.” Are there special disclosure requirements for public REIT offerings? Yes. In addition to the statutes and regulations applicable to all public companies, REITs that are not eligible to use a short-form registration statement on Form S-3, including REITs conducting an initial public offering, must comply with the disclosure requirements of Form S-11. In addition, REITs conducting a blind pool offering, including non-traded REITs, must comply with the SEC’s Industry Guide 5. What is Form S-11? SEC rules set forth specific disclosures to be made in a prospectus for a public offering of securities as well as for ongoing disclosures once the issuer is public. The registration form for an initial public offering by a U.S. domestic entity is Form S-1. Real estate companies, including REITs, are instead required to register the initial public offering of their shares on Form S-11. In addition to the same kinds of disclosures required by Form S-1, Form S-11 sets forth several additional disclosure requirements, which are summarized on Exhibit A to
RkJQdWJsaXNoZXIy NTU5OTQ5