The SEC's Division of Corporation Finance (the "Division") recently published "CF Disclosure Guidance: Topic No. 6" ("Topic No. 6") which contains disclosure guidance from the Staff regarding public, non-listed REITs (also known as "non-traded REITs"). In Topic No. 6, the Staff includes disclosures about guidance related to distributions, dilution, redemption programs, NAV estimates, as well as new guidance on current Staff interpretations of Industry Guide 5, particularly with respect to prior performance disclosure. While this new guidance is aimed at the disclosures of non-traded REITs, the Staff notes that it also may apply to disclosures in connection with offerings by traded REITs or other companies (including IPOs by issuers of the type historically viewed by the Division as "blind pool" IPOs) that have features to which Industry Guide 5 applies. Set forth below are some of the key disclosure topics addressed in Topic No. 6. 

  • Distributions:  The Staff's new guidance provides that if a newly-formed non-traded REIT discloses to investors an estimated distribution yield but has yet to pay any distributions, the Staff will ask the REIT to demonstrate that it has a reasonable basis for the estimate. If no operating assets have been acquired, the Staff typically will object to an estimated distribution yield, as they do not believe that there is a reasonable basis for the estimate. The Staff also will object when a non-traded REIT discloses an annualized distribution yield based on a single distribution. However, the Staff typically will not object to an annualized yield if the non-traded REIT has paid distributions at the disclosed annual distribution yield for two or more quarters. 
  • Dilution:  With respect to dilution, the Staff’s new guidance provides that if distributions paid are in excess of earnings, non-traded REITs are likely to be required to disclose cumulative earnings since inception and cumulative distributions paid since inception. 
  • Redemptions:  To enhance the transparency surrounding a REIT’s redemption program, Topic No. 6 notes that the Staff often will ask non-traded REITs to summarize in the prospectus their redemption program history for both the current and last fiscal year by disclosing the number of redemption requests received, the number of redemption requests honored, the number of redemption requests deferred or rejected, the source of funds used to honor redemption requests and the average price per share for these redemptions. 
  • NAV:  Concerning non-traded REITs that provide shareholders with a periodic estimate of the value per share based on a valuation of the REIT's investment portfolio, the Staff requests in Topic No. 6 that companies supplement this disclosure with additional information to facilitate investor understanding of the basis for the estimate. Examples of such additional disclosure include the process by which the value estimate was determined, a breakdown of the value assigned to each major asset type and the key assumptions used in the primary valuation method. 
  • Website Posting of Supplemental Information:  The Staff’s guidance provides that certain supplemental information that companies undertake to provide to investors on a regular basis may be made available to investors via a publicly-accessible website in lieu of physical delivery. 
  • Industry Guide 5 Disclosures:  Topic No. 6 sets forth the Staff's current interpretive positions on Industry Guide 5 disclosures, including permitting non-traded REITs to use targeted leverage amounts instead of maximum leverage amounts when disclosing certain fee estimates and relaxing certain disclosures concerning the sponsor’s prior performance. 
  • Updating Disclosure and Readability:  Topic No. 6 notes that the Staff often will ask non-traded REITs to consolidate their prospectus supplements quarterly into one or two supplements to enhance readability and to update the base prospectus annually to include information from the prospectus supplements.