Yesterday the Securities and Exchange Commission’s Office of Investor Education and Advocacy published an Investor Bulletin on real estate investment trusts (REITs) and, at the same time, the Division of Corporation Finance issued informal disclosure guidance detailing the comments it most frequently raises when reviewing sales materials submitted by real estate limited partnerships (RELP) and REITs pursuant to Securities Act Industry Guide 5.
Comments include, among others, the need to:
- present a balanced discussion of the benefits and risks of an investment, both in terms of the level of disclosure provided and the location and formating of such disclosure;
- update sales materials that are outdated in comparison to information disclosed in the most recent prospectus, and to consider whether information included in the sales materials should also be disclosed in the prospectus;
- include disclosures regarding distribution information, such as the regularity and source of distributions;
- include balanced disclosure regarding affiliates, such as sponsors or managers, and clearly differentiate between the prior performance and other historical information of affiliates and the prior performance, or lack thereof, of the issuer;
- clarify whether properties depicted in any images used in the sales materials are subject to a mortgage or whether they are owned by the issuer or an affiliate;
- present balanced disclosure regarding redemption programs, including disclosure concerning redemption history; and
- comply with the requirements of Regulation G regarding the disclosure of non-GAAP financial measures.