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REIT IPO Regulations

REIT IPOs face different registration requirements than other IPOs. This article details several key differences in this area.

Published:
Aug 5, 2021
Updated:
January 8, 2024

Real estate investment trusts (REITs) have consistently been a significant part of the IPO market for many years. REIT IPOs differ from regular IPOs in some significant ways, with different registration statements, reporting requirements, and operating regulations. To help you understand the differences, and why so many REITs eventually choose to go public, this article explains the basics of the REIT structure and several of the most important differences in reporting and registration requirements.

Introduction to REITs

A real estate investment trust is a specific type of business entity under the laws of the United States. REITs specifically own or finance income-producing real estate. The types of real-estate that REITs own are varied across a variety of property classes or sectors. There are several types of REITs including equity REITs, mortgage REITs, and hybrid REITs. Equity REITs own and operate income-producing real estate. Mortgage REITs (often called mREITs) finance property owners directly through issuing real estate loans, or indirectly through other means such as mortgage-backed securities. Hybrid REITs use a combination of equity and mortgage REIT business practices. In addition to the nature of the business, REITs are also classified by their status as a private or public company.

By law, a REIT must meet a variety of requirements to become or maintain its status as a REIT. The Security and Exchange Commission lists these requirements, and that list is included in the toggle below.

REIT Requirements
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The tax laws that apply to REITs are also different from a normal corporation. For example, income is not taxed at the company level; instead, the owner of the equity in the REIT will be taxed on the distributions they receive through dividends.2 The income paid out to the owners of the REIT are “generally […] treated as ordinary income and are not entitled to the reduced tax rates on other types of corporate dividends.”3 The tax laws surrounding REITs and REIT equity transactions are often complex, and should be navigated carefully by both the company and the shareholders.

REIT Registration and Reporting Requirements

Because of the unique nature of both the legal requirements of REITs and the real estate industry in general, the SEC requires REITs to file more detailed disclosures than other companies when they register to go public. Instead of a Form S-1, which most companies use to register for their IPO, a REIT is required to file a form S-11. In addition, the SEC’s Industry Guide 5 contains more detailed guidelines for the issuance of equity in real estate companies.4 The requirements of these documents address areas such as investment policies, operating data, descriptions of the real estate, and several other areas. The requirements even include disclosures about the prior experience of the REIT’s sponsors and affiliates. Depending on the exact nature of the REIT and the IPO, other documentation might be required as well.

REIT Form S-11 Examples

The purpose of Forms S-11 and S-1 is the same—to give investors the information they need to make an informed investment decision. Thus, many of the disclosures, details, and instructions are very similar. However, the S-11 requires more in-depth disclosures in certain areas. Several of these disclosures are illustrated below:

Investment Policies of Registrant

REITs are required to disclose the details of their investment policy. The four areas that every S-11 must cover include the following:

  1. Investments in real estate or interests in real estate
  2. Investments in real estate mortgages
  3. Securities of or interests in persons primarily engaged in real estate activities
  4. Investments in other securities

In each of these categories, the S-11 includes instructions about the exact details the company is required to provide. The example in the toggle below comes from the S-11 of Alpine Income Property Trust and includes this organization’s policies in each of the four areas.

Investment Policies Example: Alpine Income Property Trust, Inc.
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Description of Real Estate

Another requirement of the S-11 is that the registering REIT provides details about the real estate in which it is currently invested. These descriptions are important because the real estate the company owns is the heart of the business. Thus, as opposed to other industries, the SEC has specific details they require REITs to share about their properties. These details include aspects such as the geography of the real estate, the terms of current leases or contracts, and plans for renovation and development. The toggle below comes from the S-11 registration statement of Postal Realty Trust Inc.

Description Of Real Estate Example: Postal Reality Trust, Inc.
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Other Requirements

In addition to the examples above, there are a variety of other important details that companies are required to include. These include details such as operating data, occupancy rates, distribution policies, transaction policies, and many others. All of these requirements are detailed in the S-11 registration document on the SEC’s website.10

Conclusion

REIT IPOs are and have been a significant part of the IPO market for decades, but they are clearly different from normal IPOs. While the economic benefits of an IPO are largely the same as other companies, the registration and reporting requirements are very different. Because of the legal requirements and distribution policies, REIT IPOs will likely attract a different type of investor. Due to the required disclosures, the reporting requirements will also create new burdens and increased accountability for REIT leadership. To go public, REITs will need to start preparing long in advance to allow themselves time to meet the complex reporting requirements.

Resources Consulted

Footnotes
  1. Securities And Exchange Commission: “Investor Bulletin: Real Estate Investment Trusts (REITs).” Dec 2011.
  2. Morrison & Foerster: “MoFo’s Quick Guide to: REIT IPOs.” Accessed 3 Jun 2021.
  3. Securities And Exchange Commission: “Investor Bulletin: Real Estate Investment Trusts (REITs).” Dec 2011.
  4. Securities and Exchange Commission: “Industry Guides.” Accessed 11 Jun 2021.
  5. Alpine Income Property Trust, Inc. 19 Nov 2019. Form S-11/A. Pages 150-153.
  6. Postal Realty Trust, Inc. 30 Apr 2019. Form S-11/A. Page 89.
  7. Postal Realty Trust, Inc. 30 Apr 2019. Form S-11/A. Page 91.
  8. Postal Realty Trust, Inc. 30 Apr 2019. Form S-11/A. Page 92.
  9. Postal Realty Trust, Inc. 30 Apr 2019. Form S-11/A. Page 92.
  10. Securities and Exchange Commission: “Form S-11.” Accessed 3 Jun 2021.