SEC Final Rules on Eliminating Duplicative Disclosures Adopt Many Nareit Suggestions
On Aug. 17, 2018, the Securities and Exchange Commission (SEC) announced that it had adopted Disclosure Update and Simplification amendments (disclosure amendments), to simplify or eliminate outdated, duplicative or overlapping disclosure requirements. The disclosure amendments, which will become effective 30 days after publication in the Federal Register , are part of an on-going disclosure update initiative, announced by the SEC’s Division of Corporation Finance in 2016 to review and improve issuer disclosure requirements for investors, as mandated by the 2015 Fixing America’s Surface Transportation (FAST) Act .
In 2016, Nareit submitted two comments to the SEC related to its disclosure update initiative and joined other groups as a signatory to a comment by the Corporate Governance Coalition for Investor Value , which Nareit helped to found. In each comment, Nareit strongly supported the SEC’s disclosure update initiative and urged that the SEC maintain its “principles-based” approach to disclosure grounded in the concept of materiality as it updates its requirements. Nareit also urged that any revisions to the SEC disclosure regime maintain the long-standing distinction between historical information and forward-looking disclosures and preserve the existing division of oversight responsibilities between the Financial Accounting Standards Board (FASB) and the SEC.
The disclosure amendments eliminate or modify dozens of existing SEC disclosure requirements, including some specific to REITs. Nareit is pleased that the SEC concurred with many of Nareit’s suggestions, citing Nareit’s comment seven times in its final rule. The table below summarizes those changes set forth in the disclosure amendments with special application to REITs. However, other provisions of the disclosure amendments may also be useful to REIT investors. For example, financial disclosure about segments will no longer be required in the “Business” section of a prospectus or periodic report, as currently required in Item 101(b) of Regulation S-K. Because so many existing SEC disclosure requirements are affected by the disclosure amendments, Nareit urges members to review the SEC release carefully.
| Topic | Nareit Suggestion | SEC Amendment |
| REIT Disclosures - Undistributed Gain or Loss on Sale of Properties by REITs | Nareit supported the SEC’s suggestion to delete Rule 3-15(a)(2) of Regulation S-X, noting that this disclosure does not provide meaningful information to investors. |
Citing Nareit’s comment, the disclosure amendments delete Rule 3-15(a)(2) of Regulation S-X (p. 60). |
| REIT Disclosures - Tax Status of Distributions as ordinary income, capital gain, or return of capital; Rule 3-15(c) of Regulation S-X | Nareit suggested that the SEC eliminate the requirement in Rule 3-15(c) of Regulation S-X for REITs to disclose the tax status of distributions. |
The disclosure amendments retain this requirement and refer it to FASB for potential incorporation into U.S. GAAP (p. 100). |
| REIT Disclosures - Gains or Losses on the Sale of Properties | Nareit supported the elimination of Rule 3-15(a)(1) of Regulation S-X, noting that it presents conflicts with the requirement in U.S. GAAP. |
Citing Nareit’s comment, the disclosure amendments delete Rule 3-15(a)(1) of Regulation S-X (p. 110). |
| REIT Disclosures - Status as a REIT | Nareit supported the SEC’s proposal to eliminate Rule 3-15(b) of Regulation S-X. | Citing Nareit’s comment, the disclosure amendments eliminate the Rule 3-15(b) of Regulation S-X (p. 62). |
| Ratio of Earnings to Fixed Charges | Nareit supported the SEC’s proposal to delete the requirement to disclose the historical and pro forma ratios of earnings to fixed charges. | The disclosure amendments eliminate this requirement by deleting Item 503(d), Item 601(b)(12) and Instruction 7 to “Instructions as to Exhibits” of Form 20-F (p. 58). |
| Legal Proceedings- Integration of Item 103 and U.S. GAAP | Nareit opposed the integration of Item 103 and U.S. GAAP, but encouraged the SEC to reconsider the quantitative disclosure thresholds in Item 103. | Citing Nareit and other comments, the disclosure amendments retain the disclosure requirements in Item 103 without amendment (p. 93). |