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liability insurance. The company should undertake athorough review of its existing and contemplatedcompensation for its directors and officers as well,particularly its use of stock-based compensation. See“Executive Compensation” on page 17.Most public REITs are formed as corporations inMaryland under the Maryland General CorporationLaw (MGCL) or as under the Maryland REIT law, as aresult of Maryland’s well-developed history as a REITfocused jurisdiction. This is in contrast to otheroperating companies, which typically incorporate inDelaware if they are preparing for an IPO.Primary and Secondary OfferingsAn IPO may consist of the sale of newly issued sharesby the company (a “primary” offering), a sale of sharesowned by existing stockholders (a “secondary”offering) or a combination of both. Underwriterstypically prefer a primary offering because thecompany will retain all of the net proceeds to acquireadditional assets, to repay indebtedness or for othergeneral corporate purposes. However, some IPOsinclude the sale of secondary shares, either as part ofthe base offering or as part of the underwriters’ optionto purchase up to an additional 15% of the shares tocover overallotments. An issuer must also considerwhether any of its stockholders have registrationrights that could require the REIT to register theresale of shares held by existing stockholders, eitheras part of the IPO or thereafter, which couldpotentially put downward pressure on the share pricein the aftermarket.estate industry experience, as well as anunderstanding of risk management issues and publiccompany experience. A company should begin itssearch for suitable directors early in the IPO processeven if it will not appoint the directors until the IPO iscompleted. The company can turn to its largeinvestors as well as its counsel and underwriters forreferences regarding potential director candidates.In recent years, REITs, management teams, investors,and proxy advisory and governance firms have placeda higher priority on ensuring that REIT boards ofdirectors and management teams are diverse in termsof experience and personal background. Althoughthere is continuing debate around the benefits ofboard diversity, several studies have demonstrated apositive link between board diversity and financialperformance. Regardless of whether or not a causallink exists, the benefits of diversity of experience andbackground should be considered to ensure thatdecision-making reflects diverse perspectives. Inrecognition of the value of diversity, Nareit recentlyestablished the Dividends Through Diversity andInclusion (DDI) Initiative to promote the recruitment,inclusion and advancement of women and membersof other diverse groups in REITs and the broadercommercial real estate industry.THE OFFERING PROCESSAs described in more detail below, the IPO process isdivided into three periods: The pre-filing period between determining toproceed with an IPO and the filing of the IPOregistration statement with the SEC. During thistime, the company is in the “quiet period” andsubject to limits on public disclosures relating tothe IPO. This period typically commences whenthe lead investment banks have been mandated tolead the IPO. The waiting or pre-effective period is thetime period between the SEC filing date and thedate on which the SEC declares the IPOregistration statement “effective.” During thisperiod, the company may make oral (oralternatively written) offers but may not enter intobinding agreements to sell the offered security.Governance and Board MembersA public company must comply with significantcorporate governance requirements imposed by thefederal securities laws and the regulations of theapplicable securities exchanges, including with regardto the oversight responsibilities of the board ofdirectors and its committees. A critical matter is thecomposition of the board itself. All exchanges requirethat, except under limited circumstances, a majorityof the directors be “independent,” as defined by boththe federal securities laws and stock exchange listingrules. In addition, boards should include individualswith appropriate financial expertise and relevant realMorrison & Foerster Quick Guide to REIT IPOs 3

EMERGING GROWTH COMPANIES (“EGCs”)The JOBS Act amended the Securities Act and the Exchange Act toinclude a new type of issuer called an emerging growth company. Anissuer qualifies as an EGC if it has a total gross revenue of less than 1.07 billion (originally 1 billion, but adjusted for inflation in 2017)during its most recently completed fiscal year subject to inflationaryadjustment by the SEC every five years. An issuer will not be able toqualify as an EGC if it first sold its common stock in an SEC-registeredoffering before December 8, 2011.A company that elects to file as an EGC can benefit from the followingreduced disclosure obligations: Disclosure of only two years of audited financials (instead ofthree); No requirement to include financial information in selectedfinancial data or in Management’s Discussion and Analysisof Financial Condition and Results of Operations (“MD&A”)disclosure for periods before those required to be presentedin the IPO prospectus; Option to rely on certain scaled disclosures available tosmaller reporting companies (such as for executivecompensation); Ability to “test the waters” with Qualified Institutional Buyers(QIBs) and institutional accredited investors to gaugeinterest before or after filing (See “The Pre-Filing Period”below); Exemptions from:o Advisory stockholder votes on executive compensation(“say-on-pay”) and golden parachute payments;o Disclosing the relationship between executivecompensation and financial performance;o Disclosing CEO pay-ratio;o Auditor attestation of internal controls under Section404 of Sarbanes-Oxley; ando Compliance with new or revised accounting standardsuntil the date the standard becomes broadly applicableto private companies.An issuer will remain an EGC until the earliest of: The last day of the first fiscal year after the issuer’s annualrevenues exceed 1.07 billion; The last day of the fiscal year following the fifth anniversaryof the issuer’s IPO;The post-effective period is the time periodbetween effectiveness of the IPO registrationstatement and the 25th day after effectiveness.During this period, the underwriters may sell thesecurities by delivering the prospectus containedin the IPO registration statement or a notice withrespect to its availability.Diligence and Preparing for FilingA company should keep in mind that underwritershave at least two conflicting responsibilities—to sellthe IPO shares on behalf of the company and torecommend to potential investors that the purchase ofthe IPO shares is a suitable and worthy investment.In order to better understand the company—and toprovide a defense in case the underwriters are sued inconnection with the IPO—the underwriters and theircounsel typically spend a substantial amount of timeperforming business, financial and legal due diligencein connection with the IPO.During the pre-filing period, key managementpersonnel will generally make a series ofpresentations to the underwriters covering thecompany’s business and industry, marketopportunities and financial performance. Theunderwriters typically will use these presentations asan opportunity to ask questions and establish a basisfor their “due diligence” defense. In particular,underwriters will want to visit the most significantproperties owned by equity REITs as well as analyzethe mortgage loan portfolios of mortgage REITs.Furthermore, it is important that any material itemsidentified during the due diligence process areappropriately reflected in the IPO prospectus toensure that there are no material misstatements oromissions in the disclosure. From the first all-handsorganizational meeting forward, all statementsconcerning the company should be reviewed by thecompany’s counsel to ensure compliance withapplicable rules.Pre-Filing Correspondence with the SECREIT formation transactions can be complex,resulting in significant accounting and financialreporting issues. The SEC is available to discuss theseaccounting and structuring issues even in advance of aconfidential submission or public filing of aregistration statement, and it is advisable to approachthe SEC early in the process to avoid costly delays.See “Financial Reporting and Accounting” below.Morrison & Foerster Quick Guide to REIT IPOs 4

Communications MattersCommunications by an issuer more than 30 days priorto the date on which the registration statement ispublicly filed are permitted as long as they do notreference the securities offering. Statements madewithin 30 days of filing a registration statement thatcould be considered an attempt to condition themarket or pre-sell the IPO may be considered anillegal prospectus, creating a “gun jumping” violation,which may result in the SEC delaying the IPO orrequiring disclosure in the prospectus regarding thesepotential securities law violations. Press interviews,participation in investment banker-sponsoredconferences and new advertising campaigns aregenerally discouraged during this period.Testing-the-WatersThe JOBS Act has softened the gun-jumping fears. Ifthe company is an EGC under the JOBS Act, it canengage in test-the-waters communications withcertain sophisticated investors referred to as QIBs andinstitutional accredited investors to gauge interest inthe IPO during both the pre-filing period and afterfiling without being required to file writtenINTERNALLY AND EXTERNALLYMANAGED REITsA REIT can be either internally or externally managed. Ina REIT with an internal management structure, theREIT’s own officers and employees manage theportfolio of assets. In a REIT with an internalmanagement structure, the REIT’s own officers andemployees manage the portfolio of assets. A REIT withan external management structure usually resembles aprivate equity style arrangement, in which the externalmanager receives a base fee and an incentive fee formanaging the REIT’s portfolio of assets.An external manager will typically receive a basemanagement fee and an incentive fee. The basemanagement fee is often based on a percentage ofstockholders’ equity or the value of assets undermanagement, while the incentive fee is often based onthe achievement of targeted levels of earningscalculated based on GAAP or non-GAAP measures.communications with the SEC. However, the SEC willask to review copies of any written materials used forthis purpose. Current market practice has been to usetest-the-waters communications, which usually takeplace after the first confidential submission of aregistration statement. An issuer should consult withits counsel and the underwriters before engaging inany test-the-waters communications.In February 2019, the SEC voted to propose anexpansion of the test-the-waters accommodations thatwould allow all issuers (including non-EGCs) to gaugemarket interest in a proposed registered securitiesoffering, including an IPO, by permitting discussionswith QIBs and institutional accredited investors priorto the filing of a registration statement. As of the dateof this IPO Guide, the proposed rules have not beenadopted.IPO Disclosure – The ProspectusThe prospectus describes the offering terms, theanticipated use of proceeds, the company, its industry,business (including competitive strengths and growthstrategies), management and ownership, and itsresults of operations and financial condition.Although it is principally a disclosure document, theprospectus is also crucial to the marketing and saleprocess. A good prospectus sets forth a compellinginvestment proposition.As a disclosure document, the prospectus functions asan “insurance policy” of sorts in that it is intended tolimit the issuer’s and underwriters’ potential liabilityto IPO purchasers. If the prospectus contains all SECrequired information, includes robust risk factors thatexplain the risks and uncertainties that the companyfaces, and has no material misstatements oromissions, it will be challenging for investors torecover their losses in a lawsuit if the price of the stockdrops following the IPO.A prospectus should not include “puffery” or overlyoptimistic or unsupported statements about thecompany’s future performance. Rather, it shouldcontain a balanced discussion of the company’sbusiness, along with a detailed discussion of risks,operating and financial trends, and materialuncertainties that may affect its financial condition,results of operations and prospects.Morrison & Foerster Quick Guide to REIT IPOs 5

SEC rules set forth specific disclosures to be made in aprospectus for a public offering of securities as well asfor ongoing disclosures once the issuer is public. Thegeneral form for an IPO by a U.S. domestic entity isForm S-1. Real estate companies, such as REITs,however, are instead required to use Form S-11. Inaddition to the same kinds of disclosures required byForm S-1, Form S-11 sets forth the followingdisclosure requirements: Investment policies with respect to investments,mortgages and other interests in real estate in lightof the issuer’s prior experience in real estate; Location, general character and other materialinformation regarding all material real propertiesheld or intended to be acquired by or leased to theissuer or its subsidiaries; for this purpose,“material” means any property which has a bookvalue of 10% or more of the total assets of theconsolidated issuer or the gross revenues fromwhich are at least 10% of the aggregate grossrevenues of the consolidated issuer for the lastfiscal year; Operating data of each improved property, such asoccupancy rates, number of tenants, and principalprovisions of the leases; and Arrangements with respect to the management ofthe issuer’s real estate and its purchase and sale ofmortgages.Furthermore, and in contrast to the generalrequirements of Form S-1, Form S-11 and IndustryGuide 5 contain detailed requirements regarding realestate ownership, investment policies, operating data,descriptions of real estate assets and, with respect toblind pool REITs, disclosures about the priorperformance of sponsors and their affiliates.Blind pool REITs, which are REITs that do not ownassets and do not identify specific real properties orreal-estate related debt instruments to be acquiredwith the net proceeds from the potential IPO (with theproperties or loans being determined after the closingof the IPO in accordance with a predeterminedinvestment strategy), are also subject to the SEC’sIndustry Guide 5, which sets forth the followingadditional disclosure requirements: Risks relating to: (i) management’s lack ofexperience or lack of success in real estateinvestments; (ii) uncertainty if a material portionof the offering proceeds is not committed tospecified properties; and (iii) real estate limitedpartnership offerings in general; General partner’s or sponsor’s prior experience inreal estate; and Risks associated with specified properties, such ascompetitive factors, environmental regulation, rentcontrol regulation, and fuel or energy requirementsand regulations.Depending on the nature of the specific REIT—UPREIT, DownREIT (a partnership agreementbetween a property owner and REIT), equity,mortgage, externally managed, internally managed, orinternally administered blind pool, etc.—there areadditional necessary disclosures. In July 2013, theSEC issued guidance regarding disclosure by nontraded REITs, particularly the applicability of certainprovisions of Industry Guide 5, which may also beinstructive for REITs that intend to list on a nationalsecurities exchange. 1 If the transaction meets the SECdefinition of a “roll-up transaction,” there areadditional disclosure obligations (see “UPREITs andRoll-Ups” on pages 2 and 3).In addition, the federal securities laws, particularlyRule 10b-5 under the Exchange Act, require thatdocuments used to sell a security contain all of theinformation material to an investment decision anddo not omit any information necessary to avoidmisleading potential investors. Federal securities lawsdo not define materiality; the basic standard fordetermining whether information is material iswhether a reasonable investor would consider theparticular information important when making aninvestment decision. That simple statement is oftendifficult to apply in practice.Most new REITs will qualify, however, as EGCs andcan take advantage of the scaled disclosurerequirements available for smaller public reporting1 CF Disclosure Guidance: Topic no. 6, “Staff Observations Regarding Disclosures of NonTraded Real Estate Investment Trusts” (July 16, 2013), available guidance-topic6.htm.Morrison & Foerster Quick Guide to REIT IPOs 6

companies (see “Emerging Growth Companies” onpage 6). Regardless of EGC status, however, an issuershould be prepared for a time-consuming draftingprocess, during which the issuer, investment bankersand their respective legal counsel work together tocraft the prospectus disclosure.Submitting Form S-11 to the SECWhile there is no prescribed time period, typicallyfour to six weeks will pass between the distribution ofa first draft of the registration statement to theworking group and its filing with, or confidentialsubmission to, the SEC. To a large extent, the lengthof the pre-filing period will be determined by theamount of time that is necessary to prepare therequired financial statements.An issuer may confidentially submit a draftregistration statement for non-public review but mustpublicly file (referred to as “going live” on the filing)its

the IPO. This period typically commences when the lead investment banks have been mandated to lead the IPO. The waiting or pre-effective period . is the time period between the SEC filing date and the date on which the SEC declares the IPO registration statement "effective." During this period, the company may make oral (or