1875 I Street NW, Suite 600
Washington, DC 20006
August 13, 1999
Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
Mail Stop 6-9
450 Fifth Street, NW
Washington, DC 20549-6009
Re: File No. S7-30-98, The Regulation of Securities Offerings, Rel. No. 33-7606A; 34-40632A; IC-23519A, International Series Release No. 1167A
Dear Mr. Katz:
The National Association of Real Estate Investment Trusts®, (NAREIT®), welcomes this opportunity to respond to the request for comments from the Securities and Exchange Commission (the Commission) on various proposals contained in Release No. 33-7606A, commonly referred to as the "Aircraft Carrier" (the Release). NAREIT is the national trade association for real estate companies. Members are real estate investment trusts (REITs) and other businesses that own, operate, and finance income-producing real estate, as well as those firms and individuals who advise, study and service those businesses. NAREIT's Government Relations Committee is pleased to provide its comments.
NAREIT fully supports the concepts behind the Release: investor protection, market transparency, timely access to information by investors, and streamlining of outdated or duplicative regulations. We commend the Commission for recognizing and addressing problems in the current system of securities registration and regulation. We believe, however, that the proposals in the Release contain many provisions that would prove difficult, if not impossible, to implement in practice. Although the Release contains numerous proposals, we will comment only on the proposals that we believe are of gravest concern to REITs and public real estate companies. These include the following: certain proposals relating to changes to the registration system, including requirements for Form B use; proposed restrictions on sales to existing security holders, especially restrictions on dividend reinvestment and direct stock purchase plans; real-estate specific proposals; proposals relating to the integration of private offerings; and proposals relating to Exchange Act reporting. Although we are quite concerned about many of the other proposals, such as the many costs and burdens that would be imposed by the proposed prospectus delivery requirements, the addition of new civil liability provisions, and the repeal of Exxon Capital, we believe that these concerns should be more than adequately addressed by other commenters.
Proposals Relating to Changes in the Registration System
Form B Eligibility. The Release proposes to create a new, three-tiered registration system. Form B, the short form, would be available to an issuer only if it has 12 full months as a reporting company and has filed one annual report, and has either: $75 million in unaffiliated public float and $1 million in average daily trading volume (ADTV) or $250 million in unaffiliated public float. Issuers that do not meet these stringent size and trading requirements would be required to use Form A. Issuers that must use Form A would have more burdens on the availability of incorporation by reference, would not be able to use delayed shelf registration, and would be subject to prospectus delivery requirements that would be difficult to meet in practice.
The Release states that the goal of these guidelines is to assure that "only those issuers with a demonstrated market following should be eligible…." We agree that issuers with demonstrated market discipline should be able to take advantage of the flexibility of short-form registration, while new or small issuers, and issuers with a history of noncompliance, should be required to provide more in-depth disclosure. We believe, however, that the proposed public float and ADTV tests are inappropriate and are too restrictive.
Support for our position can be found in the Release's own study of the effects of the proposals. According to the Release, approximately 1,175 fewer issuers who now use Form S-3 or F-3 would be eligible to use Form B under the new guidelines due to the harsh effects of the proposed size requirements. Further, the Commission cites no evidence of wrongdoing or abuses of the current system that would justify why over one thousand companies, who rely on the current system and have been in compliance with its requirements, should be subject to more onerous burdens than the ones they now face.
The Release envisions a test based on several parts: reporting history requirements, public float requirements, and ADTV requirements. We believe that the reporting history requirements are an appropriate test of market discipline because those issuers that meet the requirements are familiar with filing requirements, have been subject to Commission review, and have communicated with investors through public filings and the public marketplace for a significant amount of time.
Public Float Test. Although we strongly agree that reporting history is an appropriate test of market discipline, we do not believe that the public float test as proposed is an appropriate test. Any dollar-amount threshold would have an arbitrary effect on different segments of the market during the business cycle and may not be indicative of whether investors are receiving accurate information about a company. Indeed, stocks at the top of a speculative bubble may escape enhanced disclosure obligations, whereas stocks in other, more stable or less "glamorous" industries may be subject to more onerous requirements, notwithstanding a longer history of compliance.
In addition, the Commission defines public float as the aggregate market value of the issuer's outstanding voting and non-voting common equity held by non-affiliates of the issuer. We believe that, because the proposed test would determine where the issuer fits into the broader registration scheme, and has the potential for demoting so many issuers that have relied on short-form registration and have been in full compliance with its requirements, a more-inclusive test that accurately gauges a company's market value, rather than the proposed public float test, is necessary. The proposed public float test is a good first step at defining a company's market value, but it does not include all indicators of a company's worth.
We respectfully request that, if the Commission uses a public float test, that the Commission clarify that the threshold includes securities held by the public that are exchangeable for the company's equity securities within a defined period of time, such as one year. In the alternative, we request that the Commission consider lowering the dollar-amount threshold to the current threshold of $75 million so that those issuers that have relied on short-form registration and have been in full compliance with its requirements are not subject to a more costly registration scheme.
As another alternative, the Commission states in the Release that it used market capitalization information as a proxy for public float information; perhaps the Commission would consider using a "market cap" test instead of a "public float" test. Market capitalization can be a useful indicator of a company's worth, especially since it takes into account shares owned by officers, directors, and those with a controlling interest in the company. These shares represent votes of confidence in the company by those who manage it. We believe that companies whose management and insiders choose to align their interests with other shareholders in the company should not be penalized by facing more onerous and costly registration requirements and communications restrictions.
ADTV Test. The Commission proposes that issuers with a public float of $75 million would be able to use Form B if they have an ADTV of $1 million dollars. We believe the arguments against such a test are similar to those against the public float test; namely, that it would have arbitrary, negative effects upon certain issuers without being indicative of either the company's worth, compliance status, ability to bear market discipline, or even whether investors are receiving accurate information about the company. Indeed, trading volume can be viewed as indicative of a merely volatile market rather than an efficient market. In today's markets, trading volume can soar on a speculative bubble, large-block computer-generated trades, or mere "momentum"; therefore, trading volume is not an accurate test of market efficiency or even the availability of sound, accurate investor information. There are many sectors of the public marketplace that do not experience high turnover, but which investors value for a long-term, buy-and-hold approach. Similarly, there are many public companies whose stock is owned primarily by a few investors, such as large institutional investors, who choose not to trade frequently. The Commission may wish to review other criteria, such as whether in addition to having an adequate reporting history, the issuer is traded on a nationally recognized securities exchange and is in compliance with all exchange requirements. Although we do not believe that any trading volume test is appropriate, we respectfully request that, if the Commission insists on a trading volume test, that the threshold be lowered to accommodate companies that may not experience such high volatility, and lower the ADTV threshold to no more than $100,000, recognizing that some industry sectors do not experience high volatility.
We respectfully request the Commission to reexamine its proposed public float and ADTV requirements. We believe that, unlike reporting history, these tests may not accurately gauge a company's ability to withstand the rigors of the public marketplace. We believe that the public float and ADTV requirements as proposed would impede access to capital or make access to capital unnecessarily more costly, especially when these tests are combined with other proposals, such as the elimination of Exxon Capital and secondary shelf offerings.
Sales to Existing Security Holders
The Release contemplates allowing "Form B-seasoned" issuers (issuers with one year of reporting and one annual report) to use Form B for dividend reinvestment plans (DRIPs) and direct stock purchase plans (DSPPs). We agree that short-form registration only should be available for the DRIPs and DSPPs of issuers with a good reporting history, as evidenced by the "seasoning" requirement. In addition, as the Commission states in the Release, "these offerings would be directed to specific investors that previously invested in the issuer's securities and could therefore be expected to follow the issuer or to receive information from the issuer." The Release, however, would impose several restrictions on DRIPs and DSPPs, even for seasoned issuers. We believe that the proposed restrictions would add unnecessary costs to DRIPs and DSPPs and deprive investors of popular and low-cost investment options.
Two-Month Waiting Period. One restriction mandates that the securities must be offered only to existing security holders (in the case of DRIPs) or to existing common stock holders (in the case of DSPPs) that have held the issuer's security or common stock for at least two months. The goals behind this restriction, to give investors "a chance to learn about the issuer," are laudable; however, as stated earlier, many DRIP and DSPP investors already invest in the issuer, follow it, and receive information from it. In addition, the Release does not recognize that many participants in DRIPs and DSPPs invest only after researching the issuer through various sources of information, including EDGAR, company websites, and third-party sources of information. Further, many existing DRIP and DSPP plans are "open availability" plans, which allow an investor to purchase to buy stock directly from the plan, thus saving the investor from having to pay brokerage fees. Under the Release, new shareholders would be precluded from participating in DRIPs and DSPPs unless they bought the issuer's securities through a broker, paid the brokerage fee, and waited two months. This would seem to be contrary to the "no-load stock plan" concept endorsed by the Commission. In addition, the issuers, brokers, and plan administrators would have to change not only their plan documents, but also their plan infrastructure by adding new tracking and reporting systems, which would add unnecessary costs to plans.
15% Limitation. Another restriction on DRIPs and DSPPs is that the dollar amount registered in any on Form B could represent no more than 15% of the issuer's public float when aggregated with the dollar amount of securities previously registered by the issuer on Form B under any offering to current security holders, including DRIPs, within the 12 months trailing the current offering. These issuance limitations not only would restrict access to capital, but also would add to a plan's cost, since issuers and plan administrators would have to add systems to determine the market value of the issuer's positions over time. The limitations imposed are unduly burdensome and not justified in the Release.
Shareholder Purchase Limitations. The Release would limit the amount any shareholder could purchase through a DRIP or DSPP to no more than the lesser of 100% of the "value" of the issuer's securities owned by the shareholder at the start of the 12-month period or 5% of the total offering amount. Regardless of these limitations, however, any shareholder may buy up to $10,000 of securities in any 12-month period. These limitations may prove unworkable in practice. As with the 15% limitation, the proposed limitation is unduly restrictive and burdensome, especially when the test requires the shareholder to aggregate its securities purchases and ownership with those of its affiliates. The costs of the tracking systems needed would be considerable. We understand that the Commission is concerned about problems posed by possible unregistered sales to the public; however, we believe that the proposal is unduly broad, burdensome, and restrictive to the capital-raising process.
We agree with the Commission that QIBs can "fend for themselves" and that therefore smaller issuers should be able to register QIB-only offerings on Form B. However, we are troubled by what appears to be a reawakening of the "presumptive underwriter" doctrine. There must be assurance in the marketplace that QIBs receive freely tradable securities under the QIB-only provision; otherwise, this provision would be underutilized, if at all. We suggest that the Commission revisit how it can address indirect offerings to the public, perhaps by issuing detailed guidance, rather than reviving the presumptive underwriter doctrine.
Real Estate Company Proposals
The Commission makes several real estate-related proposals, with which we substantially agree.
Regulation S-K. The SEC would modify Regulation S-K to "codify certain staff practices regarding disclosure by real estate entities." We agree that it is appropriate to consider modifying Regulation S-K as proposed within the new regulatory framework envisioned in the Release. The proposed Items 1101-1113 of Regulation S-K (17 CFR 229-1101-1113) are unobjectionable when taken as a whole. However, all items and sub-items may not apply to all real estate entities (for example, REITs primarily investing in mortgages). We are, however, confident that the Commission will continue to use the rule of reasonableness in its case-by-case review of filings.
Guide 5. We agree that it is appropriate to eliminate the Guide 5 recommendation that a registrant "supplementally" provide the Commission, before use, sales materials it intends to furnish to investors. According to the Release, the Commission would no longer pre-review the sales materials of issuers if either the issuer can designate the effective date of the registration statement or the Commission has notified the issuer that it will not review its registration statement. We are pleased that the Commission has the foresight to suggest eliminating this potential "speed bump" in the proposed registration process. Further, we believe that the Commission is correct in its analysis that proposed Rule 425 eliminates the need for the Guide 5 recommendation for all offerings.
Proposals Relating To Integration Issues
NAREIT applauds the Commission's interest in clarifying the rules and doctrines concerning integration of registered and unregistered offerings. We agree with the Commission that the integration doctrine has been a murky area for securities law practitioners. We offer the following three general proposals. To the extent that the Release does not contain the following three general items, we suggest that it be clarified or expanded to do so.
First, integration principles should not apply to an offering to an accredited investor (or another definition of an eligible investor). These investors do not need the protection of registration and do not need to be shielded from general solicitation or gun-jumping. This would permit making offers to these investors in any manner and then completing the transaction either privately or as a registered offering. It would encompass the existing Black Box position.
Second, a terminated private offering (which should include a Rule 505 offering) would not be integrated with a subsequent registered offering as long as the prospectus for the registered offering, if the offering commences within 30 days, informs investors of the termination of the private offering, that any indications of interest are rescinded and that the prospectus supersedes any private offering selling material. This should be based on the private offering not being used as a device for gun-jumping in respect of the registered offering (at least during the 30-day period not covered by the communications safe harbor). As is now the case under Rule 152, a completed private offering would not be integrated with a subsequent registered offering.
Third, a terminated or completed public offering would not be integrated with a subsequent private offering so long as there was no marketing activity for at least 30 days and until completion of the private offering and there is disclosure to the private purchasers of the restricted nature of the securities and the liability consequences of the switch to a private offering. There would be no cooling off period for offerings to eligible investors because as posited above, integration would not apply to eligible investors.
Comments on Specific Integration Issues in the Proposal
Completed Offerings. We concur that an offering will be deemed complete when the purchase price has been fully paid or, in situations in which there has not yet been full payment, when the transaction cannot be renegotiated and the purchaser is unconditionally obligated to pay for the securities. We agree that the revised rule should make it clear that conditions that are not directly or indirectly within the control of the purchaser will not negate the availability of the safe harbor. Where we still see an ambiguity, however, is in the statement that the purchase price must be fixed, not contingent upon market prices at the time of the registered offering, and the ensuing comment that "this ensures that the purchaser assumes the market risk." Provided that there is a fixed formula to determine the purchase price, the purchase price itself should not need to be fixed at the time of the private offering, provided the purchaser cannot tamper with the formula. In addition, the availability of the safe harbor should not be compromised merely because the formula takes into consideration the market price at the time of the registered offering. In addition, we ask the Commission to consider allowing the parties to provide up front that the transaction will automatically be voided if the public offering price falls below a fixed level, provided such rescission is not within the direct or indirect control of the purchaser.
Further, it is unclear to us whether the provisions of Rule 152(a)(2) also apply in the situation described under 152(a)(4), with respect to offerings which do not raise capital for the issuer, or whether Rule 152(a)(4) is self-contained and stands alone. We believe the intent was that if a transaction met subsection (a)(4), it need not fit within subsection (a)(2). We agree with this approach and request that the Commission clarify this intent. We note, however, that subsection (a)(4)(iii), which provides that the private offering must not be a roll-up transaction under rule 901(c) of Regulation S-K, is unworkable because it is circuitous. A private offering becomes a roll-up transaction if the private offering is integrated into the registered offering. Therefore, it is not possible to determine whether it will be a roll-up transaction unless you first know whether the private placement will be integrated. It should be sufficient that there is a bona fide private placement and such private placement is deemed "completed" within the other perimeters of subsection (a)(4) of revised rule 152.
Abandoned Private Offering. We question the need to require notification of all offerees that the private offering is abandoned. This would reintroduce the concept of "offerees," a concept that correctly was abandoned with the adoption of Regulation D. It would not only require keeping track of all offerees but also of determining who in fact was an offeree. Only purchasers in the subsequent offering need to know that they are purchasing in a registered public offering, and this will be obvious from the transaction. Similarly, purchasers in the after-market will know that a public market has been created since they would be purchasing in it. Tying the cooling-off period to the nature of the offerees worsens the problem of tracking offerees. The prohibition on general solicitation should provide ample protection against improper gun-jumping activity.
Abandoned Public Offering. We note that sometimes there might not be a compelling reason to integrate an abandoned registered offering with a subsequent private offering in order to protect investors. Since the public offering was registered, there is little prospect of harm to investors from this activity. Any subsequent private offering would still have to meet the requirements for an exemption, the most significant of which is the nature of the purchasers and their ability alone or with their representatives to fend for themselves. Liability concerns can be addressed by disclosure of the differences between a registered and private offering.
A requirement to notify all offerees of abandonment of the public offering serves no useful purpose and, as noted above, would reintroduce the abandoned concept of tracking offerees. Furthermore, in the public offering context it is totally impractical to expect issuers to be able to identify all offerees. Rather, the issuer should notify purchasers in the private offering of the switch from a public to a private offering and the liability and restricted security consequences of such switch.
The proposed safe harbor only addresses abandoned public offerings. It does not deal with pending or completed public offerings. We would propose that the safe harbor be available regardless of whether the registered offering is abandoned or completed. Just as Rule 152 applies whether a private offering is completed or abandoned, we see no reason that it should not apply in the case of an abandoned or completed registered offering.
With respect to a pending registered offering, we suggest the Commission should recognize and possibly codify the Black Box position, permitting certain private offering activity during the pendency of a registered offering.
Definition Of Private Offering. We welcome the expansion of Rule 152 to cover offerings under the Section 4(6) exemption and to specify that Rule 152 applies to the Rule 506 exemption.
Proposed Changes To Rule 477. We concur with the commission that it is important to modify Rule 477 to allow registration Statements to be withdrawn automatically in order to effectuate the purposes of proposed Rule 152.
Tacking is an issue which is unique to REITs that are in umbrella partnership or UPREIT form. The issue relates to private issuances of operating partnership units ("OP Units") in the umbrella partnership which are exchangeable for common stock of the REIT, usually on a one-for-one basis. Such private issuances typically take place in the context of acquisitions.
Members of the REIT securities bar are aware that the Staff takes the view that holders of OP Units cannot tack the holding period of their OP Units onto the holding period of their common stock for Rule 144 purposes. This requires public REITs to file registration statements within a narrow four week window a year later (when the OP Units become redeemable for stock) or to file evergreen resale shelf registration statements on Form S-3. The former option--because of the narrow window--is a perilous trap to the unwary and, in addition, may not be possible if the Company is not 8-K compliant under Rule 3-14 of Regulation S-X or has a material development pending at the relevant time. The latter option is cumbersome, particularly in the proposed Form B context.
We believe that tacking should be allowed. As a practical matter, it is essential because, absent registration as set forth above, taxes are due upon conversion of OP Units into Common Stock. No one can then afford to start a new waiting period under Rule 144. In addition, we believe that the no-action letters dealing with exchanges into other entities that conduct essentially the same business would normally have allowed for tacking, and we believe that the same theory should be applied in connection with an UPREIT structure. We respectfully request that the Commission provide some guidance to allow tacking under Rule 144 in this situation.
Proposals Relating to Exchange Act Disclosure
The Release places increased emphasis on periodic reports filed under the Exchange Act by (1) accelerating filing deadlines, (2) broadening content requirements, (3) applying the Plain English rules and (4) increasing company and management liability. In the Commission's view, this new emphasis is required to achieve its objectives of streamlining the Securities Act registration process for seasoned issuers and "leveling the playing field" for investors. NAREIT fully supports these objectives. REITs are also interested in improving investor access, as REITs themselves were created as a means of leveling the playing field for investors interested in investing in real estate. Nevertheless, NAREIT believes that some of the methods proposed by the Commission to achieve these goals would create substantial new burdens on reporting companies without providing significant additional benefits to investors, and could result in less rigorous review by management and outside auditors in the press to meet deadlines.
Accelerating Filing Deadlines
The Release significantly accelerates the filing deadlines for annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. NAREIT believes that tighter deadlines would compress still further the already tight time schedules for these documents, placing substantial additional burdens on reporting companies and perhaps resulting in less accurate data to investors.
Forms 10-K and 10-Q. We believe that the Commission underestimates the time required to prepare diligently the financial and other information, including audited financial statements, required by Form 10-K. Due to the lack of availability of information beforehand, many issuers file their Form 10-Ks in the last few days before the deadline. Reducing the filing deadline from 90 days after the close of the fiscal year to 60 days is likely to result either in less carefully prepared documents, with more "boilerplate" language, or companies having to seek extensions of the filing deadline. Similarly, Form 10-Qs are often filed within a few days of the filing deadline. Reducing the filing deadline from 45 days after the close of the fiscal quarter to 30 days would substantially increase the burden of preparing and filing carefully considered reports in a timely manner.
Form 8-K. We do not oppose the proposal to shorten the 15-calendar day filing deadline in order to provide more timely information to investors. However, we believe that, in accordance with the recommendation of the Advisory Committee on the Capital Formation and Regulatory Processes, at least a 5 business day deadline should be adopted in all instances. The proposal of a 1-business day filing deadline in specified circumstances would be unworkable in practice. In many instances in which a Form 8-K is necessary, disclosure would be improved if there is time to prepare the Form 8-K carefully.
Broadening Required Content
The Release broadens the content of Exchange Act reports in three major areas: the inclusion of selected financial data in a Form 8-K to be filed with an earnings release; the inclusion of additional specified items in Form 8-K; and the addition of risk factor disclosure to Forms 10-K and 10-Q.
Inclusion of Selected Financial Data in Form 8-K Earnings Release. In the case of earnings releases, NAREIT understands the Commission's concern that investors have as complete a picture of a company's financial position as possible at the time earnings are released and that individual investors not be disadvantaged by lack of access to analyst calls that frequently follow earnings releases. However, the financial information called for by Item 301 of S-K is often more comprehensive than information which is usually included in earnings releases. Consequently, NAREIT is concerned that the increased burden of producing an 8-K that contains the financial data called for by Item 301 of Form S-K may result in companies delaying their earnings releases. This would appear to be counter to the Commission's goals of increasing prompt investor access to information. In addition, the Release would in most instances require the filing of three more forms with the Commission annually, in itself a significant additional burden without any clear public benefit. Therefore, NAREIT opposes this proposal.
Inclusion of Additional Disclosures in Form 8-K. NAREIT supports the proposals to expand the items of disclosure on Form 8-K to include material modifications to the rights of security holders; departure of a CEO, COO or CFO; material defaults on senior securities; certain auditor notifications; and company name changes. However, our support is based on the assumption that the filing deadline for the Form 8-K would be 5 business days after the occurrence of the event. Furthermore, the term "material" is often ambiguous when dealing with a default on or modification of a security. We believe that the instructions to any modified Form 8-K should identify the types of defaults on or modifications of securities which the Commission believes may be material.
Inclusion of Risk Factor Disclosure in Forms 10-K and 10-Q. NAREIT would not object to the inclusion of risk factor disclosure in Forms 10-K and 10-Q if this change would facilitate the registration process under the Securities Act and if changes to risk factors required to be reported on Form 10-Q are only material changes from the risk factors set forth in the most recent Form 10-K. However, this proposal would add an important new disclosure element that would require the attention of management and legal counsel every quarter, increasing an already significant disclosure burden, especially if filing deadlines are accelerated simultaneously.
Applying Plain English Rules
The Release clarifies that the risk factor disclosure contained in Exchange Act reports would be required to conform to the Commission's "Plain English" rules, and also suggests that these rules eventually could be applied to all sections of these reports. While NAREIT supports the Plain English rules, we believe that its implementation to date under the Securities Act has been uneven. Plain English, by definition, is not readily reducible to a set of black-letter rules, and necessarily requires the exercise of considerable judgment by drafters and reviewers alike. We understand that significant delays in processing registration statements have occurred and continue to occur as a result of confusion or disagreement over the interpretation of the Plain English rules. We hope that if the Plain English initiative is carried over to the Exchange Act, the Commission will devote the necessary resources to ensure that this does not impede either the capital raising or the reporting process and that the staff will be encouraged to refrain from comment where reporting companies have made a good faith effort to comply with the Plain English rules.
Expanding Management and Company Liability
The Release would expand liability for Exchange Act reports by (1) requiring additional persons to sign reports and certifications that they have read them, and (2) adding Section 18 liability for the financial statement and MD&A portions of a Form 10-Q.
Signatory Liability. The Release's proposals would require each signatory of an Exchange Act report to certify that he or she has read the report and that, to his or her knowledge, it contains no material misstatements or omissions. The principal executive officers and a majority of the board of directors would be required to sign each Form 10-Q (as well as certain other reports). NAREIT understands the Commission's desire to encourage executive officers and directors to review reports closely and to discourage them from merely signing blank signature pages without reviewing the report in its final form. Nevertheless, in practice, we believe it would be a significant additional burden to require a majority of the board of directors to be available to review numerous drafts of quarterly reports. This burden would be felt particularly by outside directors, who would be required to increase dramatically the time they have committed to the company. As the Commission should be aware, such directors are already difficult to find. NAREIT believes outside directors serve an important purpose on corporate boards, and does not want to add unnecessarily to the burden of their service. We suggest that only principal executive officers be required to sign Form 10-Qs.
Company Liability. The Release proposes that the financial statements and MD&A portions of reports on Form 10-Q would be subject to liability under Section 18. This would effectively increase liability for these sections, as reliance on these sections is much easier to plead and prove when such documents are widely available through electronic media. Such liability may be appropriate in and of itself, but as with other portions of the Release, we question whether the potential benefit to investors outweighs the cumulative burden of simultaneously accelerating filing deadlines, broadening required content, applying Plain English rules and increasing liability.
NAREIT thanks the Commission for this opportunity to comment on the Aircraft Carrier release. In sum, although we may not agree with each of the Commission's proposals, we commend the Commission for recognizing and addressing the need to modernize the current regulatory system. Please contact me or Anna Chason, NAREIT's Public Affairs Counsel, at (202) 739-9400 if you have any questions regarding this letter.
Tony M. Edwards
Senior Vice President and General Counsel
National Association of Real Estate Investment Trusts