On March 2, the Securities and Exchange Commissioner (SEC) adopted final amendments to Rules 3-10 and 3-16 of Reg S-X, intended to modernize the financial disclosure requirements applicable to registered debt offerings involving guaranteed or collateralized securities, such as subsidiary guarantees. Notably, because the amendments eliminate the current requirement that a subsidiary issuer or guarantor be 100% owned by the parent company, some UPREITs with OPs that are not 100% owned by the REIT may no longer need to register and maintain their OPs as separate SEC registrants. This could simplify and reduce the costs of raising capital in transactions when SEC-registered debt securities are issued by the OP and guaranteed by the REIT, or the reverse.
Nareit submitted a Comment to the SEC in late 2018 responding to the initial proposal of these amendments that was cited (approvingly) 24 times in the final rule. This rule, which is part of the SEC’s Disclosure Effectiveness Initiative, will become effective on Jan. 4, 2021, but voluntary compliance will be permitted in advance of the effective date.