SEC Decision on Rule 144 Sales Will Save REITs Money, Lawyer Says

Michael McTiernan, a partner at Hogan Lovells LLP, joined REIT.com for a video interview at REITWise 2016: NAREIT’s Law, Accounting and Finance Conference at the Marriott Marquis in Washington, D.C.

McTiernan discussed the Securities and Exchange Commission’s (SEC) recently released no-action letter that will allow holders of shares of a publicly traded REIT that they received in exchange for privately placed units of the REIT’s operating partnership to sell those shares under Rule 144 without having to start a new holding period.

McTiernan said the SEC’s letter will allow REITs to avoid “what were a lot of silly expenses at having those types of transactions be registered with the SEC. It’s a good, cost-saving move for REITs.”

McTiernan also observed that the SEC appears to be taking a less relaxed approach than in the past with regard to the use of metrics outside of Generally Accepted Accounting Principles (GAAP).

However, “I don’ think the abuses that have triggered some of the statements coming out of the SEC are relevant to the REIT space,” he said.

Meanwhile, McTiernan commented on the SEC’s proposed clawback rule, which requires executive officers to pay back incentive-based compensation that they were awarded erroneously.

Most of the clawback policies of REITs contain a fault component, whereas the SEC rules are likely to contain a no-fault basis, according to McTiernan.  Most REITs will probably wait until the final rules are issued before making any changes to their policies, McTiernan said.