SEC Reviewing REITs' 10-K Filings

The Securities and Exchange Commission's (SEC) program to review REITs' Form 10-K filings is well underway, according to Michael McTiernan, assistant director of the division of corporation finance with the SEC.

In a video interview at REITWise 2012®: NAREIT's Law, Accounting & Finance Conference in Hollywood, Fla., McTiernan discussed some of the key areas of focus for the 10-K program. One point of emphasis will be CAPX, he said.

"I think that people should expect to see us focused on areas regarding CAPX transparency to get an understanding within any cap x line item the amount that relates to acquisitions, developments, redevelopments or improvements on existing properties," McTiernan said.

McTiernan also identified net operating income (NOI) and same store net operating income (SSNOI) as areas of focus. That includes what should be disclosed related to NOI, as well as gaining a better understand of how some NOI-related metrics are calculated.

McTiernan said period-to-period changes would be another issue that received some attention.

"I think we're looking at making sure there's visibility on the relative impact of changes in occupancy versus changes in average rents," he said. "And then I'm sure another big area would be making sure the leasing story for that period is being told."

That kind of information would include lease rates and average rents, according to McTiernan.

McTiernan said the SEC is also reviewing some issues specifically related to mortgage REITs. They include haircuts, the triggers for margin calls and leverage strategies.

"We're definitely seeing mortgage REITs are in, understandably, a more conservative leverage position," he said, adding that the SEC's goal include "making sure that people are articulating what their leverage strategy is, why they are where they are, what conditions may cause them to change where they are."

Another area of focus for the SEC has been non-traded REITs, according to McTiernan. He said the SEC is taking a look at how non-traded REITs calculate their net-asset values (NAV).

"It does introduce some new disclosure issues for us in terms of transparency behind NAV and how it's calculated," McTiernan said.

McTiernan applauded NAREIT for its role in helping the SEC communicate effectively with the REIT industry at large.