Casper the Friendly REIT: Using Form S-11 as a Shelf

Our good client, McFadden Friendly Real Estate Investments, wants to raise money (among other projects, it is currently developing the “Casper’s World” office park/theme park complex). The company’s general counsel, Seymour Reit, calls to ask about the possibility of using Form S-11 for an offering on a delayed or continuous basis under Rule 415.

Just by way of background, Form S-11 is used to register securities issued by real estate investment trusts (REITs) or other issuers whose business is primarily acquiring and holding real estate for investment. It can be used to register offerings on a delayed or continuous basis.

Perhaps the spookiest pitfall of all in this ghost story is that Form S-11 (like its cousins, Forms S-1 and F-1) is not always the most efficient vehicle for a shelf registration statement. Due to the factors discussed below, if our client is eligible to use Form S-3, that alternative may make more sense.
Backward incorporation by reference in Form S-11

Effective April 15, 2008, the SEC amended Form S-11 to permit backward incorporation by reference – that is, incorporation by reference of historical reports and other documents previously filed under the Exchange Act – so long as the issuer is current in its Exchange Act disclosure obligations, has filed its annual report for the most recent fiscal year and makes the incorporated reports and documents available and accessible on a website. See Release No. 33-8909. (Forms S-1 and F-1 were similarly amended in connection with the SEC’s 2005 securities offering reform initiative, see Release No. 33-8591 at 237.)

An issuer that chooses to backward incorporate by reference in its registration statement on Form S-11 must specifically identify all previously filed reports and documents it intends to incorporate, including its latest annual report on Form 10-K, and all other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act (or proxy or information statements filed pursuant to Section 14) since its 10-K. See Item 29(a) of Form S-11. The issuer must also set forth statements and information required by Item 29(b) of Form S-11.
Updating information filed on Form S-11 for an offering on a delayed or continuous basis

Since Form S-11 (like Form S-1 and Form F-1) generally does not permit forward incorporation by reference – that is, incorporation by reference of future-filed reports and documents – McFadden will need to figure out some other way to update the information its S-11 after the registration statement becomes effective. Here is how it is done.

  • Updates pursuant to Section 10(a)(3) of the Securities Act of 1933, or revisions to meet the obligation under Item 512(a)(1) of Regulation S-K to reflect post-effective events or facts that represent a “fundamental change” in the information in the registration statement, may only be done by means of a post-effective amendment. See C&DI 212.20.
  • By contrast, other types of changes may be done by means of a Rule 424(b) prospectus supplement. See C&DI 212.20

Somewhat confusingly, notwithstanding the prohibition on forward incorporation, a post-effective amendment can still incorporate Exchange Act reports filed after the effective date of the registration statement but before the date of the amendment, so long as the issuer satisfies the conditions set forth in Instruction H to Form S-11 (e.g., it must be current in its Exchange Act reporting and have filed at least one annual report). See Release No. 33-8909 at 8.

Bottom line: major changes to the McFadden disclosure will require a post-effective amendment, while less fundamental revisions can be wrapped into a Rule 424(b) prospectus supplement.

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