On March 14, 2016, the Staff of the Division of Corporation Finance of the Securities and Exchange Commission (the “SEC”) issued interpretive guidance (the “Guidance”) affirming that, in a traditional UPREIT structure, the holding period for shares of REIT common stock acquired upon the redemption of OP units commences on the date that the underlying OP units are acquired for purposes of Rule 144. The ability to “tack” the holding period of OP units to that of shares of REIT common stock represents a significant change from the way that Rule 144 historically has been interpreted by the SEC Staff and has substantial implications for REITs going forward, including with respect to the registration rights of existing OP unit holders and the structure of future OP unit transactions.

BACKGROUND -

UPREIT Structure -

Many publicly traded real estate investment trusts (“REITs”) utilize the traditional umbrella partnership REIT (“UPREIT”) structure, in which the REIT serves as (or controls) the general partner of an operating partnership subsidiary that, in turn, owns all of the REIT’s real estate assets and through which the REIT conducts its business. The REIT’s only material assets are partnership units in its operating partnership (“OP units”). The REIT’s operating partnership typically issues OP units to sellers in private unregistered offerings as consideration for contributions of real estate assets. By contributing real estate assets to the operating partnership in exchange for OP units, sellers of real estate assets are able to defer taxes payable on the gains from the sale of the real estate assets until the OP units are sold or are redeemed by the REIT for cash or REIT common stock.