Daily Rules, Proposed Rules, and Notices of the Federal Government
The Exchange proposes to amend Sections 902.02 and 902.03 of the Listed Company Manual (the "Manual") to provide that, where both of the companies that form an umbrella partnership real estate investment trust ("UPREIT") structure are listed on the Exchange, Listing and Annual Fees for the two related listed issuers will be subject to a single fee cap at the time of original listing and on an annual basis. The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend Sections 902.02 and 902.03 of the Manual to provide that, where both of the companies that form an UPREIT structure are listed on the Exchange, Listing and Annual Fees for the two related listed companies will be subject to a single fee cap at the time of original listing and on an annual basis.
Many listed real estate investment trusts ("REITs") form part of what is known as an "umbrella partnership real estate investment trust" or "UPREIT" structure.
As is apparent from the above description, OP Units and shares of common stock of the REIT effectively have the same economic rights. Each OP Unit represents the same proportionate share in the assets of the Operating Partnership as a corresponding common share of the REIT and is exchangeable for either a share of the REIT or an amount in cash equal to the market value of a share of the REIT. It is the Exchange's understanding that the securities industry typically views the Operating Partnership as the relevant entity for analysis rather than the REIT, as the common stock of the REIT effectively functions as an indirect means of owning an equity interest in the overall enterprise represented by the Operating Partnership.
The question as to how the Exchange should treat the REIT and the Operating Partnership components of an UPREIT for fee purposes when both are listed companies has not previously arisen. One reason for this is that typically the Operating Partnership has very few direct investors and would therefore not qualify for listing. However, the possibility that both the REIT and the Operating Partnership might both be listed is not precluded by Exchange rules.
The Exchange believes that the REIT and the Operating Partnership in an UPREIT structure are effectively a single entity, as they represent economic interests in the same enterprise and have a single management and board of directors, with the Operating Partnership relying entirely on the REIT for its management and corporate governance. Consequently, there are significant efficiencies for the Exchange in the listing and regulation of the two listed entities that constitute an UPREIT structure. In particular, the Exchange notes that a significant proportion of the regulatory cost it incurs in connection with the initial and continued listing of an issuer relates to the review by NYSE Regulation staff of the issuer's compliance with the board composition and board committee requirements set forth in Section 303A of the Manual.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the "Act"),
The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act in that it does not unfairly discriminatory [sic] among listed companies because there is a reasonable justification for charging UPREITs different fees from those charged to other issuers and there are cost efficiencies for the Exchange in that the two listed issuers associated with an UPREIT represent essentially a single enterprise with a single management and board. In particular, the Exchange notes that a significant proportion of the regulatory cost it incurs in connection with the initial and continued listing of an issuer relates to the review by NYSE Regulation staff of the issuer's compliance with the board composition and board committee requirements set forth in Section 303A of the Manual. As the Operating Partnership is controlled by the REIT in its capacity as general partner, the Operating Partnership is able to rely on the audit committee of the REIT's board for its compliance with Sections 303A.06 and 303A.07.
The Exchange also notes that no other company will be required to pay higher fees as a result of the proposed amendments.
The Exchange believes that the proposed rule change is reasonable in light of the fact that the two listed issuers associated with an UPREIT share a single board of directors and management team and the listed securities represent equivalent economic interests in a single enterprise. In light of the regulatory and client service efficiencies and resultant cost savings to the Exchange resulting from this distinctive overlapping of corporate governance and economic interests in the UPREIT structure, the Exchange believes that it would be more equitable to establish an overall cap on what these affiliated entities would be required to pay for listing services. Moreover, the Exchange believes that the proposal is not unfairly discriminatory in that it will be available to all UPREITs; other listed companies do not present the same sort of overlapping economic interests and
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
No written comments were solicited or received with respect to the proposed rule change.
The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.