Sourcebook

Sourcebook sponsored by:

National Association of Real Estate Investment Trusts®

REITs: Building Dividends & Diversification®

This document is a sample of the 2013 REITWise Sourcebook. It contains the full table of contents plus partial samples of select resource materials contained in the full 2013 REITWise Sourcebook library

SAMPLE

99 Wood Avenue South Woodbridge, NJ 07095 732-549-5600

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www.greenbaumlaw.com

Litigation Paul A. Rowe

Department Chair

Corporate W. Raymond Felton

Department Chair

Real Estate Thomas J. Denitzio, Jr. | Meryl A.G. Gonchar

Department Co-Chairs

Environmental David B. Farer

Department Chair

Tax, Trusts & Estates Michael A. Backer Department Chair

Committee Meetings

Accounting Committee Meeting

• PCAOB Update • FFO Issues • FASB’s Proposals:

o Transfers and Servicing: Repurchase Agreements and Similar Transactions o Accounting for Financial Instruments: Liquidity and Interest Rate

Disclosures o Disclosure Framework

• Panel Presentations and Supporting Materials o NAREIT Submission to PCAOB on Mandatory Audit Firm Rotation

(12/9/2011) o NAREIT and US Chamber Joint-Letter-on-Mandatory-Audit-Firm-

Rotation (4/19/2012) o NAREIT and US Chamber Letter on PCAOB Due Process (2/23/2012) o NAREIT SFO Alert - NAREIT Modifies FFO Definition to Also Exclude

Impairment Write-Downs of Investments in In Substance Real Estate Investees Under Certain Circumstances

o NAREIT SFO Alert - Further Guidance on Reporting FFO o NAREIT SFO Alert - Updated Guidance on Reporting FFO Write-Downs

for Impairment o E&Y To the Point: Accounting for Financial Instruments o E&Y To the Point: Disclosure Framework o E&Y To the Point: Accounting for Repurchase Agreements o NAREIT Letter-to-FASB-on-Disclosure-Framework (11/30/2012) o NAREIT-Comment-Letter-on-Disclosures-about-Liquidity-and-Interest-

Rate-Risk (9/25/2012)

Government Relations Committee Meeting*

• IRS audits of REITs • Speed policy initiatives update • IRS REIT developments • Final FATCA regulations and REITs • Tax reform, sequestration, debt limit and other Washington, D.C. developments

Panel Presentations and Supporting Materials

• E&Y Alert: Noticeable increase in IRS audits of intercompany loans (1/10/2013)

• IRS Audit Activity • H.R. 5746 • One-Pager Concerning US REIT Act (3/4/2013) • H.R. 2989 • S. 1616 • Dear Colleague Letter Sent by Senators Enzi and Menendez re Real Estate

Investment and Jobs Act (2/26/2013) • NAREIT Submission: Built-in Gain Regulations (7/13/2012) • JCT General Explanation of Legislation Enacted in 112th Congress - Excerpt:

Built-in Gains • The Case for Continuing the Terrorism Risk Insurance Program (11/26/2012) • S. 336 • H.R. 684 • Marketplace Fairness Act - Summary and List of Supporters (provided by

sponsors) • CFTC Letter: Equity REITs (10/11/2012) • CFTC Letter: Mortgage REITs (12/7/2012) • NAREIT Response to ESMA (1/31/2013) • Overview of Ways & Means Committee Discussion Draft: Derivatives and

Financial Products • Summary of Ways & Means Committee Discussion Draft: Derivatives and

Financial Products • Technical Explanation Ways & Means Committee Discussion Draft: Derivatives

and Financial Products • Legislative Text of Ways & Means Committee Discussion Draft: Derivatives and

Financial Products • Section 179D Reform: S. 3591 (112th Congress) • Private Letter Rulings (listed below) • PLR 201304004 (multiple share classes will not result in preferential dividend) • PLR 201244012 (multiple share classes will not result in preferential dividend) • PLR 201304002 (special elective stock capital gain dividend; not preferential) • PLR 201252012 (special elective stock dividend of C corporation E&P is

dividend) • PLR 201247004 (special elective stock dividend of C corporation E&P is

dividend) • PLR 201301007 (wireless infrastructure company's income, including from power

generation to tenants and section 986(c) foreign currency gains, is qualifying 75% income)

• PLR 20125008 (lease payments allowing mining activities are "rents from real property")

• PLR 201236006 (fair value of assets, not GAAP, used for 75% asset test)

• PLR 201234006 (excess mortgage servicing spread is a real estate asset) • Rev. Rul. 2012-17 (money market accounts are “cash items” under section

856(c)(4)(A)) • Page with Link to Final FATCA Regulations • FATCA & REITs by Richard Lipton • Tax Reform and Other Washington D.C. Developments by Robert Rozen • PLR 201310020 (Boat Slips are real estate assets generating rents from real

property) • KPMG Analysis of House W&M Committee Passthroughs Discussion Draft

(3/13/13)

Insurance Committee Meeting*

• Terrorism Risk Insurance Act (TRIA) • National Flood Insurance Program) • Hurricane Sandy Relief • Gun Legislation • ObamaCare • 2013 ADA Standards

Panel Presentations and Supporting Materials

• Congressional Research Service: National Flood Insurance Program (NFIP) Status

• Wharton Issue Brief: Hurricane Sandy’s Storm Surge and the NFIP • Wharton Issue Brief: Who's paying and who's benefiting most from flood

insurance under the NFIP • Erwann Michel-Kerjan, Sabine Lemoyne de Forges, and Howard Kunreuther,

Policy Tenure Under the NFIP • Press Release: Wharton study analyzes potential for private insurance companies

to Offer flood insurance • Wharton Issue Brief: Countering the threat of nuclear terrorism at domestic and

foreign ports • The Case for Continuing the Terrorism Risk Insurance Program (11/26/2012) • Erwann O. MICHEL-KERJAN, Testimony before the House Subcommittee on

Insurance, 9/11/12: TRIA at Ten Years: The Future of the Terrorism Risk Insurance Program

• H. R. 508, a bill in the 113th Congress, to Extend the Terrorism Risk Insurance Program for five years

State & Local Tax Subcommittee Meeting*

• General Overview of State Legislative Developments • Understanding D.C. Combined Reporting • Proposed California Tax Legislation: Political View and Technical Analysis • Apportionment Post-Gillette v. FTB: California and Elsewhere • Captive REIT Update – the Unintended Consequences

Panel Presentations and Supporting Materials

• State & Local Tax Subcommittee Meeting Discussion

Sessions

Controllers' Corner

• Speeding up the month-end close • Best practices in earnings release supplemental

Panel Presentations and Supporting Materials

• 2013 REITWise Slideshow • Deloitte - Business intelligence (BI) How to build successful BI strategy • Deloitte - Commercial Real Estate Outlook - Top Ten Issues for 2013 • Deloitte - Financial close, consolidation and reporting • Deloitte - Information is the new currency of payments

Convergence Update

• Investment property entities/fair value • Investment companies • Leases • Revenue Recognition • Financial instruments

Panel Presentations and Supporting Materials

• NAREIT Comment Letter on Investment Companies Proposal • NAREIT Comment Letter on Investment Property Entities Proposal • NAREIT SFO Alert - FASB Abandons Entity-Based Approach to Investment

Property: Retains REIT Scope Exception in Investment Companies Guidance for Equity REITs

• NAREIT SFO Alert - FASB Agrees to Exempt All REITs from Phase I of the Investment Companies Project

• NAREIT SFO Alert - FASB and IASB Decouple Lease Accounting and Reporting for Investment Property

• NAREIT SFO Alert - FASB Proposes New Model for Accounting for Credit Losses on Financial Assets, Including Lease Receivables

• REESA Comment Letter on Revenue from Contracts with Customers Revised Proposal

• Deloitte Accounting Journal — Investment Companies — FASB Discusses Next Steps and Reverses Decisions

• Deloitte Accounting Journal — Revenue — Boards Continue Redeliberating Exposure Draft

• Deloitte Accounting Journal — Investment Companies — FASB Discusses Next Steps (1/24 /2013)

• Deloitte Accounting Journal — Revenue — Re-deliberations of Exposure Draft Essentially Complete

• Deloitte Heads Up - Boards Preparing to Issue Final Standard on Revenue Recognitiononvention

• Deloitte Real Estate Spotlight – Engineering and Construction Entities Anticipate the Completion of the Converged Revenue Model

• Deloitte Industry Publication - Real Estate Accounting and Financial Reporting Update

• Deloitte Industry Publication - Real Estate Spotlight • Deloitte Heads Up - Comments on the Revised Exposure Draft on Revenue

Recognition • NAREIT SFO Alert - FASB Proposes Revised Classification and Measurement

Model for Financial Instruments

Mortgage REITs

• Mortgage servicing rights PLR opportunities • Financing methodologies • Foreclosure process • Real estate as a business or asset

Panel Presentations and Supporting Materials

• Overview of Ways & Means Committee Discussion Draft: Derivatives and Financial Products

• Summary of Ways & Means Committee Discussion Draft: Derivatives and Financial Products

• Technical Explanation of Ways & Means Committee Discussion Draft:

Derivatives and Financial Products • Legislative Text of Ways & Means Committee Discussion Draft: Derivatives and

Financial Products • PLR 201234006 (excess mortgage servicing spread is a real estate asset) • NAREIT 2013 REITWise Excess MSRs • NAREIT 2013 REITWise Securitization

Public Non-listed REITs

• Finalizing FINRA Notice to Members 12-14 • SEC disclosure policy of per share valuations • Liquidity events • DOL fiduciary definition

Panel Presentations and Supporting Materials

• FINRA Notice 12-14: Customer Account Statements (3/2012) • NAREIT April 11, 2012, Comment on FINRA Notice 12-14 • FINRA 2013 Examination Priorities • SEC March 1, 2013 Request for Data and Other Information: Duties of Brokers,

Dealers, and Investment Advisers • ARC III, SEC Form 8-K, (12/2012) • Chambers St Properties, SEC Form 8-K, (6/2012) • Cole Credit Property Trust II, SEC Form 8-K, (1/2013) • Columbia, SEC Form 8-K, (1/2013) • Cole Press Release, (3/2013) • 2013 REITWise Slideshow

REIT M & A

• Structuring and negotiating deals • Lessons learned • Addressing social issues • Specialized tax issues

Panel Presentations and Supporting Materials

• 2013 REITWise M&A Tax Presentation • Partnership Summary Checklist • Loan Summary Checklist

SEC and Financial Standards Developments

• Condorsement • SEC filing for a real estate acquisition • SEC Comment letters • Reporting non-GAAP measures • Reporting Discounted Operations

Panel Presentations and Supporting Materials

• 2013 REITWiseSlideshow SEC and Fin Reptg Devts. • Practical matters_ToConsolidateOrNotToConsolidate • SEC Comments and Trends • FASB/IASB Joint Projects Watch (1/2013) • Response to FASB Principle-Agent Considerations • FASB - Liquidation Basis of Accounting and Going Concern • FASB Removes Loss Contingency Project from Agenda • SFO Alert: SEC Areas of Focus in Reviewing 2012 10K Filings • E&Y 2012 Standard Setter Update

SEC Legal Developments

• JOBS Act issues • Conflict minerals • SEC Rule and national exchanges rules on compensation committees

Panel Presentations and Supporting Materials

• Edward M. Schulman, Ettore A Santucci and Marian A. Tse, Compensation Clawbacks: A Statutory and Drafting Review

• Goodwin Procter, Dodd-frank wall street reform and consumer protection act – implementation status for public company provisions

• Goodwin Procter, Jumpstart our business startups act – implementation status • MOFO ALERT, The JOBS Act • SEC July 2012 Release on Conflict Minerals Rules • 2012 Highlights of the SEC Division of Corporation Finance • "Blog Posted by Lucian Bebchuk, Scott Hirst and June Rhee, Harvard

Shareholder Rights Project: Initial 2013 Annual Meeting Results: Six Board Declassification Proposals Passed with Average Support of 79% (3/6/2013)

• 2013 SEC Enforcement Initiatives • NAREIT SFO ALERT-SEC Areas of Focus in Reviewing 2012 10-K Filings

(1/24/2013)

Selected REIT Tax Issues

• Due diligence readiness • Managing foot faults • Transfer pricing tips • Dealing with the IRS

Panel Presentations and Supporting Materials

• Field Service Advice: Discussing “reasonable cause” in context of REIT’s asset test failure (3/5/1996)

• Excerpt of Internal Revenue Manual Concerning Reasonable Cause - Section 20.1.1.3.2

• 2013 REITWise Slideshow

State and Local Taxes

• Due Diligence issues • State Tax Audits • Planning Ideas

Panel Presentations and Supporting Materials

• 2013 REITWiseSlideshow State & Local Tax Concurrent Panel

State of the Capital Markets

• M & A landscape • REIT valuations • Capital alternatives • Investor reception of new property types

Panel Presentations and Supporting Materials

• Green Street Advisors REIT Valuation Model (1/2/2013) • March 2013 NAREIT REITWatch

State of the Commercial Real Estate Markets

Presentation and Supporting Materials

• 2013 REITWise Presentation

Tax Accounting Method Issues for REITs

• Purchase Price Allocations – Considerations and Planning Opportunities • Recent Guidance on Section 1031 Like-Kind Exchange Transactions • Income Recognition on Distressed Debt – Alternatives to Market Discount

Accrual • Tangible Property Tax Regulations

Panel Presentations and Supporting Materials

• Tax Accounting Method Issues for REITs Discussion

Tax Planning for REIT Partnerships

• Contributing Property to an OP: Lockups; debt maintenance; indemnifications, and related issues

• DownREITs: structures and pitfalls • Joint Ventures with Operators • Pension-Held REITs Investing in JVs: fractions rule issues

Panel Presentations and Supporting Materials

• Tax Planning for REIT Partnerships Discussion

Using Derivatives in a Post Dodd-Frank World

• Differences between OTC and CME derivatives • Benefits and costs of both approaches

Panel Presentations and Supporting Materials

• Chatham Financial: Understanding the Impact of Dodd-Frank on a Risk Management Program

• Comment by the Coalition of Derivatives End-Users on Margin and Capital Requirements for Covered Swap Entities to the U.S. Prudential Regulators (11/26/2012)

• CFTC Interpretive Letter Excluding Equity REITS from the Definition of Commodity Pools (10/11/2012)

• H. R. 634: Bill to Provide Derivatives End-Users Exemptions from Certain Provisions of the Commodity Exchange Act and Other Purposes

• Presentation: TeraExchange

• Letter from the Coalition of Derivatives End-Users Supporting H.R. 634 • CFTC: Letter Issuing Relief to Mortgage REITs from Commodity Pool

Registration (12/7/2012) • CME Group Presentation-Cleared OTC Interest Rate Swaps

Roundtables

Environmental Issues

• Dangers Within & Updates on Dealing with Environmental Hazards in the Marketplace

• HUD Notice H20111-20 Re. Bed Bug Control • Mathias v. Accor Economy Lodging

Governance Issues

• FPL News Flash on ISS Updates • FPL News Flash on Current Market Trends within Executive Compensation • Venable Memo on Proxy Advisers • Venable Memo on Proxy Statements under Maryland Law • Client Memo Regarding Say On Pay • Venable Memo on ISS Changes

Lodging REITs

• Raymond James Lodging 2013 Outlook • PwC Lodging and Hospitality Directions – January 2013 • BNA Transfer Pricing Audits and Taxable REIT Subsidiaries • PKF Hospitality Research – Hotel Horizons • PKF Hospitality Research – Hotel Benchmarker

PCAOB Update

• KPMG Related Parties • KPMG Inspection Process • KPMG Inspection Process • KPMG Inspection Process

Sustainability Issues

• Green Team Goals for 2012-Brandywine Realty Trust • Money Well Spent: 2010 Industrial Energy and Efficiency Program Spending • The Future of Sustainability in the Commercial Building Market

• NRDC Center for Market Innovation High Performance Demonstration Project-Scaling Energy Efficiency Demand in the Commercial Tenant Market

• Energy Disclosure Issues-Brandywine Realty Trust • Jones Lang LaSalle: The Green Gauge • Brandywine Realty Trust Sustainability Introductory Slide • McGraw-Hill News Release-Green Buildings Could Triple by 2013 • The Cost of Green Buildings • GSA Memo- Energy Star Requirement for Lease Acquisition • Brandywine Realty Trust - Sustainability Trivia

Timber REITs

• Quantria Study on Private Forest Lands • NAFO Memo on Timber Tax Provisions • PLR 201250008 (Concerning Mineral Rights) • PLR 201216007 (Sections 1031(a) applies to exchanges between REITs and

affiliates notwithstanding section 1031(f)) • PLR 201220012 (Sections 1031(a) applies to exchanges between REITs and

affiliates notwithstanding section 1031(f)) • PLR 2012242003 (REIT and related party permitted to “park” same replacement

property in reverse like kind exchange)

Copyright 2013 National Association of Real Estate Investment Trusts

Accounting Committee Meeting

Wednesday, March 20th

1:15-2:45 p.m. La Quinta Resort & Club

La Quinta, CA

Moderator: Ian Kaufman, SVP & CAO – Equity Residential

Panelists: Christopher Drula, VP-Financial Standards, NAREIT

Keri Shea, VP-Finance & Treasurer, AvalonBay Communities, Inc. George Wilfert, Deputy Director, Senior Technical Advisor-Office of Research and Analysis, Public Company Accounting Oversight Board

Serena Wolfe, Partner, Ernst & Young George Yungmann, SVP-Financial Standards, NAREIT

NATIONAL

ASSOCIATION

OF

REAL ESTATE

INVESTMENT

TRUSTS®

♦ ♦ ♦

REITS:

BUILDING

DIVIDENDS

AND

DIVERSIFICATION®

ACCOUNTING COMMITTEE (Open to all REITWise® Registrants)

La Quinta Resort & Club Fiesta 5-8

La Quinta, CA Wednesday, March 20, 2013 1:15 p.m. - 2:45 p.m.

Co-Chairs:

Steven Broadwater, SVP & CAO, Simon Property Group, Inc.

Ian S. Kaufman, SVP & CAO, Equity Residential Heidi Roth, SVP, CAO & Controller, Kilroy Realty Corporation

Panelists:

Christopher Drula, VP-Financial Standards, NAREIT Keri Shea, VP-Finance & Treasurer, AvalonBay Communities, Inc.

George Wilfert, Deputy Director, Sr. Technical Advisor-Office of Research & Analysis, Public Company Accounting Oversight Board

Serena Wolfe, Partner, Ernst & Young George Yungmann, SVP-Financial Standards, NAREIT

NAREIT Staff Liaison:

George Yungmann, SVP-Financial Standards, NAREIT Christopher Drula, VP-Financial Standards, NAREIT

I. PCAOB Update Discussion led by George Wilfert II. FFO Matters Discussion led by George Yungmann and Christopher Drula III. FASB Proposal: Transfers and Servicing: Repurchase

Agreements and Similar Transaction Discussion led by Serena Wolfe IV. FASB Proposal: Accounting for Financial Instruments:

Liquidity and Interest Rate Disclosures Discussion led by Serena Wolfe V. FASB Invitation to Comment: Disclosure Framework Discussion led by Keri Shea Note: This meeting may qualify for 1.25 hours of continuing professional education credits, depending on the state. For CLE or CPE credit information, please contact Afia Nyarko at 202-739-9433 or anyarko@nareit.com

♦ ♦ ♦

1875 I Street, NW, Suite 600, Washington, D.C. 20006-5413 Phone 202-739-9400 F a x 202-739-9401 REIT.com

1875 I Street, NW, Suite 600, Washington, DC 20006-5413 Phone 202-739-9400 Fax 202-739-9401 REIT.com

Officers

Chair Donald C. Wood Federal Realty Investment Trust

President and CEO Steven A. Wechsler

First Vice Chair W. Edward Walter Host Hotels & Resorts, Inc.

Second Vice Chair Ronald L. Havner, Jr. Public Storage, Inc.

Treasurer Michael D. Fascitelli Vornado Realty Trust 2012 NAREIT Executive Board Jon E. Bortz Pebblebrook Hotel Trust Debra A. Cafaro Ventas, Inc. Richard J. Campo Camden Property Trust Richard B. Clark Brookfield Office Properties Michael A. J. Farrell Annaly Capital Management, Inc. Edward J. Fritsch Highwoods Properties, Inc. Rick R. Holley Plum Creek Timber Company, Inc. David J. Neithercut Equity Residential Steven B. Tanger Tanger Factory Outlet Centers, Inc. Robert S. Taubman Taubman Centers, Inc. Thomas W. Toomey UDR, Inc. 2012 NAREIT Board of Governors Michael D. Barnello LaSalle Hotel Properties Kenneth F. Bernstein Acadia Realty Trust Bruce W. Duncan First Industrial Realty Trust James F. Flaherty, III HCP, Inc. Michael F. Foust Digital Realty Daniel S. Fulton Weyerhaeuser Lawrence L. Gellerstedt, III Cousins Properties Incorporated Michael P. Glimcher Glimcher Realty Trust Jonathan D. Gray Blackstone Real Estate Advisors Randall M. Griffin Corporate Office Properties Trust William P. Hankowsky Liberty Property Trust Philip L. Hawkins DCT Industrial Trust, Inc. Thomas P. Heneghan Equity Lifestyle Properties, Inc. David B. Henry Kimco Realty Corporation Daniel B. Hurwitz DDR Corp. Andrew F. Jacobs Capstead Mortgage Corporation Thomas H. Lowder Colonial Properties Trust Peter S. Lowy The Westfield Group Craig Macnab National Retail Properties, Inc. Joel S. Marcus Alexandria Real Estate Equities, Inc. Sandeep Mathrani General Growth Properties George F. McKenzie Washington REIT Timothy J. Naughton AvalonBay Communities, Inc. Dennis D. Oklak Duke Realty Corporation Jeffrey S. Olson Equity One, Inc. Joseph D. Russell, Jr. PS Business Parks, Inc. Richard B. Saltzman Colony Financial, Inc. David P. Stockert Post Properties, Inc. Gerard H. Sweeney Brandywine Realty Trust Mark E. Zalatoris Inland Real Estate Corporation Mortimer B. Zuckerman Boston Properties, Inc.

By Electronic Mail

December 9, 2011

Mr. J. Gordon Seymour General Counsel and Secretary Office of the Secretary Public Company Accounting Oversight Board 1666 K Street, N.W. Washington, D.C. 20006-2803

Re: Solicitation for Public Comment on Concept Release on Auditor Independence and Audit Firm Rotation and Notice of Roundtable (PCAOB Release No. 2011-006, August 16, 2011, PCAOB Rulemaking Docket Matter No. 37)

Dear Mr. Seymour:

This letter is submitted in response to the solicitation for public comment by the Public Company Accounting Oversight Board (PCAOB) with respect to its ConceptRelease on Auditor Independence and Audit Firm Rotation and Notice of Roundtable (PCAOB Release No. 2011-006, August 16, 2011, PCAOB Rulemaking Docket Matter No. 37) (Concept Release).

The National Association of Real Estate Investment Trusts® (NAREIT) is the worldwide representative voice for U.S. real estate investment trusts (REITs) and publicly traded real estate companies with an interest in U.S. real estate and capital markets. Members are REITs and other businesses throughout the world that own, operate and finance income-producing real estate, as well as those firms and individuals who advise, study and service these businesses. NAREIT welcomes the opportunity to respond to the Concept Release and is submitting its comments below.

NAREIT appreciates the PCAOB’s efforts toward improving audit quality since its inception in 2002. NAREIT believes that auditor independence, objectivity, and professional skepticism are critical elements to achieve high quality audits and commends the PCAOB for continuing to evaluate how these elements could be strengthened. However, NAREIT does not believe that mandatory audit firm rotation is a viable option to achieve the desired outcome.

Mr. J. Gordon Seymour December 9, 2011 Page 2

NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS

Lack of Empirical Evidence

NAREIT believes that the Concept Release lacks empirical evidence that would suggest that the current audit structure of public companies requires pervasive reform. The Sarbanes-Oxley Act of 2002 (the Act or Sarbanes-Oxley) instituted a number of measures that were aimed at enhancing auditor independence, objectivity, and professional skepticism. For example, Sarbanes-Oxley requires the periodic rotation of audit partners. Additionally, the Act places limits on the types of non-audit services that audit firms can provide to their audit clients. Finally, the Act has taken the ability to select auditors away from management and placed it with the audit committee. Through all of these measures, NAREIT has observed that confidence in financial reporting has been restored through the decrease of financial scandals and restated financial statements. However, the Concept Release elaborates that despite all of these improvements,

The Board's inspectors have reviewed portions of more than 2,800 engagements of such firms and discovered and analyzed several hundred cases involving what they determined to be audit failures. In this context, an audit failure is a failure to obtain reasonable assurance about whether the financial statements are free of material misstatement. That does not mean that the financial statements are, in fact, materially misstated. Rather, it means that the inspection staff has determined that, because of an identified error or omission, the firm failed to fulfill its fundamental responsibility in the audit – to obtain reasonable assurance about whether the financial statements are free of material misstatement. In other words, investors were relying on an [audit] opinion on the financial statements that, when issued, was not supported by sufficient appropriate evidence. [Emphasis added]

NAREIT notes that the use of the word “audit failure” has meant something far more severe in the past. Specifically, in the 2003 Government Accountability Office (GAO) Report,

Audit failure refers to audits for which audited financial statements filed with the SEC contained material misstatements whether due to errors or fraud, and reasonable third parties with knowledge of the relevant facts and circumstances would have concluded that the audit was not conducted in accordance with Generally Accepted Auditing Standards (GAAS), and, therefore, the auditor failed to appropriately detect and/or deal with known material misstatements by (1) ensuring that appropriate adjustments, related disclosures, and other changes were made to the financial statements to prevent them from being materially misstated, (2) modifying the auditor’s opinion on financial statements if appropriate adjustments were not made, or (3) if warranted, the resigning as the public company’s auditor of record and reporting the reason for the resignation to the SEC. [Emphasis added]

If the PCAOB’s inspection findings were truly audit failures, would we not have seen more restatements during the period that the PCAOB conducted its inspections? Additionally, why has the PCAOB not made the portion of its Inspection Reports (i.e., Part II of the Inspection Report)

Copyright 2013 National Association of Real Estate Investment Trusts

Government Relations Committee Meeting

Wednesday, March 20th

3:00-4305 p.m. La Quinta Resort & Club

La Quinta, CA

Co-Chairs: Jeffrey S. Clark, SVP-Tax & JV Accounting, Host Hotels & Resorts, Inc.

Rohn T. Grazer, SVP & Director-Tax, Prologis, Inc. Brian K. Wood, SVP-Tax, Ventas, Inc.

Panelists: Julanne Allen, Attorney-Adviser, IRS Office of Chief Counsel

John Cullins, Partner, Ernst & Young LLP Richard Lipton, Partner, Baker & McKenzie, LLP

Robert Rozen, Partner, Washington Council Ernst & Young Jonathan Silver, Assistant to the Branch Chief-FIP Branch 2, Internal

Revenue Service

♦ ♦ ♦

1875 I Street, NW, Suite 600, Washington, D.C. 20006-5413 Phone 202-739-9400 Fax 202-739-9401 REIT.com

NATIONAL

ASSOCIATION

OF

REAL ESTATE

INVESTMENT

TRUSTS®

♦ ♦ ♦

REITS:

BUILDING

DIVIDENDS

AND

DIVERSIFICATION®

GOVERNMENT RELATIONS COMMITTEE (Open to all REITWise® Registrants)

La Quinta Resort & Club Fiesta 9-14

La Quinta, CA Wednesday, March 20, 2013

3:00 p.m. - 4:30 p.m.

Co-Chairs:

Jeffrey S. Clark, Host Hotels & Resorts Rohn T. Grazer, Prologis, Inc. Brian K. Wood, Ventas, Inc.

NAREIT Staff Liaisons:

Tony M. Edwards, Executive Vice President & General Counsel

Dara F. Bernstein, Senior Tax Counsel

I. IRS Audits of REITs Discussion led by John Cullins, Ernst & Young II. Speed Policy Initiatives Update

Discussion led by Tony Edwards and Dara Bernstein ● U.S. REIT Act ● FIRPTA ● Built-in Gains ● Terrorism Risk Insurance ● Main Street Fairness/Sales Tax Collection ● CFTC and Derivatives ● EU’s Alternative Investment Managers Directive

III. IRS REIT Developments

Discussion led by Jonathan Silver and Julanne Allen, Financial Institutions & Products Division of the Internal Revenue Service

IV. Final FATCA Regulations and REITs Discussion led by Richard Lipton, Baker & McKenzie V. Tax Reform, Sequestration, Debt Limit and Other Washington,

D.C. Developments Discussion led by Michael Novey, U.S. Department of the Treasury, and Robert Rozen, Washington Council Ernst & Young

Note: This meeting may qualify for 1.5 hours of continuing professional education credits, depending on the state. For CLE or CPE credit information, please contact Afia Nyarko at 202-739-9433 or anyarko@nareit.com

10 January 2013

International Tax Alert

News and views from Transfer Pricing

Noticeable increase in IRS audits of intercompany loansInterest rates and nature of the transactions under scrutiny — the latest developments

Executive summary

Intercompany lending should be reviewed by multinational enterprises (MNEs) for two main reasons: (1) low market interest rates over the past few years may be inconsistent with historical intercompany lending rates charged for short and mid-term agreements; and (2) increased IRS audit activity of intercompany lending focusing on interest, form, and nature of the transaction.

Many companies have historically established arm’s length intercompany interest rates. However, many companies have not “refreshed” their lending benchmarks to account for the historically low interest rates available in the market. The lack of interest rate updating poses tax controversy risk.

Intercompany lending and related financial transactions are being more intensively audited by the IRS as part of the IRS’s effort to improve its transfer pricing enforcement. This Alert goes through the most common issues under scrutiny, as well as the measures taxpayers can take to proactively manage controversy risk.

Discussion

While the IRS’s focus on intercompany lending is not new, the frequency and broadening of the scope of the IRS audits has recently intensified.

The aspects being challenged are diverse and range from information mismatches in filings, to fundamental issues related to the pricing and, in some cases, the debt nature of the transaction. This alert outlines the most frequent areas of dispute.

2 International Tax Alert Transfer Pricing

Interest rates

The most common issue taxpayers must address is whether the intercompany interest rate is arm’s length. Taxpayers are being asked to demonstrate that the interest charges correspond to market rates.

In many cases, taxpayers are unable to adequately respond because they lack contemporaneous documentation or because their documentation is incomplete (e.g., they use unsubstantiated bank quotes to set intercompany interest rates).

For those taxpayers with contemporaneous documentation, numerous issues are raised by the IRS:

• Appropriate credit rating of the borrower: The transfer pricing regulations require the use of a stand-alone credit rating. Such credit rating should be based on the financial data of the borrower.

• Appropriate comparables: Some databases provide specific lending rate data between a bank and a corporate borrower. While such transactions may be comparable, often such transactions reflect below-market lending rates to account for a lender’s desire to attract new business or obtain future business from the borrower.

• Whether the tenure of the loan is correct:

− For inbound transactions, questions are posed about why a taxpayer has not prepaid off

a loan that appears to have interest rates higher than what would exist if such loan were refinanced.

− For outbound transactions, questions are posed about why short term loans that roll over indefinitely are not charged at a rate consistent with the actual period of borrowing.

• Whether adjustments for material terms and conditions have been made in selecting the comparables, or adjusting the range of results of the selected comparables including:

− Interest payment deferral

− Call options

• Whether “balloon payment” lending arrangements without periodic interest payments should be respected as being consistent with arm’s length behavior.

For inbound transactions, the IRS has asserted that the safe harbor rate under Section 1.482-2 (i.e., the Applicable Federal Rate, or AFR) should be the arm’s length interest rate. While the use of the AFR is elective for taxpayers, local IRS agents have attempted to base their proposed transfer pricing adjustments on the AFR, disregarding other market rates benchmarks, particularly for those taxpayers without any contemporaneous documentation.

Debt vs. equity nature of the indebtedness

The threshold issue of whether the debt is in fact bona fide is often raised by the IRS, especially for those

companies that have low operating margins to allow for the payment of intercompany interest expense. The debt vs. equity characterization discussion under Code Section 385(a) is recurrently raised in tandem with transfer pricing audits. The IRS is challenging the nature of the transactions on the grounds that the debtor is under-capitalized when compared to its industry peers.

In some cases, taxpayers have rebutted the IRS’ “thin-cap” argument by means of cash-flow projections showing reasonable repayment prospects, or through comparative financial ratios analysis to demonstrate consistency with peers in their industry. Finally, it should be noted that the ability to repay a loan through the future disposition of assets may demonstrate the bona fide nature of the debtor/creditor relationship.

When re-characterization under general thin capitalization arguments does not work, some IRS examiners have argued to disregard an intercompany loan on grounds of lack of substance. For example, the IRS continues to ask questions about:

• Whether the lender has incorporated appropriate safeguards that an unrelated lender would demand in a similar lending arrangement (e.g., contract, positive and negative caveats, breach of contract provisions, financial covenants, etc.)

3 International Tax Alert Transfer Pricing

• Whether the lender followed the form of the lending agreement, including receiving interest payments as called for under the loan document.

• Whether the indebtedness provided a benefit for the US borrowing entity. For example:

− When there is a cash-loop between three or more entities (each party has a receivable position with one entity, and a payable position with another) which, combined with differing interest rates, generates a net interest income (or expense) position for the parties.

− When the entity had been previously less leveraged and at some point in time assumes additional debt without a material change in its operations.

Measures taxpayers could consider

There are a number of measures that taxpayers may want to take in order to manage the controversy risk associated with intercompany financing.

Loan documentation

The execution of loan documentation (i.e., contract, promissory note) that clearly delineates the rights and obligations of the parties is important for three reasons.

First, it forces the related parties to agree upon terms that otherwise could go unnoticed and could be left open. Some examples are: clauses providing definitions around prepayment terms, including a prepayment penalty, use of loan proceeds, and default clauses.

Second, the loan documentation allows for a benchmarking of the agreed upon interest rate, given that such rate should be a function of the risk profile that the contract sets (including the duration of the loan).

Third, the execution of a contract is consistent with third party behavior, which is instrumental in supporting the threshold nature of the loan itself.

Transfer pricing reports1

A transfer pricing report that describes the features of the loan, the surrounding business circumstances,

the interest rate, and depending on the case, the debt capacity of the borrower, enhances the ability of the taxpayer to defend the interest amount charged. Such report also reduces the probability of penalties being asserted in the event an adjustment is proposed.

Taxpayer’s behavior

A taxpayer should monitor and ensure the terms of its intercompany lending are in fact followed by all parties involved. Even if the loan is deemed representative of third party arrangements and an arm’s length interest rate is purportedly charged, the failure to follow material aspects of the intercompany lending arrangement may lead the IRS to challenge the validity of the lending arrangement in total. Implicit, inadvertent or systematic rollovers of a balance, the unilateral modification of the terms of the loan, the failure to pay interest or to consistently do so late, could all be factors leading to the IRS’s argument that the taxpayer did not respect the form of the loan and re-characterizing the advance as an infusion of capital.

Endnote

1. The term transfer pricing is used broadly here in that it includes the transaction characterization issue, which, technically speaking, is an interest deductibility discussion that exceeds the provisions under Section 1.482.

Copyright 2013 National Association of Real Estate Investment Trusts

Insurance Committee Meeting

Wednesday, March 20th

4:30-6:00 p.m. La Quinta Resort & Club

La Quinta, CA

Moderator: James Whittle, Associate General Counsel and Chief Claims Counsel,

American Insurance Association

CRS Report for CongressPrepared for Members and Committees of Congress

The National Flood Insurance Program: Status

and Remaining Issues for Congress

Rawle O. King

Specialist in Financial Economics and Risk Assessment

February 6, 2013

Congressional Research Service

7-5700

www.crs.gov

R42850

The National Flood Insurance Program: Status and Remaining Issues for Congress

Congressional Research Service

Summary

In late October 2012, Hurricane Sandy caused widespread flood-related property damage in coastal areas of states throughout the Northeast and the mid-Atlantic region. The storm exposed vulnerabilities in the region’s public transportation and infrastructure and underscored the nation’s growing exposure to extreme weather events, sea-level rise, and coastal flooding. Although the full economic cost of Sandy will not be known for years, the storm has resulted in substantial federal disaster recovery assistance, including tens of billions for flood and hurricane protection and coastal restoration, and the rebuilding of mass transit systems and housing.

Government payouts under the National Flood Insurance Program (NFIP) are estimated to be between $12 billion and $15 billion in flood insurance claims. In the immediate aftermath of Sandy, this amount quickly exceeded the $4 billion in cash and remaining borrowing authority from the Treasury Department. By January 2013, the NFIP had processed more than 140,000 claims for Sandy-related damages totaling about $1.7 billion. To protect the financial integrity of the NFIP and ensure that the NFIP has the financial resources to cover its existing commitments following the devastation caused by Sandy, the Obama Administration requested that Congress pass legislation to increase the NFIP’s borrowing authority. On January 4, 2013, Congress passed, and the President two days later signed into law, H.R. 41 to provide a $9.7 billion increase in the NFIP’s borrowing authority, from $20.725 billion to $30.425 billion, to pay flood claims related to Hurricane Sandy.

Policymakers have expressed views on several flood management challenges facing the NFIP. These challenges include finding ways to (1) improve the accuracy of flood risk assessment and mapping of hurricane and coastal storm hazard areas; (2) strengthen the financial sustainability of the NFIP in the face of expected future extreme weather events (climate change), sea-level rise, and coastal flooding; (3) address potential affordability challenges associated with mandatory purchase requirements and implementation of full actuarial premium rates, beginning in 2014; (4) reduce the likelihood of future emergency supplemental spending to finance recurring recovery expenditures by making communities stronger and more resilient; (5) address uncertainty surrounding human settlement patterns and the NFIP’s ability to contain the nation’s growing exposure to floods; and (6) explore the creation of effective hazard-reduction strategies—linked to land use planning techniques (and construction standards)—to direct development and people out of, and away from, flood-prone areas.

Early in 2012, Congress passed and President Barack Obama signed into law the Biggert-Waters Flood Insurance Reform Act of 2012, P.L. 112-141. The law reauthorized the NFIP through September 30, 2017, and made a number of reforms to strengthen the future financial solvency and administrative efficiency of the NFIP. In the wake of Sandy, Congress might choose to consider policy options to achieve greater sustainability and cost savings by addressing long-term flood management challenges. Options include the use of flood policies (10-20 years, rather than 1 year), privatization of flood risk, issuance of community based flood insurance contracts, and regulatory and tax changes to encourage financial innovation in financing recovery from large-scale natural disasters.

This report provides an analysis of flood risk management, summarizes major challenges facing the NFIP, and outlines key reforms enacted in the Flood Insurance Reform Act of 2012. The report identifies and presents some key remaining flood management issues for congressional

The National Flood Insurance Program: Status and Remaining Issues for Congress

Congressional Research Service

consideration, and concludes with a discussion of policy options for the future financial management of flood hazards in the United States.

Copyright 2013 National Association of Real Estate Investment Trusts

State & Local Tax Subcommittee Meeting

Wednesday, March 20th

4:45-6:00 p.m. La Quinta Resort & Club

La Quinta, CA

Co-Chairs: Nabil Andrawis, EVP & Director-Taxation, Lexington Realty Trust

Sam Melehani, Partner, PwC

Panelists: Jeffrey Glock, Director, SC&H Group, LLC

Rex Hime, President & CEO, California Business Properties Association Donna Wagner, SVP, Liberty Property Trust

♦ ♦ ♦

1875 I Street, NW, Suite 600, Washington, D.C. 20006-5413 Phone 202-739-9400 Fax 202-739-9401 REIT.com

NATIONAL

ASSOCIATION

OF

REAL ESTATE

INVESTMENT

TRUSTS®

♦ ♦ ♦

REITS:

BUILDING

DIVIDENDS

AND

DIVERSIFICATION®

STATE AND LOCAL TAX SUBCOMMITTEE

(Open to all REITWise® Registrants) La Quinta Resort & Club

Fiesta 5-8 La Quinta, CA Wednesday, March 20, 2013

4:45 p.m. - 6:00 p.m.

Co-Chairs:

Nabil Andrawis, EVP and Director-Taxation, Lexington Realty Trust Sam Melehani, Partner, PricewaterhouseCoopers LLP

Panelists:

Jeffrey C. Glock, Director, SC&H Group, LLC

Rex Hime, President & CEO, California Business Properties Association Donna V. Wagner, SVP, Liberty Property Trust

NAREIT Staff Liaison:

Dara F. Bernstein, Senior Tax Counsel

I. General Overview of State Legislative Developments

Discussion led by Sam Melehani

II. Understanding D.C. Combined Reporting Discussion led by Sam Melehani and Donna Wagner

III. Proposed California Tax Legislation: Political View and Technical Analysis Discussion led by Rex Hime and Jeffrey C. Glock

IV. Apportionment Post-Gillette v. FTB: California and Elsewhere Discussion led by Sam Melehani and Nabil Andrawis

V. Captive REIT Update – the Unintended Consequences Discussion led by Sam Melehani

Note: This meeting may qualify for 1.25 hours of continuing professional education credits, depending on the state. For CLE or CPE credit information, please contact Afia Nyarko at 202-739-9433 or anyarko@nareit.com

State and Local Tax Subcommittee March 20-22, 2013

Agenda

I. Overview of Legislative Developments II. Understanding D.C. Combined Reporting III. Proposed California Tax Legislation: Political View and

Technical Analysis: Repeal of Prop. 13 for Commercial Properties?

IV. Apportionment Post-Gillette v. FTB: California and Elsewhere V. Captive REIT Update – the Unintended Consequences

Copyright 2013 National Association of Real Estate Investment Trusts

Controllers' Corner

Thursday, March 21th 11:15-12:30 p.m.

La Quinta Resort & Club La Quinta, CA

Moderator: Kirk Rogers, Partner, Grant Thornton LLP

Panelists: Kenneth Hall, VP & Controller, Home Properties, Inc.

Melissa Solis, VP & CAO, Federal Realty Investment Trust Paul Westbrook, VP & CAO, Kimco Realty Corporation

Controllers' Corner March 21, 2013

3/07/13

2

Controllers' Corner

Moderator:

v Kirk Rogers, Partner, Grant Thornton LLP

Panelists:

u Kenneth Hall, VP & Controller, Home Properties, Inc.

u Melissa Solis, VP & CAO, Federal Realty Investment

Trust

u Paul Westbrook, VP & CAO, Kimco Realty Corporation

u Hilda Delgado, Director, Real Estate & Finance, RLJ

Lodging Trust

3

Organization of the Accounting

Department

u Centralized vs. decentralized

u Organization for monthly and quarterly analysis

u Property Accountants

v How many are needed?

v Roles and responsibilities

Copyright 2013 National Association of Real Estate Investment Trusts

Convergence Update

Thursday, March 21th 2:45-4:00 p.m.

La Quinta Resort & Club La Quinta, CA

Moderator: Charles Obert, SVP, CAO & Controller, Forest City Enterprises, Inc.

Panelists: Christopher Dubrowski, Partner, Deloitte LLP

Kevin Stoklosa, Assistant Director-Technical Activities, Financial Accounting Standards Board

Angela Valdes, CAO, Equity One, Inc. Thomas Wilkin, Partner, PwC

1875 I Street, NW, Suite 600, Washington, DC 20006-5413 Phone 202-739-9400 Fax 202-739-9401 REIT.com

Officers

Chair Donald C. Wood Federal Realty Investment Trust

President and CEO Steven A. Wechsler

First Vice Chair W. Edward Walter Host Hotels & Resorts, Inc.

Second Vice Chair Ronald L. Havner, Jr. Public Storage, Inc.

Treasurer Michael D. Fascitelli Vornado Realty Trust 2012 NAREIT Executive Board Jon E. Bortz Pebblebrook Hotel Trust Debra A. Cafaro Ventas, Inc. Richard J. Campo Camden Property Trust Richard B. Clark Brookfield Office Properties Michael A. J. Farrell Annaly Capital Management, Inc. Edward J. Fritsch Highwoods Properties, Inc. Rick R. Holley Plum Creek Timber Company, Inc. David J. Neithercut Equity Residential Steven B. Tanger Tanger Factory Outlet Centers, Inc. Robert S. Taubman Taubman Centers, Inc. Thomas W. Toomey UDR, Inc. 2012 NAREIT Board of Governors Michael D. Barnello LaSalle Hotel Properties Kenneth F. Bernstein Acadia Realty Trust Bruce W. Duncan First Industrial Realty Trust James F. Flaherty, III HCP, Inc. Michael F. Foust Digital Realty Daniel S. Fulton Weyerhaeuser Lawrence L. Gellerstedt, III Cousins Properties Incorporated Michael P. Glimcher Glimcher Realty Trust Jonathan D. Gray Blackstone Real Estate Advisors Randall M. Griffin Corporate Office Properties Trust William P. Hankowsky Liberty Property Trust Philip L. Hawkins DCT Industrial Trust, Inc. Thomas P. Heneghan Equity Lifestyle Properties, Inc. David B. Henry Kimco Realty Corporation Daniel B. Hurwitz DDR Corp. Andrew F. Jacobs Capstead Mortgage Corporation Thomas H. Lowder Colonial Properties Trust Peter S. Lowy The Westfield Group Craig Macnab National Retail Properties, Inc. Joel S. Marcus Alexandria Real Estate Equities, Inc. Sandeep Mathrani General Growth Properties George F. McKenzie Washington REIT Timothy J. Naughton AvalonBay Communities, Inc. Dennis D. Oklak Duke Realty Corporation Jeffrey S. Olson Equity One, Inc. Joseph D. Russell, Jr. PS Business Parks, Inc. Richard B. Saltzman Colony Financial, Inc. David P. Stockert Post Properties, Inc. Gerard H. Sweeney Brandywine Realty Trust Mark E. Zalatoris Inland Real Estate Corporation Mortimer B. Zuckerman Boston Properties, Inc.

February 15, 2012

Ms. Susan Cosper Technical Director File Reference No. 2011-200 Financial Accounting Standards Board 401 Merritt 7 PO Box 5116 Norwalk, Connecticut 06856-5116

Re: Financial Services – Investment Companies (Topic 946) Proposed Accounting Standards Update

Dear Ms. Cosper:

This letter is submitted by the National Association of Real Estate Investment Trusts® (NAREIT) in response to the request for comments from the Financial Accounting Standards Board (FASB or the Board) on the Financial Services – Investment Companies (Topic 946) Proposed Accounting Standards Update (the Proposed Update).

NAREIT is the worldwide representative voice for real estate investment trusts (REITs) and publicly traded real estate companies with an interest in U.S. real estate and capital markets. NAREIT’s members are REITs and other real estate businesses throughout the world that own, operate and finance commercial and residential real estate. NAREIT’s members play an important role in providing diversification, dividends, liquidity and transparency to investors through their businesses that operate in all facets of the real estate economy.

REITs are generally deemed to operate as either Equity REITs or Mortgage REITs. Our members that operate as Equity REITs own lease and most often operate real estate. Our members that operate as Mortgage REITs finance housing and commercial real estate, by originating mortgages or by purchasing whole loans or mortgage backed securities in the secondary market.

A useful way to look at the REIT industry is to consider an index of stock exchange-listed companies like the FTSE NAREIT U.S. Real Estate Index, which covers both Equity REITs and Mortgage REITs. This Index contains 160 companies representing an equity market capitalization of $451 billion at year end. Of these companies, 130 consist of equity REITs representing 90.5% of total U.S. listed REIT equity market

Ms. Susan Cosper February 15, 2012 Page 2

NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS

capitalization (amounting to $407 billion).1 The remainder, as of December 31, 2011, were 30 publicly traded mortgage REITs with a combined equity market capitalization of $43 billion.

NAREIT supports the Board’s continuing efforts to achieve convergence of U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). However, NAREIT believes that adoption of the Proposed Update would entirely fail to accomplish this objective. Additionally, NAREIT believes the Proposed Update establishes specialized industry accounting which is contrary to a fundamental conclusion of the final report of the Advisory Committee on Improvements to Financial Reporting (CIFR) to the United States Securities and Exchange Commission dated August 1, 2008 that accounting standards should “focus on the nature of the business activity itself, since the same activities, such as lending, may be carried out by companies from different industries.”

Also, NAREIT maintains that the Proposed Update is entirely at odds with two recent Board initiatives:

Eliminating specialized industry accounting in the joint FASB and IASB revenue recognition project; and,

Efforts to simplify accounting through qualitative approaches to the measurement of impairment for goodwill and other indefinite-lived intangibles.

Retain REIT Scope Exception

For purposes of financial standards, REITs have been historically treated as, and are in fact, operating businesses and thus should not be treated as investment companies in the Proposed Update. Therefore, NAREIT strongly objects to the FASB’s decision to remove the explicit scope exception for REITs that exists in Topic 946 Financial Services – Investment Companies today. The REIT scope exception has been included in Investment Companies accounting literature for some time, dating back to when the mutual fund industry’s financial reporting was governed by the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies. The scope exception recognizes the operating nature of the REIT business model and underlying activities of REITs as distinctly different from investment companies. This fact has been acknowledged by the FASB and the AICPA repeatedly over the years. For example, the AICPA Statement of Position 07-1 Clarification of the Scope of the Audit and Accounting Guidance Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies, paragraphA25 states the following:

AcSEC observes, however, that REITs typically would not meet the objective of an investment company because REITs typically are involved in the day-to-day management of investees in ways that are inconsistent with the activities of an investment company. For example, REITs typically develop and operate real estate.

1 http://returns.reit.com/reitwatch/rw1201.pdf at page 20.

Ms. Susan Cosper February 15, 2012 Page 3

NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS

Additionally, the Emerging Issues Task Force recognized the fact that REITs are operating companies in their paper on EITF Issue No. 09-D, Application of Topic 946, Financial Services – Investment Companies, by Real Estate Investment Companies. Paragraph 27 states:

Working Group members pointed out that some may interpret paragraph 946-10-15-3 to preclude any entity structured as a REIT for tax purposes from being an investment company. However, others interpret the paragraph to mean that those REITs that have other than insignificant non-investment operations (for example, property development or management activities) or otherwise meet the definition of an investment company are not precluded from applying Topic 946. This view was based on the belief that the intent of the scope exclusion noted in paragraph 23 was that at the time that guidance was written, REITs generally were structured as operating entities and, accordingly, did not meet the criteria to be considered an investment company under the Investment Company Guide [emphasis added].

There have been no changes in the operating nature of REITs’ business operations since the time that the REIT scope exception was first introduced in U.S. GAAP. Therefore, NAREIT and its members do not understand why the FASB would abolish the REIT exception and potentially include REITs within the scope of specialized industry accounting. As a result, NAREIT strongly objects to the removal of the REIT scope exception.

Further, NAREIT questions the FASB’s rationale in removing the REIT scope exception, while at the same time automatically scoping in companies that are currently regulated under the Investment Company Act of 1940 (1940 Act) into the Proposed Update regardless of whether those entities meet the definition of an investment company. On one hand, the FASB appears to elevate the importance of form over substance when developing the scope of the Proposed Update:

BC9. The FASB ultimately decided that an investment company that is regulated under the Investment Company Act of 1940 should be within the scope of Topic 946 regardless of whether that entity meets the proposed investment company definition developed with the IASB. The FASB was concerned that some entities that are required to comply with the SEC’s regulatory requirements for investment companies may not meet the proposed U.S. GAAP definition of an investment company. The FASB recognizes that defining an investment company on the basis of U.S. regulatory requirements is not convergent with the IASB’s proposal, but this approach would avoid situations in which an entity would be required to present assets and liabilities under two measurement bases because it is considered an investment company for regulatory purposes but not for U.S. GAAP financial reporting purposes.

At the same time, the FASB decided to ignore a well-recognized and well-understood form of investment (i.e., REITs) in order to try to divine substance in determining the scope of the Proposed ASU:

Copyright 2013 National Association of Real Estate Investment Trusts

Mortgage REITs

Thursday, March 21th 2:45-4:00 p.m.

La Quinta Resort & Club La Quinta, CA

Moderator: Stuart Rothstein, CEO, CFO, President, Secretary & Treasurer, Apollo

Commercial RE Finance, Inc.

Panelists: Kenneth Steele, CFO, Hatteras Financial Corp

Darren Tangen, COO & Treasurer, Colony Financial, Inc. Mark Van Deusen, Partner, Hunton & Williams LLP

1

Overview of Ways and Means Tax Reform Discussion Draft: Financial Products

Background. A contributing factor to the 2008 financial crisis was the ability to hide and disguise potentially significant risks through Wall Street’s use of derivatives and other novel financial products. The rapid growth and abuse of these derivatives contributed to an environment that led to the seizure of our financial system, from which the U.S. economy still has not fully recovered. At the same time, arcane and often inconsistent tax rules governing derivatives and other financial products have fostered tax-shelter opportunities for some investors while imposing prohibitive tax burdens on taxpayers trying to maintain or sell distressed assets – a process necessary to economic recovery. A December 6, 2011 joint hearing with the Senate Finance Committee, one of the 20 hearings the Ways and Means Committee (“the Committee”) held during the 112th Congress on comprehensive tax reform, examined the tax treatment of financial products. Based on testimony received during this hearing and input from tax practitioners, experts and commentators such as the American Bar Association Tax Section, the Committee is releasing a discussion draft of proposals to reform the tax treatment of financial products. While the discussion draft updates antiquated tax rules that have not kept pace with innovation in the financial-products market, it also makes significant changes to the way the United States taxes financial products. In the interest of transparency, the Committee is soliciting feedback from a broad range of stakeholders, practitioners, economists, and members of the general public on how to improve this proposed set of reforms. This discussion draft follows the October 26, 2011 release of a discussion draft on international tax reform. Like that previous discussion draft, this discussion draft will be considered as part of comprehensive tax reform legislation that broadens the base, lowers rates, and moves the United States to a more economically competitive tax system on a revenue-neutral basis. Summary of Financial Products Discussion Draft. The discussion draft includes several reforms that would update and rationalize the tax treatment of financial products. Specifically, the discussion draft includes the following proposals:

Provide Uniform Tax Treatment of Financial Derivatives. The draft would require taxpayers engaged in speculative financial activity—but not business hedging against common risks—to mark certain financial derivative products to fair market value at the end of each tax year, thus triggering the recognition of gain or loss for tax purposes. The tax code already requires or permits mark-to-

2

market accounting for specific financial products, such as certain contracts and options that are traded on exchanges, and for specific taxpayers, such as securities and commodities dealers and traders. Broadly extending mark-to-market accounting treatment to derivatives would provide a more accurate and consistent method of taxing these financial products and make them less susceptible to abuse, without affecting most small investors who normally do not invest in these products. Derivatives that are used by businesses in the ordinary course of their businesses to hedge against price, currency, interest rate, and other risks would not be affected.

Simplify Business Hedging Tax Rules. For taxpayers that are engaged in

hedging business risks, the draft would allow transactions that are properly treated as hedges for financial accounting purposes to be treated as hedges for tax purposes. This taxpayer-favorable proposal would minimize inadvertent failures to identify a transaction as a hedge for tax purposes, even though the transaction satisfies all of the substantive requirements for hedging transaction tax treatment.

Eliminate “Phantom” Tax Resulting from Debt Restructurings. The draft would reform the tax rules that apply to debt restructurings that do not involve a forgiveness of principal. This change would reduce the prevalence of “phantom” cancellation-of-indebtedness income when debt is restructured—a common practice during economic downturns—thereby creating a more taxpayer-favorable rule.

Harmonize the Tax Treatment of Bonds Traded at a Discount or Premium

on the Secondary Market. For bonds that are acquired on a secondary market at a discount, the draft would require the holder of the bond to recognize taxable income on the discount over the remaining life of the bond—conforming the tax treatment of such transactions to bonds acquired at a discount directly from the borrower. At the same time, the amount of discount to be recognized for tax purposes would be limited to the discount that typically reflects an increase in interest rates that has occurred since the date the bond was originally issued—as opposed to steeper discounts that often reflect deterioration in the creditworthiness of the borrower. The draft also would allow taxpayers to claim “above-the-line” deductions for bonds acquired at a premium on a secondary market.

Increase the Accuracy of Determining Gains and Losses on Sales of

Securities. To simplify tax compliance and administration, and to determine more accurately the amount of gain or loss when a security is sold, the draft would require the cost basis of the security to be based on the average cost basis of all other shares or units of the identical security held by the taxpayer.

Prevent the Harvesting of Tax Losses on Securities. The so-called “wash sale”

anti-abuse rule has been a feature of the tax code for decades. It is intended to

3

prevent taxpayers from harvesting tax losses by selling securities at a loss and then immediately reacquiring the same securities. However, the current law wash sale rule only applies if the same taxpayer sells and reacquires the security, and it can be circumvented using related parties such as spouses, children, or entities controlled by the taxpayer. The draft would reform the wash sale rule so that it applies to transactions involving closely related parties.

Unaddressed Issues. The Committee recognizes that the discussion draft does not address several technical and policy issues that may need to be resolved in final legislation. The Committee invites comments on how to address such issues, in particular those related to:

Valuing derivatives that would become subject to mark-to-market tax treatment. Identifying financial products tax provisions under current law that may become

obsolete or may require modification in light of the discussion draft. Information reporting rules that may be necessary to implement the discussion

draft, including the reporting rules that are contained in the draft. Other areas of financial products taxation that are not addressed in the discussion

draft.

Copyright 2013 National Association of Real Estate Investment Trusts

Public Non-listed REITs

Thursday, March 21th 9:45-11:00 a.m.

La Quinta Resort & Club La Quinta, CA

Moderator: Brian Block, CFO, American Realty Capital Properties, Inc.

Panelists: Jason Goode, Partner, Alston & Bird LLP

Thomas Selman, EVP-Regulatory Policy, Financial Industry Regulatory Authority

1

Regulatory Notice 12-14

March 2012

Executive SummaryFINRA seeks comment on a revised proposal to amend NASD Rule 2340 (Customer Account Statements) to address the per share estimated values at which unlisted Direct Participation Programs (DPPs) and unlisted Real Estate Investment Trusts (REITs) are reported on customer account statements. The revised proposal reflects changes based on comments to the amendments FINRA proposed in Regulatory Notice 11-44.

Under the revised proposal, general securities members would no longer be required to provide a per share estimated value, unless and until the issuer provides an estimate based upon an appraisal of assets and liabilities in a periodic or current report filed under the Securities Exchange Act of 1934. During the initial offering period, member firms would have the option of using a modified net offering price or designating the securities as “not priced.” Additionally, the revised proposal modifies the account statement disclosures that accompany the per share estimated value. The revised proposal also includes alternative requirements for DPPs or REITs that calculate a daily net asset value (NAV).

The text of the proposed amendments to NASD Rule 2340 (Customer Account Statements) is set forth in Attachment A.

Questions regarding this Notice may be directed to:

00 Thomas M. Selman, Executive Vice President, Regulatory Policy, at (202) 728- 6977;

00 Joseph E. Price, Senior Vice President, Corporate Financing/Advertising Regulation, at (240) 386-4623; or

00 Gary L. Goldsholle, Vice President and Associate General Counsel, Office of the General Counsel, at (202) 728-8104.

Customer Account StatementsFINRA Requests Comment on Proposed Amendments to NASD Rule 2340 to Address Values of Unlisted Direct Participation Programs and Real Estate Investment Trusts

Comment Period Expires: April 11, 2012Notice Type

00 Request for Comment

Suggested Routing 00 Compliance00 Legal00 Senior Management

Key Topics00 Customer Account Statements00 Unlisted Real Estate Investment Trusts (REITs)

00 Unlisted Direct Participation Programs (DPPs)

Referenced Rules & Notices00 FINRA Rule 231000 NASD Rule 2340 00 Notice to Members 01-0800 Regulatory Notice 11-4400 Rule 415 under the Securities Act of 1933

2 RegulatoryNotice

March 201212-14

Action Requested FINRA encourages all interested parties to comment on the proposal. Comments must be received by April 11, 2012.

Member firms and other interested parties can submit their comments using the following methods:

00 Emailing comments to pubcom@finra.org; or 00 Mailing comments in hard copy to:

Marcia E. Asquith Office of the Corporate Secretary FINRA 1735 K Street, NW Washington, DC 20006-1506

To help FINRA process and review comments more efficiently, persons should use only one method to comment on the proposal.

Important Notes: The only comments that FINRA will consider are those submitted pursuant to the methods described above. All comments received in response to this Notice will be made available to the public on the FINRA website. Generally, FINRA will post comments as they are received.1

Before becoming effective, a proposed rule change must be authorized for filing with the Securities and Exchange Commission (SEC) by the FINRA Board of Governors, and then must be filed with the SEC pursuant to Section 19(b) of the Securities Exchange Act of 1934 (SEA).2

BackgroundAs discussed in Regulatory Notice 11-44, NASD Rule 2340 generally requires each general securities member firm to send account statements to customers at least quarterly. The account statements must include a description of any securities positions, money balances and account activity since the firm issued the prior account statement. A firm that does not carry customer accounts and does not hold customer funds or securities is not a general securities member firm and is not subject to the provisions of NASD Rule 2340.

Paragraph (c) of the rule contains specific provisions addressing the estimated values of DPPs and REITs on customer account statements. The rule generally requires that a general securities member firm include a per share estimated value for a DPP or REIT security held in a customer’s account whenever a value appears in the issuer’s annual report. The rule states that the per share estimated value included on a customer account statement may

RegulatoryNotice 3

March 2012 12-14

be obtained from the annual report, an independent valuation service or any other source. The rule requires that firms develop a per share estimated value on a customer account statement from data that is not more than 18 months old. The rule also requires a firm to remove or amend a per share estimated value if the firm can demonstrate that the value was inaccurate as of the date of valuation or is no longer accurate as a result of a material change in operations. DPPs and REITs are the only securities identified in NASD Rule 2340 for which per share estimated account values are required on an account statement.

In Regulatory Notice 11-44, FINRA proposed several modifications to NASD Rule 2340 that were designed to improve the quality of the information provided to customers. The proposed amendments in Regulatory Notice 11-44 (original proposal) would have limited the time period for which the per share estimated value may be based upon the gross offering price, to the initial three-year offering period provided under Rule 415(a)(5) of the Securities Act of 1933 (initial offering period). It also would have required firms to deduct organization and offering expenses from the gross offering price to reach a per share estimated value (net offering price). In addition, the original proposal would have prohibited a firm from using a per share estimated value from any source, if it “knows or has reason to know the value is unreliable,” based upon publicly available information or nonpublic information that has come to the firm’s attention. Finally, the original proposal would have allowed a firm to omit a per share estimated value on a customer account statement if the most recent annual report of the DPP or REIT does not contain a value that complies with the disclosure requirements of NASD Rule 2340.

Comments Received on Regulatory Notice 11-44FINRA received 25 comments on the original proposal. While some commenters supported the proposal, many expressed concern about two elements: (1) the proposed requirement that the net offering price, rather than a gross offering price, be provided during the initial offering period, and (2) the proposed requirement that a general securities member firm refrain from providing a per share estimated value if it knows or has reason to know the value is unreliable.

The commenters provided numerous bases for objecting to the proposal’s net offering price requirement. Some commenters addressed the practical limitations of calculating a net offering price, stating that a net offering price might vary over time as certain fixed expenses are allocated across a larger number of units sold, or might vary based upon the amount of selling concessions allocated to a particular broker-dealer. In addition, commenters noted that displaying a net offering price might create incentives to reduce expenditures on due diligence and might complicate implementation of issuer dividend reinvestment and redemption plans.

Copyright 2013 National Association of Real Estate Investment Trusts

REIT M & A

Friday, March 22th 11:00-12:15 p.m.

La Quinta Resort & Club La Quinta, CA

Moderator: David Bonser, Partner & Co-Head-Equity & US Domestic Debt Capital

Markets & Governance, Hogan Lovells US LLP

Panelists: James Barkley, Secretary & General Counsel, Simon Property Group, Inc.

Thomas Olinger, CFO, Prologis, Inc. John Rayis, Partner, Skadden, Arps, Slate, Meagher & Flom LLP

REIT M&A Tax March 20-22, 2013

2 Agenda

REIT M&A Tax Issues Recent REIT M&A Activity

4 REIT M&A Tax Issues

REIT Due Diligence Built-In Gains Tax (Section 1374) C Corporation E&P Distributions Tax-Free Spin-Offs OP Unit Issues

5 REIT Due Diligence

A robust and viable tax diligence process is critical to identifying issues that may compromise REIT status

In almost all cases, tax problems identified in the diligence process are solvable – but it is much easier to address them before the acquisition

Common problem areas include: Proper identification of hedges Related party rents Tenant services Investments in securities REIT ownership TRS tax compliance Preferential dividends Leveraging techniques FIRPTA compliance Special issues for health care and hotel REITs

Copyright 2013 National Association of Real Estate Investment Trusts

SEC and Financial Standards Developments

Thursday, March 21th

9:45-11:00 a.m. La Quinta Resort & Club

La Quinta, CA

Moderator: Gregory Andrews, CFO, Ramco-Gershenson Properties Trust

Panelists: Andrew Corsini, Partner, KPMG LLP

Mark Denien, SVP & CAO, Duke Realty Corporation Daniel Lasik, Partner, Ernst & Young LLP

Michael McTiernan, Assistant Director-Division, Corporation Finance, Securities & Exchange Commission

March 21,2013 SEC and Financial

Standards Develpoments

2

SEC and Financial Standards Developments Faculty

Moderator -- Gregory Andrews, CFO, Ramco-Gershenson Properties Trust

Andrew Corsini, Partner, KPMG LLP

Mark Denien, SVP & CAO, Duke Realty Corporation

Daniel Lasik, Partner, Ernst & Young LLP

Michael McTiernan, Assistant Director, Division of Corporation Finance, SEC

3

SEC and Financial Standards Developments Agenda

FASB project to modify accounting for discontinued operations

Accounting and reporting for acquisitions of investment property

SEC views on reporting loss contingencies

Reporting non-GAAP measures

4

SEC and Financial Standards Developments

Agenda, continued

Capital expenditures – reporting and disclosures

Disclosures related to land held for development

Disclosures related to capitalized G & A costs

Reporting under XBRL – does it achieve its purpose?

Copyright 2013 National Association of Real Estate Investment Trusts

SEC Legal Developments

Friday, March 22th 9:30-10:45 a.m.

La Quinta Resort & Club La Quinta, CA

Moderator: Edward Schulman, EVP-General Counsel & Secretary, AvalonBay

Communities, Inc.

Panelists: Samantha Gallagher, Partner, Bass, Berry & Sims PLC

Michael McTiernan, Assistant Director-Division of Corporation Finance, Securities and Exchange Commission

Ettore Santucci, Partner, Goodwin Procter LLP David Slotkin, Partner, Morrison & Foerster LLP

Page 1 of 10

Compensation Clawbacks: A Statutory and Drafting Review

By Edward M. Schulman, Ettore A Santucci and Marian A. Tse1

This article provides information regarding “clawback” policies, which are policies designed to enable a company to recover from its management erroneously awarded incentive compensation. After reviewing the statutory background, current usage by public companies, and the range of policy choices that must be addressed in adopting a policy, a sample clawback policy is presented. Most clawback policies address the issue of restated financial statements by the company or revisions to financial or other performance metrics that factor into the measurement of bonus payments or other incentive compensation. Some companies choose to also incorporate in their clawback policy the ability to recover compensation from a covered officer for ethical violations or breaches of other covenants, such as an agreement not to compete or non-solicitation of customers or employees. Most companies, however, opt not to include these additional triggers for the following reasons:

• These additional triggers can muddy the messaging of a clawback policy, which is that incentive compensation that was paid but would not have been earned absent an error or other restatement in financial metrics should be subject to recovery.

• With regard to ethical violations, most companies already provide that if an employee is terminated for cause (including for material misconduct or neglect of duties) the employee’s vested and unvested stock options and restricted stock are forfeited, thus in essence recapturing a portion of prior incentive compensation. If the ethical violations don’t rise to the level of a severance from employment, the matter can be addressed monetarily through reduction of future bonuses and limitations on salary increases and career advancement.

In this article, we do not address these additional triggers to a clawback policy. Statutory Background Three federal statutes contain clawback requirements:

• the Sarbanes-Oxley Act (“SOX”),

• the Troubled Asset Relief Program (“TARP”), and

• the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

1 Mr. Schulman is Executive Vice President-General Counsel and Corporate Secretary of AvalonBay Communities, Inc. Mr. Santucci and Ms. Tse are partners at Goodwin Procter LLP. The authors wish to thank Alexandra Denniston for her assistance in preparing this article.

Page 2 of 10

Clawbacks under SOX. Sarbanes-Oxley Act Section 304 provides that if a company is required to restate its financials due to material non-compliance with financial reporting requirements as a result of misconduct, the CEO and CFO shall reimburse the issuer for any bonus or other incentive pay or equity-based compensation and the profits from the sale of the company’s securities during the 12-month period following the initial publication of the financial statements that later needed to be restated. Key attributes of the SOX clawback include the following:

• It only applies to the CEO and CFO.

• It only applies if there is a restatement of the financial statements due to material non-compliance with reporting requirements.

• It only applies if the restatement was the result of misconduct – although it does not matter whether the CEO or CFO were engaged personally in the misconduct.

• It is phrased in a non-discretionary way – the CEO and CFO “shall” reimburse the issuer – but only the SEC can enforce the statute. The SEC has enforced the statute, although not frequently, and has enforced it against CEOs and CFOs who it acknowledges were not personally involved in the wrongdoing that gave rise to the restatement.

• The reimbursement due relates to bonus payments made and equity-based compensation received in the 12 months following the financial statements that needed to be restated. Thus the SOX clawback includes a punitive element, because it covers the full bonus paid and all equity grants received, not just the amount or value thereof that were paid in excess of what otherwise would have been paid had the financials been properly reported in the first place.

• The SOX clawback includes a further punitive element because it covers also profits from stock sales, which could have little or nothing to do with the restatement of financial information that triggers the clawback.

• Also, the timing of the SOX clawback is not fully aligned in terms of timing with the restatement that triggers it because it is based on when the original audited financials were filed and bonus payments/equity awards in respect of that year could have preceded the issuance of the financial statements.

Clawbacks under TARP. The many financial firms that sold troubled assets to the government under TARP or received preferred stock investment from Treasury under TARP were also subject to a clawback for so long as they remained subject to the Emergency Economic Stabilization Act. While this has no application to most REITs, the terms of the TARP clawback are still instructive when considering how to design a clawback policy for REITs. TARP recipients had to adopt a clawback policy that would recover any bonus or incentive compensation that was paid to any of the five named executive officers in the issuer’s proxy statement and the next 20 most highly compensated employees, if the compensation was based

Page 3 of 10

on materially inaccurate statements of earnings, revenues, gains or other criteria. Key features of the TARP clawback include:

• A broader pool of employees is subject to the clawback – up to 25 people.

• The compensation to be recovered is not confined to a particular period, it just needs to be “based” on the inaccurate information.

• A restatement of financial statements or reported metrics is not required – i.e., if there is materially inaccurate information that does not give rise to a restatement, the clawback still applies.

• No misconduct is required.

Clawbacks under Dodd-Frank. Section 954 of Dodd-Frank requires the SEC to adopt a rule under which the national securities exchanges must prohibit the listing of an issuer if the issuer does not develop and implement a clawback policy. Under Dodd-Frank’s mandate the SEC’s adopted rule must provide that a compliant clawback policy require that, if a company is required to restate its financial statements due to material non-compliance with financial reporting requirements, the issuer recover from current and former executive officers any incentive-based compensation (including stock option awards) that was (i) based on erroneous data, (ii) received during the three-year period preceding the date on which the company becomes required to prepare an accounting restatement, and (iii) in excess of what would have been paid if calculated under the restatement. Key features of the Dodd-Frank clawback include:

• It will apply to all executive officers, both current and former. Presumably, the SEC will maintain the definition of executive officers it uses in other rules (i.e., Section 16 Officers), but it could adopt a different definition for these purposes.

• It requires the issuer to recover incentive compensation paid, with the requirement being triggered by an accounting restatement due to material non-compliance with financial reporting under the federal securities laws. Notably Dodd-Frank does not require misconduct by the covered executive officers or otherwise (contrary to SOX). Although the SEC may leave some room in the final rules for board interpretation, such as what constitutes “material non-compliance” or how to value the excess pay, on its face the statute assumes that this is a mandatory clawback without discretion on the part of the board. Presumably, an issuer that fails to properly apply the clawback could face some sort of action from the SEC or de-listing.

• It applies only to financial restatements, not to other recalculations of performance metrics, and only if the restatement was due to material non-compliance. The SEC may elaborate in the final rules on whether under some circumstances a restatement of non-GAAP metrics derived from the face of the financial statements might be included as clawback triggers in spite of the wording of Dodd-Frank on its face.

Copyright 2013 National Association of Real Estate Investment Trusts

Selected REIT Tax Issues

Thursday, March 21th 11:15-12:30 p.m.

La Quinta Resort & Club La Quinta, CA

Moderator: Timothy Hall, SVP-Tax, HCP, Inc.

Panelists: John Gumerson, VP-Corporate Tax, Simon Property Group, Inc.

Dianne Umberger, Principal, Ernst & Young LLP Lawrence Varellas, Partner-Tax, Deloitte LLP

Pardis Zomorodi, Partner, Latham & Watkins LLP

Date: March 5, 1996 Refer Reply to: CC:TL-N-10191-95 DOM:FS:FI&P:SMJannotta TO: District Counsel, Manhattan CC:NER:MAN Attention: Michelle A. Missry FROM: Assistant Chief Counsel (Field Service) CC:DOM:FS SUBJECT: * * * [1] This responds to your request for Field Service Advice dated December 18, 1995, as supplemented, in the above referenced matter. The Real Estate Investment Trust ("REIT") issues discussed herein are of interest to the Construction and Real Estate Industry Specialization Program.

DISCLOSURE STATEMENT

[2] This document may contain taxpayer information subject to section 6103. This document may also contain confidential information subject to the attorney-client and deliberative process privileges, and may also have been prepared in anticipation of litigation. Therefore, this document shall not be disclosed beyond the office or individual(s) to whom it is addressed and in no event shall it be disclosed to taxpayers or their representatives.

[3] Specifically, if this memorandum is addressed to a District Counsel, then only office personnel working the specific case or subject matter may use this document. This memorandum shall not be disclosed or circulated beyond such office personnel having the requisite "need to know."

ISSUE

[4] Whether this office has any objection to the District Director entering into a closing agreement with respect to taxpayer's failure to satisfy the 75% asset test under I.R.C. section 856(c)(5)(A) in * * *.

CONCLUSION

[5] This office does not object to the District Director's use of a closing agreement to resolve the tax consequences stemming from taxpayer's failure to satisfy the 75% asset test under I.R.C. section 856(c)(5)(A) in * * *.

FACTS

[6] During the course of business negotiations, taxpayer's accountant 1 performed a due

diligence review of taxpayer and discovered two statutory violations affecting taxpayer's status as a REIT. The first violation concerned taxpayer's compliance with the shareholder demand provisions of Treas. Reg. section 1.857-8.

2 The second and more serious violation

concerned taxpayer's violation in * * * of the 75% asset test under I.R.C. section 856(c)(5)(A). It appears that taxpayer must resolve the tax consequences of these violations as a condition precedent to the consummation of its business combination with * * *.

[7] Taxpayer voluntarily disclosed the statutory violation of I.R.C. section 856(c)(5)(A) in a letter dated * * *, to the District Director. The letter was accompanied by a proposed closing agreement. The violation was also disclosed on taxpayer's Form 10-K, which was filed with the SEC, with respect to its * * * year. In order to determine whether it would be in the Service's best interests to enter into such a closing agreement, the District undertook the examination of taxpayer's * * * through * * * tax years. Although the examining agents discovered some facts that raised the suspicion of fraud, no actual evidence of fraud was developed and the indicia of fraud was deemed too tenuous by the Examination Division to support a referral for criminal investigation.

[8] The examination of taxpayer's * * * tax year disclosed the facts. The taxpayer improperly invested more than 25% of its assets in repurchase agreements with respect to U.S. Treasury Bills. As of * * *, the taxpayer's investment in these contracts amounted to more than * * *% of its gross assets. The taxpayer's highest levels of investment occurred in the third and fourth quarters of * * * when approximately * * *% of taxpayer's gross assets were invested in such contracts.

[9] Upon being advised by * * * on * * *, that the repurchase contracts were not qualifying assets, taxpayer promptly converted a sufficient amount of these contracts to direct investments in the underlying U.S. Treasury Bills so as to satisfy the 75% asset test of I.R.C. section 856(c)(5)(A). As the conversion occurred within 30 days of the close of it’s * * * tax year, taxpayer was able to cure the violation for the fourth quarter of * * *.

[10] Taxpayer seeks to enter into a closing agreement with the Service to resolve the adverse consequences stemming from its violation of the 75% asset test for the third quarter of * * * Taxpayer maintains that its violation was inadvertent and that it was not due to willful neglect. Accordingly, taxpayer believes that it is eligible to maintain its REIT status for * * * under to I.R.C. section 856(g)(4)(C) /3/.

[11] In support of its assertions, taxpayer supplied several affidavits. The first affidavit is from * * *, taxpayer's Senior Vice President and Chief Financial Officer.

4 * * * has * * * years

of experience in the REIT industry. He is responsible for investing excess cash balances on behalf of taxpayer. * * * states that he was personally aware of the 75% asset test but lacked personal knowledge of the Service's position with respect to treating repurchase contracts as non-qualifying assets.

[12] According to taxpayer's submission, * * * "historically invested its available cash assets in Treasury bills, which are qualified assets for REITs."

5 * * * apparently began the practice

of investing some of taxpayer's cash assets in "overnight Treasury bill repurchase transactions" in * * * using * * *. Taxpayer represents that in accordance with generally

accepted accounting principles, it booked these transactions as "cash-equivalent" investments. Taxpayer further represents that the source of most of the funds the investment of which placed taxpayer in violation of the 75% asset was due to the "conversion of certain assets to cash."

[13] It does not appear that * * * sought confirmation that his investment strategy was within the permissible range for purposes of satisfying the requirements of I.R.C. section 856(c). Instead, it appears that he believed that the favorable opinion provided by * * * with respect to taxpayer's * * * quarterly and annual reports and its tax returns affirmed that taxpayer's "significant assets were qualified assets."

[14] You state that "it may be somewhat plausible that * * * was unaware of Rev. Rul. 77-59." Memorandum dated December 18, 1995, at p. 6. However, you question how "a man of his background did not know that treasury repurchase contracts did not constitute cash or cash items for purposes of I.R.C. section 856(c)(5)(A)." Id.

[15] The second affidavit is from * * *, a partner in New York City law firm of * * *. * * * firm has been legal counsel to taxpayer since * * *. * * * indicates knowledge of the 75% asset test but asserts that he was personally unaware of the taxpayer's investment in the repurchase contracts and that no advice was requested by, or given to, taxpayer on this issue.

[16] The third affidavit is from * * *, a partner in the accounting firm of * * * . * * * indicates knowledge of the 75% asset test but asserts that no advice was requested by, or given to, taxpayer on this issue. You characterize * * *'s failure to offer proper advice to taxpayer as a breach of its duty to the client and that * * * should have known that taxpayer's investments were not cash equivalents for purposes of I.R.C. section 856(c)(5).

[17] During the course of discussions with Michelle Missry of Manhattan District Counsel's office, taxpayer's representative

6 has argued that Rev. Rul. 77-59, 1977-1 C.B. 196, should

be considered obsolete.

DISCUSSION

Whether this office has any objection to the District Director entering into a closing agreement with respect to taxpayer's failure of the 75% asset test under I.R.C. section 856(c)(5)(A) in * * *.

A. STATUTORY REQUIREMENTS FOR REIT STATUS:

[18] Taxpayer is required to satisfy several requirements in order to maintain its REIT election. These statutory requirements are set forth in I.R.C. section 856(a). The requirements include that:

1. The taxpayer is managed by one or more trustees or directors [I.R.C. section 856(a)(1)]; 2. The taxpayer's beneficial ownership is evidenced by

Copyright 2013 National Association of Real Estate Investment Trusts

State and Local Taxes

Friday, March 22th 9:30-10:45 a.m.

La Quinta Resort & Club La Quinta, CA

Moderator: Cara Martin

Panelists: Christine Fiorito, VP-Tax, Equity Residential

Sean Kanousis, Partner, PwC Olivier Kolpin, VP-Tax, Sunstone Hotel Investors, Inc.

Brian Pomis, Sr. Manager-State & Local Taxes, Grant Thornton LLP

State and Local Tax March 20-22, 2013

2 Today's Presenters

• Christine M. FioRito – Vice President, Tax Department (Equity Residential) • Olivier Kolpin – VP Tax (Sunstone Hotel Investors, Inc.) • Cara Martin

• Brian M. Pomis – Partner, (Grant Thornton) • Sean R. Kanousis – Partner (PwC)

3 Top 10 Planning Considerations

1. CA LLCs to QRSs or LPs

2. Texas Passive Entity Planning

3. North Carolina LPs

4. "Baby REIT" Planning - Multiple Jurisdictions

5. Pennsylvania Capital Stock Tax – Entity Planning

Copyright 2013 National Association of Real Estate Investment Trusts

State of the Capital Markets

Thursday, March 21th 8:00-9:30 a.m.

La Quinta Resort & Club La Quinta, CA

Moderator: Jeffrey Horowitz, Global Head-Real Estate, Gaming & Lodging, Bank of

America Merrill Lynch

Panelists: Joseph Russell, President & CEO, PS Business Parks, Inc.

Mary Hogan-Preusse, Managing Director & Co-Head of Americas Real Estate, APG Asset Management US Inc.

Andrew Sossen, SVP, COO & General Counsel, Starwood Property Trust, Inc.

James Sullivan, Managing Director, Green Street Advisors, Inc.

REIT Valuation Version 3.0 of our Pricing ModelJanuary 2, 2013

DJIA: 13,413 | RMZ: 916 | 10-Year T-Note: 1.84%

Important disclosure on pages 51-52660 Newport Center Drive, Suite 800, Newport Beach, CA 92660, USA

+1 949 640 8780 © 2013, Green Street Advisors, Inc.

It’s clearly not broken, but that doesn’t mean it can’t be improved...

In With The New, Out With The Old

Our NAV-based Pricing Model has served as the backbone of our stock selection process for over twenty years. The model is designed to assess relative valuations; i.e., it identifies the REITs that are most/least attractively valued.

The model’s logic and the discipline it enforces are as relevant today as ever. However, like an A-quality mall, there are always things that can be improved, and that is the spirit of the revisions underlying Version 3.0 of the model. The largest of those revisions pertains to the treatment of overhead expenses. Improvements have also been made that will result in better Franchise Value and balance sheet-risk inputs.

The revisions are designed to enhance stock selection, while minimizing changes to our recommended investment style. It would, after all, be unwise to radically alter an approach that has stood the test of time.

20-Year Annualized Total Return of Green Street's Stock Recommendations*

25%

12%

-1%

Buy Universe Sell

* Past performance can not be used to predict future performance. Please see disclosure on page 52

REIT Valuation - January 2, 2013 2

Table of Contents Sections

I. Executive Summary 3

II. An Overview of the NAV-Based Pricing Model 4-13

III. What's New? 14-19

IV. NAV Deep Dive 20-22

V. Overhead Deep Dive 23-27

VI. Franchise Value Deep Dive 28-34

VII. Balance Sheet Risk Deep Dive 35-38

VIII. Corporate Governance Deep Dive 39-40

A. Appendix 41-50

Authors

Mike Kirby, Director of Research

Peter Rothemund, CFA, Analyst

www.greenstreetadvisors.com © 2013, Green Street Advisors, Inc.

Use of this report is subject to the Terms of Use listed at the end of the report

REIT Valuation - January 2, 2013 3

Executive Summary

Version 3.0 • Our NAV-based pricing model has been a driver of our stock reccomendations for > twenty years

New and Improved • It has played an instrumental role in our successful recommendation track record

• Compartmentalized nature of the model forces discipline to consider all relevant valuation issues

• It's far from broken, but the improvements should help better identify mis-priced stocks

• Version 3.0 is fully operational for North American coverage; Europe soon to follow

The Basics • Warranted share price = NAV plus or minus a premium for future value added by management

Same Logic • G&A, franchise value, balance sheet risk and corporate governance impact the size of the premium

• It is a relative valuation model: roughly equal number of Buys and Sells at all times

• Relative approach anchors around average sector premiums at which REITs trade

What's New? • The biggest change: explicitly capitalizing G&A

Big Enhancements ○ Differences in G&A are large; they warrant large differences in unlevered asset value premiums

○ G&A appears to be poorly understood by REIT investors - pricing inefficiencies abound

• Franchise values are inherently subjective, but new tools enhance the input

○ Management Value Added (MVA) shines a bright light on performance attributable to mgm't

○ Balance sheet acumen scores give credit for broad financing menus and low debt costs

• Balance sheet risk scores do a better job of capturing all the factors that influence risk

The Impact • Our Buys have always tilted toward high property quality and low leverage - that will continue

Better Output • REITs with unusually low/high G&A look cheaper/pricier than was previously the case

www.greenstreetadvisors.com © 2013, Green Street Advisors, Inc.

Use of this report is subject to the Terms of Use listed at the end of the report

Copyright 2013 National Association of Real Estate Investment Trusts

Tax Accounting Method Issues for REITs

Thursday, March 21th

2:45-4:00 p.m. La Quinta Resort & Club

La Quinta, CA

Moderator: Kathleen Courtis, SVP, General Growth Properties, Inc.

Panelists: Jeffrey Bilsky, Sr. Director-National Tax Office, BDO USA, LLP

Jeffrey Clark, SVP-Tax & JV Accounting, Host Hotels & Resorts, Inc. Chuck Kosal, Principal-Strategic Tax Advisory Team, Deloitte Tax LLP

Neal Lewis, SVP-Taxation, Duke Realty Corporation

Tax Accounting Method Issues for REITs March 21, 2013

Tax Accounting Method Issues for REITs March 21, 2013

Moderator:

Kathleen Courtis, Senior Vice President – General Growth Properties, Inc.

Panelists:

Jeffrey Clark, SVP – Tax & JV Accounting, Host Hotels & Resorts, Inc. Neal Lewis, SVP – Taxation, Duke Realty Corporation Chuck Kosal, Principal, Deloitte Tax LLP – Strategic Tax Advisory Team Jeffrey Bilsky, Senior Director – National Tax Office, BDO USA LLP

3

Tax Accounting Method Issues for REITs

Purchase Price Allocations – Considerations and Planning Opportunities

Recent Guidance on Section 1031 Like-Kind Exchange Transactions

Income Recognition on Distressed Debt – Alternatives to Market Discount Accrual

Tangible Property Tax Regulations

Copyright 2013 National Association of Real Estate Investment Trusts

Tax Planning for REIT Partnerships

Thursday, March 21th 9:45-11:00 a.m.

La Quinta Resort & Club La Quinta, CA

Moderator: Leslie Loffman, Partner, Proskauer Rose LLP

Panelists: Adam Cohen, VP-Tax, Kimco Realty Corporation

De Anne Dunn, VP-Tax Strategy & Planning, EDENS Sanford Presant, Chairman-Real Estate Fund Practice Group, Greenberg

Traurig, LLP Steven Schneider, Director, Goulston & Storrs, PC

1

DCDOCS/7066089.1 TAX PLANNING FOR REIT PARTNERSHIPS March 20-22, 2013

2

DCDOCS/7066089.1

Les Loffman, Moderator Partner

Proskauer Rose LLP (New York)

Adam Cohen Vice President of Tax Kimco (New York) De Anne Dunn Vice President – Tax Strategy & Planning Edens (South Carolina)

Sandy Presant Chair, Real Estate Fund Practice Greenberg Traurig LLP (Los Angeles) Steven Schneider Director Goulston & Storrs (Washington D.C.)

3

DCDOCS/7066089.1

Table of Contents 1. Structuring UPREITS, DOWNREITS and Rollups (Slides 4-11)

2. Operating Partnership (“OP”) Contribution Tax Issues Checklist (Slides 12-15)

3. Tax Allocations Checklist for REITS Investing in LLCs and Partnerships (Slides 16-22)

4. Medicare Tax Issues and Carried Interest Issues (Slides 23-30)

5. Pension Held REITS and the Fractions Rule (Slides 31-51)

6. Selected Tax Partnership Transactions (Slides 52-66)

Copyright 2013 National Association of Real Estate Investment Trusts

Using Derivatives in a Post Dodd-Frank World

Thursday, March 21th

11:15-12:30 p.m. La Quinta Resort & Club

La Quinta, CA

Moderator: Robert McCadden, EVP & CFO, Pennsylvania Real Estate Investment Trust

Panelists: Sally Ingberg, VP-Debt Management, Forest City Enterprises, Inc.

Marti Tirinnanzi, SVP, TeraExchange Sean Tully, Managing Director-Interest Rate Products, CME Group

Luke Zubrod, Director-Derivatives Regulatory Advisory Services, Chatham Financial

Understanding Dodd-Frank Impact on Risk Management Program March 20-22, 2013

Technology and advisory from independent experts leading the derivatives and debt markets

Interest Rate Hedging FX Hedging Commodity Hedging Hedge Accounting Advisory Regulatory Advisory Debt & Capital Advisory

Full web-based platform Financial risk mgmt. modules Debt management module Covered by SSAE 16 audit

Serving 1000+ clients annually $2.5 trillion notional transacted 5 Locations globally in U.S., Europe, and Asia

About Chatham Financial

Overview

Timing for Key Requirements

Dodd-Frank Policy Objectives

Introduction to Central Clearing & Trading

End-User Exception from Mandatory Clearing & Trading

Board Considerations for SEC Filers

Risk Management Post Dodd-Frank

Copyright 2013 National Association of Real Estate Investment Trusts

Environmental Issues

Thursday, March 21th 9:45-11:00 a.m.

La Quinta Resort & Club La Quinta, CA

Discussion Leaders: James Bowes, General Counsel & Secretary, Liberty Property Trust

David Farer, Chair-Environmental Department, Greenbaum, Rowe, Smith & Davis LLP

Scott Lynn, General Counsel, Ryman Hospitality Properties, Inc. Robert Masters, SVP, General Counsel & Chief Compliance Officer, Acadia

Realty Trust

The Dangers Within: An Update on Dealing With Environmental Hazards in the Workplace

David B. Farer Chair, Environmental Department Greenbaum, Rowe, Smith & Davis LLP Woodbridge, N 3 David B. Farer and Greenbaum, Rowe, Smith & Davis LLP

2

The Nature of Environmental Hazards Within a Legal, Regulatory and Guidance Framework

© 2013 David B. Farer and Greenbaum, Rowe, Smith & Davis LLP

3

The Legal Framework OSHA: The federal Occupational Safety and Health

Act of 1970

Sets specific standards for air contaminants, asbestos, metals, organic chemicals, carcinogens and blood borne pathogens, which are set and implemented by the federal Occupational Safety and Health Administration

General Duty Clause

Requires employers to “furnish…a place of employment…free from recognized hazards that are causing or are likely to cause death or serious physical harm…”

© 2013 David B. Farer and Greenbaum, Rowe, Smith & Davis LLP

Copyright 2013 National Association of Real Estate Investment Trusts

Governance Issues

Thursday, March 21th 9:45-11:00 a.m.

La Quinta Resort & Club La Quinta, CA

Discussion Leaders: Sharon Kroupa, Partner, Venable LLP

Ann McCormick, EVP, Secretary & General Counsel, Home Properties, Inc.

Copyright 2013 National Association of Real Estate Investment Trusts

Lodging REITs

Friday, March 22th 9:30-10:45 a.m.

La Quinta Resort & Club La Quinta, CA

Discussion Leaders: Pia Ackerman, SVP-Tax, Ashford Hospitality Trust

Andrew Dittamo, VP & Controller, Pebblebrook Hotel Trust

U.S. Research Published by Raymond James & Associates

Please read domestic and foreign disclosure/risk information beginning on page 112 and Analyst Certification on page 112.

© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863

William A. Crow, (727) 567-2594, Bill.Crow@RaymondJames.com

Paul D. Puryear, (727) 567-2253, Paul.Puryear@RaymondJames.com

Andrew Banish, Sr. Res. Assoc., (727) 567-2695, Andrew.Banish@RaymondJames.com

Alexander Sierra, Sr. Res. Assoc., (727) 567-2564, Alexander.Sierra@RaymondJames.com

January 8, 2013

Lodging

2013 Outlook

U.S. Research Lodging

© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

International Headquarters:The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 20

Replacement Cost Analysis

• Replacement costs continue to escalate, keep lid on new construction. Lodging stocks continue to trade at discounts to replacement cost, as evidenced in the chart

below. Historically, private hotel transactions usually trade somewhere between 65% and 85% of replacement costs, while higher-quality public companies can see much smaller discounts or even a premium. By our calculations, the lodging REITs under our coverage universe trade an average 25% discount to estimated replacement cost. Obviously, the relative value between the cost of development and the ability to buy assets below replacement costs ultimately steers capital towards or out of construction opportunities.

Implied Price per Key and Discount to Replacement Cost

390414

356 366

266241 237 233

153

26%

36%

25% 27%

34%

20% 21% 22%

13%

0%

25%

50%

75%

100%

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

PEB BEE LHO RHP HST HT DRH SHO RLJ

Disc

ount

to R

epla

cem

ent C

ost

Impl

ied

Pric

e Pe

r Key

(in

thou

sand

s)

Implied Price Per Key Discount to Replacement Cost

Sources: FactSet, Raymond James research. As of 12/31/2012

U.S. Research Lodging

© 2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

International Headquarters:The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 21

Lodging Fundamental Outlook: Comparative RevPAR Forecasts

• Traversing the various estimates from leading-industry research firms, we note that the range of top-line growth forecasts has narrowed significantly from last year, with RevPAR growth rates ranging between 6.2% and 6.8% for 2012 and between 4.9% and 6.0% for 2013. The following table captures our 2012 and 2013 estimates and the estimates of the three leading independent research firms covering lodging: PKF Hospitality, Smith Travel Research, and PricewaterhouseCoopers.

2012 Lodging Forecasts (Industrywide Percent Change)

Raymond PFK Smith Travel James Hospitality Research PwC

Supply 0.5% 0.5% 0.5% 0.5%Demand 2.3% 3.0% 2.6% 2.9%Occupancy 1.9% 2.6% 2.1% 2.4%ADR 4.5% 4.2% 4.4% 4.1%RevPAR 6.2% 6.8% 6.5% 6.6%

2013 Lodging Forecasts (Industrywide Percent Change)

Raymond PFK Smith Travel James Hospitality Research PwC

Supply 0.9% 0.8% 0.9% 0.8%Demand 1.8% 1.8% 1.2% 1.7%Occupancy 0.9% 1.0% 0.3% 0.9%ADR 5.0% 5.0% 4.6% 4.4%RevPAR 5.9% 6.0% 4.9% 5.4% Sources: Smith Travel Research, PricewaterhouseCoopers, PFK Hospitality, Raymond James research.

Copyright 2013 National Association of Real Estate Investment Trusts

PCAOB Update

Friday, March 22th 9:30-10:45 a.m.

La Quinta Resort & Club La Quinta, CA

Discussion Leaders: Thomas Gerth, Partner, KPMG LLP

Jeffery Walraven, Assurance Partner, BDO USA, LLP

1666 K Street, N.W. Washington, DC 20006

Telephone: (202) 207-9100 Facsimile: (202) 862-8430

www.pcaobus.org

OBSERVATIONS FROM 2010 INSPECTIONS OF DOMESTIC ANNUALLY INSPECTED FIRMS REGARDING DEFICIENCIES IN AUDITS OF INTERNAL

CONTROL OVER FINANCIAL REPORTING

PCAOB Release No. 2012-006

December 10, 2012

Executive Summary

The Public Company Accounting Oversight Board (the "PCAOB" or the "Board") is issuing this report to provide information about the nature and frequency of deficiencies in firms' audits of internal control over financial reporting detected during the PCAOB's 2010 inspections of eight domestic registered firms that have been inspected every year since the PCAOB's inspection program began ("firms" or "registered firms"): BDO Seidman, LLP; Crowe Horwath LLP; Deloitte & Touche LLP; Ernst & Young LLP; Grant Thornton LLP; KPMG LLP; McGladrey LLP; and PricewaterhouseCoopers LLP.

In an audit of internal control over financial reporting ("audit of internal control"), the auditor's objective is to express an opinion on the effectiveness of the company's internal control over financial reporting ("internal control"). Under SEC rules, a company's internal control cannot be considered effective if one or more material weaknesses in internal control exist. Thus, under PCAOB Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements ("AS No. 5"), the auditor must plan and perform the audit to obtain reasonable assurance about whether material weaknesses exist as of the date specified in management's assessment, which generally is the date of the company's annual financial statements.

An audit of internal control includes, among other things, assessing the risk that

material weaknesses exist, testing important entity-level controls and important controls over significant financial statement accounts and disclosures based on the assessed risks, and evaluating whether identified deficiencies in internal control are material weaknesses. Deficiencies in the testing and assessment of internal control may increase the risk of the auditor failing to identify a material misstatement since the level of substantive testing is predicated on the auditor's assessment of the effectiveness of the issuer's internal controls.

The Board is concerned about the number and significance of deficiencies identified in firms' audits of internal control during the 2010 inspections, which generally involved reviews of the integrated audits of financial statements and internal control ("integrated audits") for issuers' fiscal years ending in 2009. This report describes the most pervasive deficiencies identified in firms' auditing of internal control during the 2010 inspections, and also includes information on the potential root causes of the deficiencies. Although not specifically described in this report, the Board is also concerned that the rate of these deficiencies increased during the Board's 2011 inspections. The Board emphasizes, however, that the findings described in this report should be considered against the broader background that, in many cases, the Inspections staff did not identify significant audit deficiencies in the portions of audits of

Executive Summary Observations From 2010 Inspections

of Domestic Annually Inspected Firms Regarding Deficiencies in Audits of

Internal Control Over Financial Reporting December 10, 2012

Page ii internal control that were reviewed in 2010 and 2011, an encouraging fact that reflects well on the firms' ability to implement AS No. 5 appropriately when their engagement teams approach the issues properly.

Overall Findings In 46 of the 309 integrated audit engagements (15 percent) that were inspected in 2010, Inspections staff found that the firm, at the time it issued its audit report, had failed to obtain sufficient audit evidence to support its audit opinion on the effectiveness of internal control due to one or more deficiencies identified by the Inspections staff. In 39 of those 46 engagements (85 percent) where the firm did not have sufficient evidence to support the internal control opinion, representing 13 percent of the 309 integrated audit engagements that were inspected, the firm also failed to obtain sufficient audit evidence to support the financial statement audit opinion.

In addition, in another 50 of the 309 integrated audit engagements, Inspections staff identified deficiencies in the auditing of internal control that did not involve findings of such significance that they indicated a failure to support the firm's internal control opinion. These deficiencies, however, did evidence deficiencies in some firms' systems of quality control of such significance that in the Board's view they require remediation.

The deficiencies do not mean the issuer's financial statements were materially

misstated or that the issuer's internal controls were inadequate. Generally, the deficiencies related to execution issues on the part of individual engagement teams where those teams did not meet the requirements of the firms' methodologies. Deficiencies in Audits of Internal Control

The most pervasive deficiencies identified in auditing internal control related to firms' failures to:

Identify and sufficiently test controls that are intended to address the risks of material misstatement;

Sufficiently test the design and operating effectiveness of management review

controls that are used to monitor the results of operations, such as: (1) monthly comparisons of budget and actual results to forecasts for revenues and expenses; (2) comparisons of other metrics, such as profit margins and certain expenses as a percentage of sales; and (3) quarterly balance sheet reviews;

Copyright 2013 National Association of Real Estate Investment Trusts

Timber REITs

Thursday, March 21th 2:45-4:00 p.m.

La Quinta Resort & Club La Quinta, CA

Discussion Leaders: Paul Stamnes, VP-Tax, Plum Creek Timber Company, Inc.

Dwayne Tofell, Director-Tax & Insurance, Potlatch Corporation

i

Private Forest Lands: Jobs, the Environment, and the Role of the U.S. Tax Code

Prepared by Quantria Strategies, LLC for the National Alliance of Forest Owners

Federal tax policy has long recognized the special characteristics of the U.S. forestry industry through three Federal timber tax provisions – the deduction for timber-growing costs, capital gains treatment for the sale of timber, and the deduction and amortization of reforestation costs. Eliminating these timber tax provisions for private forestland will adversely affect the economic viability of the forestry and related industries, reduce the productivity of U.S. forestland with commensurate reductions in environmental benefits, impose an unfair burden on private forest owners without a corresponding increase in government revenues, and diminish U.S. competitiveness in world markets.

ii

Private Forest Lands: Jobs, the Environment, and the Role of the U.S. Tax Code

CONTENTS

Executive Summary ....................................................................................................................1 I. U.S. FEDERAL TAX POLICIES HELP PRIVATE FOREST OWNERS CREATE

JOBS AND SUPPORT THE ENVIRONMENT ..........................................................5

A. Long-Term Federal Tax Policies Help Sustain Private Working Forests .....5 1. Timber Growing Costs (IRC sec. 263A) ........................................................6 2. Capital Gains Treatment for Timber Income (IRC sec. 631) .........................7 3. Deduction for Certain Reforestation Expenditures (IRC sec. 194) ................7

B. Private Working Forests Make Significant Contributions to the U.S. Economy...............................................................................................................8

1. Private Forest Owners Provide Stable Forest Acreage and Increased Productivity of U.S. Forestland ......................................................................8

2. Market Contributions of Private Forestland .................................................10 C. Non-Market Contributions of Private Working Forests ...............................12 1. Clean Water ..................................................................................................12 2. Carbon Storage..............................................................................................12 3. Recreation and Aesthetics………………………………………………….13 II. CHALLENGES FACING U.S. PRIVATE FORESTLAND ....................................14 A. Risks to U.S. Forestland Investments ..............................................................14 B. Economic Declines in the Forest Products Industries ...................................15 C. International Competition................................................................................17 III. IMPORTANCE OF MAINTAINING CURRENT FEDERAL TAX POLICIES ..19

A. Repeal of Current-Law Provisions Will Lead to Net Tax Increases for Private Forest Owners ......................................................................................19

B. Adverse Market and Non-Market Effects ......................................................19 1. Adverse Market Effects ................................................................................19 2. Adverse Non-Market Effects ........................................................................21 C. Federal Revenues Will Not Increase ...............................................................22

D. Summary of Adverse Effects of Repealing Timber Tax Provisions .............23 Appendix A – Supporting Regional Data ...............................................................................24 Appendix B – Taxes Affecting Private Forest Owners ..........................................................28 Appendix C – International Competitiveness ........................................................................37 References ..................................................................................................................................39

iii

LIST OF TABLES Table 1 – U.S. Working Forestland by Ownership Type, 2007 ................................................9 Table 2 – Annual Regional Payroll Attributable to Employment in Forestry and Logging, Wood Products, and Pulp and Paper Sectors, Distributed by Sector, 2010 .....11 Table 3 – Employment in the Forestry and Logging, Wood Products, and Pulp and Paper

Sectors, 2006 to 2011 ......................................................................................16 Table 4 – Expected Investment Returns for Timber Investments by Regions and Perceived Country Risk ...................................................................................18 Table A-1 – Total U.S. Timberland Distributed by Land Ownership, 2010...........................25 Table A-2 – Estimated State and Local Tax Payments from U.S. Timberland, 2010 ............27 Table B-1 – Selected Tax Return Data, Forestry and Logging Industry Partnerships, 2003-2009 ..................................................................................29 Table B-2 – Selected Tax Return Data, Forestry and Logging Industry Corporations (Including Timber REITs), 2003-2009 ............................................................30 Table B-3 – Selected Tax Return Data, Forestry and Logging Industry Sole Proprietorships, 2003-2009 ........................................................................................................30 Table B-4 – Joint Committee on Taxation Tax Expenditure Estimates ..................................34 Table B-5 – Treasury Tax Expenditure Estimates ..................................................................35 LIST OF GRAPHS Graph 1 – Forestland Productivity Increases, While Working Timberland Acreage Remains

Stable Over Time, Selected Years .....................................................................9 Graph 2 – U.S. Forestland Distributed by Ownership, 2007 ..................................................10 Graph 3 – World Timberland Supply and Production, 2011 ..................................................17 Graph C-1 – Percentage of World Production of Woodfuel, Roundwood, and Sawnwood, Selected Countries and Regions, 2008.............................................................38 LIST OF MAPS Map 1 – Employment in Forest Products, Pulp and Paper, and Wood Products Industries, 2010 ................................................................................................24