Title 3 . Commerce, Community, and Economic Development

Chapter 8 . Land Sales

Section 200. Real estate investment trusts

3 AAC 08.200. Real estate investment trusts

(a) The administrator will, in the administrator's discretion, determine that an offering or sale of securities in an issuer that qualifies as a real estate investment trust under 26 U.S.C. 856 and 858 (Internal Revenue Code) does not protect investors and is not in the public interest, unless that trust's declaration of trust or other organizational instrument contains provisions that satisfy the following minimum conditions:

(1) a majority of the trustees may not be affiliated with the adviser of the trust or any organization affiliated with the adviser of the trust; the trustees must be elected by the shareholders of the trust annually;

(2) self dealing must be restricted as follows:

(A) a trustee, officer, or adviser of the trust, or any person affiliated with that person may not, directly or indirectly, sell property or assets to the trust, purchase property or assets from the trust, or receive a commission or other remuneration in connection with the purchase or sale of trust assets, except under transactions that are fair and reasonable to the shareholders of the trust and that relate to the acquisition by the trust of

(i) property or assets at the formation of the trust or shortly thereafter that is fully disclosed in the prospectus;

(ii) federally insured or guaranteed mortgages at prices not exceeding the currently quoted prices at which the Federal National Mortgage Association purchases comparable mortgages;

(iii) mortgages other than those described in (ii) of this subparagraph, on terms not less favorable to the trust than similar transactions involving unaffiliated parties; or

(iv) property other than property described in (i) - (iii) of this subparagraph, at prices not exceeding the fair value of that property as determined by independent appraisal;

(B) transactions described in (A) of this paragraph and all other transactions in which a trustee, officer, or adviser of the trust have a direct or indirect interest must be approved by a majority of the trustees, including a majority of the independent trustees; commissions or remuneration received by any of those persons in connection with any of those transactions must be deducted from the advisory fee;

(3) fees and expenses that the trust incurs or pays must be restricted as follows:

(A) the aggregate annual expenses of every character paid or incurred by the trust may not exceed two and one-half percent of the total invested assets of the trust, and may not exceed the greater of

(i) two and one-half percent of the average net assets of the trust; net assets must be calculated at least quarterly on a basis consistently applied;

(ii) 25 percent of the net income of the trust, before deducting advisory and servicing fees and expenses; net income must be calculated at least quarterly on a basis consistently applied;

(B) the adviser must reimburse the trust at least annually for the amount by which aggregate annual expenses paid or incurred by the trust exceed the amounts set out in (A) of this paragraph;

(C) for purposes of this paragraph, aggregate annual expenses

(i) include advisory fees and mortgage servicing fees; and

(ii) do not include interest, taxes, or expenses in connection with the issuance of securities or shareholder relations, or the acquisition, operation, maintenance, protection, or disposition of trust properties;

(D) for purposes of this paragraph, net income does not include provision for depreciation, realized capital gains or losses, or extraordinary items;

(4) leverage may not be unreasonable in relation to the net assets of the trust, and the maximum amount of leverage in relation to the net assets must be stated in the prospectus;

(5) minimum capital must be the lesser of $200,000 or 10 percent of the net assets of the trust upon completion of the public offering;

(6) a trust may not

(A) invest more than 10 percent of its total assets in unimproved real property or mortgages on unimproved real property, except for property that is being developed or will be developed within a reasonable period;

(B) invest more than 10 percent of its total assets in junior mortgages, except for wraparound type junior mortgages;

(C) engage in any material trading activities with respect to its properties;

(D) issue redeemable equity securities or equity securities of more than one class;

(E) issue debt securities to the public unless the historical cash flow of the trust or the substantiated future cash flow of the trust, excluding extraordinary items, is sufficient to cover the interest on the debt securities; or

(F) issue options or warrants to purchase its securities to the adviser of the trust or any person affiliated with the adviser, or to a person at exercise prices less than the fair market value of those securities on the date of grant;

(7) an advisory contract entered into by the trust

(A) before the initial public offering may not exceed three years in length;

(B) after the initial public offering may not exceed one year in length; and

(C) must be terminable at any time without penalty, by the trustees or a majority of the holders of outstanding shares of beneficial interest, upon not less than 60 days' written notice to the adviser;

(8) the trust must prepare reports and hold meetings as follows:

(A) the trust must prepare an annual report concerning its operations for each fiscal year ending after the public offering of the trust's securities, including financial statements certified by independent public accountants and prepared in accordance with generally accepted accounting principles applied on a consistent basis; the annual report must be delivered to each public shareholder and debenture holder within 120 days after the end of the fiscal year;

(B) the trust must hold an annual meeting of the holders of outstanding shares of beneficial interest of the trust, upon reasonable notice, following delivery of the annual report prepared as required in (A) of this paragraph;

(C) the trust must file with the administrator the annual report required under (A) of this paragraph and other interim reports delivered to public shareholders.

(b) In this section,

(1) "leverage" means the aggregate secured and unsecured borrowings of the trust;

(2) "minimum capital" means the net assets of the trust before the initial public offering;

(3) "net assets" means total invested assets at cost before deducting depreciation reserves, less total liabilities.

History: Eff. 2/20/72, Register 41; am 4/19/2000, Register 154

Authority: AS 45.55.120

AS 45.55.950