For Part 2 in our three-part series on taking a Real Estate Investment Trust (REIT) public, we tackle the transition from private to public in terms of the need for robust accounting, enhanced transparency and improved investor communications.
This installment will help private real estate companies understand what’s ahead as they prepare to move into public reporting. We walk you through:
As a REIT leader, this information will help you find the confidence and clarity to take these important steps and thrive in the public market.
Read Part 1 of our series: “Private REITs Going Public: Internal Controls and Governance”
Transitioning from a private to a public REIT is a major milestone that brings heightened expectations for transparency, structure and communication. Unlike the private environment, where reporting is tailored to a small, familiar investor base, public REITs must communicate clearly with a broad audience of institutional investors, regulators and the market at large. Financial reporting becomes the primary vehicle for conveying performance, strategy and risk — making accuracy and clarity essential for building trust and attracting capital.
Specifically, public REITs must comply with GAAP, meet SEC reporting requirements and disclose detailed information on portfolios, leases and debt. This shift also demands a culture of accountability and strong investor relations to effectively share results and maintain confidence. Success will depend on early planning, experienced teams, modern systems and a commitment to continuous improvement, as missteps in reporting or communication can quickly erode credibility.
When considering the move to becoming a public REIT, the first hurdle is figuring out just how challenging it will be to switch your current financial reporting system over to GAAP. As a private real estate business, you might be used to accounting methods like income tax, cash or modified accrual basis with limited disclosures. Your reporting schedule probably revolves around what your investors need and when, not what regulators demand. While this works fine for a small group of friends and family investors, it doesn’t offer the openness or consistency public markets expect.
Public REITs must significantly upgrade their reporting infrastructure with more detailed disclosures, such as financial metrics, risk factors, governance information and operational updates, not to mention the required quarterly and annual SEC filings. Accuracy and timeliness become nonnegotiable, as mistakes can damage credibility and trigger regulatory issues.
For example, to prepare for an Initial Public Offering (IPO), your REIT will have to convert to full GAAP financial reporting. Additionally, you will need to:
The process is demanding and costly, but it results in a clear, credible financial narrative that resonates with public investors.
Public REITs need to follow GAAP so investors can compare results and understand what is really driving the business. That accounting story can look different depending on the type of REIT. For equity REITs, the focus is usually on real estate assets, leases, tenant recoveries, acquisitions, impairments and consolidation, such as for office, industrial or multifamily properties and related joint ventures. For mortgage REITs, the focus shifts more toward loans, mortgage-backed securities, credit losses, derivatives, financing arrangements and fair value measurements, including the fair value option under ASC 825. In either case, the goal is the same: create a reporting foundation that is clear, supportable and ready for public-company scrutiny. Several standards are especially important:
When preparing for an IPO, REITs also need to carefully evaluate their investments in joint ventures, operating partnerships and other real estate agreements, such as leases, to determine whether or not they should be consolidated under ASC 810. Getting this analysis right is important because the conclusion can significantly affect reported assets, liabilities, leverage ratios and operating results. To help manage the process, consider the following:
Revenue recognition helps REITs determine how to account for money received from tenants in areas such as common area maintenance (CAM), property taxes, insurance, as well as extra services such as parking, amenities or maintenance. As a public REIT, it’s important to approach this with clarity:
When it comes to lease accounting, public REITs must follow ASC 842, which focuses on how lessors handle operating leases. To make this process work smoothly, there are a few key things to keep in mind:
Fair value measurements are important for both ongoing evaluations (like tracking the value of derivatives) and one-time checks (such as assessing investments for impairments or determining purchase price allocations on acquisitions). Here are some practical tips to keep in mind:
When it comes to the fair value option under ASC 825, public REITs may choose to measure certain investments and financial instruments at fair value, with changes in value flowing through earnings each reporting period. This option is commonly elected for investments, including loans, debt securities and preferred equity interests when fair value provides a more meaningful picture of performance. Because these measurements are subject to the guidance in ASC 820, having a well-defined valuation process is critical. To help manage the process, consider the following:
Think of segment reporting as a way to share insights with investors as to how your business operates at a more detailed level. ASC 280 asks you to break down your company into different segments based on how the highest level of your management team measures performance. For example, you might group your business by the type of assets you own or where they’re located. It’s important to keep track of the financial results for each segment in a consistent way, so you can compare apples to apples across your business. When you file reports with the SEC, you’ll need to clearly share these segment details, so everyone can see how each part of your REIT is performing.
Adopting and maintaining GAAP compliance is a major undertaking for any REIT preparing to go public. Successful REITs often approach the transition to GAAP compliance thoughtfully and proactively by breaking down the process into manageable steps, setting clear goals along the way to track progress. By investing in modern reporting systems and automation tools, these companies make sure their financial data is accurate and accessible. They also bring together teams from different departments or even an external SEC GAAP adviser to collaborate and address challenges from multiple angles. To stay ahead of changing regulations, they provide ongoing training so their staff are always up to date with the latest standards.
Some common pitfalls during GAAP adoption include:
When a REIT is preparing for an IPO, it must adhere to a range of initial and ongoing SEC reporting requirements. It’s critical to know up front what is required:
Read “Navigating SEC Audits for REITs: Your Guide to Rules S-X 3-14, S-X 3-05 and S-X 3-09”
Once public, a REIT transitions to ongoing reporting obligations, such as periodic filings and timely disclosure of material events, to maintain transparency with investors. A REIT must meet a range of SEC reporting rules designed to keep investors informed and protect their interests. This typically involves:
These filings are all about being open and honest, so investors can make smart decisions and trust your REIT’s leadership.
Meeting SEC reporting deadlines is essential to SEC compliance. The specific due dates depend on whether your REIT is classified as large accelerated, accelerated, nonaccelerated, smaller reporting company or emerging growth company, and missing them can lead to serious consequences. Most new public REITs would fall under the reporting requirements of the latter three items resulting in extended filing dates, reduced disclosure and no testing of internal controls, at least initially, by the auditors.
To keep everything on track, many public REITs find it helpful to:
By sticking to a disciplined process, REITs can meet their reporting requirements smoothly and avoid or at least potentially reduce last-minute stress.
Missing SEC reporting requirements can really hurt a REIT’s day-to-day operations and reputation. If you miss deadlines or your filings are not done right, it can lead to:
In short, staying on top of SEC rules is crucial for keeping the REIT’s reputation strong and ensuring smooth business operations.
Institutional investors are now looking for more than the standard disclosures required by regulators. They want a clear, straightforward picture of a REIT’s entire business related to how its portfolio is built, details about leases, tenants and the debt situation. When REITs provide high-quality, easy-to-understand disclosures, they put themselves ahead of the pack and help both current and future investors make smarter decisions about risk and the REIT’s long-term prospects. To make disclosures even more valuable, REITs can ask investors what information they care about most, compare their disclosures to those of top industry peers, and keep their reports up to date as strategies or market conditions change.
When REITs clearly lay out what’s in their portfolio, investors get a much better understanding of what the REIT owns and manages on a daily basis. That means being open about where properties are located, what kinds of buildings make up the portfolio, which tenants are bringing in the most revenue, and how full those properties are right now. The most helpful disclosures make things easy to digest with maps, charts and tables. Pointing out the biggest tenants, highlighting key lease terms, and sharing details on recent transactions give investors a real look at a REIT’s strategy and what’s driving its growth.
Knowing when leases expire helps investors feel confident in a REIT’s steady cash flow and spot risks around losing major tenants. Clear disclosures like tables showing expirations, renewal rates and plans for upcoming changes are important. Additionally, sharing details about any new leases, tenant types, and recent rent bumps shows how the portfolio is growing and staying strong. These updates reassure investors a REIT is keeping income stable by replacing old leases and making smart property moves.
Being upfront about debt is essential. Investors aren’t only interested in the total amount owed. They also want to know if a REIT is sticking to the rules set by its lenders and what actions will be taken if those rules are broken. It’s important for REITs to clearly outline their main debt agreements, update investors on whether they’re meeting those requirements, and explain any exceptions, waivers or plans to refinance or pay down debt. Trying to hide any problems with debt agreements can quickly erode trust in the market and make it more expensive to borrow money in the future.
Public REITs are required to work with auditors who are registered with the PCAOB. These auditors must undergo rigorous annual reviews of their public company audits, which involve detailed inspections of their work papers and compliance with both GAAP and the auditing standards.
These auditors focus on reporting the degree to which internal controls are well-managed and working effectively, financial statements are truly accurate and include all relevant disclosures, and every regulatory rule is followed. To make the audit run smoothly, REITs should start preparing early, keep open lines of communication, and have all their documents and workpapers organized and ready to go on time.
After an IPO is completed and a REIT has grown, building an internal audit function is arguably one of the smartest moves a public REIT can make. Think of internal auditors as the REIT’s own “financial detectives.” They’re here to make sure everything is running smoothly, financial and operational risks are managed and the REIT is ready for the external auditors. To set up a strong internal audit team, consider:
These days, the most forward-thinking REITs are embracing technology to make internal audits even better. Automated audit tools and data analytics help teams spot issues faster, uncover weaknesses in controls and cut down on tedious manual work. That way, the internal audit team can spend less time on routine checks and more time focusing on the big picture analysis that really adds value.
Investor relations are more than a formal requirement for public REITs; they’re a cornerstone of building trust with investors. As REITs grow and adapt, strong investor relations practices help bridge the gap between leadership and the investment community, ensuring everyone stays informed and confident. The best REITs focus on honest, regular communication, provide clear insights during earnings calls and share supplemental information that goes beyond the basics. By offering forward-looking guidance, breaking down performance and connecting openly with analysts and investors, REITs create an environment where investors feel secure and engaged in the journey.
GAAP financials are foundational for public REITs. The “best” REITs go further, offering supplemental reporting packages that give investors a closer look “under the hood.”
Non-GAAP measures like funds from operations (FFO) and adjusted funds from operations (AFFO) are especially important for understanding how a REIT is really doing:
Both non-GAAP metrics give investors a clearer view of the cash generating ability of a REIT’s core operations, since traditional net income can be skewed by accounting rules that don’t reflect actual cash flow.
We’ve covered the challenges that come with turning a private REIT into a public one, but what about the best ways to get it right? If you want your financial reporting to be of superior quality, it’s not just about the numbers. It’s also about building trust and clarity. Start by:
Making these steps part of your routine will give investors disclosures they can rely on, help them compare your REIT to others and stay ahead of what the market expects. Ultimately, these best practices are the building blocks of genuine trust. When you put them into action, you’re not just following rules; you’re creating an environment where investors feel truly confident and can believe in the future you’re shaping together.
Getting your external auditors involved early can make everything run much more smoothly. By bringing them into the process from the beginning, REITs can spot potential problems before they become headaches, clear up misunderstandings and set themselves up for a hassle-free audit. Here’s how to make it work:
It’s a good idea to send auditors early drafts of your financial statements and disclosure templates. This proactive step helps uncover challenges before they turn into expensive surprises, and helps ensure you’re all on the same page about how the statements should look and read. Also, don’t hesitate to ask for feedback on how you’ve set up and tested your internal controls. Their input can help you strengthen your processes and reduce the risk of audit issues, setbacks or disruptions.
Financial reporting has become a lot more complicated, which makes choosing the right technology crucial. The best tools help you pull together all vital information — from accounting and SEC filings to simply keeping investors in the loop.
Start with platforms that connect all your financial data and reports, so everything’s always in sync. Look for automation that takes care of routine tasks like collecting data, reconciling numbers and generating reports, which will free up your team to tackle the bigger, more important issues. And don’t forget about analytics features, which give your executive team real-time updates on how your investments are performing and alert you to any risks before they become significant issues.
Competitive analysis is key to staying on top of expectations and best practices. REITs can gain valuable insights by:
Benchmarking is about ensuring your reporting lives up to market standards and gives investors the information they need.
Like any good strategy, great reporting needs to continue evolving as regulations change, investors ask new questions and the market shifts. For REITs looking to stay ahead of the curve, here are a few ways to keep improving:
By building a culture of continuous improvement, you’ll make sure your reports are accurate, up to date and ready for whatever the future brings.
Going public is a high-stakes journey that requires disciplined execution across accounting, reporting, controls and investor communications. By embracing GAAP, meeting SEC requirements, enhancing transparency and building strong internal controls and investor relations, your REIT demonstrates it is credible, resilient and ready for the public markets. These investments do more than ensure compliance; they position your organization to access institutional capital, support sustainable growth and build long-term trust. Executives who take this approach will be well equipped to navigate complexity, mitigate risk and earn the confidence of both investors and regulators.
Contact Nick Antonopoulos, Gino Scipione or a member of your service team to discuss this topic further.
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.