Peter M. Fass

The SEC is required pursuant to legislation passed by Congress in December 2015 to conduct a review of Regulation S-K. Regulation S-K is the prescribed regulation under the Securities Act of 1933 (1933 Act) that lays out the reporting requirements for various SEC filing used by public companies including real estate companies.

To date the SEC has adopted amendments to Regulation S-K (Final Rules) that are intended to improve the readability and navigability of disclosure documents and discourage repetition and the disclosure of immaterial information. Among the changes, the amendments allow registrants to (1) choose how to present historical periods in Management's Discussion and Analysis (MD&A); (2) omit confidential information from most exhibits without filing a Confidential Treatment Request; and omit filing as an exhibit any document incorporated by reference, so long as a hyperlink is provided for such documents.

Below is a summary of these changes and some additional technical changes.

MD&A. Instruction 1 to Item 303(a) of Regulation S-K currently provides that, generally, a company's MD&A should address the three-year period covered by the financial statements and either use year-to-year comparisons or another format that, in the company's judgment, enhances a reader's understanding. The Instruction also states that, where trend information is relevant, reference to the five-year selected financial data may be necessary.

The Final Rules now provide that the discussion of the earliest year may be omitted from MD&A if the company has included such discussion in a prior filing on EDGAR and includes a statement identifying the location in the prior filing. Further, the reference to the five-year selected financial data in Instruction 1 is eliminated because Item 303(a)(3)(ii) already requires disclosure of known trends and uncertainties. The Final Rules simplify Instruction 1 emphasizing that companies may use any presentation that, in the company's judgment, would enhance a reader's understanding of the disclosures.

Confidential Treatment. The Final Rules allow companies to redact confidential information from material contracts filed under Item 601(b)(10) of Regulation S-K where such information is both (1) not material and (2) would likely cause competitive harm to the registrant if publicly disclosed, without simultaneously submitting a confidential treatment request to the SEC. If the SEC staff requests, the company must promptly provide an unredacted paper copy of the exhibit along with the company's materiality and competitive harm analyses. The changes reduce the current burden companies incur in preparing and processing confidentiality request while at the time providing all material information to investors. If after a selective SEC staff review a company's analyses does not support its redactions, the SEC staff may request that the company file an amendment that includes some, or all, of the previously redacted information.

Exhibits. The Final Rules expand to all exhibits filed under Item 601 of Regulation S-K the current accommodation that permits companies to omit immaterial schedules and attachments to acquisition agreements. The Final Rules provide that companies are required to provide with each filed exhibit a list that briefly identifies the contents of omitted schedules and attachments and, upon SEC staff request, furnish a copy of any omitted schedules or attachments.

Trading Symbols and XBRL. Some of the amendments require additional disclosure or incorporation of new technology. For example, under the Final Rules, the cover pages of Forms 10-K, 10-Q and 8-K will be revised to require the disclosure of the trading symbol and title for each class of a company's registered securities and the name of each exchange on which the company's securities are registered. In addition, all information on the cover pages of these forms must be tagged in Inline XBRL. (Inline XBRL is a format that allows SEC filers to embed XBRL data directly into a HTML document so that SEC filers need only prepare one Inline XBRL document.)

The SEC proposed amendments to modernize the Description of Business, Legal Proceeding and Risk Factors in Regulation S-K. The Regulation S-K amendments revise Items 101(a) (description of the general development of the business), 101(c) (narrative description of the business), and 105 (risk factors) emphasizing a more principles-based approach because businesses differ in terms of which aspects of these disclosures are material to them. The flexible approach, as opposed to prescriptive requirements, may elicit more relevant disclosures about these items. The amendment of Item 103 (legal proceedings) continues the current approach because that requirement depends less on the specific characteristics of registrants.

The proposed amendment of Item 101(a):

• makes it largely principles-based by providing a non-exclusive list of the types of information that may need to disclose, and requiring disclosure of a topic only to the extent such information is material to an understanding of the general development of a registrant's business;
• includes as a listed disclosure topic, to the extent material to an understanding of the registrant's business, transactions and events that affect or may affect the company's operations, including material changes to a registrant's previously disclosed business strategy;
• eliminates a timeframe for this disclosure; and
• permits in filings made after an initial filing, providing only updates of the general development of the business that focuses on material developments in the reporting period, and with an active hyperlink to the registrant's most recent filing that, together with the update, contains the full discussion of the general development of the registrant's business.

The amendment of Item 101(c):

• clarifies and expands the principles-based approach, by including disclosure topics drawn from a subset of the topics currently contained in Item 101(c);
• includes, as a disclosure topic, human capital resources, including any human capital measures or objectives that management focuses on in managing the business, to the extent such disclosures are material to an understanding of the registrant's business (i.e., depending on the nature of the registrant's business and workforce, measures or objectives that address the attraction, development, and retention of personnel); and
• refocuses the regulatory compliance requirement by including material government regulations, not just environmental provisions, as a topic.

The amendment of Item 103:

• states that the required information about material legal proceedings may be provided by including hyperlinks or cross-references to legal proceedings disclosure located elsewhere in the document in an effort to encourage registrants to avoid duplicative disclosure; and
• revise the $100,000 threshold for disclosure of environmental proceedings to which the government is a party to $300,000.

The amendment of Item 105

• requires summary risk factor disclosure if the risk factor section exceeds 15 pages;
• refines the principles-based approach by changing the disclosure standard from the "most significant" factors to the "material" factors required to be disclosed; and
• requires risk factors to be organized under relevant headings, with any risk factors that may generally apply to an investment in securities disclosed at the end of the risk factor section under a separate caption.

Peter M. Fass is a partner at Proskauer Rose.