BILL ANALYSIS



S.B. 1617
By: Harris (Brady)
May 2, 1995
Committee Report (Unamended)


BACKGROUND

The Texas Real Estate Investment Trust Act ( TREITA") authorizes a
form of business organization, in conformance with federal tax law,
designed specifically for use in the acquisition and development of
real property.  The establishment of a real estate investment trust
("REIT") pursuant to the TREITA has become an important financial
device for investor participation in major real estate development. 
The TREITA, however, is in critical need of updating and
standardization to facilitate its use and to make it competitive
with other states.  Areas of primary concern for modification
include the merger and share exchange provisions.

The Texas Business Corporation Act ( TBCA") provides an excellent
source for concepts and language for the TREITA modifications.  By
transposing concepts from the developed body of corporation law,
the TREITA can obtain the benefit, by analogy, of established
judicial interpretations.  The use of TBCA concepts (for example,
the provision drawn from Section 5.01 of the TBCA permitting
multiple surviving entities in a merger) also adds needed
flexibility.  

Language taken from the TBCA has been modified to conform with
existing provisions of the TREITA (e.g., the retention of the
requirement that filings be made with the county clerk of the
county of the principal place of business and the role played by
trust managers).  Other proposed changes are technical in nature,
intended to remove potential ambiguities (e.g., the addition of
enumerated rights for dissenting REIT shareholders, which were
formerly established by reference to the TBCA).  Certain statutory
limitations are proposed to be deleted (e.g., the requirement of
major capital improvements within 15 years) when the supporting
rationale is unclear or no longer applicable.  Other minor changes
include conforming changes to heading formats and expansion of the
numbering system.  All modifications have been analyzed and
approved by the Corporation Law Committee of the Business Law
Section of the State Bar of Texas.

PURPOSE

The bill provides a comprehensive update of the TREITA using
appropriate concepts and provisions from the TBCA while preserving
the distinctive characteristics of REITs.  The bill establishes a
modern, flexible, and competitive statutory basis for forming REITs
which will attract additional investment in Texas real property.

RULEMAKING AUTHORITY

Section 5.20(B).  May grant the secretary of state the authority to
be an agent of the real estate investment trust on whom any
process, notice, or demand may be served.  Service of any process,
notice, or demand on the secretary of state shall be made by
delivering to and leaving with the secretary of state, assistant
secretary of state, or any clerk having charge of the corporation
department of the office of the secretary of state, duplicate
copies of the process, notice, or demand.  If any process, notice,
or demand is served on the secretary of state under section 5.20,
the secretary of state shall immediately forward by registered mail
one of the copies of the process, notice, or demand to the real
estate investment trust at its registered office.  Any service made
on the secretary of state shall be returnable in not less than 30
days.

Section 5.20(C).  May grant the secretary of state the authority to
keep a record of all processes, notices, and demands served on the
secretary of state.  The record must include the time of the
service and the action of the secretary of state with regard to the
process, notice, or demand.


Section 5.20(D).  May authorize the secretary of state to collect
a fee for the administration of certain real estate investment
trust records.

SECTION BY SECTION ANALYSIS

SECTION 1.  The Texas Real Estate Investment Trust Act (Article
6138A, Vernon's Texas Civil Statutes) is amended as follows:

     ART. 6138A.  TEXAS REAL ESTATE INVESTMENT TRUST ACT

     Section 1.10.  SHORT TITLE.  States the Act shall be known as
the "Texas Real Estate Investment Trust Act."

     Section 2.10.  REAL ESTATE INVESTMENT TRUST DEFINED.  Defines
"real estate investment trust" as an unincorporated trust formed by
one or more managers. 

     Section 3.10.  FORMATION OF REAL ESTATE INVESTMENT TRUST. 
Deletes language requiring major capital improvements within 15
years.  The current capital improvement requirement is not required
by federal tax law for real estate investment trust qualification,
restricts the applicability of the TREITA to particular types of
properties, and reduces the flexibility of trust managers to
respond appropriately to market conditions.  Also requires the
receipt of consideration for the issuance of shares having a value
of at least $1,000.  Provides that the existence of a real estate
investment trust begins upon filing of the declaration of trust,
requires an organizational meeting, and establishes creation and
governance formalities.

     Section 3.20.  DEFENSE OF ULTRA VIRES.  Sets forth
circumstances under which the defense applies.  Excludes certain
common law possibly applicable which might cause certain real
estate investment trust acts to be unenforceable.

     Section 3.30.  CLASSIFICATION OF SHARES.  Clarifies that
preemptive rights are denied unless specifically provided in the
declaration of trust.  Moves share certificate provisions to
Section 7.20.

     Section 4.10.  OPERATION OF REAL ESTATE INVESTMENT TRUST;
TRUST MANAGERS AND OFFICERS.  Modifies residency requirements for
a majority of trust managers.  Provides for the number and election
of trust managers.  Provides for classification of trust managers
as well as staggered elections and, when there are nine or more
trust managers, cumulative voting for trust managers. Provides that
a declaration of trust may provide for trust manager vacancies to
be filled by majority vote of the remaining trust managers.  If set
forth in the declaration of trust or bylaws, an alternative
procedure may be provided.  Sets forth investment limitations,
including the requirement that 75% of assets be invested in real
property, to replace a reference to the Internal Revenue Code (the
 Code").  This cross reference reduces need for conforming
amendments to Code changes.

     Section 4.20.  INTERESTED TRUST MANAGERS AND OFFICERS.  Sets
forth standards and procedures for approving contracts and
transactions involving interested trust managers and officers.

     Section 4.30.  COMMITTEES OF THE TRUST MANAGERS.  Provides for
the creation of committees of trust managers and sets limits on
committee authority.

     Section 5.10.  REGISTERED OFFICE AND REGISTERED AGENT. 
Provides for a registered office, for consistency with other
sections that refer to a registered office (e.g., sections that
provide for documents to be placed on file at the trust's
registered office).  Notice of the registered office is filed with
the applicable county clerk.  The registered office may be, but
need not be, the same as the trust's principal office and place of
business.  Also requires real estate investment trusts to maintain
and file notice with the county clerk of a registered agent, which
may be an individual Texas resident, a Texas corporation or real
estate investment trust, or a foreign corporation authorized to
transact business in Texas.

     Section 5.20.  SERVICE OF PROCESS.  Provides for service of
process and names the Secretary of State as agent for service of
process whenever a registered agent is not maintained in Texas.

     Section 6.10.  GENERAL POWERS OF REAL ESTATE INVESTMENT TRUST. 
Sets forth the general powers of a real estate investment trust. 
Grants express powers to engage in activities mandated or
authorized by applicable sections of the Code.

     Section 7.10.  SUBSCRIPTION FOR SHARES.  Governs the
subscription for shares.

     Section 7.20.  CERTIFICATES REPRESENTING SHARES.  Sets forth
the requirements for share certificates.  As the proposed revisions
do not contain a grant of preemptive rights similar to the TBCA,
but rather provide that preemptive rights may be granted under the
declaration of trust, any certificates representing real estate
investment trust shares issued with preemptive rights must contain
a conspicuous statement to that effect.

     Section 7.30.  CONSIDERATION AND PAYMENT FOR SHARES.  Provides
that any tangible or intangible benefit to the trust, including
services performed, contracts for services to be performed, and
other securities of the real estate investment trust, constitute
legal consideration for the issuance of shares.

     Section 7.40.  TRANSFER OF SHARES AND OTHER SECURITIES AND
RESTRICTIONS ON TRANSFER.  Provides for the transfer of shares. 
Permits transfer restrictions, including a restriction that
reasonably maintains a tax advantage (including real estate
investment trust status) under the Code.  

     Section 8.10.  LIABILITY OF SUBSCRIBERS AND SHAREHOLDERS. 
Sets forth the liability of subscribers and shareholders.

     Section 9.10.  BYLAWS.  Provides for initial bylaws by the
trust managers and deletes the alternative provision for adoption
of the initial bylaws by shareholders.  Shareholders retain a right
to amend, repeal, or adopt the trust's bylaws unless the
declaration of trust or bylaws adopted by shareholders provide
otherwise.

     Section 9.20.  INDEMNIFICATION.  Provides for indemnification. 
Extends indemnification to trust managers and officers who served
in certain of the trust's predecessor entities.  Reimbursement of
indemnified expenses may be authorized by a resolution of the
shareholders or trust managers (as well as by provision in the
declaration of trust or bylaws).  

     Section 10.10.  MEETINGS OF SHAREHOLDERS.  Provides for
meetings of shareholders.  Failure to hold an annual meeting will
not work a dissolution.  The declaration of trust may adjust the
percentage of shareholders needed to call a special meeting (but
not higher than 50%).

     Section 10.20.  TRUST MANAGER MEETINGS AND NOTICE OF MEETINGS. 
Provides for trust manager meetings.

     Section 10.30.  ACTIONS WITHOUT A MEETINGS; TELEPHONE
MEETINGS.  Provides for actions without a meeting and telephone
meetings.  Clarifies that the shareholder notice provisions do not
apply to action taken by written consent of shareholders.

     Section 11.10.  NOTICE OF SHAREHOLDERS MEETINGS.  Provides for
notice of shareholder meetings.

     Section 11.20.  REGISTERED HOLDERS OF SHARES, CLOSING OF SHARE
TRANSFER RECORDS, AND RECORD DATE.  Provides for the registered
holders of shares, closing of transfer records, and record dates.

     Section 12.10.  QUORUM OF AND VOTING BY SHAREHOLDERS. 
Provides for the quorum of and voting by shareholders.  Trust
managers must be elected by two thirds of the votes cast, unless
otherwise provided in the declaration of trust.  If provided in the
declaration of trust or bylaws, express abstentions may have the
effect of a negative vote on a matter (with certain exceptions). 
Provides for establishment of procedures for determining the
validity of proxies and certain other matters relating to
shareholder meetings.

     Section 13.10.  VOTING OF SHARES.  Provides for the voting of
shares.  Cumulative voting is denied unless specifically authorized
by the declaration of trust.  Permits the voting, in a fiduciary
capacity, of shares held or controlled by a real estate investment
trust in its fiduciary capacity.

     Section 13.20.  VOTING TRUSTS AND VOTING AGREEMENTS.  Permits
voting trusts and voting agreements.

     Section 14.10.  DISTRIBUTIONS.  Provides for distributions
from a real estate investment trust.  

     Section 14.20.  SHARE DIVIDENDS.  Provides for share
dividends.

     Section 14.30.  SPLIT-UP OR DIVISION WITHOUT STATED CAPITAL
INCREASE.  Provides for a split up or division without stated
capital increase.  Clarifies that these matters may be approved by
trust managers.

     Section 14.40.  DETERMINATION OF NET ASSETS, STATED CAPITAL,
AND SURPLUS.  Provides for the determination of net assets, stated
capital, and surplus.

     Section 14.50.  DATE OF DETERMINATION OF SURPLUS.  Provides
for the date of determination of surplus.  Provides that a
distribution involving a contract by a real estate investment trust
to acquire its shares is deemed to have been made, at the option of
the real estate investment trust, either on the date the contract
is made or effective on the date on which the shares to be acquired
are acquired.

     Section 14.60.  SURPLUS AND RESERVES.  Provides for surpluses
and reserves.  Because real estate investment trusts may have
long term or projected obligations with respect to real property
interests, a statutory provision for reserves is particularly
applicable.

     Section 15.10.  LIABILITY OF TRUST MANAGER(S).  Provides for
the liability of trust managers.  States that trust managers may
rely in good faith on trust officers and employees, lawyers,
accountants, other outside experts, and manager committees.  Trust
managers found liable may be entitled to contribution from other
trust managers.  Provides a timeframe in which actions against
trust managers may be brought.

     Old Section 16.00.  SHARE AS PERSONAL PROPERTY.  Deleted. 
Replaced by Section 7.40(A) which provides that real estate
investment trust securities and shares are personal property.

     Section 17.10.  JOINDER OF SHAREHOLDERS NOT REQUIRED.  The
joinder of shareholders in any sale, mortgage, lease, or other
disposition of all or any part of assets of a real estate
investment trust shall not be required.

     Section 18.10.  BOOKS AND RECORDS.  Each real estate
investment trust shall keep complete and correct books of accounts
and minutes of the proceedings.  Any person who has been a
shareholder of record for at least six (6) months immediately
preceding his demand, or be a holder of at least five per cent (5%)
of all the outstanding shares of a real estate investment trust.

     Old Section 19.00.  TRANSFER OF SHARES.  Deleted.  Replaced by
Section 7.40(A) which provides that real estate investment trust
shares and other securities are transferable in accordance with
Chapter 8   Investment Securities   of the Business & Commerce
Code.

     Section 19.10.  TERMINATION AND LIQUIDATION.  Provides for
dissolution of a real estate investment trust.  Requires a vote by
at least two thirds of any class or series entitled to vote as a
class and by at least two thirds of the outstanding shares
otherwise entitled to vote.  

     Section 19.20. ARTICLES OF DISSOLUTION.  On the termination
and liquidation of the real estate investment trust, an officer
shall execute articles of dissolution on behalf of the real estate
investment trust and the articles of dissolution shall set forth: 
the name of the real estate investment trust; names and addresses
of its officer and trust managers; all remaining property and
assets have been distributed among its shareholders; date of the
adoption of the resolution to dissolve the trust; number of shares
outstanding and the number of shares entitled to vote on the
dissolution; number of shares voted for and against the
dissolution.  A copy of the articles of dissolution shall be filed
with the county clerk of the county of the principal place of
business of the real estate investment trust.  Once the articles of
dissolution have been filed with the county clerk the real estate
investment trust shall cease to exist.

     Old Section 21.00.  GREATER VOTING REQUIREMENTS.  Deleted. 
Replaced by Section 12.10.

     Section 21.10.  WAIVER OF NOTICE.  Whenever any notice is
required to be given to any shareholder of a real estate investment
trust, a waiver in writing, signed by the person entitled to such
notice shall be equivalent to the giving of such notice.

     Section 22.10.  RIGHT TO AMEND DECLARATION OF TRUST.  Provides
generally for the amendment of declaration of trusts.

     Section 22.20.  PROCEDURE TO AMEND DECLARATION OF TRUST.  Sets
forth procedures for amending declaration of trusts.

     Section 22.30.  CLASS VOTING ON AMENDMENTS.  Permits class
voting on amendments.

     Section 22.40.  ARTICLES OF AMENDMENT.  Establishes use of
articles of amendment.

     Section 22.50.  FILING OF ARTICLES OF AMENDMENT.  Provides for
filing of articles of amendment.  This filing, like the other
filings required under the TREITA,
is made with the applicable county clerk.

     Section 22.60.  EFFECT OF FILING OF ARTICLES OF AMENDMENT. 
Establishes effect of articles of amendment.

     Section 22.70.  RESTATED DECLARATION OF TRUST.  Provides for
restated declaration of trust.

     Section 23.10.  MERGER.  Replaces and expands merger
provisions.  Permits mergers between one or more Texas real estate
investment trusts and one or more domestic corporations, real
estate investment trusts, partnerships, or other entities.  

     Section 23.20.  SHARE EXCHANGE OR ACQUISITION.  Provides for
share exchange or acquisition involving the entities described in
Section 23.10.

     Section 23.30.  ACTION ON PLAN OF MERGER OR EXCHANGE. 
Provides for plan of merger or exchange.

     Section 23.40.  ARTICLES OF MERGER OR EXCHANGE.  Provides for
articles of merger or exchange.  Specifies information to be
included.  Requires filing with the county clerk.

     Section 23.50.  EFFECTIVE DATE OF MERGER OR SHARE EXCHANGE. 
Provides for effective date of merger or share exchange.

     Section 23.60.  EFFECT OF MERGER OR SHARE EXCHANGE.  Provides
for effect of merger or share exchange.

     Section 24.10.  DISPOSITION OF ASSETS AUTHORIZED BY TRUST
MANAGERS.  Provides for disposition of assets authorized by trust
managers.

     Section 24.20.  DISPOSITION OF ASSETS REQUIRING SPECIAL
AUTHORIZATION OF SHAREHOLDERS; EFFECT OF DISPOSITION REQUIRING OR
NOT REQUIRING AUTHORIZATION; LIABILITY OF ACQUIRING ENTITY. 
Provides for disposition of assets requiring special authorization
of shareholders, effect of disposition requiring or not requiring
authorization, and liability of acquiring entity.

     Section 25.10.  RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT
OF CERTAIN ACTIONS.  Establishes rights of dissenting shareholders
in certain actions.  Clarifies that a shareholder who receives
securities and cash, in combination, in connection with a plan of
merger or exchange may not have the right to dissent under certain
specified circumstances.
Section 25.20.  Establishes procedure for dissent by shareholders.

     Section 25.20.  PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO
ACTIONS.  Any shareholder of any domestic real estate investment
trust who has the right to dissent from any of the actions referred
to in Section 25.10 of this Act may exercise that right to dissent
only to comply with the following:  a written objection to the
action must be submitted to a vote of shareholders at a meeting;
within 20 (twenty) days after receipt of a demand for payment made
by the dissenting shareholder, the entity shall deliver or mail to
the shareholder a written notice that sets out that the entity
accepts the amount claimed in the demand; on payment of the agreed
value, the shareholder ceases to have any interest in the shares or
in the real estate investment trust.

     Section 25.30.  PROVISIONS AFFECTING REMEDIES OF DISSENTING
SHAREHOLDERS.  Sets forth remedies for dissenting shareholders.

     Section 26.10.  REORGANIZATION UNDER A FEDERAL STATUTE. 
Provides for reorganization under federal law.

     Section 27.10.  DELAYED EFFECTIVENESS OF CERTAIN FILINGS. 
Provides that a real estate investment trust may specify a future
effective time for certain filings (or a time based upon the stated
events or facts).  Enables real estate investment trusts to control
the timing of certain events, such as mergers, amendments to
declarations of trust, or share transfer restrictions.

     Section 28.10.  CASES NOT PROVIDED FOR.  Default provision
requiring that any case not provided for in the TREITA be decided
under the TBCA and its case law rather than, as currently provided,
"the rules of law and equity."

SECTION 2.  Provides a general effective date of September 1, 1995.

SECTION 3.  Emergency clause.

COMPARISON OF ORIGINAL TO SUBSTITUTE

Sections 3.10, 5.10, 10.30, 19.20, 22.60, 23.10, 23.20, 23.30,
23.40, 23.50, 26.10, and 27.10.  These sections are changed at the
request of the Secretary of State to move certain required filings
for real estate investment trusts from the Secretary of State's
office to the offices of affected county clerks.

Section 5.20 was changed to authorize the Secretary of State to
collect a fee for the administration of certain real estate
investment trust records.

The committee substitute contains other minor corrective and
conforming modifications.

SUMMARY OF COMMITTEE ACTION

S.B. 1617 was considered by the Committee on Business and Industry
in a public hearing on May 2, 1995.  No public testimony was
considered on the bill.  S.B. 1617 was reported favorably, without
amendment, with the recommendation that it do pass and be printed,
by a record vote of 6 (six) ayes, 0 (zero) nays, 0 (zero) present-not-voting, 3 (three) absent.