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What changed in MODIV INDUSTRIAL, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MODIV INDUSTRIAL, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+393 added−664 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-13)

Top changes in MODIV INDUSTRIAL, INC.'s 2023 10-K

393 paragraphs added · 664 removed · 237 edited across 5 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

143 edited+88 added−115 removed156 unchanged
Biggest changeThis summary does not address all of the risks that we face and should be read in conjunction with the full risk factors contained below in this “Risk Factors” section in this Annual Report on Form 10-K. • We are focused on future acquisitions of industrial manufacturing properties while reducing the number of office and retail properties in our portfolio, and therefore the prior performance of our real estate investments may not be indicative of our future results. • Disruptions in the financial markets and uncertain economic conditions could adversely affect market rental rates, commercial real estate values and our ability to secure debt financing at interest rates acceptable to us or at all, to service future debt obligations, or to pay distributions to our stockholders. • We have a substantial amou nt of inde btedness outstandi ng, whi ch may expose us to the risk of default under our debt obligations. • Increases in mortgage rates or changes in underwriting standards may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flow from operations and the amount of cash available for distribution to our stockholders. • Inflation and rising interest rates may adversely affect our financial condition and results of operations. • The COVID-19 pandemic has caused significant disruption to our tenants' business operations and any future outbreak of other highly infectious or contagious diseases could materially and adversely impact or disrupt our business operations, financial condition, results of operations, cash flows and performance. • Our listing on the NYSE does not guarantee an active and liquid market for our Class C Common Stock, and the market price and trading volume of the shares of our Class C Common Stock may fluctuate significantly. • Our Class C Common Stock is subordinate to our Series A Preferred Stock and our existing and future debt, and our common stockholders' interests could be diluted by the issuance of additional preferred stock, future offerings of debt securities, which could be senior to our common stock, or equity securities, and by other transactions. • Failure to continue to qualify as a REIT would reduce our net earnings available for investment or distribution. • Our real estate investments may include special use single-tenant properties that may be difficult to sell or re-lease upon tenant defaults or early terminations. • Downturns relating to certain geographic regions, industries or business sectors may have a more significant adverse impact on our assets and our ability to pay distributions than if we had a more diversified investment portfolio. • We are subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us. • Our real estate properties and related intangible assets may be subject to impairment charges. • We face significant competition for real estate investment opportunities, which may limit our ability to acquire suitable investments and achieve our investment objectives or pay distributions. • Our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency of a tenant, a downturn in the business of a tenant or a tenant’s lease termination. • Our charter and bylaws contain provisions, including restrictions on the ownership and transfer of our stock, that may delay, defer or prevent an acquisition of our common stock or a change in control. • We have experienced losses in the past and we may experience additional losses in the future. • Uninsured losses relating to real property could reduce our cash flow from operations and reduce the value of stockholders’ investment in us. • We face risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology networks and related systems. • We may be subject to adverse legislative or regulatory tax changes. 15 Table of Contents Risks Related to an Investment in Our Class C Common Stock Our listing on the NYSE does not guarantee an active and liquid market for our Class C Common Stock, and the market price and trading volume of the shares of our Class C Common Stock may fluctuate significantly.
Biggest changeHowever, investments in real estate are illiquid, and it may not be possible to dispose of assets in a timely manner or on favorable terms, which could adversely affect our financial condition, operating results and cash flows. • Disruptions in the financial markets and uncertain economic conditions could adversely affect market rental rates, commercial real estate values and our ability to secure debt financing at interest rates acceptable to us or at all, to service future debt obligations, or to pay distributions to our stockholders. • Our real estate properties and related intangible assets may be subject to impairment charges. • Downturns relating to certain geographic regions, industries or business sectors may have a more significant adverse impact on our assets and our ability to pay distributions than if we had a more diversified investment portfolio. • We are subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us. • We may change our targeted investments or investment strategy. • We have incurred losses in the past and we may experience additional losses in the future. • Our charter and bylaws contain provisions that may delay, defer or prevent an acquisition of our common stock or a change in control. • We are subject to risks relating to litigation and regulatory liability. • Inflation and rising interest rates may adversely affect our financial condition and results of operations or result in a decrease in the value of our Class C Common Stock. • Our current properties depend upon a single-tenant for their rental income, and our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency of a tenant, a downturn in the business of a tenant or a tenant’s lease termination in bankruptcy, or otherwise. • We have a substantial amount of indebtedness outstanding, which may expose us to the risk of default under our debt obligations. • Increases in mortgage rates or changes in underwriting standards may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flow from operations and the amount of cash available for distribution to our stockholders. • We may be subject to adverse legislative or regulatory tax changes. 4 Tabl e of Contents PART I ITEM 1.
Because we have a large number of stockholders and our shares of common stock have not been listed on a national securities exchange until recently, there may be significant pent-up demand to sell our shares. Our distributions to stockholders may change, which could adversely affect the market price of our Class C Common Stock.
Because we have a large number of stockholders and our shares of Class C Common Stock have not been listed on a national securities exchange until recently, there may be significant pent-up demand to sell our shares. Our distributions to stockholders may change, which could adversely affect the market price of our Class C Common Stock.
The loss of or the inability to retain key executive officers could delay or hinder implementation of our investment strategies, which could limit our ability to make distributions and decrease the value of an investment in our shares. Our success depends to a significant degree upon the contributions of Messrs.
The loss of or our inability to retain key executive officers could delay or hinder implementation of our investment strategies, which could limit our ability to make distributions and decrease the value of an investment in our shares. Our success depends to a significant degree upon the contributions of Messrs.
REIT I could be subject to the federal alternative minimum tax (for tax years beginning before December 31, 2017) and possibly increased state and local taxes for such periods; 3. we would inherit any such liability, including any interest and penalties that have accrued on such federal income tax liabilities; 4. if we were considered a “successor corporation” under the Internal Revenue Code and applicable Treasury Regulations, we could not elect to be taxed as a REIT until the fifth taxable year following the year during which REIT I was disqualified; and 5. for up to 5 years following re-election of REIT status, upon a taxable disposition of an asset owned as of such re-election, we could be subject to corporate level tax with respect to any built-in gain inherent in such asset at the time of re-election.
REIT I could be subject to the federal alternative minimum tax (for tax years beginning before December 31, 2017) and possibly increased state and local taxes for such periods; 3. we would inherit any such liability, including any interest and penalties that have accrued on such U.S. federal income tax liabilities; 4. if we were considered a “successor corporation” under the Internal Revenue Code and applicable Treasury Regulations, we could not elect to be taxed as a REIT until the fifth taxable year following the year during which REIT I was disqualified; and 5. for up to 5 years following re-election of REIT status, upon a taxable disposition of an asset owned as of such re-election, we could be subject to corporate level tax with respect to any built-in gain inherent in such asset at the time of re-election.
The increase in remote work practices may continue in a post-pandemic environment, even in the suburban markets and markets with lower demand in which we primarily operate. The need to reconfigure leased office space, either in response to the pandemic or to tenants' needs, may impact space requirements and also may require us to spend increased amounts for tenant improvements.
The increase in remote work practices may continue in a post-pandemic environment, even in the suburban markets and markets with lower demand in which we primarily operate. The need to reconfigure a leased space, either in response to the pandemic or to tenants' needs, may impact space requirements and also may require us to spend increased amounts for tenant improvements.
Properties we own, directly or through any subsidiary entity, including our Operating Partnership, but generally excluding our taxable REIT subsidiaries, may, depending on how we conduct our operations, be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
Properties we own, directly or through any subsidiary entity, including our Operating Partnership, but generally excluding our taxable REIT subsidiaries (“TRS”), may, depending on how we conduct our operations, be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
Historically, we have experienced net losses (calculated in accordance with generally accepted accounting principles in the United States (“GAAP”)) and we may not be profitable or realize growth in the value of our investments. Many of our losses can be attributed to depreciation and amortization, as well as interest expense and general and administrative expenses.
Historically, we have experienced net losses (calculated in accordance with generally accepted accounting principles in the United States (“GAAP”)) and in the future, we may not be profitable or realize growth in the value of our investments. Many of our losses can be attributed to depreciation and amortization, as well as interest expense and general and administrative expenses.
If substantial office space reconfiguration is required, a tenant may explore other office space and find it more advantageous to relocate than to renew its lease and renovate the existing space. If so, our business, operating results, financial condition and prospects may be materially adversely impacted.
If substantial space reconfiguration is required, a tenant may explore other space and find it more advantageous to relocate than to renew its lease and renovate the existing space. If so, our business, operating results, financial condition and prospects may be materially adversely impacted.
A default by a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant’s election not to extend a lease upon its expiration, could have an adverse effect on our financial condition and our ability to pay distributions.
A default by a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant’s election not to extend a lease upon its expiration, and other limitations, could have an adverse effect on our financial condition and our ability to pay distributions.
As a result, our board of directors may establish a class or series of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for our shares of common stock or otherwise be in the best interests of our stockholders.
As a result, our board of directors may establish a class or series of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for our shares of Class C Common Stock or otherwise be in the best interests of our stockholders.
Certain provisions of the MGCL may have the effect of inhibiting a third-party from acquiring us or of impeding a change of control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including: • “business combination” provisions that, subject to limitations, prohibit certain business combinations between an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of our outstanding shares of voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding stock of the corporation) or an affiliate of any interested stockholder for a period of five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-majority stockholder voting requirements on these combinations; and • “control share” provisions that provide that holders of “control shares” of the company (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares.
Certain provisions of the Maryland General Corporation Law (“MGCL”) may have the effect of inhibiting a third-party from acquiring us or of impeding a change of control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including: • “business combination” provisions that, subject to limitations, prohibit certain business combinations between an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of our outstanding shares of voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding stock of the corporation) or an affiliate of any interested stockholder for a period of five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-majority stockholder voting requirements on these combinations; and • “control share” provisions that provide that holders of “control shares” of the company (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares.
To the extent that our portfolio is concentrated in limited geographic regions, industries or business sectors, downturns relating generally to such region, industry or business sector may result in defaults on a number of our investments within a short time period, which may reduce our net income and the value of our common stock and accordingly limit our ability to pay distributions to our stockholders.
To the extent that our portfolio is concentrated in limited geographic regions, industries or business sectors, downturns relating generally to such region, industry or business sector may result in defaults on a number of our investments within a short time period, which may reduce our net income and the value of our Class C Common Stock and accordingly limit our ability to pay distributions to our stockholders.
Net leases typically contain: (i) longer lease terms; (ii) fixed rental rate increases during the primary term of the lease; and (iii) fixed rental rates for initial renewal options, and, thus, there is an increased risk that these contractual lease terms will fail to result in fair market rental rates if fair market rental rates increase at a greater rate than the fixed rental rate increases.
Net leases typically contain: (i) longer lease terms; (ii) fixed rental rate increases during the primary term of the lease; and (iii) fixed rental rates or fixed increases for renewal options, and, thus, there is an increased risk that these contractual lease terms will fail to result in fair market rental rates if fair market rental rates increase at a greater rate than the fixed rental rate increases.
Risks Related to Investments in Single-Tenant Real Estate Our current properties will depend upon a single-tenant for their rental income, and our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency of a tenant, a downturn in the business of a tenant or a tenant’s lease termination.
Risks Related to Investments in Single-Tenant Real Estate Our current properties depend upon a single-tenant for their rental income, and our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency of a tenant, a downturn in the business of a tenant or a tenant’s lease termination in bankruptcy or otherwise.
Our Credit Facility includes, and our future debt may include, restrictions on our ability to pay dividends to common stockholders, including holders of Class C Common Stock. As of December 31, 2022, there were 2,000,000 shares of Series A Preferred Stock issued and outstanding.
Our Credit Facility includes, and our future debt may include, restrictions on our ability to pay dividends to common stockholders, including holders of Class C Common Stock. As of December 31, 2023, there were 2,000,000 shares of Series A Preferred Stock issued and outstanding.
A change in our targeted investments or investment guidelines may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our common stock and our ability to make distributions to our stockholders.
A change in our targeted investments or investment guidelines may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our Class C Common Stock and our ability to make distributions to our stockholders.
Subject to certain exceptions, our charter prohibits any stockholder from owning beneficially or constructively more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or 9.8% in value of the aggregate of the outstanding shares of all classes or series of our stock.
Subject to certain exceptions, our charter prohibits any stockholder from owning beneficially or constructively more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our Class C Common Stock, or 9.8% in value of the aggregate of the outstanding shares of all classes or series of our stock.
We cannot predict when or if any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively.
We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively.
Available Information Access to copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and other filings with the SEC, including amendments to such filings, may be obtained free of charge from the following website, http://www.Modiv.com , and/or through a link to the SEC’s website, http://www.sec.gov .
Access to copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and other filings with the SEC, including amendments to such filings, may be obtained free of charge from our website, http://www.modiv.com , and/or through a link to the SEC’s website, http://www.sec.gov .
These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits. 35 Table of Contents Re-characterization of sale-leaseback transactions may cause us to lose our REIT status. We may purchase properties and lease them back to the sellers of such properties.
These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits. Re-characterization of sale-leaseback transactions may cause us to lose our REIT status. We may purchase properties and lease them back to the sellers of such properties.
We intend to focus future investments in industrial manufacturing real estate properties and reduce the number of office and retail properties in our portfolio; however, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments described in this Annual Report on Form 10-K.
We intend to focus future investments in industrial manufacturing real estate properties and reduce the number of non-core properties in our portfolio; however, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments described in this Annual Report on Form 10-K.
We were incorporated in the State of Maryland on May 15, 2015 and during the fourth quarter of 2021, we embarked on a strategic plan to reduce our exposure to office and retail properties and invest primarily in industrial manufacturing real estate properties. We also may seek to acquire listed and non-listed real estate companies or portfolios.
We were incorporated in the State of Maryland on May 15, 2015, and during the fourth quarter of 2021, we embarked on a strategic plan to reduce our exposure to non-core properties and invest primarily in industrial manufacturing real estate properties. We also may seek to acquire listed and non-listed real estate companies or portfolios.
Our inability to renew or re-lease our space could adversely impact our financial condition, results of operations, cash flow and our ability to pay distributions to our stockholders. Actions of our potential future tenants-in-common could reduce the returns on tenants-in-common investments and decrease our stockholders’ overall return.
However, our inability to renew or re-lease space in 2025 and beyond could adversely impact our financial condition, results of operations, cash flow and our ability to pay distributions to our stockholders. Actions of our potential future tenants-in-common could reduce the returns on tenants-in-common investments and decrease our stockholders’ overall return.
As discussed above, if we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% “prohibited transaction” tax unless such sale were made by one of our taxable REIT subsidiaries or the sale met certain “safe harbor” requirements under the Internal Revenue Code.
As discussed above, if we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% “prohibited transaction” tax unless such sale were made by one of our TRSs or the sale met certain “safe harbor” requirements under the Internal Revenue Code.
For example, it could: (1) result in the acceleration of a significant amount of debt for non-compliance with the terms of such debt or, if such debt contains cross-default or cross-acceleration provisions, other debt; (2) result in the loss of assets, including individual properties or portfolios, due to foreclosure or sale on unfavorable terms, which could create taxable income without accompanying cash proceeds; (3) materially impair our ability to borrow unused amounts under existing financing arrangements or to obtain additional financing or refinancing on favorable terms or at all; (4) require us to dedicate a substantial portion of our cash flow to paying principal and interest on our indebtedness, reducing the cash flow available to fund our business, to make distributions, including those necessary to maintain our REIT qualification, or to use for other purposes; (5) increase our vulnerability to an economic downturn; (6) limit our ability to withstand competitive pressures; or (7) reduce our flexibility to respond to changing business and economic conditions.
For example, it could: (1) result in the acceleration of a significant amount of debt for non-compliance with the terms of such debt or, if such debt contains cross-default or cross-acceleration provisions, other debt; (2) result in the loss of assets, including individual properties or portfolios, due to foreclosure or sale on unfavorable terms, which could create taxable income without accompanying cash proceeds; (3) materially impair our ability to borrow unused amounts under existing financing arrangements or to obtain additional financing or refinancing on favorable terms or at all; (4) require us to dedicate a substantial portion of our cash flow to paying principal and interest on our indebtedness, reducing the cash flow available to fund our business, to make distributions, including those necessary to maintain our REIT qualification, unless we decide to make distributions of our Class C Common Stock; (5) increase our vulnerability to an economic downturn; (6) limit our ability to withstand competitive pressures; or (7) reduce our flexibility to respond to changing business and economic conditions.
Our operating results and the performance of the properties we acquire are subject to the risks typically associated with real estate, any of which could decrease the value of our investments and could weaken our operating results, including: 1. downturns in national, regional and local economic conditions; 2. competition from other commercial developments; 3. adverse local conditions, such as oversupply or reduction in demand for commercial buildings and changes in real estate zoning laws that may reduce the desirability of real estate in an area; 4. vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; 5. changes in interest rates and the availability of permanent mortgage financing, which may render the sale of a property or loan difficult or unattractive; 6. changes in tax (including real and personal property tax), real estate, environmental and zoning laws; 7. material failures, inadequacy, interruptions or security failures of the technology on which our operations rely; 9. natural disasters such as hurricanes, earthquakes and floods; 10. acts of war or terrorism, including the consequences of terrorist attacks or the ongoing war between Russia and Ukraine and the economic sanctions and other restrictive actions taken against Russia by the U.S. and other countries in response thereto; 11. a pandemic or other public health crisis (such as the COVID-19 virus outbreak); 12. the potential for uninsured or underinsured property losses; and 13. periods of high inflation, high interest rates and tight money supply.
Our operating results and the performance of the properties we acquire are subject to the risks typically associated with real estate, any of which could decrease the value of our investments and could weaken our operating results, including: • downturns in national, regional and local economic conditions; • competition from other commercial developments; • adverse local conditions, such as oversupply or reduction in demand for commercial buildings and changes in real estate zoning laws that may reduce the desirability of real estate in an area; • vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; • changes in interest rates and the availability of permanent mortgage financing, which may render the sale of a property or loan difficult or unattractive; • changes in tax (including real and personal property tax), real estate, environmental and zoning laws; • material failures, inadequacy, interruptions or security failures of the technology on which our operations rely; • natural disasters such as hurricanes, earthquakes and floods; • acts of war or terrorism, including the consequences of terrorist attacks or the ongoing war between Russia and Ukraine and the economic sanctions and other restrictive actions taken against Russia by the U.S. and other countries in response thereto; • a pandemic or other public health crisis (such as the COVID-19 virus outbreak); • the potential for uninsured or underinsured property losses; and • periods of high inflation, high interest rates and tight money supply.
The trading price for our Class C Common Stock may be influenced by many factors, including: • general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate-related companies including the potential impact of inflation; • low trading volume in our Class C Common Stock, which makes it difficult to attract institutional investors; • our financial condition and performance; • our ability to grow through property acquisitions or real estate-related investments, the terms and pace of any acquisitions we may make and the availability and terms of financing for those acquisitions; • the financial condition of our tenants, including tenant bankruptcies or defaults; • actual or anticipated quarterly fluctuations in our operating results and financial condition; • the amount and frequency of our payment of dividends and other distributions; • additional sales of equity securities, including Series A Preferred Stock, Class C Common Stock or any other equity interests, or the perception that additional sales may occur; • the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, and fixed income debt securities; • uncertainty and volatility in the equity and credit markets; • fluctuations in interest rates and exchange rates; • changes in revenue or earnings estimates, if any, or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs; • failure to meet analysts’ revenue or earnings estimates; • strategic actions by us or our competitors, such as acquisitions or restructurings; • the extent of investment in our Class C Common Stock by institutional investors; • the extent of short-selling of our Class C Common Stock; • failure to maintain our REIT status; • changes in tax laws; • additions and departures of key personnel; • domestic and international economic factors unrelated to our performance including uncertainty and volatility resulting from the COVID-19 pandemic and emergence and spread of variants, including any future variants and resistance to currently available vaccines, as well as the ongoing war between Russia and Ukraine and the economic sanctions and other restrictive actions taken against Russia by the U.S. and other countries in response thereto, which have added to continuing concerns about supply chain disruptions, inflation and increased interest rates in the markets in which we operate; and • the occurrence of any of the other risk factors presented in this Annual Report on Form 10-K, including in this “Part I, Item 1A .
The trading price for our Class C Common Stock may be influenced by many factors, including: • general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate-related companies including the potential impact of inflation; • low trading volume in our Class C Common Stock, which makes it difficult to attract institutional investors; • our financial condition and performance; • our ability to grow through property acquisitions or real estate-related investments, the terms and pace of any acquisitions we may make and the availability and terms of financing for those acquisitions; • the financial condition of our tenants, including tenant bankruptcies or defaults; • actual or anticipated quarterly fluctuations in our operating results and financial condition; • the amount and frequency of our payment of dividends and other distributions; • additional sales of equity securities, including Series A Preferred Stock, Class C Common Stock or any other equity interests, or the perception that additional sales may occur; • the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, and fixed income debt securities; • uncertainty and volatility in the equity and credit markets; • fluctuations in interest rates and exchange rates; • changes in revenue or earnings estimates, if any, or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs; • failure to meet analysts’ revenue or earnings estimates; • strategic actions by us or our competitors, such as acquisitions or restructurings; • the extent of investment in our Class C Common Stock by institutional investors; • the extent of short-selling of our Class C Common Stock; • failure to maintain our REIT status; • changes in tax laws; • additions and departures of key personnel; • domestic and international economic factors unrelated to our performance including uncertainty and volatility resulting from global pandemics such as COVID-19, the violence and unrest in the Middle East, the ongoing war between Russia and Ukraine, and the economic sanctions and other restrictive actions taken against Russia by the U.S. and other countries in response thereto, all of which have added to continuing concerns about supply chain disruptions, inflation and increased interest rates in the markets in which we operate; and • the occurrence of any of the other risk factors presented in this Annual Report on Form 10-K, including in this “Part I, Item 1A .
Our Class C Common Stock will rank junior to all Series A Preferred Stock and our existing and future debt and to other non-equity claims on us and our assets available to satisfy claims against us, including claims in bankruptcy, liquidation or similar proceedings.
Our Class C Common Stock ranks junior to all Series A Preferred Stock and our existing and future debt and to other non-equity claims on us and our assets available to satisfy claims against us, including claims in bankruptcy, liquidation or similar proceedings.
If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases, which could harm our operating results and financial condition. Any of our tenants, or any guarantor of a tenant’s lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States.
If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases, including sale-leaseback transactions, which could harm our operating results and financial condition. Any of our tenants, or any guarantor of a tenant’s lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States.
This could subject us to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flow, thereby reducing cash available for distribution to our stockholders and funds available for operations as well as for future business opportunities.
This could subject us to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash 23 Tabl e of Contents flow, thereby reducing cash available for distribution to our stockholders and funds available for operations as well as for future business opportunities.
We refer to these restrictions collectively as the “ownership limits.” The constructive ownership rules under the Internal Revenue Code are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity.
We refer to these restrictions collectively as the “ownership limits.” The constructive ownership rules under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity.
Such a bankruptcy filing would bar all efforts by us to collect pre-bankruptcy debts from these entities or their properties, including any work performed by contactors that could result in mechanics liens on our property, unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid currently.
Such a bankruptcy filing would bar all efforts by us to collect pre-bankruptcy debts from these entities or their properties, including any work performed by contactors that could result in mechanics liens on our property, unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be 21 Tabl e of Contents paid currently.
Any adverse economic or real estate developments in our markets could adversely affect our operating results and our ability to pay distributions to our stockholders. 21 Table of Contents We are subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us.
Any adverse economic or real estate developments in our markets could adversely affect our operating results and our ability to pay distributions to our stockholders. We are subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us.
Aaron Halfacre, Ray Pacini, Bill Broms and John Raney, our Chief Executive Officer, Chief Financial Officer, Chief Investment Officer and Chief Legal Officer, respectively, each of whom would be difficult to replace. Neither we nor our affiliates have employment agreements with these individuals.
Aaron Halfacre, Ray Pacini, Bill Broms and John Raney, our Chief Executive Officer, Chief Financial Officer, Chief Investment Officer and Chief Operating Officer and General Counsel, respectively, each of whom would be difficult to replace. Neither we nor our affiliates have employment agreements with these individuals.
The failure of REIT I to qualify as a REIT prior to the Merger could impair our ability to remain qualified as a REIT, could impair our business and ability to raise capital, and would materially adversely affect the value of our stock. 34 Table of Contents Certain of our business activities are potentially subject to the prohibited transaction tax, which could decrease the value of our stockholders’ investment in us.
The failure of REIT I to qualify as a REIT prior to the Merger could impair our ability to remain qualified as a REIT, could impair our business and ability to raise capital, and would materially adversely affect the value of our stock. 25 Tabl e of Contents Certain of our business activities are potentially subject to the prohibited transaction tax, which could decrease the value of our stockholders’ investment in us.
Our Class C Common Stock only recently began trading on the NYSE, and we can provide no assurance an active and liquid trading market for the shares of our Class C Common Stock will be sustained. The market price and liquidity of our Class C Common Stock may be adversely affected by the absence of an active trading market.
Our Class C Common Stock began trading on the NYSE in 2022, and we can provide no assurance an active and liquid trading market for the shares of our Class C Common Stock will be sustained. The market price and liquidity of our Class C Common Stock may be adversely affected by the absence of an active trading market.
The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
The risk of a cybersecurity incident or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
Our failure to meet the market’s expectations with regard to future cash distributions likely would adversely affect the market price of our Class C Common Stock. Increases in market interest rates may result in a decrease in the value of our Class C Common Stock.
Our failure to meet the market’s expectations with regard to future cash distributions likely would adversely affect the market price of our Class C Common Stock. 11 Tabl e of Contents Increases in market interest rates may result in a decrease in the value of our Class C Common Stock.
As of December 31, 2022, we owned 46 properties, including one tenant-in-common real estate investment (an approximate 72.7% interest in a 91,740 square foot industrial property located in Santa Clara, California).
As of December 31, 2023, we owned 44 properties, including one tenant-in-common real estate investment (an approximate 72.7% interest in a 91,740 square foot industrial property located in Santa Clara, California).
In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of one or more taxable REIT subsidiaries.
In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of one or more TRSs.
The holder of the Class C OP Units may require the redemption of all or a portion of these units for cash or, at our option as the general partner of the Operating Partnership, shares of Class C Common Stock (the “Class C OP Unit Redemption”).
These holders of the Class C OP Units may request the redemption of all or a portion of these units for shares of Class C Common Stock or, at our option as the general partner of the Operating Partnership, for cash (the “Class C OP Unit Redemption”).
All of our consolidated revenues are derived from our consolidated real estate properties. We internally evaluate operating performance on an individual property level and view all of our real estate assets as one industry segment, and, accordingly, all of our properties are aggregated into one reportable segment.
We internally evaluate operating performance on an individual property level and view all of our real estate assets as one industry segment, and, accordingly, all of our properties are aggregated into one reportable segment.
For example, the COVID-19 pandemic has resulted in significant disruptions in financial markets, supply chains, inflation, uncertainty about how the economy will perform and the extent to which employees working from home will return to the office.
For example, the COVID-19 pandemic has resulted in significant disruptions in financial markets, supply chains, sustained elevated inflation and interest rate levels, uncertainty about how the economy will perform and the extent to which employees working from home will return to the office.
As a result, we may be required to liquidate from our portfolio otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders. Liquidation of assets may jeopardize our REIT qualification.
As a result, we may be required to liquidate from our portfolio otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
All of these factors could reduce stockholders’ return and decrease the value of an investment in us. Our real estate properties and related intangible assets may be subject to impairment charges. We routinely evaluate our real estate properties and related intangible assets for impairment indicators.
All of these factors could reduce stockholders’ return and decrease the value of an investment in us. Our real estate properties and related intangible assets may be subject to impairment charges.
Although we make efforts to maintain the security and integrity of these types of IT networks and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.
Although we make efforts to maintain the security and integrity of our IT networks and related systems, and we have implemented various measures to manage our risk of a cyber-attack or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted cyber-attacks or disruptions would not be successful or damaging.
Dividends payable by REITs, however, generally are not eligible for the reduced rates for qualified dividends and are taxed at ordinary income rates (but under the Tax Act, U.S. stockholders that are individuals, trusts and estates generally may deduct 20% of ordinary dividends from a REIT for taxable years beginning after December 31, 2017, and before January 1, 2026).
Dividends payable by REITs, however, generally are not eligible for the reduced rates for qualified dividends and are taxed at ordinary income rates (U.S. stockholders that are individuals, trusts and estates generally may deduct 20% of ordinary dividends from a REIT for taxable years beginning before January 1, 2026).
However, we will attempt to continue to construct a portfolio that produces stable and attractive returns by spreading risk across different real estate investments. 22 Table of Contents We have experienced losses in the past and we may experience additional losses in the future .
However, we will 15 Tabl e of Contents attempt to continue to construct a portfolio that produces stable and attractive returns by spreading risk across different real estate investments. We have incurred losses in the past and we may experience additional losses in the future .
Our Class C Common Stock is subordinate to our Series A Preferred Stock and our existing and future debt, and our common stockholders' interests could be diluted by the issuance of additional preferred stock, future offerings of debt securities, which could be senior to our common stock, or equity securities, and by other transactions.
Risk Factors” section. 10 Tabl e of Contents Our Class C Common Stock is subordinate to our Series A Preferred Stock and our existing and future debt, and our common stockholders' interests could be diluted by the issuance of additional preferred stock, future offerings of debt securities, which could be senior to our common stock, or equity securities, and by other transactions.
Because we are focused on future acquisitions of industrial manufacturing properties while reducing the number of office and retail properties in our portfolio, the prior performance of our real estate investments or real estate investment programs, particularly those in place prior to the fourth quarter of 2021, may not be indicative of our future results.
Because we are focused on future acquisitions of industrial manufacturing properties while reducing the number of non-core properties in our portfolio, the prior performance of our real estate investments or real estate investment programs, particularly those in place prior to the fourth quarter of 2021, may not be comparable to our ongoing results.
Risks Related to Our Business We are focused on future acquisitions of industrial manufacturing properties while reducing the number of office and retail properties in our portfolio, and therefore the prior performance of our real estate investments may not be indicative of our future results.
Risks Related to Our Business We are focused on future acquisitions of industrial manufacturing properties while reducing the number of non-core properties in our portfolio, and therefore the prior performance of our real estate investments may not be comparable to our ongoing results.
Alternatively, such a re-characterization could cause the amount of our REIT taxable income to be recalculated, which might also cause us to fail to meet the distribution requirement for a taxable year and thus lose our REIT status.
Alternatively, such a re-characterization could cause the amount of our REIT taxable income to be recalculated, which might also cause us to fail to meet the distribution requirement for a taxable year and thus lose our REIT status. Complying with REIT requirements may force us to liquidate otherwise attractive investments.
Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure. 20 Table of Contents We plan to rely on debt financing to finance our real estate properties and we may have difficulty refinancing some of our debt obligations prior to or at maturity, or we may not be able to refinance these obligations at terms as favorable as the terms of our current indebtedness and we also may be unable to obtain additional debt financing on attractive terms or at all.
We plan to rely on debt financing to finance our real estate properties and we may have difficulty refinancing some of our debt obligations prior to or at maturity, or we may not be able to refinance these obligations at terms as favorable as the terms of our current indebtedness and we also may be unable to obtain additional debt financing on attractive terms or at all.
Economic slowdowns of large economies outside the United States are likely to negatively impact growth of the U.S. economy. Political uncertainties both home and abroad may discourage business investment in real estate and other capital spending.
Volatility in global markets and changing political environments can cause fluctuations in the performance of the U.S. commercial real estate markets. Economic slowdowns of large economies outside the United States are likely to negatively impact growth of the U.S. economy. Political uncertainties both home and abroad may discourage business investment in real estate and other capital spending.
If a sale-leaseback transaction were so re-characterized, we might fail to satisfy the REIT qualification “asset tests” or the “income tests” and, consequently, lose our REIT status effective with the year of re-characterization.
If 26 Tabl e of Contents a sale-leaseback transaction were so re-characterized, we might fail to satisfy the REIT qualification “asset tests” or the “income tests” and, consequently, lose our REIT status.
If we arrange for the disposal or treatment of hazardous or toxic substances at another location, we may be liable for the costs of removing or remediating these substances at the disposal or treatment facility, whether or not the facility is owned or operated by us.
If we arrange for the disposal or treatment of hazardous or toxic substances at another location, we may be liable for the costs of removing or remediating these substances at the disposal or treatment facility, whether or not the facility is owned or operated by us. We perform a diligence review on each property that we purchase.
Temporary closures of businesses and the resulting remote working arrangements for personnel in response to the COVID-19 pandemic or any future pandemic or outbreak of a highly infectious or contagious disease or fear of such pandemics or outbreaks may result in long-term changed work practices that could negatively impact us and our business.
Temporary closures of businesses and the resulting remote working arrangements for personnel in response to pandemics or outbreaks, such as occurred as a result of COVID-19, may result in long-term changed work practices that could negatively impact us and our business.
As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property. Either of these outcomes could adversely affect our cash flow and the amount available for distributions to stockholders.
As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property. Either of these outcomes could adversely affect our cash flow and the amount available for distributions to stockholders. Net leases may not result in fair market lease rates over time.
If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both, which would limit our ability to make distributions to our stockholders and could reduce the value of our stockholders’ investment in us.
If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both, which would limit our ability to make distributions to our stockholders and could reduce the value of our stockholders’ investment in us. 16 Tabl e of Contents Our rights and the rights of our stockholders to take action against our directors and officers are limited.
Under these provisions, any income that we generate from transactions intended to hedge our interest rate, inflation and/or currency risks will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges (i) interest rate risk on liabilities incurred to carry or acquire real estate or (ii) risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests, and such instrument is properly identified under applicable Treasury Regulations.
Under these provisions, any income that we generate from transactions intended to hedge our interest rate, inflation and/or currency risks will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges (i) interest rate risk on liabilities incurred to carry or acquire real estate, (ii) risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests or (iii) a transaction entered into in connection with the termination of a hedging transaction described in either clause (i) or (ii) where the property or indebtedness that was the subject of the prior hedging transaction was disposed of or extinguished, and such instrument is properly identified under applicable Treasury Regulations.
We cannot be certain that these markets will remain an efficient source of long-term financing for our assets. If our strategy is not viable, we will have to find alternative forms of long-term financing for our assets, as secured revolving credit facilities and repurchase agreements may not accommodate long-term financing.
If our strategy is not viable, we will have to find alternative forms of long-term financing for our assets, as secured revolving credit facilities and repurchase agreements may not accommodate long-term financing.
As a result, our stockholders will be diluted by the issuance of Class C Common Stock in connection with the Class C OP Unit Redemption, which could have a material adverse impact on the market price of our common stock. 17 Table of Contents The future issuance or sale of additional shares of our Class C Common Stock could adversely affect the trading price of our Class C Common Stock.
As a result, our stockholders will be diluted by the issuance of Class C Common Stock in connection with the Class C OP Unit Redemption, which could have a material adverse impact on the market price of our common stock.
If we acquire investments at higher prices and/or by using less-than-ideal capital structures, our returns will be lower and the value of our respective assets may not appreciate or may decrease significantly below the amount we paid for such assets. If such events occur, our stockholders may experience a lower return on their investment.
If we acquire investments at higher prices and/or by using less-than-ideal capital structures, or if we are not able to acquire investments at all, our returns will be lower and the value of our respective assets may not appreciate or may decrease significantly below the amount we paid for such assets.
Furthermore, as we reposition our portfolio by selling some of our legacy office and retail properties with short lease terms, such pending sales could lead to potential impairment charges depending on the final selling price.
For example, the early termination of, or default under, a lease by a tenant may lead to an impairment charge. Furthermore, as we reposition our portfolio by selling some of our legacy office and retail properties with short lease terms, such pending sales could lead to potential impairment charges depending on the final selling price.
Competition for such professionals is intense, and we may be unsuccessful in retaining such skilled professionals. If we lose or are unable to obtain the services of highly skilled professionals, our ability to implement our investment strategies could be delayed or hindered. Our rights and the rights of our stockholders to take action against our directors and officers are limited.
Competition for such professionals is intense, and we may be unsuccessful in retaining such skilled professionals. If we lose or are unable to obtain the services of highly skilled professionals, our ability to implement our investment strategies could be delayed or hindered. We may change our targeted investments or investment strategy.
The outbreak of COVID-19 in the United States and in many countries adversely impacted global economic activity and contributed to significant volatility and negative pressure in the financial markets.
The outbreak of COVID-19 in the United States and in many countries adversely impacted global economic activity and contributed to significant volatility and negative pressure in the financial markets, which could occur again if a new pandemic were to occur.
Item 1A. Risk Factors — General Risks Related to Investments in Real Estate . Environmental Matters All real property and the operations conducted on real property are subject to federal, state and local laws, ordinances and regulations relating to environmental protection and human health and safety.
Environmental Matters All real property and the operations conducted on real property are subject to federal, state and local laws, ordinances and regulations relating to environmental protection and human health and safety.
We face competition from various entities for real estate investment opportunities, including other REITs, pension funds, banks and insurance companies, private equity and other investment funds, and companies, partnerships and developers.
We face competition from various entities for investment opportunities for prospective tenants and to retain our current tenants, including other REITs, pension funds, insurance companies, private equity and other investment funds and companies, partnerships and developers.
Such investments may involve risks not otherwise present with other methods of investment, including, for example, the following risks: • our co-owner in an investment could become insolvent or bankrupt; • our co-owner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals; • our co-owner may be in a position to block or take action contrary to our instructions or requests or contrary to our policies or objectives; or • disputes between us and our co-owner may result in litigation, arbitration, buyout or partition that would increase our expenses and prevent our officers and directors from focusing their time and effort on our operations. 28 Table of Contents While we intend that any co-ownership investment that we enter into will be subject to a co-ownership contractual arrangement that will address some or all of the above issues, any of the above might still subject a property to liabilities in excess of those contemplated and thus reduce our returns on that investment and the value of stockholders' investment in us.
Such investments may involve risks not otherwise present with other methods of investment, including, for example, the following risks: • our co-owner in an investment could become insolvent or bankrupt; • our co-owner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals; 19 Tabl e of Contents • our co-owner may be in a position to block or take action contrary to our instructions or requests or contrary to our policies or objectives; or • disputes between us and our co-owner may result in litigation, arbitration, buyout or partition that would increase our expenses and prevent our officers and directors from focusing their time and effort on our operations.
There is no assurance that changes in SOFR could not have a material adverse effect on the yield on, value of, and market for SOFR-linked instruments. 33 Table of Contents Further, SOFR is a relatively new interest rate, and the FRBNY or any successor, as administrator of SOFR, may make methodological or other changes that could change the value of SOFR, including changes related to the methodology by which SOFR is calculated, eligibility criteria applicable to the transactions used to calculate SOFR or timing related to the publication of SOFR.
Further, SOFR is a relatively new interest rate, and the FRBNY or any successor, as administrator of SOFR, may make methodological or other changes that could change the value of SOFR, including changes related to the methodology by which SOFR is calculated, eligibility criteria applicable to the transactions used to calculate SOFR or timing related to the publication of SOFR.
Our ownership of and relationship with our taxable REIT subsidiaries will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax. We may own one or more taxable REIT subsidiaries.
Our ownership of and relationship with our TRSs will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax. We may own one or more TRSs. A TRS may earn income that would not be qualifying income if earned directly by the parent REIT.
As a result, to the extent our exposure to increases in interest rates is not eliminated through interest rate swaps or other protection agreements, such increases may result in higher debt service costs, which will adversely affect our cash flows.
The U.S. Federal Reserve has significantly raised interest rates to combat inflation and restore price stability. To the extent our exposure to increases in interest rates is not eliminated through interest rate swaps or other protection agreements, such increases may result in higher debt service costs, which will adversely affect our cash flows.
Our website, www.modiv.com , our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations.
Our website, www.modiv.com , IT networks and related systems, including third party providers of software-as-a-service (“SaaS”) platforms, are essential to the operation of our business and our ability to perform day-to-day operations.
Inflation may also have an adverse effect on consumer spending, which could impact our tenants’ revenues and, in turn, their demand for space and future extensions of their leases. New accounting pronouncements could adversely affect our operating results or the reported financial performance of our tenants.
Inflation may also have an adverse effect on consumer spending, which could impact our tenants’ revenues and, in turn, their demand for space and future extensions of their leases.
In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting the property.
In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting the property, and we may be required to renovate the property or to make rent concessions in order to lease the property to another tenant.
Further, our Credit Facility allows for borrowings up to 60% of our borrowing base; however, we are targeting leverage of 40% over the long-term and do not plan to allow our leverage ratio to exceed 55% in order to minimize the interest rate payable on the Revolver and Term Loan. 31 Table of Contents Additionally, we may provide full or partial guarantees of mortgage debt incurred by our subsidiaries that own the mortgaged properties.
Further, our Credit Facility allows for borrowings up to 60% of our borrowing base; however, we are targeting leverage of 40% over the long-term and do not currently plan to allow our leverage ratio to exceed 55% in order to minimize the interest rate payable on the Revolver and Term Loan.
A security breach or other significant disruption involving our IT networks and related systems could: • disrupt the proper functioning of our networks and systems and therefore our operations; • result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines to the SEC; • result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT; • result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us, or which could expose us to damage claims by third-parties for disruptive, destructive or otherwise harmful purposes and outcomes; • require significant management attention and resources to remedy any damages that result; • subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; • result in the unauthorized release of our stockholders’ private, personal information such as addresses, social security numbers and bank account information; and/or • damage our reputation among investors.
Moreover, even security measures that are deemed appropriate, reasonable, and/or in accordance with applicable legal requirements may not be able to protect the information we maintain. 12 Tabl e of Contents A cybersecurity incident or other significant disruption involving IT networks and related systems we use could: • disrupt the proper functioning of our networks and systems and therefore our operations; • result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines to the regulators; • result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT; • result in the unauthorized access to, or destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us, or which could expose us to damage claims by third-parties for disruptive, destructive or otherwise harmful purposes and outcomes; • require significant management attention and resources to remedy any damages that result or improve our security; • subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; • result in litigation or increased regulatory oversight, including governmental investigations, enforcement actions, regulatory fines, and/or criminal prosecution; and/or • damage our reputation among investors.
If we need additional capital in the future to improve or maintain our properties or for any other reason, we may have to obtain funding from sources other than our cash flow from operations or proceeds from our DRP, such as borrowings or future equity offerings. These sources of funding may not be available on attractive terms, or at all.
If we need additional capital in the future to improve or maintain our properties or for any other reason, we may have to obtain funding from sources other than our cash flow from operations or proceeds from our Distribution Reinvestment Plan (“DRP”) and At-The-Market (“ATM”) offering, such as borrowings or future equity offerings.
These features of the Series A Preferred Stock may have the effect of discouraging a third party from seeking to acquire us or of delaying, deferring or preventing a change of control under circumstances that otherwise could provide the holders of our Class C Common Stock and Series A Preferred Stock with the opportunity to realize a premium over the then-current market price or that stockholders may otherwise believe is in their best interests.
These features of the Series A Preferred Stock may have the effect of discouraging a third party from seeking to acquire us or of delaying, deferring or preventing a change of control under circumstances that otherwise could provide the holders of our Class C Common Stock and Series A Preferred Stock with the opportunity to realize a premium over the then-current market price or that stockholders may otherwise believe is in their best interests. 17 Tabl e of Contents General Risks Related to Investments in Real Estate Pandemics or other health crises, such as the COVID-19 pandemic, may adversely affect our business and/or operations, our tenants’ financial condition and the profitability of our properties.
We are generally obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these types of lawsuits.
Significant litigation costs could impact our ability to comply with certain financial covenants under our Credit Agreement. We are generally obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these types of lawsuits.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe tenant’s right to cancel the lease on or after December 31, 2028 was not determined to be probable for financial accounting purposes. 41 Table of Contents Lease Expirations: The following tables reflect lease expirations with respect to our properties as of December 31, 2022, including the TIC Interest: Year Number of Leases Expiring Leased Square Footage Expiring Percentage of Leased Square Footage Expiring Cumulative Percentage of Leased Square Footage Expiring Annualized Base Rent Expiring (1) Percentage of Annualized Base Rent Expiring Cumulative Percentage of Annualized Base Rent Expiring 2023 2 116,110 3.7 % 3.7 % $ 311,455 0.9 % 0.9 % 2024 1 87,230 2.8 % 6.5 % 1,520,789 4.5 % 5.4 % 2025 4 154,933 4.9 % 11.4 % 3,678,106 10.9 % 16.3 % 2026 5 280,740 8.8 % 20.2 % 4,808,337 14.3 % 30.6 % 2027 1 64,637 2.0 % 22.2 % 898,954 2.7 % 33.3 % 2028 2 18,827 0.6 % 22.8 % 341,972 1.0 % 34.3 % 2029 3 134,714 4.2 % 27.0 % 2,360,905 7.0 % 41.3 % 2030 5 45,278 1.4 % 28.4 % 463,363 1.4 % 42.7 % 2031 — — — % 28.4 % — — % 42.7 % 2032 2 177,204 5.6 % 34.0 % 2,687,570 8.0 % 50.7 % Thereafter 21 2,093,586 66.0 % 100.0 % 16,595,915 49.3 % 100.0 % Total 46 3,173,259 100.0 % $ 33,667,366 100.0 % (1) Annualized lease revenue is calculated based on the contractual monthly base rent as of December 31, 2022 multiplied by 12.
Biggest changeThe following tables reflect lease expirations with respect to our properties as of December 31, 2023, including the TIC Interest and excluding ABR for periods subsequent to the sales of the two properties held for sale which were sold in January and February 2024: Year Number of Leases Expiring Leased Square Footage Expiring Percentage of Leased Square Footage Expiring Cumulative Percentage of Leased Square Footage Expiring ABR Expiring (1) Percentage of ABR Expiring Cumulative Percentage of ABR Expiring 2024 (2) 2 163,230 3.5 % 3.5 % 258,519 0.7 % 0.7 % 2025 3 144,027 3.1 % 6.6 % 3,711,525 9.4 % 10.1 % 2026 3 236,608 5.1 % 11.7 % 3,729,789 9.4 % 19.5 % 2027 1 64,637 1.4 % 13.1 % 921,428 2.3 % 21.8 % 2028 1 148,012 3.2 % 16.3 % 551,323 1.4 % 23.2 % 2029 2 84,714 1.8 % 18.1 % 1,480,307 3.7 % 26.9 % 2030 — — — % 18.1 % — — % 26.9 % 2031 — — — % 18.1 % — — % 26.9 % 2032 1 162,714 3.5 % 21.6 % 2,364,941 6.0 % 32.9 % 2033 1 216,727 4.7 % 26.3 % 1,663,467 4.2 % 37.1 % Thereafter 30 3,411,800 73.7 % 100.0 % 24,905,412 62.9 % 100.0 % Total 44 4,632,469 100.0 % $ 39,586,711 100.0 % (1) ABR is calculated based on the next 12 months of contractual monthly base rent as of December 31, 2023.
Additional information about our other real estate investments is included in Note 4 to our accompanying consolidated financial statements in this Annual Report on Form 10-K.
Additional information about our other real estate investments is included in Note 4 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K. 31 Tabl e of Contents
PROPERTIES Properties and Investment: As of December 31, 2022, we owned a real estate investment portfolio consisting of 46 operating properties located in 17 states comprised of: 27 industrial properties, including our approximate 72.7% TIC Interest in an industrial property in Santa Clara, California, which is not reflected in the table below, 12 retail properties and 7 office properties, including one held for sale, which is not reflected in the table below.
PROPERTIES Properties and Investment: As of December 31, 2023, we owned a real estate investment portfolio consisting of 44 operating properties, comprised of 39 industrial properties, including one held for sale and our approximate 72.7% TIC Interest in an industrial property in Santa Clara, California, one retail property and four office properties, including one property held for sale, with an overall occupancy rate of 98%.
OES has a purchase option which OES can exercise any time from May 1, 2024 through December 31, 2026. OES also has an early termination option which OES can exercise any time on or after December 31, 2028 by giving written notice at least 120 days prior to the date of early termination.
OES also has an early termination option which OES can exercise any time on or after December 31, 2028, by giving written notice at least 120 days prior to the date of early termination. The exercise of tenant’s right to cancel the lease on or after December 31, 2028, was not determined to be probable for financial accounting purposes.
Investments: As of December 31, 2022, we had the following other real estate investment: TIC Interest Investment Balance Santa Clara Property – an approximate 72.7% TIC Interest (1) $ 10,007,420 (1) This industrial property was acquired in 2017 and has approximately 91,740 rentable square feet. The purchase price was $29,625,075, including closing costs. The ABR lease revenue is $1,630,916.
(2) These properties were sold in January and February 2024. Investments: As of December 31, 2023, we had the following other real estate investment: TIC Interest Investment Balance Santa Clara, CA Property – an approximate 72.7% TIC Interest (1) $ 10,053,931 (1) This industrial property was acquired in 2017 and has approximately 91,740 rentable square feet.
The acquisition fee was $861,055, of which $626,073 was paid by us and the balance was paid by the other tenant-in-common owners of the property. The tenant's lease expiration date is March 16, 2026 and the lease provides for three five-year renewal options.
The TIC Interest ABR is $1,678,944. The tenant's lease expiration date is March 16, 2026, the mortgage matures on October 1, 2027, and the lease provides for three five-year renewal options.
Removed
Property and Location (1) Rentable Square Feet Property Type Investment in Real Property, Net, Plus Above-/Below- Market Lease Intangibles, Net Mortgage Financing (Principal) (2) Annualized Base Lease Revenue (3) Acquisition Fee (4) Lease Expiration (5) Renewal Options (Number/Years) (5) Northrop Grumman, Melbourne, FL (6) 107,419 Industrial $ 11,065,073 $ — $ 1,274,437 $ 398,100 5/31/2026 1/5-yr Northrop Grumman Parcel, Melbourne, FL — Land 329,410 — — 9,000 — — Husqvarna, Charlotte, NC 64,637 Industrial 10,397,247 — 898,954 348,000 6/30/2027 (7) 2/5-yr AvAir, Chandler, AZ 162,714 Industrial 23,858,620 — 2,318,570 795,000 12/31/2032 2/5-yr 3M, DeKalb, IL 410,400 Industrial 12,193,068 — 1,856,419 456,000 7/31/2034 2/5-yr Taylor Fresh Foods, Yuma, AZ 216,727 Industrial 23,975,285 12,350,000 1,638,884 741,000 9/30/2033 2/10-yr Levins, Sacramento, CA 76,000 Industrial 3,994,122 — 209,576 — 8/31/2023 2/5-yr Labcorp, San Carlos, CA 20,800 Industrial 9,523,310 — 645,899 — 10/31/2025 2/5-yr WSP USA, San Diego, CA 37,449 Industrial 9,271,893 — 729,198 — 2/28/2026 2/5-yr ITW Rippey, El Dorado Hills, CA 38,500 Industrial 6,510,717 — 584,719 — 7/31/2029 1/5-yr L3Harris, Carlsbad, CA 46,214 Industrial 11,047,101 — 852,186 — 4/30/2029 1/5-yr Arrow Tru-Line, Archbold, OH 206,155 Industrial 11,086,329 — 777,444 — 12/31/2041 2/10-yr Kalera, Saint Paul, MN 78,857 Industrial 7,793,237 — 578,490 — 2/28/2042 2/5-yr Lindsay, Colorado Springs 1, CO 23,452 Industrial 2,270,622 — 144,116 — 4/30/2047 2/10-yr Lindsay, Colorado Springs 2, CO 36,454 Industrial 3,289,821 — 209,127 — 4/30/2047 2/10-yr Lindsay, Dacono, CO 39,088 Industrial 6,389,255 — 482,203 — 4/30/2047 2/10-yr Lindsay, Alachua, FL 96,792 Industrial 8,261,274 — 577,309 — 4/30/2047 2/10-yr Lindsay, Franklinton, NC 69,939 Industrial 7,067,872 — 470,774 — 4/30/2047 2/10-yr Lindsay, Canal Fulton 1, OH 147,998 Industrial 11,101,976 — 765,368 — 4/30/2047 2/10-yr Lindsay, Canal Fulton 2, OH 129,112 Industrial 9,843,591 — 707,764 — 4/30/2047 2/10-yr Lindsay, Rock Hill, SC 75,360 Industrial 6,436,810 — 427,269 — 4/30/2047 2/10-yr Producto, Endicott, NY 31,262 Industrial 2,326,491 — 168,896 — 7/31/2042 6/5-yr Producto, Jamestown, NY 41,111 Industrial 3,029,835 — 219,570 — 7/31/2042 6/5-yr Valtir, Centerville, UT 72,498 Industrial 4,634,945 — 501,065 — 7/31/2037 4/5-yr Valtir, Orangeburg, SC 54,549 Industrial 5,511,158 — 453,495 — 7/31/2047 4/5-yr Valtir, Fort Worth, TX 32,887 Industrial 3,247,684 — 223,981 — 7/31/2037 4/5-yr Valtir, Lima, OH 133,678 Industrial 9,782,712 — 636,306 — 7/31/2047 4/5-yr 40 Table of Contents Property table continued Property and Location (1) Rentable Square Feet Property Type Investment in Real Property, Net, Plus Above-/Below- Market Lease Intangibles, Net Mortgage Financing (Principal) (2) Annualized Base Lease Revenue (3) Acquisition Fee (4) Lease Expiration (5) Renewal Options (Number/Years) (5) Dollar General, Litchfield, ME 9,026 Retail $ 1,151,621 $ — $ 92,961 $ 40,008 9/30/2030 3/5-yr Dollar General, Wilton, ME 9,100 Retail 1,368,971 — 112,439 48,390 7/31/2030 3/5-yr Dollar General, Thompsontown, PA 9,100 Retail 1,069,755 — 85,998 37,014 10/31/2030 2/5-yr and 1/4-yr 11 months Dollar General, Mt.
Added
See Notes 3 and 4 t o our accompanying consolidated financial statements included in this Annual Report on Form 10-K for further details of our real estate investments.
Removed
Gilead, OH 9,026 Retail 1,058,964 — 85,924 36,981 6/30/2030 3/5-yr Dollar General, Lakeside, OH 9,026 Retail 980,682 — 81,036 34,875 5/31/2035 3/5-yr Dollar General, Castalia, OH 9,026 Retail 962,067 — 79,320 34,140 5/31/2035 3/5-yr Dollar General, Bakersfield, CA 18,827 Retail 4,692,797 — 341,972 — 7/31/2028 3/5-yr Dollar General, Big Spring, TX 9,026 Retail 1,114,243 — 86,041 — 6/30/2030 3/5-yr Dollar Tree, Morrow, GA 10,906 Retail 1,185,643 — 103,607 — 7/31/2025 3/5-yr PreK Education, San Antonio, TX 50,000 Retail 11,614,043 — 924,000 — 7/31/2029 1/8-yr Walgreens, Santa Maria, CA 14,490 Retail 5,366,519 — 369,000 — 3/31/2032 6/5-yr KIA/Trophy of Carson, Carson, CA 72,623 Retail 68,387,431 — 4,339,941 — 1/14/2047 2/5-yr exp US Services, Maitland, FL 33,118 Office 5,537,286 — 837,783 204,814 11/30/2026 1/5-yr Cummins, Nashville, TN 87,230 Office 12,347,219 — 1,520,789 465,000 2/29/2024 1/5-yr Costco, Issaquah, WA 97,191 Office 25,059,529 18,850,000 2,362,956 870,838 7/31/2025 1/5-yr GSA (MHSA), Vacaville, CA 11,014 Office 2,883,982 — 336,003 — 8/24/2026 None Solar Turbines, San Diego, CA 26,036 Office 6,686,377 — 565,643 — 7/31/2025 (8) None OES, Rancho Cordova, CA (9) 106,592 Office 27,169,246 13,315,009 1,257,139 — 12/31/2034 None 3,081,519 $ 402,875,833 $ 44,515,009 $ 31,934,571 $ 4,519,160 (1) Each of the properties was 100% occupied by a single tenant at the time of acquisition and has remained 100% occupied by that tenant through December 31, 2022.
Added
The following tables provide summary information regarding the Company’s real estate portfolio as of December 31, 2023, excluding ABR for periods subsequent to the sales of the two properties held for sale which were sold in January and February 2024: Tenant Industry Diversification: Industry Number of Properties ABR ABR as a Percentage of Total Portfolio Area (Square Feet) Square Feet as a Percentage of Total Portfolio Infrastructure 18 $ 10,237,187 26 % 1,459,535 32 % Automotive 5 6,230,572 17 % 664,463 14 % Aerospace/Defense 3 4,542,814 11 % 316,347 7 % Industrial Products 3 4,361,052 11 % 694,324 15 % Metals 5 2,451,001 6 % 450,263 10 % Retailer 1 2,435,849 6 % 97,191 2 % Technology 2 2,281,148 6 % 130,240 3 % Energy 2 2,040,133 5 % 249,118 5 % Other 5 5,006,955 12 % 570,988 12 % Total 44 $ 39,586,711 100 % 4,632,469 100 % Tenant Geographic Diversification: State Number of Properties ABR ABR as a Percentage of Total Portfolio Area (Square Feet) Square Feet as a Percentage of Total Portfolio California 9 $ 11,580,695 30 % 515,954 11 % Ohio 6 4,749,720 12 % 1,016,742 22 % Arizona 2 4,028,408 10 % 379,441 8 % Illinois 2 3,439,624 9 % 629,687 14 % Washington 1 2,435,849 6 % 97,191 2 % Pennsylvania 2 2,083,596 5 % 253,646 5 % South Carolina 3 2,063,223 5 % 343,422 7 % Florida 2 1,888,772 5 % 204,211 4 % Texas 2 1,652,296 4 % 255,969 6 % Minnesota 5 1,625,769 4 % 377,450 8 % North Carolina 2 1,538,571 4 % 134,576 3 % Other 8 2,500,188 6 % 424,180 10 % Total 44 39,586,711 100 % 4,632,469 100 % 30 Tabl e of Contents Lease Expirations: We completed extensions of existing leases with five of our tenants during 2022 and 2023 and we are continuing to explore potential lease extensions for certain of our other properties.
Removed
(2) All of our real estate financing is through our Credit Facility with the exception of mortgage loans secured by the Costco, Taylor Fresh Foods and OES properties. Our Credit Facility is further described in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources below.
Added
We also entered into a new lease with the State of California's Office of Emergency Services (“OES”) effective January 4, 2023, for 12 years through December 31, 2034. OES has a purchase option which OES can exercise any time from May 1, 2024, through December 31, 2026.
Removed
(3) As of December 31, 2022, annualized base lease revenue is calculated based on the contractual monthly minimum base rent, excluding rent abatements. (4) Acquisition fees were paid to our former advisor in connection with the acquisition of properties acquired prior to December 31, 2019.
Removed
The fee was equal to 3.0% of the contract purchase price of a property, as defined in the former advisory agreement. (5) Represents the end of the non-cancelable lease term, assuming no early termination rights or renewals are exercised unless otherwise noted.
Removed
(6) This property was reclassified on December 31, 2022 to industrial from office to reflect Northrop Grumman's change in use since a majority of the square footage of the property is being used as laboratory space. (7) The tenant’s right to cancel the lease on June 30, 2025 was not determined to be probable for financial accounting purposes.
Removed
(8) On January 23, 2023, the lease term expiration was extended from July 31, 2023 to July 31, 2025. (9) We and Sutter Health agreed to the early termination of its lease effective December 31, 2022 for payment of an early termination fee of $3,751,984.
Removed
The early termination fee was recorded as rental income in the accompanying statement of operations for the year ended December 31, 2022 included in this Annual Report on Form 10-K. The property is leased to the State of California's Office of Emergency Services (“OES”) effective January 4, 2023 for 12 years through December 31, 2034.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 3. LEGAL PROCEEDINGS For information regarding legal proceedings, see Note 11 - Commitments and Contingencies - Legal Matters to our accompanying consolidated financial statements included in this Annual Report on Form 10-K. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 42 Table of Contents PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS None. For information regarding other legal proceedings, see Note 11 - Commitments and Contingencies - Legal Matters to our accompanying consolidated financial statements included in this Annual Report on Form 10-K. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

15 edited+2 added−98 removed8 unchanged
Biggest changeThe distribution rate details are as follows: Distribution Period Rate Per Share Per Month Declaration Date Payment Date 2022: January 1-31 (1) $ 0.09583300 January 27, 2022 February 25, 2022 February 1-28 $ 0.09583300 February 17, 2022 March 25, 2022 March 1-31 $ 0.09583300 February 17, 2022 April 25, 2022 April 1-30 $ 0.09583300 March 18, 2022 May 25, 2022 May 1-31 $ 0.09583300 March 18, 2022 June 27, 2022 June 1-30 $ 0.09583300 March 18, 2022 July 25, 2022 July 1-31 $ 0.09583300 June 15, 2022 August 25, 2022 August 1-31 $ 0.09583300 June 15, 2022 September 26, 2022 September 1-30 $ 0.09583300 June 15, 2022 October 25, 2022 October 1-31 $ 0.09583300 August 18, 2022 November 23, 2022 November 1-30 $ 0.09583300 August 18, 2022 December 23, 2022 December 1-31 $ 0.09583300 August 18, 2022 January 25, 2023 Distribution Period Rate Per Share Per Month Declaration Date Payment Date 2023: January 1-31 $ 0.09583300 November 7, 2022 February 24, 2023 February 1-28 $ 0.09583300 November 7, 2022 March 24, 2023 (2) March 1-31 $ 0.09583300 November 7, 2022 April 25, 2022 (2) April 1-30 $ 0.09583300 March 9, 2023 May 25, 2023 (2) May 1-31 $ 0.09583300 March 9, 2023 June 26, 2023 (2) June 1-30 $ 0.09583300 March 9, 2023 July 25, 2023 (2) (1) On January 5, 2022, our board of directors declared a 13th distribution of $0.000274 rate per share per day to our common stockholders since our AFFO exceeded 110% of distributions declared for the year ended December 31, 2021.
Biggest changeThe distribution rate details are as follows: Distribution Period Rate Per Share Per Month Declaration Date Payment Date 2023: January 1-31 $ 0.095833 November 7, 2022 February 24, 2023 February 1-28 $ 0.095833 November 7, 2022 March 24, 2023 March 1-31 $ 0.095833 November 7, 2022 April 25, 2023 April 1-30 $ 0.095833 March 9, 2023 May 25, 2023 May 1-31 $ 0.095833 March 9, 2023 June 26, 2023 June 1-30 $ 0.095833 March 9, 2023 July 25, 2023 July 1-31 $ 0.095833 June 15, 2023 August 25, 2023 August 1-31 $ 0.095833 June 15, 2023 September 25, 2023 September 1-30 $ 0.095833 June 15, 2023 October 25, 2023 October 1-31 $ 0.095833 October 10, 2023 November 27, 2023 November 1-30 $ 0.095833 October 10, 2023 December 26, 2023 December 1-31 $ 0.095833 October 10, 2023 January 25, 2024 On December 29, 2023, our board of directors declared a distribution of 0.28 shares of Generation Income Properties, Inc.
Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. 51 Table of Contents Our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under Part I, Item 1A.
Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. Our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under Part I, Item 1A.
Sales of Registered Distribution Reinvestment Plan Securities On January 22, 2021, we filed a registration statement on Form S-3 (File No. 333-252321) to register a maximum of $100,000,000 of additional shares of Class C Common Stock to be issued pursuant to the DRP (the “Registered DRP Offering”).
Distribution Reinvestment Plan On January 22, 2021, we filed a Registration Statement on Form S-3 (File No. 333-252321) to register a maximum of $100,000,000 of additional shares of Class C Common Stock to be issued pursuant to the DRP (the “Registered DRP Offering”).
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stockholder Information As of February 28, 2023, there were approximately 5,200 holders of record of our Class C Common Stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stockholder Information As of February 29, 2024, there were approximately 4,800 holders of record of our Class C Common Stock.
We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders other than as necessary to meet REIT qualification requirements.
Our board of directors has not pre-established a percentage range of return for distributions to stockholders. We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders other than as necessary to meet REIT qualification requirements.
Repurchases made pursuant to the program were authorized to be made from time-to-time in the open market, in privately negotiated transactions or in any other manner as permitted by federal securities laws and other legal requirements.
Purchases made pursuant to the 2023 SRP have been made from time-to-time in the open market, in privately negotiated transactions or in any other manner as permitted by federal securities laws and other legal requirements.
For the year ended December 31, 2022, distributions paid to our stockholders were 66.1% return of capital and 33.9% ordinary income and for the year ended December 31, 2021, distributions paid to our stockholders were 100% ordinary income.
For the year ended December 31, 2023, distributions paid to our stockholders were approximately 71% return of capital and 29% ordinary income and for the year ended December 31, 2022, distributions paid to our stockholders were approximately 66% return of capital and 34% ordinary income.
The purpose of this change was to reflect the fact that our Class C Common Stock is now listed on the NYSE and no longer priced based on our most-recently determined estimated NAV per share.
The purpose of this change was to reflect the fact that our Class C Common Stock is now listed on the NYSE.
These shares are held as treasury stock and presented as a component of equity in the accompanying consolidated balance sheet and consolidated statement of equity included in this Annual Report on Form 10-K.
These shares are held as treasury stock and presented as a component of equity in the accompanying consolidated balance sheet and consolidated statement of equity included in this Annual Report on Form 10-K. We did not repurchase any Class C Common Stock for the three months ended December 31, 2023, under our 2023 SRP.
As more fully described in the Second Amended and Restated DRP, the purchase price for our Class C Common Stock under the DRP depends on whether we issue new shares to DRP participants or we or any third-party administrator obtains shares to be issued to DRP participants by purchasing them in the open market or in privately negotiated transactions.
As more fully described in the Second Amended and Restated DRP, the purchase price for our Class C Common Stock under the DRP depends on whether we issue new shares to DRP participants or we or any third-party administrator obtains shares to be issued to DRP participants by purchasing them in the open market or in privately negotiated transactions. 33 Tabl e of Contents Share Repurchase Program 2023 Share Repurchase Program On December 31, 2022, our board of directors authorized up to $15,000,000 in repurchases of our outstanding shares of Class C Common Stock and Series A Preferred Stock from January 1, 2023, through December 31, 2023 (the “2023 SRP”).
We commenced offering shares of Class C Common Stock pursuant to the Registered DRP Offering on January 27, 2021. We expect to continue issuing our monthly distributions and maintain the ability for investors to reinvest their distributions under our Registered DRP Offering.
We commenced offering shares of Class C Common Stock pursuant to the Registered DRP Offering on January 27, 2021.
The distribution rate is determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant. Our board of directors has not pre-established a percentage range of return for distributions to stockholders.
Distribution Information We have historically paid distributions on a monthly basis, and we paid our first distribution on August 10, 2016. The distribution rate is determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant.
The proceeds from the Registered DRP Offering were used for general corporate purposes, including investments in real estate properties. Unregistered Sales of Equity Securities to Independent Board Members During the year ended December 31, 2022, we issued 21,791 shares of Class C Common Stock to our independent directors for their services as board members.
Unregistered Sales of Equity Securities to Independent Board Members During the years ended December 31, 2023 and 2022, we issued 22,153 and 21,791 shares of Class C Common Stock, respectively, to our independent directors for their services as board members. Such issuances were made in reliance on the exemption from registration under Rule 4(a)(2) of the Securities Act.
From February 15, 2022 through December 31, 2022, we repurchased a total of 250,153 shares of our common stock for a total of $4,161,618 at an average cost of approximately $16.64 per share under this share repurchase program.
From January 1, 2023, through December 31, 2023, we repurchased a total of 93,357 shares of our Class C Common Stock for a total of $1,129,162 at an average cost of approximately $12.10 per share.
The following presents the U.S. federal income tax characterization of the distributions paid in 2022 and 2021: Years Ended December 31, 2022 2021 Ordinary taxable income $ 0.4238 $ 1.1685 Capital gain — — Non-taxable distribution 0.8262 — Total $ 1.2499 $ 1.1685 50 Table of Contents Distributions to stockholders were declared and paid based on daily record dates at rates per share per day through 2021.
The following presents the U.S. federal income tax characterization of the distributions paid in 2023 and 2022: Years Ended December 31, 2023 2022 Ordinary taxable income $ 0.33 $ 0.42 Capital gain $ — $ — Non-taxable distribution $ 0.82 $ 0.83 Total $ 1.15 $ 1.25 32 Tabl e of Contents Beginning with distributions in 2022 when we listed our Class C Common Stock, distributions generally are declared during the month or two prior to the beginning of a quarter and paid based on a month end record date and a monthly rate per share.
Removed
Estimated Net Asset Value (“NAV”) Per Share and Valuation Procedures In order to provide additional insight into the value of our real estate portfolio we engaged Cushman & Wakefield, an independent valuation firm (the “Independent Valuation Firm”) to provide a report estimating our NAV per share (unaudited) as of December 31, 2022.
Added
(NASDAQ: GIPR) (“GIPR”) common stock for each share or unit of our common stock or Class C OP Units held as of the record date of January 17, 2024 and distributed on January 31, 2024.
Removed
We previously engaged this same Independent Valuation Firm to provide a report estimating our pro forma NAV per share (unaudited) as of January 31, 2022 in advance of our Listed Offering. As a public company, we are required to issue financial statements generally based on historical cost in accordance with GAAP as applicable to our financial statements.
Added
We did not repurchase any Series A Preferred Stock during 2023. ITEM 6. [RESERVED]
Removed
To calculate NAV, we have adopted a model, as explained below, which adjusts the value of certain of our assets from their historical cost to fair value. As a result, our NAV differs from the amount reported as stockholders’ equity on the face of our financial statements prepared in accordance with GAAP.
Removed
When the fair value of our assets is calculated for the purposes of determining our NAV per share, the calculation is done generally in accordance with the fair value methodologies detailed within the FASB Accounting Standards Codification under Topic 820, Fair Value Measurements and Disclosures.
Removed
Because these fair value calculations involve significant professional judgment in the application of both observable and unobservable inputs, the calculated fair value of our assets may differ from their actual realizable value or future fair value. In addition, our valuation procedures and our NAV are not subject to GAAP and are not subject to independent audit.
Removed
Our NAV may differ from equity reflected on our consolidated financial statements, even if we are required to adopt a fair value basis of accounting for our GAAP financial statements in the future. Furthermore, no rule or regulation requires that we calculate NAV in a certain way.
Removed
While we believe our NAV calculation methodologies are consistent with standard industry practices, there is no rule or regulation that requires we calculate NAV in a certain way and there is no established practice among public REITs, whether listed or not. As a result, other public REITs may use different methodologies or assumptions to determine NAV.
Removed
In addition, NAV is not a measure used under GAAP and the valuations of and certain adjustments made to our assets and liabilities used in the determination of NAV will differ from GAAP. You should not consider NAV to be equivalent to stockholders’ equity or any other GAAP measure.
Removed
Independent Valuation Firm We engaged Cushman & Wakefield to serve as our Independent Valuation Firm with respect to the valuation of the assets and liabilities associated with our wholly-owned real estate portfolio and our approximate 72.7% TIC Interest, all of which are held, directly or indirectly, by our Operating Partnership.
Removed
Cushman & Wakefield is a multidisciplinary provider of independent, commercial real estate consulting and advisory services in multiple offices around the world. Cushman & Wakefield is engaged in the business of valuing commercial real estate properties and is not affiliated with us.
Removed
The compensation we pay to the Independent Valuation Firm is not based on the estimated values of our real estate properties. The Independent Valuation Firm discharges its responsibilities in accordance with our real property valuation procedures described below.
Removed
Our Independent Valuation Firm and its affiliates may from time to time in the future perform other commercial real estate and financial advisory services for us, or in transactions related to the properties that are the subjects of valuations being performed for us, or otherwise, so long as such other services do not adversely affect the independence of the applicable appraiser as certified in the applicable valuation report. 43 Table of Contents Real Property Valuation The real property valuation, which is the largest component of our NAV calculation, has been provided to us by the Independent Valuation Firm.
Removed
The Independent Valuation Firm provided a restricted appraisal report for our 46 properties, including the TIC Interest. The value of our properties is determined on an unencumbered basis. The effect of property-level debt on our NAV is discussed further below. The Independent Valuation Firm collects all reasonably available material information that it deems relevant in valuing our real estate properties.
Removed
The Independent Valuation Firm relies in part on property-level information provided by management, including (i) physical property attributes such as size, year built, and construction quality and type; (ii) historical and projected operating revenues and expenses of the property; (iii) lease agreements on the property; and (iv) information regarding recent or planned capital expenditures.
Removed
The Independent Valuation Firm utilizes standard and accepted appraisal methodology in arriving at its opinions of fair value, and applies only the most appropriate valuation techniques amongst the income capitalization, sales comparison, and cost approaches to value. The reliability of each approach depends on the availability and comparability of market data as well as the motivation and thinking of purchasers.
Removed
In determining the fair value of the properties, the Independent Valuation Firm utilizes the income capitalization approach as the primary method. A second limited scope sales comparison approach is employed to test the reasonableness of the income capitalization approach.
Removed
Because the property valuations involve significant professional judgment in the application of both observable and unobservable attributes, the calculated value of our real property may not reflect the liquidation value or net realizable value of our properties because the valuation performed by the Independent Valuation Firm involves subjective judgments and does not reflect transaction costs associated with property dispositions.
Removed
However, as discussed below, in some circumstances such as when an asset is anticipated to be acquired or disposed, we may apply a probability-weighted analysis to factor in a portion of potential transaction costs in our NAV calculation.
Removed
Our Independent Valuation Firm’s valuation report is not addressed to the public and may not be relied upon by any other person to establish an estimated value of our common stock and will not constitute a recommendation to any person to purchase or sell any shares of our common stock.
Removed
In preparing its valuation report, our Independent Valuation Firm does not solicit third-party indications of interest for our common stock in connection with possible purchases thereof or the acquisition of all or any part of our Company.
Removed
In conducting its investigation and analyses, our Independent Valuation Firm takes into account customary and accepted financial and commercial procedures and considerations as it deems relevant, which may include, without limitation, the review of documents, materials and information relevant to valuing the property that are provided by us.
Removed
Although our Independent Valuation Firm may review information supplied or otherwise made available by us for reasonableness, it assumes and relies upon the accuracy and completeness of all such information and all information supplied or otherwise made available to it by any other party and does not undertake any duty or responsibility to verify independently any such information.
Removed
With respect to operating or financial forecasts and other information and data to be provided to or otherwise to be reviewed or discussed with our Independent Valuation Firm, our Independent Valuation Firm assumes such forecasts and other information and data were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of our management and relies upon us to advise our Independent Valuation Firm promptly if any material information previously provided becomes inaccurate or was required to be updated during the period of its review.
Removed
In performing its analyses, our Independent Valuation Firm is expected to make numerous assumptions with respect to industry performance, general business, economic and regulatory conditions and other matters, many of which are beyond its control and our control, as well as certain factual matters.
Removed
For example, unless specifically informed to the contrary, our Independent Valuation Firm assumes that we have clear and marketable title to each real estate property valued, that no title defects exist, that improvements were made in accordance with law, that no hazardous materials are present or were present previously, that no deed restrictions exist, and that no changes to zoning ordinances or regulations governing use, density or shape are pending or being considered.
Removed
Furthermore, our Independent Valuation Firm’s analysis, opinions and conclusions are necessarily based upon market, economic, financial and other circumstances and conditions existing at or prior to the valuation, and any material change in such circumstances and conditions may affect our Independent Valuation Firm’s analysis and conclusions.
Removed
Our Independent Valuation Firm’s valuation report may contain other assumptions, qualifications and limitations set forth in the respective report that qualify the analysis, opinions and conclusions set forth therein. 44 Table of Contents The overarching principle is to produce valuations that represent fair and reasonable estimates of the unencumbered values of our real estate or the prices that would be received for our real properties in arm’s length transactions between market participants before considering underlying debt.
Removed
The valuation of our real properties determined by the Independent Valuation Firm may not always reflect the value at which we would agree to buy or sell assets and the value at which we would buy or sell such assets could materially differ from the Independent Valuation Firm’s estimate of fair value.
Removed
Further, we do not undertake to disclose the value at which we would be willing to buy or sell our real properties to any prospective or existing investor. The valuations are performed in accordance with the Code of Ethics and the Uniform Standards of Professional Appraisal Practices, or USPAP, the real estate appraisal industry standards created by The Appraisal Foundation.
Removed
Each valuation must be reviewed, approved and signed by an individual with the Member of Appraisal Institute (“MAI”) professional designation. Real estate valuations are reported on a free-and-clear basis (for example, without factoring in any applicable mortgage(s)), irrespective of any property-level financing that may be in place.
Removed
Such property-level financings ultimately are factored in and do reduce our NAV in a manner described below. The analyses performed by our Independent Valuation Firm do not address the market value of our common stock. Furthermore, the prices at which our real estate properties may actually be sold could differ from our Independent Valuation Firm’s analyses.
Removed
Valuation of Real Estate-Related Liabilities Our real estate-related liabilities consist of financing for our real estate assets. Depending on the relationship of a loan’s interest rate and other terms to current market interest rates and other terms, our Independent Valuation Firm may conclude that the value of a loan is more or less than our current loan balance.
Removed
Valuation of Non-Real Estate-Related Assets and Liabilities The Independent Valuation Firm then adds any other assets held by us, including cash and cash equivalents, and any accruals of income, and subtracts our accounts payable and accrued liabilities, including legal, accounting and administrative costs. Our most significant source of net income is property income. We accrue estimated income and expenses.
Removed
On a periodic basis, our income and expense accruals are adjusted based on information derived from actual operating results. Our liabilities are included as part of our NAV calculation generally based on GAAP, except for property-level mortgages and interest rate swaps, which are included based on their fair values.
Removed
Our other liabilities include, without limitation, accounts payable, accrued operating expenses, accrued interest, dividends and distributions payable, and other liabilities.
Removed
Process for Determining NAV and NAV Per Share Changes in the NAV reflect factors including, but not limited to, (1) gains (or losses) on the value of our real estate properties and related liabilities, (2) changes in the value of our interest rate swap derivatives, (3) changes in the value of our liquid assets, and (4) accruals for income and expenses, share repurchases, accrued dividends to preferred stockholders and accrued distributions to common stockholders.
Removed
Calculation of Our Estimated NAV Per Share (Unaudited) as of December 31, 2022 and Pro Forma NAV Per Share (Unaudited) as of January 31, 2022 Cushman & Wakefield developed an opinion of fair value of the real estate assets and real estate related liabilities associated with our properties.
Removed
Cushman & Wakefield’s scope of work was conducted in conformity with the requirements of the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. Several members of the Cushman & Wakefield engagement team who certified the methodologies and assumptions applied by us hold a MAI designation.
Removed
Other than (i) its engagement as described herein, (ii) its previous engagements with our Company in connection with the determination of the estimated NAV per share (unaudited) of our common stock as of December 31, 2017, December 31, 2018, December 31, 2019, April 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021 and January 31, 2022 and (iii) its previous engagements with REIT I in connection with the determination of the estimated NAV per share (unaudited) of REIT I common stock as of December 31, 2017 and December 31, 2018, Cushman & Wakefield does not have any direct interests in any transaction with us and has not performed any services for us other than Asset Allocation services pursuant to Accounting Standards Update (“ASU”) No. 2017-01, Clarifying the Definition of a Business (ASU No. 2017-01) and FASB Accounting Standards Codification Topic 805, Business Combinations (ASC Topic 805) and the real estate financial advisor services it provided on behalf of REIT I in connection with the REIT I Merger with our Company on December 31, 2019. 45 Table of Contents Valuation Methodology In preparing its valuation materials and in reaching its conclusions as to the reasonableness of the methodologies and assumptions used by our Company to value our assets, Cushman & Wakefield, among other things: • investigated numerous sales in the properties’ relevant markets, analyzed rental data and considered the input of buyers, sellers, brokers, property developers and public officials; • reviewed and relied upon our Company-provided data regarding the size, year built, construction quality and construction type of the properties in order to understand the characteristics of the existing improvements and underlying land; • reviewed and relied upon our Company-provided balance sheet items such as cash and other assets, as well as debt, interest rate swap derivatives and other liabilities; • researched the market by means of publications, public and private databases and other resources to measure current market conditions, supply and demand factors, and growth patterns and their effect on the properties; and • performed such other analyses and studies, and considered such other factors, as Cushman & Wakefield considered appropriate.
Removed
Cushman & Wakefield utilized two approaches in valuing our real estate assets that are commonly used in the commercial real estate industry.
Removed
The following is a summary of the NAV Methodology and the valuation approaches used by Cushman & Wakefield: NAV Methodology – The NAV Methodology determines the value of our Company by determining the estimated market value of our entity level assets, including real estate assets, and subtracting the market value of our entity level liabilities, including our debt.
Removed
The materials provided by Cushman & Wakefield to estimate the value of the real estate assets were prepared using discrete estimations of “as is” market valuations for each of the properties in our portfolio using the income capitalization approach as the primary indicator of value and the sales comparison approach as a secondary approach to value, as discussed in greater detail below.
Removed
Cushman & Wakefield also estimated the fair value of our real estate related debt. Cushman & Wakefield then added the non-real estate related tangible assets and subtracted non-real estate related liabilities.
Removed
The resulting amount, which is the estimated NAV of the portfolio, is divided by the number of fully-diluted shares of common stock outstanding to determine the estimated NAV per share.
Removed
Determination of Estimated Market Value of Our Real Estate Assets Under the NAV Methodology Income Capitalization Approach – The income capitalization approach first determines the income-producing capacity of a property by using contract rents on existing leases, or expected rents for leases that are scheduled to expire within the next 12 months if not extended by the tenant, and by estimating market rent from rental activity at competing properties for the vacant space.
Removed
Deductions are then made for vacancy and collection loss and operating expenses. The net operating income (“NOI”) developed in Cushman & Wakefield’s analysis is the balance of potential income remaining after vacancy and collection loss and operating expenses.
Removed
This NOI was then capitalized at an appropriate rate to derive an estimate of value (the “Direct Capitalization Method”) or discounted by an appropriate yield rate over a typical projection period in a discounted cash flow analysis.
Removed
Thus, two key steps were involved: (1) estimating the NOI applicable to the subject property and (2) choosing appropriate capitalization rates and discount rates.
Removed
The following summarizes the range of capitalization rates Cushman & Wakefield used to arrive at the estimated market values of our properties valued using the Direct Capitalization Method: Range Weighted-Average Capitalization Rate – Pro Forma NAV as of January 31, 2022 5.00% to 7.79% 6.30% Capitalization Rate – Estimated NAV as of December 31, 2022 5.25% to 11.10% 6.68% The capitalization rate was weighted based on NOI.
Removed
An increase in the selected capitalization rate of 0.25% would result in a decrease in net asset value of approximately $20,870,000 as of December 31, 2022 and $19,980,000 as of January 31, 2022.
Removed
A decrease in the selected capitalization rate of 0.25% would result in an increase in net asset value of approximately $22,550,000 as of December 31, 2022 and $21,670,000 as of January 31, 2022. 46 Table of Contents Sales Comparison Approach – The sales comparison approach estimates value based on what other purchasers and sellers in the market have agreed to as the price for comparable improved properties.
Removed
This approach is based upon the principle of substitution, which states that the limits of prices, rents, and rates tend to be set by the prevailing prices, rents, and rates of equally desirable substitutes.
Removed
Cushman & Wakefield prepared and provided to our Company a report containing, among other information, the range of net asset values for our Class C Common Stock as of December 31, 2022 (the “Valuation Report”).
Removed
Utilizing the NAV Methodology, including use of the two approaches to value our real estate assets noted above, and dividing by the 10,331,042 fully-diluted shares of our common stock outstanding on December 31, 2022, Cushman & Wakefield determined a valuation range of $25.70 to $29.90 per share (unaudited).
Removed
Utilizing the NAV Methodology, including use of the two approaches to value our real estate assets noted above, and dividing by the 10,125,412 fully-diluted shares of our common stock outstanding on January 31, 2022, Cushman & Wakefield determined a pro forma valuation range of $26.77 to $30.88 per share (unaudited).
Removed
The table below sets forth the calculation of our estimated NAV per share (unaudited) as of December 31, 2022 and pro forma estimated NAV per share (unaudited) as of January 31, 2022: December 31, 2022 January 31, 2022 (a) Estimated Value Estimated NAV Per Share Pro Forma Value Pro Forma NAV Per Share Real estate properties $ 503,700,000 $ 48.76 $ 463,054,000 $ 45.73 Investment in unconsolidated entity: Santa Clara property tenant-in-common interest (b) 19,768,921 1.91 18,894,790 1.87 Cash, cash equivalents and restricted cash 8,608,649 0.83 65,263,037 6.44 Interest rate swap derivative 4,629,702 0.45 — — Other assets 3,989,400 0.39 5,878,710 0.58 Total assets 540,696,672 52.34 553,090,537 54.62 Mortgage notes payable 41,293,644 4.00 46,236,403 4.56 Credit facility 153,000,000 14.81 155,775,000 15.39 Accrued interest payable 285,392 0.03 272,481 0.03 Accrued dividends and distributions payable 1,768,068 0.17 1,028,074 0.10 Interest rate swap derivative 498,866 0.05 — — Other liabilities 7,448,302 0.72 8,731,045 0.86 Total liabilities 204,294,272 19.78 212,043,003 20.94 Series A Preferred Stock 50,000,000 4.84 50,000,000 4.94 Total estimated net asset value $ 286,402,400 $ 27.72 $ 291,047,534 $ 28.74 Fully-diluted shares outstanding (c) 10,331,042 10,125,142 (a) The estimated pro forma NAV per share (unaudited) as of January 31, 2022 reflected (i) the estimated asset values for 35 properties (excluding four assets held for sale) that were in our portfolio on January 31, 2022, including two acquisitions completed in January 2022, (ii) net cash received from four dispositions that were pending as of January 31, 2022 and completed in February 2022, (iii) borrowing under the Credit Facility provided by KeyBank National Association (“KeyBank”) and repayment of 20 mortgages in January 2022, and (iv) the estimated fair value of debt on the three consolidated mortgages remaining after the closing of the Credit Facility provided by KeyBank and the four dispositions completed in February 2022.
Removed
(b) Reflects our approximate 72.7% interest in the Santa Clara property which includes real estate valued at $39,010,000 and a mortgage with a fair value of $12,097,225. 47 Table of Contents (c) Fully-diluted shares outstanding as of December 31, 2022 and January 31, 2022 includes the following: i) 1,312,382 Class C OP Units issued on January 18, 2022 in connection with the acquisition of the KIA auto dealership property discussed above; ii) 1,189,964 shares that would result from conversion of 657,949.5 Class M OP Units and 56,029 Class P OP Units assuming a conversion ratio of 1.6667 shares of our Class C Common Stock for each Class M OP Unit and Class P OP Unit outstanding; and iii) 316,343 shares and 101,855 shares, respectively, that would result from conversion of Class R OP Units.
Removed
Exclusions from Estimated NAV The estimated share value does not reflect any “portfolio premium,” nor does it reflect an enterprise value of our Company, which may include a premium or discount to NAV for: • the size of our Company’s portfolio, as some buyers may pay more for a portfolio compared to prices for individual investments; • the overall geographic and tenant diversity of the portfolio as a whole; • the characteristics of our Company’s working capital, leverage, credit facilities and other financial structures where some buyers may ascribe different values based on synergies, cost savings or other attributes; or • certain third-party transaction or other expenses that would be necessary to realize the value.
Removed
Limitations of the Estimated Share Value As with any valuation methodology, the NAV Methodology used by Cushman & Wakefield in reaching an estimate of the value of our shares is based upon a number of estimates, assumptions, judgments and opinions that may, or may not, prove to be correct, and are calculated as of a particular point in time.
Removed
The use of different valuation methods, estimates, assumptions, judgments or opinions may have resulted in significantly different estimates of the value of our shares.
Removed
In addition, our estimate of share value is not based on the book values of our real estate, as determined by GAAP, as our book value for most real estate is based on the amortized cost of the property, subject to certain adjustments.
Removed
Furthermore, in reaching an estimate of the value of our shares, we did not include a discount for debt that may include a prepayment obligation or a provision precluding assumption of the debt by a third party. In addition, selling costs were not considered by Cushman & Wakefield in the valuation of the properties.
Removed
Additional Information Regarding Engagement of Cushman & Wakefield Cushman & Wakefield’s valuation materials provided to our Company do not constitute a recommendation to purchase or sell any shares of our common stock or other securities.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

72 edited+63 added−206 removed28 unchanged
Biggest changeFurthermore, as described in Note 12 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K, the conversion ratios for Class M OP Units, Class P OP Units and Class R OP Units can increase if the specified performance hurdles are achieved, which would increase the fully-diluted weighted average shares outstanding. 58 Table of Contents The following are the calculations of FFO and AFFO for the years ended December 31, 2022 and 2021: Years Ended December 31, 2022 2021 Net loss in accordance with GAAP $ (4,511,318) $ (435,505) Preferred stock dividends (3,687,500) (1,065,278) Net loss attributable to common stockholders and Class C OP Unit holders (8,198,818) (1,500,783) FFO adjustments: Add: Depreciation and amortization 14,929,574 13,710,588 Amortization of deferred lease incentives 412,098 245,438 Depreciation and amortization for unconsolidated investment in a real estate property 777,041 735,335 Impairment of real estate investment 2,080,727 — Less: Gain on sale of real estate investments, net (12,196,371) (6,136,588) (1) Reversal of impairment of real estate investment — (400,999) FFO attributable to common stockholders and Class C OP Unit holders (2,195,749) 6,652,991 AFFO adjustments: Add: Amortization of corporate intangibles — 1,556,348 Impairment of goodwill and intangible assets 17,320,857 3,767,190 Non-recurring corporate relocation costs 500,000 — Stock compensation 2,401,022 2,744,881 Deferred financing costs 1,649,929 369,286 Non-recurring loan prepayment penalties 615,336 — Swap termination costs 733,000 23,900 Amortization of above-market lease intangibles 197,224 129,823 Due diligence expenses, including abandoned pursuit costs 661,222 696,825 Less: Amortization of deferred rents (3,237,482) (1,478,818) Unrealized gains on interest rate swaps, net (813,750) (970,039) Amortization of below-market lease intangibles (1,202,711) (1,462,797) Gain on forgiveness of economic relief note payable — (517,000) Other adjustments for unconsolidated investment in a real estate property 5,251 (62,776) AFFO $ 16,634,149 $ 11,449,814 Weighted average shares outstanding - basic 7,487,204 7,544,834 Weighted average shares outstanding - fully diluted (2) 10,225,850 8,780,131 FFO Per Share: Basic $ (0.29) $ 0.88 Fully Diluted $ (0.29) $ 0.76 AFFO Per Share: Basic $ 2.22 $ 1.52 Fully Diluted $ 1.63 $ 1.30 (1) Straight-line rent receivable write-offs related to sale of real estate investments for the year ended December 31, 2021 amounting to $1,667,114 were reclassified from rental income to gain on sale of real estate investments, net to conform with the current year presentation (see Note 2 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details on such reclassification).
Biggest changeIn the future, the SEC or Nareit may decide to standardize the allowable exclusions across the REIT industry, and we may have to adjust the calculation and characterization of this non-GAAP measure. 40 Tabl e of Contents The following are the calculations of FFO and AFFO for the years ended December 31, 2023 and 2022: Years Ended December 31, 2023 2022 Net loss (in accordance with GAAP) $ (8,696,261) $ (4,511,318) Preferred stock dividends (3,687,500) (3,687,500) Net loss attributable to common stockholders and Class C OP Unit holders (12,383,761) (8,198,818) FFO adjustments: Depreciation and amortization of real estate properties 15,551,173 14,929,574 Amortization of deferred lease incentives 153,581 412,098 Depreciation and amortization for unconsolidated investment in a real estate property 756,610 777,041 Impairment of real estate investment property 4,387,624 2,080,727 Loss (gain) on sale of real estate investments, net 1,708,801 (12,196,371) FFO attributable to common stockholders and Class C OP Unit holders 10,174,028 (2,195,749) Stock compensation for performance units expense 8,555,529 — FFO excluding performance units expense 18,729,557 (2,195,749) AFFO adjustments: Impairment of goodwill — 17,320,857 Non-recurring corporate relocation costs — 500,000 Stock compensation excluding performance units expense 2,615,678 2,401,022 Deferred financing costs 766,738 484,931 Loss on early extinguishment of debt — 1,725,318 Due diligence expenses, including abandoned pursuit costs 347,598 661,222 Amortization of deferred rents (6,232,257) (3,237,482) Unrealized loss (gain) on valuation of interest rate swaps, net 618,301 (25,733) Amortization of (below) above market lease intangibles, net (807,794) (1,005,487) Unrealized gain on investment in preferred stock (1,418,658) — Other adjustments for unconsolidated investment in a real estate property 53,278 5,251 AFFO attributable to common stockholders and Class C OP Unit holders $ 14,672,441 $ 16,634,150 Weighted Average Shares Outstanding: Basic 7,558,833 7,487,204 Fully diluted excluding performance units (1) 10,593,160 10,225,850 Fully diluted (2) 11,067,675 10,225,850 FFO Per Share: Basic $ 1.35 $ (0.29) Fully diluted $ 0.92 $ (0.29) FFO Per Share Excluding Performance Units Expense: Basic $ 2.48 $ (0.29) Fully diluted $ 1.77 $ (0.29) AFFO Per Share: Basic $ 1.94 $ 2.22 Fully diluted $ 1.33 $ 1.63 (1) Excludes 474,515 performance units in accordance with the terms of the Operating Partnership Agreement.
In connection with the Credit Facility, we and each of the Subsidiary Guarantors entered into an Unconditional Guaranty of Payment and Performance in favor of the Agent, pursuant to which we and each of the Subsidiary Guarantors agreed to guarantee the full and prompt payment of the Operating Partnership’s obligations under the Credit Agreement.
In connection with the Credit Facility, we and each of our Subsidiary Guarantors entered into an Unconditional Guaranty of Payment and Performance in favor of the Agent, pursuant to which we and each of our Subsidiary Guarantors agreed to guarantee the full and prompt payment of the Operating Partnership’s obligations under the Credit Agreement.
Possible future declines in rental rates and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from investment properties.
Possible future declines in rental rates and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from office properties.
Our stock price is materially below both our historical net asset value and the book value of our equity, reflecting the negative impacts of rising inflation and interest rates, declining office occupancy rates affecting owners of real estate properties and fears of a potential recession.
Our stock price was evaluated to be materially below both our historical net asset value and the book value of our equity, reflecting the negative impacts of rising inflation and interest rates, declining office occupancy rates affecting owners of real estate properties and fears of a potential recession.
It should be noted, however, that other REITs may not define FFO in accordance with the current Nareit definition or may interpret the current Nareit definition differently than we do, making comparisons less meaningful. Additionally, we use AFFO as a non-GAAP financial measure to evaluate our operating performance.
It should be noted, however, that other REITs may not define FFO in accordance with the current Nareit definition or may interpret the current Nareit definition differently than we do, making comparisons less meaningful. Additionally, we use Adjusted Funds From Op e rations (“AFFO”) as a non-GAAP financial measure to evaluate our operating performance.
We also pay an annual unused fee of up to 25 basis points on the Revolver, depending on the daily amount of the unused commitment, and paid total unused fees of $200,578 for the year ended December 31, 2022.
We also pay an annual unused fee of up to 25 basis points on the Revolver, depending on the daily amount of the unused commitment, and paid total unused fees of $378,816 and $200,578 for the years ended December 31, 2023 and 2022, respectively.
(2) The South Carolina and Ohio properties have a 25-year master lease and the Texas and Utah properties have a 15-year master lease.
(d) The South Carolina and Ohio properties each have a 25-year master lease and the Texas and Utah properties each have a 15-year master lease.
Liquidity and Capital Resources Generally, our cash requirements for property acquisitions, debt payments and refinancings, capital expenditures and other investments will be funded by bank borrowings from financial institutions, mortgage indebtedness on our properties, assets sales and internally generated funds or offerings of shares of Class C Common Stock.
Liquidity and Capital Resources Generally, our cash requirements for property acquisitions, debt payments and refinancings, capital expenditures and other investments will be funded by bank borrowings through our Credit Facility, mortgage indebtedness on our properties, real estate property sales, internally generated funds or offerings of shares of our Class C Common Stock.
Recent Market Conditions There are continuing uncertainties in the market in which we operate related to supply chain disruptions, inflation and increases in interest rates, along with negative impacts associated with the ongoing Russian war against Ukraine and sanctions which have been implemented by the United States and other countries against Russia.
Recent Events and Uncertainties There are continuing significant uncertainties in the market in which we operate related to inflation and interest rates, supply chain disruptions, and negative impacts associated with the violence and unrest in the Middle East, the ongoing Russian war against Ukraine and sanctions which have been implemented by the United States and other countries against Russia.
During the first quarter of 2022, management considered the fact that the trading price of our common stock caused our market capitalization to be below the book value of our equity as of March 31, 2022.
For the quarter ended March 31, 2022, management considered the fact that the trading price of our Class C Common Stock caused our market capitalization to be below the book value of our equity as of March 31, 2022.
We will make substantially all acquisitions of our real estate investments directly through the Operating Partnership or indirectly through limited liability companies or limited partnerships, including through other REITs, or through investments in joint ventures, partnerships, tenants-in-common, co-tenancies or other co-ownership arrangements with other owners of properties, some of which may be affiliated with us or our executive officers or directors.
We will make substantially all acquisitions of our real estate investments directly through the Operating Partnership or indirectly through limited liability companies or limited partnerships, including through other REITs, or through investments in joint ventures, partnerships, tenants-in-common, co-tenancies or other co-ownership arrangements with other owners of properties.
The Credit Facility includes customary representations, warranties and covenants, including covenants regarding minimum fixed charge coverage of 1.50x, minimum tangible net worth of $208,629,727 plus 85% of net offering proceeds after January 18, 2022, and maximum consolidated leverage of 60%. We were in compliance with these covenants as of December 31, 2022.
The Credit Facility includes customary representations, warranties and covenants, including covenants regarding minimum fixed charge coverage of 1.50x, minimum tangible net worth of $208,629,727 plus 85% of net offering proceeds after January 18, 2022, and maximum consolidated leverage of 60%.
Gain on Sale of Real Estate Investments, Net The gain on sale of real estate investments, net was $12,196,371 and $6,136,588 for the years ended December 31, 2022 and 2021, respectively, and relates to the sale of eight properties (six office, one flex and one retail) during the year ended December 31, 2022 and five properties (four retail and one industrial) during the year ended December 31, 2021 (see Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details on the gain on sale of real estate investments).
The gain on sale of real estate investments of $12,196,371 for the year ended December 31, 2022 relates to the gain on sale of eight properties (six office, one retail and one flex) sold during 2022 (see Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details).
As of December 31, 2022, our approximate 72.7% pro-rata share of the TIC Interest’s mortgage note payable was $9,487,515, which is not included in our consolidated balance sheets in this Annual Report on Form 10-K.
As of December 31, 2023, our approximate 72.7% pro-rata share of the TIC Interest’s mortgage note payable of $12,730,664 was $9,256,466, which is not included in our consolidated balance sheets in this Annual Report on Form 10-K.
Loss on early extinguishment of debt of $1,725,318 for the year ended December 31, 2022 reflects non-cash charges of $1,164,998 for deferred financing costs and prepayment penalties of $615,336 upon repayment of 20 mortgages on 27 properties, full repayment of our Prior Credit Facility and mortgage repayments related to four asset sales, as well as $733,000 of swap termination fees related to the four mortgage refinancings which were offset by the related write-off of unrealized swap valuation losses of $788,016 (see Notes 7 and 8 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details).
Loss on early extinguishment of debt of $1,725,318 for the year ended December 31, 2022 reflects non-cash charges of $1,164,998 for deferred financing costs and prepayment penalties of $615,336 upon repayment of 20 mortgages on 27 properties, full repayment of our Prior Credit Facility and mortgage repayments related to four asset sales, as well as $733,000 of swap termination fees related to the four mortgage refinancings, which were offset by the related write-off of unrealized swap valuation losses of $788,016.
The impairment of goodwill of $17,320,857 for year ended December 31, 2022 reflects the significant decline in the market value of our common stock since it began trading on the NYSE in February 2022.
Impairment of Goodwill The impairment of goodwill of $17,320,857 for the year ended December 31, 2022 reflects the significant decline in the market value of our Class C Common Stock following the inception of our trading on the NYSE in February 2022.
AFFO excludes non-routine and certain non-cash items such as revenues in excess of cash received, amortization of stock-based compensation, deferred rent, amortization of in-place lease valuation intangibles, deferred financing fees, gain or loss from the extinguishment of debt, unrealized gains (losses) on derivative instruments, write-offs of transaction costs and other one-time transactions.
AFFO excludes non-routine and certain non-cash items such as revenues in excess of cash received, stock-based compensation, deferred rent, amortization of in-place lease valuation intangibles, deferred financing fees, gain or loss from the extinguishment of debt, unrealized gains (losses) on derivative instruments, and write-offs of due diligence expenses for abandoned pursuits.
In January 2022, we refinanced all but four of our properties (including the TIC Interest) with proceeds from our Credit Facility which includes floating rates based on SOFR and our leverage ratio as described above.
In January 2022, we refinanced all but four of our properties (including the TIC Interest) with proceeds from our Credit Facility (as defined below), which includes floating rates based on the Secured Overnight Financing Rate (“SOFR”) and our leverage ratio as described below.
Income from unconsolidated investment in a real estate property was $278,002 and $276,042 for the years ended December 31, 2022 and 2021, respectively. This represents our approximate 72.7% TIC Interest in the Santa Clara, California property's results of operations for the years ended December 31, 2022 and 2021, respectively.
Income from unconsolidated investment in a real estate property, which reflects our approximate 72.7% TIC Interest in the Santa Clara, California property's results of operations, was $279,549 and $278,002 for the years ended December 31, 2023 and 2022, respectively.
We expect that the related improvements will be completed during the 2023 calendar year and will be funded from cash on hand, operating cash flow or borrowings under our Credit Facility.
We expect that the related improvements will be completed during the 2024 calendar year and will be funded from cash on hand, operating cash flow, offerings of shares of our Class C Common Stock or borrowings under our Credit Facility.
We also may use a portion of the proceeds from our offerings for payment of principal on our outstanding indebtedness, reserves required by financings of our real estate investments and for general corporate purposes.
We also may use a portion of the proceeds from our equity offerings for payment of principal on our outstanding indebtedness and for general corporate purposes.
A table of distributions declared, distributions paid out, the impact on cash flows from operations and the source of distribution payments is disclosed in Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Distribution Information .
A table of distributions declared and paid is disclosed in Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Distribution Information .
Potential future declines in economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio, which could have the following negative effects on us: the values of our investments in commercial properties could decrease below the amounts paid for such investments; and/or revenues from our properties could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to make distributions or meet our debt service obligations.
Following the January and February 2024 sales of the two properties held for sale leased by Levins and Cummins, respectively, we have no leases expiring in the next 12 months. 35 Tabl e of Contents Potential future declines in economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio, which could have the following negative effects on us: the values of our investments in commercial properties could decrease below the amounts paid for such investments; and/or revenues from our properties could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to make distributions or meet our debt service obligations.
The Operating Partnership’s limited partners include holders of several classes of units with various vesting and enhancement terms as further described in Note 12 to our accompanying consolidated financial statements for the year ended December 31, 2022 included in this Annual Report on Form 10-K.
We are the sole general partner of, and owned an approximate 68% partnership interest in the Operating Partnership on December 31, 2023. The Operating Partnership’s limited partners include holders of several classes of units with various vesting and enhancement terms as further described in Note 12 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
As a result, the Federal Reserve is expected to continue raising interest rates to try to rein in inflation, which may lead to a recession and will negatively impact our future results due to higher borrowing costs on any floating rate borrowing.
Depending on the future course of inflation, the Federal Reserve may refrain from reducing interest rates to try to rein in inflation, which could lead to a recession and will negatively impact our future results due to higher borrowing costs on any future floating rate borrowing.
If we are not able to refinance our indebtedness on attractive terms at the various maturity dates, we may be forced to dispose of some of our assets. Market conditions can change quickly, potentially negatively impacting the value of real estate investments. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable as we are a smaller reporting company.
If we are not able to refinance our indebtedness on attractive terms, or at all, at the various maturity dates, we may be forced to dispose of some of our assets. Market conditions can change quickly, potentially negatively impacting the value of real estate investments.
Pursuant to lease agreements, as of December 31, 2022 and 2021, we had obligations to pay $1,789,027 and $189,136, respectively, for on-site and tenant improvements to be incurred by tenants.
Pursuant to our lease agreements, as of December 31, 2023 and 2022, we had obligations to reimburse $2,439,098 and $1,789,027, respectively, for future on-site and tenant improvements expected to be incurred by tenants.
Our cash requirements for operating and interest expenses and dividends on our Series A Preferred Stock and distributions on our Class C Common Stock will be funded by internally generated funds.
Our cash requirements for operating and interest expenses, dividends on our Series A Preferred Stock and distributions on our Class C Common Stock will be funded by internally generated funds. We expect to have adequate liquidity to meet our cash requirements for the next 12 months and beyond.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Consolidated Financial Statements at page F-1 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable as we are a smaller reporting company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Consolidated Financial Statements at page F-1 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
Interest expense was $8,106,658 and $7,586,197 for the years ended December 31, 2022 and 2021, respectively (see Note 7 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for the detail of the components of interest expense).
Interest expense, including unrealized loss on interest rate swaps and net of derivative settlements was $13,806,838 and $8,106,658 for the years December 31, 2023 and 2022, respectively (see Note 7 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for details of the components of interest expense, net).
AFFO is useful in assisting management and investors in assessing our ongoing ability to generate cash flow from operations and continue as a going concern in future operating periods. However, FFO and AFFO are not useful measures in evaluating NAV because impairments are taken into account in determining NAV but not in determining FFO and AFFO.
AFFO is useful in assisting management and investors in assessing our ongoing ability to generate cash flow from operations and continue as a going concern in future operating periods.
The Credit Facility includes an updated accordion option that allows us to request additional Revolver and Term Loan lender commitments up to a total of $750,000,000 subject to customary conditions, including the receipt of new commitments from the Lenders.
The Credit Facility is available for general corporate purposes, including, but not limited to, acquisitions, repayment of existing indebtedness and capital expenditures. 36 Tabl e of Contents The Credit Facility includes an accordion option that allows us to request additional Revolver and Term Loan lender commitments up to a total of $750,000,000 subject to customary conditions, including the receipt of new commitments from the Lenders.
However, as of February 28, 2023, 100% of our outstanding debt is at fixed rates as a result of the swap agreements entered into in May 2022 and October 2022.
As of December 31, 2023, 100% of our $281,200,000 outstanding debt is at fixed rates with a weighted average rate of 4.52% as a result of the swap agreements entered into in May 2022 and October 2022.
Volatility in stock and bond markets, particularly the rise in yields on U.S. Treasury securities during 2022, may negatively impact our operating results.
Volatility in stock and bond markets and particularly the rapid rise in yields on U.S. Treasury securities during 2022 and 2023, the ripple effect of bank failures in the first half of 2023 and increasing bank regulations, may negatively impact our operating results, liquidity and sources of borrowings.
Our cash and restricted cash, along with $150,000,000 of available capacity on our Revolver and $90,000,000 of available capacity on our Term Loan as of February 28, 2023, subject to our borrowing base covenant, along with proceeds from any future offerings of shares of Class C Common Stock, will primarily be used to invest in real estate and real estate-related investments or to re-lease and reposition our properties in accordance with our investment strategy and policies, including costs and fees associated with such investments, such as capital expenditures, tenant improvement costs and leasing costs.
In addition, debt financing may be used from time-to-time for property improvements, lease inducements, tenant improvements and other working capital needs. 37 Tabl e of Contents The $150,000,000 unused capacity on our Revolver as of the date of this Annual Report on Form 10-K, subject to our borrowing base covenant, along with proceeds from any future offerings of shares of Class C Common Stock, can be used to invest in real estate and real estate-related investments or to re-lease and reposition our properties in accordance with our investment strategy and policies, including costs and fees associated with such investments, such as capital expenditures, tenant improvement costs and leasing costs.
On May 10, 2022, we entered into a swap agreement, effective May 31, 2022, to fix SOFR at 2.258% with respect to our original $150,000,000 Term Loan as described in Note 8 to our accompanying consolidated financial statements for the year ended December 31, 2022 included in this Annual Report on Form 10-K , which resulted in a fixed interest rate of 3.858% on the first $150,000,000 of our Term Loan based on our leverage ratio of 38%.
This swap agreement resulted in a fixed interest rate of 4.058% on our original $150,000,000 Term Loan based on our leverage ratio of 48% as of December 31, 2023, as described in Note 8 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
On October 26, 2022, we entered into a swap agreement, effective November 30, 2022, to fix SOFR at 3.44% with respect to our expanded Term Loan as described in Note 8 to our accompanying consolidated financial statements for the year ended December 31, 2022 included in this Annual Report on Form 10-K , which would result in a fixed interest rate of 5.04% on the additional $100,000,000 to be borrowed under the Term Loan based on our leverage ratio of 38% as of December 31, 2022.
This swap agreement resulted in a fixed interest rate of 5.240% on the additional $100,000,000 borrowed under the expanded Term Loan based on our leverage ratio of 48% as of December 31, 2023, as described in Note 8 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
However, we successfully negotiated lease extensions for four properties during 2022 and January 2023. 75 Table of Contents The debt market remains sensitive to the macro environment, such as inflation, Federal Reserve policy, the prolonged impacts of the COVID-19 pandemic, market sentiment or regulatory factors affecting the banking and commercial mortgage-backed securities industries.
The debt market remains sensitive to the macro environment, such as inflation, Federal Reserve policy, bank failures in the first half of 2023, the impacts of the COVID-19 pandemic on office properties, market sentiment and regulatory factors affecting the banking and commercial mortgage-backed securities industries.
Properties Portfolio Information Our wholly-owned investments in real estate properties as of December 31, 2022 and 2021, including one and four properties held for sale as of the years ended December 31, 2022 and 2021, respectively, and the 91,740 square foot industrial property underlying the TIC Interest for all balance sheet dates presented were as follows: December 31, 2022 2021 Number of properties: (1) (2) Industrial (3) 27 12 Retail 12 12 Office (3) 7 14 Total operating properties 46 38 Parcel of land 1 1 Total properties 47 39 Leasable square feet: Industrial (3) 2,541,792 1,514,876 Retail 230,176 161,406 Office (3) 401,291 800,036 Total leasable square feet 3,173,259 2,476,318 (1) Includes one office property held for sale as of December 31, 2022, which is in escrow and scheduled to be sold by the end of March 2023.
No such charges were incurred in 2023. 46 Tabl e of Contents Results of Operations Portfolio Information Our wholly-owned investments in real estate properties as of December 31, 2023 and 2022, including two and one properties held for sale as of the years ended December 31, 2023 and 2022, respectively, and the 91,740 square foot industrial property underlying the TIC Interest for all balance sheet dates presented were as follows: December 31, 2023 2022 Number of properties: (b) (c) Industrial (a) 39 27 Retail 1 12 Office 4 7 Total operating properties 44 46 Leasable square feet: Industrial 4,242,797 2,541,792 Retail 72,623 230,176 Office 317,049 401,291 Total leasable square feet 4,632,469 3,173,259 (a) Includes the TIC Interest.
We elected to be taxed as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 2016. We believe that we have operated in conformity with the requirements for qualification as a REIT for federal income tax purposes.
We believe that we have operated in conformity with the requirements for qualification as a REIT for U.S. federal income tax purposes.
The mortgage on our Rancho Cordova, California property does not mature until March 9, 2024 and the other three mortgages do not mature until after September 2027. All four of these mortgages are at fixed rates.
The mortgage on our Rancho Cordova, California property, which is leased to the State of California's Office of Emergency Services (“OES”) and was scheduled to mature on March 9, 2024, was fully repaid in December 2023 and the other three mortgages do not mature until after September 2027. All of the remaining mortgages are at fixed rates.
Further information as to these financial instruments with related parties is included in Note 10 to our accompanying consolidated financial statements in this Annual Report on Form 10-K. Real Estate Investments Real Estate Acquisition Valuation We record acquisitions that meet the definition of a business as a business combination.
See “ Note 2 – Summary of Significant Accounting Policies” to our consolidated financial statements of this report on Form 10-K for additional discussion of our significant accounting policies. Real Estate Investments Real Estate Acquisition Valuation We record acquisitions that meet the definition of a business as a business combination.
There was no loss on early extinguishment of debt for the year ended December 31, 2021. Other income of $93,971 and $283,971 for the years ended December 31, 2022 and 2021, respectively, primarily reflects our monthly management fee from the entities that own the TIC Interest property which is equal to 0.1% of the total investment value of the property.
Other income of $297,695 and $93,971 for the years ended December 31, 2023 and 2022, respectively, reflects our monthly management fee from the entities that own the TIC Interest property, partially offset in 2022 by charges for the write-off of certain crowdfunding related investments. The monthly management fee is equal to 0.1% of the total investment value of the property.
Funds from Operations and Adjusted Funds from Operations In order to provide a more complete understanding of the operating performance of a REIT, the National Association of Real Estate Investment Trusts (“Nareit”) promulgated a measure known as Funds from Operations (“FFO”).
More information on our properties and investments can be found in Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K. 39 Tabl e of Contents Funds from Operations and Adjusted Funds from Operations In order to provide a more complete understanding of the operating performance of a REIT, the National Association of Real Estate Investment Trusts (“Nareit”) promulgated a measure known as Funds from Operations (“FFO”).
With our leverage ratio at 38% as of September 30, 2022, the spread over SOFR, including a 10-basis point credit adjustment, is 165 basis points and the interest rate on the Revolver was 5.96% as of December 31, 2022.
With our leverage ratio at 48% as of September 30, 2023, the spread over SOFR, including a 10-basis point credit adjustment, is 185 basis points for the Revolver. Therefore, the interest rate on the Revolver was 7.1625% as of February 29, 2024; although there was no outstanding balance on the Revolver.
Overview We are a Maryland corporation with issued and outstanding stock consisting of Series A Preferred Stock, publicly traded on the NYSE under the symbol “MDV.PA,” and Class C Common Stock, publicly traded on the NYSE under the symbol “MDV.” We currently own and manage single-tenant net-lease industrial, retail and office properties throughout the United States, with a focus on future acquisitions of critical industrial manufacturing properties with long-term leases to tenants that fuel the national economy and strengthen the nation's supply chains, while reducing the number of office and retail properties in our portfolio.
Overview We are a Maryland corporation with issued and outstanding stock consisting of Series A Preferred Stock, listed on the NYSE under the symbol “MDV.PA,” and Class C Common Stock, listed on the NYSE under the symbol “MDV.” We currently own and manage single-tenant net-lease properties throughout the United States, which are primarily, but not exclusively, industrial properties.
Depreciation and Amortization Depreciation and amortization expenses for the years ended December 31, 2022 and 2021 were $14,929,574 and $15,266,936, respectively. The purchase price of the acquired properties was allocated to tangible assets, identifiable intangibles and assumed liabilities and is being depreciated or amortized over their estimated useful lives.
The purchase price of properties acquired is allocated to tangible assets, identifiable intangibles and assumed liabilities, if any, and depreciated or amortized over their estimated useful lives.
The total management fee was $263,971 for each of the years ended December 31, 2022 and 2021, of which our portion of expense relating to the TIC Interest was $191,933 for each year and is reflected as a component of income from unconsolidated investment in a real estate property in our accompanying consolidated statements of operations included in this Annual Report on Form 10-K. 64 Table of Contents Quarterly Data Our quarterly operating results have fluctuated significantly in the past and will likely continue to do so in the future as a result of ongoing property acquisitions and dispositions and various other factors as more fully described in Part I, Item 1A.
The total management fee was $263,971 for each of the years ended December 31, 2023 and 2022, of which our portion of expense relating to the TIC Interest was $191,933 for each year and is reflected as a component of income from unconsolidated investment in a real estate property in our accompanying consolidated statements of operations included in this Annual Report on Form 10-K. 49 Tabl e of Contents Critical Accounting Policies and Estimates The policies and estimates discussed below reflect those that management believes are or will be critical in affecting the preparation of our consolidated financial statements.
In addition, debt financing may be used from time-to-time for property improvements, lease inducements, tenant improvements and other working capital needs. As of December 31, 2022, the outstanding principal balance of our mortgage notes payable on our operating properties was $44,515,009, and the outstanding principal balances of our Revolver and Term Loan were $3,000,000 and $150,000,000, respectively.
As of December 31, 2023 and 2022, the outstanding principal balance of our mortgage notes payable on our operating properties was $31,200,000 and $44,515,009, respectively, our Revolver outstanding principal balance was zero and $3,000,000, respectively, and our Term Loan outstanding principal balance was $250,000,000 and $150,000,000, respectively.
Credit Facility On January 18, 2022, our Operating Partnership entered into a $250,000,000 Credit Agreement providing for a $100,000,000 four-year Revolver, which may be extended by up to 12 months subject to certain conditions, and a $150,000,000 five-year Term Loan with KeyBank and the other lending institutions party thereto (collectively, the “Lenders”), including KeyBank as Agent for the Lenders (in such capacity, the “Agent”), BMO Capital Markets, Truist Bank and The Huntington National Bank as Co-Syndication Agents (the “Co-Syndication Agents”) and KeyBanc Capital Markets Inc., BMO Capital Markets, Inc., Truist Securities, Inc. and The Huntington National Bank as Joint-Lead Arrangers (the “Lead Arrangers”).
Credit Facility and Mortgages Our Operating Partnership entered into an agreement for a line of credit (the “Credit Agreement”) on January 18, 2022 which was amended on October 21, 2022, and currently provides a $400,000,000 line of credit comprised of a $150,000,000 four-year Revolver, which may be extended by up to 12 months subject to certain conditions, and a $250,000,000 five-year Term Loan with KeyBank and the other lending institutions party thereto (collectively, the “Lenders”), including KeyBank as Agent for the Lenders (in such capacity, the “Agent”), as further described in Note 7 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
While we intend for the Credit Facility to be our primary source of financing, we may continue to use mortgage debt financing for certain real estate investments and acquisitions. This financing may be obtained at the time an asset is acquired or an investment is made or at such later time as determined to be appropriate.
This financing may be obtained at the time an asset is acquired or an investment is made or at such later time as determined to be appropriate.
If, based on the analysis, we do not believe that we will be able to recover the carrying value of the real estate properties, we will record an impairment charge to the extent the carrying value exceeds the estimated fair value of the real estate properties. Leasing Costs We account for leasing costs under Topic 842.
If, based on the analysis, we do not believe that we will be able to recover the carrying value of the real estate properties, we will record an impairment charge to the extent the carrying value exceeds the estimated fair value of the real estate properties. 50 Tabl e of Contents Recent Accounting Pronouncements See Note 2 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
We report with the SEC as a smaller reporting company under Rule 12b-2 of the Exchange Act. Self-Management T ra nsaction and Merger on December 31, 2019 Through December 31, 2019, we were externally managed by our former external advisor.
We report with the SEC as a smaller reporting company under Rule 12b-2 of the Exchange Act.
We determined that the impairment charge was required, based on efforts initiated during the fourth quarter of 2022 to sell the property and its reclassification to asset held for sale as of December 31, 2022 (see Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for additional details).
The operating results of each property that was classified as held for sale as of December 31, 2023 and 2022, and the 14 and eight properties that were sold during 2023 and 2022, respectively, were included in the continuing results of operations in our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
We are continuing to explore potential lease extensions for certain of our other properties. 68 Table of Contents Other than as discussed below, we do not have other plans to incur any significant costs to renovate, improve or develop our properties. We believe that our properties are adequately insured.
See Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for further details of these dispositions. Capital Expenditures and Tenant Improvements Other than as discussed below, we do not have other plans to incur any significant costs to renovate, improve or develop our properties. We believe that our properties are adequately insured.
The maturities for our Revolver and Term Loan remain unchanged with the Revolver’s maturity in January 2026 with options to extend for a total of 12 months, and the Term Loan’s maturity in January 2027. We paid lender fees of $1,378,125 in connection with the expansion of our Credit Facility.
The Revolver’s maturity is in January 2026, with options to extend for a total of 12 months, and the Term Loan’s maturity is in January 2027. The Credit Facility is priced on a leverage-based grid that fluctuates based on our actual leverage ratio at the end of the prior quarter.
The ABR of the operating properties owned as of December 31, 2022 was $33,667,366. 62 Table of Contents General and Administrative General and administrative expenses were $7,812,057 and $9,715,067 for the years ended December 31, 2022 and 2021, respectively.
General and Administrative 47 Tabl e of Contents General and administrative expenses were $6,642,990 and $7,812,057 for the years ended December 31, 2023 and 2022, respectively.
We are a smaller reporting entity and operate in an evolving environment. 66 Table of Contents Acquisitions of Real Estate Investments We acquired 16 and two properties during the years ended December 31, 2022 and 2021, respectively, as follows: Property and Location Property Type Area (Square Feet) Lease Terms (Years) Annual Rent Increase Acquisition Price Initial Cap Rate 2022 KIA/Trophy of Carson, Carson, CA (1) Retail 72,623 25 2.0 % $ 69,275,000 5.7 % Kalera, Saint Paul, MN Industrial 78,857 20 2.5 % 8,079,000 7.0 % Lindsay Precast, eight properties acquired in Colorado (3), Ohio (2), North Carolina, South Carolina and Florida Industrial 618,195 25 2.0 % 56,150,000 6.7 % Producto, two properties acquired in Endicott and Jamestown, NY Industrial 72,373 20 2.0 % 5,343,862 7.2 % Valtir, four properties acquired in Centerville, UT, Orangeburg, SC, Fort Worth, TX and Lima, OH Industrial 293,612 20 (2) 2.3 % 23,375,000 7.7 % 1,135,660 $ 162,222,862 2021 Raising Cane’s, San Antonio, TX Retail 3,853 7 2.0 % $ 3,607,424 6.3 % Arrow Tru-Line, Archbold, OH Industrial 206,155 20 2.0 % 11,460,000 6.7 % 210,008 $ 15,067,424 (1) The KIA property was acquired in an ‘‘UPREIT’’ transaction wherein the seller received 1,312,382 Class C OP Units for approximately 47% of the property value and we repaid a $36,465,449 existing mortgage, including accrued interest, on the property.
Electro Systems Ashland, OH Industrial 64,274 17 2.8 % 7,499,485 7.5 % Titan Alleyton, TX Industrial 223,082 20 2.9 % 17,100,000 8.2 % Vistech Piqua, OH Industrial 335,525 25 3.0 % 13,500,000 9.0 % SixAxis Andrews, SC Industrial 213,513 25 2.8 % 15,440,000 7.5 % 1,701,005 $ 129,148,574 Property Tenant Location Property Type Area (Square Feet) Lease Terms (Years) Annual Rent Increase Acquisition Price Initial Cap Rate 2022 KIA/Trophy of Carson (c) Carson, CA Retail 72,623 25 2.0 % $ 69,275,000 5.7 % Kalera Saint Paul, MN Industrial 78,857 20 2.5 % 8,079,000 7.0 % Lindsay Precast, eight properties acquired Colorado (3), Ohio (2), North Carolina, South Carolina and Florida Industrial 618,195 25 2.0 % 56,150,000 6.7 % Producto, two properties acquired Endicott and Jamestown, NY Industrial 72,373 20 2.0 % 5,343,862 7.2 % Valtir, four properties acquired in Centerville, UT, Orangeburg, SC, Fort Worth, TX and Lima, OH Industrial 293,612 20 (d) 2.3 % 23,375,000 7.7 % 1,135,660 $ 162,222,862 38 Tabl e of Contents (a) Includes $1,800,000 funding provided for improvements to the previously acquired Lindsay property in Franklinton, North Carolina, which was initially recorded as a construction advance in prepaid expenses and other assets (see Note 6 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for the remaining balance as of December 31, 2023).
Tenant origination and absorption costs, and above-/below-market lease intangibles Remaining lease term Impairment of Investment in Real Estate Properties We monitor events and changes in circumstances that could indicate that the carrying amounts of real estate properties may not be recoverable.
The use of inappropriate assumptions would result in an incorrect valuation of our acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of our net income (loss). Impairment of Investment in Real Estate Properties We monitor events and changes in circumstances that could indicate that the carrying amounts of real estate properties may not be recoverable.
While the Credit Facility allows for borrowings of up to 60% of our borrowing base, we are targeting leverage of 40% or lower over the long-term once we achieve scale; however, we will consider higher leverage in the near-term if we identify attractive acquisition opportunities in advance of completing dispositions or raising additional equity.
We are targeting leverage of 40% or lower over the long-term once we achieve scale; however, we increased our borrowing during 2023 in order to execute attractive acquisition opportunities resulting in leverage of 48% as of December 31, 2023.
As of December 31, 2022, we have a portfolio of 46 commercial real estate properties 53 Table of Contents in 17 states, comprised of 27 industrial properties, including our approximate 72.7% TIC Interest in a 91,740 square foot Santa Clara, California industrial property, 12 retail properties and 7 office properties (including one held for sale) as discussed in Notes 3 and 4 to our accompanying consolidated financial statements for the year ended December 31, 2022 included in this Annual Report on Form 10-K.
Since December 31, 2019, we have been internally managed, as further described below in Note 12 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K. 34 Tabl e of Contents Following the January and February 2024 sales of the two properties that were held for sale as of December 31, 2023, our real estate investment portfolio consists of 42 properties, including the TIC Interest, as further described in Notes 3 and 4 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
We, therefore, reduced the carrying value of goodwill to zero as of March 31, 2022 (see Note 5 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for additional details).
We, therefore, reduced the carrying value of goodwill to zero as of March 31, 2022.
The 2022 early termination fee was related to an office property in Rancho Cordova, California leased to Sutter Health, which was subsequently leased to OES effective January 4, 2023, and the 2021 early termination fee was related to an industrial property in Cedar Park, Texas, leased to Dana Incorporated which was sold on July 7, 2021 (see Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details on such transactions).
Rental income during 2022 included early termination fee revenue of $3,751,984 related to an office property in Rancho Cordova, California leased to Sutter Health, which was subsequently leased to OES effective January 4, 2023.
(2) Includes four healthcare related properties held for sale as of December 31, 2021, which consisted of three office properties and one flex property. These held for sale properties were sold in February 2022.
(b) Includes two properties (one industrial and one office) held for sale as of December 31, 2023, which were sold on January 10, 2024 and February 28, 2024. (c) Includes one flex property held for sale as of December 31, 2022, which was sold on August 31, 2023. We acquired 12 and 16 operating properties during 2023 and 2022, respectively.
The decrease of $1,903,010, or 20%, year-over-year primarily reflects personnel reductions and the resulting decrease in compensation to employees, reduced costs for technology services following our exit from the crowdfunding business in the first quarter of 2022 and reduced costs for professional services during the current year.
The decrease of $1,169,067, or 15%, year-over-year primarily reflects decreases in (i) employee compensation due to personnel reductions during 2022; (ii) directors and officers insurance; and (iii) costs for technology services, offset in part by an increase in costs for professional services during 2023.
As a result of the interest rate swap agreements entered into during 2022, 100% of our indebtedness as of February 28, 2023 holds a fixed interest rate. The weighted average interest rate on the total debt outstanding of $204.5 million as of February 28, 2023 was 4.05% based on our 38% leverage ratio as of December 31, 2022.
As a result of the interest rate swap agreements entered into during 2022, 100% of our consolidated indebtedness as of December 31, 2023, held a weighted average fixed interest rate of 4.52%. Any future uncertainties in the capital markets may cause difficulty in refinancing debt obligations prior to maturity at terms as favorable as the terms of existing indebtedness.
Additionally, other companies may have utilized different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. Noncontrolling Interest in Consolidated Entities We account for the noncontrolling interests in our Operating Partnership in accordance with the related accounting guidance.
Management evaluates these estimates based upon information currently available and on various assumptions that it believes are reasonable an ongoing basis. Additionally, other companies may have utilized different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.
In addition, we have identified approximately $1,181,000 of roof and HVAC replacement, elevator upgrades and sealing and parking lot repairs/restriping that are expected to be completed in the next 12 months. Approximately $217,000 of these improvements are expected to be recoverable from the tenant through operating expense reimbursements.
In addition, we have identified approximately $664,611 of capital expenditures that are expected to be completed in the next 12 months which are not recoverable from tenants with double-net leases. These improvements will be funded from cash on hand or operating cash flows.
Cash Flow Summary The following table summarizes our cash flow activity for the years ended December 31, 2022 and 2021: 2022 2021 Net cash provided by operating activities $ 16,648,821 $ 9,728,685 Net cash (used in) provided by investing activities $ (61,063,193) $ 21,830,288 Net cash (used in) provided by financing activities $ (5,384,499) $ 18,471,017 Cash Flows from Operating Activities The cash provided by operating activities of $16,648,821 for the year ended December 31, 2022 primarily reflects adjustments to our net loss of $4,511,318 to exclude net non-cash charges of $23,209,673 related to depreciation and amortization, impairment of goodwill, impairment of real estate property, stock compensation expense, amortization of deferred financing costs and premium, write-off of purchase deposit, amortization of deferred lease incentives, and amortization of above market lease intangibles, which were partially offset by gain on sale of real estate investments, write-off of unrealized gain on interest rate swaps, amortization of below-market lease intangibles, amortization of deferred rents and undistributed income from our unconsolidated investment in a real estate property.
Cash Flow Summary The following table summarizes our cash flow activity for the years ended December 31, 2023 and 2022: 2023 2022 Net cash provided by operating activities $ 16,578,228 $ 16,648,821 Net cash used in investing activities $ (93,602,234) $ (61,063,193) Net cash provided by (used in) financing activities $ 71,544,771 $ (5,384,499) Cash Flows from Operating Activities Net cash provided by operating activities was $16,578,228 for the year ended December 31, 2023 compared to $16,648,821 for the year ended December 31, 2022, resulting in a net decrease in cash provided by operating activities of $70,593 year-over-year primarily due to the increase in cash interest expense during 2023, partially offset by decreases in general and administrative and property expenses.
Stock Compensation Expense Stock compensation expense was $2,401,022 and $2,744,881 for the years December 31, 2022 and 2021, respectively. The decrease of $343,859, or 13%, as compared with the prior year primarily reflects forfeitures related to employee terminations and resignations during the second half of 2021 and the first and third quarters of 2022.
The remaining $224,656 increase in stock compensation expense reflects the absence of forfeitures during the year ended December 31, 2023, as compared to recapture of stock compensation expense related to employee departures and forfeitures in 2022. Depreciation and Amortization Depreciation and amortization expense was $15,551,173 and $14,929,574 for the years ended December 31, 2023 and 2022, respectively.
We had $8,608,649 of cash and no restricted cash as of December 31, 2022, as reported in our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
On January 11, 2024, we entered into a contingent purchase and sale agreement with a national homebuilder for the sale of this property as further described in Note 14 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
The increase of $2,018,633, or 29%, year-over-year primarily reflects increases in repairs and maintenance, property management fees and property taxes, the majority of which are reimbursed by tenants.
The decrease of $1,386,374, or 21%, year-over-year primarily reflects decreases in property taxes and repairs and maintenance related to assets sold, which included double-net and modified gross leases, offset in part by increases in property management fees associated with acquired properties during the current year.
Removed
Through various transactions, including the Merger, we created one of the largest non-listed REITs to be raised via crowdfunding technology. Since December 31, 2019, we have been internally managed, as further described below.
Added
Our focus for future acquisitions is on critical industrial manufacturing properties with long-term leases to tenants that fuel the national economy and strengthen the nation's supply chains. We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2016.
Removed
Driven by an investor-first focus and an experienced management team, Modiv leveraged its history as a real estate crowdfunding pioneer to create an approximate $535 million (based on estimated fair value) real estate portfolio comprised of approximately 3.2 million square feet of income-producing real estate.
Added
Our portfolio is distributed across 15 states and consists of 38 industrial properties which represent approximately 76% of the portfolio by ABR, one retail property which represents approximately 11% of the portfolio by ABR, and three office properties which represent approximately 13% of the portfolio by ABR.
Removed
As of December 31, 2022, after reflecting lease extensions through the filing date of this Annual Report on Form 10-K, 48% of our tenants (based on ABR) are investment grade, our ABR was $33,667,366, all of our properties are 100% leased and our WALT was 11.9 years.
Added
As of December 31, 2023, excluding the two properties that were held for sale, our ABR was $39,328,192 with a WALT of 14.1 years and 33% of our tenants by ABR are investment grade.
Removed
We are the sole general partner of, and owned an approximate 73% partnership interest in the Operating Partnership on December 31, 2022.
Added
Primary Investment Objectives Our primary investment objectives are: • to provide attractive growth in AFFO and sustainable cash distributions; • to realize appreciation from proactive investment selection and management; • to provide future opportunities for growth and value creation; and • to provide an investment alternative for stockholders seeking to allocate a portion of their long-term investment portfolios to industrial manufacturing real estate.

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