EDGAR 10-K Filing

Company CIK: 1568162
Filing Year: 2022
Filename: 1568162_10-K_2022_0001568162-22-000008.json

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ITEM 1. BUSINESS
Item 1. Business.
Overview
We are an externally managed real estate investment trust for U.S. federal income tax purposes (“REIT”) focusing on acquiring and managing a diversified portfolio of primarily service-oriented and traditional retail and distribution related commercial real estate properties located primarily in the United States. Our assets consist primarily of freestanding single-tenant properties that are net leased to “investment grade” and other creditworthy tenants and a portfolio of multi-tenant retail properties consisting primarily of power centers and lifestyle centers. We historically focused our acquisitions primarily on net leased, single-tenant service retail properties, defined as properties leased to tenants in the retail banking, restaurant, grocery, pharmacy, gas, convenience, fitness, and auto services sectors. In December 2021, we signed a purchase and sale agreement to acquire 79 multi-tenant retail centers and two single-tenant properties (the “CIM Portfolio Acquisition”) for $1.3 billion, representing a strategic shift away from a primary focus on single-tenant retail properties. On February 11, 2022, we closed on the first tranche of the CIM Portfolio Acquisition and acquired 44 properties for a contract purchase price of $547.4 million. We expect to complete the closing of the transaction in successive tranches by the end of March 2022. For additional information on the details of the CIM Portfolio Acquisition, the closing of the first tranche and the related funding details, see Item 7. Management’s Discussion and Analysis - Liquidity and Capital Resources and see Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K for more information.
Effective February 10, 2022, we amended our charter to change our name from “American Finance Trust, Inc.” to “The Necessity Retail REIT, Inc.” The name change became effective pursuant to an amendment to our charter which was filed with the Maryland State Department of Assessments and Taxation. Our Class A common stock, our 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock $0.01 par value per share (“Series A Preferred Stock”) and our 7.375% Series C Cumulative Redeemable Perpetual Preferred Stock $0.01 par value per share (“Series C Preferred Stock”) began trading on the Nasdaq Global Select Market (“Nasdaq”) under the new ticker symbols “RTL,” “RTLPP” and “RTLPO,” respectively, as of February 15, 2022.
As of December 31, 2021, we owned 976 properties, comprised of 20.0 million rentable square feet, which were 93.2% leased, including 943 single-tenant net leased commercial properties (902 of which are leased to retail tenants) and 33 multi-tenant retail properties. Based on annualized rental income on a straight-line basis as of December 31, 2021, the total single-tenant properties comprised 70% of our total portfolio and were 61% leased to service retail tenants, and the total multi-tenant properties comprised 30% of our total portfolio and were 49% leased to experiential retail tenants, defined as tenants in the restaurant, discount retail, entertainment, salon/beauty and grocery sectors, among others.
Including the pro forma impact of the closing of the first tranche, the planned closing of the successive tranches of the CIM Portfolio Acquisition and the disposal of our Sanofi property on January 6, 2022, but assuming no other subsequent acquisitions or dispositions, as of December 31, 2021 we would have owned 1,056 properties, comprised of 28.8 million rentable square feet, including 944 single-tenant net leased commercial properties (904 of which are leased to retail tenants) and 112 multi-tenant retail properties. As a result of the CIM Portfolio Acquisition and the related strategic shift in our operations, we have concluded we now operate in two reportable segments: single-tenant properties and multi-tenant properties.
Investment Strategy
In addition to focusing on acquiring a diversified portfolio of commercial real estate properties with the tenants and other attributes noted above we also focus on:
•acquiring and owning service-oriented retail properties or experiential retail tenants that we believe are more resistant to e-commerce and the factors impacting traditional retail;
•maintaining high portfolio occupancy with a focus on service retail single-tenant and multi-tenant assets featuring long-term leases;
•targeting a leverage level of not more than 45% loan-to-value at the time of acquisition; and
•maintaining diversity by tenant as well as a geographic location and lease term.
There is no limit on the number, size or type of properties that we may acquire. The number and mix of properties depend upon real estate market conditions and other circumstances existing at the time of acquisition of properties.
We may acquire or own properties through joint ventures with third parties although we do not presently have any of these arrangements. We do not intend to develop or redevelop properties. In evaluating prospective investments, our Advisor considers relevant real estate and financial factors, including the location of the property, the leases and other agreements affecting it, the creditworthiness of its major tenants, its income-producing capacity, its physical condition, its
prospects for appreciation, its prospects for liquidity, tax considerations and other factors. We may also originate or acquire first mortgage loans, mezzanine loans, preferred equity or securitized loans (secured by real estate) but do not currently own any of these asset types. Our Advisor has substantial discretion to select specific investments, subject to approval by our board of directors, including any related guidelines.
Tenants and Leasing
We seek to lease space at our single-tenant properties and our multi-tenant anchor spaces to “investment grade” rated tenants. For our purposes, “investment grade” includes both tenants (or lease guarantors) with actual investment grade ratings or tenants with “implied” investment grade ratings. Implied investment grade may include the actual rating of a tenant’s parent or the guarantor of the parent (regardless of whether the parent has guaranteed the tenant’s obligation under the lease) or tenants that are identified as investment grade by using a proprietary Moody’s analytical tool which generates an implied rating by measuring an entity’s probability of default. Based on annualized rental income on a straight-line basis as of December 31, 2021, approximately 57.9% of the tenants in our single-tenant portfolio were considered “investment grade” consisting of 46.1% with actual investment grade ratings and 11.8% with implied investment grade ratings, and approximately 30.0% of the anchor tenants in our multi-tenant portfolio were considered “investment grade” consisting of 20.3% with actual investment grade ratings and 9.7% with implied investment grade ratings.
We do not have any leases or contracts with governmental entities. We also seek to maintain high occupancy rates through long-term leases. As of December 31, 2021, our portfolio was 93.2% occupied.
Our business is generally not seasonal.
Financing Strategies and Policies
We use various sources to fund our business, including acquisitions and other investments as well as property and tenant improvements, leasing commissions and other working capital needs. These sources have recently consisted of: (1) equity offerings of common and preferred stock; (2) property-level financing secured by the underlying property or properties; (3) draws on our revolving unsecured corporate credit facility (the “Credit Facility”) with BMO Harris Bank N.A.; and (4) the issuance of our 4.500% Senior Notes due 2028 (“Senior Notes”) in the fourth quarter of 2021. See Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources herein for a discussion of how we have funded our capital needs. In May, 2021, we began a deleveraging initiative. We hope to achieve this initiative by reducing outstanding debt, funding acquisitions through cash on hand rather than proceeds from debt, or at lower debt-to-equity ratios, raising equity to fund acquisitions and pay down debt; and increasing revenues through external and internal growth strategies such as property acquisitions and multi-tenant leasing activity. Subsequent to December 31, 2021, in connection with the closing of the first tranche of the CIM Portfolio Acquisition, we borrowed additional amounts under our Credit Facility, however we plan to continue with our deleveraging strategy after the completion of the CIM Portfolio Acquisition in the first quarter of 2022. For additional information on the closing of the first tranche of the CIM Portfolio Acquisition, including funding details, see Item 7. Management’s Discussion and Analysis - Liquidity and Capital Resources and see Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K for more information.
We expect to raise additional equity capital and borrow additional monies in the future to fund our capital needs, including future acquisitions. We may issue additional Senior Notes or similar securities in the future particularly as we revise our capital structure following the CIM Portfolio Acquisition in a similar fashion as we may add or refinance existing mortgage debt or indebtedness under our Credit Facility. The form of our indebtedness will vary and could be long-term or short-term, secured or unsecured, or fixed-rate or floating rate. We will not enter into interest rate swaps or caps, or similar hedging transactions or derivative arrangements for speculative purposes, but have entered into, and expect to continue to enter into, these types of transactions in order to manage or mitigate our interest rate risk on variable rate debt. See Note 8 - Derivatives and Hedging Activities to our consolidated financial statements included in this Annual Report on Form 10-K for more information. We may reevaluate and change our investing or financing policies in our board’s sole discretion.
COVID-19 Update
As discussed, in more detail in other sections of this Annual Report, the COVID-19 pandemic has created several risks and uncertainties that may impact our business, including our future results of operations and our liquidity. Because of the rigorous underwriting standards used by our Advisor and our focus on credit worthy tenants, we collected 100%, 100%, 99% and 100% of cash rent due for the quarters ended March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021, respectively, as of January 31, 2022. In addition, we collected 99% of cash rent from our single-tenant portfolio and 100% of cash rent from our multi-tenant portfolio (based on annualized rental income on a straight-line basis as of December 31, 2021). For additional information on our rent collection efforts, including deferral or abatement agreements, see Item 7. Management’s Discussion and Analysis -Management Update on the Impacts of the COVID-19 Pandemic.
Organizational Structure
Substantially all of our business is conducted through The Necessity Retail REIT Operating Partnership, L.P. (formerly known as American Finance Trust Operating Partnership, L.P.) (the “OP”), a Delaware limited partnership, and its wholly owned subsidiaries. Our Advisor manages our day-to-day business with the assistance of our property manager, Necessity Retail Properties, LLC (formerly known as American Finance Properties, LLC) (the “Property Manager”). Our Advisor and Property Manager are under common control with AR Global Investments LLC (“AR Global”) and these related parties receive compensation and fees for providing services to us. We also reimburse these entities for certain expenses they incur in providing these services to us.
Tax Status
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2013. We believe that, commencing with such taxable year, we have been organized and have operated in a manner so that we qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner, but can provide no assurance that we will operate in a manner so as to remain qualified as a REIT. To continue to qualify for taxation as a REIT, we must distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with generally accepted accounting principles (“GAAP”)), determined without regard for the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on the portion of our REIT taxable income that we distribute to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties, and federal income and excise taxes on our undistributed income.
Competition
The commercial real estate market is highly competitive. We compete for tenants in all of our markets based on various factors that include location, rental rates, security, suitability of the property’s design to a tenant’s needs and the manner in which the property is operated and marketed. The number of competing properties in a particular market could have a material effect on our occupancy levels, rental rates and on the operating expenses of certain of our properties.
In addition, we compete for acquisitions with other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, sovereign wealth funds, mutual funds, and other entities. Some of these competitors, including larger REITs, have substantially greater financial resources than we have and generally may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of tenants.
Competition from these and other third-party real estate investors may limit the number of suitable investment opportunities available to us and increase prices, which will lower yields, making it more difficult for us to acquire new investments on attractive terms.
Regulations - General
Our investments are subject to various federal, state, local and foreign laws, ordinances and regulations, including, among other things, the Americans with Disabilities Act of 1990, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our investments. These regulations have not had a material effect on our business and management does not believe it will have such an impact in the current fiscal year.
Regulations - Environmental
As an owner of real estate, we are subject to various environmental laws of federal, state and local governments. Compliance with existing laws has not had a material adverse effect on our capital expenditures, earnings, or competitive position and management does not believe it will have such an impact in the future. We do not expect to incur material capital expenditures for environmental control facilities during fiscal 2022. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future. We hire third parties to conduct Phase I environmental reviews of the real property that we intend to purchase.
Human Capital Resources
We are an externally managed company and thus have no employees. We have retained the Advisor pursuant to a long-term advisory contract to manage our affairs on a day-to-day basis. We have also entered into agreements with our Property Manager to manage and lease our properties. The employees of the Advisor, Property Manager, and their respective affiliates perform a full range of services for us, including acquisitions, property management, accounting, legal,
asset management, investor relations and all general administrative services. We depend on the Advisor and the Property Manager for services that are essential to us. If the Advisor and the Property Manager were unable to provide these services to us, we would be required to provide these services ourselves or obtain them from other sources.
Available Information
We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and proxy statements, with the SEC. You may read and copy any materials we file with the SEC at the SEC’s Internet address at www.sec.gov. The website contains reports, proxy statements and information statements, and other information, which you may obtain free of charge. In addition, copies of our filings with the SEC may be obtained from our website at www.necessityretailreit.com. Access to these filings is free of charge. We are not incorporating our website or any information from the website into this Form 10-K.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Set forth below are the risk factors that we believe are material to our investors and a summary thereof. The occurrence of any of the risks discussed in this Annual Report on Form 10-K could have a material adverse effect on our business, financial condition, results of operations and ability to pay dividends and they may also impact the trading price of our Class A common stock and our preferred stock.
Summary Risk Factors
•We may be unable to acquire properties on advantageous terms or our property acquisitions may not perform as we expect.
•We are subject to risks associated with a pandemic, epidemic or outbreak of a contagious disease, such as the ongoing global COVID-19 pandemic, including negative impacts on our tenants and their respective businesses.
•Certain of the agreements governing our indebtedness may limit our ability to pay dividends on our Class A common stock, our Series A Preferred Stock and our Series C Preferred Stock, and our ability to repurchase shares.
•If we are not able to generate sufficient cash from operations, we may have to reduce the amount of dividends we pay or identify other financing sources.
•Funding dividends from other sources such as borrowings, asset sales or equity issuances limits the amount we can use for property acquisitions, investments and other corporate purposes.
•Our operating results are affected by economic and regulatory changes that have an adverse impact on the real estate market in general.
•Inflation and continuing increases in the inflation rate (may) have an adverse effect on our investments and results from operations.
•In owning properties we may experience, among other things, unforeseen costs associated with complying with laws and regulations and other costs, potential difficulties selling properties and potential damages or losses resulting from climate change.
•We depend on tenants for our rental revenue and, accordingly, our rental revenue is dependent upon the success and economic viability of our tenants. If a tenant or lease guarantor declares bankruptcy or becomes insolvent, we may be unable to collect balances due under relevant leases.
•Our tenants may not be diversified including by industry type or geographic location.
•The performance of our retail portfolio is linked to the market for retail space generally and factors that may impact our retail tenants, such as the increasing use of the Internet by retailers and consumers.
•Certain of our tenants are facing increased competition with other non-traditional and online grocery retailers and higher costs due to inflation and supply chain issues, which may negatively impact their businesses.
•We depend on the Advisor and Property Manager to provide us with executive officers , key personnel and all services required for us to conduct our operations.
•All of our executive officers face conflicts of interest, such as conflicts created by the terms of our agreements with the Advisor and compensation payable thereunder, conflicts allocating investment opportunities to us, and conflicts in allocating their time and attention to our matters. Conflicts that arise may not be resolved in our favor and could result in actions that are adverse to us.
•We have long-term agreements with our Advisor and its affiliates that may be terminated only in limited circumstances.
•We have substantial indebtedness and may be unable to repay, refinance, restructure or extend our indebtedness as it becomes due. Increases in interest rates could increase the amount of our debt payments. We will likely incur additional indebtedness in the future.
•The stockholder rights plan adopted by our board of directors, our classified board and other aspects of our corporate structure and Maryland law may discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
•Restrictions on share ownership contained in our charter may inhibit market activity in shares of our stock and restrict our business combination opportunities.
•We may fail to continue to qualify as a REIT.
Risks Related to Our Properties and Operations
We may be unable to enter into contracts for and complete property acquisitions on advantageous terms or our property acquisitions may not perform as we expect.
Our goal is to grow through acquiring additional properties, and pursuing this investment objective exposes us to numerous risks, including:
•competition from other real estate investors with significant capital resources;
•we may acquire properties that are not accretive;
•we may not successfully integrate, manage and lease the properties we acquire in a fashion that meets our expectations or market conditions may result in future vacancies and lower-than expected rental rates;
•we may be unable to assume existing debt financing or obtain debt financing or raise equity required to fund acquisitions on favorable terms, or at all;
•we may need to spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;
•agreements to acquire properties are typically subject to customary conditions to closing that may or may not be completed, and we may spend significant time and money on potential acquisitions that we do not consummate;
•the process of acquiring or pursuing the acquisition of a new property may divert the attention of our management team from our existing operations; and
•we may acquire properties without recourse, or with only limited recourse, for liabilities, whether known or unknown.
We rely upon our Advisor and the real estate professionals employed by affiliates of our Advisor to identify suitable investments. There can be no assurance that our Advisor will be successful in doing so on financially attractive terms or that our objectives will be achieved. If our Advisor is unable to timely locate suitable investments, we may be unable to meet our investment objectives.
We are subject to risks associated with a pandemic, epidemic or outbreak of a contagious disease, such as the ongoing global COVID-19 pandemic, which has caused severe disruptions in the U.S. and global economy and financial markets and has already had adverse effects and may worsen.
The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across many sectors and areas of the global economy and financial markets, leading to significant adverse impacts on economic activity as well as significant volatility and negative pressure in financial markets.
The impact of the COVID-19 pandemic has evolved rapidly. In many states and cities where our tenants operate their businesses and where our properties are located, measures have been taken to alleviate the public health crisis, including “shelter-in-place” or “stay-at-home” orders issued by local, state and federal authorities for much of 2020 and the early part of 2021 and social distancing measures that have resulted in closure and limitations on the operations of many businesses impacting a number of our tenants. Strict “shelter-in-place” and similar orders have generally been lifted, but limitations on indoor occupancy and other restrictions applicable to in-person operations continue and may in the future be re-instituted in some jurisdictions as rates of infection increase in those locations, including in light of the current spread of the Omicron variant and other potentially more contagious variants of the SARS-COV-2 virus. As the COVID-19 pandemic continues, it is highly uncertain to what extent and when any such continuing restrictions will be lifted in various jurisdictions and could depend on numerous factors, including vaccination rates among the population, the effectiveness of the COVID-19 vaccines against these variants and the response by governmental bodies and regulators. For businesses that have not closed or have closed and reopened, concerns regarding the transmission of COVID-19 has impacted, and will likely continue to impact, the willingness of persons to engage in in-person commerce which has and may continue to impact the revenues generated by our tenants which may further impact their ability to pay their rent to us when due.
Closures by anchor tenants may, among other things, give tenants with co-tenancy provisions the right to terminate their leases or seek a rent reduction. Even if co-tenancy rights do not exist, other tenants may experience downturns in their businesses that could further threaten their on-going ability to continue paying rent and remain solvent.
Additionally, a decrease in consumer traffic to retail, gyms, fitness studios and other businesses that require in-person interactions could make it difficult for us to renew or re-lease our properties at rental rates equal to or above historical rates. We could also incur more significant re-leasing costs, and the re-leasing process could take longer. For our office tenants, limitations on in-person work environments could lead to a sustained shift away from in-person work environments and have an adverse effect on the overall demand for office space across our portfolio if a significant number of businesses continue to utilize large-scale work-from-home policies as the COVID-19 pandemic continues and thereafter. In addition, the COVID-19 pandemic has also led to disruptions in operations at manufacturing facilities and distribution centers in many countries, which could impact supply chains and the operations of certain of our tenants, further impacting their revenues and ability to pay rent when due.
The COVID-19 pandemic has impacted global economic activity. A sustained downturn in the U.S. economy and reduced consumer spending at brick-and-mortar commercial establishments due to the prolonged and continuing existence and threat of the COVID-19 pandemic could impact the ability of our tenants to pay their rent when due. Our ability to lease space and negotiate and maintain favorable rents could also be negatively impacted by a prolonged recession in the U.S. economy. Supply chain disruption and resulting inflationary pressures, a global labor shortage, and the ebb and flow of COVID-19, including in specific areas, are currently impacting the pace of recovery and outlook. Moreover, the demand for leasing space in our properties could substantially decline during the significant downturn in the U.S. economy which could result in a decline in our occupancy percentage and reduction in rental revenues.
Our tenants may also be negatively impacted if the outbreak of COVID-19 occurs within their workforce or otherwise disrupts their management, including as a result of an overall labor shortage, lack of skilled labor, increased turnover or labor inflation caused by COVID-19 and vaccine requirements implemented by certain employers in response to COVID-19 mandating that some or all employees get vaccinated or provide proof of vaccination, or as a result of general macroeconomic factors.
As a result of these and other factors, certain tenants have been, or may be in the future, unwilling or unable to pay rent in full or on a timely basis due to bankruptcy, lack of liquidity, lack of funding, operational failures, or for other reasons. We had collected 100%, 100%, 99% and 100% of cash rent due for the quarters ended March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021, respectively, as of January 31, 2022. We also entered into rent deferral or abatement agreements (see Item 7. Management’s Discussion and Analysis for additional information). There is no assurance that we will be able to collect the cash rent that is due in future months including amounts deferred thus far. We may also enter into additional rent deferral or abatement agreements in the future.
The impact of the COVID-19 pandemic on our tenants and thus our ability to collect rents in the future periods cannot be determined at present. We may face defaults and additional requests for rent deferrals or abatements or other allowances particularly if mandatory closures or reduced hours are prolonged or reinstated or if customer traffic continues to be adversely impacted. Furthermore, if we declare any tenants in default for not paying rent or for other breaches of their leases with us, we might not be able to fully recover and may experience delays and additional costs in enforcing our rights as landlord to recover amounts due to us. Our ability to recover amounts under the terms of our leases may also be restricted or delayed due to moratoriums imposed by various jurisdictions on landlord-initiated commercial eviction and collection actions. If any of our tenants, or any guarantor of a tenant’s lease obligations, files for bankruptcy, we could be further adversely affected due to loss of revenue but also because the bankruptcy may make it more difficult for us to lease the remainder of the property or properties in which the bankrupt tenant operates.
Because substantially all of our income is derived from rentals of commercial real property, our business, income, cash flow, results of operations, financial condition, liquidity, prospects, our ability to service our debt obligations, our ability to consummate future property acquisitions and our ability to pay dividends and other distributions to our stockholders would be adversely affected if a significant number of tenants are unable to meet their obligations to us. Because substantially all of our income is derived from rentals of commercial real property, our business, income, cash flow, results of operations, financial condition, liquidity, prospects, our ability to service our debt obligations, our ability to consummate future property acquisitions and our ability to pay dividends and other distributions to our stockholders would be adversely affected if a significant number of tenants are unable to meet their obligations to us.
In addition, the COVID-19 pandemic may impact us in other ways due to, among other factors:
•difficulty accessing debt and equity capital on favorable terms, or at all if global financial markets become disrupted or unstable or credit conditions deteriorate;
•disruption and instability in the global financial markets or deteriorations in credit and financing conditions could have an impact on the overall amount of capital being invested in real estate and could result in price or value decreases for real estate assets, which could negatively impact the value of our assets and may result in future acquisitions generating lower overall economic returns;
•the volatility in the global stock markets caused by the COVID-19 pandemic could dilute our stockholders’ interest in us if we sell additional equity securities at prices less than the prices our stockholders paid for their shares;
•we may reduce the number of properties we seek to acquire;
•we may have to recognize further impairment charges on our assets;
•one or more counterparties to our derivative financial instruments could default on their obligations to us or could fail, increasing the risk that we may not realize the benefits of utilizing these instruments;
•with respect to our leases, we may be required to record reserves on previously accrued amounts in cases where it is subsequently concluded that collection is not probable;
•difficulties completing capital improvements at our properties on a timely basis, on budget or at all, could affect the value of our properties;
•our ability to ensure business continuity in the event our Advisor’s continuity of operations plan is not effective or is improperly implemented or deployed during a disruption;
•increased operating risks resulting from changes to our Advisor’s operations and remote work arrangements, including the potential effects on our financial reporting systems and internal controls and procedures, cybersecurity risks and increased vulnerability to security breaches, information technology disruptions and other similar events; and
•complying with REIT requirements during a period of reduced cash flow could cause us to liquidate otherwise attractive investments or borrow funds on unfavorable conditions.
The extent to which the COVID-19 pandemic, or a future pandemic, impacts our operations and those of our tenants will depend on future developments, including the scope, severity and duration of the pandemic, one or more resurgences of the virus which could result in further government restrictions, the efficacy of any vaccines or other remedies developed or are or may be developed in the future, the efficacy of on-going efforts to distribute and administer available vaccines, the actions taken to contain the pandemic or mitigate its impact, including vaccine mandates and the direct and indirect economic effects of the pandemic and containment measures, among others, which are highly uncertain and cannot be predicted with confidence but could be material. The situation has changed and could continue to change rapidly and additional impacts to the business may arise that we are not aware of currently. The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of COVID-19 pandemic, but a prolonged or resurgent outbreak as well as related mitigation efforts could have a material impact on our revenues and cash flow. In addition many of the other risk factors set forth in this Annual Report on Form 10-K should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.
We may have to reduce dividend payments or identify other financing sources to pay dividends at their current levels.
We cannot guarantee that we will be able to pay dividends on a regular basis on our Class A common stock. Series A Preferred Stock. Series C Preferred Stock, or any other class or series of stock we may issue in the future. Decisions regarding the frequency and amount of any future dividends we pay on our Class A common stock will remain at all times entirely at the discretion of our board of directors, which reserves the right to change our dividend policy at any time and for any reason. Any accrued and unpaid dividends payable with respect to either our Series A or Series C Preferred Stock must be paid upon redemption of the applicable shares.
As noted herein, our debt agreements, including the indenture governing the Senior Notes and our Credit Facility, contain various covenants that limit our ability to pay dividends. For example, our Credit Facility, contains provisions restricting our ability to pay distributions, including paying cash dividends on equity securities (including the Series A Preferred Stock and the Series C Preferred Stock). We are generally permitted to pay dividends on these securities and other distributions for any fiscal quarter in an aggregate amount of up to 105% of AFFO (as defined in credit agreement governing the Credit Facility) for a look-back period of four consecutive fiscal quarters but only if, as of the last day of the period, after giving effect to the payment of those dividends and other distributions, we are able to satisfy a maximum leverage ratio and a maximum unsecured leverage ratio and maintain availability for future borrowings under the Credit Facility of not less than $60 million. If these conditions are not satisfied, the applicable threshold percentage of AFFO will be 95% instead of 105%. If applicable, during the continuance of an event of default under the Credit Facility, we may not pay dividends or other distributions in excess of the amount necessary for us to maintain our status as a REIT.
Our ability to pay dividends in the future and comply with the restrictions on the payment of dividends depends on our ability to operate profitably and to generate sufficient cash flows from the operations of our existing properties and any properties we may acquire. We have, in the past, entered into amendments to the Credit Facility or obtained waivers from the lenders thereunder that have permitted us to pay dividends or other distributions in excess of the limits at the time of the amendment or waiver and may need to do so in the future. However, there is no assurance that lenders will consent to any additional amendments or waivers.
During the year ended December 31, 2021, cash used to pay dividends on our Class A common stock, Series A Preferred Stock and Series C Preferred Stock, distributions for units of limited partnership designated as LTIP Units (“LTIP Units”) and distributions for limited partnership units that correspond to shares of our Class A common stock was generated from cash flows provided by operations. If we need to continue to identify financing sources other than operating cash flows to continue to fund dividends at their current level, there can be no assurance that other sources will be available on favorable terms, or at all.
Complying with these restriction on paying dividends and other distributions in the agreements governing our debt may limit our ability to incur additional indebtedness and use cash that would otherwise be available to us. Funding dividends or other distributions from borrowings restricts the amount we can borrow for property acquisitions and investments. Using proceeds from the sale of assets or the issuance of our Class A common stock, Series A Preferred Stock, Series C Preferred Stock or other equity securities to fund dividends or other distributions rather than invest in assets will likewise reduce the amount available to invest. Funding dividends from the sale of additional securities could also dilute our stockholders.
We depend on our Advisor and Property Manager to provide us with executive officers, key personnel and all services required for us to conduct our operations and our operating performance may be impacted by any adverse changes in the financial health or reputation of our Advisor.
We have no employees. Personnel and services that we require are provided to us under contracts with our Advisor and its affiliate, our Property Manager. We depend on our Advisor and our Property Manager to manage our operations and to acquire and manage our portfolio of real estate assets.
Our success depends to a significant degree upon the contributions of certain of our executive officers and other key personnel of our Advisor and its affiliates, including Edward M. Weil, Jr., our chairman and chief executive officer, and Jason F. Doyle, our chief financial officer, treasurer and secretary. Neither our Advisor nor any of its affiliates has an employment agreement with these key personnel, and we cannot guarantee that all, or any particular one, of these individuals will remain employed by our Advisor or one of its affiliates and otherwise available to continue to perform services for us. If any of our key personnel were to cease their affiliation with our Advisor, our operating results, business and prospects could suffer and an event of default could, in certain circumstances, occur under the credit agreement governing the Credit Facility. Further, we do not maintain key person life insurance on any person. We believe that our success depends, in large part, upon the ability of our Advisor to hire, retain or contract for services of highly skilled managerial, operational and marketing personnel. Competition for skilled personnel is intense, and there can be no assurance that our Advisor will be successful in attracting and retaining skilled personnel. If our Advisor loses or is unable to obtain the services of skilled personnel due to, among other things, and overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by COVID-19 or as a result of other general macroeconomic factors, our Advisor’s ability to manage our business and implement our investment strategies could be delayed or hindered, and the value of an investment in shares of our stock may decline.
Any adverse changes in the financial condition or financial health of, or our relationship with, our Advisor, including any change resulting from an adverse outcome in any litigation, could hinder its ability to successfully manage our operations and assets. Additionally, changes in ownership or management practices, the occurrence of adverse events affecting our Advisor, or its affiliates or other companies advised by our Advisor or its affiliates could create adverse publicity and adversely affect us and our relationship with lenders, tenants or counterparties.
Our business and operations could suffer if our Advisor or any other party that provides us with services essential to our operations experiences system failures or cyber incidents or a deficiency in cybersecurity.
The internal information technology networks and related systems of our Advisor and other parties that provide us with services essential to our operations are vulnerable to damage from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. We may also incur additional costs to remedy damages caused by these disruptions.
As reliance on technology has increased, so have the risks posed to those systems. Our Advisor and other parties that provide us with services essential to our operations must continuously monitor and develop their networks and information technology to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses, and social engineering, such as phishing. Our Advisor and other parties that provide us with services are continuously working, including with the aid of third party service providers, to install new, and to upgrade existing, network and information technology systems, to create processes for risk assessment, testing, prioritization, remediation, risk acceptance, and reporting, and to provide awareness training around phishing, malware and other cyber risks to ensure they provide us with services essential to our operations are protected against cyber risks and security breaches and that we are also therefore so protected. However, these upgrades, processes, new technology and training may not be sufficient to protect us from all risks. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques and technologies used in attempted attacks and intrusions evolve and generally are not recognized until launched against a target. In some cases attempted attacks and intrusions are designed not to be detected and, in fact, may not be detected.
The remediation costs and lost revenues experienced by a subject of an intentional cyberattack or other event which results in unauthorized third party access to systems to disrupt operations, corrupt data or steal confidential information may be significant and significant resources may be required to repair system damage, protect against the threat of future security breaches or to alleviate problems, including reputational harm, loss of revenues and litigation, caused by any breaches. Additionally, any failure to adequately protect against unauthorized or unlawful processing of personal data, or to take appropriate action in cases of infringement may result in significant penalties under privacy law.
Furthermore, a security breach or other significant disruption involving the information technology networks and related systems of our Advisor or any other party that provides us with services essential to our operations could:
•result in misstated financial reports, violations of loan covenants, missed reporting deadlines or missed permitting deadlines;
•affect our ability 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 (including information about tenants), which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
•result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased space;
•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; or
•adversely impact our reputation among our tenants and investors generally.
There can be no assurance that the measures adopted by our Advisor and other parties that provide us with services essential to our operations will be sufficient, and any material adverse effect experienced by our Advisor and other parties that provide us with services essential to our operations could, in turn, have an adverse impact on us.
Risks Related to Investments in Real Estate
Our operating results are affected by economic and regulatory changes.
Our operating results and value of our properties are subject to risks associated with economic and regulatory changes including:
•changes in general, economic or local conditions;
•changes in supply of or demand for similar or competing properties in an area;
•changes in interest rates and availability of mortgage financing on favorable terms, or at all;
•changes in tax, real estate, environmental and zoning laws; and
•the possibility that one or more of our tenants will be unable to pay their rental obligations.
These and other risks may prevent us from being profitable or from realizing growth or maintaining the value of our real estate properties.
A major tenant, including a tenant with leases in multiple locations, may fail to make rental payments to us, because of a deterioration of its financial condition or otherwise, or may choose not to renew its lease.
Our ability to generate cash from operations depends on the rents that we are able to charge and collect from our tenants. While we evaluate the creditworthiness of our tenants by reviewing available financial and other pertinent information, there can be no assurance that any tenant will be able to make timely rental payments or avoid defaulting under its lease. At any time, our tenants may experience an adverse change in their business. Our tenants may decline to extend or renew leases upon expiration, fail to make rental payments when due, close a number of stores, exercise early termination rights (to the extent these rights are available to the tenant) or declare bankruptcy. If a tenant defaults, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment.
If any of the foregoing were to occur, it could result in the termination of the tenant’s lease(s) and the loss of rental income attributable to the terminated lease(s). If a lease is terminated or defaulted on, we may be unable to find a new tenant to re-lease the vacated space at attractive rents or at all. Furthermore, the consequences to us would be exacerbated if one of our tenants with leases in multiple locations were to terminate or default its leases.
We rely significantly on two major tenants and therefore, are subject to tenant credit concentrations that make us more susceptible to adverse events with respect to those tenants.
As of December 31, 2021, the following major tenants (including, for this purpose, their affiliates) accounted for 5.0% or more of our consolidated annualized rental income on a straight-line basis:
Tenant December 31, 2021
Sanofi US (1)
5.9%
Truist Bank (2)
5.4%
Fresenius 5.1%
[1]This property was sold on January 6, 2022. See Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K.
[2]Six properties which represent 0.2% of our consolidated annualized straight-line rent have signed a termination notice effective in the second quarter of 2022.
Therefore, a default or lease termination by any of these tenants could have a material adverse effect on our cash flow. In addition, the value of our investment is historically driven by the credit quality of the underlying tenant, and an adverse change in either the tenant’s financial condition or a decline in the credit rating of the tenant may result in a decline in the value of our investments.
As of December 31, 2021 and giving effect to all of the properties acquired or to be acquired in the CIM Portfolio Acquisition, we currently do not expect any one tenant to account for 5.0% or more of our consolidated annualized rental income on a straight-line basis.
We are subject to tenant geographic concentrations that make us more susceptible to adverse events with respect to certain geographic areas.
As of December 31, 2021, properties concentrated in the following states accounted for annualized rental income on a straight-line basis equal to 5.0% or more of our consolidated annualized rental income on a straight-line basis:
State December 31, 2021
Georgia 11.0%
Florida 6.7%
New Jersey (1)
6.5%
North Carolina 6.4%
Ohio 6.2%
South Carolina 5.8%
Alabama 5.0%
(1) Substantially all of the revenue from this state was derived from the Sanofi property, which was sold on January 6, 2022. Excluding Sanofi, this state would have constituted 0.6% of annualized rental income on a straight-line basis as of December 31, 2021. See Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K.
As of December 31, 2021, our tenants operated in 47 states and the District of Columbia. Any adverse situation that disproportionately affects the states listed above may have a magnified adverse effect on our portfolio. Real estate markets are subject to economic downturns, as they have been in the past, and we cannot predict how economic conditions will impact this market in both the short and long-term.
Declines in the economy or a decline in the real estate market in these states could hurt our financial performance and the value of our properties. Factors that may negatively affect economic conditions in these states include:
•business layoffs or downsizing;
•industry slowdowns;
•relocations of businesses;
•changing demographics;
•climate change;
•increased telecommuting and use of alternative workplaces;
•infrastructure quality;
•any oversupply of, or reduced demand for, real estate;
•concessions or reduced rental rates under new leases for properties where tenants defaulted; and
•increased insurance premiums.
As of December 31, 2021 and giving effect to all of the properties acquired or to be acquired in the CIM Portfolio Acquisition, we expect concentration in most of the states listed above to decrease, although North Carolina and Ohio may have increased concentrations after the closing of the CIM Portfolio Acquisition. Also, we expect that only two additional states (Texas and Illinois) may have concentrations of approximately 5% after the full closing of the CIM Portfolio Acquisition.
Certain of our tenants are facing increased competition with other non-traditional and online grocery retailers and higher costs due to inflation and supply chain issues, which may negatively impact their businesses.
A total of 1.0 million square feet of our portfolio as of December 31, 2021 is leased to grocery store tenants, which will increase to approximately 1.6 million square feet after the closing of the CIM Portfolio Acquisition. Tenants in this category may face higher costs due to inflation and supply chain issues and they face potentially changing consumer preferences and increasing competition from other forms of retailing, such as online grocery retailers and non-traditional grocery retailers such as prepared meal and fresh food delivery services, mass merchandisers, super-centers, warehouse
club stores and drug stores. Other retail centers within the market area of our properties and meal and food delivery services both inside and outside these market areas compete with our properties for customers, affecting our tenants’ cash flows and thus affecting their ability to pay rent to us.
Market and economic challenges may adversely impact us.
Our business may be affected by market and economic challenges experienced by the U.S. and global economies. These conditions may materially affect the commercial real estate industry, the businesses of our tenants and the value and performance of our properties and the availability or the terms of financing. Challenging economic conditions may also impact the ability of certain of our tenants to enter into new leasing transactions or satisfy rental payments under existing leases. These market and economic challenges include:
•decreased demand for our properties due to, among other things, significant job losses that occur or may occur in the future, resulting in lower rents and occupancy levels;
•an increase in the number of bankruptcies or insolvency proceedings of our tenants and lease guarantors, which could delay or preclude our efforts to collect rent and any past due balances under the relevant leases;
•widening credit spreads as investors demand higher risk premiums, resulting in lenders increasing the cost for debt financing;
•reduction in the amount of capital that is available to finance real estate, which, in turn, could lead to a decline in real estate values generally, slow real estate transaction activity, reduce the loan-to-value ratio upon which lenders are willing to lend, or make it difficult for us to refinance our debt;
•a decrease in the market value of our properties, which may limit our ability to obtain debt financing;
•a need for us to establish significant provisions for losses or impairments; and
•reduction in the value and liquidity of our short-term investments and increased volatility in market rates for such investments.
If a tenant or lease guarantor declares bankruptcy or becomes insolvent, we may be unable to collect balances due under relevant leases.
Any of our tenants, or any guarantor of a tenant’s lease obligations, could become insolvent or be subject to a bankruptcy proceeding pursuant to Title 11 of the United States Code. A bankruptcy filing of our tenants or any guarantor of a tenant’s lease obligations would result in a stay of all efforts by us to collect pre-bankruptcy debts from these entities or their assets, unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be required to be paid currently. If a lease is assumed by the tenant, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would only have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid as of the date of the bankruptcy filing (post-bankruptcy rent would be payable in full). This claim could be paid only if funds were available, and then only in the same percentage as that realized on other unsecured claims.
A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases and could ultimately preclude full collection of these sums. A tenant or lease guarantor bankruptcy could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the amount available for dividends or other distributions to our stockholders. In the event of a bankruptcy, we cannot assure our stockholders that the debtor in possession or the bankruptcy trustee will assume our lease and that our cash flow and the amounts available for dividends or other distributions to our stockholders will not be adversely affected.
A sale-leaseback transaction may be recharacterized in a tenant’s bankruptcy proceeding.
We have entered and may continue to enter into sale-leaseback transactions, whereby we purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback may be recharacterized as either a financing or a joint venture, and either type of recharacterization could adversely affect our business. If the sale-leaseback were recharacterized as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If this plan were confirmed by the bankruptcy court, we would be bound by the new terms. If the sale-leaseback were recharacterized as a joint venture, our lessee and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property.
Properties may have vacancies for a significant period of time.
A property may have vacancies either due to tenant defaults or the expiration of leases. If vacancies continue for a long period of time, we may suffer reduced revenues resulting in less cash available for things such as dividends. In addition, because the market value of a property depends principally on the cash generated by the property, the resale value of a property with prolonged vacancies could decline significantly.
We generally obtain only limited warranties when we purchase a property and would therefore have only limited recourse if our due diligence did not identify any issues that lower the value of our property.
We have acquired, and may continue to acquire, properties in “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements we entered into may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property as well as the loss of rental income from that property.
We may be unable to secure funds for future tenant improvements or capital needs, which could impact the value of the applicable property or our ability to lease the applicable property on favorable terms.
If a tenant does not renew its lease or otherwise vacate its space, we will likely be required to expend substantial funds to improve and refurbish the vacated space. In addition, we are responsible for any major structural repairs, such as repairs to the foundation, exterior walls and rooftops at all of our properties. Accordingly, if we need additional capital in the future to improve or maintain our properties or for any other reason, we may have to obtain financing from sources such as borrowings, property sales or future equity offerings, to fund these capital requirements. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both.
We may be unable to sell a property when we desire to do so.
The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. In addition, as a REIT, our ability to sell properties that have been held for less than two years is limited as any gain recognized on the sale or other disposition of such property could be subject to the 100% prohibited transaction tax, as discussed in more detail below.
We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure our stockholders that we will have funds available to correct such defects or to make such improvements. Moreover, in acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These provisions would restrict our ability to sell a property.
If we elect to treat one or more of our subsidiaries as a TRS, it will be subject to corporate-level taxes, and our dealings with our TRSs may be subject to a 100% excise tax.
A REIT may own up to 100% of the stock of one or more TRSs. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A TRS will be subject to applicable U.S. federal, state, local and foreign income tax on its taxable income, including corporate income tax on the TRS's income, and is, as a result, less tax efficient than with respect to income we earn directly. The after-tax net income of our TRSs would be available for distribution to us. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross income from operations pursuant to management contracts. In addition, the rules, which are applicable to us as a REIT, as described in the preceding risk factors, also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's-length basis. For example, to the extent that the rent paid by one of our TRSs exceeds an arm's-length rental amount, such amount would be potentially subject to a 100% excise tax. While we intend that all transactions between us and our TRSs would be conducted on an arm's-length basis, and therefore, any amounts paid by our TRSs to us would not be subject to the excise tax, no assurance can be given that the IRS would not disagree with our conclusion and levy an excise tax on these transactions.
We have acquired or financed, and may continue to acquire or finance, properties with lock-out provisions which may prohibit us from selling a property or may require us to maintain specified debt levels for a period of years on some properties.
Lock-out provisions, such as the provisions contained in certain mortgage loans we have entered into, could materially restrict our ability to sell or otherwise dispose of or refinance properties, including by requiring a yield maintenance premium to be paid in connection with the required prepaying of principal upon a sale or disposition. Lock-out provisions may also prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties.
Lock-out provisions could also impair our ability to take other actions during the lock-out period that may otherwise be in the best interests of our stockholders. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control. Payment yield maintenance premiums in connection with dispositions or refinancings could adversely affect our cash flow.
Recent increase in inflation and continuing increases in the inflation rate (may) have an adverse effect on our investments and results of operations.
Recent increases and continuing increases in the rate of inflation, both real and anticipated, may impact our investments and results of operations. Inflation could erode the value of long-term leases that do not contain indexed escalation provisions, or contain fixed annual rent escalation provisions that are at rates lower than the rate of inflation, and increase expenses including those that cannot be passed through under our leases. Increased inflation could also increase our general and administrative expenses and, as a result of an increase in market interest rate in response to higher than anticipated inflation rate, increase our mortgage and debt interest costs, and these costs could increase at a rate higher than our rent increase. An increase in our expenses, or expenses paid or incurred by our Advisor or its affiliates that are reimbursed by us pursuant to the advisory agreement, or a failure of revenues to increase at least with inflation could adversely impact our results of operations.
For the year ended December 31, 2021, the increase to the 12-month Consumer Price Index for all items, as published by the Bureau of Labor Statistics, was 7.0%. To help mitigate the adverse impact of inflation, approximately 80.9% of our leases with our tenants contain rent escalation provisions in their base rent which average 1.2% per year. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). Leases with fixed or no escalation provisions may not keep pace with current rates of inflation, whereas leases with indexed escalations may provide more protection against inflation. Approximately 77.8% are fixed-rate, 3.1% are based on the Consumer Price Index and 19.1% do not contain any escalation provisions.
In addition to base rent, our net leases require the single-tenant property leases to pay all the properties operating expenses and our multi-tenant property leases to pay their allocable share of operating expenses, which may include common area maintenance costs, real estate taxes and insurance. Increased operating costs paid by our tenants under these net leases could have an adverse impact on our tenants if increases in their operating expenses exceed increases in their revenue, which may adversely affect our tenants’ ability to pay rent owed to us or property expenses to be paid, or reimbursed to us, by our tenants. Many, but not all, of our multi-tenant retail properties are not leased on a triple-net basis and, therefore, not all of the expenses we incur at a property are reimbursed by the tenants at these properties. Renewals of leases or future leases for our net lease properties may not be negotiated on a triple-net basis or on a basis requiring the tenants to pay all or some of such expenses, in which event we may have to pay those costs. If we are unable to lease properties on a triple-net basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions, we could be required to pay those costs.
Inflation could also have an adverse effect on consumer spending, which could impact the sales generated by our tenants and, in turn, our rental income from properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant’s sales upon achieving certain sales thresholds or other targets.
Damage from catastrophic weather and other natural events and climate change could result in losses to us.
Certain of our properties are located in areas that may experience catastrophic weather and other natural events from time to time, including hurricanes or other severe weather, flooding, fires, snow or ice storms, windstorms or, earthquakes. These adverse weather and natural events could cause substantial damages or losses to our properties which could exceed our insurance coverage. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected property, as well as anticipated future revenue from that property. We could also continue to be obligated to repay any mortgage indebtedness or other obligations related to the property.
To the extent that significant changes in the climate occur, we may experience extreme weather and changes in precipitation and temperature and rising sea levels, all of which may result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions. The impact of climate change be material in nature, including destruction of our properties, or occur for lengthy periods of time.
Growing public concern about climate change has resulted in the increased focus of local, state, regional, national and international regulatory bodies on greenhouse gas (“GHG”) emissions and climate change issues. Legislation to regulate the GHG emissions has periodically been introduced in the U.S. Congress, and there has been a wide-ranging policy debate, both in the U.S. and internationally, regarding the impact of these gases and the possible means for their regulation. Federal, state or foreign legislation or regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties or to protect them from the consequence of climate
change and could also result in increased compliance costs or additional operating restrictions that could adversely impact the business of our tenants and their ability to pay rent.
We may suffer uninsured losses relating to real property or have to pay expensive premiums for insurance coverage.
Our general liability coverage, property insurance coverage and umbrella liability coverage on all our properties may not be adequate to insure against liability claims and provide for the costs of defense. Similarly, we may not have adequate coverage against the risk of direct physical damage or to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property. Moreover, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with such catastrophic events could sharply increase the premiums we pay for coverage against property and casualty claims.
This risk is particularly relevant with respect to potential acts of terrorism. The Terrorism Risk Insurance Act of 2002 (the “TRIA”), under which the U.S. federal government bears a significant portion of insured losses caused by terrorism, will expire on December 31, 2027, and there can be no assurance that Congress will act to renew or replace the TRIA following its expiration. In the event that the TRIA is not renewed or replaced, terrorism insurance may become difficult or impossible to obtain at reasonable costs or at all, which may result in adverse impacts and additional costs to us.
Changes in the cost or availability of insurance due to the non-renewal of the TRIA or for other reasons could expose us to uninsured casualty losses. If any of our properties incurs a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured property. Also, our cash flows may be reduced to the extent we must pay greater amounts for insurance due to changes in cost and availability.
Additionally, mortgage lenders insist in some cases that commercial property owners purchase coverage against terrorism as a condition for providing mortgage loans. Accordingly, to the extent terrorism risk insurance policies are not available at reasonable costs, if at all, our ability to finance or refinance our properties could be impaired. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate, or any, coverage for such losses.
Actual or threatened terrorist attacks and other acts of violence, civilian unrest or war may affect the markets in which we operate our business and our profitability.
We own properties in major metropolitan areas as well as densely populated sub-markets that are susceptible to terrorist attack or damage. Because many of our properties are open to the public, they are exposed to a number of incidents that may take place within or around their premises and that are beyond our control or ability to prevent. If an act of terror, a mass shooting or other violence were to occur, we may lose tenants or be forced to close one or more of our properties for some time. If any of these incidents were to occur, the relevant property could face material damage to its image and the revenues generated therefrom. In addition, we may be exposed to civil liability and be required to indemnify the victims, and our insurance premiums could rise in a material amount.
In addition, any actual or threatened terrorist activity or violent criminal acts, including terrorist acts against public institutions or buildings or modes of public transportation (including airlines, trains or buses) could have a negative effect on our business, the value of our properties and our results of operations. More generally, any terrorist attack, other act of violence or war, including armed conflicts, could result in increased volatility in, or damage to, the worldwide financial markets and economy, including demand for properties and availability of financing. Increased economic volatility could adversely affect our tenants’ abilities to conduct their operations profitably or our ability to access capital markets.
Real estate-related taxes may increase and, if these increases are not passed on to tenants, our cash flow may be reduced.
Some local real property tax assessors may seek to reassess a property, that we acquire, and from time to time, our property taxes may increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. There is no assurance that renewal leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will adversely affect the cash flow generated by impacted property.
Covenants, conditions and restrictions may restrict our ability to operate a property, which may adversely affect our operating costs.
Some of our properties are contiguous to other parcels of real property, comprising part of the same commercial center. In connection with such properties, there are significant covenants, conditions and restrictions restricting the operation of such properties and any improvements on such properties, and related to granting easements on such properties. Moreover, the operation and management of the contiguous properties may impact such properties. Compliance with covenants, conditions and restrictions may adversely affect our operating costs and reduce the amount of cash flow we generate.
We compete with third parties in acquiring properties and other investments.
We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, other REITs real estate limited partnerships, and other entities engaged in real estate investment activities, many of which have greater resources than we do. Larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments may increase. Any such increase would result in increased demand for these assets and therefore increased prices paid for them. If we pay higher prices for properties and other investments we may generate lower returns on our investments.
Our properties face competition for tenants.
Our properties face competition for tenants. The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents we are able to charge. We could be adversely affected if additional competitive properties are built in locations competitive with our properties, causing increased competition for customer traffic and creditworthy tenants. This type of competition could also require us to make capital improvements to properties that we would not have otherwise made or lower rental rates in order to retain tenants.
We may incur significant costs to comply with governmental laws and regulations, including those relating to environmental matters.
All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Environmental laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. This liability could be substantial. In addition, the presence of hazardous substances, or the failure to properly remediate them, may adversely affect our ability to sell, rent or pledge a property as collateral for future borrowings.
Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance.
State and federal laws in this area are constantly evolving, and we monitor these laws and take commercially reasonable steps to protect ourselves from the impact of these laws, including obtaining environmental assessments of most properties that we acquire; however, we do not obtain an independent third-party environmental assessment for every property we acquire. In addition, any assessment that we do obtain may not reveal all environmental liabilities or reveal that a prior owner of a property created a material environmental condition unknown to us. We may incur significant costs to defend against claims of liability, comply with environmental regulatory requirements, remediate any contaminated property, or pay personal injury claims.
If we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our cash flows and our ability to pay dividends to our stockholders.
In some instances, we may sell our properties by providing financing to purchasers. In these cases, we will bear the risk that the purchaser may default, which could negatively impact our cash flow. Even in the absence of a purchaser default, the proceeds from the sale will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our cash flow.
Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on the financial condition of co-venturers and disputes between us and our co-venturers.
We may enter into joint ventures, partnerships and other co-ownership arrangements (including preferred equity investments) for the purpose of making investments. In such event, we would not be in a position to exercise sole decision-making authority regarding the joint venture. Investments in joint ventures may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their required capital contributions. Co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies
or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the co-venturer would have full control over the joint venture. Disputes between us and co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or disputes with co-venturers might result in subjecting properties owned by the joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our co-venturers.
We may incur costs associated with complying with the Americans with Disabilities Act.
Our properties must also comply with the Americans with Disabilities Act of 1990 (“Disabilities Act”). Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. A determination that a property does not comply with the Disabilities Act could result in liability for both governmental fines and damages. If we are required to make unanticipated major modifications to any of our properties to comply with the Disabilities Act which are determined not to be the responsibility of our tenants, we could incur unanticipated expenses that could be material.
The credit profile of our tenants may create a higher risk of lease defaults and therefore lower revenues and returns.
Based on annualized rental income on a straight-line basis as of December 31, 2021, 42.1% of our single-tenant portfolio and 70% of our anchor tenants in our multi-tenant portfolio are not evaluated or ranked by credit rating agencies, or are ranked below “investment grade,” which includes both actual investment grade ratings of the tenant and “implied investment grade” ratings which includes ratings of the tenant’s parent (regardless of whether or not the parent has guaranteed the tenant’s obligation under the lease) or lease guarantor. “Implied investment grade” ratings are also determined using a proprietary Moody’s analytical tool, which compares the risk metrics of the non-rated company to those of a company with an actual rating. Of our “investment grade” tenants for our single-tenant portfolio, 46.1% have actual investment grade ratings and 11.8% have “implied investment grade” ratings. Of our “investment grade” tenants for our anchor tenants in the multi-tenant portfolio, 20.3% have actual investment grade ratings and 9.7% have “implied investment grade” ratings.
Our long-term leases with certain of these tenants may therefore pose a higher risk of default than would long-term leases with tenants who have investment grade ratings.
Net leases may not result in fair market lease rates over time.
The majority of our rental income is generated by net leases December 31, 2021, which generally provide the tenant greater discretion in using the leased property than ordinary property leases, such as the right to freely sublease the property, to make alterations in the leased premises and to terminate the lease prior to its expiration under specified circumstances. Furthermore, net leases typically have longer lease terms and, thus, there is an increased risk that contractual rental increases in future years will fail to result in fair market rental rates during those years. Moreover, inflation could erode the value of long-term leases that do not contain indexed escalation provisions.
Risks Related to Multi-tenant Retail Properties
Retail conditions may adversely affect our income.
A substantial amount of our rental income is generated by multi-tenant retail properties. The market for retail space has been and could be adversely affected by weaknesses in the national, regional and local economies, the adverse financial condition of anchored shopping centers and other large retailing companies, the ongoing consolidation in the retail and grocery sector, changes in consumer preferences and spending, excess amounts of retail space in a number of markets and competition for tenants in the markets, as well as the increasing use of the Internet by retailers and consumers. Customer traffic to these shopping areas may be adversely affected by the closing of stores in the same multi-tenant property, or by a reduction in traffic to these stores resulting from a regional economic downturn, a general downturn in the local area where our property is located, or a decline in the desirability of the shopping environment of a particular retail property.
A retail property’s revenues and value may also be adversely affected by the perceptions of retailers or shoppers regarding the safety, convenience and attractiveness of the retail property. Many of our multi-tenant properties, such as shopping centers and malls, are open to the public and any incidents of crime or violence would result in a reduction of business traffic to tenant stores in our properties. Any such incidents may also expose us to civil liability. In addition, to the extent that the investing public has a negative perception of the retail sector, the value of our equity securities may be negatively impacted.
The majority of our leases provide for base rent plus contractual base rent increases but these base increases may not be sufficient to fund increased expenses or may still be below market rates. Our portfolio also includes some leases with a
percentage rent clause for additional rent above the base amount based upon a specified percentage of the sales our tenants generate. Under those leases which contain percentage rent clauses, our revenue from tenants may increase as the sales of our tenants increase. Generally, retailers face declining revenues during downturns in the economy. As a result, the portion of our revenue which we may derive from percentage rent leases could be adversely affected by a general economic downturn.
We are subject to risks related to our multi-tenant retail properties.
We own a portfolio of 33 multi-tenant retail properties (112 multi-tenant properties after giving effect to the full closing of the CIM Portfolio Acquisition) that are not subject to net leases representing 30% (approximately 50% after giving effect to the closing of the CIM Portfolio Acquisition) of our annualized rental income on a straight-line basis as of December 31, 2021. Multi-tenant retail properties are subject to increased risk relating to the operation and management of the property, including:
•risks affecting the retail industry generally;
•the reliance on anchor tenants; and
•competition with other retail channels, including e-commerce.
In addition, because our multi-tenant retail properties are not leased on a triple-net basis, we bear certain costs and expenses of these properties, as opposed to net leased properties that require tenants to bear all, or substantially all, of the costs and expenses of the properties.
Competition with other retail channels may reduce our profitability.
Our retail tenants face changing consumer preferences and increasing competition from other forms of retailing, such as e-commerce, discount shopping centers, outlet centers, upscale neighborhood strip centers, catalogues and other forms of direct marketing, discount shopping clubs and telemarketing. Other retail centers within the market area of our multi-tenant retail properties also compete with our properties for customers, affecting their tenant cash flows and thus affecting their ability to pay rent. In addition, in some cases our leases may require tenants to pay rent based on the amount of sales revenue that they generate. If these tenants experience competition, the amount of their rent may decrease and cash flows will decrease.
A shift in retail shopping from brick and mortar stores to online shopping may have an adverse impact on our cash flow, financial condition and results of operations.
Many retailers operating brick and mortar stores have made online sales a vital piece of their business. There can be no assurance that our strategy of building a diverse portfolio focused on properties leased to necessity-based, service retail and experiential retail tenants, will insulate us from the effects online commerce has had on some retail operators that lease space in properties like ours. The shift to online shopping, including online orders for immediate delivery or pickup in store, has further accelerated due to the COVID-19 pandemic, and may cause further declines in brick and mortar sales generated by retail tenants and may cause certain of our tenants to reduce the size or number of their retail locations in the future. Our grocery store tenants are incorporating e-commerce concepts through home deliver or curbside pickup, which could reduce foot traffic at our properties and reduce the demand for these properties. Traditional grocery chains are also subject to increasing competition from new market participants and food retailers who have incorporated the Internet as a direct-to-consumer channel and Internet-only retailers that sell grocery products. This shift may adversely affect our occupancy and rental rates, which would affect our revenues and cash flows. Changes in shopping trends as a result of the growth in e-commerce may also affect the profitability of retailers that do not adapt to changes in market conditions. These conditions may adversely impact our results of operations and cash flows if we are unable to meet the needs of our tenants or if our tenants encounter financial difficulties as a result of changing market conditions. We cannot predict with certainty what future tenants will want, what future retail spaces will look like, or how much revenue will be generated at traditional brick and mortar locations. If we are unable to anticipate and respond promptly to trends in the market (such as space for a drive through or curbside pickup), our occupancy levels and rental rates may decline.
Competition may impede our ability to renew leases or re-let space as leases expire and require us to undertake unbudgeted capital improvements, which could harm our operating results.
We may compete for tenants with respect to the renewal of leases and re-letting of space as leases expire. Any competitive properties that are developed close to our existing properties also may impact our ability to lease space to creditworthy tenants. Increased competition for tenants may require us to make capital improvements to properties that we would not have otherwise planned to make. Any unbudgeted capital improvements may negatively impact our cash flow. Also, to the extent we are unable to renew leases or re-let space as leases expire, it would result in decreased rental income from tenants and reduce the income produced by our properties. Excessive vacancies (and related reduced shopper traffic) at one of our properties may hurt sales of other tenants at that property and may discourage them from renewing leases.
Several of our properties may rely on tenants who are in similar industries or who are affiliated with certain large companies, which would magnify the effects of downturns in those industries, or companies and have a disproportionate adverse effect on the value of our investments.
Certain tenants of our properties are concentrated in certain industries or retail categories and we have a large number of tenants that are affiliated with certain large companies. As a result, any adverse effect to those industries, retail categories or companies generally would have a disproportionately adverse effect on our portfolio. As of December 31, 2021, the following industries had concentrations of properties representing 5.0% of our consolidated annualized rental income on a straight-line basis:
Industry December 31, 2021
Gas/Convenience 9.6%
Healthcare 7.9%
Retail Banking 6.6%
Quick Service Restaurant 6.2%
Pharmaceuticals (1)
5.9%
Discount Retail 5.7%
Specialty Retail 5.4%
(1) All of the revenue from this industry was derived from the Sanofi property, which was sold on January 6, 2022. See Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K.
Any adverse situation that disproportionately affects the industries listed above may have a magnified adverse effect on our portfolio.
As of December 31, 2021 and giving effect to all of the properties acquired or to be acquired in the CIM Portfolio Acquisition, we expect concentration in all of the industries listed above to remain between 5% and 10%. Also, we expect that only three additional industries (Home Improvement, Apparel Retail and Grocery) may have concentrations of approximately 5% after the closing of the CIM Portfolio Acquisition.
Our revenue is impacted by the success and economic viability of our anchor retail tenants. Our reliance on single or significant tenants in certain buildings may decrease our ability to lease vacated space.
Any anchor tenant, which we define as a tenant that occupy over 10,000 square feet of one of our multi-tenant properties, or a tenant that is an anchor tenant at more than one of our multi-tenant properties, may become insolvent, may suffer a downturn in its business, or may decide not to renew its lease. Any of these events would result in a reduction or cessation in rental payments to us. A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases permit cancellation or rent reduction if another tenant’s lease is terminated. We own properties where the tenants may have rights to terminate their leases if certain other tenants are no longer open for business. These “co-tenancy” provisions also may exist in some leases where we own a portion of a retail property and one or more of the anchor tenants lease space in that portion of the center not owned or controlled by us. If these tenants were to vacate their space, tenants with co-tenancy provisions would have the right to terminate their leases or seek a rent reduction. Even if co-tenancy rights do not exist, other tenants may experience downturns in their businesses that could threaten their ongoing ability to continue paying rent and remain solvent. In such event, we may be unable to re-lease the vacated space at attractive rents or at all. In some cases, it may take extended periods of time to re-lease a space, particularly one previously occupied by a major tenant or non-owned anchor. Additionally, in the event our tenants are involved in mergers or acquisitions with or by third parties or undertake other restructurings, such tenants may choose t consolidate, downsize or relocate their operations, resulting in terminating or not renewing their leases with us or vacating the leases premises. Similarly, the leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer. The transfer to a new anchor tenant, or the bankruptcy, insolvency or downturn in business of any of our anchor tenants, could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. Many expenses associated with properties (such as operating expenses and capital expenses) cannot be reduced, and may even increase due to inflation or otherwise, when there is a reduction in income from the properties. A lease transfer to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases at the retail center.
If an anchor tenant vacates its space for any reason and we are unable to re-lease the vacated space to a new anchor tenant, we may incur additional expenses in order to remodel the space to be able to re-lease the space to more than one tenant. There can be no assurance that any re-leasing of a vacated space, either to a single new anchor tenant or to more than one tenant, will be on comparable terms to the prior lease, which could adversely affect our cash flow.
Risks Related to Debt Financing
Our level of indebtedness may increase our business risks.
As of December 31, 2021, we had total outstanding indebtedness of approximately $2.0 billion. We may incur additional indebtedness in the future for various purposes. Subsequent to December 31, 2021, in connection with the closing of the first tranche of the CIM Portfolio Acquisition on February 11, 2022, we borrowed $170.0 million under our Credit Facility. In addition, we expect to close the remainder of CIM Portfolio Acquisition in successive tranches by the end of March 2022 and we expect to assume additional fixed-rate mortgages of approximately $348.7 million and we expect to borrow an additional $320.0 million under our Credit Facility. For additional information on the CIM Portfolio Acquisition, including funding details, see Item 7. Management’s Discussion and Analysis - Liquidity and Capital Resources and see Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K for more information.
The amount of this indebtedness could have material adverse consequences for us, including:
•hindering our ability to adjust to changing market, industry or economic conditions;
•limiting our ability to access the capital markets to raise additional equity or debt on favorable terms or at all, whether to refinance maturing debt, to fund acquisitions, to fund dividends or for other corporate purposes;
•limiting the amount of free cash flow available for future operations, acquisitions, distributions, stock repurchases or other uses; and
•making us more vulnerable to economic or industry downturns, including interest rate increases.
In most instances, we acquire real properties by using either existing financing or borrowing new funds. In addition, we may incur mortgage debt and pledge the underlying property as security for that debt to obtain funds to acquire additional real properties or for other corporate purposes. We may also borrow if we need funds to satisfy the REIT tax qualification requirement that we generally distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. We also may borrow if we otherwise deem it necessary or advisable to assure that we maintain our qualification as a REIT.
If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on a property, then we must identify other sources to fund the payment or risk defaulting on the indebtedness. In addition, incurring mortgage debt increases the risk of loss because defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default. For U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. In this event, we may be unable to pay the amount of distributions required in order to maintain our REIT status. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. If we provide a guaranty on behalf of a subsidiary entity that owns one of our properties, we will be responsible to the lender for repaying the debt if it is not paid by the entity. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties.
We may not be able to reduce the amount of our indebtedness in an effective or time efficient manner. Further, we may increase our leverage depending on debt financing market conditions. During 2021, we completed an offering of Senior Notes. We may issue additional Senior Notes or similar securities in the future particularly as we revise our capital structure following the CIM Portfolio Acquisition in a similar fashion as we may add to or refinance existing mortgage debt or indebtedness under our Credit Facility. Thus, our leverage may increase depending on market conditions.
We have assumed, and in the future may assume, liabilities in connection with our property acquisitions, including unknown liabilities.
In connection with the acquisition of properties, we have assumed and, in the future, may assume existing liabilities, some of which may have been unknown or unquantifiable at the time of the transaction. Unknown liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions, claims of tenants or other persons dealing with the sellers prior to our acquisition of the properties, tax liabilities, and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. If the magnitude of such unknown liabilities is high, either singly or in the aggregate, it could adversely affect our business, financial condition, liquidity and results of operations, cash flows or our ability to satisfy our debt service obligations or maintain our level of distributions on our common stock. In connection with the completed and planned closings of the CIM Portfolio Acquisition, we expect to assume approximately $348.7 million in mortgage debt. See Item 7. Management’s Discussion and Analysis - Liquidity and Capital Resources and see Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K for more information.
Certain of the agreements governing our other indebtedness, contain restrictive covenants that limit our ability to pay distributions and otherwise limit our operating flexibility.
Certain of the agreements governing our indebtedness, including the Credit Facility (as defined herein) and the indenture governing the Senior Notes, contains various customary operating covenants, including a restricted payments covenant that limits our ability to declare or pay dividends or other distributions on, or to purchase or redeem, any of our equity interests, with certain permitted exceptions as well as covenants restricting, among other things, the incurrence of liens, investments, fundamental changes, agreements with affiliates and changes in the nature of our business. The Credit Facility also contains for example financial covenants limiting our consolidated leverage and consolidated secured leverage, requiring us to maintain a minimum fixed charge coverage ratio, limiting our other recourse debt to total asset value, and requiring us to maintain a minimum net worth. We are restricted from using proceeds from borrowings under the Credit Facility to accumulate or maintain cash or cash equivalents in excess of amounts necessary to meet current working capital requirements, as determined in good faith by us. In addition, we may not fund share repurchases, unless we satisfy, after giving effect to the payments, a maximum unsecured leverage ratio and a maximum leverage ratio and also have availability for future borrowings under the Credit Facility of not less than $60 million. All of these requirements could limit our ability to incur additional indebtedness, limit operating flexibility and use cash that would otherwise be available to us. Decreases in cash rent collected from our tenants may decrease the availability of future borrowings under our Credit Facility. If we are unable to comply with financial covenants and other obligations under our Credit Facility, the indenture governing the Senior Notes or other debt agreements, including restrictions on the payment of dividends under certain of the agreements governing our indebtedness, we could default under those agreements which could potentially result in an acceleration of our indebtedness or foreclosure on our properties and could otherwise negatively impact our liquidity. There can be assurance that our leaders will consent to any amendment, or waiver, necessary to maintain compliance with our Credit Facility or the Senior Notes. Certain of our other indebtedness, and future indebtedness we may incur, contain or may contain similar restrictions. These or other restrictions may adversely affect our flexibility and our ability to achieve our investment and operating objectives.
Increases in interest rates may make it difficult for us to finance or refinance properties.
We have incurred, and may continue to incur, debt, including debt secured by our properties. We run the risk of being unable to refinance our indebtedness, especially mortgage loans, when they come due or we otherwise desire to do so on favorable terms, or at all. If interest rates are higher when the indebtedness is refinanced, we may not be able to refinance and we may be required to obtain equity financing to repay the indebtedness or the property securing a mortgage may be subject to foreclosure.
Increasing interest rates could increase the amount of our debt payments and adversely affect our ability to pay dividends, and we may be adversely affected by uncertainty surrounding changes in LIBOR.
We have incurred, and may continue to incur, variable-rate debt. Increases in interest rates on our variable-rate debt would increase our interest cost. If we need to repay existing debt during periods of rising interest rates, we may need to post additional collateral or sell one or more of our investments in properties even though we would not otherwise choose to do so.
As of December 31, 2021, none of our $2.0 billion in total gross outstanding debt was variable-rate debt indexed to London Interbank Offered Rate (“LIBOR”). Subsequent to December 31, 2021, in connection with the closing of the first tranche of the CIM Portfolio Acquisition on February 11, 2022, we borrowed $170.0 million under our Credit Facility. In addition, we expect to close the CIM Portfolio Acquisition in successive tranches by the end of March 2022 and we expect to assume additional fixed-rate mortgages of approximately $348.7 million and we expect to borrow an additional $320.0 million under our Credit Facility. For additional information on the closing of the first tranche of the CIM Portfolio Acquisition, including funding details, see Item 7. Management’s Discussion and Analysis - Liquidity and Capital Resources and see Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K for more information. To the extent we do not hedge our variable rate exposure for borrowings under our Credit Facility, we would be exposed to interest rate volatility with respect to LIBOR and rising rates in general.
The Financial Conduct Authority ceased publishing the one-week and two month USD LIBOR settings after December 31, 2021 as previously announced, and has announced its intention to cease publishing the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. The Federal Reserve Board and the Federal Reserve Bank of New York has organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR in derivatives and other financial contracts. We are not able to predict when there will be sufficient liquidity in the SOFR market. We are monitoring and evaluating the risks related to changes in LIBOR availability, which include potential changes in interest paid on debt and amounts received and paid on interest rate swaps. In addition, the value of debt or derivative instruments tied to LIBOR could also be impacted when LIBOR is limited or discontinued and contracts must be transitioned to a new alternative rate. In some instances, transitioning to an alternative rate may require negotiation with lenders and other counterparties and
could present challenges. The consequences of these developments cannot be entirely predicted and could include an increase in the cost of our variable rate indebtedness.
While we expect LIBOR to be available in substantially its current form until at least June 30, 2023, it is possible that LIBOR will become unavailable prior to that time. This could occur, for example, if a sufficient number of banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate would be accelerated or magnified. Any of these events, as well as the other uncertainty surrounding changes in LIBOR, could adversely affect us. The Credit Facility contains terms governing the establishment of a replacement index to serve as an alternative to LIBOR.
Changes in the debt markets could have a material adverse impact on our earnings and financial condition.
The domestic and international commercial real estate debt markets are subject to volatility, resulting in, from time to me, the tightening of underwriting standards by lenders and credit rating agencies and reductions in the availability of financing. We may also face a heightened level of interest rate risk as the U.S. Federal Reserve Board and the European Central Bank have begun tapering their respective quantitative easing programs. The U.S. Federal Reserve Board announced its intention to begin increasing interest rates, and the Bank of England increased interest rates for the first time since the onset of the pandemic in December 2021. All of these actions will likely lead to increases in our borrowing costs. If our overall cost of borrowings increases, either due to increases in the index rates or due to increases in lender spreads, we will need to factor such increases into pricing and projected returns for any future acquisitions. This may result in future acquisitions generating lower overall economic returns. Volatility in the debt markets may negatively impact our ability to borrow monies to finance the purchase of, or other activities related to, our real estate assets.
If we are unable to borrow monies on terms and conditions that we find acceptable, our ability to purchase properties or meet other capital requirements may be limited, and the return on the properties we do purchase may be lower. In addition, we may find it difficult, costly or impossible to refinance maturing indebtedness.
Furthermore, the state of the debt markets could have an impact on the overall amount of capital being invested in real estate, which may result in price or value decreases of real estate assets which could negatively impact the value of our assets.
Covenants in our debt agreements will restrict our activities and could adversely affect our business.
Our debt agreements, including the indenture governing the Senior Notes and the credit agreement governing the Credit Facility, contain various covenants that limit our ability and the ability of our subsidiaries to engage in various transactions including, as applicable:
•incurring or guaranteeing additional secured and unsecured debt;
•creating liens on our assets;
•making investments or other restricted payments;
•entering into transactions with affiliates;
•creating restrictions on the ability of our subsidiaries to pay dividends or other amounts to us;
•selling assets;
•making optional prepayments of indebtedness during a payment default or an event of default under the Credit Facility;
•effecting a consolidation or merger or selling all or substantially all of our assets; and
•amending certain material agreements, including material leases and debt agreements.
These covenants limit our operating flexibility and could prevent us from taking advantage of business opportunities as they arise, growing our business or competing effectively. In addition, the Credit Facility requires us to comply with financial maintenance covenants, including, among other things, a maximum consolidated leverage ratio, a minimum fixed charge coverage ratio, a maximum secured recourse indebtedness to total asset value ratio and a minimum net worth test. We are restricted from using proceeds from borrowings under the Credit Facility to accumulate or maintain cash or cash equivalents in excess of amounts necessary to meet current working capital requirements, as determined in good faith by us. In addition, we may not fund share repurchases, unless we satisfy, after giving effect to the payments, a maximum unsecured leverage ratio and a maximum leverage ratio and also have availability for future borrowings under the Credit Facility of not less than $60 million. We are also required to maintain total unencumbered assets of at least 150% of our unsecured indebtedness under the indenture governing the Senior Notes. Our ability to meet these requirements may be affected by events beyond our control, and we may not meet these requirements. We may be unable to maintain compliance with these covenants and, if we fail to do so, we may be unable to obtain waivers from the lenders or indenture trustee, as applicable, or amend the covenants.
A breach of any of the covenants or other provisions in our debt agreements could result in an event of default, which if not cured or waived, could result in such debt becoming due and payable, either automatically or after an election to accelerate by the required percentage of the holders of the indebtedness or by an agent for the holders of the indebtedness.
This, in turn, could cause our other debt, including the Senior Notes and the Credit Facility, to become due and payable as a result of cross-default or cross-acceleration provisions contained in the agreements governing such other debt and permit certain of our lenders to foreclose on our assets, if any, that secure this debt. In the event that some or all of our debt is accelerated and becomes immediately due and payable, we may not have the funds to repay, or the ability to refinance our debt.
We may not have the funds necessary to finance the repurchase of the Senior Notes in connection with a change of control offer required by the indenture governing the Senior Notes.
Upon the occurrence of a “Change of Control Triggering Event” defined in the indenture governing the Senior Notes, we are required to make an offer to repurchase all outstanding Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest on the Senior Notes, if any, but not including, the date of repurchase. However, it is possible that we will not have sufficient funds, or the ability to raise sufficient funds, at the time we are required to make this offer. In addition, restrictions under future debt we may incur, may not allow us to repurchase the Senior Notes upon a Change of Control Triggering Event, and we expect that a change in control will result in an event of default under the Credit Facility, which could result in such debt becoming immediately due and payable and the commitments thereunder terminated. If we could not refinance such senior debt or otherwise obtain a waiver from the holders of such debt, we would be prohibited from repurchasing the Senior Notes, which would constitute an event of default under the indenture governing the Senior Notes, which in turn would constitute a default under our Credit Facility. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a “Change of Control” under the indenture governing the Senior Notes although these types of transactions could affect our capital structure or credit ratings and the holders of the Senior Notes. Further, courts interpreting change of control provisions under New York law (which is the governing law of the indenture governing the Senior Notes) have not provided clear and consistent meanings of change of control provisions which leads to subjective judicial interpretation of what may constitute a “Change of Control.”
A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital.
Any rating assigned to debt securities that we or our OP issues could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Any lowering of the ratings likely would make it more difficult or more expensive for us to obtain additional debt financing.
Risks Related to Conflicts of Interest
Our Advisor faces conflicts of interest relating to the purchase and leasing of properties, and these conflicts may not be resolved in our favor, which could adversely affect our investment opportunities.
We rely on our Advisor and the executive officers and other key real estate professionals at our Advisor to identify suitable investment opportunities for us. Several of these individuals are also the executive officers or key real estate professionals at AR Global and other entities advised by affiliates of AR Global. Many investment opportunities that are suitable for us may also be suitable for other entities advised by affiliates of AR Global. For example, Global Net Lease or “GNL,” an entity advised by affiliates of our Advisor seeks, like us, to invest in sale-leaseback transactions involving single-tenant net-leased commercial properties, in the U.S. An investment opportunity allocation agreement to which we and GNL are parties states that we will have the first opportunity to acquire one or more domestic retail or distribution properties with a lease duration of ten years or more and that GNL will be given first opportunity to acquire office or industrial properties. However, there can be no assurance the executive officers and real estate professionals at our Advisor or its affiliates will not direct attractive investment opportunities for which we do not have contractual priority to GNL, or other entities advised by affiliates of AR Global.
We and other entities advised by affiliates of AR Global also rely on these executive officers and other real estate professionals to supervise the property management and leasing of properties. These individuals, as well as AR Global, as an entity, are not prohibited from engaging, directly or indirectly, in any business or from possessing interests in other businesses and ventures, including businesses and ventures involved in the acquisition, development, ownership, leasing or sale of real estate investments.
Our Advisor faces conflicts of interest relating to joint ventures, which could result in a disproportionate benefit to the other venture partners at our expense.
We may enter into joint ventures with other entities advised by affiliates of AR Global. Our Advisor may have conflicts of interest in determining which entity advised by affiliates of AR Global enters into any particular joint venture agreement. The co-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. In addition, our Advisor may face a conflict in structuring the terms of the relationship between our interests and the interest of the affiliated co-venturer and in managing the joint venture. Due to the role of our Advisor
and its affiliates, agreements and transactions between the co-venturers with respect to any joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers, which may result in the co-venturer receiving benefits greater than the benefits that we receive. In addition, we may assume liabilities related to the joint venture that exceeds the percentage of our investment in the joint venture.
Our Advisor, AR Global and their officers and employees and certain of our executive officers and other key personnel face competing demands relating to their time.
Our Advisor, AR Global and their officers and employees and certain of our executive officers and other key personnel and their respective affiliates are key personnel, general partners and sponsors of other entities, including entities advised by affiliates of AR Global, having investment objectives and legal and financial obligations similar to ours and may have other business interests as well. Because these entities and individuals have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. If this occurs, the returns on our investments may suffer.
All of our executive officers, some of our directors and the key real estate and other professionals assembled by our Advisor and our Property Manager face conflicts of interest related to their positions or interests in entities related AR Global.
All of our executive officers, and the key real estate and other professionals assembled by our Advisor and Property Manager are also executive officers, directors, managers, key professionals or holders of a direct or indirect controlling interests in our Advisor, our Property Manager or other entities under common control with AR Global. In addition, all of our executive officers and some of our directors serve in similar capacities for other entities advised by affiliates of our Advisor. As a result, they have duties to each of these entities, which duties could conflict with the duties they owe to us and could result in action or inaction detrimental to our business. Conflicts with our business and interests are most likely to arise from (a) allocation of investments and management time and services between us and the other entities; (b) compensation to our Advisor and Property Manager; (c) our purchase of properties from, or sale of properties to, entities advised by affiliates of our Advisor; and (d) investments with entities advised by affiliates of our Advisor. Conflicts of interest may hinder our ability to implement our business strategy.
We would be required to pay a substantial internalization fee and would not have the right to retain our executive officers or other personnel of our Advisor who currently manage our day-to-day operations if we internalize our management functions.
If we internalize our management functions by becoming self-managed, we would be required to pay a substantial internalization fee to our Advisor. We also would not have any right to retain our executive officers or other personnel of our Advisor who currently manage our day to day operations. An inability to manage an internalization transaction effectively could thus result in our incurring excess costs and suffering deficiencies in our disclosure controls and procedures or our internal control over financial reporting. These deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from most effectively managing our investments, which could result in litigation and resulting associated costs in connection with the internalization transaction.
We have only limited rights to terminate our advisory agreement and multi-tenant management and leasing agreements.
We have limited rights to terminate our Advisor, and, with respect to management of our multi-tenants properties, our Property Manager. Our advisory agreement with our Advisor does not expire until April 29, 2035, is automatically extended for successive 20-year terms upon expiration and may only be terminated under limited circumstances. Our multi-tenant property management and leasing agreements will expire on the later of (i) November 4, 2025; and (ii) the termination date of our advisory agreement, and may only be terminated for cause prior to the end of the term. Because our termination rights under our advisory agreement and our multi-tenant property management and leasing agreements are limited, it may be difficult for us to renegotiate the terms of these agreements or replace our Advisor or Property Manager even for poor performance by our Advisor or Property Manager or if the terms of these agreement are no longer consistent with the terms generally available to externally-managed REITs for similar services.
Our Advisor faces conflicts of interest relating to the structure of the compensation it may receive.
Under the advisory agreement, the Advisor is entitled to substantial minimum compensation regardless of performance as well as incentive compensation if certain thresholds are achieved. The variable portion of the base management fee payable to the Advisor under the advisory agreement increases proportionately with the cumulative net proceeds from the issuance of common, preferred or other forms of equity by us. In addition, under our multi-year outperformance agreement entered into with the Advisor in 2021 (the “2021 OPP”), the Advisor may earn LTIP Units if certain performance conditions are met over a three-year performance period that ends in July 2024. These arrangements may result in the Advisor taking actions or recommending investments that are riskier or more speculative absent these compensation arrangements. In addition, the fees and other compensation payable to the Advisor reduce the cash available for investment or other corporate purposes.
Risks Related to Our Corporate Structure
The trading prices of our Class A common stock and preferred stock may fluctuate significantly.
The trading prices of our Class A common stock, Series A Preferred Stock and Series C Preferred Stock may be volatile and subject to significant price and volume fluctuations in response to market and other factors, and they are impacted by various factors, many of which are outside our control. Among the factors that could affect these trading prices are:
•our financial condition, including the level of indebtedness, and performance;
•our ability to grow through property acquisitions, 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 dividends that we pay;
•additional sales of equity securities, including Class A common stock, Series A Preferred Stock or Series C Preferred Stock, 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;
•our reputation and the reputation of AR Global and its affiliates or other entities advised by AR Global and its affiliates;
•uncertainty and volatility in the equity and credit markets;
•increases in interest rates and fluctuations in exchange rates;
•inflation and continuing increases in the inflation rate;
•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 analyst revenue or earnings estimates;
•strategic actions by us or our competitors, such as acquisitions or restructurings;
•the extent of investment in our shares by institutional investors;
•the extent of short-selling of our shares;
•general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate related companies;
•failure to maintain our REIT status;
•changes in tax laws;
•domestic and international economic factors unrelated to our performance; and
•all other risk factors addressed elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2021.
Moreover, although shares of both the Series A Preferred Stock and Series C Preferred Stock are listed on the Nasdaq, there can be no assurance that the trading volume for these shares will provide sufficient liquidity for holders to sell their shares at the time of their choosing or that the trading price for shares will equal or exceed the price paid for the shares. Because the shares of our preferred stock have at a fixed dividend rate, their respective trading prices in the secondary market will be influenced by changes in interest rates and will tend to move inversely to changes in interest rates. In particular, an increase in market interest rates may result in higher yields on other financial instruments and may lead purchasers of our preferred stock to demand a higher yield on their investment which could adversely affect the market price of those securities. An increase in interest rates available to investors could also make an investment in our Common Stock less attractive if we are not able to increase our dividend rate, which could reduce the value of our Common Stock.
The limit on the number of shares a person may own may discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person may own more than 9.8% in value of the aggregate of our outstanding shares of our capital stock or more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of our capital stock. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might provide a premium price for holders of our Class A common stock.
We have a classified board, which may discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
Our board of directors is divided into three classes of directors. At each annual meeting, directors of one class are elected to serve until the annual meeting of stockholders held in the third year following the year of their election and until their successors are duly elected and qualify. The classification of our board of directors may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might result in a premium price for our stockholders.
The stockholder rights plan adopted by our board of directors may discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
Our board of directors previously adopted a stockholder rights plan and authorized a dividend of one preferred share purchase right. These rights expire April 12, 2024. If a person or entity, together with its affiliates and associates, acquires beneficial ownership of 4.9% or more of our then outstanding Class A common stock, subject to certain exceptions, each right would entitle its holder (other than the acquirer, its affiliates and associates) to purchase a fraction of our Series B Preferred Stock. In addition, under certain circumstances, we may exchange the rights (other than rights beneficially owned by the acquirer, its affiliates and associates), in whole or in part for shares of Class A common stock on a one-for-one basis. The stockholder rights plan could make it more difficult for a third party to acquire the Company or a large block of our Class A common stock without the approval of our board of directors, which may discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include, but are not limited to, a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
•any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock; or
•an affiliate or associate of the corporation who, at any time within the two-year period 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.
A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board of directors.
After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
•80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
•two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.
These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The business combination statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has exempted any business combination involving our Advisor or any affiliate of our Advisor. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations between us and our Advisor or any affiliate of our Advisor. As a result, our Advisor and any affiliate of our Advisor may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our stockholders.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division, is the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, other than actions arising under federal securities laws; (b) any Internal Corporate Claim, as such term is defined in the Maryland General Corporation Law (the “MGCL”), or any successor provision thereof, including, without limitation, (i) any action asserting a claim of breach of any duty owed by any of our directors, officers or other employees to us or to our stockholders or (ii) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the MGCL, our charter or our bylaws; or (c) any other action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine. Our bylaws also provide that unless we consent in writing, none of the foregoing actions, claims or proceedings may be brought in any court sitting outside the State of Maryland and the federal district courts are, to the fullest extent permitted by law, the sole and exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable. Alternatively, if a court were to find these provisions of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving these matters in other jurisdictions.
Maryland law limits the ability of a third-party to buy a large stake in us and exercise voting power in electing directors, which may discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
The Maryland Control Share Acquisition Act provides that holders of “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by the stockholders by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter, excluding all shares of stock owned by the acquirer, by officers or by employees who are directors of the corporation. “Control shares” are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer can exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation. A “control share acquisition” means the acquisition of issued and outstanding control shares. The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions of our stock by any person. There can be no assurance that this provision will not be amended or eliminated at any time in the future.
Our board of directors may change our investment policies without stockholder approval, which could alter the nature of our stockholders’ investments.
Our board of directors may change our investment policies in its sole discretion. The methods of implementing our investment policies also may vary, as new real estate development trends emerge and new investment techniques are developed. Our investment policies, the methods for their implementation, and our other objectives, policies and procedures may be altered by our board of directors without the approval of our stockholders. As a result, the nature of our stockholders’ investments could change without their consent.
We may issue additional equity securities in the future thereby diluting the holdings of existing stockholders.
Our stockholders do not have preemptive rights to any shares issued by us in the future. Our charter authorizes us to issue up to 350 million shares of stock, consisting of 300 million shares of Class A common stock, par value $0.01 per share and 50 million shares of preferred stock, par value of $0.01 per share. As of December 31, 2021, we had the following stock issued and outstanding: (i) 123,783,060 shares of Class A common stock; (ii) 7,933,711 shares of Series A Preferred Stock; and (iii) 4,594,498 shares of Series C Preferred Stock. Subject to the approval rights of holders of our Series A Preferred Stock and our Series C Preferred Stock regarding authorization or issuance of equity securities ranking senior to the Series A Preferred Stock or Series C Preferred Stock, our board of directors, without approval of our common stockholders, may amend our charter from time to time to increase or decrease the aggregate number of authorized shares of stock, or the number of authorized shares of any class or series of stock, or may classify or reclassify any unissued shares without obtaining stockholder approval and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of the stock.
All of our authorized but unissued shares of stock may be issued in the discretion of our board of directors. The issuance of additional shares of our Class A common stock could dilute the interests of the holders of our Class A common stock, and any issuance of shares of preferred stock senior to our Class A common stock, such as our Series A Preferred Stock or Series C Preferred Stock, or any incurrence of additional indebtedness, could affect our ability to pay dividends on
our Class A common stock. The issuance of additional shares of preferred stock ranking equal or senior to our Series A or Series C Preferred Stock, including preferred stock convertible into shares of our Class A common stock, could dilute the interests of the holders of Class A common stock Series A Preferred Stock or Series C Preferred Stock and any issuance of shares of preferred stock senior to our Series A Preferred Stock or C Preferred Stock or incurrence of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on our Series A Preferred Stock or Series C Preferred Stock. These issuances could also adversely affect the trading price of our Class A common stock, Series A Preferred Stock or Series C Preferred Stock.
We may issue shares of our Class A common stock, Series A Preferred Stock, Series C Preferred Stock or another series of preferred stock pursuant to our existing at-the-market programs or any similar future program as well as in other public or private offerings, including shelf offerings, and shares of our Class A common stock issued as awards to our officers, directors and other eligible persons, pursuant to the advisory agreement in payment of fees thereunder. We may also issue shares if our Advisor earns any of the LTIP Units it currently holds at the end of the three-year performance period that ends in July 2024. LTIP Units are convertible into Class A Units after they have been earned and subject to several other conditions. Class A Units may be redeemed on a one-for-one basis for, at our election, shares of Class A common stock or the cash equivalent thereof. We have or expect to issue shares of our Class A common stock or Class A Units of our OP to sellers of properties we acquired, including up to $53.4 million worth of shares of Class A common stock which we are required to register for resale in connection with properties acquired in the CIM Portfolio Acquisition, and may continue to do so in the future. For additional information on the closing of the first tranche of the CIM Portfolio Acquisition, including funding details, see Item 7. Management’s Discussion and Analysis - Liquidity and Capital Resources and see Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K for more information.
Because our decision to issue equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. The issuance of additional equity securities could adversely affect stockholders.
The terms of our outstanding preferred stock, and the terms other preferred stock we may issue, may discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
The change of control conversion and redemption provisions contained in provisions governing both our Series A and Series C Preferred Stock may make it more difficult for a party to acquire us or discourage a party from seeking to acquire us. Upon the occurrence of a change of control, the holders of both the Series A Preferred Stock and the Series C Preferred Stock will, under certain circumstances, have the right to convert some of or all their respective shares of Series A Preferred Stock and Series C Preferred Stock into shares of our Class A common stock (or equivalent value of alternative consideration). Under these circumstances we will also have a special optional redemption right to redeem shares of Series A Preferred Stock and Series C Preferred Stock. The provisions of our Series A and Series C 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 A common 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. We may also issue other classes or series of preferred stock that could also have the same effect.
We depend on our OP and its subsidiaries for cash flow and are structurally subordinated in right of payment to the obligations of our OP and its subsidiaries.
We conduct, and intend to continue conducting, all of our business operations through our OP, and, accordingly, we rely on distributions from our OP and its subsidiaries to provide cash to pay our other obligations. There is no assurance that our OP or its subsidiaries will be able to, or be permitted to, pay distributions to us that will enable us to pay dividends to our stockholders and meet our obligations. Each of our OP’s subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from these entities. In addition, any claims we may have will be structurally subordinated to all existing and future liabilities and obligations of our OP and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our OP and its subsidiaries will be available to satisfy the claims of our creditors or to pay dividends to our stockholders only after all the liabilities and obligations of our OP and its subsidiaries have been paid in full.
We indemnify our officers, directors, the Advisor and its affiliates against claims or liability they may become subject to due to their service to us, and our rights and the rights of our stockholders to recover claims against our officers, directors, the Advisor and its affiliates are limited.
Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, subject to certain limitations set forth therein or under Maryland law, our charter provides that no director or officer will be liable to us or our stockholders for monetary damages and permits us to indemnify our directors and officers from liability and advance certain expenses to them in connection with claims or liability they may become subject to due to their service to us, and we are not restricted
from indemnifying our Advisor or its affiliates on a similar basis. We have entered into indemnification agreements consistent with Maryland law and our charter with our directors and officers, certain former directors and officers, our Advisor and AR Global. We and our stockholders may have more limited rights against our directors, officers, employees and agents, and our Advisor and its affiliates, than might otherwise exist under common law, which could reduce the recovery of our stockholders and our recovery against them. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents or our Advisor and its affiliates in some cases. Subject to conditions and exceptions, we also indemnify our Advisor and its affiliates from losses arising in the performance of their duties under the advisory agreement and have agreed to advance certain expenses to them in connection with claims or liability they may become subject to due to their service to us.
U.S. Federal Income Tax Risks
Our failure to remain qualified as a REIT would subject us to U.S. federal income tax and potentially state and local tax.
We elected to be taxed as a REIT commencing with our taxable year ended December 31, 2013 and intend to operate in a manner that would allow us to continue to qualify as a REIT for U.S. federal income tax purposes. However, we may terminate our REIT qualification inadvertently, or if our board of directors determines doing so is in our best interests. Our qualification as a REIT depends upon our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. We have structured, and intend to continue structuring, our activities in a manner designed to satisfy all the requirements to qualify as a REIT. However, the REIT qualification requirements are extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is limited. Furthermore, any opinion of our counsel, including tax counsel, as to our eligibility to remain qualified as a REIT is not binding on the Internal Revenue Service (the “IRS”) and is not a guarantee that we will continue to qualify as a REIT. Accordingly, we cannot be certain that we will be successful in operating so we can remain qualified as a REIT. Our ability to satisfy the asset tests depends on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income or quarterly asset requirements also depends on our ability to successfully manage the composition of our income and assets on an ongoing basis. Accordingly, if certain of our operations were to be recharacterized by the IRS, such recharacterization would jeopardize our ability to satisfy all requirements for qualification as a REIT. Furthermore, future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT.
If we fail to continue to qualify as a REIT for any taxable year, and we do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax on our taxable income at the corporate rate. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT qualification. Losing our REIT qualification would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, amounts paid to stockholders that are treated as dividends for U.S. federal income tax purposes would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.
Even as a REIT, in certain circumstances, we may incur tax liabilities that would reduce our cash available for distribution to our stockholders.
Even as a REIT, we may be subject to U.S. federal, state and local income taxes. For example, net income from the sale of properties that are “dealer” properties sold by a REIT and that do not meet a safe harbor available under the Code (a “prohibited transaction” under the Code) will be subject to a 100% tax. We may not make sufficient distributions to avoid excise taxes applicable to REITs. Similarly, if we were to fail an income test (and did not lose our REIT status because such failure was due to reasonable cause and not willful neglect), we would be subject to tax on the income that does not meet the income test requirements. We also may decide to retain net capital gains we earn from the sale or other disposition of our property and pay U.S. federal income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and seek a refund of such tax. We also will be subject to corporate tax on any undistributed REIT taxable income. We also may be subject to state and local taxes on our income or property, including franchise, payroll and transfer taxes, either directly or at the level of the OP or at the level of the other companies through which we indirectly own our assets, such as any taxable REIT subsidiaries (“TRSs”), which are subject to full U.S. federal, state, local and foreign corporate-level income tax. Any taxes we pay directly or indirectly will reduce our cash flow.
To qualify as a REIT, we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives and reduce our stockholders’ overall return.
In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we make with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. Although we intend to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings while we qualify as a REIT, it is possible that we might not always be able to do so.
Recharacterization of sale-leaseback transactions may cause us to lose our REIT status.
We will use commercially reasonable efforts to structure any sale-leaseback transaction we enter into so that the lease will be characterized as a “true lease” for U.S. federal income tax purposes, thereby allowing us to be treated as the owner of the property for U.S. federal income tax purposes. However, the IRS may challenge this characterization. In the event that any sale-leaseback transaction is challenged and recharacterized as a financing transaction or loan for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to the property would be disallowed. If a sale-leaseback transaction were so recharacterized, we might fail to continue to satisfy the REIT qualification “asset tests” or “income tests” and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable income could be recalculated which might also cause us to fail to meet the distribution requirement for a taxable year.
Certain of our business activities are potentially subject to the prohibited transaction tax.
For so long as we qualify as a REIT, our ability to dispose of property during the first few years following acquisition may be restricted to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a REIT and provided we do not meet a safe harbor available under the Code, we will be subject to a 100% penalty tax on the net income from the sale or other disposition of any property (other than foreclosure property) that we own, directly or indirectly through any subsidiary entity, including the OP, but generally excluding TRSs, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. We intend to avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a TRS (but such TRS will incur corporate rate income taxes with respect to any income or gain recognized by it), (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or indirectly through any subsidiary, will be treated as a prohibited transaction or (3) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction safe harbor available under the Code for properties that, among other requirements, have been held for at least two years. Despite our present intention, no assurance can be given that any particular property we own, directly or through any subsidiary entity, including the OP, but generally excluding TRSs, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
TRSs are subject to corporate-level taxes and our dealings with TRSs may be subject to a 100% excise tax.
A REIT may own up to 100% of the stock of one or more TRSs. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% (25% for our taxable years beginning prior to January 1, 2018) of the gross value of a REIT’s assets may consist of stock or securities of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross income from operations pursuant to management contracts. Accordingly, we may use one or more TRSs generally to hold properties for sale in the ordinary course of a trade or business or to hold assets or conduct activities that we cannot conduct directly as a REIT. A TRS will be subject to applicable U.S. federal, state, local and foreign income tax on its taxable income. However, our TRSs may be subject to limitations on the deductibility of its interest expense. In addition, the Code imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.
If the OP failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, we would cease to qualify as a REIT.
If the IRS were to successfully challenge the status of the OP as a partnership or disregarded entity for U.S. federal income tax purposes, the OP would be taxable as a corporation. In such event, this would reduce the amount of distributions that the OP could make to us. This also would result in our failing to qualify as a REIT, and becoming subject to a corporate level tax on our income. This substantially would reduce our cash available to pay dividends and other distributions to our stockholders. In addition, if any of the partnerships or limited liability companies through which the OP owns its properties, in whole or in part, loses its characterization as a partnership and is otherwise not disregarded for U.S. federal income tax purposes, the partnership or limited liability company would be subject to taxation as a corporation, thereby reducing distributions to the OP. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our REIT qualification.
We may choose to make distributions in shares of our Class A Common Stock, in which case our stockholders may be required to pay U.S. federal income taxes in excess of the cash portion of distributions they receive.
In connection with our qualification as a REIT, we are required to distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order to satisfy this requirement, for distributions declared on or before June 30, 2022 with respect to our Class A Common Stock, as much as 90% of the distribution may be in shares of our Class A common stock, and 80% thereafter. Taxable stockholders receiving such distributions will be required to include the full amount of such distributions as ordinary dividend income to the extent of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, U.S. stockholders may be required to pay U.S. federal income taxes with respect to such distributions in excess of the cash portion of the distribution received.
Accordingly, U.S. stockholders receiving a distribution of shares of our Class A Common Stock may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a U.S. stockholder sells the shares that it receives as part of the distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of the shares at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distribution, including in respect of all or a portion of such distribution that is payable in stock, by withholding or disposing of part of the shares included in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed. In addition, if a significant number of our stockholders determine to sell shares of our Class A Common Stock in order to pay taxes owed on dividend income, such sale may put downward pressure on the market price of our common stock.
The taxation of distributions can be complex; however, distributions to stockholders that are treated as dividends for U.S. federal income tax purposes generally will be taxable as ordinary income, which may reduce our stockholders’ after-tax anticipated return from an investment in us.
Amounts that we pay to our taxable stockholders out of current and accumulated earnings and profits (and not designated as capital gain dividends or qualified dividend income) generally will be treated as dividends for U.S. federal income tax purposes and will be taxable as ordinary income. Noncorporate stockholders are entitled to a 20% deduction with respect to these ordinary REIT dividends which would, if allowed in full, result in a maximum effective federal income tax rate on these ordinary REIT dividends of 29.6% (or 33.4% including the 3.8% surtax on net investment income); however, the 20% deduction will end after December 31, 2025.
However, a portion of the amounts that we pay to our stockholders generally may (1) be designated by us as capital gain dividends taxable as long-term capital gain to the extent that they are attributable to net capital gain recognized by us, (2) be designated by us as qualified dividend income, taxable at capital gains rates, to the extent they are attributable to dividends we receive from our TRSs, or (3) constitute a return of capital to the extent that they exceed our accumulated earnings and profits as determined for U.S. federal income tax purposes. A return of capital is not taxable, but has the effect of reducing the tax basis of a stockholder’s investment in shares of our stock. Amounts paid to our stockholders that exceed our current and accumulated earnings and profits and a stockholder’s tax basis in shares of our stock generally will be taxable as capital gain.
Our stockholders may have tax liability on distributions that they elect to reinvest in shares of our common stock, but they would not receive the cash from such distributions to pay such tax liability.
Stockholders who participate in the DRIP will be deemed to have received, and for U.S. federal income tax purposes will be taxed on, the distributions reinvested in shares of our common stock to the extent the distributions were not a tax-free return of capital. In addition, our stockholders will be treated for tax purposes as having received an additional distribution to the extent the shares are purchased at a discount to fair market value. As a result, unless a stockholder is a
tax-exempt entity, it may have to use funds from other sources to pay its tax liability on the distributions reinvested in shares of our common stock pursuant to the DRIP.
Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.
Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is 23.8%, including the 3.8% surtax on net investment income. Dividends payable by REITs, however, generally are not eligible for this reduced rate and, as described above, through December 31, 2025, will be subject to an effective rate of 33.4%, including the 3.8% surtax on net investment income. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including shares of our stock. Tax rates could be changed in future legislation.
Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets or in certain cases to hedge previously acquired hedges entered into to manage risks associated with property that has been disposed of or liabilities that have been extinguished, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a TRS generally will not provide any tax benefit, except for being carried forward against future taxable income of the TRS.
Complying with REIT requirements may force us to forgo or liquidate otherwise attractive investment opportunities.
To maintain our qualification as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and certain kinds of mortgage-related securities. The remainder of our investment in securities (other than securities that qualify for the 75% asset test and securities of qualified REIT subsidiaries and TRSs) generally cannot exceed 10% of the outstanding voting securities of any one issuer, 10% of the total value of the outstanding securities of any one issuer or 5% of the value of our assets as to any one issuer. In addition, no more than 20% of the value of our total assets may consist of stock or securities of one or more TRSs and no more than 25% of our assets may consist of publicly offered REIT debt instruments that do not otherwise qualify under the 75% asset test. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate assets from our portfolio or not make otherwise attractive investments in order to maintain our qualification as a REIT.
The ability of our board of directors to revoke our REIT qualification without stockholder approval may subject us to U.S. federal income tax and reduce distributions to our stockholders.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interests to continue to qualify as a REIT. While we intend to maintain our qualification as a REIT, we may terminate our REIT election if we determine that qualifying as a REIT is no longer in our best interests. If we cease to be a REIT, we would become subject to corporate-level U.S. federal income tax on our taxable income (as well as any applicable state and local corporate tax) and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders and on the market price of shares of our stock.
We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the market price of shares of our stock.
Changes to the tax laws may occur, and any such changes could have an adverse effect on an investment in shares of our stock or on the market value or the resale potential of our assets. Our stockholders are urged to consult with an independent tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our stock.
Although REITs generally receive better tax treatment than entities taxed as non-REIT “C corporations,” it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a non-REIT “C corporation.” As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke
or otherwise terminate our REIT election and cause us to be taxed as a non-REIT “C corporation,” without the vote of our stockholders. Our board of directors has duties to us and could only cause such changes in our tax treatment if it determines that such changes are in our best interests.
The share ownership restrictions for REITs and the 9.8% share ownership limit in our charter may inhibit market activity in shares of our stock and restrict our business combination opportunities.
In order to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of the issued and outstanding shares of our stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns shares of our stock under this requirement. Additionally, at least 100 persons must beneficially own shares of our stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT election is made. To help ensure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of shares of our stock.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT while we so qualify. Unless exempted by our board of directors, for so long as we qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 9.8% in value of the aggregate outstanding shares of our stock and more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of the outstanding shares of our stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of the 9.8% ownership limit would result in the termination of our qualification as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interests to continue to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to continue to so qualify as a REIT.
These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for shares of our stock or otherwise be in the best interests of the stockholders.
Non-U.S. stockholders will be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions received from us and upon the disposition of our shares.
Subject to certain exceptions, amounts paid to non-U.S. stockholders will be treated as dividends for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits. Such dividends ordinarily will be subject to U.S. withholding tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, unless the dividends are treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or business. Capital gain distributions attributable to sales or exchanges of “U.S. real property interests” (“USRPIs”), generally will be taxed to a non-U.S. stockholder (other than a “qualified foreign pension fund,” certain entities wholly owned by a “qualified foreign pension fund,” and certain foreign publicly-traded entities) as if such gain were effectively connected with a U.S. trade or business. However, a capital gain distribution will not be treated as effectively connected income if (a) the distribution is received with respect to a class of stock that is regularly traded on an established securities market located in the U.S. and (b) the non-U.S. stockholder does not own more than 10% of any class of our stock at any time during the one-year period ending on the date the distribution is received.
Gain recognized by a non-U.S. stockholder upon the sale or exchange of shares of our stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI. Shares of our stock will not constitute a USRPI so long as we are a “domestically-controlled qualified investment entity.” A domestically-controlled qualified investment entity includes a REIT if at all times during a specified testing period, less than 50% in value of such REIT’s stock is held directly or indirectly by non-U.S. stockholders. We believe, but there can be no assurance, that we will be a domestically-controlled qualified investment entity.
Even if we do not qualify as a domestically-controlled qualified investment entity at the time a non-U.S. stockholder sells or exchanges shares of our stock, gain arising from such a sale or exchange would not be subject to U.S. taxation as a sale of a USRPI if: (a) the shares are of a class of our stock that is “regularly traded,” as defined by applicable Treasury regulations, on an established securities market, and (b) such non-U.S. stockholder owned, actually and constructively, 10% or less of the outstanding shares of our stock of that class at any time during the five-year period ending on the date of the sale.
Potential characterization of dividends and other distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors.
If (a) we are a “pension-held REIT,” (b) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold shares of our stock, or (c) a holder of shares of our stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, shares of our stock by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

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ITEM 2. PROPERTIES
Item 2. Properties.
The following table represents certain additional information about the properties we owned at December 31, 2021:
Portfolio Segment Acquisition Date Number of
Properties Rentable Square Feet Remaining Lease
Term [1]
Percentage Leased
(In thousands)
Dollar General I Single-Tenant Apr 2013; May 2013 2 18 6.3 100.0%
Walgreens I Single-Tenant Jul 2013 1 10 15.8 100.0%
Dollar General II Single-Tenant Jul 2013 2 18 6.4 100.0%
AutoZone I Single-Tenant Jul 2013 1 8 5.6 100.0%
Dollar General III Single-Tenant Jul 2013 5 46 6.4 100.0%
BSFS I Single-Tenant Jul 2013 1 9 2.1 100.0%
Dollar General IV Single-Tenant Jul 2013 2 18 4.2 100.0%
Tractor Supply I Single-Tenant Aug 2013 1 19 5.9 100.0%
Dollar General V Single-Tenant Aug 2013 1 12 6.1 100.0%
Mattress Firm I Single-Tenant Aug 2013; Nov 2013; Feb 2014; Mar 2014; Apr 2014 5 24 5.0 100.0%
Family Dollar I Single-Tenant Aug 2013 1 8 - 100.0%
Lowe's I Single-Tenant Aug 2013 5 671 7.5 100.0%
O'Reilly Auto Parts I Single-Tenant Aug 2013 1 11 8.5 100.0%
Food Lion I Single-Tenant Aug 2013 1 45 7.8 100.0%
Family Dollar II Single-Tenant Aug 2013 1 8 1.5 100.0%
Walgreens II Single-Tenant Aug 2013 1 14 11.3 100.0%
Dollar General VI Single-Tenant Aug 2013 1 9 4.2 100.0%
Dollar General VII Single-Tenant Aug 2013 1 9 6.3 100.0%
Family Dollar III Single-Tenant Aug 2013 1 8 0.7 100.0%
Chili's I Single-Tenant Aug 2013 2 13 3.9 100.0%
CVS I Single-Tenant Aug 2013 1 10 4.1 100.0%
Joe's Crab Shack I Single-Tenant Aug 2013 1 8 5.2 100.0%
Dollar General VIII Single-Tenant Sep 2013 1 9 6.6 100.0%
Tire Kingdom I Single-Tenant Sep 2013 1 7 3.2 100.0%
AutoZone II Single-Tenant Sep 2013 1 7 1.4 100.0%
Family Dollar IV Single-Tenant Sep 2013 1 8 1.5 100.0%
Fresenius I Single-Tenant Sep 2013 1 6 3.5 100.0%
Dollar General IX Single-Tenant Sep 2013 1 9 3.3 100.0%
Advance Auto I Single-Tenant Sep 2013 1 11 9.6 100.0%
Walgreens III Single-Tenant Sep 2013 1 15 4.2 100.0%
Walgreens IV Single-Tenant Sep 2013 1 14 2.8 100.0%
CVS II Single-Tenant Sep 2013 1 16 15.1 100.0%
Arby's I Single-Tenant Sep 2013 1 3 6.5 100.0%
Dollar General X Single-Tenant Sep 2013 1 9 6.3 100.0%
AmeriCold I Single-Tenant Sep 2013 9 1,407 5.7 100.0%
Home Depot I Single-Tenant Sep 2013 2 1,315 5.1 100.0%
New Breed Logistics I Single-Tenant Sep 2013 1 390 4.3 100.0%
Truist Bank I (2)
Single-Tenant Sep 2013 18 92 6.2 93.5%
National Tire & Battery I Single-Tenant Sep 2013 1 11 1.9 100.0%
Circle K I Single-Tenant Sep 2013 19 55 6.8 100.0%
Walgreens V Single-Tenant Sep 2013 1 14 5.7 100.0%
Walgreens VI Single-Tenant Sep 2013 1 15 7.3 100.0%
FedEx Ground I Single-Tenant Sep 2013 1 22 1.4 100.0%
Walgreens VII Single-Tenant Sep 2013 8 113 7.5 100.0%
O'Charley's I Single-Tenant Sep 2013 20 135 9.8 100.0%
Krystal I Single-Tenant Sep 2013 5 11 7.7 100.0%
1st Constitution Bancorp I Single-Tenant Sep 2013 1 3 2.1 100.0%
Tractor Supply II Single-Tenant Oct 2013 1 23 1.7 100.0%
United Healthcare I [3]
Single-Tenant Oct 2013 1 400 - -%
National Tire & Battery II Single-Tenant Oct 2013 1 7 10.4 100.0%
Portfolio Segment Acquisition Date Number of
Properties Rentable Square Feet Remaining Lease
Term [1]
Percentage Leased
(In thousands)
Tractor Supply III Single-Tenant Oct 2013 1 19 6.3 100.0%
Verizon Wireless Single-Tenant Oct 2013 1 4 7.8 100.0%
Dollar General XI Single-Tenant Oct 2013 1 9 5.3 100.0%
Talecris Plasma Resources I Single-Tenant Oct 2013 1 22 1.2 100.0%
Amazon I Single-Tenant Oct 2013 1 79 1.6 100.0%
Fresenius II Single-Tenant Oct 2013 2 16 5.6 100.0%
Dollar General XII Single-Tenant Nov 2013; Jan 2014 2 18 7.0 100.0%
Dollar General XIII Single-Tenant Nov 2013 1 9 4.2 100.0%
Advance Auto II Single-Tenant Nov 2013 2 14 9.6 100.0%
FedEx Ground II Single-Tenant Nov 2013 1 49 1.6 100.0%
Burger King I Single-Tenant Nov 2013 41 169 15.8 100.0%
Dollar General XIV Single-Tenant Nov 2013 3 27 6.4 100.0%
Dollar General XV Single-Tenant Nov 2013 1 9 6.8 100.0%
FedEx Ground III Single-Tenant Nov 2013 1 24 1.7 100.0%
Dollar General XVI Single-Tenant Nov 2013 1 9 3.9 100.0%
Family Dollar V Single-Tenant Nov 2013 1 8 1.2 100.0%
CVS III Single-Tenant Dec 2013 1 11 2.1 100.0%
Mattress Firm III Single-Tenant Dec 2013 1 5 6.5 100.0%
Arby's II Single-Tenant Dec 2013 1 4 6.3 100.0%
Family Dollar VI Single-Tenant Dec 2013 2 17 2.1 100.0%
SAAB Sensis I Single-Tenant Dec 2013 1 91 3.2 100.0%
Citizens Bank I Single-Tenant Dec 2013 9 31 2.0 100.0%
Truist Bank II [2]
Single-Tenant Jan 2014 14 76 5.4 82.6%
Mattress Firm IV Single-Tenant Jan 2014 1 5 2.7 100.0%
FedEx Ground IV Single-Tenant Jan 2014 1 59 1.5 100.0%
Mattress Firm V Single-Tenant Jan 2014 1 6 1.8 100.0%
Family Dollar VII Single-Tenant Feb 2014 1 8 2.5 100.0%
Aaron's I Single-Tenant Feb 2014 1 8 1.7 100.0%
AutoZone III Single-Tenant Feb 2014 1 7 1.2 100.0%
C&S Wholesale Grocer I Single-Tenant Feb 2014 1 360 0.5 100.0%
Advance Auto III Single-Tenant Feb 2014 1 6 10.0 100.0%
Family Dollar VIII Single-Tenant Mar 2014 3 25 1.6 100.0%
Dollar General XVII Single-Tenant Mar 2014; May 2014 3 27 6.3 100.0%
Truist Bank III [2]
Single-Tenant Mar 2014 67 338 7.9 95.4%
Truist Bank IV Single-Tenant Mar 2014 6 33 8.0 100.0%
First Horizon Bank Single-Tenant Mar 2014 8 40 7.3 100.0%
Draper Aden Associates Single-Tenant Mar 2014 1 78 9.0 100.0%
Church of Jesus Christ Single-Tenant Mar 2014 1 3 1.7 100.0%
Dollar General XVIII Single-Tenant Mar 2014 1 9 6.3 100.0%
Sanofi US I [4]
Single-Tenant Mar 2014 1 737 11.0 100.0%
Family Dollar IX Single-Tenant Apr 2014 1 8 2.2 100.0%
Stop & Shop I Single-Tenant May 2014 7 492 5.0 100.0%
Bi-Lo I Single-Tenant May 2014 1 56 0.1 100.0%
Dollar General XIX Single-Tenant May 2014 1 12 6.7 100.0%
Dollar General XX Single-Tenant May 2014 5 49 5.3 100.0%
Dollar General XXI Single-Tenant May 2014 1 9 6.7 100.0%
Dollar General XXII Single-Tenant May 2014 1 11 5.3 100.0%
FedEx Ground V Single-Tenant Feb 2016 1 46 3.6 100.0%
FedEx Ground VI Single-Tenant Feb 2016 1 121 3.7 100.0%
FedEx Ground VII Single-Tenant Feb 2016 1 42 3.8 100.0%
FedEx Ground VIII Single-Tenant Feb 2016 1 79 3.8 100.0%
Liberty Crossing Multi-Tenant Feb 2017 1 106 3.3 83.5%
San Pedro Crossing Multi-Tenant Feb 2017 1 207 4.5 87.8%
Tiffany Springs MarketCenter Multi-Tenant Feb 2017 1 265 3.9 85.9%
The Streets of West Chester Multi-Tenant Feb 2017 1 237 8.8 85.3%
Prairie Towne Center Multi-Tenant Feb 2017 1 264 8.4 80.9%
Portfolio Segment Acquisition Date Number of
Properties Rentable Square Feet Remaining Lease
Term [1]
Percentage Leased
(In thousands)
Southway Shopping Center Multi-Tenant Feb 2017 1 182 5.0 98.8%
Stirling Slidell Centre Multi-Tenant Feb 2017 1 140 1.6 45.8%
Northwoods Marketplace Multi-Tenant Feb 2017 1 236 3.6 98.3%
Centennial Plaza Multi-Tenant Feb 2017 1 234 1.9 99.5%
Northlake Commons Multi-Tenant Feb 2017 1 109 3.9 87.6%
Shops at Shelby Crossing Multi-Tenant Feb 2017 1 236 4.6 95.1%
Shoppes of West Melbourne Multi-Tenant Feb 2017 1 144 5.3 82.1%
The Centrum Multi-Tenant Feb 2017 1 274 9.9 77.8%
Shoppes at Wyomissing Multi-Tenant Feb 2017 1 103 2.1 58.7%
Southroads Shopping Center Multi-Tenant Feb 2017 1 409 4.0 77.4%
Parkside Shopping Center Multi-Tenant Feb 2017 1 183 3.4 79.6%
Colonial Landing Multi-Tenant Feb 2017 1 264 6.6 93.3%
The Shops at West End Multi-Tenant Feb 2017 1 382 6.8 83.9%
Township Marketplace Multi-Tenant Feb 2017 1 299 2.8 85.5%
Cross Pointe Centre Multi-Tenant Feb 2017 1 226 9.4 98.6%
Towne Centre Plaza Multi-Tenant Feb 2017 1 94 1.3 100.0%
Village at Quail Springs Multi-Tenant Feb 2017 1 100 5.4 100.0%
Pine Ridge Plaza Multi-Tenant Feb 2017 1 239 2.6 95.8%
Bison Hollow Multi-Tenant Feb 2017 1 135 2.9 100.0%
Jefferson Commons Multi-Tenant Feb 2017 1 206 5.3 97.9%
Northpark Center Multi-Tenant Feb 2017 1 318 4.4 97.2%
Anderson Station Multi-Tenant Feb 2017 1 244 5.3 100.0%
Patton Creek Multi-Tenant Feb 2017 1 491 3.4 72.7%
North Lakeland Plaza Multi-Tenant Feb 2017 1 171 3.6 98.0%
Riverbend Marketplace Multi-Tenant Feb 2017 1 143 3.1 92.5%
Montecito Crossing Multi-Tenant Feb 2017 1 180 4.3 82.3%
Best on the Boulevard Multi-Tenant Feb 2017 1 205 3.8 90.8%
Shops at RiverGate South Multi-Tenant Feb 2017 1 145 4.5 93.4%
Dollar General XXIII Single-Tenant Mar 2017; May 2017; Jun 2017 8 71 7.6 100.0%
Jo-Ann Fabrics I Single-Tenant Apr 2017 1 18 3.1 100.0%
Bob Evans I Single-Tenant Apr 2017 22 111 15.3 100.0%
FedEx Ground IX Single-Tenant May 2017 1 54 4.4 100.0%
Chili's II Single-Tenant May 2017 1 6 5.8 100.0%
Sonic Drive In I Single-Tenant Jun 2017 2 3 10.5 100.0%
Bridgestone HOSEPower I Single-Tenant Jun 2017 2 41 7.6 100.0%
Bridgestone HOSEPower II Single-Tenant Jul 2017 1 25 7.8 100.0%
FedEx Ground X Single-Tenant Jul 2017 1 142 5.5 100.0%
Chili's III Single-Tenant Aug 2017 1 6 5.8 100.0%
FedEx Ground XI Single-Tenant Sep 2017 1 29 5.5 100.0%
Hardee's I Single-Tenant Sep 2017 2 7 - -%
Tractor Supply IV Single-Tenant Oct 2017 2 51 4.9 100.0%
Circle K II Single-Tenant Nov 2017 6 20 15.5 100.0%
Sonic Drive In II Single-Tenant Nov 2017 20 31 15.9 100.0%
Bridgestone HOSEPower III Single-Tenant Dec 2017 1 21 8.5 100.0%
Sonny's BBQ I Single-Tenant Jan 2018 3 19 12.1 100.0%
Mountain Express I Single-Tenant Jan 2018 9 30 16.0 100.0%
Kum & Go I Single-Tenant Feb 2018 1 5 6.4 100.0%
DaVita I Single-Tenant Feb 2018 2 13 4.2 100.0%
Imperial I Single-Tenant Mar 2018 9 22 18.8 100.0%
Mountain Express II Single-Tenant Jun 2018 15 59 16.3 100.0%
Dialysis I Single-Tenant Jul 2018 7 65 6.4 100.0%
Children of America I Single-Tenant Aug 2018 2 33 11.7 79.7%
Burger King II Single-Tenant Aug 2018 1 3 11.7 100.0%
Imperial II Single-Tenant Aug 2018 9 18 18.8 100.0%
Bob Evans II Single-Tenant Aug 2018 22 112 15.3 100.0%
Portfolio Segment Acquisition Date Number of
Properties Rentable Square Feet Remaining Lease
Term [1]
Percentage Leased
(In thousands)
Mountain Express III Single-Tenant Sep 2018 14 47 16.6 100.0%
Taco John's Single-Tenant Sep 2018 7 15 11.8 100.0%
HIFZA Trading Single-Tenant Oct 2018 1 4 19.0 100.0%
DaVita II Single-Tenant Oct 2018 1 10 5.7 100.0%
Pizza Hut I Single-Tenant Oct 2018 9 23 11.8 100.0%
Little Caesars I Single-Tenant Dec 2018 11 19 17 100.0%
Caliber Collision I Single-Tenant Dec 2018 3 48 10.3 100.0%
Tractor Supply V Single-Tenant Dec 2018; Mar 2019 5 97 9.7 100.0%
Fresenius III Single-Tenant Jan 2019 6 44 5.4 100.0%
Pizza Hut II Single-Tenant Jan 2019 30 86 17.1 100.0%
Mountain Express IV Single-Tenant Feb 2019 8 28 17.1 100.0%
Mountain Express V Single-Tenant Feb 2019; Mar 2019; Apr 2019 18 96 17.2 100.0%
Fresenius IV Single-Tenant Mar 2019 1 9 9.9 100.0%
Mountain Express VI Single-Tenant Jun 2019 1 3 17.1 100.0%
IMTAA Single-Tenant May 2019; Jan 2020 12 40 17.5 100.0%
Pizza Hut III Single-Tenant May 2019; Jun 2019 13 47 17.4 100.0%
Fresenius V Single-Tenant Jun 2019 2 19 10.4 100.0%
Fresenius VI Single-Tenant Jun 2019 1 10 5 100.0%
Fresenius VII Single-Tenant Jun 2019 3 59 8.7 50.1%
Caliber Collision II Single-Tenant Aug 2019 1 19 7.3 100.0%
Dollar General XXV Single-Tenant Sep 2019 5 44 9 100.0%
Dollar General XXIV Single-Tenant Sep 2019; Oct 2019 9 82 12.6 100.0%
Mister Carwash I Single-Tenant Sep 2019 3 13 17.8 100.0%
Checkers I Single-Tenant Sep 2019 1 1 17.7 100.0%
DaVita III Single-Tenant Sep 2019; Mar 2020 2 20 7.6 100.0%
Dialysis II Single-Tenant Sep 2019 50 426 7 100.0%
Mister Carwash II Single-Tenant Nov 2019 2 8 17.9 100.0%
Advance Auto IV Single-Tenant Dec 2019; Jan 2020 14 96 7.5 100.0%
Advance Auto V Single-Tenant Dec 2019 11 73 8.4 100.0%
Dollar General XXVI Single-Tenant Dec 2019 12 114 10.4 100.0%
Pizza Hut IV Single-Tenant Dec 2019; Mar 2020 16 50 18 100.0%
American Car Center I Single-Tenant Mar 2020 16 178 18.3 100.0%
BJ's Wholesale Club Single-Tenant Mar 2020 1 110 8.8 100.0%
Mammoth Car Wash Single-Tenant Mar 2020 9 56 18.3 100.0%
Mammoth Car Wash Single-Tenant Apr 2020 1 18 18.3 100.0%
Mammoth Car Wash Single-Tenant Apr 2020 1 4 18.3 100.0%
DaVita IV Single-Tenant Apr 2020 1 10 9.5 100.0%
GPM Single-Tenant Jul 2020 30 112 14.4 100.0%
IMTAA II Single-Tenant Aug 2020; Dec 2020 10 54 13.7 100.0%
Fresenius IX Single-Tenant Nov 2020 6 46 9.2 100.0%
Kamla Kaur Single-Tenant Dec 2020 10 37 19.0 100.0%
Dialysis III Single-Tenant Dec 2020; Dec 2021 16 139 4.0 100.0%
National Convenience Distributors Single-Tenant Mar 2021 5 385 19.3 100.0%
Advance Auto VI Single-Tenant Mar 2021 2 14 5.5 100.0%
Dollar General XXVII Single-Tenant May 2021; Sept 2021 17 162 6.1 100.0%
Pick N'Save Single-Tenant Jun 2021 1 61 7.0 100.0%
Tidal Wave I Single-Tenant Jul 2021; Aug 2021; Oct 2021 14 54 19.5 100.0%
Imperial Reliance Single-Tenant Jul 2021 2 4 19.6 100.0%
Aaron's II Single-Tenant Aug 2021 16 139 5.5 100.0%
Heritage I Single-Tenant Dec 2021 5 43 20.0 100.0%
Fidelity I Single-Tenant Dec 2021 6 55 20.0 100.0%
Total 976 20,031 8.6 93.2%
__________
[1]Remaining lease term in years as of December 31, 2021. If the portfolio has multiple properties with varying lease expirations, remaining lease term is calculated as a weighted-average based on annualized rental income on a straight-line basis.
[2]Includes eight properties leased to Truist Bank which were unoccupied as of December 31, 2021 and were being marketed for sale. Please see Note 3 - Real Estate Investments to our consolidated financial statements included in this Annual Report on Form 10-K for further details.
[3]The tenant’s lease at this property expired effective July 1, 2021. See Note 3 - Real Estate Investments to our consolidated financial statements included in this Annual Report on Form 10-K for further details regarding our plans for this property and its related impairment.
[4]This property was considered held-for-sale as of December 31, 2021 and was sold on January 6, 2022. See Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K for further details.
The following table details the classification of our properties by segment:
Segment Number of Properties Rentable Square Feet Remaining Lease Term [1]
Percentage Leased
(In thousands)
Multi-Tenant 33 7,171 4.8 87.6 %
Single-Tenant 943 12,860 10.2 96.3 %
Total 976 20,031 8.6 93.2 %
[1]Remaining lease term in years as of December 31, 2021. If the portfolio has multiple properties with varying lease expirations, remaining lease term is calculated as a weighted-average based on annualized rental income on a straight-line basis.
The following table details the geographic distribution, by state, of our properties owned as of December 31, 2021:
State Number of
Properties Annualized Rental Income on a Straight-Line Basis [1]
Annualized Rental Income on a Straight-Line Basis % Square Feet Square Feet %
(In thousands) (In thousands)
Alabama 46 $ 14,544 5.0 % 1,405 6.9 %
Alaska 1 409 0.1 % 9 0.1 %
Arizona 1 352 0.1 % 22 0.1 %
Arkansas 16 2,387 0.8 % 88 0.4 %
California 1 228 0.1 % 9 0.1 %
Colorado 6 776 0.3 % 52 0.3 %
Connecticut 4 1,801 0.6 % 98 0.5 %
Delaware 1 176 0.1 % 5 0.1 %
District of Columbia 1 236 0.1 % 4 0.1 %
Florida 60 19,365 6.7 % 1,199 5.9 %
Georgia 111 31,677 11.0 % 1,996 9.9 %
Idaho 3 331 0.1 % 14 0.1 %
Illinois 51 10,517 3.6 % 741 3.7 %
Indiana 15 2,109 0.7 % 91 0.5 %
Iowa 25 2,662 0.9 % 166 0.8 %
Kansas 15 4,506 1.6 % 282 1.4 %
Kentucky 28 10,747 3.7 % 677 3.4 %
Louisiana 33 6,515 2.3 % 354 1.8 %
Maine 3 349 0.1 % 27 0.1 %
Maryland 4 858 0.3 % 21 0.1 %
Massachusetts 13 9,269 3.2 % 992 5.0 %
Michigan 71 9,483 3.3 % 527 2.6 %
Minnesota 9 10,597 3.7 % 761 3.8 %
Mississippi 37 5,821 2.0 % 252 1.3 %
Missouri 11 5,932 2.1 % 493 2.5 %
Montana 12 1,184 0.4 % 42 0.2 %
Nebraska 3 495 0.2 % 12 0.1 %
Nevada 4 6,691 2.3 % 408 2.0 %
New Hampshire 1 127 - % 6 0.1 %
New Jersey (2)
4 18,655 6.5 % 817 4.2 %
New Mexico 3 629 0.2 % 47 0.2 %
New York 17 2,774 1.0 % 227 1.1 %
North Carolina 49 18,415 6.4 % 1,525 7.5 %
North Dakota 3 1,222 0.4 % 170 0.9 %
Ohio 77 17,873 6.2 % 1,042 5.2 %
Oklahoma 17 9,929 3.5 % 834 4.2 %
Pennsylvania 25 9,763 3.4 % 540 2.7 %
Rhode Island 3 2,495 0.9 % 156 0.8 %
South Carolina 41 16,851 5.8 % 1,618 8.0 %
South Dakota 2 339 0.1 % 47 0.2 %
Tennessee 32 3,683 1.3 % 185 0.9 %
Texas 35 13,660 4.7 % 839 4.2 %
Utah 4 1,087 0.4 % 41 0.2 %
Vermont 1 84 - % 22 0.1 %
Virginia 24 3,640 1.3 % 214 1.1 %
West Virginia 33 3,077 1.1 % 261 1.3 %
Wisconsin 10 2,515 0.9 % 627 3.1 %
Wyoming 10 1,318 0.5 % 66 0.2 %
Total 976 288,153 100 % 20,031 100 %
__________
[1]Annualized rental income on a straight-line basis is calculated using the most recent available lease terms as of December 31, 2021, which includes tenant concessions such as free rent, as applicable. Annualized rental income does not include either (i) future increases in base rent due to lease provisions with rent adjustments based on the consumer price index or (ii) cost reimbursements received from tenants pursuant to their leases.
[2]Substantially all of the revenue from this state was derived from the Sanofi property, which was sold on January 6, 2022. Excluding Sanofi, this state would have constituted 0.6% of annualized rental income on a straight-line basis as of December 31, 2021. See Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K.
Future Minimum Lease Payments
The following table presents future minimum base rent payments, on a cash basis, due to us over the next ten years and thereafter for the properties we owned as of December 31, 2021, excluding the Sanofi property which was sold on January 6, 2022. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items.
(In thousands) Future Minimum
Base Rent Payments
2022 $ 260,667
2023 248,310
2024 232,908
2025 215,088
2026 198,241
2027 170,338
2028 138,951
2029 131,373
2030 106,915
2031 96,141
Thereafter 557,631
$ 2,356,563
Future Lease Expiration Table
The following is a summary of lease expirations for the next ten years at the properties we owned as of December 31, 2021, excluding the Sanofi property which was sold on January 6, 2022.
Year of Expiration Number of
Leases
Expiring Annualized Rental Income on a
Straight-Line Basis [1]
Annualized Rental Income on a
Straight-Line Basis % Square Feet Square Feet %
(In thousands) (In thousands)
2022 74 $ 7,397 2.6 % 795 4.3 %
2023 117 18,350 6.4 % 1,244 6.7 %
2024 111 15,879 5.5 % 1,126 6.1 %
2025 128 22,579 7.8 % 1,736 9.4 %
2026 100 23,652 8.2 % 1,862 10.1 %
2027 126 37,163 12.9 % 3,941 21.3 %
2028 91 13,389 4.6 % 1,014 5.5 %
2029 133 22,739 7.9 % 1,353 7.3 %
2030 53 12,180 4.2 % 929 5.0 %
2031 62 13,623 4.7 % 654 3.5 %
995 $ 186,951 64.8 % 14,654 79.2 %
__________
[1]Annualized rental income on a straight-line basis is calculated using the most recent available lease terms as of December 31, 2021, which includes tenant concessions such as free rent, as applicable. Annualized rental income does not include either (i) future increases in base rent due to lease provisions with rent adjustments based on the consumer price index or (ii) cost reimbursements received from tenants pursuant to their leases.
Tenant Concentration
There were no tenants whose rentable square footage or annualized rental income on a straight-line basis represented greater than 10.0% of total portfolio rentable square footage or annualized rental income on a straight-line basis as of December 31, 2021.
Significant Portfolio Properties
The annualized rental income on a straight-line basis of the following property represents 5.0% or more of our total portfolio’s annualized rental income on a straight-line basis as of December 31, 2021. No single property had rentable square footage that exceeded 5.0% or more of our total portfolio’s rentable square feet.
On January 6, 2022, we disposed of the Sanofi property. Sanofi US - Bridgewater, NJ was a freestanding, single-tenant office facility, comprised of 736,572 total rentable square feet and was 100.0% leased to Aventis, Inc., a member of the Sanofi-Aventis Group. The lease had annualized rental income on a straight-line basis of $17.1 million which represented 5.9% of the total portfolio. See Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
Property Financings
See Note 4 - Mortgage Notes Payable, Net and Note 5 - Credit Facility to our consolidated financial statements included in this Annual Report on Form 10-K for information regarding property financings as of December 31, 2021 and 2020. In addition, see Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K for additional information relating to additional mortgage debt assumed and borrowings under our Credit Facility in connection with the acquisition of the CIM Portfolio Acquisition.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
Refer to “Litigation and Regulatory Matters” in Note 10 - Commitments and Contingencies to our consolidated financial statements included in this Annual Report on Form 10-K for information regarding our legal proceedings.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our Class A common stock began trading on the Nasdaq under the symbol “AFIN” as of July 19, 2018. Pursuant to our name change, we began trading our Class A common stock under the symbol “RTL” as of February 15, 2022. Set forth below is a line graph comparing the cumulative total stockholder return on our Class A common stock, based on the market price of Class A common stock, with the FTSE National Association of Real Estate Investment Trusts Equity Index (“NAREIT”), Modern Index Strategy Indexes (“MSCI”), and the Nasdaq Index for the period commencing July 19, 2018, the date on which we listed our Class A common stock on the Nasdaq and ending December 31, 2021. The graph assumes an investment of $100 on July 19, 2018 with the reinvestment of dividends.
Holders
As of February 18, 2022, we had 129,809,464 shares of Class A common stock outstanding held by a total of 6,836 stockholders of record.
Dividends
We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2013. As a REIT, we are required, among other things, to distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard for the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements.
The amount of dividends payable to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for dividends, our financial condition, provisions in our Credit Facility or other agreements that may restrict our ability to pay dividends, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to maintain our status as a REIT under the Code. Our board of directors may reduce the amount of dividends paid or suspend dividend payments at any time prior to dividends being declared. Therefore, dividend payments are not assured. Any accrued and unpaid dividends payable with respect to our Series A Preferred Stock and Series C Preferred Stock continue to accrue and must be paid upon redemption of those shares. For further information on provisions in our Credit Facility that restrict the payment of dividends and other distributions, see Item 1A, “Risk Factors - We may have to reduce dividend payments or identify other financing sources to pay dividends at their current levels” and Note 5 - Credit Facility to our consolidated financial statements included in this Annual Report on Form 10-K.
Tax Characteristics of Dividends
The following table details from a tax perspective, the portion of common stock dividends classified as return of capital and ordinary dividend income for tax purposes, per share per annum, for the years ended December 31, 2021, 2020 and 2019. All dividends paid on the Series A Preferred Stock and Series C Preferred Stock were considered 100% ordinary dividend income for tax purposes.
Year Ended December 31,
(In thousands) 2021 2020 2019
Return of capital 94.8 % $ 0.81 90.3 % $ 0.63 90.2 % $ 0.99
Ordinary dividend income 5.2 % 0.04 9.7 % 0.07 9.8 % 0.11
Total 100.0 % $ 0.85 100.0 % $ 0.70 100.0 % $ 1.10
Dividends to Common Stockholders
During the period of January 2019 through March 2020, we paid dividends on our common stock on a monthly basis at an annualized rate equal to a rate of $1.10 per share, or $0.0916667 per share per month. In March 2020, our board of directors approved a reduction in our annualized common stock dividend to $0.85 per share, or $0.0708333 per share on a monthly basis, due to the uncertain and rapidly changing environment caused by the COVID-19 pandemic. The new common stock dividend rate became effective beginning with our April 1 dividend declaration. Historically, and through September 30, 2020, we declared common stock dividends based on monthly record dates and generally paid dividends, once declared, on or around the 15th day of each month (or, if not a business day, the next succeeding business day) to Class A common stock holders of record on the applicable record date. On August 27, 2020, our board of directors approved a change in our Class A common stock dividend policy. Subsequent dividends authorized by our board of directors on shares of our Class A common stock have been, and we anticipate will continue to be, paid on a quarterly basis in arrears on the 15th day of the first month following the end of each fiscal quarter (unless otherwise specified) to Class A common stockholders of record on the record date for such payment. This change affected the frequency of dividend payments only, and did not impact the annualized dividend rate on Class A common stock of $0.85.
Dividends to Series A Preferred Stockholders
Dividends on our Series A Preferred Stock accrue in an amount equal to $1.875 per share each year, which is equivalent to the rate of 7.50% of the $25.00 liquidation preference per share per annum. Dividends on the Series A Preferred Stock are payable quarterly in arrears on the 15th day of each of January, April, July and October of each year (or, if not a business day, the next succeeding business day) to holders of record on the applicable record date.
Dividends to Series C Preferred Stockholders
Dividends on our Series C Preferred Stock accrue in an amount equal to $1.844 per share each year, which is equivalent to the rate of 7.375% of the $25.00 liquidation preference per share per annum. Dividends on the Series C Preferred Stock are payable quarterly in arrears on the 15th day of each of January, April, July and October of each year (or, if not a business day, the next succeeding business day) to holders of record on the applicable record date.
Equity-Based Compensation
Effective on July 19, 2018, our board of directors adopted an equity plan for the Advisor (the “Advisor Plan”) and an equity plan for individuals (the “Individual Plan” and together with the Advisor Plan, the “2018 Equity Plan”). On May 4, 2021, the Company’s independent directors, authorized an award of LTIP Units under the 2021 OPP after the performance period under the 2018 OPP expired on July 19, 2021 (no LTIP Units were earned), and, on July 21, 2021, the Company, the OP and the Advisor entered into the 2021 OPP.
The following table sets forth information regarding securities authorized for issuance under the 2018 Equity Plan and the 2021 OPP as of December 31, 2021:
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)
(a) (b) (c)
Equity Compensation Plans approved by security holders
- - -
Equity Compensation Plans not approved by security holders
8,528,885 [1]
- 3,008,872 [2]
Total 8,528,885 [1]
- 3,008,872 [2]
__________
[1]Represents shares of Class A common stock underlying LTIP Units awarded pursuant to the 2021 OPP. These LTIP Units may be earned by the Advisor if we achieve threshold, target or maximum performance goals based on our absolute and relative total stockholder return over a performance period that commenced on July 20, 2021 and will end on the earliest of (i) July 20, 2024, (ii) the effective date of any Change of Control (as defined in the 2021 OPP) and (iii) the effective date of any termination of the Advisor’s service as our advisor. LTIP Units earned as of the last day of the performance period will also become vested as of that date. Effective as of that same date, any LTIP Units that are not earned will automatically and without notice be forfeited without the payment of any consideration by us. For additional information on the 2021 OPP, please see Note 13 - Equity-Based Compensation to our consolidated financial statements included in this Annual Report on Form 10-K.
[2]We have the Advisor Plan and the Individual Plan which we refer to together as the 2018 Equity Plan. The Advisor Plan is substantially similar to the Individual Plan, except with respect to the eligible participants. Under the Individual Plan, we may only make awards to our directors, officers and employees (if we ever have employees), employees of the Advisor and its affiliates, employees of entities that provide services to us, directors of the Advisor or of entities that provide services to us, certain consultants to us and the Advisor and its affiliates or to entities that provide services to us. By contrast, under the Advisor Plan, we may only make awards to the Advisor. The number of shares that may be subject to awards under the 2018 Equity Plan, in the aggregate, is equal to 10.0% of our outstanding shares on a fully diluted basis at any time. Shares subject to awards under the Individual Plan reduce the number of shares available for awards under the Advisor Plan on a one-for-one basis and vice versa. As of December 31, 2021, we had 123,783,060 shares of Class A common stock issued and outstanding on a fully diluted basis, and 9,369,434 shares of Class A common stock had been issued under or were subject to awards under the 2018 Equity Plan (including unearned LTIP Units). For additional information on the 2018 Equity Plan, please see Note 13 - Equity-Based Compensation to our consolidated financial statements included in this Annual Report on Form 10-K.
Recent Sale of Unregistered Equity Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved].

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. Please see “Forward-Looking Statements” elsewhere in this report for a description of these risks and uncertainties.
Overview
We are an externally managed REIT focusing on acquiring and managing a diversified portfolio of primarily service-oriented and traditional retail and distribution-related commercial real estate properties located primarily in the United States. Our assets consist primarily of freestanding single-tenant properties that are net leased to “investment grade” and other creditworthy tenants and a portfolio of multi-tenant retail properties consisting primarily of power centers and lifestyle centers. We historically focused our acquisitions primarily on net leased, single-tenant service retail properties, defined as properties leased to tenants in the retail banking, restaurant, grocery, pharmacy, gas, convenience, fitness, and auto services sectors. In December 2021, we signed a purchase and sale agreement to acquire 79 multi-tenant retail centers and two single-tenant properties (the “CIM Portfolio Acquisition”), representing a strategic shift away from a primary focus on single-tenant retail properties. On February 11, 2022, we closed on the first tranche of the CIM Portfolio Acquisition and acquired 44 properties for a contract purchase price of $547.4 million. We expect to complete the closing of the transaction in successive tranches by the end of March 2022. For additional information on the closing of the first tranche of the CIM Portfolio Acquisition, including funding details, see “Liquidity and Capital Resources” herein and see Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K for more information.
As of December 31, 2021, we owned 976 properties, comprised of 20.0 million rentable square feet, which were 93.2% leased, including 943 single-tenant net leased commercial properties (902 of which are leased to retail tenants) and 33 multi-tenant retail properties. Based on annualized rental income on a straight-line basis as of December 31, 2021, the total single-tenant properties comprised 70% of our total portfolio and were 61% leased to service retail tenants, and the total multi-tenant properties comprised 30% of our total portfolio and were 49% leased to experiential retail tenants, defined as tenants in the restaurant, discount retail, entertainment, salon/beauty and grocery sectors, among others.
Including the pro forma impact of the closing of the first tranche and the planned closing of the second tranche CIM Portfolio Acquisition and disposal of the Sanofi property but assuming no other subsequent acquisitions or dispositions, as of December 31, 2021 we owned 1,056 properties, comprised of 28.8 million rentable square feet, including 944 single-tenant net leased commercial properties (904 of which are leased to retail tenants) and 112 multi-tenant retail properties.
Substantially all of our business is conducted through the OP and its wholly owned subsidiaries. Our Advisor manages our day-to-day business with the assistance of our Property Manager. Our Advisor and Property Manager are under common control with AR Global and these related parties receive compensation and fees for providing services to us. We also reimburse these entities for certain expenses they incur in providing these services to us.
Management Update on the Impacts of the COVID-19 Pandemic
The COVID-19 global pandemic has created several risks and uncertainties that may impact our business, including our future results of operations and our liquidity. The ultimate impact on our results of operations, our liquidity and the ability of our tenants to continue to pay us rent will depend on numerous factors including the overall length and severity of the COVID-19 pandemic. For additional information on the risks and uncertainties associated with the COVID-19 pandemic, please see Item 1A. “Risk Factors - We are subject to risks associated with a pandemic, epidemic or outbreak of a contagious disease, such as the ongoing global COVID-19 pandemic, which has caused severe disruptions in the U.S. and global economy and financial markets and has already had adverse effects and may worsen.”
We have taken several steps to mitigate the impact of the pandemic on our business. We have been in direct contact with our tenants since the crisis began, cultivating open dialogue and deepening the fundamental relationships that we have carefully developed through prior transactions and historic operations. Based on this approach and the overall financial strength and creditworthiness of our tenants, we believe that we have had positive results in our cash rent collections during this pandemic. We have collected approximately 100% of the original cash rent due for the fourth quarter 2021 across our entire portfolio, (based on the total of fourth quarter cash rent due across our portfolio). This was consistent with the first, second, and third quarters of 2021 and an improvement from the fourth quarter of 2020 and reflects the expiration of rent deferral agreements where tenants have resumed paying full rent as well as collections of deferred rent paid during the quarter.
“Original cash rent” refers to contractual rents on a cash basis due from tenants as stipulated in their originally executed lease agreement at inception or as amended, prior to any rent deferral agreement. We calculate “original cash rent collections” by comparing the total amount of rent collected during the period to the original cash rent due. Total rent collected during the
period includes both original cash rent due and payments made by tenants pursuant to rent deferral agreements. Eliminating the impact of deferred rent paid, we collected 98% of original cash rent collections for the fourth quarter of 2021.
A deferral agreement is an executed or approved amendment to an existing lease to defer a certain portion of cash rent due to a future period. During the year ended December 31, 2021, we granted rent deferrals for an aggregate of $0.4 million or less than 1% of original cash rent due for the year. Nearly all amounts deferred are scheduled for repayment during various times through the end of 2022. During the year ended December 31, 2021, we collected approximately 81% of the total $7.4 million rents we previously deferred. During the year ended December 31, 2021, we granted rent abatements for $0.8 million or less than 1% of original cash rent due for the year. During the year ended December 31, 2020, we granted rent abatements for $2.7 million. The most common arrangements granted provide deferral of some or all of the rent due for the period in which the arrangement was granted with such amounts to be paid in 2022. The terms of these lease amendments providing for rent deferrals and abatements differ by tenant in terms of length and amount of the deferral or abatement, although the deferrals and abatements are generally coupled with an extension of the lease.
The cash rent collections for the fourth quarter of 2021 is based on cash collected, in respect of cash rent, as of January 31, 2022. Cash receipts received in January are not, however, included in cash and cash equivalents on our December 31, 2021 consolidated balance sheet. The below cash rent status may not be indicative of any future period and remains subject to changes based ongoing collection efforts and negotiation of additional agreements. Moreover, there is no assurance that we will be able to collect the cash rent that is due in future months including amounts previously deferred. The impact of the COVID-19 pandemic on our tenants and thus our ability to collect rents in future periods cannot be determined at present.
The table below presents the percentage of original cash rent for our single-tenant portfolio, our multi-tenant portfolio, and our total portfolio we collected in each fiscal quarter of 2020 and 2021.
Period Single-Tenant (1)
Multi-Tenant (2)
Total Portfolio (3)
First Quarter 2020 98 % 100 % 99 %
Second Quarter 2020 96 % 72 % 88 %
Third Quarter 2020 98 % 85 % 94 %
Fourth Quarter 2020 100 % 91 % 97 %
First Quarter 2021 100 % 99 % 100 %
Second Quarter 2021 100 % 100 % 100 %
Third Quarter 2021 98 % 100 % 99 %
Fourth Quarter 2021 99 % 100 % 100 %
____________
(1) Eliminating the impact of deferred rent paid, single-tenant collections were 99%, 99%, 98% and 99% of original cash rent due for the first, second, third and fourth quarters of 2021, respectively. Deferred rent received, if any, was less than 1% of rent collected before the first quarter of 2021.
(2) Eliminating the impact of deferred rent paid, multi-tenant collections were 95%, 97%, 96% and 97% of original cash rent due for the first, second, third and fourth quarters of 2021, respectively. Deferred rent received, if any, was less than 1% of rent collected before the first quarter of 2021.
(3) Eliminating the impact of deferred rent paid, total portfolio collections were 98%, 99%, 97% and 98% of original cash rent due for the first, second, third and fourth quarters of 2021, respectively. Deferred rent received, if any, was less than 1% of rent collected before the first quarter of 2021.
Significant Accounting Estimates and Critical Accounting Policies
Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates and critical accounting policies include:
Impacts of the COVID-19 Pandemic
As discussed above, we have taken a proactive approach to achieve mutually agreeable solutions with our tenants impacted by the COVID-19 pandemic and in some cases, during the year ended December 31, 2021, we executed several types of lease amendments. These agreements include deferrals and abatements (i.e. rent credits) and also may include extensions to the term of the leases.
For accounting purposes, in accordance with ASC 842: Leases, normally a company would be required to assess a lease modification to determine if the lease modification should be treated as a separate lease and if not, modification accounting would be applied which would require a company to reassess the classification of the lease (including leases for which the prior classification under ASC 840 was retained as part of the election to apply the package of practical expedients allowed upon the
adoption of ASC 842, which does not apply to leases subsequently modified). However, in light of the COVID-19 pandemic in which many leases are being modified, the FASB and SEC have provided relief that allows companies to make a policy election as to whether they treat COVID-19 related lease amendments as a provision included in the pre-concession arrangement, and therefore, not a lease modification, or to treat the lease amendment as a modification. In order to be considered COVID-19 related, cash flows must be substantially the same or less than those prior to the concession. For COVID-19 relief qualified changes, there are two methods to potentially account for such rent deferrals or abatements under the relief, (1) as if the changes were originally contemplated in the lease contract or (2) as if the deferred payments are variable lease payments contained in the lease contract. For all other lease changes that did not qualify for FASB relief, we would be required to apply modification accounting including assessing classification under ASC 842.
Some, but not all of our lease modifications qualify for the FASB relief. In accordance with the relief provisions, instead of treating these qualifying leases as modifications, we have elected to treat the modifications as if previously contained in the lease and recast rents receivable prospectively (if necessary). Under that accounting, for modifications that were deferrals only, there would be no impact on overall rental revenue and for any abatement amounts that reduced total rent to be received, the impact would be recognized ratably over the remaining life of the lease.
For leases not qualifying for this relief, we have applied modification accounting and determined that there were no changes in the current classification of its leases impacted by negotiations with its tenants.
Revenue Recognition
Our revenues, which are derived primarily from lease contracts, which include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. As of December 31, 2021, these leases had an average remaining lease term of approximately 8.6 years. Because many of our leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record a receivable for, and include in revenue from tenants, unbilled rents receivable that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. When we acquire a property, the acquisition date is considered to be the commencement date for purposes of this calculation. For new leases after acquisition, the commencement date is considered to be the date the tenant takes control of the space. For lease modifications, the commencement date is considered to be the date the lease modification is executed. We defer the revenue related to lease payments received from tenants in advance of their due dates. Pursuant to certain of our lease agreements, tenants are required to reimburse us for certain property operating expenses, in addition to paying base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties. Under ASC 842, we elected to report combined lease and non-lease components in a single line “Revenue from tenants.” For comparative purposes, we also elected to reflect prior revenue and reimbursements reported under ASC 842 also on a single line. For expenses paid directly by the tenant, under both ASC 842 and 840, we have reflected them on a net basis.
We own certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant’s sales upon the achievement of certain sales thresholds or other targets which may be monthly, quarterly or annual targets. As the lessor to the aforementioned leases, we defer the recognition of contingent rental income, until the specified target that triggered the contingent rental income is achieved, or until such sales upon which percentage rent is based are known. For the year ended December 31, 2021, 2020 and 2019, approximately $1.4 million, $1.1 million and $0.9 million, respectively, in contingent rental income is included in revenue from tenants in the consolidated statements of operations and comprehensive loss.
We continually review receivables related to rent and unbilled rents receivable and determine collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Under the leasing standard adopted on January 1, 2019 (see Note 2 - Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements to the consolidated financial statements included in this Annual Report on Form 10-K for further discussion), we are required to assess, based on credit risk only, if it is probable that we will collect virtually all of the lease payments at lease commencement date and we must continue to reassess collectability periodically thereafter based on new facts and circumstances affecting the credit risk of the tenant. Partial reserves, or the ability to assume partial recovery are not permitted. If we determine that it’s probable we will collect virtually all of the lease payments (rent and common area maintenance), the lease will continue to be accounted for on an accrual basis (i.e. straight-line). However, if we determine that it’s not probable that we will collect virtually all of the lease payments, the lease will be accounted for on a cash basis and a full reserve would be recorded on previously accrued amounts in cases where it was subsequently concluded that collection was not probable. Cost recoveries from tenants are included in operating revenue from tenants beginning on January 1, 2019, in accordance with new accounting rules, on the accompanying consolidated statements of operations and comprehensive income (loss) in the period the related costs are incurred, as applicable. Throughout the year ended December 31, 2021, this assessment included consideration of the impacts of the COVID-19 pandemic on the ability of our tenants to pay rents in accordance with their contracts. The assessment
included all of our tenants with a focus on our multi-tenant retail properties which have been more negatively impacted by the COVID-19 pandemic than our single-tenant properties.
Under ASC 842, uncollectable amounts are reflected as reductions in revenue from tenants. Under ASC 840, we recorded such amounts as bad debt expense as part of property operating expenses. As a result of the review and assessment as described above and the impacts of the COVID-19 pandemic on certain of our tenants, we recorded a reduction in revenue from tenants of $1.8 million during the year ended December 31, 2021. During the years ended December 31, 2020 and 2019, such amounts were $6.6 million and $2.9 million, respectively.
Investments in Real Estate
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. At the time an asset is acquired, we evaluate the inputs, processes and outputs of the asset acquired to determine if the transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive loss. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets. See the Purchase Price Allocation section below for a discussion of the initial accounting for investments in real estate.
Disposal of real estate investments that represent a strategic shift in operations that will have a major effect on our operations and financial results are required to be presented as discontinued operations in the consolidated statements of operations. No properties were presented as discontinued operations during the years ended December 31, 2021, 2020 or 2019. Properties that are intended to be sold are to be designated as “held for sale” on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale, most significantly that the sale is probable within one year. We evaluate probability of sale based on specific facts including whether a sales agreement is in place and the buyer has made significant non-refundable deposits. Properties are no longer depreciated when they are classified as held for sale. As of December 31, 2021 we had one property classified as held for sale, our Sanofi property, and as of December 31, 2020 we had no properties classified as held for sale (see Note 3 - Real Estate Investments, Net to the consolidated financial statements included in this Annual Report on Form 10-K for additional information). The Sanofi property was disposed on January 6, 2022 (see Note 16 - Subsequent Events to the consolidated financial statements included in this Annual Report on Form 10-K for additional information).
As more fully discussed in Note 2 - Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements - ASU No. 2016-02 Leases to the consolidated financial statements included in this Annual Report on Form 10-K, all of our leases as lessor prior to adoption of the new leasing standard on January 1, 2019, were accounted for as operating leases and we continued to account for them as operating leases under the transition guidance. We evaluate new leases originated after the adoption date (by us or by a predecessor lessor/owner) pursuant to the new guidance where a lease for some or all of a building is classified by a lessor as a sales-type lease if the significant risks and rewards of ownership reside with the tenant. This situation is met if, among other things, there is an automatic transfer of title during the lease, a bargain purchase option, the non-cancelable lease term is for more than major part of remaining economic useful life of the asset (e.g., equal to or greater than 75%), if the present value of the minimum lease payments represents substantially all (e.g., equal to or greater than 90%) of the leased property’s fair value at lease inception, or if the asset so specialized in nature that it provides no alternative use to the lessor (and therefore would not provide any future value to the lessor) after the lease term. Further, such new leases would be evaluated to consider whether they would be failed sale-leaseback transactions and accounted for as financing transactions by the lessor. During the three year period ended December 31, 2021, we had no leases as a lessor that would be considered as sales-type leases or financings under sale-leaseback rules.
We are also the lessee under certain land leases which were previously classified prior to adoption of lease accounting and will continue to be classified as operating leases under transition elections unless subsequently modified. These leases are reflected on the balance sheet and the rent expense is reflected on a straight line basis over the lease term.
Purchase Price Allocation
In both a business combination and an asset acquisition, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements on an as if vacant basis. Intangible assets may include the value of in-place leases and above- and below- market leases and other identifiable assets or liabilities based on lease or property specific characteristics. In addition, any assumed mortgages receivable or payable and any assumed or issued non-controlling interests (in a business combination) are recorded at their estimated fair values. In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above or below-market interest rates. In a business combination, the difference between the purchase price and the fair value of identifiable net assets acquired is either recorded as goodwill or as a bargain purchase gain. In an asset acquisition, the difference between the acquisition price (including capitalized transaction costs) and the fair value of
identifiable net assets acquired is allocated to the non-current assets. All acquisitions during the years ended December 31, 2021, 2020 and 2019 were asset acquisitions.
For acquired properties with leases classified as operating leases, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired and liabilities assumed, based on their respective fair values. In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each property as a result of our pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
We utilize various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Fair value estimates are also made using significant assumptions such as capitalization rates, discount rates, fair market lease rates, and land values per square foot.
Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates and the value of in-place leases as applicable. Factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period, which typically ranges from six to 24 months. We also estimate costs to execute similar leases including leasing commissions, legal and other related expenses.
Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases.
The aggregate value of intangible assets related to customer relationships, as applicable, is measured based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the tenant. Characteristics considered by us in determining these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors. We did not record any intangible asset amounts related to customer relationships during the years ended December 31, 2021 and 2020.
Gain on Sale/Exchange of Real Estate Investments
Gains on sales of rental real estate will generally be recognized pursuant to the provisions included in ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”). In accordance with ASC 845-10, Accounting for Non-Monetary Transactions, if a nonmonetary exchange has commercial substance, the cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of the asset surrendered to obtain it, and a gain or loss shall be recognized on the exchange.
Impairment of Long-Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, we review the property for impairment. This review is based on an estimate of the future undiscounted cash flows expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If an impairment exists, due to the inability to recover the carrying value of a property, we would recognize an impairment loss in the consolidated statement of operations and comprehensive loss to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss recorded would equal the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net earnings.
Depreciation and Amortization
We are required to make subjective assessments as to the useful lives of the components of our real estate investments for purposes of determining the amount of depreciation to record on an annual basis. These assessments have a direct impact on our results from operations because if we were to shorten the expected useful lives of our real estate investments, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower earnings on an annual basis.
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests (a “leasehold interest” is a right to enjoy the exclusive possession and use of an asset or property for a stated definite period as created by a written lease).
The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining periods of the respective leases.
The value of customer relationship intangibles, if any, is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.
Assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.
Above and Below-Market Lease Amortization
Capitalized above-market lease values are amortized as a reduction of revenue from tenants over the remaining terms of the respective leases and the capitalized below-market lease values are amortized as an increase to revenue from tenants over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. If a tenant with a below-market rent renewal does not renew, any remaining unamortized amount will be taken into income at that time.
Capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods.
Upon termination of an above or below-market lease any unamortized amounts would be recognized in the period of termination.
Equity-Based Compensation
We have a stock-based plan under which our directors, officers and other employees of the Advisor or its affiliates who are involved in providing services to us are eligible to receive awards. Awards granted thereunder are accounted for under the guidance for employee share based payments. The cost of services received in exchange for these stock awards is measured at the grant date fair value of the award and the expense for such an award is included in the equity-based compensation line item of the consolidated statements of operations and is recognized in accordance with the service period (i.e., vesting) required or when the requirements for exercise of the award have been met.
Effective at the listing of the our Class A common stock, $0.01 par value per share (“Class A common stock”) on The Nasdaq Global Select Market (“Nasdaq”) on July 19, 2018 (the “Listing Date”), we entered into the 2018 OPP under which the LTIP Units were issued to the Advisor. These awards were market-based awards with a related required service period. In accordance with ASC 718, the LTIP Units were valued at their grant date and that value is reflected as a charge to earnings evenly over the service period. The cumulative expense was reflected as part of non-controlling interest in our balance sheets and statements of equity until the end of the service period. Following the end of the performance period under the 2018 OPP on July 19, 2021, the compensation committee of our board of directors determined that none of the 4,496,796 of the LTIP Units subject to the 2018 OPP had been earned, and these LTIP Units were thus automatically forfeited. On that date, we reclassified amounts reflected in non-controlling interest for these LTIP Units to additional paid in capital on its balance sheet and statement of equity.
On May 4, 2021, our independent directors, authorized the issuance of a new award of LTIP Units effective after the performance period under the 2018 OPP expired on July 19, 2021, with the number of LTIP Units to be issued to the Advisor to be equal to the quotient of $72.0 million divided by the 10-trading day trailing average closing stock price of our Class A common stock for the ten trading days up to and including July 19, 2021. On July 21, 2021, we entered into the 2021 OPP pursuant to which the Advisor was granted an award of 8,528,885 LTIP Units, representing the quotient of $72.0 million divided by $8.4419. As a result, the LTIP Units issued under the 2021 OPP classified as an equity award with the cumulative expense reflected as part of non-controlling interest in our consolidated balance sheets and equity statements.
In the event of a modification of any of the awards discussed above, any incremental increase in the value of the instrument measured on the date of the modification both before and after the modification, will result in an incremental amount to be reflected prospectively as a charge to earnings over the remaining service period.
For additional information on all of our equity-based compensation arrangements, see Note 13 - Equity-Based Compensation.
Recently Issued Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements to the consolidated financial statements in this Annual Report on Form 10-K for further discussion.
Leasing Activity
The following table summarizes our leasing activity during the year ended December 31, 2021:
Year Ended December 31, 2021
(In thousands)
Number of Leases Rentable Square Feet Annualized SLR [1] prior to Lease Execution/Renewal
Annualized SLR [1] after Lease Execution/Renewal
Costs to execute leases Costs to execute leases - per square foot
New leases [2]
50 412,856 $ - $ 3,660 $ 2,237 $ 5.42
Lease renewals/amendments [2]
141 1,298,317 17,153 16,478 1,483 1.14
Lease terminations [3]
24 116,816 2,901 - - -
__________
[1]Annualized rental income on a straight-line basis as of December 31, 2021. Represents the GAAP basis annualized straight-line rent that is recognized over the term on the respective leases, which includes free rent, periodic rent increases, and excludes recoveries.
[2]New leases reflect leases in which a new tenant took possession of the space during the year ended December 31, 2021, excluding new property acquisitions. Lease renewals/amendments reflect leases in which an existing tenant executed terms to extend the term or change the rental terms of the lease during the year ended December 31, 2021. This excludes leases modifications for deferrals/abatements in response to COVID-19 negotiations which qualify for FASB relief. For more information see Overview - Management Update on the Impacts of the COVID-19 Pandemic - Management’s Actions.
[3]Represents leases that were terminated prior to their contractual lease expiration dates.
Results of Operations
In December 2021, we signed a purchase and sale agreement to acquire 79 multi-tenant retail centers and two single-tenant properties (the “CIM Portfolio Acquisition”), representing a strategic shift away from a sole focus on single-tenant retail properties. Accordingly, we now operate in two reportable business segments for management and internal financial reporting purposes. In our single-tenant operating segment, we own, manage and lease single-tenant properties where tenants are required to pay for property operating expenses, which may be subject to expense exclusions and floors, in addition to base rent. In our multi-tenant operating segment, we own, manage and lease multi-tenant properties where we generally pay for the property operating expenses for those properties and most of our tenants are required to pay their pro rata share of property operating expenses.
Below is a discussion of our results of operations for the years ended December 31, 2021 and 2020. Please see the “Results of Operations” section located on page 45 under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 for comparison of our results of operations for the years ended December 31, 2020 to 2019.
In addition to the comparative year over year discussion below, please see the “Overview - Management Update on the Impacts of the COVID-19 Pandemic” section above for additional information on the risks and uncertainties associated with the COVID-19 pandemic and management’s action taken to mitigate those risks and uncertainties.
Same Store Properties
Information based on Same Store, Acquisitions and Dispositions (as each are defined below) allows us to evaluate the performance of our portfolio based on a consistent population of properties owned for the entire period of time covered. As of December 31, 2021, we owned 976 properties. There were 802 properties (our “2020-2021 Same Store”) owned for the entire years ended December 31, 2021 and 2020 which were 92.4% leased as of December 31, 2021. Since January 1, 2020 and through December 31, 2021, we acquired 176 properties (our “Acquisitions Since January 1, 2020”)which were 100% leased as of December 31, 2021, and disposed of 19 properties (our “Disposals Since January 1, 2020”).
Number of Properties
Number of properties, December 31, 2019 819
Acquisition activity during the year ended December 31, 2020 107
Disposition activity during the year ended December 31, 2020 (6)
Number of properties, December 31, 2020 920
Acquisition activity during the year ended December 31, 2021 69
Disposition activity during the year ended December 31, 2021 (13)
Number of properties, December 31, 2021 976
Number of Same Store Properties 802
Comparison of the Year Ended December 31, 2021 to 2020
Net loss attributable to common stockholders was $63.4 million and $46.7 million for the year ended December 31, 2021 and 2020, respectively. The following table shows our results of operations for the years ended December 31, 2021 and 2020 and the year to year change by line item of the consolidated statements of operations:
Year Ended December 31, Increase / (Decrease)
2021 2020 $
Revenue from tenants $ 335,156 $ 305,224 $ 29,932
Operating expenses:
Asset management fees to related party 32,804 27,829 4,975
Property operating expense 55,431 52,296 3,135
Impairment of real estate investments 33,261 12,910 20,351
Acquisition, transaction and other costs 4,378 2,921 1,457
Equity-based compensation 17,264 13,036 4,228
General and administrative 20,856 19,683 1,173
Depreciation and amortization 130,464 137,459 (6,995)
Total operating expenses
294,458 266,134 28,324
Operating income before gain on sale of real estate investments 40,698 39,090 1,608
Gain on sale/exchange of real estate investments 4,757 6,456 (1,699)
Operating income 45,455 45,546 (91)
Other (expense) income:
Interest expense (81,784) (78,467) (3,317)
Other income 91 1,024 (933)
Loss on non-designated derivatives (3,950) (9) (3,941)
Total other expense, net
(85,643) (77,452) (8,191)
Net (loss) income (40,188) (31,906) (8,282)
Net loss (income) attributable to non-controlling interests 9 44 (35)
Allocation for preferred stock (23,262) (14,788) (8,474)
Net loss attributable to common stockholders (63,441) (46,650) (16,791)
Net Loss Attributable to Common Stockholders
Net loss attributable to common stockholders decreased $16.8 million to $63.4 million for the year ended December 31, 2021 from $46.7 million for the year ended December 31, 2020. The change in net loss attributable to common stockholders is discussed in detail for each line item of the consolidated statements of operations and comprehensive loss in the sections that follow.
Net Operating Income
Net operating income (“NOI”) is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate portfolio. NOI is equal to revenue from tenants less property operating expense. NOI excludes all other financial statement amounts included in net loss attributable to stockholders. We believe NOI provides useful and relevant information because it reflects only those income and expense items that are incurred at the property level and presents such items on an unlevered basis. See “Non-GAAP Financial Measures” included elsewhere in this Annual Report for additional disclosure and a reconciliation to our net loss attributable to stockholders.
Segment Results - Single-Tenant Properties
The following table presents the components of NOI and the period change within the single-tenant segment for the years ended December 31, 2021 and December 31, 2020:
Segment Same Store (1) (2)
Acquisitions (3)
Disposals (4)
Segment Total (5)
Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease)
2021 2020 $ 2021 2020 $ 2021 2020 $ 2021 2020 $
Revenue from tenants $ 187,856 $ 181,263 $ 6,593 $ 26,213 $ 9,244 $ 16,969 $ 4,875 $ 1,355 $ 3,520 $ 218,944 $ 191,862 $ 27,082
Less: Property operating expenses 10,728 9,654 1,074 1,053 239 814 224 294 (70) 12,005 10,187 1,818
NOI $ 177,128 $ 171,609 $ 5,519 $ 25,160 $ 9,005 $ 16,155 $ 4,651 $ 1,061 $ 3,590 $ 206,939 $ 181,675 $ 25,264
__________
[1]Includes the two properties exchanged during the year ended December 31, 2020 as we considered the substitution of new properties under the same master lease as a continuation of the same tenant relationship and therefore as part of our 2020-2021 Same Store. For additional information on real estate sales, see Note 3 - Real Estate Investments to our consolidated financial statements in this Annual Report on Form 10-K.
[2]Our single-tenant segment included 769 Same Store properties.
[3]Our single-tenant segment included 174 Acquisition properties.
[4]Our single-tenant segment included 19 Disposition properties.
[5]Our single-tenant segment included 943 properties.
Revenue from tenants in our single-tenant segment increased approximately $27.1 million to $218.9 million for the year ended December 31, 2021, compared to $191.9 million for the year ended December 31, 2020. This increase in revenue from tenants was due to the incremental increase in revenue from our Acquisitions Since January 1, 2020 of $17.0 million, an increase of our 2020-2021 Same Store properties of $6.6 million and an increase of our Disposals Since January 1, 2020 of $3.5 million.
The increase in our 2020-2021 Same Store revenue reflects the impact of termination fees recorded in the year ended December 31, 2021, totaling $11.2 million in net termination fee income ($3.6 million of which related to our Disposals Since January 1, 2020) as well as by an increase of $2.1 million of operating expense reimbursement revenue.
These increases were partially offset by $2.7 million of lower revenue due to the expiration of our United Healthcare lease, which was not renewed on July 1, 2021 and had annual rents of $5.4 million prior to its expiration, as well as by and increase of $0.8 million in bad debt expense recorded during the year ended December 31, 2021 as compared to the year ended December 31, 2020.
Property operating expenses primarily consist of the costs associated with maintaining our properties including real estate taxes, utilities, and repairs and maintenance. Property operating expense increased $1.8 million to $12.0 million for the year ended December 31, 2021, compared to $10.2 million for the year ended December 31, 2020. This increase was primarily driven by increases from our 2020-2021 Same Store properties of $1.1 million, an increase of $0.8 million from our Acquisitions Since January 1, 2020, partially offset by a decrease of $0.1 million from our Disposals Since January 1, 2020.
Segment Results - Multi-Tenant Properties
The following table presents the components of NOI and the period change within the multi-tenant segment for the years ended December 31, 2021 and December 31, 2020:
Segment Same Store (1)
Acquisitions (2)
Disposals (3)
Segment Total (4)
Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease)
2021 2020 $ 2021 2020 $ 2021 2020 $ 2021 2020 $
Revenue from tenants $ 116,212 $ 113,362 $ 2,850 $ - $ - $ - $ - $ - $ - $ 116,212 $ 113,362 $ 2,850
Less: Property operating expenses 43,426 42,109 1,317 - - - - - - 43,426 42,109 1,317
NOI $ 72,786 $ 71,253 $ 1,533 $ - $ - $ - $ - $ - $ - $ 72,786 $ 71,253 $ 1,533
__________
[1]Our multi-tenant segment included 33 Same Store Properties.
[2]Our multi-tenant segment did not have any Acquisition properties.
[3]Our multi-tenant segment did not have any Disposition properties.
[4]Our multi-tenant segment included 33 properties.
Revenue from tenants in our multi-tenant segment increased approximately $2.9 million to $116.2 million for the year ended December 31, 2021, compared to $113.4 million for the year ended December 31, 2020.
The increase in our 2020-2021 Same Store revenue reflects an increase of net termination fee income of $0.7 million to $1.1 million for the year ended December 31, 2021 compared to $0.4 million for the year ended December 31, 2020, as well as a decrease in bad debt expense of $5.7 million. The higher bad debt expense in the year ended December 31, 2020 was due to our assessment of receivables due from tenants which have been most significantly impacted by the COVID-19 pandemic.
These increases were partially offset by $1.9 million of below market lease intangible liability write-offs for the year ended December 31, 2020 pertaining to two multi-tenant lease terminations, which were recorded as an addition to revenue from tenants. In addition, although occupancy in our multi-tenant segment has improved throughout the year ended December 31, 2021, we recorded $1.9 million of less revenue as a result of renewing multi-tenant lease agreements at lesser rates.
Property operating expenses primarily consist of the costs associated with maintaining our properties including real estate taxes, utilities, and repairs and maintenance. Property operating expense increased $1.3 million to $43.4 million for the year ended December 31, 2021, compared to $42.1 million for the year ended December 31, 2020.
Other Results of Operations
Asset Management Fees to Related Party
Asset management fees paid to the Advisor increased $5.0 million to $32.8 million for the year ended December 31, 2021, compared to $27.8 million for the year ended December 31, 2020, primarily due to an increase of $2.1 million in the variable portion of the base management fee due to our increased equity issuances during 2021 and 2020 (which begin to impact the fee in the month succeeding the capital raise) and an increase of $2.9 million incentive variable management fees.
The variable portion of the base management fee is calculated on a monthly basis and is equal to one-twelfth of 1.25% of the cumulative net proceeds of any equity raised by us (including, among other things, common stock, preferred stock and certain convertible debt but excluding among other things, equity based compensation) from and after February 16, 2017. The variable portion of the base management fee will increase in connection with future issuances of equity securities.
In light of the unprecedented market disruption resulting from the COVID-19 pandemic, in March 2020, we agreed with the Advisor to amend the advisory agreement to temporarily lower the quarterly thresholds we must reach on a quarterly basis for the Advisor to receive the variable incentive management fee through the end of 2020, and in January 2021, we agreed with the Advisor to further amend the advisory agreement to extend the expiration of these thresholds through the end of 2021. We incurred $3.0 million of variable incentive management fees in the year ended December 31, 2021 and $0.1 million of variable incentive management fees were earned incurred during the year ended December 31, 2020. Please see Note 11 - Related Party Transactions and Arrangements to our consolidated financial statements included in this Annual Report on Form 10-K for more information on fees incurred from the Advisor.
Impairment Charges
We recorded $33.3 million of impairment charges for the year ended December 31, 2021, related to one single-tenant property formerly leased to United Healthcare and eight vacant single-tenant properties leased to Truist Bank located across various states. The United Healthcare property has been vacant since June 30, 2021 when the tenant did not renew their lease. We have evaluated local market conditions and considered various alternative plans for this property. Due to weak local market conditions, expected sustained vacancy of this property as either a single-tenant or multi-tenant property, as well as an increased probability of sale, we determined that the property was impaired. We recorded an impairment of $26.9 million to adjust the property’s carrying value to its estimated fair value. Of the Truist properties, seven were impaired to adjust the properties to their fair values as determined by their respective purchase and sales agreements or non-binding letters of intents, and one property was impaired to adjust its carrying value to its fair value as determined by the income approach.
We recorded $12.9 million of impairment charges for the year ended December 31, 2020, $11.5 million of which related to one of our multi-tenant held-for-use properties, and $1.4 million of which related to three of our single-tenant held-for-use properties one of which was under contract to be sold at a price lower than the carrying value and two of which had experienced recent performance declines.
See Note 3 - Real Estate Investments to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
Acquisition, Transaction and Other Costs
Acquisition, transaction and other costs increased $1.5 million to $4.4 million for the year ended December 31, 2021, compared to $2.9 million for the year ended December 31, 2020. The increase was due to prepayment penalties on three mortgage notes which were fully repaid in the year ended December 31, 2021, totaling $4.0 million. Prepayment charges on mortgages were $0.8 million during the years ended December 31, 2020. This increase was partially offset by transaction costs associated with our Credit Facility Amendment and dead deals which totaled $1.0 million in the year ended December 31, 2020 which did not occur in the year ended December 31, 2021, as well as decreased litigation costs of $0.7 million.
Equity-Based Compensation
Equity-based compensation increased by approximately $4.2 million to $17.3 million for the year ended December 31, 2021 compared to $13.0 million for the year ended December 31, 2020. This increase was primarily due to additional non-cash equity-based compensation expense from the 2021 OPP and additional non-cash equity based compensation expense from a new grant of restricted shares in the second quarter of 2021 as well as an amendment to the original award agreement on February 26, 2021 for restricted shares previously issued to our former chief financial officer (see additional details below).
Our independent directors authorized the issuance of a new award of LTIP Units on May 4, 2021 which was subsequently issued to the Advisor under the 2021 OPP after the performance period under the 2018 OPP expired on July 19, 2021. The year ended December 31, 2021 includes expenses for both the 2018 OPP and the 2021 OPP.
In addition, there were higher equity-based compensation expenses for restricted shares recorded in the year ended December 31, 2021 which was due to new grants as well as an amendment to the original award agreement on February 26, 2021 for restricted shares previously issued to our former chief financial officer which accelerated the vesting of those restricted shares on April 9, 2021 upon the effectiveness of her resignation. These restricted shares were scheduled to vest in 25% increments on each of the first four anniversaries of the grant date (September 15, 2020). Also, we recorded additional expense for the excess of the new value of those awards on the date of modification over the fair value of the awards immediately prior to the amendment. In addition, we granted our former chief financial officer an additional award of restricted shares that also fully vested upon the effectiveness of her resignation April 9, 2021, contributing to the increase to equity-based compensation expense recorded during the year ended December 31, 2021. The acceleration of vesting of the prior grant and the new grant resulted in approximately $1.1 million of increased equity-based compensation expense recorded during the year ended December 31, 2021.
For additional details on our restricted shares and the 2021 OPP, see Note 13 - Equity-Based Compensation to our consolidated financial statements included in this Annual Report on Form 10-K.
General and Administrative Expense
General and administrative expense increased $1.2 million to $20.9 million for the year ended December 31, 2021, compared to $19.7 million for the year ended December 31, 2020. The increase was primarily due to professional fees and other miscellaneous general and administrative costs of $1.5 million, which includes an increase of $0.2 million related to COVID-related lease disputes.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $7.0 million to $130.5 million for the year ended December 31, 2021, compared to $137.5 million for the year ended December 31, 2020. Depreciation and amortization expense was impacted by a decrease of $13.4 million from our 2020-2021 Same Store properties and a decrease of $0.8 million from our Disposals Since January 1, 2020 partially offset by an increase of $7.2 million resulting from our Acquisitions Since January 1, 2020.
The decrease in our 2020-2021 Same Store depreciation was primarily due to the write-off of tenant improvements at one of our properties. During the second quarter of 2020, a tenant in the health club business declared bankruptcy and vacated its space. We were in the process of funding improvements that were being made to the space for the tenant. We determined that certain of the improvements no longer had any value in connection with any foreseeable replacement tenant and wrote off approximately $3.1 million which is recorded in depreciation and amortization expense in the consolidated statement of operations. The decrease was also attributable to the expiration of our United Healthcare lease on June 30, 2021, which reduced our amortization expense by $1.0 million in the year ended December 31, 2021 compared to the year ended December 31, 2020. Lastly, the decrease was attributable to leasing intangible write-offs during the year ended December 31, 2020 related to a tenant’s lease termination at 19 of our properties totaling $3.0 million which did not occur in the year ended December 31, 2021.
Gain on Sale/Exchange of Real Estate Investments
During the year ended December 31, 2021, we sold 13 properties for an aggregate contract price of $18.9 million, resulting in aggregate gains on sale of $4.8 million.
During the year ended December 31, 2020, we sold six properties for an aggregate contract price of $13.3 million, resulting in aggregate gains on sale of $4.3 million. In addition, we recorded a $2.2 million gain related to a non-monetary exchange of two properties then owned by us for two different properties not then owned by us pursuant to a tenant’s exercise of its right to substitute properties under its lease, resulting in a total gain on sale of $6.5 million recorded in our consolidated statements of operations and comprehensive loss income.
For additional information on real estate sales, see Note 3 - Real Estate Investments to our consolidated financial statements included in this Annual Report on Form 10-K.
Interest Expense
Interest expense increased $3.3 million to $81.8 million for the year ended December 31, 2021, compared to $78.5 million for the year ended December 31, 2020. This increase was primarily due to the issuance of $500.0 million in 4.50% per annum Senior Notes on October 7, 2021 which accrued interest of $5.3 million through the end of 2021, as well as higher average outstanding balances on our mortgage notes payable and increased amortization of deferred financing costs of $4.5 million, partially offset by lower average outstanding balances on our Credit Facility and lower interest rates and lower costs incurred during 2021 related to debt repayments and refinancings. In addition, we terminated a non-designated interest swap agreement on October 7, 2021 and received $2.1 million after settlement. This amount was recorded as a reduction of interest expense during the year ended December 31, 2021.
During the year ended December 31, 2021 and 2020, the average outstanding balances on our mortgage notes payable were $1.6 billion and $1.4 billion, respectively, and our average outstanding balance under our Credit Facility was $175.9 million and $376.0 million, respectively. For the year ended December 31, 2021 and 2020, the weighted-average interest rates on our mortgage notes payable were 3.88% and 4.28%, with the decline reflecting in part, our refinancing activity during the third quarter of 2020, and the weighted-average interest rates on our Credit Facility were 2.71% and 2.86%, respectively.
Other Income
Other income was $0.1 million for the year ended December 31, 2021, primarily comprised of interest income on our cash deposits.
Other income was $1.0 million for the year ended December 31, 2020, primarily comprised of the receipt of approximately $0.8 million of funds disbursed to us for permitting the early release of a pre-acquisition tenant improvement escrow account, which had not been previously funded by us, in connection with the release of a mortgage loan encumbering a property as part of refinancing the mortgage loan in September 2020 (see Note 4 - Mortgage Notes Payable to our consolidated financial statements included in this Annual Report on Form 10-K). Additionally, $0.1 million relates to interest income on our bank deposits, and $0.1 million relates to other miscellaneous income, including $9,000 of insurance reimbursements related to the Merger.
Loss on Non-Designated Derivatives
Loss on non-designated derivative instruments was $4.0 million for the year ended December 31, 2021 and related to the change in fair value of an embedded derivative within the PSA for the CIM Portfolio Acquisition. The loss was recorded to account for the decrease in fair value of the equity offered in the PSA from December 17, 2021, the date of the PSA, until December 31, 2021. Loss on non-designated derivative instruments was immaterial for the year ended December 31, 2020, and relates to an interest rate cap on a mortgage note payable entered into in the fourth quarter of 2020 that is designed to protect us from adverse interest rate changes. For additional information, see Note 4 - Mortgage Notes Payable, Note 8 - Derivatives and Hedging Activities and Note 16 - Subsequent Events to our consolidated financial statements included in this Annual Report on Form 10-K.
Cash Flows from Operating Activities
The level of cash flows provided by or used in operating activities is affected by the rental income generated from leasing activity, including leasing activity due to acquisitions and dispositions, restricted cash we are required to maintain, the timing of interest payments, the receipt of scheduled rent payments and the level of property operating expenses.
Cash flows provided by operating activities of $145.2 million during the year ended December 31, 2021 and consisted of a net loss of $40.2 million, adjusted for non-cash items of $187.3 million, including depreciation and amortization of tangible and intangible real estate assets, amortization of deferred financing costs, amortization of mortgage premiums on borrowings, equity-based compensation, gain on sale of real estate investments and impairment charges. In addition, cash flows from operating activities was impacted by an increase in straight-line rent receivable of $7.0 million which primarily related to COVID-19 related lease amendments and acquisitions, an increase in prepaid expenses and other assets of $4.6 million, a decrease in accounts payable and accrued expenses of $5.8 million and a decrease in deferred rent and other liabilities of $0.3 million as well as by prepayment costs on mortgages of $4.0 million.
Cash flows provided by operating activities of $92.7 million during the year ended December 31, 2020 and consisted of a net loss of $31.9 million, adjusted for non-cash items of $157.7 million, including depreciation and amortization of tangible and intangible real estate assets, amortization of deferred financing costs, amortization of mortgage premiums on borrowings, equity-based compensation, gain on sale of real estate investments and impairment charges. In addition, cash flows from operating activities was impacted by an increase in straight-line rent receivable of $19.8 million which primarily related to COVID-19 related lease amendments and acquisitions, an increase in prepaid expenses and other assets of $9.1 million, a decrease in accounts payable and accrued expenses of $3.8 million and a decrease in deferred rent and other liabilities of $0.6 million.
Cash Flows from Investing Activities
The net cash used in investing activities during the year ended December 31, 2021 of $220.7 million consisted primarily of cash paid for investments in real estate and other assets of $182.2 million, capital expenditures of $13.4 million and deposits for real estate acquisitions of $41.8 million, partially offset by cash received from the sale of real estate investments (net of mortgage loans repaid) of $16.6 million.
The net cash used in investing activities during the year ended December 31, 2020 of $223.0 million consisted primarily of cash paid for investments in real estate and other assets of $220.4 million and capital expenditures of $9.2 million, partially offset by cash received from the sale of real estate investments (net of mortgage loans repaid) of $6.7 million and deposits for real estate acquisitions of $0.1 million.
Cash Flows from Financing Activities
The net cash provided by financing activities of $199.0 million during the year ended December 31, 2021 consisted primarily of proceeds from the issuance of the Senior Notes of $500.0 million, net proceeds from the issuance of Class A common stock of $128.4 million, net proceeds received from the issuance of Series A Preferred Stock of $1.9 million and net proceeds received from the issuance of Series C Preferred Stock of $25.5 million, partially offset by net payments of mortgage refinancings of $23.9 million, net repayments on our Credit Facility of $280.9 million, cash dividends paid to holders of Class A common stock of $97.5 million, cash dividends paid to holders of Series A Preferred Stock of $14.8 million, cash dividends paid to holders of Series C Preferred Stock of $6.5 million and payments of financing costs of $28.2 million.
The net cash provided by financing activities of $143.8 million during the year ended December 31, 2020 consisted primarily of net proceeds from mortgage refinancings of $210.8 million, net proceeds received from the issuance of Series A Preferred Stock of $22.5 million and net proceeds received from the issuance of Series C Preferred Stock of $85.4 million, partially offset by net repayments on our Credit Facility of $52.3 million, cash dividends paid to holders of Class A common stock of $76.0 million, cash dividends paid to holders of Series A Preferred Stock of $14.2 million and payments of financing costs of $30.9 million.
Liquidity and Capital Resources
Our principal demands for cash are to fund operating and administrative expenses, debt service obligations, dividends on our Class A common stock, dividends on our Series A Preferred Stock, dividends on our Series C Preferred Stock, distributions on our LTIP Units and distributions for limited partnership units that correspond to shares of our Class A common stock, and capital expenditures. In addition, our demand for cash includes the purchase of additional properties.
CIM Portfolio Acquisition
In December 2021, we signed a purchase and sale agreement for the CIM Portfolio Acquisition, which consists of 79 multi-tenant retail centers and two single-tenant properties, for a contract purchase price of $1.3 billion. On February 11, 2022, we acquired 44 properties in the first tranche of the CIM Portfolio Acquisition consisting of 44 power center and grocery-anchored multi-tenant retail centers and a detention pond parcel located across 17 states and aggregating approximately 4.5 million square feet for an aggregate contract purchase price of $547.4 million. We funded the closing of the first tranche with cash of $350.7 million, which included net proceeds from the approximately $260.7 million sale of our Sanofi property and remaining proceeds from our Senior Notes offering, borrowings under our Credit Facility of $170.0 million and the issuance of 3,264,693 shares of our Class A common stock, representing consideration of $26.7 million, which were issued at a price of $8.18 per share.
We currently expect to close on the CIM Portfolio Acquisition in successive tranches by the end of March 2022 and add any unencumbered assets from these tranches to the borrowing base of our Credit Facility. We expect to fund the remainder of the tranches with additional borrowings under our Credit Facility of approximately $320.0 million, assumed mortgages of $348.7 million, the issuance of $26.7 million of our Class A common stock, the application of our previously funded deposit of $40.0 million and the remainder with cash on hand.
Short-Term Material Cash Requirements
As of December 31, 2021 and 2020, we had cash and cash equivalents of $214.9 million and $102.9 million, respectively. On October 1, 2021, we entered into an amendment and restatement of the Credit Facility with BMO Harris Bank N.A., as administrative agent, and the other lender parties thereto. Upon the closing of the Senior Notes (as defined below) on October 7, 2021, we repaid the outstanding balance of $186.2 million under the Credit Facility. As of December 31, 2021, we had $214.3 million available for future borrowings under our Credit Facility.
With the exception of the CIM Portfolio Acquisition (funding details described in detail above), we expect to fund our future short-term material cash requirements through a combination of cash on hand, net cash provided by our property operations and proceeds from our Credit Facility. Pursuant to our Credit Facility, we are restricted from using proceeds from borrowings under the Credit Facility to accumulate or maintain cash or cash equivalents in excess of amounts necessary to meet current working capital requirements. We may also generate additional liquidity through property dispositions and, to the extent available, secured or unsecured borrowings including the issuance of additional Senior Notes or similar securities, our “at the market” equity offering program for Class A common stock (the “Class A Common Stock ATM Program”), our “at the market” equity offering program for Series A Preferred Stock (the “Series A Preferred Stock ATM Program”), our “at the market” equity offering program for Series C Preferred Stock (the “Series C Preferred Stock ATM Program”), or other offerings of debt or equity securities.
Deleveraging Initiative
In May, 2021, we began a deleveraging initiative to reduce our net debt relative to our earnings. We hope to achieve this initiative by:
•reducing outstanding debt over time;
•funding acquisitions through cash on hand rather than proceeds from debt, or at lower debt-to-equity ratios;
•raising equity to fund acquisitions and pay down debt; and
•increasing revenues through external and internal growth factors such as property acquisitions and multi-tenant leasing activity.
The CIM Portfolio Acquisition will increase our leverage in the first quarter of 2022, however, we plan to continue with our deleveraging strategy after the completion of the CIM Portfolio Acquisition. However, we may issue additional Senior Notes or similar securities in the future particularly as we revise our capital structure following the CIM Portfolio Acquisition in a similar fashion as we may add or refinance existing mortgage debt or indebtedness under our Credit Facility.
Mortgage Notes Payable, Credit Facility and Senior Notes - December 31, 2021
As of December 31, 2021, we had $1.5 billion of gross mortgage notes payable outstanding, $500.0 million of gross Senior Notes outstanding and no balance outstanding under our Credit Facility, for total gross debt of $2.0 billion. Of our total gross debt, 100.0% was fixed-rate, however, after completing the first tranche of the CIM Portfolio Acquisition, we incurred $170.0 million of variable-rate debt outstanding under our Credit Facility, and we expect to incur an additional $320.0 million through March 2022 to complete the transaction.
As of December 31, 2021, our net debt to gross asset value ratio was 40.0%. We define net debt as the principal amount of our outstanding debt (excluding the effect of deferred financing costs, net and mortgage premiums and discounts, net) less cash and cash equivalents. Gross asset value is defined as total assets plus accumulated depreciation and amortization. As of December 31, 2021, the weighted-average interest rates on the mortgage notes payable, Credit Facility and Senior Notes were 3.8%, 0.0% (no amounts outstanding) and 4.5%, respectively. At the closing of the first tranche of the CIM Portfolio Acquisition on February 11, 2022 we did not assume any mortgage debt, and we expect to assume $348.7 million of fixed-rate mortgage debt after the closing of the remaining tranches by the end of March 2022.
As of December 31, 2021, we had $3.9 billion in real estate investments, at cost and we had pledged approximately $2.4 billion of these real estate investments, at cost, as collateral for our mortgage notes payable. In addition, approximately $1.3 billion of these real estate investments, at cost, were included in the unencumbered asset pool comprising the borrowing base under the Credit Facility which had a total borrowing capacity thereunder of $214.3 million. Therefore, this real estate is only available to serve as collateral or satisfy other debts and obligations if it is first removed from the borrowing base under the Credit Facility, which would reduce the amount available to us on the Credit Facility.
At the closing of the first tranche of the CIM Portfolio Acquisition on February 11, 2022, we borrowed $170.0 million under the Credit Facility. Although this exceeded our borrowing capacity after disposing of our Sanofi property, we were permitted to pledge certain of the assets acquired at the closing of the first tranche of CIM Portfolio Acquisition onto the Credit Facility’s borrowing base. We expect to pledge additional acquired properties at the closing of the remaining tranches of the CIM Portfolio Acquisition and borrow approximately $320.0 million under the Credit Facility to fund a portion of the closing of the remaining tranches of the CIM Portfolio Acquisition.
The Senior Notes are fully and unconditionally guaranteed (the “Senior Note Guarantees”) on a joint and several basis by the subsidiaries of each Issuer (defined below) that are guarantors under the Credit Facility. Subject to certain exceptions, each future subsidiary of each Issuer that subsequently guarantees indebtedness under the Credit Facility, any other syndicated loan facility or any capital markets indebtedness, in each case, of the Issuers or a Guarantor will be required to execute a Senior Note Guarantee. Under certain circumstances, the Guarantors may be automatically released from their Senior Note Guarantees without the consent of the holders of Senior Notes.
Net Lease Mortgage Notes
On June 3, 2021, through subsidiaries, we issued $318.0 million aggregate principal amount of Net Lease Mortgage Notes (the “2021 Net Lease Mortgage Notes”). The 2021 Net Lease Mortgage Notes are cross-collateralized with the $242.0 million in aggregate principal amount of Net Lease Mortgage Notes issued through subsidiaries in 2019 (the “2019 Net Lease Mortgage Notes” and, together with the 2021 Net Lease Mortgage Notes, the “Notes”). The Notes were issued using a master trust structure, which enables additional series of notes to be issued upon the contribution of additional properties to the collateral pool without the need to structure a new securitization transaction. Any new notes that are so issued will be cross-collateralized with the Notes.
The 2021 Net Lease Mortgage Notes were issued in six classes: Class A-1 (AAA), Class A-2 (AAA), Class A-3 (A), Class A-4 (A), Class B-1 (BBB) and Class B-2 (BBB). The Class A-1 (AAA) Notes are rated AAA (sf) by Standard & Poors and are comprised of $55.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2028 and an interest rate of 2.21%. The Class A-2 (AAA) Notes are rated AAA (sf) by Standard & Poors and are comprised of $95.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2031 and an interest rate of 2.79%. The Class A-3 (A) Notes are rated A (sf) by Standard & Poors and are comprised of $35.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2028 and an interest rate of 3.03%. The Class A-4 (A) Notes are rated A (sf) by Standard & Poors and are comprised of $55.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2031 and an interest rate of 3.60%.
The Class B Notes are currently retained by the OP and are eliminated upon consolidation, and are therefore not presented in our consolidated financial statements. The Class B Notes may be sold to unaffiliated third parties in the future. The Class B-1 (BBB) Notes are rated BBB (sf) by Standard & Poors and are comprised of $30.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2028 and an interest rate of 4.02%. The Class B-2 (BBB) Notes are rated BBB (sf) by Standard & Poors and are comprised of $48.0 million initial principal amount of 2021 Net Lease Mortgage Notes with an anticipated repayment date in May 2031 and an interest rate of 4.58%. The 2021 Net Lease Mortgage Notes have a rated final payment date in May 2051.
The 2019 Net Lease Mortgage Notes were issued in two classes, Class A-1 (AAA) and Class A-2 (A). The Class A-1 (AAA) Notes are rated AAA (sf) by Standard & Poors and are comprised of $121.0 million initial principal amount of 2019 Net Lease Mortgage Notes with an anticipated repayment date in May 2026 and an interest rate of 3.78%. The Class A-2 (A) Notes are rated A (sf) by Standard & Poors and are comprised of $121.0 million initial principal amount of 2019 Net Lease Mortgage Notes with an anticipated repayment date in May 2029 with an interest rate of 4.46%. The 2019 Net Lease Mortgage Notes have a rated final payment date in May 2049.
The Notes may be redeemed at any time prior to their anticipated repayment date subject to payment of a make-whole premium. If any class of Notes is not paid in full at its respective anticipated repayment date, additional interest will begin to accrue on those Notes.
Patton Creek Mortgage
On June 28, 2021, we repaid the mortgage loan secured by our Patton Creek property in full using a portion of the proceeds from the issuance of the 2021 Net Lease Mortgage Notes. The mortgage loan had a principal balance of $34.0 million and bore interest at a floating interest rate of one-month LIBOR plus 4.25% and was scheduled to mature on December 6, 2021.
SAAB Sensis and Shops at Shelby Crossing Mortgages
On September 23, 2021, we repaid the mortgage loan secured by our SAAB Sensis and Shops at Shelby Crossing properties using proceeds from borrowings under the Credit Facility. The mortgage loan on the SAAB Sensis property had a principal balance of $5.9 million, bore interest at 6.01% and was scheduled to mature in April 2025. The mortgage loan on the Shops at Shelby Crossing property had a principal balance of $21.3 million, bore interest at 4.97% and was scheduled to mature in March 2024.
Sanofi Mortgage
On October 7, 2021, we repaid the mortgage loan secured by our Sanofi property using proceeds from the issuance of the Senior Notes. The Sanofi mortgage had a principal balance of $125.0 million and bore interest at a floating interest rate of one-month LIBOR plus 2.9%, with the effective interest rate fixed at 3.27% by swap agreement. The loan was interest-only and scheduled to mature on September 4, 2025. Following the repayment of the Sanofi mortgage, we terminated our $125.0 swap agreement. The fair value of the swap upon termination was $2.1 million, which was settled in cash on October 19, 2021 and has been reflected as a reduction of interest expense in our consolidated statement of operations for the year ended December 31, 2021.
Credit Facility - Terms and Capacity
As of December 31, 2021, we had no amounts outstanding under our Credit Facility. As of December 31, 2020, we had $280.9 million outstanding.
On October 1, 2021, we entered into an amendment and restatement of the Credit Facility with BMO Harris Bank N.A., as administrative agent, and the other lender party thereto. The aggregate total commitments under the Credit Facility were increased to $815.0 million, including a $50.0 million sublimit for letters of credit and a $55.0 million sublimit for swingline loans. The Credit Facility includes an uncommitted “accordion feature” permitting us to increase the commitments under the Credit Facility by up to an additional $435.0 million, subject to obtaining commitments from new lenders or additional commitments from participating lenders and certain customary conditions.
The Credit Facility is supported by a pool of eligible unencumbered properties that are owned by the subsidiaries of the OP that serve as Guarantors. We may add or remove properties to or from this pool so long as at any time there are at least 15 eligible unencumbered properties with a value of at least $300.0 million, among other things. The amount available for future borrowings under the Credit Facility depends on the amount outstanding thereunder relative to the aggregate commitments; however, the amount we may borrow under the Credit Facility will be limited by financial maintenance covenants. At the execution of the amendment and restatement of the Credit Facility, $186.2 million was outstanding under the Credit Facility. This amount was subsequently repaid with a portion of the net proceeds of the Senior Notes.
The Credit Facility requires payments of interest only prior to maturity. At the execution of the amendment and restatement of the Credit Facility the interest rate was LIBOR plus 1.90% per annum. Following the amendment and restatement of the Credit Facility, borrowings bear interest at either (i) the Base Rate (as defined in the Credit Facility) plus an applicable spread ranging from 0.45% to 1.05%, or (ii) LIBOR plus an applicable spread ranging from 1.45% to 2.05%, in each case depending on the our consolidated leverage ratio. These spreads reflect a reduction from the previously applicable spreads. In addition, pursuant to the Credit Facility, (i) if either we or the OP achieves an investment grade credit rating, the OP can elect for the spread to be based on our credit rating of ours or the OP, and (ii) the “floor” on LIBOR was decreased from 0.25% to 0%. The Credit Facility includes provisions related to the anticipated transition from LIBOR to an alternative benchmark rate.
Through September 30, 2021, prior to the closing of the amendment and restatement of the Credit Facility on October 1, 2021, borrowings under our Credit Facility bore interest at either (i) the Base Rate (as defined in the Credit Facility) plus an applicable spread ranging from 0.60% to 1.20% depending on our consolidated leverage ratio or (ii) LIBOR plus an applicable margin ranging from 1.60% to 2.20%, depending on our consolidated leverage ratio. From July 24, 2020 until delivery of the compliance certificate for the fiscal quarter ended June 30, 2021, the margin was 1.50% with respect to the Base Rate and 2.50% with respect to LIBOR regardless of our consolidated leverage ratio. The “floor” on LIBOR was 0.25%. As of December 31, 2021 we have elected to use the LIBOR rate for all our borrowings under the Credit Facility.
The Credit Facility matures on April 1, 2026, subject to our right, subject to customary conditions, to extend the maturity date by up to two additional six-month terms. Borrowings under the Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty, subject to customary LIBOR breakage costs.
As of December 31, 2021, we were in compliance with the operating and financial covenants under the Credit Facility.
As of December 31, 2021, we had $214.3 million available for future borrowings, which included the Sanofi property as part of the unencumbered asset pool comprising the borrowing base of the Credit Facility. On January 6, 2022, we sold the Sanofi property and removed it from the borrowing base of the Credit Facility (see the Acquisitions and Dispositions - Subsequent to December 31, 2021 section below for additional details on the Sanofi sale).
At the closing of the first tranche of the CIM Portfolio Acquisition on February 11, 2022, we added certain acquired properties to the borrowing base of our Credit Facility and drew $170.0 million on our Credit Facility which was used at closing. After the closing of the first tranche of the CIM Portfolio Acquisition and the $170.0 million draw, we had approximately $250.1 million available for future borrowings under the Credit Facility. We expect to add additional acquired properties to the borrowing base of our Credit Facility at the closing of the remaining tranches of the CIM Portfolio Acquisition to further increase our borrowing availability. As a result, we expect to draw an additional $320.0 million on our Credit Facility to fund all of the remaining tranches of the CIM Portfolio Acquisition. After the closing of all tranches of the CIM Portfolio Acquisition, we expect to draw a total of approximately $490.0 million on our Credit Facility and we would have $325.0 million of potential availability remaining if we are able to reach the maximum commitment level of our Credit Facility, which is $815.0 million.
Issuance of Senior Notes
On October 7, 2021, we and the OP issued $500.0 million aggregate principal amount of 4.500% Senior Notes due 2028 (the “Senior Notes”). At closing, we used a portion of the net proceeds from the issuance of the Senior Notes, after deducting the initial purchasers’ discounts and offering fees and expenses, to repay amounts outstanding at the time under the Credit Facility of approximately $186.2 million and to repay a $125.0 million variable rate mortgage note secured by our property
leased to Sanofi (discussed below). We may use the remaining proceeds to fund future property acquisitions and for other general corporate purposes.
As of December 31, 2021, we were in compliance with the operating and financial covenants under the Senior Notes.
LIBOR Exposure
In July 2017, the Financial Conduct Authority (which regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR in derivatives and other financial contracts. On November 30, 2020, the Financial Conduct Authority announced a partial extension of this deadline, indicating its intention to cease the publication of the one-week and two-month USD LIBOR settings immediately following December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023.
While we expect LIBOR to be available in substantially its current form until at least the end of 2023, it is possible that LIBOR will become unavailable prior to that time. To transition from LIBOR under the Credit Facility, we will either utilize the Base Rate (as defined in the Credit Facility) or an alternative benchmark established by the agent in accordance with the terms of the Credit Facility, which will be SOFR if available or an alternate benchmark that is being widely used in the market at that time as selected by the agent. Please see the “Increasing interest rates could increase the amount of our debt payments and adversely affect our ability to pay dividends, and we may be adversely affected by uncertainty surrounding the LIBOR” section in Item 1A. Risk Factors for additional information.
Acquisitions and Dispositions - Year Ended December 31, 2021
One of our primary uses of cash during the year ended December 31, 2021 has been to acquire properties.
During the year ended December 31, 2021, we acquired 69 properties for an aggregate purchase price of $182.2 million, including capitalized acquisition costs. The acquisitions of 13 of these properties for $28.5 million, including capitalized acquisition costs, were completed during the three months ended December 31, 2021. The acquisitions during the quarter and year ended December 31, 2021 were funded through a combination of cash on hand, comprising a combination of draws on the Credit Facility, net proceeds from the issuance of the Senior Notes, proceeds from the issuance and sale of Class A common stock (discussed below), Series A Preferred Stock (discussed below), Series C Preferred Stock (discussed below) and proceeds from dispositions of properties (discussed below).
During the year ended December 31, 2021, we sold 13 properties, for an aggregate contract price of $18.9 million, excluding disposition related costs. We disposed of five properties during the three months ended December 31, 2021 for a contract purchase price of $12.9 million. In connection with sales made during the year ended December 31, 2021, we repaid approximately $1.1 million of mortgage debt and after all disposition related costs, net proceeds from these dispositions, classified as investing cash flows, were $16.6 million.
Acquisitions and Dispositions - Subsequent to December 31, 2021
Subsequent to December 31, 2021, we closed on the acquisition of three properties for an aggregate purchase price of $40.9 million. Excluded in our acquisitions completed subsequent to December 31, 2021 is the closing of the first tranche of the CIM Portfolio Acquisition, as previously discussed above. The Company expects to complete the transaction with the closing of the one or more tranches through March 2022.
Subsequent to December 31, 2021, we closed on the sale of three office buildings leased to Sanofi S.A. for a contract purchase price of $260.7 million (the “Sanofi Sale”). The proceeds from the Sanofi Sale were used to partially fund the closing of the first tranche of the CIM Portfolio Acquisition as discussed above. The assets sold in the Sanofi Sale were part of the unencumbered asset pool comprising the borrowing base of the Credit Facility as of December 31, 2021. We also disposed of five other single-tenant properties for an aggregate contract sale price of $4.6 million. These five properties were not encumbered by mortgages and were not part of the unencumbered asset pool comprising the borrowing base of the Credit Facility.
We have entered into two definitive purchase and sale agreements (“PSAs”) to acquire nine additional properties for an aggregate contract purchase price of approximately $17.8 million and a non-binding letter of intent (“LOI”) to acquire an additional 11 properties for approximately $45.3 million. We have entered into three PSAs to dispose of three properties for an aggregate contract sales price of $3.4 million and two LOIs to dispose of two properties for an aggregate contract sales price of $4.5 million. The PSAs are subject to conditions, and the LOI is non-binding. There can be no assurance we will complete any of these acquisitions on their contemplated terms, or at all. To fund the consideration required to complete these acquisitions, we anticipate using proceeds from future dispositions of properties, proceeds from borrowings (including borrowings under our Credit Facility) and net proceeds received from our Class A Common Stock ATM Program, Series A Preferred Stock ATM Program, and Series C Preferred Stock ATM Program.
ATM Programs
In May 2019, we established an “at the market” equity offering program for Class A common stock (the “Class A Common Stock ATM Program”), pursuant to which we may from time to time, offer, issue and sell to the public up to $200.0 million in shares of Class A common stock, through sales agents. We intend to use any net proceeds from these offerings for general corporate purposes, including funding property acquisitions, repaying outstanding indebtedness (including borrowings under our Credit Facility), and for working capital. During the year ended December 31, 2021, we sold 14,734,448 shares of Class A common stock through the Class A common stock ATM Program for gross proceeds of $130.6 million and net proceeds of $128.4 million, after commissions and fees paid of $2.2 million. During the three months ended December 31, 2021, we sold 277,611 shares of Class A common stock through the Class A common stock ATM Program for gross proceeds of $2.4 million and net proceeds of $2.3 million after commissions and fees paid of $0.1 million. Subsequent to December 31, 2021, we sold 2,761,711 shares of our Class A common stock through our Class A Common Stock ATM Program for gross proceeds of $24.9 million which will be used to repay debt obligations, including amounts outstanding under our Credit Facility.
In May 2019, we established an “at the market” equity offering program for Series A Preferred Stock (the “Series A Preferred Stock ATM Program”) pursuant to which we may, from time to time, offer, issue and sell to the public up to $100.0 million in shares of Series A Preferred Stock through sales agents. In January 2021, the aggregate amount that may be sold was increased to $200.0 million. During the year ended December 31, 2021, we sold 91,703 shares of Series A Preferred Stock through the Series A Preferred Stock ATM Program for gross proceeds of $2.3 million and net proceeds of $2.0 million, after commissions, fees and other costs incurred of $0.3 million. We did not sell any shares of Series A Preferred Stock during the three months ended December 31, 2021.
In January, 2021 we established an “at the market” equity offering program for Series C Preferred Stock (the “Series C Preferred Stock ATM Program”) pursuant to which we may, from time to time, offer, issue and sell to the public, through sales agents, shares of the Series C Preferred Stock having an aggregate offering price of up to $200.0 million. During the year ended December 31, 2021, we sold 1,058,798 shares of Series C Preferred Stock through the Series C Preferred Stock ATM Program for gross proceeds of $26.5 million and net proceeds of $25.5 million, after commissions, fees and other costs incurred of $1.0 million. We did not sell any shares of Series C Preferred Stock during the three months ended December 31, 2021.
Distribution Reinvestment Program
Our distribution reinvestment plan (“DRIP”) allows stockholders who have elected to participate in the DRIP to have dividends payable with respect to all or a portion of their shares of Class A common stock reinvested in additional shares of Class A common stock. Shares issued pursuant to the DRIP are, at our election, either (i) acquired directly from us, by issuing new shares, at a price based on the average of the high and low sales prices of Class A common stock on Nasdaq on the date of reinvestment, or (ii) acquired through open market purchases by the plan administrator at a price based on the weighted-average of the actual prices paid for all of the shares of Class A common stock purchased by the plan administrator with all participants’ reinvested dividends for the related quarter, less a per share processing fee. During the years ended December 31, 2021, 2020 and 2019, all shares acquired by participants pursuant to the Post-Listing DRIP were acquired through open market purchases by the plan administrator and not issued directly to stockholders by us.
Capital Expenditures and Construction in Progress
We invest in capital expenditures to enhance and maintain the value of our properties. We define revenue enhancing capital expenditures as improvements to our properties that we believe will result in higher income generation over time. Capital expenditures for maintenance are generally necessary, non-revenue generating improvements that extend the useful life of the property and are less frequent in nature. By providing this metric, we believe we are presenting useful information for investors that can help them assess the components of our capital expenditures that are expected to either grow or maintain our current revenue. Further detail related to our capital expenditures is as follows:
(In thousands) Year Ended December 31, 2021
Capital Expenditures
Revenue enhancing $ 12,911
Maintenance 2,049
Total Capital Expenditures 14,960
Leasing commissions 4,524
Total $ 19,484
_____
Also, as of December 31, 2021 and December 31, 2020, we had $1.5 million and $0.0 million, respectively, of construction in progress which is included in the prepaid expenses and other assets on the consolidated balance sheets.
Non-GAAP Financial Measures
This section discusses the non-GAAP financial measures we use to evaluate our performance, including Funds from Operations (“FFO”), Adjusted Funds from Operations (“AFFO”) and NOI. While NOI is a property-level measure, AFFO is based on our total performance and therefore reflects the impact of other items not specifically associated with NOI such as interest expense, general and administrative expenses and operating fees to related parties. Additionally, NOI as defined herein, does not reflect an adjustment for straight-line rent but AFFO does. A description of these non-GAAP measures and reconciliations to the most directly comparable GAAP measure, which is net income (loss), is provided below. Adjustments for unconsolidated partnerships and joint ventures are calculated to exclude the proportionate share of the non-controlling interest to arrive at FFO, AFFO and NOI attributable to stockholders.
Funds from Operations and Adjusted Funds from Operations
Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has promulgated a performance measure known as FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. FFO is not equivalent to net income or loss as determined under GAAP.
We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper and approved by the Board of Governors of NAREIT effective in December 2018 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from sales of certain real estate assets, gain and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for consolidated partially-owned entities (including our OP) and equity in earnings of unconsolidated affiliates are made to arrive at our proportionate share of FFO attributable to our stockholders. Our FFO calculation complies with NAREIT’s definition.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including inflation, interest rates, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation and certain other items may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, among other things, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Adjusted Funds from Operations
In calculating AFFO, we start with FFO, then we exclude certain income or expense items from AFFO that we consider to be more reflective of investing activities, such as non-cash income and expense items and the income and expense effects of other activities that are not a fundamental attribute of our day to day operating business plan, such as amounts related to litigation arising out of the merger with American Realty Capital-Retail Centers of America, Inc. in February 2017 (the “RCA Merger”). These amounts include legal costs incurred as a result of the litigation, portions of which have been and may in the future be reimbursed under insurance policies maintained by us. Insurance reimbursements are deducted from AFFO in the period of reimbursement. We believe that excluding the litigation costs and subsequent insurance reimbursements related to litigation arising out of the RCA Merger helps to provide a better understanding of the operating performance of our business. Other income and expense items also include early extinguishment of debt and unrealized gains and losses, which may not ultimately be realized, such as gains or losses on derivative instruments and gains and losses on investments. In addition, by excluding non-cash income and expense items such as amortization of above-market and below-market leases intangibles, amortization of deferred financing costs, straight-line rent, and share-based compensation related to restricted shares and the 2018 OPP from AFFO, we believe we provide useful information regarding those income and expense items which have a direct impact on our ongoing operating performance.
In calculating AFFO, we exclude certain expenses which under GAAP are characterized as operating expenses in determining operating net income (loss). All paid and accrued merger, acquisition and transaction related fees and certain other expenses negatively impact our operating performance during the period in which expenses are incurred or properties are acquired will also have negative effects on returns to investors, but are not reflective of our on-going performance. In addition,
legal fees and expense associated with COVID-19-related lease disputes involving certain tenants negatively impact our operating performance but are not reflective of our on-going performance. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income (loss). In addition, as discussed above, we view gains and losses from fair value adjustments as items which are unrealized and may not ultimately be realized and not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Excluding income and expense items detailed above from our calculation of AFFO provides information consistent with management’s analysis of our operating performance. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe AFFO provides useful supplemental information. By providing AFFO, we believe we are presenting useful information that can be used, among other things, to assess our performance without the impact of transactions or other items that are not related to our portfolio of properties. AFFO presented by us may not be comparable to AFFO reported by other REITs that define AFFO differently. Furthermore, we believe that in order to facilitate a clear understanding of our operating results, AFFO should be examined in conjunction with net income (loss) as presented in our consolidated financial statements. AFFO should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity or ability to pay dividends. FFO and AFFO for the year ended December 31, 2021 includes income from a lease termination fee of $10.4 million, which is recorded in Revenue from tenants in the consolidated statements of operations. While such termination payments occur infrequently, they represent cash income for accounting and tax purposes and as such management believes they should be included in both FFO and AFFO.
Accounting Treatment of Rent Deferrals/Abatements
The majority of the concessions granted to our tenants as a result of the COVID-19 pandemic are rent deferrals or temporary rent abatements with the original lease term unchanged and collection of deferred rent deemed probable (see the “Overview - Management Update on the Impacts of the COVID-19 Pandemic” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information). As a result of relief granted by the FASB and SEC related to lease modification accounting, rental revenue used to calculate Net Income and NAREIT FFO has not been, and we do not expect it to be, significantly impacted by these types of deferrals. In addition, since we currently believe that these deferral amounts are collectable, we have excluded from the increase in straight-line rent for AFFO purposes the amounts recognized under GAAP relating to these types of rent deferrals. Conversely, for abatements where contractual rent has been reduced, the reduction in revenue is reflected over the remaining lease term for accounting purposes but represents a permanent reduction in revenue and we have, accordingly, reduced our AFFO. For a detailed discussion of our revenue recognition policy, including details related to the relief granted by the FASB and SEC, see Note 2 - Significant Accounting Polices to our consolidated financial statements included in the Annual Report on Form 10-K.
The table below reflects the items deducted from or added to net loss in our calculation of FFO and AFFO for the periods presented:
Year Ended December 31,
(In thousands) 2021 2020
Net loss attributable to common stockholders (in accordance with GAAP)
$ (63,441) $ (46,650)
Impairment of real estate investments 33,261 12,910
Depreciation and amortization 130,464 137,459
Gain on sale/exchange of real estate investments (4,757) (6,456)
Proportionate share of adjustments for non-controlling interests to arrive at FFO (198) (228)
FFO attributable to stockholders [1]
95,329 97,035
Acquisition, transaction and other costs [2]
4,378 2,921
Litigation cost reimbursements related to the Merger [3]
- (9)
Legal fees and expenses - COVID-19 lease disputes [4]
422 269
Accretion of market lease and other intangibles, net (4,625) (6,149)
Straight-line rent (6,775) (19,510)
Straight-line rent (rent deferral agreements) [5]
(3,669) 4,649
Amortization of mortgage premiums and discounts on borrowings
(968) (2,126)
Loss on non-designated derivatives [6]
3,950 9
Equity-based compensation 17,264 13,036
Amortization of deferred financing costs, net [7]
12,733 7,846
Proportionate share of adjustments for non-controlling interests to arrive at AFFO
(26) (2)
AFFO attributable to common stockholders [1]
$ 118,013 $ 97,969
__________
[1]FFO and AFFO for the year ended December 31, 2021 have not been adjusted to exclude income from lease termination fees of $12.2 million, which is recorded in Revenue from tenants in the consolidated statements of operations. While such termination payments occur infrequently, they represent cash income for accounting and tax purposes and as such management believes they should be included in both FFO and AFFO.
[2]Includes primarily prepayment costs incurred in connection with early debt extinguishment as well as litigation costs related to the RCA Merger.
[3]Included in “Other income” in our consolidated statement of operations and comprehensive loss.
[4]Reflects legal costs incurred related to disputes with tenants due to store closures or other challenges resulting from COVID-19. The tenants involved in these disputes had not recently defaulted on their rent and, prior to the second and third quarters of 2020, had recently exhibited a pattern of regular payment. Based on the tenants involved in these matters, their history of rent payments, and the impact of the pandemic on current economic conditions, we view these costs as COVID-19-related and separable from our ordinary general and administrative expenses related to tenant defaults. We engaged counsel in connection with these issues separate and distinct from counsel we typically engage for tenant defaults. The amount reflects what we believe to be only those incremental legal costs above what we typically incur for tenant-related dispute issues. We may continue to incur these COVID-19 related legal costs in the future.
[5]Represents amounts related to deferred rent pursuant to lease negotiations which qualify for FASB relief for which rent was deferred but not reduced. These amounts are included in the straight-line rent receivable on our consolidated balance sheet but are considered to be earned revenue attributed to the current period for which rent was deferred for purposes of AFFO as they are expected to be collected. Accordingly, when the deferred amounts are collected, the amounts reduce AFFO. For rent abatements (including those qualified for FASB relief), where contractual rent has been reduced, the reduction in revenue is reflected over the remaining lease term for accounting purposes but represents a permanent reduction in revenue and we have, accordingly reduced our AFFO.
[6]In the year ended December 31, 2021, we recognized a loss of $4.0 million related to the change in fair value of a embedded derivative within the PSA of the CIM Acquisition. We do not consider non-cash losses for embedded derivative fair value adjustments to be capital in nature, nor do we consider them a part of recurring operations. Accordingly, such amounts are excluded for AFFO purposes. See Note 8 - Derivatives and Hedging Activities and Note 16 - Subsequent Events for more information.
[7]We issued $500.0 million in Senior Notes in October 2021. The Senior Notes pay semiannual interest which we accrue interest over time for GAAP purposes. Accordingly, to better reflect our operating performance, beginning with the year ended December 31, 2021 and for all periods thereafter, we have elected to remove the impact of the change in accrued interest from the calculation of AFFO, which was previously included in this line item. We have not amended the calculation of AFFO for the year ended 2020 or any other prior years. The impact to AFFO for the change in accrued interest included in this line for the year ended December 31, 2020 was a reduction to AFFO of $0.4 million.
Net Operating Income
NOI is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate. NOI is equal to total revenues, excluding contingent purchase price consideration, less property operating and maintenance expense. NOI excludes all other items of expense and income included in the financial statements in calculating net income (loss). We believe NOI provides useful and relevant information because it reflects only those income and expense items that are incurred at the property level and presents such items on an unleveraged basis. We use NOI to assess and compare property level performance and to make decisions concerning the operation of the properties. Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating expenses and acquisition activity on an unleveraged basis, providing perspective not immediately apparent from net income (loss).
NOI excludes certain items included in calculating net income (loss) in order to provide results that are more closely related to a property’s results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) as presented in our consolidated financial statements. NOI should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity or ability to pay dividends.
The following table reflects the items deducted from or added to net loss attributable to stockholders in our calculation of NOI for the year ended December 31, 2021:
(In thousands) Same Store Acquisitions Disposals Non-Property Specific Total
Net loss attributable to common stockholders (in accordance with GAAP) $ 23,711 $ 14,796 $ 6,391 $ (108,339) $ (63,441)
Asset management fees to related party
- - - 32,804 32,804
Impairment of real estate investments
30,947 - 2,314 - 33,261
Acquisition and transaction related
4,095 - - 283 4,378
Equity-based compensation
- - - 17,264 17,264
General and administrative
1,415 16 2 19,423 20,856
Depreciation and amortization
119,414 10,349 701 - 130,464
Interest expense
70,415 - - 11,369 81,784
Gain on sale/exchange of real estate investments - - (4,757) - (4,757)
Other income
(83) (1) - (7) (91)
Loss on non-designated derivatives - - - 3,950 3,950
Allocation for preferred stock - - - 23,262 23,262
Net loss attributable to non-controlling interests
- - - (9) (9)
NOI $ 249,914 $ 25,160 $ 4,651 $ - $ 279,725
The following table reflects the items deducted from or added to net loss attributable to stockholders in our calculation of NOI for the year ended December 31, 2020:
(In thousands) Same Store Acquisitions Disposals Non-Property Specific Total
Net loss attributable to common stockholders (in accordance with GAAP) $ 32,315 $ 5,832 $ 2,425 $ (87,222) $ (46,650)
Asset management fees to related party
- - - 27,829 27,829
Impairment of real estate investments
11,502 - 1,408 - 12,910
Acquisition and transaction related
1,093 4 - 1,824 2,921
Equity-based compensation
- - - 13,036 13,036
General and administrative
1,376 3 4 18,300 19,683
Depreciation and amortization
132,810 3,166 1,483 - 137,459
Interest expense
66,061 - - 12,406 78,467
Gain on sale of real estate investments
(2,211) - (4,245) - (6,456)
Other income
(93) - (14) (917) (1,024)
Loss on non-designated derivative 9 - - - 9
Allocation for preferred stock - - - 14,788 14,788
Net loss attributable to non-controlling interests
- - - (44) (44)
NOI $ 242,862 $ 9,005 $ 1,061 $ - $ 252,928
Dividends and Distributions
In March 2020, our board of directors approved a reduction in our annualized dividend to $0.85 per share, or $0.0708333 per share on a monthly basis, due to the uncertain and rapidly changing environment caused by the COVID-19 pandemic. The new dividend rate became effective beginning with our April 1 dividend declaration. Historically, and through September 30, 2020, we declared dividends based on monthly record dates and generally paid dividends, once declared, on or around the 15th day of each month (or, if not a business day, the next succeeding business day) to Class A common stock holders of record on the applicable record date. On August 27, 2020, our board of directors approved a change in our Class A common stock dividend policy. Subsequent dividends authorized by our board of directors on shares of our Class A common stock have been, and we anticipate will continue to be, paid on a quarterly basis in arrears on the 15th day of the first month following the end of each fiscal quarter (unless otherwise specified) to Class A common stockholders of record on the record date for such payment. This change affected the frequency of dividend payments only, and did not impact the annualized dividend rate on Class A common stock of $0.85. The amount of dividends payable on our Class A common stock to our common stock holders is determined by our board of directors and is dependent on a number of factors, including funds available for dividends, our financial condition, provisions in our Credit Facility or other agreements that may restrict our ability to pay dividends, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to maintain our status as a REIT.
Dividends on our Series A Preferred Stock accrue in an amount equal to $1.875 per share each year, which is equivalent to the rate of 7.50% of the $25.00 liquidation preference per share per annum. Dividends on the Series A Preferred Stock are payable quarterly in arrears on the 15th day of each of January, April, July and October of each year (or, if not a business day, the next succeeding business day) to holders of record on the applicable record date.
Dividends on our Series C Preferred Stock accrue in an amount equal to $1.844 per share each year, which is equivalent to the rate of 7.375% of the $25.00 liquidation preference per share per annum. Dividends on the Series C Preferred Stock are payable quarterly in arrears on the 15th day of each of January, April, July and October of each year (or, if not a business day, the next succeeding business day) to holders of record on the applicable record date.
Our Credit Facility contains provisions restricting our ability to pay distributions, including paying cash dividends on equity securities (including the Series A Preferred Stock and Series C Preferred Stock). We are generally permitted to pay dividends on the Series A Preferred Stock, Series C Preferred Stock, and Class A common stock and other distributions for any fiscal quarter in an aggregate amount of up to 105% of annualized MFFO for a look-back period of four consecutive fiscal quarters but only if, as of the last day of the period, after giving effect to the payment of those dividends and distributions, we are able to satisfy a maximum leverage ratio and maintain a combination of cash, cash equivalents and amounts available for future borrowings under the Credit Facility of not less than $60 million. If these conditions are not satisfied, the applicable threshold percentage of MFFO will be 95% instead of 105%. If applicable, during the continuance of an event of default under the Credit Facility, we may not pay dividends or other distributions in excess of the amount necessary for us to maintain our status as a REIT.
We may repurchase shares if we satisfy a maximum leverage ratio after giving effect to the repurchase and also have a combination of cash, cash equivalents and amounts available for future borrowings under the Credit Facility of not less than $40.0 million.
Notwithstanding the previous amendments, there is no assurance that the lenders will consent to any additional amendments to the Credit Facility that may become necessary to maintain compliance with the Credit Facility.
During the year ended December 31, 2021, cash used to pay dividends on our Class A common stock, dividends on our Series A Preferred Stock, dividends on our Series C Preferred Stock, distributions on our LTIP Units and distributions for limited partnership units that correspond to shares of our Class A common stock was generated from cash flows provided by operations. We have, in prior periods, funded dividends from other sources. If we need to identify financing sources other than operating cash flows to fund dividends at their current level, there can be no assurance that other sources will be available on favorable terms, or at all.
Complying with the restriction on the payment of dividends and other distributions in our Credit Facility may limit our ability to incur additional indebtedness and use cash that would otherwise be available to us. Funding dividends from borrowings restricts the amount we can borrow for property acquisitions and investments. Using proceeds from the sale of assets or the issuance of our Class A common stock, Series A Preferred Stock, Series C Preferred Stock or other equity securities to fund dividends rather than invest in assets will likewise reduce the amount available to invest. Funding dividends from the sale of additional securities could also dilute our stockholders.
The following table shows the sources for the payment of dividends to common stockholders, including dividends on unvested restricted shares and other dividends and distributions for the periods indicated:
Three Months Ended Year Ended December 31, 2021
March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021
(In thousands) Amount Percentage of Dividends Amount Percentage of Dividends Amount Percentage of Dividends Amount Percentage of Dividends Amount Percentage of Dividends
Dividends and other cash distributions:
Cash dividends paid to common stockholders $ 23,128 85.8 % $ 23,122 79.1 % $ 25,037 81.0 % $ 26,245 [2]
81.3 % $ 97,532 [2]
81.7 %
Cash dividends paid to Series A preferred stockholders 3,691 13.7 % 3,719 12.7 % 3,719 12.0 % 3,719 11.5 % 14,848 12.4 %
Cash dividends paid to Series C preferred stockholders - - % 2,263 7.7 % 2,117 6.8 % 2,118 [3]
6.6 % 6,498 [3]
5.4 %
Cash distributions on LTIP Units
94 0.3 % 96 0.3 % - - % 164 0.5 % 354 0.3 %
Cash distributions on Class A Units
37 0.1 % 36 0.1 % 37 0.1 % 37 [2]
0.1 % 147 0.1 %
Total dividends and other cash distributions paid
$ 26,950 100.0 % $ 29,236 100.0 % $ 30,910 100.0 % $ 32,283 100.0 % $ 119,379 100.0 %
Source of dividend and other cash distributions coverage:
Cash flows provided by operations [1]
$ 26,950 100.0 % $ 29,236 100.0 % $ 30,910 100.0 % $ 32,283 100.0 % $ 119,379 [1]
100.0 %
Available cash on hand - - % - - % - - % - - % - - %
Total sources of dividend and other cash distributions coverage
$ 26,950 100.0 % $ 29,236 100.0 % $ 30,910 100.0 % $ 32,283 100.0 % $ 119,379 100.0 %
Cash flows provided by operations (GAAP basis) $ 34,422 $ 30,935 $ 35,166 $ 44,704 [4]
$ 145,227
Net loss (in accordance with GAAP) $ (3,754) $ (1,482) $ (565) $ (34,387) $ (40,188)
________
[1]Year-to-date totals may not equal the sum of the quarters. Each quarter and year-to-date period is evaluated separately for purposes of this table.
[2]As more fully discussed in Note 9 - Stockholder’s Equity and Non-controlling interests - dividends relating to the fourth quarter of 2021 on our Class A common stock totaling $26.6 million were declared and paid in January 2022. Because these dividends were not declared prior to December 31, 2021, they are not accrued in our financial statements until 2022.
[3]Our Series C Preferred Stock was first issued in December 2020, and we were not required to begin paying dividends on the Series C Preferred Stock until April 2021. The first quarterly dividend included amounts attributable to December 2020 in addition to the amounts attributable for the quarter ending March 31, 2021.
[4]Reflects the collection of a $10.4 million termination fee recognized in the third quarter of 2021.
Loan Obligations
The payment terms of certain of our mortgage loan obligations require principal and interest payments monthly, with all unpaid principal and interest due at maturity. Our loan agreements stipulate that we comply with specific reporting covenants. As of December 31, 2021, we were in compliance with the debt covenants under our loan agreements.
Election as a REIT
We elected to be taxed as a REIT under Sections 856 through 860 of the Code, effective for our taxable year ended December 31, 2013. We believe that, commencing with such taxable year, we have been organized and have operated in a manner so that we qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner, but can provide no assurances that we will operate in a manner so as to remain qualified as a REIT. To continue to qualify for taxation as a REIT, we must distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard for the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on the portion of our REIT taxable income that we distribute to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties, as well as federal income and excise taxes on our undistributed income.
Inflation
We may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions, or those leases which have escalations at rates which do not exceed or approximate current inflation rates. For the year ended December 31, 2021, the increase to the 12-month CPI for all items, as published by the Bureau of Labor Statistics, was 7.0%. To help mitigate the adverse impact of inflation, approximately 80.9% of our leases with our tenants contain rent escalation provisions which average 1.2% per year. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). Approximately 77.8% are fixed-rate, 3.1% are based on the Consumer Price Index and 19.1% do not contain any escalation provisions.
In addition, we may be required to pay costs for maintenance and operation of properties which may adversely impact our results of operations due to potential increases in costs and operating expenses resulting from inflation. However, our net leases require the tenant to pay its allocable share of operating expenses, which may include common area maintenance costs, real estate taxes and insurance. This may reduce our exposure to increases in costs and operating expenses resulting from inflation. As the costs of general goods and services continue to rise, we may be adversely impacted by increases in general and administrative costs due to overall inflation.
Related-Party Transactions and Agreements
Please see Note 11 - Related Party Transactions and Arrangements to our consolidated financial statements included in this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our long-term debt, which consists of secured financings, bears interest at fixed rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus are not exposed to foreign currency fluctuations.
As of December 31, 2021, our fixed rate debt consisted of secured mortgage financings with a gross carrying value of $1.5 billion, which approximates their fair value, and senior notes with a gross carrying value of $500.0 million, which approximates their fair value. Changes in market interest rates on our fixed-rate debt impact its fair value, but it has no impact on interest expense incurred or cash flow. For instance, if interest rates rise 100 basis points and our fixed-rate debt balance remains constant, we expect the fair value of our obligation to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed-rate debt assumes an immediate 100 basis point move in interest rates from their December 31, 2021 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt by $66.6 million. A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt by $70.8 million.
As of December 31, 2021 we did not have any variable-rate debt.
These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs, and, assuming no other changes in our capital structure. The information presented above includes only those exposures that existed as of December 31, 2021 and does not consider exposures or positions arising after that date. The information represented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is hereby incorporated by reference to our Consolidated Financial Statements beginning on page of this Annual Report on Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Exchange Act is recorded, processed, summarized and reported within the required time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.
Our Chief Executive Officer and Chief Financial Officer, carried out an evaluation, together with other members of our management, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective December 31, 2021 at a reasonable level of assurance.
Management’s Annual Reporting on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making that assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). In making that assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on its assessment, our management concluded that, as of December 31, 2021, our internal control over financial reporting was effective based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report, which is included on page in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
During the three months ended December 31, 2021, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
Effective February 10, 2022, the board of directors approved the Fifth Amended and Restated Bylaws, which amend and restate the Company’s existing bylaws to reflect the Company’s name change from “American Finance Trust, Inc.” to “The Necessity Retail REIT, Inc.” The foregoing summary of the Fifth Amended and Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended Bylaws, a copy of which is attached hereto as Exhibit 3.2 and is incorporated by reference herein.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
We have adopted a Code of Business Conduct and Ethics that applies to all of our executive officers and directors, including but not limited to, our principal executive officer and principal financial officer. A copy of our code of ethics may be obtained, free of charge, by sending a written request to our executive office: 650 Fifth Avenue - 30th Floor, New York, NY 10019, Attention: Chief Financial Officer. Our Code of Business Conduct and Ethics is also publicly available on our website at www.necessityretailreit.com. If we make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the Code of Business Conduct and Ethics to our chief executive officer, chief financial officer, chief accounting officer or controller or persons performing similar functions, we will disclose the nature of the amendment or waiver on that website or in a Current Report on Form 8-K.
The information required by this Item will be set forth in our definitive proxy statement with respect to our 2022 annual meeting of stockholders to be filed not later than 120 days after the end of the 2021 fiscal year, and is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The information required by this Item will be set forth in our definitive proxy statement with respect to our 2022 annual meeting of stockholders to be filed not later than 120 days after the end of the 2021 fiscal year, and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will be set forth in our definitive proxy statement with respect to our 2022 annual meeting of stockholders to be filed not later than 120 days after the end of the 2021 fiscal year, and is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item will be set forth in our definitive proxy statement with respect to our 2022 annual meeting of stockholders to be filed not later than 120 days after the end of the 2021 fiscal year, and is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
The information required by this Item will be set forth in our definitive proxy statement with respect to our 2022 annual meeting of stockholders to be filed not later than 120 days after the end of the 2021 fiscal year, and is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
(a) Financial Statement Schedules
See the Index to Consolidated Financial Statements at page of this report.
The following financial statement schedules are included herein beginning at page of this report:
Schedule III - Real Estate and Accumulated Depreciation
(b) Exhibits
EXHIBIT INDEX
The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the year ended December 31, 2021 (and are numbered in accordance with Item 601 of Regulation S-K):
Exhibit No. Description
3.1 (26)
Articles of Restatement
3.2 (9)
Articles Supplementary relating to reclassification of common stock, classification of additional shares of 7.375% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share, and classification of additional shares of 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share, filed January 13, 2021
3.3 *
Fifth Amended and Restated Bylaws
4.1 (1)
Second Amended and Restated Agreement of Limited Partnership of American Finance Operating Partnership, L.P., dated as of July 19, 2018
4.2 (3)
First Amendment to Second Amended and Restated Agreement of Limited Partnership of American Finance Operating Partnership, L.P., dated as of November 6, 2018
4.3 (4)
Second Amendment, dated March 22, 2019, to the Second Amended and Restated Agreement of Limited Partnership of American Finance Operating Partnership, L.P, dated as of July 19, 2018
4.4 (5)
Third Amendment, dated May 8, 2019, to the Second Amended and Restated Agreement of Limited Partnership of American Finance Operating Partnership, L.P, dated as of July 19, 2018
4.5 (6)
Fourth Amendment, dated September 6, 2019, to the Second Amended and Restated Agreement of Limited Partnership of American Finance Operating Partnership, L.P., dated July 19, 2018
4.6 (7)
Fifth Amendment, dated October 4, 2019, to the Second Amended and Restated Agreement of Limited Partnership of American Finance Operating Partnership, L.P., dated July 19, 2018
4.7 (8)
Sixth Amendment, dated December 16, 2020, to the Second Amended and Restated Agreement of Limited Partnership of American Finance Operating Partnership, L.P., dated July 19, 2018
4.8 (9)
Seventh Amendment, dated January 13, 2021, to the Second Amended and Restated Agreement of Limited Partnership of American Finance Operating Partnership, L.P., dated July 19, 2018
4.9 (28)
Eighth Amendment, dated as of July 21, 2021, to the Second Amended and Restated Agreement of Limited Partnership of American Finance Operating Partnership, L.P., dated July 19, 2018
4.10 (1)
Amended and Restated Distribution Reinvestment Plan
4.11 (10)
Master Indenture, dated as of May 30, 2019, as amended by that certain Amendment No. 1 dated as of June 3, 2021, by and among AFN ABSPROP001, LLC, AFN ABSPROP001-A, LLC, AFN ABSPROP001-B, LLC, AFN ABSPROP002, LLC, AFN ABSPROP002-A, LLC, AFN ABSPROP002-B, LLC, AFN ABSPROP002-C, LLC and Citibank, N.A., as indenture trustee
4.12 (11)
Series 2019 I Indenture Supplement, dated as of May 30, 2019, by and among AFN ABSPROP001, LLC, AFN ABSPROP001-A, LLC, AFN ABSPROP001-B, LLC, and Citibank, N.A., as indenture trustee
4.13 (27)
Series 2021-1 Indenture Supplement, dated as of June 3, 2021, by and among AFN ABSPROP001, LLC, AFN ABSPROP001-A, LLC, AFN ABSPROP001-B, LLC, AFN ABSPROP002, LLC, AFN ABSPROP002-A, LLC, AFN ABSPROP002-B, LLC, AFN ABSPROP002-C, LLC and Citibank, N.A., as indenture trustee
4.14 *
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
4.15 (2)
Rights Agreement, dated April 13, 2020, between American Finance Trust, Inc. and Computershare Trust Company, N.A., as Rights Agent
4.16 (26)
Amendment to Rights Agreement dated as of February 25, 2021, between American Finance Trust, Inc. and Computershare Trust Company, N.A., as Rights Agent
4.17 (31)
Indenture, dated as of October 7, 2021, among American Finance Trust, Inc., American Finance Operating Partnership, L.P., the Guarantors party thereto and U.S. Bank National Association, as trustee (including the form of Notes)
Exhibit No. Description
10.1 (5)
Equity Distribution Agreement, May 8, 2019, among the American Finance Trust, Inc., American Finance Operating Partnership, L.P., BMO Capital Markets Corp., BBVA Securities Inc., Capital One Securities, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Inc., Mizuho Securities USA LLC and SunTrust Robinson Humphrey, Inc. (Class A common stock)
10.2 (12)
Amendment No. 1, dated as of June 25, 2019, to Equity Distribution Agreement, dated May 8, 2019, among American Finance Trust, Inc., American Finance Operating Partnership, L.P., BMO Capital Markets Corp., BBVA Securities Inc., B. Riley FBR, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Inc., Ladenburg Thalmann & Co. Inc., SunTrust Robinson Humphrey, Inc. and SG Americas Securities, LLC (Class A Common Stock)
10.3 (29)
Amendment No. 2, dated as of August 6, 2021, to Equity Distribution Agreement, dated May 8, 2019, among American Finance Trust, Inc., American Finance Operating Partnership, L.P., BMO Capital Markets Corp., BBVA Securities Inc., B. Riley FBR, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Inc., Ladenburg Thalmann & Co. Inc., SunTrust Robinson Humphrey, Inc. and SG Americas Securities, LLC (Class A Common Stock)
10.4 (5)
Equity Distribution Agreement, May 8, 2019, among the American Finance Trust, Inc., American Finance Operating Partnership, L.P., BMO Capital Markets Corp., BBVA Securities Inc., Capital One Securities, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Inc., Mizuho Securities USA LLC and SunTrust Robinson Humphrey, Inc. (Series A Preferred Stock)
10.5 (12)
Amendment No. 1, dated as of June 25, 2019, to Equity Distribution Agreement, dated May 8, 2019, among American Finance Trust, Inc., American Finance Operating Partnership, L.P., BMO Capital Markets Corp., BBVA Securities Inc., B. Riley FBR, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Inc., Ladenburg Thalmann & Co. Inc., SunTrust Robinson Humphrey, Inc. and D.A. Davidson & Co. (Series A Preferred Stock)
10.6 (7)
Amendment No. 2, dated as of October 4, 2019, to Equity Distribution Agreement, dated May 8, 2019, among American Finance Trust, Inc., American Finance Operating Partnership, L.P., BMO Capital Markets Corp., BBVA Securities Inc., B. Riley FBR, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Inc., Ladenburg Thalmann & Co. Inc., SunTrust Robinson Humphrey, Inc. and D.A. Davidson & Co. (Series A Preferred Stock)
10.7 (9)
Amendment No. 3, dated as of January 13, 2021, to Equity Distribution Agreement, dated May 8, 2019, among American Finance Trust, Inc., American Finance Operating Partnership, L.P., and BMO Capital Markets Corp., BBVA Securities Inc., B. Riley Securities, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Inc., Ladenburg Thalmann & Co. Inc., Truist Securities, Inc. and D.A. Davidson & Co. (Series A Preferred Stock)
10.8 (29)
Amendment No. 4, dated as of August 6, 2021, to Equity Distribution Agreement, dated May 8, 2019, among American Finance Trust, Inc., American Finance Operating Partnership, L.P., and BMO Capital Markets Corp., BBVA Securities Inc., B. Riley Securities, Inc., Citizens Capital Markets, Inc., KeyBanc Capital Markets Inc., Ladenburg Thalmann & Co. Inc., Truist Securities, Inc. and D.A. Davidson & Co. (Series A Preferred Stock)
10.9 (13)
Third Amended and Restated Advisory Agreement, dated as of September 6, 2016, by and among American Finance Trust, Inc., American Finance Operating Partnership, L.P. and American Finance Advisors, LLC
10.10 (1)
Amendment No. 1 to the Third Amended and Restated Advisory Agreement, dated July 19, 2018, among American Finance Trust, Inc., American Finance Operating Partnership, L.P. and American Finance Advisors, LLC
10.11 (14)
Amendment No. 2, dated as of March 18, 2019, to the Third Amended and Restated Advisory Agreement, by and among American Finance Trust, Inc., American Finance Operating Partnership, L.P. and American Finance Advisors, LLC
10.12 (15)
Amendment No. 3, dated as of March 30, 2020, to the Third Amended and Restated Advisory Agreement, by and among American Finance Trust, Inc., American Finance Operating Partnership, L.P. and American Finance Advisors, LLC
10.13 (16)
Amendment No. 4, dated as of January 13, 2021, to the Third Amended and Restated Advisory Agreement, by and among American Finance Trust, Inc., American Finance Operating Partnership, L.P. and American Finance Advisors, LLC
10.14 (13)
Amended and Restated Property Management Agreement, dated as of September 6, 2016, by and among American Finance Trust, Inc. and American Finance Properties, LLC (as assignee of American Realty Capital Retail Advisor, LLC)
10.15 (17)
First Amendment to Amended and Restated Property Management Agreement, dated as of December 8, 2017, by and among American Finance Trust, Inc. and American Finance Properties, LLC and certain subsidiaries of American Finance Operating Partnership, LP
Exhibit No. Description
10.16 (18)
Second Amendment, dated as of November 4, 2020, to Amended and Restated Property Management Agreement, by and among American Finance Trust, Inc., American Finance Properties, LLC and certain subsidiaries of American Finance Operating Partnership, L.P.
10.17 (17)
Form of Property Management Agreement by and between American Finance Properties, LLC and certain subsidiaries of American Finance Operating Partnership, LP
10.18 (13)
Amended and Restated Leasing Agreement, dated as of September 6, 2016, by and among American Finance Trust, Inc. and American Finance Properties, LLC (as assignee of American Realty Capital Retail Advisor, LLC)
10.19 (18)
First Amendment, dated as of November 4, 2020, to Amended and Restated Leasing Agreement, by and between American Finance Trust, Inc. and American Finance Properties, LLC
10.20 (13)
Amended and Restated Property Management and Leasing Agreement, dated as of September 6, 2016, by and among American Finance Trust, Inc., American Finance Trust Operating Partnership, L.P. and American Finance Properties, LLC
10.21 (18)
First Amendment, dated as of August 27, 2020, to Amended and Restated Property Management and Leasing Agreement, by and among American Finance Trust, Inc., American Finance Trust Operating Partnership L.P. and American Finance Properties, LLC
10.22 (19)
Property Management and Leasing Agreement, dated as of December 18, 2019, by and among American Finance Properties, LLC, ARC HR5SSRI001, LLC, ARC HR5SSMA003, LLC, ARC HR5SSMA001, LLC and ARC HR5SSMA002, LLC
10.23 (25)
Property Management and Leasing Agreement, dated as of July 24, 2020, by and among the parties identified on Exhibit A thereto and American Finance Properties, LLC
10.24 (27)
Amended and Restated Property Management and Servicing Agreement, dated as of June 3, 2021, by and among AFN ABSPROP001, LLC, AFN ABSPROP001-A, LLC, AFN ABSPROP001-B, LLC, AFN ABSPROP002, LLC, AFN ABSPROP002-A, LLC, AFN ABSPROP002-B, LLC, AFN ABSPROP002-C, LLC, American Finance Properties, LLC, as property manager and special servicer, KeyBank National Association, as back-up manager, and Citibank N.A., as indenture trustee
10.25 (27)
Amended and Restated Guaranty, dated as of June 3, 2021, by American Finance Operating Partnership, L.P. for the benefit of Citibank N.A., as indenture trustee
10.26 (20)
Form of Restricted Share Award Agreement (Directors - Pre-Listing)
10.27 (21)
Indemnification Agreement by and among American Finance Trust, Inc., Peter M. Budko, Robert H. Burns, David Gong, William M. Kahane, Stanley R. Perla, Nicholas Radesca, Nicholas S. Schorsch, Edward M. Weil, Jr., American Realty Capital Advisors V, LLC, AR Capital, LLC and RCS Capital Corporation, dated December 31, 2014
10.28 (30)
Amended and Restated Credit Agreement, dated as of October 1, 2021, by and among American Finance Operating Partnership, L.P., American Finance Trust, Inc. and the other guarantors party thereto, BMO Harris Bank N.A., as administrative agent, and the other lender parties thereto
10.29 (17)
Loan Agreement dated as of December 8, 2017 among Societe Generale and UBS AG as Lenders and certain subsidiaries of American Finance Operating Partnership, LP, as Borrowers
10.30 (17)
Guaranty of Recourse Obligations dated as of December 8, 2017 by American Finance Trust, Inc. in favor of Societe Generale and UBS AG
10.31 (3)
Form of Restricted Share Award Agreement (Directors - Post-Listing)
10.32 (1)
Advisor Multi-Year Outperformance Award Agreement, dated as of July 19, 2018, between American Finance Operating Partnership, L.P. and America Finance Advisors, LLC
10.33 (24)
First Amendment, dated as of March 6, 2019, to 2018 Advisor Multi-Year Outperformance Award Agreement, dated as of July 19, 2018, between American Finance Operating Partnership, L.P. and America Finance Advisors, LLC
10.34 (28)
Advisor Multi-Year Outperformance Award Agreement, dated as of July 21, 2021, by and among American Finance Trust, Inc., American Finance Operating Partnership, L.P. and American Finance Advisors, LLC
10.35 (1)
2018 Advisor Omnibus Incentive Compensation Plan
10.36 (1)
2018 Omnibus Incentive Compensation Plan
10.37 (1)
Form of Indemnification Agreement (Post-Listing)
10.38 (25)
Loan Agreement, dated as of July 24, 2020, by and among the entities listed on Schedule I thereto, as borrowers, and Column Financial, Inc., as lender
10.39 (25)
Limited Recourse Guaranty, dated as of July 24, 2020, by American Finance Operating Partnership, L.P. in favor of Column Financial, Inc.
10.40 (25)
Environmental Indemnity Agreement, dated as of July 24, 2020, by and among the entities listed on Schedule I thereto, American Finance Operating Partnership, L.P. and Column Financial, Inc.
10.41 (18)
Form of Restricted Share Award Agreement (Officers)
Exhibit No. Description
10.42 (9)
Equity Distribution Agreement, dated January 13, 2021, by and among American Finance Trust, Inc., American Finance Operating Partnership, L.P. and BMO Capital Markets Corp., BBVA Securities Inc., B. Riley Securities, Inc., Citizens Capital Markets, Inc., D.A. Davidson & Co., KeyBanc Capital Markets Inc., Ladenburg Thalmann & Co. Inc. and Truist Securities, Inc. (Series C Preferred Stock)
10.43 (29)
Amendment No. 1, dated as of August 6, 2021, to Equity Distribution Agreement, dated January 13, 2021, by and among American Finance Trust, Inc., American Finance Operating Partnership, L.P. and BMO Capital Markets Corp., BBVA Securities Inc., B. Riley Securities, Inc., Citizens Capital Markets, Inc., D.A. Davidson & Co., KeyBanc Capital Markets Inc., Ladenburg Thalmann & Co. Inc. and Truist Securities, Inc. (Series C Preferred Stock)
10.44 (32)
Agreement of Purchase and Sale, dated as of December 17, 2021, by and between the Sellers identified therein and American Finance Operating Partnership
10.45 *
First Amendment to Agreement of Purchase and Sale, dated January 3, 2022, by and between the Sellers identified therein and American Finance Operating Partnership
10.46 *
Second Amendment to Agreement of Purchase and Sale, dated January 10, 2022, by and between the Sellers identified therein and American Finance Operating Partnership
10.47 *
Third Amendment to Agreement of Purchase and Sale, dated January 14, 2022, by and between the Sellers identified therein and American Finance Operating Partnership
10.48 *
Fourth Amendment to Agreement of Purchase and Sale, dated January 19, 2022, by and between the Sellers identified therein and American Finance Operating Partnership
10.49 *
Fifth Amendment to Agreement of Purchase and Sale, dated January 21, 2022, by and between the Sellers identified therein and American Finance Operating Partnership
10.50 *
Leasing Earnout Side Letter Agreement, dated February 9, 2022, by and between the Sellers identified therein and American Finance Operating Partnership
10.51 *
Sixth Amendment to Agreement of Purchase and Sale, dated February 10, 2022, by and between the Sellers identified therein and American Finance Operating Partnership
10.52 *
Seventh Amendment to Agreement of Purchase and Sale, dated February 11, 2022, by and between the Sellers identified therein and American Finance Operating Partnership
21.1 *
List of Subsidiaries
23.1 *
Consent of PricewaterhouseCoopers LLP
31.1 *
Certification of the Principal Executive Officer of American Finance Trust, Inc. pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 *
Certification of the Principal Financial Officer of American Finance Trust, Inc. pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 *
Written statements of the Principal Executive Officer and Principal Financial Officer of American Finance Trust, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS * Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH * Inline XBRL Taxonomy Extension Schema Document
101.CAL * Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF * Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB * Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE * Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 * Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
____________________
* Filed herewith.
(1)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on July 19, 2018.
(2)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on April 13, 2020.
(3)Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 filed with the SEC on November 6, 2018.
(4)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on March 25, 2019.
(5)Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 filed with the SEC on May 8, 2019.
(6)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on September 6, 2019.
(7)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on October 4, 2019.
(8)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 16, 2020.
(9)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on January 13, 2021.
(10)Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 filed with the SEC on August 8, 2019.
(11)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on May 31, 2019.
(12)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on June 25, 2019.
(13)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on September 7, 2016.
(14)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on March 18, 2019.
(15)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on March 30, 2020.
(16)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on January 13, 2021.
(17)Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 19, 2018.
(18)Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 filed with the SEC on November 5, 2020.
(19)Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 27, 2020.
(20)Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed with the SEC on August 11, 2016.
(21)Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on May 15, 2015.
(22)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on May 2, 2018.
(23)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on November 7, 2019.
(24)Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 7, 2019.
(25)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on July 28, 2020.
(26)Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021.
(27)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on June 4, 2021.
(28)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on July 21, 2021.
(29)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on August 6, 2021.
(30)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on October 4, 2021.
(31)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on October 8, 2021.
(32)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 20, 2021.
(33)Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on February 14, 2022.