Item 1A. Risk Factors
The following risk factors and other information in this Annual
Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only risks we face.
Additional risks and uncertainties not currently known to us or that we may currently deem immaterial also may impair our business
operations. If any of the following or other risks occur, our business financial condition, operating results, cash flows and
distributions, as well as the market price of our securities, could be materially adversely affected.
Risks Related to Our Business and Operations
Our portfolio is concentrated in the industrial real estate
sector, and our business would be adversely affected by an economic downturn in that sector.
Our assets are comprised entirely of industrial
properties, including warehouse/distribution properties, light manufacturing properties and flex/office properties.
This concentration may expose us to the risk of economic downturns in the industrial real estate sector to a greater extent than
if our properties were more diversified across other sectors of the real estate industry. In particular, an economic downturn
affecting the market for industrial properties could have a material adverse effect on our results of operations, cash flows,
financial condition and our ability to pay distributions to our stockholders.
Our portfolio is geographically concentrated in eleven
states, which causes us to be especially susceptible to adverse developments in those markets.
In addition to general, regional, national and
international economic conditions, our operating performance is impacted by the economic conditions of the specific geographic
markets in which we have concentrations of properties. Our portfolio consists of holdings in the following states (which accounted
for the percentage of our total annualized rent indicated) as of December 31, 2019: Illinois (27.2%); Ohio (24.1%); Indiana
(19.0%); Florida (12.0%); and Tennessee (8.6%). This geographic concentration could adversely affect our operating performance
if conditions become less favorable in any of the states or regions in which we have a concentration of properties. We cannot
assure you that any of our target markets will grow or that underlying real estate fundamentals will be favorable to owners and
operators of industrial properties. Our operations may also be affected if competing properties are built in our target markets.
Any adverse economic or real estate developments in our target markets, or any decrease in demand for industrial space resulting
from the regulatory environment, business climate or energy or fiscal problems, could materially and adversely impact our financial
condition, results of operations, cash flow, our ability to satisfy our debt service obligations and our ability to pay distributions
to our stockholders.
Our portfolio is comprised almost entirely of Class B industrial
properties in secondary markets, which subjects us to risks associated with concentrating our portfolio on such assets.
Our portfolio is comprised of almost entirely
Class B industrial properties in secondary markets. While we believe that Class B industrial properties in secondary markets have
shown positive trends, we cannot give any assurance that these trends will continue. Any developments or circumstances that adversely
affect the value of Class B industrial properties generally could have a more significant adverse impact on us than if our portfolio
was diversified by asset type, which could materially and adversely impact our financial condition, results of operations and
ability to make distributions to our stockholders.
Our business strategy depends on achieving revenue growth
from anticipated increases in demand for Class B industrial space in our target markets; accordingly, any delay or a weaker than
anticipated economic recovery could materially and adversely affect us and our growth prospects.
Our business strategy depends on achieving
revenue growth from anticipated near-term growth in demand for Class B industrial space in our target markets as a result of improving
demographic trends and supply and demand fundamentals. As a result, any delay or a weaker than anticipated economic recovery,
particularly in our target markets, could materially and adversely affect us and our growth prospects. Furthermore, even if economic
conditions generally improve, we cannot provide any assurances that demand for Class B industrial space will increase from current
levels. If demand does not increase in the near future, or if demand weakens, our future results of operations and our growth
prospects could also be materially and adversely affected.
We may not be aware of characteristics or deficiencies
involving any one or all of the properties that we acquire in the future, which could have a material adverse effect on our business.
Newly acquired properties may have characteristics
or deficiencies unknown to us that could affect their valuation or revenue potential and such properties may not ultimately perform
to our expectations. We cannot assure you that the operating performance of any newly acquired properties will not decline under
our management. Any characteristics or deficiencies in any newly acquired properties that adversely affect the value of the properties
or their revenue-generation potential could have a material adverse effect on our results of operations and financial condition.
We are subject to risks associated with single-tenant leases,
and the default by one or more tenants could materially and adversely affect our results of operations and financial condition.
We are subject to the risk that the default,
financial distress or bankruptcy of a single tenant could cause interruptions in the receipt of rental revenue and/or result in
a vacancy, which is likely to result in the complete reduction in the operating cash flows generated by the property leased to
that tenant and may decrease the value of that property. In addition, a majority of our leases generally require the tenant to
pay all or substantially all of the operating expenses normally associated with the ownership of the property, such as utilities,
real estate taxes, insurance and routine maintenance. Following a vacancy at a single-tenant property, we will be responsible
for all of the operating costs at such property until it can be re-let, if at all.
We are subject to risks related to tenant concentration,
which could materially adversely affect our cash flows, results of operations and financial condition.
As of December 31, 2019, our top three tenants
collectively comprised approximately 8.6% of our total annualized rent. As a result, our financial performance will be
dependent, in large part, on the revenues generated from these significant tenants and, in turn, the financial condition of these
tenants. In the event that a tenant occupying a significant portion of one or more of our properties or whose rental income represents
a significant portion of the rental revenue at our properties were to experience financial weakness or file bankruptcy, it could
have a material adverse effect on our cash flows, results of operations and financial condition.
We may be unable to renew leases, lease vacant space or
re-lease space as leases expire.
Leases representing 9.1%, 20.1% and 17.8% of
the rentable square footage of the industrial properties in our portfolio will expire in 2020, 2021 and 2022, respectively. We
cannot assure you that our leases will be renewed or that our properties will be re-leased at rental rates equal to or above the
current average rental rates or that we will not offer substantial rent abatements, tenant improvements, early termination rights
or below-market renewal options to attract new tenants or retain existing tenants. If the rental rates for our properties decrease,
or if our existing tenants do not renew their leases or we do not re-lease a significant portion of our available space and space
for which leases will expire, our financial condition, results of operations, cash flows and our ability to pay distributions
on, and the per share trading price of, our stock could be adversely affected.
We may be unable to identify and complete acquisitions
of properties that meet our investment criteria, which may have a material adverse effect on our growth prospects.
Our primary investment strategy involves the
acquisition of Class B industrial properties predominantly in secondary markets. These activities require us to identify suitable
acquisition candidates or investment opportunities that meet our investment criteria and are compatible with our growth strategies.
We may be unable to acquire properties identified as potential acquisition opportunities. Our ability to acquire properties on
favorable terms, or at all, may expose us to the following significant risks:
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we may incur
significant costs and divert management attention in connection with evaluating and negotiating
potential acquisitions, including ones that we are subsequently unable to complete;
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even if we enter
into agreements for the acquisition of properties, these agreements are subject to conditions
to closing, which we may be unable to satisfy; and
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we may be unable
to finance any given acquisition on favorable terms or at all.
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If we are unable to finance property acquisitions
or acquire properties on favorable terms, or at all, our financial condition, results of operations, cash flows and our ability
to pay distributions on, and the per share trading price of, our stock could be adversely affected. In addition, failure to identify
or complete acquisitions of suitable properties could limit our growth.
Our acquisition activities may pose risks that could harm
our business.
In connection with future acquisitions, we
may be required to incur debt and expenditures and issue additional common stock, preferred stock or units of limited partnership
interest in our operating partnership, or OP units, to pay for the acquired properties. These acquisitions may dilute our stockholders’
ownership interests, delay or prevent our profitability and may also expose us to risks such as:
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the possibility
that we may not be able to successfully integrate any future acquisitions into our portfolio;
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the possibility
that senior management may be required to spend considerable time negotiating agreements
and integrating acquired properties, diverting their attention from our other objectives;
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the possibility
that we may overpay for a property;
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the possible
loss or reduction in value of acquired properties; and
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the possibility
of pre-existing undisclosed liabilities regarding acquired properties, including environmental
or asbestos liability, for which our insurance may be insufficient or for which we may
be unable to secure insurance coverage.
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We cannot assure you that the price for any
future acquisitions will be similar to prior acquisitions. If our revenue does not keep pace with these potential acquisition
and expansion costs, we may incur net losses. There is no assurance that we will successfully overcome these risks or other problems
encountered with acquisitions. See “—We are a holding company with no direct operations and, as such, we will rely
on funds received from our operating partnership to pay liabilities, and the interests of our stockholders will be structurally
subordinated to all liabilities and obligations of our operating partnership and its subsidiaries.”
We may obtain limited or no warranties when we purchase
a property, which increases the risk that we may lose invested capital in or rental income from such property.
The seller of a property will often sell such
property in its “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 may contain only limited
warranties, representations and indemnifications that will only survive for a limited period after the closing. Also, many sellers
of real estate are single-purpose entities without any other significant assets. The purchase of properties with limited warranties
or from undercapitalized sellers 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 such property.
We have significant indebtedness outstanding, which may
expose us to the risk of default under our debt obligations.
Our total consolidated indebtedness as of December
31, 2019 consists of approximately $401.1 million of indebtedness. We may incur significant additional debt to finance future
acquisition and development activities.
Payments of principal and interest on borrowings
may leave us with insufficient cash resources to operate our properties or to pay the dividends currently contemplated or necessary
to maintain our REIT qualification. Our level of debt and the limitations imposed on us by our debt agreements could have significant
adverse consequences, including the following:
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our cash flow
may be insufficient to meet our required principal and interest payments;
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we may be unable
to borrow additional funds as needed or on favorable terms, which could, among other
things, adversely affect our ability to meet operational needs;
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we may be unable
to refinance our indebtedness at maturity or the refinancing terms may be less favorable
than the terms of our original indebtedness;
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we may be forced
to dispose of one or more of our properties, possibly on unfavorable terms or in violation
of certain covenants to which we may be subject;
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we may violate
restrictive covenants in our loan documents, which would entitle the lenders to accelerate
our debt obligations; and
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our default
under any loan with cross default provisions could result in a default on other indebtedness.
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If any one of these events were to occur, our
financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price
of, our stock could be materially adversely affected. Furthermore, foreclosures could create taxable income without accompanying
cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Internal Revenue Code
of 1986, as amended, or the Code.
We face significant competition for acquisitions of industrial
properties, which may reduce the number of acquisition opportunities available to us and increase the costs of these acquisitions.
The current market for acquisitions of industrial
properties in our target markets continues to be extremely competitive. This competition may increase the demand for our target
properties and, therefore, reduce the number of suitable acquisition opportunities available to us and increase the prices paid
for such acquisition properties. We also face significant competition for attractive acquisition opportunities from an indeterminate
number of investors, including publicly traded and privately held REITs, private equity investors and institutional investment
funds, some of which have greater financial resources than we do, a greater ability to borrow funds to acquire properties and
the ability to accept more risk than we can prudently manage, including risks with respect to the geographic proximity of investments
and the payment of higher acquisition prices. This competition will increase if investments in real estate become more attractive
relative to other forms of investment. Competition for investments may reduce the number of suitable investment opportunities
available to us and may have the effect of increasing prices paid for such acquisition properties and/or reducing the rents we
can charge and, as a result, adversely affecting our operating results.
We may be unable to source “off-market” or
“lightly-marketed” deal flow in the future, which may have a material adverse effect on our growth.
A key component of our investment strategy
is to acquire additional industrial real estate assets. We seek to acquire properties before they are widely marketed by real
estate brokers. Properties that are acquired in off-market or lightly-marketed transactions are typically more attractive to us
as a purchaser because of the absence of a formal sales process, which could lead to higher prices. If we do not have access to
off-market or lightly-marketed deal flow in the future, our ability to locate and acquire additional properties in our target
markets at attractive prices could be materially adversely affected.
Our future acquisitions may not yield the returns we expect.
Our future acquisitions and our ability to
successfully operate the properties we acquire in such acquisitions may be exposed to the following significant risks:
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even if we are
able to acquire a desired property, competition from other potential acquirers may significantly
increase the purchase price;
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we may acquire
properties that are not accretive to our results upon acquisition, and we may not successfully
manage and lease those properties to meet our expectations;
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our cash flow
may be insufficient to meet our required principal and interest payments;
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we may spend
more than budgeted amounts to make necessary improvements or renovations to acquired
properties;
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we may be unable
to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios
of properties, into our existing operations, and as a result our results of operations
and financial condition could be adversely affected;
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market conditions
may result in higher than expected vacancy rates and lower than expected rental rates;
and
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we may acquire
properties subject to liabilities and without any recourse, or with only limited recourse,
with respect to unknown liabilities such as liabilities for clean-up of undisclosed environmental
contamination, claims by tenants, vendors or other persons dealing with the former owners
of the properties, liabilities incurred in the ordinary course of business and claims
for indemnification by general partners, directors, officers and others indemnified by
the former owners of the properties.
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If we cannot operate acquired properties to
meet our financial expectations, our financial condition, results of operations, cash flows and our ability to pay distributions
on, and the per share trading price of, our stock could be materially and adversely affected.
High mortgage rates and/or unavailability of mortgage debt
may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our
net income and the amount of cash distributions we can make.
If mortgage debt is unavailable to us in the
future at reasonable rates, we may not be able to finance the purchase of additional properties or refinance our properties on
favorable terms or at all. If interest rates are higher when we refinance our properties, our income could be reduced. If any
of these events occur, our cash flow could be reduced. This, in turn, could reduce cash available for distribution to our stockholders
and materially and adversely affect our ability to raise more capital by issuing additional equity securities or by borrowing
more money.
Our existing loan agreements, and some of our future financing
arrangements are expected to, involve balloon payment obligations, which may materially and adversely affect our financial condition
and our ability to make distributions.
Our existing loan agreements require, and some
of our future financing arrangements may, require us to make a lump-sum or “balloon” payment at maturity. Our ability
to satisfy a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability
to sell property securing such financing. At the time the balloon payment is due, we may or may not be able to refinance the existing
financing on terms as favorable as the original loan or sell the property at a price sufficient to satisfy the balloon payment.
The effect of a refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our
assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the
distributions that we are required to pay to maintain our qualification as a REIT.
Our existing loan agreements contain, and future indebtedness
we incur may contain, various covenants, and the failure to comply with those covenants could materially and adversely affect
our financial condition, results of operations, cash flows and ability to pay distributions on, and the per share trading price
of, our stock.
Our existing
loan agreements contain, and any future indebtedness we incur, including debt assumed pursuant to property acquisitions, may contain,
certain covenants, which, among other things, restrict our activities, including, as applicable, our ability to sell the underlying
property without the consent of the holder of such indebtedness, to repay or defease such indebtedness or to engage in mergers
or consolidations that result in a change in control of our company. We may also be subject to financial and operating covenants.
Failure to comply with any of these covenants would likely result in a default under the applicable indebtedness that would permit
the acceleration of amounts due thereunder and under other indebtedness and foreclosure of properties, if any, serving as collateral
therefor.
Our existing loan agreements are secured by various properties
within our portfolio or by the equity of our property owning subsidiaries, so a default under any of these loan documents could
result in a loss of the secured properties.
Our existing loan agreements are secured by a
first lien mortgage on various properties within our portfolio. A default under certain of the loan agreements could result in
the foreclosure on all, or a material portion, of the properties within our portfolio, which could leave us with insufficient
cash to make debt service payments under our loan agreements and to make distributions to our stockholders. In addition, one of
our credit agreements with KeyBank National Association is secured by a pledge of our equity interests of a number of our
property owning subsidiaries. As a result, a default under this credit facility could result in the loss of all of our equity
in those property owning subsidiaries, resulting in the loss of all cash flow from the properties owned by those subsidiaries.
Our existing loan agreements restrict our ability to engage
in some business activities, which could put us at a competitive disadvantage and materially and adversely affect our results
of operations and financial condition.
Our existing loan agreements contain customary
negative covenants and other financial and operating covenants that, among other things:
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restrict our
ability to incur additional indebtedness;
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restrict our
ability to dispose of properties;
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restrict our
ability to make certain investments;
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restrict our
ability to enter into material agreements;
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limit our ability
to make capital expenditures;
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require us to
maintain a specified amount of capital as guarantor;
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restrict our
ability to merge with another company;
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restrict our
ability to make distributions to stockholders; and
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require us to
maintain financial coverage and leverage ratios.
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These limitations could restrict our ability
to engage in some business activities, which could materially and adversely affect our financial condition, results of operations,
cash flows and our ability to pay distributions on, and the per share trading price of, our stock. In addition, debt agreements
we enter into in the future may contain specific cross-default provisions with respect to specified other indebtedness, giving
the lenders the right to declare a default if we are in default under other loans in some circumstances.
Future mortgage and other secured debt obligations expose
us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject
to mortgage debt.
Incurring mortgage and other secured debt obligations
increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions
initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. Any foreclosure on
a mortgaged property or group of properties could adversely affect the overall value of our portfolio. For tax purposes, a foreclosure
on any of our properties that is subject to a nonrecourse mortgage loan 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, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.
We may not be able to successfully operate our business
or generate sufficient cash flows to make or sustain distributions to our stockholders as a publicly traded company or maintain
our qualification as a REIT.
We may not be able to successfully operate
our business or implement our operating policies and investment strategy as described in this prospectus. Failure to operate successfully
as a listed public company, to develop and implement appropriate control systems and procedures in accordance with the Sarbanes-Oxley
Act or maintain our qualification as a REIT would have an adverse effect on our financial condition, results of operations, cash
flow and per share trading price of our stock. See “—Risks Related to Our Status as a REIT—Failure to maintain
our qualification as a REIT would have significant adverse consequences to us and the per share trading price of our stock.”
Furthermore, we may not be able to generate sufficient cash flows to pay our operating expenses, service any debt we may incur
in the future and make distributions to our stockholders. Our ability to successfully operate our business and implement our operating
policies and investment strategy will depend on many factors, including:
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the availability
of, and our ability to identify, attractive acquisition opportunities consistent with
our investment strategy;
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our ability
to contain renovation, maintenance, marketing and other operating costs for our properties;
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our ability
to maintain high occupancy rates and target rent levels;
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costs that are
beyond our control, including title litigation, litigation with tenants, legal compliance,
real estate taxes and insurance; interest rate levels and volatility, such as the accessibility
of short- and long-term financing on desirable terms; and
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economic conditions
in our target markets as well as the condition of the financial and real estate markets
and the economy generally.
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We are required to implement substantial control
systems and procedures in order to maintain our qualification as a REIT, satisfy our periodic and current reporting requirements
under applicable SEC regulations and comply with the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010, or Dodd Frank, and the NYSE American or other relevant listing standards. As a result, we will incur significant
legal, accounting and other expenses, and our management and other personnel will need to devote a substantial amount of time
to comply with these rules and regulations and establish the corporate infrastructure and control systems and procedures demanded
of a publicly traded REIT. These costs and time commitments could be substantially more than we currently expect.
We face significant competition in the leasing market,
which may decrease or prevent increases of the occupancy and rental rates of our properties.
We compete with numerous developers, owners
and operators of real estate, many of whom own properties similar to ours in the same submarkets in which our properties are located.
If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants,
we may lose existing or potential tenants and we may be pressured to reduce our rental rates below those we currently charge or
to offer more substantial rent abatements, tenant improvements, early termination rights or below-market renewal options in order
to retain tenants when our tenants’ leases expire. As a result, our financial condition, results of operations, cash flows
and our ability to pay distributions on, and the value of, our stock could be adversely affected.
We may be required to make rent or other concessions and/or
significant capital expenditures to improve our properties in order to retain and attract tenants, causing our financial condition,
results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our stock to be
adversely affected.
In order to attract and retain tenants, we
may be required to make rent or other concessions to tenants, accommodate requests for renovations, build-to-suit remodeling and
other improvements or provide additional services to our tenants. Additionally, when a tenant at one of our properties does not
renew its lease or otherwise vacates its space, it is likely that, in order to attract one or more new tenants, we will be required
to expend funds for improvements in the vacated space. As a result, we may have to make significant capital or other expenditures
in order to retain tenants whose leases expire and to attract new tenants in sufficient numbers. Additionally, we may need to
raise capital to make such expenditures. If we are unable to do so or if capital is otherwise unavailable, we may be unable to
make the required expenditures. This could result in non-renewals by tenants upon expiration of their leases, which could have
an adverse effect on our financial condition, results of operations, cash flows and our ability to pay distributions on, and the
per share trading price of, our stock.
A substantial majority of the leases in our portfolio are
with tenants who have non-investment grade credit ratings, which may result in our leasing to tenants that are more likely to
default in their obligations to us than an entity with an investment grade credit rating.
A substantial majority of the leases in our
portfolio are with tenants who have non-investment grade credit ratings. The ability of a non-investment grade tenant to meet
its obligations to us cannot be considered as well assured as that of an investment grade tenant. All of our tenants may face
exposure to adverse business or economic conditions which could lead to an inability to meet their obligations to us. However,
non-investment grade tenants may not have the financial capacity or liquidity to adapt to these conditions or may have less diversified
businesses, which may exacerbate the effects of adverse conditions on their businesses. Moreover, the fact that so many of our
tenants are not investment grade may cause investors or lenders to view our cash flows as less stable, which may increase our
cost of capital, limit our financing options or adversely affect the trading price of our stock.
The actual rents we receive for our portfolio may be less
than our asking rents, and we may experience lease roll down from time to time.
As a result of various factors, including competitive
pricing pressure in our submarkets, adverse conditions in our target markets, a general economic downturn and a decline in the
desirability of our properties compared to other properties in our submarkets, we may be unable to realize the asking rents for
properties in our portfolio. In addition, the degree of discrepancy between our asking rents and the actual rents we are able
to obtain may vary both from property to property and among different leased spaces within a single property. If we are unable
to obtain rental rates comparable to our asking rents for the properties in our portfolio, our ability to generate cash flow growth
will be negatively impacted. In addition, depending on fluctuations in asking rental rates at any given time, from time to time
rental rates for expiring leases in our portfolio may be higher than starting rental rates for new leases.
Our acquisition of properties or portfolios of properties
through tax-deferred contribution transactions, which could result in stockholder dilution and limit our ability to sell such
assets.
We have acquired, and in the future we may
acquire properties or portfolios of properties through tax-deferred contribution transactions in exchange for OP units, which
may result in stockholder dilution. This acquisition structure may have the effect of, among other things, reducing the amount
of tax depreciation we are able to deduct over the tax life of the acquired properties, and requires that we agree to protect
the contributors’ ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired
properties and/or the allocation of partnership debt to the contributors to maintain their tax bases. These restrictions limit
our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.
Any real estate development and re-development activities
are subject to risks particular to development and re-development.
We may engage in development and redevelopment
activities with respect to certain of our properties. To the extent that we do so, we will be subject to the following risks associated
with such development and redevelopment activities:
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unsuccessful
development or redevelopment opportunities could result in direct expenses to us;
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construction
or redevelopment costs of a project may exceed original estimates, possibly making the
project less profitable than originally estimated, or unprofitable;
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time required
to complete the construction or redevelopment of a project or to lease up the completed
project may be greater than originally anticipated, thereby adversely affecting our cash
flow and liquidity;
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contractor and
subcontractor disputes, strikes, labor disputes or supply disruptions;
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failure to achieve
expected occupancy and/or rent levels within the projected time frame, if at all;
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delays with
respect to obtaining or the inability to obtain necessary zoning, occupancy, land use
and other governmental permits, and changes in zoning and land use laws;
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occupancy rates
and rents of a completed project may not be sufficient to make the project profitable;
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our ability
to dispose of properties developed or redeveloped with the intent to sell could be impacted
by the ability of prospective buyers to obtain financing given the current state of the
credit markets; and
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the availability
and pricing of financing to fund our development activities on favorable terms or at
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These risks could result in substantial unanticipated
delays or expenses and, under certain circumstances, could prevent completion of development or redevelopment activities once
undertaken, any of which could have an adverse effect on our financial condition, results of operations, cash flows and our ability
to pay distributions on, and the per share trading price of, our stock.
Our success depends on key personnel whose continued service
is not guaranteed, and the departure of one or more of our key personnel could adversely affect our ability to manage our business
and to implement our growth strategies, or could create a negative perception in the capital markets.
Our continued success and our ability to manage
anticipated future growth depend, in large part, upon the efforts of key personnel, particularly Mr. Jeffrey E. Witherell, our
Chief Executive Officer, and Mr. Pendleton P. White, Jr., our President and Chief Investment Officer, who have extensive market
knowledge and relationships and exercise substantial influence over our operational, financing, acquisition and disposition activity.
Our ability to retain our senior management,
particularly Messrs. Witherell and White, or to attract suitable replacements should any member of our senior management leave,
is dependent on the competitive nature of the employment market. We have not obtained and do not expect to obtain key man life
insurance on any of our key personnel. The loss of services of one or more members of our senior management team, or our inability
to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and
weaken our relationships with lenders, business partners, existing and prospective tenants and industry participants. Further,
the loss of a member of our senior management team could be negatively perceived in the capital markets. Any of these developments
could adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and
the value of, our stock.
Potential losses, including from adverse weather conditions
and natural disasters, may not be covered by insurance.
We carry commercial property, liability and
terrorism coverage on all the properties in our portfolio under a blanket insurance policy, in addition to other coverages that
may be appropriate for certain of our properties. We will select policy specifications and insured limits that we believe to be
appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. Some of our policies
will be insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient
to cover losses, which could affect certain of our properties that are located in areas particularly susceptible to natural disasters.
In addition, we may discontinue terrorism or other insurance on some or all of our properties in the future if the cost of premiums
for any such policies exceeds, in our judgment, the value of the coverage discounted for the risk of loss. We do not carry insurance
for certain types of extraordinary losses, such as loss from riots, war, earthquakes and wildfires because such coverage may not
be available or is cost prohibitive or available at a disproportionately high cost. As a result, we may incur significant costs
in the event of loss from riots, war, earthquakes, wildfires and other uninsured losses.
If we or one or more of our tenants experiences
a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged properties as well as
the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness,
we would continue to be liable for the indebtedness, even if these properties were irreparably damaged. Furthermore, we may not
be able to obtain adequate insurance coverage at reasonable costs in the future as the costs associated with property and casualty
renewals may be higher than anticipated.
We may not be able to rebuild our portfolio to its existing
specifications if we experience a substantial or comprehensive loss of such properties.
In the event that we experience a substantial
or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications. Further,
reconstruction or improvement of such a property would likely require significant upgrades to meet zoning and building code requirements.
Environmental and legal restrictions could also restrict the rebuilding of our properties.
Existing conditions at some of our properties may expose
us to liability related to environmental matters.
Independent environmental consultants conduct
a Phase I or similar environmental site assessment of our properties at the time of their acquisition or in connection with
subsequent financings. Such Phase I or similar environmental site assessments are limited in scope and may not include or identify
all potential environmental liabilities or risks associated with the relevant properties. We have not obtained and do not intend
to obtain new or updated Phase I or similar environmental site assessments, which may expose
us to liability related to unknown or unanticipated environmental matters. Unless required by applicable laws or regulations,
we may not further investigate, remedy or ameliorate the liabilities disclosed in the existing Phase I or similar environmental
site assessments and this failure may expose us to liability in the future.
We may be unable to sell a property if or when we decide
to do so.
We expect to hold the various properties in
our portfolio until such time as we decide that a sale or other disposition is appropriate. Our ability to dispose of properties
on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of
attractive financing for potential buyers of our properties. We cannot predict the various market conditions affecting the industrial
real estate market which will exist at any particular time in the future. Due to the uncertainty of market conditions which may
affect the future disposition of our properties, we cannot assure you that we will be able to sell our properties at a profit
in the future, which could adversely affect our financial condition, results of operations, cash flows and our ability to pay
distributions on, and the value of, our stock.
Furthermore, we may be required to expend funds
to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available
to correct such defects or to make such improvements.
Joint venture investments could be adversely affected by
our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and
our co-venturers.
We may co-invest in the future with third parties
through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for managing
the affairs of a property, partnership, joint venture or other entity. In such event, we would not be in a position to exercise
sole decision-making authority regarding the property, partnership, joint venture or other entity. Investments in partnerships,
joint ventures or other entities 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 share of required capital
contributions. Partners or 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, and they may have
competing interests in our markets that could create conflict of interest issues. Such investments may also have the potential
risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturers would have full control over
the partnership or joint venture. In addition, prior consent of our joint venture partners may be required for a sale or transfer
to a third party of our interests in the joint venture, which would restrict our ability to dispose of our interest in the joint
venture. If we become a limited partner or non-managing member in any partnership or limited liability company and such entity
takes or expects to take actions that could jeopardize our company’s status as a REIT or require us to pay tax, we may be
forced to dispose of our interest in such entity. Disputes between us and partners or 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 partners or co-venturers might result in subjecting properties owned by
the partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of
our third-party partners or co-venturers. Our joint ventures may be subject to debt and, in the current volatile credit market,
the refinancing of such debt may require equity capital calls.
If we fail to implement and maintain an effective system
of integrated internal controls, we may not be able to accurately report our financial results.
As a publicly traded company, we are required
to comply with the applicable provisions of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness
of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing
these assessments. Effective internal and disclosure controls are necessary for us to provide reliable financial reports and
effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or
prevent fraud, our reputation and operating results would be harmed. The process for designing and implementing an effective system
of integrated internal controls is a continuous effort that requires significant resources and devotion of time, and material
weaknesses in our internal controls also may result in certain deficiencies in our disclosure controls and procedures.
Any failure to maintain effective controls
or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to
fail to meet our reporting obligations, which could adversely affect our ability to remain listed with the NYSE. Ineffective internal
and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely
have a negative effect on the per share trading price of our stock.
Our growth depends on external sources of capital that
are outside of our control and may not be available to us on commercially reasonable terms or at all.
In order to maintain our qualification as a
REIT, we are required under the Code, among other things, to distribute annually at least 90% of our REIT taxable income, determined
without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax
at regular corporate rates to the extent that we distribute less than 100% of our REIT taxable income, including any net capital
gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition
financing, from operating cash flow. Consequently, we intend to rely on third-party sources to fund our capital needs. We may
not be able to obtain such financing on favorable terms or at all and any additional debt we incur will increase our leverage
and likelihood of default. Our access to third-party sources of capital depends, in part, on:
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general market
conditions;
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the market’s
perception of our growth potential;
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our current
debt levels;
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our current
and expected future earnings;
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our cash flow
and cash distributions; and
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the market price
per share of our common stock.
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In recent years, the capital markets have been
subject to significant disruptions. If we cannot obtain capital from third-party sources, we may not be able to acquire or develop
properties when strategic opportunities exist, meet the capital and operating needs of our portfolio, satisfy our debt service
obligations or make the cash distributions to our stockholders necessary to maintain our qualification as a REIT.
Risks Related to the Real Estate Industry
Our performance and value are subject to risks associated
with real estate assets and the real estate industry.
Our ability to pay expected dividends to our
stockholders depends on our ability to generate revenues in excess of expenses, scheduled principal payments on debt and capital
expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond
our control may decrease cash available for distribution and the value of our properties. These events include many of the risks
set forth above under “—Risks Related to Our Business and Operations,” as well as the following:
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local oversupply
or reduction in demand for industrial space;
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adverse changes
in financial conditions of buyers, sellers and tenants of properties;
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vacancies or
our inability to rent space on favorable terms, including possible market pressures to
offer tenants rent abatements, tenant improvements, early termination rights or below-market
renewal options, and the need to periodically repair, renovate and re-lease space;
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increased operating
costs, including insurance premiums, utilities, real estate taxes and state and local
taxes;
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civil unrest,
acts of war, terrorist attacks and natural disasters, including earthquakes, floods and
wildfires, which may result in uninsured or underinsured losses;
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decreases in
the underlying value of our real estate;
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changing submarket
demographics; and
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changing traffic
patterns.
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In addition, periods of economic downturn or
recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur,
could result in a general decline in rents or an increased incidence of defaults under existing leases, which would adversely
affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading
price of, our stock.
Illiquidity of real estate investments could significantly
impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.
The real estate investments made, and to be
made, by us are relatively difficult to sell quickly. As a result, our ability to promptly sell one or more properties in our
portfolio in response to changing economic, financial and investment conditions is limited. Return of capital and realization
of gains, if any, from an investment generally will occur upon disposition or refinancing of the underlying property. We may be
unable to realize our investment objectives by sale, other disposition or refinancing at attractive prices within any given period
of time or may otherwise be unable to complete any exit strategy. Our ability to dispose of one or more properties within a specific
time period is subject to the possible weakness in or even the lack of an established market for a property, changes in the financial
condition or prospects of prospective purchasers, changes in national or international economic conditions, and changes in laws,
regulations or fiscal policies of jurisdictions in which the property is located.
In addition, the Code imposes restrictions
on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies. In particular,
the tax laws applicable to REITs effectively require that we hold our properties for investment, rather than primarily for sale
in the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in our best
interest. Therefore, we may not be able to vary our portfolio in response to economic or other conditions promptly or on favorable
terms, which may adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions
on, and the per share trading price of, our stock.
Declining real estate valuations and impairment charges
could materially adversely affect our financial condition, results of operations, cash flows and ability to pay distributions
on, and the per share trading price of, our stock.
We intend to review the carrying value of our
properties when circumstances, such as adverse market conditions, indicate a potential impairment may exist. We intend to base
our review on an estimate of the future cash flows (excluding interest charges) expected to result from the property’s use
and eventual disposition on an undiscounted basis. We intend to consider factors such as future operating income, trends and prospects,
as well as the effects of leasing demand, competition and other factors. If our evaluation indicates that we may be unable to
recover the carrying value of a real estate investment, an impairment loss will be recorded to the extent that the carrying value
exceeds the estimated fair value of the property.
Impairment losses have a direct impact on our
operating results because recording an impairment loss results in an immediate negative adjustment to our operating results. The
evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental
rates and capital requirements that could differ materially from actual results in future periods. A worsening real estate market
may cause us to reevaluate the assumptions used in our impairment analysis. Impairment charges could materially adversely affect
our financial condition, results of operations, cash flows and ability to pay distributions on, and the per share trading price
of, our stock.
Adverse economic conditions and the dislocation in the
credit markets could materially adversely affect our financial condition, results of operations, cash flows and ability to pay
distributions on, and the per share trading price of, our stock.
Ongoing challenging economic conditions have
negatively impacted the lending and capital markets, particularly for real estate. The capital markets have experienced significant
adverse conditions in recent years, including a substantial reduction in the availability of, and access to, capital. The risk
premium demanded by lenders has increased markedly, as they are demanding greater compensation for risk, and underwriting standards
have been tightened. In addition, failures and consolidations of certain financial institutions have decreased the number of potential
lenders, resulting in reduced lending sources available to the market. These conditions may limit the amount of indebtedness we
are able to obtain and our ability to refinance our indebtedness, and may impede our ability to develop new properties and to
replace construction financing with permanent financing, which could result in our having to sell properties at inopportune times
and on unfavorable terms. If these conditions continue, our financial condition, results of operations, cash flows and ability
to pay distributions on, and the per share trading price of, our stock could be materially adversely affected.
The lack of availability of debt financing
may require us to rely more heavily on additional equity issuances, which may be dilutive to our current stockholders, or on less
efficient forms of debt financing. Additionally, the limited amount of financing currently available may reduce the value of our
properties and limit our ability to borrow against such properties, which could materially adversely affect our financial condition,
results of operations, cash flows and ability to pay distributions on, and the per share trading price of, our stock.
Acquired properties may be located in new markets where
we may face risks associated with investing in an unfamiliar market.
We have acquired, and may continue to acquire,
properties in markets that are new to us. When we acquire properties located in new markets, we may face risks associated with
a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity
with local government and permitting procedures.
We may choose not to distribute the proceeds of any sales
of real estate to our stockholders, which may reduce the amount of our cash distributions to stockholders.
We may choose not to distribute any proceeds
from the sale of real estate investments to our stockholders. Instead, we may elect to use such proceeds to:
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acquire additional
real estate investments;
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buy out interests
of any partners in any joint venture in which we are a party;
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create working
capital reserves; or
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make repairs,
maintenance, tenant improvements or other capital improvements or expenditures on our
other properties.
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Any decision to retain or invest the proceeds
of any sales, rather than distribute such proceeds to our stockholders may reduce the amount of cash distributions you receive
on your stock.
Uninsured losses relating to real property may adversely
affect your returns.
We attempt to ensure that all of our properties
are adequately insured to cover casualty losses. However, there are certain losses, including losses from floods, earthquakes,
wildfires, acts of war, acts of terrorism or riots, that are not generally insured against or that are not generally fully insured
against because it is not deemed economically feasible or prudent to do so. In addition, changes in the cost or availability of
insurance could expose us to uninsured casualty losses. In the event that any of our properties incurs a casualty loss that is
not fully covered by insurance, the value of our assets will be reduced by the amount of any such uninsured loss, and we could
experience a significant loss of capital invested and potential revenue in these properties and could potentially remain obligated
under any recourse debt associated with the property. Moreover, we, as the general partner of our operating partnership, generally
will be liable for all of our operating partnership’s unsatisfied recourse obligations, including any obligations incurred
by our operating partnership as the general partner of joint ventures. Any such losses could adversely affect our financial condition,
results of operations, cash flows and ability to pay distributions on, and the per share trading price of, our stock. In addition,
we may have no source of funding to repair or reconstruct the damaged property, and we cannot assure you that any such sources
of funding will be available to us for such purposes in the future. We evaluate our insurance coverage annually in light of current
industry practice through an analysis prepared by outside consultants.
Our property taxes could increase due to property tax rate
changes or reassessment, which could adversely impact our cash flows.
Even if we maintain our qualification as a
REIT for federal income tax purposes, we will be required to pay some state and local taxes on our properties. The real property
taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities.
The amount of property taxes we pay in the future may increase substantially from what we have paid in the past. If the property
taxes we pay increase, our cash flow would be adversely impacted to the extent that we are not reimbursed by tenants for those
taxes, and our ability to pay any expected dividends to our stockholders could be adversely affected.
We could incur significant costs related to government
regulation and litigation over environmental matters.
Under various federal, state and local laws
and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs
and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in,
under or migrating to or from such property, including costs to investigate, clean up such contamination and liability for harm
to natural resources. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible
for, the presence of such contamination, and the liability may be joint and several. These liabilities could be substantial and
the cost of any required remediation, removal, fines or other costs could exceed the value of the property and/or our aggregate
assets. In addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to
third-party liability for costs of remediation and/or personal, property, or natural resources damage or materially adversely
affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In addition, environmental
laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination.
Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which
property may be used or businesses may be operated, and these restrictions may require substantial expenditures.
Some of the properties in our portfolio have
been or may be impacted by contamination arising from current or prior uses of the property, or adjacent properties, for commercial
or industrial purposes. Such contamination may arise from spills of petroleum or hazardous substances or releases from tanks used
to store such materials.
From time
to time, we may acquire properties with known adverse environmental conditions where we believe that the environmental liabilities
associated with these conditions are quantifiable and that the acquisition will yield a superior risk-adjusted return. We usually
perform a Phase I environmental site assessment at any property we are considering acquiring. In connection with certain financing
transactions our lenders have commissioned independent environmental consultants to conduct Phase I environmental site assessments
on the properties in our portfolio. However, we have not always received copies of the Phase I environmental site assessment reports
commissioned by our lenders and, as such, may not be aware of all potential or existing environmental contamination liabilities
at the properties in our portfolio. In addition, Phase I environmental site assessments are limited in scope and do not involve
sampling of soil, soil vapor, or groundwater, and these assessments may not include or identify all potential environmental liabilities
or risks associated with the property. Even where subsurface investigation is performed, it can be very difficult to ascertain
the full extent of environmental contamination or the costs that are likely to flow from such contamination. We cannot assure
you that the Phase I environmental site assessment or other environmental studies identified all potential environmental liabilities,
or that we will not face significant remediation costs or other environmental contamination that makes it difficult to sell any
affected properties. Also, we have not always implemented actions recommended by these assessments, and recommended investigation
and remediation of known or suspected contamination has not always been performed. As a result, we could potentially incur material
liability for these issues, which could adversely impact our financial condition, results of operations, cash flows and ability
to pay distributions on, and the per share trading price of, our stock.
Environmental laws also govern the presence,
maintenance and removal of asbestos-containing building materials, or ACBM, and may impose fines and penalties for failure to
comply with these requirements. Such laws require that owners or operators of buildings containing ACBM (and employers in such
buildings) properly manage and maintain the asbestos, adequately notify or train those who may come into contact with asbestos,
and undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition
of a building. In addition, the presence of ACBM in our properties may expose us to third-party liability (e.g., liability
for personal injury associated with exposure to asbestos).
In addition, the properties in our portfolio
also are subject to various federal, state and local environmental and health and safety requirements, such as state and local
fire requirements. Moreover, some of our tenants routinely handle and use hazardous or regulated substances and wastes as part
of their operations at our properties, which are subject to regulation. Such environmental and health and safety laws and regulations
could subject us or our tenants to liability resulting from these activities. Environmental liabilities could affect a tenant’s
ability to make rental payments to us. In addition, changes in laws could increase the potential liability for noncompliance.
This may result in significant unanticipated expenditures or may otherwise materially and adversely affect our operations, or
those of our tenants, which could in turn have a material adverse effect on us.
We cannot assure you that costs or liabilities
incurred as a result of environmental issues will not affect our ability to make distributions to you or that such costs or other
remedial measures will not have an adverse effect on our financial condition, results of operations, cash flows and our ability
to pay distributions on, and the per share trading price of, our stock. If we do incur material environmental liabilities in the
future, we may face significant remediation costs, and we may find it difficult to sell any affected properties.
Our properties may contain or develop harmful mold or suffer
from other air quality issues, which could lead to liability for adverse health effects and costs of remediation.
When excessive moisture accumulates in buildings
or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed
over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate
ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses
and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse
health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne
contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold
or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant
mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property
damage or personal injury is alleged to have occurred.
We may incur significant costs complying with various federal,
state and local laws, regulations and covenants that are applicable to our properties.
The properties in our portfolio are subject
to various covenants and federal, state and local laws and regulatory requirements, including permitting and licensing requirements.
Local regulations, including municipal or local ordinances and zoning restrictions may restrict our use of our properties and
may require us to obtain approval from local officials or restrict our use of our properties and may require us to obtain approval
from local officials of community standards organizations at any time with respect to our properties, including prior to acquiring
a property or when undertaking renovations of any of our portfolio. Among other things, these restrictions may relate to fire
and safety, seismic or hazardous material abatement requirements. There can be no assurance that existing laws and regulatory
policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations
will not be adopted that increase such delays or result in additional costs. Our growth strategy may be adversely affected by
our ability to obtain permits, licenses and zoning relief. Our failure to obtain such permits, licenses and zoning relief or to
comply with applicable laws could have an adverse effect on our financial condition, results of operations, cash flows and our
ability to pay distributions on, and the per share trading price of, our stock.
In addition, federal and state laws and regulations,
including laws such as the Americans with Disabilities Act, or ADA, and the Fair Housing Amendment Act of 1988, or FHAA, impose
further restrictions on our properties and operations. Under the ADA and the FHAA, all public accommodations must meet federal
requirements related to access and use by disabled persons. Some of our properties may currently be in non-compliance with the
ADA or the FHAA. If one or more of the properties in our portfolio is not in compliance with the ADA, the FHAA or any other regulatory
requirements, we may be required to incur additional costs to bring the property into compliance, including the removal of access
barriers, and we might incur governmental fines or the award of damages to private litigants. In addition, we do not know whether
existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures
that will adversely impact our financial condition, results of operations, cash flows and our ability to pay distributions on,
and the per share trading price of, our stock.
Risks Related to Our Organizational Structure
Conflicts of interest may exist or could arise in the future
between the interests of our stockholders and the interests of holders of OP units, which may impede business decisions that could
benefit our stockholders.
Conflicts of interest may exist or could arise
in the future as a result of the relationships between us and our affiliates, on the one hand, and our operating partnership or
any partner thereof, on the other. Our directors and officers have duties to our company under Maryland law in connection with
their management of our company. At the same time, we, as the general partner of our operating partnership, have fiduciary duties
and obligations to our operating partnership and its limited partners under Delaware law and the partnership agreement of our
operating partnership in connection with the management of our operating partnership. Our fiduciary duties and obligations as
the general partner of our operating partnership may come into conflict with the duties of our directors and officers to our company.
Under Delaware law, a general partner of a
Delaware limited partnership has fiduciary duties of loyalty and care to the partnership and its partners and must discharge its
duties and exercise its rights as general partner under the partnership agreement or Delaware law consistent with the obligation
of good faith and fair dealing. The partnership agreement provides that, in the event of a conflict between the interests of our
operating partnership or any partner, on the one hand, and the separate interests of our company or our stockholders, on the other
hand, we, in our capacity as the general partner of our operating partnership, may give priority to the separate interests of
our company or our stockholders (including with respect to tax consequences to limited partners, assignees or our stockholders),
and, in the event of such a conflict, any action or failure to act on our part or on the part of our directors that gives priority
to the separate interests of our company or our stockholders that does not result in a violation of the contract rights of the
limited partners of our operating partnership under its partnership agreement does not violate the duty of loyalty or any other
duty that we, in our capacity as the general partner of our operating partnership, owe to our operating partnership and its partners
or violate the obligation of good faith and fair dealing.
Additionally, the partnership agreement provides
that we generally will not be liable to our operating partnership or any partner for any action or omission taken in our capacity
as general partner, for the debts or liabilities of our operating partnership or for the obligations of the operating partnership
under the partnership agreement, except for liability for our fraud, willful misconduct or gross negligence, pursuant to any express
indemnity we may give to our operating partnership or in connection with a redemption of our OP units. Our operating partnership
must indemnify us, our directors and officers, officers of our operating partnership and our designees from and against any and
all claims that relate to the operations of our operating partnership, unless (1) an act or omission of the person was material
to the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty,
(2) the person actually received an improper personal benefit in violation or breach of the partnership agreement or (3) in the
case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. Our
operating partnership must also pay or reimburse the reasonable expenses of any such person in advance of a final disposition
of the proceeding upon its receipt of a written affirmation of the person’s good faith belief that the standard of conduct
necessary for indemnification has been met and a written undertaking to repay any amounts paid or advanced if it is ultimately
determined that the person did not meet the standard of conduct for indemnification. Our operating partnership is not required
to indemnify or advance funds to any person with respect to any action initiated by the person seeking indemnification without
our approval (except for any proceeding brought to enforce such person’s right to indemnification under the partnership
agreement) or if the person is found to be liable to our operating partnership on any portion of any claim in the action.
Our charter and bylaws, the partnership agreement
of our operating partnership and Maryland law contain provisions that may delay, defer or prevent a change of control transaction.
Our charter contains certain ownership limits with respect
to our stock.
Our charter authorizes our board of directors
to take such actions as it determines are advisable, in its sole and absolute discretion, to preserve our qualification as a REIT.
Our charter also prohibits the actual, beneficial or constructive ownership by any person of more than 9.8% in value or number
of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock, in each case
excluding any shares that are not treated as outstanding for federal income tax purposes. Our board of directors, in its sole
and absolute discretion, may exempt a person, prospectively or retroactively, from these ownership limits if certain conditions
are satisfied. However, our bylaws provide that the board of directors must waive the ownership limit with respect to a particular
person if it: (1) determines that such person’s ownership will not cause any individual’s beneficial ownership of
shares of our stock to violate the ownership limit and that any exemption from the ownership limit will not jeopardize our status
as a REIT; and (2) determines that such stockholder does not and will not own, actually or constructively, an interest in a tenant
of ours (or a tenant of any entity whose operations are attributed in whole or in part to us) that would cause us to own, actually
or constructively, more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant or that any such
ownership would not cause us to fail to qualify as a REIT under the Code. The restrictions on ownership and transfer of our stock
may:
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discourage a
tender offer or other transactions or a change in management or of control that might
involve a premium price for our common stock or that our stockholders otherwise believe
to be in their best interests; or
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result in the
transfer of shares acquired in excess of the restrictions to a trust for the benefit
of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits
of owning the additional shares.
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We could increase the number of authorized shares of stock,
classify and reclassify unissued stock and issue stock without stockholder approval.
Our board of directors, without stockholder
approval, has the power under our charter to amend our charter to increase the aggregate number of shares of stock or the number
of shares of stock of any class or series that we are authorized to issue, to authorize us to issue authorized but unissued shares
of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock
into one or more classes or series of stock and set the terms of such newly classified or reclassified shares. As a result, we
may issue additional classes or series of preferred stock with preferences, powers and rights, voting or otherwise, that are senior
to, or otherwise conflict with, the rights of holders of our common stock and could, depending on the terms of such series, delay
or prevent a transaction or change of control that might involve a premium price for our common stock or that our stockholders
otherwise believe to be in their best interest. The holders of our common stock bear the risk of our future offerings reducing
the market price of our securities and diluting their proportionate ownership.
The number of shares of our common stock available for
future issuance or sale could adversely affect the per share trading price of our common stock.
From time to time we intend to issue additional
shares of common stock or OP units, which, at our option may be redeemed for shares of our common stock, in connection with the
acquisition of investments, as compensation or otherwise. In addition, at December 31, 2019, 117,847 shares of restricted
common stock were available for issuance under our 2014 Incentive Award Plan. We also have outstanding 250,000 warrants
that are exercisable up to and including June 8, 2022. Each warrant initially represents the right to purchase one share
of our common stock at a price of $23.00 per share. The number of shares deliverable upon the exercise of the warrants is
subject to adjustment and certain anti-dilution protection as provided in the warrant agreement. We cannot predict whether
future issuances or sales of shares of our common stock or the availability of shares for resale in the open market will decrease
the per share trading price per share of our common stock.
The rights of the holders of our common stock are limited
by and subordinate to the rights of the holders of our Series A Preferred Stock and Series B Preferred Stock and these rights
may have a negative effect on the value of shares of our common stock.
The holders of shares of our 7.50% Series A
Cumulative Redeemable Preferred Stock, or the Series A Preferred Stock, and our Series B Convertible Redeemable Preferred Stock,
or the Series B Preferred Stock, have rights and preferences generally senior to those of the holders of our common stock. The
existence of these senior rights and preferences may have a negative impact on the value of shares of our common stock. These
rights are more fully set forth in the articles supplementary governing our Series A Preferred Stock and Series B Preferred Stock
and include, but are not limited to: (i) the right to receive a liquidation preference, prior to any distribution of our assets
to the holders of our common stock and (ii) the right to cause us to redeem the shares of Series A Preferred Stock and Series
B Preferred Stock under certain circumstances. The holders of the shares of Series B Preferred Stock also have the right to covert
those shares into shares of our common stock under certain circumstances. In addition, the Series A Preferred Stock and the Series
B Preferred Stock rank senior to our common stock with respect to dividend payments, which may limit our ability to make distributions
to holders of our common stock.
Certain provisions of Maryland law could inhibit changes
in control, which may discourage third parties from conducting a tender offer or seeking other change of control transactions
that could trigger rights to require us to redeem our shares of common stock.
Certain provisions of the Maryland General
Corporation Law (“MGCL”) may have the effect of inhibiting a third party from making a proposal to acquire us
or of impeding a change of control under circumstances that otherwise could provide the holders of shares of our common stock
with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
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“business
combination” provisions that, subject to certain exceptions, prohibit certain business
combinations between us and an “interested stockholder” (defined generally
as any person who beneficially owns 10% or more of the voting power of our shares or
an affiliate thereof or an affiliate or associate of ours who was the beneficial owner,
directly or indirectly, of 10% or more of the voting power of our then outstanding voting
stock at any time within the two-year period; and
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“control
share” provisions that provide that holders of “control shares” of
our company (defined as shares that, when aggregated with other shares controlled by
the stockholder, entitle the stockholder to exercise voting power in the election of
directors within one of three increasing ranges) acquired in a “control share acquisition”
(defined as the direct or indirect acquisition of ownership or control of the voting
power of issued and outstanding “control shares,” subject to certain exceptions)
have no voting rights with respect to their control shares, except to the extent approved
by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled
to be cast on the matter, excluding all interested shares.
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As permitted by the MGCL, our bylaws provide
that we will not be subject to the control share provisions of the MGCL, and our board of directors has, by resolution, exempted
us from the business combination between us and any other person. In addition, the board resolution opting out of the business
combination provisions of the MGCL provides that any alteration or repeal of the resolution shall be valid only if approved, at
a meeting duly called, by the affirmative vote of a majority of votes cast by stockholders entitled to vote generally for directors,
and our bylaws provide that any such alteration or repeal of the resolution, or any amendment, alteration or repeal of the provision
in our bylaws exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock,
will be valid only if approved, at a meeting duly called, by the affirmative vote of a majority of votes cast by stockholders
entitled to vote generally for directors.
Certain provisions of the MGCL permit the board
of directors of a Maryland corporation with at least three independent directors and a class of stock registered under the Exchange
Act without stockholder approval and regardless of what is currently provided in its charter or bylaws, to implement certain corporate
governance provisions, some of which (for example, a classified board) are not currently applicable to us. These provisions may
have the effect of limiting or precluding a third party from making an unsolicited acquisition proposal for our company or of
delaying, deferring or preventing a change in control under circumstances that otherwise could provide the holders of our stock
with the opportunity to realize a premium over the current market price.
Certain provisions in the partnership agreement of our
operating partnership may delay or prevent unsolicited acquisitions of us.
Provisions of the partnership agreement of
our operating partnership may delay or make more difficult unsolicited acquisitions of us or changes of our control. These provisions
could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although
some stockholders or limited partners might consider such proposals, if made, desirable. These provisions include, among others:
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redemption rights
of qualifying parties;
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a requirement
that we may not be removed as the general partner of our operating partnership without
our consent;
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transfer restrictions
on OP units;
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our ability,
as general partner, in some cases, to amend the partnership agreement and to cause our
operating partnership to issue additional partnership interests with terms that could
delay, defer or prevent a merger or other change of control of us or our operating partnership
without the consent of our stockholders or the limited partners; and
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the right of
the limited partners to consent to certain transfers of our general partnership interest
(whether by sale, disposition, statutory merger or consolidation, liquidation or otherwise).
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Our charter and bylaws, the partnership agreement
of our operating partnership and Maryland law also contain other provisions that may delay, defer or prevent a transaction or
a change of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in
their best interest.
Our board of directors may change our investment and financing
policies without stockholder approval and we may become more highly leveraged, which may increase our risk of default under our
debt obligations.
Our investment and financing policies are exclusively
determined by our board of directors. Accordingly, our stockholders, do not control these policies. Further, our charter and bylaws
do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our board of directors may alter
or eliminate our current policy on borrowing at any time without stockholder approval. If this policy changed, we could become
more highly leveraged which could result in an increase in our debt service. Higher leverage also increases the risk of default
on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources
across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real
estate market fluctuations and liquidity risk. Changes to our policies with regard to the foregoing could adversely affect our
financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price
of, our stock.
Our rights and the rights of our stockholders to take action
against our directors and officers are limited.
As permitted by Maryland law, our charter eliminates
the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:
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actual receipt
of an improper benefit or profit in money, property or services; or
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active and deliberate
dishonesty by the director or officer that was established by a final judgment and was
material to the cause of action adjudicated.
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In addition, our charter authorizes us to obligate
our company, and our bylaws require us, to indemnify our directors and officers for actions taken by them in those and certain
other capacities to the maximum extent permitted by Maryland law in effect from time to time. Generally, Maryland law permits
a Maryland corporation to indemnify its present and former directors and officers except in instances where the person seeking
indemnification acted in bad faith or with active and deliberate dishonesty, actually received an improper personal benefit in
money, property or services or, in the case of a criminal proceeding, had reasonable cause to believe that his or her actions
were unlawful. Under Maryland law, a Maryland corporation also may not indemnify a director or officer in a suit by or on behalf
of the corporation in which the director or officer was adjudged liable to the corporation or for a judgment of liability on the
basis that a personal benefit was improperly received. A court may order indemnification if it determines that the director or
officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed
standard of conduct; however, indemnification for an adverse judgment in a suit by us or on our behalf, or for a judgment of liability
on the basis that personal benefit was improperly received, is limited to expenses. As a result, we and our stockholders may have
more limited rights against our directors and officers than might otherwise exist. Accordingly, in the event that actions taken
in good faith by any of our directors or officers impede the performance of our company, your ability to recover damages from
such director or officer will be limited.
We are a holding company with no direct operations and,
as such, we will rely on funds received from our operating partnership to pay liabilities, and the interests of our stockholders
will be structurally subordinated to all liabilities and obligations of our operating partnership and its subsidiaries.
We are a holding company and conduct substantially
all of our operations through our operating partnership. We do not have, apart from an interest in our operating partnership,
any independent operations. As a result, we will rely on distributions from our operating partnership to pay any distributions
we might declare on our stock. We will also rely on distributions from our operating partnership to meet any of our obligations,
including any tax liability on taxable income allocated to us from our operating partnership. In addition, because we are a holding
company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations
(whether or not for borrowed money) of our operating partnership and its subsidiaries. Therefore, in the event of our bankruptcy,
liquidation or reorganization, our assets and those of our operating partnership and its subsidiaries will be available to satisfy
the claims of our stockholders only after all of our and our operating partnership’s and its subsidiaries’ liabilities
and obligations have been paid in full.
Our operating partnership may issue additional
OP units to third parties without the consent of our stockholders, which would reduce our ownership percentage in our operating
partnership and would have a dilutive effect on the amount of distributions made to us by our operating partnership and, therefore,
the amount of distributions we can make to our stockholders.
As of December 31, 2019, we have issued 875,269
OP units in connection with the acquisition of certain properties in our portfolio and may in the future, in connection with our
acquisition of properties or otherwise, cause our operating partnership to issue additional OP units to third parties. Such issuances
would reduce our ownership percentage in our operating partnership and affect the amount of distributions made to us by our operating
partnership and, therefore, the amount of distributions we can make to our stockholders. Because you will not directly own OP
units, you will not have any voting rights with respect to any such issuances or other partnership level activities of our operating
partnership.
Risks Related to Our Status as a REIT
Failure to maintain our qualification as a REIT would have
significant adverse consequences to us and the per share trading price of our stock.
We have elected to be taxed as a REIT for federal
income tax purposes commencing with our taxable year ended December 31, 2012 and have operated in a manner that we believe will
allow us to maintain our qualification as a REIT. We cannot assure you that we will remain qualified as a REIT in the future.
If we lose our REIT qualification, we will face serious tax consequences that would substantially reduce the funds available for
distribution to you for each of the years involved because:
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we would not
be allowed a deduction for distributions to stockholders in computing our taxable income
and would be subject to federal income tax at regular corporate rates;
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we also could
be subject to the federal alternative minimum tax (for taxable years prior to 2018) and
possibly increased state and local taxes; and
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Any such corporate tax liability could be substantial
and would reduce our cash available for, among other things, our operations and distributions to stockholders. In addition, if
we fail to maintain our qualification as a REIT, we will not be required to make distributions to our stockholders. As a result
of all these factors, our failure to maintain our qualification as a REIT also could impair our ability to expand our business
and raise capital, and could materially and adversely affect the per share trading price of our stock.
Qualification as a REIT involves the application
of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations.
The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Code, or the
Treasury regulations, is greater in the case of a REIT that, like us, holds its assets through a partnership. The determination
of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order
to maintain our qualification as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership
of our stock, requirements regarding the composition of our assets and a requirement that at least 95% of our gross income in
any year must be derived from qualifying sources, such as “rents from real property.” Also, we must make distributions
to stockholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid
deduction and excluding net capital gains and losses. In addition, legislation, new regulations, administrative interpretations
or court decisions may materially adversely affect our investors, our ability to maintain our qualification as a REIT for federal
income tax purposes or the desirability of an investment in a REIT relative to other investments. Even if we maintain our qualification
as a REIT for federal income tax purposes, we may be subject to some federal, state and local income, property and excise taxes
on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer. In addition, any
taxable REIT subsidiaries that we own will be subject to tax as regular C corporations in the jurisdictions in which they operate.
If our operating partnership failed to qualify as a partnership
or a disregarded entity for federal income tax purposes, we would cease to qualify as a REIT and suffer other adverse consequences.
We believe that our operating partnership will
be treated as a partnership or a disregarded entity for federal income tax purposes. During periods in which our operating partnership
is treated as a disregarded entity, our operating partnership will not be subject to federal income tax on its income. Rather,
its income will be attributed to us as the sole owner for federal income tax purposes of the operating partnership. During periods
in which our operating partnership has limited partners other than Plymouth OP Limited, LLC, the operating partnership will be
treated as a partnership for federal income tax purposes. As a partnership, our operating partnership would not be subject to
federal income tax on its income. Instead, each of its partners would be allocated, and may be required to pay tax with respect
to, its share of our operating partnership’s income. We cannot assure you, however, that the Internal Revenue Service, or
the IRS, will not challenge the status of our operating partnership or any other subsidiary partnership in which we own an interest
as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful
in treating our operating partnership or any such other subsidiary partnership as an entity taxable as a corporation for federal
income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly,
we would likely cease to maintain our qualification as a REIT. Also, if our operating partnership or any subsidiary partnerships
were treated as entities taxable as corporations, such entities could become subject to federal and state corporate income tax,
which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including
us.
Our taxable REIT subsidiaries will be subject to federal
income tax, and we will be required to pay a 100% penalty tax on certain income or deductions if our transactions with our taxable
REIT subsidiaries are not conducted on arm’s length terms.
We own interests in one taxable REIT subsidiary
and may acquire interests in more taxable REIT subsidiaries in the future. A taxable REIT subsidiary is a corporation other than
a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as
a taxable REIT subsidiary. If a taxable REIT subsidiary owns more than 35% of the total voting power or value of the outstanding
securities of another corporation, such other corporation will also be treated as a taxable REIT subsidiary. Other than some activities
relating to lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business, including the
provision of customary or non-customary services to tenants of its parent REIT. A taxable REIT subsidiary is subject to federal
income tax as a regular C corporation. In addition, a 100% excise tax will be imposed on certain transactions between a taxable
REIT subsidiary and its parent REIT that are not conducted on an arm’s length basis.
To maintain our REIT qualification, we may be forced to
borrow funds during unfavorable market conditions.
To maintain our qualification as a REIT, we
generally must distribute to our stockholders at least 90% of our REIT taxable income each year, determined without regard to
the dividends paid deduction and excluding net capital gains, and we will be subject to regular corporate income taxes to the
extent that we distribute less than 100% of our REIT taxable income each year. In addition, we will be subject to a 4% nondeductible
excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary
income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Accordingly, we may not be able
to retain sufficient cash flow from operations to meet our debt service requirements and repay our debt. Therefore, we may need
to raise additional capital for these purposes, and we cannot assure you that a sufficient amount of capital will be available
to us on favorable terms, or at all, when needed, which would materially adversely affect our financial condition, results of
operations, cash flows and ability to pay distributions on, and the per share trading price of, our stock. Further, in order to
maintain our REIT qualification and avoid the payment of income and excise taxes, we may need to borrow funds to meet the REIT
distribution requirements even if the then prevailing market conditions are not favorable for these borrowings. These borrowing
needs could result from, among other things, differences in timing between the actual receipt of cash and inclusion of income
for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt
or amortization payments. These sources, however, may not be available on favorable terms or at all. Our access to third-party
sources of capital depends on a number of factors, including the market’s perception of our growth potential, our current
debt levels, the per share trading price of our stock, and our current and potential future earnings. We cannot assure you that
we will have access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment
activities and/or to dispose of assets at inopportune times, and could adversely affect our financial condition, results of operations,
cash flows and our ability to pay distributions on, and the per share trading price of, our stock.
Dividends payable by REITs do not qualify for the reduced
tax rates available for some dividends.
The maximum tax rate applicable to “qualified
dividend income” payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs,
however, generally are not eligible for such reduced tax rates. Instead, our ordinary dividends generally are taxed at the higher
tax rates applicable to ordinary income, the current maximum rate of which is 37%. Although these rules do not adversely affect
the taxation of REITs or dividends payable by REITs, investors who are individuals, trusts and estates may perceive investments
in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could
adversely affect the value of the shares of REITs, including the per share trading price of our stock. However, for taxable years
prior to 2026, individual stockholders are generally allowed to deduct 20% of the aggregate amount of ordinary dividends distributed
by us, subject to certain limitations, which would reduce the maximum marginal effective federal income tax rate for individuals
on the receipt of such ordinary dividends to 29.6%.
The tax imposed on REITs engaging in “prohibited
transactions” may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes.
A REIT’s net income from prohibited transactions
is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than
foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do not intend to hold
any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale
or disposition qualifies under certain statutory safe harbors, such characterization is a factual determination and no guarantee
can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of
the available safe harbors.
Complying with REIT requirements may affect our profitability
and may force us to liquidate or forgo otherwise attractive investments.
To maintain our qualification as a REIT, we
must continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our
income and the amounts we distribute to our stockholders. We may be required to liquidate or forgo otherwise attractive investments
in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. We also may be required
to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution.
As a result, having to comply with the distribution requirement could cause us to: (1) sell assets in adverse market conditions;
(2) borrow on unfavorable terms; or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures
or repayment of debt. Accordingly, satisfying the REIT requirements could have an adverse effect on our business results, profitability
and ability to execute our business plan. Moreover, if we are compelled to liquidate our investments to meet any of these asset,
income or distribution tests, or to repay obligations to our lenders, we may be unable to comply with one or more of the requirements
applicable to REITs or may be subject to a 100% tax on any resulting gain if such sales constitute prohibited transactions.
Legislative, regulatory, or administrative changes could
adversely affect us or our security holders.
The tax laws or regulations governing REITs
or the administrative interpretations thereof may be amended at any time. We cannot predict if or when any new or amended law,
regulation, or administrative interpretation will be adopted, promulgated, or become effective, and any such change may apply
retroactively. New or amended laws, regulations, or administrative interpretations, could significantly and negatively affect
our ability to qualify as a REIT or the federal income consequences of such qualification or may reduce the relative attractiveness
of an investment in a REIT compared to other corporations not qualified as a REIT.
The Tax Cuts and Jobs Act made significant
changes to the U.S. federal tax rules related to the taxation of individuals and corporations, including REITs and their stockholders.
Additional technical corrections, amendments or administrative guidance with respect to the Tax Cut and Jobs Act may be issued
at any time, and we cannot predict the long-term impact of any future changes on REITs and their stockholders.