What changed in this filing

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Item 1. Business

2023-02-14 compared with 2022-02-15 · 137 added, 113 removed, 646 unchanged (28% of the section changed)

We are a real estate investment trust, or REIT, organized under Maryland law in 2017.

We are a REIT organized under Maryland law in 2017.

We own and lease industrial and logistics properties throughout the United States.

As of December 31, 2021, our portfolio was comprised of 288 wholly owned properties that were approximately 99.2% leased to 259 tenants with a weighted average (by annualized rental revenues) remaining lease term of approximately 9.4 years.

The 288 properties consisted of 226 buildings, leasable land parcels and easements containing approximately 16.7 million rentable square feet (all square footage amounts included within this Annual Report on Form 10-K are unaudited) that were primarily industrial lands located on the island of Oahu, HI, or our Hawaii Properties, and 62 properties containing approximately 17.3 million rentable square feet that were industrial and logistics properties located in 30 other states, or our Mainland Properties.

As of December 31, 2021, our Hawaii Properties represented 52.9% of our annualized rental revenues and our Mainland Properties represented 47.1% of our annualized rental revenues.

As of December 31, 2022, our portfolio was comprised of 413 consolidated properties that were approximately 99.1% leased to 301 different tenants with a weighted average (by annualized rental revenues) remaining lease term of 9.0 years.

The 413 properties consisted of 226 buildings, leasable land parcels and easements containing approximately 16.7 million rentable square feet (all square footage amounts included within this Annual Report on Form 10-K are unaudited) that were primarily industrial lands located on the island of Oahu, Hawaii, or our Hawaii Properties, and 187 properties containing approximately 43.3 million rentable square feet that were industrial and logistics properties located in 38 other states, or our Mainland Properties.

As of December 31, 2022, our 413 consolidated properties included 94 properties we own in a consolidated joint venture in which we own a 61% equity interest.

As of December 31, 2022, our Mainland Properties represented 71.1% of our annualized rental revenues and our Hawaii Properties represented 28.9% of our annualized rental revenues.

We define the term annualized rental revenues as used in this Annual Report on Form 10-K as the annualized contractual rents as of December 31, 2022, including straight line rent adjustments and excluding lease value amortization, adjusted for tenant concessions including free rent and amounts reimbursed to tenants, plus estimated recurring expense reimbursements from tenants.

As of December 31, 2022, we also owned a 22% equity interest in an unconsolidated joint venture that owns 18 properties located in 12 states in the mainland United States containing approximately 11.7 million rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 5.6 years.

In November 2021, we, our wholly owned subsidiary and Monmouth entered into the Merger Agreement, pursuant to which we have agreed to acquire all of the outstanding shares of Monmouth for $21.00 per Monmouth share in cash, in a transaction valued at approximately $4.0 billion, including the assumption of existing Monmouth mortgage debt, as well as transaction costs, referred to as the Monmouth Transaction.

The Monmouth Transaction will add 126 new, Class A, single tenant, net leased, e-commerce focused industrial properties containing over 26 million square feet with a weighted average remaining lease term of approximately eight years to our portfolio.

We intend to finance the Monmouth Transaction by entering into a joint venture with one or more institutional investors for equity investments and with proceeds from new mortgage debt and the assumption of existing Monmouth mortgage debt.

Depending on the ultimate amount of the joint venture equity investments, we may also use proceeds from the sale of some of Monmouth’s properties to finance the Monmouth Transaction.

In addition, in connection with the financing of the Monmouth Transaction, we have obtained commitments from lenders to make a bridge loan of up to $4.0 billion available to us.

The Monmouth Transaction is subject to the satisfaction of conditions, including the receipt of requisite approval by Monmouth’s stockholders, and is expected to close in the first quarter of 2022.

For more information regarding the Monmouth Transaction and the associated risks, see elsewhere in this Annual Report on Form 10-K.

Our principal executive offices are located at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and our telephone number is (617) 219-1460.

Acquisition of Monmouth Real Estate Investment Corporation

On February 25, 2022, we completed the acquisition of MNR pursuant to the merger of MNR with and into one of our wholly owned subsidiaries, or the Merger.

MNR’s portfolio included 124 class A, single tenant, net leased, e-commerce focused industrial properties containing approximately 25.7 million rentable square feet and two then committed, but not yet then completed, property acquisitions.

In connection with the Merger, we entered into a joint venture arrangement with an institutional investor for 95 of the acquired MNR properties, including the two committed MNR property acquisitions, one of which was subsequently completed.

Our consolidated joint venture subsequently terminated the agreement for the other committed MNR property acquisition.

Our Business and Growth Strategies

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We intend to expand our business by acquiring additional industrial and logistics properties in the United States that may benefit from the growth of e-commerce or demand for logistics properties.

Internal Growth through Rent Resets and Leasing Activity, Fixed Rent Increases in Our Leases and Selective Development.

Certain of the leases for our Hawaii Properties provide for rents to be reset to fair market value periodically during the lease terms.

Since our predecessors began acquiring our Hawaii Properties in December 2003, our Hawaii Properties have remained over 96% leased, and periodic rent resets, together with lease extensions and new leasing activity following lease expirations at our Hawaii Properties, have resulted in significant rent increases.

Due to the limited availability of land suitable for industrial uses that might compete with our Hawaii Properties, we believe that our Hawaii Properties offer the potential for future rent growth as a result of periodic rent resets, lease extensions and new leasing.

In addition to the internal rent growth which may result from our rent resets and lease activity at our Hawaii Properties, a majority of the leases at our Mainland Properties and certain leases at our Hawaii Properties include periodic set dollar amount or percentage increases that raise the cash rent payable to us.

Since the time, in some cases 40 to 50 years ago, certain of our Hawaii Properties’ leases were originally entered into, the characteristics of the neighborhoods in the vicinity of some of those properties have changed.

In such circumstances, we have sometimes engaged in redevelopment activities to change the character of certain properties in order to increase rents.

As our Hawaii Properties are currently experiencing strong demand for their current uses, we do not currently expect redevelopment

efforts in Hawaii to become a major activity in the near term;

however, we may undertake such activities on a selective basis.

Also, we and our predecessors have sometimes built expansions for tenants at our Mainland Properties in return for lease extensions and rent increases, and we expect to continue such activities.

We currently have one Mainland Property under development and may seek to develop additional properties in the future.

External Growth through Acquisitions.

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Our external growth strategy is further defined by our investment policies.

Internal Growth through Rent Resets and Leasing Activity, Fixed Increases in Our Leases and Selective Development.

Certain of the leases for our Hawaii Properties provide for rents to be reset to fair market value periodically during the lease terms.

Since our predecessors began acquiring our Hawaii Properties in December 2003, our Hawaii Properties have remained over 96% leased, and periodic rent resets, together with lease extensions and new leasing activity following lease expirations, at our Hawaii Properties have resulted in significant rent increases.

Due to the limited availability of land suitable for industrial uses that might compete with our Hawaii Properties, we believe that our Hawaii Properties offer the potential for rent growth as a result of periodic rent resets, lease extensions and new leasing.

In addition to the internal rent growth which may result from our rent resets and lease expirations at our Hawaii Properties, a majority of the leases at our Mainland Properties and certain leases at our Hawaii Properties include periodic set dollar amount or percentage increases that raise the cash rent payable to us.

In such circumstances, we have sometimes engaged in redevelopment activities to change the character of certain properties in order to increase rents.

As our Hawaii Properties are currently experiencing strong demand for their current uses, we do not currently expect redevelopment efforts in Hawaii to become a major activity in the near term;

however, we may undertake such activities on a selective basis.

Also, we and our predecessors have sometimes built expansions for tenants at our Mainland Properties in return for lease extensions and rent increases, and we expect to continue such activities.

The following is an overview of the general lease terms for our properties.

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Our Mainland Properties are currently 99.4% leased.

We expect to have opportunities to raise rents or redevelop these properties as lease expirations at these properties approach.

We expect to have opportunities to raise rents or re-lease these properties at higher rental rates as lease expirations at these properties approach.

Also, some of the tenant renewal options at our Mainland Properties provide for rents to be reset to fair market values, and we may be able to raise rents if and when these options are exercised.

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Historically, this process has resulted in significant reset amounts.

As of December 31, 2022, we leased 84 properties containing approximately 13.1 million rentable square feet located in 34 states to subsidiaries of FedEx Corporation, or FedEx, with an aggregate carrying value of $2.1 billion, or 39.7% of our gross real estate assets.

Tenants representing 1% or more of our total annualized rental revenues as of December 31, 2022 were as follows:

% of Total Annualized

of Leased Leased Rental

Tenant States Properties Sq.

FedEx Corporation/ FedEx Ground Package System, Inc.

Various (34 States) 84 13,108,882 22.1 % 29.6 %

Amazon.com Services, Inc./ Amazon.com Services LLC AL, IN, OK, SC, TN, VA 8 4,539,084 7.6 % 6.7 %

Home Depot U.S.A., Inc.

GA, HI, IL 4 3,364,679 5.7 % 4.4 %

UPS Supply Chain Solutions, Inc.

NH, NY 3 794,313 1.3 % 1.6 %

Restoration Hardware, Inc.

MD 1 1,194,744 2.0 % 1.5 %

Servco Pacific, Inc.

HI 7 629,152 1.1 % 1.4 %

American Tire Distributors, Inc.

CO, LA, NE, NY, OH 5 722,267 1.2 % 1.3 %

TD SYNNEX Corporation OH 2 938,846 1.6 % 1.1 %

114 25,292,000 42.6 % 47.6 %

(1) Leased square feet is pursuant to existing leases as of December 31, 2022 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

(2) Includes an executed lease for 2,238,000 square feet in Hawaii that is expected to commence in the second quarter of 2024.

Our Investment Policies

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Also, we may invest in or enter into real estate joint ventures.

We currently own a 22% equity interest in an unconsolidated joint venture.

We currently own a 61% equity interest in a consolidated joint venture, a 22% equity interest in an unconsolidated joint venture, and a 67% tenancy in common interest in one of the properties we acquired as part of the MNR acquisition.

In the future, we may invest in or enter into additional real estate joint ventures, or acquire additional properties with the intention of contributing such properties to our existing joint venture, if we conclude that by doing so we may benefit from the participation of co-venturers or that our opportunity to participate in the investment is contingent on the use of a joint venture structure or to take advantage of property valuation differences among private and public sources of equity capital.

As noted above, we intend to enter a joint venture in connection with the financing of the Monmouth Transaction.

We have no limitations on the amount or percentage of our total assets that may be invested in any one property and no limits on the concentration of investments in any one location.

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We generally consider ourselves to be a long term owner of our properties.

We have no current plans to sell any of our properties, but we may decide to sell some of our properties or a stake in some of our properties in the future.

We expect our decision to sell properties or a stake in some of our properties will be based upon the following considerations, among others, which may be relevant to a particular property at a particular time:

We expect our decision to sell properties, additional equity interests in our consolidated joint venture or a stake in some of our properties will be based upon the following considerations, among others, which may be relevant to a particular property at a particular time:

• whether the property is leased and, if so, the remaining lease term and likelihood of lease renewal;

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• our intended use of the proceeds we may realize from the sale of a property;

• the benefits we believe we will achieve from contributing additional properties to our existing or any new joint venture;

• the benefits we believe we will achieve from selling additional equity interests in our joint ventures or contributing additional properties to our existing joint ventures or any new joint venture;

• the existence of alternative sources, uses or needs for capital;

• the terms of any debt that may secure the property;

• the tax implications to us and our shareholders of any proposed disposition.

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Our Financing Policies

To qualify for taxation as a REIT under the Internal Revenue Code of 1986, as amended, or the IRC, we generally are required to distribute annually at least 90% of our REIT taxable income, subject to specified adjustments and excluding any net capital gain.

We expect to repay our debts, invest in our properties or fund acquisitions, developments or redevelopments by borrowing under our revolving credit facility, issuing equity or debt securities or using retained cash from operations that may exceed distributions paid.

We also expect that our operating and investing activities will be financed by rents from tenants at our properties in excess of planned distributions to our shareholders and by borrowings under our revolving credit facility.

As the maximum borrowing under, or the maturity of, our revolving credit facility approaches, we expect to renew that facility or refinance that indebtedness with equity issuances or new debt.

To qualify for taxation as a REIT under the IRC, we generally are required to distribute annually at least 90% of our REIT taxable income, subject to specified adjustments and excluding any net capital gain.

We expect to repay our debts, invest in our properties or fund acquisitions, developments or redevelopments by utilizing future financing arrangements, selling properties and/or joint venture interests, and issuing equity or debt securities or using retained cash from operations that may exceed distributions paid.

We also expect that our operating and investing activities will be financed by rents from tenants at our properties in excess of planned distributions to our shareholders and by using cash on hand and proceeds from any future financing arrangements we may obtain.

We will decide when and whether to issue equity or new debt depending primarily upon our success in operating our business and upon market conditions.

Because our ability to raise capital will depend, in large part, upon market conditions, we cannot be sure that we will be able to raise sufficient capital to repay our debts or to fund our growth strategies.

We currently have a $750.0 million unsecured revolving credit facility that we use for working capital and general business purposes, including for acquisition funding on an interim basis until we are able to refinance acquisitions with equity or debt.

In addition, in January 2019, we obtained a $650.0 million mortgage loan secured by 186 properties containing 9.6 million rentable square feet located on the island of Oahu, HI.

In connection with the financing of the Monmouth Transaction, we have obtained commitments from lenders to make a bridge loan of up to $4.0 billion available to us, and may enter into an agreement for such bridge loan facility if necessary to fund the Monmouth Transaction.

Also, as noted above, we intend to enter a joint venture in connection with the financing of the Monmouth Transaction.

For more information regarding our financing sources and activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investing and Financing Liquidity and Resources” of this Annual Report on Form 10-K and Note 3 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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We require our tenants to maintain compliance with environmental laws and we also monitor any known conditions and in some cases have set up reserves for potential environmental liabilities.

Although we do not believe that there are environmental

conditions at any of our properties that will materially and adversely affect us, we cannot be sure that such conditions or costs we may be required to incur in the future to address environmental contamination will not materially and adversely affect us.

Although we do not believe that there are environmental conditions at any of our properties that will materially and adversely affect us, we cannot be sure that such conditions or costs we may be required to incur in the future to address environmental contamination will not materially and adversely affect us.

Investing in and operating real estate is a very competitive business.

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For more information, see “Risk Factors—Risks Related to Our Business—We face significant competition” in this Annual Report on Form 10-K.

is a holding company and substantially all of its business is conducted by its majority owned subsidiary, RMR LLC.

Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc.

and an officer and employee of RMR LLC.

Murray, our other Managing Trustee and our President and Chief Executive Officer, also serves as an officer and employee of RMR LLC.

Our day to day operations are conducted by RMR LLC.

RMR LLC originates and presents investment and divestment opportunities to our Board of Trustees and provides management and administrative services to us.

RMR LLC has a principal place of business at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and its telephone number is (617) 796-8390.

RMR LLC is an alternative asset management company that is focused on commercial real estate and related businesses.

RMR LLC or its subsidiaries also act as a manager to other publicly traded real estate companies, privately held real estate funds and real estate related operating businesses.

In addition, RMR LLC provides management services to our existing joint venture.

As of the date of this Annual Report on Form 10-K, the executive officers of RMR LLC are:

is a holding company and substantially all of its business is conducted by its majority owned subsidiary, RMR.

Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc.

and an officer and employee of RMR.

Jordan, our other Managing Trustee, also serves as an executive vice president, chief financial officer and treasurer of RMR Inc.

and an officer and employee of RMR.

Our day to day operations are conducted by RMR.

RMR originates and presents investment and divestment opportunities to our Board of Trustees and provides management and administrative services to us.

RMR has a principal place of business at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and its telephone number is (617) 796-8390.

RMR is an alternative asset management company that is focused on commercial real estate and related businesses.

RMR or its subsidiaries also act as a manager to other publicly traded real estate companies, privately held real estate funds and real estate related operating businesses.

In addition, RMR provides management services to our existing joint ventures.

As of the date of this Annual Report on Form 10-K, the executive officers of RMR are:

Adam Portnoy, President and Chief Executive Officer;

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Jordan, Executive Vice President, Chief Financial Officer and Treasurer;

John Murray, Executive Vice President;

Murray, Executive Vice President;

and Jonathan M.

Pertchik, Executive Vice President.

Our Chief Financial Officer and Treasurer, Richard W.

Siedel, Jr., and our Chief Operating Officer and Vice President, Yael Duffy, are Senior Vice Presidents of RMR LLC.

Murray and Siedel and other officers of RMR LLC also serve as officers of other companies to which RMR LLC or its subsidiaries provide management services.

Our President and Chief Operating Officer, Yael Duffy, and our Chief Financial Officer and Treasurer, Brian E.

Donley, are Senior Vice Presidents of RMR.

Donley and other officers of RMR also serve as officers of other companies to which RMR or its subsidiaries provide management services.

We have no employees.

Services which would otherwise be provided to us by employees are provided by RMR LLC and by our Managing Trustees and officers.

As of December 31, 2021, RMR LLC had nearly 600 full time employees in its headquarters and regional offices located throughout the United States.

Services which would otherwise be provided to us by employees are provided by RMR and by our Managing Trustees and officers.

As of December 31, 2022, RMR had nearly 600 full time employees in its headquarters and regional offices located throughout the United States.

Board Diversity

As of December 31, 2021, our Board of Trustees was comprised of six Trustees, of which four were independent trustees.

As of December 31, 2022, our Board of Trustees was comprised of seven Trustees, of which five were independent trustees.

Our Board of Trustees is comprised of 28.6% women and 14.3% members of underrepresented minorities.

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Our business strategy incorporates a focus on sustainable approaches to operating our properties in a manner that benefits our shareholders, tenants and the communities in which we are located.

We seek to operate our properties in ways that improve the economic performance of their operations, while simultaneously ensuring tenant comfort and safety, managing energy and water consumption, as well as greenhouse gas emissions.

Our ESG initiatives are primarily implemented by our manager, RMR LLC, and focus on a complementary set of objectives, including responsible investment, environmental stewardship and investments in human capital.

RMR LLC’s annual Sustainability Report may be accessed on RMR Inc.’s website at www.rmrgroup.com/corporate-sustainability/default.aspx.

We seek to have our properties operated in ways that improve the economic performance of their operations, while simultaneously ensuring tenant comfort and safety, managing energy and water consumption, as well as greenhouse gas emissions.

Our ESG initiatives are primarily implemented by our manager, RMR, and focus on a complementary set of objectives, including responsible investment, environmental stewardship, investments in human capital, being a responsible corporate citizen and diversity and inclusion.

RMR’s annual Sustainability Report may be accessed on RMR Inc.’s website at www.rmrgroup.com/corporate-sustainability/default.aspx.

The information on or accessible through RMR Inc.'s website is not incorporated by reference into this Annual Report on Form 10-K.

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• a “qualified foreign pension fund” (as defined in Section 897(l)(2) of the IRC) or any entity wholly owned by one or more qualified foreign pension funds;

shareholder that is a passive foreign investment company or controlled foreign corporation;

• a person subject to special tax accounting rules as a result of their use of applicable financial statements (within the meaning of Section 451(b)(3) of the IRC);

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In addition, this summary is not exhaustive of all possible tax considerations and does not discuss any estate, gift, state, local or foreign tax considerations.

For all these reasons, we urge you and any holder of or prospective acquiror of our shares to consult with a tax advisor about the federal income tax and other tax consequences of the acquisition, ownership and disposition of our shares.

For all these reasons, we urge you and any holder of or prospective acquirer of our shares to consult with a tax advisor about the federal income tax and other tax consequences of the acquisition, ownership and disposition of our shares.

Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of the date of this Annual Report on Form 10-K.

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• a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S.

persons have the authority to control all substantial decisions of the trust, or, to the

extent provided in Treasury regulations, a trust in existence on August 20, 1996 that has elected to be treated as a domestic trust;

persons have the authority to control all substantial decisions of the trust, or, to the extent provided in Treasury regulations, a trust in existence on August 20, 1996 that has elected to be treated as a domestic trust;

whose status as a U.S.

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While we believe that we have satisfied and will satisfy these tests, our counsel does not review compliance with these tests on a continuing basis.

If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income taxation as if we were a corporation taxed under subchapter C of the IRC, or a C corporation, and our shareholders will be taxed like shareholders of regular C corporations, meaning that federal income tax

generally will be applied at both the corporate and shareholder levels.

If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income taxation as if we were a corporation taxed under subchapter C of the IRC, or a C corporation, and our shareholders will be taxed like shareholders of a regular C corporation, meaning that federal income tax generally will be applied at both the corporate and shareholder levels.

In this event, we could be subject to significant tax liabilities, and the amount of cash available for distribution to our shareholders could be reduced or eliminated.

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• We will be taxed at regular corporate income tax rates on any undistributed “real estate investment trust taxable income,” determined by including our undistributed ordinary income and net capital gains, if any.

We may elect to retain and pay income tax on our net capital gain.

In addition, if we so elect by making a timely designation to our shareholders, a shareholder would be taxed on its proportionate share of our undistributed capital gain and would generally be expected to receive a credit or refund for its proportionate share of the tax we paid.

• If we have net income from the disposition of “foreclosure property,” as described in Section 856(e) of the IRC, that is held primarily for sale to customers in the ordinary course of a trade or business or other nonqualifying income from foreclosure property, we will be subject to tax on this income at the highest regular corporate income tax rate.

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• Our subsidiaries that are C corporations, including our “taxable REIT subsidiaries”, as defined in Section 856(l) of the IRC, or TRSs, generally will be required to pay federal corporate income tax on their earnings, and a 100% tax may be imposed on any transaction between us and one of our TRSs that does not reflect arm’s length terms.

• If following our acquisition of Monmouth it is determined that Monmouth failed to satisfy one or more of the REIT tests described below, the IRS might allow us, as Monmouth’s successor, the same opportunity for relief as though we were the remediating REIT.

In such case, Monmouth would be deemed to have retained its qualification for taxation as a REIT and the relevant penalties or sanctions for remediation would fall upon us in a manner comparable to the above.

• As discussed below, we are invested in real estate through a subsidiary that we believe qualifies for taxation as a REIT.

If it is determined that this entity failed to qualify for taxation as a REIT, we may fail one or more of the REIT asset tests.

In such case, we expect that we would be able to avail ourselves of the relief provisions described below, but would be subject to a tax equal to the greater of $50,000 or the highest regular corporate income tax rate multiplied by the net income we earned from this subsidiary.

• We acquired MNR by merger in 2022.

If it is determined that MNR failed to satisfy one or more of the REIT tests described below before its merger into us, the IRS might allow us (including through one of our joint ventures), as successor to MNR, the same opportunity for relief as though we were the remediating REIT.

In such case, MNR would be deemed to have retained its qualification for taxation as a REIT and the relevant penalties or sanctions for remediation would fall upon us in a manner comparable to the above.

• As discussed below, we are invested in real estate through subsidiaries that we believe qualify for taxation as REITs.

If it is determined that one of these entities failed to qualify for taxation as a REIT, we may fail one or more of the REIT asset tests.

In such case, we expect that we would be able to avail ourselves of the relief

provisions described below, but would be subject to a tax equal to the greater of $50,000 or the highest regular corporate income tax rate multiplied by the net income we earned from this subsidiary.

If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income tax in the same manner as a regular C corporation.

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If we comply with applicable Treasury regulations to ascertain the ownership of our outstanding shares and do not know, or by exercising reasonable diligence would not have known, that we failed condition (6), then we will be treated as having met condition (6).

Accordingly, we have complied and will continue to comply with these regulations, including by requesting annually from holders of significant percentages of our shares

information regarding the ownership of our shares.

Accordingly, we have complied and will continue to comply with these regulations, including by requesting annually from holders of significant percentages of our shares information regarding the ownership of our shares.

Under our declaration of trust, our shareholders are required to respond to these requests for information.

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For purposes of condition (6), an “individual” generally includes a natural person, a supplemental unemployment compensation benefit plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes, but does not include a qualified pension plan or profit-sharing trust.

As a result, REIT shares owned by an entity that is not an “individual” are considered to be owned by the direct and indirect owners of the entity that are individuals (as so defined), rather than to be owned by the entity itself.

As a result, REIT shares owned by an entity that is not an “individual” are considered to be owned by the direct and indirect owners of the entity that are individuals (as so

defined), rather than to be owned by the entity itself.

Similarly, REIT shares held by a qualified pension plan or profit-sharing trust are treated as held directly by the individual beneficiaries in proportion to their actuarial interests in such plan or trust.

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Subsidiary REITs.

We indirectly own real estate through a subsidiary that we believe has qualified and will remain qualified for taxation as a REIT under the IRC, and we may in the future invest in real estate through one or more other subsidiary entities that are intended to qualify for taxation as REITs.

We indirectly own real estate through subsidiaries that we believe have qualified and will remain qualified for taxation as REITs under the IRC, and we may in the future invest in real estate through one or more other subsidiary entities that are intended to qualify for taxation as REITs.

When a subsidiary qualifies for taxation as a REIT separate and apart from its REIT parent, the subsidiary’s shares are qualifying real estate assets for purposes of the REIT parent’s 75% asset test described below.

However, failure of the subsidiary to separately satisfy the various REIT qualification requirements described in this summary or that are otherwise applicable (and failure to qualify for the applicable relief provisions) would generally result in (a) the subsidiary being subject to regular U.S.

corporate income tax, as described above, and (b) the REIT parent’s ownership in the subsidiary (i) ceasing to be qualifying real estate assets for purposes of the 75% asset test and (ii) becoming subject to the 5% asset test, the 10% vote test and the 10% value test generally applicable to a REIT’s ownership in corporations other than REITs and TRSs.

In such a situation, the REIT parent’s own REIT qualification and taxation could be jeopardized on account of the subsidiary’s failure cascading up to the REIT parent, all as described below under the heading “—Asset Tests”.

We joined with our subsidiary REIT in filing a protective TRS election, effective for the first quarter of 2020.

We have subsequently reaffirmed this protective election with this subsidiary every January thereafter and we may continue to do so unless and until our ownership of this subsidiary falls below 10%.

Pursuant to this protective TRS election, we believe that if our subsidiary is not a REIT for some reason, then it would instead be considered one of our TRSs, and as such its value would fit within our REIT gross asset tests described below.

We expect to make similar protective TRS elections with respect to any

other subsidiary REIT that we form or acquire.

corporate income tax, as described above, and (b) the REIT parent’s ownership in the subsidiary (i) ceasing to be qualifying real estate assets for purposes of the 75% asset test and (ii) becoming subject to the 5% asset test, the 10% vote test and the 10% value test, each as described below, generally applicable to a REIT’s ownership in corporations other than REITs and TRSs.

In such a situation, the REIT parent’s own qualification and taxation as a REIT could be jeopardized on account of the subsidiary’s failure cascading up to the REIT parent, all as described below under the heading “—Asset Tests”.

We have joined with our subsidiary REITs in filing protective TRS elections, and we may continue to annually make such elections unless and until our ownership of these subsidiaries falls below 10%.

Pursuant to these protective TRS elections, we believe that if one of these subsidiaries is not a REIT for some reason, then that subsidiary would instead be considered one of our TRSs, and as such its value would fit within our REIT gross asset tests described below.

We expect to make similar protective TRS elections with respect to any other subsidiary REIT that we form or acquire and may implement other protective arrangements intended to avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections or other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.

We do not expect protective TRS elections to impact our compliance with the 75% and 95% gross income tests described below, because we do not expect our gains and dividends from a subsidiary REIT’s shares to jeopardize compliance with these tests even if for some reason the subsidiary is not a REIT.

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• Rents generally do not qualify if the REIT owns 10% or more by vote or value of stock of the tenant (or 10% or more of the interests in the assets or net profits of the tenant, if the tenant is not a corporation), whether directly or after application of attribution rules.

We generally do not intend to lease property to any party if rents from that property would not qualify as “rents from real property,” but application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control.

We generally do not intend to lease property to any party if rents from that

property would not qualify as “rents from real property,” but application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control.

Our declaration of trust generally disallows transfers or purported acquisitions, directly or by attribution, of our shares to the extent necessary to maintain our qualification for taxation as a REIT under the IRC.

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• for which the REIT makes a proper election to treat the property as foreclosure property.

Any gain that a REIT recognizes on the sale of foreclosure property held as inventory or primarily for sale to customers, plus any income it receives from foreclosure property that would not otherwise qualify under the 75% gross income test in the absence of foreclosure property treatment, reduced by expenses directly connected with the production of those items of income, would be subject to income tax at the highest regular corporate income tax rate under the foreclosure property income tax rules of Section 857(b)(4) of the IRC.

Any gain that a REIT recognizes on the sale of foreclosure property held as inventory or primarily for sale to customers, plus any income it receives from foreclosure property that would not otherwise qualify under the 75% gross income test in the absence of foreclosure property treatment, reduced by expenses directly connected with the production of those items of income, would be subject to federal income tax at the highest regular corporate income tax rate under the foreclosure property income tax rules of Section 857(b)(4) of the IRC.

Thus, if a REIT should lease foreclosure property in exchange for rent that qualifies as “rents from real property” as described above, then that rental income is not subject to the foreclosure property income tax.

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At the close of each calendar quarter of each taxable year, we must also satisfy the following asset percentage tests in order to qualify for taxation as a REIT for federal income tax purposes:

• At least 75% of the value of our total assets must consist of “real estate assets,” defined as real property (including interests in real property and interests in mortgages on real property or on interests in real property), ancillary personal property to the extent that rents attributable to such personal property are treated as rents from real property in accordance with the rules described above, cash and cash items, shares in other REITs, debt instruments issued by “publicly offered REITs” as defined in Section 562(c)(2) of the IRC, government securities and temporary investments of new capital (that is, any stock or debt instrument that we hold that is attributable to any amount received by us (a) in exchange for our stock or (b) in a public offering of our five-year or longer debt instruments, but in each case only for the one-year period commencing with our receipt of the new capital).

• At least 75% of the value of our total assets must consist of “real estate assets,” defined as real property (including interests in real property and interests in mortgages on real property or on interests in real property), ancillary personal property to the extent that rents attributable to such personal property are treated as rents from real property in accordance with the rules described above, cash and cash items, shares in other REITs, debt instruments issued by “publicly offered REITs” as defined in Section 562(c)(2) of the IRC, government securities and temporary investments of new capital (that is, any stock or debt instrument that we hold that is attributable to any amount received by us (a) in exchange for our shares or (b) in a public offering of our five-year or longer debt instruments, but in each case only for the one-year period commencing with our receipt of the new capital).

• Not more than 25% of the value of our total assets may be represented by securities other than those securities that count favorably toward the preceding 75% asset test.

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In addition, if we fail the 5% asset test, the 10% vote test or the 10% value test at the close of any quarter and we do not cure such failure within thirty days after the close of that quarter, that failure will nevertheless be excused if (a) the failure is de minimis and (b) within six months after the last day of the quarter in which we identify the failure, we either dispose of the assets causing the failure or otherwise satisfy the 5% asset test, the 10% vote test and the 10% value test.

For purposes of this relief provision, the failure will be de minimis if the value of the assets causing the failure does not exceed $10,000,000.

For purposes of this relief provision, the failure will be de minimis if the value of the assets causing the failure does not exceed the lesser of (a) 1% of the total value of our assets at the end of the relevant quarter or (b) $10,000,000.

If our failure is not de minimis, or if any of the other REIT asset tests have been violated, we may nevertheless qualify for taxation as a REIT if (a) we provide the IRS with a description of each asset causing the failure, (b) the failure was due to reasonable cause and not willful neglect, (c) we pay a tax equal to the greater of (1) $50,000 or (2) the highest regular corporate income tax rate imposed on the net income generated by the assets causing the failure during the period of the failure, and (d) within six months after the last day of the quarter in which we identify the failure, we either dispose of the assets causing the failure or otherwise satisfy all of the REIT asset tests.

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The IRC also provides an excepted securities safe harbor to the 10% value test that includes among other items (a) “straight debt” securities, (b) specified rental agreements in which payment is to be made in subsequent years, (c) any obligation to pay “rents from real property,” (d) securities issued by governmental entities that are not dependent in whole or in part on the profits of or payments from a nongovernmental entity, and (e) any security issued by another REIT.

In addition, any debt instrument issued by an entity classified as a partnership for federal income tax purposes, and not otherwise excepted from the definition of a security for purposes of the above safe harbor, will not be treated as a security for purposes of the 10% value test if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test.

In addition, any debt instrument issued by an entity classified as a partnership for federal income tax purposes, and not otherwise excepted from the definition of

a security for purposes of the above safe harbor, will not be treated as a security for purposes of the 10% value test if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test.

We have maintained and will continue to maintain records of the value of our assets to document our compliance with the above asset tests and intend to take actions as may be required to cure any failure to satisfy the tests within thirty days after the close of any quarter or within the six month periods described above.

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In addition to the other distribution requirements above, to preserve our qualification for taxation as a REIT we are required to timely distribute all C corporation earnings and profits that we inherit from acquired corporations, as described below.

We may elect to retain, rather than distribute, some or all of our net capital gain and pay income tax on such gain.

In addition, if we so elect by making a timely designation to our shareholders, our shareholders would include their proportionate share of such undistributed capital gain in their taxable income, and they would receive a corresponding credit for their share of the federal corporate income tax that we pay thereon.

Our shareholders would then increase the adjusted tax basis of their shares by the difference between (a) the amount of capital gain dividends that we designated and that they included in their taxable income, and (b) the tax that we paid on their behalf with respect to that capital gain.

Acquisitions of C Corporations

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Shareholders”.

Tax Consequences of the Monmouth Transaction

As discussed above, we intend to complete the Monmouth Transaction, which will include a cash payment by us to the holders of the Monmouth common shares.

As a result of the Monmouth Transaction, we will be treated for federal income tax purposes as acquiring the assets of Monmouth for the cash we pay plus the assumption of Monmouth’s liabilities, after which Monmouth will be treated as liquidating and distributing the cash to its shareholders.

Monmouth will recognize gain or loss on the disposition of its assets based on the sum of the cash paid by us and the value of the liabilities assumed by us, but this gain or loss plus Monmouth’s operating income is expected to be offset fully by the dividends paid deduction available to liquidating REITs in their final taxable year.

Our holding period in the assets we acquire from Monmouth will begin on the day following the completion of the Monmouth Transaction and our initial tax basis in the assets of Monmouth will be equal to the sum of the cash we pay to the holders of Monmouth common shares in conjunction with the Monmouth Transaction, the value of Monmouth’s liabilities that we assume, and the acquisition costs that we capitalize for income tax purposes.

The assets that we acquire in the Monmouth Transaction are generally expected to (a) qualify as real estate assets that satisfy the REIT asset tests that are described above under the heading “—REIT Qualification Requirements—Asset Tests,” and (b) generate gross income that satisfies the REIT gross income tests that are described above under the heading “—REIT Qualification Requirements—Income Tests.” As a result, we believe that our acquisition of Monmouth’s assets will not materially impact our qualification for taxation as a REIT.

If the Monmouth Transaction is not completed, then under specified circumstances we may be entitled to receive a termination fee from Monmouth over time.

The timing for the payment of the termination fee has been structured so that we can manage successfully the REIT gross income tests that we must satisfy.

In addition, if we become entitled to termination fee payments then we may seek an IRS private letter ruling or opinion of counsel that enables us to receive the termination fee on an accelerated basis while still complying with the REIT gross income tests.

In sum, we believe that our receipt of termination fee payments would not materially impact our qualification for taxation as a REIT.

As a condition of the closing of the Monmouth Transaction, Monmouth’s counsel will provide us with an opinion that Monmouth has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT under the IRC.

If, contrary to that opinion and our expectation, Monmouth has failed or fails to qualify for taxation as a REIT for U.S.

federal income tax purposes, then we may inherit significant tax liabilities in the Monmouth Transaction because, as the successor by merger to Monmouth, we would generally inherit any corporate income tax liabilities of Monmouth, including penalties and interest.

It is unclear whether the IRC provisions that are generally available to remediate REIT compliance failures will be available to us as a successor in respect of any determination that Monmouth failed to qualify for taxation as a REIT.

If and to the extent the remedial provisions are available to us to address Monmouth’s REIT qualification and taxation for the applicable period prior to or including the Monmouth Transaction, we may incur significant cash outlays in connection with the remediation, possibly including (a) required distribution payments to shareholders and associated interest payments to the IRS and (b) tax and interest payments to the IRS and state and local tax authorities.

Monmouth’s failure before the Transaction to qualify for taxation as a REIT and our efforts to remedy any such failure could have an adverse effect on our results of operations and financial condition.

Our Acquisition of MNR

In the first quarter of 2022, we acquired MNR in a transaction that was intended to be treated as an asset sale for federal income tax purposes.

We believe that MNR qualified for taxation as a REIT for the period prior to the date we acquired it.

As a result of this acquisition, one of our joint ventures is generally liable for unpaid taxes, including penalties and interest (if any),

If MNR is deemed to have lost its qualification for taxation as a REIT prior to the date of our acquisition and no relief is available, we or one of our joint ventures would face the following tax consequences:

• as a successor, we or one of our joint ventures would generally inherit any corporate income tax liabilities of MNR, including penalties and interest;

• we or one of our joint ventures would be subject to tax on the built-in gain on each asset of MNR existing at the time we acquired it if we or one of our joint ventures were to dispose of such an asset during the five-year period following the date that we acquired MNR;

• we or one of our joint ventures could be required to pay a special distribution and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate any earnings and profits accumulated by MNR for taxable periods that it did not qualify for taxation as a REIT.

It is unclear whether the IRC provisions that are generally available to remediate REIT compliance failures will be available to us or one of our joint ventures as a successor in respect of any determination that MNR failed to qualify for taxation as a REIT.

If and to the extent the remedial provisions are available to us to address MNR’s REIT qualification and taxation for the applicable period prior to or including our acquisition of MNR, we may incur significant cash outlays in connection with the remediation, possibly including (a) required distribution payments to shareholders and associated interest payments to the IRS and (b) tax and interest payments to the IRS and state and local tax authorities.

MNR’s failure to have qualified for taxation as a REIT and our efforts to remedy any such failure could have an adverse effect on our results of operations and financial condition.

Depreciation and Federal Income Tax Treatment of Leases

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However, corporate shareholders may be required to treat up to 20% of any capital gain dividend as ordinary income under Section 291 of the IRC.

In addition, we may elect to retain net capital gain income and treat it as constructively distributed.

In that case:

(1) we will be taxed at regular corporate capital gains tax rates on retained amounts;

If for any taxable year we designate capital gain dividends for our shareholders, then a portion of the capital gain dividends we designate will be allocated to the holders of a particular class of shares on a percentage basis equal to the ratio of the amount of the total dividends paid or made available for the year to the holders of that class of shares to the total dividends paid or made available for the year to holders of all outstanding classes of our shares.

We will similarly designate the portion of any dividend that is to be taxed to noncorporate U.S.

shareholders at preferential maximum rates (including any qualified dividend income and any capital gains attributable to real estate depreciation recapture that are subject to a maximum 25% federal income tax rate) so that the designations will be proportionate among all outstanding classes of our shares.

We may elect to retain and pay income taxes on some or all of our net capital gain.

In addition, if we so elect by making a timely designation to our shareholders:

(1) each of our U.S.

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(4) both we and our corporate shareholders will make commensurate adjustments in our respective earnings and profits for federal income tax purposes.

If we elect to retain our net capital gains in this fashion, we will notify our U.S.

shareholders of the relevant tax information within sixty days after the close of the affected taxable year.

We will similarly designate the portion of any dividend that is to be taxed to noncorporate U.S.

shareholders at preferential maximum rates (including any qualified dividend

income and any capital gains attributable to real estate depreciation recapture that are subject to a maximum 25% federal income tax rate) so that the designations will be proportionate among all outstanding classes of our shares.

Distributions in excess of our current or accumulated earnings and profits will not be taxable to a U.S.

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If you are a tax-exempt shareholder, we urge you to consult your own tax advisor to determine the impact of federal, state, local and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your acquisition of or investment in our shares.

We expect that shareholders that are tax-exempt pension plans, individual retirement accounts or other qualifying tax-exempt entities, and that receive (a) distributions from us, or (b) proceeds from the sale of our shares, should not have such amounts treated as UBTI, provided in each case (x) that the shareholder has not financed its acquisition of our shares with “acquisition indebtedness” within the meaning of the IRC, (y) that the shares are not otherwise used in an unrelated trade or

business of the tax-exempt entity, and (z) that, consistent with our present intent, we do not hold a residual interest in a real estate mortgage investment conduit or otherwise hold mortgage assets or conduct mortgage securitization activities that generate “excess inclusion” income.

estate mortgage investment conduit or otherwise hold mortgage assets or conduct mortgage securitization activities that generate “excess inclusion” income.

Taxation of Non-U.S.

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national securities exchange, capital gain dividends that we declare and pay to a non-U.S.

shareholder on those shares, as well as dividends to a non-U.S.

shareholder on those shares, as well as dividends to such a non-U.S.

shareholder on those shares attributable to our sale or exchange of “United States real property interests” within the meaning of Section 897 of the IRC, or USRPIs, will not be subject to withholding as though those amounts were effectively connected with a U.S.

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shareholder, may owe the up to 30% branch profits tax under Section 884 of the IRC (or lower applicable tax treaty rate) in respect of these amounts.

Although the law is not entirely clear on the matter, it appears that amounts designated by us as undistributed capital gain in respect of our shares that are held by non-U.S.

shareholders generally should be treated in the same manner as actual distributions by us of capital gain dividends.

Under this approach, the non-U.S.

shareholder would be able to offset as a credit against its resulting U.S.

federal income tax liability its proportionate share of the tax paid by us on the undistributed capital gain treated as distributed to the non-U.S.

shareholder, and receive from the IRS a refund to the extent its proportionate share of the tax paid by us were to exceed the non-U.S.

shareholder’s actual U.S.

federal income tax liability on such deemed distribution.

If we were to designate any portion of our net capital gain as undistributed capital gain, a non-U.S.

shareholder should consult its tax advisors regarding taxation of such undistributed capital gain.

Dispositions of Our Shares.

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A non-exempt prohibited transaction, in addition to imposing potential personal liability upon ERISA Plan fiduciaries, may also result in the imposition of an excise tax under the IRC or a penalty under ERISA upon the disqualified person or party in interest.

If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA, Roth IRA or other tax-favored account is maintained (or his beneficiary), the IRA, Roth IRA or other tax-favored account may lose its tax-exempt status and its assets may be deemed to have been distributed to the individual in a taxable distribution on account of the non-exempt prohibited transaction, but no excise tax will be imposed.

If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA, Roth IRA or other tax-favored account is maintained (or their beneficiary), the IRA, Roth IRA or other tax-favored account may lose its tax-exempt status and its assets may be deemed to have been distributed to the individual in a taxable distribution on account of the non-exempt prohibited transaction, but no excise tax will be imposed.

Fiduciaries considering an investment in our securities should consult their own legal advisors as to whether the ownership of our securities involves a non-exempt prohibited transaction.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business