Item 5. Market for Registrant’s Common Equity
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
No established public market currently exists for our shares of common stock. Until our shares are listed on a national exchange, if ever, our stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase requirements.
Our charter prohibits the ownership of more than 9.8% in value of the aggregate of our outstanding shares of stock or more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of our stock by a single investor, unless exempted by the Board. Consequently, there is the risk that our stockholders may not be able to sell their shares at a time or price acceptable to them.
On April 3, 2020, we published an Estimated Per-Share NAV equal to $15.75 as of December 31, 2019. We intend to publish an Estimated Per-Share NAV as of December 31, 2020 shortly after filing this Annual Report on Form 10-K for the year ended December 31, 2020.
Consistent with our valuation guidelines, we engaged Duff & Phelps, LLC (“Duff & Phelps”), an independent third-party real estate advisory firm, to perform appraisals of our real estate assets as of December 31, 2019 and provide a valuation range for each real estate asset. In addition, Duff & Phelps was engaged to review, and incorporate in its report our market value estimate regarding other assets, liabilities, and the liquidation value of our outstanding shares of Series A Preferred Stock as of December 31, 2019.
Duff & Phelps has extensive experience estimating the fair value of commercial real estate. The method used by Duff & Phelps to appraise our real estate assets in the report furnished to the Advisor and the Board by Duff & Phelps (the “Duff & Phelps Report”) complies with the Institute of Portfolio Alternatives (formerly known as the Investment Program Association) Practice Guideline 2013-01 titled “Valuations of Publicly Registered Non-Listed REITs,” issued April 29, 2013. Also, Duff & Phelps advised that the scope of work performed was conducted in conformity with the requirements of the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. Other than its engagement as described above and its engagements to provide certain purchase price allocation and other real estate valuation services, Duff & Phelps does not have any direct interests in any transaction with us.
Potential conflicts of interest between Duff & Phelps, on one hand and us or the Advisor, on the other hand, may arise as a result of (1) the impact of the findings of Duff & Phelps in relation to our real estate assets, or the assets of real estate investment programs sponsored by affiliates of the Advisor, on the value of ownership interests owned by, or incentive compensation payable to, our directors, officers or affiliates and those of the Advisor, or (2) Duff & Phelps performing valuation services for other programs sponsored by affiliates of the Advisor, as well as other services for us.
Duff & Phelps performed a full valuation of our real estate assets utilizing an income capitalization approach consisting of the Direct Capitalization Method or the Discounted Cash Flow Method and certain other approaches, including the acquisition price, disposition price, and sales comparison approach. These approaches are commonly used in the commercial real estate industry.
The Estimated Per-Share NAV is comprised of (i) the sum of (A) the estimated value of our real estate assets and (B) the estimated value of our other assets, minus (ii) the sum of (C) the estimated value of our debt and other liabilities, (D) the estimate of the aggregate incentive fees, participations and limited partnership interests held by or allocable to the Advisor, our management or any of their respective affiliates based on our aggregate net asset value based on Estimated Per-Share NAV and payable in our hypothetical liquidation as of December 31, 2019 (which was zero), divided by (iii) our number of shares of common stock outstanding on a fully-diluted basis as of December 31, 2019, which was 92,762,662 (this amount is not adjusted for dividends paid in the form of additional shares of common stock). Common shares outstanding on a fully-diluted basis is defined as the sum of shares of common stock, including vested and unvested restricted shares of common stock, (“restricted shares”) and OP Units outstanding, while excluding Class B units.
The Estimated Per-Share NAV does not represent: (i) the price that our shares may trade for on a national securities exchange or a third party may pay for us, (ii) the amount a stockholder would obtain if he or she tried to sell his or her shares of common stock, or (iii) the amount a stockholder would realize in per share distributions if we sold all of our assets and settled all of our liabilities in a plan of liquidation. Further, there is no assurance that the methodology used to establish the Estimated Per-Share NAV would be acceptable to the Financial Industry Regulatory Authority for use on customer account statements, or that the Estimated Per-Share NAV will satisfy the applicable annual valuation requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Code with respect to employee benefit plans subject to ERISA and other retirement plans or accounts subject to Section 4975 of the Code.
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The Estimated Per-Share NAV as of December 31, 2019 of $15.75, a value within the range determined by Duff & Phelps, was unanimously adopted by the independent directors of the Board, who comprise a majority of the Board, with Mr. Weil abstaining, on March 31, 2020. The independent directors of the Board based their determination on the Advisor’s recommendation, which was based on the Advisor’s review of the Duff & Phelps Report and on the Advisor’s own analysis, estimates and calculations and the fundamentals of the real estate assets. As part of their determination to approve an Estimated Per-Share NAV, the independent directors considered the fundamentals of the real estate assets including geographic location, stabilization and credit quality of tenants. The Board is ultimately and solely responsible for the Estimated Per-Share NAV. Estimated Per-Share NAV was determined at a moment in time and will likely change over time as a result of changes to the value of individual assets as well as changes and developments in the real estate and capital markets, including changes in interest rates. As such, stockholders should not rely on the Estimated Per-Share NAV in making a decision to buy or sell shares of common stock pursuant to our DRIP or our SRP, respectively.
In connection with the independent directors of the Board’s determination of Estimated Per-Share NAV, the Advisor concluded that, in a hypothetical liquidation at such Estimated Per-Share NAV, it would not be entitled to any incentive fees or performance-based restricted partnership units of our operating partnership designated as “Class B Units.” The Advisor determined the Estimated Per-Share NAV in a manner consistent with the definition of fair value under GAAP set forth in FASB’s Topic ASC 820, Fair Value Measurements and Disclosures.
Holders
As of March 23, 2021 we had 95,040,732 shares of common stock outstanding held by a total of 44,089 stockholders of record.
Dividends and Other Distributions
We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2013. As a REIT, we are required to distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard for the deduction for dividends paid and excluding net capital gains.
The amount of dividends and other distributions payable to our stockholders is determined by the Board and is dependent on a number of factors, including funds available for dividends and other distribution, financial condition, provisions in our Credit Facility or other agreements that may restrict our ability to pay dividends and other distributions, capital expenditure requirements, as applicable, and annual dividends and other distribution requirements needed to maintain our status as a REIT under the Code. Under our Credit Facility, we will not be able to pay cash distributions on our common stock until we have a combination of cash, cash equivalents and availability for future borrowings under the Revolving Credit Facility totaling at least $100.0 million (giving effect to the aggregate amount of distributions projected to be paid by us during the quarter in which we have elected to commence paying cash distributions on common stock) and our ratio of consolidated total indebtedness to consolidated total asset value (expressed as a percentage) is less than 62.5%. As of December 31, 2020, our ratio of consolidated total indebtedness to consolidated total asset value for these purposes was 61.7%. Thus, our ability to make future cash distributions on our common stock will depend on our future cash flows and indebtedness and may further depend on our ability to obtain additional liquidity, which may not be available on favorable terms, or at all. The Board may reduce the amount of dividends or other distributions paid or suspend dividends or other distribution payments at any time prior to declaration. Therefore, dividends and other distribution payments are not assured. Any accrued and unpaid dividends payable with respect to our Series A Preferred Stock must be paid upon redemption of those shares. For further information on provisions in our Credit Facility that restrict the payment of dividends and other distributions, see Note 5 — Credit Facility, Net to our consolidated financial statements included in this Annual Report on Form 10-K and Item 1A “Risk Factors . - We have not paid our distributions on our common stock in cash since 2020, and there can be no assurance we will pay distributions on our common stock in cash in the future.”
The following table details the tax treatment of the dividends and other distributions paid during the years ended December 31, 2020, 2019 and 2018, respectively, retroactively adjusted for the effects of the stock dividends:
Year Ended December 31,
2020 2019 2018
Return of capital (1)
100 % $ 0.42 100 % $ 0.83 100 % $ 0.92
Capital gain dividend income — % — — % — — % —
Ordinary dividend income — % — — % — — % —
Total 100.0 % $ 0.42 100.0 % $ 0.83 100.0 % $ 0.92
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(1) Amount for December 31, 2020 represents actual cash distributions paid to common shareholders during the year ended 2020, but excludes the stock dividends which do not represent taxable dividends to our shareholders for U.S. federal income tax purposes.
Distributions to Common Stockholders
From March 1, 2018 until June 30, 2020, we generally paid distributions on our common stock on a monthly basis at a rate equivalent of $0.85 per annum, per share of common stock. Distributions were generally paid by the 5th day following each month end to stockholders of record at the close of business each day during the prior month.
On August 13, 2020, the Board changed our common stock distribution policy in order to preserve our liquidity and maintain additional financial flexibility in light of the continued COVID-19 pandemic and to comply with an amendment to the Credit Facility. Under the new policy, distributions authorized by the Board on our shares of common stock, if and when declared, are now paid on a quarterly basis in arrears in shares of our common stock valued at our estimated per share net asset value of common stock in effect on the applicable date, based on a single record date to be specified at the beginning of each quarter. On October 1, 2020 and January 4, 2021, we declared a dividend payable entirely in stock equal to 0.01349 shares of our common stock on each share of our outstanding common stock. This amount was based on our prior cash distribution rate of $0.85 per share per annum. The Board may further change our common stock distribution policy at any time, further reduce the amount of distributions paid or suspend distribution payments at any time, and therefore distribution payments are not assured.
Dividends to Series A Preferred Stockholders
Dividends on our Series A Preferred Stock accrue in an amount equal to $1.84 per share each year ($0.46 per share per quarter) to Series A Preferred Stockholders, which is equivalent to 7.375% per annum on the $25.00 liquidation preference per share of Series A Preferred Stock. Dividends on the Series A Preferred Stock are cumulative and payable quarterly in arrears on the 15th day of January, April, July and October of each year or, if not a business day, the next succeeding business day to holders of record on the close of business on the record date set by our board of directors and declared by us.
Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In order to provide common stockholders with interim liquidity, the Board has adopted the SRP, which enables our common stockholders to sell their shares back to us after they have been held for at least one year, subject to significant conditions and limitations. For additional information on the SRP, see Note 8 — Stockholders’ Equity to our consolidated financial statements included in this Annual Report on Form 10-K.
In light of the amendment to the Credit Facility on August 10, 2020 which provides that we may not repurchase shares of our common stock until the Commencement Quarter, the Board suspended repurchases under the SRP effective August 14, 2020. The Board has also rejected all repurchase requests made during the period from January 1, 2020 until the effectiveness of the suspension of the SRP. No further repurchase requests under the SRP may be made unless and until the SRP is reactivated.
The following table summarizes our SRP activity for the periods presented. The cost of the repurchased common shares did not exceed DRIP proceeds during the periods presented. We funded common share repurchases from proceeds received from common stock issued under the DRIP. Repurchases are currently consummated using the most recently published Estimated Per-Share NAV at the time of the repurchase.
Number of Common Shares Repurchased Average Price per Share
Cumulative repurchases as of December 31, 2019 4,391,519 $ 20.95
Year ended December 31, 2020 (1)
505,101 17.50
Cumulative repurchases as of December 31, 2020
4,896,620 20.60
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(1) Consists of 505,101 shares of common stock repurchased on February 26, 2020 with respect to requests received during the period commencing July 1, 2019 up to and including December 31, 2019 for $8.8 million at an average price per share of $17.50.
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Item 6. Selected Financial Data .
The following selected financial data as of and for the years ended December 31, 2020, 2019, 2018, 2017 and 2016 should be read in conjunction with the accompanying consolidated financial statements and related notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” below:
Balance sheet data (In thousands)
December 31,
2020 2019 2018 2017 2016
Total real estate investments, at cost $ 2,621,723 $ 2,481,067 $ 2,553,079 $ 2,486,052 $ 2,355,262
Total assets 2,286,895 2,325,303 2,377,446 2,371,861 2,193,705
Mortgage notes payable, net 542,698 528,284 462,839 406,630 142,754
Credit facilities 674,551 605,269 602,622 534,869 481,500
Total liabilities 1,325,523 1,218,559 1,136,512 1,015,802 689,379
Total equity 961,372 1,106,744 1,240,934 1,356,059 1,504,326
Operating data (In thousands, except for share and per share data)
Year Ended December 31,
2020 2019 2018 2017 2016
Revenue from tenants $ 381,612 $ 374,914 $ 362,406 $ 311,173 $ 302,566
Total operating expenses (406,714) (415,492) (365,512) (323,827) (307,203)
Gain (loss) on dispositions of real estate investments 5,230 8,790 (70) 438 1,330
Operating loss (19,872) (31,788) (3,176) (12,216) (3,307)
Total other expenses (51,577) (56,120) (49,605) (29,849) (19,747)
Loss before income taxes (71,449) (87,908) (52,781) (42,065) (23,054)
Income tax (expense) benefit (4,061) (399) (197) (647) 2,084
Net loss (75,510) (88,307) (52,978) (42,712) (20,970)
Net (income) loss attributable to non-controlling interests (303) 393 216 164 96
Allocation for preferred stock (2,968) (173) — — —
Net loss attributable to common stockholders $ (78,781) $ (88,087) $ (52,762) $ (42,548) $ (20,874)
Other data:
Cash flows provided by operations $ 41,807 $ 47,404 $ 54,151 $ 63,967 $ 78,725
Cash flows used in investing activities (82,491) (46,249) (115,063) (194,409) (19,092)
Cash flows provided by (used in) financing activities 19,431 19,086 49,682 199,843 (55,567)
Per share data:
Distributions declared in cash per common share (1) (2)
$ 0.42 $ 0.83 $ 0.92 $ 1.47 $ 1.66
Preferred stock dividends declared per share $ 1.84 $ 0.11 $ — $ — $ —
Net loss per share attributable to common stockholders - Basic and Diluted (1)
$ (0.83) $ (0.93) $ (0.56) $ (0.46) $ (0.23)
Weighted-average number of common shares outstanding:
Weighted-average shares outstanding - Basic and Diluted (1)
94,639,833 94,433,640 93,593,719 92,241,201 90,265,698
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(1) Retroactively adjusted for the effects of the stock dividends .
(2) In addition to the distributions declared in cash, distributions declared on common stock were paid in the form of additional shares of common stock equivalent to $0.42 per share for the year ended December 31, 2020 based on our most recent Estimated Per-Share NAV as of December 31, 2019.
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