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Item 5. Market for Registrant’s Common Equity

2022-03-18 compared with 2021-03-30 · 25 added, 66 removed, 56 unchanged (62% of the section changed)

3 unchanged sentences

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.

On March 31, 2021, we published an Estimated Per-Share NAV equal to $14.50 as of December 31, 2020.

We intend to publish an Estimated Per-Share NAV as of December 31, 2021 shortly after filing this Annual Report on Form 10-K for the year ended December 31, 2021.

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.

Consistent with our valuation guidelines, we engaged Kroll, LLC (“Kroll”, formerly, “Duff & Phelps”), an independent third-party real estate advisory firm, to perform appraisals of our real estate assets as of December 31, 2020 and provide a valuation range for each real estate asset.

In addition, Kroll 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, 2020.

Kroll has extensive experience estimating the fair value of commercial real estate.

The method used by Kroll to appraise our real estate assets in the report furnished to the Advisor and the Board by Kroll (the “Kroll 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, Kroll 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, Kroll does not have any direct interests in any transaction with us.

Potential conflicts of interest between Kroll, 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 Kroll 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) Kroll performing valuation services for other programs sponsored by affiliates of the Advisor, as well as other services for us.

Kroll 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).

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 liquidation value of any outstanding classes of preferred stock, (E) 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, 2020 (which was zero), divided by (iii) our number of shares of common stock outstanding on a fully-diluted basis as of December 31, 2020, which was 94,181,653.

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.

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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.

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.

The Estimated Per-Share NAV as of December 31, 2020 of $14.50, a value within the range determined by Kroll, was unanimously adopted by the independent directors of the Board, who comprise a majority of the Board, with Mr.

Weil abstaining, on March 31, 2021.

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 independent directors of the Board based their determination on the Advisor’s recommendation, which was based on the Advisor’s review of the Kroll 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 various factors, including information provided by Kroll, the impact of the Stock

Dividend that was issued in January 2021, the fact that properties held for sale or under contract for sale at December 31, 2020 were valued based on their contract sale prices and without giving consideration to the reinvestment of the sale proceeds, the impact of the COVID-19 pandemic, and 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.

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The following table details the tax treatment of the dividends and other distributions paid during the years ended December 31, 2020 and 2019, respectively, retroactively adjusted for the effects of the stock dividends.

All common dividends in the year ended December 31, 2021, and a portion of common dividends issued in the year ended December 31, 2020, were issued as stock dividends, which do not represent taxable dividends to our shareholders for U.S.

federal income tax purposes.

All dividends paid on the Series A Preferred Stock were considered 100% return of capital for income for tax purposes for the years ended December 31, 2021 and 2020.

There were no dividends paid on the Series B Preferred Stock, as the first dividend payment was made in January, 2022.

Year Ended December 31,

2020 2019 2018

Return of capital (1)

9 unchanged sentences

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.

Under the revised policy, distributions authorized by the Board on our shares of common stock, if and when declared, are 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.

On April 2, 2021, July 1, 2021, October 1, 2021, and January 3, 2022, we declared a dividend payable entirely in stock equal to 0.014655 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.

3 unchanged sentences

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.

Dividends to Series B Preferred Stockholders

Dividends on our Series B Preferred Stock accrue in an amount equal to $1.78 per share each year ($0.45 per share per quarter) to Series B Preferred Stockholders, which is equivalent to 7.125% per annum on the $25.00 liquidation preference per share of Series B Preferred Stock.

Dividends on the Series B 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

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.

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.

The following table summarizes our SRP activity for the period presented.

Number of Common Shares Repurchased Average Price per Share

1 unchanged sentence

Year ended December 31, 2021

505,101 17.50

Cumulative repurchases as of December 31, 2021 4,896,620 20.60

4,896,620 20.60

(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.

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)

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)

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

(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.

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 5. Market for Registrant’s Common Equity