Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk factors included in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and the amended risk factors disclosed below.
Our five largest tenants represented approximately 15.7% of our total commercial portfolio’s annualized rent as of March 31, 2023.
As of March 31, 2023, our five largest tenants together represented approximately 15.7% of our total commercial portfolio’s annualized rent, with our largest tenant leasing an aggregate of 0.5 million rentable square feet of office space at one of our office properties, representing approximately 5.2% of our total commercial portfolio rentable square feet and approximately 6.1% of our total commercial portfolio annualized rent. Our significant tenants have in the past, and may in the future, experience financial strain leading to lease default or bankruptcy filing. In such cases, we may not recover our upfront investments in tenant improvement allowances, concessions, and transaction costs like professional fees and commissions. Upon tenant default, we may experience delays and substantial costs in enforcing our rights and protecting our investment. For example, the recent receivership of Signature Bank, one of our significant tenants, poses such risks. See “Financial Statements - Note 8 Leases” for further disclosure on our assessment of Signature Bank. Our business, results of operations, cash flow and financial condition could be materially adversely affected if any of our significant tenants were to suffer a downturn in their business, become insolvent, default under their leases, and/or fail to renew on favorable terms or at all.
The bankruptcy or insolvency of any tenant could result in the termination of such tenant’s lease and material losses to us.
As we have experienced in the past with the bankruptcy of one of our largest tenants at the time, the occurrence of a tenant bankruptcy or insolvency could diminish or terminate the income we receive from that tenant. We may also be unable to re-lease a terminated or rejected space or to re-lease it on comparable or more favorable terms. For example, the recent receivership of Signature Bank, one of our significant tenants, poses such risks. See “Financial Statements - Note 8 Leases” for further disclosure on our assessment of Signature Bank. Further, the pandemic has increased the number of tenant bankruptcies, where federal law may prohibit us from timely eviction and/or authorize the tenant to terminate its lease(s), with statutory limitations on our recovery of rent due for the remaining lease term. Additionally, a large number of our tenants (measured by number of tenants as opposed to aggregate square footage) are smaller businesses that generally do not have the financial strength of larger corporate tenants. Smaller businesses generally experience a higher rate of failure than large businesses, and their insolvency could have a material adverse effect on our business, results of operations, cash flow and financial condition.
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