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Item 1A. Risk Factors

2023-03-31 compared with 2022-03-31 · 156 added, 63 removed, 474 unchanged (32% of the section changed)

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Risks Related to Our Business and Our Company

The outbreak and spread of the novel coronavirus disease, known as COVID-19, could have a material adverse effect on our business, operations and financial condition.

In terms of COVID-19, keeping our workforce healthy and safe is our number one priority and we are following the updated guidelines and recommendations issued by the State of Connecticut and Centers for Disease Control.

We continue to encourage employees to stay home when sick and encourage working from home when possible.

In the event of a positive COVID-19 test result, Sachem employees inform management and follow state testing and contact tracing protocols.

We have not been immune to the virus striking our employees and their family members.

Fortunately, none of these occurrences has been life- threatening.

However, to mitigate the risk of office closure and to ensure business continuity, our employees are equipped so they can seamlessly work remotely.

This remote work set-up has proven to be effective since, at times during the pandemic, employees had to self-isolate based on their own health condition or that of an immediate family member.

While loan processing and funding may have been marginally delayed, there was no material adverse impact to the service levels we provided our borrowers.

In the event we are forced to close our physical office, we think it likely that there would be some adverse impact.

For example, the underwriting process would continue to function but would take longer to complete without immediate access to background and credit profiles.

Loan committee meetings would continue to be held virtually (as they are under normal conditions) but the loan approval process may incur delay or not be as thorough and efficient as in the past.

In addition, we may not be able to meet with borrowers or potential borrowers, including physical property inspections, which could adversely impact our ability to service our loans, monitor compliance and originate new loans.

Finally, the filing of loan documents with the various recording offices may be delayed.

In summary, the consequences may include one or more of the following:

● increase the amount of time necessary to review loan applications, structure loans and fund loans;

● adversely impact the ability of borrowers to remain current on their obligations;

● reduce the rate of prepayments;

● delay the completion of renovation projects in-process;

● inhibit the ability of borrowers to sell their properties to repay their obligation to us;

● delay foreclosure or other judicial proceedings necessary to enforce our rights.

Difficult conditions in the mortgage and real estate markets, the financial markets and the economy generally have caused and may cause us to experience losses in the future.

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We believe the risks associated with our mortgage loan portfolio will be more acute during periods of economic slowdown, recession or market dislocations, especially if these periods are accompanied by declining real estate values and defaults.

In prior years, concerns about the health of the global economy generally and the residential and commercial real estate markets specifically, as well as inflation, energy costs, perceived or actual

changes in interest rates, European sovereign debt, U.S.

In prior years, concerns about the health of the global economy generally and the residential and commercial real estate markets specifically, as well as inflation, energy costs, perceived or actual changes in interest rates, European sovereign debt, U.S.

budget debates, geopolitical issues, international trade issues, public health issues, and the availability and cost of credit have contributed to increased volatility and uncertainty for the economy and the financial and credit markets.

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Any deterioration in the mortgage markets, the residential or commercial real estate markets, the financial markets and the economy generally may lower net income, increase losses and a decline in the market value of our assets, all of which may adversely affect our results of operations, the availability and cost of credit and our ability to make distributions to our shareholders.

The Ukrainian-Russian conflict could have a material adverse impact on our business.

The Ukrainian-Russian conflict, the responses thereto, such as sanctions imposed by the United States and other western democracies, and any expansion thereof is likely to have unpredictable and wide-ranging effects on the domestic and global economy and financial markets, which could have an adverse effect on our business and results of operations.

Already the conflict has caused market volatility, a sharp increase in certain commodity prices, such as wheat and oil, and an increasing number and frequency of cybersecurity threats.

Adverse geopolitical developments could have a material adverse impact on our business.

Currently, there are several geopolitical concerns that could, indirectly, have an adverse impact on our business.

These concerns include the ongoing war between Russia and Ukraine, heightened tensions between the United States and China, Iran’s pursuit of nuclear weapons and North Korea’s continued belligerence.

The conditions, and the responses thereto, such as sanctions imposed by the United States and other western democracies, and any expansion thereof is likely to have unpredictable and wide-ranging effects on the domestic and global economy and financial markets, which could have an adverse effect on our business and results of operations.

Already, these conditions have led to market volatility, a sharp increase in certain commodity prices, such as wheat and oil, and an increasing number and frequency of cybersecurity threats.

So far, we have not experienced any direct impact from the conflict and, as our business is conducted exclusively in the United States, we are probably less vulnerable than companies with international operations.

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Moreover, if we must refinance our existing indebtedness at higher rates, the spread between our cost of funds and the yield on our mortgage loan portfolio will decrease.

While interest rates are currently low and may remain at these levels for some time, eventually they will have to increase.

When they do, the aforementioned factors could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our shareholders.

As interest rates increase, the aforementioned factors could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our shareholders.

Prepayment rates can change, adversely affecting the performance of our assets.

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Similarly, declining real estate values could adversely impact an owner’s ability to refinance a mortgage or sell the underlying property.

In this respect, we note that at December 31, 2021 approximately 107 mortgage loans in

our portfolio have matured and have not been repaid in full or extended.

In this respect, we note that at December 31, 2022 approximately 105 mortgage loans in our portfolio have matured and have not been repaid in full or extended.

Short-term loans are also subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance.

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Such due diligence is usually limited to (i) the credit history of the borrower and its principals (if the borrower is not an individual), (ii) the value of the property, (iii) legal and lien searches against the borrower, the guarantors and the property, (iv) an environmental assessment of the property, (v) a review of the documentation related to the property and (vi) other reviews and or assessments that we may deem appropriate to conduct.

There can be no assurance that we will conduct any specific level of due diligence, or that, among other things, the due diligence

process will uncover all relevant facts, which could result in losses on the loan in question, which, in turn, could adversely affect our business, financial condition and results of operations and our ability to make distributions to our shareholders.

There can be no assurance that we will conduct any specific level of due diligence, or that, among other things, the due diligence process will uncover all relevant facts, which could result in losses on the loan in question, which, in turn, could adversely affect our business, financial condition and results of operations and our ability to make distributions to our shareholders.

Residential mortgage loans are subject to increased risks.

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Any impairment charge could have a material adverse effect on us.

We review our loan portfolio for impairment on a quarterly and annual basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

We review our loan portfolio for impairment on a quarterly basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Indicators of impairment include, but are not limited to, a sustained significant decrease in the value of the collateral securing the loan, including the value of the real estate and other assets pledged to secure the loan as well as personal guarantees by the principals of the borrower, or a borrower’s inability to stay current with respect to its obligations under the terms of the loan.

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A high level of defaults, particularly among larger loans, could have a material adverse impact on our business, operations and financial condition.

At December 31, 2021, approximately 3.1% of our loans, representing approximately 1.5% of our loan portfolio, were in foreclosure.

These percentages are consistent with earlier years.

At December 31, 2022, approximately 8.8% of our loans, representing approximately 4.9% of the total amount of our loan portfolio, were in foreclosure.

Because, historically, our loans have been relatively small, this has not had a material adverse impact on our business.

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Government to satisfy its debt obligations likely would create broader financial turmoil and uncertainty, which would weigh heavily on the global banking system and these developments could cause interest rates and borrowing costs to rise and a reduction in the availability of credit, which may negatively impact the value of our loan portfolio, our net income, liquidity and our ability to finance our assets on favorable terms.

Inflation and rising interest rates could adversely impact our business, operations and financial condition.

Since January 1, 2022, through the date of this Report, the Federal Reserve Board (the “Fed”) has raised interest rates nine times for an aggregate of 4.75%.

These are the first interest increases since December 2018.

As a result, Fed Funds rate has increase from 0.08%, at January 3, 2022, to 4.83%, as of March 29, 2023, and the prime rate has increased from 3.25% to 8.00%, as of March 29, 2023.

The Fed’s rate increases are in response to a sharp increase in the annual rate of inflation in the United States, which was reported to be 6.5% for the 12 months ended December 31, 2022.

As a result of these increases, the growth of the U.S.

economy has slowed.

Until now, these economic factors have not had an adverse impact on the volume or velocity of our business.

However, they have led to an increase in our borrowing costs.

In addition, the increase in interest rates and inflation and the decrease in the rate of growth of the U.S.

economy has caused a severe decrease in the major stock indices and a general decrease in the valuations of many public companies, including Sachem Capital.

As a consequence, our ability to access the public markets to raise capital has been adversely impacted.

If these trends continue, they could result in decreased demand for our products and a decrease in property valuations, which could have an adverse impact on the ability of our borrowers to repay their loans.

Thus, we cannot assure you that our business, operations and financial condition will not be adversely impacted.

Risks Related to Our Operations, Structure and Change in Control Provisions

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Furthermore, such disruptions may result in legal liability.

Accordingly, our failure or inability to provide products and services to our customers in a timely and efficient manner may result in significant liability, a loss of customers and damage to our reputation, which could have a material adverse effect on us.

Accordingly, our failure or inability to

provide products and services to our customers in a timely and efficient manner may result in significant liability, a loss of customers and damage to our reputation, which could have a material adverse effect on us.

The occurrence of cyber-incidents, or a deficiency in our cybersecurity or in those of any of our third party service providers, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information or damage to our business relationships or reputation, all of which could negatively impact our business and results of operations.

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We believe that our continued success depends on the continued services of John L.

Villano, our chairman, chief executive officer, chief financial officer and treasurer.

Villano, our chairman, chief executive officer and president.

Our reputation among and our relationships with our key customers are the direct result of a significant investment of time and effort by him to build our credibility in a highly specialized industry.

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Villano’s services could diminish our business and investment opportunities and our relationships with lenders, business partners and existing and prospective customers and could have a material adverse effect on us.

While we have entered into an employment agreement with John Villano, he can terminate his employment with us at any time.

While we have entered into an employment agreement with Mr.

Villano, he can terminate his employment with us at any time, for any reason.

In the event Mr.

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Our inability to recruit or retain qualified personnel or maintain access to key third-party service providers and software developers, could have a material adverse effect on us.

In 2022, we added 14 employees, nine of which we hired when we acquired the assets of Urbane New Haven, LLC in October 2022, reflecting the increase in the size and volume of operations.

Each of these new employees had to be trained to follow our policies and procedures.

Training new employees is a difficult, time consuming and expensive task but is key to our growth and success.

We must continue to identify, hire, train, and retain qualified professionals, operations employees, and sales and senior management personnel who maintain relationships with our customers and who can provide the technical, strategic and marketing skills that will help us grow.

There is a shortage of qualified personnel in these fields, and we compete with other companies for the limited pool of these personnel.

Currently, the U.S.

labor market is “tight” – meaning there are many more jobs available than people to fill them.

Accordingly, competition for quality personnel is fierce.

Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel.

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Villano, are both exempt from this provision.

The ownership limits contained in our charter could delay or prevent a transaction or a change in control of our company under circumstances that otherwise could provide our shareholders with the opportunity to realize a premium over the then current market price for our Common Shares or would otherwise be in the best interests of our shareholders.

(Jeffrey Villano is no longer affiliated with us

and, as far as we know, no longer owns any of our Common Shares.) The ownership limits contained in our charter could delay or prevent a transaction or a change in control of our company under circumstances that otherwise could provide our shareholders with the opportunity to realize a premium over the then current market price for our Common Shares or would otherwise be in the best interests of our shareholders.

If we sell or transfer mortgage loans to a third party, including a securitization entity, we may be required to repurchase such loans or indemnify such third party if we breach representations and warranties.

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Significant repurchase activity could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our shareholders.

We have significant unfunded commitments to existing borrowers.

If we are unable to fund these commitments, we may be subject to borrower legal claims.

At December 31, 2022, we had unfunded commitments under existing loans of approximately $114.6 million.

We do not record these unfunded commitments as liabilities on our balance sheets as the unfunded portion of the loans are not included in the outstanding mortgage loan balances.

We also have not created a reserve for these unfunded commitments.

We try to maintain a reasonable amount of working capital at all times, although not in amounts sufficient to cover all our deferred funding obligations.

In addition, we can also borrow funds against our portfolio of marketable securities, although the value of these securities in our account fluctuate regularly based on our liquidity and demand for our loans.

We also can raise capital through the Churchill Facility.

Nevertheless, there is a possibility that demands for funding under existing loans could exceed our available working capital and if we fail to meet our funding obligations, we may be subject to legal claims by the borrowers.

This could have a material and adverse impact on our business reputation, our operations as well as our financial condition.

Risks Related to Debt Financing

If we cannot access external sources of capital on favorable terms or at all, our ability to execute our business and growth strategies will be impaired .

In order to qualify and maintain our qualification as a REIT, we are required under the Code to distribute at least 90% of our “REIT taxable income” (determined before the deduction for dividends paid and excluding net capital gains) annually.

To qualify and maintain our qualification as a REIT, we are required under the Code to distribute at least 90% of our “REIT taxable income” (determined before the deduction for dividends paid and excluding net capital gains) annually.

In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our “REIT taxable income,” including any net capital gains.

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Because of these distribution requirements, we may not be able to fund future capital needs, specifically, capital for funding mortgage loans, from operating cash flow.

Consequently, we rely on third-party sources of capital to fund a substantial amount of our capital needs.

Consequently, we rely on third-party sources of capital to fund a substantial amount of our working capital needs.

We may not be able to obtain such financing on favorable terms or at all.

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Our outstanding indebtedness as of December 31, 2022 was approximately $335.3 million, which exposes us to the risk of default thereunder, among other risks.

At December 31, 2021, our total outstanding indebtedness was approximately $219.3 million, including approximately $58.2 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2024, approximately $56.4 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2025, approximately $51.8 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2026, a line of credit secured by our investment portfolio of approximately $33.2 million, approximately $19.1 million under the Churchill Facility that is secured by a first priority security interest on the mortgage loans pledged as collateral, and $750,000 million is a first mortgage loan that is due in March, 2037 and that is secured by our corporate office buildings.

At December 31, 2022, our total outstanding indebtedness was approximately $335.3 million, including approximately $58.2 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2024, approximately $56.4 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2025, approximately $51.8 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2026, approximately $122.1 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2027, a line of credit secured by our investment portfolio of approximately $3.6 million, approximately $42.5 million under the Churchill Facility that is secured by a first priority security interest on the mortgage loans pledged as collateral, and $750,000 mortgage loan secured by our corporate office buildings.

Our organizational documents contain no limitations regarding the maximum level of indebtedness, whether as a percentage of our market capitalization or otherwise, that we may incur.

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The Notes are unsecured.

As a result, they are effectively subordinated to all our existing and future secured indebtedness, such as the Wells Fargo Loan, approximately $33.2 million at December 31, 2021, the approximately $19.1 million of outstanding borrowings as of December 31, 2021 and any future borrowing under the Churchill Facility, the $750,000 currently outstanding under the NHB Mortgage and any future amounts funded thereunder, as well as any secured indebtedness that we may incur in the future, or any indebtedness that is initially unsecured to which we subsequently grant a security interest, to the extent of the value of the assets securing such indebtedness.

As a result, they are effectively subordinated to all our existing and future secured indebtedness, such as the Wells Fargo Loan, approximately $3.6 million at December 31, 2022, the approximately $42.5 million of outstanding borrowings as of December 31, 2022 and any future borrowing under the Churchill Facility, the $750,000 outstanding under the NHB Mortgage at December 31, 2022, as well as any secured indebtedness that we may incur in the future, or any indebtedness that is initially unsecured to which we subsequently grant a security interest, to the extent of the value of the assets securing such indebtedness.

In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes.

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The Notes are generally redeemable any time beginning on the second anniversary of their issuance date.

Notes having an aggregate principal amount of approximately $23.7 million and Notes having an aggregate principal amount of $34.5 million are currently redeemable Notes having an aggregate principal amount of $56.4 million will be redeemable on or after September 4, 2022 and Notes having an aggregate principal amount of approximately $51.8 million will be redeemable on or after December 20, 2023.

Notes having an aggregate principal amount of approximately $114.6 million are currently redeemable.

Notes having an aggregate principal amount of approximately $51.8 million will be redeemable on or after December 20, 2023, Notes having an aggregate principal amount of

approximately $51.9 million will be redeemable on or after March 9, 2024, Notes having an aggregate principal amount of $30.0 million will be redeemable on or after May 11, 2024 and Notes having an aggregate principal amount of approximately $40.3 million are redeemable on or after August 23, 2024.

We may choose to redeem the Notes when prevailing interest rates are lower than the rate borne by the Notes.

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Our continued qualification as a REIT will depend on our ability to meet, on an ongoing basis, various complex requirements concerning, among other things, the ownership of our outstanding stock, the nature of our assets, the sources of our income, and the amount of our distributions to our shareholders.

To satisfy these requirements, we might have to forego investments we might otherwise make.

To satisfy these requirements, we might have to forego investments

we might otherwise make.

Thus, compliance with the REIT requirements may hinder our operational performance.

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The need to avoid prohibited transactions could cause us to forgo or defer sales of assets that we otherwise would have sold or that might otherwise be in our best interest to sell.

In addition, we could, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our qualification as a REIT.

In addition, we could, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) to utilize one or more relief provisions under the Code to maintain our qualification as a REIT.

Any of these taxes would reduce our cash flow and could decrease cash available for distribution to shareholders and decrease cash available to service our indebtedness.

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Although the reduced rates applicable to dividend income from non-REIT “C” corporations do not adversely affect the taxation of REITs or dividends payable by REITs, it could cause investors who are non-corporate taxpayers to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT “C” corporations that pay dividends, which could depress the market price of the stock of REITs, including our Common Shares.

We may in the future choose to pay dividends in the form of Common Shares, in which case shareholders may be required to pay income taxes in excess of the cash dividends they receive.

We may in the future choose to pay dividends in the form of Common Shares, in which case shareholders may be required to pay income taxes in the absence of cash dividends.

We may seek in the future to distribute taxable dividends that are payable in cash and Common Shares, at the election of each shareholder.

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As a result, shareholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received.

shareholder sells Common Shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of Common Shares at the time of the sale.

shareholder sells Common Shares that it receives as a dividend to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of Common Shares at the time of the sale.

In addition, in such case, a U.S.

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The market price and trading volume of our securities may be volatile.

The market price of our Common Shares is highly volatile and subject to wide fluctuations.

In addition, the trading volume in our common shares may fluctuate and cause significant price variations to occur.

Since January 3, 2022 through the date of this Report, our stock price has ranged at market close from a high of $6.36 on January 12, 2022 to a low of $4.67 on February 24, 2022 and volume has ranged from a high of 1,368,800 shares on January 25, 2022 to a low of 91,200 shares on March 23, 2022.

Some of the factors that could result in fluctuations in the price or trading volume of our securities include, among other things:

actual or anticipated changes in our current or future financial performance;

actual or anticipated changes in our current or future dividend yield;

and changes in market interest rates and general market and economic conditions, including the perceived impact of COVID-19 on the U.S.

and global economies.

The stock markets, including the NYSE American, which is the exchange on which we list our Common Shares, have experienced significant price and volume fluctuations.

During the year ended December 31, 2022, the price for our Common Shares on the NYSE American has ranged from a high of $6.36 to a low of $3.26.

We cannot assure you that the market price of our Common Shares will not fluctuate or decline significantly.

Some of the factors that could negatively affect our stock price or result in fluctuations in the price or trading volume of our Common Shares are the following:

● our actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects;

● equity issuances by us, or share resales by our shareholders, or the perception that such issuances or resales may occur;

● publication of research reports about us or the real estate industry;

● changes in market valuations of similar companies;

● adverse market reaction to the level of leverage we employ;

● additions to or departures of our key personnel;

● accounting issues;

● speculation in the press or investment community;

● our failure to meet, or the lowering of, our earnings’ estimates or those of any securities analysts;

● increases in market interest rates, which may lead investors to demand a higher distribution yield for our Common Shares and would result in increased interest expenses on our debt;

● failure to qualify or to remain qualified as a REIT;

● price and volume fluctuations in the stock market generally;

● general market and economic conditions, including the current state of the credit and capital markets and current level of inflation.

We have not established a minimum dividend payment level for our common shareholders and there are no assurances of our ability to pay dividends to our common shareholders in the future.

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Sales of substantial amounts of our Common Shares in the public market may have an adverse effect on the market price of our Common Shares.

Sales of substantial amounts of our Common Shares, including by any selling shareholders, adoption and utilization of an at the market issuance program, or the availability of such common shares for sale, whether or not actually sold, could adversely affect the prevailing market prices for our Common Shares.

Sales of substantial amounts of our Common Shares, including by any selling shareholders, adoption and

utilization of an at the market issuance program, or the availability of such Common Shares for sale, whether or not actually sold, could adversely affect the prevailing market prices for our Common Shares.

If this occurs and continues it could impair our ability to raise additional capital through the sale of securities.

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In addition, we could sell securities at a price less than our then-current book value per share.

Risks Related to our Series A Preferred Stock

The Series A Preferred Stock effectively ranks junior to all our indebtedness and other liabilities and of our subsidiaries.

In the event of our bankruptcy, liquidation, dissolution or winding up of our affairs, our assets will be available to pay obligations on the Series A Preferred Stock only after all of our indebtedness and other liabilities have been paid.

At December 31, 2022, our total outstanding indebtedness, including the aggregate outstanding principal amount of unsecured, unsubordinated notes (net of deferred financing costs), amounts due under the Churchill Facility, the Wells Fargo Loan and the NHB Mortgage, totaled $326.9 million, and total liabilities were $348.0 million.

The rights of holders of the Series A Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our current and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Series A Preferred Stock.

In addition, the Series A Preferred Stock effectively ranks junior to all existing and future indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries and any future subsidiaries in that the Series A Preferred Stock is structurally subordinated to these types of indebtedness and other liabilities.

Our existing subsidiaries are, and any future subsidiaries would be, separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series A Preferred Stock.

If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due on any or all of the Series A Preferred Stock then outstanding.

We and our subsidiaries have incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Series A Preferred Stock.

Certain of our existing or future debt instruments may restrict the authorization, payment or setting apart of dividends on the Series A Preferred Stock.

Future offerings of debt or senior equity securities may adversely affect the market price of the Series A Preferred Stock.

If we decide to issue debt or senior equity securities in the future, it is possible that these securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.

Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of the Series A Preferred Stock and may result in dilution to owners of the Series A Preferred Stock.

We and, indirectly, our shareholders, will bear the cost of issuing and servicing such securities.

Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.

Thus, holders of the Series A Preferred Stock will bear the risk of our future offerings reducing the market price of the Series A Preferred Stock and diluting the value of their holdings in us.

We may issue additional shares of Series A Preferred Stock and additional series of preferred shares that rank on parity with the Series A Preferred Stock as to dividend rights, rights upon liquidation or voting rights.

We are allowed to issue additional shares of Series A Preferred Stock and additional series of preferred shares that would rank equally to the Series A Preferred Stock as to dividend payments and rights upon our liquidation, dissolution or winding up of our affairs pursuant to our certificate of incorporation, as amended, including the certificate of amendment creating the Series A Preferred Stock without any vote of the holders of the Series A Preferred Stock.

The issuance of additional shares of Series A Preferred Stock and additional series of parity preferred stock could have the effect of reducing the amounts available to the holders of the Series A Preferred Stock issued in this offering upon our liquidation or dissolution or the winding up of our affairs.

It also may reduce dividend payments on the Series A Preferred Stock issued in this offering if we do not have sufficient funds to pay dividends on all Series A Preferred Stock outstanding and other classes of stock with equal priority with respect to dividends.

In addition, although holders of shares of Series A Preferred Stock are entitled to limited voting rights, the Series A Preferred Stock will vote separately as a class together with all other classes or series of our preferred shares that we may issue upon which like voting rights have been conferred and are exercisable.

As a result, the voting rights of holders of shares of Series A Preferred Stock may be significantly diluted, and the holders of such other series of preferred shares that we may issue may be able to control or significantly influence the outcome of any vote.

Future issuances and sales of parity preferred shares, or the perception that such issuances and sales could occur, may cause prevailing market prices for the Series A Preferred Stock and our Common Shares to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.

Market interest rates may materially and adversely affect the value of the Series A Preferred Stock.

One of the factors that will influence the price of the Series A Preferred Stock will be the dividend yield on the Series A Preferred Stock (as a percentage of the market price of the Series A Preferred Stock) relative to market interest rates.

An increase in market interest rates may lead prospective purchasers of the Series A Preferred Stock to expect a higher dividend yield (and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for dividend payments).

Thus, higher market interest rates could cause the market price of the Series A Preferred Stock to materially decrease.

Our ability to pay dividends is limited by the requirements of New York law.

Our ability to pay dividends on the Series A Preferred Stock is limited by the laws of New York.

Under applicable New York law, a New York corporation may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as the debts become due in the usual course of business, or, except in limited circumstances, the corporation’s total assets would be less than the sum of its total liabilities plus, unless our certificate of incorporation, as amended, provides otherwise, the amount that would be needed, if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

Accordingly, we may not make a distribution on the Series A Preferred Stock if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or, except in limited circumstances, our total assets would be less than the sum of our total liabilities plus, unless the charter provides otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of preferred shares then outstanding, if any, with preferences senior to those of the Series A Preferred Stock.

The change of control conversion rights may not adequately compensate the holders of Series A Preferred Stock in the event we undergo a change of control.

The change of control conversion rights may also make it more difficult for a party to acquire us or discourage a party from acquiring us.

Upon the occurrence of a Change of Control, each holder of shares of Series A Preferred Stock will have the right (unless, prior to the Change of Control Conversion Date (as defined in our certificate of incorporation, as amended), we have provided notice of our election to redeem some or all of the shares of Series A Preferred Stock held by such holder, in which case such holder will have the right only with respect to shares of Series A Preferred Stock that are not called for redemption) to convert some or all of such holder’s shares of Series A Preferred Stock into our Common Shares (or under specified circumstances certain alternative consideration).

Notwithstanding that we generally may not redeem the Series A Preferred Stock prior to June 29, 2026, we have a special optional redemption right to redeem the Series A Preferred Stock in the event of a Change of Control, and holders of the Series A Preferred Stock will not have the right to convert any shares that we have elected to redeem prior to the Change of Control Conversion Date.

If we do not elect to redeem the Series A Preferred Stock prior to the Change of Control Conversion Date, then upon an exercise of their conversion rights, the holders of Series A Preferred Stock will be limited to a maximum number of our Common Shares (or, if applicable, the Alternative Conversion Consideration (as defined in our certificate of incorporation, as amended)) equal to the lesser of (a) the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference per share of Series A Preferred Stock plus the amount of any accumulated and unpaid dividends thereon to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a dividend record date and prior to the corresponding dividend payment date for the Series A Preferred Stock, in which case no additional amount for such accrued and unpaid dividend will be included in this sum) by (ii) the Common Stock Price (as defined in our certificate of incorporation, as amended);

and (b) 25.00, multiplied by the number of shares of Series A Preferred Stock converted.

In addition, the Change of Control conversion feature of the Series A Preferred Stock may have the effect of discouraging a third party from making an acquisition proposal for us or of delaying, deferring or preventing certain of our change of control transactions under circumstances that otherwise could provide the holders of our Common Shares and Series A Preferred Stock with the opportunity to realize a premium over the then-current market price of such stock or that shareholders may otherwise believe is in their best interests.

The trading price of the Series A Preferred Stock could be substantially affected by various factors.

During the year ended December 31, 2022, the price for our Series A Preferred Stock on the NYSE American has ranged from a high of $25.82 to a low of $18.38.

We cannot assure you that the market price of the Series A Preferred Stock will not fluctuate or decline significantly.

The trading price of the Series A Preferred Stock will depend on many factors, which may change from time to time, including the following:

● prevailing interest rates, increases in which may have an adverse effect on the market price of the Series A Preferred Stock;

● market prices of common and preferred equity securities issued by REITs and other real estate companies;

● the annual yield from distributions on the Series A Preferred Stock as compared to yields on other financial instruments;

● general economic and financial market conditions;

● government action or regulation;

● the financial condition, performance and prospects of us and our competitors;

● changes in financial estimates or recommendations by securities analysts with respect to us, our competitors or our industry;

● our issuance of additional common equity or debt securities;

● our issuance of additional series or classes of preferred securities;

● actual or anticipated variations in quarterly operating results of us and our competitors.

Our certificate of incorporation, as amended, including the certificate of amendment establishing the terms of the Series A Preferred Stock, contains restrictions upon ownership and transfer of the Series A Preferred Stock, which may impair the ability of holders to convert Series A Preferred Stock into our Common Shares.

Our certificate of incorporation, as amended, including the certificate of amendment creating the Series A Preferred Stock, contains restrictions on ownership and transfer of the Series A Preferred Stock intended, among other things, to assist us in maintaining our qualification as a REIT for federal income tax purposes.

For example, our charter provides that no person may own, or be deemed to own by virtue of applicable attribution provisions of the Code, more than 4.99% (by value or by number of shares, whichever is more restrictive) of our outstanding Common Shares or 4.99% by value of our outstanding shares of capital stock, subject to certain exceptions.

Notwithstanding any other provision of the Series A Preferred Stock, no holder of shares of Series A Preferred Stock will be entitled to convert such stock into our Common Shares to the extent that receipt of our Common Shares would cause the holder to exceed the ownership limitations contained in our certificate of incorporation, as amended, including the certificate of amendment creating the Series A Preferred Stock.

In addition, these restrictions could have takeover defense effects and could reduce the possibility that a third party will attempt to acquire control of us, which could adversely affect the market price of the Series A Preferred Stock.

The Series A Preferred Stock shareholders will have extremely limited voting rights.

Our Common Shares are the only class of our securities that carry full voting rights.

Voting rights for holders of shares of Series A Preferred Stock exist primarily with respect to the ability to elect, voting together as a single class with the holders of any other class or series of our preferred shares having similar voting rights, two additional directors to the Board, in the event that six quarterly dividends (whether or not consecutive) payable on the Series A Preferred Stock are in arrears, and with respect to voting on amendments to our charter, including the certificate of amendment creating the Series A Preferred Stock, that materially and adversely affect the rights of the holders of shares of Series A Preferred Stock or authorize, increase or create additional classes or series of our stock that are senior to the Series A Preferred Stock.

Other than the limited circumstances described in our certificate of incorporaton, as amended, holders of shares of Series A Preferred Stock will not have any voting rights.

If the Series A Preferred Stock or our Common Shares are delisted, your ability to transfer or sell your shares of the Series A Preferred Stock may be limited and the market value of the Series A Preferred Stock will likely be materially adversely affected.

Other than in connection with a Change of Control (as defined in our certificate of incorporation, as amended) the Series A Preferred Stock does not contain rights that are intended to protect you if our Common Shares are delisted from the NYSE American.

Because the Series A Preferred Stock has no stated maturity date, Series A Preferred Stock shareholders may be forced to hold their shares of the Series A Preferred Stock and receive stated dividends on the Series A Preferred Stock when, as and if authorized by the Board and paid by us with no assurance as to ever receiving the liquidation value thereof.

In addition, if our Common Shares are delisted from the NYSE American, it is likely that the Series A Preferred Stock will be delisted from the NYSE American as well.

Accordingly, if our Common Shares are delisted from the NYSE American, your ability to transfer or sell your shares of the Series A Preferred Stock may be limited and the market value of the Series A Preferred Stock will likely be materially adversely affected.

Future sales of substantial amounts of the Series A Preferred Stock, or the possibility that such sales could occur, could adversely affect the market price of the Series A Preferred Stock.

We cannot predict the effect, if any, that future issuances or sales of our securities or the availability of our securities for future issuance or sale, will have on the market price of the Series A Preferred Stock.

Issuances or sales of substantial amounts of our securities, including sales of the Series A Preferred Stock or the perception that such issuances or sales might occur, could negatively impact the market price of the Series A Preferred Stock and the terms upon which we may obtain additional equity financing in the future.

Although the Series A Preferred Stock currently has a private credit rating of BBB from Egan-Jones Ratings Company, the Series A Preferred Stock may be downgraded, suspended or withdrawn as a result of the offering of additional shares of Series A Preferred Stock.

The Series A Preferred Stock has a private credit rating of BBB from Egan-Jones Ratings Company.

An explanation of the significance of ratings may be obtained from the rating agency.

Generally, rating agencies base their ratings on such material and information, and such of their own investigations, studies and assumptions, as they deem appropriate.

The issuance of additional shares in the future or other factors could affect our ability to maintain the rating on the Series A Preferred Stock.

The rating of the Series A Preferred Stock should be evaluated independently from similar ratings of other securities.

A credit rating of a security is paid for by the issuer and is not a recommendation to buy, sell or hold securities and maybe subject to review, revision, suspension, reduction or withdrawal at any time by the assigning rating agency.

We cannot assure you that the credit rating assigned to us or the Series A Preferred Stock will not be downgraded, suspended or withdrawn in the future.

If it is, the liquidity or market value of the Series A Preferred Stock could be adversely affected.

Unresolved Staff Comments

Our principal offices are located at 698 Main Street, Branford, Connecticut.

Legal Proceedings

We are not currently a party to any material legal proceedings not in the ordinary course of business.

Mine Safety Disclosure

Not applicable.

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 1A. Risk Factors