S-11 1 tm2124414-6_s11.htm S-11 tm2124414-6_s11 - none - 82.2974014s
As filed with the Securities and Exchange Commission on November 15, 2021.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-11
FOR REGISTRATION UNDER
THE SECURITIES ACT OF 1933 OF SECURITIES
OF CERTAIN REAL ESTATE COMPANIES
FOUR SPRINGS CAPITAL TRUST
(Exact name of registrant as specified in governing instruments)
1901 Main Street
Lake Como, New Jersey 07719
877-449-8828
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
William P. Dioguardi
Chief Executive Officer
Four Springs Capital Trust
1901 Main Street
Lake Como, New Jersey 07719
877-449-8828
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Nanette C. Heide, Esq.
Richard A. Silfen, Esq.
Justin A. Santarosa, Esq.
Duane Morris LLP
1540 Broadway New York
New York 10036 Phone: (212) 692-1003
Facsimile: (212) 202-5334
Jason A. Friedhoff, Esq.
Bartholomew A. Sheehan, Esq.
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
Phone: (212) 839-5300
Facsimile: (212) 839-5599
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of Securities to be Registered
Proposed
Maximum Aggregate
Offering Price(1)(2)
Amount of
Registration Fee(1)(3)
Common Shares, $0.001 par value per share
$ 100,000,000 $ 9,270
(1)
Estimated solely for the purpose of determining the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended (the “Securities Act”).
(2)
Includes the offering price of common shares that may be purchased by the underwriters upon the exercise of their option to purchase additional shares.
(3)
Pursuant to Rule 457(p), this amount is being offset in its entirety with $13,435.13 of unused fees that were previously paid in connection with the registrant’s filing of its Registration Statement on Form S-11, as amended (File No. 333-218205), initially filed with the Securities and Exchange Commission (the “Commission”) by the registrant on May 24, 2017.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion,
Preliminary Prospectus Dated November 15, 2021
           Common Shares
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Four Springs Capital Trust
Four Springs Capital Trust is a self-administered and self-managed real estate company, formed on July 6, 2012. Since our inception, we have focused on acquiring, owning and actively managing a diversified portfolio of single-tenant, income producing commercial properties throughout the United States that are subject to long-term net leases.
We are offering           common shares, $0.001 par value per share. All of the common shares offered by this prospectus are being sold by us. This is our initial public offering and no public market exists for our common shares. We expect the initial public offering price to be between $      and $      per share.
We are an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act, and, as such, we will be subject to reduced public company reporting requirements. See “Prospectus Summary—Emerging Growth Company Status.”
We have elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2012. To assist us in complying with certain federal income tax requirements applicable to REITs, our charter contains certain restrictions relating to the ownership and transfer of our common shares, including an ownership limit of 9.8% of our outstanding common shares. See “Description of Securities—Restrictions on Ownership and Transfer” for a detailed description of the ownership and transfer restrictions applicable to our common shares.
We expect to have our common shares listed on the New York Stock Exchange (“NYSE”) under the symbol “FSPR.”
Investing in our common shares involves risks. See “Risk Factors” beginning on page 28 for factors you should consider before investing in our common shares.
Per Share
Total
Public offering price
$     $    
Underwriting discounts and commissions(1)
$ $
Proceeds, before expenses, to us
$ $
(1)
See “Underwriting” for additional information regarding underwriting compensation.
To the extent that the underwriters sell more than           common shares, the underwriters have the option to purchase up to an additional           common shares from us at the initial public offering price less the underwriting discounts and commissions, solely to cover overallotments, if any. We expect to deliver the common shares to the purchasers on or about      , 2021.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
JOINT BOOK-RUNNING MANAGERS
MORGAN STANLEYGOLDMAN SACHS & CO. LLCWELLS FARGO SECURITIES
BOOK-RUNNERS
MIZUHO SECURITIES
SCOTIABANK
Wolfe | Nomura Alliance
BERENBERG
CO-MANAGER
R. SEELAUS & CO., LLC
The date of this prospectus is      , 2021.

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(1)
Based on our leasable square footage.
(2)
Weighted by annual base rent on an expected post-syndication pro rata share basis.
(3)
Tenants or lease guarantors, or parents of tenants or lease guarantors, that have an investment grade credit rating from a major credit rating agency or have a senior unsecured obligation that have been so rated. An investment grade credit rating refers to a published long-term credit rating of Baa3/BBB- or above from one or all of Moody’s Investor Service, Inc. Standard & Poor’s Rating and AM Best. See “Risk Factors—Risks related to Our Business. Some of our properties are leased to tenants or have lease guarantors that are not rated by a major rating agency.”
(4)
Based on the later of year built or year of last major renovation.

 
TABLE OF CONTENTS
Page
1
28
58
59
60
63
65
67
79
82
114
141
147
157
Page
159
161
165
172
177
183
185
203
211
211
211
F-1
You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by us. We have not, and the underwriters have not, authorized anyone to provide you with different or inconsistent information. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the cover page of this prospectus or such other dates as are specified herein. Our business, financial condition, liquidity, results of operations and prospects may have changed since those dates.
 

 
Explanatory Notes
Unless otherwise indicated, the information contained in this prospectus assumes: (1) the initial public offering price of the common shares offered hereby is $      per share (the midpoint of the price range set forth on the cover page of this prospectus); (2) no exercise by the underwriters of their option to purchase additional shares; (3) the automatic conversion of all of our 200,015 outstanding non-participating common shares, $0.001 par value per share (“non-participating common shares”) into 200,015 of our common shares at a rate of one common share for every one non-participating common share, upon the listing of our common shares on the NYSE; (4) the automatic conversion of all of our           outstanding preferred shares into a number of common shares equal to their aggregate stated value divided by 90% of the initial public offering price of our common shares in this offering, upon the listing of our common shares on the NYSE (or           common shares, based on the midpoint of the price range set forth on the cover page of this prospectus); and (5) the adoption of our Amended and Restated Declaration of Trust (“charter”) and Second Amended and Restated Bylaws (“bylaws”) upon the completion of this offering.
In this prospectus, “ABR” refers to “annualized base rent” calculated as the monthly base rent pursuant to leases that were in effect as of November 15, 2021 multiplied by 12. ABR (1) excludes tenant reimbursements, (2) excludes any amounts due per percentage rent lease terms, (3) is calculated on a cash basis and differs from how we calculate rent in accordance with U.S. generally accepted accounting principles (“GAAP”) for purposes of our financial statements and (4) excludes any ancillary income at a property.
“CPI” refers to the Consumer Price Index, which is a measure published by the United States Department of Labor Bureau of Labor Statistics of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. CPI is a widely used measure of inflation and some of our leases provide for CPI-based contractual increases in base rent.
Trademarks
This prospectus contains references to our copyrights, trademarks, trade names and service marks and to those belonging to other entities. Solely for convenience, copyrights, trademarks, trade names and service marks referred to in this prospectus may appear without the © or ® or ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these copyrights, trademarks, trade names and service marks. We do not intend our use or display of other companies’ copyrights, trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Information About Properties Held Through Delaware Statutory Trusts
As of November 15, 2021, we had indirect interests in 34 properties held through 20 Delaware Statutory Trusts (“DSTs”) that we control and in which we owned equity interests ranging from 5.0% to 100.0%. These 34 properties contributed $24.8 of our $57.4 million of ABR on a consolidated basis.
Because we have a controlling interest in the DSTs, the DSTs and the properties the DSTs own are consolidated in our financial statements in accordance with GAAP. However, while such properties are presented in our financial statements on a consolidated basis, we are only entitled to our pro rata share of the net cash flows generated by such properties and certain related fees in accordance with the provisions of the documents governing each DST and related agreements. As a result, we have presented certain property information in this prospectus (including data presented with reference to ABR) based on our pro rata ownership interest as of the applicable date in properties included in DSTs and not on a consolidated basis. In such instances, information is noted as being presented on a “pro rata share” basis. We believe this presentation is useful to investors, as it conveys our economic interest in properties included in DSTs.
When we establish a DST, we generally initially own 100% of the equity interests in the DST and typically offer 85% to 95% of the equity interests of each DST to third-party investors, with the remaining equity interests retained by us. As of November 15, 2021, we owned an average of approximately 14.3% of the equity of the 20 DSTs that had completed syndication or are in-process syndications as of such date. For each of the 12 most recent DSTs that have completed syndication (i.e., the DSTs that have completed syndication since March 2018), we owned approximately 5.0% of the equity interests as of November 15, 2021. Because the
 
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syndication of the equity interests in a DST typically takes place over several months, we often own a higher percentage of a DST (particularly a newly formed DST) at a given point in time than we expect to own when syndication of the DST is complete. In addition, certain investors in three of our DSTs, in which we owned approximately 25.0%, 5.0% and 5.0% of the equity interests, respectively, as of November 15, 2021, have agreed to exchange, upon the completion of this offering, their interests in such DSTs for Series U2 limited partnership units in our operating partnership such that we expect to own 38.0%, 35.4% and 32.6% of the equity interests in such DSTs, respectively, upon completion of this offering. As a result, we have presented certain property information in this prospectus (including data presented with reference to ABR) on a pro rata basis based on our expected ownership interest in (1) the DSTs that are actively being syndicated once the syndication of such DSTs is complete and (2) the DSTs where investors are exchanging their interests upon completion of this offering. In such instances, information is noted as being presented on an “expected post-syndication pro rata share” basis. We believe this presentation is useful to investors, as it conveys our expected approximate economic interest in DSTs that are actively being syndicated once syndication is complete.
The ownership interest used for property information presented on an expected post-syndication pro rata share basis is calculated (1) for properties in a DST that has not completed syndication, by assuming we will own 5.0% of the equity interests in such DSTs upon completion of syndication (which is consistent with our percentage ownership in our 10 most recent DSTs), (2) for properties in the three DSTs where investors are exchanging their interests upon completion of this offering, by assuming we will own 38.0%, 35.4% and 32.6% of the equity interests in such DSTs, respectively, upon completion of this offering and (3) for properties in a DST that has completed syndication (other than those described in (2) above), by using our actual pro rata share of such DST as of November 15, 2021. For any DST that has not completed syndication, we can give no assurance that such syndication will be completed or that our ultimate ownership percentage of such DST will not be materially higher or lower than 5.0%. Our completion of a particular DST syndication and our post-syndication percentage ownership of a particular DST will depend on various factors, many of which are not in our control. See “Risk Factors—Information that we present on a “expected post-syndication pro rata share” basis with respect to DSTs that have not been syndicated fully to third party investors reflect the percentage of equity interest we expect to own after completion of syndication and, accordingly, may not reflect our actual equity ownership of these DSTs for particular future periods.”
As of November 15, 2021, 18 of our DSTs were fully syndicated, and we were actively syndicating two DSTs. The following table provides summary information on the two DSTs that were under active syndication as of November 15, 2021.
Name of DST
Number
of
Properties
Tenant
Pro
Rata
Share
Expected
Post-
Syndication
Pro Rata
Share
Purchase
Price–
Consolidated
Purchase
Price–Pro
Rata Share
Purchase
Price–
Expected
Post-
Syndication
Pro Rata
Share
ABR–
Consolidated
ABR–Pro
Rata Share
ABR–
Expected
Post-
Syndication
Pro Rata Share
FSC Diversified 1, DST
5
Batchelor &
Kimball, Inc.,
Fresenius Medical
Care Capital
City, LLC,
P-Cor, LLC,
d/b/a Henry Ford
OptimEyes,
CSL Plasma, Inc.
and BioLife
Plasma Services LP
7.0% 5.0% $ 46,718,725 $ 2,989,261 $ 2,335,936 $ 2,643,154 $ 171,004 $ 132,158
FSC Healthcare 7, DST
7
Blue Cross
and
Blue Shield of
South Carolina,
St. Francis
Physician Services,
Inc. and
Prisma Health – 
Upstate
100.0% 5.0% $ 33,037,383 $ 33,037,383 $ 1,651,869 $ 1,744,714 $ 1,744,714 $ 87,236
 
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Statement Regarding Industry and Market Data
Market and industry data contained in this prospectus is based on a variety of sources, including internal data and estimates, independent industry publications, government publications, reports by market research firms or other published independent sources. Industry publications and other published sources generally state that the information they contain has been obtained from third-party sources believed to be reliable. Our internal data and estimates are based upon our analysis of our target markets and the properties in which we invest, as well as information obtained from trade and business organizations and other industry participants without independent verification.
 
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus and does not include all of the information that you should consider before investing in our common shares. Before making an investment decision, you should read this entire prospectus carefully, including the sections captioned “Risk Factors,” “Unaudited Pro Forma Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the notes to those statements included elsewhere in this prospectus.
Except where the context requires otherwise, references in this prospectus to “Four Springs Capital Trust,” the “company,” “we,” “our” and “us” refer to Four Springs Capital Trust, a Maryland real estate investment trust, together with our consolidated subsidiaries, including Four Springs Capital Trust Operating Partnership, L.P., a Delaware limited partnership, which we refer to as the “Operating Partnership.” References to “common shares” refer to the common shares, par value $0.001 per share, of Four Springs Capital Trust.
Our Company
We are an internally managed REIT focused on acquiring, owning and actively managing a portfolio of single-tenant, income producing industrial, medical, service/necessity retail and office properties throughout the United States that are subject to long-term net leases. As of November 15, 2021, we wholly owned, or had ownership interests in, 154 properties located in 32 states that were 99.8% leased (based on our leasable square footage) to 68 tenants operating in 37 different industries. As of such date, approximately 43.3% of our ABR on an expected post-syndication pro rata share basis was from leases with tenants or lease guarantors, or parents of tenants or lease guarantors, that have an investment grade credit rating from a major rating agency or have a senior unsecured obligation that has been so rated. Additionally, based on ABR on an expected post-syndication pro rata share basis, approximately 81.3% of our leases provide for fixed contractual increases in future base rent and an additional 8.1% of our leases provide for CPI-based contractual increases in future base rent. On a portfolio wide basis based on ABR on an expected post-syndication pro rata share basis, the average annual contractual base rent increase was approximately 1.5% (excluding CPI-based rent increases). As of November 15, 2021, our portfolio had a weighted average remaining lease term of 10.1 years (based on ABR on an expected post-syndication pro rata share basis).
We seek to acquire single-tenant net lease properties with a focus on real estate attributes that we believe can provide superior long-term prospects for rental rate increases, occupancy and re-leasing performance. We seek buildings that are not only leased to high quality tenants with attractive lease term and rent escalation provisions, but also exhibit characteristics that we believe protect value in the event of a vacancy, including strong locations, flexible layouts and physical attributes that permit alternative uses and appeal to a wide range of tenants. We believe these properties offer benefits as compared to other types of commercial real estate due to the relative stability of the cash flows from long-term leases, as well as reduced property level expenses and capital expenditures resulting from the net lease structure. We generally target properties with purchase prices ranging from $5 million to $25 million, as we believe there is less competition from larger institutional investors that typically target larger properties. Our portfolio is diversified not only by tenant, industry and geography, but also by property type, which we believe differentiates us from certain other net lease REITs and further reduces risk and enhances cash flow stability. We are an active asset manager and regularly review each of our properties for changes in the credit of the tenant, business performance at the property, industry trends and local real estate market conditions.
Our senior management team has extensive net lease real estate and public and private REIT management experience. In November 2008, William P. Dioguardi, our Chairman and Chief Executive Officer, founded Four Springs Capital, L.L.C. (“FSC LLC”), an affiliated organization that prior to our formation was a sponsor of single-tenant net lease investment programs, all but one of which were acquired by us after our formation. Subsequent to our formation, FSC LLC has assisted in marketing and distributing our securities and the ownership interests in our DST offerings. Mr. Dioguardi has led the acquisition and asset management of all of the properties in our portfolio. Coby R. Johnson, our President and Chief Operating Officer, joined FSC LLC as a Managing Director in October 2010 and co-founded us with Mr. Dioguardi in July 2012 to continue and expand the net lease investment activities of FSC LLC. Other members of our senior management team previously served in senior management roles at public net lease REITs. Since our inception,
 
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our management team has developed and implemented internal processes, procedures and controls to establish a scalable infrastructure that we believe will allow us to grow efficiently.
Portfolio Summary
As of November 15, 2021, we wholly owned 120 properties and had ownership interests in 34 additional properties, over which we exercise full management and disposition authority. The following table sets forth information on an expected post-syndication pro rata share basis relating to our portfolio as of November 15, 2021.
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(1)
Based on our leasable square footage.
(2)
Weighted by ABR on an expected post-syndication pro rata share basis.
(3)
Tenants or lease guarantors, or parents of tenants or lease guarantors, that have an investment grade credit rating from a major credit rating agency or have a senior unsecured obligation that have been so rated. An investment grade credit rating refers to a published long-term credit rating of Baa3/BBB- or above from one or all of Moody’s Investor Service, Inc., Standard & Poor’s Rating Services, and AM Best. See “Risk Factors—Risks related to Our Business. Some of our properties are leased to tenants or have lease guarantors that are not rated by a major rating agency.”
(4)
Based on the later of year built or year of last major renovation.
 
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The following table sets forth information on an expected post-syndication pro rata share basis relating to our portfolio diversification by property type and tenant industry as of November 15, 2021.
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Tenants
Our portfolio of properties has a stable and diversified tenant base. As of November 15, 2021, our properties were 99.8% leased (based on our leasable square footage) to 68 tenants operating in 37 different industries, with approximately 43.3% of our ABR on an expected post-syndication pro rata share basis from leases with tenants or lease guarantors, or parents of tenants or lease guarantors, that have an investment grade credit rating from a major rating agency or have a senior unsecured obligation that has been so rated. We intend to maintain a diversified mix of tenants to limit our exposure to any one tenant or industry.
The following tables sets forth information about the 10 largest tenants in our portfolio based on ABR on an expected post-syndication pro rata share basis and on a consolidated basis as of November 15, 2021.
 
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Expected Post-Syndication Pro Rata Share Basis
Tenant
Property
Type
ABR (Expected Post-
Syndication
Pro Rata
Share)
Percentage
of ABR
(Expected Post-
Syndication
Pro Rata
Share)
Leased
Square Feet
(Expected Post-
Syndication
Pro Rata
Share)
Percentage
Of Leased
Square Feet
(Expected Post-
Syndication
Pro Rata
Share)
Investment
Grade Rated
(Tenant/
Guarantor/
Parent)(1)
Blue Cross Blue Shield of South Carolina(2)
Medical
$ 1,926,045 5.6% 94,450 2.8%
Caliber Collision(2)
Retail
1,830,145 5.3% 100,629 3.0%
Discovery Behavioral Health(2)
Medical
1,753,653 5.1% 71,859 2.1%
BioLife(2)
Medical
1,732,838 5.0% 50,120 1.5%
Zips Car Wash(2)
Retail
1,679,969 4.9% 16,319 0.5%
Performance Food Group
Industrial
1,622,280 4.7% 165,200 4.9%
GPM Investments(2)
Retail
1,502,319 4.4% 31,557 0.9%
Horizon Healthcare
Office
1,338,138 3.9% 87,460 2.6%
CVS/Caremark
Office
1,200,401 3.5% 123,118 3.6%
Dollar General(2)
Retail
1,103,864 3.2% 95,280 2.8%
Total $ 15,689,652 45.6% 835,992 24.7%
(1)
Tenants or lease guarantors, or parents of tenants or lease guarantors, that have an investment grade credit rating from a major credit rating agency or have a senior unsecured obligation that have been so rated. An investment grade credit rating refers to a published long-term credit rating of Baa3/BBB− or above from one or all of Moody’s Investor Service, Inc., Standard & Poor’s Rating Services, and AM Best. See “Risk Factors—Risks related to Our Business. Some of our properties are leased to tenants or have lease guarantors that are not rated by a major rating agency.”
(2)
Tenant leases more than one of our properties.
Consolidated Basis
Tenant
Property
Type
ABR
(Consolidated)
Percentage
of ABR
(Consolidated)
Leased Square Feet
(Consolidated)
Percentage
Of Leased
Square Feet
(Consolidated)
Investment
Grade
Rated
(Tenant/
Guarantor/
Parent)(1)
Amazon.com(2)
Industrial
$ 7,591,185 23.1% 1,380,865 13.2%
Biolife(2)
Medical
2,696,864 1.3% 79,108 4.7%
Blue Cross Blue Shield of
South Carolina(2)
Medical
2,487,608 2.1% 123,478 4.3%
Fresenius Medical(2)
Medical
2,447,760 1.6% 97,486 4.3%
GAF
Industrial
2,280,249 3.4% 201,153 4.0%
Caliber Collision(2)
Retail
2,115,989 2.2% 133,245 3.7%
Discovery Behavioral Health(2)
Medical
1,753,653 1.2% 71,859 3.1%
University of Iowa
Medical
1,680,522 1.0% 61,067 2.9%
Zips Car Wash(2)
Retail
1,679,969 0.3% 16,319 2.9%
Performance Foods Group
Industrial
1,622,280 2.8% 165,200 2.8%
Total
$
26,356,079
39.0%
2,329,780
45.9%
(1)
Tenant or lease guarantor, or parent of tenant or lease guarantor has an investment grade credit rating from a major rating agency
 
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or has a senior unsecured obligation that has been so rated. An investment grade credit rating refers to a published long-term credit rating of Baa3/BBB− or above from one or both of Moody’s Investors Service, Inc. Standard & Poor’s Ratings and AM Best. See “Risk Factors—Risks Related to Our Business—Some of our properties are leased to tenants or have lease guarantors that are not rated by a major rating agency.”
(2)
Tenant leases more than one of our properties.
Lease Expirations
As of November 15, 2021, our weighted average in-place remaining lease term was 10.1 years (based on ABR on an expected post-syndication pro rata share basis). None of our leases expire in 2021, only one lease will expire in 2022, and only 21.5% of our leases (based on ABR on an expected post-syndication pro rata share basis) will expire during the next five calendar years. The following table sets forth a summary schedule of our lease expirations for leases in place as of November 15, 2021 (based on ABR on an expected post-syndication pro rata share basis). The information set forth in the table assumes that tenants exercise no renewal options and no early termination rights.
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Competitive Strengths
We believe that we distinguish ourselves from other investors in single-tenant net lease real estate in the United States through the following competitive strengths:

High Quality, Diversified Portfolio.   As of November 15, 2021, we wholly owned, or had ownership interests in, 154 properties located in 32 states that were 99.8% leased (based on our leasable square footage) to 68 tenants under 157 leases operating in 37 different industries. We believe our rigorous property underwriting has resulted in a high quality portfolio with locations and demographics that we
 
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believe attract strong tenants and provide for alternative uses, enhancing our ability to re-lease our properties. Our portfolio is diversified not only by tenant, industry and geography, but also by property type, which we believe differentiates us from certain other net lease REITs and further reduces risk and enhances cash flow stability. As of November 15, 2021, our portfolio contained 39 industrial properties that generated 39.6% of our ABR, 52 medical office properties that generated 22.2% of our ABR, 61 retail properties that generated 30.8% of our ABR and two single-tenant office properties leased to healthcare tenants that generated 7.4% of our ABR, in each case on an expected post-syndication pro rata basis. Approximately 43.3% of our ABR on an expected post-syndication pro rata share basis was from leases with tenants or lease guarantors, or parents of such tenants or lease guarantors, that have an investment grade credit rating from a major rating agency or have a senior unsecured obligation that has been so rated. As of November 15, 2021, no single property in our portfolio represented more than 5.0% of our ABR on an expected post-syndication pro rata share basis. We believe that the high quality and diversification of our portfolio reduces the risks associated with adverse developments affecting any particular tenant, industry, geography or property type.

Stable and Predictable Cash Flows with Embedded Contractual Rent Growth.   As of November 15, 2021, our properties were 99.8% leased (based on our leasable square footage) and had a weighted average remaining lease term of 10.1 years (based on ABR on an expected post-syndication pro rata share basis). We have no lease expirations through 2021 and only 21.5% of our leases (based on ABR on an expected post-syndication pro rata share basis) will expire during the next five calendar years. Additionally, all of our leases are structured as net leases, which generally require our tenants to pay substantially all of the operating expenses related to the property, including real estate taxes, utilities, maintenance and insurance, as well as certain capital expenditures. Commercial properties that are not subject to net leases generally are subject to greater volatility in operating results due to unexpected changes in operating costs or unforeseen capital expenditures. As a result, our net leases reduce the impact of potential inflation on property-level operating expenses and our exposure to significant capital expenditures, which we believe provides us with a strong, stable source of recurring cash flows from which to grow our portfolio. Furthermore, based on ABR on an expected post-syndication pro rata share basis, approximately 81.3% of our leases provide for fixed contractual increases in future base rent and an additional 8.1% of our leases provide for CPI-based contractual increases in future base rent. On a portfolio wide basis, as of November 15, 2021, the average annual contractual base rent increase was approximately 1.5% (excluding CPI-based rent increases).
The following tables sets forth a summary of certain information with respect to our portfolio’s contractual rent increases as of November 15, 2021 (on an expected post-syndication pro rata share basis).
Lease Escalation Frequency(1)(2)
% of ABR (Expected Post-
Syndication Pro Rata Share Basis)
Weighted Average
Annual Escalation Rate
Annually
61.2% 1.8%
Every 2 Years
0.8% 2.3%
Every 3 Years
3.7% 0.6%
Every 5 Years
20.0% 1.2%
Other Escalation Frequencies
3.8% 2.3%
Flat
10.5%
Total/Weighted Average
100.0% 1.5%
(1)
Leases with CPI-based rental rate increases are included in the Lease Escalation Frequency category that corresponds to the frequency of rental rate escalations under such leases. For our CPI-based leases, we have assumed that rental rate increases in the future will be 0.0%. As of November 15, 2021, we had fifteen leases that included CPI-based rental rate increases, and those leases represented 8.1% of our ABR on an expected post-syndication pro rata share basis.
(2)
As of November 15, 2021, there were seven leases included in the “Flat” category representing 4.6% of our ABR on an expected post-syndication pro rata basis with 1.9, 3.0, 3.4, 4.0, 4.5, 4.9 and 4.9 year remaining lease terms, respectively, that had rent escalations in the primary term but have no further rent escalations provisions during their remaining terms. There is an additional one parking lot lease included in the “Flat” category representing 0.2% of our ABR on an expected post-syndication pro rata basis with 7.5 year remaining lease term.
 
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[MISSING IMAGE: tm2124414d6_pc-prratash4c.jpg]
(1)
As of November 15, 2021, there were seven leases included in the “No Increases” category representing 4.6% of our ABR on an expected post-syndication pro rata basis with 1.9, 3.0, 3.4, 4.0, 4.5, 4.9 and 4.9 year remaining lease terms, respectively, that had rent escalations in the primary term but have no further rent escalations provisions during their remaining terms. There is an additional one parking lot lease included in the “No Increases” category representing 0.2% of our ABR on an expected post-syndication pro rata basis with 7.5 year remaining lease term.

Demonstrated Acquisition Track Record with Robust Pipeline.   We have been actively investing in single-tenant net lease real estate since 2012, having acquired 182 net lease properties in 96 transactions through November 15, 2021. We believe we have developed a reputation as a credible and active buyer of single-tenant net lease real estate within the industry, and we believe such reputation provides us access to acquisition opportunities that may not be available to our competitors. Historically, our senior management team has been able to leverage our extensive network of long standing relationships with owners, operators, tenants, developers, advisors (including strategic business consultants, accountants and lawyers), brokers, lenders, private equity firms and other participants in the real estate industry to access a wide variety of acquisition opportunities, which has often resulted in the acquisition of properties that were not broadly marketed. From January 1, 2021 through November 15, 2021, 46.3%, 13.6%, 21.2% and 18.9% of our acquisitions based on original purchase prices were sourced from developers, advisors, owners and/or operators and brokers, respectively. In 2020, we sourced more than 700 single-tenant net lease properties that we identified as warranting investment consideration after an initial review. From November 2020, when we accessed additional institutional capital, through November 15, 2021, we acquired 65 properties and our average quarterly acquisition activity has been approximately $100.7 million on a consolidated basis ($41.5 million on an expected post-syndication pro rata share basis). We believe that our knowledge of the net lease market, reputation as a credible and active buyer and extensive network of long standing relationships will provide us access to a pipeline of attractive investment opportunities, which will enable us to continue to grow and further diversify our portfolio.
 
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The following chart shows our growth from our inception in 2012 to November 15, 2021 on an expected post-syndication pro rata share basis.
[MISSING IMAGE: tm2124414d6_bc-histnet4c.jpg]
(1)
Net acquisitions represent the acquisitions made during the applicable period less property dispositions for such period.
The following chart shows our acquisitions in 2021 on a quarterly basis.
[MISSING IMAGE: tm2124414d6_bc-qacqui4c.jpg]
(1)
Excludes expected post-syndication pro rata share of DST properties owned by us.
(2)
Includes expected post-syndication pro rata share of DST properties owned by us.
(3)
Includes (a) $31.4 million for Real Estate Syndication that has closed as of November 15, 2021, (b) $34.9 million for REIT that has closed as of November 15, 2021, (c) $15.4 million for REIT in connection with the acquisition of certain beneficial
 
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interests in three of our DSTs that is subject to the completion of the offering (see “—Recent Developments—Pending Acquisitions”) and (d) $25.2 million for REIT that is under contract and scheduled to close in the fourth quarter of 2021 (see “—Recent Developments—Pending Acquisitions”). While we regard the completion of the $25.2 of acquisitions under contract to be probable, these transactions are subject to customary closing conditions, including the completion of due diligence, and there can be no assurance that these acquisitions will be completed on the timeline or terms described above or at all.

Disciplined Investment Approach and Rigorous Underwriting Processes to Enhance Our Portfolio.   Our primary investment strategy is to acquire, own and actively manage a diversified portfolio of single-tenant, income producing industrial, medical, service/necessity retail and office properties throughout the United States that are subject to long-term net leases. In order to reduce the risks associated with adverse developments affecting a particular tenant, industry, geography or property type, we have assembled, and will seek to maintain, a portfolio that is diversified accordingly. We believe that the market knowledge, systems and analyses that we employ in our underwriting process allow us to efficiently analyze the risks associated with each property’s ability to produce cash flow going forward. We blend real estate analysis with tenant credit and lease analysis to make an assessment of expected cash flows to be realized in future periods.
For each property, our analysis primarily focuses on evaluating the following:

Real Estate.   Within the context of the relevant market and submarket, we evaluate the expected rents from a property relative to market rents, the purchase price per foot relative to the cost to replace the property, alternative uses for the property, as well as other potential users, and estimated replacement rents. We also evaluate the suitability of the property for the specific business conducted there and the industry in which the tenant operates, the prospect for re-tenanting or selling the property if it becomes vacant, and whether or not the property has expansion potential.

Tenant Credit.   We evaluate the tenant’s credit profile by focusing on data and information specific to the tenant’s financial status and the industry in which it operates. For the tenant’s financial status, we evaluate, to the extent available, the tenant’s current and historical financial statements, capital sources, earnings expectations, operating risks and general business plan. For the tenant’s industry, we evaluate, among other things, relevant industry trends and the tenant’s competitive market position.

Lease Structure.   We evaluate the tenant and landlord obligations contained within the existing or proposed lease as well as the remaining lease term, any contractual annual or periodic rent escalations and the existence of any termination or assignment provisions.

Tenant Retention.   We assess the tenant’s use of the property and the degree to which the property is strategically important to the tenant’s ongoing operations, the tenant’s potential cost to relocate, the supply/demand dynamic in the relevant submarket and the availability of suitable alternative properties. We believe tenant retention tends to be greater for properties that are strategically important to the tenant’s business and where the potential costs to relocate are high.

Unit-Level Profitability:   We analyze each property’s operations individually (i.e., on a unit-level) to determine the likelihood of each property generating consistent profits for the tenant.

Active Management of the Portfolio.   We believe our proactive approach to asset management and property management helps enhance the performance of our portfolio through risk mitigation strategies and opportunistic sales. Our proactive approach was critical to our performance during the COVID-19 pandemic. During the year ended December 31, 2020, on an expected post-syndication pro rata share basis, we collected 99.4% of rents, with collections of 99.6% for the second quarter of 2020 and 99.4% for the third quarter of 2020. From January 1, 2021 through November 15, 2021, we collected 100.0% of rents. We believe our collection rates are an example of how our proactive management is a competitive strength when compared with other owners of net leased real estate. As part of our proactive approach, we (1) regularly review each of our properties for changes in unit performance, tenant credit and local real estate conditions, (2) identify properties that no longer meet our disciplined underwriting strategy, diversification objectives or risk management criteria (including likelihood of non-renewal upon lease expiration) and (3) opportunistically dispose of those properties. Since our inception through November 15, 2021, we disposed of 28 properties for aggregate gross
 
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proceeds of approximately $61.3 million and for an aggregate gain of approximately $7.6 million on a consolidated basis. We seek to reinvest net disposition proceeds in single-tenant net lease properties that improve our portfolio by enhancing diversification and improve key metrics such as tenant credit quality, weighted average remaining lease term and property age. The following table shows our rent collections per quarter during the year ended December 31, 2020 by industry on an expected post-syndication pro rata share basis.
[MISSING IMAGE: tm2124414d1-bc_rentcollec4c.jpg]

Growth-Oriented, Flexible Balance Sheet Positioned for Growth.   Upon completion of this offering and the application of the net proceeds therefrom, we believe we will have a strong, flexible balance sheet that positions us for growth. We will use a portion of the net proceeds from this offering to repay amounts outstanding under our current credit facility (the “M&T Credit Facility”) and our mezzanine loan with Magnetar Capital (the “Mezzanine Loan”). Following these repayments, we expect to have $      million of indebtedness on a consolidated basis and $      million of indebtedness on an expected post-syndication pro rata share basis; representing, a pro forma debt-to-capitalization ratio of    % and    % on a consolidated and an expected post-syndication pro rata share basis, respectively (based on the midpoint of the price range set forth on the cover page of this prospectus). Additionally, following these repayments, we will have no debt maturities prior to February 2022, and the weighted average maturity of our indebtedness will be      years and      years on a consolidated and an expected post-syndication pro rata share basis, respectively. Upon completion of this offering, we expect to have a new undrawn $300 million credit facility (the “New Credit Facility”). Accordingly, we expect to have approximately $      million of total liquidity, consisting primarily of a portion of the net proceeds from this offering and borrowing capacity under the New Credit Facility. We believe this liquidity and our ability to use limited partnership units in the Operating Partnership (“OP units”) as acquisition currency will provide us with financial flexibility to make opportunistic investments and fund future growth.

Experienced Management Team with Strong Sponsorship.   Our senior management team has extensive net lease real estate and public and private REIT management experience. In November 2008, William P. Dioguardi, our Chairman and Chief Executive Officer, founded FSC LLC and has led the acquisition and asset management of all of the properties in our portfolio. Coby R. Johnson, our President and Chief Operating Officer, joined FSC LLC as a Managing Director in October 2010 and co-founded us with Mr. Dioguardi in July 2012 to continue and expand the net lease investment activities of FSC LLC. Other members of our senior management team, including John E. Warch, our Senior Vice President, Chief Financial Officer, Jared W. Morgan, our Senior Vice President, Head of Acquisitions, and Cynthia M. Daly, our Senior Vice President, Head of Underwriting, previously served in senior management roles at public net lease REITs prior to joining us. Mr. Warch previously served as Senior Vice President and Chief Accounting Officer of CapLease, Inc. (previously NYSE: LSE), Mr. Morgan previously served as Vice President of Acquisitions at Spirit Realty Capital, Inc. (NYSE: SRC), and
 
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Ms. Daly previously served as Executive Vice President and a member of the Board of Directors of Monmouth Real Estate Corporation (NYSE: MNR).
Our resources are further strengthened by our association with The Carlyle Group (“Carlyle”), a global investment firm which had approximately $293 billion of assets under management as of September 30, 2021 across Global Private Equity, Credit and Investment Solutions, and Goldman Sachs Asset Management (“GSAM”), the primary investing arm of The Goldman Sachs Group, Inc. (NYSE: GS), which provides investment and advisory services for institutions, financial advisors and individuals. We believe Carlyle’s and GSAM’s deep knowledge and relationships across a range of industries in which our current and future tenants conduct their business will enhance our underwriting and access to acquisition opportunities. Between November 2020 and May 2021, affiliates of Carlyle and GSAM invested $200 million in equity capital in our business to facilitate our growth. Upon completion of this offering, we expect that affiliates of Carlyle and GSAM will own approximately    % and    %, respectively, of our outstanding common shares.
Business Objectives and Strategies
Our objective is to own and manage a diversified portfolio of single-tenant net lease properties that maximizes cash available for distribution and delivers sustainable long-term risk adjusted returns to our shareholders. We believe we can achieve our objective through the following strategies:

Capitalize on Contractual Rent Increases.   We plan to continue to purchase properties with leases that provide for contractual rent increases. As of November 15, 2021, based on ABR on an expected post-syndication pro rata share basis, approximately 81.3% of our leases provide for fixed contractual increases in future base rent and an additional 8.1% of our leases provide for CPI-based contractual increases in future base rent. On a portfolio wide basis based on ABR on an expected post-syndication pro rata share basis, as of November 15, 2021, the average annual contractual base rent increase was approximately 1.5% (excluding CPI-based rent increases).

Utilize Our Experienced Team and Scalable Platform to Grow Our Portfolio in a Disciplined Manner. We intend to continue to leverage the experience of our team and our fully built, scalable platform to grow our portfolio of single-tenant net lease real estate by making disciplined acquisitions, including sale-leaseback transactions, that enhance our portfolio’s diversification by tenant, industry, geography and property type. We intend to utilize our network of owners, operators, tenants, developers, advisors (including strategic consultants, accountants and lawyers), brokers, lenders, private equity firms and other participants in the real estate industry to source our acquisitions, and we believe that our relationships will continue to provide access to a pipeline of attractive investment opportunities. We plan to continue to acquire single-tenant properties with purchase prices generally ranging from $5 million to $25 million that are net leased on a long-term basis with contractual rent increases to investment grade and other tenants that we determine to be creditworthy.

Utilize Our Rigorous Underwriting Process, Disciplined Investment Approach and Sourcing Channels to Enhance Our Portfolio.   We have developed and implemented rigorous processes and procedures that integrate the analysis of the real estate attributes, tenant credit and lease structure of each property that we consider acquiring, which we believe allows us to acquire properties that provide attractive risk adjusted returns. Key components of our analysis include assessing the probability of tenant retention upon lease expiration, understanding alternative uses and users of each property, and evaluating replacement rents on the basis of in-place rents versus estimated market rents. We seek to mitigate investment risks through intensive real estate, credit and lease structure analysis, as well as ongoing monitoring of tenants, tenant business performance at the property, industry trends and local real estate markets. Our rigorous underwriting process allows us to make the most of our sourcing channels to find attractive acquisition opportunities. Approximately 48.8% and 91.1% (in each case, based on purchase prices on an expected post-syndication pro rata share basis) of our 2020 acquisitions and our acquisitions from January 1, 2021 through November 15, 2021, respectively, were sourced in transactions that were not broadly marketed, including direct sale-leaseback transactions. In 2020, we evaluated approximately $17.4 billion (based on asking or estimated purchase prices) of potential single-tenant net lease property acquisitions, and through our disciplined investment process we submitted non-binding letters of intent on approximately $2.4 billion of these properties, representing
 
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less than 15% of the properties we evaluated, and approximately $77.7 million of these properties were acquired. As of November 15, 2021, we were evaluating approximately $1.1 billion (based on asking or estimated purchase prices) of potential acquisitions, of which approximately $805.4 million was under prescreening or under review, approximately $206.6 million related to pending non-binding letters of intent, approximately $35.2 million related to signed non-binding letters of intent and approximately $28.6 million was under contract.
The following chart depicts the scope of our underwriting and acquisition activity on a consolidated basis from January 1, 2021 through November 15, 2021.
[MISSING IMAGE: tm2124414d6_fc-inclus4c.jpg]

Execute on Our Differentiated Real Estate Syndication Business.   Since 2014, through a wholly-owned taxable REIT subsidiary (“TRS”), we have been active in syndicating ownership in net lease properties through a program that we developed to provide financing for properties in which we allow third-party investors who are seeking to reinvest the proceeds from sales of investment property in transactions that are eligible for favorable tax treatment under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”), to acquire ownership interests in certain of our properties (the “Section 1031 Exchange Program”). Under the Section 1031 Exchange Program, we establish DSTs that each own one or more properties. We typically offer up to 95% of the equity interests of each DST to qualified investors with the remaining equity interests held by us. A typical 1031 exchange transaction takes several months from acquisition of the property to full syndication of interests. We jointly own 34 of our properties through 20 DSTs in which we owned equity interests ranging from 5.0% to 100.0% as of November 15, 2021.
 
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As of November 15, 2021, 18 of our DSTs were fully syndicated, and we were actively syndicating the remaining two DSTs. See “Explanatory Notes—Information About Properties Held Through Delaware Statutory Trusts.” These DSTs are included in our consolidated financial statements prepared in accordance with GAAP. We plan to continue to expand the Section 1031 Exchange Program, as these activities generate revenue for us in the form of acquisition fees and annual asset management fees, as well as provide us a pipeline of properties that we have the right, but not the obligation, to acquire.
We believe that the Section 1031 Exchange Program compliments our wholly-owned investment activity and provides key benefits to us including the following:

Acquisition and Asset Management Fee Income.   We receive a nonrecurring acquisition fee from each DST for identifying, acquiring and financing the DST property or properties and an ongoing management fee for managing the DST and its property or properties, which fees contribute to our cash flows.

Increased Acquisition Market Presence.   The Section 1031 Exchange Program offers us access to attractive equity capital that allows us to leverage our scalable investment platform by considering a broader range of attractive investment opportunities, including those with pricing that would initially be less attractive in our wholly-owned portfolio. See “Business—Allocation Policies.” Through the Section 1031 Exchange Program, we acquired $57.0 million of assets on a consolidated basis during the year ended December 31, 2020 and $260.5 million on a consolidated basis from January 1, 2021 through November 15, 2021. Our 1031 Exchange Program allows us to actively participate in a larger portion of the net lease market, develop relationships that we believe will facilitate future investment activity and build our reputation and brand awareness in the industry.

Potential to Acquire 100% Ownership of Properties Held in DSTs For OP Units at Premium Valuation.   Since we control the disposition of properties held in the DSTs, we can acquire 100% ownership of these properties. If we choose to acquire a property held by a DST, the property’s value is generally set through an appraisal process. We can acquire the property for cash or offer the third-party DST investors the opportunity to elect to receive OP units that would allow the transaction to qualify for certain tax deferral benefits. In addition, such units would allow investors to participate in the operating partnership’s diversified pool of assets and offer enhanced liquidity, as the units would typically be redeemable at the investors election for cash or, at our option, exchangeable for our common shares. Because of the tax efficiency relative to a cash transaction and the increased diversity and liquidity, we believe DST investors may be willing to accept OP units at a premium to the value of our common shares, which would enhance our ability to grow our wholly-owned portfolio on attractive terms.
We recently offered investors in three of our DSTs the opportunity to exchange the beneficial interests they own in their respective DSTs for Series U2 OP units, with such exchange subject to, and effective upon, the completion of this offering. Investors holding approximately $10.3 million of beneficial interests in the subject DSTs have agreed to exchange, upon the completion of this offering, their DST beneficial interests for an aggregate number of Series U2 OP units equal to such amount divided by 120% of the initial public offering price of our common shares in this offering (or           Series U2 OP units, based on the midpoint of the price range set forth on the cover page of this prospectus). The value of the real estate to be acquired from the investors in the exchange of the DST interests will have a value of approximately $15.4 million (inclusive of the equity value and debt associated with such real estate). We owned approximately 25.0%, 5.0% and 5.0% of the equity interests in these three DSTs, respectively, as of November 15, 2021, and, as a result of this exchange, we expect to own 38.0%, 35.4% and 32.6% of the equity interests in such DSTs, respectively, upon completion of this offering. The Series U2 OP units will rank on parity with our common OP units, and the holders of Series U2 OP units will receive distributions at an annual rate equal to 5.5% of the Series U2 OP unit issue price unless the distribution rate on the common OP units exceeds such distribution rate, at which point, the distribution rate on the Series U2 OP units will be equal to the distribution rate on the common OP units for all future
 
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distributions on the Series U2 OP units. See “The Operating Partnership and the Partnership Agreement—Series U2 OP Units.”
The following table set forth information on an expected post-syndication pro rata share basis relating to our DST portfolio as of November 15, 2021.
[MISSING IMAGE: tm2124414d6_map-postsy4c.jpg]
(1)
Weighted by ABR on an expected post-syndication pro rata share basis.
(2)
Tenants or lease guarantors, or parents of tenants or lease guarantors, that have an investment grade credit rating from a major credit rating agency or have a senior unsecured obligation that have been so rated. An investment grade credit rating refers to a published long-term credit rating of Baa3/BBB- or above from one or all of Moody’s Investor Service, Inc., Standard & Poor’s Rating Services, and AM Best. See “Risk Factors—Risks related to Our Business. Some of our properties are leased to tenants or have lease guarantors that are not rated by a major rating agency.”
(3)
Based on the later of year built or year of last major renovation.
(4)
Represents the pro rata portion of ABR of our DSTs based on the percentage beneficial interests in our DSTs that we do not own.

Employ Active Asset Management.   We are an active asset manager and regularly review each of our properties for changes in the credit of the tenant, business performance at the property, industry trends and local real estate market conditions. We monitor market rents relative to in-place rents and the amount of tenant capital expenditures in order to refine our tenant retention and alternative use assumptions. Our management team utilizes our internal credit diligence to monitor the credit profile of each of our tenants on an ongoing basis. We believe that this proactive approach enables us to identify and address issues expeditiously and to determine whether there are properties in our portfolio that are appropriate for disposition. Since our inception through November 15, 2021, we disposed of 28 properties for aggregate gross proceeds of approximately $61.3 million and for an aggregate gain of approximately $7.6 million on a consolidated basis.

Maintain a Flexible Capital Structure.   We believe our pro forma capital structure will provide the financial flexibility and capacity to implement our growth strategies. We intend to maintain a prudent capital structure and balance our use of various forms of equity and debt financing. Over the long term, we will target a net debt (total liabilities less cash and cash equivalents) to Adjusted EBITDA—pro rata (as defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non GAAP Financial Measures—EBITDA and Adjusted EBITDA”) leverage ratio of 4.5x to 5.5x to position us for growth. Our pro forma net debt to Adjusted EBITDA—pro rata ratio as of December 31, 2020 was      . To the extent practicable, we will also seek to maintain a debt profile with manageable near-term maturities. We believe that becoming a publicly-traded company will
 
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enhance our access to multiple forms of capital, including common and preferred equity, mortgage debt, revolving credit facilities, term loans and company-issued debt securities.
Our Target Market
Based on historical transactions and market participants, Rosen Consulting Group (“RCG”) estimates the value of existing net lease properties to be in the range of a few trillion dollars. RCG utilizes an estimate of corporate-owned real estate as a proxy for potential expansion of the net lease property universe. RCG estimates this segment of corporate-owned and occupied real estate ranges in value between $1.5 trillion to more than $2 trillion, as of September 30, 2021.
In 2020, single tenant transaction volume decreased, according to Real Capital Analytics, as the COVID-19 pandemic impacted investment activity and property values. According to Real Capital Analytics, 2020 transaction volume in the single tenant property types that we primarily target was approximately $52 billion consisting of $31 billion of industrial, $6 billion of retail, and $15 billion of office, including medical office, versus $68 billion across the same property types in 2019.
In the first three quarters of 2021, transaction volume reached nearly $49 billion. If annualized, this would equate to investment volume of over $65 billion, a potential increase of approximately 25% from 2020. We believe that based on this volume, there will continue to be substantial investment opportunities for us to further grow and diversify our portfolio.
[MISSING IMAGE: tm2124414d6-bc_ussingle4c.jpg]
Recent Developments
Pending Acquisitions
As of November 15, 2021, our acquisition pipeline consisted of 24 properties with an aggregate expected purchase price of approximately $270.4 million that are either under contract, subject to non-binding letters of intent or for which we have delivered a non-binding letter of intent for execution by the seller but has not yet been executed.
 
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The following table sets forth a summary of our pending acquisitions that are either under contract or subject to non-binding letters of intent as of November 15, 2021 (“the 2021 Pending Acquistions”) (dollars in millions).
Wholly-Owned
DST
Consolidated
Status of Acquisitions
Number of
Properties
Expected
Purchase Price
Number of
Properties
Expected
Purchase Price
Number of Properties
Expected
Purchase Price
Purchase and Sale Agreements(1)
 5 $ 28.6 $  5 $ 28.6
Signed Letters of Intent(2)
3 16.0 1 19.2 4 35.2
Total
8 $ 44.6 1 $ 19.2 9 $ 63.8
(1)
While we regard the completion of these pending acquisitions to be probable, these transactions are subject to customary closing conditions, including the completion of due diligence, and there can be no assurance that these acquisitions will be completed on the terms described above or at all.
(2)
These acquisitions are subject to negotiation and execution of definitive agreements and, if entered into, will be subject to customary closing conditions, including the completion of due diligence. As a result, we do not deem any of these potential acquisitions probable at this time and there can be no assurance that these acquisitions will be completed on the terms described above or at all.
We recently offered investors in three of our DSTs the opportunity to exchange the beneficial interests they own in their respective DSTs for Series U2 OP units, with such exchange subject to, and effective upon, the completion of this offering. Investors holding approximately $10.3 million of beneficial interests in the subject DSTs have agreed to exchange, upon the completion of this offering, their DST beneficial interests for an aggregate number of Series U2 OP units equal to such amount divided by 120% of the initial public offering price of our common shares in this offering (or           Series U2 OP units, based on the midpoint of the price range set forth on the cover page of this prospectus). We owned approximately 25.0%, 5.0% and 5.0% of the equity interests in these three DSTs, respectively, as of November 15, 2021, and, as a result of this exchange, we expect to own 38.0%, 35.4% and 32.6% of the equity interests in such DSTs, respectively, upon completion of this offering. The Series U2 OP units will rank on parity with our common OP units, and the holders of Series U2 OP units will receive distributions at an annual rate equal to 5.5% of the Series U2 OP unit issue price unless the distribution rate on the common OP units exceeds such distribution rate, at which point, the distribution rate on the Series U2 OP units will be equal to the distribution rate on the common OP units for all future distributions on the Series U2 OP units. See “The Operating Partnership and the Partnership Agreement—Series U2 OP Units.”
Our Structure
We were formed as a Maryland real estate investment trust (“Maryland REIT”) on July 6, 2012 and elected to be treated as a REIT under the Code beginning with our taxable year ended December 31, 2012. We are structured as an umbrella partnership REIT, commonly called an UPREIT, and own all of our assets and conduct substantially all of our business through the Operating Partnership and its subsidiaries. We are the sole general partner of the Operating Partnership, and as of September 30, 2021, we owned a 93.6% limited partnership interest in the Operating Partnership.
On October 23, 2020, we completed a restructuring of our then outstanding beneficial interests. As a result of the restructuring and related transactions: (1) our then existing common shares were exchanged for non-participating common shares at a ratio of 9.3091650 to 1; (2) our then outstanding Series A preferred shares, Series B preferred shares, Series C preferred shares, Series D preferred shares and Series DRIP 1 preferred shares were converted to common shares at various conversion ratios reflecting the relative values of the securities based on such factors as relative seniority and the then current value of our portfolio; and (3) we redeemed all of our then outstanding Series E preferred shares. Immediately following the restructuring, our capitalization consisted solely of common shares and non-participating common shares. On November 20, 2020, we issued 2,500,000 Series A-1 preferred shares, and, on May 4, 2021 and August 11, 2021, we issued an aggregate of 7,500,000 Series A-2 preferred shares.
The following diagram depicts our organizational structure and equity ownership immediately following this offering. This diagram reflects (1) the automatic conversion of all of our 200,015 outstanding non-participating common shares into 200,015 common shares, (2) the automatic conversion of all of our        
 
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  outstanding preferred shares into a number of common shares equal to their aggregate stated value divided by 90% of the initial public offering price of our common shares in this offering, upon the listing of our common shares on the NYSE (or           common shares, based on the midpoint of the price range set forth on the cover page of this prospectus) and (3) the exchange, upon the completion of this offering, of approximately $10.3 million of the DST interests held by investors for an aggregate number of Series U2 OP units equal to such amount divided by 120% of the initial public offering price of our common shares in this offering (or           Series U2 OP units, based on the midpoint of the price range set forth on the cover page of this prospectus). The diagram does not reflect (1) 11,747 common shares issuable upon exercise of outstanding options held by our trustees, officers and employees, (2) 474,851 common shares issuable upon exercise of outstanding warrants held by certain of our shareholders, (3) 10,743 warrants for common shares issuable upon exercise of outstanding options held by our trustees with a weighted average price of $186.18 per share and (4) 895,500 common shares issuable upon exchange of 895,500 long-term incentive units (“LTIP Units”).
[MISSING IMAGE: tm2124414d1-fc_foursprin4c.jpg]
Emerging Growth Company Status
We currently qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy or information statements, exemptions from the requirements of holding a non-binding advisory vote on executive compensation and seeking shareholder approval of any golden parachute payments not previously approved and not being required to adopt certain accounting standards until those standards would otherwise apply to private companies.
 
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Although we are still evaluating our options under the JOBS Act, we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company.” At this time, we have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. because we have taken advantage of certain of these exemptions, some investors may find our common shares less attractive, which could result in a less active trading market for our common shares, and our share price may be more volatile.
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We could remain an “emerging growth company” until the earliest to occur of: (1) the last day of the fiscal year following the fifth anniversary of this offering; (2) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion; (3) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; or (4) the date on which we have issued more than $1 billion in non-convertible debt securities during the preceding three-year period.
Executive Offices
Our offices are located at 1901 Main Street in Lake Como, New Jersey 07719. Our telephone number is 877-449-8828. Our internet website is https://fsctrust.com. The information contained in, or that can be accessed through, our website is not incorporated by reference in or otherwise a part of this prospectus.
Corporate Responsibility—Environmental, Social, and Governance (ESG)
Corporate responsibility, including environmental, social and governance (“ESG”) efforts, has been one of our cornerstones since our inception. We believe that our corporate responsibility and ESG initiatives are key to our performance, and we are focused on efforts and changes designed to have long-term, positive impacts for our shareholders, employees, tenants, other stakeholders and the communities where we live, work and own our properties. We are committed to our ESG efforts not just because we believe it is the right thing to do but also because it is good for our business. Our mission is to operate our business in a way that honors and advances our guiding values: performance excellence, integrity, respect, leadership, humility, partnership and transparency.
Environmental
As a real estate owner, we are aware of the need to develop and implement environmentally sustainable practices within our business and are committed to doing so. Our efforts in this area are primarily undertaken in partnership with our tenants due to the nature of our business model. We acquire, own and actively manage a diversified portfolio of single-tenant, income producing industrial, medical, service/necessity retail, and office properties throughout the United States that are subject to long-term net leases. In our portfolio, we have a building with a solar photovoltaic (“PV”) system installed pursuant to a solar equipment lease. The PV equipment generates electricity for use at the property. We also have a property that has a LEED (Leadership in Energy and Environmental Design) certification.
Our acquisition process generally includes a robust environmental assessment of every property we acquire, including obtaining a Phase I environmental site assessment based on current industry standards and best practices. We carefully review any recognized environmental conditions identified as a result of the assessment and work with the tenant and nationally recognized environmental experts to implement our forward looking strategy, including any required governmental reporting or remediation action.
Social
Our commitment to our employees is central to our ability to continue to deliver strong performance and financial results for our shareholders and other stakeholders. We are as passionate about our people as we are about real estate. We seek to create and cultivate an engaging work environment for our employees which allows us to attract, retain and develop top talent to manage our business. We are committed to providing our
 
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employees with an environment that is free from discrimination and harassment, that respects and honors their differences and unique life experiences and that enables every employee the opportunity to develop and excel in their role and reach their full potential.
Governance
We are committed to conducting our business in accordance with corporate governance best practices. Our reputation is one of our most important assets and each trustee, officer and employee must contribute to the care and preservation of that asset. We have structured our corporate governance in a manner we believe closely aligns our interests with those of our shareholders.
Notable features of our corporate governance structure include the following:

our board of trustees is not classified, with each of our trustees subject to election annually, and we may not elect to be subject to the elective provision of the Maryland General Corporation Law (“MGCL”) that would classify our board of trustees without the affirmative vote of a majority of the votes cast on the matter by shareholders entitled to vote generally in the election of trustees;

upon the completion of this offering, six out of nine trustees will be independent;

we have a fully independent Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee;

at least one of our trustees qualifies as an “audit committee financial expert” as defined by the U.S. Securities and Exchange Commission (the “SEC”); and

we do not have a shareholder rights plan, however, our board of trustees may adopt a shareholder rights plan in the future without the approval of our shareholders, but in such case it must seek ratification from our shareholders within 12 months of adoption of the plan for the plan to remain in effect.
Summary Risk Factors
An investment in our common shares involves risks. You should consider carefully the risks discussed below and described more fully along with other risks under “Risk Factors” in this prospectus before investing in our common shares.
Risks Related to Our Business

Global market and economic conditions may materially and adversely affect us and our tenants.

Our business depends on our tenants successfully operating their businesses and satisfying their obligations to us.

Each of our properties except for three is leased to a single tenant; therefore, we could be adversely affected by the failure of a single tenant to perform under its lease with us due to a downturn in its business, bankruptcy or insolvency.

We own properties that depend upon discretionary spending by consumers; a reduction in discretionary spending could adversely affect our tenants, their ability to meet their obligations to us and reduce the demand for and value of our properties.

Our financial monitoring, periodic site inspections and selective property sales may fail to mitigate the risk of tenant defaults, and if a tenant defaults, we may experience difficulty or a significant delay in re-leasing or selling the property.

Some of our properties are leased to tenants or have lease guarantors that are not rated by a major rating agency.

We may be unable to identify and complete acquisitions of suitable properties which may impede our growth and our ability to further diversify our portfolio. Future acquisitions may not yield the returns we expect.

We may not acquire the properties that are in our pipeline.
 
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As we continue to acquire properties, we may decrease or fail to increase the diversity of our portfolio.

We have recorded net losses in the past and we may experience net losses in the future.

Our operating results will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, which may prevent us from being profitable or from realizing growth in the value of our properties.

Our participation in the Section 1031 Exchange Program may limit our ability to borrow funds in the future.

Changes in the Code may impair our ability to sell properties that are, or were, in the Section 1031 Exchange Program.

Participation in co-ownership arrangements, including DSTs, joint ventures, partnerships or otherwise, may subject us to risks that otherwise may not be present in other real estate investments.

We may have increased exposure to litigation as a result of the Section 1031 Exchange Program.

Eminent domain could lead to material losses.
Risks Related to Environmental and Compliance Matters and Climate Change

Complying with environmental laws and regulations may be costly.

Our operations and financial condition may be adversely affected by climate change, including possible changes in weather patterns, weather-related events, government policy, laws, regulations and economic conditions.
Risks Related to Our Indebtedness

Our cash flows and operating results could be adversely affected by required payments of debt or related interest and other risks of our debt financing.

Secured indebtedness exposes us to the possibility of foreclosure on our ownership interests in pledged properties.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Risks Related to Our Organization and Structure

We have identified a material weakness in internal control over financial reporting, which could, if not remediated, materially and adversely affect us.

We are a holding company with no direct operations and will rely on funds received from the Operating Partnership to pay liabilities and make any distributions declared by our board of trustees.

Conflicts of interest could arise between the interests of our shareholders and the interests of holders of OP units, which may impede business decisions that could benefit our shareholders.

Our charter permits our board of trustees to issue shares with terms that may subordinate the rights of shareholders.

Our board of trustees may change our investment and financing policies without shareholder approval.

Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limit your ability to dispose of your shares.

Our board of trustees may enact certain anti-takeover measures under Maryland law.
Risks Related to this Offering and Ownership of Our Common Shares

The cash available for distribution to shareholders may not be sufficient to pay distributions at expected levels, nor can we assure you of our ability to make, maintain or increase distributions in the future.

There is no existing market for our common shares, an active trading market for our common shares may not develop and the market price for our common shares may decline substantially and be volatile.
 
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A substantial portion of our total outstanding common shares may be sold into the market at any time following this offering.

If you purchase our common shares in this offering, you will suffer immediate and substantial dilution.

If securities analysts do not publish research or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade the outlook of our common shares, the price of our common shares could decline.
Risks Related to Our Tax Status and Other Tax Related Matters

We would incur adverse tax consequences if we fail to qualify as a REIT.

Complying with REIT requirements may cause us to liquidate or forgo otherwise attractive investment opportunities.

Dividends paid by REITs generally do not qualify for reduced tax rates.

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

Legislative or other actions affecting REITs could materially and adversely affect us and our investors as well as the Operating Partnership.
General Risk Factors

The requirements of being a public company may strain our resources, result in more litigation, and divert the attention of our management.

We face risks relating to cybersecurity attacks that could cause loss of confidential information and other business disruptions.
Distribution Policy
We intend to pay cash distributions to our common shareholders on a monthly basis. We intend to make a pro rata distribution with respect to the period commencing upon completion of this offering and ending on            based on a distribution rate of $      per common share for a full month. On an annualized basis, this would be $      per common share, or an annual distribution rate of approximately    %, based on the $      midpoint of the price range set forth on the cover page of this prospectus. We intend to make distributions that will enable us to meet the distribution requirements applicable to REITs. Any distributions will be at the sole discretion of our board of trustees, and their form, timing and amount, if any, will depend upon a number of factors, including our actual and projected results of operations; our debt service requirements; our liquidity and cash flows; our capital expenditures; our REIT taxable income; the annual distribution requirement under the REIT provisions of the Code; restrictions in any current or future debt agreements; any contractual limitations; and any other factors that our board of trustees may deem relevant. Although we intend to make regular distributions, there is no guarantee that we will make distributions to our shareholders. See “Distribution Policy.”
REIT Qualification
We have elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2012. We believe that we have been organized and have operated in a manner that has allowed us to qualify as a REIT for U.S. federal income tax purposes commencing with such taxable year, and we intend to continue operating in such a manner. To maintain REIT status, we must meet various organizational and operational requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distributions to our shareholders and the concentration of ownership of our equity shares. See “Certain U.S. Federal Income Tax Considerations.”
Restriction on Ownership of Our Shares
Subject to certain exceptions, our charter provides that no person may (1) beneficially own more than 9.8% in value or in number, whichever is more restrictive, of (a) our outstanding common shares or (b) our aggregate
 
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outstanding shares of beneficial interest or (2) constructively own more than 9.8% in value or in number, whichever is more restrictive, of any class or series of our outstanding shares of beneficial interest.
Our charter also provides the following:

No person shall beneficially or constructively own our shares of beneficial interest to the extent such beneficial or constructive ownership would result in us being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise fail to qualify as a REIT (including, but not limited to, beneficial ownership or constructive ownership that would result in us actually or constructively owning an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by us from such tenant would cause us to fail to satisfy the gross income requirement of either Section 856(c)(2) or 856(c)(3) of the Code (i.e., the annual 75% or the 95% gross income tests)).

Any transfer of our shares of beneficial interest that, if effective, would result in our shares of beneficial interest being owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code) shall be prohibited.

No person may beneficially or constructively own shares of beneficial interest to the extent that such beneficial or constructive ownership would cause us to constructively own 10% or more of the ownership interests in a tenant (other than a taxable REIT subsidiary) of our real property within the meaning of Section 856(d)(2)(B) of the Code.
If any person would otherwise beneficially own or constructively own our shares of beneficial interest in violation of one or more of the ownership and transfer restrictions described above, then that number of our shares of beneficial interest the beneficial or constructive ownership of which otherwise would cause such person to violate such restriction shall be automatically transferred to a charitable trust for the benefit of one or more charitable beneficiaries. If the transfer to the charitable trust would not prevent the violation of the applicable ownership or transfer restriction, then, in the case where the beneficial ownership or constructive ownership that would otherwise be in violation of the ownership or transfer restrictions described above arises from a transfer, the transfer of that number of our shares of beneficial interest that otherwise would cause any person to violate an ownership or transfer restriction shall be void ab initio, and the intended transferee shall acquire no rights in such shares of beneficial interest. In addition, our board of trustees is authorized to take such action as it deems advisable to refuse to give effect to or to prevent any transfer or other event which the board of trustees determines in good faith is in violation of the restrictions set forth above. These actions, include without limitation, causing us to redeem or repurchase shares, refusing to give effect to a transfer on our books or instituting proceedings to enjoin a transfer or other event.
These restrictions, including the ownership limit, are intended to assist with our REIT compliance under the Code and otherwise to promote our orderly governance, among other purposes. These restrictions will remain in place until our board of trustees determines it is no longer in our best interest to qualify as REIT, or that the restrictions are no longer required for us to qualify as a REIT. See “Description of Securities—Restrictions on Ownership and Transfer.”
 
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The Offering
Common shares we are
offering
       common shares
Common shares to be outstanding immediately after
this offering
      common shares (        common shares if the underwriters exercise their option to purchase additional shares in full)
Use of proceeds
We estimate that the net proceeds to us from this offering will be approximately $      million, or approximately $      million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $      per share (the midpoint of the price range set forth on the cover page of this prospectus). We intend to use a portion of the net proceeds from this offering to (1) consummate the 2021 Pending Acquisitions and (2) repay amounts outstanding under the M&T Credit Facility and the Mezzanine Loan, including a prepayment fee of $     . The remaining net proceeds will be used for general corporate purposes, including potential future acquisitions. See “Use of Proceeds.”
Listing
We expect to have our common shares listed on the NYSE, under the symbol “FSPR.”
Risk factors
Investing in our common shares involves risks. You should carefully consider the matters discussed under the caption “Risk Factors” beginning on page 28 prior to investing in our common shares.
Distribution policy
We intend to make regular monthly distributions to holders of our common shares as required to maintain our REIT qualification for U.S. federal income tax purposes. See “Distribution Policy.”
U.S. federal income tax considerations
For the material U.S. federal income tax consequences of holding and disposing of our common shares, see “Certain U.S. Federal Income Tax Considerations.”
The number of common shares outstanding immediately after this offering gives effect to (1) the automatic conversion of all of our 200,015 outstanding non-participating common shares into 200,015 common shares and (2) the automatic conversion of all           outstanding preferred shares into a number of common shares equal to their aggregate stated value divided by 90% of the initial public offering price of our common shares in this offering, upon the listing of our common shares on the NYSE (or           common shares, based on the midpoint of the price range set forth on the cover page of this prospectus). The number of common shares outstanding immediately after this offering excludes:

11,747 common shares issuable upon exercise of outstanding options held by our trustees, officers and employees with a weighted average exercise price of $37.94 per share;

474,851 common shares issuable upon exercise of outstanding warrants held by certain of our shareholders with exercise prices ranging from $20.00 to $31.16 per share, with a weighted average exercise price of $23.31 per share (see “Description of Securities—Warrants”);

10,743 warrants for common shares issuable upon exercise of outstanding options held by our trustees with a weighted average price of $186.18 per share;

895,500 common shares issuable upon exchange of 895,500 LTIP Units held by certain of our employees and trustees;

2,104,500 common shares available for future grants under our 2021 Equity Incentive Plan (the “2021 Equity Incentive Plan”) (see “Executive Compensation—2021 Equity Incentive Plan”);

65,636 common shares that may be issued in exchange for 65,636 OP units;

181,116 common shares that may be issued in exchange for 181,116 Series U1 OP units; and
 
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           common shares that may be issued in exchange for           Series U2 OP units that will be issued upon the completion of this offering in exchange for approximately $10.3 million of the DST interests held by investors, which such number of Series U2 OP units is equal to approximately $10.3 million divided by 120% of the initial public offering price of our common shares in this offering (based on the midpoint of the price range set forth on the cover page of this prospectus).
 
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated historical financial and operating data as of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019 is derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated historical financial and operating data as of September 30, 2021 and for the nine months ended September 30, 2021 and 2020 is derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited financial statements were prepared on a basis consistent with our audited financial statements and include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, that we consider necessary for a fair presentation of the financial position and results of operations for those periods. Operating results for the nine months ended September 30, 2021 are presented for illustrative purposes only and are not necessarily indicative of the results that may be expected for the entire year. The data is only a summary and should be read together with the consolidated financial statements, the related notes and other financial information included in this prospectus.
The unaudited summary consolidated pro forma financial data gives pro forma effect to the Pro Forma Transactions (as defined in “Unaudited Pro Forma Financial Information”). The Pro Forma Transactions assume that each transaction was completed as of January 1, 2020 for purposes of the unaudited pro forma condensed consolidated statements of operations data for the nine months ended September 30, 2021 and the year ended December 31, 2020 and as of September 30, 2021 for purposes of the unaudited pro forma condensed consolidated balance sheet data as of September 30, 2021. The following unaudited summary consolidated pro forma statement of operations and balance sheet data is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the date indicated, nor is it indicative of future operating results.
Because the information presented below is only a summary and does not provide all of the information contained in our historical consolidated financial statements, including the related notes, you should read it in conjunction with “Unaudited Pro Forma Financial Information,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements, including the related notes, included elsewhere in this prospectus.
 
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Nine Months Ended
September 30, (unaudited)
Year Ended December 31,
Pro Forma
Historical
Pro Forma
Historical
(In thousands, except share and per share data)
2021
2021
2020
2021
(unaudited)
2020
2019
Statement of Operations Data:
Revenues:
Total revenue
$       $ 38,967 $ 25,955 $       $ 35,737 $ 30,744
Expenses:
Property operating
5,458 3,144 4,705 3,557
General and administrative
11,729 3,844 5,151 5,363
Professional fees
2,120 390 902 627
Depreciation and amortization
15,725 10,059 13,562 10,630
Interest
17,878 7,598 12,597 9,568
Acquisition costs
41 195 236 56
Provision for impairment
335 535 535
Total expenses
53,286 25,765 37,688 29,801
Change in fair value of compound embedded derivative and warrant liability
(416) (209) 355 (98)
Loss on extinguishment of debt
(310)  — 
Gain on sale of real estate
2,431 401 409 2,698
Income tax benefit (provision for income taxes)
(1,996) (47) (29) (308)
Net income (loss)
(14,610) 335 (1,216) 3,235
Net (income) loss attributable to
noncontrolling interests in consolidated
subsidiaries
6,280 (758) 76 (949)
Net income (loss) attributable to Four Springs Capital Trust
(8,330) (423) (1,140) 2,286
Preferred share and Series U1 Accretion
(2,590) (541) (2,790) (573)
Preferred share dividends and Series U1 Distributions
(10,090) (14,618) (19,705) (19,247)
Net income (loss) attributable to common
shareholders
$ $ (21,010) $ (15,582) $ $ (23,635) $ (17,534)
Income (Loss) Per Common
Share–Basic and Diluted:
Net income (loss) per common share
$ $ (3.24) $ (8.37) $ $ (8.58) $ (9.42)
Weighted average shares
(1)
6,533,284 1,861,833
(1)
2,755,280 1,861,833
Balance Sheet Data (at period end):
Real estate investments, net(2)(3)
$ $ 781,383 $ 372,712 $ 424,637 $ 360,845
Cash and cash equivalents
32,795 9,053 10,324 11,361
Accounts receivable and other assets(4)
25,606 15,631 14,433 12,153
Total assets
$ $ 839,784 $ 397,396 $ $ 449,394 $ 384,359
Notes payable, net
$        $ 280,288 $ 133,864 $        $ 161,591 $ 125,726
Lines of credit, net
42,807 66,878 14,180 66,180
Mezzanine note payable, net
86,412  —  83,068
Accounts payable accrued expenses and other liabilities(5)(6)
37,030 14,535 14,054 10,305
Total liabilities
$        $ 446,537 $ 215,277 $        $ 272,893 $ 202,211
Total contingently redeemable
interests
$        $ 194,933 $ 64,092 $        $ 51,780 $ 52,478
Total shareholders’ equity
      
27,892 64,085
      
54,089 72,541
Noncontrolling interests
170,422 53,942 70,632 57,129
Total equity
$ $ 198,314 $ 118,027 $ $ 124,721 $ 129,670
 
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Nine Months Ended
September 30, (unaudited)
Year Ended December 31,
Pro Forma
Historical
Pro Forma
Historical
(In thousands, except share and per share data)
2021
2021
2020
2021
(unaudited)
2020
2019
Other Data:
Net cash provided by operating activities
$ 13,790 $ 11,246 $ 13,186 $ 11,708
Net cash used in investing activities
      
$ (367,516) $ (22,320)
      
$ (77,368) $ (74,723)
Net cash provided by (used in)financing activities
      
$ 377,823 $ 8,687
      
$ 61,924 $ 69,493
Cash NOI–consolidated(7)
$        $ 31,827 $ 21,827 $        $ 29,716 $ 26,137
Cash NOI–pro rata(7)
$        $ 20,497 $ 15,972 $        $ 21,702 $ 18,936
EBITDA–consolidated(8)
$        $ 20,989 $ 18,040 $        $ 24,972 $ 23,742
Adjusted EBITDA–consolidated(8)
$        $ 26,008 $ 17,282 $        $ 23,920 $ 22,802
Adjusted EBITDA–pro rata(8)
$        $ 23,265 $ 12,019 $        $ 17,940 $ 16,852
FFO attributable to Four Springs Capital
Trust(9)
$        $ (823) $ 7,355 $        $ 9,157 $ 7,660
AFFO attributable to Four Springs Capital Trust(9)
$        $ 10,299 $ 7,932 $        $ 10,766 $ 8,197
Number of investment property locations
(at period end)
136 99 101 96
% of properties subject to a lease (at period end)
% 99.8% 100% % 100% 100%
(1)
Includes the           common shares to be issued in this offering, the net proceeds of which will be used to consummate the 2021 Pending Acquisitions and repay the M&T Credit Facility and the Mezzanine Loan, including a prepayment fee of $     . Including all           common shares to be issued in this offering as well as preferred shares that will convert into common shares upon completion of this offering, we will have           common shares outstanding.
(2)
Includes $3.3 million and $2.9 million of investments held for sale as of September 30, 2021 and 2020, respectively. Includes $0.7 million and no investments held for sale as of December 31, 2020 and 2019, respectively.
(3)
Includes origination value of acquired in-place leases, net and acquired favorable leases, net.
(4)
Includes receivable from affiliate and deferred rent receivable.
(5)
Includes liabilities related to real estate investments held for sale.
(6)
Includes acquired unfavorable leases, net.
(7)
Cash NOI—consolidated and Cash NOI—pro rata are non-GAAP financial measures. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—Cash Net Operating Income” for a discussion of why we consider Cash NOI to be important and how we use this measure, as well as for a reconciliation of net income (loss) to Cash NOI.
(8)
EBITDA—consolidated, Adjusted EBITDA—consolidated and Adjusted EBITDA—pro rata are non-GAAP financial measures. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—EBITDA and Adjusted EBITDA” for a discussion of why we consider EBITDA and Adjusted EBITDA to be important and how we use these measures, as well as for a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA.
(9)
FFO attributable to Four Springs Capital Trust and AFFO attributable to Four Springs Capital Trust refer to “funds from operations” and “adjusted funds from operations,” respectively. FFO and AFFO are non-GAAP financial measures that are often used by analysts and investors to compare the operating performance of REITs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—FFO and AFFO” for a discussion of why we consider FFO and AFFO to be important and how we use these measures, as well as for a reconciliation of net income (loss) to FFO and AFFO.
 
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RISK FACTORS
Investing in our common shares involves risks. Before you invest in our common shares, you should carefully consider the risk factors below together with all of the other information included in this prospectus. The occurrence of any of the following risks could materially and adversely affect our business, financial condition, liquidity, cash flows, results of operations, prospects and our ability to implement our investment strategies and to make or sustain distributions to our shareholders. The market price of our common shares could decline due to any of these risks, and you may lose all or a portion of your investment. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, liquidity, cash flows, results of operations and prospects. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”
Risks Related to Our Business
Global market and economic conditions may materially and adversely affect us and our tenants.
Changes in global or national economic conditions, such as a global economic and financial market downturn, including as a result of COVID-19 (as discussed below) or another pandemic in the future, may cause, among other things, a tightening in the credit markets, lower levels of liquidity, increases in the rate of tenant default and bankruptcy, and lower consumer and business spending, which could materially and adversely affect us. Potential consequences of changes in economic and financial conditions include: changes in the performance of our tenants, which may result in lower rent and lower recoverable expenses than the tenant can afford to pay and tenant defaults under the lease; current or potential tenants may delay or postpone entering into long-term leases with us; a reduction or elimination in our ability to borrow on terms and conditions that we find to be acceptable, which could reduce our ability to pursue acquisition opportunities or increase future interest expense; and the recognition of impairment charges on or reduced values of our properties, which may adversely affect our results of operations or limit our ability to dispose of assets at attractive prices and may reduce the availability of buyer financing. We are also limited in our ability to reduce costs to offset the results of a prolonged or severe economic downturn given certain fixed costs and commitments associated with our operations. Accordingly, a decline in economic conditions could materially and adversely affect us.
Our business depends on our tenants successfully operating their businesses and satisfying their obligations to us.
We depend on our tenants to operate the properties they lease from us in a manner that generates revenues sufficient to allow them to meet their obligations to us, including their obligations to pay rent, maintain specified insurance coverage, pay real estate taxes and maintain the leased properties. While a tenant may have multiple sources of funds to meet its obligations to us, its ability to meet these obligations depends significantly on the success of the business it conducts at the property it leases from us. Our tenants may be adversely affected by many factors beyond our control that might render one or more of their locations uneconomic. These factors include poor management, changes in demographics, a downturn in general economic conditions or changes in consumer trends that decrease demand for our tenants’ products or services. In addition, factors that are not within the control of the tenant, such as a pandemic, may also adversely affect our tenants and their respective ability to satisfy their obligations to us. The occurrence of any of these factors could cause our tenants to fail to meet their obligations to us, including their obligations to pay rent, maintain specified insurance coverage, pay real estate taxes or maintain the leased property, or could cause our tenants to declare bankruptcy.
Each of our properties except for three is leased to a single tenant; therefore, we could be adversely affected by the failure of a single tenant to perform under its lease with us due to a downturn in its business, bankruptcy or insolvency.
Each of our properties except for three is leased to a single tenant, and our investment strategy focuses on, among other things, acquiring properties that are leased to a single tenant. The success of single tenant properties depends on the ability of the tenant to conduct profitable operations at the property and the tenant’s financial stability. Our tenants face competition within their industries and other factors that could reduce
 
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their ability to make rent payments. For example, our retail tenants face competition from other retailers, as well as competition from other retail channels, such as internet sales, factory outlet centers, wholesale clubs, mail order catalogs, television shopping networks and various developing forms of e-commerce. In addition, our retail, medical and other office properties are located in public places, where crimes, violence and other incidents may occur. Such incidents could reduce the amount of business conducted by the tenants at our properties, thus reducing the tenants’ abilities to pay rent. Additionally, any such incidents could also expose us to civil liability as the property owner.
At any given time, a tenant may experience a downturn in its business that may significantly weaken its operating results, financial condition and ability to meet its obligations to us. In addition to general downturns in business, a tenant may experience a downturn at one or more properties that it leases from us that could adversely affect its ability to meet its lease obligations to us and result in a loss of value relating to the relevant property or properties. As a result, a tenant may delay lease commencement, fail to make rental payments when due, decline to extend a lease upon its expiration, become insolvent or declare bankruptcy.
We own properties that depend upon discretionary spending by consumers; a reduction in discretionary spending could adversely affect our tenants, their ability to meet their obligations to us and reduce the demand for and value of our properties.
As of November 15, 2021, approximately 30.8% of our ABR on an expected post-syndication pro rata share basis is attributable to tenants operating in the retail industry. For example, our portfolio includes sporting goods stores, dollar and other general merchandise stores, auto parts and repair stores, and home furnishing stores. Some of our top tenants include, Caliber Collision, Zips Car Wash, and GPM Investments. The success of most of these businesses depends on the willingness of consumers to use discretionary income to purchase their products or services. A downturn in the economy could cause consumers to reduce their discretionary spending, which may have a material adverse effect on our tenants, their ability to meet their obligations to us and reduce the demand for and value of our properties.
Our financial monitoring, periodic site inspections and selective property sales may fail to mitigate the risk of tenant defaults, and if a tenant defaults, we may experience difficulty or a significant delay in re-leasing or selling the property.
Our active asset management strategies, which include regular reviews of each of our properties for changes in the credit of the tenant, business performance at the property, industry trends and local real estate market conditions, may be insufficient to predict tenant defaults. If a tenant defaults, it will likely eliminate all of, or significantly reduce, our revenue from the affected property for some time. If a defaulting tenant is unable to recover financially, we may have to re-lease or sell the property. Re-leasing or selling properties may take a significant amount of time, during which the property might have a negative cash flow to us and we may incur other related expenses. We may also have to renovate the property, reduce the rent or provide an initial rent abatement or other incentive to attract a tenant or buyer. During this period, we likely will incur ongoing expenses for property maintenance, taxes, insurance and other costs. Moreover, a property which has become vacant may lead to reduced rental revenue and result in less cash available for distribution to our shareholders. In addition, because a property’s value depends principally upon its lease, leasing history and prevailing market rental rates, the value of a property with a prolonged vacancy could decline.
Some of our properties are leased to tenants or have lease guarantors that are not rated by a major rating agency.
A key element of our underwriting process is evaluating tenant creditworthiness. When available, we consider any relevant rating assigned by a major rating agency. Additionally, when we underwrite a tenant’s credit we generally review financial statements or other financial data and, if available, property-level operating information. In many instances there will be no rating to consider and financial information may be limited. Underwriting credit risk in the absence of a credit rating or based upon limited financial information could cause us to improperly assess tenant credit risk and the potential for tenant defaults. In addition to considering any rating that is available for a tenant or a lease guarantor, we also consider any rating assigned to an affiliate of a tenant as an indication of the credit of the overall enterprise of which our tenant is a part. However, a tenant affiliate that is not a guarantor under a lease with us is not contractually obligated to meet
 
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our tenant’s obligations to us under such lease. Accordingly, our consideration of a credit rating assigned to a non-guarantor tenant affiliate could cause us to underestimate the credit risk posed by a particular tenant.
Credit ratings may prove to be inaccurate.
When available, we consider credit ratings assigned by major rating agencies to our tenants or, where applicable, their guarantors when making investment and leasing decisions. A credit rating is not a guarantee and only reflects the rating agency’s opinion of an entity’s ability to meet its financial commitments, such as its payment obligations to us under the relevant lease, in accordance with their stated terms. A rating may ultimately prove not to accurately reflect the credit risk associated with a particular tenant or guarantor. Ratings are generally based upon information obtained directly from the entity being rated, without independent verification by the rating agency. If any such information contained a material misstatement or omitted a material fact, the rating based upon such information may not be appropriate. Ratings may be changed, qualified, suspended, placed on watch or withdrawn as a result of changes in, additions to or the accuracy of information, the unavailability of or inadequacy of information or for any other reason. No rating agency guarantees a tenant’s or, where applicable, its guarantor’s obligations to us. If a tenant’s or, where applicable, its guarantor’s rating is changed, qualified, suspended, placed on watch or withdrawn, such tenant or guarantor may be more likely to default in its obligations to us, and investors may view our cash flows as less stable.
We may be unable to identify and complete acquisitions of suitable properties which may impede our growth and our ability to further diversify our portfolio. Future acquisitions may not yield the returns we expect.
Our ability to grow through acquisitions requires us to identify and complete acquisitions that are compatible with our growth strategy and to successfully integrate newly acquired properties into our portfolio. Our ability to acquire properties on favorable terms and successfully integrate them may be constrained by the following significant risks:

We target investments that have a difference, or spread, between our cost of capital and the lease rate of the properties we acquire. If that spread decreases, our ability to profitably grow the company will decrease;

We compete with numerous investors, including traded and non-traded public REITs, private REITs, private equity investors, institutional investment funds, individuals, banks and insurance companies, some of whom have greater financial resources and a lower cost of capital than we do for acquisitions. This competition may increase the demand for the types of properties that we seek to acquire and increase the purchase price for properties that we acquire;

We may fail to maintain sufficient capital resources to acquire new properties;

After beginning to negotiate a transaction we may be unable to reach an agreement with the seller or during our due diligence review we may discover previously unknown matters, conditions or liabilities, either of which could force us to abandon a transaction after incurring significant costs and diverting management’s attention;

Our cash flow from an acquired property may be insufficient to meet our required principal and interest payments with respect to any debt used to finance the acquisition of such property;

Since many enterprises we approach concerning sale-leaseback transactions have a historic preference to own, rather than lease, their real estate, our ability to facilitate sale-leaseback transactions requires that we overcome those preferences and convince enterprises that it is more favorable for them to lease, rather than own, their properties, and we may be unable to do so; and

We may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties, liabilities incurred in the ordinary course of business and claims for indemnification by general partners and others indemnified by the former owners of the properties.
 
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We may not acquire the properties that are in our pipeline.
An important element of our strategy is to grow our portfolio through attractive acquisitions. Our pipeline of potential investment opportunities includes not only properties that are subject to purchase agreements or non-binding letters of intent, but also a significant number of properties that are in the early stages of evaluation, many of which we may determine not to pursue. Accordingly, our pipeline is only indicative of the number of investment opportunities that we are reviewing and is not indicative of the amount of investments that we will ultimately make. Generally, our purchase agreements contain customary closing conditions, and properties that are the subject of binding purchase agreements may fail to close for a variety of reasons, including the discovery of previously unknown liabilities or other items uncovered during our diligence process. Additionally, we may not execute binding purchase agreements with respect to properties that are currently the subject of non-binding letters of intent, and we may not execute non-binding letters of intent with respect to properties that are currently the subject of active negotiations. For many other reasons, we may not ultimately acquire the remaining properties currently in our pipeline. Accordingly, you should not place undue reliance on the pipeline information that we have disclosed in this prospectus.
As we continue to acquire properties, we may decrease or fail to increase the diversity of our portfolio.
While our portfolio is currently diversified by tenant, industry, geography and property type, and our investment strategy contemplates maintaining and growing a well-diversified portfolio, we have broad authority to invest in any property that we may choose, and it is possible that future investment activity could result in a less diverse portfolio. In the event that we become significantly exposed to any one tenant, a downturn in that tenant’s business or creditworthiness could adversely affect us. Similarly, if we develop a concentration of properties in any geographic area or used in a particular industry, any situation adversely affecting that area or industry would have a magnified adverse effect on our portfolio.
We have significant exposure to our largest tenants.
As of November 15, 2021, our 10 largest tenants contributed approximately 45.6% of our ABR on an expected post-syndication pro rata basis. See “Business—Our Portfolio—Tenants.” Accordingly, we have significant exposure to our largest tenants, and the failure of any of these tenants to meet its obligations to us under its lease could adversely affect us.
If a tenant declares bankruptcy we may be unable to collect balances due under relevant leases.
We may experience concentration in one or more tenants across several of the properties in our portfolio. Any of our tenants, or any guarantor of one of our tenant’s lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the United States Code (the “Bankruptcy Code”). If a tenant becomes a debtor under the Bankruptcy Code, federal law prohibits us from evicting such tenant based solely upon the commencement of such bankruptcy. Further, such a bankruptcy filing would prevent us from attempting to collect pre-bankruptcy debts from the bankrupt tenant or take other enforcement actions, unless we receive an enabling order from the bankruptcy court. Generally, post-bankruptcy debts are required by statute to be paid currently, which would include payments on our leases that come due after the date of the bankruptcy filing. Such a bankruptcy filing also could cause a decrease or cessation of current rental payments, reducing our operating cash flows and the amount of cash available for distributions to shareholders. Prior to emerging from bankruptcy, the tenant will need to decide whether to assume or reject its leases. Generally, and unless otherwise agreed to by the tenant and the lessor, if a tenant assumes a lease, all pre-bankruptcy balances and unpaid post-bankruptcy amounts owing under it must be paid in full. If a given lease or guaranty is not assumed, our operating cash flows and the amount of cash available for distribution to shareholders may be adversely affected. If a lease is rejected by a tenant in bankruptcy, we are entitled to general unsecured claims for damages. If a lease is rejected, it is questionable whether we would receive any amounts from the tenant, and our general unsecured claim would be capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. We would only receive recovery on our general unsecured claim in the event funds or other consideration was available for distribution to general unsecured creditors, and then only in the same percentage as that realized on other general unsecured claims. We may also be unable to re-lease a terminated or rejected property or to re-lease it on comparable or more favorable terms.
 
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A sale-leaseback transaction could be recharacterized in a tenant bankruptcy proceeding.
We may enter into sale-leaseback transactions, where we purchase a property and lease it back to the seller. In the event of the bankruptcy of such a tenant, a transaction structured as a sale-leaseback may be re-characterized as a financing or a joint venture, either of which could adversely affect us. If the sale-leaseback were re-characterized as a financing, we would not be considered the owner of the property, and as a result would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property, but subject to the risk that the claim is unsecured. The tenant/debtor might have the ability to propose a plan restructuring the terms of its lease, which may result in changes to the lease term or the amount of rent payable to us. If confirmed by the bankruptcy court, we could be bound by the new terms and prevented from foreclosing our lien (assuming we are found to have such a lien) on the property. If the sale-leaseback were recharacterized as a joint venture, our lessee and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property.
We have recorded net losses in the past and we may experience net losses in the future.
We have recorded net losses attributable to common shareholders of approximately $21.0 million and $15.6 million, for the nine months ended September 30, 2021 and 2020, respectively, and $23.6 million and $17.5 million for the years ended December 31, 2020 and 2019, respectively. These net losses were inclusive in each period of significant non-cash charges, consisting primarily of depreciation and amortization expense. We expect such non-cash charges to continue to be significant in future periods and, as a result, we may continue to record net losses in future periods.
Our operating results will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, which may prevent us from being profitable or from realizing growth in the value of our properties.
Our operating results will be subject to risks generally incident to the ownership of real estate, including:

inability to collect rents from tenants due to financial hardship, including bankruptcy;

changes in the general economic or business climate;

changes in local real estate conditions in the markets in which we operate, including the availability of and demand for single-tenant commercial space;

changes in consumer trends and preferences that affect the demand for products and services offered by certain of our tenants;

inability to lease or sell properties upon expiration or termination of existing leases;

changes in interest rates and availability of permanent mortgage financing that may render the sale of a property difficult or unattractive;

the subjectivity of real estate valuations and changes in such valuations over time;

the illiquidity of real estate investments generally;

changes in tax, real estate, environmental and zoning laws; and

periods of rising interest rates or high interest rates and tight money supply.
These risk and other factors may prevent us from being profitable or from maintaining or growing the value of our properties.
We are exposed to risks related to increases in market lease rates and inflation, as income from long-term leases is our primary source of cash flows from operations.
We are exposed to risks related to increases in market lease rates and inflation, as income from long-term leases is the primary source of our cash flows from operations. Leases of long-term duration, or which include renewal options that specify a maximum rental rate increase, may result in below-market lease rates over time
 
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if we do not accurately estimate inflation or increases in market lease rates. Provisions of our leases designed to mitigate the risk of inflation and unexpected increases in market lease rates, such as periodic rental rate increases, may not adequately protect us from the impact of inflation or unexpected increases in market lease rates.
Our assets will be subject to the risks typically associated with real estate investments.
Our assets will be subject to the risks typically associated with real estate investments. The value of real estate may be adversely affected by a number of risks, including:

the impact of pandemics such as COVID-19 or other sudden or unforeseen events that disrupt the economy;

natural disasters such as hurricanes, earthquakes and floods;

acts of war or terrorism, including the consequences of terrorist attacks, such as those that occurred on September 11, 2001;

adverse changes in national and local economic and real estate conditions;

an oversupply of (or a reduction in demand for) space in the areas where particular properties are located and the attractiveness of particular properties to prospective tenants;

changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance and the potential for liability under applicable laws;

costs of remediation and liabilities associated with environmental conditions affecting properties; and;

the potential for uninsured or underinsured property losses.
The value of real estate properties is typically affected significantly by their ability to generate cash flow and net income, which in turn depends on the amount of rental or other income that can be generated net of expenses required to be incurred with respect to the property. Many expenditures associated with properties (such as operating expenses and capital expenditures) cannot be reduced when there is a reduction in income from the properties. While we typically allocate property-level expenses (such as property taxes, insurance and maintenance) to our tenants through triple net leases, we would be required to pay these expenses if a tenant defaults on its obligations to us or a property is vacant. These factors may have a material adverse effect on the value that we can realize from our assets and our business, financial condition and results of operations and our ability to make distributions on, and the value of, our common shares could be adversely affected.
Actual or threatened epidemics, pandemics, outbreaks, or other public health crises may have an adverse impact on our tenants, our tenants’ ability to pay rent pursuant to their leases and the profitability of the properties in our portfolio.
Our tenants and our business could be materially and adversely affected by the risks, or the public perception of the risks, related to an epidemic, pandemic, outbreak, or other public health crisis, such as the COVID-19 pandemic. As a result of shutdowns, quarantines, actual viral health issues or high levels of employment, tenants at our properties may experience reduced or no revenues for a prolonged period of time, may file for bankruptcy, or may experience other hardships that affect their ability or willingness to make their rental payments. In the event our tenants are unable or unwilling to make their rental payments to us, in addition to lost rent, we would incur property-level expenses that otherwise would be borne by our tenants pursuant to triple net leases (such as property taxes, insurance and maintenance), and we may incur costs in protecting our investment and re-leasing our property. Additionally, local and national authorities may expand or extend certain measures imposing restrictions on our ability to enforce tenants’ contractual rental obligations. Local and national authorities may also reduce or discontinue stimulus and relief programs, implemented in response to such events, which may be providing benefits to our tenants which may impact their ability to make their rental payments. We have not elected in response to the COVID-19 pandemic to discount rent or offer forbearance plans to tenants, but we may do so in the future which may in the future result in rent collections that are less than the amounts contractually provided for in our leases.
 
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Increases in interest rates can negatively impact us.
We are exposed to financial market risks, especially interest rate risk. Interest rates and other factors, such as occupancy, rental rates and the financial condition of our tenants, influence our performance more so than does inflation. Our leases often provide for payments of base rent with scheduled increases, based on a fixed amount or the lesser of a multiple of the increase in the CPI over a specified period term or a fixed percentage to help mitigate the effect of inflation. Changes in interest rates, however, do not necessarily correlate with inflation rates or changes in inflation rates and are highly sensitive to many factors, including governmental monetary policies, domestic and global economic and political conditions, and other factors which are beyond our control. Additionally, any increase in the target federal funds rate individually or in the aggregate is likely to increase interest rates. Our operating results will depend heavily on the difference between the rental revenue from our properties and the interest expense incurred on our borrowings. Rising interest rates could increase our interest expense which, without a corresponding increase in our revenue, would have a negative impact on our operating results.
We could be subject to increased property-level operating expenses.
Our properties are subject to property-level operating expenses, such as tax, utility, insurance, repair and maintenance and other operating costs. Though our properties are generally leased under net leases that obligate tenants to pay for all or a significant portion of these expenses, we may be required to pay some of these costs or we may become obligated to pay all of these costs if a tenant defaults on its obligation to pay these expenses. Additionally, we will be responsible for these costs at any vacant property. Property-level operating expenses may increase, and the likelihood of our need to fund these expenses may increase if property-level expenses exceed the level of revenue a tenant is able to generate at a particular property. Additionally, we may be unable to lease properties on terms that require the tenants to pay all or a significant portion of the properties’ operating expenses or property-level expenses that we are obligated to pay may exceed our expectations.
Real estate taxes may increase, and any such increases may not be paid for by our tenants.
Tax rates or the assessed values of our properties may increase, which would result in increased real estate taxes. Although tenants at most of our properties are obligated to pay these taxes (including any increases thereto) pursuant to net leases, we may be responsible for some or all of these taxes related to certain of our properties. In addition, if a tenant does not meet its obligation to pay real estate taxes or if a property is vacant we likely will be required to pay such taxes to preserve the value of our investment.
Our revenues and expenses are not directly correlated, and because a large percentage of our expenses are fixed, we may not be able to lower our cost structure to offset declines in our revenue.
Most of the expenses associated with our business, such as our office rent, certain acquisition costs, insurance costs, employee wages and benefits, and other general corporate expenses are relatively fixed and generally will not decrease with any reduction in our revenue. Also, many of our expenses will be affected by inflation, and certain expenses may increase more rapidly than the rate of inflation in any given period. Additionally, expense increases may exceed the rent escalation provisions contained in many of our leases. By contrast, our revenue, which primarily comes from long-term leases, is affected by many factors beyond our control, such as tenant creditworthiness, lease term and the economic conditions in the markets where our properties are located. As a result, we may not be able to fully offset rising costs by increasing our rents.
We face significant competition for tenants, which may decrease the occupancy and rental rates of our properties.
We compete for tenants with numerous traded and non-traded public REITs, private REITs, private equity investors, institutional investment funds, individuals, banks and insurance companies, many of which own properties similar to ours in the same markets in which our properties are located. If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates or to offer more
 
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substantial rent abatements, tenant improvements, early termination rights or below-market renewal options in order to retain tenants when our leases expire. Competition for tenants could decrease the occupancy and rental rates of our properties.
Challenging economic conditions could increase vacancy rates.
Challenging economic conditions, the availability and cost of credit, turmoil in the mortgage market and declining real estate markets have contributed to increased vacancy rates in the commercial real estate sector. If we experience higher vacancy rates, we may have to offer lower rental rates or increase tenant improvement allowances or concessions. Increased vacancy may have a greater impact on us, as compared to REITs with other investment strategies, as our investment approach relies on long-term leases in order to provide a relatively stable stream of rental income. Increased vacancy could reduce our rental revenue and the values of our properties, possibly below the amounts we paid for them. Any such reduced revenues could make it more difficult for us to meet our payment obligations with respect to any indebtedness associated with the affected properties or limit our ability to refinance such indebtedness.
As leases expire, we may be unable to renew those leases or re-lease the space on favorable terms or at all.
Our success depends, in part, upon our ability to cause our properties to be occupied and generating revenue. As of November 15, 2021, leases representing approximately 21.5% of our ABR on an expected post-syndication pro rata share basis will expire prior to 2027. Current tenants may decline, or may not have the financial resources available, to renew current leases, and we cannot guarantee you that we will be able to renew leases or re-lease space (1) without an interruption in the rental revenue from those properties, (2) at or above our current rental rates or (3) without having to offer substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options. The difficulty, delay and cost of renewing leases, re-leasing space and leasing vacant space could materially and adversely affect us.
In addition, as of November 15, 2021, leases representing 72.0% of our ABR on an expected post-syndication pro rata share basis contain provisions giving the tenant the right to extend the term of the lease at a rental rate specified in the lease. If such rent is below the level of rent that the property could otherwise be leased for at the termination of the lease and the tenant exercises its right to extend the lease, we will be obligated nevertheless to lease the property for the rent specified in the lease.
Loss of our key personnel could materially impair our ability to operate successfully.
We are dependent on the performance and continued efforts of our senior management team, and our future success is dependent on our ability to continue to attract and retain qualified executive officers and senior management. We rely on our management team to, among other things, identify and consummate acquisitions, design and implement our financing strategies, manage our investments and conduct our day-to-day operations. In particular, our success depends upon the performance of Mr. William P. Dioguardi, our Chairman and Chief Executive Officer, Coby R. Johnson, our President, Chief Operating Officer and Secretary, John E. Warch, our Senior Vice President, Chief Financial Officer, Jared W. Morgan, our Senior Vice President, Head of Acquisitions, Cynthia M. Daly, our Senior Vice President, Head of Underwriting, and other members of our management team. We currently maintain a $2 million life insurance policy on Mr. Dioguardi.
We cannot guarantee the continued employment of any of the members of our management team, who may choose to leave us for any number of reasons, such as other business opportunities, differing views on our strategic direction or personal reasons. We rely on the experience, efforts, relationships and abilities of these individuals, each of whom would be difficult to replace. The employment agreements we have entered into with each of these executives do not guarantee their continued service to us. The loss of services of one or more members of our management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners, existing and prospective tenants and industry participants.
Our growth strategy depends on external sources of capital which may not be available to us on commercially reasonable terms or at all.
We expect that over time we will seek additional sources of capital to fund our business. We may not be able to obtain such financing on favorable terms or at all. Any additional debt we incur will increase our leverage and likelihood of default. Our access to third-party sources of capital depends, in part, on:
 
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general market conditions;

the market’s perception of our creditworthiness and growth potential;

our current debt levels and our ability to satisfy financial covenants;

our current and expected future earnings;

our cash flow and cash distributions; and

the market price of our common shares.
If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make the cash distributions to our shareholders necessary to maintain our qualification as a REIT.
Information that we present on a “expected post-syndication pro rata share” basis with respect to DSTs that have not been syndicated fully to third party investors reflect the percentage of equity interest we expect to own after completion of syndication and, accordingly, may not reflect our actual equity ownership of these DSTs for particular future periods.
When we establish a DST, we generally initially own 100% of the equity interests in the DST and typically offer 85% to 95% of the equity interests of each DST by syndicating them to third-party investors, with the remaining equity interests retained by us. When we present “expected post-syndication pro rata share” information with respect to these DSTs, the information we present assumes that we have fully syndicated 95% of the equity interests of each of these DSTs to third-party investors, though we may not have done so by the date of such information and may not ever be able to do so. Accordingly, we may own a higher percentage of a DST (particularly a newly formed DST) at a given point in time than we expect to own when syndication of the DST is complete. In addition, for any DST that has not completed syndication, we can give no assurance that such syndication will be completed or that our ultimate ownership percentage of such DST will not be materially higher or lower than the percentage ownership we have assumed.
Our completion of a particular DST syndication and our post-syndication percentage ownership of a particular DST is impacted by various factors, many of which are not in our control, including changes in the economic or regulatory environment that may make investing in DST equity less attractive to third-party investors, adverse development affecting the property held by the DST (e.g., property damage or destruction) and the stability of the related tenants. As a result, our “expected post-syndication pro rata share” information, which assumes we successfully sell 95% of the equity interests in DSTs being actively syndicated to third parties, could understate our exposure to the property owned by the DST and any risks relating to the tenant of that property as well as the contribution of that property to our operating results and other financial and statistical information.
Our participation in the Section 1031 Exchange Program may limit our ability to borrow funds in the future.
Institutional lenders may view any obligations we may have from time to time under agreements to acquire interests in properties as a contingent liability, which may limit our ability to borrow funds in the future. Further, before DSTs are fully syndicated, we are required to carry the full amounts of debt associated with such properties, which may adversely affect the ratios or covenants imposed by our lenders. Lenders providing lines of credit may restrict our ability to draw on our lines of credit by the amount of our potential obligations under these agreements. Further, our lenders may view such obligations in such a manner as to limit our ability to borrow funds based on regulatory restrictions on lenders that limit the amount of loans they can make to any one borrower.
Changes in the Code may impair our ability to sell properties that are, or were, in the Section 1031 Exchange Program.
On April 28, 2021, President Biden proposed a series of tax reforms (“Biden Tax Reform”), one of which would limit 1031 exchanges to real estate profits of $500,000 or less. The Biden Tax Reform, if passed by Congress and signed into law, could limit our ability to raise capital in the Section 1031 Exchange Program.
 
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Under the Section 1031 Exchange Program, we may acquire the properties included in the DSTs for cash or offer the third-party DST investors the opportunity to elect to receive OP units that would allow the transaction to qualify for certain tax deferral benefits. If an investor elects to receive OP units and the property that was formerly in the applicable DST is subsequently sold, such investor will be taxed on its built-in-gain unless we effectuate a like-kind exchange under Section 1031 of the Code. Although we are not contractually obligated to do so, we intend to execute 1031 exchanges in such situations rather than trigger gain. The Biden Tax Reform, if passed by Congress and signed into law, would limit 1031 exchanges to real estate profits of $500,000 or less. As a result of these factors the Section 1031 Exchange Program may limit our ability to sell the properties in such program without triggering taxes for the investors in such program. Such reduced liquidity could impair our ability to utilize cash proceeds from sales for other purposes such as paying down debt, distributions or additional investments.
We may be unable to secure funds for future tenant improvements or other capital needs.
When tenants do not renew their leases or otherwise vacate their space, it is common that, in order to attract replacement tenants, we will be required to expend substantial funds for tenant improvements to the vacated space. In addition, although our leases generally require tenants to pay for routine property maintenance costs, we are often responsible for any major structural repairs, such as repairs to a property’s foundation, exterior walls or roof. In general, we expect to use a significant portion of our cash to invest in additional properties and fund distributions to our shareholders. Accordingly, if we need significant additional capital to improve or maintain our properties or for any other reason, we will likely be required to obtain funds from other sources, such as cash flow from operations, borrowings, property sales or future offerings of our securities. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for tenant improvements or other capital needs, our properties may be less attractive to future tenants or purchasers, generate lower cash flows and/or decline in value.
REIT distribution requirements limit our ability to retain cash.
As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we can retain for other business purposes, including to fund our growth. We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, in order for our distributed earnings not to be subject to corporate income tax. We intend to make regular monthly distributions of 100% of our REIT taxable income to holders of our common shares out of assets legally available therefore to comply with the REIT distribution requirements of the Code and avoid U.S. federal income tax and the 4% excise tax. However, timing differences between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds to distribute 100% of our REIT taxable income, even if the prevailing market conditions are not favorable for these dispositions or borrowings. Additionally, to the extent that we do not distribute all of our net capital gain, or distribute at least 90%, but less than 100%, of our REIT taxable income, as adjusted, we will be required to pay tax on the undistributed amount at the corporate tax rate and will be required to pay the 4% excise tax, and our taxable REIT subsidiaries will be subject to tax as regular corporations.
Because we may pay distributions from sources other than our cash flows from operations, any distributions may not reflect the performance of our properties or our operating cash flows.
Our organizational documents permit us to make distributions from any source, including borrowed funds, proceeds from asset sales or proceeds from securities offerings. Because we may make distributions in excess of our cash flow from operations, distributions may not reflect the performance of our properties or our operating cash flows. To the extent distributions exceed our current and accumulated earnings and profits, distributions may be treated as a return of capital and could reduce a shareholder’s basis in our common shares, but not below zero. A reduction in a shareholder’s basis in our common shares could result in the shareholder recognizing more gain upon the disposition of such shares, which could result in greater taxable income to such shareholder. Distributions in excess of our current and accumulated earnings and profits and in excess of a U.S. shareholder’s adjusted tax basis in its shares will be taxable as capital gain.
 
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Illiquidity of real estate investments and restrictions imposed by the Code could significantly impede our ability to respond to adverse changes in the performance of our properties.
Relative to many other types of investments, real estate in general, and our properties in particular, are difficult to sell quickly. Therefore, our ability to promptly sell one or more properties in response to changing property or tenant specific events, economic, financial or investment conditions is limited. In particular, our ability to sell a property could be adversely affected by a weaknesses in or even the lack of an established market for a property, changes in the condition of the tenant leasing a property, changes in local market conditions, changes in the financial condition or prospects of prospective purchasers or changes in national or international economic conditions (such as the most recent economic downturn), and changes in laws, regulations or fiscal policies of the jurisdiction in which the property is located.
In addition, the Code imposes restrictions on a REIT’s ability to dispose of properties, which are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs effectively require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, in order to avoid paying a 100% prohibited transaction tax on the gain from the disposition, which may cause us to forgo or defer sales of properties that otherwise would be in our best interest. Also, we are generally unable to dispose of properties acquired by our DSTs for a period of one to two years. Therefore, we may not be able to vary our portfolio in response to economic or other conditions promptly or on favorable terms.
We may be unable to sell a property when we desire to do so.
The real estate market is affected by many factors that are beyond our control, such as general economic conditions, the availability of financing, interest rates, and supply and demand. We cannot predict whether we will be able to sell a property for a price or on other terms that we determine to be acceptable. In connection with selling a property, we may determine that it is necessary to make significant capital expenditures to correct defects or to make improvements in order to facilitate a sale. We may not have the ability to fund these expenditures, which could prevent us from selling the property or adversely affect any selling terms. Additionally, in acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on such property. Additionally, certain provisions of the Code and our DSTs may prevent use from disposing of properties until certain time frames are satisfied. To the extent we determine to sell a property, we cannot predict the length of time needed to find a willing purchaser and to close the sale of the property or that any sale will result in the receipt of net proceeds in excess of the amount we paid for the property.
We may acquire properties with lock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.
A lock-out provision is a provision that prohibits the prepayment of a loan during a specified period of time. Lock-out provisions may include terms that provide strong financial disincentives for borrowers to prepay their outstanding loan balance and exist in order to protect the yield expectations of investors. Several of our properties secure loans that include lock-out provisions. Lock-out provisions could materially restrict us from selling or otherwise disposing of or refinancing properties when we may desire to do so. Lock-out provisions may prohibit us from reducing the outstanding indebtedness, refinancing such indebtedness on a non-recourse basis or increasing the amount of indebtedness with respect to such properties. Lock-out provisions could impair our ability to take other actions during the lock-out period that we might otherwise choose to pursue. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our shareholders.
We may only obtain limited warranties when we purchase a property and may only have limited recourse in the event our due diligence did not identify any issues that lower the value of the property.
The seller of a property often sells such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications (including those relating to construction of the building and environmental issues) that will only survive for a limited period after the closing. The purchase of properties with limited warranties, representations or
 
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indemnifications increases the risk that we may lose some or all of our invested capital in the property, as well as the loss of rental income from that property.
CC&Rs may restrict the uses of our properties.
Some of our properties are contiguous to other parcels that comprise a single retail center or a business or industrial park. In connection with such properties, we are often subject to significant covenants, conditions and restrictions (“CC&Rs”) that limit the use and operation of such properties. Moreover, the operation and management of the contiguous properties may adversely affect the value of our properties. Compliance with CC&Rs or the presence of contiguous businesses may make the affected property less attractive to potential tenants and adversely affect the property’s value.
Participation in co-ownership arrangements, including DSTs, joint ventures, partnerships or otherwise, may subject us to risks that otherwise may not be present in other real estate investments.
As of November 15, 2021, we jointly owned 34 properties with third parties through DSTs under the Section 1031 Exchange Program, and we may enter into additional co-ownership arrangements with respect to other properties through additional DSTs, joint ventures, partnerships or otherwise. Our current co-ownership arrangements provide us with the exclusive right to make all decisions with respect to the management and disposition of such jointly owned properties and do not require us to purchase the interests of our co-owners, however, we may enter into co-ownership arrangements in the future that do not provide us with such control rights and may require us to purchase the co-owners’ interests.
Co-ownership arrangements involve risks generally not present when an asset is owned by a single party, such as the following:

the risk that a co-owner may at any time have economic or business interests or goals that are or become inconsistent with our business interests or goals;

the risk that a co-owner may be in a position to take action contrary to our instructions or requests or our policies or objectives;

the possibility that a co-owner might become insolvent or bankrupt, or otherwise default on its obligations under any applicable mortgage loan financing documents, which may result in a foreclosure and the loss of all or a substantial portion of the investment made by the co-owner or allow the bankruptcy court to reject the agreements entered into by the co-owners owning interests in the property;

the possibility that a co-owner might not have adequate liquid assets to make cash advances that may be required in order to fund the operations or maintenance and other expenses related to the property, which could result in the loss of current or prospective tenants and otherwise adversely affect the operation and maintenance of the property, cause a default under any mortgage loan financing documents applicable to the property and result in late charges, penalties and interest, and could lead to the exercise of foreclosure and other remedies by the lender;

the risk that a co-owner could breach agreements related to the property, which may cause a default under, and possibly result in personal liability in connection with, any mortgage loan financing documents, violate applicable securities law, result in a foreclosure or otherwise adversely affect the property and the co-ownership arrangement;

the risk that we could have limited control rights, with management decisions made entirely by a third-party; and

the possibility that we will not have the right to sell the property at a time that otherwise could result in the property being sold for its maximum value.
In the event that our interests become adverse to those of the other co-owners, we may not have the contractual right to purchase the co-ownership interests from the other co-owners. Even if we are given the opportunity to purchase such co-ownership interests in the future, we cannot guarantee that we will have sufficient funds available at the time to purchase co-ownership interests from the co-owners.
 
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We might want to sell our co-ownership interests in a given property at a time when the other co-owners in such property do not desire to sell their interests. Therefore, because we anticipate that it will be much more difficult to find a willing buyer for our co-ownership interests in a property than it would be to find a buyer for a property we owned outright, we may not be able to sell our interest in a property at the time we would like to sell.
Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect us.
From time to time, we may acquire multiple properties in a single transaction. Portfolio acquisitions are more complex and may be more expensive than single property acquisitions, and the risk that a multi-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions may also result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another party to acquire the unwanted properties, we may be required to hold such properties and seek to dispose of them at a later time. Acquiring multiple properties in a single transaction may require us to accumulate a large amount of cash, and holding large cash balances for significant periods of time could reduce our returns, as returns on cash are substantially lower than the returns we target from our investments in properties.
If we purchase an option to acquire a property but do not exercise the option, we likely would forfeit the amount we paid for such option.
In determining whether to purchase a particular property, we may obtain an option to purchase such property. The amount paid for an option, if any, normally is forfeited if the property is not purchased within the option exercise period and normally is credited against the purchase price if the property is purchased. If we purchase an option to acquire a property but do not exercise the option, we likely would forfeit the amount we paid for such option.
If we sell properties and provide financing to purchasers we will be subject to the risk of default by the purchasers.
In some instances we may sell a property and provide financing to the purchaser for a portion of the purchase price. Though we do not expect to provide a significant amount of financing to purchasers relative to the overall size of our portfolio, we are not precluded from doing so. If we provide financing to purchasers, we will bear the risk that the purchaser may default on its obligations to us, including payment obligations, under the financing arrangement. Even in the absence of a purchaser default, we will not receive the full cash proceeds from such a sale until such time as our loan is repaid by the purchaser or sold by us, which will result in a delay in our ability to distribute such sales proceeds or reinvest them in other properties.
We are and in the future may be subject to litigation, which could materially and adversely affect us.
We are and in the future may be subject to litigation, including claims relating to our operations, properties, security offerings or other aspects of our business. Some of these claims may result in significant investigation, defense or settlement costs and, if we are unable to successfully defend against or settle such claims, may result in significant fines or judgments against us. These costs may not be covered by insurance or may exceed insured amounts. We cannot be certain of the outcomes of any claims that may arise in the future. Certain litigation or the resolution of certain litigation may limit the availability or significantly increase the cost of insurance coverage, which could expose us to increased risks.
We may have increased exposure to litigation as a result of the Section 1031 Exchange Program.
We have developed the Section 1031 Exchange Program to raise capital from third-party investors who are seeking to reinvest the proceeds from sales of investment property in transactions that are eligible for favorable tax treatment under Section 1031 of the Code. See “Our Business—Section 1031 Exchange Program.” The Section 1031 Exchange Program involves a private offering of co-tenancy or other interests in real estate. There are significant tax and securities risks associated with these private offerings. For example, if the Internal Revenue Service (“IRS”) were to successfully challenge the tax treatment of the Section 1031 Exchange
 
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Program with respect to third-party investors who purchased interests in these offerings, such purchasers may file a lawsuit against us. Additionally, we have certain rights to acquire interests in the properties that we jointly own with third parties, and in future offerings we may have certain obligations to acquire interests in co-owned properties. We could be named in or otherwise required to defend against lawsuits for exercising or failing to exercise such purchase rights and obligations. Any amounts we are required to expend investigating, defending or settling a claim, or in satisfaction of an adverse judgment relating to, the Section 1031 Exchange Program could be substantial. In addition, disclosure of any such litigation may limit our future ability to raise additional capital through the Section 1031 Exchange Program or otherwise.
Eminent domain could lead to material losses.
Governmental authorities may exercise eminent domain to acquire the land on which our properties are built in order to build roads and other infrastructure. Any such exercise of eminent domain would allow us to recover only the fair value of the affected properties. In addition, “fair value” could be substantially less than the real market value of the property, and we could effectively have no profit potential from properties acquired by the government through eminent domain.
Risks Related to Environmental and Compliance Matters and Climate Change
Complying with environmental laws and regulations may be costly.
All real property and the operations conducted thereon are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of hazardous materials, and the remediation of contamination associated with disposals. These laws or the interpretations thereof may become more stringent over time and compliance therewith may involve significant costs. Additionally, the cost of defending against claims of liability, complying with environmental requirements, remediating any contaminated property or paying personal injury claims could be substantial. Some of these laws and regulations impose joint and several liability on tenants and current or previous owners or operators of real estate for the costs of investigation and remediation of contaminated properties, regardless of fault or whether the acts causing the contamination were legal. This liability could be substantial. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent a property or to use such property as collateral for future borrowing. Moreover, if contamination is discovered at any of our properties, environmental laws may impose restrictions on the manner in which the affected properties may be used or the businesses that may be operated thereon or give rise to personal injury claims. We typically obtain a third-party environmental site assessment for properties we acquire, however, we may not obtain such an assessment for every property we acquire, and when we do obtain such an assessment it is possible that it will not reveal all environmental liabilities.
Although our leases generally require our tenants to operate in compliance with all applicable laws and to indemnify us against any environmental liabilities arising from a tenant’s activities on the property there can be no assurance that our tenants will be able to meet these obligations. It is possible that we could incur substantial expenditures to remediate environmental conditions at our properties or become subject to liability for environmental liabilities by virtue of our ownership of the property. Furthermore, the discovery of environmental liabilities on any of our properties could lead to significant remediation costs or other liabilities for our tenant, which may affect such tenant’s ability to make rental payments to us.
From time to time, we may invest in properties with known adverse environmental conditions where we believe that the environmental liabilities associated with these conditions are quantifiable and that the acquisition will yield an appropriate risk-adjusted return. In such an instance, we will estimate the costs of environmental investigation, clean-up and monitoring when negotiating the purchase price. To the extent we underestimate the costs of environmental matters we could incur substantial losses. Further, in connection with property dispositions, we may agree to remain responsible for, and to bear the cost of, remediating or monitoring certain environmental conditions.
 
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Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make significant unanticipated expenditures.
Some of our properties are subject to the Americans with Disabilities Act of 1990, as amended (the “ADA”). Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Compliance with the ADA could require costly modifications at our properties to make them readily accessible to and usable by disabled individuals. In addition, failure to comply with the ADA could result in the imposition of fines or an award of damages to private litigants. Our tenants are generally obligated to maintain and repair the properties they lease from us and to comply with the ADA and other similar laws and regulations. However, if a tenant is unwilling or unable to meet its obligation to comply with the ADA, we may incur significant costs in modifying the property to achieve compliance. Additionally, as the owner of the property we could be liable for failure of one of our properties to comply with the ADA or other similar laws and regulations.
Similarly, our properties are subject to various laws and regulations relating to fire, safety and other regulations, and in some instances, common-area obligations. While our tenants are generally obligated to comply with these laws and regulations at the properties they lease from us, it is possible that our tenants will not have the financial ability to meet these obligations. If a tenant is unwilling or unable to meet its obligation to comply with these laws and regulations, we may incur significant costs to achieve compliance, that we may not be able to recover from the tenant. We may also face owner liability for failure to comply with these laws and regulations, which may lead to the imposition of fines or an award of damages to private litigants.
Our operations and financial condition may be adversely affected by climate change, including possible changes in weather patterns, weather-related events, government policy, laws, regulations and economic conditions.
In recent years, the assessment of the potential impact of climate change has begun to impact the activities of government authorities, the pattern of consumer behavior and other areas that impact the business environment in the U.S., including, but not limited to, energy-efficiency measures, water use measures and land-use practices. The promulgation of policies, laws or regulations relating to climate change by governmental authorities in the U.S. and the markets in which we own properties may require us to invest additional capital in our properties. In addition, the impact of climate change on businesses operated by our tenants is not reasonably determinable at this time. While not generally known at this time, climate change may impact weather patterns or the occurrence of significant weather events which could impact economic activity or the value of our properties in specific markets. The occurrence of any of these events or conditions may adversely impact our ability to lease our properties, including our or our tenants’ ability to obtain property insurance on acceptable terms, which would materially and adversely affect us.
We may suffer losses that are not covered by insurance or that are in excess of insured amounts.
Generally, each of our tenants is responsible for the cost of insuring the property it leases from us against customary losses (such as casualty, liability, fire and extended coverage) at a specified level or required to reimburse us for a portion of the cost of acquiring such insurance. However, it is possible that we will incur losses in excess of insured amounts. Additionally, there are types of losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, that are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. It is possible that mortgage lenders may require us to purchase additional insurance covering acts of terrorism and additional costs associated therewith may be significant and likely would not be paid for by our tenants. Additionally, to the extent such insurance is either unavailable or prohibitively expensive it could inhibit our ability to finance or refinance our properties. In these instances, we may be required to provide other financial support, either through financial assurances or self-insurance.
Inflation, changes in building codes and ordinances, environmental considerations and other factors may make any insurance proceeds we receive insufficient to repair or replace a property if it is damaged or destroyed. In that situation, the insurance proceeds received may not be adequate to restore our economic position with respect to the affected property. Furthermore, in the event we experience a substantial or comprehensive loss at one of our properties, we may not be able to rebuild such property to its pre-loss
 
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specifications without capital expenditures in excess of any insurance proceeds, as repair or reconstruction of the property may require significant upgrades to meet current zoning and building code requirements.
Risks Related to Our Indebtedness
Our cash flows and operating results could be adversely affected by required payments of debt or related interest and other risks of our debt financing.
We are generally subject to risks associated with debt financing. These risks include: (1) our cash flow may not be sufficient to satisfy required payments of principal and interest; (2) we may not be able to refinance existing indebtedness or the terms of the refinancing may be less favorable to us than the terms of existing debt; (3) required debt payments are not reduced if the economic performance of any property declines; (4) debt service obligations could reduce cash available for distribution to our shareholders and funds available for investment; (5) any default on our indebtedness could result in acceleration of those obligations and possible loss of property to foreclosure; and (6) the risk that necessary capital expenditures cannot be financed on favorable terms. If a property is pledged to secure payment of indebtedness and we cannot make the applicable debt payments, we may have to surrender the property to the lender with a consequent loss of any prospective income and equity value from such property.
We may incur substantial indebtedness.
Our organizational documents do not place any limitation on the amount of indebtedness that we may incur, and it is possible that we could incur substantial indebtedness in the future. Upon completion of this offering and the application of a portion of the net proceeds to repay amounts outstanding under the M&T Credit Facility and the Mezzanine Loan, we expect to have $      of total consolidated indebtedness, or $      on an expected post-syndication pro rata basis, resulting in a pro forma consolidated debt-to-capitalization ratio of    %, or    % on an expected post-syndication pro rata basis (based on the midpoint of the price range set forth on the cover page of this prospectus). However, we expect to borrow funds to acquire additional properties and we may borrow for other purposes, such as financing distributions (including those necessary to satisfy the REIT distribution requirements under the Code) or capital expenditures. Such borrowings may be secured or unsecured, and there is no limitation on the amount we may borrow in the aggregate or against any individual property. We expect to have the undrawn $300 million New Credit Facility that we may use to, among other things, fund additional acquisitions.
Additionally, we may provide full or partial guarantees of mortgage debt incurred by our subsidiaries that own the mortgaged properties. Under these circumstances, we will be responsible to the lender for satisfaction of the debt if it is not paid by our subsidiary. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties.
Our use of indebtedness could have important consequences to us. For example, it could: (1) result in the acceleration of a significant amount of debt for non-compliance with the terms of such debt or, if such debt contains cross-default or cross-acceleration provisions, other debt; (2) result in the loss of assets, including individual properties or portfolios, due to foreclosure or sale on unfavorable terms, which could create taxable income without accompanying cash proceeds; (3) materially impair our ability to borrow unused amounts under existing financing arrangements or to obtain additional financing or refinancing on favorable terms or at all; (4) require us to dedicate a substantial portion of our cash flow to paying principal and interest on our indebtedness, reducing the cash flow available to fund our business, to make distributions, including those necessary to maintain our REIT qualification, or to use for other purposes; (5) increase our vulnerability to an economic downturn; (6) limit our ability to withstand competitive pressures; or (7) reduce our flexibility to respond to changing business and economic conditions.
Secured indebtedness exposes us to the possibility of foreclosure on our ownership interests in pledged properties.
Incurring mortgage and other secured indebtedness increases our risk of loss of our ownership interests in the pledged property because defaults thereunder, and the inability to refinance such indebtedness, may result in foreclosure action initiated by lenders. As of November 15, 2021, 117 of our 154 properties were encumbered with mortgages. Incurring mortgage debt increases the risk of loss of a property since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the
 
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property securing the loan that is in default, thus reducing the value of your investment. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the loan secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage loans to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the loan if it is not paid by such entity. If any mortgage contains cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our shareholders may be adversely affected.
Covenants in our credit facility and our mortgages may restrict our operating activities and adversely affect our financial condition.
The New Credit Facility will contain, our mortgages currently contain and future debt agreements may contain, financial and/or operating covenants, including, among other things, certain coverage ratios, borrowing base requirements, net worth requirements and limitations on our ability to make distributions. These covenants may limit our operational flexibility and acquisition and disposition activities. Moreover, if any of the covenants in these debt agreements are breached and not cured within the applicable cure period, we could be required to repay the debt immediately, even in the absence of a payment default.
High interest rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make to our shareholders.
We may be unable to finance or refinance our properties on favorable terms or at all. If interest rates are higher when we desire to mortgage a property or when existing loans mature we may not be able to obtain suitable mortgage financing or refinance existing indebtedness. If we are unable to refinance existing indebtedness with replacement debt we may be required to repay a portion of the maturing indebtedness with cash. Our inability to access debt capital on attractive terms to finance new investments or to refinance maturing indebtedness could reduce the number of properties we can acquire and our cash flows. Higher costs of capital also could negatively impact cash flows and returns on our investments.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Upon completion of this offering, we expect to have a $300 million New Credit Facility. Amounts outstanding under the New Credit Facility will bear interest at variable rates. Variable rate borrowings expose us to increased interest expense in a rising interest rate environment. Additionally, in the future, we may incur substantial additional indebtedness that bears interest at variable rates. If interest rates were to increase, our debt service obligations on variable rate indebtedness would increase even though the amount borrowed remained the same, and our cash flows would correspondingly decrease.
Interest-only indebtedness may increase our risk of default and ultimately may reduce our cash available for distribution.
We may finance our property acquisitions using interest-only mortgage indebtedness. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan.
Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the property. At the time the balloon payment is due, we may or may not be able to refinance the loan on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment.
 
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Offerings of debt securities or equity securities that rank senior to our common shares may adversely affect the market price of our common shares.
If we decide to issue debt securities or equity securities that rank senior to our common shares in the future, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Any debt or equity securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common shares and, if such securities are convertible or exchangeable, the issuance of such securities may result in dilution to owners of our common shares. 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 our common shares will bear the risk of our future offerings reducing the market price of our common shares and diluting the value of their shareholdings in us.
To hedge against interest rate fluctuations, we may use derivative financial instruments that may be costly.
We currently use derivative instruments to hedge our exposure to changes in interest rates, and we may choose to do so in the future. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Future hedging decisions will depend of prevailing facts and circumstances and at any point in time we may choose to hedge some, all or none of our variable interest rate exposure.
To the extent that we choose to use derivative financial instruments to hedge against interest rate fluctuations in the future, we will be exposed to credit risk, basis risk and legal enforceability risks. Credit risk refers to the potential failure of our counterparty to perform its obligations under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty generally owes us a payment, which creates credit risk for us. Basis risk occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby potentially making the hedge less effective. Finally, legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract.
Making bridge and other loans subjects us to credit risk and could adversely affect us.
We may make bridge and other loans related to net lease properties. However, these loans will subject us to credit risk and there could be defaults under these loans. Defaults may be caused by many factors beyond our control, including local and other economic conditions affecting real estate values, interest rate changes, rezoning and the failure by the borrower to develop the property. If there is a default under one of these loans, the value of our investment in the loan could be impaired or lost in its entirety. In addition, if such a loan is secured by a mortgage on the related property, we may be delayed in a foreclosure action and any sale of the mortgaged property may generate less net proceeds than we were owed under the defaulted loan.
Risks Related to Our Organization and Structure
We have identified a material weakness in internal control over financial reporting, which could, if not remediated, materially and adversely affect us.
In connection with its audit of our financial statements for the year ended December 31, 2020, BDO USA, LLP, our independent registered public accounting firm, identified a material weakness in internal control over financial reporting. Under the standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness related to insufficient internal controls and oversight of the processes and procedures over the accounting treatment of non-routine transactions and application of guidance for complex financial instruments, due to the lack of sufficient number of accounting personnel with an appropriate level of expertise in the complex accounting matters. While we have begun remedial measures, including recently hiring new accounting
 
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personnel who bring additional technical expertise in complex accounting transactions, we cannot assure you if the remediation will be effective, and there can be no guarantee that we will not identify material weaknesses in the future.
In connection with our ongoing monitoring of our internal control over financial reporting or audits of our financial statements, we or our auditors may identify additional deficiencies in our internal control over financial reporting that may be significant or rise to the level of material weaknesses. Any failure to maintain effective internal control over financial reporting or to timely effect any necessary improvements to such controls could harm our operating results or cause us to fail to meet our reporting obligations (which could affect the listing of our common shares on the NYSE). Additionally, ineffective internal control over financial reporting could also adversely affect our ability to prevent or detect fraud, harm our reputation and cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common shares.
We are a holding company with no direct operations and will rely on funds received from the Operating Partnership to pay liabilities and make any distributions declared by our board of trustees.
We are a holding company and conduct substantially all of our operations directly and indirectly through the Operating Partnership. We will not have any significant operations or, apart from our interest in the Operating Partnership, any significant assets. As a result, we will rely on distributions from the Operating Partnership to pay any distributions that our board of trustees declares on our common shares. We will also rely on distributions from the Operating Partnership to meet any of our obligations, including any tax liability on taxable income allocated to us from the Operating Partnership. In addition, because we are a holding company, your claims as shareholders will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) or any preferred equity of the Operating Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of the Operating Partnership and its subsidiaries will be able to satisfy the claims of our shareholders only after all of our and the Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.
We own 93.6% of the interests in the Operating Partnership as of September 30, 2021. However, in connection with our future acquisition of properties or otherwise, we may issue OP units to third parties. Such issuances would reduce our ownership in the Operating Partnership. Because you will not directly own OP units, you will not have any voting rights with respect to any such issuances or other partnership level activities of the Operating Partnership.
Conflicts of interest could arise between the interests of our shareholders and the interests of holders of OP units, which may impede business decisions that could benefit our shareholders.
Conflicts of interest could arise as a result of the relationships between us, on the one hand, and the Operating Partnership or any limited partner thereof, on the other. Our trustees and officers have duties to us and our shareholders under applicable Maryland law in connection with their management of the company. At the same time, we, as the sole general partner of the Operating Partnership, have fiduciary duties and obligations to the Operating Partnership and its limited partners under Delaware law and the Partnership Agreement (as defined herein) of the Operating Partnership in connection with the management of the Operating Partnership. Our duties as the sole general partner to the Operating Partnership and its partners may come into conflict with the duties of our trustees and officers to the company and our shareholders. These conflicts may be resolved in a manner that is not in the best interests of our shareholders.
The limit on the number of shares a person may own may discourage a takeover that could otherwise result in a premium price to our shareholders.
Our charter, with certain exceptions, authorizes our trustees to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exception is granted by our board of trustees, no person may (1) beneficially own more than 9.8% in value or in number, whichever is more restrictive, of (a) our outstanding common shares or (b) our aggregate outstanding shares of beneficial interest, or (2) constructively own more than 9.8% in value or in number, whichever is more restrictive, of any class or series of our outstanding shares of beneficial interest. These restrictions may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or
 
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substantially all of our assets) that might provide a premium to the purchase price of our shares for our shareholders. See the “Description of Securities—Restrictions on Ownership and Transfer” section of this prospectus.
Our charter permits our board of trustees to issue shares with terms that may subordinate the rights of shareholders or discourage a third-party from acquiring us in a manner that might result in a premium price to our shareholders.
Our charter permits our board of trustees to issue up to 600,000,000 shares of beneficial interest, including 87,547,309 preferred shares. In addition, our board of trustees, without any action by our shareholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of shares of beneficial interest that we have authority to issue. Our board of trustees may classify or reclassify any unissued common shares or preferred shares and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of any such shares of beneficial interest. See “Description of Securities—Shares of Beneficial Interest.” As a result, we may issue one or more series or classes of common shares or preferred shares with preferences, dividends, powers and rights, voting or otherwise, that are senior to the rights of our common shareholders. Although our board of trustees has no such intention at the present time, it could establish a class or series of common shares or preferred shares that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders. We do not have a shareholders rights plan but our board of trustees could adopt one without the approval of our shareholders. If our board of trustees adopts a shareholder rights plan in the future, it must seek ratification from our shareholders within 12 months of adoption of the plan for the plan to remain in effect. Adoption of such a shareholder rights plan could delay, defer or prevent a transaction or a change of control that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.
Our board of trustees may change our investment and financing policies without shareholder approval, and we may become more highly leveraged, which may increase our risk of default under our debt obligations.
Our investment and financing policies are exclusively determined by our board of trustees. Accordingly, our shareholders do not control these policies. Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our board of trustees may adopt, alter or eliminate leverage policies at any time without shareholder approval. We could become more highly leveraged, which could result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes to our policies with regards to the foregoing could materially and adversely affect us.
We are an emerging growth company, and the reduced reporting requirements applicable to emerging growth companies may make our common shares less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act. We will remain an “emerging growth company” until the earliest to occur of:

the last day of the fiscal year during which our total annual revenue equals or exceeds $1.07 billion (subject to adjustment for inflation);

the last day of the fiscal year following the fifth anniversary of this offering;

the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; or

the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the market value of our common shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.
We may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including but not limited to, not being required to comply
 
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with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy or information statements, exemptions from the requirements of holding a non-binding advisory vote on executive compensation and seeking shareholder approval of any golden parachute payments not previously approved and an extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our per share trading price may be adversely affected and more volatile.
Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limit your ability to dispose of your shares.
Under the Maryland Business Combinations Act, “business combinations” between a Maryland trust and an interested shareholder or an affiliate of an interested shareholder are prohibited for five years after the most recent date on which the interested shareholder becomes an interested shareholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified under Maryland Law, an asset transfer or issuance or reclassification of equity securities. An interested shareholder is defined as:

any person who beneficially owns 10% or more of the voting power of the Maryland trust’s shares; or

an affiliate or associate of the Maryland trust who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting shares of the Maryland trust.
A person is not an interested shareholder under the statute if the board of trustees approved in advance the transaction by which he or she otherwise would have become an interested shareholder. However, in approving a transaction, the board of trustees may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board of trustees.
After the five-year prohibition, any business combination between the Maryland trust and an interested shareholder generally must be recommended by the board of trustees of the trust and approved by the affirmative vote of at least:

80% of the votes entitled to be cast by holders of outstanding shares of beneficial interest of the trust; and

two-thirds of the votes entitled to be cast by holders of voting shares of beneficial interest other than shares held by the interested shareholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested shareholder.
These super-majority vote requirements do not apply if the trust’s shareholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested shareholder for its shares. The business combination statute permits various exemptions from its provisions, including business combinations that are exempted by the board of trustees prior to the time that the interested shareholder becomes an interested shareholder. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.
As permitted by Maryland law, our board of trustees has adopted a resolution exempting any business combinations between us and any other person or entity from the Maryland Business Combinations Act, and we may not opt in to the provisions of the Maryland Business Combinations Act without the approval of our shareholders. See “Certain Provisions of Maryland Law and of Our Charter and Bylaws—Business Combinations.”
Maryland law also limits the ability of a third-party to buy a large percentage of our outstanding shares and exercise voting control in electing trustees.
The Maryland Control Share Acquisition Act provides that “control shares” of a Maryland trust acquired in a “control share acquisition” have no voting rights except to the extent approved by the trust’s disinterested
 
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shareholders by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of beneficial interest owned by interested shareholders, that is, by the acquirer, or officers of the trust or employees of the trust who are trustees of the Maryland trust, are excluded from shares entitled to vote on the matter. “Control shares” are voting shares of beneficial interest that would entitle the acquirer, except solely by virtue of a revocable proxy, to exercise voting control in electing trustees within specified ranges of voting control. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained shareholder approval. Except as otherwise specified in the statute, a “control share acquisition” means the acquisition of issued and outstanding control shares. The control share acquisition statute does not apply (1) to shares acquired in a merger, consolidation or share exchange if the trust is a party to the transaction or (2) to acquisitions approved or exempted by the charter or bylaws of the trust. This statute could have the effect of discouraging offers from third parties to acquire us and increasing the difficulty of successfully completing this type of offer by anyone. Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any acquisition by any person of our shares of beneficial interest. We may not opt in to the provisions of the Maryland Control Share Acquisition Act without the approval of our shareholders. For a more detailed discussion on the Maryland laws governing control share acquisitions, see “Certain Provisions of Maryland Law and of Our Charter and Bylaws—Control Share Acquisitions.”
Our board of trustees may enact certain anti-takeover measures under Maryland law, subject to the approval of our shareholders.
Maryland law permits a board of trustees of a REIT to implement certain takeover defenses, including increasing the vote required to remove a trustee. Our board of trustees may implement such defenses only with the affirmative vote of a majority of the votes cast on the matter by our shareholders entitled to vote generally in the election of trustees. Additionally, Maryland law allows a REIT’s board of trustees to adopt a shareholder rights plan without the approval of its shareholders. We currently do not have a shareholder rights plan, however, our board of trustees could adopt one without the approval of our shareholders. If our board of trustees adopts a shareholder rights plan in the future, it must seek ratification from our shareholders within 12 months of adoption of the plan for the plan to remain in effect. If implemented, these provisions may have the effect of inhibiting a third-party from making an acquisition proposal for the company or of delaying, deferring or preventing a change in control of the company under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then-current market price of such common shares. See “Certain Provisions of Maryland Law and of Our Charter and Bylaws—Subtitle 8.”
Our rights and the rights of our shareholders to recover claims against our officers and trustees are limited.
Maryland law provides that a trustee has no liability in that capacity if he or she performs his or her duties in good faith, acts without willful misfeasance, is not grossly negligent and has not acted with reckless disregard of his or her duties. Our charter requires us, subject to certain exceptions, to indemnify and advance expenses to our trustees and officers. Our charter also permits us to provide such indemnification and advance for expenses to our employees and agents. Additionally, our charter limits, subject to certain exceptions, the liability of our trustees and officers to us and our shareholders for monetary damages. Although our charter does not allow us to indemnify our trustees for any liability or loss suffered by them or hold harmless our trustees for any loss or liability suffered by us to a greater extent than permitted under Maryland law, we and our shareholders may have more limited rights against our trustees, officers, employees and agents, than might otherwise exist under common law, which could reduce your and our recovery against them. In addition, we may be obligated to fund the defense costs incurred by our trustees, officers, employees and agents.
Termination of the employment agreements with certain members of our senior management team could be costly, and the terms of the employment agreements may make a change in control of the company less attractive.
We are party to an employment agreement with each of Messrs. Dioguardi, Johnson, Warch and Morgan and Ms. Daly. These agreements provide that if the employment of these individuals is terminated under certain circumstances (including in connection with a change in control of the company), we may be required to pay them significant amounts of severance compensation. Furthermore, these provisions could delay or prevent a transaction or a change in control of the company that might involve a premium over the then-prevailing market price of our common shares or otherwise be in the best interests of our shareholders.
 
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Risks Related to this Offering and Ownership of Our Common Shares
The cash available for distribution to shareholders may not be sufficient to pay distributions at expected levels, nor can we assure you of our ability to make, maintain or increase distributions in the future. We may pay distributions from sources other than cash flow from operations, including borrowed funds, proceeds from asset sales or net proceeds from securities offerings.
Our expected annual distributions for the 12 months ending September 30, 2022 of $      per common share are expected to be approximately    % of estimated cash available for distribution (or    % of estimated cash available for distribution if the underwriters exercise their option to purchase additional shares in full). Because our estimated annual distribution to common shareholders for the 12 months ending September 30, 2022 exceeds our estimated cash available for distribution, if our operating cash flow does not increase we may have to fund distributions from borrowings under the New Credit Facility or other loans, selling certain of our assets or using a portion of the net proceeds from this offering or reduce such distributions. To the extent we use funds from these sources to fund our distributions, our financial condition and our ability to access these funds for other purposes, such as for the acquisition of properties or future distributions, could be adversely affected. See “Distribution Policy.” All distributions will be made at the discretion of our board of trustees and will depend on our earnings, cash flows, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness, the annual distribution requirements under the REIT provisions of the Code, state law and such other factors as our board of trustees considers relevant. With limited prior operating history, we cannot assure you that we will be able to pay our expected annual distribution or that any distribution rate will increase over time. In addition, some of our distributions may include a return of capital. To the extent that we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for federal income tax purposes to the extent of the holder’s adjusted tax basis in their shares. A return of capital is not taxable, but it has the effect of reducing the holder’s adjusted tax basis in its investment. To the extent that distributions exceed the adjusted tax basis of a holder’s shares, they will be treated as gain from the sale or exchange of such shares. See “Certain U.S. Federal Income Tax Considerations—Taxation of Shareholders.” If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been. In addition, we may make distributions with proceeds from asset sales or the net proceeds from securities offerings, which may reduce the amount of capital we have available to invest in our business and adversely affect us.
There is no existing market for our common shares, an active trading market for our common shares may not develop and the market price for our common shares may decline substantially and be volatile.
Prior to this offering, there has been no public market for our common shares. Although we expect to have our common shares listed on the NYSE, under the symbol “FSPR,” we cannot predict the extent to which a trading market will develop or how liquid that market will become. An active trading market may not develop upon completion of this offering and, if it does develop, it may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The initial public offering price of our common shares will be determined by negotiation among us and the representatives of the underwriters and may not be representative of the price that will prevail in the open market after this offering. See “Underwriting” for a discussion of the factors that were considered in determining the initial public offering price.
The market price of our common shares after this offering may be significantly affected by factors including, among others:

actual or anticipated variations in our results of operations;

changes in government regulations;

changes in laws affecting REITs and related tax matters;

the announcement of new contracts by us or our competitors;

general market conditions specific to our industry;
 
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changes in general economic conditions;

unanticipated increases in interest rates;

volatility in the financial markets;

actions by institutional shareholders;

general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies);

additions or departures of key management personnel;

differences between our actual financial and operating results and those expected by investors and analysts;

changes in analysts’ recommendations or projections; and

the realization of any of the other risk factors presented in this prospectus.
As a result, our common shares may trade at prices significantly below the public offering price.
Furthermore, in recent years, the stock market in general, securities listed on the NYSE and securities issued by REITs in particular have experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our common shares could fluctuate based upon factors that have little or nothing to do with us in particular, and these fluctuations could materially reduce the price of our common shares and materially affect the value of your investment.
Because we have not identified any specific properties to acquire with the net proceeds from this offering remaining after repaying amounts outstanding under the M&T Credit Facility and the Mezzanine Loan, you will be unable to evaluate the economic merits of investments we may make with such net proceeds before deciding to purchase our common shares.
We will have broad authority to invest the net proceeds from this offering not used to repay amounts outstanding under the M&T Credit Facility and the Mezzanine Loan in any property investments that we may identify in the future, and we may make investments with which you do not agree. You will be unable to evaluate the economic merits of any such investments before we make them and will be relying on our ability to select attractive investment properties. We also will have broad discretion in implementing policies regarding tenant creditworthiness, and you will not have the opportunity to evaluate potential tenants. In addition, our investment policies may be amended or revised from time to time at the discretion of our board of trustees, without a vote of our shareholders. These factors will increase the uncertainty and the risk of investing in our common shares.
We intend to use a portion of the net proceeds from this offering to, among other things, acquire properties and lease them on a long-term net lease basis; we cannot assure you that we will be able to do so on a profitable basis. Our failure to apply such net proceeds effectively or to find suitable properties to acquire in a timely manner or on acceptable terms could result in losses or returns that are substantially below expectations.
A substantial portion of our total outstanding common shares may be sold into the market at any time following this offering. This could cause the market price of our common shares to drop significantly, even if our business is doing well, and make it difficult to for us to sell equity securities in the future.
The market price of our common shares could decline as a result of sales of a large number of common shares or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it difficult for us to sell equity securities in the future at times or prices that we deem appropriate. After the consummation of this offering, we will have           common shares outstanding. See “Shares Eligible for Future Sale” and “Certain Relationships and Related Party Transactions” for a more detailed description of the common shares that will be available for future sale upon completion of this offering.
 
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Subject to certain exceptions, we, our executive officers, trustees, GSAM and Carlyle have agreed that, without the prior written consent of the representatives on behalf of the underwriters, we and they will not, and will not publicly disclose an intention to, during the period ending 180 days after the date of this prospectus: (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any common shares or any securities convertible into or exercisable or exchangeable for common shares; (2) file any registration statement with the SEC relating to the offering of any common shares or any securities convertible into or exercisable or exchangeable for common shares; or (3) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common shares, whether any such transaction described above is to be settled by delivery of common shares or such other securities, in cash or otherwise. In addition, our shareholders holding substantially all of our other common shares outstanding immediately prior to the completion of this offering may not to effect any offer, sale or distribution of any common shares or any option or right to acquire common shares, for 180 days after the date of this prospectus, without first obtaining our consent. We have agreed not to provide this consent without first obtaining the written consent of the representatives. When this lock-up period expires, our locked-up security holders will be able to sell our common shares in the public market. Sales of a substantial number of such shares upon expiration of this lock up, or the perception that such sales may occur, could cause our per share trading price to fall or make it more difficult for you to sell your common shares at a time and price that you deem appropriate.
If you purchase our common shares in this offering, you will suffer immediate and substantial dilution.
The initial public offering price of our common shares is expected to be substantially higher than the pro forma net tangible book value per share immediately after this offering. Therefore, if you purchase common shares in this offering, your interest will be diluted immediately to the extent of the difference between the initial public offering price per common share and the pro forma net tangible book value per common share after this offering. See “Dilution.”
If we raise additional capital through the issuance of new equity securities, your interest in us will be diluted.
We may have to issue additional equity securities periodically to finance our growth. If we raise additional capital through the issuance of new equity securities, your interest in us will be diluted, which could cause you to lose all or a portion of your investment. In addition, any new securities we may issue, such as preferred shares, may have rights, preferences or privileges senior to those securities held by you.
If securities analysts do not publish research or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade the outlook of our common shares, the price of our common shares could decline.
The trading market for our common shares will depend, in part, on the research and reports that third-party securities analysts publish about us and our industry. One or more analysts could downgrade the outlook of our common shares or issue other negative commentary about us or our industry. In addition, we may be unable to obtain or slow to attract research coverage. As a result of one or more of these factors, the trading price of our common shares could decline.
Legislative or regulatory action could adversely affect purchasers of our common shares.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the federal income tax laws applicable to investments similar to an investment in our common shares. Changes are likely to continue to occur in the future, and these changes could adversely affect our shareholders’ investment in our common shares. These changes include but are not limited to the reduction or elimination of the corporate income tax under the Code or repeal or revisions to the tax exemptions provided by Section 1031 under the Code, which would adversely affect the Section 1031 Exchange Program. Any of these changes could have an adverse effect on an investment in our common shares or on the market price or resale potential of our common shares. Shareholders are urged to consult with their own tax advisor with respect to the impact that recent legislation may have on their investment and the status of legislative, regulatory or administrative developments and proposals and their potential effect on their investment in our shares.
 
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Participants in our directed share program must hold their shares for a minimum of 180 days following the date of this prospectus and, accordingly, will be subject to market risks not imposed on other investors in the offering.
At our request, the underwriters have reserved    % of the common shares to be issued by us and offered by this prospectus for sale, at the initial public offering price, to trustees, officers, employees, business associates and related persons. If purchased by these persons, these shares will be subject to a 180-day lock-up restriction. As a result of the lockup restriction, these purchasers may face risks not faced by other investors who have the right to sell their shares at any time following the offering. These risks include the market risk of holding our shares during the period that such restrictions are in effect. In addition, the price of our common shares may decrease following the expiration of the lockup period if there is an increase in the number of shares for sale in the market.
Risks Related to Our Tax Status and Other Tax Related Matters
We would incur adverse tax consequences if we fail to qualify as a REIT.
We have elected to be taxed as a REIT under the Code. Our qualification as a REIT requires us to satisfy numerous requirements, some on an annual and quarterly basis, established under highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations, and which involves the determination of various factual matters and circumstances not entirely within our control. We expect that our current organization and methods of operation will enable us to continue to qualify as a REIT, but we may not so qualify or we may not be able to remain so qualified in the future. In addition, U.S. federal income tax laws governing REITs and other corporations and the administrative interpretations of those laws may be amended at any time, potentially with retroactive effect. Future legislation, new regulations, administrative interpretations or court decisions could adversely affect our ability to qualify as a REIT or adversely affect our shareholders.
If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate rates, and would not be allowed to deduct dividends paid to our shareholders in computing our taxable income. Also, unless the IRS granted us relief under certain statutory provisions, we could not re-elect REIT status until the fifth calendar year after the year in which we first failed to qualify as a REIT. The additional tax liability from the failure to qualify as a REIT would reduce or eliminate the amount of cash available for investment or distribution to our shareholders. This would likely have a significant adverse effect on the value of our securities and our ability to raise additional capital. In addition, we would no longer be required to make distributions to our shareholders. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property.
Complying with REIT requirements may cause us to liquidate or forgo otherwise attractive investment opportunities.
To qualify as a REIT, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and “real estate assets” ​(as defined in the Code), including certain mortgage loans and securities. The remainder of our investments (other than government securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets (other than government securities, qualified real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of one or more TRSs. See “Certain U.S. Federal Income Tax Considerations.” If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate or forgo otherwise attractive investment opportunities. These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.
In addition to the asset tests set forth above, to qualify as a REIT we must continually satisfy tests concerning, among other things, the sources of our income, the amounts we distribute to our shareholders and the
 
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ownership of our shares. We may be unable to pursue investment opportunities that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. We also may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution. As a result, having to comply with the distribution requirement could cause us to: (1) sell assets in adverse market conditions; (2) borrow on unfavorable terms; or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt. Thus, compliance with the REIT requirements may materially adversely affect us and hinder our ability to make certain attractive investments.
To continue to qualify as a REIT, we generally must distribute to our shareholders at least 90% of our REIT taxable income each year, determined without regard to the dividends-paid deduction and excluding any net capital gains, and we will be subject to corporate income tax on our undistributed taxable income to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends-paid deduction and including any net capital gains, each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
Re-characterization of sale-leaseback transactions may cause us to lose our REIT status.
We may purchase real properties and lease them back to the sellers of such real properties. The IRS could challenge our characterization of certain leases in any such sale-leaseback transactions as “true leases,” which allows us to be treated as the owner of the property for federal income tax purposes. In the event that any sale-leaseback transaction is challenged and re-characterized as a financing transaction or loan for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed, which could affect the calculation of our REIT taxable income and could cause us to fail the REIT distribution test that requires a REIT to distribute at least 90% of its REIT taxable income, determined without regard to the dividends-paid deduction and excluding any net capital gain. In this circumstance, we may elect to distribute an additional dividend of the increased taxable income so as not to fail the REIT distribution test. This distribution would be paid to all shareholders at the time of declaration rather than the shareholders existing in the taxable year affected by the re-characterization. If a sale-leaseback transaction were so re-characterized, we might fail to satisfy the REIT qualification “asset tests” or the “income tests” and, consequently, lose our REIT status effective with the year of re-characterization.
Dividends paid by REITs generally do not qualify for reduced tax rates.
In general, the maximum U.S. federal income tax rate for dividends that constitute “qualified dividend income” paid to individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for this reduced rate. Under the Tax Cuts and Jobs Act of 2017 (the “TCJA”), however, domestic shareholders that are individuals, trusts and estates generally may deduct up to 20% of the ordinary dividends (e.g., dividends not designated as capital gain dividends or qualified dividend income) received from a REIT for taxable years beginning after December 31, 2017 and before January 1, 2026. To qualify for this deduction, the domestic shareholder receiving such dividends must hold the dividend-paying REIT stock for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the stock becomes ex-dividend and cannot be under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to a position in substantially similar or related property. Although this deduction reduces the effective U.S. federal income tax rate applicable to such dividends paid by REITs (generally to 29.6% assuming the shareholder is subject to the 37% maximum rate), such tax rate is still higher than the tax rate applicable to corporate dividends that constitute qualified dividend income. Although these rules do not adversely affect the taxation of REITs or dividends payable by REITs, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT corporations that pay dividends, which could materially and adversely affect the value of the shares of REITs, including the per share trading price of our common shares.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Any income from a hedging transaction that we enter into to manage the risk of interest rate changes with respect to
 
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borrowings made or to be made to acquire or carry real estate assets, or from certain terminations of such hedging positions, does not constitute “gross income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. To the extent that we enter into other types of hedging transactions or fail to properly identify such transaction as a hedge, the income is likely to be treated as non-qualifying income for purposes of both of the gross income tests. See “Certain U.S. Federal Income Tax Considerations.” As a result of these rules, we may be required to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs may be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRSs will generally not provide any tax benefit, except that such losses could theoretically be carried back or forward against past or future taxable income in the TRS.
Certain property transfers may generate prohibited transaction income, resulting in a penalty tax on gain attributable to the transaction.
From time to time, we may transfer or otherwise dispose of some of our properties. Under the Code, any gain resulting from transfers of properties that we hold as inventory or primarily for sale to customers in the ordinary course of business would be treated as income from a prohibited transaction and subject to a 100% penalty tax. Since we acquire properties for investment purposes, we do not believe that our occasional transfers or disposals of property are prohibited transactions. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The IRS may contend that certain transfers or disposals of properties by us are prohibited transactions. If the IRS were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction and we may jeopardize our ability to retain future gains on real property sales.
We could face possible state and local tax audits and adverse changes in state and local tax laws.
As discussed in the risk factors above, because we are organized and qualify as a REIT, we are generally not subject to federal income taxes, but we are subject to certain state and local taxes. From time to time, changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability. A shortfall in tax revenues for states and municipalities in which we own properties may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional state and local taxes. These increased tax costs could adversely affect our financial condition and the amount of cash available for the payment of distributions to our shareholders. In the normal course of business, entities through which we own real estate may also become subject to tax audits. If such entities become subject to state or local tax audits, the ultimate result of such audits could have an adverse effect on our financial condition.
Legislative or other actions affecting REITs could materially and adversely affect us and our investors as well as the Operating Partnership.
The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws (including in the context of a fundamental U.S. income tax reform), with or without retroactive application, could materially and adversely affect us and our investors as well as the Operating Partnership. We cannot predict how changes in the tax laws might affect it or its investors. New legislation, U.S. Department of Treasury regulations (“Treasury Regulations”), administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the federal income tax consequences of such qualification. In addition, changes to the tax laws may reduce the attractiveness of REITs as investment vehicles relative to other investment vehicles.
If the Operating Partnership fails to maintain its status as a partnership, we would cease to qualify as a REIT and suffer other adverse consequences.
We intend to maintain the status of the Operating Partnership as a partnership for federal income tax purposes. However, if the IRS were to successfully challenge the status of the Operating Partnership as an entity taxable
 
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as a partnership, the Operating Partnership would be taxable as a corporation. In such event, this would reduce the amount of distributions that the Operating Partnership could make to us. This would also cause us to fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely lose our REIT status, and becoming subject to a corporate level tax on our income. This would substantially reduce the cash available to us to make distributions to you and the return on your investment and potentially change the character of our distributions to you. In addition, if any of the partnerships or limited liability companies through which the Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership for federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the Operating Partnership. Such a re-characterization of an underlying property owner also could threaten our ability to maintain REIT status.
Qualifying as a REIT involves highly technical and complex provisions of the Code.
Our qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT. Our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. Our ability to satisfy the REIT income and asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination and for which we will not obtain independent appraisals, and upon our ability to successfully manage the composition of our income and assets on an ongoing basis. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.
General Risk Factors
The requirements of being a public company may strain our resources, result in more litigation, and divert the attention of our management.
As a public company with listed equity securities, we will be required to comply with new laws, regulations and requirements, including the requirements of the Exchange Act, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” related regulations of the SEC, and requirements of the NYSE, with which we were not required to comply as a private company. The Exchange Act will require us to file annual, quarterly and current reports and other information with respect to our business and financial condition with the SEC. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting.
Section 404 of the Sarbanes-Oxley Act requires our management and independent auditors to report annually on the effectiveness of our internal control over financial reporting. However, we are an “emerging growth company,” as defined in the JOBS Act, and, so for as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, exemption from compliance with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include in our annual reports that we file with the SEC an opinion from our independent auditors on the effectiveness of our internal control over financial reporting.
These reporting and other obligations will place significant demands on our management, administrative, operational and accounting resources and will cause us to incur significant expenses. We may need to upgrade our systems or create new systems, implement additional financial and management controls, reporting systems and procedures, create or outsource an internal audit function, and hire additional accounting and finance staff. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that apply to reporting companies could be
 
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impaired, which could result in fines, delisting of our common shares or other disciplinary action from the SEC, the NYSE or other regulatory bodies.
Changes in accounting standards may materially and adversely affect us.
From time to time the Financial Accounting Standards Board (“FASB”) or the SEC may change financial accounting and reporting standards or the interpretation and application thereof. These changes could materially and adversely affect our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in revising prior period financial statements. Similarly, these changes could materially and adversely affect our tenants’ reported financial condition and results of operations and affect their willingness to lease as opposed to own real estate.
We face risks relating to cybersecurity attacks that could cause loss of confidential information and other business disruptions.
We rely extensively on computer systems to process transactions and manage our business, and our business is at risk from and may be impacted by cybersecurity attacks. These could include attempts to gain unauthorized access to our data and computer systems. Attacks can be both individual and/or highly organized attempts organized by very sophisticated hacking organizations. We employ a number of measures to prevent, detect and mitigate these threats, which include password protection, firewall protection systems, frequent backups, and a redundant data system for core applications; however, there is no guarantee such efforts will be successful in preventing a cybersecurity attack. A cybersecurity attack could compromise our confidential information as well as that of our employees, tenants and vendors. A successful attack could disrupt and affect our business operations.
The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and make additional investments.
We intend to diversify our cash and cash equivalents among several banking institutions in an attempt to minimize exposure to any one of these entities. However, the Federal Deposit Insurance Corporation only insures amounts up to $250,000 per depositor per insured bank. We likely will have cash (including restricted cash) and cash equivalents deposited in certain financial institutions in excess of federally insured levels. If any of the banking institutions in which we deposit funds ultimately fails, we may lose our deposits over $250,000. The loss of our deposits could reduce the amount of cash available for distribution to our shareholders or investment in new or existing properties.
 
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. In particular, statements pertaining to our business and growth strategies, investment and leasing activities and trends in our business, including trends in the market for long-term, net leases of freestanding, single-tenant properties contain forward-looking statements. When used in this prospectus, the words “estimate,” “anticipate,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “seek,” “approximately” or “plan,” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters, are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management.
Forward-looking statements involve numerous risks and uncertainties, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described in forward-looking statements will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

general business and economic conditions;

the impact of pandemics such as the recent outbreak of COVID-19 or other sudden or unforeseen events that disrupt the economy;

the performance and creditworthiness of our tenants;

availability of qualified personnel and our ability to retain our key management personnel;

availability of suitable properties to acquire and our ability to acquire and lease those properties on favorable terms;

the degree and nature of our competition;

volatility and uncertainty in the credit markets and broader financial markets, including potential fluctuations in the CPI;

other risks inherent in the real estate business, including tenant defaults or bankruptcies, potential liability relating to environmental matters, illiquidity of real estate investments, fluctuations in real estate values and the general economic climate in local markets, competition for tenants in such markets and potential damages from natural disasters;

ability to renew leases, lease vacant space or re-lease space as existing leases expire or are terminated;

our failure to generate sufficient cash flows to service our outstanding indebtedness;

our ability to access to debt and equity capital markets on attractive terms;

fluctuating interest rates;

changes in, or the failure or inability to comply with, government regulation, including Maryland laws;

failure to maintain our status as a REIT;

changes in the U.S. tax law and other U.S. laws, whether or not specific to REITs; and

additional factors discussed in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Our Business” in this prospectus.
You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this prospectus. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events, except as required by law. In light of these risks and uncertainties, the forward-looking events discussed in this prospectus might not occur as described, or at all.
 
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USE OF PROCEEDS
We estimate that the net proceeds to us from this offering will be approximately $      million after deducting the underwriting discounts and commissions and our other estimated offering expenses (assuming an initial public offering price of $      per share, which is the midpoint of the price range set forth on the cover page of this prospectus). If the underwriters exercise their option to purchase additional shares in full, we estimate the net proceeds to us will be approximately $      million. We will contribute the net proceeds from this offering to the Operating Partnership in exchange for a number of OP units that is equal to the number of common shares that we issue to investors in this offering.
The Operating Partnership will use a portion of the net proceeds from this offering to (1) consummate the 2021 Pending Acquisitions, (2) repay amounts outstanding under the M&T Credit Facility and (3) repay amounts outstanding under the Mezzanine Loan. The remaining net proceeds will be used to acquire additional properties and for general corporate purposes.
As of November 15, 2021, we had approximately $70.0 million outstanding under the M&T Credit Facility. The M&T Credit Facility matures on October 30, 2022. The M&T Credit Facility bears interest based on, at our option, (1) LIBOR, with a LIBOR floor of 1% on unhedged LIBOR, plus 2.50% to 2.75% per annum, or (2) the base rate plus 1.50% to 1.75% per annum, with the interest rate spread determined based on, at our election, LIBOR or base rate borrowings and the ratio of debt to value (2.58% as of November 15, 2021). As of November 15, 2021, we had approximately $89.0 million outstanding under the Mezzanine Loan. The Mezzanine Loan matures on October 30, 2025. The Mezzanine Loan bears interests at 11.5% per annum, of which 7.0% is to be paid in cash and 4.5% is capitalized.
Pending the use of the net proceeds from this offering as described above, we intend to invest such proceeds in interest-bearing, short-term investment-grade securities, money-market accounts or other investments that are consistent with our intention to maintain our qualification as a REIT for federal income tax purposes.
 
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DISTRIBUTION POLICY
Following completion of this offering, we intend to make regular monthly distributions to holders of our common shares, as more fully described below. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at the regular corporate rate to the extent that it annually distributes less than 100% of its REIT taxable income. In addition, a REIT will be required to pay a 4% nondeductible excise tax on the amount, if any, by which the distributions it makes in a calendar year are less than the sum of 85% of its ordinary income, 95% of its capital gain net income, and 100% of its undistributed income from prior years. For more information, see “Certain U.S. Federal Income Tax Considerations.” As a result, in order to satisfy the requirements for us to qualify and maintain our qualification as a REIT for U.S. federal income tax purposes and generally not be subject to U.S. federal income and excise tax, we intend to make regular monthly distributions of 100% of our REIT taxable income to holders of our common shares out of assets legally available therefor.
Although we anticipate initially making monthly distributions to our common shareholders, the timing, form and amount of distributions, if any, to our common shareholders, will be at the sole discretion of our board of trustees and will depend upon a number of factors, including:

our actual and projected results of operations;

our debt service requirements;

our liquidity and cash flows;

our capital expenditures;

our operating expenses;

our REIT taxable income;

the annual distribution requirement under the REIT provisions of the Code;

restrictions in any current or future debt agreements;

any contractual limitations;

applicable law, including restrictions on distributions under Maryland law; and

other factors that our board of trustees may deem relevant.
For more information regarding risk factors that could materially and adversely affect us and our ability to make cash distributions, see “Risk Factors—The cash available for distribution to shareholders may not be sufficient to pay distributions at expected levels, nor can we assure you of our ability to make, maintain or increase distributions in the future.” If our operations do not generate sufficient cash flow to enable us to pay our intended or required distributions, we may be required either to fund distributions from working capital, borrow or raise equity or reduce such distributions. In addition, our charter allows us to issue preferred shares that could have a preference on distributions and could limit our ability to make distributions to our shareholders.
While we intend to make regular monthly distributions to holders of our common shares any distributions will be at the sole discretion of our board of trustees, and we cannot guarantee that we will make distributions at the rate described below or at all. If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital, borrow funds, sell assets or reduce such distributions. Our actual results of operations will be affected by a number of factors, including the revenues we receive from our properties, our operating expenses, interest expense and unanticipated expenditures, among others. For more information regarding risk factors that could materially and adversely affect our actual results of operations, please see “Risk Factors.”
Our estimate of cash available for distribution for the twelve months ending September 30, 2022 has been calculated based on adjustments to the pro forma net income attributable to Four Springs Capital Trust for the twelve months ended September 30, 2021. This estimate was based on our pro forma operating results and does not take into account our growth strategy or intended use of proceeds to acquire rent-generating, net
 
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lease properties, nor does it take into account any unanticipated expenditures we may have to make or any debt we may have to incur. In estimating our cash available for distribution for the twelve months ending September 30, 2022, we have made certain assumptions as reflected in the table and footnotes below. Our estimate of cash available for distribution does not include the effect of any changes in our working capital. Our estimate also does not reflect the amount of cash estimated to be used for investing activities, including for acquisition and other activities. It also does not reflect the amount of cash estimated to be used for financing activities, other than scheduled debt principal payments on mortgage indebtedness that will be outstanding upon completion of this offering. Any such investing and/or financing activities may have a material effect on our estimate of cash available for distribution. Because we have made the assumptions set forth above in estimating cash available for distribution, we do not intend this estimate to be a projection or forecast of our actual results of operations or our liquidity, and we have estimated cash available for distribution for the sole purpose of determining our initial annual distribution rate. Our estimate of cash available for distribution should not be considered as an alternative to cash flow from operating activities (computed in accordance with GAAP). In addition, the methodology upon which we made the adjustments described below is not necessarily intended to be a basis for determining future dividends or other distributions.
We intend to make a pro rata distribution with respect to the period commencing upon completion of this offering and ending on December 31, 2021 based on a distribution rate of $      per common share for a full month. On an annualized basis, this would be $      per common share, or an annual distribution rate of approximately % based on the midpoint of the price range set forth on the cover page of this prospectus. We estimate that this initial annual distribution rate will represent approximately       % of our estimated cash available for distribution to shareholders for the twelve months ending September 30, 2022, based on the midpoint of the price range set forth on the cover of this prospectus. We do not intend to reduce the annualized distribution per share if the underwriters exercise their option to purchase additional shares. Our intended initial annual distribution rate has been established based on our estimate of cash available for distribution for the twelve months ending September 30, 2022, which we have calculated based on adjustments to our pro forma net income for the twelve months ended September 30, 2021. We believe that our estimate of cash available for distribution constitutes a reasonable basis for setting the initial distribution rate. However, we cannot assure you that our estimate will prove accurate, and actual distributions may therefore be significantly below the expected distributions. We intend to maintain our initial distribution rate for the 12-month period following the completion of this offering unless our actual or anticipated results of operations, cash flows or financial position, economic or market conditions or other factors differ materially from the assumptions used in our estimate.
The following table describes the pro forma net income attributable to Four Springs Capital Trust for the twelve months ended December 31, 2020, and the adjustments we have made thereto in order to estimate our initial cash available for distribution to the holders of our common shares for the twelve months ending September 30, 2022 ($ in thousands), and such information is provided solely for the purpose of illustrating the estimated initial distribution and is not intended to be a basis for future distributions.
Pro forma net income attributable to Four Springs Capital Trust for the year ended December 31, 2020
$
      
Less: Pro forma net income attributable to Four Springs Capital Trust for the nine months ended September 30, 2020
Add: Pro forma net income attributable to Four Springs Capital Trust for the nine months ended September 30, 2021
Pro forma net income attributable to Four Springs Capital Trust for the twelve months ended September 30, 2021
$
      
Add: estimated net increases in contractual rental revenue(1)
Add: real estate depreciation and amortization
Add: Non-cash impairment charges
Add: amortization of debt discount and deferred financing costs(2)
Less: net effect of non-cash rental revenue(3)
Less: Gain on sale of real estate
 
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Less: net increases in general and administrative expenses after giving effect to offering(4)
Estimated cash flows from operating activities attributable to Four Springs Capital Trust for the
twelve months ending September 30, 2022
Less: capital expenditures reserve(5)
Less: scheduled principal payments on mortgages and notes payable(6)
Estimated cash available for distribution attributable to Four Springs Capital Trust for the twelve months ending September 30, 2022
$
Total estimated initial annual distribution to Four Springs Capital Trust common shareholders and OP unit holders(7)
$
Estimated initial annual distribution per common share and per common OP unit
$
Estimated initial annual distribution per Series U1 OP units(8)
Estimated initial annual distribution per Series U2 OP units(9)
Payout ratio(10)
%
(1)
Represents annualized contractual increases in rental revenue:

scheduled fixed rent increases;

contractual increases based on changes in the CPI (including actual increases that have occurred from October 1, 2020 to
September 30, 2021); and

net increases from new leases or renewals that were not in effect for the entire twelve months ended September 30, 2021 or that will go into effect during the twelve months ending September 30, 2022 based upon leases entered into through           , 2021.
(2)
Represents non-cash interest expense included in pro forma net income attributable to Four Springs Capital Trust for the twelve months ended September 30, 2021 associated with:

the amortization of the debt premiums and discounts on our mortgage notes payable; and

the amortization of deferred financing costs on our mortgage notes payable and lines of credit.
(3)
Represents net non-cash rental revenues associated with the straight-line adjustment to rental revenue, and the amortization of favorable and unfavorable lease intangibles included in the pro forma net income attributable to Four Springs Capital Trust for the twelve months ended September 30, 2021.
(4)
We expect to incur incremental general and administrative expenses in connection with becoming a public reporting company. These expenses include expenses associated with compensation, annual and quarterly reporting, compliance expenses, expenses associated with listing on the NYSE and investor relations expenses.
(5)
Represents reserves for replacements estimated at $      per square foot at Four Springs Capital Trust’s share of leasable area of      square feet. This estimate is based on Four Spring Capital Trust’s due diligence review of historical levels of such expenditures, the age and condition of its properties, and its obligation to make such expenditures under the terms of the lease agreements.
(6)
Represents scheduled principal amortization during the twelve months ending September 30, 2022 for pro forma indebtedness outstanding as of September 30, 2021.
(7)
Based on a total of      common shares and        of OP units expected to be outstanding upon completion of this offering. This total is based on           shares outstanding as of September 30, 2021, after giving effect to the automatic conversion of all (a) 200,015 outstanding non-participating common shares into      common shares at a rate of one common share for every one non-participating common share and (b)      outstanding preferred shares into a number of common shares equal to their aggregate stated value divided by 90% of the initial public offering price of our common shares in this offering, upon the listing of our common shares on the NYSE (or           common shares, based on the midpoint of the price range set forth on the cover page of this prospectus). This total also includes (a) 181,116 Series U1 OP units and (b)           Series U2 OP units that will be issued upon the completion of this offering in exchange for approximately $10.3 million of the DST interests held by investors, which such number of Series U2 OP units is equal to approximately $10.3 million divided by 120% of the initial public offering price of our common shares in this offering (based on the midpoint of the price range set forth on the cover page of this prospectus).
(8)
Based on 181,116 Series U1 OP units expected to be outstanding upon completion of this offering.
(9)
Based on a total of            Series U2 OP units that will be issued upon the completion of this offering in exchange for approximately $10.3 million of the DST interests held by investors, which such number of Series U2 OP units is equal to approximately $10.3 million units equal to $10.3 million divided by 120% of the initial public offering price of our common shares in this offering (based on the midpoint of the price range set forth on the cover page of this prospectus).
(10)
Calculated as t otal estimated initial annual distribution to common shareholders and OP unit holders divided by estimated cash available for distribution for the twelve months ending September 30, 2022. If the underwriters exercise their option to purchase additional shares in full, our total estimated initial annual distribution to common shareholders and OP unit holders would be $      million and our payout ratio would be     %. Because our estimated annual distribution to common shareholders and OP unit holders for the twelve months ending September 30, 2022 exceeds our estimated cash available for distribution, if our operating cash flow does not increase we may have to fund distributions from borrowings under the New Credit Facility or other loans, selling certain of our assets or using a portion of the net proceeds from this offering or reduce such distributions.
 
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2021:

on an actual basis; and

on a pro forma basis giving effect to the Pro Forma Transactions as defined in “Unaudited Pro Forma Financial Information.”
You should read this table together with the other information contained in this prospectus, including “Use of Proceeds,” “Selected Consolidated Financial Data,” “Unaudited Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes that appear elsewhere in this prospectus.
September 30, 2021
(In thousands, except share and per share data)
Actual
Pro Forma
Cash and cash equivalents
$ 32,795 $